Nupur Recyclers Ltd Management Discussions

Global Economy Outlook

Global growth has slowed to the extent that the global economy is perilously close to falling into recession—defined as a contraction in annual global per capita income—only three years after emerging from the pandemic-induced recession of 2020. Very high inflation has triggered unexpectedly rapid and synchronous monetary policy tightening around the world to contain it, including across major advanced economies. Although this tightening has been necessary for price stability, it has contributed to a significant worsening of global financial conditions, which is exerting a substantial drag on activity. This drag is set to deepen given the lags between changes in monetary policy and its economic impacts, and the fact that real rates are expected to continue to increase.

Shockwaves continue to emanate from the Russian Federations invasion of Ukraine, especially in energy and other commodity markets. Against this backdrop, confidence has fallen precipitously. The worlds three major engines of growth—the United States, the euro area, and China—are undergoing a period of pronounced weakness, with adverse spillovers for emerging market and developing economies (EMDEs), many of which are already struggling with weakening domestic conditions.

Global inflation has been pushed higher by demand pressures, including those from the lagged effects of earlier policy support, and supply shocks, including disruptions to both global supply chains and the availability of key commodities. In some countries, inflation has also been spurred by large currency depreciations relative to the U.S. dollar, as well as tight labor market conditions.

Inflation remains high worldwide and well above central bank targets in almost all inflation-targeting economies. Although inflation is likely to gradually moderate over the course of the year, there are signs that underlying inflation pressures could be becoming more persistent. In response, central banks the world have been tightening policy faster than previously expected. Monetary policy tightening in advanced economies, a strong U.S. dollar, geopolitical tensions, and high inflation have dampened risk appetite and led to widespread capital outflows and slowing bond issuance across EMDEs. Financial conditions have particularly worsened for less creditworthy EMDEs, especially if they are also energy importers.

Most commodity prices have eased, to varying degrees, largely due to the slowdown in global growth and concerns about the possibility of a global recession. By historical standards, however, they remain elevated, prolonging challenges associated with energy and food insecurity. Crude oil prices have steadily declined from their mid-2022 peak; meanwhile, natural gas prices in Europe soared to an all-time high in August but have since fallen back toward pre-invasion levels. Non-energy prices, particularly metal prices, have declined alongside weak demand. While food prices have eased from earlier peaks, food price inflation remains very high in some EMDEs.

Against this backdrop, global growth is forecast to slow to 1.7 percent in 2023 (figure 1.1.C). This pace of growth would be the third weakest in nearly three decades, overshadowed only by the global recessions caused by the pandemic in 2020 and the global financial crisis in 2009. This forecast is 1.3 percentage points lower than in June, largely reflecting more aggressive monetary policy tightening, deteriorating financial conditions, and declining confidence. Growth projections have been downgraded for almost all advanced economies and about two-thirds of EMDEs in 2023, and for about half of all countries in 2024.

In advanced economies, conditions have deteriorated sharply, owing to declining confidence alongside high inflation and rapid monetary policy tightening. In the United States, one of the most aggressive monetary policy tightening cycles in recent history is expected to slow growth sharply. The euro area is also contending with severe energy supply disruptions and price hikes associated with the Russian Federations invasion of Ukraine. In all, growth in advanced economies is forecast to slow from 2.5 percent in 2022 to 0.5 percent in 2023.

In EMDEs, growth prospects have worsened materially, with the forecast for 2023 downgraded 0.8 percentage point to a subdued 3.4 percent. The downward revision results in large part from weaker external demand and tighter financing conditions. EMDE growth is anticipated to remain essentially unchanged in 2023 relative to last year, as a pickup in China offsets a decline in other EMDEs. Excluding China, EMDE growth is forecast to decelerate from 3.8 percent in 2022 to 2.7 percent in 2023 as significantly weaker external demand is compounded by high inflation, tighter financial conditions, and other domestic headwinds. The deviation between EMDE investment and its pre- pandemic trend is expected to remain substantial. EMDE investment growth is envisaged to remain below its 2000-21 average pace, dampened significantly by weakening activity, heightened uncertainty, and rising borrowing costs. Low-income countries (LICs) are expected to grow 5.1 percent in 2023, with forecasts downgraded in about 65 percent of countries. Cost-of-living increases and a deterioration in the external environment are weighing heavily on activity in many LICs and compounding weakness in LICs with fragile and conflict affected situations (FCS).

