Scan Steels Ltd Management Discussions.

Driven by a visionary leadership, our strategic focus lies on increasing capacity, widening reach, maximising efficiency, allocating capital effectively and mainstreaming sustainability. While pursuing these strategic goals, our broad objective is to deliver industry-leading stakeholder returns, and in the process, contribute to nation building, social empowerment and environmental conservation.

1.0 OVERVIEW

The following operating and financial review is intended to convey the Managements perspective on the financial and operating performance of the Company at the end of Financial Year 2019-20. 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 2019-20. This Report 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/ guidelines issued by the Securities and Exchange Board of India (‘SEBI). from time to time. Your attention is also drawn to sections on Opportunities, Risks and Strategy Planning forming part of the Integrated Report.

2.0 ECONOMIC REVIEW 2.1 GLOBAL ECONOMY ON EDGE AMID EMERGING NEW REALITIES

(Source: World Economic Outlook, International Monetary Fund, June 2020; World Trade Organisation) Macroeconomic Condition With continued weakness in global trade and investment, global growth slumped to 2.9% in 2019, leading to varying degrees of deceleration in economies around the globe. Rising geopolitical tensions, worsening trade relations among some nations, trade policy uncertainties, and stress in key emerging market economies continued to impact global economic activity. Intensifying social unrest in several countries and weather-related disasters also contributed to declining global economic activity. The world economy grew by 2.9% in CY 2019, at its slowest pace since the global financial crisis in 2008-09 and much below 3.6% expansion in CY 2018. The first half remained sluggish, as the sentiments prevalent in Q4 CY 2018 spilled over, which was aggravated by higher tariffs and uncertain trade environment. This led to a broad-based slowdown in manufacturing and global trade, aided by disruptions in the automobile industry from new emission standards in the Euro area and a slowing economic growth in China. Consequently, global merchandise trade also weakened, largely due to protectionist trade policies. The fourth quarter witnessed a bottoming out of growth, which fuelled expectations of a recovery on the backdrop of a softening US-China trade tensions. In India, growth slowed down to 4.2% in 2019. This economic slowdown can be attributed to weak investments and declining consumer demand. Further, several sectors such as real estate, aviation, automobile, and construction sectors suffered a consistent decline in demand. the banking sector. Overall, increasing trade tensions, worsening financial market sentiments, intense social unrest across many countries, and sluggish economic growth led to slowdown in global economy.

2.9 %

CY 2019 WORLD ECONOMIC GROWTH Advanced Market Economies (AMEs)

Growth in AMEs slowed down to 1.7% in CY 2019 from 2.2% in CY 2018. Lower business spending and the prolonged trade dispute, combined with rising geopolitical tensions, led to a moderation in US growth to 2.3% from 2.9%. Euro area growth weakened further to 1.2% from 1.9%, due to weakness in manufacturing and trade. A sluggish German economy further dampened business sentiment, even as financial conditions eased with increased liquidity.

Emerging Market and Developing Economies (EMDEs)

Growth in EMDEs moderated to 3.7% in CY 2019 from 4.5% in CY 2018, as growing trade restrictions impaired business confidence and delayed investment plans. China, reeling under the trade war with the US and persistently high inflation, recorded growth at 6.1% in CY 2019. Growth was largely muted in rest of the EMDEs due to domestic factors.

GLOBAL ECONOMIC OUTLOOK

In view of the COVID-19 pandemic, there remains considerable uncertainty around the global economic forecast for 2020. Global economic activity improved in the second half of CY2019, especially in advanced economies. Growth picked up in the US as firms grew more confident about future demand. The economy also recorded a lower rate of unemployment and buoyant consumer demand. However, the global economic growth, at 3.1% on a y-o-y basis, fell short of expectations in CY2019 as deceleration in key emerging markets and developing economies (EMDEs) overshadowed the modest recovery in major developed countries. The EMDEs contribute to more than half of the global economic growth rate. According to the International Monetary Fund (‘IMF), global economy is projected to contract sharply by 4.9% in 2020, surpassing the decline seen during the global financial crisis a decade ago. Stark differences will be observed between impact of the pandemic on advanced economies, and emerging markets and developing economies owing to differences in governance capacity, health care systems, strength of financial institutions, and currency strength. The International Monetary Fund (IMF) has warned that the coronavirus-induced downturn could snowball into a global recession, which could see the world economy record its steepest decline since the Great Depression of the 1930s. The impact is expected to be more pronounced in low income households, threatening to roll back the progress made in poverty alleviation in the past few decades. Towards this end, the IMF has called for strong multilateral cooperation on various fronts to help the world navigate through this ‘crisis like no other. It has also provided blanket guidelines in terms of financial assistance, healthcare support, and economic policy.

