Overview
The Indian steel industry is projected to grow in 2023. This growth is
attributed to changes in export taxes and import duties on steel, as well as a surge in
demand for steel due to affordable housing, infrastructure development, and construction
projects throughout India. Besides, the Indian government's emphasis on self-sufficiency
has created opportunities for sustainable infrastructure development, logistics parks and
industrial corridors, all of which are driving the demand for finished steel products and
steel as raw material.
A capital expenditure plan was announced in the last two Union Budgets
with the aim of promoting self-reliance in India through the use of domestically produced
steel. This plan aims to position India as a major manufacturing hub while significantly
increasing the steel sector's contribution in the country's GDP.
Rural India is home to nearly 65% of the country's population, many of
whom use straw, tiles, and asbestos to cover the roofs of their bamboo houses. These roofs
are temporary and require frequent maintenance and upgrade, resulting in recurring
expenses. Moreover, India may increase rural spending in the next fiscal year, as the
country seeks to boost jobs and affordable housing. We believe that the proposed upgrades
in basic living standards will catalyse the offtake of steel, widening the industry and
increasing per capita consumption closer to the global average.
Our response
The management had foreseen that India would eventually shift towards
safer and more durable metal roofing sheets, driven by health concerns and
cost-effectiveness.
As anticipated, demand for such sheets increased over time. In
response, Manaksia Steels Limited began producing galvanized and corrugated steel sheets,
which offered a superior price-value proposition compared to existing alternatives, to
cater to the rural housing sector.
In the past nine years, MSL established manufacturing facilities in
Haldia and Bankura, for the production of roofing sheets.
Your company utilizes cutting-edge technologies to manufacture steel
products that prioritize material efficiency. Furthermore, your company implemented the
use of cleaner energy sources such as LPG and solar power, as opposed to high-sulphur
liquid fuels.
Performance
Your company is experiencing continuous success in expanding its market
presence; there is a higher demand for its products than supply. Therefore, your company
is prioritizing the marketing of quality products to take advantage of this opportunity.
These products are mainly marketed in the East and North-East regions of India, where they
fulfil unmet needs.
To ensure the long-term growth of the business, your company is also
focused on gradually increasing its production. This will be done
in a phased manner to ensure sustainability and avoid any negative
impacts on the quality of the products or the environment.
With the stabilization in metal prices, your company has shifted its
focus to establish a robust supply chain with the objective of providing just-in-time
delivery. In the industry space, our company operates in the first layer, and we intend to
maintain this position by leveraging the expertise of our strong management team.
In the financial year under review, despite challenging market
conditions, your company recorded a revenue of H641.48 Crore and an EBITDA of H24.29
Crore.
Our commitment to being a socially conscious and responsible
organization, focused on building resilient and empowered communities, was reflected in
our continued CSR and outreach activities during the year.
Outlook
Manaksia Steels has reached a critical point where growth is poised to
accelerate significantly, with a broader and more profitable impact. We are confident that
our efforts to double revenues over the next two years will help us create a more
sustainable organization and enhance value for all our stakeholders.
Kali Kumar Chaudhuri,
Chairman of the 22nd Annual General Meeting
Managing Director's perspective
Overview
In the 22 years existence of your company, there has been a focus on
doing what we know the best, penetrating deeper in the regions of our presence, de-risking
our business from industry cyclicality and reinvesting every rupee generated from the
business.
This cautious approach has served us well. By the close of the year
under review, your company possessed H64.57 Crore in net cash and liquidatable assets and
no longterm debt. Even as the year was marked by volatile realisations on account of
disturbed global geo-political tensions and a rise in interest rates, your company
performed creditably.
The fact that your company reported a reasonable surplus in every
quarter and generated higher tonnage sales than in the previous year indicates a
robustness of the business model.
Performance review,
FY 2022-23
Your company reported a 27.15% growth in revenues from H504.52 Crore in
FY 2021-22 to H641.48 Crore in FY 2022-23. However, EBITDA was restricted to H24.29 Crore.
and PBT to 16.44 Crore. in FY 2022-23 following an increase in costs and due to a weaker
steel cycle.
Correspondingly, PBT declined 59.48% from H40.58 Crore in FY 2021-22 to
H16.44 Crore in FY 2022-23. Your company remained PAT-positive in the second and third
quarters when most peer steel companies went into the red. This validates the business
model of your company and responsible de- risking.
