MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEAR 2014-15 Global Economy Global Growth decline in the first half of 2015 remained modest. For most emerging market economies, external conditions are becoming more difficult. Financial market volatility rose sharply during the summer, with declining commodity prices and downward brssure on many emerging market currencies. Global growth in the first half of 2015 was 2.9 percent, about 0.3 percentage point weaker than brdicted in April of this year. Global Activity is projected to gather some pace in 2016. In advance economies, the modest recovery that started in 2014 is projected to strengthen further. Indian Economy In 2014, the geopolitical events and a slow recovery from the brvious economic slowdown countered some of the optimism that was felt towards the end of 2014. The Central Statistics Office (CSO) has recently undertaken a revision in National Accounts aggregates by shifting to the new base of 2011-12 from earlier base of 2004-05. According to the data released by the Central Statistics Office (CSO), the Indian economy grew at 7.3 per cent in 2014-15 as compared to 6.9 percent in 2013-14 calculated as per the new series of national accounts with base year of 2011-12, which indicates a marginal growth of 0.4 percent in the Financial Year 2014-15 due to improvement in performance of both manufacturing and service sectors1. The Gross Value Added (GVA), a new concept introduced by CSO to measure the economic activity, rose by 7.2 per cent in 2014-15 compared to 6.6 per cent in the brvious fiscal1. The manufacturing sector GVA rose by 7.1 per cent during the year as against 5.3 per cent in 2013-14. Similarly, the output of electricity, gas, water supply and other utility services rose by 7.9 per cent as against 4.8 per cent a year ago. The construction activity too registered an increase of 4.8 per cent, up from 2.5 per cent a year ago. Financial, real estate and professional services also showed an improvement by registering a growth of 11.5 per cent as against 7.9 per cent in brvious fiscal1. Hence, the Financial Year 2014-15 witnessed a slight growth in GDP of Indian Economy showing the symptoms of growth in some of the manufacturing and service sectors but overall the brssure remained on Indian economy to boost up and face challenges at the global level. The Infrastructure Sector Increasing Investments in India have bought India to the epicenter of infrastructure creation in the world. Pioneering use of brcast technology can change the face of Indian economy by speeding up the course of action across varied proposed infrastructure projects. Expansions of Metro and Mono railway routes across various Tier I cities in India is one such example of implementation of the same.(source-UBM) The Power Sector India is the third largest producer of electricity in the world. In FY15, India generated 1,048.7 terawatt-hours (TWh) of electricity. Over FY10-15, electricity production expanded at a CAGR of 6.3 per cent.As per the 12th Five Year Plan, India is targeting a total of 88.5 GW of power capacity addition by 2017, of which, 72.3 GW constitutes thermal power, 10.8 GW hydro and 5.3 GW nuclear. (source-imef) The Government of India has been supportive to growth in the power sector. It has de-licensed the electrical machinery industry and also allowed 100 per cent Foreign Direct Investment (FDI) in the sector. Total FDI inflows in the power sector touched US$ 9.7 billion during the period April 2000 to May 2015. Steel Fabrication Industry: Fabrication applies to the building of machines, structures and other equipment, by cutting, shaping and assembling components made from raw materials by using various mechanical processes such as welding, soldering, forging, brazing, forming, brssing, bending and stress removal. In this way, the Steel Fabrication Industry proves to be an essential part of the Steel Industry value chain as it produces minute spare parts of larger heavy machinery and equipment, which cannot be manufactured simultaneously with the manufacturing of the heavy machines. This is a highly fragmented and labour intensive sector with medium & small scale industries heavily dependent on job work. Most of the Structural Steel Fabrications can be divided into three categories: 1) Hot Rolled Long Products like continuously produced standard size Beams and Bars from Steel Rolling Mills. 2) Pre-designed and Pre-engineered Buildings for br-fabrication and then assembly at site. Steel br-fabrication can be outsourced to a fabrication shop or carried out at site. 3) Large or Custom size Plate Fabricated Beams, Boxes, Columns and Girders, which cannot be formed by continuous process or hot rolling. These plate welded fabrications are extensively used by architects and design engineers for rapid and economic construction of bridges, flyovers, multi-storied buildings, stadiums, airports, metro rail projects. Structural steel fabrication can be carried out in shop or at the construction site. Fabrication of steelwork carried out in shops is brcise and of assured quality, whereas field fabrication is comparatively inferior in quality. In India, construction site fabrication is most common even in large projects due to inexpensive field labour, high cost of transportation, difficulty in the transportation of large members, higher excise duty on products from shop. Beneficial taxation for site work is a major financial incentive for site fabrication. Large customers like power plants, steel