Risks to the growth outlook are tilted to the downside. In light of high inflation and repeated negative supply shocks, there is substantial uncertainty about the impact of central bank policy in terms of both magnitude and timing. As a result, the risk of policy missteps is elevated. Global inflation may be pushed higher by renewed supply disruptions, including to key commodities, and elevated core inflation may persist. To bring inflation under control, central banks may need to hike policy rates more than is currently expected. Financial stress among sovereigns, banks, and nonbank financial institutions may result from the combination of additional monetary tightening, softer growth, and falling confidence in an environment of elevated debt. Given already-weak global growth, a combination of sharper monetary policy tightening and financial stress could result in a more pronounced slowdown or even a global recession this year (figures 1.2.A and 1.2.B). Weaker-than- expected activity in China amid pandemic-related disruptions and stress in the real estate sector, rising geopolitical tensions and trade fragmentation, and climate change could also result in markedly slower growth.

Indian Economy

High Real Growth, Far from Recession

Major economies around the world have shown signs of economic slowdown, and in the past, similar market stress and inflation numbers have foreshadowed a global recession. It can be intimidating to hear news about weaker growth, increasing prices, and global unrest. While the issue has grown to an exigent state in many of the worlds economies, the situation in India proves to not be as dire. Despite uncertainty in western economies, India is projected to have a real growth rate of 6-6.8% in FY24 as per the Indian Economic Survey 2022-23. While this is on the lower side when compared to FY23 (est. 7%) and FY22 (9.1%), the impact of the 2 shocks (the Russian-Ukraine conflict, and countermeasures to curb inflation) should not be disregarded. Even at 6%, India will be one of the worlds fastest-growing large economies.

More Dependence on Internal Consumption Rather than Exports

Indias foreign exports constitute only a fifth of the countrys total GDP, making the impact of an economic slowdown in Western countries not as drastic. Indias economy is further safeguarded due to the diversified nature of its exports, both geographically, and in terms of the products/services it sells, making it less vulnerable to concentrated economic shocks.

Favourable Import Positioning

Another driving factor behind Indias growth is the countrys population of 1.4 billion and its demographics. India is home to a relatively young population, with ~26% below 14 years and ~67% between 15-64 years; starkly different from other countries in the developed world. This core strength is the backbone behind the resilience and growth of Indias demand. This ensures that the Indian consumers demand for goods and services will remain robust not just for the next decade, but the next few decades.

The adverse effects of the global slowdown are causing the prices of commodities like crude oil, metal, and edible oil to dip. This is highly beneficial to Indias trade as an importer of these commodities. The reduction in prices has helped counteract the reduction in exports aiding the trade deficit as well.

One particular commodity that India is vulnerable to is the price of oil, as the country imports roughly 80% of its oil. In 2022, India struck a deal with Russia to buy crude oil at a significantly discounted rate amidst the EU and US sanctions, helping India to moderate inflation as compared to the western countries.

While there will definitely be an impact of the global slowdown on the Indian economy due to current-day integrated economies, it will be far less as compared to western countries. Even with the presence of global headwinds, one can feel better knowing that India is relatively well-positioned to tackle any adverse effects the slowdown may cause.

Resilient Indian Banking System

Learning from the bitter consequences of large non-performing assets and limited capital base in the past has helped Indian banks to currently be better placed to withstand stress. Strict monitoring by the regulators, healthy asset quality, and reasonable capital levels have made Indian banks far more resilient to economic downturns compared to their US counterparts.

Inflation and Growth

RBI said that the adverse climatic conditions (like ElNino, etc.) are a risk to the future inflation trajectory. However, even if there are deficient rains owing to the El Nino effect this year, surplus rainfall areas, especially southern India may not be impacted much interms of crop loss.

RBI increased its real GDP projection by 10 bps to 6.50% for FY24 with Q1 at 7.8%, Q2 at 6.2%, Q3 at 6.1% (earlier: 6.0%) and Q4 at 5.9% (earlier: 5.8%).The reasons for growth are: robust rural demand, governments thrust on capital expenditure, above trend capacity utilisation in manufacturing, double digit credit growth and the moderation in commodity prices. However, protracted geopolitical tensions, tight global financial conditions and global financial market volatility pose risks to the growth.

RBI has indicated that the Governments focus on capital expenditure in the recent budgets, including the Union Budget 2023-24, could be effective in stimulating private investment and domestic demand with beneficial effects accruing over time. A 1 percentage point increase in public investment increases private investment by 0.6 percentage point in the first year and the cumulative impact over a 3-year period is over 1.0 percentage point. The multiplier for public investment on private investment is 1.2 and on overall GDP is 1.7 over a three-year period.

Industry Structure and developments

International prices of base metals have contracted by a steep 25-40% in FY23 so far, compared to the record high set in March 2022. While the metal prices were under some pressure from the end of May 2022, the major correction happened in the second quarter of FY23, when the prices sequentially corrected by another 18-20%. Weak global sentiments, a result of slowing Chinese demand and monetary policy tightening in major global economies, is likely to have a negative impact on global non-ferrous metal demand in the calendar year 2022.

