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Electrosteel Castings Ltd Management

Discussions.
A. INDUSTRY STRUCTURE AND DEVELOPMENT
Overview
The Company is engaged in the business of manufacturing Ductile Iron (DI) Pipes,
Ductile Iron Fittings (DIF) and Cast Iron (CI) Pipes. The Company is the 3rst to set
up a Ductile Iron Pipe Plant in India. Today it is Indias leading pipeline solution
provider. It has a strong brand presence around the Globe. Since 1994, the
Company has maintained its edge over its competitors.
Industry Outlook
The growth acceleration for the domestic DI Pipe Industry is largely coming from
the water and sewerage infrastructure development in Indian urban, sub-urban
and rural sector. With only around 31% of Indias population currently urbanized,
along with high population density, Indias urbanization trends have scope to
significantly accelerate and likely to be around 40% by 2030. Further, the country
faces immense problem of drinking water supplies and has poor transmission and
distribution networks for water. To cater this growing need, the Indian pipe market
is growing at the rate of 10%-12% every year. The Central Government in
collaboration with State Governments, has initiated a number of major urban
development schemes to transform the urban scenario of the country. This
initiative is putting large investment on behalf of the Government in the water
supply & sewerage system. Under the ‘100 Smart City Project Rs.50,000 Crore
will be spent to modernize 100 selected cities with latest information technology
and all modern amenities including 24 hours water supply. Many projects are
already on. State and private stakeholders are also part of this mission.
The other major initiative is Atal Mission for Rejuvenation and Urban
Transformation Yojna (AMRUT). Under AMRUT, 500 Small City will undergo
infrastructure rejuvenation. Rs.50,000 Crore will be provided as central assistance
over a 5 (3ve) year period and matching grant is to be provided by the State. A
major part of the investment will be spent on water supply and sewerage.
Another Rs.20,000 Crore is being spent under the ‘Namami Gange Scheme where
cities on the bank of river Ganga and its tributaries will have modern waste water
conveyance and treatment facilities so that the rivers remain clean as far as
possible. On the export market, the Company after establishing its position in
European, South East Asian and Gulf markets, is continuously expanding the
business to new countries like Tanzania, Zambia, Congo, Nigeria, Senegal,
Morocco in Africa, Vietnam, Cambodia, Myanmar in South East Asia. The
Company will continue to maintain its emphasis on the Gulf markets where it has a
historically strong presence.
Demand drivers for DI Pipes
The following factors would drive the demand for DI Pipes:
1. Thrust of the Government to provide drinking water and sanitation to 100%
population and making funds available to achieve it.
2. The AMRUT schemes and smart city project launched by the Government is
resulting in surge in demand for pipes and 3ttings.
3. The shift towards pipe based irrigation system from canal based irrigation
system had opened up a very promising sector.
4. In many cases, DI pipes are now being preferred for conveying bulk Industrial
water as it is more sturdy and durable.
5. Limited fresh water availability demands the need to conserve water and reduce
leakage from pipelines. So demand for more dependable pipe material like DI pipe
is growing.
6. Due to superior quality of pipes followed by dependable after sales service
provided, the Company continues to maintain its dominant position in the market
against competitors.
More utilities are focussing on life cycle cost rather than initial cost to have more
durable water supply solution. Electrosteel Castings Limited with proven credential
and with state of the art manufacturing facilities, is well placed to avail this
opportunity.
FY 2017-18 vs. FY 2016-17
The Companys Revenue from Operations was reported at Rs.1,943.66 Crore
during the year under review as compared to Rs.1,832.08 Crore reported in the
previous year. The Export sales increased by around 18% from Rs.506.86 Crore
in 2016-17 to Rs.610.22 Crore in 2017-18, due to increase in volume of sales. The
Companys profit after tax (PAT) for the FY 2017-18 was reported at Rs.46.99
Crore as against Rs.77.28 Crore for FY 2016-17, mainly due to increase in prices
of raw materials. Further an amount of Rs.33.63 Crore was received on sale of
fixed asset and same was included under the head other income in FY 2016-17.
B. PRODUCT WISE PERFORMANCE
Ductile Iron (DI) Pipes
The Ductile Iron Pipe Plant, with a total capacity of 2,80,000 TPA produced
2,92,714 MT of DI Pipes during the year 2017-18 compared to 2,80,287 MT in
2016-17. Initiatives continue by the Company to sustain improving productivity and
product quality.
The main raw materials used in the production of DI pipes are Iron Ore and Coke.
Iron Ore is mainly procured from Odisha and Jharkhand and Coke is captively
produced at Haldia. The DI Pipes produced by the Company is sold in India and
globally. The sale of DI Pipes contributed to 75.56% of the total revenues of the
Company during the year amounting to Rs.1,391.60 Crore.
Cast Iron (CI) Pipes
The Cast Iron Pipe Plant, with a total capacity of 1,08,000 TPA produced 18,616
MT of CI Pipes in 2017-18 compared to 34,473 MT in 2016-17. The capacity
utilisation was lower as the demand for Cast Iron Pipes remains low.
The main raw material used in the production of CI pipes is Pig Iron, which is
obtained from domestic sources. The CI Pipes produced by the Company is sold
mainly to the states in Southern India. The sale of CI Pipes contributed Rs.76.56
Crore to the total revenues of the Company during the year.
DI Fittings & Accessories
DI Fittings & Accessories produced 9,498 MT of DI Fittings in 2017-18 as against
8,510 MT in 2016-17. The Company has enhanced the capacity utilization at its
newly installed facility at Haldia Works and improving the performance of this
division. Initiative continued to improve productivity. The sale of DI Fittings and
Accessories contributed to Rs.123.31 Crore in the total revenues of the Company
during the year.
Power Plant
12 MW Power Plant at Haldia has generated 90.50 million units out of which 60.59
million units were transmitted to SEB grid in 2017-18 as against generation of
84.25 million units and transmission of 59.25 million units in 2016-17.
Captive Coke Oven Plant
The Coke Oven Plant, with a total capacity of 2,25,000 TPA at Haldia, produced
1,50,747 MT of Metallurgical Coke in 2017-18 against 1,67,099 MT in 2016-17,
mainly for captive consumption in Blast Furnace at Khardah Works. The
production was lower as the demand for surplus, after meeting the captive
requirements, was sluggish because volatile price continued during this period.
