Inducto Steel Ltd Management Discussions

The global economic growth is expected to fall from 3.4% in 2022 to 2.8% in 2023, before settling at 3.0% in 2024, according to the IMFs April 2023 Economic Outlook. Even prior to Russias full-scale invasion of Ukraine, the global growth recovery had been fragile and unequal across sectors and jurisdictions, with hardest-hit, contact-intensive sectors recovery lagging behind. Persisting supply bottlenecks, rising input costs and the continued effects of the pandemic weighted down on the pace of the recovery. The tightening of monetary policy by ECB and Bank of England along with energy shock resulting from the Russia-Ukraine war will play a key impact on the growth potential.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Steel is crucial to the development of any modern economy and is considered to be the backbone of human civilization. The level of per capita consumption of steel is treated as an important index of the level of socio-economic development and living standards of the people in any country. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flows and income generation. All major industrial economies are characterized by the existence of a strong steel industry and the growth of many of these economies has been largely shaped by the strength of their steel industries in their initial stages of development.

Indias economic growth is contingent upon the growth of the Indian steel industry. Consumption of steel is taken to be an indicator of economic development. While steel continues to have a stronghold in traditional sectors such as construction, housing and ground transportation, special steels are increasingly being used in engineering industries such as power generation, petrochemicals and fertilizers. India occupies a central position on the global steel map, with the establishment of new state-of-the-art steel mills, acquisition of global scale capacities by players, continuous modernization and up gradation of older plants, improving energy efficiency and backward integration into global raw material sources.

The steel sector in India is one of the most important industries in the country. It is a major contributor to the countrys GDP and provides employment to millions of people. India is the second-largest producer of steel in the world and is expected to become the largest producer by 2025. The steel sector in India has been growing steadily over the past few years and is expected to continue to grow in the future.

According to the Ministry of Shipping, around 95% of Indias trading by volume and 70% by value is done through maritime transport. In November 2020, the Prime Minister, Mr. Narendra Modi renamed the Ministry of Shipping as the Ministry of Ports, Shipping and Waterways. Ship breaking is the process of dismantling decommissioned ships and similar vessels to extract scrap metal and demolish the huge ship structure. It is also known as ship demolition, ship cracking, or even ship recycling, at times. Global trade and shipping has consistently increased over the past years due to globalization and industrialization, which has led to substantial rise in ship building. However, the average life of a ship is quoted to be around 25 to 30 years. Post this age, the ship needs to be decommissioned for safety and economic concerns, may be sometimes due to accidents and mishaps of the ship. The process of decommissioning is usually followed by an auction of the ship, after which it is moved to the breaking yards to break it down. The breakdown is labour intensive, and the time required for breaking the ship down varies according to the size and type of vessel.

The Indian Shipping Industry plays a crucial role in Indian economy. As mentioned earlier, 90% of the Nations trade by volume is done by the sea. India has been largest merchant shipping fleet amongst the developing nations. The Indian shipping industry supports transportation of national and international cargoes and also provides various other facilities such as ship building, ship repairing, freight forwarding etc. Indian shipping industry with emergence of globalization and liberalization in early 90s has acquired new dimensions in terms of demand and infrastructural development.

> Global Overview:

As per World Steel Short-Range Outlook, global steel demand declined by 1.7% in 2022 after recovering 16.4% in 2021 from the pandemic dip of 12.3%11. The reason for the downward revision is the impact of consistently high inflation and increasing interest rates worldwide. In 2022, recovery momentum after the pandemic shock was hampered by high inflation and increasing interest rates, the Russian invasion of Ukraine, and the lockdowns in China. Accordingly, prices in China, India, Turkey, and other major steel exporting countries also saw an increase. Coupled with sanctions imposed by the United States and Europe on Russia, energy prices soared up, inflation climbed high, and production costs pulled up, prompting European steel mills to reduce output, thereby pushing up prices. According to the World Steel Association (WSA), global steel demand will rebound in the current year by 2.3%, mainly due to a recovery in manufacturing activity. The outlook for the steel industry is projected to improve in 2023-24 on the back of infrastructure-related demand.