plants and EPC companies engaged in bridge construction and oil & gas are also moving towards plant fabricated structures. This transition has been due to the following factors: • Higher accuracy of fabrication in structures made at the factory (plant) • An increasing brference towards bolted connection has led to a huge requirement of hole-drilling, which can be done better at the factory • Better efficiency in producing repeated elements at the plant as compared to at the customer • Better planning and a focused approach for completing projects at the plant • Stricter pollution control norms for blasting and painting at customer sites as compared to the factory • Increasingly better highway and transportation facilities have made it easier to transport plant made structures to the site Since the demand for steel fabrication sector comes from the infrastructure sector, the growth of fabrication industry largely depends on the overall industrial scenario including the demand for power, roads/bridges and transport. Financial Performance Revenue During FY2015, the Company achieved Revenue of Rs. 43,312.42 lacs as compared to Rs. 52,567.40 lacs in the brvious year. EBITDA stood at Rs. 3,785.01 lacs as compared to Rs. 5,859.76 lacs in brvious year. Capital Employed: The capital employed in the business stood at Rs. 86,601.91 Lacs as on June 30, 2015 as compared to Rs. 91,238.32 Lacs as on June 30, 2014. Shareholders' Funds and Net Worth The authorized share capital of the Company as at 30th June 2015 stood at Rs. 10,000 Lacs divided into 3,00,00,000 equity shares of Rs. 10 each and 7,00,00,000 Preference shares of Rs. 10/- each. The paid up share capital as of 30th June, 2015 was Rs. 7,661.25 Lacs divided into 1,16,12,500 equity shares of Rs. 10/- each and 6,50,00,000 Preference shares of Rs. 10/- each. During the year under review there was no change in the authorized and paid up capital of the Company, As at 30th June, 2015 the reserves and surplus of the Company stood at Rs. 51,219.69 Lacs and the net worth stood at Rs. 58,880.94 Lacs. Total Debt As of 30th June 2015, the Company had a total debt of Rs. 32831.27 lacs. Challenges to Overcome ? Land acquisition and environmental regulations. ? Dual brssures of excess capacity in global steel industry and higher raw material costs. ? Slow growth in automotive industry particularly in the passenger vehicle segment. ? Underdeveloped infrastructure curtailing growth prospects ? Subdued growth of the manufacturing sector impacting demand ? Geopolitical tensions, disruption in the global trade and investments ? Large surplus capacities and low capacity utilisations Opportunities With a renewed thrust on reforms post the election of the new Central Government, and the announcement of 'Smart Cities', the need for more roads, bridges, metro and rail lines is certain thereby opening up numerous opportunities for AIML. With the announcement of measures such as the cancellation and the subsequent e-auctioning of coal blocks in the country, coal will start to be available more easily in the medium to long term. This brsents significant opportunities in the power sector for power generators and subsequently power equipment manufacturers and ancillaries. AIML, with its state of the art manufacturing facility, will bridge the demand supply gap with its specialized knowledge and technical base required for manufacture and supply of heavy structures and equipment related to power plants, roads & railways, bridges, steel plant and oil and gas sector. The Company has positioned itself in the market as brmium supplier for bridges & power sector and won orders with major power &infra companies in the recent past already. Risks and Concerns Your Company is currently addressing the following risks and concerns through appropriate risk mitigation measures and strategies 1) Economic uncertainty: The steel industry is subject to cyclical swings arising from factors such as excess capacity, and demand & supply imbalances. Unfavourable economic conditions globally, overcapacities in steel industry, low infrastructure activity and weak business sentiment continue to impact overall steel consumption. 2) Price volatility resulting from demand uncertainty: The positive momentum in global steel demand seen in the second half of 2014 abated in 2015 with weaker than expected performance in the emerging and developing economies, resulting in a lower steel demand growth forecast from the World Steel Association 3) Direction of interest rates: The US interest rates increase expected in 2015 is likely to impact global capital flows with a possible impact on demand in key infrastructure related sectors, creating instability in the vulnerable emerging markets Industry Outlook The advanced economies are likely to come out stronger while growth could remain largely subdued in emerging and developing economies. Concerns on the changing demographic mix and the forecasted lower growth trajectory in China are expected to put downward brssure on commodity prices, including steel and its raw materials. The economic outlook in Europe is strengthening and the US economy shows strong signs of a better performance going forward. Significant policy changes are anticipated in the near future. Government's focus on infrastructure development, increased foreign direct investment and more transparency in governance is likely to significantly increase business confidence in the country. The 12th Five Year Plan (2012-17) has already laid