The metals balance is likely to remain in deficit owing to production cut for aluminium and zinc in Europe, amid higher energy prices in the region. The copper supply was also hit in Q2 CY2022 owing to prolonged protests in large mines of Peru.

In the domestic market, power costs have significantly increased for domestic base metal companies, owing to the lower availability of coal linkages to non-power sectors and elevated coal prices in both domestic e-auction and the international markets.

Domestic demand for non-ferrous metals, however, would remain healthy at 5-6% in FY23, given the governments thrust on infrastructure development alongside an uptick in the real estate industry.

Zinc

Zinc, which is used in alloys, paints, cosmetics, drugs, plastics, batteries and electrical equipment to name a few. The price of the metal rose to all-time highs buoyed by concerns that the Russia-Ukraine conflict may exacerbate the power crisis in Europe. Soaring electricity prices in Europe have sharply reduced the probability of restart of European smelters that halted operations last year. This has sparked fears of metal shortfall in Europe which accounts for nearly 17 percent of global refined output and pushed Zinc physical premiums there to record highs.

The central governments infrastructure push will see Indian zinc consumption grow 3-5% in the medium term as against projections of 2% growth in global demand.

The demand will be triggered by the consumption of galvanised steel that will be needed for highways and high-speed rail projects, he said. Automobile sector is another area that will drive demand. Galvanised steel has zinc coating as an extra protection layer.

The government is estimating the steel production to double from 150 million tonnes to 300 million tonnes by 2030. Typically, 75 million tonnes out of this could be flat steel. That is the equivalent quantity of galvanisation. Due to this, we will see another 3-5% growth in zinc consumption itself. The world is growing at around 2%. India is the only country where there is a chance of zinc growing from 3-5%, because our consumption per capita is around 0.3 tonnes.

Steel

According to a recent CareEdge Research report released in January, Indias steel production grew by 5.7% whereas consumption grew by 11% for the period from April to December. The report further states that steel production to be in the range of 117 to 119 million tonne which is likely to be up by 3% to 5% on-year. Whereas the growth rate of steel consumption is expected to at 10% to 12%.

The launch of National Infrastructure Pipeline (NIP) with a progressive outlook and projected infrastructure investment to the tune of 111 lakh crore during FY20-25 is the key indicator of the push towards infrastructure projects across the country. The NIP currently has more than 8,500 projects with a projected investment of more than 100 lakh crore under various stages of implementation. The budget for FY 23-24 has given the much-needed impetus to the infrastructure, housing and construction sector backed by policy level support by the government. The budget for FY23-24 also focuses on reviving 50 additional airports, heliports, water aerodromes and advance landing groundings for improving regional air connectivity under ‘Udan scheme.

Planned initiatives such as the ‘Bharatmala programme for development of roads, ‘Sagarmala programme for port-led industrial development, the Urja Ganga Gas Pipeline Project, Smart Cities project and projects under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) will all collectively contribute towards growth in steel production and domestic consumption. The governments focus on improving the logistics ecosystem through ‘infrastructure initiatives is a force multiplier for domestic steel demand.

Aluminium

As the second-most widely consumed metal today, aluminium is called "the metal of the future" for more reasons than one. Not only do its applications closely align with the global transition to lower carbon emissions, but its manufacturing landscape also has a strong multiplier effect, by encouraging vertical integration, on several strategic and emerging sectors.

In India, around 44% of the aluminum demand comes from the power sector, followed by around 20% from the construction sector. The aluminium industry is crucial to the success of ongoing government programs such as the Smart and AMRUT Cities programs, 24X7 power for all, 100% rural electrification, the indigenous space program and 100 GW Solar Power capacity, and therefore, a comprehensive promotion of this sector must be prioritized.

The long-term aluminium demand fundamentals are strong in both global and domestic markets, driven by increased spending on infrastructure, electrification, and transition to electric vehicles amid growing concern over emissions that is likely to keep global capacity addition in check. The domestic market is likely to witness more robust growth of 6-7% in the near term, and 4-5% over the medium term. Increasing green transitions in the economy would lend traction to this demand.

Threats

India does not generate adequate feedstock for the recycling industry. To meet the requirement, scrap - which is the feedstock for recyclers - is required to be imported until the domestic supplies scale up. All of our neighbouring countries import scrap at zero duty to fulfil raw material demand and promote recycling.

