Utique Enterp. Management Discussions


OVERVIEW Global Economy

The global economy, already suffering from the effects of more than two years of COVID-19 pandemic, is experiencing yet another major negative shock. Russias invasion of Ukraine has not only precipitated a humanitarian catastrophe - with thousands of civilians killed and millions more displaced - but also resulted in a deep regional slowdown and substantial negative global spillovers.

The world economy is expected to experience its sharpest deceleration following an initial recovery from global recession in more than 80 years. Global growth is projected to slow from 5.70% in 2021 to 2.90% in 2022 and average 3.00% in 20232024, as Russias invasion of Ukraine significantly disrupts activity and trade in the near term, pent-up demand fades, and policy support is withdrawn amid high inflation.

Goods trade slowed in the first half of 2022 as supply chains continued to be affected by the lingering effects of the COVID-19 pandemic. Services trade has regained its pre-pandemic level, driven by a rebound in non-tourism services.

Global trade growth is anticipated to slow to 4.00% in 2022 as the war in Ukraine further disrupts global value chains, global activity gradually shifts back toward the less trade-intensive services sector, and international mobility moves toward pre-pandemic levels only gradually.

Global consumer price inflation has climbed higher around the world and is above central bank targets in almost all countries, which have them. Monetary policy across the world is expected to be further tightened as central banks seek to contain inflationary pressures. Pandemic-related fiscal support will also continue to be withdrawn in advanced economies.

Indian Economy

The Indian economy contracted by 6.60% during Fiscal Year 2020-2021, but witnessed steady recovery despite the COVID-19 related uncertainties. There were expectations of a strong double-digit recovery. However, an intense second wave of COVID-19 pandemic, which resulted in localized lockdowns, derailed this growth and dampened consumer sentiment.

The successful rollout of the worlds largest vaccination drive, pick-up in Government expenditure and better preparedness compared with the first wave limited the negative economic impact. The overall Consumer Price Index inflation was at 6.00% in January 2022, and could remain elevated in the near future due to high input cost pressures, largely stemming from supply chain disruptions and upward pressure on crude oil.

The Monetary Policy Committee of Reserve Bank of India maintained its accommodative stance, retaining the repo rate at 4.00% and indicating that policy support to economic growth remains a priority. The Union Government plans to boost capital expenditure, with Government spending taking the lead and attracting private investments in turn, but without derailing the fiscal deficit glide path to 4.50% by FY2026. The countrys Gross Domestic Product ("GDP") is expected to rebound by 8.90% in FY2022 based on current government estimates. For FY2023, real GDP growth is expected to be near 8.00% and fiscal deficit is projected to be at 6.40% of GDP, lower than the fiscal deficit of 6.90% of GDP for FY2022.

COVID-19 PANDEMIC

Global prospects remained highly uncertain two years into the pandemic. New virus mutations raised concerns, even as growing vaccine coverage lifted sentiment. Economic recoveries are diverging across countries and sectors, reflecting variation in pandemic-induced disruptions and the extent of policy support. The outlook depends not just on the outcome of the battle between the virus and vaccines - it also hinges on how effectively economic policies deployed under high uncertainty can limit lasting damage from this unprecedented crisis.

As already stated, the spread of COVID-19 has had severe adverse effect on businesses around the world. In many countries, including India, there have been serious disruption to regular business activities due to lockdowns, disruptions in transportation, supply chain, travel bans, quarantines, social distancing and other emergency measures. The COVID-19 pandemic continues to be around, though much subdued, and the shape and speed of recovery in the US and China will be the key to determining the nature and traction of the global economic recovery.

INDUSTRY STRUCTURE AND DEVELOPMENTS

As on June 2022, total number of contracts traded was at 48.88 crore on the MCX Exchange.

Despite the pandemic impact, the Commodity Exchanges launched slew of new products - options in goods and index futures, paving the way to attract institutional investors in the near future.

In recent years, with the globalization of the Indian economy and sensitivity of prices of commodities to global factors, commodities have witnessed heightened price volatility. This has exposed all stakeholders to price shocks, from primary producers such as farmers to end-users, such as the manufacturing sector.

The commodity markets are at a juncture where investment in education and research is important to sustain their growth. Exchanges in India have been taking various initiatives to systematically develop markets through continuous innovation, education and research focused on spreading awareness of the modern trading mechanisms facilitated by commodity exchanges.

To combat COVID-19 impact, the MCX has taken several measures like relaxation in adherence to prescribed timelines, facilitating KYC through online process, dedicated teams of employees at the Exchange premises, allowing members to operate Trader Work Stations from anywhere, an online system for generating e-Passes and relaxed compliance-related timelines.

OPPORTUNITIES AND THREATS

Trading in Commodities and Derivatives are subject to inherent risks such as credit risk, margin risk, volatility in prices of commodities and currencies, political risk, leverage risk, operational risk such as high transaction costs, regulatory changes, interest rate risk, warehousing and storage cost, etc.

Your Company Management believes that in any market; the biggest risk is not having a complete understanding of the business. Therefore, your Company Management adopts focused-based approaches in trading in order to reduce the risk and create a sustainable value creation for its stakeholders.

