Sathavahana Ispat Ltd Management Discussions

1. OVERVIEW:

The financial statements have been prepared in compliance with the requirements of the Companies Act, 2013, guidelines issued by the Securities and Exchange Board of India (SEBI) and other statutory requirements. Our Management accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgment relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner the form and substance of transactions and reasonably present our state of affairs, profits and cash flows for the year.

2. INDUSTRY STRUCTURE:

The Company is engaged in the manufacture and sale of Pig Iron; Ductile Iron Pipes and Metallurgical Coke - an input material for Pig Iron, thus operates in the iron and steel industry, which is considered as core sector.

The Company is also into Power generation. The Company is using Mini Blast Furnace Technology. The Company operates Blast Furnace with technology sourced from Sino-Steel for Pig Iron making. The Company uses the Anshan technology, sourced from P.R.China for Metallurgical Coke making. The technology for Ductile Iron Pipe making was Chinese Academy of Agriculture Mechanisation Sciences (CAAMS), China. Pig Iron is of two grades basic grade and foundry grade. Basic grade is used in the manufacture of Steel and whereas foundry grade is used for making castings. Basic grade is produced mainly by the Integrated Steel Plants (ISPs) for captive consumption in the manufacture of steel and exports. Part of the production is also diverted to the domestic market. Foundry grade is mainly used for castings and is produced by the Mini Blast Furnace units. The Company is into Pig Iron manufacture since inception. A major portion of Pig Iron manufactured is captive consumed in the manufacture of Ductile Iron Pipes.

3. ECONOMIC OVERVIEW

Global Economy

As the Ukraine conflict impacts the global GDP, India is projected to grow by 6.4 per cent in 2022, slower than the last years 8.8 per cent but still the fastest-growing major economy, with higher inflationary pressures and uneven recovery of the labour market curbing private consumption and investment, according to a UN report.

The UN Department of Economic and Social Affairs said in its World Economic Situation and Prospects (WESP) report released on Wednesday that the war in Ukraine has upended the fragile economic recovery from the pandemic, triggering a devastating humanitarian crisis in Europe, increasing food and commodity prices and globally exacerbating inflationary pressures.

The global economy is now projected to grow by only 3.1 per cent in 2022, down from the 4.0 per cent growth forecast released in January 2022. Global inflation is projected to increase to 6.7 per cent in 2022, twice the average of 2.9 per cent during 2021-22 with sharp rises in food and energy prices.

The report said that the outlook in South Asia has deteriorated in recent months, against the backdrop of the ongoing conflict in Ukraine, and higher commodity prices and potential negative spillover effects from monetary tightening in the United States.

The regional economic output is projected to expand by 5.5 per cent in 2022, which is 0.4 percentage points lower than the forecast released in January. India, the largest economy in the region, is expected to grow by 6.4 per cent in 2022, well below the 8.8 per cent growth in 2021, as higher inflationary pressures and uneven recovery of the labour market will curb private consumption and investment.

For the fiscal year 2023, Indias growth is forecast to be 6 per cent.

Indias projected growth for 2022 is 6.4 per cent, a downward adjustment of 0.3 per cent from January. We expect Indian recovery to remain strong in the near term, in the next year and two, but again we cannot completely discount the downside risk that would come from external channels. So that risk is still there, he said.

4. OPPORTUNITIES, THREATS, RISKS AND CONCERNS:

Pig Iron, a major product of the Company, is primarily used for manufacturing a variety of grey iron and ductile iron castings by foundries for a host of industries like automotive, agriculture, pump, valve, compressor, railways, defence, wind mills, heavy machinery etc. Besides this, the Company also manufactures basic grade PI in small quantities which is consumed by secondary steel makers. Both these industries - casting as well as steel, are expected to grow at good pace in the coming financial year, driven by Government of India initiatives.

Being in the intermediate stage in the industry there is an opportunity for both backward integration and forward integration. The Company has set up a Coke Oven facility with Co-generation of Power at a Greenfield site as a first phase of backward integration. The Company has also set up Sinter Plant as a backward integration and Ductile Iron Pipe plant as forward integration at its Pig Iron making plant.