The liquidity hygiene of your company continued to be protected amid
volatility and increased interest rates. Your company's cash position strengthened from
H45.46 Crore to H64.57 Crore from year-start to year-end. Interest cover was at a
comfortable 7.66 times by the year end, indicating that your company continues to be
liquid.
Sectoral performance
The impact of this market movement was reflected in our performance.
The cost of raw material was a cause of concern and due to a lower price realisation, this
cost could not be passed on to consumers. During the first nine months of the year under
review, revenues of your Company were 28.39% higher than the corresponding period of the
previous financial year.
The last quarter of FY 202223 proved to be different.
Your company capitalized on an improvement in market sentiment and
realisations. Revenues during this quarter were 62.47% higher than the immediately
preceding quarter and 24.67% higher than the corresponding quarter of the previous
financial year. Profit after tax was 91.20% higher than the immediately preceding quarter.
We are optimistic of extending this improvement into the current financial year.
Improvement
At Manaksia Steels, we did not just wait for an improvement in market
sentiment to strengthen our performance. Your company embarked on proactive initiatives to
strengthen its business at a time of market weakness.
One, your company continued to focus on enhancing the visibility of
its brand, backed by an increased sales proportion of branded products. We believe that
the increased proportion of revenues from branded products has a number of spin-off
benefits: it provides your company with a recall that could make it easier for
subsequently branded products to capitalize; it enhances realisations higher than the
prevailing market average; it results in quicker sales during periods of slowdown and
recovery, benefiting trade partners. In a world where consumers are gravitating from the
unbranded to the branded, we see your company's focus on branding as a source of revenue
visibility, translating into superior working capital efficiency.
Two, your company continued
to manufacture a superior quality colour coated sheet, utilising
Japanese technology paint and corrosion resistant features. At a time when consumers
accelerated a shift in their consumption from plain sheets to the colour coated
alternative for aesthetic and quality reasons, your company was at the right place and
right time. Your company reported a 40% increase in the offtake of colour coated sheets in
FY 202223 following a similar percentage increase in the previous financial year. The
result is that the proportion of manufacturing revenues derived from colour coated sheets
increased from 40.36% of your company in FY 2021-22 to 50.53% in FY 2022-23, marking a
decisive improvement in value-addition and altered product mix.
Three, your company deepened its service orientation. The days of
stock and sale are over; your company engaged with trade influencers like dealers and
masons on product quality, impressing upon them the reasons of product superiority and
quality of ingredients.
The result is that there was an appreciable increase in influencer
enquiries during the last financial year, setting the ground for a sustainable increase
from the current financial year.
Looking ahead
At Manaksia Steels, we are attractively placed to graduate your company
to the next level. Over the years, your company remained conservative in its dividend
payout, preferring to reinvest instead. By the close of the last financial year, your
company had H109.33 Crore in cash and short-term investments on its books and no long-term
debt; despite a growing business, it had drawn less than 25% of its working capital
sanction (non-fund-based), indicating fiscal discipline.
The time has come for your company to make a significant capital
investment in the manufacture of galvalume sheets during the current financial year. The
proposed H80 Crore investment in a 100,000 MTPA aluzinc capacity will do two things for
our company: on the one hand, this will increase the volume base that will make it more
efficient in amortising fixed infrastructure costs; on the other hand, the product will
generate a wider value-addition on account of higher realisations and lower manufacturing
costs. By the virtue of this product enjoying a 30% higher corrosion resistance, we see a
traction building for this product. The expansion is expected to help your company double
revenues when fully commissioned and since this capacity will have been funded from net
worth, we expect to generate enhanced shareholder value.
Your company intends to sell this incremental output wider and deeper.
Your company intends to drill deeper in North Bengal and North East India, its traditional
markets. Besides, it intends to market products across the contiguous markets of Bihar,
Jharkhand and Bhutan.
Conclusion
At Manaksia Steels, we are growing in a cautiously measured manner.
Even as we are intending to expand, we are doing so in the existing manufacturing premises
that will empower us to amortise our fixed expenses better. Even after investing H80 Crore
in the expansion, we will possess adequate liquidity to grow the business without
compromising our financial integrity.
By doubling revenues in the next two years without mobilizing any debt,
we believe that we are creating a foundation that should translate into superior value for
all our stakeholders across the foreseeable future.
Varun Agrawal,
Managing Director