MANAGEMENT DISCUSSION AND ANALYSIS REPORT
Economic overview
Indian economy
The Indian economy has displayed remarkable resilience in the face of several
significant challenges, including the unprecedented impact of the COVID-19 pandemic,
geopolitical tensions, and global policy rate hikes aimed at curbing inflation. Despite
these headwinds, India is poised to achieve an impressive real GDP growth rate of 7% for
FY23, building upon the exceptional growth of 8.7% witnessed in the previous year.
This resurgence can be primarily attributed to two key pillars of strength: private
consumption and capital formation, both of which have not only propelled economic
expansion but also contributed to substantial job creation.
Private consumption has emerged as a formidable driving force, representing a
staggering 58.4% of GDP in the second quarter of FY23. This surge was fueled by a
resounding rebound in contactintensive services, including trade, hotels, and
transportation. As these sectors regained their momentum, consumer sentiments soared,
further bolstered by the worlds second- largest vaccination drive, which has administered
over 2 billion doses. The combined effect of increased consumer spending and improved
confidence has acted as a powerful catalyst, sustaining the momentum of the consumption
rebound.
In parallel, CAPEX by the central government played a pivotal role in revitalising the
Indian economy. The central governments CAPEX surged by an impressive 63.4% during the
first eight months of FY23, thereby stimulating private investment and creating a virtuous
cycle of economic growth. This significant public sector investment, coupled with the
strengthening of corporate balance sheets and enhanced credit financing, holds the promise
of catalysing sustained private CAPEX growth. As these positive dynamics unfold, the
Indian economy is well-positioned to regain its pre-pandemic growth trajectory, outpacing
many other nations and reaffirming its status as a resilient and vibrant economic
powerhouse.
As we reflect upon the challenges faced and the milestones achieved, it is evident that
India has not only weathered the storm but emerged stronger. The proactive measures
implemented by the government and the Reserve Bank of India (RBI), combined with the
favourable impact of global commodity price stabilisation, have successfully steered the
Indian economy towards recovery. Retail inflation was brought below the RBIs upper
tolerance target, underscoring the efficacy of the adopted policies. With the sustained
momentum in private CAPEX, improved corporate balance sheets, and expanded credit
financing, the Indian economy is poised to ascend to new heights, forging a path of
resilience, prosperity, and long-term sustainable growth.
Industry overview
Indian steel industry
Despite facing temporary setbacks caused by the pandemic and global trade disruptions,
followed by imposition of export duty by Government of India in mid-2022, the sector has
swiftly regained its stride and is now back on track. Today, India proudly claims the
second spot in global steel production, churning out a staggering 120 million tonnes,
second only to China. The domestic appetite for steel is set to soar, with a projected
growth rate of 10-12% in FY23. This remarkable surge is fueled by significant investments
in infrastructure projects and government support, shaping a future brimming with promise
for the Indian steel industry.
Following a temporary slowdown, the Indian steel sector has roared back to life, fueled
by soaring global demand. In 2021-22, the industry witnessed a remarkable resurgence,
propelling its growth rate to a projected 6.7% in 2023. The prospects for the Indian steel
industry are exceptionally bright, bolstered by strategic shifts in export taxes and
import duties. Moreover, the nations insatiable thirst for affordable housing, robust
infrastructure, and ambitious construction ventures has ignited an unprecedented demand
for steel. The governments commitment to self-sufficiency has paved the way for
sustainable urban development, cutting-edge logistics parks, and sprawling industrial
corridors, creating an environment ripe with opportunities for both finished steel
products and raw materials. These transformative endeavours have triggered a rise in
demand, setting the stage for an era of unbridled growth in the Indian steel industry.
While various factors, including the surge in raw material prices like iron ore and
coking coal, and the upswing in infrastructural and engineering projects, have influenced
daily steel prices, experts predict that the industry will witness a remarkable ascent. As
the Indian steel industry shines as a global leader, it showcases the nations prowess and
unyielding determination.
With soaring production figures, exponential domestic consumption, and government
support, the industry is poised to reach unprecedented heights, charting a course towards
a future where steel reigns supreme in Indias journey of progress and prosperity.
