Stelco Strips Ltd Management Discussions

STELCO STRIPS LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS a) Industry Structure and Developments The business line of your Company comprises of flat steel products entailing cold rolled (CR) ,galvanized plain(GP) and galvanized corrugated (GC) steel sheets/coils/strips which fall under the single business segment of Steel. Indian steel industry is highly fragmented particularly in downstream segment with large number of organized and unorganized players. It can be broadly classified into primary and secondary sectors. The primary sector produces billets, ingots, hot rolled coils, plates. These form raw materials for the secondary sector which produces pipes, cold rolled & galvanized products. The operations of your Company are in secondary steel segment with product mix of cold rolled and galvanized steel sheets/strips catering to automobile, hardware, housing, consumer durables, infrastructure and other engineering sectors. The gloomy global macroeconomic environment coupled with slackening of growth in domestic market poses major challenges for the overall steel sector including your company s plans of revival. b) Companys Performance: The operations of your company have been meager during 2011-12 due to stifling liquidity crunch caused by erosion of net worth/working capital by accumulated losses . The turnover & other income of the company for the year 2011-12 sharply decreased to Rs. 9.57 crores in comparison to Rs.44.38 crores in the previous year 2010-11. The net loss for financial year ended 31st March,2012 is Rs. 5.15 crores. Your company has filed reference with the Board for Industrial and Financial Reconstruction(BIFR) under Section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985 on 08.02.2012 and it stands registered vide Case No. 27/2012. Your company continued to be in default to the lending banks in meeting financial commitments in view of operational and financial constraints but it adopted proactive approach to address this grim situation by pursing one time/negotiated settlement of bank dues by hiving off /sale of plant facilities and balance by private arrangement of funds by promoters including provision for paying off statutory dues. During the course of discussions for settlement of dues with lead banker viz. State Bank of Patiala and prior to the culmination of these discussions into approval of One Time Settlement (OTS) envisaging inter- alia proposal of sale of companys plant facilities at G.T.Road, Doraha to an affiliate of an internationally recognized steel conglomerate in India , the company received demand notice dated 13.02.2012 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) Act, 2002 from State Bank of Patiala inter-alia calling upon the company and its directors/ guarantors payment of amounts mentioned in the notice together with interest etc. within 60 (sixty) days from the receipt of the notice & restraining transfer by sale/lease or otherwise of secured assets. Your company replied to this notice and requested State Bank of Patiala for its withdrawal to facilitate contemplated transactions of sale in its approved OTS to be completed without any threat or apprehension of proposed action under SARFAESI Act,2002. However the bank did not accept request for the withdrawal of the notice but terms of OTS were not agitated . Your company vigorously stepped up efforts for negotiated settlement of dues with other lending banks so as to implement the conditions attendant in One Time Settlement scheme approved by the lead banker. However these efforts of your company was constrained by the fact that each of the other lending/consortium banks have its own system / mechanism of considering and approving settlement of dues including granting of concessions /sacrifices even on the lines of those approved by the lead banker. Consequently the financial year was scheduled to be extended so as to close on 30th September ,2012 so that the financial year itself depicts the outcome of one time/ negotiated settlement of dues being pursued with the banks. However uncertainty still persists as to implementation of the one time settlement/ negotiated settlement of dues before 30th September, 2012 . So it was decided not to go ahead with the extension of the financial year and continue to adopt usual annual closure of 31st March c) Dividend The directors regret their inability to declare any dividend in view of losses. d) Outlook & SWOT Analysis The operations of your company are presently standstill with the wiping out of its net worth /working capital by losses resulting into disconnection of electricity connection of both plants and mopping up of bank & statutory dues in the nature of provident fund, employees state insurance, income tax etc. There are apprehensions of threatened litigations. Against this backdrop ,your company proposes to take measures for rehabilitation/revival of operations in consultation /approval of the lending banks /BIFR and is of confident of positive outcome in view of following areas of strength and opportunities despite exposed to threats/weakness as stated below : Strength 1. Independently located 2(two) manufacturing facilities - any of which can be hived off / disinvested for long term viability of the company. 2. Surplus moveable assets to infuse liquidity through sale with the permission of the lending banks/BIFR. 3. Manufacturing units having intrinsic strength & economic values to get replaced with alternate market oriented manufacturing lines /supplement the existing facilities. 4. Strategic advantage of being located in industry friendly area having all infrastructural amenities. Weaknesses 1. Stifling liquidity/working capital crunch presently constraining the operations of the company. 2. Working capital intensive nature of existing operations of the company & tightening of available trade credit. 3. Erosion of net worth of the company 4. Volatile economic scenario Opportunities 1. Expected reliefs/concessions under SICA ,1985 including suspension of legal proceedings to assist rehabilitation of the company in the interest of all stakeholders if the company gets registered as Sick Industrial undertaking . 2. Revival of operations if working capital concerns are addressed . 3. Being listed company, infusion of funds / liquidity through private arrangements /strategicinvestors if adjustments /set off in disproportionate levels of debts /dues through debt rehabilitation plan are permitted without proposed takeover /sale of units under SARFAESI Act, 2002 Threats 1. Disruption of relationships with lenders and creditors and legal proceedings thereof 2. Loss of business from customers on account of supply constraints 3. Credit risk that can arise from deterioration in the financial health of any customers 4. Loss of key managerial personnel/manpower leaving of company Internal Control System Your Company has adequate internal control system commensurate with the size and nature of business to ensure utilization and protection of assets, compliance with statutes and proper recording of transactions. M/s. Parshotam Singla & Associates, Chartered Accountants conducts internal audit of affairs of your company. Your Company has also an Audit Committee which inter-alia reviews internal control system of the company from time to time. Industrial Relations Industrial relations remained harmonious during the year under review. Corporate Governance Pursuant to Clause 49 of the Listing Agreement, Corporate Governance Report, certifications and Auditors Certificate regarding compliance of conditions of Corporate Governance are annexed to the Directors Report as Annexure-I. Cautionary Statement Statements in the Management Discussion and Analysis Report describing the Companys expectations, estimates, and projections may constitute forward looking statements within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied.