Steelcast Ltd Management Discussions.


to the Boards Report:


Company overview

Steelcast Ltd is a well known name in the Steel & Alloy Steel castings industry. It manufactures casting products using No Bake and Shell Molding processes. The Company continued its growth in 3rd straight year after a medium spell of recessionary years. The Company kept on working on its strategy of reducing sector specific dependency during the year. The Company benefitted significantly during the year as the market improved a lot. The Company continued catering to the main sectors like earth moving equipment, mining & mineral processing, railways, steel plants, cement, locomotive etc. The Company looking for new opportunities in new industrial segment and products. The improvement is happening steadily.

Awards and recognitions received during2018-19

a. The Company received 3rd IPF Industrial Excellence Awards on December 13, 2018 at NSE, Mumbai, as winner in Auto Ancillary (Medium) category.

b. Accreditation from National Accreditation Board for Testing & Calibration Laboratories (NABL) for our testing Laboratory.

c. Certified as per EN: 9100/2018/AS 9100 D for scope "Manufacture of Ferrous Castings for Aerospace application

The war of tariff is at the center stage of global trade scenario. Our Company is no exception to these developments. The Companys exports are higher than domestic sales and such developments of this nature will have its impact on our business to some extent. Amidst of all these circumstances, we expect our Sales for FY 2019-20 to be higher compared to 319.34 Cr sales of FY 2018-19.

Industry Structure and Developments:

1.0 Mining Industry: Sales during FY 2018-19 were 93.29 Cr which shows a little improvement compared to previous year. We expect this be better in coming year FY 2019-20.

1.1 Domestic: We had developed Ground Engaging Tools (GET) parts for a customer in this segment during FY 2018-19 and the entity have started placing orders on our Company for the same.

We expect this will contribute in increasing our turnover in FY 2019-20.

1.2 Exports: The customers in this segment are performing well and expect the same performance will get repeated in FY 2019-20.

2.0 Earth Moving Industry: Sales during FY 2018-19 were 142.00 Cr. We expect this to be a little higher over the previous year. In the year FY 2019-20. This sector is leading in terms of turnover.

2.1 Domestic: Sales during FY 2018-19 are 75.00 Cr. We expect this to be almost same in FY 2019-20. The outlook seems stable in this domestic market.

2.2 Exports: Sales in FY 2018-19 were 67.00 Cr & we expect this to be higher in FY 2019-20.

3.0 Construction Equipment: Sales during FY 2018-19 were 54.12 Cr. The contribution from this segment is quite good in total turnover. We expect this to be of same level in FY 2019-20.

4.0 US Railroad Industry: This market is now showing some signs of recovery and increase in business from FY 2020-21 onwards. Our alliance partner in USA has so far not been able to penetrate this market. We are working on other alliances/representation in USA to penetrate this market in big way.

5.0 Partnering with Indian Defence Units: The Company is making its constant endeavour to contribute to the building of the nation by partnering with the Indian Defence units. The Company submitted samples of steel castings which are approved and the customer awarded trial order valuing 2.70 Cr to start with in this segment.

Industrial opportunities and outlook:

The Indian economy has been progressing well despite temporary hiccups like demonetisation and GST implementation. Recognised as the sixth largest economy globally, the Indian economys strong growth momentum helped it regain the tag of being one of the fastest growing economies on a global landscape. Due to likely trade war between USA &China and sanction issue on Iran, the Company expecting slowdown in global market. However, stable Govt at Centre is expected to come to rescue to the Indian industry which may face such global challenges.

Financial Performance snapshot:

(? in Lakhs)

Particulars 2018-19 2017-18
Sales/Income from Operations 31,792.46 23,339.46
Other Income 141.56 172.61
Sub-Total 31,934.03 23,512.07
Total Expenditure 25,918.49 19,035.34
(before Interest & Depreciation)
Operating Profit (EBIDTA) 6,015.54 4,476.74
Operating Margin % 18.92% 19.18%
Profit/(loss) After Tax 2,492.30 2,075.18
Return on Capital Employed % (EBIT) 28.73% 25.93%
(ROCE=Total Equity + LT Borrowings)
No. of months Receivables 2.14 2.71
Current Ratio 1.41 0.97
(Current Assets/Current Liabilities)
Debt Equity Ratio 0.35 0.24
(Long Term Borrowings/Net Worth)
Production (in MT) 13,219 12,684

Disclosures of key changes in financial indicators Key Financial Ratios:

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

Sr. No. Ratios Change compared to Previous year Remarks
1 Debtors Turnover 26.92% Timely realisation from customers coupled with increase in sales by 35.82 % Both the changes had positive effect.
2 Inventory Turnover 129.64% Reduction in total Inventory coupled with increase in Sales by 35.82 %. Both the changes had positive effect.
3 Interest Coverage Ratio 35.76% Reduction in finance cost & improvement in EBIT had combined effect has resulted into higher interest coverage ratio.
4 Current Ratio 45.36 % 1. Refund from Govt authorities has improved over the last year.


Sr. No. Ratios Change compared to Previous year Remarks
2. Significant reduction in working capital borrowing over the last year. 3. Significant reduction in Trade Payables over the last year and corresponding higher decrease in Current Liability compared to Current Assets.
5 Debt Equity Ratio 45.83% Increase in Long Term debt neutralised improvement in net worth thus resulted into adverse change in debt equity ratio.
6 Operating Profit Margin 35.67% Better cost control coupled with higher revenue resulted into better operating margin ratio.