The primary raw material for producing Coke that is Coking Coal was imported
mainly from Australia.
Raw Materials Management
The Companys manufacturing facilities are spread across four locations in India.
Presently, the business model consists of fully integrated production facilities
which include Sinter Plant, Coke Oven Plant, Blast Furnace, Pig Iron Plant,
Sponge Iron Plant, Fittings Plant and Captive Power Plant. The integrated
manufacturing facility model helps the Company to minimise the production cost
as the Company strongly believes that cost competitiveness is a key component of
success. The Company continuously endeavors to improve the cost
competitiveness by adopting various innovative and cost saving measures in the
operations.
The Ministry of Mines, Government of India accorded the approval under Section
5(1) of the Mines and Minerals (Development and Regulation) Act, 1957 for grant
of mining lease over an area of 192.50 ha in Village - Dirsumburu of Kodolibad
forest in District - West Singhbhum, Jharkhand in the year 2006. The Company
has already received 1st stage forest clearance and 2nd stage forest clearance is
pending with MOEFCC since September 2014 for want of "Carrying Capacity
Study of Saranda by the Ministry of Environment, Forest & Climate Change". As
per amended MMDR Act 2015, the sunset date of lease execution was 11 January
2017. The Company has 3led a writ petition before the Honble High Court of
Jharkhand on 10 January 2017, praying inter-alia for direction for grant of said
lease in favour of the Company. The Honble High Court in its order while
observed, being not averse in granting relief with respect to cut off date, has
admitted the said petition and fixed the case for further hearing and adjudication.
Exports
In most export markets, growth remained challenging as is reflected by the world
economic situation. Events such increase in ocean freight due to higher oil prices,
brexit, elections and unstable governments in west European countries and
political instability in the Middle East and Gulf have only added to the pressure.
Continuing Anti-dumping/Anti-subsidy duties on our DI Pipes in Europe and delays
in the refund process are putting additional pressure.
However, to reduce the adverse impacts of the above, the Company has
expanded to many African and South American countries where it is regularly
selling its products. New and innovative products in terms of joints, lining and
coatings are helping the Company stay ahead of competition. The Company is
also trying to improve the performance by reducing costs and price increase in the
areas wherever possible.
Quality and Approvals
The Company is continuously increasing its market base all over the world to
counter the worldwide sti3 competition. In addition to Europe, USA, South East
Asia, Middle East and other Asian countries, the Company is expanding its base
to di3erent African countries like Mali, Burkina Faso, Niger, Cameroon, Ivory
Coast etc.
To maintain the quality requirements of such diverse market, the Company needs
to focus on the quality of its product. The Companys product continues to be
approved by DVGW of Germany, OVGW of Austria, BSI (UK), IGH (Croatia), UL
(USA), FM (USA), NSF etc. The Company is continuing the System Management
Certificates from ISO 9001, ISO 14001 and SA 8000. In addition to above system,
the Company is also certified as OHSAS 18001 (Occupational Health and Safety
Assessment Series) company. All these certificates will increase the confidence of
customer and effciency of the Company.
After the success of Electrolock Restrained Flexible Joint, keeping in mind the
customer need at site, the Company has developed Electrolock Clamp Ring for
pipes cut at site. This ring will join two cut-at-site pipes with Electrolock philosophy
without compromising the performance.
The Company has secured a lot of orders for Internal Polyurethane Coated pipes,
which was developed last year. This product is available both for sewage and
drinking water segments.
C. OPPORTUNITIES AND THREATS
Opportunities
As such the future of the Industry appears to be bright. The major reasons for the
growth of this Industry is increasing demand for pipes in the municipal water
supply & sewerage sector, irrigation sector and power & industry sector. The
Government of India is continuing considerable investments in Smart City and
AMRUT projects which is pushing the demand for pipe upwards. Urban sewerage
system is being revamped in many cities which will require more pipes. The focus
of the Government on rural water management will also be a contributing factor.
Due to land acquisition problem, more piped water irrigation projects are coming
up. A dedicated team for research and development, improved product features,
proven quality and sound engineering back-up in providing before sales and after
sales solution, put Electrosteel in an advantageous position.
Threats
Increasing cost of raw materials is a real concern as the market price is not
escalating at the same pace putting stress over the bottom line. Higher input and
overhead cost, increasingly expensive pipe transportation/shipping logistics,
coupled with increasingly competitive market with entry of new manufacturers,
have created pressure on margins. The export market continues to be very
challenging due to slow down of world economy. Anti-dumping/Anti-subsidy duties
imposed on Indian DI Pipes by European Commission in EU countries has put the
Company in a di3cult spot.
However, the Company is confident of achieving sustained growth, with focus
towards backward integration, cost reduction, exploring alternative markets,
overcoming logistic constraints and long term planning for raw materials.
D. RISKS AND CONCERNS
This has been dealt with separately in the section on "Risk Management".
E. FINANCIAL PERFORMANCE
The highlight of the operations for the year ended 31 March 2018 and 31 March
2017 are as under :
a) Financials
Year ended 31 Year ended 31
Particulars March 2018 March 2017
Gross Sales & Income from Operations 1,943.66 1,832.08
Profit before Interest, Depreciation &
Exceptional Items 305.13 373.23
– Finance Expenses 202.32 201.05
– Depreciation 59.22 63.69
Profit before Exceptional Items & Tax 43.59 108.49
Exceptional Items – –
Profit before Tax 43.59 108.49
Tax Expenses (3.40) 31.21
Profit after Tax 46.99 77.28
b) Companys Sales mix
(Rs. in Crore)
Product Turnover
Year ended 31 March 2018 Year ended 31 March 2017
Finished goods sold
D.I. Spun Pipes 1,391.60 1,348.25
C.I. Spun Pipes 76.56 148.80
Others 442.98 295.37
Other Financial Matters
During the year :
1. Net Worth of the Company increased to Rs.2,891.95 Crore as at 31 March 2018
as against Rs.2,864.50 Crore as at 31 March 2017.