Growth is expected to be slower in most advanced economies. Countries in the emerging market and developing economies will also witness a slump in growth due to external demand shock, tightening in global financial conditions, and a plunge in commodity prices. In China, where recovery from the sharp contraction in the first quarter is underway, growth is projected at 1% in 2020, supported in part by policy stimulus. The IMF projects a partial recovery in 2021; however, the level of GDP growth is expected to remain below the pre-COVID-19 trend, with uncertainty about strength of the rebound.

Their deceleration was accompanied by a modest increase in commodity prices, subdued global trade, financial market volatility and weakening capital flows. Although Chinas growth turned out to be better than expected on the back of policy stimulus, it was lower than CY2018. Activity remained weak in fuel and nonfuel commodity exporters more generally, while geopolitical factors held back growth in parts of the Middle East and Turkey.

Indias economy in the Financial Year 2020-21 is projected to grow at a slower pace following a longer period of lockdown and slower rate of recovery than anticipated. Effective policies and fiscal measures by the Government will be essential to forestall contraction of growth

RISK FACTOR

According to the IMF, risks to the above forecasts remain on the downside, and are likely to be influenced by how the pandemic is contained. Health, economic and trade risks remain prevalent. Development of vaccines, norms of social distancing, and productivity gains from the emergence of differentiated models will determine the actual outcomes.

The obstruction due to the pandemic:

(COVID-19) IMPACT

The novel coronavirus (COVID-19) has affected life and livelihood across the globe. By the last week of July 2020, around 16,650,570 confirmed cases and 656,649 deaths had been reported on account of COVID-19. The pandemic is estimated to have severely impacted both supply and demand sides of businesses. As production and global trade has been curtailed around the world, many sectors will experience shortage of inputs and a severe consumption slowdown.

Global Response

Globally, governments and central banks, especially the G20, have synchronised their fiscal and monetary policy response to the extent of US$ 19 trillion to cope with the crisis. Emergency lifelines provided include higher spending and foregone revenues (US$ 3.3 trillion), public sector loans and equity injections (US$ 1.8 trillion) and guarantees (US$ 2.7 trillion). The IMFs executive board agreed ona new round of bilateral borrowing to secure its US$ 1 trillion lending capacity. The Catastrophe Containment and Relief Trust (CCRT) is being increased to US$ 1.4 billion to ease debt burdens of low-income member nations.

Remarkable global efforts to create a vaccination

The race to find a vaccine for the new coronavirus is well underway. Governments and researchers are aiming to provide billions of people with immunity in eighteen months or less. As per the report around June 22, 2020 by World Health Oranization (WHO), there are 13 candidate vaccines in the clinical evaluation stage and 129 in the preclinical evaluation stage.

2.2 INDIAN ECONOMY

Indias economic growth is gradually improving since 2016. The favourable policy as well as executive reforms by the Government to support strong and sustainable growth, prudent fiscal regime and calibrated monetary easing that reigned in inflation has helped to strengthen macroeconomic stability. The lower crude oil prices have also helped to reduce current account deficit, improve fiscal positions, and lower inflation. This, in turn, has helped boost economic activities in India. Driven by these positive developments, the country has emerged as the worlds fastest growing major economy. The growth momentum should rise, driven by the Governments policy initiatives in areas such as taxation (GST), foreign direct investment (FDI), and the ease of doing business, among others Other major factors helping India stay as a bright spot in the global economic landscape include the lower global oil price, with positive impact on the countrys import bill, a well-regulated monetary policy by the Reserve Bank to stabilise prices, and improving fiscal condition. The Governments endeavour to drive a bigger as well as a cleaner GDP is expected to augur well for the economy in the medium and long terms.

EFFORTS CARRIED OUT TO REVIVE ECONOMIC GROWTH

Returning to power with an even bigger mandate, the National Democratic Alliance (NDA) government reiterated its commitment to continue structural reforms. This was evidenced by a steep cut in corporate tax rates; continued rationalisation of the GST structure; speeding up of insolvency proceedings; financial restructuring of public sector banks (PSBs); boost to real estate, auto, housing and export industries; and easing funding pressure for NBFCs. With the target of making India a US$ 5 trillion economy by FY 2024-25, the National Infrastructure Pipeline (NIP) was announced in the Union Budget 2020-21 with a spending commitment of US$ 1.4 trillion. The NIP will create jobs, enhance ease of living, and provide equitable access to infrastructure. Of the total outlay, 42% projects by value are under implementation, 32% are at the conceptualisation stage and the rest are under development. The core sectors to benefit from the NIP are Energy (24% of total spending), Roads (19%), Urban (16%), and Railways (13%), while irrigation, rural infrastructure and others are to receive single-digit allocation.

The Union Budget 2020-21 also announced certain key policy measures for different sectors and stakeholder groups to create large-scale impact over the long term.

