MANAGEMENT DISCUSSION AND ANALYSIS Sunflag Iron and Steel Company Limited (SUNFLAESTEEL) had set up a 'state of the art' integrated Steel plant at Warthi, Bhandara Road to produce high quality Special Steel with manufacturing facilities like Sponge Iron Plant, Mini Blast Furnace, Sinter Plant, Captive Power Plant and Rolling Mills. SUNFLAE STEEL has established itself as a major global force. With the modern complex pulsating with world class technology, expert human resources and a commitment to excellence, SUNFLAE STEEL has become a reputed supplier in Flat Bars, Round Bars, Bright Bars and Wire Rods of Alloy Steel, Spring Steel and Stainless Steel and captured better position in these market segments. SUNFLAE STEEL is also embarking on an export thrust and is regularly supplying to various customers in South East Asian, African, Middle East and South American countries. Further, due to implementation of Blooming Mill, SUNFLAE STEEL can cater to foreign as well as indigenous customers of their needs of Rolled Products for higher sections and thus offering a better product mix. The Blooming Mill will yield better quality of higher size rolled products and Bloom / Ingots due to better combrssion ratio and more specifically used in the critical applications like crank shaft quality and it can be supplied to Original Equipment Manufactures (OEM). ECONOMIC SCENARIO AND OUTLOOK I) GLOBAL ECONOMIC SCENARIO & OUTLOOK A) ECONOMIC SCENARIO The world economic growth remained modest at 3.4% in year under review, amidst divergent growth trend in advanced and emerging economies. Although, the developed economies led by the US & UK continued to strengthen, however the growth in most emerging economies slowed down during the year under review with majority of oil exporting economies were under slowdown due to a sharp drop in oil prices. Despite their slower growth, emerging markets and developing economies still accounted for three-fourths of global growth in year under review. During year under review, slowing demand in some of the major developing economies led to the softening in crude and other global commodity prices. Though the price correction created financial stress in oil exporting countries and also resulted in disinflationary environment in many oil importing economies, it is expected to be a net positive to world economy in the short to medium term - especially for oil / commodity importing economies like India. B) OUTLOOK The global steel demand during the year under review is expected to increase by 0.5% to 1,544 Million Tonnes, while in year 2016 - 2017 it is projected to grow by 1.4% to 1,566 Million Tonnes. Steel demand in the developed economies is projected to grow by 0.2% in year 2015 - 2016 and by 1.8% in year 2016 - 2017. Chinese steel demand is projected to record a negative growth of 0.5% in year 2015 - 2016 as well as in 2016 - 2017. II) INDIAN ECONOMIC SCENARIO & OUTLOOK A) ECONOMIC SCENARIO The Indian economy, supported by lower oil prices, improved FDI inflows and pro-growth economic reforms initiated by new Government saw a moderate improvement in growth momentum during Financial Year 2014 - 2015; some of the key macroeconomic indicators also strengthened over the year. Highlights • The Indian economic growth improved to 7.3% in Financial Year 2014 - 2015 as compared to 6.9% in Financial Year 2013 - 2014. While the agriculture sector grew at 0.2%, it is manufacturing that leads the growth at 7.1% during Financial Year 2014 - 2015. • Several policy measures taken by the Reserve Bank of India (RBI) and the Government, supported by lower global crude oil prices, resulted in: - Decline in inflation during the year; consumer price inflation is expected to be between 5.0-5.5% range during 2015 - 2016. - The Current Account Deficit (CAD) narrowed to 1.3% of GDP during Financial Year 2014 - 2015 compared to 1.7% in Financial Year 2013 - 2014. ^ The Government had strong focus on fiscal consolidation. As a result, the Gross Fiscal Deficit (GFD) declined to 4.1% in Financial Year 2014 - 2015 and is budgeted to decline further to 3.9% in Financial Year 2015 - 2016. B) OUTLOOK The Indian economy is on a path of gradual recovery. The government has undertaken several steps to unplug the bottlenecks and to revive the business confidence. The Indian economy stands to benefit from the correction in global crude oil prices, will have positive impact on the macro economy in form of lower inflation, reduced current account deficit, healthier fiscal accounts, increased consumption and a stable INR. Indian economy is among a few economies globally for which economic growth forecast has been raised by the IMF. The IMF has raised its India GDP growth estimates for Financial Year 2015 - 2016 to 7.5%. INDIAN STEEL, AUTOMOBILE AND AUTO COMPONENT INDUSTRY Indian steel industry faced several challenges during the year. On the other hand, the finished steel imports surge by 71% specially from the surplus economies of China, Korea, Japan and Russia. Korea & Japan enjoys reduced import tariffs under the Free Trade Agreement (FTA) with India. At the same time finished steel exports from India also decreased by 8.1% y-o-y to 5.5 Million Tonnes. Despite a sharp 50% fall in global iron ore prices, between April, 2014 and March, 2015 (Average CFR North China Index), prices in the domestic market experienced a milder correction of 15% due to shortages that arise due to restriction / ban on mining operations in the key producing states of Goa, Karnataka, Odisha and Jharkhand. STEEL SECTOR - THREATS AND CHALLENGES • Surging imports in absence of adequate tariff and non-tariff barriers against the dumping of steel and FTAs providing very low duty protection • The shutting down of mining operations has resulted in scarcity of iron ore and affected prices. Further, the quality of the available iron ore also remained a challenge • Non-satisfactory Infrastructure development resulted in curtailing growth prospects • Due to addition of capacities, there was a supply-demand imbalance, while the demand remained subdued, which had negative impact on the plant utilisation and steel prices • Anti-social movements, Geopolitical tensions, disruptions in the global trade and investments • Surplus installed capacities and low capacity utilisations • Slowing demand growth across geographies • Subdued growth of the manufacturing sector impacting demand • Increased threat of higher trade barriers OPPORTUNITIES SUNFLAE STEEL see better opportunities in the years to come due to continuous developments of new grades of high alloy steel as well wire rod. Further, venturing into the self dependency of raw material will help in decreasing in the cost of production and enhancing the profitability. This has even proved advantageous during the recessionary period which is very good sign for the Company. MATERIAL DEVELOPMENT SUNFLAE STEEL was not able to maintain its profitability mainly due to marginal rise in selling prices of its products versus abnormal rise in the cost of inputs such as iron ore, pig iron and coke and largely due to overall decelerated global and Indian economic growth. In order to achieve effective cost reduction and improvement in productivity, activity of total productive maintenance (TPM) continued to be implemented by the Company during the year under review. COSTS - STEEL BUSINESS During the year under review, the economy witnessed an upward movement in overall cost structure and the Company continued to focus on cost improvements through Total Productive Maintenance (TPM) and strict cost reduction policies, wherever applicable. CAUTIONARY STATEMENT The Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be 'forward-looking statements' within the meaning applicable to securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the company's operations include economic conditions affecting demand / supply and price conditions in the domestic and overseas markets, changes in the Government regulations, tax laws and other statutes and other incidental factors. For and on behalf of the Board Pranav Bhardwaj Managing Director DIN : 00054805 Surendra Kumar Gupta Deputy Managing Director DIN : 00054836 Place : Nagpur Date :12th August, 2015 |