Mar 31, 2015
Dear Members,
The Directors of the Company present to you the 24th Annual Report of
the Company, together with the Audited Balance Sheet as at 31st March,
2015 and the Statement of Profit and Loss for the year ending on 31st
March, 2015.
1. FINANCIAL RESULTS
The Financial Results of the Company for the year under review is
summarized below for your perusal and consideration.
(Rs. in Crores)
PARTICULARS 2014-15 2013-14
NET REVENUE 642.17 555.20
PROFIT BEFORE TAX AND
DEPRECIATION (172.66) (201.95)
PROFIT /(LOSS) BEFORE
TAX (PBT) (234.49) (233.87)
PROVISION FOR CURRENT
TAX - -
TAX EXPENSE 28.29 (78.41)
PROFIT AFTER TAXES/(LOSS)
(PAT) (262.78) (155.46)
1.1 FINANCIAL PERFORMANCE
The Company has achieved Net sales of Rs. 642.17 Crores for the year
ended 31st March, 2015 as compared to Rs.555.20 crores in the previous
year.
The Company has incurred a Net loss of Rs. 262.78 Crores as against a
loss after taxes of Rs. 155.46 Crores in the previous year. The losses
are attributable to high input costs, irregular supply of raw
materials, high finance costs and unfavourable market conditions. While
the Raichur plant was particularly affected by the iron ore mining ban
and labour issues, the Gummudipoondi plant faced with irregular power
supply and adverse market conditions.
1.2 CORPORATE DEBT RESTRUCTURING (CDR)
The lenders have restructured the debts of the Company to the extent of
Rs.1331 crs under the CDR mechanism. All overdues have been
restructured with effect from 1st June 2013, on the basis of the terms
of moratorium and revised repayment schedule contained in the Final
Letter of Approval (Final LOA) dated March 13, 2014. The package also
includes a priority loan of Rs.41.72 crs for balancing equipment
required for the Rolling mill and electric arc furnace. Overdues on the
existing loans as on the Cut-off date have been converted into funded
interest term loans. Further repayment of loans has been resched- uled
over a 10 year period ending the year 2023.
2. SHARE CAPITAL
The paid up Equity Share Capital as on 31st March, 2015 was Rs. 44.52
Crores. During the year under report, the Company has not issued any
shares with differential voting rights nor granted stock options nor
sweat equity.
3. DIVIDEND
Your Directors have not recommended any dividend for the financial year
2014-15 in view of the losses incurred and the need to conserve
resources of the Company. The Company is also required to seek prior
approval of the lenders for declaration of dividend, in terms of the
Corporate Debt Restructuring package.
5. OPERATIONS
5.1 SIL OPERATIONS AT CHENNAI PLANT
Production at Chennai Plant had adversely been affected for the last
couple of years due to severe power cut in Tamil Nadu. The plant faced
a 20% power cut and this situation continued for most part of the
financial year. The power shortage coupled with unfavourable market
prices for end products have resulted in lower operation level at the
plant.
5.2 SIL OPERATIONS AT RAICHUR PLANT
EXISTING OPERATIONS
The existing operations at the Integrated Steel Complex at Raichur
comprises of the Sponge Iron Plant (Direct Reduction of Iron), Steel
Melting Shop and the Rolling Mill.
The Company has been facing labour unrest at the plant for the majority
of the financial year. Consequently, production had been adversely
affected, post implementation of the CDR package. The Company is set to
re-start the DRI operations in full swing by June 2015. The company is
using pellets for producing sponge iron due to non-availability of high
grade iron ore lumps. However, the SMS Plant and Rolling Mill is
expected to commence productions once the refurbishment work is
completed which is subject to release of the priority loan by the
consortium lenders.
The existing facilities at the Raichur plant are summarized below:
Facility Metric Tonnes Per Annum
DRI Plant 160,000
Electric Arc
Furnace 250,000
Billet Caster 240,000
Bar Mill 400,000
EXPANSION PROJECT- BENEFICIATION & PELLET PLANT
Earlier in terms of the Hon'ble Supreme Court order the illegal mines
were all closed down in Karnataka. And the Hon'ble Supreme Court wanted
to regulate the mining activities. As a result, there was a shortage of
iron ore supply in the State of Karnataka. Your company resorted
to buy pellets instead of iron ore lumps. In order to obviate this
difficulty the company had planned a Backward Integration exercise of
setting up a Beneficiation and Pelletisation Plant. This expansion
envisages Beneficiation of Iron ore fines and the company will be
producing Pellets which in turn will be utilized for the production of
Sponge Iron. In other words, the Pellets which will be produced will
become the raw materials for the manufacture of Sponge Iron in our
Direct Reduction of Iron (DRI) Kilns.
The Techno Economic Viability of the project was also carried out by
M/s. MITCON Consultancy which has found the project to be viable.
6. WAY FORWARD FOR THE COMPANY
As stated earlier, the Company has availed the CDR mechanism to
restructure its existing debts with the lenders. The Company has signed
a Master Restructuring Agreement (MRA) with its lenders. The repayment
is spread over a ten year period ending in the year 2023-24. The
mechanism also stipulates stringent monitoring by the lenders including
monthly cash flows. The lenders have constituted a Monitoring Committee
(MC) lead by the Monitoring Institution (MI) viz. IDBI Bank Ltd.
The Company with a view to augment the operational profitability has
introduced certain concepts which will help in utilizing the full
capacity of the plant and simultaneously contributing towards the
recovery of fixed cost. Further, the cost optimization exercise is
being undertaken on continuous basis for improving the overall
productivity and thereby helping in improving the bottom line.
Even though there has been delay in expected commencement of operations
at Raichur, the resolution of the Labour dispute amicably has created a
positive working environment. The Company in all its earnest is looking
to capitalize this positive environment and immediately commence the
operations at Raichur subject to necessary approvals for release of
sanctioned funds from the consortium lenders. The Company is very
positive that on the commencement of Raichur operations the overall
financial outlook of the company will become vibrant.
The Company in the past few years had suffered severe liquidity crunch
on account of negative market sentiments per se prevailing in steel
industry. This had been the major contributing factor for the company's
decision to utilize the CDR forum for restructuring its debts with
consortium of bankers. With a view to improve the financial viability
of the company conscious decision to dilute the company's holding in
its subsidiaries is envisaged. It is also planned to unlock the
inherent valuations of each of the projects by bringing in strategic
partners to augment the parent company in realizing its investment.
UNLOCKING INVESTMENTS IN SUBSIDIARIES
SIL has made total investments of Rs.534.24 Crores in its subsidiaries
viz. SPL (Rs. 418.50 Crores), SGPL (Rs. 56.15 Crores) & SMML (Rs.
59.59 Crores). These investments are yet to yield returns. While the
investment decision is sound, the execution of these businesses have
faced various bottlenecks in the form of non-availability of working
capital, un-favourable market conditions, coal linkage, inordinate
delay in getting certain regulatory approvals and other macroeconomic
issues. These have stressed the cash flows of the parent company, SIL.
Presently, we are in advanced discussions with various investors. Going
forward, it is proposed to unlock their value by divesting majority
equity stake in these Companies.
The Board of Directors of SIL has in principle approved the divestment
of the three subsidiaries viz; M/s. Surana Power Limited, M/s. Surana
Green Power Limited and M/s. Surana Mines & Minerals Limited.
7. SUBSIDIARIES
In accordance with the General Circular issued by the Ministry of
Corporate Affairs, Government of India, the Balance Sheet, Statement of
Profit and Loss and other documents of the subsidiary companies are not
being attached with the Balance Sheet of the Company. However, the
financial information of the subsidiary companies is disclosed in the
Annual Report in compliance with the said circular.
SURANA POWER LIMITED
Surana Power Limited a 100% subsidiary of Surana Industries Limited is
in the process of setting up of 2 x 210 MW Thermal Power Plant at
Raichur. The original project cost was estimated at Rs.2400 crs in the
year 2010. However, the project cost has been revised to Rs.3090 crores
on account of increase in Interest during Construction (IDC). SPL has
an 35MW operational thermal power plant. After completing the 2 x 210
MW Thermal Power Plant, the generation capacity of Surana Power Limited
will be increased to 455 MW.
The operations of the 35MW were adversely affected during the year due
to fall in power tariff rates and increase in input costs.
Consequently, the debt under sole banking with UCO Bank was
restructured.
During the financial year 2014-15, the revenue from operation is stood
at Rs. 51.77 Crores as compared to Rs.70.97 Crores for the previous
financial year 2013-14. Revenue from operation is only through sale of
coal in stock and the 35 MW Captive Power Plant was not in operation
for the entire financial year due to labour unrest, financial
constraint and other unviable market conditions.
During the financial year 2014-15, the Other Income stood at Rs. 0.09
Crores as compared to Rs. 0.12 Crores for the previous financial year
2013-14.
Finance cost stood at Rs. 25.90 Crores for the financial year 2014-15
as against Rs. 23.80 Crores for the financial year 2013-14.
Depreciation and amortization expenses stood at Rs. 76.90 Crores for
the financial year 2014-15 as against Rs. 12.13 Crores for the
financial year 2013-14.
Other expenses stood at Rs. 53.02 Crores for the financial year 2014-15
as against Rs. 36.61 Crores for the financial year 2013-14.
Loss before tax is Rs. 150.84 Crores for the financial year 2014-15 and
Rs.29.07 Crores for the financial year 2013-14. Loss after tax for the
financial year 2014-15 stood at Rs.160.08 Crores and Rs. 116.24 Crores
for the financial year 2013-14.
