MANAGEMENT DISCUSSION AND ANALYSIS REPORT The following operating and financial review is intended to convey the management's perspective on the financial and operating performance of the Company at the end of Financial Year 2014-15. This should be read in conjunction with the Company's financial statements, the schedules and notes thereto and the other information included elsewhere in the Annual Report. The Company's financial statements have been brpared in compliance with the requirements of the Companies Act, 2013, the guidelines issued by the Securities and Exchange Board of India (SEBI) and the Generally Accepted Accounting Principles (GAAP) in India. GLOBAL STEEL INDUSTRY Global growth in 2014 was a modest 3.4 percent, reflecting a pickup in growth in advanced economies relative to the brvious year and a slowdown in emerging market and developing economies. Complex forces that affected global activity in 2014 are still shaping the outlook: medium- and long-term trends, global shocks, and many country- or region-specific factors. Global growth is forecast at 3.5 percent in 2015 and 3.8 percent in 2016, with uneven prospects across the main countries and regions. Growth in emerging market economies is softening, reflecting an adjustment to diminished medium-term growth expectations and lower revenues from commodity exports, as well as country-specific factors. However World Steel Industry forecast that the global steel use will increase by 0.5% to 1544 MT in 2015 following growth of 0.5% in 2014. In 2016 it is forecast that the world steel demand will grow by 1.4% and will reach 1,55 MT. In 2014, World Crude Steel production reached 1.66 billion tonnes, with a growth of 1% over that in 2013. The following table shows the crude steel production volume of the top steel producing nations 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. Macro data for developed nations continued to strengthen during the year, however, China, ASEAN, MENA and other regions which were expected to grow, continued to show sluggish signs of economic recovery. INDIAN STEEL INDUSTRY The steel sector in India contributes nearly two per cent of the country's gross domestic product (GDP). India produced 7.07 MT of steel in January, 2015 reporting the fourth highest production level globally which was 1.7 per cent higher than the Country's steel production in the same month last year. Steel production capacity of the Country expanded from about 75 million tonnes per annum (MTPA) in 2009-10 to about 101.02 million tonnes (MT) in 2013-14, when output was 81.7 MT. The World Steel Association has projected Indian steel demand to grow by 6.2% in 2015 and by 7.3% in 2016 as compared to global steel use growth of 0.5% and 1.4% respectively. Chinese steel use is projected to decline in both these years by 0.5%. Although India's steel demand is expected to increase, it is yet to be seen whether projections of WSA can really be reached. In 2014, India retained its position as the 4th largest steel producing country in the world, behind China, Japan and the USA. The Indian GDP growth expanded to 7.2% in 2014 due to improving economic sentiments post the election of a new government. The crude steel production grew by 2.3% to 83.2 million tonnes, while steel demand grew by 2.2% to 75.3 million tonnes. However, demand at the grass root level remained stagnant and is only expected to pick up from 2015. FINANCIAL PERFORMANCE REVIEW OF THE COMPANY: The Company is engaged in steel business, which in context of Accounting Standard (AS-17) issued by the Institute of the Chartered Accountants of India, is considered to be the only business segment. Your company incurred gross loss amounting to Rs.15109.30 lacs during the year under review which was mainly due to hike in the price of raw materials, rising borrowing costs and other global factors. The net loss for the year under review was Rs.10,257.12 lacs. The basic and diluted earnings per share were at (11.64) for Financial Year 2014-15. During the year 2014-15, your Company achieved a total revenue of Rs.1,09,207.81 lacs as compared to Rs.1,22,905.89 lacs in the brvious year which reflects a decline of around 10.7%. As a corrective action plan the Company with the consent of it's lenders has approached the Corporate Debt Restructuring Empowered Cell (CDR EG) for restructuring its credit facilities and received Provisional Letter of Approval by the CDR EG upon the approval of the Corporate Debt restructuring Package vide letter dated March 23, 2015 which was further confirmed by CDR Cell that it is the final letter of approval May 8, 2015. The Company has restructured its credit facilities as granted/continued by the consortium lenders amounting to Rs.1,32,765 lacs. Its brief financial performance for 2014-15 is given below: Further the turnover and capacity utilization of the various products and divisions of the Company are explained under the head named Diversified Product portfolio which forms part of this Annual Report. In view of the global economic slowdown, MSPL is focusing on innovation to ensure sustainability. The Company is working towards optimum utilization of manpower, machine & money during the current tough economic situation. With the mix of above strategy, the Company is trying to consolidate its operations & financials and trying to optimize its margins. Year 2014-15. During the year 2014-15, your Company achieved a total revenue of Rs.1,09,207.81 lacs as compared to Rs.1,22,905.89 lacs in the brvious year which reflects a decline of around 10.7%. As a corrective action plan the Company with the consent of it's lenders has approached the Corporate Debt Restructuring Empowered Cell (CDR EG) for restructuring its credit facilities and received Provisional Letter of Approval by the CDR EG upon the approval of the Corporate Debt restructuring Package vide letter dated March 23, 2015 which was further confirmed by CDR Cell that it is the final letter of approval May 8, 2015. The Company has