Sathavahana Ispat Ltd Management Discussions.


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 sourced from 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 captively consumed in the manufacture of Ductile Iron Pipes.

Pig Iron is the basic raw material for most of the engineering products and construction industry. Pig Iron is also a raw material for foundry and engineering industry. With the significant growth in the main user industries like automobiles, construction, foundries, the demand for iron and steel has increased significantly. The total production of Pig Iron in India has increased from one and a half Million tons in 1991-92 to the present level of over 9.9 million tons in 2017-18. The production for sale of Pig Iron as per statistics (provisional) released by the Joint Plant Committee (JPC) attached to the Ministry of Steel for the financial year 2017-18 is at 9.408 million tons as against 9.388 million tons in the previous year, registering a growth of 0.2%. Continued adverse economic conditions, Supply side issues and volatile prices of steel raw materials, intensive competition from Integrated Steel Players have had a significant bearing on the performance of the Pig Iron industry in India.

Metallurgical Coke is the key input material for Iron making. The Company has integrated itself backward for this key input material. The surplus Metallurgical Coke production from this facility is being sold in the nearby market. The Company is also operating a Co-generation Power plant where the surplus Power after meeting the captive needs is being sold to third parties. The Company is operating this facility for over decade now. A major portion of the Metallurgical Coke manufactured is captively consumed in the manufacture of Pig Iron. The Company is also into manufacture of Ductile Iron Pipes which are mainly used for water transportation and sewerage works that are sponsored by the governments, municipalities etc. Given the longevity and durability and the thrust given by the governments for providing safe drinking water and for providing better sewerage facilities to both urban and rural areas and also application in the irrigation works the usage of Ductile Iron Pipes is registering year on year growth.


The global Iron and Steel industry has recorded growth of 3.9% in 2017 although the growth rates were different in different regions – some recording greater than 5.0-6.0%. The growth momentum in the industry that started early 2017 sustained throughout the year on the back of moderate global economic growth. Strengthening momentum and favourable investment cycle in developed economies has given some surprising growth moments in the year. However the emerging economies other than P.R. China were non-resilient to the growth momentum. Structural imbalances, protectionism and excess capacities continues to be the major hurdles in the demand growth of Iron and Steel industry. Despite these adverse factors the global Steel production has recorded 1.691 billion tons in the year 2017 as against 1.62 billion tons in the previous year. Of this, the production in Asia was at 68.8% as against 69.1% in the year before. P.R.China accounted for 71.5% of production in Asia and 49.2% of global production. The other major Asian countries Viz., Japan, India, S.Korea account for 23.8% and 16.4% of Asian and global production respectively. India with its production of steel at 104.9 mmt in 2017 now ranked the third largest producer of Steel accounting for 8.7% and 6.0% Asian and global production respectively. The global Pig Iron production was at 1.18 billion tons in 2017 as against 1.164 billion tons in the last year. The sentiment in the Iron and Steel industry was mixed with uneven demand and volatile steel raw material prices.


The year 2017-18 the Indian Steel industry reported highest production of 104.9 million tons registering a growth of 3.1%. Indian Steel industry continues to be third largest producer of Steel in the world accounting for 8.7% and 6.0% of Asian and Global steel production respectively. During the year the trade gap was at 2.14 mmt and the country was net exporter of Steel widening the gap between imports at 7.48 million tons and exports at 9.62 million tons. The year saw an apparent Steel consumption at 90.68 million tons as against 84.04 million tons during the last year. The Indian Pig Iron sector continues to report a negative growth trend where the gross production has come down from 10.34 million tons to 9.92 million tons during the current year registering negative growth of 4%. The prices of finished iron and steel have seen some volatility during the year which impacted the margins for quite long time. High debt and high interest costs continue to haunt the performance of the Indian Iron and Steel industry and some of them have faced debt crisis.


The price trends during the year was headed north for most part of the year as the trend that started late FY 2017 continued to increase during the year with a brief correction interregnum partly due to demand supply conditions and partly due to global influence. The prime hard Coking Coal prices that were ruling at US$300/mt went up further saw a peak of about US$350/ mt F.O.B. Australia only to be corrected soon thereafter to US$220/mt towards year end. The Iron Ore Fines prices that were at about Rs.4800/mt have moved both ways and were ruling at same level towards year end. The finished Steel prices went up to peak of about Rs.56000/mt registering an average increase by about 41%. The Metallurgical Coke prices too witnessed an average increase of 24% which were ruling at about Rs.26000/mt towards year end. The Pig Iron prices too increased by about 26% during the year the ex-works prices were ruling at about Rs.29000/mt towards year end. The prices of Ductile Iron Pipes have also gone up by about 20% during the year. Overall the price trends were headed northward leaving some margins to the players in the industry.

