TRF Ltd Management Discussions

1. Overview

The objective of this report is to convey Managements perspective on Industry Structure and Developments; Opportunities, and Threats; Human Resources & Industrial Relations; Financial and Operating Performance of the Company during FY 2023-24. This report forms an integral part of the Boards Report and should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in the Annual Report. The Companys financial statements have been prepared in accordance with Indian Accounting Standards (‘Ind AS) complying with the requirements of the Companies Act, 2013, as amended and regulations issued by the Securities and Exchange Board of India (‘SEBI) from time to time.

2. Industry, Structure and Development of Economy Global Economy

Global growth is expected to be around 3.2% in 2024, reflecting the lagged and ongoing effects of tight monetary policies to rein in decades-high inflation, restrictive credit conditions, and anemic global trade & investment. Near-term prospects are diverging, with subdued growth in major economies alongside improving conditions in Emerging Markets and Developing Economies (EMDEs) with solid fundamentals.

The recent conflict in the Middle East, coming on top of the Russian Federations invasion of Ukraine, has heightened geopolitical risks. Conflict escalation could lead to surging energy prices, with broader implications for global activity and inflation. Other risks include financial stress related to elevated real interest rates, persistent inflation, weaker-than-expected growth in China, further trade fragmentation, and climate change-related disasters.

Targeted and carefully sequenced structural reforms would reinforce productivity growth and debt sustainability and accelerate convergence toward higher income levels. More efficient multilateral coordination is needed for, among other things, debt resolution, to avoid debt distress and create space for necessary investments, as well as to mitigate the effects of climate change.

Indian Economy

The World Bank expects the Indian economy to grow by 6.6% in the current fiscal year 2024-25 after an estimated growth of 7.5% last fiscal. This growth is driven by factors such as strong tax revenue collections, increased government capital spending, firm domestic demand (including rural demand), and growth in manufacturing and construction sectors.

Indias manufacturing sector is at a sweet spot due to high-capacity utilization across key sectors, opportunities from global supply-chain diversification, thrust on infrastructure investment, the green-transition imperative and strong balance sheet of lenders. Continuous reforms, enhanced global competitiveness and moving up the value chain will boost the share of manufacturing in Indias GDP Emerging sectors, which are growing faster than others, are Electronics, EV, and Energy Intensive Industries.

While Indias economy is performing well amid global challenges, addressing concerns such as declining exports and sluggish private investment will be crucial for sustaining growth momentum in the future.

3. Opportunities

a. Significant growth opportunities are expected to emerge over the next few years in key sectors such as Steel, Mining and Power.

b. The Company also foresees opportunities for collaborating with Tata Steel Limited for its growth projects including manufacturing of Equipment & Industrial Structures.

c. Opportunities in plant maintenance for Tata Steel Limited.

4. Threats

a. Loss of opportunity due to lack of investments in upgrading technology and machinery.

b. Retention of skilled manpower due to market and external factors.

c. Maintaining cost competitiveness to remain in the market.

d. Nature of Public Sector Undertakings (PSUs) contracts are skewed & one sided; with inordinate delays in project completion, challenges in completing the balance scope of work, performance guarantee test and financial closure of existing contracts.

5. Financial including Operational Performance

On a standalone basis, the total income of your Company during the FY 2023-24 was 160.28 crore previous year was 225.65 crore). Profit before tax for the year was 46.60 crore (previous year profit before tax was 81.06 crore).

On a consolidated basis, the total income of your Company during the year stood at 162.05 crore (previous year was 226.22 crore) whereas the profit before tax for the year was 41.67 crore (previous year profit before tax was 80.84 crore). The total comprehensive profit for the year was 42.08 crore (previous year total comprehensive profit was 94.58 crore).

The analysis of major items of the Financial Statement is given below:

Segment-wise Performance Standalone:

During the FY 2023-24, Projects & Services segment generated a revenue of 9.67 crore (previous year was 57.28 crore) and the Products & Services segment posted a revenue of 134.46 crore (previous year was 123.31 crore), including inter segmental revenue of 4.17 crore (previous year was 3.49 crore).

The Projects & Services segment incurred a segmental loss of 20.91 crore (previous year profit was

43.74 crore) whereas the profit in Products & Services segment stood at 64.05 crore (previous year profit

was 49.30 crore). The profit of the Company after deducting interest, other un-allocable expenditure/ income and Income Tax from the segmental results arrived at 39.29 crore (previous year profit was 87.76 crore). This includes income in the nature of liabilities no longer required amounting to 11.05 crore.

