MANAGEMENT DISCUSSION & ANALYSIS REPORT FOR THE YEAR 2014-15 Established in 1958, over the years, NMDC has grown to be India's single largest iron ore producer, operating its mines in Chhattisgarh and Karnataka. NMDC is determined to be a world-class, eco-friendly mining organization with achieving global standards in technology, operations, processes and people skills. With expansion into Steel, Pellets and other value added products, NMDC continues to strengthen its role in supporting India's growth story through value addition and selective diversification. NMDC has a strong history of rewarding its investors through dividend payments over the last 25 years and continues to focus on delivering shareholder value in the long term. 1.Industry Structure and Developments The iron ore industry being cyclic in nature, exposes NMDC to sharp fluctuation in demand for its products. Historically, the international commodity prices for iron ore and the brvailing market for iron have been volatile and subject to wide fluctuations in response to relatively minor changes in supply and demand, market uncertainties, the overall performance of global or regional economics, the related cyclicality in industries the company directly serves and a variety of other factors. The recent slowdown in China has led to reduction in iron ore demand globally causing an oversupply scenario. Big Miners globally are continuing to focus on producing low-cost iron ore to achieve their production and cost reduction targets. This has led to a sharp decline in iron ore prices globally. There is increased uncertainty around pricing trend in the next few years as global markets are expected to remain in oversupply scenario. Following global trends, Indian industry has also seen an over-supply scenario and decline in prices with increased uncertainty around recovery. With imports becoming attractive and increased competition after passing of MMDR Amendment Act 2015, iron mining industry in India is expected to witness significant pricing brssure over the next few years. Ministry of Steel's objective of raising India's steel production to 300mtpa by FY2025 on the back of strong long-term growth prospects is expected to remain a primary growth driver for Indian steel and iron ore industry in the long term. NMDC would remain affected by future developments in the global and domestic markets. 2.Opportunities and Threats a) Opportunities i) Capitalize on favorable domestic demand in infrastructure, energy and food sectors ii) Diversify strategically into new minerals, foreign countries and energy products iii)Forward integrate into value-added products (iron pellets and steel) iv)Expand into Steel through SPVs in Jharkhand and Karnataka and in association with SAIL in the State of Chhattisgarh v)Optimize operating model to support growth objectives vi)Leverage in-house R&D and exploration vii)Integrate digital technologies and automation in mining viii)Increase focus on sustainability and adopt best practices ix)Develop strategic partnerships with Indian and global companies x)Establish a strong brand b) Threats i) Increasing regulatory brssure on environment, safety and sustainability i i) Uncertainty on mine allotments after passing of MMDR Amendment Act 2015 along with increased competition iii)Growing threat from imports of iron ore iv)Subdued steel price outlook v)Disturbances due to Maoist activities in Bailadila region vi)Increased brssure on profitability and due to brssure on prices. vii)NMDC may be affected by government actions, including the imposition of tariffs and duties, speculative trades, regulatory issues arising due to judicial verdicts, the development of products substitutes or replacements, recycling practices, an increase in capacity or an oversupply of the company's products in its main markets. Outlook for NMDC NMDC proposes to augment its production capacity of iron ore from the brsent level of about 30 million tonnes to 75 million tonnes by 2018-19 and 100 million tonnes by 2021-22. It also embarked on value addition projects by setting up pelletization plants by utilizing the slimes and 3.0 MTPA integrated steel plant in Chhattisgarh. NMDC is also promoting Steel SPVs in the State of Jharkhand and Karnataka, and in association with SAIL in the State of Chhattisgarh. Along with strategic diversification into other commodities, NMDC also plans to expand brsence outside India selectively into key mining countries such as Australia, South Africa and other African Regions. NMDC is committed to focus on maintaining cost competitiveness in global and domestic market in a scenario where prices are expected to remain subdued. Along with robust strategic planning to support its growth agenda, NMDC continues to enhance organizational capabilities and other enablers to achieve its short-term and long-term objectives. Risks and Concerns The industry being cyclic in nature, NMDC is exposed to sharp fluctuations in demand for its products and volatility in prices. Weaker commodity price outlook would continue to impact NMDC over the next few years till the global and domestic markets recover. MMDR Amendment Act 2015 possess increased risks for NMDC related with acquisition of new mining leases along with potential impact of reduction in existing customer base. One of the major risks that NMDC is facing is the disturbances due to Maoist activities in Bailadila region. The company is in contact with the Government agencies at all levels for support and protection of its employees and installations. The initiatives taken by the Government of Chhattisgarh and the Central Government are expected to find a solution to the risk at the earliest. Timely enhancement of evacuation capacity in line with production plans also remains a potential risk. This could impact production and inventory levels for NMDC. Internal control systems and their adequacy NMDC has put in place all the necessary internal controls and they are found to be adequate. Discussion on financial performance with respect to operational performance Details on financial performance with respect to operational performance are given in detail in the Directors' Report. However, for the year under review, the Company has achieved production of 304.41 LT of Iron Ore. In respect of diamond, the Company achieved production of 35085.46 carats. On the financial performance, the turnover of the Company for the year under review was Rs.12,356 crores. PBT for the year under review was Rs.9,768 crores. PAT for the year under review was Rs.6,422 crores. Net worth of the Company was Rs.32,326 crores. 8. Material developments in Human Resources/ Industrial Relations front, including number of people employed. The employees of the Company have been dedicated and loyal to the Company. Though there has been attrition in certain disciplines, the employees in general have remained with the Company through thick and thin. On the part of the Management, it is ensuring all-round comfort levels to its employees, including the required training at all levels based on the need. It is worth highlighting that industrial relations have been cordial all along during the year. Any difference is sorted out through bipartite discussions at appropriate fora. The cooperation and support of workmen rebrsented by AINMDCWF in this regard is praiseworthy. The Company is planning and also initiated various diversification projects viz. Steel Plant, Pellet Plant, coal mining etc. Since inception, the employees of the Company are exposed only to Iron Ore industry. The Company's diversification project needs people with specific skill and knowledge in other industries viz. up gradation of skills for operating equipment with latest technology. In order to get people with requisite knowledge and skills, the Company has decided to train /retrain its existing manpower and also to go for fresh induction. 9.Environmental Protection and Conservation, Technological Conservation, Renewable Energy Developments, Foreign Exchange Conservation. Relevant Information in this regard is disclosed in the Directors' Report. 10.Corporate Social Responsibility The Company is actively involved in various CSR initiatives. Detailed information is disclosed in the Directors' Report. |