shiv aum steels ltd share price Management discussions


Forward looking statement

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events.

The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in government regulations, tax laws, economic developments within the country and such other factors globally.

The financial statements are prepared under historical cost convention, on accrual basis of accounting, and in accordance with the provisions of the Companies Act, 2013 (the Act) and comply with the Indian Accounting Standards as pronounced by the Institute of Chartered Accountants of India (ICAI) from time to time. The Management of DC Infotech & Communication Limited has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements, reflect in a true and fair manner, the state of affairs and profit for the year.

The following discussions on our financial condition and result of operations should be read together with our audited financial statements and the notes to these statements included in the annual report. Unless otherwise specified or the context otherwise requires, all references herein to "we", "us", "our", "the Company", "Shiv Aum Steels Limited".

ECONOMIC OVERVIEW Global & India Scenario

Global Economic Overview

The world economy could achieve a soft landing, with inflation coming down and growth steady. Although inflation has declined as central banks have raised interest rates, and food and energy prices have come down, underlying price pressures are proving sticky, with labour markets tight in a number of economies.

Despite tightness in the labour market, wages have failed to keep pace with inflation in most advanced economies. The result has been weaker consumer spending. In 2023, as inflation recedes, it is possible that wage growth will ultimately exceed inflation. This will boost consumer spending.

Commodity prices that rose sharply following Russias invasion of Ukraine have moderated, but the war continues, and geopolitical tensions are high. Despite the fillips from lower food and energy prices and improved supply-chain functioning, risks are firmly to the downside.

(Source: https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-

2023 ; https://www.deloitte.com/global/en/Industries/consumer/analysis/global-economic-outlook.html )

Global economic developments have begun to take place, helped by lower energy prices, improving business and consumer sentiment, and the reopening of China. However, the OECD Economic Outlook highlights that the upturn is fragile and the recovery is set to remain weak by past standards, with the effects of tighter monetary policy increasingly being felt. The outlook underlines a range of risks, including the possibility that inflation could prove more persistent than projected and that the impact of higher interest rates on financial markets and economic activity could be stronger than expected. Well-calibrated policy measures are required to unwind the impact of the recent sequence of negative shocks to the global economy, restore economic stability, and strengthen prospects for strong, inclusive and sustainable improvements in living standards.

(Source: https://www.oecd.org/economic-outlook/iune-2023/)

Indian Economic Scenario

Despite this gloom, many market analysts believe that this could well be Indias decade. Recent data revisions by India suggest the economy has fared better than previously believed despite continuing global uncertainties. The International Monetary Fund (IMF) expects India to grow by 5.9% in FY 2023 -24 and by an average rate of 6.1% over the next five years. While betting on consumption-driven growth is obvious given Indias large, young, and rising share of the upper middle-income population (with a high propensity to spend), we believe that investment will play an important role over the next two years.

Overall outlook for the Indian economy remains positive: We expect investments to see a turnaround and thrust the economy into sustainable growth. India will likely grow at a moderate pace of 6.0%-6.5% in FY 2023-24, as the global economy continues to struggle. Growth in the next year will likely pick up as investments kick start the virtuous circle of job creation, income, productivity, demand, and exports supported by favourable demographics in the medium term.

Despite the global slowdown, exports performed well, probably because of the depreciated currency against the dollar. While goods exports remained modest, Indias services exports skyrocketed by 30% between April and February. A strong digitization drive the world over, cost-cutting measures by businesses to deal with the impending slowdown, and the growing trend of remote working increased demand for exports of services in technology, where India has a comparative advantage.

It looks like the world has come out of the shadow of the pandemic and has, in fact, learned to live with it. However, geopolitical crises, supply chain reorientations, global inflation, and tight monetary policy conditions will weigh on the outlook. We have delved into these challenges in detail in our previous outlooks.