2. Gross Fixed Assets including Work in Progress & Capital Advances as at 31
March 2018 increased to Rs.2,983.27 Crore as against Rs.2,976.65 Crore as at 31
March 2017.
F. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Companys internal control systems commensurate with the nature of its
business and the size and complexity of operations. It ensures the effciency of the
operations, financial reporting and statutory compliances. These systems are
reviewed and updated periodically wherever considered necessary. Apart from the
internal control system, an Independent Internal Auditor also reviews all activities
in a systematic and structured manner. The Audit Committee regularly reviews the
observations and suggestions of the Internal Auditors and takes the necessary
corrective actions.
G. HUMAN RESOURCES AND INDUSTRIAL RELATIONS
The Company believes that to achieve continual success, a dedicated and
devoted workforce is very much required to get high performance and improved
productivity. This has been endlessly supported by evolving human resource
management systems and processes of the Company. The Company has left no
stones unturned for enhancing the capabilities of employees at all level. Further,
the Company is strongly focused towards utilisation of its manpower to the
optimum level. The positive approach and cordial relationship between the
Management and Unions has resulted in smooth industrial relations during the
year under review. The relationship have developed over the years and has
played a significant role in smooth running of the Company. Any issues/grievances
are peacefully addressed to and amicably settled through di3erent processes like
counselling, workers participation Collective bargaining, etc.
The Company has been accredited with Social Accountability 8000 certification
from British Standard Institute (BSI). The BSI has renewed the Companys
agreement after continuing assessment on SA 8000:2008. The SA 8000:2014
recertification audit was conducted successfully by BSI for the Financial Year
2017-18. The Company is taking initiatives to maintain TPM excellence.
_ Safety & Health
The Company has made Health, Safety & Environment Management an integral
and essential part of operations. The Company is committed to provide a safe,
healthy, ergonomic, clean & green working environment in all its activities. The
Company is seamlessly deploying strategy, heading towards the achievement of
goals set for strategic focus in areas of Safety, Health & Environment.
The Company is :
committed to ensure zero harm to its employees, contractors including their
worker and all other concerned people in their work area. This is an integral part of
Companys business process and is laid down in the Companys Health & Safety
Policies, Standards and working procedures. continuing with efforts of building
competency, improving safety management and all other process improvements
for identifying safety hazards and mitigating risks to ultimately reach its goal of
Zero Loss Time Injury. Safety is focused to Zero injury and Zero fatality.
considering health and safety as a Key Performance Indicator and is effectively
maintaining safety and health policy. maintaining industrial hygiene & conducting
health check-up of all concerned people by the doctors and other trained medical
personnel on regular basis. focused on providing general safety, process safety,
project safety and behavioral safety through various campaigns & training.
regularly conducting various competitions amongst all employees during
celebration of Safety Week/month for further enhancement of safety awareness
like Quiz Contest, KYT Contest, Mock drill contest and Safety-Drama Contest etc.
Fire safety week and road safety week are also celebrated to create awareness in
those areas.
providing training to all employees on regular basis to maintain the workplace a
safe zone.
giving required importance for review of Hazard Identification and Risk Analysis for
reducing the risk potential apart from regular plant safety inspection,
implementation of safety committee resolutions etc.
implementing safety integration in design, maintenance, operation and other
processes based on evaluation of unsafe acts & conditions.
_ Environment
Providing green and clean environment is a prime focus of the Company. The
Company having ISO-14001 certification, has established and implemented
Environmental Management System (EMS) across the organisation through
following activities :
Concerted efforts have been put over many years with a view to conduct various
operations in an environment friendly manner. These have resulted in reduction of
emissions and discharge levels, increase in utilisation of solid wastes and green
cover.
Suitable effcient pollution control devices are installed in di3erent operations. Such
devices are being monitored regularly as per schedule by Environment
Department. The Plants are effectively maintaining the air pollution control devices
and regularly upgrading them in order to maintain the norms which are becoming
stringent day by day.
Several initiatives are taken for conservation of natural resources through various
treatment, rain water harvesting & recycling operations which are implemented
within the plant to reduce the water consumption and also to reduce the waste
water generation.
More than 85% of the treated waste water is being recycled inside the plant which
reduces the water consumption.
Extensive a3orestation programme has been religiously followed in all the units of
the Company. Plantation of trees is a regular phenomenon throughout the year.
Permanent ambient air quality monitoring stations have been installed for
continuous monitoring of air quality. It is working for conservation of energy which
is considered as a part of sustainable development. Various activities have been
taken to reduce energy consumptions in the process.
Taken initiatives for implementing good housekeeping practices through 5S
principle. Environmental related kaizens have been taken for more environment
friendly operations.
Provide proper training to all level of employees on environmental awareness,
applicable legal requirements and its compliance, operational control procedures
of environmental sensitive activities.
Involving employees and local people in di3erent Environment Awareness
programmes and World Environment Day Celebration. Management review at
di3erent layer is being done on regular basis for checking the adequacy and
effectiveness of the established EMS.
_ Waste Minimization
The Company has adopted 4 "R"s namely Reuse, Recycle, Reprocess and
Reduce concept. Techno commercial suitability has been judged as a continuous
process for the same and work is being done.
Some initiatives taken and in continuation are as follows :
Collection, handling, storing and disposal of hazardous and non-hazardous waste
are done in environmentally safe manner in accordance with legal directives.
Reuse of packing waste towards conservation of natural resources.
Proper management of bio-medical wastes, e-wastes and plastic waste as per the
guideline of latest rules and requirement.
The Company is an ISO-14001 certified company and EMS linked to ISO-14001 is
a set of processes and practices that enables the Company to reduce its
environmental impacts and increase its operating effciency. Implementation of
EMS has helped the units to ensure that their performance remain within the
regulatory requirement and always improve towards green and clean environment
for the society.
_ Corporate Social Responsibility
CSR activity, for the Company is a setup of planned activities, taking into
consideration the capabilities of the Company with a target on the significant
impact to inspire and excite its local community and near vicinities. The initiative of
the Company is to strengthen its operating foundation and being engaged in
ongoing efforts to contribute to the Society during enhancing corporate values.