2. OPPORTUNITIES, THREATS, RISKS AND CONCERNS: i) As the Companys Pig Iron enjoys brand value and being one of the low-cost producers of Pig Iron, there is an opportunity of increasing the market share. The Company has augmented additional capacity at its existing operations to improve its market share. ii) Opportunity of modernising the plant, which not only facilitates further efficiency and reduction in process costs but also increases volumes. The Company is carrying out on a continuous basis modernisation of its existing operations to improve its efficiency parameters and bring down operating costs over a period. iii) 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. iv) 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. v) Ban on Iron Ore mining in the vicinity of the plant is a threat in sourcing the key raw material viz., Iron ore. The Company is able to source the Iron Ore through e-auction process held from time to time by the Government nominated Committee. It is expected that this arrangement will continue until the ban on mining of Iron Ore is completely lifted. Major mines are allowed to operate now. vi) Future competition from the prospective domestic producers of Pig Iron. The Company is conscious of the threat and constantly upgrading its technology so as to derive competitive advantage. Moreover, the Company has set up a Ductile Iron Pipe making facility so as to utilise captively a major portion of liquid hot metal. vii) 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. Moreover, the forward integration into Ductile Iron Pipe making would further minimise such threat. viii) The levy of export duty on Pig Iron is a deterrent for exporting the Pig Iron. Given the global scenario of high prices and growing demand, such levy will have less bearing in the short term but is a major deterrent in the long term. Exporting Pig Iron -a value added product over Iron Ore makes a sense and hence such levy on Pig Iron in all probability will not be re-imposed. Moreover, the Company has now implemented the forward integration into Ductile Iron Pipes whereby the captive consumption of Pig Iron would increase and dependence on the markets would come down. ix) 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 minimised.


The Companys business comprises manufacture and sale of Pig Iron and Ductile Iron Pipes as one segment called Ferrous Products and manufacture of Metallurgical Coke with Co-generation Power as the other segment. The operations of the Company during the year under review were adversely impacted due to working capital constraints and consequent stress in the financial resources. Actual production of Pig Iron and Pig Iron Scrap during the year was 14970 MTs as against 174608 MTs in the previous year. The actual sales in volume terms were 20131 MTs as against 172305 MTs in the previous year (including 7511 MTs, previous year 123271 MTs captive consumption in the manufacture of Ductile Iron Pipes). The Companys market share in Pig Iron constitutes a negligible share of the domestic consumption. The production of Ductile Iron pipe and Pipe scrap was at 12841 MTs as compared to 131759 MTs in the year before. Metallurgical Coke including Coke Fines was at 194349 MTs (including job work of 143454 MTs) as against 195872 MTs in the previous year. Out of the total production, 11061 MTs was captively consumed as against 142468 MTs in the previous year. The Company sold 32309 MTs of Metallurgical Coke and Coke Fines as against 58303 MTs in the last year in the nearby markets. The Co-generation Power plant at Kudithini generated 29063560 KWH of Power as against 96409452 KWH in the year before, of which 22683000 KWH, previous year 79926000 KWH was sold and 8393560 KWH (previous year 18136452 KWH) were captively consumed (including Power Plant auxiliary load) that includes Power import of 2013000 KWH (previous year 1653000 KWH). The gross sales revenues of products and services in value terms were Rs.2487308166/ - as compared to Rs.11315975529/- in the last year.


The signs of recovery that prevailed during the last year continues to be present in the current year indicating a healthier growth for global Iron and Steel industry. The short-term outlook is hazy but the long medium to long term growth appears to be positive. Factors like marginal economic growth rates in the emerging economies, excess steel capacities, weak demands, increased trade tensions and protectionist measures would have an adverse bearing on short term growth of the industry. On the other hand, the expected uptick in the economic growth in the advanced economies, measures to improve the demand by stimulus packages and policy measures to drive the demand for steel would be the factors that would give better outlook in the medium to long term. The Indian Iron and Steel industry continues to show a healthy growth trends on the back of steady economic growth. Various policy measures to boost the economic growth in the form ‘make in India, increased infrastructure and public spending are driving the steel demand. However, the challenges on the bank loans to industry and increased non-performing assets with Banks, high interest costs, and volatile price trends are of concern in the growth of the industry. Your Company after creating a value chain has been suffering from working capital constraints which led to severe financial stress. To overcome from the financial stress, your Company has approached the secured lenders to restructure the debt which under active consideration of the banks. Your Company is confident of restoring the normalcy once restructuring package as requested is sanctioned by the secured lenders.


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.