Surana Industries Limited has already infused a capital contribution of
Rs.418.50 Crores. SPL has already spent around Rs. 1929.66 Crores as on
31st March 2015. The source for the same was equity contribution of Rs.
350 Crores, and balance by way of term loan from consortium of lenders.
SURANA MINES AND MINERALS LIMITED
Surana Mines and Minerals Ltd, SMML a 100% subsidiary of Surana
Industries Limited, at Singapore is expected to commence trading
activities in coal as well as scraps in the global market for supply to
steel and power plants in the group. SMML has a step down subsidiary PT
Borneo Mines & Minerals Ltd which has acquired mining rights in the
Sassanga coal mines in Indonesia. The 2640 acres of the Sassanga coal
mines have proven reserves of 60-70 million tonnes of coal. The Company
is facing difficulty in raising funds for working capital due to the
restructuring of the debts of the parent company Surana Industries Ltd
and has incurred a loss of US$ 1,17,971/- on a consolidated basis for
the FY 2014-15.
SURANA GREEN POWER LIMITED
SGPL, a 100% subsidiary of Surana Industries Limited, is in the
business of Power Generation. SGPL has currently 7 windmills of 1.5MW
capac- ity. SGPL has a step down subsidiary (wholly owned subsidiary)
M/s. Surana Green Energy Limited (SGEL), an SPV through which the
Company is availing the Group Captive Scheme (GCS), whereby SGEL is
able to sell electricity to other Captive users.
SGPL has also been registered under the UNFCCC (United Nations
Framework Convention on Climate Change) Clean Development Mechanism
Scheme (CDM). The project is eligible for Carbon Credits which are
sold in the international markets. This has provided additional revenue
to SGPL.
For the FY 2014-15, the Company has operated on average PLF of 14.95%
and generated 152.22 lakh units. During the year there was a decline in
the turnover and it stood at Rs.0.70 Crs compared to Rs. 0.95 Crs in
the previous year ended March 31,2014.
For the FY 2014-15, SGEL had achieved a total turnover of Rs. 8.14
Crores as against Rs.7.87 Crores during the previous year ended March
31,2014.
A Statement Pursuant to first proviso to sub-section (3) of section 129
read with rule 5 of Companies (Accounts) Rules, 2014 containing salient
features of the financial statement of subsidiaries/associate
companies/joint ventures in Form AOC-1 is annexed to this report as
"Annexure A".
8. OPPORTUNITIES
The steel production capacity in the country has increased
substantially and the production may touch around 200 million tonnes by
the year 2020. The country has the necessary iron ore reserves to
achieve this level of steel production. Due to expected acceleration in
GDP growth rate in the medium and long term, the demand for steel is
bound to go up significantly. This will benefit all steel producers
including your Company.
The Infrastructure sector is expected to get an impetus under the new
government, which will also translate into substantial increase in
steel demand. The Company also undertakes Cold Rolling operations which
provide a good margin of profitability. The Company procures materials
mainly from leading steel producers and after cold rolling, sells the
same in the market. This shall also add to the overall profitability of
the Company.
9. THREAT PERCEPTION
Your Directors feel that the Company will have to gear up its marketing
activities so as to compete effectively with the established producers.
Marketing of Alloy Steel and Special Steels needs concerted efforts and
experience. In the Raichur steel plant, the Company will be
manufacturing Special Alloy Steels which are mostly meant for
Automobile Manufacturers who will demand strict adherence to the
quality of the products. The alloy steel market has high competition.
There- fore, it is essential for the Company's marketing team to
aggressively and effectively market the products.
Similarly, in the case of TMT Bars, there can be good competition from
the various producers. Builders and contractors are the ultimate end
users of TMT Bars and it is necessary for the Company to aggressively
market these products.
Shortage of quality raw materials, surging freight costs and escalation
of the costs of inputs, fuels etc. will continue to keep the cost of
production high for steel manufacturers.
The main threat perception is linkage of iron ore and coal. Delay in
completion of the backward integration project can also affect
profitability of future operations.
Further, in regards to financial implications, there can be threat
perceptions, due to tough competition it would be difficult for the
Company to pass on the entire cost push to the Customers by way of
increased finished steel prices. Faced with aggressive marketing
strategy and cost cutting initiatives, the Company constantly reviews/
monitors the costs of various inputs and finds out ways (either
technological or commercial) to reduce the cost of steel production,
wherever is possible. The Directors have been taking requisite measures
to overcome various impediments which may come in the way of smooth
functioning of the Company.
10. RISK PERCEPTION
The Directors are constantly assessing the business risks pertaining to
the performance of the Company. The following are the important risks
perceptions:
* Quality Maintenance of the End Products
* Adequate availability of Raw Materials
* Requisite Power Supply
* Removal of Transport Bottlenecks
* Sudden Increase in Prices of Inputs
* Customers Default
* Inadequacy of Finance Arrangement
* Statutory Policies
* Events Due to Unforeseen Circumstances
* Volatility in international supply/demand of steel products
Your Directors are fully conscious of the various business risks and
have taken adequate care to tackle any situation. Strict controls are
enforced on the quality front and all other matters for smooth
operation of the steel plants.
11. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
The Company has a internal control system which is in the process of
streamlining. All transactions are subject to proper scrutiny. The
Company also has Independent Internal Auditors who carry out the
internal audit on a quarterly basis covering all areas during the
financial year and submit their report on a quarterly basis to the
Audit Commit- tee. The Management takes immediate correc- tive action
wherever it is being pointed out to help streamline the internal
control process. The Audit Committee further insisted that there should
be stronger internal control systems to be in place. A policy on
internal controls had already been devised and implemented for the
company and the management shall ensure the effectiveness of the
working of such policy.
12. CONSOLIDATED FINANCIAL STATEMENTS
In accordance with the Accounting Standard (AS) - 21 on Consolidated
Financial Statements read with AS - 23 on Accounting for Investments in
Associates and AS - 27 on Financial Reporting of Interests in Joint
Ventures, the audited consolidated financial statements is provided in
the Annual Report.
13. HUMAN RESOURCES
The Management envisions trained and motivated employees as the
backbone of the Company. Special attention is given to recruit trained
and experienced personnel not only in the production department but
also in marketing, finance and accounts. The Management strives to
retain and improve employee morale. The Company has total staff
strength of about 300 employees. The Company is in the process of
revamping the employer employee engagement program.
The labour unrest at the Raichur Integrated steel plant plagued the
operations of the plant for the major part of the financial year. For
the last three years a certain section of the workers of our
Raichur Integrated Steel Plant have been resorting to illegal
activities and have been instigated by local elements with vested
interests. The Company would like to bring to the notice of the share
holders that the said strike / labour dispute have been amicably
resolved and we expect no turbulence in the near future.
The Company has streamlined its manpower strength at the Chennai
offices including the corporate head office. As a result of manpower
rationalization exercise, the monthly payroll has been optimized. The
decision for rationalization of labour has enabled the company to
curtail fixed manpower costs. However, the core technical expert team
is retained to guide the Company to achieve higher and efficient level
of production.
14. CORPORATE GOVERNANCE
The Directors pay special attention to ensure that the guidelines given
for the corporate governance are strictly adhered to. All possible
steps are taken to adhere to the requirements set out by SEBI
Guidelines on Corporate Governance. The Company is also aligning itself
to implement global corporate governance practices. This is ensured by
taking ethical business decisions and conducting business with a firm
commitment to values, while meeting stakeholder's expectations. At
Surana, it is imperative that the company affairs are managed in a fair
and transparent manner. This is vital to gain and retain the trust of
our stakeholders.
A separate report on the Corporate Governance also forms part of the
Annual Report. Requisite certificates from the Auditors of your Company
regarding compliance of the conditions of the corporate governance as
stipulated under Clauses 49 of the Listing Agreement with the Stock
Exchanges is also attached to the corporate governance report. With
regard to the Business Responsibility Report, the Company is not
covered in the top 100 listed entities, based on the market
capitalization at BSE & NSE, in terms of SEBI Circular
CIR/CFD/DIL/8/2012 dated August 13, 2012.
15. CORPORATE SOCIAL RESPONSIBILITY AND GOVERNANCE COMMITTEE
The Board of Directors has constituted a Corporate Social
Responsibility and Governance Committee (CSR&G Committee) in compliance
with the provisions under the Companies Act, 2013. The committee
comprises of Shri K.N Prithiviraj as the Chairman, Shri Krishna Udupa
and Shri. Dineshchand Surana as its other members.
The said Committee has been entrusted with the responsibility of
formulating and recommending to the Board, a Corporate Social
Responsibility Policy (CSR Policy) indicating the activities to be
undertaken by the Company, monitoring the implementation of the
framework of the CSR Policy and recommending the amount to be spent on
CSR activities.
Since the company is making losses for the past three years, CSR spend
does not apply to the company for the financial year 2014-15. Hence
submission of a report on CSR activities does not apply.
16. RISK MANAGEMENT COMMITTEE AND POLICY
The Board of Directors has constituted a Risk Management Committee and
framed a Risk Management Policy in compliance with the provisions under
the Companies Act, 2013 and Clause 49 of the Listing Agreement. The
committee comprises of Shri Dineshchand Surana as the Chairman, Shri
Krishna Udupa, Shri. Anil Gupta and Shri. D. Hem Senthil Raj as its
other members.
