Tulsyan NEC Ltd Management Discussions

This Management Discussion and Analysis Report is operating and financial review of the company and is intended to convey the Managements perspective on the financial and operating performance of the Company at the end of the Financial Year 2022-23. This Report is to be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in the Integrated Report. The Companys financial statements have been prepared in accordance with the 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.

I. INDUSTRY STRUCTURE AND DEVELOPMENTS

The Companys products are TMT Bars, Sponge Iron, Billets and Ingots in the steel division and in synthetic division it is PP Woven Sacks, FIBC and Woven Fabric. TMT Bars are used in the Construction Sector and the plastic products cater to the packaging needs of various industries such as Cement, Fertilizers, Food grains, Sugar, etc.

The raw materials for Steel Making are M.S. Scrap, Sponge Iron and for TMT Bars is Billets. PP Granules is used for manufacture of plastic packaging products. This raw material is available in abundance within the country and can also be freely imported. Being in the commodity market the company is continuously making efforts for reducing the cost of production to sustain its margins.

Tulsyan NECs performance vis-a-vis Indian Steel Industry Performance

Annual	Industry Finished Steel Production (India)	Growth Year Previous Year	Tulsyan NEC TMT Production In MTs	Growth Year Previous Year
2018-19	101.290		1,40,626
2019-20	102.620	1.31%	1,32,227	(5.97%)
2020-21	96.200	(6.26%)	82,565	(37.56%)
2021-22	113.600	18.09%	1,03,049	24.81%
2022-23	125.320	10.32%	1,37,632	33.56%

Since last two years the company has fared better than the steel industry. In the year 2021-22 when the industry growth was 18.09% Tulsyan NEC achieved a growth of 24.81%. In the year 2022-23 when the industry growth was 10.32% Tulsyan NEC achieved a growth of 33.56%.

POWER INDUSTRY

Tulsyan NEC power project performance was in line with the industry and till 2020-21 and thereafter has been negative as it is dependent on Imported coal. While the domestic Thermal power projects benefitted from increase coal production in the country and stable and reasonable prices, the international coal prices skyrocketed in the last 2 years. The Coal prices in USD in the last 9 years is as follows:

Tulsyan NEC power project is dependent on the imported coal and as the costs remain very high with no possibility of increasing the selling prices, the production had to be cut down which affected the performance of the Power division.

STEEL INDUSTRY

Global Scenario

• In CY 2021, the world crude steel production reached 1911.9 million tonnes (mt) and showed a growth of 3.6% over CY 2020.

• China remained worlds largest crude steel producer in 2021 (1032.8 mt) followed by India (118.1 mt), Japan (96.3 mt) and the USA (86.0 mt), based on rankings released by the World Steel Association.

• Per capita finished steel consumption in 2020 was 228 kg for world and 691 kg for China. The same for India was 70 kg (Source: JPC) in 2020-21.

Note: World Steel Association report, Data Provisional.

Domestic Scenario

• The Indian steel industry has entered into a new development stage, post de-regulation, riding high on the resurgent economy and rising demand for steel.

• Rapid rise in production has resulted in India becoming the 2nd largest producer of crude steel during last four years (2018-2021), from its 3rd largest status in 2017. The country was also the largest producer of Sponge Iron or DRI in the world and the 2nd largest finished steel consumer in the world after China in 2021 (provisional), based on rankings released by the World Steel Association.

• In a de-regulated, liberalized economic/market scenario like India the Governments role is that of a facilitator which lays down the policy guidelines and establishes the institutional mechanism/structure for creating conducive environment for improving efficiency and performance of the steel sector.

• In this role, the Government has released the National Steel Policy 2017, which has laid down the broad roadmap for encouraging long term growth for the Indian steel industry, both on demand and supply sides, by 2030-31. The Government has also announced a policy for providing preference to domestically manufactured Iron & Steel products in Government procurement.

• The government has also approved a Production-linked Incentive (PLI) Scheme for Specialty Steel. It is expected that the specialty steel production will become 42 million tonnes by the end of 2026-27. This will ensure that approximately 2.5 lakh crores worth of specialty steel will be produced and consumed in the country which would otherwise have been imported. Similarly, the export of specialty steel will become around 5.5 million tonnes as against the current 1.7 million tonnes of specialty steel getting FOREX of Rs. 33,000 crore.

Production

• Steel industry was de-licensed and de-controlled in 1991 & 1992 respectively.

• India was the 2nd largest producer of crude steel in the world in 2021.

• In 2021-22 (provisional), production of total finished steel (alloy/stainless + non alloy) was 113.60 mt, a growth of 18.1% over last year.

• Production of Pig Iron in 2021-22 (provisional) was 5.76 mt, a growth of 18.1% over last year.

