s a l steel ltd share price Management discussions

The objective of this report is to convey the Managements perspective on the external environment and steel industry, as well as strategy, operating and financial performance, material developments in human resources and industrial relations, risks and opportunities, and internal control systems and their adequacy in the Company during the Financial Year 2021-22. This should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in the Integrated Report. The Companys financial statements have been prepared in accordance with Indian Accounting Standards (‘Ind AS) complying with the requirements of the Companies Act, 2013, as amended and regulations issued by the Securities and Exchange Board of India (‘SEBI) from time to time.

Source: World Economic Outlook as per International Monetary Fund & Indian Economy Forecast as per Indian Brand Equity Foundation.

INSIGHTS ON GLOBAL ECONOMY

The global economy in 2022 and 2023 displayed several noteworthy trends and key figures. Several shocks have hit a world economy already weakened by the pandemic: higher-than-expected inflation worldwide––especially in the United States and major European economies––triggering tighter financial conditions; a worse-than-anticipated slowdown in China, reflecting COVID- 19 outbreaks and lockdowns; and further negative spillovers from the war in Ukraine.

Economic Growth: In 2022, the global economy rebounded from the pandemic, with a growth rate estimated at around 4.9%, according to the International Monetary Fund (IMF). While this marked a significant improvement from the recession of 2020, growth rates varied widely among countries, with advanced economies recovering faster than emerging markets. In 2023, global growth was expected to moderate to around 4.4%, reflecting both the continued recovery and concerns about rising interest rates and inflation.

Inflation: Inflation became a major concern during this period. Many countries experienced higher inflation rates due to a combination of supply chain disruptions, rising commodity prices, and increased demand. In the United States, for example, inflation reached levels not seen in over a decade, with the Consumer Price Index (CPI) exceeding 6% at times in 2022. Central banks responded by adjusting monetary policy to combat inflation, which had implications for borrowing costs and financial markets.

Labor Market: Labor markets underwent significant changes. The pandemic accelerated trends in remote work and automation, altering the nature of work in various industries. Some countries faced labor shortages in sectors like healthcare, hospitality, and manufacturing, leading to wage increases and labor disputes. The global gig economy continued to expand, raising questions about worker protections and employment stability.

Green Economy: Sustainability and environmental concerns gained prominence. Investment in renewable energy, electric vehicles, and green technologies surged, with governments and businesses committing to carbon neutrality goals. The renewable energy sector saw substantial growth, and sustainability considerations began to influence investment decisions and consumer behavior.

Trade and Geopolitical Tensions: Geopolitical tensions, particularly between the United States and China, continued to shape global trade dynamics. Supply chain disruptions and trade disputes affected the flow of goods and added complexity to global supply networks. The World Trade Organization (WTO) aimed to address these challenges through trade negotiations.

Technology and Innovation: Technological advancements remained a driving force behind economic growth. Artificial intelligence, blockchain, and biotechnology continued to revolutionize industries. The technology sector attracted substantial investment, and digitalization efforts accelerated across sectors, from healthcare to finance.

Debt Levels: Public and private debt levels reached record highs in many countries due to pandemic-related stimulus measures and economic support. Managing this debt and its long-term implications for fiscal sustainability became a key concern for policymakers.

In summary, 2022 was characterized by a mixed economic picture, with recovery from the pandemic coexisting with inflationary pressures, supply chain disruptions, and ongoing geopolitical tensions. Sustainability and technological innovation emerged as critical drivers of economic growth and transformation, while the global economy faced the challenge of navigating uncertainty and adaptability in an increasingly interconnected world.

In 2023, disinflationary monetary policy is expected to bite, with global output growing by just 2.9 percent. (Source – Indian Monetary Fund Global Outlook)

As of April 2022, India was the worlds second-largest producer of crude steel, with an output of 10.14 MT. In FY22, the production of crude steel and finished steel stood at 133.596 MT and 120.01 MT, respectively.