17. SEXUAL HARASSMENT POLICY
The Company had adopted the sexual harassment policy as recommended by
the Audit Committee of the Board of Directors; however the Company is
in the process of constituting a committee for the same.
18. DEPOSITORY SYSTEM / E-VOTING MECHANISM:
The Company has entered into a Tripartite Agreement with both the
Depositories viz. National Securities Depository Limited (NSDL) and
Central Depository Services (I) Ltd (CSDL) along with Registrars M/s
Cameo Corporate Service Ltd, Chennai for providing electronic
connectivity for dematerialization on the Company's shares facilitating
the investors to hold the shares in electronic form and trade in those
shares. The shares of your Company are being traded now in on the
Bombay and National Stock Exchanges under compulsory demat form.
Further, in accordance with provisions stipulated under Companies Act,
2013, the facility of e-voting is also made available to all
shareholders of the Company. The instructions regarding e-voting are
available in a separate section of the Annual report. All shareholders
are also requested to update their email ids with the Company or our
RTA M/s. Cameo Corporate Services Ltd.
19. TRANSFER OF AMOUNTS TO INVESTOR EDUCATION AND PROTECTION FUND
Pursuant to the provisions of Section 205A(5) and 205C of the Companies
Act, 1956, relevant amounts which remained unpaid or unclaimed for a
period of seven years have been transferred by the Company, from to
time to time on due dates, to the Investor Education and Protection
Fund. The details of the same are covered under the Corporate
Governance Report.
Pursuant to the provisions of Investor Education and Protection Fund
(Uploading of information regarding unpaid and unclaimed amounts lying
with companies) Rules, 2012, the Company has uploaded the details of
unpaid and unclaimed amounts lying with the Company as on 18th July 2014
(date of last Annual General Meeting) on the Company's website
(www.suranaind.com), as also on the Ministry of Corporate Affairs'
website.
20. AUDITORS
STATUTORY AUDITORS
During the year M/s Deloitte Haskins & Sells LLP., Chartered
Accountants, having firm registration number 117366W/W 100018 have been
appointed as statutory auditors of the company to fill the casual
vacancy arisen on account of resignation of M/s. CSP Jain & Co due to
their pre-occupation with other assignments. The said appointment has
been approved by the share- holders at the Extra-Ordinary General
Meeting of the company held on 30th September 2014.
M/s. Deloitte Haskins & Sells LLP., Chartered Accountants, Chennai
having firm registration number 117366W/W 100018, Statutory Auditor
hold office up to the conclusion of the 24th AGM and are eligible for
re-appointment. The Company has appointed M/s. M/s. Deloitte Haskins &
Sells LLP for a period of five years starting from the financial year
2015-16 to 2019- 20, subject to rati- fication of members in the each
annual general meeting. Further, the company had received letters to
the effect that their re-appointment, if made, would be within the
prescribed limits under Section 141(3) (g) of the Companies Act, 2013
and that they are not disqualified for such re-appointment. Your Board
of Directors recommends their re-appointment as Statutory Auditors to
hold office from the conclusion of the 24th AGM till the conclusion of
the 29th AGM of the Company.
21. AUDITORS REPORT AND MANAGEMENT'S RESPONSE TO AUDITORS OBSERVATIONS
The Auditors have qualified and emphasized certain matters in their
report.
AUDITORS QUALIFICATION
I. Capital work in progress relating to the Pelletisation and
Beneficiation (P&B) Project includes:
a) Interest on borrowings aggregating to Rs. 40765 Lakhs (including
Rs. 22339 Lakhs for the year) relating to the periods during which the
project has been stalled, which constitutes a departure from Accounting
Standard 16 (AS-16) on "Borrowing Costs". Had the interest capitalized
during the period in which the project was stalled been charged to the
Statement of Profit & Loss, the loss for the year and, the Deficit in
the Statement of Profit and Loss, will be higher by Rs. 40765 Lakhs and
Capital Work in Progress will be lower by Rs. 40765 Lakhs.
b) Preoperative expenses incurred in relation to the project
aggregating to Rs. 68 Lakhs (including Rs. 19.82 Lakhs for the year)
relat- ing to the periods during which the project has been stalled,
which constitutes a departure from Accounting Standard 10 (AS-10) on
"Fixed Assets". Had such expenditure capi- talized during the period in
which the project was stalled been charged to the Statement of Profit &
Loss, the loss for the year and the Deficit in the Statement of Profit
and Loss, will be higher by Rs. 68 Lakhs and Capital Work in Progress
will be lower by Rs. 68 Lakhs.
MANAGEMENT'S RESPONSE
We submit that Interest and pre-operative expen- diture have been
capitalised considering the exceptional nature of this industry and
prolonged project implementation period and is being retained under
capital work in progress as per the CDR package.
AUDITORS QUALIFICATION
II. Current investments include investments in subsidiaries aggregating
to Rs 53424 Lakhs which are held for sale and valued at cost. As per
Accounting Standard 13 - Accounting for Investments, these invest-
ments should be valued at the lower of cost and net realizable value.
In the absence of the net realizable value, we are unable to comment
on the adjustments, if any, to the carrying value of the value of
investments as at March 31, 2015.
MANAGEMENT'S RESPONSE
We submit that, our Company is in negotiations with prospective buyers.
In the opinion of the management, the Company will be able to realize
the carrying value of the said investments and hence, no adjustment to
their carrying values is considered necessary.
AUDITORS QUALIFICATION
III. As at 31 March, 2015, the quantity, quality and realizable value
of Inventory aggregating to Rs. 25869 Lakhs, was not assessed and
determined. As per by Accounting Standard 2 - Inventories these
inventories should be valued at the lower of cost and net realizable
value. In the absence of the net realizable value, we are unable to
comment on the adjustments that may be required to the carrying values
of inventories as at March 31, 2015.
MANAGEMENT'S RESPONSE
We submit that, currently efforts are being made to segregate the
inventory at Raichur plant with that inventory belonging to a
subsidiary and physically verify the stock of stores and spares. Raw
Materials lying at the Raichur plant will be segregated and
physically weighed on resumption of production and blended with fresh
materials purchased for use in production. The extent of deterioration
or obsolescence, if any on the above inventory will be assessed at the
time of physical verification / resumption of production and
appropriate adjustments will be recorded on completion of the exercise.
In the opinion of the management, any such adjustment arising out of
physical verification / assessment of the quality will not be material
and will be appropriately dealt with on completion of the exercise.
AUDITOR'S OBSERVATIONS ON CONSOLI- DATED FINANCIAL STATEMENTS AND
MANAGEMENT'S RESPONSE TO THE OBSERVATIONS
The Statutory Auditors have issued a qualified opinion dated 30th May
2015 on the consolidated audited financial statements for the year
ended March 31, 2015 and the basis for qualified opinion and management
responses are as under:
AUDITORS QUALIFICATION
IV. a) Interest on borrowings aggregating to Rs. 48535 Lakhs (including
Rs. 22872 Lakhs for the year) relating to the periods during project
have been stalled, which constitutes a departure from Accounting
Standard 16 (AS-16) on "Borrowing Costs". Had the interest capitalized
during the period in which the projects were stalled been charged to the
Statement of Profit & Loss, the loss for the year and, the Deficit in
the Statement of Profit and Loss, will be higher by Rs. 48535 Lakhs and
Capital Work in Progress will be lower by Rs. 48535 Lakhs.
b) Preoperative expenses incurred in relation to the project
aggregating to Rs. 5475 Lakhs (including Rs. 448 Lakhs for the year)
relating to the periods during which the project has been stalled,
which constitutes a departure from Accounting Standard 10 (AS-10) on
"Fixed Assets". Had such expenditure capitalized during the period in
which the project was stalled been charged to the Statement of Profit &
Loss, the loss for the year and the Deficit in the Statement of Profit
and Loss, will be higher by Rs. 5475 Lakhs and Capital Work in Progress
will be lower by Rs. 5475 Lakhs.
MANAGEMENT'S RESPONSE
Please refer our submission to our responses in note I (a & b) above.
AUDITORS QUALIFICATION
V. As at 31 March, 2015, the quantity, quality and realizable value of
inventory aggregating to Rs. 29369 Lakhs was not assessed and
determined. As per Accounting Standard 2 - Inventories these
inventories should be valued at the lower of cost and net realiz- able
value. In the absence of the net real- izable value, we are unable to
comment on the adjustments that may be required to the carrying value
of these inventories as at March 31, 2015.
MANAGEMENT'S RESPONSE
Please refer our submission to our responses in note III above.
AUDITORS QUALIFICATION
VI. Long term loans and advances include dues from subcontractors
aggregating to Rs 4034 Lakhs represent the amounts taken over from the
EPC contractors which are considered good and recoverable by the
management. In the absence of any confirmation / agreement from these
parties, we are unable to comment on the adjustments that may be
required on the carrying value of these advances.
MANAGEMENT'S RESPONSE
We submit that, the dues are collectable /adjustable on resumption of
project work, and no provision is considered necessary.
AUDITORS QUALIFICATION
VII. Trade payables include amounts payable to subcontractors
aggregating to Rs. 3141 Lakhs and retention monies aggregating to
Rs 661 Lakhs In the absence of details or confirmations from the
parties, we are unable to comment on the completeness of these
liabilities.
MANAGEMENT'S RESPONSE:
We submit that, the Management is of the opin- ion that the said
payables are complete and will be settled in the normal course of
business on resumption of the 2 X 210 MW project work and there will be
no additional liabilities on this account.
