MANAGEMENT DISCUSSIONS AND ANALYSIS Indian and Global Economic Scenario During the year 2014-15, the global economy grew at around 2.6%, only marginally higher than 2.5% achieved in 2013-14. The weaker than expected growth in Europe, Japan, oil dependent economies like Russia and Latin America and lower growth rates in majority of the emerging economies impacted the recovery. The fall in crude prices had its impact on global economy, more so, on the oil producing countries, and we have witnessed a large correction in prices of majority of the commodities. Domestically, things have been looking-up post formation of a new government in the Center. Indian economy did perform relatively better and grew by 7.2% as compared to 6.9% in 2013-14 mainly due to lower crude prices and the positive sentiments post formation of a single party government in the center. Ratnamani mainly caters to capex demand from Oil & Gas, Water and Power sectors, and except water, demand from these sectors has been sluggish. Despite this, the Company was relatively better positioned with its wide size and grade range of Stainless Steel tubes and pipes. Carbon Steel welded pipes and coating related services in Its manufacturing basket. Some of the domestic infrastructure projects like Gujarat Government's SAUNI project, drinking water projects in MP and Rajasthan and export order from DOW Chemicals in USA were helpful in withering the storm of uncertainty in the global markets for its CS Pipe Division. Stainless Steel Division is dependent mainly on investment in Oil & Gas and Power sectors, with the investment in downstream petrochemical projects by companies like Reliance and Oil PSUs within the country during last year contributing to this divisions performance significantly. Stainless Steel Tubes & Pipes Major revenue of Stainless Steel Division comes from sectors such as: 1) Oil & Gas and Petrochemicals & Refineries, 2) Power Generation -Thermal, Solar & Nuclear 1. Oil & Gas Sector In the Oil & Gas sector, it is very well known that due to the surge in the production of shale gas particularly in US, the prices of crude oil have nosedived to a very low level. The low price of crude oil has put a lot of brssure on future investments mainly in oil exploration. There has been trickledown effect on investment in Refineries and Petrochemical complexes as a result there of, With this scenario at the background. Investment by Oil & Gas and Petrochemicals & Refineries globally is expected to be subdued in the near future. As Oil & Gas and Petrochemicals & Refineries contribute almost 50% to the Stainless Steel Division's business, targeting any aggressive volume growth may be a challenge in near future. However, notwithstanding all these negative developments, oil producing countries, particularly in Middle East, are taking a fight into the shale gas producers and are promising new investments in their respective countries. At brsent, the projects where major investment is happening are - Nigeria approx, USD 11 billion (Dangote Refinery), Malaysia approx. USD 16 billion (Rapid Refinery), Egypt approx. USD 2,9 billion and Kuwait approx. USD 11.5 billion (KNPC). With a very large product basket and moderate capacities, it is expected that your company will be in a position to continue to get its share out of the opportunities. Apart from these opportunities, opening of Iran market once sanctions are removed can be another good opportunity. The demand for the Company's products in Oil & Gas and Chemical units in the US is steady. Within the country, the total planned capacity addition in refining and downstream petrochemical projects by various refineries, as per the announcements from time to time, is expected to be approx. 74 mtpa with an estimated capex of more than Rs. 1.50 lac crores as already mentioned hereinabove. Accordingly, we expect the domestic demand to be good if the capex on various projects happens as planned, Up-gradation of refineries could be a big opportunity. The Government of India has indicated in the recent past that existing refineries need to upgrade to be able to produce initially Euro IV and there after Euro V/VI fuels from Calendar Year 2019/2021 in order to reduce the carbon footprint and emissions, capex of approx, Rs. 80,000 crores would be the spent for the up gradation of existing refineries in the country over the next 5/6 years for reduction of sulphur content to 10 ppm to meet the Euro VI norms as per the report of Standing Committee on Petroleum and Natural Gas tabled in Parliament early this year, There is also need for some very old PSU refineries to upgrade their plants for competing better with private players. As per the report, projects worth Rs. 20,000 crores have already been approved for meeting Euro IV norms. Though no concrete announcements have been made for the balance capex for plant up-gradations by any major PSU refiners, looking to the likelihood of the same in future, it could be a big opportunity for various high end application products for up-gradation of refineries, 2. LNG Business One sector, where good demand potential is there, is the LNG business. This business is likely to grow not only in Indian subcontinent but across the globe due to the increased availability of gas at a cheaper price. Your company is putting up facilities to meet the requirement of supply of pipes to this sector and the required manufacturing facilities should be ready by end of the financial year 2015-16. The benefit of this may get reflected In the coming years, Within the country, if the planned capex on various projects in refining, petrochemicals, thermal and nuclear power and fertilizer as announced happens, the total business opportunity for Stainless Steel tubes and pipes could be substantial, 3. Thermal & Solar Power Sector As far as the requirement in the power sector is concerned, positive signs, particularly in the Indian region. Far East and Japan, are being seen. Lots of power plants have been cleared by NTPC as well as by the State Governments, which are basically thermal power plants. Analysis of the capacity addition in the thermal power sector in last few five year plan documents reveal that the targeted capacity additions and corresponding execution rate have increased materially Planned addition in capacity has gone up approx. 2.5x (from 9th plan to 12th plan) and the implementation rate, which was quite low at 46-48% (9th & 10th plan) increased to 81 % in 11 the plan and is 95%+ in the 12th plan. Demand in this sector may be good not only in this financial year but may sbrad across to the coming years also. In the export markets for this sector, large investment are being made in South East Asian countries like Malaysia, Indonesia, Vietnam etc., wherein the power plants are being built by Japanese or Koreans. With the Companys products being well-established with Japanese and Korean power equipment manufacturers, a steady business in the above sector from this region is expected, Added to the above, with the ban In the Nuclear Power Plants in Japan after Fukushima incident, all their Thermal power plants are being refurbished. These activities need lot of products which the Company manufactures and a steady business in Japan is expected. 