Directors Report: Your Directors present the twenty-seventh Annual Report on the operations of your Company, together with the standalone and consolidated audited financial results for the year ended 30th June 2012. FINANCIAL RESULTS a. Standalone Results Revenue from operations during the year under review was Rs. 12123.55 Crores representing growth of 35% over previous year. Profit before interest and finance costs and depreciation was Rs. 1193.19 Crores. After providing for interest and finance costs of Rs. 1076.00 Crores, profit before depreciation was Rs. 117.19 Crores, compared to loss before depreciation of Rs. 373.48 Crores during the previous year, registering marked improvement in operations during the year. After providing for depreciation of Rs. 626.83 Crores, loss before considering exceptional items was Rs. 509.64 Crores. Exceptional items (details of which are set-out in Note No. 28 of the Notes forming part of the accounts) aggregating to Rs. 586.46 Crores have been provided tor in the accounts and, consequently, loss before tax was Rs. 1096.10 Crores. After considering Deferred Tax Credit of Rs. 779.18 Crores, net loss during the year under review was Rs. 316.92 Crores. The loss is proposed to be carried to next year's accounts. b. Consolidated Results In terms of the Consolidated Financial Statements for the year under review. Revenue from operations was Rs. 12123.55 Crores. Profit before interest and finance costs and depreciation was Rs. 1192.94 Crores. After providing for interest and finance costs of Rs. 1076.01 Crores. profit before depreciation was Rs.116.93 Crores. After providing for depreciation of Rs. 626.83 Crores, loss before exceptional items was Rs.509.90 Crores. Considering exceptional items of Rs. 533.02 Crores, loss before tax was Rs. 1042.92 Crores. After considering Deferred Tax Credit of Rs. 779.18 Crores. loss after tax was Rs. 263.74 Crores. In accordance with Accounting Standard (AS) 21 'Consolidated Financial Statements', the audited Consolidated Financial Statements are provided in the Annual Report. DIVIDEND In view of the accumulated losses, the Board of Directors does not recommend any dividend on the Equity Shares. The Board of Directors does not declare dividend on the Cumulative Redeemable Preference Shares. OPERATIONS Production of Hot Rolled Coils at 2.48 Million MTs was higher by 13% compared to the previous year. Production of Direct Reduced Iron (Sponge Iron) at 1.27 Million MTs and production of Hot Metal at 1.59 Million MTs were respectively higher by 5% and 17% compared to previous year. Availability of administered price gas and natural gas continues to be extremely restricted with consequent severe adverse impact on input prices and production of Direct Reduced Iron. Production of Cold Rolled Steel Coils/Sheets and Galvanized Coils/ Sheets was higher at 0.33 Million MTs and 0.26 Million MTs, respectively, compared to previous year. Sales of Hot Rolled Coils at 2.50 Million MTs was higher by 20%, compared to previous year. Sales of Galvanized Coils/Sheets at 0.23 Million MTs was higher by 117% compared to previous year. Sales of PVC Coated Sheets at 0.06 Million MTs had improved by 21 % compared to previous year. While prices of coke and coal had moderated, cost of iron ore and pellets had increased substantially during the year under review. As a result, steel production cost had registered marked increase during the year. Various initiatives have been undertaken for improving operating efficiencies and also ensuring raw material security. The Company has undertaken rolling of thinner gauge coils upto 1.22 mm, which would result in multiple product applications. Alternate cost-effective sources of supply have been identified for critical inputs, such as iron ore, coke etc. During the year, Maharashtra State Electricity Distribution Company Limited (MSEDCL) had accorded open access permission to the Company for wheeling of 220 MW power from one of the units (captive to the Company) of JSW Energy Limited. The approval was granted during January, 2012 and the Company has entered into an "Energy Wheeling Agreement" with JSW Energy Limited to ensure availability of power supply on long term basis. The Company has, therefore, been receiving power from JSW Energy Limited since January, 2012 and excess power, if any, is sold to MSEDCL. Consequently, the Company has been able to achieve valuable savings in cost of power. Due to depreciation in value of Indian Rupee against foreign currencies, the Company had incurred net foreign exchange