suraj products ltd share price Management discussions

1. OVERVIEW:

The objective of this report is to covey the Managements perspective on the external environment and steel industry, as well as strategy, operating and financial performance, industrial relations, risks and opportunities and internal control systems and their adequacy in the Company during the financial year 2022-23. This should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in the report. The Companys financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS)complying with the requirements of Companies Act 2013(Act) and regulations issued by the Securities and Exchange Board of India (SEBI), each as amended from time to time.

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2. EXTERNAL ENVIRONMENT:
1. Global Economy:

Global GDP growth is projected to decline from 3.4% in 2022 to 2.8% in 2023 due to factors such as the Russia-Ukraine war and Central Banks raising interest rates to control inflation. The reemergence of COVID-19 variants in China and the ongoing war in Ukraine hampered growth in 2022. Sanctions on Russia, a major energy supplier, further hindered growth and strained supply chains. The war exacerbated inflation in developed economies. However, the recent reopening of economies may lead to a faster recovery in 2023.

2. Economic outlook:

The factors that contributed to inflation in 2022, such as rising commodity prices, expansive fiscal and monetary policies and disruptions in the supply chain, are now reversing. Global inflation is projected to decrease from 8.7% in 2022 to 7% in 2023, primarily due to lower commodity prices. Inflation picked in the United States and Europe in early 2023 but is declining in other major economies like Japan, China and India. Europe continues to face the threat of a recession as wages and consumer spending have significantly declined. Inflation is being fuelled by elevated natural gas prices, which have in turn reduced purchasing power.

3. Indian Economy:

Despite the massive global slowdown caused by Covid-19 and the continued geopolitical uncertainties due to the Russia-Ukraine conflict, the Indian economy is on a growth track and heading towards a bright future. Indias economic growth in FY 23 has been principally led by private consumption and capital formation. The production linked incentive scheme is expected to boost the domestic manufacturing sector. Overall industrial capex is set to rise to nearly 5.7 lakhs crore on average between the fiscal years 2023 and 2027 compared to 3.7 lakh crore over the past five fiscals. Nearly half of this incremental capex will be driven by PLI and new-age sectors. While industrial capex will get a push from government policies and new-age opportunities spending will continue to drive 12-16% growth in capex next fiscal, given targets under the National Infrastructure pipeline.

3. STEEL INDUSTRY:
1. Global Steel Industry:

Global steel demand is expected to increase by 1% and to reach 1815 MnT driven by select regions like India, Southeast Asia and Middle East. Steel demand in China is expected to remain stable in 2023 while its likely to recover by 0.2% in the developed world. Demand in Europe and Commonwealth nations is however expected to decline. The recovery in Global demand on account of reversing of inflationary trends and increase in infrastructure spending is expected to be slower than earlier projections.

2. Demand Outlook:

The Short-Range Outlook by World Steel had forecasted that steel demand will grow by 4.6% in 2022 and reach 1,855.4 MnT. It is expected that in 2023, the steel demand will see a further increase of 2.2% to 1,896.4 Mnt. The current forecast assumes that, with the progress of vaccinations across the World, the spread of variants of the COVID-19 virus will be less damaging and disruptive than seen in previous waves. Strong manufacturing activity bolstered by pent-up demand will remain as a significant contributor. The developed economies have outperformed the expectations by a larger margin than the developing economies, reflecting the positive benefit of higher vaccination rates and Government support measures. In the emerging economies, especially in Asia, the recovery momentum was interrupted by the resurgence of pandemic.

SURAJ PRODUCTS LIMITED

While the manufacturing sectors recovery remained more resilient to the new waves of infection than expected, supply-side constraints led to a levelling off the recovery in the second half of the year thereby preventing a stronger recovery in 2023. However with high backlog orders com- bined with a rebuilding of inventories and further progress in vaccinations in developing Coun- tries, we expect steel demand will continue to recover in 2024. Persistent rising inflation, contin- ued slow vaccination progress in developing Countries and further growth deceleration in China continues to pose threat to this forecast.

3. Indian Steel Industry:

The growth story for India remains intact despite global headwinds. The growth can be attributed to continuous Government focus on infrastructure and consumption- led demand, despite India facing supply disruption due to raw material constraints and volatility of prices. In FY 2022-23, the automotive and special products sector started off on a positive note with robust demand for passenger vehicles due to demand resurfacing with the easing of semiconductor supply situation and new model launches. Strong growth in commercial vehicle demand continued, supported by replacement demand, improvement in overall macroeconomic environment, pick-up in infrastructure, mining and construction activities and healthy fleet utilization levels. The automotive sector ended the year with overall y-o-y growth of 24% and 27% in PV and CV segments respectively. Growth in the construction sector is being propelled by infrastructure growth over the medium-to-long-term since the building construction and industrial sector has recorded sedate growth rates.

UPLIFTING RURAL DEMAND:

The Indian Government is endeavoring to create world class infrastructure in the Country. It is planning to invest 25 trillion in infrastructure over next three years; 8 trillion will be used to develop 27 industrial clusters, while 5 trillion will be used for building roads, railways and port connectivity.

CHANGING RURAL DEMAND:

Indians rural sector is slowly undergoing a transformation. Consumption patterns of people are slowly changing, facilitated by improved networking. People in villages are seeking information proactively from multiple sources, which also include social media.

INDUSTRY STRUCTURE & DEVELOPMENT:

Sponge iron & pig iron are intermediate products as source of metalics for electric steel making. Other source of metalics is steel scrap. The Sponge iron industry in India is divided into two types, those who are integrated with steel making and those in merchant sector. Suraj Products Limited is slowly graduating from a merchant plant to a steel producer.