Global ship recycling activities have experienced a significant decline of 49% in 2022 in stark contrast to the 14% growth observed in 2021. Total tonnage scrapped in the year 2022 amounted to 3.19 mnt Light Displacement Tonnage (LDT) against 6.27 mnt LDT in 2021. The three countries that receive the highest number of ships globally for breaking are India, Bangladesh and Pakistan, together contributing over 90% of the dismantling volumes.

In terms of geography, the global ship breaking market can be segmented into Asia Pacific, Europe, North America, Latin America, and Middle East & Africa. The dynamics of the ship breaking market differ from developing and underdeveloped countries to developed countries. In developed regions, such as Europe and North America, the breaking of a ship is cost intensive and stringent rules, regulations, and standard operating procedures need to be followed, making the entire process economically unviable. On the other hand, in developing countries such as, China, India, and Bangladesh, the scenario is quite the opposite, the ship breaking market is expanding due to lack of regulations. Hence, Asia Pacific is a prominent market for ship breaking globally, with India, China, Bangladesh, and Pakistan topping the market. Turkey is also a major market outside Asia Pacific.

> Domestic Overview & Market Size:

India remained a bright spot in the global steel industry in 2022. Having managed inflation well, the Indian economy is on a healthy growth track, with a rising share of investment in GDP thanks to strong government spending on infrastructure. After growth of 8.2% in 2022, demand is expected to show healthy growth of 7.3% in 2023 and 6.2% in 2024, driven by a growing demand from the construction and automotive sectors. In FY 2022, the production of crude steel and finished steel stood at 124.72 million tonnes (MT) and 118.714 MT, respectively. The consumption of total finished steel was 114.894 MT showing a growth of 8.2% over the year. India exported 7.906 MT of total finished steel during the year 2022, showing an annual decline of 38.2%. And Import of Total Finished Steel was at 5.615 MT, up by 12.3% over the year. According to estimates by the Indian Steel Association (ISA), domestic steel demand stood at 119.86 MT in FY 2022-23. The demand was spurred by the revival of numerous infrastructure and construction projects which got stalled due to the pandemic. Further, it is estimated that Indias domestic steel demand is estimated to grow annually by 7.5% to reach 128.85 MT in the current year. Due to the sluggishness of European and American markets, major steel manufacturers such as South Korea, Japan, and Vietnam redirect their surplus production towards the Indian markets.

With the industry accounting for about 2% of the nations GDP, India ranks as the worlds second-largest producer of steel and is poised to overtake China as the worlds second-largest consumer of steel. Both the industry and the nations export manufacturing capacity have the potential to help India regain its favourable steel trade balance.

According to the Gujarat Maritime Board, the regulator for all the maritime activities in the state, the Alang Ship Breaking Yard did 1.09 million tonnes of Light Weight Displacement (LDT) recycling in FY 2022-23 as against the capacity of 4.5 million LDT, its worst since 2007-08 when Alang managed 0.64 million LDT. Further, as per data from Ship Recycling Industries Association of India (SRAI), Alang handled around 131 ships in 2022-23, falling from 298 ships in 2013-14 and 187 ships in 2020-21.

> Government Initiatives

Under the Union Budget 2023-24, the government allocated Rs. 70.15 crore (US$ 8.6 million) to the Ministry of Steel. The governments Production Linked Incentive (PLI) Scheme will boost domestic production of specialty steel. A total of 57 applications from 30 companies have been finalized under the PLI scheme with an outlay of 6,322 crores. This will attract committed investment of 29530 Crore with a downstream capacity addition of 25 million tonnes and employment generation potential of 70000. The Government of India raised import duty on most steel items twice, each time by 2.5% and imposed measures including anti-dumping and safeguard duties on iron and steel items. Indian steel industry has also been taking measures to address the energy and environment issues in Steel plants through adoption of energy efficient and environment friendly technologies as part of technological up-gradation/ modernisation/ expansion projects.