The Company takes into account issues related to external stakeholders and also
various range of programs that aim at social & environmental topics. The
Companys code of conduct anchors its ethics and compliance affairs. It also
creates and implements community based initiatives to solve issues in areas like
education for children, environmental conservation & external cooperation keeping
in mind the local culture and society.
_ Electrosteel Initiatives
Supporting preventive, curative and responsive health projects along with medical
aid to the poor.
Construction of specialty clinic of eye hospital.
Construction and renovation of school buildings to promote education to the tribal
and deprived people living in remote areas.
Undertaking rural development and economic development projects.
Besides the above, the Company undertake the following activities in and around
its units:
Setting of drinking water kiosks in local area during the summer season.
Carrying out development work in local schools and sports clubs to promote
education & sports activities.
 Providing medical help through the Charitable Medical Centers.
Arranging regular Blood Donation and Medical Camps through agencies and
helping local people with Blood Cards.
_ Information Technology
The Company is up with multiple initiatives to make the organisation digitally
transformed in a true sense. The Company embraced couple of cloud-based
business applications in service mode (OPEX) directly impacting positively to the
revenue critical operations.
The Company is graduating to hybrid model of cloud solution by migrating the
mission critical business application SAP from its owned on-premises servers to
vendor provided on-premises servers as a service. The employee portal
application which also integrates with business application like SAP has been
migrated to Amazon Web Services cloud.
Electrosteel has gone big bang into digital marketing to improve its visibility in the
digital space. Strategically it has been taken up to augment improved branding.
Exclusive captive analytics team has been created to continuously explore
information compiled from unstructured and disparate data sources.
The Company has standardized on Qlikview as the analytical tool to assist
decision making process across the functions and has implemented periodic
checks to prevent data security threats and attacks.
H. OUTLOOK
Electrosteel Castings is the 3rst to start manufacturing Ductile Iron Pipes and
Fittings in India, in 1994. Electrosteel is well known for innovation and for diversity
in its product lines. The Company was instrumental in developing various classes
of pipes and various types of protective coatings and huge range of 3ttings. On the
strength of quality, comparable to any other prime international manufactures,
Electrosteel Castings DI Pipes and Fittings are accepted in Europe, Africa, Middle
East, Far East and in USA. With this outlook, the Company is hopeful of having
comfortable order position to sustain in domestic market in 2018-19.
CAUTIONARY STATEMENT
Statements in the Management Discussion and Analysis Report describing the
Companys estimates, predictions, expectations may be "forward-looking" within
the meaning of applicable securities laws and regulations. Actual results may di3er
materially from those expressed or implied in the statement. Important factors that
could influence the Companys operations include global and domestic demand
and supply conditions affecting selling prices of 3nished goods in which the
Company operates, input availability and prices, changes in government
regulations, tax laws and other statutes, economic developments within the
country and the countries within which the Company conducts business and other
factors such as litigation and industrial relations. The Company assumes no
responsibility to publicly amend, modify or revise any forward-looking statements
on the basis of subsequent developments, information or events.

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Market Buzz
 Market Watch
Market view: Markets have erased partial gains in morning trades after opening
with a smart upmove. Crucial support is seen around the 11,200 zone while
resistance is seen around the 11,400 mark for Nifty.
 Result Update: Q1FY20
Bajaj Finance Q1FY20 (YoY): PAT at Rs 1,195.25 Cr. Revenue at Rs 5,801.25 Cr
(+47.4). Gross NPA at 1.56% vs. 1.54% (QoQ).
Infratel Q1FY20 (YoY): PAT at Rs 887 Cr (+45.9%). Revenue at Rs 3,712 Cr
(+3.1%).
Quess Corp Q1FY20 (YoY): PAT at Rs 56.3 Cr (+3.5%). Revenue at Rs 2,394.7
Cr (+21.7%).
PI Industries Q1FY20 (YoY): PAT at Rs 100.8 Cr (+23.4%). Revenue at Rs 754.1
Cr (+24.5%).
Shriram Transport Q1FY20 (YoY): PAT at Rs 634.3 Cr (+10.7%). NII at Rs
1,943.7 Cr (+5.2%).
Oberoi Realty Q1FY20 (YoY): PAT at Rs 152.1 Cr (-50.8%). Revenue at Rs 603.3
Cr (-32.1%).
Syndicate Bank Q1FY20 (YoY): Net loss at Rs 980.4 Cr. NII at Rs 1,792 Cr
(+19%).
Syngene Intl Q1FY20 (YoY): PAT at Rs 72 Cr (+8.8%). Revenue at Rs 420.9 Cr
(+3.7%).
 Buzzing Stocks
Bajaj Finance stock slips 2% post Q1 numbers.
Caplin Point Laboratories gets establishment inspection report. Stock gains 4%.
Tejas Networks hits record low after Q1 profit slumps 87%.
GE T&D India hits over 5-year low after Q1 profit sinks.
JSW Steel trades lower 1% on report of fundraising plans.
Yes Bank trades lower on Icra's rating downgrade.
Intellect Design falls 6% after Q1 profit drops 92%.
 ICICI Prudential jumps 4% after June quarter results; Morgan Stanley maintains
rating.
Nifty Pharma index gains ~2%. Cipla, Lupin (+3%), Cadila (+3%), Aurobindo,
Sun Pharma (+2%).
Results today: Tata Motors, Bajaj Finance, Bank of Baroda, Ambuja Cements,
Biocon, Bajaj Finserv, South Indian Bank.
 Ideas
Stock Future - IBULHSGFIN | Sell between Rs610-613 | Stoploss Rs616.5 |
Target Rs600 | (Holding period 1 - 7 Days).
Stock Future - Jubilant Food | Buy at Rs1150-1160 | Stoploss Rs1132 | Target
Rs1170-1173 | (Hold till Expiry).
Please refer to Disclaimer: www.indiainfoline.com/research/disclaimer

 Result Expectations
Tata Motors (Consolidated) Q1FY20E Result Expectation
o Revenue – Rs61,937cr, down by 7% yoy, on account of weak performance in
both JLR and standalone business (volume decline expected across CV and
PV).
o EBITDA – Rs4,993cr, down by 17% yoy; due to negative operating leverage
and discounting pressure.
o EBITDA Margin – 8.1%, contraction of 94bps yoy.
o Loss – Rs1,404cr, against loss of Rs895cr in Q1FY19.

