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MANAGEMENT DISCUSSION AND ANALYSIS

Sunflag Iron and Steel Company Limited ( ) had set up a 'state of the art' Integrated Steel Plant at Warthi, Bhandara Road in
the State of Maharashtra, to produce high quality Special Steels with manufacturing facilities like Sponge Iron Plant, Mini Blast Furnace,
Sinter Plant, Captive Power Plant, Steel Melt Shop, Continuous Casting Machine with EMS facility, Ingot Casting and Rolling Mills. Modern
annealing facilities include Bell annealing furnace, hardening & tempering, Electric Annealing furnace. Bright Bar facilities like peeling
machine, Combined drawing machine, Wire drawing units, coil to bar peeling machine, polishing & grinding lines and heat treatment facilities
are available for value addition. Further, Ultramodern inspection & testing facilities which include Phased Assay Auto Ultrasonic testing
machine, Magna flux leakage test, Eddy current test, MPI & mobile / XRF Spectrometer, Anti mix testing for assuring best quality
has established itself as a major global force. With the modern complex pulsating with world class technology, expert
human resources and a commitment to excellence, has become a reputed supplier in Flat Bars, Round Bars, Bright Bars
and Wire Rods of Alloy Steel, Spring Steel and Stainless Steel and captured better position in these market segments. is
also embarking on an export thrust and is regularly supplying to various customers in South East Asian, North American and South American
Countries, East African Countries, Europe, Japan, Taiwan and China.
With Ultramodern Blooming Mill, can cater higher section requirement for Automobile, Heavy Engineering, Railways,
Defence and Aerospace requirements with higher reduction ratio. Further, with Bottom poured ingot facilities, is catering
special requirements of Railways and Defence for critical / core applications.
The objective of this Management Discussion is to present an analysis of the current Indian & World economic scenario along with the
expectations from the period ahead.
GLOBAL ECONOMIC SCENARIO & OUTLOOK
A) MACRO-ECONOMIC CONDITIONS
In India, growth slowed down to 4.2% in 2019. This economic slowdown can be attributed to weak investments and declining consumer
demand. Further, several sectors such as real estate, aviation, automobile, and construction sectors suffered a consistent decline in
demand. The banking sector and financial services also witnessed significant pressure of non-performing assets. Overall, increasing
trade tensions, worsening financial market sentiments, intense social unrest across many countries, and sluggish economic growth led
to slowdown in global economy. Downside risks to GDP growth include a further escalation of trade and cross-border investment policy
restrictions, the effects of Brexit, the potential for a sharp slowdown in China, and financial vulnerabilities stemming from slowing
economic growth and high corporate indebtedness of deteriorating credit quality.
With continued weakness in global trade and investment, global growth slumped to 2.9% in 2019, leading to varying degrees of
deceleration in economies around the globe. Rising geopolitical tensions, worsening trade relations among some nations, trade policy
uncertainties, and stress in key emerging market economies continued to impact global economic activity. Intensifying social unrest in
several countries and weather-related disasters also contributed to declining global economic activity.
Growth in the advanced economies slowed down to 1.7% in 2019 as compared to 2.2% in 2018. The US economy slowed to 2.3% in
2019 on account of rising geopolitical tensions and policy uncertainty.
Growth in the European region also slowed to 1.2% in 2019. The industrial sector in Germany struggled with lower demand from Asia
and disruptions to car production. Uncertainty related to Brexit also weighed on growth in the European region. Growth in Japan was at
0.7% owing to the impact of Typhoon Hagibis, increase in value-added tax, and overall slowdown in manufacturing and exports –
particularly those to China. Growth in China dropped to 6.1% in 2019 owing to lower investor sentiment and cooling domestic demand.
B) ECONOMIC OUTLOOK
Just as Current Year 2020 started on a good note with the US and China reaching phase-1 agreement and uncertainty around Brexit
waning, the world was hit hard by the COVID-19 pandemic. The COVID-19 pandemic is inflicting high and rising human costs worldwide.
