shah alloys ltd share price Management discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS:

World Economic Environment

Global growth is projected to fall from an estimated 3.5 percent in 2022 to 3.0 percent in both 2023 and 2024. The rise in central bank policy rates to fight inflation continues to weigh on economic activity. Global headline inflation is expected to fall from 8.7 percent in

2022 to 6.8 percent in 2023 and 5.2 percent in 2024. Underlying (core) inflation is projected to decline more gradually, and forecasts for inflation in 2024 have been revised upward.

The baseline forecast is for growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 percent in 2023 with advanced economy growth falling below 1 percent. Global headline inflation in the baseline is set to fall from 8.7 percent in 2022 to 7.0 percent in

2023 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly. Inflations return to target is unlikely before 2025 in most cases. Source: www.imf.org

World Steel Scenario

The World Steel Association (worldsteel) has released its Short Range Outlook (SRO) steel demand forecast for 2023 and 2024. Worldsteel forecasts that this year, demand will see a 2.3% rebound to reach 1,822.3 Mt. Steel demand is forecast to grow by 1.7% in 2024 to reach 1,854.0 Mt. Manufacturing is expected to lead the recovery, but high interest rates will continue to weigh on steel demand. Next year, growth is expected to accelerate in most regions, but deceleration is expected in China. Source: www.worldsteel.org

Indian Steel Scenario

One of the primary forces behind industrialization has been the use of metals. Steel has traditionally occupied a top spot among metals. Steel production and consumption are frequently seen as measures of a countrys economic development because it is both a raw material and an intermediary product. Therefore, it would not be an exaggeration to argue that the steel sector has always been at the forefront of industrial progress and that it is the foundation of any economy. The Indian steel industry is classified into three categories - major producers, main producers and secondary producers.

India is the worlds second-largest producer of crude steel, with an output of 125.32 MT of crude steel and finished steel production of 121.29 MT in FY23.

Indias steel production is estimated to grow 4-7% to 123-127 MT in FY24. The growth in the Indian steel sector has been driven by the domestic availability of raw materials such as iron ore and cost-effective labour. Consequently, the steel sector has been a major contributor to Indias manufacturing output.

The Indian steel industry is modern, with state-of-the-art steel mills. It has always strived for continuous modernisation of older plants and up-gradation to higher energy efficiency levels.

In the past 10-12 years, Indias steel sector has expanded significantly. Production has increased by 75% since 2008, while domestic steel demand has increased by almost 80%. The capacity for producing steel has grown concurrently, and the rise has been largely organic. In FY23, the production of crude steel and finished steel stood at 125.32 MT and 121.29 MT respectively.

In FY22, the production of crude steel and finished steel stood at 133.596 MT and 120.01 MT, respectively. The consumption of finished steel stood at 105.751 MT in FY22. In FY23, the consumption of finished steel stood at 119.17 MT. In April-July 2022, the production of crude steel and finished steel stood at 40.95 MT and 38.55 MT respectively.

In FY23, exports and imports of finished steel stood at 6.7 MT and 6.02 MT, respectively. In FY22, India exported 11.14 MT of finished steel. In April 2023 exports of steel stood at 8.55 lakh metric tonnes (LMT), while imports stood at 4.60 LMT.

The annual production of steel is anticipated to exceed 300 million tonnes by 2030-31. By 2030-31, crude steel production is projected to reach 255 million tonnes at 85% capacity utilisation achieving 230 million tonnes of finished steel production, assuming a 10% yield loss or a 90% conversion ratio for the conversion of raw steel to finished steel. With net exports of 24 million tonnes, consumption is expected to reach 206 million tonnes by the years 2030-1931. As a result, it is anticipated that per-person steel consumption will grow to 160 kg. Source: www.ibef.org

OPPORTUNITIES & THREATS:

Opportunities:

Every industry has its own perks and challenges. When it comes to the steel industry, you face many challenges to overcome in order to manufacture or even recycle steel. Steel industry or steel per se has huge demand all over the globe which makes it all the more difficult to fulfil that need. There are many countries who export steel out which, China exports 50% of the worlds steel requirement. Today, we will talk about major challenges and opportunities in the steel industry. First, we will discuss challenges which provide opportunities to grow. The steel industry derives its demand from other important sectors like infrastructure, aviation, engineering, construction, automobile, etc.

• Capital Goods:- The capital goods sector accounts for 11% of steel consumption and is expected to increase 14-15% by FY2025-26 and has the potential to increase in tonnage and market share.