• India was the largest producer of Sponge Iron in the world in 2021. The coal-based route accounted for 77% of total Sponge Iron production (39.03 mt) in the country in 2021-22 (provisional).

• Data on production of Pig Iron, Sponge Iron and Total Finished Steel (alloy/stainless + non-alloy) are given below for last five years:

	Indian steel industry: Production (in million tonnes)
Category	2017-18	2018-19	2019-20	2020-21	2021-22*
Pig Iron	5.73	6.41	5.42	4.88	5.76
Sponge Iron	30.51	34.71	37.10	34.38	39.03
Total Finished Steel	95.01	101.29	102.62	96.20	113.60
	Source: Joint Plant Committee; *provisional

Demand - Availability

• Industry dynamics including demand – availability of iron and steel in the country are largely determined by market forces and gaps in demand- availability are met mostly through imports.

• Interface with consumers exists by way of meeting of the Steel Consumers Council, which is conducted on regular basis.

• Interface helps in redressing availability problems, complaints related to quality.

Steel Prices

• Price regulation of iron & steel was abolished on 16.1.1992. Since then steel prices are determined by the interplay of market forces.

• Domestic steel prices are influenced by trends in raw material prices, demand – supply conditions in the market, international price trends among others.

• As a facilitator, the Government monitors the steel market conditions and adopts fiscal and other policy measures based on its assessment.

Imports

• Iron & steel are freely importable.

• Data on import of total finished steel (alloy/stainless + non alloy) is given below for last five years:

Category	2017-18	2018-19	2019-20	2020-21	2021-22#
Qty	7.48	7.83	6.77	4.75	4.67

Source: Joint plant Committee.

# Provisional

Exports

• During last five years, India was a net exporter of total finished steel in 2017-18, 2019-20, 2020-21 and 2021-22.

• Data on export of total finished steel (alloy/stainless + non alloy) is given below for last five years:

	Indian Steel Industry : Export of Total Finished Steel (in million tones)
Category	2017-18	2018-19	2019-20	2020-21	2021-22*
Qty	9.62	6.36	8.36	10.78	13.49

Source: Joint plant Committee. *Provisional

Opportunities for growth of Iron and Steel in Private Sector: The New Industrial Policy Regime

The New Industrial policy opened up the Indian iron and steel industry for private investment by a. removing it from the list of industries reserved for public sector and b. exempting it from compulsory licensing. Imports of foreign technology as well as foreign direct investment are now freely permitted up to certain limits under an automatic route. Ministry of Steel plays the role of a facilitator, providing broad directions and assistance to new and existing steel plants, in the liberalized scenario.

The Growth Profi le

i. Steel: The liberalization of industrial policy and other initiatives taken by the Government have given a definite impetus for entry, participation and growth of the private sector in the steel industry. While the existing units are being modernized/expanded, a large number of new steel plants have also come up in different parts of the country based on modern, cost effective, state of-the-art technologies. In the last few years, the rapid and stable growth of the demand side has also prompted domestic entrepreneurs to set up fresh greenfield projects in different states of the country.

ii. Crude steel capacity was 154.23 mt in 2021-22 (provisional), and India, which was the 2nd largest producer of crude steel in the world in 2021, as per rankings released by the World Steel Association, has to its credit, the capability to produce a variety of grades and that too, of international quality standards.

iii. Pig Iron: India is also an important producer of pig iron. Post-liberalization, with setting up several units in the private sector, not only imports have drastically reduced but also India has turned out to be a net exporter of pig iron. The private sector accounted for 89% of total production of pig iron (5.76 mt) in the country in 2021-22 (provisional). iv. Sponge Iron: India, worlds largest producer of sponge iron, has a host of coal-based units located in the mineral-rich states of the country. Over the years, the coal-based route has emerged as a key contributor and accounted for 77% of total Sponge Iron production in the country during 2021-22 (provisional). Production of Sponge Iron making too has increased over the years and stood at 39.03 mt during 2021-22 (provisional).

POWER:

Power sector grew at 7.96% year over year in the Financial year 2021-22 though on a lower base of the previous years which were affected due to covid. Power demand registered a growth of 8.18 % YOY.

The thermal generation sector experienced sub-optimal utilization of installed capacity with aggregate Plant Load Factor (PLF) at 58.87% as against 53.37% in the previous year. Fuel Availability continues to be a challenge and the prices of coal both domestic and international remained high during the entire year. Additions to renewable generation capacity supplying electricity at lower prices continued to hurt the prospects of thermal generation. This situation was further exacerbated by Discoms unwilling to commit to long term capacity based contracts.

