<dhhead>DIRECTORS REPORT</dhhead>
The Directors have pleasure in presenting their Forty Eighth Annual
Report together with the audited statement of accounts of the Company for the year ended
31st March, 2023.
Financial Results
Rs. in Crores
|
2022-23 |
2021-22 |
2022-23 |
2021-22 |
Particulars |
Graphite India Limited |
Graphite India Limited
Consolidated |
Revenue from Operations (Gross) |
2913 |
2799 |
3181 |
3026 |
Profi t for the year after charging all Expenses but
before providing Finance Costs, Depreciation, Exceptional Items, Tax and other
Comprehensive Income |
531 |
803 |
445 |
769 |
Finance Costs |
9 |
4 |
13 |
5 |
Profi t before Depreciation, Exceptional Items and Tax |
522 |
799 |
432 |
764 |
Depreciation and Amortisation Expense |
46 |
46 |
57 |
55 |
Profi t before Share of Profit/(Loss) of Associate,
Exceptional Items and Tax |
476 |
753 |
375 |
709 |
|
|
|
|
|
Share of (Loss) of Associate |
- |
- |
- |
(16) |
Profi t before Exceptional Items and Tax |
476 |
753 |
375 |
693 |
Exceptional Items |
- |
- |
53 |
- |
Profi t before Tax |
476 |
753 |
322 |
693 |
Tax Expense for the Current Year |
|
|
|
|
Current Tax |
130 |
158 |
129 |
160 |
Deferred Tax |
(4) |
21 |
(6) |
28 |
Profi t for the Year |
350 |
574 |
199 |
505 |
Other Comprehensive Income (net of tax) |
* |
3 |
14 |
(2) |
Total Comprehensive Income for the year |
350 |
577 |
213 |
503 |
Statement of Retained Earnings |
|
|
|
|
Retained Earnings at the beginning of the year |
2904 |
2425 |
3309 |
2906 |
Add Profit for the year |
350 |
574 |
199 |
505 |
Add Comprehensive Income/(Loss) |
* |
3 |
1 |
3 |
Less Final Dividend on Equity Shares |
195 |
98 |
195 |
98 |
Less Transfer to Reserve Fund |
- |
- |
- |
7 |
Less Dividend Accrued Non-Controlling Interest and
Changes in Equity |
- |
- |
* |
- |
Retained Earnings at the end of the year |
3059 |
2904 |
3314 |
3309 |
REVIEW OF THE ECONOMY
The global economy experienced a widespread slowdown in 2022 due to
geopolitical turmoil, sharp decline in China's manufacturing activity and periodic
recurrence of pandemic. Supply chain disruptions and poor demand in developed countries
further weakened global trade, disrupting exports from emerging markets and developing
economies. As a result of supply chain constraints and an increase in commodity prices,
many economies suffered high levels of inflation. In response, central banks implemented
policy correction measures to mitigate and contain inflationary pressures. The consequent
rise in interest rates and the slowdown in economic activity have caused bank specific
risks and
financial destabilisation concerns. In April 2023, International
Monetary Fund (IMF) reported that the global output growth rate for 2022 was 3.4%.
However, this low growth rate is expected to further decline to 2.8% in 2023 followed by a
small rise to 3% in 2024. Growth in advanced economies are projected to decline steeply
from 2.7% in 2022 to 1.3% in 2023, with a slight small increase to 1.4% in 2024. Average
growth in emerging markets and developing economies are projected to decline from 4% in
2022 to 3.9% in 2023 and is forecasted to rise to 4.2% in 2024. Given the huge risks in
the economic, financial, geopolitical and environmental domains, the cumulative near-term
economic outlook continues to be depressive and volatile.
The US, European Union, and other developed economies have undergone a
weak growth, which has adversely impacted the global economy. The USA GDP growth is
projected to decline to 1.6% in 2023 due to higher interest rates, lower incomes, and
reduced consumer spending. Similarly, the European Union's growth is expected to be 1% and
1.9% in 2023 and 2024, respectively. This is because COVID-19 restrictions were being
eased and the boost from pent-up demand that drove economic activity in the previous year
is expected to diminish. Chinese economy had a less than anticipated performance in 2022
due to the pandemic related lockdowns and decline in the real estate market. However, the
Chinese government has implemented several monetary and fiscal policies, and removed the
zero-COVID-19 policy, leading to an expectation of a moderate improvement in 2023 with a
projected expansion to 5.2%. However, the growth is unlikely to reach pre-pandemic level
in the foreseeable future.
On the sectoral front, the global steel industry saw a decline in
demand in 2022 due to monetary tightening and high energy costs. The World Steel
Association (WSA) forecasts a 2.3% increase in demand for the steel industry in 2023,
resulting in a total demand of 1,822.3 million metric tones (MMT). Additionally, WSA
projects a 1.7% growth in steel demand in 2024, reaching a total of 1,854 MMT. The
recovery is expected to be driven by the manufacturing industry, although the high
interest rates may still have a dampening effect on overall steel demand.
In 2022, the Indian economy experienced a robust recovery driven by
private consumption and government spending, resulting in a GDP growth of 6.8%, despite
few signals of moderation and grey zones. The capital goods sector is expected to benefit
from the growth momentum in infrastructure and investments made towards renewable energy.
The Indian economy is predicted to maintain its strong growth trajectory in FY 2023,
fueled by consistent government spending on infrastructure and affordable housing projects
further augmenting private investment. The countrys impressive performance in the
global steel industry is expected to continue due to the anticipated growth in the
residential sector, supported by affordable housing projects and urban demand, thereby
maintaining the good demand for steel products, especially through the "Electric Arc
Furnace" route (environmental concerns) and correspondingly the demand for graphite
electrodes.
As per IMF growth projections, the Indian economy is expected to
maintain its robust growth following an impressive growth rate of 6.8% in 2022, with a GDP
growth rate of 5.9% in 2023 and 6.3% in 2024. Despite global uncertainty and challenges,
the Indian economy is expected to remain a top performer and continue to be one of the
worlds fastest-growing countries.