Agriculture: Seamless development of cold supply chain for perishables through railway and air connectivity; incentivised 20 lakh solar pumps Social sector: Funding for hospitals in the Public Private Partnership (PPP) mode and increased allocation towards healthcare and Swachh Bharat Investor community: Investment Clearance Cell for end-to-end facilitation for new investments; removal of Dividend Distribution Tax Industry: Boost for manufacturing sector, development of transportation infrastructure and emphasis on clean technologies for power generation

Individuals and small businesses: A simplified, alternate personal income tax structure with options to continue with the existing one; raising audit limits for MSMEs However, while formulating these policy actions, the government was mindful not to indulge in fiscal indiscipline. Although the budget fiscal deficit overshot the target, the deviation was within the upper limit laid down under the Fiscal Responsibility and Budget Management Act (FRBMA).

In CY 2019, the RBI made a cumulative 135 basis points (bps) cut in policy rates, with inflation staying within its comfort range. In view of the COVID-19 pandemic and following the nationwide lockdown, RBI in its advanced monetary policy cut repo rates by an additional 75 bps in March 2020. Furthermore, the RBI undertook a series of measures to keep rates lower for longer periods of time. ‘Operation Twist, which involved simultaneous purchase and sale of government securities, was carried out in three tranches. In the first tranche, under Open Market Operations (OMOs), the central bank purchased securities worth 10,000 crore and sold securities for 6,825 crore. In the second special OMO, the RBI bought 10,000 crore of long-term government securities and sold 8,501 crore of three short-term bonds. In January 2020, the RBI followed up by purchasing long-term bonds worth 10,000 crore and selling short-term debt maturing in FY 2019-20 of the same amount.

This move from the RBI was aimed at lowering longer-term yields, after a review of the prevalent liquidity and market situation and an assessment of the evolving financial conditions. Additionally, it implemented other measures like cash reserve ratio (CRR) exemption, external benchmarking of interest rates and long-term repo operations (LTROs) to infuse liquidity in the system. The liquidity injection was to the tune of 3.2% of GDP between February and March 2020.

GOVERNMENT MEASURES TO BOOST ECONOMY DURING THE TIMES OF COVID-19 PANDEMIC

The outbreak and spread of the COVID-19 pandemic during the fourth quarter dealt a severe blow to any prospects of an economic recovery. The government was quick to announce a 1.7 lakh crore interim relief package (Pradhan Mantri Garib Kalyan Yojana) primarily aimed at the bottom of the economic pyramid and frontline healthcare workers fighting the pandemic. This was followed up with a comprehensive package, in coordination with the RBI, of 20 lakh crore (equivalent to 10% of GDP) aimed at softening the blow to the domestic industry and setting the foundation for a self-reliant India movement. Titled ‘Aatma Nirbhar Bharat Abhiyan, the movement rests on the five pillars of Economy, Infrastructure, System, Vibrant Demography and Demand. The post-COVID revival strategy lays renewed thrust on agriculture and micro, small and medium enterprises (MSMEs), along with preference for domestically manufactured products.

INDIAN ECONOMIC OUTLOOK

The IMF estimates Indian GDP to contract by 4.5% in FY2020-21. However, the economy is likely to rebound by 6.0% in FY 2021-22, supported by the synchronised fiscal and monetary policy stimulus. The COVID-induced near halt in economic activities is expected to result in demand-side issues for all the major sectors, including the steel industry which can lead to pressure on steel spreads. That said, the government, along with the RBI, has been bold, proactive and decisive in combating the crisis. It stepped in to ease compliance burden on companies and boost domestic production and consumption with a clarion call for being ‘vocal for local.

Notwithstanding the ensuing risks to the economy, India has the capacity and scale to expand its share in the global supply chain, which has been disrupted by COVID-19. Industry leaders see significant opportunities for Indian manufacturers to corner a fair share in the world trade, as global corporations look for alternative sourcing destinations to lower their dependence on China.

SCAN STEELS VIEW:

From an organisational standpoint, SSL views FY 2019-20 as an eventful and somewhat challenging year. the COVID-19 situation led to liquidity crunch. On the other, the re-emergence of the countrys incumbent leadership, post the general elections, ensures policy continuity and concerted action for the nations development. The rollout of multiple interventions through the year by the government to infuse liquidity and support the economy has been commendable. We, are looking forward to the implementation of the National Infrastructure Pipeline, which will go a long way in spurring demand. And in turn will help to front-loading of infrastructure projects will give a much-needed boost to the economy and will ensure adequate employment. Scan steels stand strong with India and the world in the wake of the COVID-19 outbreak and is actively contributing to relief efforts in its possible ways. While the disruptions in the economy and supply chains have temporarily dented the Companys performance, the Management has engaged a Business Continuity Plan that guides operations and ensures productivity, across the organisation. India is expected to be elastic, during the pandemic that creates the negative impact on the countrys economy. Timely interventions by the central and state governments, together with the efforts of medical and other professionals, have helped slow down the spread of the pandemic, when viewed in relation with Indias population size. On the economic front, the ‘Atma Nirbhar Bharat Abhiyan and 20 lakh crore package announced by the central government will help boost economy and small business as well as create domestic demand. Growing Population helps to derive benefits of favourable demographics. The steep fall in oil prices is a big advantage to the Indian

Government to source its energy requirements at relatively lower prices and simultaneously augment tax revenues with additional taxes on petro fuels. Expansion of infrastructural sector with access to technology helps the Economic Growth in a meaningful way.