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Electrosteel Castings Ltd Management

Discussions.
A. INDUSTRY STRUCTURE AND DEVELOPMENT
Overview
The Company is engaged in the business of manufacturing Ductile Iron (DI) Pipes,
Ductile Iron Fittings (DIF) and Cast Iron (CI) Pipes. The Company is the 3rst to set
up a Ductile Iron Pipe Plant in India. Today it is Indias leading pipeline solution
provider. It has a strong brand presence around the Globe. Since 1994, the
Company has maintained its edge over its competitors.
Industry Outlook
The growth acceleration for the domestic DI Pipe Industry is largely coming from
the water and sewerage infrastructure development in Indian urban, sub-urban
and rural sector. With only around 31% of Indias population currently urbanized,
along with high population density, Indias urbanization trends have scope to
significantly accelerate and likely to be around 40% by 2030. Further, the country
faces immense problem of drinking water supplies and has poor transmission and
distribution networks for water. To cater this growing need, the Indian pipe market
is growing at the rate of 10%-12% every year. The Central Government in
collaboration with State Governments, has initiated a number of major urban
development schemes to transform the urban scenario of the country. This
initiative is putting large investment on behalf of the Government in the water
supply & sewerage system. Under the ‘100 Smart City Project Rs.50,000 Crore
will be spent to modernize 100 selected cities with latest information technology
and all modern amenities including 24 hours water supply. Many projects are
already on. State and private stakeholders are also part of this mission.
The other major initiative is Atal Mission for Rejuvenation and Urban
Transformation Yojna (AMRUT). Under AMRUT, 500 Small City will undergo
infrastructure rejuvenation. Rs.50,000 Crore will be provided as central assistance
over a 5 (3ve) year period and matching grant is to be provided by the State. A
major part of the investment will be spent on water supply and sewerage.
Another Rs.20,000 Crore is being spent under the ‘Namami Gange Scheme where
cities on the bank of river Ganga and its tributaries will have modern waste water
conveyance and treatment facilities so that the rivers remain clean as far as
possible. On the export market, the Company after establishing its position in
European, South East Asian and Gulf markets, is continuously expanding the
business to new countries like Tanzania, Zambia, Congo, Nigeria, Senegal,
Morocco in Africa, Vietnam, Cambodia, Myanmar in South East Asia. The
Company will continue to maintain its emphasis on the Gulf markets where it has a
historically strong presence.
Demand drivers for DI Pipes
The following factors would drive the demand for DI Pipes:
1. Thrust of the Government to provide drinking water and sanitation to 100%
population and making funds available to achieve it.
2. The AMRUT schemes and smart city project launched by the Government is
resulting in surge in demand for pipes and 3ttings.
3. The shift towards pipe based irrigation system from canal based irrigation
system had opened up a very promising sector.
4. In many cases, DI pipes are now being preferred for conveying bulk Industrial
water as it is more sturdy and durable.
5. Limited fresh water availability demands the need to conserve water and reduce
leakage from pipelines. So demand for more dependable pipe material like DI pipe
is growing.
6. Due to superior quality of pipes followed by dependable after sales service
provided, the Company continues to maintain its dominant position in the market
against competitors.
More utilities are focussing on life cycle cost rather than initial cost to have more
durable water supply solution. Electrosteel Castings Limited with proven credential
and with state of the art manufacturing facilities, is well placed to avail this
opportunity.
FY 2017-18 vs. FY 2016-17
The Companys Revenue from Operations was reported at Rs.1,943.66 Crore
during the year under review as compared to Rs.1,832.08 Crore reported in the
previous year. The Export sales increased by around 18% from Rs.506.86 Crore
in 2016-17 to Rs.610.22 Crore in 2017-18, due to increase in volume of sales. The
Companys profit after tax (PAT) for the FY 2017-18 was reported at Rs.46.99
Crore as against Rs.77.28 Crore for FY 2016-17, mainly due to increase in prices
of raw materials. Further an amount of Rs.33.63 Crore was received on sale of
fixed asset and same was included under the head other income in FY 2016-17.
B. PRODUCT WISE PERFORMANCE
Ductile Iron (DI) Pipes
The Ductile Iron Pipe Plant, with a total capacity of 2,80,000 TPA produced
2,92,714 MT of DI Pipes during the year 2017-18 compared to 2,80,287 MT in
2016-17. Initiatives continue by the Company to sustain improving productivity and
product quality.
The main raw materials used in the production of DI pipes are Iron Ore and Coke.
Iron Ore is mainly procured from Odisha and Jharkhand and Coke is captively
produced at Haldia. The DI Pipes produced by the Company is sold in India and
globally. The sale of DI Pipes contributed to 75.56% of the total revenues of the
Company during the year amounting to Rs.1,391.60 Crore.
Cast Iron (CI) Pipes
The Cast Iron Pipe Plant, with a total capacity of 1,08,000 TPA produced 18,616
MT of CI Pipes in 2017-18 compared to 34,473 MT in 2016-17. The capacity
utilisation was lower as the demand for Cast Iron Pipes remains low.
The main raw material used in the production of CI pipes is Pig Iron, which is
obtained from domestic sources. The CI Pipes produced by the Company is sold
mainly to the states in Southern India. The sale of CI Pipes contributed Rs.76.56
Crore to the total revenues of the Company during the year.
DI Fittings & Accessories
DI Fittings & Accessories produced 9,498 MT of DI Fittings in 2017-18 as against
8,510 MT in 2016-17. The Company has enhanced the capacity utilization at its
newly installed facility at Haldia Works and improving the performance of this
division. Initiative continued to improve productivity. The sale of DI Fittings and
Accessories contributed to Rs.123.31 Crore in the total revenues of the Company
during the year.
Power Plant
12 MW Power Plant at Haldia has generated 90.50 million units out of which 60.59
million units were transmitted to SEB grid in 2017-18 as against generation of
84.25 million units and transmission of 59.25 million units in 2016-17.
Captive Coke Oven Plant
The Coke Oven Plant, with a total capacity of 2,25,000 TPA at Haldia, produced
1,50,747 MT of Metallurgical Coke in 2017-18 against 1,67,099 MT in 2016-17,
mainly for captive consumption in Blast Furnace at Khardah Works. The
production was lower as the demand for surplus, after meeting the captive
requirements, was sluggish because volatile price continued during this period.