Consolidated:

During the FY 2023-24, the Projects & Services segment posted a revenue of 9.67 crore (previous year was 57.28 crore) and the Products & Services segment posted a revenue of 134.46 crore (previous year was 123.31 crore), including inter segmental revenue of 4.17 crore (previous year was 3.49 crore).

The Projects & Services segment incurred a segmental loss of 20.91 crore (previous year profit was

43.74 crore), whereas the profit in Products & Services segment stood at 64.05 crore (previous year profit

was 49.30 crore). The profit of the Company after deducting interest, other un-allocable expenditure/income and Income Tax from the segmental results, has been 34.60 crore (previous year profit was 88.58 crore). This includes income in the nature of liabilities no longer required amounting to 11.18 crore.

6. Outlook for the Steel, Power and Mining sectors, in which your Company operates, is detailed below:

Steel Sector:

The recovery of the steel industry is still continuing post the global pandemic. In fact, it recovered well due to good handling of micro-economy by the Reserve Bank of India (‘RBI), and the investment that has been made for infrastructure development. In the last quarter of FY 2023-24, China exported between 7 to 8 million tons of steel every month to India, which is the highest since 2015 and this has adversely impacted domestic steel prices as well as profitability.

The infrastructure segment has been driving a lot of momentum in the steel demand and is expected to continue in the coming years. Overall, the Indian steel sectors outlook remains positive, albeit with a projected dip in demand next year. The industrys focus will be on ramping up domestic production and tackling import concerns to maintain robust long-term growth.

With expected robust demands, and healthy cash flows for steel companies, major investments are envisaged in this sector, which is an opportunity for the Company to secure orders, particularly, from Tata Steel Limited.

Power Sector:

Electricity demand growth is expected to moderate to 5.5-6% in FY 2024-25, slightly trailing the projected GDP growth of 6.2% for that fiscal year. India is projected to rely on coal to meet rising electricity demand through 2026. Coal-fired generation is expected to meet 68% of Indias electricity demand by 2026, despite a decrease from 74% in 2023. Coal-fired power generation is expected to rise by 2.5% annually (2024-2026). Despite Indias net-zero target by 2070, coal is expected to dominate, meeting 68% of demand.

Indias electricity demand rose by 7% in 2023, driven by rapid economic growth and increased space cooling needs. Expected annual average growth of 6.5% between 2024 and 2026. Indias electricity demand is projected to outpace Chinas by 2026. Renewable energy (‘RE) generation remained relatively stable, with a 21% share of electricity generation in 2023. The rise in solar and wind was largely offset by reduced hydropower output close to 21 gigawatts (‘GW) of RE capacity was added during 2023, with RE accounting for nearly 44% of total installed capacity.

In view of recent developments and power shortages faced, there is a likelihood that the Government will push for larger capacity additions through the conventional sources, while pursuing its commitment on climate change initiatives, by adding non-conventional power generation capacities.

Mining Sector:

Mining sector is an important segment of the Indian economy. Coal and Iron Ore, the two significantly important minerals to our industry, has seen a cumulative growth of 9.4%, from April to October 2023-24, displaying the robust recovery and expansion of mining activities across the country.

The Company is expected to benefit from the expected growth in coal and iron ore mining projects, primarily by participation in expansion projects being undertaken by Tata Steel Limited.

7. Risks and Concerns

Inordinate delays in conducting performance guarantee tests, despite the Company completing its scope of work, is leading to delays in financial closure of legacy contracts, adding uncertainty to recovery of retention amount, making the contracts onerous and thus, putting excessive financial burden on the Company.

However, with the various orders from Tata Steel Limited, the Company is expected to have a better working capital cycle and enhance its liquidity position.

8. Statutory Compliance

A declaration regarding compliance with the provisions of the various statutes is made by the Managing Director at the Board Meetings of the Company on a quarterly basis. The Company Secretary & Compliance Officer is responsible for implementing the systems and processes for monitoring compliance with the applicable laws and for ensuring that the systems and processes are operating effectively.

Further, the Company Secretary ensures compliance with Company law, SEBI Regulations and other Corporate Laws applicable to the Company.

