zenith birla india ltd Management discussions


Pursuant to the amended Regulation 34 read with the Schedule V of the SEBI (listing Obligations and Disclosure Requirements) Regulation, 2015 our directors wish to report as follows:

(a) Indian Economy:

Amidst the challenges brought by the COVID-19 pandemic leading to disruptions in supply chain and surging inflation rate, the Indian Government introduced various policies to cushion the impact on the domestic economy and in specific vulnerable sections of society and the business sector. Through its policies, the Government significantly increased capital expenditure on infrastructure projects to build back medium-term demand and aggressively implemented supply-side measures to prepare the economy for a sustained long-term expansion. With the vaccination programme having covered the majority of the population, recovering economic momentum and the likely long-term benefits of supply-side reforms in the pipeline, the Indian economy is in a good position to witness GDP growth of around 8.0%- 8.5% in 2022-23.

(b) Industry Structure & Developments:

Steel is a champion industry with growing domestic demand and an opportunity to leverage the space vacated by Russia and Ukraine in the global market through exports. India remained a net importer of steel for several years. However, starting 2017, fuelled by large-scale capex projects and the National Steel Policy, the country started contributing to the global steel markets more than ever, with nearly 6.7 MnT steel exported in FY 2022-23. India is now racing to build steel capacities that meet the domestic demand and at the same time can supply to the global markets. India is thus, on its path to becoming an integral part of the global supply chain. In response to PLI Scheme announced by Government of India for speciality steel products, the steel industry is geared up to create capacity in this space.

The Indian steel industry recorded crude steel production of 160.30 MnT in FY 2022-23, despite pandemic-induced disruptions in Q1 FY 2022-23. Led by a sharp recovery in demand in developed markets and production cuts in China, steel prices rose sharply in H1 FY 2022-23 in domestic as well as global markets. Prices moderated in Q3 FY 2022-23 and have remained volatile following the start of the Russia-Ukraine crisis.

Steel production showed a solid recovery and domestic finished steel consumption continued to grow. Finished steel consumption surpassed pre-pandemic levels and was supported by the governments improved infrastructure investments. Demand from the auto sector was temporarily weak, due to the semi-conductor shortage. However, the industry closed the year on a positive note and recorded 11% growth in finished steel consumption. Domestic finished steel production rose 18.1% y-o-y to touch 113.6 MnT. Finished steel consumption stood at 105.8 MnT, up 11.4% y-o- y, driven by the governments infrastructure spending and the resumption of projects stalled due to the pandemic.

(c) Opportunities & Threats

In the new environment, the industry has to be steered with appropriate policy support to ensure that production of steel matches the anticipated pace of growth in consumption. Special emphasis is needed to ensure that the industry follows a sustainable path of development in respect of environmental friendliness, mineral conservation, quality of steel products, use of technology and indigenous R&D efforts to ensure that the country can, overtime, reach global efficiency benchmarks to become a world leader in steel production technology, as well as in production of high end steel.

As the oil and gas industry is growing rapidly, the demand for steel pipes is also increasing. Features such as reliability and durability are some of the prominent factors driving the global demand for steel pipes. Steel pipes have a wide range of us ability; they are used in the automotive, mining and construction industries which drive the manufacturing steel pipe industry. The available range of steel pipes becomes one of the reasons surpassing the demand of residential and non-residential sector of steel pipes. The replacement of ageing pipelines also increases the global demand of steel pipes.

However, substitutes such as iron and plastic pipes, which create diversions for the manufacturer towards other material pipes, are estimated to restrain the market growth. The corrosive behaviour of carbon steel pipes is one of the restraining factors, and the high cost of stainless steel also hinders the growth of the global steel pipe market.

The Indian steel sector is disadvantaged due to limited availability of essential raw material such as high grade Manganese ore & Chromites, cooking coal, steel grade limestone, refractory raw material, Nickel, Ferrous Scrap etc. Due to shortage of domestic coking coal, both in terms of quantity and quality, pig iron producers/BF operators in India have to significantly depend on import of coking coal. In the recent past, multiple issueshave also adversely impacted the steel sector, viz. cancellations of iron ore and coal mine allocations, delays in land acquisition, environmental clearances, which led to many of the projects facing significant cost and time over runs. Additionally, companies also faced substantially increased operating costs on account of increased logistics & raw material costs and other charges.

d) Segment-wise or Product-wise Performance

Since our Company operates only in one Segment, segment-wise or product-wise analysis of performance is not applicable. But company has geographical segments; please refer Note No 42 of The Consolidated Financial Statement.

e) Outlook

India has consistently witnessed steel imports declining, and exports and consumption increasing, and steel capacities being created. The industry is getting increasingly competitive and catering to an ever-evolving global user industry. The future looks bright for India steel industry, with incremental growth expected across the core sectors and multiplier impact likely to be triggered across subsidiary industries. Domestic consumption will continue to be robust, and apparent consumption of steel will continue to grow. With the governments increased investments on public infrastructure, the real demand is also expected to be steady. Sectors such as appliances, housing and government projects are expected to contribute towards 7-8% growth in steel demand in FY 2022-23

f) Risks & Concerns

Though Regulation 21 the SEBI (listing Obligations and Disclosure Requirements) Regulation, 2015 is notapplicable our Company has duly adopted steps for framing, implementing and monitoring the risk management plan and accordingly of our directors has put in place critical risk management frame work across the Company for identification and evaluation of all potential risks. Our Company is continuously evolving and improving systems and measures to take care of all the risk exigencies involved in the business. All inherent risks areidentified, measured, monitored and regularly reported to management. The management decides measures required to overcome these risks and ensure implementation of proper risk mitigation plans. The risk report and mitigation plans are presented to the Board of Directors periodically.