Global downturn and rising competition have resulted in pressures on Indian ship building industry leading to a decline in its global share to >1. While India is one of the market leaders in ship recycling, ship repairs is a very nascent market. With the objective of propelling India to the fore-front of the global maritime sector, Ministry of Ports, Shipping and Waterways has formulated Maritime India Vision 2030 (MIV 2030), a blueprint to ensure coordinated and accelerated growth of Indias maritime sector in the next decade.

To overcome the downturn being faced in Alang, the Centre and state government are "diligently formulating strategies" and "implementing measures" to ensure the yards sustainability and ongoing operation. The central government has chalked out a plan to double the capacity of Alang from 4.5 million LDT to 9 million LDT in the next few years to become Indias biggest vehicle recycling hub. It aims to revitalize the yard, effectively navigate the challenges posed by the industry slowdown, and address the competitive landscape, ensuring its long-term viability.

OPPORTUNITY AND THREAT

With increasing infrastructure development, growing urbanisation and a drive towards sustainable solutions, the steel industry is poised to unlock significant opportunities, creating a favourable outlook for the sector. India, one of the fastest growing major economies, is likely to become the third-largest economy in the world by 2030. The steel industry will have a major role to support this growth. Increased investments in infrastructure will be a major contributor to the growth of Indias domestic steel demand.

With large raw material reserves, strong base of technically skilled manpower and one of the fastest growing markets in the world, India has definite structural advantages for a successful steel industry. The National Steel Policy 2017 seeks to create a globally competitive steel industry in India with 300 million tonne steelmaking capacity and 158 kg per capita steel consumption by FY 2030-31. The growth in demand will come from traditional, as well as emerging consuming sectors focussing on changing needs of customers. Government-led investment in infrastructure, rapid urbanisation, rising preference for personal mobility, growth in capital goods sector, and government focus on making India Aatmanirbhar are expected to stimulate steel demand in India. The acceleration of the rural economy is also emerging as a potential demand driver for steel. The Government has taken an objective of increasing rural per capita consumption of steel from current 19.6 kg to 38 kg by FY 2030-31.

Opportunities abound in growing economies and opening of economy in India has created opportunities for India enterprise to move beyond national boundaries as well to create productive assets. Presently, the Company is consolidating its gains out of creating additional production capabilities. While climate change is a key risk for a hard to abate sector such as steel, it also provides an opportunity to take a leadership role in the steel industry by reducing our environmental footprint. Evolving consumer needs and growing focus on sustainability will require innovation in process, product, and business models supported by a strong technology management process. Organisations can create a differentiated position by focussing on creating the technology of tomorrow.

SEGMENT WISE PERFORMANCE

> Segmental Review

The companys business segments are identified based on the geographic locations of its units and the internal business reporting system as per Ind AS 108. Business segments of the company are primarily categorized as: Mumbai (Trading & Investment) and Bhavnagar (Ship Breaking & Trading).

> Segment-wise Standalone Ind AS Financial Results

(Rs. In Lakhs)

Particulars	Mumbai	Bhavnagar	Total
Segment Assets	4,205.51	1,736.59	5,942.10
Segment Liabilities	1,591.30	46.03	1,637.34
Revenue from External Source (excluding	1,435.32	7,635.45	9,057.72
Inter Segment Revenue)
Segment Results Before Interest and Taxes	(2.61)	190.75	188.13

i. Bhavnagar:

During the financial year 2022-23, ship-breaking unit at Alang Ship Breaking Yard, Bhavnagar has performed well in term of sales turnover and net profit margin. In spite of volatile prices of old Ships, Iron and Steel products coupled with fluctuations in value of Indian Rupee vis-a-vis US Dollar during the year, this segment has achieved revenue of Rs.7,635.45 Lakhs and result of Rs.190.75 Lakhs. Though the year under review saw fluctuation in the international market of old ships coming for breaking, the management was very cautious and purchased ships at proper time and built a good level of inventories to earn better profits in coming years. During the year under review, Trading activities were also carried out in Bhavnagar. Moreover, the management is of the view that, in the coming years the ship breaking industry will be stable and with expected boost in the economy the requirement of iron and steel will increase which will help the company to move towards its sustained path of growth.

ii. Mumbai:

During the year under review, the Mumbai Unit has achieved revenue of Rs.1,435.32 Lakhs and incurred loss of Rs.2.61 Lakhs.