3. STEEL INDUSTRY

3.1 Global steel industry – 1,654 Mnt Expected Global Steel Demand in CY 2020

Global crude steel production in 2019 saw a growth of 3.4% over 2018 to reach 1,869.69 MnT. This increase was primarily due to the growth in steel consumption in infrastructure, manufacturing, and equipment sectors. The automotive production trended down across most countries over the second half of 2019 which had an impact on the steel demand towards the end of the year. China continued to be the worlds largest steel producer with increase in production by 8.3% to reach 996 MnT. China contributed to 53% of the global crude steel production in 2019. While steel demand remained relatively strong, the country faced significant downside risks due to broader global uncertainty and tighter environmental regulations. In United States, crude steel production went up to 88 MnT, recording an increase of 1.5% over 2018, owing to lower global automotive production and prevailing trade tensions. In Japan, steel consumption declined largely due to a slowdown in manufacturing during 2019. In 2019, India became the second largest crude steel producing country in the world, with a crude steel production of 111 MnT, an increase of 1.8% over the previous year. However, the growth rate was much lower compared to the previous year. Growth in the construction sector weakened due to falling investments in fixed asset formation. Sharp fall in the private consumption led to weaker growth in automotive and consumer durables. The tighter liquidity conditions due to defaults in NBFC sector impacted credit availability. The automotive sector was also impacted by factors such as regulatory changes, rise in ownership cost, and shared economy while, the capital goods sector continued to remain weak due to the decreasing output and stagnant investment in the manufacturing sector.

OUTLOOK

The COVID-19 pandemic has severely affected economies and industries globally and the steel industry is no exception. Therefore, outlook for the steel industry includes scenarios regarding the pandemics speed of propagation, possible recurrence, near-term impact of measures being taken to contain the outbreak, and the effectiveness of the stimulus announced by the Governments of various nations. After slower than expected growth in 2019, steel demand is estimated to contract significantly in the Financial Year 2020-21. According to the World Steel Association (‘WSA), it is possible that the impact on steel demand in relation to the expected contraction in GDP may turn out to be less severe than that seen during the erstwhile global financial crisis. In comparison with other sectors, the manufacturing sector is expected to rebound quicker though supply chain disruptions are likely to continue. The World Steel Association (world steel) forecasts steel demand to decline by 6.4% y-o-y to 1,654 MnT in CY 2020, due to the COVID-19 impact. However, it has asserted that the global steel demand could rebound to 1,717 MnT in CY 2021 and witness a 3.8% rise on a y-o-y basis. Chinese demand is likely to recover faster than in the rest of the world. The forecast assumes that lockdown measures will be eased by June and July, with social distancing continuing and major steelmaking countries not witnessing a second wave of the pandemic.

Steel demand is expected to decline sharply across most countries, especially in the second quarter of CY 2020, with a likely gradual recovery from the third quarter. However, risks to the forecast remain on the downside as economies make a graded exit from the lockdowns, without any particular cure or vaccine for COVID-19. Most of the steel producing regions are expected to witness a decline in crude steel output due to production cuts amidst ongoing lockdowns. However, it is expected that compared to other countries, China will move faster towards normalisation of economic activity as it was the first country to come out of the COVID-19 crisis. Governments of different nations have announced sizeable stimulus packages which are expected to favour steel consumption through investment in infrastructure and other incentives for the steel industry.

In India, muted demand and oversupply is likely to result in suppressed steel prices and capacity utlisation in the near term. Since India depends largely on migrant labour, restarting construction and infrastructure projects will be a challenge. The demand from infrastructure, construction, and real estate sectors is likely to be subdued in the first half of the Financial Year 2020-21 due to the lockdown during the first quarter followed by the monsoons during the second quarter. Further, the demand from automobile, white goods and capital goods sectors are likely to reduce significantly with consumers deferring discretionary spends in the near term. Effective government stimulus and return of consumer confidence is likely to be the key driver for a gradual recovery over the second half of the Financial Year 2020-21.

3.2 Indian steel industry

(Source: IBEF, Worldsteel, Joint plant committee, Ministry of Coal) India is 2nd largest manufacturer of crude steel and consumer of finished steel The steel industry has been one of the primary beneficiaries of Indias rapid economic growth over the past couple of decades. However, steel demand remained subdued in CY 2019, largely due to lower consumption from construction, auto, infrastructure, real estate, and manufacturing Industries. Further, the slow down in the governments infrastructure investments and credit tightness impacted demand and consequently weighed on pricing.