Segment wise Performance

The Company is engaged primarily in the business of import of ferrous and non-ferrous metal scrap and processing/trading of same on PAN India basis. Accordingly, there are no separate reporting segments as per Accounting standard 17- Segment Reporting

Outlook

Indias new pledges of net-zero emissions by 2070, reducing total projected carbon emissions by 1 billion tonnes and reducing the carbon intensity of the economy to less than 45%. This ambition gives new boost to the recycling industry for material/metal extraction from scrap can make a big contribution. Every tonne of scrap used for steel production avoids the emission of 1.5 tonnes of carbon dioxide, and the consumption of 1.4 tonnes of iron ore, 740 kg of coal and 120 kg of limestone. It is amply clear that the secondary sector has tremendous potential for delivering high quality products at a fraction of the energy requirement and the GHG emissions.

Risk and concern

• Lack of sustained implementation of existing regulations on waste collection and recycling.

• Lack of standardization of recycled products adversely affecting market adoption.

• Lack of specific skill sets on responsible methods and technologies.

• caused by the geopolitical turbulence, metal prices are likely to remain somewhat elevated through the current year, amid high volatility.

Internal Control and Risk Management

The Companys internal control environment provide assurance on efficient conduct of operations, security of Assets, prevention and detection of frauds/errors, accuracy and completeness of accounting records, timely preparation of authentic financial information and compliance with applicable laws and regulation. Fully professional and experienced boards as mentioned in the corporate overview section in itself ensures efficient internal control. To ensure efficient internal control system, the Company has a well constituted Audit committee who at its periodical meeting, review the competence of internal control system and Procedures thereby suggesting improvement in the system and process as per the changes of Business dynamics.

Financial Performance & Analysis

Income

During the year, the revenue from operations is 9,884.76 lakhs from 15,904.81 lakhs. Total Income is from ^16,180.17 lakhs in FY 2021-22 to 10,541.00 lakhs in FY 2022-23.

Profitability

The company delivered EBITDA (including other income) of 1365.81 lakhs in FY 2022-23 as against 2648.51 lakhs in FY 2021-22. PBT 1329.45 lakhs in FY 2022-23 as against 2554.49 lakhs in FY 2021-22. PAT 934.45 lakhs in FY 2022-23 as against 1,872.86 lakhs in FY 2021-22.

Balance Sheet

The Net worth of the Company for FY 2022-23 stood at 7002.63 Lakhs as compared to 6446.24 Lakhs in the previous year. The Cash & Cash Equivalents were of 247.16 lakhs in FY 2022-23 as compared to 3218.89 lakhs in FY 2021-22 The Inventory was at 1752.26 lakhs in FY 2022-23 as compared to 879.54 lakhs in FY 2021-22 Trade Payable 93.91 lakhs in FY 2022-23 from 22.81 in FY 2021-22 in the previous year. Trade Receivable 1161.95 lakhs FY 2022-23 from 544.59 lakhs in the previous year.

Long- term borrowings were 115.48 lakhs during the year.

Material developments in Human Resources / Industrial Relations

At NRL, we regard human capital as a core component of our operations. The Company employed 24 permanent employees as at March 31, 2023. The company has held many training programmes throughout the year to nurture and strengthen its peoples talents.

Accounting Policies

The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year. The financial statements have been prepared under the historical cost convention on an accrual basis. The management accepts responsibility for the integrity and objectivity of the financial statements, as well as for the various estimates and judgment used therein.

Disclosure of Accounting Treatment in Preparation of Financial Statement

The Company has followed all relevant Accounting Standards laid down by the Institute of Chartered Accountants of India (ICAI) while preparing Financial Statements.

Details of significant changes (i.e., Change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios Accounting Policies

Following are important ratios showing better performance in FY 2023:

Particulars	FY 2022-23	FY 2021-22	Changes
Net Profit Ratio	0.09	0.12	(25.00%)
Trade Receivable Turnover Ratio	8.51	29.21	(70.87)%
Current Ratio	20.16	5.39	274.03%
Inventory Turnover Ratio	3.58	14.11	(74.63)%
Debt-Equity Ratio	0.00	0.03	(100.00)%
Interest Coverage Ratio	44.18	29.21	51.25%
Operating Profit Margin %	10.59	15.61	(32.16)%
Return on Net Worth	13.34	29.05	(54.08)%

Note: Its on account of the issue of bonus shares, IPO during the year under review and increase in total revenue and profit and efficient operations, changes occurred in the above ratios.

Cautionary Statement

Statements in the Management discussion and analysis describing the companys objectives, projections, estimates and expectations may be "forward looking statements" within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the companys operations include economic conditions affecting demand/supply and prices, conditions in the domestic and overseas markets in which the company operates/ going to operate, changes in government regulations, tax laws and other statutes and other incidental factors.

By order of the Board of Directors
For Nupur Recyclers Limited
(Erstwhile Nupur Recyclers Private Limited)
Sd/-	Sd/-
RAJESH GUPTA	DEVENDER KUMAR POTER
Managing Director	Director & CFO
DIN: 01941985	DIN: 08679602