MANAGEMENT DISCUSSION AND ANALYSIS

1. A legacy to uphold:

1.1 It was the year 1939. Mahatma Gandhi persuaded Shri Jamnalal Bajaj and Shri Jeewanlal Shah to take over this company then known as Mukand Iron and Steel Works Limited. Since then, the Company has had a long and eventful journey, a journey that was inter twined with the history of India.

1.2 The founders, Shri Jamanlal Bajaj and Shri Jeewanlal Shah, are no more with us. Their respective heirs, Shri Kamalnayan Bajaj, Shri Ramakrishna Bajaj and Shri Viren Shah, acknowledged as the architects of the Company, have also departed from this world. But together they built a robust foundation. A foundation that is based on impeccable value systems - a legacy that is today being carried forward by the management and employees of this Company in their every day interactions, be it with the outside world or amongst themselves.

1.3 Over the past 76 years it is these core values of trust, integrity and responsible citizenry that have contributed in taking Mukand to greater heights. To put these achievements in context let us examine the industry in general.

2. The World Economy

2.1 Uncertainty is the word that best describes the current global economic and political global order, though the world economy is beginning to emerge from the dark tunnel. European and the US markets are showing definite signs of revival. The labour market has improved and employment numbers are moving up.

2.2 Global growth in the calendar year 2014 was a modest 3.4% and is projected to be 3.5% and 3.8% in the calendar years of 2015 and 2016 respectively. Despite the slowdown, emerging market and developing economies still accounted for three-fourths of global growth in 2014.

2.3 The Asian Development Bank forecasts that developing Asia will grow at a steady 6.3% in 2015 and 2016. This will be supported by strengthening the recovery in major industrial economies and the softening of global commodity prices. Inflation in this region is expected to push down from 3.1% in 2014 to 2.6% this year.

3. The Indian Economy

3.1 India being a major contributor to the growth in developing economies and is by itself enough reason to continue to push for reforms that will give an impetus to the country's markets and industry. Many positive factors have fallen into place for the Indian markets and economy. It is also brdicted that this recovery will be led by the Industrial sector.

3.2 Structural reform is expected to boost India's prospects. The initial phase of the government's efforts to remove structural bottlenecks is lifting investor confidence. With the support of stronger external demand, India is set to grow by 7 to 8 % by March 2016. This momentum may build aided by the expected easing of monetary policy and a pickup in capital expenditure by government and private sectors.

4. Global Steel Industry

4.1 The steel industry directly employs more than 2 million people worldwide, with a further 2 million people with contractors and 4 million people in supporting industries. The global crude steel production was at 1,661 million tonnes for the calendar year 2014.

4.2 Steel is the main material used in delivering renewable energy such as solar, tidal and wind. It is also one material that can be recycled and used forever. All steel created as long ago as 150 years can be recycled and used in new products and applications.

5. Indian Steel Industry

India is the 4th largest producer of steel in the world accounting for a production of 88.12 million tonnes of finished steel, in the year under report. However, the domestic steel industry was unable to reap full benefits from this upturn as the demand was also satisfied through imports especially from China, South Korea, Japan and Russia. This is evident from the fact that imports of finished steel has increased in the second half of the year under report.

6. Forward Linkages

6.1 Since the Company is a producer of speciality steel long products, we will discuss only those industries whose fortunes are directly affecting the alloy and stainless steel long product industry. The automobile industry consumes more than 70% of the products of this industry.

6.2 The Indian automobile growth story remains somewhat intact. The overall sales across various automobile segments grew by 8%. Domestic sales grew by 7%, while exports grew by 14%. Sales of passenger cars and commercial vehicles increased marginally in the year under report, while the sales of two and three wheelers was a meager 3% on account of a slow growth in rural markets.

6.3 Lower fuel rates, softening of loan interest rates, higher disposable income, better roads and highways will all contribute to a possible double digit growth in the auto industry in the coming years. According to Society of Indian Automobile Manufacturers, revenues of the Indian Auto industry will rise five-fold to hit the USD 300 billion mark by the end of the financial year 2026, i.e., in next 10 years, the annual growth rate is expected to be around 24%.

7 Backward linkages

7.1 The year witnessed softening of almost all raw material prices required for steel making. Prices of Coking Coal, Low Ash Metallurgical Coke, Nickel, Moly Oxide, Ferro Chrome, shredded steel scrap, crude oil and furnace oil have all eased during the year under review. However Indian rupee too debrciated against the dollar by approximately 4.2% thereby reducing some of the relief accrued from the decrease in raw material prices.