(Source: https://www2.deloitte.com/us/en/insights/economv/asia-pacific/india-economic-outlook.html)

INDUSTRY STRUCTURE AND DEVELPOMENT

Global Steel Industry

Overview:

The steel industry is a sector involved in processing iron ore to produce steel, which is primarily an iron- carbon alloy. It encompasses various activities, such as transforming the metal into partially finished products or recycling scrap metal to create steel. The growth of the steel industry stemmed from the demand for stronger and more easily producible metals. Steel plays a crucial role in economic development and serves as the foundation for global sustainable initiatives, including the transition to renewable energy sources. Here are some key points about the steel industry:

• Steel is recognized as one of the worlds most sustainable materials due to its permanent nature, high recyclability, and being the most recycled material on the planet.

• It finds extensive application in construction, transportation, packaging, and the energy sector.

• The steel industry is among the most energy-intensive sectors, contributing to approximately 8% to 9% of global carbon dioxide emissions.

• Significant efforts are being made to reduce carbon footprints within the steel industry, considering its energy-intensive nature.

The global steel industry has witnessed significant growth and market value in recent years. The global steel market reached a value of US$874.6 billion in FY22 and is projected to reach US$1,052.25 billion by 2027, exhibiting a compound annual growth rate (CAGR) of 3.02% from 2022 to 2027 (Source: IMARC). World crude steel production reached 1,951 million tons (mt) in FY22, showing a growth rate of 3.6% compared to CY 2020.

China remains the largest crude steel producer globally, with a production of 1,032.8 mt, followed by India (118.2 mt), Japan (96.3 mt), and the US (86.0 mt), according to rankings released by the World Steel Association in FY22. Per capita finished steel consumption in FY22 stood at 233 kg worldwide and 667 kg in China. Steel consumption has continued to grow in FY22, driven by pent-up demand across various sectors.

The US experienced a strong recovery in steel demand, primarily fuelled by the automotive and durable goods sectors. Demand has also shown recovery in the EU, Japan, South Korea, and India due to improvements in steel-using sectors. In the near term, demand growth is expected to be modest while supply is anticipated to ease.

Major steel consumption sector and trend

The world average steel per capita has steadily increased from 150kg in 2001 to around 233kg in 2022. With this continuing trend, the growth and demand will increase. By 2050, steel use is projected to increase by around 20% compared to present levels to meet the needs of our growing population. Skyscrapers are made possible by steel. The housing and construction sector is the largest consumer of steel today, using more than 50% of steel produced.

Steel and cement are an integral part of the modern world. Steel is found in everything, from major infrastructure to kitchenware, while cement, as the principal ingredient in concrete, is the most widely consumed resource in the world after water. Approximately 3 metric tons of cement are used annually for every person in the world.

Moreover, demand for cement and concrete is set to increase by more than one-third by 2050, when the global population is expected to reach 9.7 billion, 70% of which will be living in cities. To accommodate this massive urban expansion, an equivalent of another New York City will be built every month for the next 40 years.

Today, it is estimated that the global steel industry used about 2 billion tons of iron ore, 1 billion tons of metallurgical coal and 575 million tons of steel scrap to produce about 1.7 billion tons of crude steel.

Source: EY Steel Report_published on Jan 2023 India Steel Industry

India is currently the worlds second largest producer of crude steel, producing 118.20 million tons (mt) crude steel with growth rate 17.9% over the corresponding period last year (CPLY). Indias finished steel consumption is anticipated to increase to 230 MT in 2030-31 from 133.596 MT in FY22.

Regd.& Admin Office: 515, The Summit Business Bay, Near Tel: 022-26827900/01/02/03/04 E-info@shivaumsteels.com WEH Metro Station, A.K. Road, Andheri (E.), Mumbai-400 093 Fax: 022-26827899 www.shivaumsteels. com

As of December 2022, India was the worlds second-largest producer of crude steel. In FY22, the production of crude steel and finished steel stood at 133.596 MT and 120.01 MT, respectively. In April- November 2022, the production of crude steel and finished steel stood at 81.96 MT and 78.09 MT respectively. 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.