INDIAN ECONOMIC OVERVIEW

This year began with the anticipation that runaway inflation, aggressive policy rate hikes, and high commodity prices might topple a few major economies into recession in 2023. We are halfway past 2023 and, while the world is still in the woods, the probability of a recession this year has trimmed. Labor markets in several advanced countries remain tight, while the largest economy, the United

States, is seeing a rebound in consumer confidence and spending. Risk spreads are declining on both sides of the Atlantic after the recent banking crisis in the United States.

India, meanwhile, enjoys a Goldilocks moment as it sees its economic activity gaining momentum amid continuing global uncertainties. The last quarters GDP data was pleasantly surprising but not completely unexpected. The GDP growth in the fourth quarter has pushed up the full-year GDP growth of FY2022–23 to 7.2%, 200 basis points (bps) higher than the earlier estimate. The recently released Annual Economic Review for the month of May 2023 highlighted that the postpandemic quarterly trajectories of consumption and investment have crossed pre-pandemic levels.1

Evidently, economists and analysts are bullish about the Indian economy. Our growth forecasts for FY2023–24 remain similar to our April forecast, although higher-than-expected growth in FY2022–23 has raised our base for comparison. That said, we have raised our lower limit of the range given the buoyancy of the economy. We expect India to grow between 6% and 6.3% in FY2023–24 and have a stronger outlook thereafter. In fact, if global uncertainties recede, we expect growth to surpass 7% over the next two years.

The first-quarter data points to further building on the positive momentum in the economic data. We continue to remain optimistic about the economy this year and expect India to grow between 6.0% and 6.3% during FY2023–24 in our baseline scenario, followed by 6.6% and 7.2% over the next two years as the global economy turns buoyant (figure 6). However, if downside risks weigh on the economic fundamentals and outlook, we may see a substantial economic slowdown (Source – Deloitte Insights)

Market Size

In FY23, the production of crude steel and finished steel stood at 125.32 MT and 121.29 MT respectively.

In FY22, the production of crude steel and finished steel stood at 133.596 MT and 120.01 MT, respectively. The consumption of finished steel stood at 105.751 MT in FY22. In FY23, the consumption of finished steel stood at 119.17 MT. In April-July 2022, the production of crude steel and finished steel stood at 40.95 MT and 38.55 MT respectively.

In FY23, exports and imports of finished steel stood at 6.7 MT and 6.02 MT, respectively. In FY22, India exported 11.14 MT of finished steel. In April 2023 exports of steel stood at 8.55 lakh metric tonnes (LMT), while imports stood at 4.60 LMT.

The annual production of steel is anticipated to exceed 300 million tonnes by 2030-31. By 2030-31, crude steel production is projected to reach 255 million tonnes at 85% capacity utilisation achieving 230 million tonnes of finished steel production, assuming a 10% yield loss or a 90% conversion ratio for the conversion of raw steel to finished steel. With net exports of 24 million tonnes, consumption is expected to reach 206 million tonnes by the years 2030–1931. As a result, it is anticipated that per-person steel consumption will grow to 160 kg.

(Source: https://www.ibef.org/industry/steel)

Government Initiatives

Some of the other recent Government initiatives in this sector are as follows:

• Under the Union Budget 2023-24, the government allocated 70.15 crore (US$ 8.6 million) to the Ministry of Steel.
• In addition, an investment of 75,000 crore (US$ 9.15 billion) (including 15,000 crore (US$ 1.83 billion) from private sources) has been allocated for 100 critical transport infrastructure projects for last and first mile connectivity for various sectors such as ports, coal, and steel.
• In January 2021, the Ministry of Steel, Government of India, signed a Memorandum of Cooperation (MoC) with the Ministry of Economy, Trade and Industry, Government of Japan, to boost the steel sector through joint activities under the framework of India–Japan Steel Dialogue.
• The Union Cabinet, Government of India approved the National Steel Policy (NSP) 2017, as it intends to create a globally competitive steel industry in India. NSP 2017 envisage 300 million tonnes (MT) steel-making capacity and 160 kgs per capita steel consumption by 2030-31.
• The Ministry of Steel is facilitating the setting up of an industry driven Steel Research and Technology Mission of India (SRTMI) in association with the public and private sector steel companies to spearhead research and development activities in the iron and steel industry at an initial corpus of 200 crore (US$ 30 million).
• The Government of India raised import duty on most steel items twice, each time by 2.5% and imposed measures including anti- dumping and safeguard duties on iron and steel items.

