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.

The Indian steel industry, on the path of consolidation and recovery, is amongst the bright spots for the worlds steel industry. Indias crude steel production increased ~5% to 106.5 Mt in 2018 from 101.4 Mt in 2017 [During April - January 2018-19 (prov.), crude steel production was 88.237 Mt, a growth of 3.7% over same period of last year]. The growth in steel production is supported by a fast-growing steel demand


The Indian economy started FY 2018-19 with a healthy growth in the first quarter on the back of domestic resilience. Growth eased in the subsequent quarters due to slowing global growth prospects, expectations of tightening of monetary policy in advanced economies, externalities from trade disputes, and investment rerouting. The Indian rupee has suffered some volatility in trading on the back of crude price fluctuations and some volatility in investment flows. India, as a major Pig Iron (PI) manufacturer and exporter in the world, registered a marginal dip in PI output during FY 2018-19. Domestic realisations in the PI business remained more attractive largely throughout the year, though PI exports were a meagre 0.22 Mt. The Ductile Iron (DI) pipe industry also clocked higher volumes and prices; although some orders were delayed. The Governments focussed investments in infrastructure and construction sectors led by the "Make in India" initiative and the recovery of the Steel industry, continues to drive demand.

The medium to long term outlook in the DI pipe business is also encouraging with major water, sanitation & irrigation projects in various States being finalised and awarded to contracting companies coupled with the Governments focus on projects like "AMRUT" (Atal Mission for Rejuvenation & Urban Transformation) and Lift irrigation projects.

The demand for DI pipe is expected to grow with the Governments continued focus on water, sanitation and irrigation schemes in various states and with the development of smart cities. While global growth is expected to be around ~3% in the sector next year, Indian demand growth is expected to perform better. 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.


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 and positive industrial growth.

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. Moreover, the forward integration into Ductile Iron Pipe making would further minimise such 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.

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.


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. Metallurgical Coke including Coke Fines production was at 301265 MTs (including job work of 114641 MTs) as against 196313 MTs in the previous year. Out of the total production, 11908 MTs was captively consumed as against 1106 MTs in the previous year. The Company sold 168751 MTs of Metallurgical Coke and Coke Fines as against 32309 MTs in the last year in the nearby markets. The gross sales revenues of products and services in value terms were Rs.4985369053/- as compared to Rs.2487308166/- in the last year.


The overall outlook for Pig Iron and DI pipes, is expected to be challenging in FY 2019-20. The demand for DI Pipes in Q1 FY 2019-20 is likely to be muted owing to seasonal factors combined with the national and state elections. The overall outlook for Pig Iron market in FY 2019-20 may not be very encouraging due to slow down in automobile sector and oversupply in domestic market due to sluggish global Pig Iron market. 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. The management is hopeful on restructuring of loans by the banks. Your Company on 2nd August 2019 has entered into "OPERATION, MAINTANANCE & MANAGEMENT AGREEMENT" with JINDAL SAW Ltd. JINDAL SAW LIMITED has agreed to operate, maintain and manage the manufacturing facilities of SATHAVAHANA ISPAT LIMITED for a period of 3 years which may be extended for a maximum period of 10 years subject to certain conditions as provided in the Agreement. Under the above Agreement, JINDAL SAW LIMITED shall manufacture and sell the products, namely, ductile iron pipes, pig iron and coke and all other related items under its brand name during the term of the Agreement in consideration of the rentals as defined in the above Agreement. This arrangement will be effective upon sanction of the restructuring proposal by the banks.


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 2018-19 FY 2017-18 Growth/Reduction
Quantity Value Rs.Cr Quantity Value Rs.Cr Quantity Value
Metallurgical Coke
Production(mt)* 301265 196313 53.46
Captive use(mt) 11908 11061 0.76
Sales(mt) 168751 466.93 32309 80.62 422.3 479.17
Generation(mu) 70.226 29.064 141.62
Captive use (mu) 20.957 8.394 149.66
Sales(mu) 50.085 15.01 22.683 6.06 122.42 147.69
others* 16.6 162.05 -89.76
Gross Sales 498.54 248.73
Less:Excise Duty 0.00 4.94 -4.94
Net Sales 498.54 243.79 104.49

*Includes Jobwork of 115045 MTs (Previous year 143454 MTs) value Rs.7.48 crores (previous year Rs. 9.32 Crores). 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 were impacted due to working capital constraints. Metallurgical Coke production was at 301265 MTs (including Job work of 114641 MTs) as against 196313 MTs including job work of 145418 MTs in the previous year. The captive consumption of Metallurgical Coke was at 11908 MTs as against 11061 MTs in the year before. The sale of Metallurgical Coke consequently was at 168751 MTs as compared with 32309 MTs in the previous year. The Co-generation Power has gone up from 29063560 KWH to 70226471 KWH.

On the back of these adverse conditions the Company recorded gross sales of 4985369053/- as compared with 2487308166/- in the last year.

On the financial performance front the operating profit before finance costs and depreciation and amortization was at Rs.238336422/- as against operating loss of 1152735074/- in the last year. The year ended with loss before and after tax of 2277776344/- as compared with a loss before and after tax of 3063643139/- in the year before. The performance during the year in line with operational performance impacted mainly due to working capital constraints.

8. 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. The employee strength of the Company is 468 persons excluding working Directors as on 31st March 2019.

The substantial decrease in employee count compared to previous year is due to shut down of one of the Companys plant.

9. Statutory Compliance:

The Managing Director, after obtaining confirmation from all the departments of the Company, makes a periodic declaration regarding the compliance with the provisions of various statutes, applicable to the Company. The Company Secretary, being the Compliance Officer, ensures compliance with the relevant provisions of the Companies Act, 2013 and Listing Regulations.


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.


Chief Executive Officer (CEO) / Chief Financial Officer (CFO) certification

We, Naresh Kumar Adusumilli, Managing Director and V.S.R.K.Hanuman, Chief Financial Officer of Sathavahana Ispat Limited, to the best of our knowledge and belief hereby certify that:

A. We have reviewed financial statements and the cash flow statement for the year ended 31st March 2019 and that to the best of our knowledge and belief:

(1) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading;

(2) these statements together present a true and fair view of the listed entitys affairs and are in compliance with existing accounting standards, applicable laws and regulations.

B. There are, to the best of our knowledge and belief, no transactions entered into by the listed entity during the year which are fraudulent, illegal or violative of the listed entitys code of conduct.

C. We accept responsibility for establishing and maintaining internal controls for financial reporting and that we have evaluated the effectiveness of internal control systems of the listed entity pertaining to financial reporting and we have disclosed to the auditors and the audit committee, deficiencies in the design or operation of such internal controls, if any, of which we are aware and the steps we have taken or propose to take to rectify these deficiencies.

D. We have indicated to the auditors and the Audit committee

(1) significant changes in internal control over financial reporting during the year;

(2) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and

(3) instances of significant fraud of which we have become aware and the involvement therein, if any, of the management or an employee having a significant role in the listed entitys internal control system over financial reporting.

Yours faithfully,
Place: Hyderabad (A. Naresh Kumar) (VSRK Hanuman)
Date: 21.05.2019 Managing Director Chief Financial Officer