Steelco Gujarat Ltd Management Discussions

INDUSTRY STRUCTURE, DEVELOPMENTS, OPPORTUNITIES AND OUTLOOK

The purpose of this report is to present Managements viewpoint on the external environment and the steel industry, alongside discussing strategy, operational and financial performance, significant developments in human resources and industrial relations, risks and opportunities, and the adequacy of internal control systems within the Company for the fiscal year 2023-24.The Companys financial statements have been prepared in compliance with Indian Accounting Standards (Ind AS), as per the requirements of the Companies Act, 2013, and regulations set forth by the Securities and Exchange Board of India (SEBI).

Global Economy and Steel Industry

Worldsteels Short Range Outlook forecasts stable Chinese steel demand in 2024, aligning with 2023 levels, but anticipates a 1% decline in 2025. Globally, steel demand is projected to rebound by 1.7% this year to 1.793 billion metric tons, followed by a 1.2% growth in 2025 to 1.815 billion metric tons. Despite challenges such as Russias invasion on Ukraine, inflation, and geopolitical uncertainties, the global economy shows resilience. In the developed world, steel demand is expected to strengthen with 1.3% growth in 2024 and 2.7% in 2025, bolstered by robust investment activities, particularly in the U.S. and potential global decarbonisation efforts, though geopolitical tensions and fiscal concerns pose risks.

Indian Economy and Steel Industry

Steel, a cornerstone of industrialization, is pivotal due to its role as both raw material and intermediary product. It signifies a countrys economic prowess, making the steel sector vital to industrial progress and foundational to any economy. In India, the steel industry is categorized into major producers, main producers, and secondary producers. As the worlds second-largest producer of crude steel, India produced 125.32 million tonnes (MT) of crude steel and 121.29 MT of finished steel in 2023, with production expected to grow by 4-7% to 123-127 MT in 2024. This growth is underpinned by abundant domestic raw materials like iron ore and cost-effective labour, bolstering the sectors significant contribution to Indias manufacturing output. Indias steel mills are modern, emphasizing continuous modernization and enhanced energy efficiency across facilities.

Indias steel industry is a key focus amid efforts to bolster manufacturing under initiatives like Make in India. Contributing about 2% to GDP, India ranks as the worlds second-largest steel producer and aims to surpass China as the second-largest consumer. This growth potential not only enhances export manufacturing capacity but also aims to improve Indias steel trade balance positively. The National Steel Policy targets a production capacity of 300 million tonnes by 2030-31, with per capita steel consumption rising from 57.6 kgs to 74.1 kgs in recent years. The government aims to double rural steel consumption to 38 kgs per capita by 203031, supported by expected 7.2% annual growth in steel demand driven by infrastructure, automobile, and railways sectors.

The Ministry of Steel, Government of India has undertaken several initiatives to boost the steel sector. Some of the major initiatives include:

1. National Steel Policy (NSP)

2. Production Linked Incentive (PLI) Scheme

3. Rashtriya Ispat Nigam Limited (RINL) Disinvestment

4. Amendment to Mines and Minerals (Development and Regulation) Act

5. Infrastructure Development

6. Research and Development (R&D) Initiatives

7. Promotion of Steel Usage

8. Skill Development

These initiatives are part of the governments broader strategy to strengthen the steel sectors contribution to Indias economic growth, enhance its global competitiveness, and achieve sustainable development goals.

OPPORTUNITIES, THREATS, RISKS AND CONCERN

Growth in exports ensures huge access to global markets. The Stable Government at the center with policies in place for development of economy along with steel industry. The Steel consumption and production are expected to grow with pace year-on-year basis

Against the vast opportunities, certain likely threats and risks associated are :

• Demand balance.

• Excess volatility in steel and raw material markets

• Dumping of excess inventory in other countries by countries producing steel in abundance.

• Overcapacity and oversupply in global steel industry.

• Cheaper imports and raw material deficiencies may lead to low capacity utilization despite of the capacity of Indian steel sector to work at full capacity level.

• Competition from substitute materials may lead to change in demand pattern.

• Financial and taxation policy of Government.