GRAPHITE INDIA
The Companys performance for FY 2022-23 was subdued compared to
FY 2021-22. While revenue from operations increased by 4% to Rs. 2,913 crore for FY
2022-23 as against Rs. 2,799 crore in the previous year, PBT decreased to Rs. 476 crore as
against Rs. 753 crore of previous year. This includes investment income of Rs. 97 crore as
against Rs. 241 crore in the last year. The performance of the Company was adversely
impacted mainly due to lower volume and higher costs despite higher realisations as
compared to last year. The global demand for graphite electrodes had majorly declined
during the financial year owing to (1) Slowdown in steel industry due to high
energy cost in Europe and other regions, post Russias invasion of Ukraine; (2)
Continual lockdown in China after re-emergence of COVID; and (3) High inflation and
increase in interest rates in all major economies. This combined with the effect of stock
adjustments led to worse than expected contraction in steel demand and as a corollary the
demand for electrodes was also negatively impacted.
The Companys Graphite and Carbon Segment continues to be the
primary source of revenue and profit, accounting for about 92% of the total revenue.
OVERSEAS SUBSIDIARIES
Weak European economy fueled by the Russia Ukraine conflict has led to
an unprecedented increase in energy and gas costs rendering German electrode operations
unviable. The Group decided to shut down its German graphite electrode production, while
restructuring speciality and coating operations as they are not so energy intensive and
initiated closure of operations of one step down subsidiary the Bavaria Electrodes GmbH -
in liquidation w.e.f. 1st October, 2022.
DIVIDEND
Dividend @ Rs. 8.50 per share on 19,53,75,594 equity shares of Rs. 2/-
each for the financial year ended 31st March 2023 has been recommended by the Board of
Directors.
MANAGEMENT DISCUSSION AND ANALYSIS
(i) Industrys structure and developments
A. Graphite and Carbon Segment Graphite Electrodes
Graphite Electrode is used in electric arc furnace (EAF) based steel
mills for conducting current to melt scrap iron and steel and is a consumable for the
steel industry. The principal manufacturers are based in USA, Europe, Middle East, India,
China, South East Asia and Japan.
Graphite Electrode demand is primarily linked to the global production
of steel in electric arc furnaces which is one of the three basic methods for steel
production i.e. [1] Bessimer Oxygen Furnace (BOF); [2] Electric Arc Furnace (EAF);
and [3] Induction Steel Furnaces (ISF). According to the World Steel Association
("WSA"), global (excluding China) EAF steel production grew at a 4% compounded
annual growth rate from 2015 to 2021, the most recent year for which WSA has published
such figures. This compares to a 2% compounded annual growth rate for overall global
(excluding China) steel production during this same period. As a result, the EAF method of
steelmaking accounted for 49% of the global (excluding China) steel production in 2021,
compared to 44% in 2015, with increasing share of growth in nearly every region.
EAF steelmaking is more energy efficient and is beneficial in terms of
its low carbon footprint, compared to steel produced through the blast oxygen furnace
("BOF") steelmaking model. According to the Steel Manufacturers Association
("SMA"), EAF steelmaking produces 75% fewer carbon dioxide emissions compared to
BOF steelmaking. Further, SMA notes that the EAF process is a sustainable model for
recycling scrap-based raw materials into new steel, which is 100% (and infinitely)
recyclable at the end of its useful life. In addition to these advantages, EAF steel
producers benefit from their flexibility in sourcing iron units, being able to make steel
from either scrap or alternative sources of iron, such as Direct Reduced Iron (DRI) and
Hot Briquetted Iron (HBI), both made directly from iron ore. Chinas share in EAF
production, which was only 6% of global steel making till 2014 through EAF, had increased
to 10% up to 2021 and is estimated to become higher going forward as per S&P Platts
report.
Reflecting on these positives and other strategic advantages, the EAF
based steel production is expected to grow at a faster rate than BOF steel production.
Based on industry announcements on proposed additional EAF steel capacities, this could
result in global (excluding China) EAF production capacity increasing at approximately 3%
compounded annual growth rate from 2022 to 2030. This should translate into similar
increase in demand for UHP graphite electrodes over this same period to support EAF
capacity expansion, besides further potential graphite electrode demand from production
increases at existing EAF steel plants to support overall expected growth in steel demand.
Calcined Petroleum Coke and Paste
Graphite Indias Coke plant in Barauni, Bihar, is engaged in the
manufacturing of Calcined Petroleum Coke (CPC), Carbon Paste and Electrically Calcined
Anthracite Paste and is one of the several backward integration initiatives of the
Company. Two grades of CPC - aluminium and graphite are produced. CPC is primarily
used in the manufacture of anodes for use in aluminium smelters, manufacture of graphite
electrodes and also used as carburiser in steel. The division also manufactures four
grades of Paste, i.e. Electrode Paste based on either CPC or Electrically Calcined
Anthracite Coal (ECAC) and Tamping Paste based on either CPC or ECAC. Electrode Paste is
used in Ferro Alloy Smelters and Tamping Paste is used as a lining material in submerged
arc furnaces.
This divisions performance has been satisfactory this year which
can be attributed to improved market conditions for the product from its user industries
namely steel, aluminium and graphite electrodes.
Impervious Graphite Equipment (IGE)
IGE Division is in the business of design, manufacture and supply of
Impervious Graphite Heat and Mass Transfer Equipment and Turnkey systems. It has an
integrated facility for process/product design, manufacturing, inspection and providing
supervision during erection and commissioning activities.
Impregnated graphite is an ideal material of construction for corrosive
applications in sectors like Chloro-Alkali, Crop protection agrochemicals, Chlorinated
Organic, speciality
& fine Chemicals, Phosphoric Acid, Fertilizers, Rayon, Steel
Pickling, Metal Processing, Polymers, Drug Intermediates, Batteries & Gelatine etc.