fluctuation loss of Rs. 379 Crores during the year on operating balance/forward exchange contracts and Mark-to-Market position on derivative contracts. EXPORTS Global steel demand has been slack due to negative economic indicators in various economies. Export earnings during the year under review was Rs. 138 Crores, signifying reduction of 72% over the previous year. The Company would continue to integrate its export strategies with global steel demand conditions. ECONOMIC SCENARIO Global economy continues to be volatile and faces constraints owing to the Eurozone debt crisis and the slow recovery of US economy. There has been a marked deterioration in the overall environment in Europe leading to sharp contraction in steel demand. US economy, meanwhile, has been registering slow growth and demand for steel is expected to improve. Chinese GDP growth appears to have moderated, though its economy is expected to benefit in 2013 due to the easing of credit conditions and fresh investments in large projects. Indian GDP is widely expected to grow by 6% during the current year. Indian economy is facing an outflow of investment funds, lower industrial production and delays in start-up of major privately-financed projects. Manufacturing output is lower by 4% year-to-year. Current account deficit is a major concern and the Indian Rupee has weakened sharply. Inflationary threat looms large and limits the ability of Reserve Bank of India to reduce interest rates. Policy initiatives aimed at speeding-up of infrastructure projects are likely to accelerate steel demand in the country. Steel prices have been depressed owing to overall global economic condition. Steel capacity utilization has been below 80% and margin continues to remain under intense pressure. Iron ore and coking coal prices, however, remain stable and the volatility witnessed in the previous year appears to have moderated. PROJECTS Speedy progress is being made in implementation of the Company's planned projects, namely, power plant of the capacity of 55 MW, lime calcining plant of the capacity of 600 Tons per day, railway siding at Dolvi steel complex and the second colour coating line of the capacity of 0.1 Million Tons per annum at Kalmeshwar complex. The lime calcining plant, railway siding and second colour coating line are scheduled to be completed during the current financial year of the Company. The power plant is likely to be commissioned during the first quarter of next fiscal. The coke oven project of the capacity of 1 Million Tons per annum being set up at the Company's Dolvi steel complex, through a Special Purpose Vehicle company, is expected to be commissioned by March 2014. Financial closure has already been achieved and project activities are presently in progress. Iron ore pellet project of the capacity of 4 Million Tons per annum is also being set-up at the Company's Dolvi steel complex, through a Special Purpose Vehicle company. The project is expected to be commissioned by September, 2014. Additionally, the Company is planning to install a 6 Hi Mill of the capacity of 0.2 Million Tons per annum at its Kalmeshwar complex. Addition of the mill would increase coating volume by over 15000 MTs per month by utilising existing coating capacities. The project is expected to be commissioned by December 2013. SUBSIDIARY COMPANIES During the year under review, the Company has acquired the entire outstanding equity shares of Peddar Realty Private Limited and, consequently, Peddar Realty Private Limited has become a wholly-owned subsidiary of the Company effective 16th May, 2012. The equity shares have been acquired with a view to ensure, inter-alia, higher degree of control over the amount due by Peddar Realty Private Limited to the Company. During the year under review, the Company divested its equity holdings in Ispat Jharkhand Steels Limited, since the Memorandum of Understanding entered into by Ispat Jharkhand Steels Limited with Government of Jharkhand for setting-up an integrated steel plant is not being pursued. Consequently, Ispat Jharkhand Steels Limited ceased to be a subsidiary of the Company effective 29th June, 2012. In terms of the general exemption granted by Ministry of Corporate Affairs, Government of India, vide General Circular No. 2/2011 dated 8th February, 2011, the Balance Sheet and Profit and Loss Account of the Company's subsidiaries for the financial year ended 31st March, 2012 are not being attached. The requisite information, in terms of the aforesaid General Circular, are contained in the