Shyam Metalics & Energy Ltd:Annual Report 2023-24 Analysis

Shyam Metalics And Energy Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: Shyam Metalics and Energy Ltd. was established in 2002. The company’s roots lie in the Agarwalla family’s foray into the steel industry.

Headquarters Location and Global Presence: The company’s headquarters are located in Kolkata, India. While the company primarily operates within India, it exports its products to various international markets.

Company Vision and Mission: While a specific articulated vision and mission statement may not be publicly available, based on their activities, it can be inferred that their vision is to be a leading integrated metal producer, contributing to infrastructure development and economic growth. The mission would involve sustainable and efficient manufacturing practices, focusing on quality and customer satisfaction.

Key Milestones in their Growth Journey:

• Early 2000s: Establishment and initial focus on sponge iron production.
• Subsequent Years: Diversification into other steel products like billets, TMT bars, and structural steel.
• Expansion: Expansion of manufacturing facilities and increasing production capacity.
• Backward Integration: Investment in captive power plants and iron ore pellet plants for cost optimization and raw material security.
• 2021: Initial Public Offering (IPO) on the Indian stock exchanges.

Stock Exchange Listing Details and Market Capitalization: Shyam Metalics and Energy Ltd. is listed on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). As of October 26, 2023, the market capitalization is approximately ₹16,471 Cr.

Recent Financial Performance Highlights:

• Revenue: The company has consistently shown growth in revenue over the past few years, driven by increased production capacity and higher steel prices.
• Profitability: Reported consistent profits, though subject to cyclical industry fluctuations.
• Debt Management: Focused on reducing debt and improving financial ratios.

Management Team and Leadership Structure: The company is led by a Board of Directors with a mix of executive and non-executive directors. Key management personnel include:

• Brij Bhushan Agarwal: Managing Director

Notable Awards or Recognitions: Specific awards and recognitions are not readily available but their operational excellence and commitment to sustainability have been praised by investors and analysts.

Their Products #

Complete Product Portfolio with Categories: Shyam Metalics and Energy Ltd. offers a diversified range of steel products, categorized as follows:

• Long Steel Products: TMT Bars, Wire Rods
• Structural Steel: Channels, Angles, Beams
• Billets: For further processing into finished steel products
• Sponge Iron: A key raw material for steel production
• Iron Pellets: Used in steelmaking processes
• Ferro Alloys: Silico Manganese, Ferro Silicon

Flagship or Signature Product Lines: TMT Bars are a significant part of the company’s product line and a major revenue driver.

Manufacturing Facilities and Production Capacity: The company has multiple manufacturing facilities located in Odisha and West Bengal. The aggregate manufacturing capacity is substantial and continually expanding, focusing on enhanced operational capabilities.

Quality Certifications and Standards: The company adheres to various quality certifications and standards, including ISO certifications, demonstrating their commitment to quality control and product consistency.

Unique Selling Propositions or Technological Advantages: Backward integration is a key advantage, providing raw material security and cost competitiveness.

Primary Customers #

Target Industries and Sectors: Shyam Metalics primarily caters to the following industries:

• Infrastructure: Construction of roads, bridges, buildings, and other infrastructure projects.
• Real Estate: Residential and commercial construction.
• Manufacturing: Industries that require steel as a raw material for their products.
• Engineering: Companies involved in heavy engineering and fabrication.

Geographic Markets (Domestic vs. International): The company has a strong presence in the domestic Indian market and also exports its products to various international markets, including South Asia, the Middle East, and Africa.

Distribution Network and Sales Channels: The company utilizes a network of distributors and dealers to reach its customers across India. It also has a direct sales team for large institutional clients.

Major Competitors #

Direct Competitors in India and Globally:

• Indian Competitors: Tata Steel, JSW Steel, Jindal Steel & Power, SAIL (Steel Authority of India Ltd.).
• Global Competitors: ArcelorMittal, POSCO, Nippon Steel Corporation (Though the direct overlap in specific products and geographies may vary).

Competitive Advantages and Disadvantages:

• Advantages: Backward integration, cost-effective production, diversified product portfolio, strategic locations of manufacturing facilities.
• Disadvantages: Susceptibility to cyclical fluctuations in steel prices, reliance on raw material availability, competitive pressure from larger players.

How They Differentiate From Competitors: Focus on specific product segments, cost-efficiency, and catering to regional markets.

Industry Challenges and Opportunities:

• Challenges: Volatility in raw material prices (iron ore, coal), fluctuating steel prices, environmental regulations, infrastructure bottlenecks, and geopolitical risks.
• Opportunities: Growing infrastructure development in India, increasing urbanization, rising demand for steel in various sectors, government initiatives promoting domestic manufacturing.

Future Outlook #

Expansion Plans or Growth Strategy: Shyam Metalics is actively pursuing expansion plans, including increasing production capacity, diversifying into new product segments (such as stainless steel), and strengthening its presence in existing markets.

Sustainability Initiatives or ESG Commitments: Shyam Metalics has been taking steps to adopt sustainable practices, including investing in renewable energy sources (captive power plants), reducing carbon emissions, and improving waste management.

Industry Trends Affecting Their Business:

• Infrastructure Development: Government focus on infrastructure spending is a positive trend for the steel industry.
• Green Steel: Growing demand for “green steel” produced with lower carbon emissions is a significant trend.
• Technological Advancements: Adoption of advanced technologies to improve efficiency and reduce costs.
• Geopolitical Factors: Global trade policies and geopolitical tensions can impact steel prices and demand.

Long-Term Vision and Strategic Goals: The company aims to become a leading integrated metal producer in India, focusing on sustainable growth, operational efficiency, and value creation for stakeholders.

Shyam Metalics & Energy Limited (SMEL) Performance Analysis #

3-Year Financial Trend Analysis (Consolidated) #

Key Observations: #

• Growth, but with Volatility: SMEL has demonstrated revenue growth, but profitability (EBITDA and PAT) has been volatile, significantly impacted by external factors.
• Strong Balance Sheet: The very low and decreasing debt-equity ratio is a major strength, providing financial resilience and capacity for future investments.
• Efficiency Concerns: While the financial performance is showing an increasing trend, the return ratios (RONW, ROACE) are declining.

Business Segment Performance #

• Upstream and Intermediates:
  • Pellet Sales: Decreased from 12.14 Lakh MT (FY23) to 10.33 Lakh MT (FY24).
  • Pellet Production: Increased from 17.71 Lakh MT (FY23) to 26.61 Lakh MT (FY24)
• Finished Products:
  • Long Steel Sales: Increased from 11.24 Lakh MT (FY23) to 13.29 Lakh MT (FY24)
  • Ferro Alloys Production: Increased from 2.31(FY23) to 2.81 (FY24)
  • Ferro Alloys Sales: Increased from 2.16 (FY23) to 2.57 (FY24)
• Stainless Steel and Aluminium Foil: Presence established, and positioned as growth area
• Captive Power: Company sources approx. 78% power through captive power plants.