The Company has built the product line into a reliable brand with a
reputation for prompt service, good quality and consistent performance by investing in
strengthening its core competencies. This division is capable of meeting any country
specific design and has obtained many certifications relevant to the product profile.
Order booking both in domestic and export market has been good. Both order booking and
sales in FY 2022-23 have been all time high.
B. Other Segments
Glass Reinforced Plastic Pipes (GRP)
GRP Division is engaged in manufacturing of large diameter Glass Fibre
Reinforced Plastic Pipes suitable for municipal application, seawater, effluent,
irrigation, penstock as well as Pipe-liners for rehabilitation of old pipes/ducts by
trenchless technology in metro cites. Product is manufactured by the Continuously
Advancing Mandrel Filament Winding Process with computerized advanced technology
comparable to other plants worldwide. The plant operations are dependent upon tenders
floated by government / semi-government authorities which have been virtually absent
during the year.
Steel
Powmex Steels Division (PSD) is engaged in the business of
manufacturing high speed steel and alloy steel having its plant at Titilagarh in the State
of Orissa. PSD is the single largest manufacturer of High Speed Steel (HSS) in the
country. HSS is used in the manufacture of cutting tools such as drills, taps, milling
cutters, reamers, hobs and broaches. HSS cutting tools are essentially used in (a)
automotive; (b) machine tools; (c) aviation; and (d) retail market. The industry is
characterized by a single good quality manufacturer of HSS i.e. PSD which faces
competition from small domestic producers and cheap imports from overseas manufacturers.
The performance of the division has been quite satisfactory during FY
2022-23 with increased level of sales and productivity. The division has been able to
restart export of HSS during this year.
18 MW Hydel Power
The Company has an installed capacity of 18 MW of power generation
through Hydel route. The renewal of Wheeling & Banking agreement which was pending
with Government authorities has now been cleared by Karnataka Electricity Regulatory
Commission, permitting third party sale of unutilized banked energy. This has enabled the
division to sell higher units during the current financial year.
Capex on Hybrid Renewable Power Plant
Work on proposed 35 MW Hybrid (Wind and Solar) renewable power plant is
on. Required land has been acquired for Phase-I (wind power) of the project. Major orders
for equipment and services has been placed. Foundation work is under progress and is
satisfactory. Almost all major approvals have been obtained. The Company is hopeful that
Phase-I of the project can commence operations during 2023-24 which is expected to result
in significant savings in power cost to the Company, apart from achieving carbon emission
reduction with clean energy.
(ii) Opportunities and threats
Opportunities in the near term include: (a) domestic steel demand is
expected to remain robust despite challenging macro environment, largely driven by
governments focused initiatives on infrastructure development; (b) under the
Government's National Steel Policy 2017, per capita steel consumption is expected to
increase to 160 kg by 2030-31; (c) Indian government has withdrawn the duty on import of
scrap, which will benefit EAF steel manufacturers; (d) Chinas curb on steel
production to maintain the output at levels of 2021 and further abolishing the rebate of
13% VAT on certain steel exports to reduce steel production and exports. The lower exports
from China may lead to higher steel production in the other EAF steel producing nations;
and (e) Countries around the world are moving towards their carbon neutrality goals and
therefore corporates are becoming environment conscious and adopting environment friendly
manufacturing processes. With this backdrop, steel manufacturers are steadily moving
towards EAF process which is expected to create sustainable demand for graphite electrode
in the medium to long term.
The steel industry in India contributes approximately 2% to the
country's GDP, positioning the country as the second largest producer of steel in the
world. During FY 2022-23, Indias crude steel production increased to 124.45 MMT from
117.6 MMT in 2021-22. During the year, the domestic steel industry registered a growth of
6% despite decline by 4.2% in global steel production. Moreover, the domestic production
growth has surpassed the growth levels achieved not only during the last two years but
also during pre-COVID years. The steel demand and consumption were primarily propelled by
the governments push for economic growth, driven by infrastructure development.
According to the Ministry of Steel, during FY 2022-23, India's steel exports slumped to a
five-year low of 6.7 MMT, a year-on-year decline of 50.2% due to slowing global demand and
imposition of export duty on steel. Whereas the import of finished steel during the same
period stood at 6.02 MMT marking a notable surge of 29% over FY 2021-22.
The Indian steel industry is supported by its strong manufacturing
capabilities, robust domestic consumption by steel-consuming sectors and strong global
demand for its steel products. Governments push for infrastructure development
through the Gati-Shakti Master Plan, the Make-in-India initiative for the manufacturing
sector, the Dedicated Freight Corridor and railway expansion plans would provide impetus
for increased steel demand.
China, the largest steel producer in the world has projected a growth
target of around 5% for 2023. China's crude steel output in 2022 fell by 2.1%, or 21.73
MMT, from 2021 to 1.013 billion MT, marking a second-successive annual decline. However,
it is expected that its real estate industry will improve with the support of related
policies leading to a narrowing decline in steel demand, backed by a stabilized property
market and the rebound of other steel-consuming industries. China's steel industry will
remain optimistic, driven by pent-up demand after the Chinas downgraded epidemic
response and efforts to stabilize supplies and curb prices. The WSA has predicted that
China alone will consume about half of the global steel production of 2023 of 1.814
billion tonnes.
The near-term opportunities includes: (a) the domestic steel industry
is better placed than that of other countries and should witness strengthening of
fundamentals, driven by better domestic demand and governments greater push on
infrastructure development; (b) the budget for FY 2023-24 has given the much-needed
impetus to the infrastructure, housing, and construction sector, backed by policy-level
support from the government; (c) the launch of the National Infrastructure Pipeline (NIP)
with a progressive outlook and projected infrastructure investment to the tune of Rs. 111
lakhs crores during FY 2020-25 is the key indicator of the push towards infrastructure
projects across the country; (d) rebuilding of infrastructure in Turkey post earthquake
and post Russia-Ukraine war.