7.2 India is likely to remain a net importer of iron ore in 2015-16 as the falling international prices might encourage steel majors to continue import of this raw material. In the year 2014-15, India imported 15 million tonnes of iron ore, an all time high for the second consecutive year, which resulted in the country's imports far exceeding exports. Exports of iron ore during the same period is pegged at a meagre 4.5 million tonnes.

7.3 There is no doubt that fresh policy initiatives are needed to ensure that the industry follows a path that is sustainable when it comes to capacity addition, environment, raw materials sourcing, quality of steel products and the use of technology in steel making.

8 Company's Financial Performance:

8.1 The net revenue from operations, for the year under review, increased by 11% at Rs.2,820 Crore as against Rs.2,540 Crore in the brvious year mainly on account of the increase in the sales of special, alloy and stainless steel products.

8.2 Profit before exceptional items and Tax stood at Rs.2.13 Crore as against a loss of Rs.97.26 Crore in the brvious year due to improved operations in the current year.

9 Specialty Steel Division:

9.1 The Net Turnover of the Steel Division was Rs.2,657 Crore for the year under review as compared to Rs.2,371 Crore in the brvious year. Segment result was at Rs.259 Crore as compared to Rs.84 Crore in the brvious year.

9.2 The sales of alloy steel products increased by 11% over the brvious year. This was made possible due to better capacity utilization. The new products that were developed in-house, to stringent requirements for critical applications, contributed to 18 % of the total sales of alloy steel products. The Company continued its focus on new product development by working in tandem with the international automobile manufacturers and component makers to augment their localisation programmes. This led to new products being developed by the Company such as specialised alloy steel for transmission parts for commercial and passenger vehicles, special highly clean and controlled microstructure grades for fuel injection nozzles for diesel engine vehicles, etc..

9.3 The automobile industry experienced buoyancy in the first half of the year which led to the Company increasing its alloy steel selling prices marginally. However, the second half of the year, saw the automobile companies cutting down on their production and an increase in imports of steel products which forced the Company to lower its selling prices. The Company has strategically entered into long term contracts with key customers to safe guard its market share

9.4 The fortunes of the alloy steel industry are poised to get an impetus as the country's automobile growth story unravels with the automobile original equipment manufacturers increasing their capacity through expansion or setting-up Greenfield plants.

9.5 The revenues from the sale of Stainless Steel products of the Company increased by 13% as compared to the brvious year. New products developed during the year, include duplex stainless steel grades for specialized industrial applications, increase in the section range to 190mm dia for seamless tube applications, etc.

9.6 The lackluster global economic scenario continues to reflect in the low demand for stainless steel in global markets. However, the Indian export market for these products improved on account of its quality and cost competitiveness in the world markets. The United States of America has imposed an anti dumping duty of 10.5% on Indian steel products thereby making this market unattractive to Indian steel producers. The Company's thrust has been to increase its exports to the European markets and thus participated in the Dusseldorf Wire Exhibition.

9.7 Prices of both Alloy and Stainless steel products of the Company continue to be under brssure due to excess domestic capacity and rising imports especially from China. Alloy Steel Producers' Association filed a Petition with Ministry of Commerce to levy safeguard duty on imports of steel. Further, the electricity distribution companies in Maharashtra and Karnataka have increased the rates and State Governments have levied duties. The Association has requested Maharashtra Electricity Regulation authorities for not levying any additional charges to producers of steel by Electric Arc Furnace route.

9.8 Since the Company's alloy steel making facility is in the state of Karnataka, the Company too is affected by the closure of the mines in the state as per the Order of Hon'ble Subrme Court in July 2011. This resulted in the prices of iron ore in Karnataka through e-auction remaining high compared to the markets in other states of India and world markets where the prices have sharply fallen. This has adversely affected steel plants in Karnataka over their competitors situated in other mining states. The prices of other inputs like coking coal / low ash metallurgical coke, nickel, molybdenum, shredded steel scrap, furnace oil, other ferro alloys etc.. remained subdued.