Consolidated Financial Statement of the Company and its subsidiaries. The aforesaid Annual Accounts of the subsidiaries and the related detailed information shall be made available to any member of the Company or its subsidiary companies, upon request. The Annual Accounts of the Subsidiary Companies will also be kept open at the Registered Office of the Company as well as the Registered Offices of the Subsidiary Companies, for inspection by any member. CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Financial Statements of the Company and its subsidiaries, prepared and presented in accordance with Accounting Standard (AS) 21, are attached to and form part of the Annual Report. DEBT REFINANCING AND EXIT FROM CORPORATE DEBT RESTRUCTURING SCHEME The Company has exited from the Corporate Debt Restructuring Scheme effective September, 2011, upon arranging refinance of the CDR debts. The debt consolidation undertaken by the Company helps in creating a simple and uniform security structure, under a consortium arrangement. REDEMPTION OF 12% AND 10% CUMULATIVE REDEEMABLE PREFERENCE SHARES (CRPS) During the year, the Company has fully redeemed the 12% Cumulative Redeemable Preference Shares (CRPS) amounting to Rs. 328.31 Crores and 10% CRPS amounting to Rs. 155.11 Crores, pursuant to approval granted by CDR Empowered Group and consent of the CRPS holders. ISSUE OF EQUITY SHARES, UPON EXERCISE OF CONVERSION OPTION BY LENDERS During the year, the Company has allotted 13,00,31,371 equity shares of the face value Rs.10 each, on preferential basis, at a premium of Rs. 4.74 each to the CDR lenders of the Company, upon conversion of their loans into equity shares. This has resulted in increase in Equity Share Capital by Rs. 130.03 Crores and Securities Premium Account by Rs. 61.63 Crores, aggregating to Rs. 191.66 Crores. SHIFTING OF REGISTERED OFFICE OF THE COMPANY The Company proposes to shift its Registered Office from the State of West Bengal to the State of Maharashtra. Requisite approval has already been obtained from the shareholders of the Company. Necessary action has been initiated for obtaining approval of the relevant regulatory authorities. DIRECTORS As earlier reported, Mr. B K Singh, Whole-time Director designated as Executive Director (Steel Plant) has been re-designated as Chief Executive Officer with effect from 22nd July, 2011. The nomination of Mr. M Sankaranarayanan as Director on the Board of the Company was withdrawn by UTI with effect from 4th October, 2011. The nomination of Ms. Manju Jain as Director on the Board of the Company was withdrawn by IFCI Limited with effect from 10th October, 2011. The Board of Directors wish to place on record its appreciation for the valuable services rendered by Mr. M Sankaranarayanan and Ms. Manju Jain during their tenure as Directors of the Company. Mr. Vinod Mittal relinquished office as Executive Vice Chairman of the Company with effect from 20"' June. 2012. However, Mr. Vinod Mittal continues to be non-executive Vice Chairman of the Company. Mr. Suhail Nathani who was alternate to Mr. Pramod Mittal, ceased to be an Alternate Director with effect from 11th October, 2011. Mr. Pramod Mittal, Mr. Vinod Kothari and Mr. Haigreve Khaitan, Directors, retire by rotation at the ensuing Annual General Meeting and, being eligible, offer themselves for re-appointment. DIRECTORS- RESPONSIBILITY STATEMENT Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors confirm that:- (i) in the preparation of the annual accounts for the financial year ended 30:h June, 2012, the applicable accounting standards have been followed and there have been no material departures; (ii) the Directors have selected such accounting policies and applied them consistently and made judgements 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 or loss of the Company for the year; (iii) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities: and (iv) the Directors have prepared the annual accounts for the financial year ended 30th June, 2012 on a going concern basis. AUDITORS The Auditors, M/s S R Batliboi & Co., Chartered Accountants, retire at the ensuing Annual General Meeting and have expressed their willingness to be re-appointed. The Company has obtained a letter from the Auditors to the effect that the re-appointment, if made, will be in conformity with the limits specified in Section 224 (1B) of the Companies Act, 1956. AUDITOR'S REPORT The Auditors in their report have, while drawing attention to Note No. 15 of the Notes forming part of the accounts for the year, commented