The threats in the near term include: (a) slowdown in global economic
activities, coupled with high inflation and the energy crisis; (b) fluctuations in raw
material prices having a significant impact on the cost of production, margins, and
profitability; (c) supply-chain disruptions affecting the availability and cost of raw
materials; and (d) lower steel consumption due to stagnant demand in China resulting in
higher exports of steel from China, which may impact steel production and prices in other
steel producing nations.
Graphite India is one of the leading producers of graphite electrodes
globally by capacity. The company has over 60 years of proven technical expertise in the
industry and manufactures full range of graphite electrodes, with focus on the
large-diameter, ultra-high power (UHP) electrodes preferred by the large steel
manufacturers. It is therefore well positioned to meet the growing demand for electrodes
from both domestic and international Electric Arc Furnace steel manufacturers.
(iii) Segment-wise Performance Revenue of the Company
The revenue from operations amounted to Rs. 2913 crore as against Rs.
2,799 crore in the previous year.
Aggregate Export Revenue of all divisions together was Rs. 867 crore as
against Rs. 1,034 crore in the previous year.
Graphite and Carbon Segment
The performance of the segment was sub-optimal in FY 2022-23 as
compared to FY 2021-22 with subdued demand conditions in the global and domestic market.
Production of Graphite Electrodes and Other Miscellaneous Carbon and
Graphite Products during the year under review was 63,709 MT as against 91,214 MT in the
previous year.
Production of Calcined Petroleum Coke during the year was 46,870 MT as
against 32,184 MT in the previous year.
Production of Carbon Paste during the year was 3,571 MT against 4,358
MT in the previous year.
Production of Impervious Graphite Equipment (IGE) and spares during the
year was 2,100 MT as against 1,802 MT in the previous year.
The segment revenue increased to Rs. 2,679 crore from Rs. 2,619 crore
in the previous year with decrease in domestic and export sales both on volume and value
terms. Segment recorded profit of Rs. 392 crore in FY 2022-23 compared to Rs. 526 crore in
FY 2021-22.
Other Segments
GRP division produced 626 MT pipes as against 649 MT in the previous
year.
Production of HSS and Alloy Steels was 2,701 MT during the year as
against 2,712 MT in the previous year. Power generated from Hydel Power Plant of 18 MW
capacity amounted to 56.59 million units during the year as against 63.16 million units in
the previous year. 105.68 million unit was sold during the year as against 65.54 million
unit in 2021-22.
(iv) Outlook
The uptick in steel demand observed in 2021 was reversed amidst the
challenges such as the pandemic shock, high inflation, increasing interest rates, the
RussiaUkraine conflict and lockdowns in China. As a result, steel using
sectors activity went down in the last quarter of 2022. This, combined with the
effect of stock adjustments, led to worse than expected contraction in steel demand.
According to the WSA, global crude steel production decreased by 4.2% to 1,878.5 MMT in
2022 compared to 1,960.4 MMT in 2021. The demand is projected to rebound 2.3% to reach
1,822.3 MMT and is forecast to grow by 1.7% in 2024 to reach 1,854 MMT. The manufacturing
sector is expected to lead the recovery, although high interest rates may continue to
impact steel demand as growth is expected to accelerate in most regions except China,
where it is likely decelerate due to reduction in consumption owing to decline in its
population. Investments in decarbonization in dynamic emerging economies will increasingly
drive positive momentum for global steel demand, though Chinas contribution to
global growth is likely to diminish.
Persistent inflation and high-interest rates in most economies will
limit the recovery of steel demand in 2023, despite positive factors like Chinas
reopening, Europes resilience in the face of the energy crisis, and the easing of
supply chain bottlenecks. In 2024, demand growth is likely to be driven by regions outside
China but facing global deceleration due to China's anticipated 0% growth, overshadowing
the improved environment. Sustained inflation remains a downside risk, potentially keeping
interest rates high.
Chinese steel demand contracted in both 2021 and 2022 as its economy
decelerated sharply due to unexpected lockdowns that extended across the country. The
negative momentum in the construction sector seen in 2021 intensified further in 2022 and
investment in real estate declined by 10%, the first year-on-year decline in 25 years. In
2023, the infrastructure sector may continue to benefit from the projects initiated at the
end of 2022, although growth may weaken in 2024 if no large-scale projects begin in 2023.
Chinas manufacturing sector performance in 2022 was weak, although exports performed
relatively well. The manufacturing sector is expected to show only a moderate recovery in
2023-24, with slowing exports. Steel demand in the developed economies suffered a sizable
contraction in 2022 because of monetary tightening and high energy costs. After falling by
6.2% in 2022, it is expected to increase by 1.3% in 2023 and by 3.2% in 2024.
The EU economy turned out to be more resilient to the energy crisis
caused by the Ukraine war than initially thought. While the EU economy grew by 3.5% in
2022, avoiding recession, industrial activities suffered significantly from high energy
costs that led to a sizable contraction in steel demand in 2022. In 2023, the EU steel
industry will continue to feel the impact of war, other supply chain-related issues, and
continued monetary tightening. In 2024, demand is expected to see a visible rebound as the
impact of the Ukraine war and supply chain disruptions are expected to dissipate. However,
the outlook is subject to persisting uncertainty.
The strong post-pandemic rebound of the US economy has run its course
with the Feds steep interest rate hikes to tackle inflation. Growth in 2023-2024 is
expected to be subdued by recessionary pressure. Furthermore, the spin off effect from the
recent SVB bankruptcy needs to be watched. Steel demand in Japan contracted in 2022 due to
weak manufacturing and destocking. The weak global economic environment is expected to
weigh on steel demand in 2023, but as Japan is a supply-constrained economy, the impact is
not expected to be significant.
