Dear Shareholders,
Good morning, ladies and gentlemen. It gives me immense pleasure to welcome you to the 40th Annual General Meeting of your company. I look forward to using this opportunity to update you on your company’s performance in the past year and share with you our strategy for the future.
The report of the Directors and Audited Accounts for the year ending 31st March 2012, with the reports of the Statutory Auditors and comments of Comptroller and Auditor General of India have already been circulated to the shareholders, and with your permission, I shall take them as read.
First let me begin by looking at the broader environment and how it is shaping our priorities. The international business environment is indeed weak and challenging today. Many major economies are grappling with low growth and recession-like conditions. The sovereign debt crisis in the EU has intensified during the past year with more countries of the region coming in the grip of it. There has been a slowdown in the growth momentum in the emerging and developing economies too, which are likely to experience a lower growth of 5.6% in 2012 against a growth of 6.2% in 2011, as per IMF. In developing Asia, China, which had grown at 9.2% in 2011, is expected to slow down to 8% in 2012.
GLOBAL STEEL INDUSTRY OUTLOOK
The global steel production reached a level of 1518 million tonnes of crude steel in 2011, registering a growth of 6.2% over 2010. The growth rate however, was considerably lower as compared to 16% in 2010. The world finished steel consumption at 1373 million tonnes in 2011 grew by 5.6% over the previous year.
During the current year, production of global crude steel at 897 million tonnes in January – July, 2012 period, has been just 1% more than the production in the corresponding period of last year. This production level has been achieved with world steel production capacity utilization hovering around 80%, implying global overcapacity in the steel industry. In this scenario, raw material prices, viz. iron ore, coking coal and scrap have been falling along with the steel prices.
The global steel demand is expected to grow modestly by 3.6% to 1422 million tonnes in 2012. The demand in major steel producing nations, viz. Japan and Europe, is projected to decrease in 2012 as compared to demand in 2011. However, demand growth for steel in Asia is likely to remain positive due to higher level of investments.
INDIAN SCENARIO
The GDP growth of the Indian economy was estimated at 6.5% for the fiscal 2011-12 from 8.4% in 2010-11. Lower external demand, slump in capital flows emanating from the weak global financial conditions coupled with domestic issues such as, high rates of inflation, adverse foreign exchange rate movements have led to a slowdown in rate of economic growth. Reduction in gross fixed capital formation and slowdown in industrial production have been other causes of concern. No change in the growth rate is expected in the coming fiscal, with RBI projecting a growth of 6.5% for 2012-13. Notwithstanding these short-term dampeners, we believe that India is poised to be one of the key growth engines of the global economy in the next decade on the basis of its strong fundamentals.
With respect to the Indian Steel Industry, as per World Steel Association (WSA), India was the world’s fourth largest producer of crude steel in 2011 with a production of 71.3 million tonnes, registering a growth rate of 4.4% over 2010. According to Joint Plant Committee (JPC) estimates, domestic finished steel consumption posted a growth of 6.8% during 2011-12 to 70.92 million tonnes. India is expected to resume its high growth trend after a sluggish performance in 2011. In 2012, India's steel usage is forecast to grow by 6.9% to reach 72.5 MT and is projected to grow further by 9.4% in 2013, driven by increased infrastructure investment and higher pace of urbanisation.
GDP growth rate of 8-9% in the next few years is expected to be sustained mainly by factors such as the 1 trillion USD investment envisaged for the infrastructure sector in the 12th Five Year Plan, greater emphasis on increasing growth rate of the manufacturing sector, higher rates of urbanisation, rising middle class population and tapping the potential of the rural market. Also, in terms of per capita consumption of finished steel, India at 57 kg lags behind the world average of 214.7 kg, indicating a huge potential for growth.