• Automotive Industry:- The Automotive industry accounts for around 10% of demand of steel in India. It is forecasted to grow in size to US$ 260-300 billion by 2026. Demand from the sector for steel is expected to be robust.

• Infrastructure sector:- The Infrastructure sector accounts for 9% of steel consumption and expected to increase 11% by FY2025- 26. Because of rising investments in infrastructure, the demand for long steel products would increase in the years ahead.

• Railways:- laying of tracks and construction of foot over bridges, rail coaches, railway stations will also drive the steel demand.

• Airport:-The number of operational airports stood at 103 as on 31^st March, 2019. Under union budget 2020, Government is targeting 100 more airports by FY2024. Development of new airports in Tier-II city would sustain consumption growth.

• Oil and Gas:- Indias primary energy consumption of oil and gas is expected to increase to 10 mbpd and 14 bcfd, respectively, by 2040. Under budget 2020, Government plans for the expansion of National Gas Grid to 27,000 Km from the present 16,200 Km. this would lead to an increase in demand, providing a lucrative opportunity to the steel industry.

Threats:

When we consider the impact of digital disruption on organisations, steel companies tend to be overlooked. However, the fact is that entire industry needs an upgrade to achieve its true potential moving forward, especially considering the various challenges the industry is facing. Continuous trade wars between the worlds major economies and the steel vs aluminium debate in auto manufacturing are some of the many well-known threats that the steel industry needs to develop strategies for. Likewise, unexpected threats, the surprises that arise through digital technologies and changing customer expectations also merit consideration. These new and possibly more disruptive improvements can challenge the traditional steel companys business models. Digital disruption will enable the steel industry to prepare itself for unexpected challenges and become more competitive.

The per capita labour productivity in India is at 90-100 tonnes which is one of the lowest in the world. The labour productivity in Japan, Korea and some other major steel producing countries is about 600-700 tonnes per man per year.

At Gallatin Steel a mini mill in the U.S. there are less than 300 employees to produce 1.2 million tonnes of hot rolled coils. A comparable facility in India employs 5,000 workers. Therefore, there is an urgent need to increase the productivity which requires retraining and redevelopment of the labour force.

Outlook:

India remains a bright spot in the global steel industry and the steel demand in the country is expected to show a healthy growth of 7.3% and 6.2% in 2023 and 2024 compared to a global growth of 2.3% and 1.7%, respectively, according to Short Range Outlook of The World Steel Association. The world steel forecast comes against the backdrop of the countrys macro-economic fundamentals like manufacturing and services PMIs, IIP, core infrastructure growth, remaining steady and strong and it is expected to register a GDP growth ranging from 6 to 6.5% in fiscal 2023-24, as estimated by different agencies including the RBI, IMF & World.

• China remained the leader in world crude steel production with an output of 261.6 mt in January-March 2023 period, registering a growth of 6.1% yoy. The country accounted for 56.9% of world crude steel production during the first three months of 2023.

• Further, China and India were the only countries among the top 10 steel producing countries in the world which registered growth in production during January-March 2023.

• India was the 2^nd largest producer of crude steel with an output of 33.2 mt in January-March 2023, showing a yoy growth of 3.0%. The country accounted for 7.2% of world crude steel production during the first quarter of calendar year 2023.

Japan was the 3^rd largest producer of crude steel with an output of 21.6 mt in January-March 2023 period, down by 6.0% yoy. Japan accounted for 4.7% of world crude steel production during the period.

• With crude steel production of 19.4 mt (down 4.0% yoy), the USA was the 4^th largest producer of crude steel during January-March 2023.

• Russias crude steel production stood at 18.7 mt (down 1.3% yoy) in January-March 2023 period and the country was the 5^th largest producer of crude steel.

RISKS AND CONCERNS

Your Company continuously monitors and revisits the risks associated with its business. It has institutionalized the procedure for identifying, minimizing and mitigating risks and the same are reviewed periodically. The Companys Structured Risk Management Process attempts to provide confidence to the stakeholders that the Companys risks are known and well managed. The company management has a Risk Management Team comprising of Functional heads as Champions and accountable for risks associated in their areas. The company has review mechanism of risks at regular intervals. The management of the Company has identified some of the major areas of concern having inherent risk, viz. Foreign Currency Fluctuation, Client Concentration, Technology Risks and Credit Control. The processes relating to minimizing the above risks have already been put in place at different levels of management. The management of the Company reviews the risk management processes and implementation of risk mitigation plans. The processes are continuously improved.