Key Observations: #

• Focus on Finished Products: The company is clearly prioritizing finished steel products (Long Steel), which show consistent growth in sales volume.
• Upstream/Intermediate Fluctuations: Pellet sales are decreasing while its overall production is showing positive growth.

Major Strategic Initiatives and Their Progress #

• Capacity Expansion: Ongoing capex of ₹39.15 billion announced, with a further ₹8.1 billion added for aluminium foil and stainless steel. Aim is to increase integrated capacity from 16.94 MTPA to 23.65 MTPA with captive power plant from 377MW to 597 MW and enhance renewable portfolio from 9.1MW to 109.1 MW. 51% of the total proposed CAPEX is already completed.
• Product Diversification: Entry into new market segments like color-coated sheets, battery-grade aluminium foil, and stainless steel (flat products).
• Acquisition of Ramsarup Industries Ltd.: Completed, enhancing regional presence and operational efficiency.
• Inorganic Growth Exploration: Intends to explore the possibility of growing inorganically by acquiring distressed steel plants.
• Focus on Value-Added Products: Strategic goal is for value-added products to contribute 80% of the revenue mix within five years.
• Renewable Energy Expansion: Investment in solar power (adding 100 MW, bringing the total to 109 MW) and waste heat recovery systems.

Risk Landscape Changes #

• Market Volatility: Fluctuations in steel prices and raw material costs remain a major risk.
• Competition: Increased competition, both domestic and international.
• Environmental and Regulatory Compliance: Stricter environmental regulations increase operational costs.
• Supply Chain Disruptions: Volatility in raw material availability and supply chain disruptions.
• Technological Obsolescence: The need for continuous investment in new technologies to remain competitive.
• Finance: High capital investment needs and high interest rates are challenges.
• Logistics: Inefficiency in the logistics system is a challenge.
• Raw Materials: High dependence on imported raw materials like cooking coal can be a big risk.

ESG Initiatives and Metrics #

• Environment:
  • Energy Management: Investment in renewable energy (solar), LED lighting, and waste heat recovery systems. ~78% of power is sourced from captive plants.
  • GHG Emission Management: Solarization project to reduce CO2 emissions. Use of electric vehicles. Scope 1 and Scope 2 emissions data provided.
  • Waste Management: Recycling and repurposing of solid waste.
  • Water Management: Zero Liquid Discharge (ZLD) approach.
  • GreenPro Certification: Received for eco-friendly production methods.
• Social:
  • CSR Initiatives: Focus on education, community development, healthcare, and animal welfare.
  • Employee Well-being: Yoga programs, health check-ups, medical insurance, and various leave policies.
  • Skill Development: Training programs for employees.
  • Diversity and Inclusion: Commitment to a diverse workforce.
• Governance:
  • Strong Governance Framework: Emphasis on transparency, accountability, and ethical conduct.
  • Whistle Blower Policy: In place to encourage reporting of misconduct.
  • Board of Directors: Diverse and experienced, with a mix of independent and non-independent directors.

ESG Metrics #

• Renewable energy consumption: 8,415 GJ
• Non-renewable energy consumption: 22,56,076.25 GJ
• Scope 1 emissions: 37,29,472.08 metric tonnes of CO2 equivalent
• Scope 2 emissions: 4,48,708.4985 metric tonnes of CO2 equivalent
• Waste recycled: 10.83 MT
• Hazardous waste disposed: 25.53 MT
• Water consumption: 56,22,817 KL
• CSR expenditure: ~₹30 crore
• Lives benefited by CSR: 1,60,969
• Attrition rate: 12%
• Training man-days: 1.5

Management Outlook #

• Optimistic about Indian Growth: Management is positive about India’s economic growth prospects.
• Expansion and Diversification: Focus on capacity expansion, moving up the value chain, and diversifying into new segments.
• Cost Efficiency: Ongoing efforts to improve cost efficiency.
• Sustainability: Commitment to reducing the carbon footprint and improving ESG performance.
• Resilience: The Company strives to build a foundation that can withstand the fluctuation in global economic landscape.

Comparative Analysis with Industry Averages #

• Steel Demand Growth: SMEL’s long steel sales growth (18.26%) exceeds India’s projected steel demand growth (around 8%).
• Credit Rating: CRISIL AA (Stable) is described as the “highest in the industry.”
• Captive Power: 78% captive power sourcing is likely higher than the industry average.
• Export: One of the largest exporters of Aluminium Foil from India.

Overall Assessment #

Shyam Metalics is a growing, integrated steel producer with a strong focus on long-term sustainability and value creation. The company is strategically positioned to benefit from India’s infrastructure and manufacturing growth. While profitability has been impacted by market volatility, the company’s strong balance sheet, expansion plans, and commitment to cost efficiency and ESG initiatives suggest a positive outlook.

Detailed Analysis #

Financial Position Analysis of Shyam Metalics and Energy Limited #

Balance Sheet Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

Significant Changes in Major Line Items (>10% YoY) #

• Non-Current Assets (+27.48%): Driven by capital expenditure, acquisitions (Mittal Corp), and investments in capacity expansion (stainless steel, aluminum foil).
• Current Assets (+30.68%): Driven by Inventories, investments and Trade Receivables.
• Equity (+30.24%): Stems from retained earnings (profits) and a Qualified Institutional Placement (QIP) of shares during FY24.
• Current Liabilities (+29.57%): Increased due to increase in overall business volume of the company.
• Non-current Liabilities (+12.57%): Driven by increased long-term borrowings.

Working Capital Trends #

Analysis: #

• Positive Trend: Working capital has increased.
• Current Ratio: Increased from 1.31 to 1.32 indicating a broadly healthy liquidity position.

Asset Quality Metrics #

• Fixed Asset Turnover (Revenue / Net Fixed Assets): Increased.
• Inventory Turnover Ratio: Substantially increased from previous year, showing an efficient Inventory Management.

Debt Structure and Maturity Profile #

Analysis: #

• Debt Reduction: Overall debt level has been reduced.
• Shift to Current Borrowings: A larger portion of the debt is now classified as current, primarily due to increased working capital borrowings.
• Maturity: The company’s non-current borrowings are from commercial vehicle and term loan from bank.

