I am pleased to present the results of the Company for FY2019-20. The performance mustbe seen in context of a slowdown in the global economy by 70 bps to 2.9%. Maithan reportedrevenues of RS 1897 crore and profit after tax of Rs 222 crore.
Global crude steel output reported moderate growth of 3.4% in 2019. This growth waslargely on account of the demand coming out of Asia and the Middle East; all the othergeographies reported de-growth. This was clearly visible in the numbers: China's crudesteel production in 2019 reached 996.3 Mt up 8.3%; European Union produced 159.4 Mt ofcrude steel in 2019 a decline of 4.9%.
Crude steel output in India grew 1.8% in 2019 considerably lower than itsretrospective growth average on account of a slowing economy where the construction andautomobile sectors two large steel consumers reported extensive demand erosion. Besidesthe slowdown was aggravated by the onset of the COVID-19 pandemic starting December 2019which induced lockdowns and social distancing across the world disrupting the demandcycle.
Maithan Alloys continued to outperform the manufacturing steel and ferro alloyssectors through a continued leverage of its roots influencing its strategicresponsiveness competitiveness and outperformance.
CULTURE MAKES THE DIFFERENCE
The steel industry is cyclical marked by a downward cycle every few years. For acompany engaged in a business classified as commodity (and hence volatile) the operatingfeature behind our business sustainability comprises discipline. At our Companydiscipline is the ability to decide what will be best for us and keeping to it throughvarious business environments.
At Maithan much of this strategic clarity has come from what we perceive our role tobe. We do not see ourselves as a manganese alloys company exposed to the prospect ofarbitrage opportunities within our business; we see our role as disciplined convertors ofresource at one end into quality end products at the other. The efficiency required tosucceed through challenging market phases warrants a complement of process disciplineorganisational leanness broad-based geographic presence and the ability to customiseproducts and grades as per market needs.
In a business where costs and realisations are determined by the market there is onlyone way one can remain successful in the longterm: clarity of what not to do.
At Maithan we have selected not to speculate and inventorise resources to generatearbitrage profits.
At Maithan we did not select to focus on becoming the biggest; we would rather be thebest with all the growth that comes out of this focus being a by-product.
At Maithan we do not believe in creating capacities aggressively in the hope offinding markets; we would rather be in a position where we are virtually sold' foradditional volumes before we select to expand capacity.
At Maithan we did not concentrate on enhancing capacities in one location but broadbasing our geographic presence in response to logistical and resource advantages.
At Maithan we did not select to manufacture commodity grades that would have soldfaster as it would have destroyed our brand for being a niche and value-added player.
At Maithan we did not seek our identity from the largeness of our manufacturingcapacity (as would have been usual in a commodity business); we sought it from theresearch-led quality of what we manufactured.
At Maithan we did not seek our viability from the prevailing realities of theshort-term; we invested with the perspective of staying in business across the long-term.
At Maithan we did not acquire assets with abandon using the cash on our books; weselected to build greenfield capacities as it would have taken longer to integrate theoperating culture of the acquired units.
At Maithan we reinforced our business model through an operational leanness thatstrengthened our cost leadership across market cycles.
In a business that works with large resource volumes we selected to locate ourselvesin geographies with a large access to resources on the one hand and market access on theother. We commissioned a manufacturing plant in Andhra Pradesh which provides access tothe international markets through port.
At Maithan we design and fabricate furnaces as well minimising our dependence onexternal vendors accelerating construction speed customising equipment andinfrastructure as per our needs and moderating costs.
We invest continuously in product and process research and development that make itpossible to manufacture a range of grades optimise processes alter the resource mix andachieve desired quality at among the most competitive costs in the world.
We created a strong protocol of operating procedures translating into a high assetutilisation making it possible for us to amortise our fixed costs more effectively over alarger output.
The result of this operational leanness has translated into a fixed cost equivalent to5% of revenues which is ideally balanced with resource costs accounting for around 80% ofrevenues. The result is that our EBIDTA margins are consistently among the highest inIndia's ferro alloys industry.
The COVID-19 pandemic and the corresponding lockdown disrupted operations during thefirst quarter of FY2020-21. The steel industry plays an important role in drivingeconomies. In a post- Covid world governments across the world are expected to deepentheir infrastructure investments to stimulate economic growth which could catalyse steeldemand. An Oxford Economics study found that for every US$1 of value added by the steelindustry US$2.50 of value-added activity was supported across other sectors.
On the employment side the study confirmed that for every 2 jobs in the steel sector13 jobs are supported throughout the supply chain.
At Maithan we believe that the short-term may be challenging in view of the demanderosion the medium-term outlook is likely to be cautiously better. The Company possessescash on its books and virtually no debt to be able to see these challenging times through.
We expect to capitalise with speed on the sectoral rebound when it transpires andenhance value for all our stakeholders.