In FY23 (until January 2023), the exports of finished steel stood at 5.33 MT, while the imports stood at 5 MT. In FY22, exports and imports of finished steel stood at 13.49 MT and 4.67 MT, respectively. In FY22, Indias export rose by 25.1% YoY, compared with 2021. In FY21, India exported 9.49 MT of finished steel. In December 2022 exports of finished steel stood at 4.42 lakh tonnes.

The annual production of steel is anticipated to exceed 300 million tonnes by 2030-2031. 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.

Steel Service Centres (SSCs)

A Steel Service Center functions as an intermediary link between steel producers and end users. The main role of a Steel Service Center is to perform processing requests on steel products as per customer specifications and supply the product in the exact dimensions, form and quantity demanded by customer.

SSC is primarily a value adding intermediary, taking the finished product of ISPs and providing the final customer with the customized product as per its requirement. SSCs fill in the service gap between the steel producers and the final consumers by providing supply chain management, procurement services,

technical services, stocking, processing, and just-in-time services. SSCs procure steel products in large quantities from ISPs, stock the material in inventory and process it as per the customers requirement.

Service centres usually offer varying degrees of material pre-processing which involves Slitting, Shearing, Cutting to Length, Pickling & Oiling, Plate Burning, Roll Forming, Bending etc. thus making the steel immediately usable by the final customer. The type, quantity, and sophistication of pre-processing services offered by a particular steel service centre is determined by the SSCs" scale of operations, product and customer mix. SSCs handle a variety of steel products and form the largest domestic steel industrys customer group. They serve as the steel industrys working reservoir of materials and services. Approximately 300,000 firms buy large portion of their metal requirements from SSCs.

Evolution of Role played by SSCs

Originally SSCs were steel stockists, as due to poor road and railway infrastructure, there were inevitable logistic issues, resulting in delay in delivery of the final product to the customer & SSCs by stocking goods, ensured just in time delivery. In the traditional steel service centre model, customers would procure steel from steel mills/stockyards/distributors and then get it processed as per their customized requirements from the processors/steel service centres. Thus, the customer is in the middle of the supply chain, interacting with steel mills at one end and with SSCs on the other. A schematic presentation of a SSC model is shown below:

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1

1

V

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Value Addition Need in Intermediate Services

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1

1

1

—Final 1—i/ Consumer

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Supply chain management Stocking Customization Procurement Technical services & processing Just in Time Delivery

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The SSC industry is moving towards a one-stop solution platform. As shown in the illustration above, the customer will directly procure the customized products from SSCs, thus eliminating the need to deal directly with steel mills thereby leading to one-stop solution for the customer.

Key Advantages of SSCs

? Shorter Lead Time: SSCs hold ample amount of inventory with them, which enables them to respond to the demand of their customers at the earliest

? Smaller Batches: SSCs can supply smaller quantities as against the steel producing companies which generally take up big orders

? Growing Preference for SSCs: Growing sectors like Automobile and Construction are readily accepting SSCs.

? Logistics Cost: Proximity to customer enables SSCs to save on the cost arising due to transportation, thus benefiting their customers.

? Product Range: SSCs provide their customers with enhanced product portfolio.

? Quality Certification: SSCs ensure a standard quality for the products.

Growth of Steel Service Centers in India

Before 1993: SSC Industry was highly fragmented and unorganised

1993: Set up of first service centre in the organized sector by Mahindra in partnership with Mitsubishi Corporation & Nisho Iwai Corporation

After 1993 : With growth of automobile, white goods segment & entry of MNCs, there were stringent quality requirements, tight delivery commitments & expectation of professional service leading to organized SSCs

Current Situation: Approx. 300,000 firms buy large portion of their metal requirements from SSCs

At present, some of the big names in the domestic steel sector like Jindal Steel and Power Ltd., Tata

Steel Ltd., SAIL, JSW Steel Ltd. and Essar Steel Ltd. are gradually firming up their foothold in the SSC

segment. The contribution of SSCs in India to total Indian steel production is very low as compared to

other countries where SSCs account to 15-30% of the total steel production. Thus, there is huge

untapped potential in this segment. It is estimated that SSCs will process around

25% of Indian steel output in the coming years as demand grows for smaller batches and shorter lead

times.