INTERNAL AUDITOR
The Board has appointed M/s. Agrya Consulting Private Limited, (CIN:
U74900TN2010PTC078072) Chennai as the Internal Auditors of the Company
pursuant to Section 138 of Companies Act, 2013 and Rule No. 13 of The
Companies (Accounts of Companies) Rules, 2014 for the financial year
2015-16.
The Internal Auditors of the Company has a qualified team of Internal
Audit professionals, who shall be reporting directly to the Audit
Committee of the Company. The Internal Audit would ensure that strong
internal control mechanism is put in place in the Company as per the
recommendations and guidance of Audit Committee.
COST AUDITOR
The Board of Directors had appointed M/s. JV Associates, Cost &
Management Accountants, Chennai (M.No. 6128) as the Cost Auditors of
the Company to audit the cost accounting records of the Company for the
financial year 2015-16.
SECRETARIAL AUDIT
Pursuant to the provisions of Section 204 of the Companies Act, 2013
and The Companies (Appointment and Remuneration of Managerial
Personnel) Rules, 2014, the Company has appointed M/s. Lakshmmi
Subramanian & Associates, Practising Company Secretaries, Chennai to
undertake the Secretarial Audit of the Company. The report of the
Secretarial Audit Report is annexed herewith as "Annexure B"
MANAGEMENT'S RESPONSE TO SECRETARIAL AUDITOR'S OBSERVATIONS
1. The Company is yet to appoint a woman director on its Board as per
section 149(1) of the Companies Act, 2013
The Company had taken necessary steps for inducting a woman director on
its Board pursuant to the provisions of Section 149 of the Companies
Act, 2013 and the same will be complied on or before June 30, 2015.
2. For the 3rd and 4th Quarter, there was a vacancy in the Board in
place of the Independent director which was not filled in during the
audit period as required under section 149(4) read with Schedule IV
and revised Clause 49 of the Listing Agreement entered with the Stock
Exchange.
As per the provisions of revised Clause 49(D)(4) of the Listing
Agreement any vacancy caused due to resignation or removal of an
Independent Director from the Board shall be replaced by a new
Independent Director at the earliest but not later than the immediate
next Board meeting or three months from the date of such vacancy,
whichever is later.
However the company had taken appropriate steps in inducting an
Independent Director on its Board including registration in the
Independent Directors Repository for finding a suitable candidate who
has a sound technical knowledge in the field of steel and power
industry.
3. The composition of the audit committee in the 3rd and 4th quarter
had fallen below the minimum threshold limit of independent directors
and total number of members. Further, there was a lack of quorum in
the audit committee meeting held in the 4th quarter of the audit
period.
The Composition of the audit committee during the 3rd and 4th quarter
had fallen below the minimum threshold limit of independent
directors as per the revised clause 49 of the Listing Agreement due to
resignation of few independent directors on the board with
retrospective effect due to their other pre-occupations.
Further, the lack of quorum for the audit committee meeting held during
the 4th quarter was unexceptional due to the resig- nation of an
independent director on the board who formed part of the Audit
Committee as Member and the same was intimated to the stock exchanges
by way of outcome of Board Meeting.
4. Directors retiring by rotation under section 152 of the Companies
Act, 2013 in the 23rd Annual General Meeting of the Company held on
18th July 2014, as per Companies Act, 1956 and Independent directors
was appointed and under section 149 of the Companies Act 2013 on 30th
September 2014 in the extra-ordinary general meet- ing of the company.
The Independent Directors of the company who retired by rotation at the
23rd Annual General Meeting of the company held on July 18, 2014 are
those Independent Directors who are appointed under the erstwhile
Companies Act, 1956, Further it is to be noted that the Independent
Directors are not liable to retire by rotation only under the Companies
Act, 2013.
Subsequently the Company had appointed all its Independent Directors at
the Extraordi- nary General Meeting of the Company held on September
30, 2014 as per the provisions of Section 149 of the Companies Act,
2013.
5. The service of notice of annual general meeting together with the
annual report of the company for the financial year 2013- 14 was done
partly through courier and by book post.
The Company had served the notice of 23rd annual general meeting
together with the annual report of the company for the finan- cial year
2013-14 well within the stipulated time period under the Companies Act
2013 by way of electronic mode, the confirmation from the Registrar and
Share Transfer Agents is also obtained evidencing the same.
6. The Company is yet to ratify the limits for inter-corporate
investments, loans, guar- antees and securities as per section 186 of
the Companies Act, 2013 and the Rules made thereunder which is required
to be complied not within 1 year from the date of notification of the
provisions of the Companies Act, 2013.
The Company had proposed to ratify the limits for inter-corporate
investments, loans, guarantees and securities as per section 186
of the Companies Act, 2013 and the Rules made thereunder from the
shareholders by way of postal ballot which will be held during the
month of July 2015.
22. DIRECTORS:
The following changes have occurred in the Board of Directors during
the financial year 2014-2015:
22.1 INDUCTIONS/ CHANGE IN DESIGNATION
Appointment of Shri. V. Subramanian as Nomi- nee Director of M/s. IFCI
Ltd on 18th July 2014 and Appointment of Shri. Biju George as Nominee
Director of M/s. IDBI Ltd on 6th September 2014;
Further on the recommendations of the nomination and remuneration
committee, the Board appointed Shri. Babu Srinivasan and Smt.
Soundharya Panchapakeran as additional Directors of the Company We seek
your support in conforming the appointment of Shri. Babu Srinivasan and
Smt. Soundharya Panchapakeran in the ensuing Annual General Meeting.
At the Extra-ordinary General Meeting held on 30th September 2014, the
members had appointed the existing Independent Director viz., Shri.
K.N. Prithviraj as Independent Director under the Companies Act, 2013
for a term of five years with effect from 30th September 2014.
Shri. Krishna Udupa, Director (Projects) has been redesignated as
Director (Non-Executive) of the Company with effect from 18th July
2014.
22.2 DECLARATION BY INDEPENDENT DIRECTORS
All Independent Directors have given declarations that they meet the
criteria of independence as laid down under Section 149(6) of the
Companies Act, 2013 and Clause 49 of the Listing Agreement.
22.3 RESIGNATIONS
Dr. B. Samal has resigned from the position of Independent Director
with effect from 25th September 2014; Shri. S.K. Gupta has resigned
from the position of Independent Director with effect from 14th
October, 2014, Shri. B.S. Patil has resigned from the position of
Independent Director with effect from 1st December 2014 and Shri. V.
Aranganathan has resigned from the position of Executive Director with
effect from 31st May 2014.
The Board had placed on record its appreciation for the outstanding
contributions made by Dr. B. Samal, Shri. S.K. Gupta, Shri. B.S. Patil
and Shri. V. Aranganathan during their tenure of office with the
Company.
Shri. G.R. Surana has resigned from the position of Executive Chairman
of the company with effect from 29th April 2015 due to personal
reasons. Shri. G.R. Surana is a co-founder of the Company and has
played a seminal role in shaping its destiny. The Board appreciates and
thanks him for his efforts in driving delivery and quality excellence
for the Company, The Board also places on record its gratitude for the
services rendered by Shri. G.R. Surana during his long association with
the Company.
22.4 RE-APPOINTMENTS
In accordance with the provisions of the Companies Act, 2013 and in
terms of the Memorandum & Articles of Association of the Company, At
the ensuing 24th Annual General Meeting, Shri. Dineshchand Surana,
Director and Shri. Biju George, Director of the Company are liable to
retire by rotation and being eligible offer them selves for
re-appointment. The Board recommends their re-appointment.
The Companies Act, 2013, provides for the appointment of independent
directors. Sub section (10) of Section 149 of the Companies Act, 2013
provides that independent directors shall hold office for a term of up
to five consecutive years on the board of a company; and shall be
eligible for re-appointment on passing a special resolution by the
shareholders of the Company. Accordingly all independent directors
except for Shri. Babu Srinivasan & Smt. Soundharya Panchapakeran who
were appointed as additional director of the Company & Smt.
Soundharya Panchapakeran were appointed by the shareholders at the
General Meeting as required under Section 149(10). Further, accord- ing
to sub section (11) of Section 149, no inde- pendent director shall be
eligible for appointment for more than two consecutive terms of five
years. Sub section (13) states that the provisions of retirement by
rotation as defined in Sub section (6) and (7) of Section 152 of the
Act shall not apply to such independent directors.
None of the independent directors will retire at the ensuing Annual
General Meeting.
22.5 BOARD EVALUATION
Pursuant to the provisions of Clause 49 of the Listing Agreement, the
Board shall monitor and review the Board evaluation framework. The
Companies Act, 2013 states that a formal annual evaluation needs to be
made by the Board of its own performance and that of its committees and
individual directors. Schedule IV of the Companies Act, 2013 states
that the performance evaluation of independent directors shall be done
by the entire Board of Directors, excluding the director being
evaluated. The Board has carried out an annual performance evaluation
of its own performance, the directors individually as well as the
evaluation of the working of its Audit, Nomination & Remuneration and
Compliance Committees. The manner in which the evaluation has been
carried out has been explained in the Corporate Governance Report.
22.6 FAMILIARIZATION PROGRAMME / TRAINING OF INDEPENDENT DIRECTORS
Every new independent director of the Board attends an orientation
program. To familiarize the new inductees with the strategy, operations
and functions of our Company, the executive directors/senior managerial
personnel make presentations to the inductees about the Company's
strategy, operations, product and service offerings, markets,
organization structure, finance, human resources, technology, quality,
facilities and risk management.