Off-Balance Sheet Items #

• Contingent Liabilities: ₹1,699.36 crores (FY24) and ₹1,729.95 crores (FY23). Primarily related to ongoing legal and tax disputes.
• Guarantees: The company provides bank guarantees. These also form a part of the contingent liabilities.
• Capital Commitments: ₹4,640 crores in capital expenditure has been incurred till FY24. Further, the Group has earmarked, 4,575 crores for capex over the next three years.

Key Takeaways and Further Analysis Points: #

• Growth and Investment: Shyam Metalics is in a growth phase, with significant capital expenditure. The QIP funding is a strong indicator of investor confidence.
• Debt Management: The shift towards more short-term debt could be a strategic move to manage interest costs, but it needs to be monitored.
• Contingent Liabilities: The large contingent liabilities figure needs further breakdown. Understanding the nature of the major disputes and their likelihood of materializing is crucial.
• Profitability: While revenue growth is positive, the operating margin needs to be benchmarked against peers, and the impact of increased capacity on future profitability needs to be assessed.

Shyam Metalics and Energy Limited (SMEL) Financial Analysis (FY24) #

Revenue Breakdown #

Segment Breakdown (FY24) #

• Pellets: ₹922.46 cr (6.99% revenue share)
• Billets: ₹656.90 cr (4.98% revenue share)
• Sponge Iron: ₹2341.73 cr (17.75% revenue share)
• TMT: ₹2161.20 cr (16.38% revenue share)
• Structural Steel: ₹1126.02 cr (8.53% revenue share)
• Wire Rod: ₹2992.22 cr (22.68% revenue share)
• Ferro Alloys: ₹1699.36 cr (12.88% revenue share)
• Stainless Steel: ₹584.77 cr (4.43% revenue share)
• Aluminium Foil: ₹537.65 cr (4.07% revenue share)

Geographic Breakdown (FY24) #

• India: ₹11,877.74 Crores (90.02% of total revenue)
• Outside India: ₹1,317.48 Crores (9.98% of total revenue)

Growth Rates (Consolidated, FY24 vs. FY23) #

• Total Revenue: Increased by 4.63% (from ₹12,658.07 crores to ₹13,195.22 crores).

Cost Structure Analysis #

Major Cost Components (FY24) #

• Cost of materials consumed: ₹9,056.34 crores.
• Employee benefits expense: ₹354.24 crores.
• Finance costs: ₹74.84 crores.
• Depreciation and amortization: ₹654.16 crores.

Margin Analysis #

Operating Margin (EBITDA Margin) #

• FY24: 13.10%
• FY23: 11.84%
• Trend: Improved by 10.64% year-over-year.

Net Profit Margin #

• FY24: 7.80%
• FY23: 6.77%
• Trend: Increased by 15.23% YoY.

EPS Analysis #

Basic EPS #

• FY24: ₹39.54
• FY23: ₹33.07
• Trend: Increased year-over-year.

Diluted EPS #

• FY24: ₹39.46
• FY23: Not Reported

Cash Management Analysis: Shyam Metalics and Energy Limited (SMEL) #

Operating Cash Flow (OCF) Components: #

• Profit Before Tax: FY24: ₹1,570.02 Cr, FY23: ₹1,499.41 Cr
• Adjustments (Non-Cash Items): Significant non-cash adjustments include depreciation and amortization, finance costs, provisions, and unrealized foreign exchange fluctuations.
• Working Capital Changes: Significant changes are in trade receivables, inventories, and trade payables.
• Income Taxes Paid (Net): FY24: ₹(515.56) Cr, FY23: ₹(474.82) Cr

Investing Cash Flow (ICF) Components: #

• Purchase of Property, Plant & Equipment (including Capital Work-in-Progress): FY24: ₹(1,786.74) Cr, FY23: ₹(1,472.28) Cr. This is the largest component, showing significant capital expenditure.
• Proceeds from sale of Property, Plant and Equipment: FY24: ₹0.80 Cr, FY23: 0.11 Cr.
• Purchase of investments (net): FY24 : (875.79), FY 23: 27.50
• Investments (made in)/ redeemed from fixed deposits with banks: FY24: 141.18, FY23: 119.71
• Payment made towards acquisition by ESOP Trust: FY24:(3.44), FY23:(0)
• Loans and advances recovered / (given): FY24: (0.27), FY23 : (0.14)
• Interest Received: FY24: 40.31, FY 23 : 27.16
• Payment made pursuant to acquisition of entity: FY24: (332.48), FY23:(0)

Financing Cash Flow (FCF) Components: #

• Proceeds from Issuance of Equity Shares (Net of Issue Expenses): FY24: ₹1,356.92 Cr, FY23: Nil. A major inflow in FY24 due to the QIP.
• Proceeds from non-current borrowings: FY24: 0.16 Cr, FY 23:503.31 Cr.
• Repayment of Non-Current Borrowings: FY24: ₹(219.52) Cr, FY23: ₹(546.89) Cr.
• (Repayment) / proceed from current borrowings: FY24:(242.81)cr, FY23:(326.10)
• Repayment of Lease Liabilities: FY24: ₹(2.33) Cr, FY23: ₹(0.70) Cr.
• Proceeds from Issue of Securities to Non-Controlling Interest: FY24:Nil, FY23: 54.63
• Dividends Paid: FY24: ₹(114.79) Cr, FY23: ₹(147.91) Cr.
• Finance Cost Paid: FY24:(113.80), FY23:(101.30)

Working Capital Management Efficiency: #

• Debtor Turnover Ratio: FY24: 4.39 times, FY23: 14.01 times. A significant decrease suggests potential issues with credit collection or a change in sales terms.
• Inventory Turnover Ratio: FY24: 8.93 times, FY23: 7.41 times. An increase indicates better inventory management.
• Trade Payables Turnover Ratio: FY24: 5.69, FY23: 10.53. This has significantly reduced, which means the company is taking longer to pay its creditors.

Dividend and Share Buyback Trends: #

• Dividend: FY24: A total dividend of ₹4.5 per share (₹1.80 interim + ₹2.70 final) was declared. The dividend payout ratio is relatively low (around 10% of PAT).
• Share Buyback: There is no mention of share buybacks in the provided information.

Debt Service Coverage: #

• Interest Coverage Ratio: FY24: 10.72 times, FY23: 14.44 times. Though it decreased, it still signifies a strong ability to cover interest expenses from earnings.

Liquidity Position and Cash Conversion Cycle: #

• Current Ratio: FY24: 2.47 times, FY23: 1.44 times. A significant increase, indicating improved liquidity.
• Cash and Cash Equivalents: FY24: ₹2,092 crores. A very strong cash position, even after significant capex.