Protecting lives and allowing health care systems to cope have required isolation, lockdowns, and widespread closures to break the
chain of transmission of virus. The health crisis is therefore having a severe impact on economic activity. As a result of the pandemic, the
global economy is projected to contract sharply by 3 percent in 2020, much worse than during the 2008–09 financial crisis.
In view of the COVID-19 pandemic, there remains considerable uncertainty around the global economic forecast for 2020. According to
the International Monetary Fund ('IMF'), global economy is projected to contract sharply by 4.9% in 2020, surpassing the decline seen
during the global financial crisis a decade ago. Stark differences will be observed between impact of the pandemic on advanced
economies, and emerging markets and developing economies owing to differences in governance capacity, health care systems,
strength of financial institutions, and currency strength.
Growth is expected to be slower in most advanced economies. Countries in the emerging market and developing economies will also
witness a slump in growth due to external demand shock, tightening in global financial conditions, and a plunge in commodity prices. In
China, where recovery from the sharp contraction in the first quarter is underway, growth is projected at 1% in 2020, supported in part by
policy stimulus. The IMF projects a partial recovery in 2021, however, the level of GDP growth is expected to remain below the pre-
COVID-19 trend, with uncertainty about strength of the rebound.
India's economy in the Financial Year 2020-21 is projected to grow at a slower pace following a longer period of lockdown and slower
rate of recovery than anticipated. Effective policies and fiscal measures by the Government will be essential to forestall contraction of
growth.
C) ECONOMIC AND BUSINESS OUTLOOK- GLOBAL AND INDIAN STEEL INDUSTRY
1. GLOBAL AND INDIAN STEEL INDUSTRY
According to the World Steel Association ('WSA'), Global crude steel production reached 1869.69 MnT in 2019 saw a growth of 3.4%
over 2018. This increase was primarily due to the growth in steel consumption in infrastructure, manufacturing, and equipment sectors.
The automotive production trended down across most countries over the second half of 2019 which had an impact on the steel demand
towards the end of the year. China remained world's largest crude steel producer in same period (996 mt) followed by India (111mt),
Japan (99mt) and the USA (88mt).
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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 2019.
* In 2019-20, production of total finished steel (alloy/stainless + non alloy) was 102.059 million tonnes (mt).
* Production of Pig Iron in 2019-20 was 5.507 mt, a decline of 14.1% over last year.
* India was the largest producer of Sponge Iron in the world in 2019. The coal based route accounted for 86% of total Sponge Iron
production (37.143 mt) in the country in 2019-20.
While steel demand remained relatively strong, the country faced significant downside risks due to broader global uncertainty and
tighter environmental regulations.
In 2019, India became the second largest crude steel producing country in the world, with a crude steel production of 111 MnT, an
increase of 1.8% over the previous year. However, the growth rate was much lower compared to the previous year. Growth in the
construction sector weakened due to falling investments in fixed asset formation. Sharp fall in the private consumption led to
weaker growth in automotive and consumer durables. The tighter liquidity conditions due to defaults in NBFC sector impacted credit
availability.
The automotive sector was also impacted by factors such as regulatory changes including shifting of emission norms from BS-
IV to BS-VI by April, 2020, rise in ownership cost and shared economy while, the capital goods sector continued to remain
weak due to the decreasing output and stagnant investment in the manufacturing sector.
2. Outlook for Steel Industry- Opportunities and Threats
The COVID-19 pandemic has severely affected economies and industries globally and the steel industry is no exception.
Therefore, outlook for the steel industry includes scenarios regarding the pandemic's speed of propagation, possible recurrence,
near-term impact of measures being taken to contain the outbreak, and the effectiveness of the stimulus announced by the
Governments of various nations.