Risk Management comprises three key components which are as below:

i. Risk identification

ii. Risk assessment and mitigation

iii. Risk monitoring and assurance

Your Company has identified the following aspects as the major risks for its operations:

i. Market Risk - in terms of Price increase of Raw Material

ii. Foreign Exchange Risk

The risk mitigation plans are reviewed regularly by the Management and Audit Committee of your Company.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Company has in place internal control systems and procedures commensurate with the size and nature of its operations. Internal control processes which consist of adopting appropriate management systems and implementing them are followed. These are aimed at giving the Audit Committee a reasonable assurance on the reliability of financial reporting and statutory & regulatory compliances, effectiveness and efficiency of your Companys operations. The Internal Control Systems are reviewed periodically and revised to keep in tune with the changing business environment.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the year under review company concentrated on manufacturing of Bars, beams, angle rods, flats, plate, coil, slab, billets etc. Production of bars, beams angle rods etc. during the year was 2123.554 MT. and sale was 2127.370 MT. Production of plate & coil during the year was 82377.933 MT and sales were 84928.293 MT. Production of Slab, billets Stainless Steel Flat etc. was 245.610 MT and sales was 3136.325 MT. Total production of all items taken together during the year decreased from 134763.730 MT to 84747.097 MT whereas total sales decreased from 134901.980 MT to 90191.978 MT.

During the year under review Total revenue from Operations and from other operating income decreased from 906.90 crores in the previous year to 639.10 crores. Company has registered a profit of 6.69 crores in comparison to the profit of 102.86 crores during previous year.

KEY FINANCIAL RATIOS STANDALONE OPERATION AS PER SEBI LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS (AMENDMENT) REGULATIONS, 2018

Ratio	Numerator	Denominator	As at 31st March, 2023	As at 31st March, 2022	Variation	Reasons
Current Ratio	Current Assets	Current Liabilities	0.52	0.57	-8%	Not applicable
Debt Equity Ratio	Borrowings	Share Holders Equity	1.14	2.03	-44%	Due to substential decrease in the Borrowings
Debt Service Coverage Ratio	Earnings available for debt Service (Refer Note i below)	Debt Service	0.26	1.12	-77%	Due to substential decrease in the Net Profits
Return on Equity (ROE):	Net Profit after Taxes	Average Shareholders Equity	10.94%	1690.13%	-99%	Due to decrease in profit for the year
Inventory Turnover Ratio	Cost of Material Consumed + Channges in WIP/ FG	Average Invnetory	3.88	6.13	-37%	Due to substential increase in inventory
Trade receivable Turnover Ratio	Revenue from Operations	Average Trade Receivables	43.52	64.43	-32%	Due to substential increase in revenue
Trade Payable Turnover Ratio	Purchases	Average Trade Payables	3.02	4.38	-31%	Due to Substential increase in Purcahs and Reduction in trade payables
Net Capital Turnover Ratio	Revenue from Operations	Working Capital	(5.28)	(7.98)	-34%	Due to substential decrease in the Revenue from Opreation
Net Profit Ratio	Net Profit	Revenue from Operations	1.07%	11.69%	-91%	Due to substential decrease in the Net Profits
Return on Capital Employed	Earning Before Interest and Tax	Capital Employed	5.73%	82.75%	-93%	Due to substential decrease in the EBIT

Note i: Net Profit after taxes + Non-cash operating expenses + Interest + other adjustments like loss on sale of Fixed assets etc.

DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT:

The human resource philosophy and strategy of your Company have been designed to attract and retain the best talent, creating a workplace environment that keeps employees engaged, motivated and encourages innovation. Your Company has fostered a culture that rewards continuous learning, collaboration and development, making it future ready with respect to the challenges posed by ever- changing market realities. Employees are your Companys most valuable asset and your Companys processes are designed to empower employees and support creative approaches in order to create enduring value. Your Company maintains a cordial relationship with its employees. Its emphasis on safe work practices and productivity improvement is unrelenting. Your Company has more than 682 employees on its permanent rolls as on 31^st March, 2023.

DISCLOSURE OF ACCOUNTING TREATMENT:

The Company has followed all relevant Indian Accounting Standards while preparing the financial statements.

CAUTIONARY STATEMENT: Statement in this "Management Discussion and Analysis" describing the Companys objectives, projections, estimates, expectations or predictions 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 global and Indian demand and supply conditions, finished goods prices, input materials availability and prices, cyclical demand and pricing in the Companys principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the Company conducts business and other factors such as litigation and labour negotiations. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent development, information or events or otherwise.