22.7 REMUNERATION POLICY
The Board has, on the recommendation of the Nomination & Remuneration
Committee framed a policy for selection and appointment of Directors,
Senior Management and their remuneration. The Remuneration Policy is
stated in the Corporate Governance Report. All remuneration paid to the
Directors, Key Managerial Personnel and senior management personnel are
as per the remuneration policy of the Company.
23. DIRECTORS' RESPONSIBILITY STATE- MENT:
To the best of their knowledge and belief and according to the
information and explanations obtained by them, your Directors, make the
following statement in terms of Section 134 (3) (c) of the Companies
Act, 2013:
(a) in the preparation of the annual accounts, the applicable
accounting standards had been followed along with proper explanation
relating to material departures;
(b) the directors had selected such accounting policies and applied
them consistently and made judgments and estimates that are reasonable
and prudent so as to give a true and fair view of the state of affairs
of the company at the end of the financial year and of the profit and
loss of the company for that period;
(c) the directors had taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of this Act for safeguarding the assets of the company and
for preventing and detecting fraud and other irregularities;
(d) the directors had prepared the annual accounts on a going concern
basis; and
(e) the directors, had laid down internal financial controls to be
followed by the company and that such internal financial controls are
adequate and were operating effectively.
(f) the directors had devised proper systems to ensure compliance with
the provisions of all applicable laws and that such systems were
adequate and operating effectively.
24. CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION
A statement containing the particulars relating to conservation of
energy, research and develop- ment and technology absorption as
required under Section 134 (3) (m) of the Companies Act, 2013 and Rule
8 (3) (A), (3) (B) and 3 (A) (C) of The Companies (Accounts) Rules,
2014 is annexed to this report as "Annexure C"
25. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186
OF COMPANIES ACT, 2013
Details of Loan, Guarantees and Investments covered under the
provisions of Section 186 of the Companies Act, 2013 are given in the
notes to financial statements refer note 27B, 30B and 30C of notes to
financial statement.
26. PARTICULARS OF EMPLOYEES:
The information required pursuant to Section 197 of the Companies Act
2013 read with Rule 5 of The Companies (Appointment and Remuneration of
Managerial Personnel) Rules 2014 in respect of the employees of the
company, will be provided upon request. In terms of Section 136 of the
Act, the Report and Accounts are being sent to the Members and others
entitled thereto, excluding the information on employees'
particulars which is available for inspection by the Members at the
Registered Office of the Company during business hours on working days
of the Company up to the date of the ensuing Annual General Meeting. If
any Member is interested in obtaining a copy thereof, such Member may
write to the Company Secretary in this regard.
27. DEPOSITS
Your Company has not accepted any deposits from the public during the
year under review.
28. MEETINGS
During the year five Board Meetings and four Audit Committee Meetings
were convened and held. The details of which are given in the Corporate
Governance Report. The intervening gap between the meetings was within
the period prescribed under the Companies Act, 2013.
29. COMMITTEES
Currently, the Board of Directors of the Company pursuant to the
mandatory provisions of Companies Act, 2013 has the following
committees namely:
a) Audit Committee
b) Nomination & Remuneration Committee
c) Stakeholders Relationship Committee
d) Corporate Social Responsibility & Governance Committee
e) Risk Management Committee
A detailed note on the Board and its committees along with the
composition of the committees and compliances is provided under the
Corporate Governance Report section in this Annual Report.
30. AUDIT COMMITTEE
Currently, the Company has an independent and qualified Audit Committee
as per the provisions of Section 177 (8) of the Companies Act, 2013 and
Rule 7 of The Companies (Meetings of Board and its Powers) Rules, 2014
and Clause 49 of the Listing Agreement, the following is the current
composition of Audit Committee:
Name of the Director Category Status
Shri. Babu Srinivasan Non-Executive
Independent
Director Chairman
Shri. K.N. Prithviraj Non-Executive
Independent
Director Member
Shri. Krishna Udupa Non-Executive
Director Member
The Board has accepted all the recommendations provided by the Audit
Committee.
31. VIGIL MECHANISM/WHISTLE BLOWER POLICY
The Company has a vigil mechanism/whistle blower Policy to deal with
instance of fraud and misman- agement, if any. The details of the vigil
mechanism Policy is explained in the Corporate Governance Report and
also posted on the website of the Company.
32. PARTICULARS OF CONTRACTS OR ARRAGEMENTS WITH RELATED PARTIES
REFERRED TO IN SECTION 188(1) OF THE COMPANIES ACT, 2013:
All related party transactions that were entered into during the
financial year were on an arm's length basis and were in the ordinary
course of business. There are no materially significant related party
transactions made by the Company with Promoters, Directors, Key
Managerial Personnel or other designated persons which may have a
potential con- flict with the interest of the Company at large. All
Related Party Transactions are placed before the Audit Committee as
also the Board for approval. The Company is in the process of
developing a Related Party Transactions Manual, Standard Operating
Procedures for purpose of identifica- tion and monitoring of such
transactions. The policy on Related Party Transactions as approved
by the Board is uploaded on the Company's website at the Weblink,
http://www. suranaind. com/related-party-transaction-policy. None of
the Directors has any pecuniary relationships or trans- actions
vis-a-vis the Company. Particulars of Contracts or arrangement with
related parties referred to in Section 188(1) of the Companies Act,
2013, in the prescribed Form AOC-2, is appended as Annexure "D" to
the Board's Report.
33. ENHANCING SHAREHOLDER VALUE
Your Company believes that its Members are among its most important
stakeholders. Accordingly your company's operations are committed to
the pursuit of achieving high levels of operating performance and cost
competitiveness, consolidating and building for growth, enhancing the
productive asset and resource base and nurturing overall corporate
reputation. Your company is also committed to creating value for its
other stakeholders by ensuring its corporate actions positively impact
the socio-economic and environmental dimensions and contribute to
sustainable growth and development.
34. EXTRACT OF ANNUAL RETURN
The details forming part of the extract of the Annual Return in form
MGT 9 is annexed herewith as "Annexure E".
35. GREEN INITIATIVES
During fiscal 2014-15, we started a sustainability initiative with the
aim of going green and minimizing our impact on the environment. This
year, we are publishing only the statutory disclosures in the print
version of the Annual Report. Additional information is available on
our website, www.suranaind.com.
Electronic copies of the Annual Report 2014-15 and Notice of the 24th
Annual General Meeting are sent to all the members whose email
addresses are registered with the Company/ Depository Participant(s).
For members who have not registered their email addresses, physical
copies of the Annual Report 2015 and the Notice of 24th Annual General
Meeting are sent in the permitted mode. Members requiring physical
copies can send a request to the Company.
36. ACKNOWLEDGEMENT
The Board of Directors of the Company wishes to express their deep
sense of appreciation and offer their sincere thanks to all the
Shareholders of the Company for their unstinted support to the Company.
The Board also wishes to express their sincere thanks to all the
esteemed Customers for their support to the Company's products.
The Board would also like to place on record their deep sense of
gratitude to the various Central and State Government Departments,
Organizations and Agencies for the continued help and co-operation
extended by them.
The Directors also gratefully acknowledge and thank all financial
institutions and banks for their timely support in restructuring the
Company's debt under the CDR mechanism failing which the Company would
have succumbed to the recession faced by the Steel Industry.
In the end, the Board would like to place on record their deep sense of
appreciation to all the executives, officers, employees, staff members,
and workers at the factories.
For and on behalf of the Board of Directors
-Sd- -Sd-
Babu Srinivasan Dineshchand Surana
Date : June 29, 2015 Chairman Managing Director
Place : Chennai (DIN: 06608264) (DIN: 00007032)
Mar 31, 2013
To The Members
The Directors of your Company have great pleasure in presenting to you
the 22nd ANNUAL REPORT of the Company, together with the Audited
Balance Sheet as on 31st March, 2013 and the Proft and Los s A cc o unt
for th e year ending on 31st March, 2013.
1. FINANCIAL RESuLTS
The Financial Results of the Company for the year under review is s u m
marized below for your perusal and consideration.
PARTICULARS 2012-2013 2011-2012
(Rs. in Crores)
Net Sales 1425.00 1351.42
Proft before Tax and Depreciation 66.53 77.47
proft before tax 27.50 44.74
provision for cur rent tax FBT 2.69 8.95
Deferred Tax Provision 14.55 11.29
Proft after Taxes 10.24 32.76
Proposed Dividend 3.11 3.48
Dividend Tax 0.52 0.56
Transfer to General Reserves 1.02 3.28
Balance carried forward from 203.29 177.85
previous year
Balance Carried Forward to oux 206.71 203.29
Balance Sheet
1.1 Financial Perf o r m ance
Your Directors are pleased to state that the Company achieved Net sales
of Rs. 1424.60 Crores for the year end- ing on 3 1st March, 2013 as c o
mpa re d to Rs .1351.42 crores in the previous year despite a very
difficult period.
Profits after taxes (PAT) amounted to Rs.10.25 Crores as compared to
Rs. 32.76 crores for the previous year.
The decrease in PAT on yoy basis in mainly on account of increase in
cost of raw materials and other inputs due to inconsistency in the
supply of iron ore, higher fna nce cost
and depreciation. The sale prices of end p roducts was also volatile.