Looking at the entire steel market, including smaller customers served through trade, it is clear that customer requirements are complex, and they vary not only across customer segments but also within the same segment across geographies.

Road Ahead / Outlook

With the industry accounting for about 2% of the nations GDP, India ranks as the worlds second-largest producer of steel and is poised to overtake China as the worlds second-largest consumer of steel. Both the industry and the nations export manufacturing capacity have the potential to help India regain its favourable steel trade balance.

The National Steel Policy, 2017 envisage 300 million tonnes of production capacity by 2030-31. The per capita consumption of steel has increased from 57.6 kgs to 74.1 kgs during the last five years. The government has a fixed objective of increasing rural consumption of steel from the current 19.6 kg/per capita to 38 kg/per capita by 2030-31. As per Indian Steel Association (ISA), steel demand will grow by 7.2% in 2019-20 and 2020-21.

Huge scope for growth is offered by Indias comparatively low per capita steel consumption and the expected rise in consumption due to increased infrastructure construction and the thriving automobile and railways sectors.

Source: https://www.ibef.org/industrv/steel About Shiv Aum Steels Limited

Shiv Aum Steels Limited, is amongst Indias Leading Steel Service Centers with a vast range of products are mild steel products such as beams, angles, plates, channels, coils and thermo mechanically treated (TMT) bars. The Company operates as a trader, stockist and distributor of steel products. It has entered into Long-standing MoUs with Jindal Steel & Power Ltd (JSPL), Steel Authority of India (SAIL) & Rashtriya Ispat Nigam Limited (RINL) and are dealers for Mivaan Steels Ltd (Formerly JSW Ispat Special Products Ltd). It also procures steel products from various other steel manufacturers including Vandana Ispat Limited (VIL) to name a few. The company deals in various types of steel products like I - Beams, H - Beams, C Channels, Angles, T - Angles, Coils, Plates, etc., all in varied sizes as per the requirement of our customers.

FINANCIAL OVERVIEW -

The consolidated financial performance of the Company for the financial year ended March 31st, 2023, is as follows:

Total revenue from operations stood at Rs. 495.93 crore for the year ended March 31, 2023, as against Rs. 406.83 crore for the corresponding previous period, an increase of 21.90%

The EBITDA was Rs. 23.73 crore for the year ended March 31, 2023, as against Rs. 20.59 crore for the corresponding previous period, a growth of 15.21%.

EBITDA Margin was 4.78% for the year ended March 31, 2023

The PAT (profit after tax) was Rs. 14.32 crore for the year ended March 31, 2023, as against Rs. 12.49 crore for the corresponding previous period, a growth of 14.63%.

PAT Margin was 2.89% for the year ended March 31, 2023

RESOURCES AND LIQUIDITY

As on March 31, 2023, the consolidated net worth stood at Rs. 95.75 crore and the consolidated debt was at Rs. 58.87 crore.

The cash, cash equivalents and bank balances at the end of March 31, 2023 were Rs. 0.34 crore.

The net debt to equity ratio of the Company stood at 0.61 as on March 31, 2023.

RISKS AND CONCERNS

Like every business, the Company faces risks, both internal and external, in the undertaking of its day-today operations and in pursuit of its longer-term objectives. A detailed policy is drawn up and dedicated risk workshops are conducted for each business vertical and key support functions wherein risks are identified, assessed, analyzed and accepted / mitigated to an acceptable level within the risk appetite of the organization. The risk registers are also reviewed from time to time.

Strength of Steel Industry

• Easy Access to Raw Material: Iron and carbon are the key ingredients of steel, and you can easily find them on the earths ground. Easy access to and availability of raw materials plays a significant role in the growth and success of the steel industry.