Road ahead

The National Steel Policy, 2017 envisage 300 million tonnes of production capacity by 2030-31. The per capita consumption of steel has increased from 57.6 kgs to 74.1 kgs during the last five years. The government has a fixed objective of increasing rural consumption of steel from the current 19.6 kg/per capita to 38 kg/per capita by 2030-31. As per Indian Steel Association (ISA), steel demand will grow by 7.2% in 2019-20 and 2020-21.

Huge scope for growth is offered by Indias comparatively low per capita steel consumption and the expected rise in consumption due to increased infrastructure construction and the thriving automobile and railways sectors.

Opportunities

There is a significant growth being witnessed in Construction sector as the government is spending on Infrastructure projects and the sector is considered to maintain the same level of momentum and demand with a gradual rise in Investment resulting in creating market for the Steel Industries in the Country.

Further the Capital goods market has also improved with rising manufacturing capacity utilization and infrastructure investment which has boosted demand for Construction and earthmoving equipment.

Also Consumer durable growth is driven by segments like Air-conditioner, Refrigerators and furniture supported by lowering of GST and hike in Import Duty and indirectly giving a good demand to steel industries

As per the National steel policy crafted during FY 2018-19, the crude steel production target for India is set at 300 MT by 2030. Share of sponge iron in steel making will be 80MT, which will create huge opportunity for sponge iron industry.

Threats

Presently there are no visible threats in the short and medium term in the sponge iron industry. However availability of key raw materials and environmental concerns might pose significant challenge in the future.

Outlook

The domestic consumption is considered to move at a same momentum as is evident in the demand pull visible in infrastructure, automobile and other sectors. Government is also driving the economy by investing in housing, roads, and ports and in other infrastructure projects.

Favourable domestic demand and remunerative prices in both domestic and international markets are likely to bolster steel production further in the years to come, resulting into more demand for sponge iron.

RISK AND CONCERNS

The process of Risk Management in the company identifies inherent risks in its operations and records residual risk after taking specific risk mitigation steps. The company has identified and categorized risks in the areas of Operations, Finance, Marketing, Regulatory Compliances and Corporate matter.

The volatility in price of sponge iron, excess supply of sponge iron in the market will have an effect of squeezing margins and poses risk to the profitability. New customers, new market and cost reduction have been identified as the mitigation measures.

Also, the enforcement of recent Tariff policy guidelines on power by Government of India that requires the State Electricity Regulatory Commission to ascertain sale price of power based on cost of generation will have an impact on the revenue from export of power.

Fluctuation of import coal price, increase in USD-INR exchange rate, may lead to increase in cost of production. This is mitigated by continuous evaluation of international coal price vis-?-vis Indian coal price and accordingly the action plan for procurement has been formulated.

INTERNAL CONTROL SYSTEM AND ITS ADEQUACY

The Companys internal control systems are adequate considering size and nature of operations of the Company, meets with the regulatory and statutory requirements, assuring recording of all transactions and also ensuring reporting the financial information in a timely and reliable manner. The Company has defined risk management framework and it is implemented as an integral part of business processes. The Company has installed Enterprise Resource Planning System for accounting purposes. To counter the adverse fluctuation in the sponge iron prices, the Company vigorously keeps watch on its price trends and accordingly plans the purchases to ensure efficient operations and better profitability. The Company applies effective mitigation techniques to manage potential risks. Risk management system includes recording, monitoring and controlling internal enterprise business risks and addressing them through informed and objective strategies. Further, the Board of Directors of the Company has adopted a Risk Management Policy and it has identified various risks and also has mitigation plans for each risk identified. Its comprehensive risk management system ensures that all risks are timely identified, assessed and mitigated in accordance with the Risk Management Policy. The Audit Committee of the Board of Directors of the Company periodically reviews the internal control system and also internal audit reports issued by the Internal Auditors of the Company.