PERFORMANCE OF YOUR COMPANY DURING 2011-12
In fiscal 2011-12, your Company took various initiatives to deal with the impending challenges by optimizing operations, better value addition in downstream units, taking measures to reduce coke consumption by enhancing alternate fuels like Coal Dust Injection (CDI) in blast furnaces, etc. Record CDI of about 51 kg/tonne of Hot Metal (thm) was achieved during 2011-12 as against 34 kg/thm in last year. Further, your Company, in its endeavour to become energy and cost efficient in the year 2011-12, increased production of crude steel through continuous casting route and achieved production of 9.4 million tonnes with a growth of 1% over corresponding period of last year. Production of hot metal at 14.1 million tonnes, crude steel at 13.4 million tonnes and saleable steel at 12.4 million tonnes was 102%, 104% and 112% of the rated capacity respectively. Your Company produced value added products to the tune of 4.83 million tonnes thus increasing the share of value-added products in its product basket to around 39 per cent in 2011-12. Several new products were developed which have significant demand, ready market, and good contribution margin. Some of the major new products developed to meet the customers’ requirement and enhance market share are End Forged Thick Web Asymmetric Rail for Indian Railways, Atmospheric corrosion resistance steel plates conforming to Japanese standards for manufacture of bogie frame for use in Delhi Metro Project, new grade steel plates for defence application, etc. A large number of innovations were also carried out in Plants for process improvements and cost competitiveness.
Your Company achieved a total sales volume of 11.8 million tonnes during FY’11-12. Exports during the year at 0.33 million tonnes were maintained at previous year’s level. Major categories where growth was recorded in home sales included: HR Coils - 7.1%, Plates>20mm - 4.7%, Heavy Structurals - 3% and Tin Plates - 10.8%. New records were also set in supplies of Long Rails, “S” Profile BG Loco Wheels and Loose Axles to Indian Railways during the year.
A new “SAIL Rural Dealership Scheme” was launched during FY’11-12 with the primary objective of meeting the steel demand of the small rural consumers at block, tahsil and taluka levels. Under this scheme, Letters of Intent (LOIs) were issued to 476 rural dealers during 2011-12. Process for more such appointments is under progress. Your Company expanded its dealer network by 517 numbers (including rural dealers) during the year. As on 1st April, 2012, your Company has a wide network of 3138 dealers spread over 629 districts of the country.
Your Company set a new record by achieving the highest ever sales turnover of ` 50,348 crore during 2011-12, a growth of 7% over previous year. The Company earned Profit Before Tax of ` 5150.87 crore and Profit After Tax of ` 3542.72 crore for the year 2011-12. The profit of your Company for the year 2011-12 was affected adversely, mainly due to impact of higher prices of inputs with the average price of imported Hard Coking Coal going up to US $ 288/T (FOB) in FY’12 as compared to US $ 213/T (FOB) in corresponding period of last year (CPLY). Another key factor affecting the profitability adversely was the impact of foreign exchange variation to the tune of about ` 900 crore during the year due to the US dollar appreciating from a level of ` 44.68 as on 31.3.2011 to ` 50.88 as on 31.3.2012. However, the adverse impact on profitability was partially offset by several initiatives taken by the Company.
Your Company continued its thrust on optimum utilization of funds by better fund management. This included replacement of high cost short term loans with low cost debts, timely repayment of loans including interest, strategic parking of surplus funds with scheduled banks, actions for future fund raising, etc. to meet growth objectives. Further, the Company hedged the foreign currency risk on short-term Buyer’s Credit and External Commercial Borrowings depending upon market conditions. The debt equity ratio of the Company reduced to 0.41:1 as on 31st March 2012 from 0.52:1 as on 31st March 2011 mainly on account of decrease in borrowings during the year. The net worth of the Company improved from ` 37,069 crore as on 31st March 2011 to ` 39,811 crore as on 31st March 2012. During the year 2011-12, the capital expenditure incurred was ` 11,021 crore, which was financed by a mix of internal resources (including proceeds from maturity of deposits) and borrowings from the market.
The Company paid interim dividend @ 12% of the paid-up equity share capital during the year. The Board of Directors has further recommended a final dividend @ 8% subject to approval of the shareholders, thus making the total dividend @ 20% of the paid up equity share capital for the year 2011-12.
RESEARCH AND DEVELOPMENT
An exhaustive Master Plan for R&D has been prepared aiming at integrating R&D activities towards business and operational goals of your Company. The implementation of this Master Plan; besides giving a competitive advantage to SAIL by improving efficiencies, reducing costs, meeting market demands and upgrading current steel technologies, will also help in gradually increasing R&D expenditure to a level of 1% of sales turnover, which is an international benchmark. R&D Master Plan will have positive impact on the existing operations through implementation of centralised and decentralised projects. Centralised projects consist of High Impact Projects (HIP) and Technology Mission Projects (TMP). Under the decentralized category, all the Plants/Units of SAIL will have Centre of Excellence (CoE) in selected areas/products. Centre of Excellence projects will mainly focus on augmenting product volume and product attributes. Nine Units of SAIL have selected 14 nos. of projects in different areas with the aim to be the Centre of Excellence in the particular field.
