About Newmalayalam Steel Limited

BUSINESS OVERVIEW

Newmalyalam Steel, established in 2017, took over the entire business of M/s. Demac Steel, including all assets and liabilities, as a going concern. The company specializes in manufacturing galvanized pipes, tubes, and sheets and has successfully built a strong brand presence in Kerala under the name "Demac Steel," thanks to the dedicated efforts of its promoters.

In 2018, the company began manufacturing galvanized products with the installation of an electric resistance welding (ERW) tube mill, boasting a capacity of 3,500 MT, at its facility in Mala, Thrissur, Kerala. These products are widely used in households across Kerala, particularly for constructing roofs to reduce heat and prevent leakage. The galvanization process enhances product durability by preventing rust, addressing the frequent weather-related damages faced by homes in the region.

To meet growing demand and expand its market share, Newmalyalam Steel increased its manufacturing capacity in 2019 by installing another ERW tube mill with a capacity of 4,000 MT. These efforts have established the company as a vital supplier of high-quality, weather-resistant construction materials in Kerala.

Department wise bifurcation of the Company's employees as of September 30, 2024, are 140. The Bankers of the Company are State Bank of India and HDFC Bank Limited.

INDUSTRY ANALYSIS

INDIAN STEEL INDUSTRY OVERVIEW
India is the second largest steel producer in the world with an installed capacity of 154.1 MT in FY22. It is also the second-largest consumer of finished steel with a consumption of 120 MT in FY23. The Indian steel sector has been able to grow over the years due to domestic availability of raw materials such as iron ore and costeffective labour. The industry has been driven by domestic steel demand from sectors such as construction, real estate, and automobiles, while the vast coastline has enabled exports and imports, making India one of the leading countries in the global steel industry.

In the last 10 years, finished steel production has grown at a CAGR of 2.8% to 122 MT in FY23 from 96 MT in FY14. The growth in production has been backed by a rise in domestic steel consumption on account of growing economic activities in the country supported by an increase in infrastructure and construction spending by the government, a rise in automobile and consumer durable demand, among others.

Domestic finished steel consumption in India has increased at a CAGR of 5.5% to 120 MT in FY23 from 74 MT in FY14. After witnessing an uptrend in steel production, India observed a de-growth of 20.2% y-o-y in FY19 due to lower exports. Further, the outbreak of covid-19 pandemic resulted in a decrease in steel production in FY21, a de-growth of 6.3%.

Steel exports from India have contributed to the total off take of steel, in addition to the domestic demand, supported by an increase in the country’s overall capacity and production. Exports increased at a CAGR of 10.7% over the period of 9 years from 6 MT in FY14 to 13.5 MT in FY22. Of these 9 years mentioned, India was a net steel exporter for six years - FY14, FY17, FY18, FY20-FY22. In 2021, India’s exports accounted for 4.4% of the global exports.

Exports witnessed a reversal in trend during FY23 after an upward trend of exports in 3 consecutive years i.e, FY20, FY21 & FY22 and declined to 6.7 MT compared to 13.5 MT in FY22, a sharp fall of 50.2% y-o-y. The Indian Government imposed an export duty of 15% on a range of finished steel products in May 2022 which made exports from India less competitive in global markets.

Exports were also impacted by weak international demand, continued geopolitical tensions and inflationary headwinds globally. Moreover, India became a net importer of steel for the first time in three years for the period of October 2022 to February 2023. The exports have started to pick up on a sequential basis post the reversal of export duty by Government in November 2022, however, the full impact of the duty removal is expected in export volumes by the first half of FY24.

The exports to the top 5 countries (Italy, Vietnam, UAE, Belgium and Nepal) accounted for 49% of the total outbound shipments from India during FY23. Italy, Belgium, and UAE continued to remain the top importers of Indian finished steel products. Among others, the shipments to USA and Turkey totaled 807 thousand tons and constituted 5.6% and 5.5%, respectively, of the total exports from India.

Steel imports have increased at a CAGR of 1.1% from 5.5 MT in FY14 to 6 MT in FY23. India mainly imports special-grade steel which is used in end-user segments such as automobiles, defence, shipbuilding, power, railways etc. and is witnessing good traction in domestic marking leading to growth in imports.

During the year FY23, India’s finished steel imports have grown by 29% y-o-y from 4.7 MT in FY22. This can be attributed to the rise in low-cost imports from Russia and the fall in international prices. China, South Korea, and Japan continue to be the leading suppliers to India with a 72% share in the total imports in FY23.

