MANAGEMENT DISCUSSION AND ANALYSIS FERRO CHROME Ferro chrome is an alloy of chrome and iron with 50% to 70% chrome content. Although high carbon ferro chrome / charge chrome is primarily used in manufacturing stainless steel, low and medium carbon ferro chrome find their use in the production of special and carbon steel. Chrome imparts the non-corrosive property to stainless steel, thus making it a unique product with multiple applications. GLOBAL AND INDIAN CHROME ORE SCENARIO South Africa has the largest share of chrome ore reserves globally (~80%) following by Zimbabwe whereas India has a less than 1% share with most of it found in Odisha. Over a period of time South Africa has emerged as the largest supplier of chrome ore which is no surprise given the extent of its reserves and increased acceptance of UG2 - a byproduct of PGM. The removal of the export duty on chrome ore by India is a matter of concern as it is likely to lead to a surge in non value-added ore exports at the cost of brserving limited reserves for value addition. Since the natural occurrence of ore is a decisive factor, it goes without saying that proper utilisation through value addition is of paramount importance. World chrome ore and concentrate output is estimated at 28.88 million tonnes in 2015, compared to 29 million tonnes in 2014 (Source: ICDA). Output across Western Europe, Eastern Europe, Africa and the Middle East saw a decline. On the other hand, India's chrome ore and concentrate output increased significantly owing resumption of operations at mines which were shut down for various reasons. GLOBAL FERRO CHROME INDUSTRY Global ferro chrome production decreased marginally by about 2% to 10.72 million tonnes in 2015 as compared to 10.94 million tonnes in 2014. China's production fell by 4.65% to 3.82 million tonnes in 2015 as against 4 million tonnes in the brvious year. However, South Africa's production grew by 1.13% to 3.78 million tonnes in 2015 as against 3.74 million tonnes in 2014 bringing it to the verge of regaining the top slot in the industry. INDIAN FERRO CHROME INDUSTRY Ferro chrome was first produced in India in 1967 and output remained stagnant around 250,000 - 300,000 tonnes per annum till 1999 when the first phase of redistribution of chrome ore reserves in Odisha's Sukinda valley among actual users took place. While there was hardly any focus on value addition until then, subsequently production of ferro chrome increased to around the 1 million tonnes per annum mark making India the fourth largest producer in the world. The industry is relatively consolidated with six producers accounting for about 75% of production and further consolidation is likely as the markets are in a phase of modest growth combined with increasing cost brssures While fully integrated producers like IMFA benefit from captive chrome ore & electricity which leads to a competitve cost structure, a surprisingly large quantum of ferro chrome is produced by partially integrated and non-integrated players. The latter -especially those without captive mines - are essentially swing producers who come under brssure when market sentiments are weak and many have now opted to enter into conversion contracts (tolling arrangements) with a large merchant miner. The growth plans of fully integrated producers are tempered by the extent of ore reserves although the MMDR Amendment Act 2015 does give them the assurance of a 50-year lease with 'Right of First Refusal' in the ensuing auction. Partially integrated and non-integrated producers have their own set of challenges which are mostly centered around their position on the cost curve. India's ferro chrome output volume remained stable over the last five years, at around 1 million tonnes. In 2015, it was 0.86 million tonnes, compared to 0.80 million tonnes in 2014. Around half of India's ferro chrome production is exported -mainly to Far East countries including China, South Korea, Japan and Taiwan. In 2015, India's ferro chrome exports stood at 0.45 million tonnes with about 70% being exported to China, South Korea and Japan OUTLOOK Ferro Chrome prices came down substantially in the last quarter of FY 2015-16 - in fact, dipping below cash cost of production of most producers which is not sustainable even in the short run. As such, even though prices have since moved up the recovery is likely to be bumpy and dependent upon the traction of China's stimulus measures, outlook for the SA Rand and overall growth in the major economies. It is likely that inefficient capacities will be driven out which is healthy over the long term while demand too will go up with