Suraj Products Ltd Management Discussions.

GLOBAL ECONOMIC INSIGHT:

In 2018, the global economy grew at a rate of 3.6%. The year was marked by various political uncertainties such as future trade disputes between USA and China, upcoming Brexit negotiations, budgetary policy of Italy, among many others. These global tensions are expected to affect the global growth in 2019 as well. The global economy is expected to grow at a rate of 3.3% in 2019 and 3.6% in 2020. Negative effects of tariff increase in US and China and slow growth momentum in Europe in second half of 2018 have led to the drop in growth estimates.

The demand for steel generated by numerous development projects across the world, especially in infrastructure and real estate projects in the emerging markets and developing economies has made it an important sector globally. In 2018, US steel sector grew at a steady pace. Growth across the rest of the World was slow due to atypical circumstances. Chinas steel demand increased in the early half of 2018 due to boost in the real estate and positive impact of strong global economy. However, later half of 2018 witnessed slow growth, tough environmental regulations and economic rebalance.

For 2019, demand in US is expected to be modest due to slow auto manufacturing and construction activity. The manufacturing sector is expected to perform well due to the strength of the machinery and equipment sector.

Both upside and downside risks exist for China. The downside risks are mainly due to ongoing trade friction with the US coupled with a decelerating economy. But in case China decides to use measures to contain the slowdown its economy, steel demand could boost in 2019.

Indias steel demand is expected to improve as the nation recovers from the twin shocks of demonetization and GST. Increasing investments and infrastructure programs are also expected to enhance steel demand.

From its position as the third largest steel producer in 2017 to the second largest producer of crude steel in 2018, India has definitely seen a positive slope. The nations investment in the infrastructure sector is the biggest contributor to its steel sector growth. The Governments policy guidelines addresses the need to create a conducive environment to improve the efficiency and productivity of the steel sector.

INDIAN ECONOMIC REVIEW:

Factors such as continued domestic consumption and investment trends have positioned India as the sixth largest economy and one of the fastest growing countries in the World. The growth in the domestic consumption demand is catalyzed and strengthened by factors such as harmonized of Goods and Service Tax (GST) and recapitalized Bank. Indian Economy grew by 6.8% in 2018-19 as compared to that of 6.7% in 2017-18. Agriculture and manufacturing are the two key industry sectors that are expected to contribute to this growth graph.

UPLIFTING RURAL DEMAND:

The Indian Government is endeavoring to create world class infrastructure in the Country. It is planning to invest Rs. 25 trillion in infrastructure over next three years; Rs. 8 trillion will be used to develop 27 industrial clusters, while Rs. 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.

The GST is being seen as a crucial reform, as it is anticipated to bring greater transparency in the countrys indirect tax structure.

OUTLOOK:

Post elections and stable Government, it is expected that thrust on infrastructure projects will renew. Also liquidity infusion and project finance will become easier and spurt growth in housing and infrastructure sectors. This will lead to remunerative prices and business sustainability.

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.

COMPANYS PERFORMANCE:

Gross Turnover : Rs 1,168,274,939
Profit before Taxation : Rs 63,713,525
Profit after Taxation : Rs 62,958,859

OPPORTUNIES, THREATS & FUTURE OUTLOOK:

a) OPPORTUNITIES:

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 sponge iron and pig iron industry.

As per the National steel policy crafted during FY 2018-19, the crude steel production target for India is set at 300 MT by 2030. Share of sponge iron & pig iron in making steel will be 80 MT, which will create huge opportunity for sponge iron industry.

b) THREATS:

Presently there are no visible threats in the short and medium term in the sponge iron industry. However availability of key raw materials and environmental concerns might pose significant challenge in the future.

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 economies of scale.

c) OUTLOOK:

Post elections and stable Government, it is expected that thrust on infrastructure projects will renew. Also liquidity infusion and project finance will become easier and spurt growth in housing and infrastructure sectors. This will lead to remunerative prices and business sustainability.

The Government of India has initiated favorable measures for restricting imports. The initiative has provided necessary support for the steel industry in maintaining prices.

RISK AND CONCERN:

Increasing trend in raw material prices and non- availability of good quality raw material is the area of concern for the Company. Company is keeping close watch on these and taking appropriate steps timely.

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 three products namely Sponge iron, Pig Iron and MS Ingot.

The production & sales achieved during the year compared to previous year is given herein.

Particulars Production MT Sales MT Captive Consumption MT
Sponge Iron 37,153 18,680 10,405
(31,287) (26,323) (4,593)
Pig Iron 9,734 6,259 3,250
(5,020) ((3976 (920)

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 the following 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 36 Medical Camps with qualified and experience medical practitioners were conducted in nearby villages and about 3,100 patients availed the service.

CAUTIONARY STATEMENT:

Companys objectives, expectations or forecasts may be forward-looking within the meaning of applicable securities laws and regulations. Actual results could differ materially from those stated above. Important factors that could make a difference to the Companys operation include, among others, economic condition affecting demand/supply and price conditions in the market in which the company operates, changes in Government regulations, tax laws and others statutes and incidental factors.