At times the billet prices increased substantially resulting in thin
margins. The power situation in Tamilnadu was also very unsatisfactory
resulting in lesser production. Further, your company had to make more
provisions for depreciation in view of increase in fxed assets.
1.2. key Financial Ratios
The s alient features of the performance of the Company can be seen
from the following key ratios:
2012- 2013 2011-2012
Earnings Per Share (Rs) 2.36 11.90
Dividendper Share (Rs) 0.70 1.20
Dividen PayoutRatio (%) 30.43 10.64
Returnon Net worth (%) 0.94 5.45
2. DIVIDEND
Your Directors have recommended a fnal dividend of Rs.0.70/- per equity
share (7 percent) for the fnancial year ended on 31st March, 2013 as
against 10% declared last year. A lesser percentage of dividend is
recommended due to a reduction in profitability this year as well as
the need to conserve resources for the expansion programme. The
dividend distribution would result in a cash outfow of Rs.3.12 crores
and tax on dividend of Rs. 0.53 crore as against Rs.3.48 crores, and
tax on dividend of Rs. 0.56 crore, in thep re vious year.
3. OPERATIONAL ISSuES:
3.1 Gummidipoondi Plant & Madhavaram Service Centre:
The production at Gummidipoondi Plant has been affected for the last
couple of years due to severe power cut in Tamil Nadu.Th ere is a 40%
power cut for the industries in Tamil Nadua n d th is situation
continued for most part of the fnancial ye ar. T he Plant is purchasing
additional power from the Gr idand this has increased the input costs.
Despite the power cuts the plant is running at around 80% capacity. The
processing and trading activity at the Madhavaram Service Centre has
been a major contributor to the sales for the FY 2012-13.
3.2 Integrated Steel Plant at Raichur:
The I nte grated Steel C o m plex at Raichur was implemented in two
phases. The frst phase comprising of Sponge Iron Plant (Direct
Reduction of Iron) and Steel Melting Shop were completed in June 2008
andFebrua ry, 2009resp ectively. The Rolling Mill operation was taken
up in the second phase in as much the capacity of the rolling mill was
increased from 0.2 million tonnes per annum to 0.3 million tonnes per
annum which has become fully operational. Currently, all four kilns of
the DRI plant are operational. The company is using high grade iron ore
fnes in the form of pellets to produce sponge iron. During the year the
SMS plant and Rolling Mill had taken a shutdown due to maintenance and
non-availability of certain balancing equipments. However, the Company
is now procuring billets from the market for operation of the Rolling
Mill.
3.3 Phase I- Beneficiation & Pellet Plant at Raichur
Earlier in terms of the order of the H onÂble S uprem e Court all the
illegal mines were closed down in Karnataka. The Court w a nted that
th e m i n in g activities. As a result, there was a shortage of iron
ore supply in the State of Karnataka. Your company resorted to buy
pellets instead of iron ore blocks. In orderto obviate this difficulty
the company is going for a backward integration by setting up a
Benefciation and Pelletisation Plant. This expansion envisages
benefciation of iron ore fnes which will then be converted into Pellets
which in turn will be utilize d for the production of Sponge Iron. In
other words, the Pellets which will be produced, will become the ra w m
aterials for the manufacture of Sponge Iron in our Direct Reduction of
Iron (DRI) Kilns.
3.4 Project details
Your company is currently into manufacturing of long products out of
its facilitya t Raichur & G ummidipoondi. In its endeav- our to bring
eco nomies o f scale and product diversifcation, the Company intends to
set up new facilities through an expansion plan in phases, envisaged at
Raichur adjacent to the existing plant. As a part of this strategy, the
Company intends to set up iron ore benefciation & pelletisation
facilities of capacities 1.3 MTPA & 1.2 MTPA respectively. The project
is under implementation following facilities :
MTPA
Facility Existing Expansion Total
A. Raw Material Preparation
unit
Benefciation Plant 1.30 1.30
Pellet Plant 1.20 1.20
B. Iron making unit
DRI Plant 0.16 0.16
C. Liquid Steel & Semis
making unit
Electric Arc Furnace 0.25 0.25
Billet Caster 0.24 0.24
D. Rolling unit
Bar Mill 0.40* 0.40
3.5 Project Cost
The total Project cost is estimated at Rs.1,253 Crore. The break-up of
the Project cost is as under:
Particulars Amount
Land & Site Development 100
Building & Civil Works 121
Plant & Machinery 8611
Contingencies 371
Hard Cost 1119
Pre-operative Expenses 17
Interest During Construction 78
Margin Money for Working Capital 39
Total 12531
3.6 Means of Finance
The Project is proposed to be fnanced in the debt equity ratio of
1.5:1. The proposed means of fnance has been given in the table below:
Particulars Amount
Equity
Promoters/PE Investors 471
Internal accruals 100
Sub Total (A) 571
Debt
Rupee Term Loan (B) 682
Total (A B) 1253
5. SUBSIDIARIES:
5.1 Surana Power Limited
Surana Power Limited is in the process of setting up of 2 x 210 MW
Thermal Power Plant at Raichur at a total cost of Rs.2900 crores. SPL
already has an existing 35MW Power Plant. After completion of the 420
MW Thermal Power Plant, the generation capacity of Surana Power Limited
will be increased to 455 MW.
Surana Industries Limited has already infused a capital contribution of
Rs.391 crores and the Foreign Private Equity Investors are expected to
bring in additional equity very shortly.
The funding requirement for the 420 MW Power plant was earlier
estimated at Rs.2400 crores. This has now been revised to Rs. 2900
crores. The revision in project cost is on account of Interest during C
onstruction for period commenc- ing from Jan 2013. The revised project
cost is proposed to tied up by equity contribution of Rs. 725 crores
and debt fund- ing of Rs. 2175 crores. Surana Industries Ltd has
already infused Rs. 391 crores as equity. The Company has already spent
around Rs. 1500 crores as on 31 st March 2013. This has been met out of
the equity contribution of around Rs. 400 crores and term loan of Rs.
1100 crores. The project is now expected to go on stream by January
2015.
5.2 Surana Mines and Minerals Limited Singapore:
Surana Mines andM inerals Ltd, SMML is the wholly owned subsidiary of
Surana Industries Ltd at Singapore.
The Company is expected to commence trading activities in coal as well
as scraps in the global market for supply to steel an d power plants in
the group. SMML has a step down subsidiary PT Borneo Mines & Minerals
Ltd which has ac- quired mining rights in the Sassanga coal mines in
Indonesia. The 2640 acres of the Sassanga coal mines have proven
reserves of 60-70 million tonnes of coal. The frst consign- ment of
coal are expected to commence in FY 2013.
5.3 Suran a G r e e n P o w e r L imited :
SGPL, a 100% subsidiary of Surana Industries Limited, is in the
business of Power Generation. SGPL has currently 7 windmills.
SGPL has step down s u bsidiary (wholly owned subsidiary) M/s. Surana
Green Energy Limited, an SPV through which the Company intends to avail
the Group Captive Scheme (GCS), whereby the S G EL shall be able to
sell electricity to other Captive users.
SGPL has also been registered under the UNFCCC (United Naitons
Framework Convention on Climate Change) Clean Development Mechanism
Scheme(CDM). The project is eligible for C arbon Credits which are sold
in the international mark ets. This has provided additional revenue to
SGPL.
The Company has plans to setup a 101 MW windmill project and also has
plans to enter the Solar Energy space. However, these are yet to take
off.
6. FUTURE OUTLOOk AND COMPANYÂS EXPANSION PLANS:
The World Steel Production and Consumption have recorded a continuous
increase since 1995. There was a remarkable increase in the growth rate
with the start of the 21st Cen- tury. According to economists, the
growth trend is likely to contin u ewe ll past these years with global
production and consumption estimated to increase at least at a rate of
6% per annum.
Though a number of green feld steel plants have been an- nounced,
because of various constraints there is likely to be dela y incre at
ion of new capacities. Thus, the supply side may no t me etth e growth
in domestic demand.
Taking into account the above factors and as there will be a large
scale demand for special steels, your Company has embarked upon an
expansion programme by way of back- ward integration. The details are
given below:
SIL is currently into manufacturing of long products out of its
facility a t Raich ur & G ummidipoondi. In its endeavour to bring
economies of sca le and p roduct diversifcation, the C ompany intends
to s et up new facilities through ane xpansion plan in phases,
envisaged at Raichur adjacent to the existing plant. As a part of this
strategy, the Company intends to set up iron ore beneficiation &
pelletization facilities of capacities 1.3 MTPA & 1.2 MTPA respectively
as Phase I of the Expansion of project. Upon implementation of the
Project, SIL would have the following facilities:
(MTPA)
Facility Existing Expansion Total
A. Raw Material Preparation
Unit
Benefciation Plant I 1.30 1.30
Pellet Plant 1.201 1.20
B. Iron making Unit
DRI Plant 0.161 10.16
C. Liquid Steel & Semis
making Unit
Electric Arc F urnace 0.251 10.25
Billet Caster 0.24 10.24
D. Rolling Unit
Bar Mill 0.40 10.40
E. Oxygen Plant 500 TPD 1500
The proposed site is located within the Industrial Growth Centre
developed by KIADB in Raichur. The connectivity of the site to the key
logistic/raw material/utility centres has been tabulated below:
Connectivity Details
The nearest Railway station is Yerama- ras on Guntakal - Wadi section
of South Central Railway, which is located at a distance of 7 Km from
plant site. SPL is Rail in possession of 42 acres of land near the
railway station for setting up railway siding. SIL proposes to enter
into a MoU with SPL for of use the railway siding. NH 7 is located at
a distance of about 120 Km from the plant site while the Road nearest
state highway SH 13 passes about 1.5 Km from the site. The nearest
airport is Rajeev Gandhi Airport International Airport, Hyderabad
located at a distance of about 151 Km. The Company proposes to utilize
the Krishnapatnam port for import of non- coking coal. The port has
dedicated Port berths for handling coal cargo. The port is located at a
distance of 480 Km from the plant site.SIL would
purchase iron ore fnes from the nearby mines in Bellary-Hospet Mines
region, NMDC, Mysore Minerals Limited etc.