Total global silver demand achieved its highest level since 2015, surging 19.00% to 1.05 billion ounces (Boz) last year. Leading the way was an all-time high for silvers use in industrial applications, rising 9.00% to 508.2 million ounces (Moz).

The outlook for silver demand is promising for 2022, with global silver demand forecast to rise to a record high of 1.112 billion ounces (Boz) in 2022. The increase will be driven by record silver industrial fabrication, which is forecast to improve by 5.00%, as silvers use expands in both traditional and critical green technologies.

Physical silver investment demand is projected to jump 13.00% in 2022, achieving a 7 year high. Silvers use in jewellery and silverware is also expected to strengthen in 2022 by 11.00% and 21.00%, respectively.

Despite the prolonged worldwide chip shortage, the outlook for silver demand in automotive and 5G related applications remains robust this year. The former has been underpinned by increasing vehicle electrification, which leads to higher silver loadings per vehicle. Meanwhile, the latter has been assisted by the acceleration of building infrastructure to support 5G networks and strong demand from mobile devices.

Global gold supply levels in 2021 rose year-over-year by almost 3.00% as production in most regions rebounded from the pandemic-induced lows of 2020. Supply growth is expected to continue in 2022, as current price levels provide support for expanded production.

However, should the global economic recovery from the pandemic prove to be much slower than expected, this could weigh on base metal prices. Also, the impact of Ukraine crisis, inflationary pressures and alternate investments like stock markets play an important role on the future of these metals.

SEGMENT-WISE/PRODUCT-WISE PERFORMANCE

At present, your Company has Silver, Gold and Copper product-wise classification.

Your Company Management is optimistic on the outlook of trading in precious metals on account of improved regulatory framework, changes in geopolitical environment, better integration of markets, developing market infrastructures, warehousing facilities.

The strategy to be implemented will focus on delivering value to its shareholders and at the same time, control inherent risks in order to ensure sustainable development of the Company and protect the interests of its stakeholders.

RISKS AND CONCERNS

Risk is an integral part of the business and we aim at delivering superior shareholder value by achieving an appropriate balance between risks and returns. Commodity Trading is subject to continuously evolving market dynamics, regulatory environment due to increasing globalization, integration of world markets, newer and more complex derivative products and transactions and an increasingly stringent regulatory framework.

Our Senior Management identifies and monitors the risks on an ongoing basis and evolves processes/systems to monitor and control the same to contain the risks to minimum levels. Ongoing monitoring by our officials help in identifying risks early.

Further, we deal only with fixed contracts on physical delivery basis and also hedge the price fluctuation linked to these contracts.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has a robust system of accounting and administrative controls ably supported by an Internal Audit System with internal checks and controls to ensure safety and proper recording of all assets of the Company.

The internal audit plan is aligned with critical business risks and also involves reviewing and documenting key process risks. The scope and coverage of audits include ensuring operating guidelines, and the reliability of financial and operational information and adherence to statutory compliances.

The Internal Auditor of the Company reviews all the control measures on a quarterly basis and recommends improvements, wherever deemed appropriate, and reports to the Company Management.

The Audit Committee regularly reviews the audit findings. Based on their recommendations, the Company has implemented a number of control measures in both operational and accounting related areas, apart from the usual security related measures. The internal controls are designed to ensure that the financial and other records are reliable for preparing financial statements and other data and for maintaining the accountability of the assets.

Internal Control and Audit is an important procedure and the Audit Committee of the Company has been empowered by the Board of Directors to review the adequacy of internal financial controls.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the financial year 2021-2022, your Company continued to follow a focus-based approach in trading and focused on select precious metals commodities such as Silver, Gold and Copper.

The key financial indicators stand as follows for the financial years 2020-2021 and 2021-2022:-

Sr. No. Particulars. 2021-2022 2020-2021
1. Debtors Turnover (in days) NA NA
2. Inventory Turnover (in days) 54.11 52.80
3. Interest Coverage Ratio NA NA
4. Current Ratio 35.02 17.26
5. Net Debt to Equity Ratio NA NA
6. Operating Profit Margin 53 31.03
7. Net Profit Margin 0.32 0.39
8. Net worth ( Lac) 4,559.61 3,330.07
9. Return on Net worth 22.12% 4.39%

There are Silver, Gold and Copper segment-wise operations in the Company. There are no significant changes in Trading this year as compared to the previous year. The Company has comfortable current ratio and operating margin. It has recorded decent return on net worth despite severe constraints due to COVID-19 pandemic. As explained, since the Company is playing safe by entering in forward contracts on physical delivery basis on the MCX Exchange, the average inventory turnover is at 54 days. There are no debts or debtors for the Company.

HUMAN RESOURCES

Your Company firmly reiterates its trust that our employees are the key assets of the organization. Our Human Resource Department continuously focuses on employee engagement and motivation, which further helps in achieving strategic objective of the organization.

Your Company continuously strives to provide its employees with competitive compensation packages. During the year under review, we maintained a very cordial relationship with all the employees. As at March 31, 2022, your Company had 4 (four) permanent employees on its rolls.

Place: Mumbai For and on behalf of the Board
Date: May 30, 2022 J. R. K. Sarma Mahesh Menon
Director Director