MANAGEMENT DISCUSSION AND ANALYSIS REPORT 1. BACKGROUND The Management Discussion and Analysis Report sets out the developments in the business, the Company's performance since the publication of the last report and the Company's future outlook. This report is part of the Directors' Report and the Audited Financial Statements, forming part of the Annual Report. However, certain statements made in this report relating to the projections, outlook, expectations, estimates, among others, may constitute 'forward looking statements' within the meaning of applicable laws and regulations, and may differ from actual results. Several factors could make a significant difference to the Company's operations, including climatic conditions, economic conditions affecting demand and supply, judicial pronouncements, government regulations, revision in government policies, taxation and natural calamities, over which the Company does not have any control. 2. INDUSTRIAL OVERVIEW, MARKET SCENARIO, OPPORTUNITIES AND THREATS Iron Ore: Post Mining Ordinance and amendment to MMDR Act mining lease of several iron ore mines have been extended. Production from these mines will commence during the current year. Although production of steel has gone up, due to lack of demand for steel product, stock of finished steel has gone up with steel producers straining their cash flow. Similarly Pig iron industry is also facing hard times due to slackness in the export demand coupled with declining prices. These factors will moderate the growth of steel industry and may reduce the demand for iron ore. Iron ore prices in the international market dropped from a high of $150 to less than $50 per ton during second half of the financial year 2014-15. This made imported iron ore attractive for domestic steel producers. Iron ore imports into the country have gone up. To compete with up imported iron ore major producer of Iron ore - NMDC, SESA have reduced the iron ore prices substantially during the beginning of the current year setting the trend for debrssed prices in the current year. Although many mining leases have been cleared commencement of production is likely to be delayed and additional levies and statutory costs that will result in lower profitability & production growth is expected to be moderate. Slackness in demand for Steel product will impact iron ore industry and will result in lower demand for iron ore at reduced prices. Manganese ore: Manganese ore production in India has declined during financial year 2014-15 due to closure of several mines in the country pending renewal of leases. Although some of the mining leases are cleared in the current year production is expected to rise slowly due to lack of demand from Mn alloy industry. Financial year 2014-15 saw substantial increase in manganese ore imports. Import of manganese ore into India is estimated to have reached a level of 3 Mt during 2014-15. In the international market demand has declined due to slow down of steel production leading to softening of prices. Import prices for manganese ore have also declined substantially making it economical for alloy producers to use the same. Manganese alloys: Mn alloy production is estimated to have reached a level of 2.3 million tonnes during financial year 2014-15. Manganese alloy production in India is higher than domestic consumption and is dependent on export demand. Export of Mn alloy saw a declining trend due to uncompetitive prices. Higher power tariff has made India less competitive in the International market. Lower power tariff in emerging production centers like Malaysia will further erode India's competitive edge. Ongoing anti-dumping case being instituted by European Commission will slow down exports to Europe. Production of Mn alloys in India during 2015-16 is expected to decline as many unviable plants are shutting down/ reducing production. At brsent due to oversupply, prices are also under brssure and are likely to remain subdued. 3. SEGMENT-WISE PERFORMANCE a) Mining As of 31 March 2015, the Mines under the aegis of the Sandur Group produced 1,60,909 tonnes of manganese ore and sold 99,113 tonnes in the domestic market. The iron ore mines produced 5,16,285 tonnes and sold 5,62,186 tonnes, excluding 87,990 tonnes salvaged from dumps. b) Conversion of manganese ore to Silico manganese During the year under review, 23,050 tonnes of Silico manganese was manufactured and 20,774 tonnes were sold resulting in a negative contribution of Rs.901.42 lakh. OUTLOOK, RISKS AND CONCERNS Mineral sector The Outlook for mineral sector is sluggish with declining prices and lack of demand. Slump in the international market for iron ore and Mn ore will have its impact on Smiore's products. As all the products namely Iron ore, Mn ore and Silico Manganese are dependent on steel market which is under strain and will impact Smiore's operations. Statutory clearances are causing considerable delays in stepping up production of iron ore. Declining of availability of high grade Mn ore in the area of operation is a matter of concern. Efforts are on to revive the operations in areas which results in higher grade of Mn production. The Group is confident that it will be able to produce higher grades of Mn ore and increased quantity of iron ore. The prospects for manganese alloys remain stagnant. The Group runs the risk of incurring higher energy costs with the need for procuring imported coal becoming stronger. Although the prices of imported coal have remained stable during last couple of years, Prices of Indian coal is rising. Exchange rate risks for imported ore and higher inland freight, landed costs of coal may go up, leading to a spike in power generation costs. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The Company has well-developed internal control systems and has clearly allocated responsibilities among its executives. The Company had an internal audit department, which was independently monitoring the compliance with the approved internal control procedures and exercise of powers as per the approved delegation of powers. To substantially expand the scope of internal audit, the Company has, in line with the standards of internal audit issued by the Institute of Chartered Accountants of India, appointed M/s. P. Chandrasekar, Chartered Accountants, as its internal auditor which is submitting its report on a quarterly basis to the Audit Committee. FINANCIAL PERFORMANCE Information provided in the Directors' Report. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS As on 1 April 2014, the Company had employee strength of 1,840. During the year, 81 employees were recruited and 112 employees were separated from the Company. Including the 431 temporary employees and 9 employees on consolidated remuneration, employee strength at the end of the financial year 2014-15 was 1,809. The Company has a record of cordial relations with its employees ever since its inception. for and on behalf of the Board S. Y. Ghorpade Chairman & Managing Director Place : Bangalore Date : 27 May 2015 |