The Krishna River is at a distance of 8 km from the Project site and
SIL has Water obtained GoK approval for drawing 60 MLD of water from
the river.
The State DISCOM grid at Chiksugur Power having 33 KV sub - station is
about 1.5 Km away from the site.
Earlier it was estimated that additional Land would be needed for
development of Phase I of the project. However, Phase I of the project
can now be accommodated in the existing layout of 131.55 acres. An
aggregate of 280 acres has been identifed for the entire expansion
project. Land acquisition is being done through KIADB. Govt. of Karna-
taka vide Gazette Notifcation in 2011 has identifed the land parcel for
the Project for industrial use. Final notifcation is pending from
KIADB.
7. OPPORTuNITIES:
The steel production capacity in the country has increased
substantially and the production may touch around 200 mil- lion tonnes
by the year 2020. The country has the necessary iron ore reserves to
achieve this level of steel production.
Due to e xpected acc eleration in GDP growth rate in the medium and
long term, the demand for steel is bound to go up significantly. This
will beneft all steel producers includ- ing your Company.
8. THREAT PERCEPTION:
Your Directors feel that the Company will have to gear up its mark
eting activities so as to compete effectively with the established
producers. Marketing of Alloy Steel and Special Steels needs concerted
efforts and experience. In the Raichur steel plant, the Company will be
manufacturing Special Alloy Steels which are mostly meant for Automo-
bile Manufacturers who will demand strict adherence to the qualityof
the products. Therefore, it is essential for the CompanyÂsma rketing
team to aggressivelyande ffectively mark et theproduc ts.
Similarly, in the case of TMT Bars, there can be good com- petition
from the various producers. Builders and contractors are the ultimate
end users of TMT Bars and it is necessary for the Company to
aggressively market these products.
Shortageo f quality raw m aterials, surging freight costs and
escalation of the costs of inputs, fuels etc. will continue to keep the
cost of production high for steel manufacturers.
The main threat perception is linkage of iron ore and coal.
Further, in regards to fnancial implications, there can be threat
perceptions in hardening of interest rates which will also pose a
problem for the Company. The Company has not received any major
reduction in the interest rates on the loans. At the same time, due to
tough competition it would be diffcult for the Company to pass on the
entire cost push to the Customers by way of increased fnished steel
prices. Faced with aggressive m arketing strategy and cost cutting
initiatives, the Company constantly reviews/monitors the costs of
various inputs and fnds out ways (either techno- logical or commercial)
to reduce the cost of steel production, wherever it is possible. The
Directors have been taking requi- site measures to overcome various
impediments which may come in the way of smooth functioning of the
Company.
The Company also undertakes Cold Rolling operations. There is a good m
a r gin a vaila ble on these transactions. The Company procuresm
aterials mainly from Rashtriya Ispat Nigam and Steel Authority of India
and after cold rolling, sells the same in the market.
9. RISk PERCEPTION
The Directors are constantly asse ssing the business risks pertaining
to the performance of the Company. The following are the important
risks perceptions:
Quality Maintenance of the End Products Adequate availability o f Raw
Materials Requisite Power Supply Removal of Transport Bottlenecks
Sudden Increase in Prices of Inputs Customers Default Inadequacy of
Finance Arrangement Statutory Policies Events Due to Unforeseen
Circumstances
Global Recession
Your Directo rs are fully conscious of the various busi- ness risks and
have taken adequate care to tackle any situ- ation. Strict controls are
enforced on the quality front and all other matters for s mooth
operationo f the steel plants.
10. INT EERNAL C ONT R O LL SYSTEM AND THEIR ADEquACY:
The Directors are pleased to state that the Company has a very good
internal control mechanism. All transactions are subjected to strict
scrutiny. The Company has a ppointed
Internal Auditors who regularly audit the various transac- tions in the
company and report back to the Management about any defciencies
noticed. There is a s ystem of monthly review of the performance of the
Company at the highest level. The following aspects are monitored.
Actual production achieved vis-Ã -vis Targets Sales vis-Ã -vis Targets
Reasons for deviations from targets Inventory Holding Realization of
Book De bts and NPAs Identification of slow moving items Expenditure
control Cost analysis of various inputs Power ando il consumption Bank
limits and drawings their against Monthly budgets and their analysis
Accordingly, strategies are drawn to improve upon the work- ing of the
company.
11. IMPLEMENTATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS:
ourD irectors a re p leased to state that the Company has fully geared
up its activities to meet International Financial Reporting Standards.
The effective implementation date has been deferred. Your Company will
be able to implement the same immediately once the date is announced.
12. SAP-ERP:
Your Directors take pleasure in stating that the Company is completely
integrated on SAP-ERP system across all its plants in the Country.
SAP-ERP supports and meets the requirements of a changing industry. As
a result, it helps in curbing costs through increased fexibility and
leverages productivity and insight. It also improves fnancial manage-
ment and corporate governance. Customers and Vendors are facilitated
with automated alert facilities on their business activities with the
Company.
13. HuMAN RESOuRCES:
The Company has been giving due attention for the devel- opment of
Human Resources. A trained and motivated em- ployee is the backbone of
the Company. Adequate attention is given to this aspect. The Company
has been recruiting trained, experienced and qualified personnel for
its Raichur Project. The Company is fully aware of the necessity for
the same. Special attention is given to recruit trained and expe-
rienced personnel not only in the production department but also in
marketing and fnance and accounts. Motivation is the most important
factor. The Company strives very hard to retain and improve em ploye
emo rale.
For the last three years a certain section of the workers of our
Raichur Integrated Stee l P lant have been resorting to illegal
activities and havenot been d ischarging the duties in terms of the
service regulations of the company. The local man- agement in Raichur
has been constantly in touch with the workers so that their pending
issues could be resolved.
We have been negotiating with the workers, pointing out that the
company has commenced commercial production only in 2008-09 and the
Integrated Steel Plant is yet to be stabilized. A Number of meetings
took place and minutes were drawn.
Further, as you are awar e the company is having a cash fow problem on
account of the expansion p roject and at times there has been delay in
the m at ter of providing increments to the workers in time. However
increments have always been defrayed.
In terms of the CompanyÂs understanding with the Karnataka Government
75% of the work force from the local population whose land has been
acquired are to be employed. This has been complied with. Infact we
have rehabilitated all the affected people belonging to Wadaloor
village, a nearby hamlet.
However for the last one year,t here have been many instances of
activities in the factory which have been detrimental to the peaceful
working atmosphere. Som e local political elements have instigated the
work force.
This section of workers forcibly closed down one of the facto- ries
belonging to a subsidiary company. This resulted in the company making
a police complaint. The workers then went
on an illegal strike. The workers who indulged in arson and other
illegal activities were issued termination notices.
Subsequently a detailed letter was sent to the Asst. Labour
Commissioner, who intervened and thereafter conciliation proceedings
concluded. We identifed 57 employees who indulged in unlawful
activities and they were dismissed. They were paid their terminal dues
infull. Out of total 371 employ- ees, 314 persons joined back. The
factory has none reopened and normalcy has been restored in the
operations.
14. ASPIRATIONS OF THE SHARE HOLDERS:
The Board is fully aware of the excellent support given to the Company
by its esteemed shareholders. Their valuable suggestions and guidance
have given the Directors much impetus for undertaking constant review
of the CompanyÂs workin ga n d itsg rowth. The Directors are all the
time con- sidering th e neces sity of adding value for the
shareholderÂs wealt h .
15. CORPORATE GOVERNANCE:
The Directors pay special attention to ensure that the guidelines given
for the corporate governance are strictly adhered to. A ll possible
steps are being taken to this effect. The Dire ctorsa re also fully
aware of their responsibilities towards:
Shareholders of the Company.
C u stomers of theCom pany.
Government of India, State Governments, as well as various statutory
bodies for following strictly, their rules and regulations.
Implementation of Government Guidelines. Strict adherence to the
Environmental Regulations and Guidelines.
Following strictly the various labour laws.
Ensuring transparency.
Strict abeyance of all the Rules and Regulations of SEBI and Stock
Exchanges and also Company Authori- ties.
CorporateSo cial Responsibility.
Certifcates of the Auditors of your Company regarding compliance of he
c onditions of the Corporate Governance as stipulated in Clauses 49 of
the Listed Agreement with the Stock Exchanges is attached. A separate
report on the Corporate Governance is also annexed as part of the
Annual Report.
16. DEPOSITORY SYSTEM / DEMATERIALIzATION OF SHARES:
As indicated in the las t A n n u a l Report, the Company has entered
into Tripartite Agreement with both the Deposi- tories viz. National
Securities Depository Limited (NSDL) and Central Depository Services
(I) Ltd (CSDL) along with Registrars M/s Cameo Corporate Service Ltd,
Chennai for providing electronic connectivity for dematerialization on
the CompanyÂs shares facilitating the investors to hold the shares in
electronic forman d trade in those shares. The shares of your Company
are be ing traded on the National Stock Exchange, the Bombay & Madras
Stock Exchanges under compulsory demat form.