DEMAND

India became the second-largest consumer of finished steel products in the world, surpassing the US in CY 2019. While the governments thrust on infrastructure development provided a boost, it was largely offset by the continued weakness in the auto and real estate sectors. Finished steel consumption grew by 1.4% to 100.01 MnT during FY 2019-20, non-alloy steel accounting for 94% (94.06 MnT) and the rest being alloy steel (5.95 MnT). Within the non-alloy, non-flat segment, bars and rods consumption was up 9.6% y-o-y to 39.72 MnT, while the non-alloy flats were led by hot rolled coils (HRCs) which was 40.63 MnT, down by 2.7% during FY 2019-20.

Indias per capita steel consumption, which has a direct correlation with economic growth, grew at a CAGR of 4.12% to 68.9 kg between FY 2007-08 and FY 2017-18, driven by rapid growth in the industrial sector and robust infrastructure development (railways, roads and highways). However, compared with the global average of 208 kg, there exists a significant growth potential. Keeping this in mind, the National Steel Policy (NSP) was introduced in CY 2017 to increase per capita steel consumption to 160 kg by FY 2030-31. The NSP also set a target of achieving 300 MnT of production capacity, which translates into additional investments of 10 lakh crore (~US$ 156.08 billion).

PRODUCTION

According to the Joint Plant Committee, crude steel production declined by 1.5% y-o-y to 109.22 MnT in FY 2019-20, with a sharp contraction of 20% in March 2020 due to COVID-19 containment measures. Finished steel production grew 0.8% y-o-y to 102.06 MnT; non-alloy steel accounted for 96% (up from 93%), or 97.66 MnT, while alloy steel contributed the balance 4.4 MnT. In the non-alloy, non-flat finished steel segment, bars and rods grew by 3.6% y-o-y to 40.48 MnT, whereas in non-alloy flats, HRC grew by 2.6% y-o-y to 43.29 MnT.

India remained a net exporter of finished steel during FY 2019-20, with exports of 8.36 MnT, up 31.4% y-o-y. Non-alloy HRC was the most exported product at 4.82 MnT, while bars and rods led the non-alloy, non-flat segment exports with 0.51 MnT.

Meanwhile, India imported 6.77 MnT of finished steel, down 13.6% y-o-y, with non-alloy HRC accounting for 34% of the total imports. Imports from Korea accounted for 40% of the total imports.

GOVERNMENT INITIATIVES FOR STEEL INDUSTRY

(Source: IBEF)

One of the designated core industries, steel is key to the governments focus on driving growth in the infrastructure segment. Towards this end, the following initiatives have been rolled out in support of the steel industry:

› Implemented Steel Import Monitoring System (SIMS), which aids in monitoring real-time import data on quantity, quality and value; the system helps detect misclassification and misdeclaration regarding over/ under-invoicing, preventing import of defective steel

› Imposed anti-dumping duty on galvalume products, ranging from US$ 28-200/tonne; imports from China, South Korea and Vietnam are subject to duties.

› To ensure iron ore availability for domestic manufacturing, it introduced a 30% export duty on export of high grade iron ore (lumps and fines).

› Other measures are underway like the proposed steel scrap policy, safety codes, proposal to reduce royalty to 5% on low grade iron ore fines; Remission of Duties or Taxes on Export Products (RoDTEP) to replace existing Merchandise Export from India Scheme (MEIS); and engagement with international agencies to promote steel intensive design for roads, bridges and commercial and residential housing.

The National Infrastructure Pipeline (NIP) is a noteworthy government initiative, which holds tremendous promises for the steel sectors growth. The NIP announced an investment of 102 lakh crore by FY 2024-25, of which roads, energy and urbanisation will contribute 60% of the total infrastructure build. For FY 2020-21, infrastructure spending is estimated at 19.5 lakh crore, up 43% from 13.5 lakh crore for FY 2019-20.

India is worlds 2nd Largest Coal Consumer, 3rd Largest Energy Consumer and 5th Largest Iron Ore Supplier Production of 1 tonne of Steel requires 1.6-1.7 Tonnes of Iron Ore OUTLOOK

"Opportunities abound in growing economies and opening of economy in India has created opportunities for Indian enterprise to move beyond national boundaries as well to create productive assets".

The World Steel Association (worldsteel) expects Indian steel demand to contract by 18% in CY 2020 on the back of pandemic induced abrupt halt of economic activities. CY 2021 demand is expected to sharply recover and expand by 15%. While the domestic steel industry is likely to witness a decline in demand in the near term as the economy heads towards near normalcy level in the coming months. But a gradual recovery, especially in the second half of FY 2020- 2021 is expected, mainly led by the governments thrust on infrastructure and construction related projects with improving consumer sentiment in other sectors.

India is looking to modernise, expand and accommodate the aspirations of a growing population where industrialisation, urbanisation, and access to technology are the key pillars of economic growth. Thus, steel consumption growth is expected to rise on account of government expenditures on infrastructure and fiscal stimulus to manufacturing industries in the long run.