Several reforms have been announced over the years for improving the position of State Discoms. These reforms, after some initial success, have not been able to sustain for various reasons; the financial and operating performance at State Discoms did not show any significant improvement during the year and in fact deteriorated in some of the weak State Discoms. They continue to be plagued with excessive Aggregate Technical & Commercial (AT&C) losses, distorted tariff structures not reflective of cost of supply, poor payment records and disputes with generation companies, under investment in infrastructure and poor customer service. Many of the struggling State Discoms regularly resort to load shedding which in turn hurts not only the consumer but also other stakeholders in the value chain.

The Central Government has recently announced privatisation of electricity distribution in Union Territories and penalising inefficient operations and non-availability of power. These reforms, if implemented with zeal, will go a long way in improving the distribution segment which in turn will also ensure to the benefit of generation and transmission segments.

As of the date of this report, the situation is evolving with no clear visibility on the extent and timing of impact on business due the erratic and high coal prices. This will muddy the already poor investment climate in the sector and further slowdown the flow of new investments in the sector. The sector already grappling with several impediments faces the most challenging FY 23 ahead.

DEMAND AND SUPPLY:

The Demand Supply position improved substantially since last 3 years and currently the availability capacity is equivalent to the demand as may be observed from the table below. Increased supply position has resulted in reduction of the realization per unit and also regulatory restrictions and levies such as Cross subsidy have impacted the margins and the realization.

Year	Requirement	Availability	Surplus (+)	Deficits (-)
	(MU)	(MU)	(MU)	(%)
2009-2010	8,30,594	7,46,644	(83,950)	(10.1)
2010-2011	8,61,591	7,88,355	(73,236)	(8.5)
2011-2012	9,37,199	8,57,886	(79,313)	(8.5)
2012-2013	9,95,557	9,08,652	(86,905)	(8.7)
2013-2014	10,20,257	9,59,829	(42,428)	(4.2)
2014-2015	10,68,923	10,30,785	(38,138)	(3.6)
2015-2016	11,14,408	10,90,850	(23,558)	(2.1)
2016-2017	11,42,929	11,35,334	(7,595)	(0.7)
2017-2018	12,13,326	12,04,697	(8,629)	(0.7)
2018-2019	12,74,595	12,67,526	(7,070)	(0.6)
2019-2020	12,91,010	12,84,444	(6,566)	(0.5)
2020-2021	12,75,534	12,70,663	(4,871)	(0.4)
2021-2022	13,79,812	13,74,024	(5,787)	(0.4)
2022-2023	15,11,847	15,04,264	(7,583)	(0.5)

(Source: Ministry of Power and Energy)

II. OPPORTUNITIES AND THREATS

The present situation offers both an opportunity and threats in respect of profi tability in as much as it improves the profi tability in steel production benefi ting from the lower power costs subject however, to sustainable demand for the steel. With no new investments in the power sector in the last 3/4 years is expected to bring about the demand and improve the operations. International developments as reported in the media indicate that China cutting production of steel and withdrawing incentives and imposing export duties. This could increase the demand for the Indian Steel and also fi rm up prices in the country. However, the raw material prices are also likely to keep pace with the changes in the selling prices contributing any higher margins. However, improved the demand could help sustainable operations.

On the other, the re-emergence of the countrys incumbent leadership, post the general elections, ensures policy continuity and concerted action for the nations development. The Company is looking forward to the implementation of the National Infrastructure Pipeline, which will go a long way in spurring demand.

The State of Tamil Nadu, which did not increase the power tariff for more than 4 years now may not be able to sustain and thus is likely to increase the industrial tariff anytime soon. Such increase will give an opportunity for the Company to increase the tariff and will lead to improved profi tability.

III. SEGMENT-WISE/ PRODUCT-WISE PERFORMANCE

The production of steel rods was 109411 MT compared to 89182 MT in the previous year which showed an increase of 22% despite lockdown and closure during May 2021. The sale of rods during the year was increased to 99894 MT from 82565 MT in the previous fi nancial year. The production of power was 2762.36 Lac units compared to 3572.70 Lac units in the previous year registering a decline of 23% mainly due to low capacity utilisation due to high and unviable coal prices.

The production of synthetic products was 8188 MT compared to 6764 MT in the previous year. The sale of synthetic products during the year was 6169 MT compared to 5557 MT in the previous year registering a growth of 11%.

IV. OUTLOOK

FY 2022 started with lockdown and recovered a little by Third quarter. The virus spread rapidly across the world, compelling governments to impose national lockdowns to break the chain of transmission, which brought economic activities to a near halt. However, situation have improved by end of the year and return of normalcy appear to be. Timely actions and significant stimulus measures have somewhat cushioned the blow. Several central banks have also adopted quantitative easing and scaled asset purchases to infuse liquidity. Oil prices have remained stable, and emerging market currencies have strengthened against the dollar, which point to stabilisation.