Free Cash Flow Yield Trends: #

• FCF = OCF - Capex
• FY24: FCF = ₹1,710.35 Cr - ₹1,786.74 Cr = Approximately -ve FCF
• FY23: FCF = ₹1,602.38 Cr - ₹1,472.28 Cr = Approximately +ve FCF

Financial Analysis of Shyam Metalics and Energy Limited (SMEL) #

Profitability Ratios (3-Year Trends) #

Analysis: #

• Declining Profitability Trends: Profitability ratios (ROE, ROA, and ROCE) show a declining trend from FY22 to FY24. This means that the ability to generate profits from shareholders equity, and every rupee of assets, has declined. This is driven, in part, by the substantial increase in the asset and equity base of the company due to expansion and capital investments.
• Margin Contraction: The EBITDA and Net Profit Margins show significant decline. While the company maintained stable margin in the FY24 compared to previous year.

Liquidity Metrics #

Analysis: #

• Current ratio improved by 11% year on year, due to increase in Current Assets and decrease in Current Liabilities.
• Quick ratio slightly improved due to increase in cash and cash equivalents.
• Cash ratio increased significantly, due to increase in investments.

Efficiency Ratios #

Analysis: #

• Asset turnover ratio shows decline. This is becasue of the increase in total assets, as a result of capacity expansion.
• Inventory turnover ratio increased, due to increase in cost of materials consumed.
• Receivables turnover reduced significantly, as a result of increase in total trade receivables.

Leverage Metrics #

Analysis: #

• Low Leverage: SMEL has a very low Debt/Equity ratio, indicating minimal reliance on debt financing. The company is primarily equity-financed. This decreased due to the repayment of a substantial portion of the borrowings.
• Strong Interest Coverage: A very high interest coverage ratio signifies that the company has more than sufficient earnings to cover its interest expenses. It declined due to repayment of borrowings.

Working Capital Ratios #

Analysis: #

• Decreasing Net Working Capital Turnover:. This indicates a decrease in the company’s capital efficiency, requiring more capital to generate revenues.
• Decreasing Working Capital Days:, indicates improved management and ability to convert its working capital into sales.
• Payable days decreased slightly.

Key Observations and Recommendations: #

• Strong Financial Position, Declining Profitability: SMEL is in a very robust financial position with low debt, strong liquidity, and excellent interest coverage. However, the clear declining trends in profitability ratios (ROE, ROA, ROCE, and margins) are the most significant area of concern and should be the primary focus of management attention.
• Expansion and Capital Allocation: The expansion plans and recent acquisitions (Mittal Corp) are likely major drivers of the changes in financial ratios. The increase in assets and equity has diluted return ratios. Management needs to demonstrate that these investments will generate sufficient returns in the future to justify the capital outlay. It’s crucial to closely monitor the performance of new assets and acquisitions.
• Operational Efficiency: There’s room for improvement in asset turnover. Increasing sales from the expanded capacity will be key to improving this.
• Working Capital Management: While working capital days is improving, the payable days remain very high.
• Strategic Implications:
  • The company needs to focus on maximizing the utilization of its expanded capacities and driving revenue growth.
  • Cost control measures are essential to improve margins, especially given the volatility in raw material prices (as mentioned in the Management Discussion & Analysis).
  • The company’s foray into stainless steel and aluminum foil is a diversification strategy. Management needs to ensure these new ventures are profitable.
  • Given the low debt levels, there may be room for strategic borrowing if compelling, high-return investment opportunities arise. However, given the current downward trend in profitability ratios, it is not recommended until return on the investments improve.

Summary: #

SMEL’s financial position is strong from a solvency and liquidity perspective. However, the declining profitability trends, along with the need to optimize the utilization of expanded capacities and new ventures, present challenges that require careful management attention and strategic execution. A focus on revenue growth, cost efficiency, and working capital optimization will be crucial for translating the company’s strong financial foundation into sustained long-term profitability and shareholder value.

Shyam Metalics and Energy Limited (SMEL) Financial Analysis #

Revenue and Profitability Metrics #

• Net Revenue from Operations: FY24: ₹13,195.22 crore, FY23: ₹12,658.07 crore. Growth: 4.24%.
• EBITDA: FY24: ₹1,570.02 crore, FY23: ₹1,499.41 crore. Growth: 4.71%.
• Profit After Tax (PAT): FY24: ₹1,029 crore, FY23: ₹843.49 crore. Growth: 22%.
• PAT Margin: 7.80% in FY24, 6.66% in FY23.
• EBITDA Margin: 11.90% in FY24, 11.84% in FY23.
• Basic Earnings Per Share (EPS): FY24: ₹39.54, FY23: ₹33.07. Growth: 19.56%.
• Return on Net Worth (RONW): FY24: 11.93%. FY23: 15.12%
• Return on Average Capital Employed (ROACE): FY24 13.42%, FY23: 14.89%.
• Debt Equity Ratio: FY24: 0.06, FY23: 0.13.

Market Share and Competitive Position #

• Steel Industry: SMEL is described as “one of India’s leading and fastest growing integrated multi-metal producing company.” It is among the largest ferro alloy producers, the largest sponge iron producer, and a leading player in terms of pellet capacity.
• Ferro Alloys: Amongst the largest ferro alloy producers in India.

Key Products/Services Performance #

• Goal: Value-added products to account for 80% of total revenue in the next five years.
  • Iron Ore Pellet: FY24 Revenue: ₹922.46 crore, 6.99% of total revenue.
  • Sponge Iron: FY24 Revenue: ₹2,341.73 crore, 17.75% of total revenue.
  • Billets: FY24 Revenue: ₹656.90 crore, 4.98% of total revenue.
  • TMT: FY24 Revenue: ₹2,161.20 crore, 16.38% of total revenue.
  • Structural Steel: FY24 Revenue: ₹1,126.02 crore, 8.53% of total revenue.
  • Wire Rod: FY24 Revenue: ₹2,992.22 crore, 22.68% of total revenue.
  • Ferro Alloys: FY24 Revenue: ₹1,699.36 crore, 12.88% of total revenue.
  • Stainless Steel: FY24 Revenue: ₹584.77 crore, 4.43% of total revenue.
  • Aluminum Foil: FY24 Revenue: ₹537.65 crore, 4.07% of total revenue. One of the largest exporters of aluminum foil from India.
  • Crude Steel Production: Increased by 10.23% from 14.47 Lakh MT(FY23) to 15.95 Lakh MT(FY24).
  • Long Steel Sales: Increased by 18.24% from 11.24 Lakh MT(FY23) to 13.29 Lakh MT(FY24).

