MANAGEMENT DISCUSSION AND ANALYSIS REPORT FOR 2014-15 Preface The Management Discussion and Analysis Report (MDAR) aims to elucidate the developments in the business environment, performance of the company in comparison to last report and the future outlook. MDAR is a part of the Board's Report. The performance of a company is linked with various factors including demand, supply, climatic conditions, economic conditions, political condition, Government regulations and policies, taxation and natural calamities, which are beyond the control of the company and could, make a significant difference to the Company's operations. Owing to this, certain statements made in this report pertaining to the projections, outlook, expectations, estimates etc., may eventually differ from actual. A. Industry Structure and Market Scenario India is a developing economy with a large population. The forces of economic growth will require continued investments in new infrastructure, new and larger cities, machinery and production to employ more people and drive the economy forward. India already is the 4th largest producer of steel, with an expected steel use of 80 million tonnes in 2015 and 86 million tonnes in 2016. It is also expected to be one of the fastest growing economies/countries in steel use this year and next year. According to WSA forecast, global apparent steel use is expected to increase by 0.5% to 1544 million tonnes in 2015, following growth of 0.6% in 2014. In 2016, world steel demand is expected to grow further by 1.4% to around 1565 million tonnes. Worldwide, the production of crude steel grew by 1.2% in 2014 to 1662 million tonnes from 1642 million tonnes in 2013. India's steel production grew from 81.30 million tonnes to 83.21 million tonnes registering a growth of 2.35% during 2014. This indicates the growth rate of steel industry in India vis-a-vis the world. As per World Steel Association (WSA) the expected population growth, emerging new applications for steel and more sophisticated steel applications, the global steel market has a potential to grow by between 700 and 1000 million tonnes in the next 50 years. The performance of manganese ore industry mainly depends on the performance of steel industry. In line with world steel production, the world Manganese ore production increased from 57.70 million tonnes in the calendar year 2013 to 59 million tonnes in calendar year 2014 registering a growth of 2.25%. While in India the manganese ore production fell in 2014-15 from 2.57 million tonnes to 2.27 million tonnes when compared to the year 2013-14. B. Opportunities & Threats Opportunities o The Government is committed to attract investments in Indian steel sector from both domestic and foreign sources and facilitate speedy implementation of investment intentions on board, so as to reach desired crude steel capacity level to meet the domestic demand fully and also to ensure easy availability of vital inputs and necessary infrastructure to achieve a projected production. o Domestic crude steel capacity in the county is likely to be 140 mt by 2016-17 and has the potential to reach 149 mt if all requirements are adequately met. India has set capacity target of 300 MT of steel by 2030 which will create the demand of manganese ore. o MOIL being India's largest manganese ore producer, accounts for about 44% of the country's production. With about 77.38 million tonnes of reserves & resources of manganese ore, it is well positioned to capitalize on India's steel demand growth, given its dominant position, medium- to high-grade ore, centrally located mines, and strong customer ties. o There is a good market potential for low / medium grade ores due to gradual switch over to use of Silico Manganese in steel production. o Strong financials, i.e., huge cash reserves provides opportunity to go for major investment plans. MOIL has already planned large investments for developments of its existing mines which will increase the production and productivity to meet the future requirement of manganese ore. o Central Government has reserved area of 814.71 Hector land in its Nagpur & Bhandara districts. After getting necessary clearances and completing formalities, it may provide a very good opportunity to cater the demand of manganese ore and to capitalize on India's steel demand growth. The State Government has already granted prospecting license for 597.44 hectares. It is expected that at least three new mines will be opened in these areas. o Ministry of Mines, Government of India has recently inter-alia notified MOIL for conducting exploration for various minerals all over the country. This opens up opportunities to MOIL to expand its business. o With vast experience in manganese ore mining, company may also plan for expansion into other minerals. MOIL's competitive strength o Largest producer of manganese ore by volume in the country with larger reserves of high grade of manganese ore. o MOIL has the strength of holding majority of total demonstrated reserves of high / medium grade manganese ore in the country. o Strong financials with high net worth and zero debt. o Availability of qualified technically skilled manpower with good work culture and industrial relation. o Company's reserves are in Central Indian Manganese belt, with deposits being in general, of regular shape. o Company has got logistic advantage, as all its mines are well connected with State / National Highways. Its mines are located in the railway network of South East Central Railway and are provided with railway sidings. o MOIL continues to efficient and environmentally friendly mining Company. Threats o