• Cheap Labor: The main reason for the growth of the steel industry in China, India, and other Asian countries is because of the availability of cheap labor.

• Shipping and Transport: The steel industry has got a highly developed network of supply chains and distribution channels. It allows the company to have the access to the raw material so that the company could manufacture the steel and meet the customer demands.

Challenges of Steel Industry

• Input Prices: The steel industry faces several challenges related to input prices. The limited availability of crucial raw materials like high-grade lumpy Manganese ore, Chromite, and coking coal poses challenges.

• Raw Material Availability and Prices: In India, the coking coal quality is inadequate due to high impurities, impacting the formation of good coking coal. Additionally, the blending ratio for coal is lower in India compared to countries like the US, resulting in higher costs. The raw material, iron, is also expensive due to labor and transportation costs. Steel manufacturers often face double expenses in the form of carriage and transportation costs, which increases production costs and reduces profitability.

• Supply and Logistics: The steel industry worldwide faces challenges with transportation and infrastructure. In many countries, steel plants are located in remote areas, which makes it difficult to move the steel around. There are also problems with limited capacity, delays, and availability of railcars, which can slow down the movement of steel. Ports also have issues with slow unloading and other problems, which can cause delays. These challenges affect how efficiently the steel industry can operate and increase costs.

Credit Risk

To manage its credit exposure, Shiv Aum Steels Limited has determined a credit policy with credit limit requests and approval procedures. Company does its own research of clients financial health and project prospects before entering into an agreement with them. Timely and rigorous process is followed up with clients for payments as per schedule. The company has suitably streamlined the process to develop a focused and aggressive receivables management system to ensure timely collections.

Interest Rate Risk

The Company has judiciously managed the debt-equity ratio. It has been using a mix of loans and internal cash accruals. The Company has well managed the working capital to reduce the overall interest cost.

Competition Risk

Like in most other industries, strong scope of opportunities come with intense competition. We face different levels of competition in each of our operating categories, from domestic as well as multinational companies. Shiv Aum Steels Limited has created strong differentiators in project execution, portfolio, level of involvement in marketing and delivery, which make it resilient to competition. Furthermore, the Company continues to invest in technology and people to remain ahead of the curve. A strong and stable client base, comprising large and mid-sized corporations, further helps mitigate this risk. We counter this risk with the quality of our infrastructure, our customer-centric approach, value-added services and our ability to innovate customer specific solutions, focusing on pricing and aggressive marketing strategy, disciplined project executions, along with prudent financial and human resources management and better control over costs. Thus, we expect to be significantly insulated from this risk.

OPPORTUNITIES

• Demand for steel from different sectors will drive this industry.

• Consumption of steel by Indias infrastructure segment is expected to increase to 11% by FY26.

• Steel demand from the automotive sector is expected to increase due to rise in the demand for automobiles.

• The new Vehicle Scrappage policy will help in reducing steel prices as the policy enables recycling of materials used in old vehicles.

• The Smart Cities Affordable Housing and industrial corridors are a few government initiatives to boost the steel industry.

• About 158 lakh metric tonnes (MT) of steel are likely to be consumed in the construction of houses sanctioned under the Pradhan Mantri Awas Yojana (Urban).

• Policy allowing 100% FDI (via the automatic route) in the steel industry has boosted investments. Under the Union Budget 2023-24, the government allocated Rs. 70.15 crore (US$ 8.6 million) to the Ministry of Steel.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

The Company has an internal audit function designed to review the adequacy of internal control checks in the system which covers all significant areas of Companys operations such as accounting and finance, procurement, business operations, statutory compliances, IT processes, safeguarding the assets and their protection against unauthorized use, among others. The Internal Audit function performs the internal audit of Companys activities based on an internal audit plan, which is reviewed each year and is approved by the Board of Audit Committee. The Audit Committee reviews the report submitted by the internal auditors. Suggestions for improvement are considered and the audit committee follows up on corrective action. Disciplinary action is taken, wherever required, for non-compliance to corporate policies and controls.