special emphasis and set aside $1 trillion investment equivalent to 10% of GDP, vs. 7.5% in the 11th Plan, for infrastructure development. Apart from the significant enhancement in the proportion of the total spend (vs. the GDP), the power sector, also expected to experience a slightly higher proportion of the infrastructure spend (34% vs. 33% in the 11th 5-year plan). Thus, it continues to attract approximately one-third of the total projected investment in infrastructure and steel demand will continue to rise in India in the years to come. In addition, improving automobile and consumer durable sectors are expected to help raise the flat steel demand compared to last year, while long steel demand is expected to fare relatively better due to an uptick in construction activities and the planned infrastructure growth. Budget 2014-15 announced a slew of measures to boost infrastructure investments, which will provide opportunities for infrastructure and construction companies. Innovative funding structures have also been unveiled to improve availability of funds. While the budget provisions are positive, addressing on-the-ground issues like clearances and land acquisition will be equally important for investments to take-off in the sector. Business Strategy and Outlook The Company is geared to meet the demands through a strategy that aims to overcome all challenges while making the most of every opportunity. Some of the major steel suppliers are planning to expand their existing facilities or set up new green field facilities. Your company has been contacted for RFQs for demand of structures for 1 Lac MT / annum. In addition, oil &gas companies such as Essar and Reliance plan to undertake expansion activities over the next 2-3 years. This has already generated a number of inward business inquiries for the Company. AIML has become the most favoured supplier of steel bridges to Delhi Metro (DMRC). Management is confident of replicating similar success in Tier 2 cities like Chandigarh, Ludhiana, Amritsar, Jaipur, Lucknow, Ahmedabad and Nagpur. AIML is aggressively venturing into assembly and erection, and launching bridges as part of the total solution to steel super structure requirements. With huge current order books and encouraging positive customer response, management is also considering expansion plans. Internal Control Systems The Company understands that with expanding operations and a constant evolution of technology, an effective internal control system is very important. AIML is committed to maintaining the highest standards of corporate governance and believes that a strong internal control framework is one of the most important pillars of corporate governance. In-line with its philosophy and tenets, the Company has put in place adequate systems of internal control commensurate with its size and the nature of its operations. The systems have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information complying with applicable statutes, safeguarding of assets, executing transactions with proper authorisations and ensuring compliance of corporate policies. AIML ensures that internal audit is conducted by a reputed firm having considerable experience in the sector on a regular basis. These audit reports are submitted to the Audit Committee who reviews it and takes note of the remedial measures taken by the concerned departmental heads with reference to the audit observations. The Company has appointed M/s. Bhatia and Bhatia Associates, Chartered Accountants as their internal auditors. Human Resource and Industrial Relations The Company believes mutual trust, harmony and unity of purpose are the key pillars of overall success of any organization. Keeping this philosophy in mind, AIML strives to maintain a harmonious relationship with its employees, as they are the active partners contributing to the growth and development of the organisation. The Company interacts with its employees on a regular basis through various events and provides them ample opportunity to discuss their issues and attempts to resolve them at the earliest. Talent acquisition and retention remains the primary focus for the Company as the importance of good employees and their role in the overall growth of the organization is well established. AIML understands that to continue to maintain this relationship it is essential to align corporate goals with individual aspirations. With this objective in view, the Company provides its employees with various opportunities to upgrade their skills and knowledge. It further ensures that a proper growth career path for the employees is laid out to help them achieve their personal aspirations. Statutory Compliances The Whole-time Director makes a declaration to the Board of Directors every quarter regarding compliance with provisions of various statutes as applicable. The Company Secretary ensures compliance with the Companies Act, SEBI regulations and provisions of the Listing Agreement and compliance with the guidelines on insider trading for brvention of the same. Cautionary Statement Statements in the management discussion and analysis report describing the Company's objectives, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable laws & regulations. Important factors that could make a difference to the Company's operations include economic conditions affecting demand/ supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the government regulations, tax laws and other statues and other incidental factors. |