Import of Manganese Ore is a biggest threat and challenge to the profit margin of the company. o Decline in international price of the manganese ore results in fall in its domestic price. o Major production of MOIL's comes from UG mines, where the cost of production is higher than OC mines. Any increase in the cost of UG mining would adversely impact margins o Any delay in regulatory approvals, may also impact long term growth of the company. o It is always a challenge to timely complete projects undertaken for development of mines particularly underground mines on schedule and cost, and any shortfall in this may affect targeted performance. o The steel industry being cyclic in nature, manganese ore demand is exposed to growth of steel sector and its dependability on the sector may impact company's performance. o The Company may also face risks in respect of high inventory of stocks at international level which may affect offtake of manganese ore. Weakness o Being a mining Company, MOIL is subject to extensive regulations surrounding health & safety of the people and environment. With constant evolving of regulatory standards and community expectations, the Company is exposed to increased compliance cost and unforeseen environmental remediation expenses. o Delay in obtaining fresh mine leases in turn commissioning new mines, affecting company's investment plans. o As the Company is mainly single product company, any adverse impact on the manganese ore industry may hit the profitability of the Company. o MOIL's mines are very old and full mechanization is very difficult. o The cost of production will also rise due to deposits reaching deeper horizons. C. Outlook The demand for manganese and ferro alloy products depends directly on the outlook of the steel industry and growth of overall economy. Over 95% of the world's production of manganese is utilized in the desulphurization and strengthening of steel. In the past, demand for manganese ore and ferro alloys has increased considerably due to the increase in the production of steel. WSA has projected that India's steel use is to grow by 6.2% to reach 80 million tonnes in 2015. Further, in 2016, the growth rate is forecast to grow more to 7.3% supported by the expectation that structural reforms will be implemented. The global apparent steel use is expected to increase by 0.5% to 1544 million tonnes in 2015, following growth of 0.6% in 2014. In 2016, world steel demand is expected to grow further by 1.4% to around 1565 million tonnes. With the commitment of the Government towards infrastructure development in the country, the demand of steel is expected to increase which in turn will provide a great opportunity for the Manganese ore industry in the country as well. Manganese is used in steel alloys to increase many favourable characteristics such as strength, hardness, durability and corrosion resistance. Therefore, the growth of manganese ore industry is very well poised with the growth of steel industry. In order to meet the requirement of manganese ore in future and maintain its leadership, MOIL has planned to enhance its production from brsent level of 1.1 million tonnes to 2.0 million tonnes by 2020 and 3.0 million tonnes by 2030 for which strategic management plan has already been brpared by the company. The apparent steel use per capita in the country is about 60 kg, much lesser than the average per capita steel use of the world of about 215 kg. Infact, in most of the developed countries, it is more than 250 kg. This provides enough room for growth of steel industry in the country; in turn, increase the demand of manganese ore. Domestic requirement of manganese ore has increased substantially to meet increased demand of steel coupled with export of manganese based alloys. This has made India net importer of manganese ore. The production of manganese ore in the country during 2014-15 has been about 2.27 million tonnes approx. Due to less availability of high grade manganese ore in India, the manufactures are regularly importing the manganese ore. The import during 2014-15 has been at 3.17 million tonnes approx. as against 2.195 million tonnes approx in 2013-14. This provides opportunity for MOIL to increase its production. D. Risks and Concerns Manganese Ore industry is directly linked with Steel Industry which is cyclical in nature and has impact on demand of manganese ore. MOIL is a labour intensive organization. Though, the industrial relation has been excellent in the Company, the risk factors associated with labour may always play significant role on its production performance. Apart from regulatory clearances for land and mine acquisition, the demand scenario looks uncertain for next couple of years with global economy still under recovery mode. In India, inflation, though has come down, still remains a concern and downside to growth. There is a need to improve supply-side measures and look at productivity improvement. Oversupply of manganese ore in international market will always remain biggest area of concern and will continue to weaken the domestic manganese prices further if oversupply continues. E. Segment-wise or Product-wise Performance Sales Performance During the year 2014-15 net sales of Manganese Ore was Rs.749.55 Crores as against Rs. 946.16 Crores in the brvious year registering a negative growth of 20.78%. The company has sold 9.10 Lakh tones of Manganese Ore in 2014-15 in comparison to 11.33 Lakh tones of Manganese Ore in the brvious year. Since sales quantity is decreased by 19.68% in comparison to last year, the company has also registered a downward trend in sales turnover by 20.78% due