surani steel tubes ltd share price Management discussions


Indian Economy

Indias economy showcased significant growth in the January-March quarter of 2022-23, with a GDP growth rate of 6.1%.

According to Quantico Research, the GDP growth in Q4 FY23 was more significant than anticipated, which was a welcome surprise. It appears to have been fueled by a general improvement in domestic drivers of private consumption, state consumption, and investments. Another consolation was the decreasing external trade imbalance. These factors contributed to an annual growth rate of 7.2%.

The growth boosted the Indian economy to US$ 3.75 trillion and prepared the ground for it to reach the US$ 5 trillion goal in the coming years.

Private consumption increased steadily and reached its highest level since 2006-07 at 58.5%, representing sustained growth, while exports of goods and services amounted to 23.5% of GDP, the highest level since 2014–15. From 2011 to 2023, Indias GDP from Manufacturing rose from C5,088.17 billion to an all-time high of C7,382.00 billion. The gross GST revenue for the _scal year 2022–2023 was C18.10 lakh crore, an increase of 22% over the prior year.

As we advance, global growth is anticipated to slow down in 2023 and remain largely muted in the following years. Indias CAD in FY24 will likely increase due to the decreasing demand driving down commodities prices globally.

However, a quick rebound mainly spurred by domestic demand and, to a lesser extent, by exports poses a downside risk to the current account balance. With the improvement of the business and banking sectors balance sheets, growth in India is anticipated to be rapid in FY24 due to a robust credit disbursal and capital investment cycle.

Even as Indias outlook remains encouraging, global economic prospects for 2023 have been weighed down by the combination of a unique set of challenges expected to result in a few downside risks.

Indian Infrastructure:

The Governments expenditure on infrastructure is a captive source of income for big infrastructure players – cement and steel makers. The infrastructure sectors strength was what let the Indian economy withstand the threat posed by the pandemic. The Governments current infrastructure spending and domestic demand are putting the nation at the peak of a positive growth cycle.

The Government of India has approved investment proposals worth C564.2 billion (US$ 6.88 billion) to state governments under a scheme that gives interest-free loans for infrastructure spending. While addressing the budget for 2023-24, the finance ministry declared that it would provide special assistance to states by extending 50-year interest-free loans worth C1.3 trillion during the ongoing

financial year.

The Governments increased spending on infrastructure in FY 24 will push engineering, procurement, and construction companies to hit revenue growth of 17-20% and shoring their pro_tability. In the Budget 2023-24, the Government has increased the outlay for capital expenditure on the infrastructure sector by 33% from C7.5 lakh crore to C10 lakh crore. This buoyancy is supported by the expected strong order in_ows owing to the Governments focus on infrastructure in the latest budget.

Government Programs

The Government has been focusing on policies to ensure world-class infrastructure creation promptly. Some of the schemes are :

National Infrastructure Pipeline: The main emphasis of this is on ease of living. It is a group of social and economic infrastructure projects slated to be established over five years. The NIP will fulfill all the crucial factors that will help India achieve its target of becoming a US$ 5 trillion economy by the financial year 2025.

National Logistics Policy: This policy aims to develop infrastructure, expand business and increase employment opportunities. This policy will attract global investments and help the country compete better with China and the USA in the globalisation age. The policy will improve the infrastructure, such as roads, rail and waterway networks, airports, logistics hubs, and digital services related to the sector. The logistics services will improve drastically and aid in Indias mission - Self-Reliant India.

Indian Water Infrastructure:

A large number of Indians experience moderate to severe water stress. This difficulty is worsened by Indias reliance on a monsoon that is becoming more unpredictable for its water needs. Even as the country experiences more _oods and droughts, climate change will likely worsen this demand for water resources. However, by tackling these problems and creating an ecologically sound framework, India has continued to lead numerous international projects to safeguard the environment and its water supplies.

