BMW Industries Ltd Management Discussions

Business overview

This reports purpose is to present the managements viewpoint on the external environment and the steel industry, as well as on strategy, operating and financial performance, significant changes in human resources and labour relations, risks and opportunities, and the effectiveness of internal control systems within the Company for the fiscal year (2022-2023). The Companys financial statements (standalone and consolidated), the schedules and notes thereto, and other information presented elsewhere in the Annual Report should all be read in connection with this. The Financial Statements of the Company have been prepared in accordance witRs indian Accounting Standards (Ind AS), in compliance with the Companies Act, 2013, as amended, and with the guidelines that are periodically issued by the Securities and Exchange Board of India (SEBI).

Economic overview Global economy¹

Despite volatility, the global economy gained momentum in CY 2022 and significantly rebounded from the pandemic-induced recession. While consumer spending increased substantially during the year, rising commodity prices and supply-demand imbalances caused many economies to experience greater inflationary pressure. Global inflation reached 8.7% in CY2022. Central banks tightened monetary policy to curb the impact of heightened inflation and its subsequent effect was felt on households and business margins. Even while nominal interest rates have risen above their pre-pandemic levels, they have not returned to normal due to prolonged inflation and high-interest rates.

Besides, the Russia-Ukraine conflict resulted in geo- political unrest and global growth moderately contracted in CY23, from CY22. Additionally, the resurgence of COVID-19 in some parts of the world also hampered growth prospects in CY2022. Although the condition has been made stable and consumer spending revived and the US economy witnessed greater than expected growth.

Outlook

Despite the global headwinds, emerging and developing economies (EMDEs) are expected to play a vital role in accelerating global growth. It is projected that monetary policy tightening will be effective, resulting in a significant decrease in inflation from 8.7% in CY2022 to 7.0% in CY2023 and further down to 4.9% in CY2024.

The global economy remains resilient and the implementation of a conducive fiscal policy is expected to reduce the pressures of cost-of-living. Monetary policy is also anticipated to continue its current course to restore price stability. By increasing productivity and relieving supply chain limitations, structural reforms can ease the battle against inflation.

Indian economy²

In the 75th year of Indias independence, the country has been declared as the 5th largest economy in the world in terms of US dollars. Despite the global headwinds resulting in inflationary pressure and subsequent rise in commodity prices, India has continued to be the fastest- growing economy amongst the developing nations. The smooth substitution of internal growth stimulants for external stimuli demonstrates Indias economic resilience. In FY 2023, Indias Real GDP growth has been estimated at 7.2% according to the latest advance estimates by the National Statistical Office (NSO).

According to the Reserve Bank of India, retail inflation has declined below 6% in March 2023. However, the inflation rate is neither severe enough to depress individual consumption nor weak enough to affect investors drive.

Private consumption as a proportion of GDP reached 58.4% in Q2 of FY23, the highest in the second quarter since 2013-14, owing to a recovery in contact-intensive services like commerce, hospitality, and transportation. To ensure a strong rebound from the economic headwinds, India has largely focused on enhancing investments to attain sustainable growth. Besides, housing and construction activity improved rapidly in FY23 on account of significant government emphasis on construction and infrastructure. ¹

Outlook

India anticipates steady growtRs in FY24, supported by robust domestic demand, rising capital investment, the reduction of supply chain bottlenecks and tightening of monetary policy. According to the IMF, India and China are expected to contribute over 50% to global growtRs in CY23. Inflation is also anticipated to be stable. Anticipated enhancements in manufacturing, services and their associated sectors, along with rising confidence among businesses and consumers, along witRs increased availability of credit, are poised to bolster domestic consumption and investment. The governments proactive measures to stimulate infrastructure development and enhance productive capabilities are predicted to create a multiplier effect, amplifying Indias growth potential and facilitating the generation of employment opportunities.