OPPORTUNITIES AND THREATS

Opportunities abound in growing economies and opening of economy in India has created opportunities for India enterprise to move beyond national boundaries as well to create productive assets. Presently, the Company is consolidating its gains out of creating additional production capabilities.

Demand for residential, commercial and retail real estate is rising throughout India, accompanied by increased demand for hotel accommodation and improved infrastructure. Competition in Steel industry is escalating and technological changes will spur or drag the forward march of individual units in steel industry. Supply side could also be an issue in next few years because of increase in production capacity by steel industry in India and expression of interest by foreign companies to set up new steel making units. However, coming years are also going to witness substantial additions particularly in the Asian regions.

STRENGTH

Company having fully integrated sufficient steel making multi-location manufacturing facilities and the various plants comprises of: DRI Unit Induction Furnace with Concast Steel Melting Shop TMT Rolling Mills Captive Power Plant Coal Washery Company has produced the TMT Rod under the brand name of "SHRISHTII TMT". The marketing network of the company is very well organized. It fulfills the demand and requirements of all type of customers in urban area as well as in rural areas.

RISK AND CONCERNS

Global economic uncertainties have affected Indias economy, Key risks synonymous to industry include the global recessionary trend, economic slowdown, increase in financial charges, non-availability (or undue increase in cost) of raw materials, such as, steel and labour etc., coupled with market fluctuations. The Company does not apprehend any inherent risk in the long run, with the exception of certain primary concerns that have afflicted the progress of our industry in general, like: shortage of Labour rising manpower and material costs,

Approvals and procedural difficulties.

Lack of adequate sources of finance.

Impact created by COVID-19 Pandemic in the First Half of the Current F.Y. The Company is also exposed to risks from market fluctuation of interest rate and stock market fluctuation of the share prices.

Macroeconomic Risks

Overcapacity and oversupply in the global steel industry as well as increased levels of imports may adversely affect steel prices, impacting profitability. key mitigation strategies Diversification of product portfolio, Development of alternate markets etc.

Regulatory Risks

Non-compliance to increasing stringent regulatory environmental norms may result in liabilities and damage to reputation. key mitigation strategies Focus on compliance Dialogue with regulatory authorities for greater clarity and availing legal consultations for timely clearances, Working with industry associations towards simplification of rules, a predictive policy regime and transition time for regulatory changes.

Operational Risks

The steel industry is prone to high proportion of fixed costs and volatility in the prices of raw materials and energy. Limitations or disruptions in the supply of raw materials could adversely affect the Companys profitability. Failure of critical information systems/ servers that control the Companys manufacturing plants may adversely impact business operations. key mitigation strategies Enhancing in-house capability and leveraging from past learnings and expertise, Establishing sources of supplies from alternate geographies.

Market Related Risks

Steel is a cyclical industry and excess volatility in the steel and raw material markets may adversely impact the Companys financial condition. Competition from substitute materials, or changes in manufacturing processes, may lead to a decline in product demand, resulting in loss of market share.

Key mitigation strategies Development of value-added products and enhanced services and solutions Strengthening contractual agreements.

Post COVID -19 Risk

Covid 19 pandemic impacted revenue of the Company and most of the manufacturing facilities of the Company were disrupted during the first of theCurrentYear,also,impactofthepandemicmay move either side depending on the normalization of business and demand of products which will in turn affect the profit margin to the extent loss of its revenue.

Key mitigation strategies the Company continued to incur its revenue and fixed expenses during the Lock down period with the available resources with minimum capacity utilization and ability to maintain operations as the Company did not face any migrant labour issues because most of the Labours are from local areas/villages. Also company has tried to maintain the liquidity position in spite of the negative impact due to fund flow stalled.

Other key mitigation strategies

Apart from this there could be an oversupply position due to capacity expansion and setting up new projects in the steel industry and scarcity of raw material. Industry is highly labour intensive and is subject to stringent labour laws. Your Company has identified the major thrust areas to concentrate on, which it believes to be critical to achievement of organizational goals. Company annually reviews the ‘List of Risk Area to identify potential business threats and suitable corrective actions are initiated. Confirmations of compliance with appropriate statutory requirements are obtained from the respective units/divisions. Corporate Governance Policy clearly laying down roles, duties and responsibilities of various entities in relation to risk management is in place.

MEDIUM –TERM AND LONG TERM STRATEGY

The Company focuses on the following strategy to make its competitive position and progress of the company:

1) In-house research, reports of specialized agencies and interactions with all concerned to help track macro environment.

2) Internal meetings ensure multi-disciplinary stress testing and regular tracking of assumptions to proactively respond, due diligence review before dealing with uncertainties.

3) Compliance with norms through selecting right equipment, processes, competencies, inputs and Security arrangements like access monitoring system, vigilance, mock drills.