Company sources Coking Coal, a key input material, by importing from outside India and thus suffers from import Constraints. However, the Company has identified reliable suppliers, which minimises the import constraints. The Company has set up a Metallurgical Coke making facility with latest technology at a Greenfield project site to minimize the impact of import of Metallurgical Coke.

As the customs duties on Pig Iron imports are lowered from time to time there is an import threat to that extent. However, given the importers profile of Pig Iron who are mainly foundries and are in an unorganised sector, the import threat is minimal. Moreover, with the surge in global demand for Iron and Steel and increase in raw material prices, the availability of Iron and Steel at competitive price is remote. Negligible imports during the last couple of years are an ample indication of zero risk of the threat.

Threats to continuing growth arises from the fact that the Indian economy cannot remain isolated from the global changes, especially actions by countries like US and China. Growing protectionist measures and geopolitical tensions can adversely impact the world economy including India Moreover, the forward integration into Ductile Iron Pipe making would further minimise such threat.

Global slowdown in the steel industry may lead to lower exports of Pig Iron and therefore result in surplus availability in the domestic market. Further, with expansion of large integrated steel plants, there could be a mismatch between iron making and steel making capacities especially during the commissioning and ramp-up period resulting in surplus of PI. Activation of these factors may put pressure on the Pig Iron prices and impact margins. Similarly, global coal/ coke prices have shown increased volatility in the last three years and are still vulnerable to changes driven by the Chinese steel industry or supply conditions in Australia.

The Companys business is mainly commodity business. The financial health of the unit will be affected by adverse changes in the industry and commodity markets. Company implemented facilities involving both forward integration and backward integration and thus the risk would be minimized

5. SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE:

The gross revenue of Rs. 2819.41 Lacs as compared to previous years revenue of Rs. 2676.09 Lacs. The year ended with loss of Rs. 12267.10 Lacs as against loss of Rs. 32600.36 Lacs in the previous year. Accordingly, the loss per share accounted for at Rs. 24.10 as compared to loss per share of Rs. 64.05 in the previous year.

6. OUTLOOK:

For the Financial Year 2022-23 the Demand of DI Pipes is likely to be muted owing to seasonal factors. During the Covid-19 situation, safe and hygienic water supply is most important for the Government. Ductile Iron pipe is the safest and most suitable pipe for transportation of water not only in urban cities but also in rural India. The company is hopeful that Central and State Governments will continue to give priority and remain committed in respect of on-going and future water supply, sewerage and irrigation projects in the country.

7. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has adequate Internal Control Systems commensurate with the size and nature of its business. Internal Control Systems are supplemented by internal audits carried out regularly by outside independent qualified auditors. The Audit Committee interacts with the statutory and internal auditors. The Management also regularly reviews the operational efficiencies, utilisation of fiscal resources and compliance with laws so as to ensure optimum utilisation of resources, achieve better efficiencies and comply with the laws of land.

8. DISCUSSION ON FINANCIAL PERFOMANCE WITH RESPECT TO OPERATONAL PERFOMANCE:

The Financial Statements for the year under review have been prepared on a going concern basis and in compliance with provisions of the Companies Act 2013 and by following the generally accepted accounting principles in India and the applicable mandatory Ind AS Accounting Standards notified by the Government under section 133 of the Companies which the Company adopted being first time adoption with transition dated 01st April 2016. The operational performance vis-a-vis financial performance is as under:

The gross revenue of Rs. 2819.41 Lacs as compared to previous years revenue of Rs. 2676.09 Lacs. The year ended with loss of Rs. 12267.10 Lacs as against loss of Rs. 32600.36 Lacs in the previous year. Accordingly, the loss per share accounted for at Rs. 24.10 as compared to loss per share of Rs. 64.05 in the previous year.

9. Human Resources and Industrial Relations:

Employees are the valuable assets and the strength of an organisation in its growth, prosperity and development. Your Company has a team of qualified and dedicated personnel who have contributed to the growth and progress of the Company.

The employees are imparted training on site and are encouraged to participate in the decision-making process.

The management acknowledges the contributions made by each employee at all levels and records its appreciation for the co-operation extended, but for which the present growth would not have been possible.

10. CAUTIONARY STATEMENT:

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be “forward-looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand/supply and price conditions in the domestic and international markets in which the Company operates, changes in the Government regulations, tax laws and other statues and other incidental factors.