Suraj Products Ltd Management Discussions.

GLOBAL ECONOMIC INSIGHT:

The world economy is gaining its stability and moving towards a path of encouraging growth, after recovering from a sustained period of sluggishness. Supported by buoyant financial markets, along with improvement in manufacturing and trade sectors, the global economy is expected to grow from 3.5% in 2017 to 3.8% in FY 18.

The performances of advanced economies had been promising in the second half of 2017. US based firms are anticipating a growth in their future demand. Euro zone witnessed an increased domestic demand after sustaining low growth and deflationary tendencies for some time because of geopolitical uncertainties.

If these trends continue, the world economy is expected to gain back its momentum in the medium term. However the growing trend towards protectionism could prove detrimental to global trade.

Today, however, the major players of the world economy are the developing countries and their emerging markets. These countries account for 75% of global growth; almost twice than the share they had two decades ago. Though the growth patterns in these economies are varied, there is a general sense of cautious optimism all over the world.

INDIAN ECONOMIC REVIEW:

In FY 18, Indias GDP showed promising growth of 7.8%, which was aided by encouraging macroeconomic stability. The Country recently emerged as the sixth-largest manufacturing country in the world. While this growth is being driven by the emerging urban clusters, the rural economy is also showing improvements after almost five years. The overall environment will help India gain momentum.

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:

India is expected to grow sustainability in days to come, owing to macro-economic stability, increase in domestic demand, a growing customer base comprising the youth and of course, government impetus towards reforms.

INDUSTRY STRUCTURE & DEVELOPMENT:

Sponge iron is an intermediate product as source of metalics for electric steel making. Other sources of metalics are either steel scrap or pig iron from Blast furnace.

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.712,332,080
Profit before Taxation : Rs.33,550,000
Profit after Taxation : Rs.35,799,363

OPPORTUNIES, THREATS & FUTURE OUTLOOK:

a) OPPORTUNITIES:

Sponge Iron is no longer considered as an alternative to scrap rather considered as a raw material for steel making in electric furnaces. It is being used as a principal raw material and is charged at 40-80% of the charge mix in furnaces. India has abundant reserves of iron ore and non-coking coal suitable for sponge iron making and it has been a major factor in the establishment of the Industry.

As per the National Steel Policy crafted during FY 2017-18, the core steel production target for India is set at 300 MT by 2030. Share of sponge in steel making will 80 MT, which will create huge opportunity for sponge iron industry.

Growth in the steel demand has strong correlation with growth in GDP of Nation. The Indian economy is expected to grow at a rate more than 7 % of GDP As a result the steel demand is likely to grow at expected pace. The demand for sponge Iron in medium term shall be at healthy level due to increase

in demand for steel. Increase in price at international market and unavailability of quality scrap provides huge opportunities for growth of Sponge Iron industry. Company is located in Orissa which has abundant stock of Iron ore and coal, the basic raw material for sponge iron industry & hence is ideally located to take advantage of the growing demand.

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:

The domestic consumption story is positive as is evident in the demand pull visible in automobile and other sectors. Government is also driving the economy by investing in housing, roads and ports and in other infrastructure projects. Favorable domestic demand and remunerative prices in both domestic and international markets are likely to booster steel production further in the year to come, resulting into more demand for sponge iron.

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 Company has started manufacturing of MS Ingot as a forward integration by using sponge iron & pig iron with captive power from 3 MW CPP The production & sales achieved during the year compared to previous year is given herein.

Particulars Production Sales Captive Consumption Total
MT MT MT MT
Sponge Iron 31,287 26,323 4,593 30,916
(32,580) (33,256) (Nil) (33,256)
Pig Iron 5,020 3,976 920 4,896
(9,137) (9,269) (Nil) (9,269)
MS Ingot 4,529 4,270 (Nil) 4,270
(Nil) (Nil) (Nil)

Company is continuously focusing on the quality consistency and better marketing strategies.

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 32 Medical Camps with qualified and experience medical practitioners were conducted in nearby villages and about 2,100 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.