Meanwhile, the Indian economy has shown a strong and sustained economic
expansion in 2022, with real GDP growth for FY 2022-23 estimated at 7% as per the Economic
Survey 2022-23 despite the shocks of COVID-19 and the RussiaUkraine conflict. Many
reports worldwide continue to report India as the fastest-growing major economy at
6.57% in FY 2023. The uptick in private consumption, infrastructure development, the
bid for developing more affordable housing and the Indian Railways capex are all demand
drivers and have given a boost to production activity, resulting in increased capacity
utilization across sectors, making India a leading global force in steel production and
the second largest crude steel producer in the world. India's finished steel production
has increased by over 6% to 124.45 MMT as compared to 118 MMT in 2021. According to
ICRAs latest research note on the steel sector, domestic steel demand is expected to
clock double-digit growth of around 11.3% in FY 2023, following the 11.5% hike recorded in
FY 2022, supported by the governments push for infrastructure-led economic
expansion. India is expected to remain a bright star in the global steel industry; its
expected growth at 7.3% in 2023 and 6.2% in 2024 are backed by affordable housing projects
and urban demand. Investments in decarbonization and dynamic emerging economies will
increasingly drive positive momentum for global steel demand, even as Chinas
contribution to global growth diminishes. The steel industry is transitioning towards EAF
manufacturing. This shift, driven by its lower carbon footprint compared to traditional
blast furnace steelmaking, is expected to drive long-term demand growth for graphite
electrodes.
(v) Risks and Concerns
Exports to specific regions may be severely impacted by protective
trade barriers in the form of crippling import duties, anti-dumping duties, countervailing
duties or sanctions as the case may be and our export volumes to specific markets could
get majorly affected by such restrictive impositions. The ongoing crisis between Russia
and Ukraine and other regional geo-political conflicts may also have crippling effect.
COVID-19 dealt the biggest blow to the Global Freight trade, which was almost flat for the
last 10 years. A demand supply imbalance, shortage of containers and vessel schedules,
congestion in major hubs / trading ports, has led to delay in transit times of inbound and
outbound freight and pushed up ocean freight to an all-time high. The current
geo-political tension caused by the Russia-Ukraine crisis has further aggravated the
situation. Going forward, international trade may remain largely regional in a bid to
contain freight costs. No miraculous recovery in freight cost is expected in 2023, at
least in the first half of the FY 2023-24. Easing of the demand-supply gap by introduction
of new containers, new vessels with higher TEU (Twenty feet Equivalent Units) handling
capacity, diverting traffic to mid-size ports in the vicinity of the major (already
congested) ports are expected to happen in the latter half of the year.
While the outbreak of COVID-19 is beginning to subside in most parts of
the world, the infection intensity in some areas have shown resurgence. As a result, we
are unable to predict the resultant impact of the present COVID-19 pandemic. The pandemic
has adversely affected, and may further adversely affect, business, results of operations,
financial position and cash flows. Such effects may be material and the potential impacts
may include, but not limited to: 1) adverse impacts on countries of customers, and
resultant impacts on demand for our products; 2) disruptions at production facilities,
including reduction in operating hours, labour shortages and changes in operating
procedures, including additional cleaning and disinfecting procedures; 3) disruptions in
supply chain due to transportation delays, travel restrictions, raw material cost
increases and shortages, and closures of businesses or facilities; and 4) reductions in
operating effectiveness due to workforce disruptions from COVID-19 restrictions and social
distancing resulting from, among other things, the unavailability of key personnel
necessary to conduct business activities. The situation continues to change rapidly and
additional unforeseen challenges may arise that cannot be realistically predicted.
The repercussions of reduced investment and bankruptcies may run more
extensively through the economies. Depending on the duration, global business confidence
could be severely affected, leading to weaker investment and growth than projected in the
baseline. Related to the uncertainty around COVID-19, an extended risk-off episode in
financial markets and tightening of financial conditions could cause deeper and
longer-lasting downturns in a number of countries.
The Graphite business is majorly dependent on the global EAF steel
industry, which is cyclical and is affected significantly by global economic conditions.
The EAF steel industry majorly depends on demand from automotive, construction, machinery,
equipment and transportation industries which can be significantly affected by
macroeconomic reversals. Any instability or downturn in these industries could potentially
impact the demand for graphite electrodes. Historically, the pricing of graphite electrode
has been cyclical in nature, reflecting the demand trends of the global EAF steel making
industry and the supply of graphite electrodes. The graphite electrode industry has
experienced negative impacts on pricing due to overcapacity in the past. An increase in
global graphite electrode production capacity that outpaces an increase in demand for
graphite electrodes could adversely affect the price of graphite electrodes. Excess
production capacity may lead manufacturers to produce and export electrodes at prices that
are lower than prevailing domestic prices and at or below their cost of production. This
could result in downward pressure on graphite electrode prices, negatively affecting
sales, margins and profitability.
Petroleum needle coke is a key raw material used in the production of
graphite electrodes. Therefore, the performance of the company is heavily dependent on the
price and timely availability of superior grade petroleum needle coke. Any disruption in
the supply could have a material adverse effect on the business. In addition, as petroleum
needle coke reflects a significant percentage of the raw material cost of graphite
electrodes, graphite electrodes have historically been priced at a spread / linked to the
cost of petroleum needle coke, which in the past has increased in tight demand markets.
Major steel producers, have in the past experienced and may again experience downturns or
financial distress that could adversely impact our ability to collect our accounts
receivable on a timely basis or at all.
The Company has optimum exposure to exports and imports. Volatility in
foreign currency markets may directly impact the Companys prospects. Inherent
natural hedge of various balancing exposures may mitigate the risk to an extent.
Competition in the graphite industry is based primarily on price, product differentiation
by performance/quality, delivery reliability and customer service. Graphite electrodes, in
particular, are subject to cut throat price competition.
(vi) Internal control systems and their adequacy
The Company has proper and adequate systems of internal controls.