9. Internal Financial Control Systems and their Adequacy

The internal financial control systems and procedures are continuously monitored to enhance its effectiveness and to be commensurate with the scale and nature of operations of the Company. The Company has appointed the Chief of Corporate Audit Division of Tata Steel Limited, as the Internal Auditor, who reports directly to the Audit Committee of the Board of the Company. During the year, the Audit Committee met regularly to discharge its functions as required pursuant to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Internal Audit activities are undertaken as per the Annual Audit Plan of the Company duly approved by the Audit Committee.

The Audit Committee regularly meets with the Statutory Auditors to ascertain their views on the adequacy of internal financial controls and their observations on the financial reports. The Companys internal financial control framework is commensurate with the size and operations of the business and is in line with requirements of the Companies Act, 2013.

10. Developments in Human Resources/Industrial Relations

Human Resource development, employee motivation and engagement continues to be a key focus area for the Company. The Company has a culture of working through joint consultation between Union and Management and is committed for well-being of its employees.

To remain competitive, improving employee productivity and employee experience is of utmost importance to the Organization and the Company strives to achieve the same through continuous capability building programs, employee welfare initiatives and providing recognition platform for its employees.

To enable the Organisation to attain its full potential, it is imperative for us to create and maintain an ideal work culture thus creating an engaged and skilled workforce capable of delivering on the commitments to our stakeholders. The Company to achieve this, undertook various key interventions & initiatives to improve and strengthen our HR related processes and systems, which, inter alia, includes -

a. Capability building program for development of critical skills completed in collaboration with JN Tata Vocational Training Institute (‘JNTVTI) and Tata Steel Limited (‘Tata Steel).

b. Successful Implementation of new organization structure at TRF and workforce optimization through redundant position mapping & redeployment.

c. Implementation of new career progression policy & introduction of Fastrack career growth policy-in line with people & business priority.

d. Introduction of comprehensive Learning & Development training program for officers in collaboration with Tata Steel Management Development Centre (‘TMDC).

e. Successful Implementation of the new model of subsidized canteen operations at TRF.

f. Design and Successful Implementation of formula based Annual Bonus scheme in agreement with TRF Labour Union after a gap of 10 years.

g. Complete infrastructure and amenities up-gradation - Renovation of the rest rooms/ urinals/ drinking facilities with construction of 3 female washrooms, installation of sanitary pad vending machines, TRF Colony infra & security up-gradation and renovation of creche.

h. Implementation of suggestion box scheme and revamp of shabash award scheme & quest for knowledge scheme.

i. Diamond jubilee celebration and closing ceremony along with various cultural, sports & engagement activities.

All the above initiatives were well received by the employees, which has yielded in improved employee satisfaction and morale.

The Company in-line with its present business profile and requirements, rationalizes its manpower requirements on regular intervals. Number of employees on permanent roll of the Company was 464 as on April 1,2024.

The industrial relations in the Company continued to be healthy and cordial. The Workers Union actively supported and participated in all important initiatives of the Company during the challenging times.

11. Details of Significant Changes (Standalone)

(1) Change of 25% or more as compared to the immediately previous Financial Year in key financial ratios, along with detailed explanations thereof, including: -

Particulars	2023-24	2022-23	Remarks
(i) Debtors Turnover	1.73	1.75	-
(ii) Inventory Turnover	1.80	4.93	Lower Inventory turnover ratio due to lower product and project revenue during the current year.
(iii) Interest Coverage Ratio	4.54	4.57	-
(iv) Current Ratio	1.31	1.15	-
(v) Debt Equity Ratio	4.17	-0.63	Variance is on account of increase in debt due to reclassification of OCRPS to financial liability in the current year and increase in average shareholder equity due to issuance of NCRPS in previous year.
(vi) Operating Profit Margin (%)	23.45	32.33	Lower operating profit margin due to lower revenue during the current year.
(vii) Net Profit Margin (%)	28.08	49.55	Variance is due to decline in profit after tax, lower revenue from operations and other income

(2) Details of any change in Return on Net Worth as compared to the immediately previous Financial Year along with a detailed explanation thereof.

Return on average Net Worth 2023-24 is 1.63

Return on average Net Worth 2022-23 was Nil

The improvement is on account of profits and positive average Net Worth in FY 2023-24.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimate, expectations 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 the Companys operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company/ its subsidiaries operates, changes in the Government regulations, tax laws and other statutes and incidental factors.