restructured its credit facilities as granted/continued by the consortium lenders amounting to Rs.1,32,765 lacs. Its brief financial performance for 2014-15 is given below: Further the turnover and capacity utilization of the various products and divisions of the Company are explained under the head named Diversified Product portfolio which forms part of this Annual Report. In view of the global economic slowdown, MSPL is focusing on innovation to ensure sustainability. The Company is working towards optimum utilization of manpower, machine & money during the current tough economic situation. With the mix of above strategy, the Company is trying to consolidate its operations & financials and trying to optimize its margins. RISK, OPPORTUNITIES & THREATS: FY 2014-15 has been a mixed bag for steel makers with crisis of raw material prices, fluctuating (INR/USD) exchange rate and a slow steel demand growth. Although steel sector still faces some challenges and concerns which include, on the input side, the raw material prices are expected to be subdued, the steel industry faces multiple challenges on the output side such Chinese over capacity resulting into substantial increase in Chinese exports into India - resulting in brssure on domestic steel prices, slow pick-up in steel demand in the domestic market - making it difficult to improve capacity utilization, slowing demand growth across geographies, shut down of mining operations has resulted in scarcity of iron ore, impacting prices; quality of the available iron ore also remains a challenge etc. Hence, it is becoming more and more important to focus on cost reduction to remain competitive in current market and to maintain margins. Risk management involves the efforts to identify and mitigate the negative influence of various sources of risks faced by the Company's business activities to ensure optimal operations. Business risks are potential incidents, which could negatively affect the achievement of the Company's vision, mission, goals and targets or organizational unit. MSPL recognizes that risk need to be managed to protect its customers, employees, shareholders and other stakeholders to achieve its business objective and enable sustainable growth. Identified risks are grouped into five types, namely strategic, financial, operational, plant and environmental. Brief descriptions of the different types of risks are given below: • Strategic risks pose threat to the survival of the Company's business. Some of these risks include technological developments, government policies, investment plans, new product development and other related risks. • Operational risks can lead to loss on the back of a failure or inadequacy in the quality control of the business process. • Financial risk causes direct or indirect financial losses to the Company. • Environmental risks cause environmental degradation, pollution, social disruption and other issues, in turn adversely impacting the Company's reputation. The risk management framework undergoes continuous improvement to allow management to optimize its management of risk exposures while taking advantage of business opportunities. All sources of external and internal risks need to be systematically anticipated to brvent issues that can negatively affect the Company in future. An overview of these risks is provided hereafter, including the action to mitigate these risks. Strategic Risk: To mitigate the strategic risk the Company undertook several efforts: • Implementing cost reducing measures. • Invest in projects to strengthen cost competitiveness • Implementing new operating system Financial Risk: To mitigate the financial risk, the Company undertook several efforts: • Treasury Risk- the Company maintains a financial framework to ensure that it is able to maintain an appropriate level of financial capacity. • Interest Rate Risk - MSPL borrows funds in the domestic market to meet fund requirements. However the Company strives to make timely payments of instalments to the CDR Lenders and ensures monitoring and compliance with the terms and conditions CDR package as approved and implemented. • MSPL hedges its exposure. Plant operations risk To mitigate the risk of disruptions in plant operations, the Company undertook several efforts. It: • Implemented brdictive and brventive maintenance programmes consistently • Identified critical equipment in every plant and supporting unit to be programmed on maintenance and procurement management and spare part availability • Conducted annual maintenance programmes • Performed daily, weekly and monthly production reviews on the operating performance of production facilities • Reviewed and implemented the revitalisation programme to ensure reliable operations of production facilities Employment risk To mitigate the employee related risks, the Company: • Developed Human Capital Maintenance with the advanced aspects of Health Care and Welfare to perform employee welfare and help them overcome health problems • Formulated the operational health, safety and environmental standards procedure • Conducted induction courses programme for new employees. • Organised safety campaign, health and the protection of working environment • Provided retirement plans and programmes for employees Environment risk • Protecting for the environment lies at the core of all operations at MSPL Steel. The Company is aware of the negative impact and legal actions that might happen if its operations affect the environment. Hence, it undertakes prudent steps to reduce its environmental footprint. • To reduce its environment footprints and ensure proper compliance with the relevant policies, the Company: • Established and assigned working units, which are specifically responsible to manage health, safety and Environment • Implemented consistent rules and regulations as well as including those already set in the Environmental Management System (ISO) • Analysed the Company's environment footprint through Environmental Impact Analysis (EIA) for plant operation activities and the Environmental Monitoring Plan or Environmental Plan to do it consistently. • Completed the production unit by installing de-dusting system, water treatment plant, waste management systems for pollution control The Board has being trying to set the right tone at the Company's managerial level. It believes in the motto: To improve performance, one has to understand how to manage risk better. The Company has been integrating concepts of strategic planning, operations management and internal control to mitigate and monitor various risks involving IT security, market, financial reporting, exchange, contractual compliance, policy compliance and so on. The New Industrial policy opened up the Indian Iron and Steel industry for private investment by (a) removing it from the list of industries reserved for public sector and (b) exempting it from compulsory licensing. Imports of foreign technology as well as Foreign Direct Investment are now freely permitted up to certain limits under an automatic route. INTERNAL CONTROLS AND SYSTEMS: A robust system of internal control, commensurate with the size and nature of its business, forms an integral part of the Company's Corporate Governance Policies. In MSPL, the Board of Directors ensures that Internal Controls have been laid down in the Company and that such controls are adequate and are functioning effectively. MSPL has policies, procedures, control framework and management systems in place. The Board has also set up appropriate processes to monitor the relevant external and internal risks. The Company follows the COSO model of internal control system to deal efficiently and effectively with all the five components of Internal Control System, namely: • Risk assessment • Control environment • Control activities • Information and communication • Monitoring the activities of the different levels of the organisation The Company's internal audit is carried out effectively, leading to an independent and systematic assessment of its data, records, performances, and so on with a brdetermined objective. It has the potential to be one of the most influential and value-added services available to the Board. It emphasises on: Operational effectiveness and efficiency • Resource protection • Reliability of internal and external reporting • Compliance with applicable laws, regulations and internal policies Internal audit works as a catalyst for improving an organisation's effectiveness, thus providing insight and recommendations based on analysis and assessment of data and business processes. With its commitment to integrity and accountability, internal audit provides value to governing bodies and senior management as an objective source of independent advice. The organisation promotes independent examination of its plans and the policies, subject to the overall control environment supervision by the Board Level Audit Committee. This leads to accountability and transparency of operations and promotes independent examination. During the year, the Company focused on encouraging independent decision making, documentation of shortcomings of the various processes and departments, and correction of the work processes. It is supplemented by well-documented policies, guidelines, procedures and regular reviews, which are carried out by the Company's Executives. The Audit committee comprising of Independent Directors regularly reviews audit plans, significant audit findings, adequacy of internal controls and compliance with Accounting Standards etc. The reports containing significant audit findings are periodically submitted to the Company's management and its Audit Committee. During the year, the Company focused on encouraging independent decision making, documentation of shortcomings of the various processes and departments, and correction of the work processes. STATUTORY COMPLIANCE: The Company's various units offer confirmation to ensure compliance with all statutory requirements. A declaration is then made by the Managing Director at each Board Meeting regarding compliance with the provisions of the various statutes. The Company Secretary, as Compliance Officer, ensures compliance with the SEBI regulations and provisions of the Listing Agreements. INDUSTRIAL RELATIONS AND HUMAN RESOURCE MANAGEMENT: The Company considers the quality of its Human Resources to be its most important asset and focuses on attracting,motivating and retaining the best talent. Communication exercises are treated as continuous process to keep the employees informed of the challenges being faced by the Company and also motivate them to take up higher responsibilities, in tune with the requirements of the Company. The Company's work culture is responsive to business needs and challenges, but gives them a sense of professional ownership. The Company's well-trained and highly efficient professionals are responsible for overseeing factory operations as well as the functions of the accounting and finance department. The team ensures that the established organisational procedures laid down by the senior management at a strategic level are followed and translated even in financial results and periodic management reports. Regular audits are conducted to ensure that the proper controls are in place. People form the foundation that drives the success and growth of the organisation. The Company undertook various HR initiatives like change dynamics, retention policies of key business drivers based on their competencies and their performance. CAUTIONARY STATEMENT The report contains forward-looking statements, identified by words like objectives, projections, estimates and expectations within the meaning of applicable securities laws and regulations. Actual results may differ materially from those exbrssed or implied. 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 statutes and incidental factors. For and on behalf of the Board Puran Mal Agrawal Chairman Date: August 14, 2015 Place: Kolkata |