Geographic Distribution and Market Penetration #

• Domestic: SMEL has a significant presence in West Bengal, Odisha, Chhattisgarh, Maharashtra, Jharkhand, Bihar, Assam, Meghalaya, Madhya Pradesh, Uttarakhand, Rajasthan, Gujarat, Uttar Pradesh, Punjab, Haryana, Sikkim, Manipur, Arunachal Pradesh, and Tripura. 70% of products are sold within a 500 km radius of the plants.
• Exports: The Company is exporting billets to Nepal and Bangladesh. It is also exporting ferro alloys to Soth Korea, Indonesia, Thailand, Taiwan, Japan, New Zeland and United kingdom. They also export to USA, Japan, Korea, Italy.

CAPEX and ROIC #

• Total Envisaged CAPEX: ₹9,215 crore.
• Cumulative CAPEX till FY24: ₹4,640 crore (51% of total envisaged).
• Capex for FY24: ₹1,543 crores
• New CapeX: ₹8.1 billion
• Future CAPEX (Next 3 Years): ₹4,575 crore, focused on expanding stainless-steel manufacturing facilities, power generation, iron production, and specialty products.
• Ongoing CAPEX: ₹39.15 billion (announced a year prior to the report).
• ROIC: Overall Return on Average Capital Employed (ROACE) - stated above.

Operational Efficiency Metrics #

• Captive Power: Approximately 78% of power is sourced from captive power plants, utilizing non-fossil fuels and waste heat recovery.
• Captive Power Plant Expansion Plans: To increase from 357 MW to 600 MW, with a post-expansion capacity of 597 MW.
• Renewable Power Plant Expansion Plans: An additional 100 MW of solar capacity, bringing the total renewable portfolio to 109 MW.
• Cost of per unit captive power(H/KWH): 2.84 in FY24, 2.96 in FY23.
• Inventory Turnover Ratio: Increased by 20%
• Debtor’s Turnover: Decreased by 69%

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Capacity Expansion: Significant investments in expanding capacities across various product lines, particularly finished steel and captive power generation.
  • Product Diversification: Entering new market segments such as color-coated sheets, expanding the aluminum foil business (including battery foil for the EV market), and increasing stainless steel production (including hot rolled coils and bright bars).
  • Inorganic Growth: Exploring acquisitions of distressed steel plants.
  • Geographic Expansion: Expanding into new states and enhancing branding.
  • Digital Integration: Focus on improving operational efficiency and customer satisfaction.
• Challenges:
  • Market Volatility: Steel industry is known for cyclical nature and fluctuating steel prices.
  • Raw Material Security: Reliance on imported coking coal (though mitigated by using primarily Indian coal).
  • Environmental Compliance: Meeting stringent environmental regulations and reducing carbon footprint.
  • Competition: Increasing competition from domestic and international producers.
  • Logistical efficiency
  • Finance: High capital requirements for expansion.
  • Technological Advancements

Risk Profile of Shyam Metalics and Energy Limited (FY2023-24) #

Objective #

To categorize, analyze, and assess the risks faced by Shyam Metalics and Energy Limited (SMEL), drawing from the provided Annual Report data.

Risk Categories #

1. Strategic Risks: Risks that affect the Company’s ability to achieve its long-term strategic objectives.
2. Operational Risks: Risks related to the Company’s day-to-day operations and processes.
3. Financial Risks: Risks related to the Company’s financial stability, liquidity, and market exposure.
4. Compliance/Regulatory Risks: Risks arising from non-compliance with laws, regulations, and industry standards.
5. Emerging Risks: Risks that are new, developing, or difficult to predict, which could have significant impacts.

Strategic Risks #

Analysis #

• Severity: High, due to the steel industry’s cyclical nature and the direct impact on SMEL’s core revenue streams.
• Likelihood: High, given the ongoing global economic uncertainties and competitive pressures.
• Trend: Increasing. Competitive intensity is growing.
• Mitigation & Control Effectiveness: SMEL’s strategies are sound (diversification, expansion), but their effectiveness is rated “Moderate” because the external factors are strong.
• Potential Financial Impact: Significant. Fluctuations in steel prices and demand directly affect revenue and profitability. *. Quantative Risk Metrics PAT Growth, PAT Margin, EBIDTA Margin.

Operational Risks #

Analysis #

• Operational Efficiency: SMEL is actively mitigating risks through technology investments and process improvements.
• Raw Material Availability: While captive sources are a strength, global supply chain issues could still impact the Company.
• Energy Costs: High reliance on captive power generation significantly mitigates this risk.
• Logistics:Strategic location of plant significantly mitigates the risk.
• Safety Risk: The Zero incident indicates a positive trend.

Financial Risks #

Analysis #

• Debt Servicing: SMEL’s low debt-to-equity ratio and strong cash position significantly mitigate this risk.
• Liquidity Risk: Strong cash reserves and access to credit lines ensure sufficient liquidity.
• Foreign Exchange Risk: Hedging strategies are employed, but fluctuations can still impact financials. The degree of hedging isn’t quantified in the provided data.
• Counterparty Risk: Well established protocals and systems for the mitigation of the risk.

Compliance/Regulatory Risks #

Analysis #

• Environmental Regulations: Increasing stringency of environmental regulations poses a high severity risk, but SMEL’s investments in green technologies and compliance efforts mitigate the likelihood.
• Other Regulatory Compliance: The company has implemented a robust system of policies, codes, and committees to ensure adherence to various laws and regulations.

Emerging Risks #

Analysis #

• Cybersecurity: The increasing sophistication and frequency of cyberattacks pose a significant and growing risk. *. Geopolitical Tensions: Though currently at low risk, its important to monitor, and diversify the supply chain.

Overall Risk Assessment Summary #

Shyam Metalics and Energy Limited demonstrates a proactive approach to risk management. The Company has strong financial risk mitigation strategies, resulting in a low debt-to-equity ratio and a healthy cash position. Operational risks are actively managed through investments in technology, process improvements, and safety measures. Strategic risks are being addressed through diversification, expansion, and a focus on value-added products, but the inherent cyclicality of the steel industry remains a major factor. Compliance and environmental risks are managed through adherence to regulations and investments in sustainable practices. Emerging risks, particularly cybersecurity and geopolitical tensions, require ongoing monitoring and adaptation.

Recommendations #

• Continued Focus on Diversification: While SMEL is making progress, further diversification of its product portfolio and geographic markets will be crucial to mitigate market volatility risks.
• Strengthen Cybersecurity Measures: Given the increasing trend of cyber threats, continuous investment in cybersecurity infrastructure and employee training is essential. Quantifiable metrics related to cybersecurity preparedness should be tracked and reported.
• Monitor Geopolitical Risks: Develop contingency plans for potential supply chain disruptions.
• ESG Focus: Continue investing in ESG initiatives, not just for compliance, but also to attract investors and improve long-term sustainability.
• Monitor Accounts Payable Days. Keep track of days of accounts payable.