In the Modern Eeconomy Steel is a vital component to the development. The strength of steel industry shows the growth & development of all major industrial economies. Consumption of steel is a significant indicator of socio-economic development of the people of the country. Since incubation period for setting up integrated steel plants is large, the growth in demand of steel during the year was met generally by secondary steel sector or through import of steel. One of the sources of metallics for secondary steel making sector is sponge iron and pig iron. Sponge iron industry, therefore, witnessed continued development for its product during the year. The trend is likely to continue in future. With the anticipated increase in rural spending and infrastructure, the steel demand is likely to be good.

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OPPORTUNITIES, THREATS & FUTURE OUTLOOK:

1. OPPORTUNITIES:

The sponge iron sector is linked to the Nations steel sector in such a way that a rise in demand for steel would increase the demand for sponge iron. The various sectors that are expected to contribute to the growing demand are infrastructure, roads, railways, bridges, airports, industrial plants, buildings, automobiles etc.

The renewed importance given by Government on affordable housing, roads, sagarmala projects and other infrastructure projects are expected to create steel demand, this will augur well for steel industry. As per the National Steel Policy crafted during FY 2017-18, the crude steel production target for India was set at 300 MnT by 2030.

2. THREATS:

Most of the steel producing industries are expected to witness an increase in crude steel output due to production increase post COVID-19 pandemic which had severely affected economies and industries globally, including steel industry.

The cost of iron ore and coal constitute more than 80% of cost of production. Therefore the profitability of the Company depends on market price of these raw materials. The only way to reduce the cost of iron ore and coal is to have captive mines for these raw materials, which the company does not have. The emergence of large players may pose threat due to their econo- mies of scale.

3. OUTLOOK:

The basic aim of the Company is able to produce steel as per market requirements and able to manage market trend to its advantage. Opportunities abound in growing economies and opening of economy in India has created opportunities for Indian enterprise to move beyond national boundaries as well as to create productive assets.

Since infrastructure has linkages to other industries like cement, brick and steel through back- ward and forward linkages. The outlook for the industry looks reasonable, since India has good iron ore deposits, skilled manpower and growing demand for steel. The improved demand is expected to continue in the fiscal as well as on the back of ongoing Government funded infra- structure projects. In spite of a downturn in the Global steel demand, Indian steel demand could survive showing an upward trend, setting a road ahead for the growth of the domestic industry in the long run. The upward trend is expected to be continued on account of fiscal measures taken by the Government such as infusion of funds for development of infrastructure sector, introduc- tion of stimulus packages for revival of industry besides factors like increase in consumption and production of steel, upcoming infrastructure and Greenfield projects, stabilization of prices etc.

RISK AND CONCERN:

The key risks are global steel demand scenario, domestic steel demand, economic slowdown, increase in financial charges, non-availability (or undue increase in cost) of raw materials such as iron ore, coal and labour etc., coupled with market fluctuations. The Company does not apprehend any inherent risk in long run, with exception of certain primary concerns that have affected the progress of our industry in general like:

1. Shortage of Labour
2. Rising manpower and material costs
3. Approvals and procedural difficulties
4. Lack of adequate sources of finance.

SURAJ PRODUCTS LIMITED

Apart from this the industry is highly labour intensive and is subject to stringent Labour Laws.

SEGMENT- WISE/ PRODUCT- WISE PERFORMANCE:

In accordance with the Accounting Standard 17 issued by the Companies (Accounting Standards), Rules, 2006 including any further amendments thereof, the Company has a single business segment having four products namely Sponge iron, Pig Iron and MS Ingot/Billets & TMT Bar.

COMPANYS PERFORMANCE:

Gross Turnover : 28,530.95 Lakhs Profit before Taxation : 3,571.46 Lakhs Profit after Taxation : 2600.81 Lakhs

INTERNAL CONTROL SYSTEM & THEIR ADEQUACY:

The company has adequate and effective internal control system commensurate with its size and nature of business to provide reasonable assurance that all assets are safeguarded, transactions are authorized, recorded and reported properly, applicable statutes, the Suraj Products Limited code of conduct and Corporate policies are duly complied with Internal audit and other control are reviewed periodically by Audit Committee.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS:

Company possesses good quality of human resources. The Board wishes to place on record its appreciation for the sustained efforts and devoted contribution made by all the employees for its success. The Human Recourses Department of the Company focuses on improving the work culture, employee engagement, effectiveness and efficiency. Various employee engagement inventions carried out in the year has resulted in better performance. On the safety front, the Company is focused on ensuring the safety of all employees. No Loss Time injury was reported during the year. The Company has maintained healthy and cordial industrial relations during the year.

DISCLOSURES UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION & REDRESSAL) ACT, 2013:

The Company is committed to provide a safe and conducive work environment to its employees. During the year under review, no case of sexual harassment was reported.

SAFETY MEASURES:

Suraj Products Limited has taken various initiatives during the year in order to safeguard the health of the workers. Unsafe conditions in the plant are regularly inspected by the safety committee and deficiencies are attended immediately.

SAFETY TRAINING:

Training of various Safety Standards is imparted to all employees.

HEALTH CHECK- UP:

About 10 Medical Camps with qualified and experience medical practitioners were conducted in nearby villages and about 650 patients availed the service.

CAUTIONARY STATEMENT:

The Management Discussion and Analysis Report may contain statements that might be considered forward looking. These statements are subject to certain risks and uncertainties. Actual results may differ materially from those expressed in the statement as important factors could influence the Companys operations such as Government Policies, political and economic developments and such other factors are risk inherent to the Companys growth.