GROWTH PLAN
Keeping in view the acceleration in demand for steel in the country, your Company is currently implementing growth plan to enhance its hot metal production from the level of 14.1 million tonnes during 2011-12 in a phased manner. Under the ongoing modernization and expansion plan, hot metal production capacity will get expanded to 23.46 million tonnes. The growth plan, besides targeting higher production, also addresses the need for eliminating technological obsolescence, achieving energy savings, enriching product-mix, reducing pollution, developing mines and collieries, introducing customer centric processes and developing matching infrastructure facilities.
Under the on-going modernization and expansion plan, there has been start of commissioning of various facilities and a number of the major facilities are slated to commission this year or early next year. Some of the facilities completed are: commencement of 220 KV DVC Power Supply, heating of new Coke Oven Battery No.11 and Unit Functional Test at Wire Rod Mill at ISP; completion of Hot Trial of Main Units of Ore Bedding and Blending Plant, commencement of production in the new Sinter Plant No.3 and heating of new Coke Oven Battery No.6 at RSP; installation of 700 tpd Air Separation Unit at Oxygen Plant-2 and commissioning of on-line Eddy Current Testing Machine in Rail Mill at BSP; installation of new Turbo Blower No.8 and Coil Packaging Line-2 at BSL.
To maintain its current dominance in the domestic market and to meet the future challenges, your Company is also working on a long term strategic plan 'Vision 2020', which will steer the Company towards meeting its strategic objectives of achieving profitability through organic and inorganic growth.
ENSURING RAW MATERIAL SECURITY
Your Company has been meeting the total requirement of iron ore of its steel plants from its captive mines. Post-modernization & expansion, the iron ore requirement is estimated to go upto about 43 million tonnes. Your company is determined to meet this enhanced requirement of iron ore by augmenting the production from the existing mines and also by developing new mines at Rowghat and Chiria. To develop a state-of-art mine at Chiria, your Company is in the process of compliance of Stage I forest clearance conditions. The Company has deposited the Net Present Value of the forest land and has acquired the certificate required under the Forest Rights Act, 2006. During 2011-12, your Company got the final environment clearance for the Dhobil Lease of the Manoharpur Iron Ore Mines, Chiria.
During the year, Ministry of Mines, Government of India reserved 140 ha of area having iron ore reserves of 11 million tonnes in NEB range in Bellary District of Karnataka for undertaking prospecting /mining operations. Further, Government of Rajasthan has forwarded the proposal for grant of iron ore mining lease covering an area of 871.38 ha in Bhilwara district of Rajasthan in favour of your Company to Ministry of Mines, Government of India.
S&T Mining Company Pvt. Ltd., a Joint Venture Company of SAIL and Tata Steel Limited, is making efforts to develop Bhutgoria mine of BCCL. The mine is estimated to produce 0.36 Mtpa coking coal at full capacity, which will be shared between SAIL and Tata Steel. The Joint Venture Company is also making efforts for establishment of stand-alone coal washery of 1.8 Mtpa at Bhelatand.
Your Company is also making attempts for obtaining allocation of coking coal and thermal coal blocks under Government dispensation route for captive mining to enhance indigenous coal availability.
STRATEGIC INITIATIVES
During the year 2011-12, your Company continued to give impetus towards taking new business initiatives including incorporation / formation of new Joint Ventures (JVs), acquisitions and entering into Memorandum of Understanding(s) (MOUs) for its long term strategic objectives. Your Company has established communication channels with renowned international technology providers for forging strategic alliances for production of value added products. The Company is continuously adopting the path of entering into Joint Ventures with public / private entities to attain its strategic goals of maximizing gains with optimal utilization of resources.
i) With the signing of Deed of Transfer on 16th December, 2011 with Burn Standard and Co. Ltd. (BSCL), BSCL's Refractory Unit at Salem has been transferred to the newly formed subsidiary of SAIL, namely SAIL Refractory Company Limited (SRCL).
ii) SAIL has signed a Term Sheet with M/s Kobe Steel for preparing DPR for setting up a 0.5 million tonnes ITmk3 technology based plant at ASP, Durgapur for production of Iron Nuggets from Iron Ore Fines for which a Joint Venture Company “SAIL-Kobe Iron India Private Limited” has been incorporated on 25th May, 2012. It is heartening to mention that your company is investing in ITmK3 technology, which is environment friendly and utilizes low grade iron ore fines and non-coking coal.