9.9 17 "A" category mines and 8 "B" category mines out of a total of 166 mines in Karnataka have reopened over the last few years leading to slightly better availability of iron ore, i.e., out of total capacity of 45 million tonnes, mines having 26 million tonnes capacity are operative. In addition, of 51 "C" category mines, 15 mines having capacity of 5.20 million tonnes have been identified for auction.

9.10 To mitigate the shortage and the high costs of some of the inputs, the Company has successfully adopted alternate processes that enables it to use different inputs. In place of iron ore lumps that the Company was using, it can use sintered or beneficiated iron ore thereby easing the brssure on availability and high cost of iron ore lumps. The Company has also replaced part of its Coke consumption with Coke fines and pulverized coal and this along with the installation of hot stoves, has reduced the met coke consumption by 25%.

9.11 It is a matter of great pride that all fossil fuel requirements for production by the Company have been replaced with energy converted from waste gases emanating from the Mini Blast Furnaces which not only keeps the fluctuating costs of fossil fuels in check but is also more environment friendly.

9.12 The Company also saved costs on transportation as the production in rolling mills at the Ginigera plant increased, thereby enabling the Company to cater to customers in southern markets.

10. Industrial Machinery Division:

10.1 The net turnover of this division stood at Rs.164 Crore for the year under review as compared to Rs.165 Crore in the brvious year. The segment result was at Rs.15.62 Crore as compared to Rs.46.74 Crore in the brvious year.

10.2 The year under review continued to be a difficult one as many of the major projects, particularly in the steel and port sectors did not pick up momentum during the year.

10.3 Orders in hand at the close of year are at Rs.140 Cr. However, the division expects to get orders during the first half of the year in progress, ensuring that it has adequate orders for execution in the second half of the year and the year ahead. The division plans to focus on developing business in Defense, power and space sectors that require specialized equipment. Continuous efforts towards cost reduction through improved design and better sourcing are being made to remain competitive and maintain market share.

11. Quality Management System:

All the divisions performed well in maintaining their Certification and underwent successful Surveillance Audit under various ISO Standards.

12. Corporate Social Responsibility

The Corporate Social responsibility activities of the Company focuses on education. The Company has widened the scope of its activities to include boys in some of the schemes. The Company supports more than 12,000 children studying across 45 schools in classes 8, 9 and 10 in Shahapur taluka by providing financial, educational and vocational assistance. The Company's vision is that every child in this taluka should have a minimum of class 10 education and it contributes towards easing some of the burden on parents by providing free uniforms, text books, notebooks and compass boxes. The Company runs 36 free mathematics classes to help the children cope with this subject and a few vocational training classes for girls.

13. Human Resource Management

13.1 The Company is committed to building on the competencies of its employees and improving their performance through continuous training and development. The Company actively strives to train and motivate all employees to participate in Total Quality Management activities, cost reduction and improving productivity. The Company focuses on identifying skill gaps and brparing employees for competitive environments, as well as to meet organizational challenges through structured training programmes. The Safety, Health and Environment of the people and the Company are of utmost importance. Permanent employees at all levels undergo a medical checkup held annually at the Company's brmises, and are also covered through medical insurance under a hospitalization scheme.

13.2 The Company celebrated the National Safety Week in the month of March 2015 by organizing various competitions and educational activities. The Sports Club which is sponsored by the Company conducts tournaments in various sporting events. The Company places on record its apbrciation of the dedication and commitment of the employees at all levels.

14. Awards Won:

14.1 The Company's quality circles won four Gold and one Silver award in the annual quality circle competitions held by the Quality Circle Forum of India. They also won the First Prize in the Poster Competition and a Second Prize in the Slogan competition held by the same organisers. At the KAIZEN competition held during the year, the Company's quality circles won the Gold and Silver prizes.

14.2 The Plant at Ginigera participated in the State Level Safety Competition  and won the First Prize in the Best Safe Power Boiler category. In the category of Environment, Health and Safety (EHS) awards instituted by the Confederation of Indian Industry, the Plant secured a four star rating for its EHS practices. The Plant also secured fourth place in Plant Manufacturing - Non Auto category at the same competition.

15. Cautionary Statement

Statements in this Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be forward looking' within the meaning of applicable laws and regulations. Actual results may differ from those exbrssed or implied.

On behalf of the Board of Directors,

Niraj Bajaj   

Chairman & Managing Director  

Rajesh V. Shah

Co-Chairman & Managing Director

Place : Mumbai,  

date : May 29, 2015