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--vis financial performance is as under:

PARAMETER FY 2017-18 FY 2016-17 Growth/ reduction % Quantity Value
Quantity Value Rs.Cr Quantity Value Rs.Cr
Pig Iron
Production (mt) 14970 174608 (91.43)
Captive use(mt) 7511 123271 (93.91)
Sales(mt) 12620 28.87 49034 111.72 (74.26) (74.16)
Ductile Iron Pipes
Production(mt) 12841 131759 (90.25)
Captive use(mt) 0 3566 (100.00)
Sales(mt) 33218 108.42 124517 492.86 (73.32) (78.00)
Metallurgical Coke
Production(mt)* 194349 195872 (0.78)
Captive use(mt) 11061 142468 (92.24)
Sales(mt) 32309 80.62 58303 108.00 (44.58) (25.35)
Generation(mu) 29.064 96.409 (69.85)
Captive use (mu) 8.394 18.136 (53.72)
Sales(mu) 22.683 6.06 79.926 27.69 (71.62) (78.11)
Trading and others* 24.76 391.33 (93.67)
Gross Sales 248.73 1131.60 (78.02)
Less:Excise Duty 4.94 36.00 (86.28)
Net Sales 243.79 1095.6 (77.75)

* includes Jobwork of 143454 MTs (Previous yar Nil MTs) value

Rs. 9.32 crores (previous year Rs. Nil).

Note : Product description includes by-products in the form of scrap and fines.

The operational performance during the year across all segments is lower due to lower volumes which in turn was impacted due to working capital constraints and consequent financial stress resulting in shut down of ferrous division from 12.06.2017 and operating Metallurgical Coke facility partially on job work and partially for own production. The production volume of Pig Iron at 14970 MTs as compared with 174608 MTs in the year before was lower by 74.16%. Consequently the Pig Iron sales were also lower at 12620 MTs (including 7511 MTs used in production of Ductile Iron Pipes) as against 172305 MTs in the year before (including 123271 MTs used in production of Ductile Iron Pipe making. The Ductile Iron pipe production too was lower at 12841 MTs as compared to 131759 MTs in the year before a reduction by 90.3% year on year with sales at 33218 MTs as against 124517 MTs in the last year. Metallurgical Coke production was at 194349 MTs (including Job work of 143454 MTs) as against 195872 MTs in the previous year. The captive consumption of Metallurgical Coke was at 11061 MTs as against 142468 MTs in the year before. The sale of Metallurgical Coke consequently was at 32309 MTs as compared with 58303 MTs in the previous year. The lower Metallurgical Coke capacity utilisation also impacted the Co-generation Power where the Power generation has come down from 96409452 KWH to 29063560 KWH in the current year and at the same time the sale of Power was also lower at 22683000 KWH as compared with 79926000 KWH in the previous year while consuming the balance units on auxiliary loads and captive use. On the back of these adverse conditions the Company recorded a gross sales of Rs.2487308166/- as compared with Rs.11315975529/- in the last year lower by 78.0%. Accordingly the net sales has come down from Rs. 10956011729/- to Rs.2437873950/- which is lower by 77.8%. The average sales realisation on Pig Iron including pig iron Scrap during the year under review works out to Rs.22876/MT as against Rs.22784/MT during the last year. The average price on sale of Ductile Iron Pipes and Pipe Scrap was at Rs. 32638/- in comparison to Rs.39582/ MT in the year before. The average sales realisation on sale of surplus Metallurgical Coke including Coke fines was at Rs.24953/ MT as compared to Rs.18524/MT in the previous year. The average sales realisation on power sold was at Rs.2.67/KWH as against Rs.3.46/KWH in the last year. The average cost of Iron Ore and Iron Ore fines consumed was at Rs.4833/MT excluding disputed taxes as compared with Rs.2902/MT in the last year. The average cost of Coking Coal consumed was at Rs.15574/MT as against Rs.10218/MT in the year before. The prices of raw material were very volatile and the sale prices of finished goods were too fluctuating often with some time lags which impacted the margins.

On the financial performance front the operating loss before finance costs and depreciation and amortisation was at Rs.1152735074/- as against operating profit of Rs. 1009041013/- in the last year. The year ended with loss before and after tax of Rs. 3063643139/- as compared with a loss before and after tax of Rs. 642206321/- in the year before. The performance during the year in line with operational performance impacted mainly due to working capital constraints. During the year in the absence of virtual certainty deferred tax asset on account of unabsorbed depreciation and business loss and others amounting to Rs. 1114567283/- (previous year Rs.1047886528/-) has been recognised to the extent it can be realised fully against deferred tax liability. The tax impact accordingly is nil during the year as was the case during the previous year.


The Company has a strong and dedicated workforce. The relations between the management and the workforce continue to be cordial during the year. 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 cooperation extended, but for which the present growth would not have been possible. The employee strength of the Company is 1024 persons excluding working Directors as on 31st March 2018.


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.