Quality Assurance:

As a Company policy, we are committed to total customer satisfaction both in terms of quality and services in a healthy, safe & environmentally responsible manner. The Company is committed to:

• Deliver goods with excellent performance and at reasonable price

• Comply with applicable legal & other requirements

• Adopt programs for prevention of pollution, improving health & safety performance, resource conservation and waste reduction

• Continual improvement in our quality, environmental and occupational health & safety performance through efficient systems and procedures.

We encourage teamwork, co-operation, education and training of all our people to fulfill our commitment to quality, environmental and OH&S management system in our operations.

During 2018-19, we undertook following initiatives to further strengthen our quality parameters:

(a) A dedicated team is working to eliminate inclusion related defects.

(b) Prime Quality Steel scrap as a Metallic Charge-mix having low Sulphur, Phosphorus and lower gas level used for critical part production.

(c) A special Task force is working on Quality up gradation of specific product having Cost of Poor Quality (Internal + External).

(d) Castings having Higher Cross-section thickness (> 200mm), Micro alloying added to eliminate Hydrogen induced Crack below bigger riser.

(e) Daily Quality round with Cross-functional Team at fixed schedule time to make 1st observation of Shakeout casting & immediate Corrective actions-If required.

(f) By design development and implementation of Special probe under Ultrasonic test for subsurface defect detection , resulting customer complain reduced significantly.

(g) Welder Qualified by adopting stringent Test Procedure incorporating Bend Test along with Radiography.

(h) To counter Stress generated Crack during Re-gas cutting, Intermediate Tempering introduced in between Normalising -Hardening having casting higher Cross - section (>200mm).

Research and Development:

Since 1976, the Companys in-house R&D is recognised by DSIR (Department of Scientific and Industrial Research). The Company is involved in manufacturing high quality products through R&D activities across product development, technology upgradations and process improvements. The R&D team has hands-on foundry experience that combine with in-depth knowledge of latest metallurgy & foundry technology. The department is equipped with state-of-the- art equipment with digital calculations to monitor mechanical & chemical testing results having NABL Accreditation. A modern version of software for methoding is utilised with expert engineers. Dedicated sets of equipment are installed to carry out testing of different sands including resin Coated & No-Bake sands and test critical parameters of quenching media (Water & Polymer). A Strong sub-section in R&D allows us to do conduct complete failure analysis and give latest technical inputs based on Fractography & SEM/EDS report. Our constant efforts on R&D have allowed us to maintain ever -increasing demand of high-end products by global customers, especially in the high strength materials. Our initiatives have helped us get orders for items requiring import substitution with international specifications through pilot batches mechanism followed by bulk orders.

Going ahead, the Company will further undertake the following R&D strengthening initiatives:

(a) Development of High Toughness(Charpy Impact @ -40C) and High Tensile (High Hardness) material through

Polymer quenching for GET( Ground Engineering Tool) Parts casting.

(b) Control of Oxide inclusion to meet cleanliness of metal by improved technique of Ladle inoculants of induction furnace metal.

(c) Derive benefits out of the improvised launch of CIP (Continuous Improvement Plan) to get innovative ideas from employees

(d) Development of Zirconium Aluminate high performance water base coating for better Surface finish of casting.

(e) Optimise different Polymer Quenching Concentration to establish Crack free casting with High Hardness (450BHN).

(f) Study & Investigation of role of presence of Serpentine in Chromite sand and its adverse effect on casting.

(g) Study and investigation of presence of Cr2O3 in Chrome magnesite furnace lining material to increase Induction furnace lining life..

Human resources and industrial relations:

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 employs more than 1300 employees, directly and indirectly.

The Company is conscious of its strong corporate reputation and the positive role it can play by focusing on "EHS" aspects. Towards this, the Company has set very exacting standards in "EHS" management. The Company recognises the importance of "EHS" aspects in its operations and has established comprehensive indicators to track performance in these areas. The Company values the safety of its employees and constantly raises the bar in ensuring a safe work place.

Risk Management :

The Company recognises that every business has its inherent risks and it is required to possess a proactive approach to identify and mitigate them. Your Company has embedded an efficient organisational risk management framework,

which regularly scans all possible internal and external environment to identify risks, decide on possible mitigation plans and incorporate them in its strategic plans. Some of the key risks include industry risk, foreign currency fluctuation, client concentration, technology risks and financial risk. The processes relating to minimising of the above risks have already been put in place at different levels of management. The risk mitigation plans are regularly monitored and reviewed by the Management and Audit Committee of your Company. Long-term and medium-term strategy:

The Company has strategies for business development to cop up with the dynamic situation evolving everyday globally. Your Company is subject to all the positive & negative effects of the change in the global scenario. Your Company works on long term and medium term strategies to deal with the challenges:

a. Long-term Strategy:

a) Widening of customer base

b) Entry into new industry segments

c) Development of new casting products for existing customers

b. Medium-term Strategy:

a) Improvement in product quality

b) Control & minimising rejections

c) Cost reduction

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.

For and on behalf of the Board of Directors
Place: Bhavnagar (Chetan M Tamboli)
Date : May 30, 2019 Chairman & Managing Director