Since 1980, there has been an increase in water infrastructure in India. The country conserves only a tiny portion of its erratic rainfall across regions. Unlike arid-rich countries (such as the United States and Australia) – which have built over 5,000 m3 of water storage per capita – and China – which can store over 1,000 m3 per capita – Indias dams can only store about 200 m3 per person.

The Government has taken several initiatives in this area, from establishing a dedicated ministry for water resources to putting into practice a comprehensive strategy for conservation. With the advent of the Jal Jeevan Mission in 2019, about five crore households have rapidly been provided with similar water connections over the last two years – more than the number of households that obtained such connections in the last sixty-five years. This was launched to provide all rural families access to clean and sufficient drinking water through individual household tap connections by 2024. It was designed to help the enormous and underprivileged rural Indian population.

Recently, on April 24, 2022, Mission Amrit Sarovar was launched to construct at least 75 ponds to overcome the water crisis in rural areas. Achieving resounding success in water conservation measures within months of its launch, more than 25,000 ponds have been constructed as part of the Yojana. Another initiative started for water conservation is the campaign Catch the Rain under the _agship scheme of the Jal Shakti Abhiyaan. They initiated to promote awareness and put a special action plan for rainwater conservation in the country. As part of this campaign, the Government has increased awareness of issues like planting trees, cleaning up, building puddles, and other activities.

Steel Industry

India currently ranks as the Worlds 2nd Largest Producer of Crude Steel, surpassing Japan in 2018, with an output of 33.2 MT in January-March 2023, showing a yoy growth of 3.0%. India is a net steel exporter, witnessing an export of 6.72 MT of _nished steel against the import of 6.02 MT in 2022-23. The country was a net importer of steel in 2014-15 with 9.32 MT imports Vis-?-vis the export of 5.59 MT.

Indias _nished steel consumption increased by 12.7% on the year to 119MT in 2022-23, while crude steel output rose by 4.2% against the previous year to 125MT, according to provisional data from the steel ministrys joint plant committee.

The Indian Steel Association (ISA) forecasts a 7.5% growth in steel demand in _scal year 2023-24 to 128.85MT, driven by strong infrastructure spending. The association also expects a 6.3% growth in steel demand to 136.97MT in _scal year 2024-25.

Key parameters

FY 2014-15 FY 2022-23 % increase
Crude steel Capacity (MT) 109.85 160.3 46%
Crude steel Production (MT) 88.98 126.26 42%
Total Finished Steel Production (MT) 81.86 122.28 49%
Consumption (MT) 76.99 119.86 57%
Per capita steel consumption (in Kg) 60.8 86.7 43%

Steel Pipes and Tubes

With a nearly 8% contribution to Indias steel consumption, the Indian steel pipe industry is one of the significant verticals in the Indian steel industry. Steel pipes and tubes are produced in various diameters depending on the purpose and can be divided into two categories: Submerged Arc Welded and Seamless (S&S) and Electric Resistant Welded (ERW). The industry has been valued at roughly 50,000 crores overall, with value shared equally between the two categories.

The global Steel pipes and tubes market size was US$ 94 billion in 2022 and is expected to reach a value of US$ 122.65 billion in 2032 and register a revenue CAGR of 3% during the forecast period. The primary factors driving the market revenue growth are emerging nations rapid industrialisation and growing requirement for infrastructure development. Manufacturers are constantly developing technologically advanced products to address the demand for e_cient and long-lasting steel pipes and tubes.

Due to increased demand from several end-use industries, including oil and gas, construction, the automobile industry, and others, the market for steel pipes and tubes is proliferating. Due to their extensive usage in transporting and distributing oil and gas, steel tubes and pipes are in great demand. The Worlds growing urbanisation and population, which have raised the demand for residential and commercial buildings, are other factors driving the need for steel pipes and tubes.

One of the main factors driving the growth of the steel pipes and tubes market is the rising demand for reliable and durable infrastructure, particularly in emerging economies. Due to considerable expenditures made by various governments in infrastructure projects like roads, bridges, and airports, there is an increase in demand for steel pipes and tubes.