This analysis is based solely on the provided document. A complete risk assessment would require access to more detailed internal data and a broader understanding of the Company’s risk management framework.

Shyam Metalics and Energy Limited (SMEL) Analysis #

Long-Term Strategic Goals and Progress #

• Growth through Expansion and Diversification: SMEL aims to become a global industry benchmark through value creation, process innovation, and stakeholder participation. The company is strategically expanding its production capacity, with a goal to increase the contribution of value-added products to 80% of the revenue mix and acquire more plants and mines. Specifically, SMEL aims to significantly expand its stainless-steel production capacity to 0.7-0.8 million tons in the next 3-4 years, entering the flat products segment and geographically expanding within India.
• Sustainability: SMEL is actively pursuing sustainability, evidenced by its investment in renewable energy (solar power, waste heat recovery) and commitment to reducing its carbon footprint. They have “GreenPro” certification.
• Integration: The company’s “ore to metal” integrated approach is a continuing strategic goal. This includes backward integration (captive power, railway sidings) and forward integration (moving into finished steel products).

Progress #

• Capacity expansion projects are underway, intending to enhance plant integration, leading to increased revenues, cost controls, and profitability.
• Resilient financial performance during a challenging macroeconomic scenario. Net Revenue from Operations increased at a CAGR of 10.11% from FY20 to FY24.

Competitive Advantages and Market Positioning #

• Integrated Operations: SMEL’s “ore to metal” approach, with captive power generation (78% of power sourced internally), railway sidings, and waste heat recovery, provides significant cost advantages and operational flexibility.
• Strategic Plant Locations: Proximity to mineral belts, national highways, and ports lowers logistics costs and facilitates efficient exports. 70% of products are sold within a 500 km radius of the plants.
• Product Diversification: SMEL’s presence across the value chain (carbon steel, stainless steel, specialty alloys, and aluminum foil) allows it to cater to a wider range of customer needs and reduces dependence on any single product category. It is also diversifying into color-coated sheets.
• Strong Financial Position: The company has a “net cash position” and a strong credit rating (CRISIL AA (Stable)), which provides a solid foundation for growth investments.
• Market Leadership: Largest integrated steel producer. Among the largest ferro alloy producers in India. One of the largest exporter of aluminium foil from India.

Innovation Initiatives and R&D Effectiveness #

• Focus on Value-Added Products: SMEL is investing in R&D to develop higher value-added products, such as specialized steel grades, ferro alloys, and battery-grade aluminum foil.
• Digital Integration: The company is implementing digital initiatives to improve operational efficiency, streamline processes, and enhance customer service. This includes sales force automation, material management, and data analytics.
• Sustainable Practices: Investments in renewable energy (100 MW solar capacity addition) and waste management demonstrate a commitment to eco-friendly production.

Effectiveness #

While the report highlights investments in R&D infrastructure, specific metrics on the effectiveness of these investments (e.g., new product revenue, cost savings from process improvements) are not provided. However, the entry into new product segments (battery foil, stainless steel) suggests successful innovation.

M&A Strategy and Execution #

• Inorganic Growth: SMEL has a stated strategy to explore inorganic growth by acquiring distressed steel plants.
• Execution: The acquisition of Ramsarup Industries Ltd. and investments in new facilities demonstrate the company’s ability to execute its M&A strategy, enhancing regional presence and operational efficiency. The recent successful acquisition of Mittal Corp Limited further demonstrates this.

Management’s Track Record in Execution #

• Consistent Growth: SMEL has demonstrated consistent growth in production and sales, and “PAT positive since inception.”
• Project Completion: The report highlights management’s proven track-record of completing capacity expansions on time.
• Financial Prudence: The company has maintained a strong financial position (net cash positive) even during a period of high capital expenditure.
• Leadership: Experienced promoters and management with decades of experience.

Capital Allocation Strategy #

• Disciplined Approach: SMEL follows a disciplined capital allocation strategy, primarily funding capex through internal accruals and using bank funding for working capital needs.
• Reinvestment: A significant portion (70%) of generated cash flow is reinvested in the business for growth and expansion.
• Liquidity: 20% of cash is retained as liquidity.
• Shareholder Return: Shareholders have been rewarded a total dividend of H 4.5 per share in FY24.

ESG Analysis of Shyam Metalics and Energy Limited #

Environmental Metrics and Targets #

Energy Management #

• Captive power generation supplies approximately 78% of required electricity.
• Energy consumption from renewable energy sources: 8,415 GJ.
• Energy consumption from non-renewable (Grid) energy: 22,56,076.25 GJ.
• Wind Mill Installed: 5.1 MW
• 100 MW solar capacity expansion, increasing total renewable portfolio to 109MW.
• Captive power plants utilize non-fossil fuels.
• Cost of in-house power is significantly less than grid power.
• Investment in energy-efficient LED lighting and solar panels.
• GreenPro certification received.

GHG Emission Management #

• Scope 1 Emissions: 37,29,472.08 metric tonnes of CO2 equivalent.
• Scope 2 Emissions: 4,48,708.4985 metric tonnes of CO2 equivalent.
• Introduction of three electric vehicles (EVs) at the Jamuria Plant.
• Solarization project aims for a substantial reduction of 12.5 Lacs Kg of CO2 emissions annually.

Waste Management #

• Waste recycled: 10.83 MT.
• Hazardous waste safely disposed: 25.53 MT.
• Recycling and repurposing of solid waste materials (e.g., using dust to reclaim mines, fly ash for quarries).
• Hazardous waste managed through authorized channels.

Water Management #

• Fully adopted Zero Liquid Discharge (ZLD) approach.
• Two Waste Water Treatment Plants (3000 KLD and 4000 KLD capacity).
• Water consumption: 56,22,817 KL.
• Treated water is recycled internally or used for gardening.

Social Responsibility Programs #

Education #

• Renovation of Anganwadi Centre/Integrated Child Development Service (ICDS) Centre.
• Expansion of educational facilities (science stream added to a government school).
• Operation of a computer training center (Uday programme).
• Tuition classes in tribal villages.

Community Development #

• Construction of community halls and clubs.
• Renovation and construction of temples.
• Development of burning ghats.

Healthcare #

• Free health check-ups and blood donation camps.
• Free eye check-up camps, distribution of spectacles, and funding cataract operations.