Growth drivers
1. Production Linked Incentive Scheme: An instrumental step towards bolstering
specialty steel production, the Ministry of Steel has forged partnerships with 27
prominent companies, signing 57 Molls under the Production Linked Incentive (PLI) scheme.
This strategic collaboration between industry players and the government is set to unlock
focused production of value-added steel. With an impressive investment of Rs. 6,322 crore
approved for the steel sectors growth, this scheme not only stimulates job creation but
also positions India to emerge as the worlds third-largest economy by 2030-31. Over the
next five years, the industry aims to achieve an additional capacity of 25 million tonnes
(MT) of specialty steel, fueling its expansion and global prominence.
2. Abundant Resources:
India benefits from the availability of abundant iron ore, which remains one of the
most widely accessible resources domestically. This availability helps to mitigate steel
production costs. Additionally, the country enjoys a favourable labour market, providing
cost-effective and readily available labour for the capital and labour intensive steel
manufacturing process.
3. Government Support:
The government has implemented various initiatives to boost steel production in India,
with a target of reaching 300 million tonnes by 2030. Measures addressing technology,
logistics, and infrastructure bottlenecks reflect the governments commitment to fostering
a conducive environment for the steel industrys growth and expansion.
Outlook
The Indian steel industry is poised for a promising outlook, supported by a
comprehensive capital expenditure plan worth Rs.10 lakh crore. This ambitious initiative
aims to foster self-reliance by focusing on domestically produced steel, propelling
Indias position as a leading manufacturing hub. As a result, the sectors contribution to
Indias GDP is expected to rise from its current 2% to an impressive 5%. The demand for
steel as a raw material continues to surge, driven by its numerous benefits and
wide-ranging applications across industries. While concerns regarding price hikes and
environmental considerations persist, the manifold advantages offered by this versatile
metal underscore its indispensable role in various sectors. With robust growth prospects,
the Indian steel industry is poised to capitalise on emerging opportunities and cement its
position as a key player in the global steel market.
Company overview
Sarthak Metals Limited, a prominent member of the esteemed Desraj Bansal Group, holds a
distinguished position as Indias premier manufacturer and exporter of Cored Wires and
Aluminium Flipping Coils. With a strong focus on precision metallurgy and fine-tuning
steel manufacturing, the Company delivers cutting-edge products and tailored solutions to
meet the industrys demanding standards. Headquartered in Bhilai, Chhattisgarh, Sarthak
Metals strategically locates itself in dose proximity to a pivotal steel hub in India,
enabling seamless collaboration and fostering valuable partnerships.
At the heart of Sarthaks operations lies a commitment to excellence, exemplified by
its world-class manufacturing facilities. These state-of-the-art facilities, boasting
prestigious ISO 9001-2000 certification, harness the latest technological advancements to
ensure rigorous testing and inspection processes, resulting in the consistent production
of superior- quality products. Renowned for its dedication to manufacturing expertise,
Sarthak has become the preferred supplier to some of Indias largest steel players,
earning their trust through adherence to quality.
Recognizing the importance of diversification, Sarthak has diligently expanded its
product portfolio, fortifying its core capabilities. In addition to its renowned Cored
Wires and Aluminium Flipping Coils, the Company offers Cored Wire Feeder Machines and has
recently embarked on an exciting new journey into the world of Flux Cored Wire. This
diversification not only diversifies revenue streams but also enables Sarthak to extend
its market presence beyond the confines of the metallurgical industry. By pursuing these
prudent diversification plans, Sarthak positions itself to capitalise on emerging market
trends and establish a strong foothold in multiple industries, driving sustained growth
and market leadership.
Outlook
The Company remains optimistic about its future prospects with a decent visibility to
regain its growth trajectory. Anticipating stabilisation in realisation and a gradual
increase in demand from the industry, the Company is actively working towards higher
volumes in Cored Wires & Aluminium Flipping Coils product segments, while also
preparing to capitalise on the significant CAPEX plans of the steel industry. This surge
in production is expected to drive higher demand for the key offerings, reinforcing a
promising outlook for the Companys metallurgical solutions.