Indian Steel Prices
Steel prices have remained range-bound from March 2018 to June 2019 and started to fall thereafter as the economy was hit by the pandemic. During FY21, the average domestic finished steel prices peaked at Rs 71,157 per tonne as on March 2021. Since then, the prices increased throughout CY21 on account of a revival in domestic demand as economic activities began to take place after the upliftment of restrictions and lockdowns.

During CY22, prices have been impacted by the geo-political war between Russia and Ukraine (since February 2022) and stood at Rs 85,820 per tonne as of March 2022. The geopolitical crisis situation continued and the prices were further pushed to Rs. 88,498 per tonne in June 2022 quarter. The escalation in prices was also because of the rise in coking coal and iron ore prices globally. However, after a sharp rise, the prices declined by around 16% in September 2022 as compared to the previous quarter. Furthermore, they fell to Rs 71,326 per tonne in December 2022. This decline was caused by the imposition of an export duty on a range of finished steel products from the period May 2022 to November 2022, leading to lower exports and an increase in domestic inventories. In addition to that, softening of iron ore prices also affected the steel prices in the domestic market.

After the reduction in export duty on iron ore in November 2022, domestic prices began to rise. In January 2023, NMDC increased the prices for iron ore lumps and fines, which further boosted the prices. As of March 2023, iron ore prices stood at Rs. 4,383 per tonne, a growth rate of 8% as compared to December 2022. This rise in raw material prices resulted in higher domestic steel prices. Going forward, it is expected that domestic steel prices will continue to track global prices and remain range-bound due to continued strong domestic demand.

Outlook

The Indian steel industry is a key contributor to the economy, accounting for 2.5% of GDP and providing employment to around 2.5 million people. Its impact on the economy is significant, with an output multiplier of 1.4 times and an employment multiplier of 6.8 times.

As India enters its pre-election year in 2023, the government is likely to increase investments, boosting domestic steel demand. Key budget announcements include:

• An increase in infrastructure capex allocation from Rs. 7.5 lakh crore to Rs. 10 lakh crore.
• Rs. 2.4 lakh crore for Indian Railways.
• 100 transport infrastructure projects.
• Approval of the Production Linked Incentive (PLI) Scheme for specialty steel.
• Higher allocation for PMAY and the Jal Jeevan Mission.

The National Steel Policy 2017 targets a steel production of 255 MT by FY31 to meet growing demand. India’s iron ore reserves are adequate, but increasing production through new mines and upgraded technologies is crucial. Coking coal remains an import-dependent resource, and diversifying import sources and boosting domestic production are essential measures.

Improving logistics and rail connectivity will reduce costs and enhance the competitiveness of Indian steel globally. Sustainable growth requires reducing carbon emissions, with initiatives like renewable energy usage, waste heat recovery, and the adoption of green steel technologies.

While India is the second-largest steel producer and consumer, it ranks 7th in global exports. Policy support to reduce cost disadvantages and diplomatic efforts to lower export duties will improve global competitiveness. The government’s National Steel Policy 2017 aims for a production capacity of 300 MT by 2030, promoting self-sufficiency in steel.

Solar Structural Pipes Market Overview

India's renewable energy (RE) sector has grown significantly, with a 14% growth rate from FY 2017 to FY 2022, reaching a total capacity of 114 GW by September 2022. Solar power accounts for around 51% of this capacity. Over the past decade, solar installations in India have grown at a remarkable compound annual growth rate (CAGR) of 29%, rising from 4% in FY 2012 to 51% in FY 2022. India is now ranked 4th globally in solar power generation.

The Indian solar energy market, valued at USD 38 billion in 2022, is expected to grow to USD 238 billion by 2030, with a CAGR of approximately 40% from 2023 to 2032. This expansion will drive increased demand for solar components, particularly solar structural pipes used in solar installations, including ground-mounted arrays, rooftop setups, and tracking systems.

India’s focus on expanding solar energy, supported by government policies and incentives, will encourage investment in the solar ecosystem, creating opportunities for businesses involved in supplying components like solar structural pipes. This growth in solar capacity is set to benefit multiple industries, including those supporting solar infrastructure

BUSINESS STRENGTHS

1. Extensive Distribution Network:
Newmalyalam Steel has built an efficient distribution system supported by dedicated teams and technology. With a strong network of dealers, the company ensures seamless product availability, efficient supply chains, and responsive customer service across Kerala. Regular market analysis and direct dealer engagement enhance customer satisfaction, improve brand penetration in smaller cities, and foster trust and loyalty.