Internal audit is conducted by outside auditing firms. The Internal audit reports are
reviewed by the top management and the Audit Committee and timely remedial measures are
enabled. IT Security Policy is in place to ensure that the risks associated with
non-compliance of information gathering, processing, security (against cyber crimes) and
preservation are assessed and adequately and ably managed. The purpose and objective of
the policy is to address the risks by defining, developing and implementing adequate
controls through proper categorization. An internal committee reviews the adherence and
suggests if any changes are required. Independent systems audit is performed by TUV Nord,
India. Third party product inspections are performed by agencies like SGS, BV India.
(vii) Discussion on financial performance with respect to operational
performance
Revenue from Operations recorded Rs. 2,913 crore as against Rs. 2,799
crore in the previous year. Profit after tax was Rs. 350 crore as against Rs. 574 crore in
the previous year. Profit before tax was lower at Rs. 476 crore as compared to Rs. 753
crore in the previous year. Borrowing at Rs. 335 crore was lower than Rs. 344 crore as
compared to previous year and the Finance Cost increased to Rs. 9 crore from Rs. 4 crore
in the previous year. Capital expenditure during the year amounted to Rs. 156 crore as
against Rs. 78 crore in the previous year.
ICRA has reaffirmed the long term rating at [ICRA] AA+
(pronounced ICRA double A plus) with negative outlook. The short-term debt programme
rating has been reaffirmed at [ICRA] 'A1+' (pronounced ICRA A one plus). This rating
indicates highest-credit-quality. The retention of these ratings reflects comfortable
financial risk profile characterized by low gearing, strong coverage indicators and the
financial flexibility emanating from large liquid investment portfolio. Details of
contingent liabilities are given in Note 34 to the Financial Statements.
(viii) Material developments in Human Resources / Industrial Relations
front, including number of people employed
The Companys HR policies and practices continue to focus on
contemporary as well as pragmatic people centric initiatives. While designing these
policies, special attention is given to Companys vision as well as changing needs.
Optimal utilisation of people and periodic review of the organogram is addressed
continuously. The HR function has actively participated in formulation of ESG policy of
the Company. Training and development programs are specifically targeted to address
Companys progressive needs with focus on behavioral aspects of training. Formulation
of unit-wise training calendar, identifying training needs by in-house resources and
imparting training on all functional aspects across the Company.
Safety plays a major role for the success of an organization and the
Company recognizes the same. Hence, emphasis has been given for adopting and maintaining
best safety practices across the units along with regular periodic audit of the same.
Multiskilling and multitasking of employees is achieved through suitably designed training
modules as well as rotation through different job profiles.
This ensures a laudable mix of learning, innovation and excellence
leading to continual employee skills and enhancement of growth and progress of the
employees. Company values its employees as an intelligent and responsible resource for
effectively and optimally managing other material resources like money, machines and
materials. Hence, productive and effective engagement of all resources at various levels
is critical to achieve Companys objectives of cost optimisation, profitability as
well as business growth. This is critical in ensuring the interests of all stakeholders.
Specific initiatives are being taken to develop successors to key/critical roles. Emphasis
is given to improve the foundational understanding of the fundamentals of leadership
competencies of Team Building, Lateral Thinking, Influencing Outcomes and Problem Solving.
The total number of permanent employees in the Company is 1,695 as on 31st March, 2023.
The employee relations continue to be cordial and harmonious at all the locations of the
Company.
(ix) Occupational Health and Safety
Internal Safety Audits are conducted at regular intervals at plants.
Audit observations relating to unsafe acts, practices, conditions are discussed in
"Corrective and Preventive Action" meetings. Protection and safety of our
personnel and assets are our top priority. We believe in in-depth investigation of
unfortunate accidents, if any, so that root causes are identified and corrective and
preventive measures are undertaken. Consultation and participation of workers and
statutory bodies are encouraged.
Health, Safety, Environment and Quality policies are in place and are
audited by external agencies. Safety Audit once in two years, as specified, is carried out
by External Safety Auditors. Every year health check-up of all employees is being carried
out by competent medical professionals.
Health, Safety, Environment and Quality policies are in place and are
audited by external agencies. Safety Audit once in two years, as specified, is carried out
by External Safety Auditors. Every year health check-up of all employees is being carried
out by competent medical professionals.
Environmental, Social and Governance (ESG)
ESG performance of a business is its corner stone in creating long term
value. It can represent risks and opportunities that will impact Companys ability to
create value. This includes environmental issues like climate change and scarcity of
natural resources. It covers social issues like human capital practices, diversity, health
and safety, community relationship and value chain engagement. It involves governance
matters that includes performance of the board, ethical practices, disclosures and
transparency. While the Company has been informally practicing the principles of ESG since
several years, it has now embarked on a structured journey of ESG to emerge as a company
that is committed to growth through ESG.
The Company has carried out an assessment to find out current maturity
level on the ESG aspects and identified some material aspects to be addressed on priority.
ESG report for the year 2021-22 has been disclosed on Companys website
(https://graphiteindia.com/investors/
documents/63b4ff705aaeaESG%20Report%20FY%202021-22%20Final.pdf). The year 2021-22 has been
considered as a base year in this journey of ESG and significant progress has been made in
working on some of the select priority aspects during the year 2022-23. Major focus areas
during the year are:
(a) Greenhouse Gas (GHG) emission (scope 1 and 2) accounting and
developing a low carbon pathway. Company has planned a 12% reduction in GHG intensity of
main product, Graphite Electrodes in two years with respect to base year 2021-22;
(b) Water accounting and developing a water security plan;
(c) Waste accounting and developing initiatives to reduce wastage;
(d) CDP had sought response from the Company on the impact of its
business on climate change and have responded to CDP during July, 2022. This is an annual
disclosure and we plan to continue to respond to CDP every year going forward.