Industry overview Global steel industry

The steel business has experienced steady rise in demand as a result of the products distinct benefits, including malleability, ductility, durability, hardness, and versatility. The widespread use of steel in numerous industries, including transportation, manufacturing, construction, and aviation sectors, has further stimulated its market expansion. With rising population, robust growth of the automobile industry, housing, infrastructure and home appliances sectors is witnessed around the world. It further enhances the demand for steel. Besides, the extensive use of stainless steel for the development of infrastructure for renewable energy sources including solar, wind, and hydropower, continues to boost the use of steel.

The manufacturing sector is expected to lead the steel industry, and the demand will be accelerating at an increased rate of 2.3%. Further in CY 2024, the demand is projected to grow by 1.7% in CY 2024.²

The global steel market was valued at about USD 1.269 trillion in CY 2022 and is expected to grow at a CAGR of 4% between 2023 and 2028, to reach nearly USD 1.61 trillion by 2028.³

Steel servicing centres

The steel service centres (SSC) industry is known for its expertise in processing various metals, including steel and aluminium plate. In addition to processing, some SSCs also play a role in recycling scrap and metal alloy materials. However, the SSC industry is generally considered to be unorganized and caters to a wide range of industries such as oil and gas, plumbing, and others, rather than focusing on specific metals like steel and aluminium.

The market for steel service centres (SSCs) is anticipated to experience a compound annual growth rate (CAGR) of 3.5% from 2019 to 2025. This growth is primarily attributed to the establishment of new steel service centres in different countries, catering to the manufacturing sector. Companies across the globe, especially in North America, are actively setting up new steel service centres to meet the growing demand. The United States, being a leading consumer of steel and related products, is expected to maintain its dominant position in the coming years. The increasing investments in mills, along with a growing preference for local manufacturing, are expected to contribute positively to the expansion of the steel service centres market.

Indian steel industry

India is presently the 2nd largest crude steel producer in the world and has now become a global force in steel production. The performance of the steel industry in the current fiscal year has been extremely positive. There has also been a major increase in infrastructural investments and government support to enhance the growth and outlook of the Indian steel industry.

Increase in domestic steel consumption

Flat steel prices increased significantly due to the Russia- Ukraine conflict but, have now stabilised on account of declining raw material prices, implementation of export taxes by the government and growing inventory.

The Steel sector has shown positive performance from April to February of FY23. The combined production of crude steel reached 113.44 million tonnes (MT), finished steel reached 109.35 MT, and the consumption of finished steel reached 107.20 MT during this period. These figures surpass the levels achieved in the same period of the previous two years, as well as the pre- COVID years .⁵

April- February: Production and Consumption (Graph - I)

Government initiatives

• National Steel Policy, 2017 - The National Steel Policy of 2017 aims to achieve a steel production capacity of 300 million tonnes by 2030 while also increasing domestic per capita steel consumption to 160 kg by the same year. The Government of India has implemented several measures to facilitate the growth of steel production and consumption in alignment with these objectives.

• Production Linked Initiative (PLI) Scheme -

Government of India has approved an outlay of Rs. 6,322 crores for the domestic production of specialty steel, for FY23-24, under the PLI scheme.

• Measures to control steel price - To reign in high prices of essential raw materials and intermediates for iron and steel production, tariffs on steel and other steel products were changed for the period May - Nov 2033. It eliminated import charges on raw materials. Export duty was also raised on several steel products to control prices.

• Initiative to ensure decarbonisation - Since 12% of Indias CO2 emissions come from the steel industry, India pledged to attain net zero emissions by 2070 during the Glasgow summit on climate change. This will help the steel industry to attain sustainability.

• Steel Scrap Recycling policy, 2019 - This policy encourages and supports the development of metal scrapping centres across the country, dedicated to the efficient processing and recycling of ferrous scrap originating from diverse channels. The establishment of these scrapping centers by both Public Sector Units and Private Sector entities will be driven by sound commercial reasoning.

• PM Gati Shakti Masterplan - In line with the governments Gati Shakti Plan, which is aimed at bolstering the countrys infrastructure, the Ministry of Steel has taken a significant step to enhance logistics in the steel sector. They have contributed by sharing geographical data for over 2100 operational steel units nationwide.

