(a) Industry Structure and Development:
The management of Vardhman Industries Limited presents its analysis report covering
performance and outlook of the Company. The Indian Steel Industry remains one of the most
competitive steel industries in the world. However, there is a need to create a fair level
playing field amidst supply glut caused by surplus capacities in steel surplus countries.
India has emerged as one of the brightest spots in the world grappling with economic
turbulence and fragile growth. In the financial year 2018-19 growth rate is estimated
around 7% driven by the fundamentals of strong consumption and the governments push for
streamlining the business processes. Focus on infrastructure creation, extensive
urbanization/ Smart Cities, make in India, startups and promoting affordable housing
policy initiatives by the Government of India augers well for healthy growth in Steel
demand in India in the years to come.
There has been a sharp contraction in exports besides pressure of increased NPAs and
stressed assets. Despite all this, the Steel Industry in India and at global level trying
to perform well. Even though the Steel Industries is poised for handsome growth but there
are challenges also for the global economy which include increasing protectionism in
various countries, increasing global debt and rising interest rates and rising crude oil
prices. Beside there is also a big challenge in currency fluctuations worldwide and U.S.
Dollar vis-a-vis Indian Rupee for the Indian Economy.
The consumer confidence remains upbeat, while the corporate sectors expectations of
business conditions also remain positive. Overall, the Indian economy is poised to realize
the benefits of higher government spending, policy initiatives, rural demand and
continuing reforms and thrust on infrastructure development.
Steel demand in India is expected to grow in the current year on the back of reform
momentum in India that remains better than in many countries. The construction industry is
expected to rise further due to governments thrust on Housing Sector. Hence, it is
expected that domestic steel demand is going to register healthy growth soon and for the
long time as well.
Indian Economy:
The Government of India introduced the Goods and Services Tax Act (GST), two years ago
besides other economic measures like Promulgation of Insolvency and Bankruptcy Code to
improve asset quality of Banks which will further result in growth of the economy and
enhance the ease of doing business in India. The fundamentals of Indian economy continued
to improve during the year.
(b) Companys Performance:
(i) Product Portfolio:
Your Company is mainly engaged in the manufacturing and marketing of CC Coils/Sheets
which fall within the single segment of "Iron & Steel Industry."
(ii) Highlights: The highlights of the financial year 2018-19 have been as under:
The Company recorded a loss of Rs. 549.43 lakhs as compared to loss of Rs. 5154.38
lakhs in the previous year.
Various measures launched during the year to improve the quality of cut ends in final
products.
The Company has been able to meet its raw material requirement without compromising on
quality and production schedules
(c) Outlook: Opportunity, Threats, Risks & Concerns:
The basic aim of the Company is to become capable to produce Iron and Steel products as
per market requirements and thus be able to manage market trends to its advantage.
Opportunities abound in growing economies and opening up of economy in India has created
opportunities for Indian enterprise to move beyond national boundaries as well to create
productive assets.
The Company is engaged in steel and steel related products activity. The outlook for
the industry looks promising. Indian Steel demand did very well showing an upward trend,
setting a road ahead for the growth of the domestic steel industry in the years to come.
Competition in Steel Industry is escalating and technological changes will spur or drag
the forward march of individual units in steel industry. Supply side could also be an
issue in next few years because of increase in production capacity by steel industry in
India and expression of interest by foreign companies to set up new steel making units.
The Companys thrust on improving productivity and reducing cost of production will, in
such a scenario, help in forging ahead in globally competitive environment. Global
economic uncertainties have affected Indias economy. Key risks synonymous to industry
include the increase in financial charges, non-availability of raw materials, such as
iron-ore, coal and labour etc., coupled with market fluctuations. The Company does not
apprehend any inherent risk in the long run. However following factors may pose threat,
risk & concern for the Iron & Steel Industry in general and your company in
particular:
1. Any adverse conditions of user sector to which it caters, thus adversely affecting
the demand.
2. Underdeveloped infrastructure curtailing growth prospects.
3. The supply and demand imbalance due to new capacities coming on stream which may
have negative impact on the plant utilization and steel prices.
4. Unexpected reduced growth of the manufacturing sector impacting demand.
5. Quantitative restrictions and/or additional tariffs of exports from India by
importing countries.
6. Unpredictable and sharp cyclical movements in the raw material and other input
prices.
7. Any change in Govt. Policies pertaining to steel industry may affect the
profitability.
The opportunities of growth for your company as detailed below are manifold in view of
its Strengths which may also counter the above concerns:-
1. It is expected that better trends will emerge and are expected to improve also in
the times ahead. Your company by virtue of quality and market oriented specification of
its products has posted profitable operations during the most trying times in the past. As
such current conditions may pave a way for improved performance in future.