improve macro economic conditions worldwide. STAINLESS STEEL INDUSTRY Global stainless steel production for 2015 declined 0.3% year-on-year to 41.5 million tonnes, with downturn across the board barring Asia (except China). Output of stainless steel in Asia, excluding China, ticked up 1.4%, from 9.3 million tonnes in 2014 to nearly 9.5 million tonnes in 2015. China, however, recorded a 0.6% decrease in production, from 21.69 million tonnes in 2014 to 21.56 million tonnes in 2015. During 2015, stainless and melt shop steel output from Western Europe/Africa decreased 0.7% to 7.51 million tonnes from 7.57 million tonnes in 2014. Central/Eastern Europe's output contracted 6.3%, from 2,77,000 tonnes to 259,000 tonnes while production from the Americas was down 2.3% to 2.7 million tonnes in 2015 as against 2.8 million tonnes in the brvious year. Source: International Stainless Steel Forum (ISSF) BACKGROUND Incorporated in 1961, IMFA is the leading fully integrated producer of ferro chrome consistently delivering value through high quality, innovation and sustainable productivity improvement. With a back-up of own chrome ore mines and captive power, the Company has been successful in moving up the value chain through a robust business model. The Company's Integrated Management System comprises quality, environment and health & safety certification. IMFA's quality standards are accredited by ISO 9001 Quality Management certification, besides ISO 14001 Environment Management and OHSAS 18001 Occupational Health & Safety certification. The Company is globally recognised as a reliable and cost-competitive producer with a particular focus on customer satisfaction. The Company's ferro chrome output is primarily exported to China, Korea, Japan and Taiwan in the Far East which is the epicentre of stainless steel production. However, it is ideally positioned to cater to increasing domestic demand arising out of wider use of stainless steel. Over the years, the Company has developed long-standing relationships with multinationals like POSCO in South Korea, Marubeni Corporation and Nisshin Steel in Japan and other leading stainless steel producers in China and Taiwan. Within India, Jindal Stainless, AIA Engineering Ltd and Viraj profiles Ltd are IMFA's leading customers. BUSINESS SEGMENTS Ferro alloy segment The Company has installed six furnaces at Therubali and Choudwar in Odisha, with installed furnace capacity of 187 MVA. This has made IMFA the largest producer of ferro chrome in India capable of producing up to 2,75,000 tonnes per annum. Mining segment The Company's captive mines have an Environmental Clearance limit of 6.5 lakh tonnes per annum at brsent and meet most of the requirement with a small quantity of ore being imported. While the Sukinda Mines are open cast, the start of underground operations at Mahagiri have been a great source of pride while holding out the promise of making the Company fully self-sufficient. Power segment The Company's captive power generation capacity stands at 258 MW comprising of 228 MW coal-based capacity and a 30 MW dual-fuel unit which operates on a mixture of coal and furnace gas. The Company prioritises the operation of 150 MW capacity which uses modern CFBC boilers and is very efficient besides allowing a wide variety of inputs such as washery rejects to be used. REVENUES The Company's revenues from operations stood at Rs. 1,211.30 Crore in FY 2015-16 as against Rs. 1,344.79 Crore in FY 2014-15. There is a decline of 9.93% over last year's revenue arising out of lower output and falling realisations. Exports The Company earns a substantial amount from exports contributing around 87.27% of the operating revenue. IMFA earned foreign exchange equivalent to Rs. 1,057.15 Crore in FY 2015-16 as compared to Rs. 1,064.37 Crore in FY 2014-15. Other income Other income stood at Rs. 16.25 Crore in FY 2015-16, vis-a-vis Rs. 21.78 Crore in FY 2014-15. In FY 2015-16, other income included interest income of Rs. 7.02 Crore and insurance claim of Rs. 0.41 Crore. Profitability The Company recorded an EBITDA (before exceptional items) of Rs. 129.59 Crore in FY 2015-16 compared to Rs. 262.90 Crore during FY 2014-15. PAT stood at Rs. (54.76) Crore as against Rs. 11.98 Crore in FY 2014-15. Tax expense Net tax charge was Rs. (30.06) Crore in FY 2015-16 vis-s-vis Rs. 21.36 Crore in FY 2014-15. SOURCES OF FUND Own funds The Company's net worth reduced to Rs. 808.31 Crore as on 31st March, 2016, from Rs. 862.89 Crore as on 31st March, 2015. Equity The Company's equity comprises 2,59,77,053 equity shares with a face value of Rs. 10 per share; with promoters