The Company has formulated a robust whistleblower policy for receiving and redressing complaints of employees. No employee has been denied access to the Audit Committee or its Chairman during the year under review.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The Company is working on enhancing its competencies to take care of current and future business. Its employee strength as on 31st March, 2021 was 420. Human Resource and Industrial Relations departments have developed systems and policies on recruitment, performance management, learning and development, and employee engagement. Further, the Company has adopted various safety measures to ensure safe working environment for the employees of the Company. During the Financial Year, the industrial relations between the employees and management were calm and composed.

Further, the Company has complied with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The Company has formed Internal Complaints Committee and also formulated a policy. No complaint was reported during the Financial Year 2022-23.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Production of sponge iron during the year was 112563 MT as compared to 107270 MT in the previous year. Production of Ferro Chrome was 8932 MT as compared to 10553 MT in the previous year.

Accordingly, sales for sponge iron during the year was 113365 MT as compared to 107744 MT in the previous year. Sales of Ferro Chrome during the year were 8916 MT as compared to 10856 MT in the previous year.

Company has a power generation plant of 40 MW. During the year 36600 MWH of power was sold by way of Captive Consumption as against 84950 MWH in the previous year.

During the year under review Total Revenue from operation has decreased from ? 534.53 Crores to ? 510.23 Crores as compared to previous years turnover. Company has registered a net profit of ? 5.52 Crores in comparison to net profit of ? 16.24 Crores during previous year.

Particulars	Numerator	Denominator	31st March 2023	31st March 2022	Variation	Reasons
Current Ratio	Current Assets	Current Liabilities	1.50	0.58	157%	Due to Substential decrease in the Current Liabilities
Debt Equity Ratio	Borrowings	Share Holders Equity	3.01	3.28	-8%	Not Applicable
Debt Service Coverage Ratio	Earnings available for debt Service	Debt Service	-	0.17	-100%	Due to Substential decrease in the debt during the year
Return on Equity (ROE):	Net Profit after Taxes	Average Shareholders Equity	8.94%	36.07%	-75%	Due to Substential decrease in the Net Profit
Inventory Turnover Ratio	Cost of Material Consumed + Channges in WIP/ FG	Average Invnetory	6.94	9.29	-25%	Not Applicable
Trade receivable Turnover Ratio	Revenue from Operations	Average Trade Receivables	7.71	6.85	12%	Not Applicable
Trade Payable Turnover Ratio	Purchases	Average Trade Payables	10.26	7.43	38%	Due to is decrease in the purchase and decrease in average trade payables
Net Capital Turnover Ratio	Revenue from Operations	Working Capital	11.16	(5.25)	-312%	Due to decrease in the revenue and Increase in Net working capital
Net Profit Ratio	Net Profit	Revenue from Operations	0.72%	2.28%	-69%	Due to substential decrease in the Net Profit
Return on Capital Employed	Earning Before Interest and Tax	Capital Employed	8.01%	10.14%	-21%	Not Applicable

CAUTIONARY NOTE

Readers are cautioned that this discussion and analysis contains forward-looking statements that involve risks and uncertainties. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Actual results, performances or achievements could differ materially from those expressed or implied in such forward-looking statements. The details and information used in this report have been taken from publicly available sources. Any discrepancies in the details or information are incidental and unintentional. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of date. The above discussion and analysis should be read in conjunction with the Companys financial statements included herein and the notes thereto.