The Company has also implemented effective systems for achieving highest level of efficiency in operations, to achieve optimum and effective utilization of resources, monitoring thereof and the compliance with provisions all laws including the Companies Act, 2013, Listing Agreement, directions issued by the Securities and Exchange Board of India, labour laws, tax laws etc. It also aims at improvement in financial management, and investment policy. The System ensures appropriate information flow to facilitate effective monitoring.

OUTLOOK

Shiv Aum Steel Limited is well-positioned to leverage the positive growth opportunities in the steel industry. With its established reputation for excellent performance and customer-centric approach, the company is poised for a promising future. The expanding product range of Shiv Aum Steels Ltd, including structural steels, plates, and coils, showcases its commitment to meeting diverse customer needs. By partnering with reputable steel manufacturers such as JSPL, SAIL, VSP, Mivaan Ltd and Vandana Ispat, the company ensures access to high-quality and well-established brands.

The companys primary godown in Taloja, equipped with efficient logistics infrastructure, including cranes and an in-house weighbridge, enables quick and efficient deliveries, enhancing customer satisfaction and reducing turnaround time.

In terms of industry trends, the steel sector is expected to experience continued demand growth from various sectors, including infrastructure, automotive, and affordable housing. Shiv Aum Steels Ltd is well- positioned to benefit from these growth drivers, with its ability to cater to increasing steel requirements. Furthermore, the governments focus on infrastructure development, Smart Cities initiatives, and the new Vehicle Scrappage policy will provide additional impetus to the steel industry, creating favourable conditions for Shiv Aum Steels growth.

Overall, Shiv Aum Steel Limiteds positive outlook is supported by its customer-centric approach, expanding product range, strategic partnerships, and alignment with industry growth drivers. Company is continuously focusing on increasing operational efficiencies by continuous process improvement like modernization of loading and unloading, quality control activities, customer service, consistent quality and technology development results in consistent high level of productivity.

With its strong foundation and forward-thinking strategies, the company is well-equipped to capitalize on opportunities, drive growth, and deliver value to its stakeholders in the years to come.

KEY FINANCIAL RATIOS:

(Disclosure of the following ratio changed 25% or more as compared to the previous year)

Sr. No.

Ratio Analysis

Ratio

Difference

Reasons for Differences, if Difference is More than 25%.

31-Mar-23 31-Mar-22
1 Debt Service Coverage Ratio 3.86 4.13 (6.33) _
2 Return on Equity Ratio 0.16 0.17 (2.72) _
3 Trade

Receivables Turnover Ratio

14.30 10.52 35.36 Trade Receivables Turnover Ration variance is 35.96% due to frequent fluctuation in Price of the steel the company had decided to restrict credit sales for long Period
4 Trade Payables Turnover Ratio 893.94 1066.78 (16.20) _
5 Net Capital Turnover Ratio 5.21 5.07 2.80 _
6 Net Profit Ratio 0.03 0.03 (5.97)
7 Return on Capital employed 0.23 0.23 1.98

_

8 Return on Investment 1.05 0.92 14.63

_

9 Current Ratio 2.64 2.84 (6.90)
10 Debt Equity Ratio 0.61 0.56 9.55 _
11 Inventory

Turnover

5.59 5.72 (2.31) _

HUMAN RESOURCES

We believe that our employees are key contributors to our business success. We focus on attracting and retaining the best possible talent. Our Company looks for specific skill-sets, interests and background that would be an asset for our business.

As on March 31, 2023, the Company had 29 employees on payroll. The manpower is a prudent mix of experienced and young professionals which gives us the dual advantage of stability and growth. The work progress and skilled/ semi-skilled/ unskilled resources, together with the Companys strong management team, have enabled it to successfully implement our growth plans.

The Company also imparts behavioural, technical and on the job training to our employees. Technical trainings are mandated by the vendor whenever the employees have to deal with pre-technical or post technical issues. Training calendars are set by the vendors and nominated employees from our Company attend the program and obtain a feedback on the completion of the program.