MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY STRUCTURE AND DEVELOPMENTS India is expected to become the world's second largest producer of crude steel in 2015-16, moving up from the fourth position, as its capacity is projected to increase from 100 million tonne (MT) to about 112.5 MT in 2015-16. "All indicators suggest that India will soon move up to the second position both in production and consumption," With infrastructure development and automotive industry driving steel demand, production of steel is expected to hit 140 MT by the end of 2016, while consumption is expected to grow 6.8% to reach 104MT by 2017.After a period of 5 years, since the break out of the global financial crisis and with significant liquidity injection by several large economies, the macro data from the developed economies started showing trends of slow improvement from 2013 but this pace was very slow as compare to the anticipated projections, it was basically due to gut in the construction, capital goods and automobiles sector world across. Worldwide recession /political polarization etc had a savior impact on the Indian iron ore mining industry also which was already experiencing a difficult phase. India is currently the 4th largest producer of crude steel in the world and is poised to become the 2nd largest producer of crude steel in the world by 2015-16. The Iron and Steel Industry in India contributes around 2 per cent of the Gross Domestic Product (GDP) and its weight in the Index of Industrial Production (IIP) is 6.2 per cent. India is also a leading producer of sponge iron a major supplement of fluctuating scrap market with a host of coal based units, located in the mineral-rich states of the country. Per capita consumption of steel in India is at just 59 kgs as against an average of 216 kgs of the world which shows the potential of the domestic market itself. COMPANY'S PERFORMANCE AND HIGHLIGHTS Financial Year 2013-14 was an year of overall turmoil & its impact was also been experienced in 2014-15 with subdued economic growth, as a result of higher inflation, higher interest rates, lower industrial growth and lower investments in the country, along with the poor condition of the global economy. Your company has also been affected. Due to the status of sick undertaking, working of the company has been adversely affected. Performance of the company has been affected due to financial crunch, reduction in selling price, reduction in demand - domestically and globally, due to dumping of material by Chine in Global market which further shrunk the margins of the company. Due to paucity of working capital, company's working is declining. Company could make optimum use of power under Open Access. As Company is not in position to optimize its full working capacity, Company had reduced its contract demand with Electricity Distribution company and tried to control over fixed expenses. SWOT ANALYSIS Strength • Good Industry experience & knowledge of Promoters. • Limited players in speciality steel manufacturing domain. • Established manufacturing infrastructure. • Backward integration support. • Diverse Supplier base. • Long standing contracts for purchase of raw material Weaknesses • Heavy debt burden. • High power cost. • Dependency on third party for raw material. Opportunities • Unexplored Markets. • Demand visibility is firming up for domestic as well as global market • Per capital consumption of stainless steel in the country is increasing and application of Stainless Steel is expanding. Threats • Rising raw material, fuel and power prices. • High Cost of Capital. • Long tenure of rehabilitation. • Unforeseen general macro-economic factors and political turmoil. • Global economic slowdown. RISKS AND CONCERNS Some of the major risks and concerns identified by the Company are: • Working Capital risks • Government Policy and Political Structure risk • Competition risk • Debtor risk • Exchange Rate fluctuation risk • Geographic Concentration risk The Company is taking appropriate steps to guard against these identified risks. INTERNAL CONTROL SYSTEM The Company has adequate internal control procedures commensurate with its size and nature of its business. The objectives of these procedures are to ensure efficient use and protection of the Company's resources, accuracy in financial statements and due compliance of statutes and Company's policies and procedures. FUTURE OUTLOOK During the Financial Year 2014-15, a positive trend of financial stability was witnessed by the advanced economies; growth rate remain subdued in emerging and developing economies. The lower growth trajectory in China indirectly influences the commodity markets, including steel and its raw materials. The economic outlook in Europe is strengthening and the US economy shows strong signs of a better performance is moving forward. Indian economy shows comparatively a positive trained in the years to come. With a stable government at the centre, significant policy changes the government focus on infrastructure development; more foreign direct investment and more transparency in governance were the major fetchers for significant increase in the overall business confidence in the country. At a global level, supply continues to be more than demand, as capacity additions continued, primarily in the emerging economies. The trend is led by China and India. However, dependence on imported coking coal, low production efficiency, inadequate infrastructure & technology and delays in regulatory clearances & approvals are major hindrance to growth of Indian steel industry. The global steel sector remains under brssure the overhang of excess capacity continues to put brssure on the global steel sector, particularly in light of uneven economic growth and weak steel demand. Indian steel sector is witnessing role reversal as several rapid-growth markets have not performed up to expectations in creating demand. Until recently, the Indian steel sector has been relatively insular, but it now seems to be increasingly affected by developments in global steel and raw material markets in its quest to play a growing role in the international arena, given the significant growth of its economy and increasing integration with global economies. The following global factors will influence the extent of domestic growth till 2025 and the shape and trajectory the steel industry will take in India over a mid- to long-term period: A sizeable surplus of steel scrap in China by 2025. China currently plays a critical role in absorbing excess supply of scrap from other parts of the world. However, due to initiatives to accelerate its own scrap industry, China, which is currently a net importer of scrap, is expected to have a surplus of 72mt of scrap by 2025. This will decrease demand and push down the prices of other raw materials, such as coking coal and iron ore. While stand-alone Indian steelmakers, who do not have captive access to such inputs, will benefit from the availability of cheap raw material, the real effects of this are unlikely to be felt before the middle of the next decade and overall steel prices are likely to remain under brssure. Prima facie, low iron prices are good for steelmakers but they may not be as beneficial in the Indian context. Indian steel producers enjoyed the advantage of low-priced domestic ore to earn healthy margins, in comparison with their global peers. Despite some current issues regarding availability of iron ore, it seems likely that India will have sufficient iron ore to meet its domestic requirement until 2025. Availability of iron ore at lower prices for global players will narrow the relative advantage of Indian players in the global market. Most of the domestic players were severely affected due to international brssure on one side & on other side they were experiencing the stiff competitions from the Chinas producers. At Shah alloys Limited we are striving hard to remain in the race & work hard to survive through this turmoil phase; one how could successfully pass through thin phase, as the Darwin's theory interbrts that it's a Natural phenomenon in every walks of life one who successfully passes through this natural selection process, progression in the conducive environment will be quite easy. With the changing political environment across the globes thing are now getting settled. Indian industry has also pass through this critical phase & now poised to accept the newer challenges. With the new Leadership & long term vision of our beloved Hon. Prime Minister Shri Narendra Modi; Indian Inductors are committed to be among world leaders & attend our top position. CAUTIONARY NOTE Statements in Management Discussion and Analysis Report describing the Company's expectations or brdictions may be forward looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those exbrssed in the statement. Important factors that could influence Company's operations include global and domestic supply & demand conditions affecting selling prices of finished goods, input availability and prices, changes in the government regulations, tax laws, economic development within the country and other factors such as litigations and industrial relations. |