Plan for the year 2023-24 includes the following, among others:
(a) Development of report based on recommendations of TCFD (Task Force
for Climate Related Financial Disclosure). This will entail identification of climate
change related risks and opportunities for our business, developing metrices and targets
to manage the risks and exploit opportunities, developing a strategy around this and
setting up a governance structure;
(b) Greenhouse Gas (GHG) emission (scope 3) accounting for our main
product, Graphite Electrodes. This will help us influence and reduce the GHG emissions of
our supply chain;
(c) Conducting energy audit through globally recognised agencies to
identify energy cost reduction as well as GHG emission reduction opportunities;
(d) Continue with low carbon pathway;
(e) Continue water conservation initiatives;
(f) Continue waste management initiatives;
(g) Getting health and safety management certificate ISO 45001 for all
of our factories;
(h) Improve our policies, procedures and processes around human
capital;
(i) Initiate development of sustainable supply chain.
(x) COVID-19 : Measures Undertaken
In view of the current improved situation, most of the protocols
relating to COVID-19 have been withdrawn/reduced.
(xi) Significant changes (i.e. change of 25% or more as compared to the
immediately previous financial year) in key financial ratios, along with explanations are
as under:
Sl. No. Particulars |
2022-23 |
2021-22 |
Improvement /
(deterioration) |
1 Interest Coverage Ratio - (PBIDT / Finance cost)% |
46.47 |
183.90 |
(75%) |
2 Operating Profit |
17.41 |
26.11 |
(33%) |
Margin - (PBDIT / Total Revenue)% |
|
|
|
3 Net Profit Margin - (PAT / Total Revenue)% |
12.01 |
20.52 |
(41%) |
4 Return on Net worth - (PAT / Net worth)% |
7.54 |
12.86 |
(41%) |
Explanations :-
The Companys performance deteriorated during FY 2022-23
principally due to lower volume owing to subdued demand for Graphite Electrodes and
increased cost. This has led to fall in margin and return indicators, as above. Increased
working capital requirements have also led to a higher debts resulting in higher interest
costs.
Transaction of the Company with any person or entity belonging to the
promoter/promoter group which hold(s) 10% or more shareholding in the listed entity is
given below :-
Emerald Company Private Limited (ECPL) (An entity of the promoter
Group holding 61.33% of the share capital).
|
2022-23 |
2021-22 |
|
(Rs. Cr.) |
(Rs. Cr.) |
Dividend Paid |
119.82 |
59.91 |
Research and Development
The Companys R&D efforts are primarily focussed towards
developing import substitutes for Aeronautical, Aerospace, Railway and other industrial
applications.
Continual process development activities are ongoing for producing
superior version of carbon brake pads for aircrafts and helicopters.
Space application components processed at state-of-art facilities were
successfully tested by Space Research agencies.
Subsidiary Companies
Carbon Finance Limited is a wholly owned Indian subsidiary. Graphite
International B.V. (GIBV) in The Netherlands is a wholly owned overseas subsidiary Company
which is the holding company of four step down subsidiaries in Germany (viz) Graphite Cova
GmbH, Bavaria Electrodes GmbH-in-liquidation, Bavaria Carbon Specialities GmbH, Bavaria
Carbon Holdings GmbH and the General Graphene Corporation, USA, is an American subsidiary
of GIBV, Netherlands. Due to weak European economy fueled by the Russia Ukraine conflict
has led to an unprecedented increase in energy and gas costs rendering German electrode
operations unviable. The Group has decided to shut down its German graphite electrode
production as of now while restructuring speciality and coating operations as they are not
so energy intensive and initiated liquidation of one step down subsidiary, Bavaria
Electrodes GmbH- in liquidation, with effect from 1st October, 2022.
The overseas subsidiaries recorded a turnover of Euro 37.95 million
(Mn) as compared to Euro 43.28 Mn in the previous year. The subsidiaries have continued
their dismal performance. However, during the current year, loss of Euro 18.11 Mn was
higher against loss of Euro 10.08 Mn in the previous year.
The Company, by way of Royalty, earned Rs. 3.21 crore during the year,
as against Rs. 4.01 crore in the previous year, from overseas subsidiary.
GIBV has made further investment of USD 2.5 Mn in General Graphene
Corporation (GGC) and total investments stood at USD 18.60 Mn as on 31.03.2023 which
constitute 55.315% of capital. The investments in GGC is accounted for using the equity
method as per IndAS 28 till 31st January, 2022 and as a subsidiary as per IndAS 110 for
the remaining two months, for FY 2021-22 and for FY 2022-23.
No Company has ceased to be a subsidiary of the Company during the
year.
Statement containing salient features of the financial statements of
subsidiaries is enclosed - Annexure 1.
The Consolidated Financial Statements of the Company along with those
of its subsidiaries prepared as per IndAS 110 forms a part of this Annual Report.
Information pursuant to Section 134 of the Companies Act, 2013
a. Pursuant to Section 92(3) read with Section 134(3) (a) of the Act,
the Annual Return as on 31st March 2023 is available on the Companys website on
http:// ir.graphiteindia.com/
b. Four meetings of the Board of Directors of the Company were held
during the year on 23rd May 2022, 5th August 2022, 11th November 2022, 8th February 2023.
c. All the Independent Directors of the company have furnished
declarations that they satisfy the requirement of Section 149 (6) of the Companies Act,
2013.
d. Relevant extracts of the Companys policy on directors
appointment and remuneration including criteria for determining qualifications, positive
attributes, independence of a director and other matters provided in section 178(3) of
Companies Act, 2013 is enclosed - Annexure 2
e. There is no qualification, reservation or adverse remark or
disclaimer made by the statutory auditor in his audit report and by Company Secretary in
practice in the secretarial audit report and hence no explanations or comments by the
Board are required. No fraud has been reported by Statutory Auditors.
f. Particulars of loans, guarantees or investments under Section 186 of
Companies Act, 2013 is enclosed - Annexure 3
g. Particulars of contracts or arrangements with related parties
referred to in Section 188(1) of Companies Act, 2013 is enclosed - Annexure 4
h. Details of conservation of energy, technology absorption, foreign
exchange earnings and outgo as prescribed vide Rule 8(3) of Companies (Accounts) Rules
2014 is enclosed Annexure 5
i. Risk management policy has been developed and implemented. The
Board is kept informed of the risk mitigation measures being taken through half yearly
risk mitigation reports / Operations Report. There are no current risks which threaten the
existence of the Company.