on their inability to express any opinion on the virtual certainty of achieving the future profitability projections made by the Company and the consequential impact, if any, on Deferred Tax Asset recognized in the said accounts. The Auditors, in their statement under Companies (Auditors Report) Order, 2003 annexed to the aforesaid Report, have observed the following:- a. The Company's accumulated losses at the end of the financial year are more than fifty percent of its net worth and it has incurred cash losses in the current and immediately preceding financial year. b. The Company has delayed in repayment of working capital dues to banks during the year to the extent of Rs. 771.77 Crores (the delay in such repayments for more than 15 days is Rs. 174.64 Crores). However, no such dues were in arrear as at the balance sheet date. The Company did not have any outstanding dues of debentures during the year. c. Short term funds to the extent of Rs. 1689.04 Crores, have been used in funding of a portion of accumulated losses and deferred tax assets. In the opinion of the Board of Directors, based on various measures taken by the Company for enhancing operating efficiency, tie-up of reliable alternate source of power and critical inputs, setting-up of crucial projects aimed at achieving raw material integration and major savings in input costs as well as the future profitability projections, the Company is virtually certain that there would be sufficient taxable income in the future, to claim the Deferred Tax Credit. Further, the Board of Directors informs that:- a. Pursuant to the provisions contained in Section 23 of the Sick Industrial Companies (Special Provisions) Act, 1985, the Company has reported to Board for Industrial and Financial Reconstruction the fact of erosion of more than fifty percent of its net worth, as at 30th June, 2010, compared to the peak net worth during the immediately preceding four financial years. b. Delays in repayment of working capital dues to banks were due to mismatches in cash flows; however, there is no such due in arrear as at the Balance Sheet date. c. The observations arise out of consideration of Deferred Tax Assets (net) as application of funds for long-term purposes. Deferred Tax Asset, being non-cash flow impacting, there is no usage of short-term funds for long-term purposes. CORPORATE GOVERNANCE Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, the Management Discussion and Analysis and Corporate Governance Report together with the Certificate from the Auditors of the Company confirming compliance of the conditions of Corporate Governance form part of this Report. SECRETARIAL COMPLIANCE REPORT The Company had engaged M/s Robert Pavrey & Associates, Practising Company Secretaries, to review Secretarial Compliance for the financial year ended 30th June, 2012. Though not mandatory, the Secretarial Compliance Certificate was obtained during the year, on a quarterly basis, from the aforementioned Practising Company Secretaries, and reviewed by the Board. CODE OF CONDUCT The Board has laid down a Code of Conduct for all Board Members and Senior Management of the Company. The Code of Conduct has been posted on the Company's website. Board Members and Senior Management personnel have affirmed compliance with the Code for the financial year 2011-12. A separate declaration to this effect is annexed to the Corporate Governance Report. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO In accordance with the requirements of Section 217(1)(e) of the Companies Act. 1956 read with Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, the particulars with respect to Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo are annexed to and form part of this Report. (Annexure "A"). PERSONNEL Employee relations continued to be harmonious during the year. The Company's Human Resource Policies seek to ensure a high level of employee engagement and motivation. The Board wishes to place on record its appreciation for the efforts of all its employees. Information in terms of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 forms part of this Report. (Annexure "B"). APPRECIATION Your Directors wish to place on record their appreciation for the support extended to the Company by its lenders, the Central and State Governments as well as its business associates. Your Directors also thank the members for their continued support. For and on behalf of the Board Seshagiri Rao Director MVS B K Singh Chief Executive Officer Place: Mumbai Date: 25th July, 2012. |