The primary raw material for producing Coke that is Coking Coal was imported
mainly from Australia.
Raw Materials Management
The Companys manufacturing facilities are spread across four locations in India.
Presently, the business model consists of fully integrated production facilities
which include Sinter Plant, Coke Oven Plant, Blast Furnace, Pig Iron Plant,
Sponge Iron Plant, Fittings Plant and Captive Power Plant. The integrated
manufacturing facility model helps the Company to minimise the production cost
as the Company strongly believes that cost competitiveness is a key component of
success. The Company continuously endeavors to improve the cost
competitiveness by adopting various innovative and cost saving measures in the
operations.
The Ministry of Mines, Government of India accorded the approval under Section
5(1) of the Mines and Minerals (Development and Regulation) Act, 1957 for grant
of mining lease over an area of 192.50 ha in Village - Dirsumburu of Kodolibad
forest in District - West Singhbhum, Jharkhand in the year 2006. The Company
has already received 1st stage forest clearance and 2nd stage forest clearance is
pending with MOEFCC since September 2014 for want of "Carrying Capacity
Study of Saranda by the Ministry of Environment, Forest & Climate Change". As
per amended MMDR Act 2015, the sunset date of lease execution was 11 January
2017. The Company has 3led a writ petition before the Honble High Court of
Jharkhand on 10 January 2017, praying inter-alia for direction for grant of said
lease in favour of the Company. The Honble High Court in its order while
observed, being not averse in granting relief with respect to cut off date, has
admitted the said petition and fixed the case for further hearing and adjudication .
Exports
In most export markets, growth remained challenging as is reflected by the world
economic situation. Events such increase in ocean freight due to higher oil prices,
brexit, elections and unstable governments in west European countries and
political instability in the Middle East and Gulf have only added to the pressure.
Continuing Anti-dumping/Anti-subsidy duties on our DI Pipes in Europe and delays
in the refund process are putting additional pressure.
However, to reduce the adverse impacts of the above, the Company has
expanded to many African and South American countries where it is regularly
selling its products. New and innovative products in terms of joints, lining and
coatings are helping the Company stay ahead of competition. The Company is
also trying to improve the performance by reducing costs and price increase in the
areas wherever possible.
Quality and Approvals
The Company is continuously increasing its market base all over the world to
counter the worldwide sti3 competition. In addition to Europe, USA, South East
Asia, Middle East and other Asian countries, the Company is expanding its base
to di3erent African countries like Mali, Burkina Faso, Niger, Cameroon, Ivory
Coast etc.
To maintain the quality requirements of such diverse market, the Company needs
to focus on the quality of its product. The Companys product continues to be
approved by DVGW of Germany, OVGW of Austria, BSI (UK), IGH (Croatia), UL
(USA), FM (USA), NSF etc. The Company is continuing the System Management
Certificates from ISO 9001, ISO 14001 and SA 8000. In addition to above system,
the Company is also certified as OHSAS 18001 (Occupational Health and Safety
Assessment Series) company. All these certificates will increase the confidence of
customer and effciency of the Company.
After the success of Electrolock Restrained Flexible Joint, keeping in mind the
customer need at site, the Company has developed Electrolock Clamp Ring for
pipes cut at site. This ring will join two cut-at-site pipes with Electrolock philosophy
without compromising the performance.
The Company has secured a lot of orders for Internal Polyurethane Coated pipes,
which was developed last year. This product is available both for sewage and
drinking water segments.
C. OPPORTUNITIES AND THREATS
Opportunities
As such the future of the Industry appears to be bright. The major reasons for the
growth of this Industry is increasing demand for pipes in the municipal water
supply & sewerage sector, irrigation sector and power & industry sector. The
Government of India is continuing considerable investments in Smart City and
AMRUT projects which is pushing the demand for pipe upwards. Urban sewerage
system is being revamped in many cities which will require more pipes. The focus
of the Government on rural water management will also be a contributing factor.
Due to land acquisition problem, more piped water irrigation projects are coming
up. A dedicated team for research and development, improved product features,
proven quality and sound engineering back-up in providing before sales and after
sales solution, put Electrosteel in an advantageous position.
Threats
Increasing cost of raw materials is a real concern as the market price is not
escalating at the same pace putting stress over the bottom line. Higher input and
overhead cost, increasingly expensive pipe transportation/shipping logistics,
coupled with increasingly competitive market with entry of new manufacturers,
have created pressure on margins. The export market continues to be very
challenging due to slow down of world economy. Anti-dumping/Anti-subsidy duties
imposed on Indian DI Pipes by European Commission in EU countries has put the
Company in a di3cult spot.
However, the Company is confident of achieving sustained growth, with focus
towards backward integration, cost reduction, exploring alternative markets,
overcoming logistic constraints and long term planning for raw materials.
D. RISKS AND CONCERNS
This has been dealt with separately in the section on "Risk Management".
E. FINANCIAL PERFORMANCE
The highlight of the operations for the year ended 31 March 2018 and 31 March
2017 are as under :
a) Financials
Year ended 31 Year ended 31
Particulars March 2018 March 2017
Gross Sales & Income from Operations 1,943.66 1,832.08
Profit before Interest, Depreciation &
Exceptional Items 305.13 373.23
– Finance Expenses 202.32 201.05
– Depreciation 59.22 63.69
Profit before Exceptional Items & Tax 43.59 108.49
Exceptional Items – –
Profit before Tax 43.59 108.49
Tax Expenses (3.40) 31.21
Profit after Tax 46.99 77.28
b) Companys Sales mix
(Rs. in Crore)
Product Turnover
Year ended 31 March 2018 Year ended 31 March 2017
Finished goods sold
D.I. Spun Pipes 1,391.60 1,348.25
C.I. Spun Pipes 76.56 148.80
Others 442.98 295.37
Other Financial Matters
During the year :
1. Net Worth of the Company increased to Rs.2,891.95 Crore as at 31 March 2018
as against Rs.2,864.50 Crore as at 31 March 2017.