j. Corporate Social Responsibility (CSR)
As part of its CSR activities, the Company has initiated several
projects aimed at promoting education, employment enhancing vocational/employability
skills, livelihood enhancement projects, healthcare initiatives, rural development
projects etc. as detailed in the CSR annual report for the year ended 31st March, 2023
which forms part of this report Annexure 6. The CSR policy has been
displayed on Company website www. graphiteindia.com and can be viewed under the head CSR.
k. Formal annual evaluation has been made by the Board of its own performance and that of
its Committees and individual directors on the basis of a set of criterias framed and
approved by the Nomination and Remuneration Committee / Board. l. The Company has adopted
a Vigil Mechanism which has been posted on the Companys website www.
graphiteindia.com and can be viewed under the head Corporate Governance. m. The Company
does not accept deposits from public. n. There were no significant and/or material orders
passed by the regulators or courts or tribunals impacting the going concern status and
company's operations in future. Disclosures pursuant to Section 197(12) of Companies Act,
2013 read with Rule 5(1), Rule 5(2) and Rule 5(3) of Companies (Appointment &
Remuneration of Managerial Personnel) Rules 2014 are contained in Annexures 7 and 8.
o. Dividend Distribution Policy has been posted on the Companys website
www.graphiteindia.com and can be viewed under the head Corporate Governance.
DIRECTORS
Mr. Sridhar Srinivasan was appointed as an additional Director by the
Board of Directors of the Company at its meeting held on 30th May 2023. He holds office up
to the date of the ensuing AGM. The Board also appointed him as an Independent Director of
the Company for a period of five years from 30th May 2023, subject to approval of the
members of the Company. Members approval is being sought in the forthcoming AGM.
Mr. A. V. Lodha retires by rotation in this AGM and being eligible
offers himself for re-appointment.
No director is related inter-se to any other director of the Company.
Recognition/Award and Certificates
The Company continues to enjoy the status of a Four Star Export House.
This year the Company has received the following awards from EEPC for export performance:
- Special trophy for Excellence in Exports of High Technology Products
for 2017-18;
- Top Exporter-Gold-Large Enterprise for 2018-19.
The Company has also received award from Syama Prasad Mookerjee Port,
Kolkata, for being the 2nd highest performing Container Importer of the year through
Kolkata Dock System.
The Company has acquired certification with the standards ISO
9001:14001. TUV Nord has recently completed ISO 9001:2015 audit and renewed certificate is
expected in next couple of months.
DIRECTORS RESPONSIBILITY STATEMENT
Pursuant to the provisions of Section 134(5) of the Companies Act,
2013, the Directors state that -
(a) In the preparation of the annual accounts, the applicable
accounting standards had been followed;
(b) The directors have selected such accounting policies and applied
them consistently and made judgments and estimates that are reasonable and prudent so as
to give a true and fair view of the state of affairs of the Company at the end of the
financial year and of the profit and loss of the Company for that period;
(c) The directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the provisions of this Act
for safeguarding the assets of the company and for preventing and detecting fraud and
other irregularities;
(d) The directors have prepared the annual accounts on a going concern
basis;
(e) The directors, have laid down internal financial controls to be
followed by the company and that such internal financial controls are adequate and were
operating effectively; and
(f) The directors have devised proper systems to ensure compliance with
the provisions of all applicable laws and that such systems were adequate and operating
effectively.
Corporate Governance Report
A Report on Corporate Governance along with a Certificate of Compliance
from the Auditors forms part of this Report -
Annexure 9
Business Responsibility and Sustainability Report (BRSR) forms part of
our Annual Report. Annexure 10
Auditors
S. R. Batliboi & Co. LLP, Chartered Accountants, was reappointed as
Auditors of the Company for a second term of five (5) years at the 47th AGM held on 5th
August, 2022. They have confirmed that they are not disqualified from continuing as
Auditors of the Company.
Cost Auditors
The Company had appointed following Cost Auditors for FY 2022-23 who
will conduct cost audit in respect of accounts and records made and maintained by the
Company as required u/s 148(1) of Companies Act, 2013 as detailed below -
Shome & Banerjee . |
Electrode plant at Durgapur and Power generation facilities
at Chunchanakatte. |
Deodhar-Joshi & |
Electrode, IGE and GRP plants at |
Associates |
Nashik |
B G Chowdhury & Co. |
Coke division at Barauni |
N Radhakrishnan & Co. |
Powmex Steels division at Titilagarh |
Consolidated Cost Audit Report for FY 2021-22 was filed with the
Ministry of Corporate Affairs, Government of India, on 26th August, 2022.
The above Cost Auditors have been appointed to conduct cost audit for
the same divisions as mentioned above for FY 2023-24.
Secretarial Audit/Compliance Report
Secretarial Audit Report and Secretarial Compliance Report for FY
2022-23 received from M/s. Bajaj Todi & Associates, Practicing Company Secretaries are
annexed herewith -
Annexure 11 and 12
Secretarial Standards
The Company is in compliance of all applicable Secretarial Standards as
specified by the Institute of Company Secretaries of India.
Prevention of Sexual Harassment of Women at Workplace
The Company has complied with the provisions relating to the
constitution of Internal Complaints Committee under the Sexual Harassment of Women at
Workplace (Prevention, Prohibition and Redressal) Act 2013.
Acknowledgement
Your directors place on record their appreciation of the assistance and
support extended by all government authorities, financial institutions, banks,
consultants, solicitors and shareholders of the Company. The directors express their
appreciation of the dedicated and sincere services rendered by employees of the Company.
|
On behalf of the Board |
|
K. K. Bangur |
|
Chairman |
May 30, 2023 |
DIN : 00029427 |
|