2. Well established customers base for the last over 35 years.
3. Your Company is fully poised to reap the benefits of economies of scale and it will
be in a better position to negotiate raw material prices on long term bulk lifting basis
& definite savings on overheads will bring down the cost per unit of production and
lead to higher profitability.
4. Your Company has strategic advantage as its units are located in the industry
friendly areas having all infrastructural amenities.
5. Your Company is working out on various proposals for tie-up with large steel
producers for lifting its production on regular basis.
Thus, your company stands in good stead to avail the opportunities and also to take
head on successfully the areas posing risks, concerns and threats to it.
(d) Environment Safety:
During the year the company continued with the implementation of occupational health
and safety, quality and environmental protection measures and these are ongoing process at
the companys manufacturing facilities. Other factors for the environmental safety which
the company has followed include conservation of resources through waste reduction,
training of employees and adoption of cleaner technologies.
(e) Risks and Concerns:
A Risk Management Policy (Policy) has been adopted by the Company which aims to detail
the objectives and principles of risk management along with an overview of the process and
related roles and responsibilities. The Policy lays down Companys approach towards risk
mitigation, its risk management objectives and defines the risk management framework of
the organization.
In order to ensure that the management controls risk in adherence to the policy, the
Audit Committee as well as the Board of Directors of the Company periodically review the
risk assessment and risk minimization procedure.
The key business risks identified by the Company and its mitigation plans are as under:
i. Risk related to Personnel:-
Our business is increasingly dependent on the skills and competencies of our employees
and management team. The general war for talent in our growing economy has created a
substantial risk related to the retention of key personnel both in manufacturing and
managerial levels. This risk is mitigated through effective HR policies relating to
recruitment and retention and a proactive remuneration and rewards policy that is
periodically reviewed at the highest management level. With excellent performance track as
well as best HR practices, we are able to attract and retain people for growth of our
business.
ii. Risk related to Safety:-
The company has taken adequate insurance covers to indemnify the risks associated with
the safety of personnel, building, stock, Plant & Machinery and other infrastructure
of the Company. These include:
i) Fire Insurance Policies
ii) Various Breakdown Policies
iii) Theft Insurance Policies
The company has also taken steps to strengthen IT security system as well as physical
security system at all its locations.
iii. Compliance Related Risks:-
The Company is committed to being a responsible corporate citizen and respects the laws
and regulations of the country. All the compliances under various laws applicable to the
Company, including Companies Act, 2013, Factories Act, 1948 and Income Tax Act 1961 etc.,
are followed in letter & spirit.
(f) Internal Financial Control System and its adequacy:
Your Company has a robust internal control system, which is constantly assessed and
strengthened with new/revised standard operating procedures. The Companys internal
control system is commensurate with its size, scale and complexities of its operations.
The internal audit is entrusted to M/s. Gupta Sanjeev & Co., Chartered Accountants,
(FRN: 005365N). The main thrust of internal audit is to test and review controls of
various departments and areas. The reviews and findings by the Internal Auditors are
discussed with the process owners and suitable corrective actions taken as per the
directions of Audit Committee on an ongoing basis to improve efficiency in operations.
Audit plays a key role in providing assurance to the Board of Directors. Significant
audit observations and corrective actions taken by the management are presented to the
Audit Committee of the Board. To maintain its objectivity and independence, the Internal
Audit function reports to the Chairman of the Audit Committee.
The Company has modified the scope and coverage for audits with a focus on the Internal
Control on Financial Reporting (ICFR) framework. The Audit Committee of the Board of
Directors actively reviews the adequacy and effectiveness of the internal control systems
and suggest improvements to strengthen the same. The Company has an effective Management
information system, which is an integral part of the control mechanism.
(g) Cautionary statement:
Certain statements in this report concerning our future growth prospects are forward
looking statements, which involve a number of risks, and uncertainties that could cause
actual results to differ materially from those in such forward looking statements. The
risks and uncertainties relating to these statements include, but are not limited to,
risks and uncertainties regarding fluctuations in earnings, our ability to manage growth.
Intense competition within Steel Industry including those factors which may affect our
cost advantage, wage increases in India, our ability to attract and retain highly skilled
professionals, our ability to successfully complete and integrate potential acquisitions,
the success of the companies in which the company has made strategic investments,
withdrawal of governmental incentives, political instability, legal restrictions on
raising capital or acquiring companies outside India, general economic conditions
affecting our industry. The Company does not undertake to update any forward looking
statements that may be made from time to time by or on behalf of the Company.
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