The World Steel Association (WSA) released its Short-Range Outlook (SRO) for 2020 and 2021. In 2020 WSA forecasts that steel
demand will contract by 6.4%, dropping to 1,654 Mt due to the COVID-19 crisis. In 2021 steel demand is expected to recover to
1,717 Mt, an increase of 3.8 % over 2020. This year's reduction in global steel demand will be mitigated by an expected faster
recovery in China than in the rest of the world. In comparison with other sectors, the manufacturing sector is expected to rebound
quicker though supply chain disruptions are likely to continue.
Most of the steel producing regions are expected to witness a decline in crude steel output due to production cuts amidst ongoing
lockdowns. Governments of different nations have announced sizeable stimulus packages which are expected to favour steel
consumption through investment in infrastructure and other incentives for the steel industry.
In India, muted demand and oversupply is likely to result in suppressed steel prices and capacity utlisation in the near term. Since
India depends largely on migrant labour, restarting construction and infrastructure projects will be a challenge.
The demand from infrastructure, construction, and real estate sectors is likely to be subdued in the first half of the Financial Year
2020-21 due to the lockdown during the first quarter followed by the monsoons during the second quarter. Further, the demand from
automobile, white goods, and capital goods sectors is likely to reduce significantly with consumers deferring discretionary spends in
the near term. Effective government stimulus and return of consumer confidence are likely to be the key drivers for a gradual
recovery over the second half of the Financial Year 2020-21.
OPPORTUNITIES
is venturing into manufacturing of Super Alloy, which is alloy for high performance application which involves
high load [stress] at high temperature [above 540 degree]; resistance to operation at high temperature; and resistance to
environment attack at high temperature. This is used in Aircraft Parts, Armaments, Submarine Parts, Space Vehicle and Rocket
Engines, Nuclear Reactor, Super-critical Power Plants, Industrial and Vehicle Gas Turbines, Petro-Chemical Plants and other High
Temp and Corrosive Applications.
Defence Minister said the government of India is planning to ban the imports of 101 items of military equipment in an effort to boost
local production and improve self-reliance in weapons manufacturing. The government is planning to progressively implement the
embargo on select military imports between 2020 to 2024.
The military equipment includes some high technology weapon systems and range from assault rifles and artillery to transport
aircraft and light combat helicopters. The aim is to apprise the Indian defence industry about the anticipated requirements of the
Armed Forces so that they are better prepared to realise the goal of indigenisation. This is a big step towards self-reliance in
defence.
Since as of date most of the raw material being imported and sooner or later, this facility will help us to sustain the changed market
scenario, is seeing the opportunities to meet:
- the growing demand of our population and protect our border, growth NOF technology is inevitable.
- the growth of technology in relevant sectors like defence, armament, aerospace, marine, nuclear, thermal, petrochemical &
transport etc.
- to attain high level of technical perfection in these sectors.
India's growing urban infrastructure and manufacturing sectors indicate that demand for steel is likely to remain robust in the
coming years. Several government initiatives, such as providing affordable housing, expanding road and railway networks,
developing the domestic shipbuilding industry, opening up the defence sector to private participation, and growth in the automobile
sector are expected to create significant demand for steel in the country.
In the Union Budget 2020-21, the government announced its plan to invest ₹ 100 trillion in infrastructure over the next five years.
The government is also targeting to attract ₹ 50 trillion investments in the railways sector via public-private partnerships by F.Y.
2029-30.
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Blueprints are also being prepared for the development of gas-grids, water-grids, i-ways (communication networks) and regional
airports, on the lines of 'One Nation-One Grid' for power.
CURRENT CHALLENGES / THREATS
The developing economies are less well equipped to tackle COVID-19 than the developed economies, with inadequate health capacity
leading to stricter lockdown measures in some countries.
India has implemented the most stringent nationwide lockdown measures in the world, bringing industrial operations to a standstill.
Construction activity was halted entirely at the end of March, and recovery is expected to remain slow due to the slow return of labour.