Furthermore, Sarthak is embarking on a deliberate diversification strategy by venturing
into the Flux Cored Wires category, which finds application in welding for commercial
fabrication units. Leveraging its technical expertise and product prowess, the Company
aims to establish a strong foothold in this, envisioning it as a significant revenue
stream in the years to come. By reducing reliance on a single industry, the Company is
proactively mitigating market volatility and reinforcing its position as a diversified
solution provider in the industries it serves.
Overall, Sarthak Metals is committed to enhancing shareholder value, delivering
sustainable long-term growth, and building a brighter future through innovation, strategic
expansion, and a steadfast focus on customer-centric solutions.
Key Financial Ratios
| Particulars |
FY22 |
FY23 |
% variance |
Explanation for change in ratio for more than 25% |
| Current Ratio |
2.95 |
23.73 |
704.93% |
Increased because of Reduction in Current Liabilities & Short Term Borrowings. |
| Debt - Equity Ratio |
0.29 |
0.00 |
-100.00% |
Reduced because of Reudction in Borrowings. |
| Debt Service Coverage Ratio |
9.96 |
31.02 |
211.50% |
Increased because of Reudction in Borrowings. |
| Return on Equity (ROE): |
41.94% |
32.54% |
-22.42% |
Reduced because of Increase in Average Equities. |
| Inventory Turnover (no. of days) |
23.11 |
19.07 |
-17.47% |
Reduced because of Reudction in Inventory Holding Period. |
| Trade Receivables Turnover Ratio (no. of days) |
37.92 |
49.11 |
29.49% |
Increased because of Increase in Receivables Period. |
| Trade Payables Turnover Ratio (no. of days) |
5.08 |
5.87 |
15.43% |
Increased because of Increase in Payables Period. |
| Net Profit Ratio |
6.01% |
7.29% |
21.26% |
Increased because of Increase in Profitability. |
| Net Capital Turnover Ratio (no. of days) |
44.05 |
69.21 |
57.13% |
Increased because of Increase in Working Capital. |
| Return on Capital Employed (ROCE) |
39.70% |
39.55% |
-0.36% |
Reduced because of Increase in Capital Employed. |
| Return on Investment (ROI) |
NA |
NA |
0.00% |
|
Risks and concerns
By recognizing and actively addressing these risks and concerns, Sarthak Metals is
committed to mitigating potential challenges, ensuring the safety and reliability of its
operations. The Companys proactive risk management strategies and adherence to industrys
best practices bolster its resilience and strengthen its long-term prospects.
Effectiveness of Internal Control Systems
The Company maintains robust and comprehensive internal control systems to safeguard
its assets, prevent unauthorised use or disposal, and ensure the proper authorization,
recording, and reporting of transactions. These internal controls are designed to optimise
resource utilisation, enhance operational efficiency, monitor operations, and ensure
compliance with relevant laws and regulations. Additionally, the auditors have affirmed
the adequacy and effectiveness of the Companys internal control systems, providing
further assurance of their reliability and integrity. These measures contribute to the
Companys overall governance framework and instil confidence in the accuracy and
transparency of its financial and operational activities.
Human Resource Development and Industrial Relations
At Sarthak, we deeply value our employees as a fundamental asset and a key driver of
our companys growth. Recognizing their immense importance, we actively invest in honing
their skills and knowledge through comprehensive training and development programs.
Our goal is not only to attract the best talent in the market but also to retain them
by establishing ourselves as an employer of choice. We foster a supportive and
collaborative work environment that encourages open communication and mutual respect.
Moving forward, we are committed to maintaining these positive relationships with our
employees.
As of March 31,2023, our dedicated workforce exceeded 138 individuals, and we continue
to strengthen our human capital. We firmly believe that investing in our employees and
fostering strong industrial relations will contribute to our continued success and growth.
Cautionary Statement
Statements in the Management Discussion and Analysis and other parts of the report
describing the Companys objectives, projections, estimates and expectations may be
forward-looking statements. Actual results may differ materially from those expressed or
implied due to various risks and uncertainties. Important factors that could make a
difference to the Companys operations include economic and political conditions in India
and other countries, in which the Company may operate. Other factors that may impact the
Companys operations include volatility in interest rates, changes in government
regulations and policies, tax laws, statutes, and other incidental factors.
The Company does not intend to update these statements.
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