Animal Welfare (Gauvansh initiative) #

• Establishment of a state-of-the-art facility for cow care.
• Dedicated rescue service for injured cows.
• CSR expenditure ~ 30 crores.
• Lives Benefited: 1,60,969

Governance Structure and Effectiveness #

Governance Structure #

The Board is comprized of a mix of executive, non-executive and independent directors.

• Board committees include: Audit, Nomination and Remuneration, Corporate Social Responsibility, Stakeholders Relationship, Risk Management, and Executive Committee.

Policies #

The Company has multiple policies and guidelines implemented. Some of them are Whistle Blower Policy, Corporate Social Responsibility Policy, ESG Policy, Grievance Redressal Policy, and Anti-Corruption and Anti-Bribery Policy.

Whistle Blower Policy #

• Empowers staff to report misconduct without fear of reprisal.
• Dedicated committees across locations to ensure women’s safety in the workplace.

Board of Directors Evaluation #

A performance evaluation was carried out, focusing on board composition, decision-making, engagement, participation and adherence to ethical standards.

Sustainability Investments and ROI #

• Ongoing capex of ₹ 39.15 billion and a fresh capex of ₹ 8.1 billion to strengthen the Aluminium foils value chain and increase downstream presence in the stainless steel segment.
• Investment in a 100 MW solar capacity project, raising the total renewable portfolio to 109 MW.
• Financial Performance: A robust financial performance with revenue of H 13,195 Crores, and PAT reached H 1,029 Crores, showing a solid financial position that funds sustainable growth and operations.
• Focus on Value-added Products: The Company is moving towards increase the contribution of value-added products to its revenue, expected to contribute 80% to revenue mix.

ESG Ratings and Peer Comparison #

• CRISIL AA (Stable): Credit rating, highest in the industry.
• GreenPro Certified: Certified for commitment to sustainable and eco-friendly production practices.
• Great Place To Work Certified: Recognition of a positive workplace environment.
• 2 Star Export House Certificate: Accorded status of 2 star export house.
• The company is among the largest ferro alloys producers in India and is the largest sponge iron player.

Regulatory Compliance and Future Preparations #

• The report repeatedly emphasizes compliance with relevant laws and regulations, including the Companies Act, 2013, SEBI Listing Regulations, and various environmental and labor laws.
• The Secretarial Audit Report confirms general compliance with statutory provisions.
• The report asserts the adequacy and effectiveness of internal financial controls.
• The Company has an ESG Policy, indicating a commitment to environmental, social, and governance considerations.
• The Company identified various Material Issues, including Environmental and Regulatory Compliance Risks, Supply Chain and Raw Material Availability Risk.

Financial Analysis: Shyam Metalics and Energy Limited (SMEL) - FY2023-24 #

This report analyzes SMEL’s financial performance and strategic outlook, focusing on management guidance, market forecasts, strategic initiatives, capital expenditure, efficiency targets, and potential challenges/opportunities.

Management Guidance and Assumptions #

• Integrated ‘Ore to Metal’ Approach: SMEL emphasizes its integrated ‘ore to metal’ approach, aiming for innovation, operational efficiency, and high-quality standards. This vertical integration provides cost control and flexibility.
• Sustainability Focus: Prioritizes responsible resource management, with investments in renewable energy (100 MW solar capacity addition, bringing the total to 109 MW), and waste heat recovery systems. ~78% of power from captive plants.
• Value-Added Products: Targets 80% revenue contribution within five years (up from over 50% currently). Examples include color-coated sheets, aluminum foil, and stainless steel HRC.
• Disciplined Capital Allocation: Funds expansions through internal accruals, maintaining a net cash position. Reinvests 70% of generated cash, retains 20% for liquidity, and returns 10% to shareholders as dividends.
• Prudent Working Capital Management: Emphasizes selling on advance payment or letters of credit to reduce debtors and inventory.

Market Growth Forecasts #

• India’s Steel Demand: Anticipates strong growth driven by government infrastructure investments (National Infrastructure Pipeline), urbanization, and growth in construction, automotive, and railways.
• Global Steel Demand: Projects a 1.7% increase in 2024 and 1.2% in 2025 (World Steel Association data).
• Stainless Steel: Sees opportunities in flat products, driven by demand in utensils, decorative materials, automobiles, and railways. Plans to expand stainless steel production capacity to 0.7-0.8 million tons in 3-4 years.
• Aluminium Foil: Highlights growth potential in special and battery foils for the EV sector, with partnerships established with domestic battery manufacturers.

Planned Strategic Initiatives #

• Capacity Expansion: Enhancing integrated capacity from 16.94 MTPA to 23.65 MTPA and captive power plant from 377MW to 597MW.
• Product Diversification: Foraying into new market segments (color-coated sheets, stainless steel HRC) and expanding the aluminum foil business (including a new foil stock plant using recycled scrap).
• Acquisition of Distressed Assets: Exploring inorganic growth opportunities by acquiring distressed steel plants.
• Geographic Expansion: Expanding into new states within India, focusing on branding and profit margin improvement.
• EV Battery Foil Segment: Full-scale operations anticipated between FY'25 and FY'26.
• Downstream Stainless Steel Expansion: Plans to establish stainless-steel bright bars (25,000 TPA) and SS wires (18,000 TPA) divisions, expected commissioning by mid-FY2026-27.

Capital Expenditure Plans #

• Ongoing Capex: An ongoing capex of ₹39.15 billion was announced a year prior to the report.
• New Capex: ₹8.1 billion is earmarked for strengthening the aluminum foil value chain and increasing downstream presence in stainless steel.
• Total Envisaged Capex: A total capex of ₹92.15 billion is planned, with ₹46.40 crores incurred till FY24 and 51% spent , and ₹25.63 crores capitalized.
• Future Capex: ₹45.75 billion is earmarked for capex over the next three years, focusing on stainless steel manufacturing, power generation, iron production, and specialty products.

Efficiency Improvement Targets #

• Cost Efficiency: Continuous improvement through advanced technology in supply chain management, and enhanced ancillary and backward integration.
• Energy Self-Sufficiency: Increasing captive power generation capacity to 600 MW (from 357 MW) using Waste Heat Recovery Boilers and AFBC technology. Utilizing Indian coal to reduce reliance on imported coking coal.
• Productivity: Upgrading facilities, boosting productivity, and streamlining logistics.
  • Employee training programs targeting a 10-15% year-on-year production increase across all plants.
• Digital Integration: Digital Initiatives for improving operational efficiency.