• Quality control orders - The steel industry is the one of leading industries, with the maximum product coverage under the BIS certifications markings scheme. It supports the delivery of high-quality steel for vital end-use applications including the engineering, construction and housing sectors.

Key reasons for the growth of steel sector in India ⁷

Easy availability of iron-ore for steel production

Production at an optimised cost due to locally available workforce

Steel is used in multiple industries to serve various purposes

Steel ensures high durability and low maintenance

Easily recyclable metal

OPPORTUNITIES FOR STEEL INDUSTRY

Increasing infrastructural development

There is a surging demand of steel products from the government and private entities as major focus is being taken on infrastructural development through construction of roads, bridges and railways.

Renewable energy projects

Steel is a vital component for wind turbines, solar panel mounting structures, and transmission towers. As the demand for renewable energy projects continues to grow, so does the demand for steel.

Rapid urbanisation and construction

As more people move to cities, the demand for housing, commercial buildings, and urban infrastructure rises. Steel is a primary material in construction due to its strength, durability, and versatility.

Growth of automotive industry

The increasing demand for lightweight vehicles due to fuel efficiency and emission regulations requires the utilization of high-strength steels. Steel manufacturers have the opportunity to leverage this trend by developing advanced steel grades that cater to the evolving requirements of the automotive industry.

Promoting circular economy and sustainability

The steel industry can capitalise on sustainability and environmental responsibility by leveraging its recyclable nature and energy-efficient recycling processes. Emphasising a circular economy approach and prioritising the use of recycled steel enables companies to align with sustainability objectives and attract eco- conscious clientele. Through promoting recycled steel, the industry can seize opportunities to contribute to a greener future while meeting customer demand.

Government scheme

The governments Production Linked Incentive (PLI) Scheme has opened up diverse opportunities for the manufacturing sector. Domestic steel production is anticipated to enhance export and bolster overall revenue and profitability.

THREATS FOR STEEL INDUSTRY

Fluctuation in raw material prices

The steel industry relies on various raw materials, such as iron ore and coal. Any significant fluctuations in the prices of these raw materials can impact the production cost and profitability of steel manufacturers.

Geopolitical factors

Geopolitical tensions, trade disputes, or changes in trade policies can impact the steel industrys supply chains and export markets. Inflation also may create a pressure on the demand of the steel.

Rapid technological advancements

There has been a rapid evolution of technology across various sectors. It is important for the steel manufacturers to adopt or invest in the latest technology in the production process, failing which may lead to a decline in productivity and quality.

Company overview

BMW Industries Limited is one of the leading manufacturers in the steel sector engaged in the manufacturing of HR Sheets, HRPO Coils, CR Coils, GP Coils, GC Sheets, MS and GI pipes, TMT rebars, and so on, and processing the same for marquee steel players in India. Incorporated in 1981, the Company is located in the Eastern Region with its registered office in Kolkata, West Bengal. The Company has been processing for Tata Steel (TSL) for more than 30 years having units in West Bengal and Jharkhand and also has a joint venture with Steel Authority of India Limited (SAIL). BMWIL has successfully developed capabilities to become a trusted partner of choice for its customers and is strategically positioned in the value chain that provides cushion during steel down cycles.

The Companys foray into marketing of TMT bars under its own brand ‘Bansal Super TMT has been appropriately timed. The TMT bar business, the ‘Bansal Super TMT brand has a strong uptake across West Bengal and has excellent growth potential. The Companys distributor-driven business model is also helping improve its market presence significantly.

Consolidated financial performance

The Company is engaged in the steel business. The brief performance of the Company is as follows.

Particulars	FY23 (Rs in Lakhs)	FY22 (Rs in Lakhs)	Variation (%)
Turnover	56,233.57	44,737.94	25.70
EBIDTA	12,968.45	10,545.60	22.97
Interest and Financial Charges	2,395.00	2,330.92	2.75
Depreciation	3,974.65	4,939.67	-19.54
Profit/(Loss) after Tax	5,448.17	3,478.05	56.64

Financial performance and state of affairs

During the year, the Company recorded a net profit of Rs. 5448.17. The basic and diluted earnings per share at Rs. 2.42 per share for FY 2023.