5) Executive committee & other unit/functional meetings closely monitor operational plans; cost optimization, inventory, collections & vendor credit Initiatives have been taken up.

As a response to the COVID-19-related impact, the Company is strategically focusing on:

› Targeted cost-saving measures to recalibrate the cost base across all areas of operations and leveraging technology and digitalisation to drive value

› Conservation and broadening of additional line of liquidity › Renewed thrust on technology and innovation to drive efficiencies

SEGMENT WISE PERFORMANCE:

The Company is engaged in only one segment viz. Steel Manufacturing and as such there is no separate reportable segments as per IND AS -108 "Operating Segment."

PRODUCTS AND MARKET PERFORMANCE

It is imperative that we keep pace with the growing needs of our customers, primarily those in the Automotive and Construction sectors. We aim to deliver enhanced benefits through customised services and solutions and value-added products throughout the customers purchase journey.

A SNAPSHOT

Scan Steels recorded steel production for FY 2019-20 at 1,22,355 MT. Besides this, the company has also produced 1,78,155 MT intermediary steels (i.e. Sponge Iron) in the FY 2019-20.

1. PRODUCT HIGHLIGHTS 1.1 LONGS

Volume

Long products are comprised of almost 63.45% of product portfolio (in terms of sales value) in FY 2020. Long products are manufactured at Rambahal unit.

Sector

Long Product in India is largely consumed by Construction & Infra and Industrial & Engineering sector. The volume movement was better in FY 2019-20 as compared to corresponding last fiscal.

2. OPERATIONAL REVIEW

The company is engaged in the manufacturing of TMT Rod, Sponge Iron, MS Billets/ Ingots and also generating power for captive consumption. The Company has Semi Automatic Rolling Mill.

2.1 Facilities:-

The company has its four Units at different places of India:-

Unit -1 is situated at Rambhahal, At- Keshramal, Rajgangpur, Sundergarh (Odisha) with the facilities of Rolling Mills – 2, Sponge Iron-2, Induction Furnace – 2.

Unit -2 is situated at Gangajal, Budhakata, Sundergarh, Odisha with the facilities of Sponge Iron- 4, SMS Billet Caster -3, Captive Power Plant – 1 and Coal Washery -1.

Unit-3 is situated at Bai-bai, Tudalaga, Sundergarh, Odisha with the facilities of Induction Furnace – 2.

Unit-4 is situated at Vill- Veniveerapura, Bellary, Karnataka with the facilities of Sponge Iron 2.

2.2 Overview

Scan Steels is an Integrated Steel Plant. It manufactures TMT Bars to fulfill the requirement of the state. It is a local brand in Odisha.

2.3 Turn Over:-

Gross Turnover including Other incomes for the year 2020 was stood at 668.54 Crores which was around 4% downward side in comparison to fiscal 2019. But in the better part of the company is, the company has able to achieve 1.36% incremental manufacturing sales against last fiscal. Your company continues with its focus on quality and strength of its products. Your Company has initiated steps to explore new markets in addition to developing existing ones.

2.4 Quality:-

Your Company continues to concentrate on quality, the strict adherence to this policy continuing to benefit your company in price realizations.

3. FINANCIAL PERFORMANCE

Highlights FY 2019-20

( In Cr.)

2019-20 2018-19 Growth (%)
Gross Turnover & Other income 668.54 696.21 (3.97 %)
Operating EBIDTA 38.03 42.95 (11.45%)
EBIDTA margin (%) 5.69% 6.17% (7.78%)
Depreciation and amortization expenses 12.60 12.52 0.64%
Interest Cost 14.93 14.27 4.63%
Profit before Exceptional Items 13.22 17.09 (22.64%)
Exceptional Items - - -
PAT 0.32 6.65 (95.19%)
Earnings per shares (diluted) 0.06 1.27 (95.28%)

Note: The figures are in bracket shows negative

Other key Financial Indicators:

RATIOS 2019-20 2018-19 CHANGE %CHANGE
1 Debtors Turnover (No. Of days)* 17 17 -- --
2 Inventory Turnover (No. Of Days)** 69 57 12 21%
3 Interest Coverage Ratio *** 2.55 3.07 (0.52) (16.94%)
4 Current Ratio ^ 1.34 1.30 0.04 3.08%
5 Debt –Equity Ratio 0.27 0.30 (0.03) (10%)
6 Operating EBITDA (Margin %) # 5.69 6.17 (0.48) (7.78%)
7 Net Profit Margin (%) $ 0.05 0.96 (0.91) (94.79%)
8 Return on Net worth (%) $ 0.12 2.48 (2.36) (95.16%)

Note:

The figures are in bracket shows negative

* Collection period is prompt to maintain the liquidity of the company

**Inventory turnover days increased to 69 days due to overcome the lockdown declared on account of COVID-19 pandemic ***Interest Coverage Ratio has decreased to 2.55 times due to lower profitability ^ Current Ratio is improved due to increased current assets and Debt-Equity ratio improved due to timely repayment of Term Loans #operating EBITDA margin is lower due to farm steel prices across the finished steel segment $Net Profit & Return on Networth is lower due to lower profitability

4. OPERATIONAL PERFORMANCE

4.1 PRODUCT WISE GROSS SALES:

Breakup (in crores)

PRODUCT 2019-20 2018-19 % CHANGE
TMT REBARS 422.47 382.20 10.54
SPONGE IRON 114.12 142.86 (20.12)

4.2 PRODUCT WISE SALES QUANTITY:

Breakup (Qty in MT)

PRODUCT 2019-20 2018-19 % CHANGE
TMT REBARS 1,24,011.610 97,290.950 27.4T6
SPONGE IRON 65,710.250 72,023.380 (8.76 )

In the financial year 2019-20, the companys TMT Rebar turnover improved by 10.54% whereas quantity movement of the same product stood at 27.46% higher than FY 2018-19, showing higher realisation price per MT of TMT sale. The Sponge Iron turnover as well as quantity sold got reduced due to more captive consumption of sponge iron in making own MS Billets for making TMT bars within the premises.

FINANCIAL MANAGEMENT

Senior management reviews the requirement of funds for projects under implementation periodically and after assessing the financial market, decisions are taken to identify the lenders. A part of fund requirement is arranged by way of borrowing from Banks on competitive terms and balance is met from internal accruals.

Finance department is working at Bhubaneswar & Factory establishment and is manned by qualified and experienced personnel.

The department properly records all financial transactions and proper financial reports are periodically sent to the senior management. Proper controls are in place and audit is conducted regularly.

INDUSTRIAL RELATIONS AND HUMAN MANAGEMENT

The total no. of employees as on 31.03.2020 was 1591. Human Resources Department (HRD) works continuously for maintaining healthy working relationship with the workers and other staff members. The Company has adopted a progressive policy for helping employees to develop their organizational skills, knowledge and abilities to achieve efficiency. The focus of all aspects of Human Resource Development is on developing a superior workforce so that the organization and individual employee can accomplish their work goals of service to customers. Training programmes are regularly conducted to update their skills and apprise them of latest techniques. Senior management is easily accessible for counseling and redressal of grievances. The HR department continuously strives to maintain and promote harmony and coordination among workers, staff and members of the senior management. Social awareness and cultural/sports programmes are arranged regularly to create interest in living a meaningful life and release tensions.

INTERNAL CONTROL SYSTEMS AND AUDIT

The Company believes in systematic working and placing of proper checks. Proper systems are in place and regular reviews are held at higher levels to check efficacy and relevance of these systems. These reviews also prescribe changes wherever required. The internal auditors of the company conducts audit of various department and areas. Their reports are placed before the Audit Committee, which reviews these reports and comments/suggestions of the Internal Auditors. The Audit Committee also oversees financial systems/procedures and internal controls and is competent to call for any information/document from any department.

CORE VALUES AND CULTURE:

Corporate success is based on certain core values and corporate culture developed by the Company. Underlying this is a firm belief that teamwork and motivation rooted in fairness are the key to success in business. The group sets benchmarks for itself in these areas and strives to achieve them, believing in seeking the active participation of everyone in decision-making rather than relying on the imposition of central diktats. Quality, productivity and optimal utilization of resources, human and materials, woven around the concept of the welfare of the community as a whole is central to the managements philosophy.

RESEARCH AND DEVELOPMENT A PRIORITY:

A research and development focus has provided strong scientific support to the groups quantitative growth with continuing enhancement in the quality of the product. The research and development policy keeps the groups long-term interests in view and believes in anticipating the needs of the future. It is committed to modernization and encourages it in every field.

CAUTIONARY STATEMENT

This report contains projections, estimates, and expectations etc., which are just "forward-looking statements". Actual results could differ from those expressed or implied in this report. Important factors that may have an impact on the Companys operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets, changes in the Government regulations/policies, tax laws and other statues and other incidental factors. The Company assumes no responsibility to publicly modify or revise any forward-looking statements on the basis of any further events or new information. Actual results may differ from those mentioned in the report.

CONCLUSION

Your Company is very conscious that it operates in a highly challenging and dynamic environment, where realities vary between place to place. We believe that the best way to navigate this environment is by constructing a robust strategy that puts consumer needs first, and thereafter focusing on sharp execution of that strategy. You will be happy to note that we have acted on both these priorities – robust strategy and perfect execution – and we believe that this will constitute a winning combination that, along with passion and commitment, will make us the finest natural beverages company on this planet.

FOR AND ON BEHALF OF THE BOARD
Ankur Madaan , Whole- Time Director
(DIN: 07002199)
Place: Bhubaneswar Praveen Patro, Director
Date: 27th August, 2020 (DIN:02469361)