The market is also growing due to the rising need for steel pipes and tubes in the automotive sector. Steel pipes and tubes are extensively used to manufacture automobile components such as fuel injection, structural, and exhaust systems.

Seamless steel pipes and tubes are a significant market driver due to their exceptional attributes, including high strength, corrosion resistance, and lifespan. These pipes are widely used in various systems, such as those for oil and gas exploration, hydraulic systems, and power generation.

However, the market for steel tubes and pipes also confronts several challenges, such as varying raw material costs, increased competition from replacement materials, and stringent government regulations restricting the use of particular chemicals in the manufacturing process.

About the Company

Surani Steel Tubes Limited launched its operations in July 2012 on a solid foundation built by years of industry experience. Surani Steels brand stands out as a reliable brand in steel tubes and ERW pipes sector. The Company is managed by experienced professionals with decades of experience in ERW / MS pipe and steel tube manufacturing.

Human Resource

At Surani, we have focused on creating a future-ready workforce. We nurture talent through our best-in-class working environment and numerous learning opportunities. This has helped us build a strong team with the best candidates committed to the Companys goals and values. We consistently emphasise accountability and ownership to encourage our workers to participate equally in every stage of growth journey.

Financial Performance

Particulars

FY23 FY22 %change

Reason for Change

Stability Ratios
Debt Equity Ratio 0.5 0.61 -18.25
Debt Service Coverage Ratio 0.04 2.2 -98.18 Reduced due to decrease in net pro_t

Interest Coverage Ratio Liquidity Ratios

-0.37 2.22 -116.58

Reduce due to increase in EBIT

Current Ratio 2.04 1.5 35.96 Due to increase in current asset compared to current liabilities
Debtor Turnover Ratio (days) 39 13 200 Increase in trade receivable and decrease in net sales
Inventory Turnover Ratio (days) 51 72 29.17 Decrease in inventory and decrease in sales in not in same ratio
Pro_tability Ratios
Operating Pro_t Margin (%) 0.5 3.5 -85.71 Due to increase in operating pro_t
Net Pro_t Margin (5%) -0.01 0.01 -207.02 Due to loss in current year

Internal Control System and Adequacy

The Companys internal controls are commensurate with its size and the nature of its operations. They have been designed to provide reasonable assurance about recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorised use and ensuring compliance with corporate policies. The all-encompassing control framework covers all critical business functions, including governance, compliance, audit, control and reporting.

The Companys state-of-the-art ERP system and stringent procedures ensure high accuracy in recording and providing reliable financial and operational information, meeting statutory compliances.

The Companys internal audit team keeps a close eye on business operations, and any deviations are promptly brought to the notice of the leadership. The Internal Audit reports are periodically reviewed by the management and the Audit Committee of the Board, and necessary improvements are undertaken if required.

Risk Management

At Surani Steel, our risk strategy is determined by a risk appetite de_ned by a series of risk criteria. The criteria are based on sectoral circumstances, liquidity available and our earnings target within accepted volatility limits. These criteria provide a reference for our operating divisions.

The Companys risk management framework encompasses strategy and operations and seeks to proactively identify, address and mitigate existing and emerging risks to make the business model emerge stronger and ensure that pro_table business growth becomes sustainable.

Cautionary statement

Statements in this document/discussion relating to future status, events, or circumstances, including but not limited to statements describing the Companys objectives, projections, estimates and expectations, may be forward-looking statements within the meaning of applicable laws and regulations. Such statements are subject to numerous risks and uncertainties and are not necessarily predictive of future results. Actual results may di_er materially from those expressed or implied in the statements. Important factors that could make a di_erence to your Companys operations include economic conditions a_ecting demand/supply and price conditions in the market in which the Company operates, changes in Government regulations, tax laws and other statutes and other incidental factors.