The analysis of major items of the financial statements is given below:

a) Revenue from Operations & Other Income - Financial Performance & State of Affairs (Consolidated):

Particulars	FY23	FY22	Changes(%)
Revenue from Operations	56,233.57	44,737.94	25.69
Other Income	913.42	1299.33	-29.7
Total Income	57,146.99	46,037.27	24.13

Revenue from operations of the Company increased as the company commissioned the steel service centre at Manifit unit during the year and entered into new contract with TATA Steel for same along with a new contract to process of 25000 metric ton per month of TMT from existing 7000 metric ton per month from Dec22. These arrangements have resulted in better capacity utilisation as well as higher revenue.

b) Cost of Materials consumed:

Particulars	FY23	FY22	Changes (%)
Cost of Materials Consumed	22,073.34	16,263.08	35.73%
Changes in inventories of finished goods, work- in-progress, and stock-in-trade	90.66	(451.39)	NA
Cost of Goods Sold	22,164.00	15,811.69	40.17%

There is an increase in cost of materials consumed by 40.17% on account of increase in Revenue by over 24% and increase in Raw Material cost. Inspite of increase in Raw Material cost, the per metric ton margin did not fall, as Raw Material is a pass-through cost for the Company.

c) Employee Benefits Expense:

Particulars	FY23	FY22	Changes (%)
Employee Benefits expense	2,276.09	2,180.53	4.38%

Inspite of higher capacity utilization and revenue, the employee cost only rose marginally due to increment in the current year.

d) Depreciation and Amortization expense:

Particulars	FY23	FY22	Changes(%)
Depreciation and Amortization expense	3,974.65	4,939.67	-19.34%

Based on technical review of the useful life of its property, plant and equipment carried out by a technical expert, the Company revised the useful life of its plant and machinery, buildings and factory shed etc. with effect from 1st April, 2022. This has resulted in decrease in depreciation charge for the the Financial Year by Rs. 1239.70 Lakhs.

e) Other Expenses

Particulars	FY23	FY22	Changes (%)
Other Expenses	18,825.03	16,200.12	16.20%

Other Expenses have increased by over 16% on account of increase in Power and Fuel Expenses by 2,216 lakhs due to increased production and higher fuel cost and increase in Miscellaneous expenses by 1,000 lakhs; which was offset by decrease in consumption of stores & spares by 884 lakhs.

f) Finance Costs

Particulars	FY23	FY22	Changes (%)
Finance Costs	2,395.00	2,330.92	2.75%

Finance cost has increased during the year due to Increase in average interest rate from 7.69% to 8.21% which was partially offset due to fall in borrowings from 23,898 lakhs to 21,929 lakhs.

g) Fixed Assets

Particulars	FY23	FY22	Changes (%)
Property, Plant and Equipment	45,244.74	43,223.03	4.68%
Capital work-in-progress	2,422.61	3,533.97	-31.45%
Other Intangible assets	0.14	1.27	-88.98%

h) Inventories

Particulars	FY23	FY22	Changes (%)
Raw Material	7724.72	8,084.85	-4.45%
Work in Progress	545.01	550.80	-1.05%
Finished Goods & Work-in-progress	2671.81	2756.68	-3.08%
Stores, Spares & Others	2786.67	2,512.18	10.93%
Total	13728.21	13,904.51	-1.27%

The company is in continuous process of reducing its net working capital and despite the increase in turnover, inventory has reduced marginally from Rs 13904.51 lakhs to Rs 13728.21 lakhs. As a result, Inventory holding period fell from 299 days to 228 days.

j) Trade Receivables

Particulars	FY23	FY22	Changes (%)
Trade Receivables	12925.48	11,021.40	17.28%

Though the absolute amount of debtor have increased, due to increase in Revenue, debtor outstanding has redcuded from 87 days to 78 days, signifying improved efficiency in collection.

k) Cash Flow

Particulars	FY23	FY22	Changes(%)
Net Cash Flow from Operating Activities	12563.30	6,409.09	96.02%
Net Cash Flow from Investing Activities	(5,707.86)	(1,964.66)	190.52%
Net Cash Flow from Financing Activities	(6,188.77)	(4,409.33)	40.35%
Net increase / (decrease) in cash and cash equivalents	761.54	94.87	702.71%

Net cash flow from operations have increased in FY23 signifying efficient management of operation. This has enabled the company to not just invest for future expansion but also reduce its outstanding borrowings.