to debrssed market condition. In respect of manufactured products of the company, viz., EMD, Ferro Manganese and Ferro Manganese Slag, the net sale during the year 2014-15 was Rs. 73.55 Crores in comparison to Rs. 73.78 Crores during brvious year. The sale of Electrolytic Manganese Dioxide (EMD) was 655 tonnes, as against 893 tonnes in the brvious year, whereas sale of Ferro Manganese was at 8587 tonnes in comparison to sales of 8707 tonnes during brvious year Production The Company has produced 11.39 lakh tonnes of various grades of manganese ore in current year as against production of 11.35 lakh tonnes during the last year. The production of Electrolytic Manganese Dioxide (EMD) was 950 tonnes (brvious year 923 tonnes) whereas it produced ferro manganese of 10045 tonnes in comparison to 10042 tonnes of brvious year. It has generated 13358 tonnes of Ferro Mn Slag during the year as against 12750 tonnes in the brvious year. The wind turbine generator has generated 328.08 lakh (KwH) units during the year as compared to last year's 332.06 lakh (KwH) units. F. Internal Control Systems and their Adequacy MOIL has put in place all the necessary internal controls and they are found quite adequate. G. Discussion on Financial Performance with respect to Operational Performance The performance of Manganese Ore market in the country during 2014-15 has been poor in comparision to brvious year resulting into downfall in company's top line and bottom line performance of F.Y. 2014-15. The financial and physical performances during the year are given below. Financial Performance The total revenue of the company has decreased by 13.95 % during the year from Rs. 1324.60 Crore in brvious year to Rs. 1139.86 Crore. Due to debrssed market conditions, the turnover of the company has been down by about 19.39 % at Rs. 823.25 Crore during the financial year 2014-15 in comparison to Rs. 1021.28 Crore of brvious year. PBT for the year at Rs.650.57 Crore, has decreased by 15.44% as compared to brvious year, whereas Profit after Tax (PAT) has decreased by 16 %, Rs. 428.01 Crore, as against last year's PAT of Rs. 509.56 Crore. The EBIDTA margin of the company has increased from 78.77% to 84.50% during the year. With its continued prudent cash planning, the interest income of the Company grew at 11.97 % to Rs. 279.77 Crore in 2014-15 from Rs. 249.86 Crore of brvious year. Operational Performance FY 2014-15 has been a year of challenges for mining & metals industry and, in particular, for manganese ore industry. Despite that, the company has been able to record a jump of 9.90% in its core production. Considering the overall market condition, demand, and supply, the performance of the Company during the year has been quite satisfactory. Production Review The company has produced 11.39 lakh tonnes of various grades of Manganese Ore as against 11.35 Lakh tonnes in brvious year. The production of Electrolytic Manganese Dioxide (EMD) increased by 2.93%, from 923 tonnes to 950 tonnes during 2014-15. The production of Ferro Manganese has almost been same at 10042 tonnes as compared to 10045 tonnes during the brvious year. The production of fines during the current year has been 162076 tonnes as against 245048 tonnes brvious year. The overall production of manganese ore has increased marginally, but the company has been able register a growth of 9.90% in its core production (manganese ore lumps & chips) which has increased from 889460 tonnes to 977080 in 2014-15, with the help of better planning and effective use of resources resulting into improved productivity. The productivity of the Company's has been excellent as Output per Manshift is 0.818 tonnes (brvious year 0. 805 tonnes). H. Material developments in Human Resources, Industrial Relations front, including number of people employed The employees of MOIL are very dedicated and loyal to the Company. The employees in general have remained with the Company through thick and thin. On the part of the management, it is ensuring all-round comfort levels to its employees, including the required training at all levels based on the need. It is worth highlighting that industrial relations have been cordial all along during the year. Issue, if any, is sorted out through bipartite discussions at appropriate forum. The cooperation and support of workmen rebrsented by the Kamgars' Unions in this regard is praiseworthy. Continuing the growth path, an area of 814.71 hectares has been reserved by Central Government in favour of MOIL in Nagpur and Bhandara Districts of Maharashtra. Out of this, the State Government has granted prospecting licence for 597.44 hectares. It is expected that at least three new mines will be opened in these areas. Ministry of Mines, Government of India has recently notified MOIL for conducting exploration for various minerals all over the country. This opens up opportunities to MOIL to expand its business. Going ahead the same, MOIL has already approached Govt. of M.P. for MoU for exploration. This will require people with specific skill and knowledge in times to come. In order to get people with requisite knowledge and skills, MOIL has to train /retrain its existing manpower and also to go for fresh induction in future. As on 31st March 2015, total number of people employed are 6417 I. Environmental Protection and Conservation, Technological Conservation, Renewable Energy Developments, Foreign Exchange Conservation. Relevant Information in this regard is disclosed in the Board's Report. J. Corporate Social Responsibility MOIL is actively involved in various CSR initiatives. Detailed information is disclosed in the Board's Report. |