iii) For revival of Sindri Project of Fertilizer Corporation of India Limited (FCIL), as per the Cabinet approval, the consortium of SAIL and National Fertilizers Limited (NFL) has been nominated. A firmed-up proposal on revival of Sindri Unit has been submitted to Ministry of Fertilizer (MOF) detailing the business plan & structure for the newly formed Special Purpose Vehicle (SPV). A SPV Company, namely “SAIL-Sindri Projects Ltd”, has already been incorporated on November 8, 2011 as a subsidiary of the Company. As per the hearing held by Board for Industrial and Financial Reconstruction (BIFR) on 13th July, 2012, BIFR has given First Stage Clearance to FCIL to go ahead with revival of Sindri Unit on “nomination basis” by the nominated PSUs in line with the revival process approved by the Government.
iv) The SAIL-led consortium AFISCO (Afghan Iron & Steel Consortium), which had submitted its bid for mining exploration rights at Hajigak, has won the status of 'Preferred Bidder' for Blocks B, C and D of the mines with an estimated reserve of 1.28 billion tonnes of high-grade magnetite iron ore (with 62-64% Fe content). The Consortium will now have the opportunity to enter into a Hajigak Project Contract with the Ministry of Mines of the Islamic Republic of Afghanistan after formal negotiations, which are at concluding stage, and to receive a license to further explore, develop and exploit the Hajigak iron ore deposits.
ENHANCING POWER CAPACITY
Power requirement of SAIL Plants and Mines is expected to increase from present 1000 MW to nearly 1800 MW after completion of the ongoing expansion plan. Feasibility Report is under preparation by NTPC SAIL Power Company Private Limited (NSPCL), a 50:50 JV of SAIL and NTPC, for setting up of 2x250 MW Power Plant at Bhilai & 1x250 MW Power Plant at RSP to meet enhanced power requirement post completion of expansion schemes.
In line with Electricity Act, 2003 and National Electricity Policy, various State Electricity Regulatory Commissions have notified that certain minimum percentage of electricity consumed by various users of captive power should come from renewable energy sources including solar energy. Your Company is taking action to meet this obligation and in this regard, a long term strategy to meet renewable energy purchase obligation has been worked out for installing captive power generation through Joint Venture route based on renewable energy sources.
GREENING ENVIRONMENT
Your Company is committed to a sustainable environment and is continuously enhancing its environmental performance as an integral part of its business philosophy and values. A number of environmental initiatives have been taken by your Company during the year yielding positive results. Best ever achievements were made during the year 2011-12 in respect of reduction in Particulate Matter (PM) emission load from 2.3 kg/tcs in 2006-07 to 1.01 kg/tcs in the year 2011-12; Specific Water Consumption from 4.58 m3/tcs in 2006-07 to 3.86 m3/tcs in the year 2011-12 and Specific effluent discharge from SAIL Plants from 2.73 m3/tfs in 2006-07 to 2.26 m3/tfs in the year 2011-12. Further, 2.81 lakh saplings have been planted in and around SAIL Plants and Mines during the year. Since inception, over 179.5 lakh trees have been planted by SAIL. Your company also has formulated a Sustainable Development Policy.
TRANSFORMING LIVES
Your Company, as a responsible corporate entity, is fully aware of its obligations towards the society and is fully committed to sustainable development. In fact, the Credo of SAIL specifically highlights our commitment towards society at large which states, inter-alia, ‘making a meaningful difference in people's life’. Our business strategy reflects our dedication to good corporate citizenship. SAIL's business practices span the areas of ethics, human resources, environmental management, governance, and financial disclosure to create sustainability for competitive advantage.
Your Company’s focus on social responsibility remains unwavering. The pivotal role of education, health, income generation and sustainable development is the cornerstone of our Corporate Social Responsibility.