CHANGES IN KEY FINANCIAL RATIOS

Particulars	FY23	FY22	Changes (%)
Debtors Turnover (Days)	78	87	-11%
Inventory Turnover (Days)	222	299	-24%
Interest Coverage Ratio (Times)	4.14	2.96	40%
Current Ratio (Times)	1.80	1.72	8%
Net Debt/Equity Ratio (Times)	0.38	0.46	-17%
Return on Net Worth (%)	9.41%	6.47%	45%
Operating EBITDA Margin (%)	23.06%	23.57%	-51 bps

Human resources

BMW Industries considers its employees to be the cornerstone of its success. To foster a conducive and harmonious working environment, its HR policies take into consideration employee welfare and well-being. The Company believes in offering its people equal opportunities and empowers them to fulfil personal as well as professional goals. It also strives to help employees maintain optimum work-life balance.

Corporate social responsibilities (CSR)

The Company takes its Corporate Social Responsibility (CSR) seriously and is actively engaged in various initiatives to give back to the community. These initiatives include organising plantation drives to enhance the environment, conducting medical check-ups and other healthcare camps for both employees and contract workers and so on.

Blanket distribution to the impoverished and needy

Beneficiaries

Overview on sustainability

The Company understands the importance of sustainable business practices to grow a successful corporate entity. As a result, the Company abides by strict environmental and regulatory compliances to reduce pollution, minimise resource depletion and limit its impact on the natural environment. It also focuses on implementing sustainable manufacturing practices.

At BMW, workplace safety is also a major priority. It believes, a hazardous environment can be demotivating for workers, may lower productivity and undermine organisational well-being. The Company, therefore, aims to align its operations with the United Nations principles for manufacturing responsibility and environmental sustainability, covering important aspects related to anti-corruption, labour laws and human rights.

Health commitments

BMW Industries is committed to maintaining a safe and secure working environment. Safety training is also regularly conducted by the Company to convey its safety policies. The Companys safety, health and environment policy encompasses the following tenets:

• Complying with relevant legal statutory provisions.

• Providing a safe working environment for employees, contractors, and visitors by using personal protection equipment, systems, and facilities.

• Good housekeeping, resource conservation and pollution prevention.

• Through comprehensive training based on employee needs, safety, health, and environmental awareness is promoted among employees.

• Enhancing safety, health, and environmental parameters continuously through a variety of programmes.

• With safety assessments at each level, the Company lays emphasis on preventive care.

• Strict adherence to SOPs and implementation of methodologies for effective hazard management is followed across the organisation.

• The Company instituted an annual health check plan coupled with a regular vaccination programme for all employees across India.

• The annual health check-up programme carries out tests consisting of X-rays, blood pressure and blood sugar to ensure optimal health condition of workers and employees. Most plants have an occupational health centre with a pharmacist on duty. All company locations have first-aid kits and they are kept at strategic locations for easy visibility and access. The Company also owns an ambulance to ensure the safety of employees and tend to health emergencies.

Safety commitments

The Company understands the importance of timely hazard identification and risk assessment to ensure the safety of its workforce. A detailed Job Hazard Analysis has been carried out to convey safe operational procedures and promote safety awareness. Rewards and recognition programmes have also been devised for employees, subcontractors, and workers to further strengthen the safety culture.

The Company invested in methodologies for capturing safety observations through Person-on-distance (POD). BMW Industries upgraded its bearing heating technique to one that is secure and environmentally beneficial. The Company eliminated the practice of sending employees to mill scale pits and instead of using gas-cutting methods for billet cutting, an advanced pneumatic cylinder was installed for automatically converting billets for the roughing stand.

