MANAGEMENT DISCUSSION AND ANALYSIS REPORT 1. ECONOMIC OVERVIEW- GLOBAL AND INDIAN The global economy expanded during 2014-15 at a moderate and uneven pace. Legacies from the global financial crisis continue to weigh on growth, while new challenges have emerged, including geopolitical tensions and conflicts such as in Ukraine and the Ebola epidemic and stagnation/deflation in advanced economies. The world economic growth is likely to see moderate improvement where world GDP is expected to grow at 3.5% in 2015 and accelerate further to 3.8% in 2016 (UN WESP Report, 2015). The improvement is expected to be driven mainly by the advanced economies rather than by emerging markets and developing economies. During 2014-15, Indian economy emerged with propitious economic outlook, amidst the mood of pessimism and uncertainties that engulfed a number of advanced and emerging economies. India's economy grew by 7.3 per cent during financial year 201415 as compared to 6.9% in financial year 2013-14. The prime drivers of the growth were the significantly stronger performance of manufacturing, electricity, gas, water supply and other utility services and the financial, real estate and professional services, revision of GDP methodology calculation, reduced average inflation and the decline in oil and food prices. According to the Organisation for Economic Co-operation and Development (OECD) the economy could grow over 8% if ambitious structural reforms such as goods and Services tax, Land and Labour laws were approved by the parliament. It expects a pick-up in corporate investments in India on the back of government measures to improve ease of doing business and the 'Make in India' campaign. 2. IRON & STEEL - INDUSTRY STRUCTURE AND DEVELOPMENTS The global steel industry is getting increasingly intertwined and integrated, and the Indian steel industry, which was relatively insulated until now, will have to factor in these global changes. Being a core sector, steel industry is a major contributor to the overall economic growth of an economy. Steel demand, being derived from other sectors like automobiles, construction and infrastructure, etc., its fortune is dependent on the growth of these user industries. Steel producers in India are passing through a difficult phase and the problems may further aggravate as cheap steel from China, Korea and Japan has shown a spurt in recent months. The problem of raw materials, particularly iron ore remained critical but de-allocation of coal blocks has added new dimension towards availability of coal to steel producers. Steel prices in India showed a declining trend in 201415. This was mainly on account of weakness in international prices, lower input costs and muted growth in demand. Revival in procurement from construction and automobile sectors is likely to lead to a rise in steel demand in 2015-16. Your Company is a producer of pig iron and belongs to the Iron and Steel industry at large. Pig Iron is the building block of the Iron and Steel industry and is a major intermediate input used in various Iron and Steel mills. Demand for pig iron is directly linked to buying interest for long Steel products, used in construction, as it is the raw material for producing billets and ingots, the semi-finished Steel long products. Electric arc furnaces use Steel-grade pig iron in making construction Steel while Foundry, grade pig iron is used to make automobile parts and industrial moulds. The pig iron industry also faced similar heat and the pig iron prices declined sharply in 2014-15. Low demand from end user industries and difficulty in availability of raw material led to the dip in prices. Pig Iron makers in the country have cut prices owing to sluggish market demand for the intermediate steel good. However this trend is expected to reverse in the current fiscal in view of demand coming from infrastructure and automobile industries. Despite discouraging environment, your Company continued on growth trajectory with imbrssive production figures as it was backed with a mordenised, upgraded and fully functioning Mini Blast Furnace, Sinter Plant and Captive Power Plant. Moreover, with good raw material supply conditions, a growing market and competent human resource, we believe that K I C is at the start of a new growth curve. It may not come immediately, but the fundamental conditions for growth is in place and is positive. 3. OPPORTUNITIES & THREATS OPPORTUNITIES - ‘Make in India’ Campaign launched by the government - Smart city projects - Industrial corridor - Investment planned in road sector - Indian railway expansion - Automobile sector offer opportunity for specialised steel - Refocus on manufacturing - Investment in Rural housing THREATS - Overburdened port facilities - Insufficient infrastructure and logistics - Shortage of good quality coking coal - Land acquisition and environment regulations - Insufficient downstream value addition - Adoption of modern technology - High Finance cost 4. RISKS AND CONCERNS One of the objectives of your Company's risk and control framework is to minimize potential adverse effects on its financial performance. Our risk and control framework is in place to ensure that risks are detected, measured and reported properly. Risk management procedures are carried out under policies that have been approved at the 'Board' level. A combrhensive list of major risks of the Company with steps taken for the mitigation is as follows : Regulatory Risk Your Company is exposed to risks attached to various statutes and regulations. The Company is mitigating these risks through regular review of legal compliances carried out through internal as well as external compliance audits. Financial Risk Your Company is exposed to a variety of financial risk, including credit risk, liquidity risk, foreign currency exchange risk and interest rate risk. Wherever possible and necessary, appropriate insurance cover is taken for financial risk mitigation. On the financial