holding 55.75 % as on 31st March, 2016. Reserves Reserves reduced to Rs. 782.33 Crore as on 31st March, 2016 from Rs. 836.91 Crore as on 31st March, 2015. Free reserves constitute around 99.86 % of the total reserves. Long-term borrowings Long-term borrowings stood at Rs. 832.24 Crore as on 31st March, 2016, compared to Rs. 856.43 Crore on the same date of the brvious year, as detailed beside: APPLICATION OF FUNDS Gross block The Company's gross block of fixed asset increased to Rs. 1868.90 Crore from Rs. 1782.94 Crore as on 31st March, 2015. Capital work-in-progress The Company's capital work-in-progress reduced to Rs. 38.09 Crore as on 31st March, 2016 from Rs. 40.47 Crore as on 31st March, 2015. This was owing to the commissioning of projects and capitalisation of various expansion activities. HUMAN RESOURCE IMFA recognises the importance of nurturing and development of human capital and it has formulated HR policies to attain these objectives. The processes for attracting, retaining and rewarding talent are well laid down and along with transparent systems to identify and reward performance. Training interventions are made on a regular basis at all levels. Succession planning and talent management continues to receive priority. The Company has institutionalised learning and development initiatives like coaching & mentoring, internal & external training programmes, identification and nurturing of in-house talent with high potential. Besides, there is also a combrhensive rewards and recognition process. The Company is aware of the importance of employee engagement activities and partners with its employees to ensure a highly engaged and motivated workforce. Employee engagement is based on trust, integrity, two-way commitment and communication between an organisation and its members. It is an approach that increases the chances of business success, contributes to organisational and individual performance, productivity and well being. A culture of passion and commitment, coupled with empowerment and accountability flows through the organisation. At IMFA, we promote gender equality by promoting a safe and secure work environment for women. A Policy has been framed according to the provision of Sexual Harassment of Women at the Work Place (Prevention, Prohibition & Redressal) Act, 2013. The Company has not received any complaints of sexual harassment during the year under review. IMFA's efforts have resulted in low attrition rates which stood at 5.67 % in FY 2015-16. INTERNAL CONTROL SYSTEMS The Company has a combrhensive system of internal controls that enables efficient operations, optimal resource utilisation and compliance with all applicable laws and regulations. Each of these internal controls strengthens the Company and protects loss or unauthorised use of assets by providing adequate checks and balances. The Company authorises, records and reports all transactions. An independent firm of Chartered Accountants serves as the Internal Auditor to execute the internal audit functions. The Management and Audit Committee of the Boardobserves and then recommends corrective measures following such audits to improve business operations HEALTH, SAFETY AND ENVIRONMENT IMFA is committed to conducting its activities in a manner that promotes the health and safety of its employees, assets and the public, as well as protection of the environment. The Company's Integrated Management System comprises quality, environment and occupational health and safety certification. Highlights of the year are: Reviewing implementation of HSE initiatives and HSE performance by senior management on a monthly basis at worksites. Apex HSE Council chaired by MD reviews the HSE performance and approves HSE initiatives, KPI's and guidelines once in a quarter. Scheduling HSE inspections, audits, observations and interactions to identify HSE issues and implementing plans to eliminate such issues. Imparting need-based HSE training to the workforce. Focus on process safety. Focus on behavior based safety amongst the workforce. Production based incentives are brdicated on zero fatality. Focus on contractor safety by implementing contract management process. CAUTIONARY STATEMENTS Certain statements in the Management Discussion and Analysis describing the Company's objectives and brdictions may be 'forward-looking statements' within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, volatility in interest rates, new regulations and Government policies that may impact the Company's business as well as its ability to implement the strategy. The Company does not undertake to update these statements |