Safety observations were regularly shared with team members and WhatsApp groups were also formed to improve awareness among teams. Weekly site meetings were also organised to strengthen the safety culture. The Company also designed a grievance consequence management process whereby safety violations were seriously treated and employees had to face the consequences of their actions.

Risk management

The Company has instituted a robust Risk Management Framework aimed at effectively navigating business uncertainties and optimising overall performance. This framework serves as a tool for informed decision- making, prudent resource allocation, and adherence to governance standards. It balances best practices with pragmatic considerations, facilitating a coherent approach to identifying, assessing, and mitigating risks. Additionally, it delineates the roles and responsibilities necessary for the successful implementation of risk management activities. In this manner, the Company seeks to safeguard its assets, enhance its image, and improve operational efficiency.

Risk management process

The Company has been consistently improving our system that allows for the quick detection of risks that could impact its operations and financial stability. The system evaluates the significance of the risks and implements measures to minimise the probability of their occurrence and any losses that might result. It uses a uniform approach to assess and manage risks, with specific goals, objectives and principles guiding the establishment and operation of its corporate risk management system. Risk management is applied throughout all levels of management, as well as in functional and project areas.

• Raw material availability and cost inflation risk:

Unavailability of Raw Materials and Volatile Prices: The Company is primarily related to conversion/ tolling business where the raw material is supplied to us by its customers and it process the same into final finished goods. As such the availability and cost of purchasing raw materials is not a concern for the Company.

•. Infrastructure and logistic risk:

Inability to provide goods to the customers timely: The Company has its own fleet of 105 trucks/tailors with all modern GPS systems and camera installed on the same. This helps in planning the dispatch of finished goods timely and in efficient manner, thus providing with end to end solution to the customers. Hence, it has eliminated the risk of unavailability of logistic support to fulfil its supply obligations.

• Finance risk

Inability to raise finance and higher interest risk: Its Net debt - equity ratio is only 0.38, which helps in easy availability of additional borrowing from financial institutions. Further, its cashflow from operation are very strong, and this reduces dependency on borrowing for its expansion and working capital needs.

To mitigate the interest risk, the Company has a blend of fixed and floating interest rate borrowings. Strong financial parameters also help in improving the credit ratings and hence its acceptability among the lending community.

• Quality risk:

Poor quality of raw material can harm the long-term trust and relationship of customers - The Company has an experience of over four decades in various steel products. It has an integrated manufacturing facility, dedicated management team and committed production and quality team. It has time tested SOPs to control the quality and try to ensure zero defects to customers.

• Safety risk:

Safety of workers and employees: Safety of Life and Plant is most important in steel industry. Any compromise with safety can cause loss of life and destruction of assets. The Company has a separate safety department in every plant with separate safety officer who ensures safety management at plant and ensures all compliances and, SOPs for safety are followed in both letter and spirit.

Internal Control Systems and their adequacy

The internal control and risk management system outlined in the corporate governance code of our organization forms the foundation for the systems design and implementation. This system engages a diverse team of dedicated employees collaborating seamlessly to fulfil their distinct roles. The Board of Directors provides pivotal strategic guidance and oversight to Executive Directors, management, as well as monitoring and support committees. Its internal control mechanisms are meticulously designed and rigorously implemented, ensuring the adequacy and effectiveness of its safeguards against risks and the soundness of its corporate governance framework.

Cautionary statement

According to the applicable securities laws and regulations, the statement in this part that discloses the Companys goals, forecasts, expectations, and estimates may be deemed to be ‘forward-looking statements. Future expectations and assumptions are the basis of forward-looking statements. The accuracy of these suppositions and expectations, as well as their realisation by the Company, cannot be guaranteed by the Company. As a consequence of the influence of outside factors that are out of the Companys control, actual results may differ significantly from those stated in the statement or inferred. On the basis of any later developments, the Company disclaims any obligation to publicly amend, change, or revise any forward-looking statements.