Mr. Mukesh Bhandari
Chairman & CTO
The global economic crisis and the slowdown in the Indian economy in the year 2011-12 havepoised great challenges and difficult times for the company. Diverse businesses, economic factors and unavailability of raw material has made the year gone by the most tempestuous year for the company. The global economy is still recovering from the slowdown in the economies of the developed countries particularly European Union and UK.
The financial position of the company for the year 2011-12 was affected, mainly due to non-availability of the key raw material – iron ore, higher inputs and interest costs.
The uncertainty of the European debt crisis and international foreign markets that lead to the depressed global economic scenario also had its toll on the Indian economy as a result of which India's Gross Domestic Product (GDP) for FY2012 had the lowest growth in last three years, at 6.5 % against 8.4 % in FY 2011. Besides, GDP for Q4 of FY2012 had a mere growth of 5.3%, drastically below the consensus estimate of 6.1%, which is calculated to be the slowest since March 2003.This has been mainly on account of slowdown in the industrial sector due to cumulative effect of the unavailability of raw material, slow demand and monetary constraints. No change in the growth rate is expected in the coming fiscal, with RBI projecting a growth of 6.5% for 2012-13
The Union Budget has announced a number of measures to boost the investment climate, with special focus on infrastructure and manufacturing sectors. For the Steel Industry, the key measures are in the form of increasing custom duty on flat carbon steel products from the level of 5% to 7.5%. This along with measures to bring back industrial growth should allow for accommodation of additional supply on capacities likely to be commissioned in 2012-13.
The Global Steel Industry is going through a rough phase with demand declining and the major steel economies like USA and Europe running into oversupply. The World crude steel production in 2011 stood at 1518 million tonnes, growing at 6.2% over 2010, with China contributing as high as 52% to the incremental production. The growth rate however, was considerably lower as compared to 16% in 2010. The WSA has projected that global apparent steel consumption will increase by 3.6% to 1422 Mt in 2012, following growth of 5.6% in 2011. In 2013, it is forecasted that world steel demand will grow further by 4.5% to around 1486 Mt. China’s apparent steel consumptionin 2012 and 2013 is expected to increase by 4% in both the years. India is expected to resume its high growth trend after a sluggish performance in 2011. In 2012, India’s steel consumption is forecast to grow by 6.9% to reach 72.5 MT and is projected to grow further by 9.4% in 2013, driven by increased infrastructure investment and higher pace of urbanisation.
India maintained its ranking as the 4th largest steel producer in the World with a production of 71.3 million tonnes in 2011, registering agrowth rate of 4.4% over 2010, as per WSA. According to JPC estimates, domestic finished steel consumptionposted a growth of 6.8% during 2011-12 to 70.92 Million Tonnes. A growth rate of 8-9% in the next few years is expected to be sustained mainly by factors such as the 1 trillion USD investment envisaged forthe infrastructure sector in the 12th Five Year Plan, greater emphasis on increasing growth rate of the manufacturing sector, higher rates ofurbanization, rising middle class population and tapping the potential ofthe rural market. Also, in terms of per capita consumption of finished steel, India at 57 kg lags behind the world average of 214.7 kg, indicating a huge potential for growth.
The company recorded sales turnover of Rs. 2270.54 crs in FY 2011-12 (18 months) against Rs. 2313.28 crs in FY 2010-11.
With steel production picking up in African countries, Iran, Middle East, Saudi Arabia, Bangladesh and a few other developing economies, the engineering business of the company supplying steel making, casting and refining equipment is expected to further improve in the coming years. The demand from the auto industry is driving the demand for melting furnaces for foundry applications and heating and hardening equipment.
With company having been able to arrange iron ore from sources outside India, the steel and pipe business of the company is expected to show a turn around.
With various initiatives being proposed by the Government of India for promoting environment friendly electric vehicles, the electric vehicle business of the company is also expected to grow substantially from here over the next 5 years. Profitability however is expected to remain under pressure on account of supply chain constraints in the near term.
The company is working on initiatives forrestructuring of its debt with its lenders and improving the capacity utilization of steel and pipe plant which has fallen substantially during this year. I am sure the results of these initiatives will be seen shortly and the companywill be on revival path soon.
I would like to thank and appreciate all my colleagues and the shareholders for their dedication and commitment towards the company during these testing times.
Chairman & Chief Technology Officer