OUTLOOK

India remains the biggest ship breaking market, with the Alang ship breaking yard in Gujarat handling at least 450 ships every year. By making the countrys ship recycling sector more environmentally sound, the government expects to increase ship recycling capacity by 2024 to more than nine million gross tonnage.

The growth can be attributed to higher rates for steel scrap and increased availability of condemned vessels. Indian steel demand is expected to be robust and growing by 6.2% in FY 2023-24 supported by strong GDP growth forecast, private consumption and Government expenditure. Integrated Steel Players will continue to add capacity in FY 2023-24, and utilisation levels are expected to remain healthy at ~80%.

Elevated inflation is expected to persist longer, with ongoing supply chain disruptions and high energy prices continuing in 2023. Risks to the global baseline are tilted to the downside which is primarily brought by Russia-Ukraine conflict and its many-sided repercussions, from raw material supply to logistics to uncertainties in trade flows to the growing impact of sanctions. Other global risks may crystallize with the surging geopolitical tensions, and the ongoing adverse climate conditions leading to the probability for natural disasters. Monetary policy in many countries will need to curb inflationary pressures, while fiscal policy will need to prioritize health and social spending.

Your directors see a staying positive and are having bright future prospects ahead for the company looking to the prevailing upward trend in the Iron and Steel sector in India and internationally. The management is of the view that, in the coming years the ship breaking industry will be stable and with expected boost in the economy the requirement of iron and steel will increase which will help the company to move towards its sustained path of growth.

RISK AND CONCERN

Over and above the economic risks the shipping industry is impacted by numerous short term and regional factors, like weather changes, environmental changes, slow global trade etc. This results in great amount of volatility in the freight market, which in turn impacts your Companys earnings. The global economy is in uncertain territory, and not showing signs of picking up sharply in shorter span of time. Global economic uncertainties have affected Indias economy, Key risks synonymous to industry include the global recessionary trend, economic slowdown, increase in financial charges, non-availability (or undue increase in cost) of raw materials, such as, steel and labour etc., coupled with market fluctuations. The Company does not apprehend any inherent risk in the long run, with the exception of certain primary concerns that have afflicted the progress of our industry in general, like:

• Shortage of labour

• Rising manpower and material costs,

• Approvals and procedural difficulties.

• Lack of adequate sources of finance.

Information regarding key risks facing the Company and their mitigation strategies is given here:

Regulatory Risks

The steel sector is subject to an extensive, complex and evolving regulatory framework that may have material impact on operations. Any deviation in compliance and adherence has the potential to not only impact the Companys operating performance but also impact its reputation adversely. Global disruptions, emerging trade patterns and evolving environmental & sustainability policies, etc. could influence business decisions and market footprint. The aim is to protect and enable business to generate value. The Company is constantly monitoring the regulatory landscape to proactively assess the impact of changing laws and policies and evolving government mindset on matters affecting Companys operations.

Macroeconomic and Market risks

Steel demand is affected by high inflation, especially for energy and commodities, trade barriers and protectionist policies. Re-imposition of mobility restrictions amidst spread of new variants may also affect demand and supply chains potentially impacting sales. Fast-paced technological changes and shifting customer preferences may necessitate adoption of newer grades of steel and alternate materials.

Safety Risks

Inconsistent adherence to process & workforce safety requirements, safety laws and regulation may have adverse impact on business continuity and operation. The implications of the risks increase manifold with the growth and diversification of our business and operations at multiple locations that subjects the Company to various stringent safety laws and regulations.

Commodity Risks

Volatility in raw material prices (mainly coal and iron ore) significantly impacts the input costs in steelmaking and therefore, profitability.