Even though all steel-using sectors are affected by the lockdown measures, the mechanical machinery and automotive sectors are
highly exposed to a prolonged demand shock, as well as to disruption in global supply chains. Changes in working procedures in the
steel-using sectors to fulfil the requirements of social distancing have been carried out. This change in the working environment will
potentially lead to lower productivity and an extended production cycle. Supply chain disruption coupled with slower demand recovery
will hit the automotive sector hard. The machinery sector is expected to see a continued decline, with weak private investment and
supply chain disruption.
As demand plummets due to lockdown restrictions and other headwinds, major measures are required to resuscitate the domestic steel
industry.
The phased easing of restrictions in India also augurs well for the economic revival. Further, India unleashed policy stimulus equivalent
to 10% of GDP or ₹ 20 trillion to revive the economy. Workforce remobilisation will be a key challenge for the core sectors of the
economy.
Limited fiscal space to support the economy, a fall in commodity prices, capital flight and currency depreciation render the decline of
steel demand in some developing countries as severe as that in developed economies. Steel demand in the developing economies
excluding China is expected to fall by 11.6% in 2020, but will see a substantial recovery of 9.2% in 2021.
Supported by government stimulus, recovery in construction will be led by infrastructure investment such as railways. The
government's support to rural income, as well as expected consumption related to the upcoming festive season, will help a substantial
recovery of demand for consumption-driven manufacturing goods in the second half. As a result, India is likely to face an 18.0% decline
in steel demand in 2020, which will rebound by 15.0% in 2021.
The COVID-19 has disrupted operations globally is well-known. Moreover, the new normal that will emerge is likely to witness a
realignment of power centres in different domains. The coronavirus crisis has impacted almost all supply chains dependent on China,
which includes the steel sector.
As most countries have been gradually reopening from their lockdowns since mid-May, recovery of economic activities is expected in
the third quarter.
SUSTAINABILITY
Sunflag is committed to maintain its quality and has received appreciations and awards from various sources. With the continuous
efforts on making clean steel, now Company is focusing on expanding its market share in other segments viz. railways and defence etc.
This will protect the Company from dependency on Automobile sector.
exploring better opportunities in the years to come due to continuous developments of new grades of high alloy steel
as well wire rod. Further, venturing into the self-dependency of raw materials will help in reduction in the cost of production and
enhancing the profitability. This has even proved advantageous during the recessionary period which is a very good sign for the
Company.
MATERIAL DEVELOPMENT
During the year under review, Sunflag could not see any material change in the top line or in profitability or significant improvement in
demand, amid sluggish markets. Indian Steel industry has been driven by availability of raw material viz. iron ore, coal etc. and cost of
labour. Consequently, the financial year under review remained volatile during the year and could not see any sustained demand.
Further, your Company with continuous development of new grades of steel and upgradation of plant and equipment, could maintain its
presence in the market particularly in automobile industry. Also, during the financial year under review export of auto grade steel was not
remunerative. As a result, there was a decline in the sales and profit before tax. EBIDTA as a percentage to total income for the year was
10.34% as against 11.33% for the previous year.
In order to achieve effective cost reduction and improvement in productivity, activity of Total Productive Maintenance (TPM) continued
to be implemented by the Company during the Financial Year 2019-20 ended 31st March, 2020 under review.
CORPORATE GOVERNANCE
At , we ensure that we evolve and follow the corporate governance guidelines and best practices diligently, not just to
boost long-term shareholder value but also to respect minority rights. We consider it our inherent responsibility to disclose timely and
accurate information regarding the operations & performance, leadership and governance of the Company.
Pursuant to the Listing Regulations, the Corporate Governance Report along with the Certificate from a Practicing Company Secretary,
certifying compliance with conditions of Corporate Governance forms an integral part of the Annual Report.
CAUTIONARY STATEMENT
The Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates and
expectations may be 'forward-looking statements' within the meaning applicable to securities laws and regulations. Actual results could
differ materially from those expressed or implied. Important factors that could make a difference to the Company's operations include
economic conditions affecting demand / supply and price conditions in the domestic and overseas markets, changes in the Government
regulations, tax laws, other statutes and other incidental factors.