g) Internal Control Systems and their adequacy

Our Company has an effective Internal Control System to prevent fraud and misuse of Companys resources and protect shareholders interest. Our Company has an independent Internal Audit Department to monitor and review and focus on the compliances of various business processes. The internal audit report along with audit findings and tracking of process improvements & compliances is presented for review to the Audit Committee of Board of Directors.

h) Discussion on Financial Performance with respect to Operational Performance and state of Companys affairs:

The revenue from operations for the year has been Rs 16405.59 Lakh as against Rs. 14,616.77 Lakh in the previous year. Revenue from operations affected due to the Company operated at lower capacity utilization due to shortage of working capital which has also impacted the profitability of the Company for the year. Production cost also pushed up due to exorbitant increase in input cost. Our Company has taken several remedial steps to meet the challenges viz. measures in saving cost at all front of operations; optimize use of available resources etc.

Key Financial Ratio

Particulars 2022-23 2021-22
Return on NetWorth (%) (0.13) (0.04
Return on Capital Employed (%) 0.00 (1.00)
Basic EPS (after exceptional items) (%) 0.02 (0.01)
Debtors Turnover 4.46 8.21
Trade Payable Turnover 1.85 1.64
Inventory Turnover 1.33 1.31
Debt coverage ratio (1.21) 0.19
Current ratio 0.29 0.30
Net Capital Turnover Ratio (In Times) (0.58) (0.52)
Return on Investment 0 12%
Debt Equity ratio (0.86) (0.89)
Operating profit margin (%) 3.99 (0.77)
Net profit margin (%) 0.26 (0.01)

Detailed explanation of Ratios Return on Net Worth

Return on Net worth (RONW) is a measure of profitability of a Company expressed in percentage. It is calculated by dividing total comprehensive income for the year by average Net Worth during the year.

Return on Capital Employed

Return on Capital Employed (ROCE) is a financial ratio that measures a Companys profitability and the efficiency with which its capital is used. In other words, the ratio measures how well a Company is generating profits from its capital. It is calculated by dividing profit before exceptional items and tax by average capital employed during the year.

Basic EPS

Earnings per Share (EPS) are the portion of a Companys profit allocated to each share. It serves as an indicator of a Companys profitability. It is calculated by dividing Profit for the year by weighted average number of shares outstanding during the year.

Debtors Turnover

The above ratio is used to quantify a Companys effectiveness in collecting its receivables or money owed by customers. The ratio shows how well a Company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. It is calculated by dividing turnover by average trade receivable.

Trade payable Turnover

Trade payables are any expenses incurred from vendors, suppliers or other third parties for goods or services provided in bringing their products to the customer. Trade payables are a combination of the creditor/s and the bills payable for goods purchased or services rendered.

Inventory Turnover

Inventory Turnover is the number of times a Company sells and replaces its inventory during a period. It is calculated by dividing turnover by inventory.

Interest Coverage Ratio

The Interest Coverage Ratio measures how many times a Company can cover its current interest payment with its available earnings. It is calculated by dividing PBIT by finance cost.

Current Ratio

The Current Ratio is a liquidity ratio that measures a Companys ability to pay short-term obligations or those due within one year. It is calculated by dividing the current assets by current liabilities.

Debt Equity Ratio

The ratio is used to evaluate a Companys financial leverage. It is a measure of the degree to which a Company is financing its operations through debt versus wholly owned funds. It is calculated by dividing a Companys total liabilities by its shareholders equity.

Net Capital Turnover Ratio

Capital turnover is the measure that indicates an organizations efficiency about the utilization of capital employed in the business, and it is calculated as a ratio of total annual turnover divided by the total amount of stockholders equity (also known as net worth) and the higher the ratio, the better is the utilization of capital employed.

Return on Investment

Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investments cost.

Operating Profit Margin (%)

Operating Profit Margin is profitability or performance ratio used to calculate the percentage of profit a Company produces from its operations. It is calculated by dividing the EBIT by turnover.

Net Profit Margin (%)

The net profit margin is equal to how much net income or profit is generated as a percentage of revenue. It is calculated by dividing the profit for the year by turnover.

i) Human Resources Development and Industrial Relations:

Our Company focuses on developing the most superior workforce so that the organization and individual employees can accomplish their work goals in service to the end users. To improve employee productivity, PMS (Performance Management System) was implemented across the organization.

Our Company has put in place suitable processes and mechanism to ensure that grievances are effectively addressed. Employee Grievance Redressal Committee and the Internal Complaints Committee are intended to facilitate open and structured discussion on work related grievances of employees and Sexual Harassment complaints respectively, to ensure that these are dealt with in a fair and just manner. Our Anti-Sexual Harassment initiatives allow employees to report sexual harassment case at the workplace.

Presently, our Company employs around 178 employees including employees on contact basis. There is Lock- out at factory at Khopoli since December, 2013. The industrial relation continues to remain generally cordial at all locations of the Company except its factory at Khopoli.

(j) Cautionary Statement:

The Management Discussion and Analysis describe Companys projections, expectations or predictions and are forward looking statements within the meaning of applicable laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand and supply, price conditions in domestic and international market, change in Government regulations, tax regimes, economic developments and other related and incidental factors.