The risks for the Company arise from the inherent nature of the shipbuilding industry. The commercial shipbuilding industry prospects are dependent on world trade and the cyclicity of oil, natural gas, shipping, transportation and other trade related industries. Offshore Industry continues to be in the trough.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

Internal financial control systems of the Company are commensurate with its size and nature of its operations. These have been designed to provide reasonable assurance with regard to the orderly and efficient conduct of its business including adherence to the Companys policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and the timely preparation of reliable financial information and disclosures.

Systems and procedures are periodically reviewed and these are routinely tested by Statutory as well as Internal Auditors and cover all functions and business areas. The Audit Committee reviews adequacy and effectiveness of the Companys internal control environment and monitors the implementation of audit recommendations, including those relating to strengthening of the Companys risk management policies and systems. During the year under review, no material or serious observation has been received from the Statutory Auditors and the Internal Auditors of the Company on the inefficiency or inadequacy of such controls.

FINANCIAL PERFORMANCE & ANALYSIS

The Companys financial performance for the year ended March 31, 2023 is summarized below: Standalone & Consolidated Ind AS Financial Results: Review and Analysis

(Rs. In Lakhs)

	Standalone		Consolidated
Particular	For the financial year ended 31.03.2023	For the financial year ended 31.03.2022	For the financial year ended 31.03.2023	For the financial year ended 31.03.2022
Revenue from operations	9,001.35	5,745.60	9,001.35	5,745.60
Other Income	56.37	22.85	56.37	22.85
Total Revenue	9,057.72	5,768.45	9,057.72	5,768.45
Cost of raw materials consumed	2,969.21	3,624.69	2,969.21	3,624.69
Purchase of Stock - in - trade	5,352.93	1,694.92	5,352.93	1,694.92
Changes in inventories of finished goods, stock - in - trade, work - in - process	268.88	(280.28)	268.88	(280.28)
Manufacturing expenses	82.76	93.24	82.76	93.24
Employee benefits expenses	81.83	121.85	81.83	121.85
Finance costs	87.45	30.85	87.45	30.85
Depreciation and amortization expenses	27.79	20.24	27.79	20.24
Other expenses	86.91	206.50	86.14	203.49
Total Expenses	8,956.76	5,512.01	8,956.99	5,509.00
Share of profit/ (loss) from associates	---	---	(0.05)	(3.02)
Profit / (Loss) before tax	100.96	256.44	100.69	256.44
Less: Current Tax	26.51	33.21	26.44	33.21
Less: Deferred Tax	16.59	(2.67)	16.59	(2.67)
Profit / (Loss) after tax	57.86	225.90	57.66	225.91
Other Comprehensive Income	0.44	0.79	0.44	0.78
Total Comprehensive Income for the year	58.30	226.69	58.10	226.69
Earnings Per Share (Face Value of Rs. 10/- each) -Basic	1.44	5.62	1.44	5.62
-Diluted	1.44	5.62	1.44	5.62

> Standalone Cash Flow Analysis

(Rs. In Lakhs)

Particular	For the financial year ended 31.03.2023	For the financial year ended 31.03.2022
Net Cash Flow from Operating Activities	(649.69)	(128.40)
Net Cash Outflow from Investing Activities	(1,265.38)	1,657.17
Net Cash Outflow from Financing Activities	1,480.13	(480.85)
Net Cash Inflow/(Outflow)	(434.94)	1,047.91

> Business Overview

The company is in the business of ship breaking, trading and investment activities.

The sales turnover of the company for FY 2022-23 and FY 2021-22 were Rs.9,001.35 Lakhs and Rs.5,745.60 Lakhs respectively. In spite of frequent fluctuation in the prices of old ship in the international market and also heavy dollar exchange rate fluctuations, the company was able to perform very well in terms of sales turnover. However, the prices in Iron and steel industry are gradually getting stabilized, but foreign currency and fluctuations in value of Indian Rupee visa-vis US Dollar remains a concerning area for the company even in the current year.