Further, the Governments vision to achieve a $5 trillion economy by 2024 entails investments in several steel intensive sectors like infrastructure, housing for all, 100% electrification, piped water for all, etc. Supported by the government stimulus, recovery in construction will be led by infrastructure investment such as railways. The demand in India will rebound by 15 per cent in 2021, it is said. The growth potential for the sector is thus immense and the domestic steel consumption will increase significantly in line with this vision.

Further, present day economic situation of the country poses threats, expected revival will bring in lots of opportunities for growth. With various infrastructure facilities lined up both in private and public sectors including nuclear power and water, across the country, the management envisages robust demand for its products especially steel. The company has emerged stronger in the last five years and is well set to capitalize on growth prospects as they arise.

V. RISK AND CONCERNS

Risks to the above forecasts remain on the downside, and are likely to be influenced by how the pandemic is contained. Health, economic and trade risks remain prevalent. Administration of vaccines, norms of social distancing, and productivity gains from the emergence of differentiated models will determine the actual outcomes.

Delays in infrastructure development, availability of skilled manpower, volatility in global economy are some of the major risks and concerns that have to be addressed. All these have an impact on the operations of the company. The spread of Covid-19 and the resultant lockdowns imposed by the authorities will also have impact on power segment of the Company. Foreseeable business impacts are: (a) reduction in demand for electricity; (b) reduced collection efficiency causing non-collection of outstanding dues; (c) incurrence of costs on labour and employees not fully utilised; and (d) regulatory response to the pandemic causing reduction in profits.

The company is conscious of the risks involved and has put in place a mechanism for minimizing and mitigating the same. The process is reviewed periodically.

VI. INTERNAL CONTROL SYSTEMS AND ITS ADEQUACY

The company has proper and adequate system of internal controls commensurate with its size and nature of operations to provide reasonable assurance that all assets are safeguarded, transactions are authorized, recorded and reported properly and applicable statutes, the code of conduct and corporate policies are duly complied with.

VII. FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the year under review, the Company has achieved a Sales Turnover of Rs.75231.82 Lakhs which was higher by 32.8% over last years turnover of Rs. 56651.20 Lakhs. The Comparative performance of major financial parameters during the financial years 2022-23 and 2021-22 are given below:

		Rs. In Lakhs
Particulars	2022-23	2021-22
Sales Turnover	95045.82	75231.82
Other Income	214.74	7.61
Total Income	95260.56	75239.43
Profit before Interest, Depreciation, exceptional/abnormal items and Tax (EBIDTA)	1736.72	1461.67
Less: Interest	1096.46	488.89
Less: Depreciation	2590.75	2416.44
Profit before Tax (PBT) before exceptional / abnormal items	(1950.49)	(1443.66)
Less: Exceptional items	(21087.13)	(80437.80)
Profit before Tax & OCI	19136.64	78994.14
Profit After Tax	19069.51	78994.14
Networth	36254.38	16517.48
EBIDTA to Net sales (%)	2%	2%
PAT to Net worth	0.53	4.78
Debtors	9742.08	14632.63
Debtors Turnover (In days)	37	71
Inventory	9836.72	7860.58
Inventory Turnover (In days)	38	38
EBIT	(854.03)	(954.77)
Interest Coverage Ratio	1.58	2.99
Current Assets	28151.01	27716.47
Current Liabilities	23038.13	58105.16
Current Ratio	1.22	0.48
Debt	26412.27	17105.86
Debt Equity Ratio	0.73	1.04
Operating Profit Margin (%)	(2.05%)	(1.92%)

VIII. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED.

Your Company believes that Human Resources are the driver to its continued success by helping to meet the challenges of providing quality products to the customers across the length and breadth of the country and penetrating key markets abroad. In order to strengthen its human capital base, your Company continues to invest in human resources by retaining and developing its existing talent and also attracting competent and talented manpower across functions.

Your Company maintained cordial and harmonious Industrial relations in all our manufacturing units. Several HR and industrial relations initiatives implemented by the Company have significantly helped in improving the work culture, enhancing productivity and enriching the quality of life of the workforce. All the above initiatives have contributed significantly to achieving and maintaining the market leadership, your Company enjoy today. The total employee strength as on 31st March, 2023 is 513.

TULSYAN NEC LIMITED

IX. CAUTIONARY STATEMENT

The above Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be "forward looking Statement" 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 external economic conditions affecting demand/supply influencing price conditions in the market in which the Company operates, changes in Government regulations, statutes, tax laws and other incidental factors.

	By Order of the Board of Directors
	For Tulsyan NEC Limited
	Sd/-
	Lalit Kumar Tulsyan
	Executive Chairman
	DIN: 00632823
Place: Chennai
Date: 12-08-2023
Registered Office:
Apex Plaza, I Floor, New No.77,
Old No.3, Nungambakkam High Road
Chennai-600034, Tamil Nadu