4. Nuclear Power Sector As far as Nuclear power sector is concerned, the Company has successfully completed the supply of Moderator Heat Exchanger tubes and Instrumentation tubes for Kakrapara and Rajasthan projects of NPCIL. The Company has also successfully established product quality for the supply of Incoloy 800 tubes. The Company also expects to receive approvals from NPCIL/BHEL for manufacturing Steam Generator tubes for the Indian Nuclear programme. With this approval, your company will be into a different league not only in the domestic sector but also globally, This type of approval enhances our responsibility to a new level to produce tubes of very high quality and set a very high standard in supply of our products for nuclear programme, 5. Export business Your company is approved by majority of large players in Oil & Gas and Power sectors globally such as Saudi Aramco, Fluor, PDO, SABIC, Exxon, Toshiba, MHI, IHI, KNPC, Dow Chemicals, etc. In Stainless Steel, almost 40% of turnover has been coming from exports and efforts are being made to ensure that we continue to maintain this share, notwithstanding the challenging scenario in Oil & Gas sector at brsent. Carbon Steel Pipes Large numbers of projects in the field of Water, Oil & Gas and Power sectors have been announced by the government. If the investment happens as announced, this will help to open more opportunity for all pipe manufacturers in India, Your company gets major share of its business from Oil & Gas and Power Sectors. Recently, the Water sector has also emerged as one big opportunity and a major contributor to the Carbon Steel division's performance. The total planned capacity addition in refining and downstream petrochemical projects by various refineries, as per the announcements from time to time, is expected to be approx. 74 mtpa with an estimated capex of more than Rs. 1.50 lac crores, Similarly, in the thermal and nuclear power and fertilizer sector, capex is expected to be over Rs./ 2 lac crores in next 5/6 years, Companies like RIL, GAIL, IOCL, BHEL, Cairn, ONGC, BPCL, Haldia Refinery, NRL, etc. have been considering either increasing the capacities or setting-up new capacities since some time and once the policy framework facilitating speedy clearances, including environment is in place, good opportunities for both. Stainless, as well as Carbon Steel products of the Company can be expected, Apart from OH & Gas, various state governments have announced water projects which will also have a huge requirement of larger diameter pipes, Especially Gujarat's SAUNI Project II Phase, river link project of M. R, Rajasthan drinking water pipe line and large diameter pipe line for water supply in the state of Telangana and Andhra Pradesh are expected to open an opportunity for your company to secure orders by participating in various tenders called by these states. Though your company has very small capacities for line pipes reauired by Oil & Gas industry globally, there seems to be enough demand potential if we look at global demand scenario for Carbon Steel pipes as is evident from the following data: Make in India Make in India is an initiative of the Government of India to encourage companies to manufacture their products in India. It was launched by Prime Minister Shri Narendra Modi on 25 September 2014. The major objective behind the initiative is to focus on 25 sectors of the economy for job creation and skill enhancement. Some of these sectors where Stainless Steel pipes & tubes and Carbon Steel pipes will have opportunity are: Defence, automobiles, chemicals, pharmaceuticals, ports, aviation, railways, auto components, mining, biotechnology and power. The initiative hopes to increase GDP growth and tax revenue and attract capital and technological investment in the country. It also aims at high quality standards and minimising the impact on the environment. The early signs look exciting for the future of the country. The slogan "Make in India" is encouraging for all Indian manufacturer. Though it's a long journey to set all the parameters, which can establish India as a manufacturing hub, it's a very optimistic step to believe in ourselves. With the promotion of "Make in India", a large number of investors are evaluating opportunities to invest in India in various fields. In each of his visits to various counties, our Prime Minister has signed agreements with interested business houses, Your company has international brsence for its products, which will definitely help it to get brference for supply of the products when International business houses start investing in India. Your company is registered with various known international and national level EPC contractors, which will be a nice platform to encash the opportunities. Environment & Safety Ratnamani is committed to comply with statutory requirements related to environment, health & safety and to brvent pollution, injury & ill health through continual improvement in processes, practices & EHS awareness. Your company not only cares of compliances in this aspect but also the contribution towards society health, safety & green environment .Various activities & programs are conducted for awareness, interest amongst employees of Ratnamani to maintain ethical & social growth. Outlook While the domestic and international economic conditions continue to remain challenging, and are expected to remain thus for some time to come, we expect that with it's vide range of products, quality standards and team efforts, your company will be in a position to wither this situation also. Your company has continued to be the brferred supplier for many leading companies and has been successful in expanding its approval base, adding leading players from industrially developed countries. Therefore, we expect that your company will continue to be in a position to gradually expand its market reach and market share as per opportunities. Industrial Relations And Human Resources As the Company continues to grow, the focus has been on enhancing morale and capabilities of employees. The staff and workers are provided orientation and training for the development of soft and hard skills on a regular basis. Human resources are the brcious asset of your company. Efforts are made to improve the performance, providing work satisfaction and performance based increments, safety and social status. The industrial relations remained cordial at all organizational levels and work places. The Company makes regular efforts to maintain relation with Stakeholders by transparency, good governance, regular communications and efficient & effective transactions. |