On the health front, your Company is operating 54 Primary Health Centres, 12 Reproductive and Child Health Centres, 17 Hospitals and 7 Super-Specialty Hospitals which provide specialized healthcare to more than 30 million people living in the vicinity of its Plants and Units. In the year 2011-12, in order to reach to the under-privileged, over 2400 camps have been organized across the country benefiting around 1.80 lakh people providing free health check-up, path-lab treatment, medicine, immunization, etc. To help the poor and downtrodden, 12 numbers of Mobile Medical Units (MMUs)/Ambulances, etc. provided to various NGOs like Wockhardt, HelpAge India, Bharat Sewashram Sangha, etc. in 2011-12. Special project AKSHAYA for providing free investigation to TB patients of under-privileged section of society and Project CHETNA for the treatment of Anemia are being run at Rourkela.
In the field of education, your Company is running over 146 schools in the Steel Townships to provide modern education to about 70,000 children.
In order to bridge the gap between rural and urban areas and to provide comprehensive development of both physical and social infrastructure, 79 villages have been identified as “Model Steel Villages” across the country (in eight states). The developmental activities being undertaken in these villages include medical & health services, education, roads & connectivity, sanitation, community centers, livelihood generation, sports facilities, etc. Work at 71 villages has been completed till 2011-12.
Your Company’s efforts as a responsible corporate citizen in nation building have been recognized by various organizations in the form of awards and accolades. In year 2011-12, SAIL won Global CSR awards 2012 for Education and Health by World CSR Day Organization and Financial Inclusion Award-2012 for “Women Empowerment” by SKOCH Foundation.
ACCOLADES
The excellent performance of Company as well as that of employees won laurels and appreciation from several quarters during the year 2011-12. Some of the Awards won by your Company include: “MoU Excellence Award” for the year 2010-11 for the 9th consecutive year, “Dainik Bhaskar India Pride Gold Award-2011” in the category “Metals & Minerals & Trade including Mining, for Central PSUs”, and ‘IEI Industry Excellence Award 2011’.
The employees of your Company continued to maintain the tradition of winning maximum number of Prime Minister’s Shram Award and Vishwakarma Rashtriya Puruskar in recognition of their creative and innovative abilities. 13 out of 28 Viswakarma Awards declared in 2012 have been bagged by SAIL, highest for any organisation amongst both private and public sector. In terms of number of employees, 54% awardees in the country are from SAIL this year. Similarly, 11 out of 32 Shram Awards declared in the country have been won by SAIL employees. This is also the highest number for any organisation amongst both private and public sector. In terms of number of employees, 63% awardees in the country are from SAIL this year.
Rashtriya Khel Protsahan Puruskar – 2012 was conferred upon your Company by the Hon’ble President of India for outstanding contribution in the field of Sports in the category of `Community Sports identification and Nurturing of Budding Young Talent’.
Bhilai Steel Plant of your Company has been awarded the prestigious PM’s Trophy for the best Integrated Steel Plant in the country for the year 2009 – 2010. This is for the tenth time that BSP was awarded the PM’s Trophy which is the highest by any integrated steel plant in the country.
Your Company has been awarded Indira Gandhi Rajbhasha Award by the Hon’ble President of India for the best implementation of Official Language in `A’ region’ (Hindi Speaking). SAIL’s Hindi magazine `Ispat Bhasha Bharti’ has also been adjudged the first prize winner amongst the in-house journal published in `A’ region in the country.
CORPORATE GOVERNANCE
Your company is committed to conforming to the highest standards of Corporate Governance by ensuring transparency, disclosures and reporting as required under various laws, regulations and guidelines, including those issued by Department of Public Enterprises. As a recognition of this, your Company has been conferred upon the SCOPE Meritorious Award – 2010-11 for “Corporate Governance”.
ACKNOWLEDGEMENT
I am thankful to all, whose commitment and wisdom started us on our path of building this great organization. I am even more grateful to those who are working so hard today in this current stage of growth of your company.
I would like to thank all our esteemed shareholders for their continued support and encouragement which enabled your company to achieve good sales & financial performance in 2011-12 despite the challenging environment. Each one of you has contributed in your own remarkable way to build this great company. I am carrying the baton of an organization whose character is founded in its incredible base of its stakeholders which, inter-alia, include esteemed shareholders, employees and respectable customers.
SAIL is growing and poised for a big leap. I look forward to your unwavering and steadfast support as we work together to make SAIL a global giant in the years ahead. I am thankful for immense support extended by the Board, our stakeholders and members of SAIL collective. I also wish to put on record, my sincere thanks to Ministry of Steel, Government of India, State Governments, and other Organisations & Institutions for the guidance and cooperation extended by them.
21nd September, 2012
New Delhi
(C.S. Verma)
Chairman