2. Diversified Product Portfolio:
The company’s ability to innovate and adapt allows it to introduce new products that align with consumer preferences. It also offers customization of pipes and tubes to meet specific dealer and customer needs, enabling quick scalability and robust revenue generation across its product range.

3. Strong Brand Equity:
Marketed under the established brand "Demac Steel," the company leverages its deep industry knowledge and research to cater effectively to customer needs. This has helped build brand loyalty, drive repeat business, and maintain a competitive edge in the steel market.

4. Long-Term Client and Dealer Relationships:
Strong, enduring relationships with dealers and customers have resulted in consistent repeat orders and a competitive edge in acquiring new dealers. The company relies on personalized interactions to strengthen its retention strategy and foster trust.

5. Commitment to Quality:
The company maintains stringent quality control at every stage of manufacturing, supported by a fully equipped Quality Division and in-house laboratory. Adherence to ISO 9001:2015 standards underscores its dedication to delivering high-quality products that meet regulatory norms.

6. Strategically Located Manufacturing Facilities:
Its manufacturing unit in Kerala ensures proximity to customers and distribution networks, reducing transportation costs. By integrating the production of multiple products under one roof, the company gains a competitive cost advantage.

7. Cost-Effective Sourcing:
Efficient manufacturing and supply chain management significantly lower operational costs, enhancing overall cost efficiency and market competitiveness.

8. Experienced Leadership Team:
Led by seasoned promoters and professionals with extensive industry expertise, the company benefits from strong strategic decision-making, operational excellence, and robust project implementation capabilities, which support its growth and market expansion efforts.

BUSINESS STRATEGIES

1. Expanding Manufacturing Capacity to Meet Growing Deman : Over the years, we have consistently enhanced our production capacity to align with market demand. In 2018 and 2019, we added electric resistance welding tube mills with capacities of 3,500 MT and 4,000 MT, respectively, at our Kerala facility. To further meet anticipated demand, we plan to build a new factory shed, upgrade technology, and install solar infrastructure, aiming to boost capacity, sales, and profitability.

2. Enhancing Brand Value and Product Awarenes : We aim to capture a larger market share as the industry transitions from unorganized to organized sectors. To achieve this, we are investing in our brand and expanding our dealer network, including establishing new marketing offices and reaching smaller towns and rural areas.

3. Strengthening Marketing Network : Our focus is on growing our dealer base and enhancing customer loyalty by understanding their needs and preferences. We plan to strengthen our marketing team with experienced professionals to support our domestic and international strategies.

4. Boosting Operational Efficienc : We strive for cost efficiency by leveraging economies of scale and expanding our product range in existing regions. This approach will help us penetrate new markets, optimize infrastructure, and enhance market share and profitability.

5. Leveraging Market Skills and Relationship : We continuously focus on fostering strong dealer relationships and customer satisfaction. By meeting commitments on time and maintaining trust, we aim to grow our dealer network and enhance long-term client relationships.

6. Delivering Value to Consumer : Our strategy revolves around growing client relationships to ensure stability. By offering high-quality, cost-efficient products tailored to price-conscious middle-class consumers, we have strengthened our brand and expanded market share across urban, semi-urban, and rural areas. Trust and consistent service remain central to our long-term client relationships.

BUSINESS RISK FACTORS

1. Dependence on Raw Material: Our operations heavily rely on sourcing pre-galvanized coils and other raw and packaging materials at stable prices and sufficient supply. Fluctuations in availability or cost can significantly impact production and profitability.

2. Revenue Dependence on Promoter Group Entit : A portion of our revenue comes from Jaihind Steel Private Limited, a Promoter Group entity that trades galvanized products. This reliance on a related party for revenue exposes us to concentration risks.

3. Geographical Concentration in Keral : Our manufacturing unit and operations are limited to Kerala, where local demand drives sales due to the need for durable construction materials in the region's weather conditions. However, political disruptions, natural calamities, or economic changes in Kerala could adversely affect our operations and overall business performance.

NOTE : NewMalayalam Steel faces significant business risks due to its heavy reliance on raw material procurement, revenue dependence on a Promoter Group entity, and geographical concentration in Kerala. These factors make the company vulnerable to supply chain disruptions, related-party risks, and regional economic or political uncertainties. Diversifying operations and broadening its customer base could help mitigate these risks and enhance long-term stability.