2. Gross Fixed Assets including Work in Progress & Capital Advances as at 31
March 2018 increased to Rs.2,983.27 Crore as against Rs.2,976.65 Crore as at 31
March 2017.
F. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Companys internal control systems commensurate with the nature of its
business and the size and complexity of operations. It ensures the effciency of the
operations, financial reporting and statutory compliances. These systems are
reviewed and updated periodically wherever considered necessary. Apart from the
internal control system, an Independent Internal Auditor also reviews all activities
in a systematic and structured manner. The Audit Committee regularly reviews the
observations and suggestions of the Internal Auditors and takes the necessary
corrective actions.
G. HUMAN RESOURCES AND INDUSTRIAL RELATIONS
The Company believes that to achieve continual success, a dedicated and
devoted workforce is very much required to get high performance and improved
productivity. This has been endlessly supported by evolving human resource
management systems and processes of the Company. The Company has left no
stones unturned for enhancing the capabilities of employees at all level. Further,
the Company is strongly focused towards utilisation of its manpower to the
optimum level. The positive approach and cordial relationship between the
Management and Unions has resulted in smooth industrial relations during the
year under review. The relationship have developed over the years and has
played a significant role in smooth running of the Company. Any issues/grievances
are peacefully addressed to and amicably settled through di3erent processes like
counselling, workers participation Collective bargaining, etc.
The Company has been accredited with Social Accountability 8000 certification
from British Standard Institute (BSI). The BSI has renewed the Companys
agreement after continuing assessment on SA 8000:2008. The SA 8000:2014
recertification audit was conducted successfully by BSI for the Financial Year
2017-18. The Company is taking initiatives to maintain TPM excellence.
_ Safety & Health
The Company has made Health, Safety & Environment Management an integral
and essential part of operations. The Company is committed to provide a safe,
healthy, ergonomic, clean & green working environment in all its activities. The
Company is seamlessly deploying strategy, heading towards the achievement of
goals set for strategic focus in areas of Safety, Health & Environment.
The Company is :
committed to ensure zero harm to its employees, contractors including their
worker and all other concerned people in their work area. This is an integral part of
Companys business process and is laid down in the Companys Health & Safety
Policies, Standards and working procedures. continuing with efforts of building
competency, improving safety management and all other process improvements
for identifying safety hazards and mitigating risks to ultimately reach its goal of
Zero Loss Time Injury. Safety is focused to Zero injury and Zero fatality.
considering health and safety as a Key Performance Indicator and is effectively
maintaining safety and health policy. maintaining industrial hygiene & conducting
health check-up of all concerned people by the doctors and other trained medical
personnel on regular basis. focused on providing general safety, process safety,
project safety and behavioral safety through various campaigns & training.
regularly conducting various competitions amongst all employees during
celebration of Safety Week/month for further enhancement of safety awareness
like Quiz Contest, KYT Contest, Mock drill contest and Safety-Drama Contest etc.
Fire safety week and road safety week are also celebrated to create awareness in
those areas.
providing training to all employees on regular basis to maintain the workplace a
safe zone.
giving required importance for review of Hazard Identification and Risk Analysis for
reducing the risk potential apart from regular plant safety inspection,
implementation of safety committee resolutions etc.
implementing safety integration in design, maintenance, operation and other
processes based on evaluation of unsafe acts & conditions.
_ Environment
Providing green and clean environment is a prime focus of the Company. The
Company having ISO-14001 certification, has established and implemented
Environmental Management System (EMS) across the organisation through
following activities :
Concerted efforts have been put over many years with a view to conduct various
operations in an environment friendly manner. These have resulted in reduction of
emissions and discharge levels, increase in utilisation of solid wastes and green
cover.
Suitable effcient pollution control devices are installed in di3erent operations. Such
devices are being monitored regularly as per schedule by Environment
Department. The Plants are effectively maintaining the air pollution control devices
and regularly upgrading them in order to maintain the norms which are becoming
stringent day by day.
Several initiatives are taken for conservation of natural resources through various
treatment, rain water harvesting & recycling operations which are implemented
within the plant to reduce the water consumption and also to reduce the waste
water generation.
More than 85% of the treated waste water is being recycled inside the plant which
reduces the water consumption.
Extensive a3orestation programme has been religiously followed in all the units of
the Company. Plantation of trees is a regular phenomenon throughout the year.
Permanent ambient air quality monitoring stations have been installed for
continuous monitoring of air quality. It is working for conservation of energy which
is considered as a part of sustainable development. Various activities have been
taken to reduce energy consumptions in the process.
Taken initiatives for implementing good housekeeping practices through 5S
principle. Environmental related kaizens have been taken for more environment
friendly operations.
Provide proper training to all level of employees on environmental awareness,
applicable legal requirements and its compliance, operational control procedures
of environmental sensitive activities.
Involving employees and local people in di3erent Environment Awareness
programmes and World Environment Day Celebration. Management review at
di3erent layer is being done on regular basis for checking the adequacy and
effectiveness of the established EMS.
_ Waste Minimization
The Company has adopted 4 "R"s namely Reuse, Recycle, Reprocess and
Reduce concept. Techno commercial suitability has been judged as a continuous
process for the same and work is being done.
Some initiatives taken and in continuation are as follows :
Collection, handling, storing and disposal of hazardous and non-hazardous waste
are done in environmentally safe manner in accordance with legal directives.
Reuse of packing waste towards conservation of natural resources.
Proper management of bio-medical wastes, e-wastes and plastic waste as per the
guideline of latest rules and requirement.
The Company is an ISO-14001 certified company and EMS linked to ISO-14001 is
a set of processes and practices that enables the Company to reduce its
environmental impacts and increase its operating effciency. Implementation of
EMS has helped the units to ensure that their performance remain within the
regulatory requirement and always improve towards green and clean environment
for the society.
_ Corporate Social Responsibility
CSR activity, for the Company is a setup of planned activities, taking into
consideration the capabilities of the Company with a target on the significant
impact to inspire and excite its local community and near vicinities. The initiative of
the Company is to strengthen its operating foundation and being engaged in
ongoing efforts to contribute to the Society during enhancing corporate values.