Potential Challenges and Opportunities #

• Challenges:

  • Market Volatility: Cyclical nature of the steel industry, fluctuating steel prices, and global economic uncertainties.
  • Raw Material Costs: Volatility in raw material prices (especially imported coking coal) and supply chain disruptions.
  • Competition: Intense competition from domestic and international producers, particularly cheaper imports.
  • Environmental Regulations: Compliance with stringent environmental regulations and the need for decarbonization.
  • Logistical Challenges: Insufficient logistical infrastructure, leading to increased costs and delays.

• Opportunities:

  • Infrastructure Development: Government’s focus on infrastructure (National Infrastructure Pipeline) driving steel demand.
  • Urbanization: Rapid urbanization and population growth fueling demand for construction and infrastructure.
  • Automotive Sector: Growth in the automotive sector, especially electric vehicles, requiring advanced high-strength steels.
  • Renewable Energy: Expansion of renewable energy infrastructure (wind, solar) driving demand for steel.
  • Export Markets: Potential to expand exports to regions with growing infrastructure development.
  • Green Steel: Growing demand for sustainable and green steel products.
  • Railway Modernisation and Expansion: Railways expansion and modernization driving demand for strong steel frameworks.

Scenario Analysis and Sensitivity #

• Base Case: Assumes continued strong domestic demand, government infrastructure spending, and successful execution of capacity expansion and diversification plans.
• Downside Scenario: Considers a significant slowdown in global economic growth, a sharp increase in raw material prices, intensified competition from imports, or delays in project execution.
• Upside Scenario: Faster-than-expected growth in domestic steel demand, favorable government policies, rapid expansion into new markets, and successful cost optimization.

Sensitivity to Key Assumptions #

• Steel Prices: A 10% fluctuation could significantly impact revenue and EBITDA margins.
• Raw Material Costs: A 10% change in coking coal prices could impact production costs and profitability.
• Demand: A 5% change in domestic steel demand could impact sales volumes and capacity utilization.
• Interest Rates: A 1% change could impact financing costs.
• Exchange Rates: Fluctuations in the INR/USD and INR/EUR exchange rates could impact export revenues and import costs.
• Completion of Capacity Expansions: Timely and on-time project completions help generate predicted revenue and profitability.
• Value Added Product Contribution: Value-added products to contribute 80% to revenue mix.
• Inorganic Growth: Increase revenue by acquiring distressed steel plants.

Audit & Compliance Analysis #

Auditor’s Opinion and Qualifications #

• Opinion: The auditors, M S K A & Associates, issued an unmodified opinion on the standalone and consolidated financial statements, indicating a true and fair view of the company’s financial position and performance in accordance with Indian Accounting Standards (Ind AS).
• Emphasis of Matter: An “Emphasis of Matter” paragraph regarding the accounting treatment for amalgamation/merger schemes was included, impacting comparative figures. This does not qualify the opinion.
• Key Audit Matters (KAM):
  • Recognition, measurement, and presentation of Contingent Liabilities and other litigations: The auditor’s procedures focused on understanding processes, evaluating controls, verifying completeness of litigation, assessing management’s judgment, and obtaining independent legal confirmations.
  • Accounting treatment for Business Combination of a subsidiary, Shyam Sel and Power Limited (SSPL) with Mittal Corp Limited: The auditor focused on evaluating management’s method and the independent valuation report.

Key Accounting Policies and Changes #

• Key Policies: The document outlines several key accounting policies, consistent with Ind AS, including:
  • Property, plant, and equipment (historical cost less depreciation)
  • Revenue recognition (at the point of transfer of control)
  • Inventory valuation (lower of cost or net realizable value)
  • Impairment of non-financial assets
  • Provisions and contingent liabilities
  • Employee benefits (including defined contribution and benefit plans)
  • Leases
  • Financial instruments
  • Foreign currency translations
  • Taxes
  • Segment reporting
  • Earnings per share
  • Cash and Cash equivalents
• Changes in Accounting Policies:
  • Ind AS 8 (Definition of Accounting Estimates): Amendments clarify distinctions between changes in estimates, policies, and error corrections. This did not have a material impact.
  • Ind AS 1 (Disclosure of Accounting Policies): The change requires disclosure of “material” rather than “significant” accounting policies, impacting disclosures but not measurement, recognition, or presentation.
  • Ind AS 12 (Deferred Tax on Single Transactions): Narrows the scope of initial recognition exception. The Group now recognizes separate deferred tax assets and liabilities related to its lease. This will have no impact in the Balance Sheet or on opening retained earnings.

Internal Control Effectiveness #

• Auditor’s Opinion: The auditors provided an unmodified opinion on the effectiveness of internal financial controls over financial reporting, stating the Company has an adequate system, operating effectively as of March 31, 2024.
• Observation: There was one observation related to the audit trail feature in the Company’s accounting software, which was not enabled at the database level and Tally used for one of the subsidiary (SSPL), the auditor was unable to confirm whether the feature was enabled.

Regulatory Compliance Status #

• General Compliance: The report states that the Company has “generally complied” with the statutory provisions of the Companies Act, SEBI Listing Regulations, and other applicable laws.
• Specific Non-Compliance: There was one instance of non-compliance with Regulation 29 of the Listing Regulations related to prior intimation to stock exchanges for a fund-raising proposal. A fine was levied and paid.
• Secretarial Audit: The Secretarial Audit Report, issued by M/s. MKB & Associates, also indicates general compliance, with the exception mentioned above. The CARO report also indicates a qualifications by MKB & Associates for the same.

Legal Proceedings and Their Potential Impact #

• Contingent Liabilities: Note 40 discloses various claims and proceedings against the Company. The Company has assessed these and, based on available information, does not foresee any material financial liability.
• Auditor’s Focus: This area was identified as a Key Audit Matter (KAM).

Related Party Transactions #

• Disclosure: Note 41 provides details of related party transactions.
• Arm’s Length: The report states that related party transactions were conducted at arm’s length and in the ordinary course of business. The Audit Committee approves these transactions.
• No Material Concerns: There were no materially significant related party transactions that required shareholder approval.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality:

  • Positive Indicators:
    • Unmodified audit opinions on both financial statements and internal controls.
    • Compliance with Ind AS.
    • Detailed disclosures in line with regulatory requirements.
    • Use of independent valuers for business combinations.
    • Established processes for identifying and managing risks.
  • Areas for Potential Scrutiny:
    • The complexity of the business combinations and the use of judgment in determining fair values.
    • The reliance on management’s assessment of contingent liabilities.

• Regulatory Risk Assessment:

  • Generally Low: The Company demonstrates a general commitment to compliance.
  • Specific Risk Area: The past non-compliance with Regulation 29 indicates a need for strengthened internal processes related to regulatory filings.
  • The auditor could not confirm that the audit trail was enebled at database level in respect of this software, to log any direct data changes.