front, the Company has not borrowed any amount in foreign currency however the foreign exchange fluctuations may affect the prices of raw material more particularly coking coal which is being imported. Credit policy of the Company is primarily based on the customer profile. The Management does not perceive any major financial risk for the Company in the near future. Competition Risk The market's pig iron are highly competitive and strong competition is faced from other produces in the same region. In order to mitigate the said risk, efforts are on to bring down the cost of production by enhancing operational efficiency and improvement in the quality of products. Raw Material Risk Non availability of good quality and price volatility of key raw materials in manufacturing of steel namely iron ore and coal has increased significantly in past few years. Your Company is procuring iron ore from established mining companies and is also working with major suppliers of key raw material to achieve competitive prices on long term basis. Health, Safety and Environment Risk The manufacture of steel involves steps that are potentially hazardous if not executed with due care. Your Company maintains the highest safety standards with its operating units which minimize calamities during plant operations. The safety team conducts regular training programmes, instills the concept of maintaining safe operations among the employees and to educate the team on the safety norms and procedures to be followed in an unfortunate situation. Cost Risk Managing costs is key to protect profitability, especially across volatile market cycles. Your Company has created well-integrated assets comprising Captive Power Plant, which ensure cost-effective availability of power. The Company has also commissioned a Sinter Plant which consumes the iron ore fines of the Mini Blast Furnace and thus produces sinter which is used as an alternative raw material to the costly iron ore lumps thereby reducing the cost of production of Hot Metal. 5. FUTURE OUTLOOK The risks to the global economic outlook remain very real. Past measures, mainly based on expansionary monetary policies, have helped to temporarily avoid a deeper recession and set the foundations for the global recovery in the short term. However, ensuring sustained growth in the long run will depend not only on monetary policies, but on boosting the level of productivity of economies. In order to achieve higher levels of productivity, new actions in terms of engaging in much needed structural reforms and productivity enhancing investments are required. The Indian Economy in 2014-15 has emerged as one of the largest economies with the promising economic outlook on the back of controlled inflation, rise in domestic demand, increase in investments and decline in oil prices, etc. The potential impact of the reform initiatives of the new government at the centre along with its commitment to calibrated fiscal management and consolidation bode well for the growth prospects and the overall macroeconomic situation. With a volatile outlook for mining and metals, the global sector is focused on cost optimization and productivity improvement and the same can be said about your Company. Your Company is expected to register a good growth in future, riding on a projected growth wave of infrastructure, automobile and real estate sectors. The government's 'Make in India' campaign aimed at facilitating investments, encouraging innovation and building high-class manufacturing infrastructure is expected to boost manufacturing activities in key sectors including automobile, auto components, capital goods, railways, and defence which in turn will augur well for the pig iron industry and thus your Company at large. 6. PERFORMANCE OF THE COMPANY (FINANCIAL, OPERATIONAL AND PRODUCT WISE) During the year, your Company was engaged mainly in the manufacture of pig iron which is the only reportable segment in accordance with the Accounting Standard - 17 issued pursuant to the Companies (Accounting Standards) Rules, 2006. The Company produced 122,981 MT of Hot Metal in 2014-15 compared to 62,833 MT in the brvious year. In 2014-15 the Company sold 120,797 MT of Hot Metal compared to 60,937 MT to achieve a turnover of X 46,171 Lakhs in comparison to X 49,357 Lakhs in the brvious year. In 2014-15, the Company incurred a profit of X 177 Lakhs against a loss of X 434.81 Lakhs in 2013-14. 7. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY Given the nature of business and size of operations, your Company's Internal Control Systems has been designed to provide for: > Accurate recording of transactions with internal checks and prompt reporting. > Adherence to applicable Accounting Standards and Policies. > Compliance with applicable statutes, policies and management policies and procedures. > Effective use of resources and safeguarding of assets. The Internal Control System provides for well documented policies/guidelines, authorisations and approval procedures. The summary of the Internal Audit observations are submitted to the Audit Committee. The status of implementation of the recommendations is reviewed by the Audit Committee on a regular basis and concerns, if any, are reported to the 'Board'. 8. INDUSTRIAL RELATIONS AND HUMAN RESOURCES Human Resources function ensures that all employees are aligned to the organization's shared values, management principles and a high performance culture. Your Company strives to embrace best Human Resource practices to become an 'Employer of Choice'. Your Company aims to maintain its competitive edge by ensuring the right talent for the right job. Our recruitment strategy centers on infusing quality talent aligned to the values of K I C with potential to take the organization to a higher level of performance. Your Company continued to maintain harmonious industrial relations at Durgapur manufacturing location. As on 31st March, 2015, we have 278 employees on our payroll. |