The Company takes into account issues related to external stakeholders and also
various range of programs that aim at social & environmental topics. The
Companys code of conduct anchors its ethics and compliance affairs. It also
creates and implements community based initiatives to solve issues in areas like
education for children, environmental conservation & external cooperation keeping
in mind the local culture and society.
_ Electrosteel Initiatives
Supporting preventive, curative and responsive health projects along with medical
aid to the poor.
Construction of specialty clinic of eye hospital.
Construction and renovation of school buildings to promote education to the tribal
and deprived people living in remote areas.
Undertaking rural development and economic development projects.
Besides the above, the Company undertake the following activities in and around
its units:
Setting of drinking water kiosks in local area during the summer season.
Carrying out development work in local schools and sports clubs to promote
education & sports activities.
Providing medical help through the Charitable Medical Centers.
Arranging regular Blood Donation and Medical Camps through agencies and
helping local people with Blood Cards.
_ Information Technology
The Company is up with multiple initiatives to make the organisation digitally
transformed in a true sense. The Company embraced couple of cloud-based
business applications in service mode (OPEX) directly impacting positively to the
revenue critical operations.
The Company is graduating to hybrid model of cloud solution by migrating the
mission critical business application SAP from its owned on-premises servers to
vendor provided on-premises servers as a service. The employee portal
application which also integrates with business application like SAP has been
migrated to Amazon Web Services cloud.
Electrosteel has gone big bang into digital marketing to improve its visibilit y in the
digital space. Strategically it has been taken up to augment improved branding.
Exclusive captive analytics team has been created to continuously explore
information compiled from unstructured and disparate data sources.
 The Company has standardized on Qlikview as the analytical tool to assist
decision making process across the functions and has implemented periodic
checks to prevent data security threats and attacks.
H. OUTLOOK
Electrosteel Castings is the 3rst to start manufacturing Ductile Iron Pipes and
Fittings in India, in 1994. Electrosteel is well known for innovation and for diversity
in its product lines. The Company was instrumental in developing various classes
of pipes and various types of protective coatings and huge range of 3ttings. On the
strength of quality, comparable to any other prime international manufactures,
Electrosteel Castings DI Pipes and Fittings are accepted in Europe, Africa, Middle
East, Far East and in USA. With this outlook, the Company is hopeful of having
comfortable order position to sustain in domestic market in 2018-19.
CAUTIONARY STATEMENT
Statements in the Management Discussion and Analysis Report describing the
Companys estimates, predictions, expectations may be "forward-looking" within
the meaning of applicable securities laws and regulations. Actual results may di3er
materially from those expressed or implied in the statement. Important factors that
could influence the Companys operations include global and domestic demand
and supply conditions affecting selling prices of 3nished goods in which the
Company operates, input availability and prices, changes in government
regulations, tax laws and other statutes, economic developments within the
country and the countries within which the Company conducts business and other
factors such as litigation and industrial relations. The Company assumes no
responsibility to publicly amend, modify or revise any forward-looking statements
on the basis of subsequent developments, information or events.

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 Market view: Markets have erased partial gains in morning trades after opening
with a smart upmove. Crucial support is seen around the 11,200 zone while
resistance is seen around the 11,400 mark for Nifty.
 Result Update: Q1FY20
Bajaj Finance Q1FY20 (YoY): PAT at Rs 1,195.25 Cr. Revenue at Rs 5,801.25 Cr
(+47.4). Gross NPA at 1.56% vs. 1.54% (QoQ).
Infratel Q1FY20 (YoY): PAT at Rs 887 Cr (+45.9%). Revenue at Rs 3,712 Cr
(+3.1%).
Quess Corp Q1FY20 (YoY): PAT at Rs 56.3 Cr (+3.5%). Revenue at Rs 2,394.7
Cr (+21.7%).
PI Industries Q1FY20 (YoY): PAT at Rs 100.8 Cr (+23.4%). Revenue at Rs 754.1
Cr (+24.5%).
Shriram Transport Q1FY20 (YoY): PAT at Rs 634.3 Cr (+10.7%). NII at Rs
1,943.7 Cr (+5.2%).
Oberoi Realty Q1FY20 (YoY): PAT at Rs 152.1 Cr (-50.8%). Revenue at Rs 603.3
Cr (-32.1%).
Syndicate Bank Q1FY20 (YoY): Net loss at Rs 980.4 Cr. NII at Rs 1,792 Cr
(+19%).
Syngene Intl Q1FY20 (YoY): PAT at Rs 72 Cr (+8.8%). Revenue at Rs 420.9 Cr
(+3.7%).
 Buzzing Stocks
Bajaj Finance stock slips 2% post Q1 numbers.
Caplin Point Laboratories gets establishment inspection report. Stock gains 4%.
Tejas Networks hits record low after Q1 profit slumps 87%.
GE T&D India hits over 5-year low after Q1 profit sinks.
JSW Steel trades lower 1% on report of fundraising plans.
Yes Bank trades lower on Icra's rating downgrade.
Intellect Design falls 6% after Q1 profit drops 92%.
ICICI Prudential jumps 4% after June quarter results; Morgan Stanley maintains
rating.
Nifty Pharma index gains ~2%. Cipla, Lupin (+3%), Cadila (+3%), Aurobindo,
Sun Pharma (+2%).
Results today: Tata Motors, Bajaj Finance, Bank of Baroda, Ambuja Cements,
Biocon, Bajaj Finserv, South Indian Bank.
 Ideas
Stock Future - IBULHSGFIN | Sell between Rs610-613 | Stoploss Rs616.5 |
Target Rs600 | (Holding period 1 - 7 Days).
Stock Future - Jubilant Food | Buy at Rs1150-1160 | Stoploss Rs1132 | Target
Rs1170-1173 | (Hold till Expiry).
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 Result Expectations
 Tata Motors (Consolidated) Q1FY20E Result Expectation
o Revenue – Rs61,937cr, down by 7% yoy, on account of weak performance in
both JLR and standalone business (volume decline expected across CV and
PV).
o EBITDA – Rs4,993cr, down by 17% yoy; due to negative operating leverage
and discounting pressure.
o EBITDA Margin – 8.1%, contraction of 94bps yoy.
o Loss – Rs1,404cr, against loss of Rs895cr in Q1FY19.