The Indian steel industry still writhes with high cost of power, fuel and transportation, which are expected to be addressed by Government by various measures. Continuous capacity expansion of integrated steel manufacturer for processing value added products are resulting into increase in their market share at the cost of secondary manufactures and resulting into squeezing margins due to keen competition. To stay ahead, it shall be the endeavour of your Company to continue developing more and more value added specialized products (Niche) and better product mix and geography mix to ensure its own growth.

The volatility of currency contributes to high risk and to minimize the impact of the same a prudent policy of necessary hedging / forward sales may be adopted, as may be required, to draw the balance between the forex asset and liabilities.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONS

The overall sales in revenue including other income during FY 2023-24 stood at 30.82 Lakhs and net profit of 15,785.35 Lakhs. This is against the revenue of FY 2022-23 of Nil and a net loss of 745.71 Lakhs in the previous year. The Net profit was as a result of exceptional items resulting out of writing off of the following items:

1. Extinguishment of Financial Creditors after final settlement

2. Extinguishment of Operational Creditors

3. Advances from Customers

4. Other Non-Current Asset

5. Deposits not Receivable

6. Extinguishment of Interest

7. Extinguishment expenses Payables

8. Cash

9. Extinguishment of Statutory Liabilities

10. Extinguishment of Preference share capital Liability

11. Bed debt againts sundry debtots

1. The Company has been un-operational since November, 2019.

2. The Company was admitted to Corporate Insolvency Resolution Process (CIRP) vide order CP(IB) No. 342/NCLT/AHM/2020 dated 31.12.2020 by Honble National Company Law Tribunal, Ahmedabad Bench, Court No. II (Honble NCLT) and Mr. Nirav Anupam Tarkas, Chartered Accountant was appointed as Interim Resolution Professional (IRP). Subsequently, at the first CoC Meeting held on 10.02.2021, his appointment was confirmed as Resolution Professional (RP).

3. The Company is in process to enter into agreement with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) whereby shareholders have option to dematerialize their shares with either of the depositories.

4. Honble NCLT has passed an order vide No. IA No. 763/AHM/2022 in CP(IB)/342/AHM/2020 dated 31st July, 2023 approving Resolution Plan submitted by M/s. Next Orbit Growth Fund III - the Resolution Applicant for Steelco Gujarat Limited (the Company)

5. The New Management (the Resolution Applicant) is in process of implementation of the Resolution Plan.

INTERNAL CONTROL SYSTEM AND THEIR EFFICACY

The Company has in all material respects sound Internal Financial Control system in place, commensurate with the size, scale and complexity of its business operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use or losses executing transaction with proper authorization and ensure compliance of corporate policies.

The Company has designed and implemented a process driven framework for Internal Financial Controls ("IFC") within the meaning of the explanation to section 134(5)(e) of the Act. For the year ended on 31st March, 2024, the Board is of the opinion that the Company has in all material respects sound Internal Financial Control system in place, commensurate with the size, scale and complexity of its business operations, however, they are required to be strengthened further and its operative effectiveness requires improvement. The Company has a process in place to continuously monitor the same and identify gaps, if any, and implement new and / or improved internal controls whenever the effect of such gaps would have a material effect on the Companys operations.

STATUTORY COMPLIANCES

Since November 2019, the Company has ceased operations, leading to the absence of any business activities and was in Corporate Insolvency Resolution Process (CIRP). Resolution Applicant (New Management) is committed to statutory compliances.

QUALITY

Your Company believes in branding its products for sustainable and long term growth, through customer satisfaction that goes beyond contractual obligations, improvement in quality, and resolution of customer complaints with a target of improvement in reduction of complaints from time to time. In todays global competition and open economy, quality plays a vital role in marketing the products and in staying ahead of others. Therefore, more emphasis is being given to manufacturing of products that meets high standards of quality in the global market and customers satisfaction. Proactive efforts are directed towards determining customers requirements and achieving all-round customer satisfaction. This is primarily aimed to be achieved through automated systems, high attention to complaint resolution, online communication, and information exchange, at various levels.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS

Since November 2019, the Company has ceased operations, leading to the absence of any workforce and a lack of significant developments in Human Resources and Industrial Relations. As a result of its non-operational status, there have been no personnel employed during this period, and there have been no noteworthy changes or advancements in the areas of Human Resources or Industrial Relations within the Company.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

Since the Company has not been in operation since November, 2019 and was in CIRP, most of the financial ratios are not applicable and hence not mentioned.