Whenever, there is no immediate payment liability against old ship purchased for breaking, the surplus funds available with the Company are given as loan on short term basis. The Company is hopeful that the Company can earn reasonable return on these loans/investments

Surplus funds are also invested in new avenues of earnings in the form of partnership with other entities like in Real Estate and Redeveloping firms. At present the Company has partnership with M/s. Calvin Divine Enterprises with 20% share and M/s. Shree Balaji Associates with 5% share. The management is hopeful that the Company can earn reasonable return on these investments.

Turnover

Gross Turnover including other incomes for the financial year 2022-23 stood at Rs.9,057.72 Lakhs in comparison to Rs.5768.45 Lakhs for the financial year 2021-22.

Revenue

The Company reported Revenue of Rs.9,001.35 Lakhs for the financial year 2022-23 in comparison to Rs.5745.60 Lakhs for the financial year 2021-22.

Finance Cost

Finance cost stood at Rs.87.45 Lakhs for the financial year 2022-23 in comparison to Rs.30.85 Lakhs for the financial year 2021-22.

Depreciation

Depreciation stood at Rs.27.79 Lakhs for the financial year 2022-23 in comparison to Rs.20.24 Lakhs for the financial year 2021-22.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES

Your Company treats its "human resources" as one of its most important assets. We continuously invest in attraction, retention and development of talent on an ongoing basis. Our thrust is on the promotion of talent internally through job rotation and job enlargement. We believe in harnessing its leadership and people capabilities through sharp focus and initiatives on talent development. The total number of permanent employees as on 31.03.2023 was 26.

We review our talent based on their performance and potential to assess their readiness for future roles of higher scale and complexity. We believe in developing our employees through multiple experiences requiring them to handle scale and complexity. We have instituted this through varied job rotation and project roles. We have put in place various recognition initiatives for our employees to reward them on their noteworthy performance and contribution. Social awareness and cultural/sports programmes are arranged regularly to create interest in living a meaningful life and release tensions

Our Company is committed to providing work environment that ensures every employee is treated with dignity and respect and afforded equitable treatment. The Company is also dedicated at promoting a work environment that is conducive to the professional growth of its employees and encourages equality of opportunity. To foster a positive workplace environment, free from harassment of any nature, we have institutionalized the Anti Sexual Harassment Framework through which we address complaints of sexual harassment at the workplace. We follow a gender-neutral approach in handling complaints of sexual harassment and we are compliant with the law of the land where we operate. We have also constituted Complaints Committee to consider and address sexual harassment complaints in accordance with Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

SIGNIFICANT KEY FINANCIAL INDICATORS

Not applicable as there are no changes of 25% or more in key financial indicators as compared to the immediately previous financial year.

CHANGE IN NET WORTH

The Companys Net worth stood at Rs.3,282.40 Lakhs for the financial year 2022-23 as compared to Net worth of Rs.3,224.30 Lakhs for the previous financial year 2021-22. During the year under review, the net profit of the Company has declined by approx. 74.48% from the previous year and hence the return on Net worth of Company is 1.44% as compared to 5.62% of previous financial year.

CAUTIONARY STATEMENT

Statements in the Boards Report and the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to your Companys operations include global and Indian demand supply conditions, finished goods prices, feed stock availability and prices, cyclical demand and pricing in your Companys principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which your Company conducts business and other factors such as litigation and your Company is not obliged to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent development, information or events or otherwise. The "Managements Discussion and Analysis" does not constitute a prospectus, offering circular or offering memorandum or an offer to acquire any shares and should not be considered as a recommendation that any investor should subscribe for or purchase any of the Companys securities.

CONCLUSION

At Inducto Steel Limited, innovation and responsibility have been at the core of building a sustainable enterprise and exploring possibilities towards creating a better future. We have focused on strengthening our balance sheet, upholding the highest standards in ethical and responsible business practices and striving towards a shared future of prosperity.

For and on behalf of the Board of Directors
For INDUCTO STEEL LIMITED
RAJEEV RENIWAL	SWEETY RENIWAL
MANAGING DIRECTOR	DIRECTOR
(DIN: 00034264)	(DIN: 00041853)
Date: May 30, 2023
Place: Mumbai