17. AuDITORS:
M/s CSP Jain & Co., Chartered Accountants, Chennai and M/s. R
Subramanian & Company, Chartered Accountants, Joint Auditors of the C
ompany retire from their Offce. They are however eligible for
reappointment.
17.1 Auditors Report
With regard to VIII of the Auditors Report, we submit that the delay,
if any, was on account of mismatch in cashfows. The company has
subsequently deposited the statutory dues and has taken neccessary
steps to prevent re-occurence of the same.
18. ADDITIONAL INFORMATION:
18.1 Conservation of Energy and Technology Absorption:
A statement containing the particulars relating to conserva- tion of
energy, research and development and technology absorptionas required
under Section 217 (1)(e) of the
Companies Act, 1956 read with Companies (Disclosures of Particulars in
the Report of the Board of Directors) Rules 1988 are annexed herewith.
18.2 Directors:
Shri. G.R.Surana and Shri. Dineshchand Surana and Shri. Krishna Udupa,
Directors of the Company are eligible to retire by Rotation and offer
themselves for re-appoint- ment.
18.3 Particulars of Employees:
Partic ularrsof those employees who were in receipt of re- mun eration
tobe disclosed pursuant to Section 217 (2A) of the Companies Act 1956
read with Companies (Particulars of Employees) Rules 1975 are furnished
separately in the Bala nceShee t.
18.4 Directors Responsibility Statement:
Pursuant to the requirements under Section 217 (2AA) of the Companies
Act 1956 the Board of Directors hereby confrm:
That in the preparation of Annual Accounts of the Company forthe
fnancial year ending on 31st March, 2013 the appli- cable acc o un ting
standards have been strictly followed along with pro per e xplanationsa
nd that no material departures havebeenma de fro m the same.
That the Directors have taken such accounting policies and these have
been applied consistently. The estimates and judgments have been
reasonableness and prudence so as to give a true and fair view of the
state of affairs of the Com- pany at the end of the fnancial year
2012-2013 and profts of the Company for the year which ended on 31st
March, 2013. That the Directors have taken proper and suffcient care fo
r the m a intenance of the accou nting re cords in ac- cordance with
the provisions of the Companies Act 1956 for safeguarding the assets of
the Company and for preventing and detecting frauds and other
irregularities, if any .
That the Directors have caused preparation of the Annual Accounts
forthe fn ancial year which en ded on 31st March, 2013 on a going
concern basis.
19. ACkNOwLEDGEMENT
The Board of Directors of the Company wish to express their deep sense
of appreciation and proffer their sincere thanks to all the
Shareholders of the Company for their unstinted support to the C ompa
ny.
The Board also wishes to express their sincere thanks to all the
esteemed Customers for their support to the CompanyÂs products
The Board would also like to place on record their deep sense of
gratitude to the Fina n cial Institutions and Banks for their timely
support to the Co mpany not only for the working capital needs but also
for the implementation of the various projects. The Company would also
like to thank
all the Bankers/Institutions who have sanctioned the facili- ties for
our expansion programme. We are a lso grateful to SBI Capital Markets
Limited for appraising our expansion project and also for syndication
of the necessary term loans for the same.
But for their active support of all these Institutions and Banks, the
fast growth of the Company would not have been possible.
In the end, the Board would like to place on record their deep senseo f
appreciation to all the Executives, Offcers, Em- ployees, Staff
Members, and Workers at the Factory. Their active and loyal involvement
in the CompanyÂs working has enabled your Company to achieve these
heights.
By Order of the Board
For SuRANA INDuSTRIES LIMITED
Sd/-
DINESHCHAND SURANA
Managing Director
Place: Chennai
Date: 29th May, 2013
Mar 31, 2012
The Directors of the Company have great pleasure in presenting to you
the 21st ANNUAL REPORT of the Company, together with the Audited
Balance Sheet as on 31st March, 2012 and the Profit and Loss Account
for the year ending on 31st March, 2012.
1. FINANCIAL RESULTS
The Financial Results of the Company for the year under review is
summarized below for your perusal and consideration.
PARTICULARS 2011-2012 2010-2011
(Rs. in Crores)
Net Sales 1351.42 1223.02
Profit before Tax and
Depreciation 77.47 76.39
Profit before tax 44.74 54.45
Provision for current tax 8.95 11.41
Deferred Tax Provision 11.29 4.43
Profit after Taxes 32.76 56.55
Proposed Dividend 3.48 4.88
Dividend Tax 0.56 0.79
Transfer to General Reserves 3.28 5.65
Balance carried forward from
previous year 177.85 132.65
Balance Carried
Forward to Balance Sheet 203.29 177.85
1.1 Financial Performance
Your Directors are pleased to state that the Company achieved Net sales
of Rs 1351.42 crores for the year ending on 31st March, 2012 as
compared to Rs.1223.02 crores in the previous year.
Profits after taxes amounted to Rs. 32.76 crores as compared to Rs.
56.55 crores for the previous year.
The (decrease in Profit after-tax as compared to the previous year is
mainly an account or increase in cost of raw materials due to
inconsistency in supply of iron ore, finance cost and depreciation.
2. KEY Financial INDICATORS
The salient features of the performance of the Company can be seen from
the following key ratios:
particulars 2011-2012 2010-2011
Earning) Per Share (Rs) 11.28 20.83
Dividend Per Share (Rs) 1.20 1.80
Dividend Payout Ratio (%) 10.64 8.64
Return on Net Worth (%) 5.45 10.34
3. DIVIDEND
Your Directors have recommended a final dividend of Rs. 1.20/- per
equity share (12 percent) for the financial year ended on 31st March,
2012 as against 18% declared last year. A lesser percentage of dividend
is recommended due to a reduction is profitability this year as well as
the need to conserve resources for the expansion pogramme. The
dividend distribution would result in a cash outflow of Rs. 3.48
crores and tax on dividend of Rs. 0.56 crore as against Rs. 4.88
crores, and tax on dividend of Rs. 0.79 crore, in the previous year.
4. STEEL HNDUSTRY OUTLOOK:
Steel is the most widely used engineering material and is poised to
play a very important role in the infrastructure development phase of
India. India has emerged as the fourth largest producer of steel in the
world and is expected to become the second largest producer of7 crude
steel by 2015-16. Consumption of steel follows the GDP growth of any
country. As per Ministry of Steel estimates, the Iron and Steel
Industry contributes around 2%- of the GDP and its weight in the Index
of Industrial Production is 6.2%.
Indian steel demand grew by robust 12.1 per cent CAGR during 2005-06to
2010-11 ,(Fig.1)driven both it blessing investments in infrastructure
and construction and a strong growth in capital goods and automobile
sales. In 2010-11, Indian was the fourth largest producer of steel.
According to estimates, Steel demand in India is to witness strong
growled on account of the projected growth in key steel consuming
segments like automobiles, oil & gas, construction and infrastructure.
Construction activities have surged in the urban areas and there is a
rise in usage of steel in rural areas;. The percent entry nf7 foreign
players in the automobile sector will further boost steel demand.
The steel industry is expected to add substantial quantity of finished
steel capacity during FY 2011 to FY 2013. The finished steel production
is expected to grow by 12.5% in FY 2012 and by 17.5% in FY 2013. By
March 2013, finished steel production is expected to touch 84 million
tonnes from around 63.6 Million tonses in the financial year 2011 as
pumice.
5. PROJECTED DEMAND-SUPPLY SCENARIO
It has been estimated that the steel demand in India will post 7 to 9%
growth between 2010-11 to 2015-16 as compared to a 13.1% growth in the
previous five years. With this the steel demand in India is expected
to reach 90 Million tons by 2015-16. The steel induction is expected to
add 39 Million funs sð finished steel capacity during 2011- 13.
The finished steel consumption is expected or grow by 12% and 14%
respectively in FY 2012 and FY 2013, after an estimated 95% growth in
FY 2011 on account of rising construction and infrastructure
investments in the country. The Eleventh five year plan has a very
large investment target towards infrastructure development.
Power, Roads, Telecommunication and Railways will constitute 72% of the
proposed spending. Based on the correct estimates, infrastructure
investment of7 USD 514 Billion would generate steel demand of f25
Minion Tonnes over a period of 5 years.
The Twelfth Five Year plan (FY 2013 - FY 2017) estimates an investment
outlay of USD 1.2(5 trillion at 2006- 07 prices a 100% increase over
the previous plus entailing a Vague demand potential nor steel in the
coming years.
The installed capacity for crude steel is projected to be 200 MTPA by
FY 2020 as per the National Steel Policy, formulated by the Ministry of
Steel.
Steel is the most widely used engineering material and is poised to
play a very important role in the infrastructure development phase of
India. India has emerged as the fourth largest conducer of steel in the
world and is expected to become the second largest producer of crude
steel by 2015-16. Consumption of steel follows the GDP growth of any
country. As per Ministry of Steel estimates, the Iron and Steel
Industry contributes around 2% of the GDP and its weight in the Index
of Industrial Production is 6.2%.
6. RAW MATERIAL DYNAMICS
6.1 Raw Materials
Iron Ore is the main raw material for our production. India has a
total iron are reserves of 25 billion tonnes available mainly in
Orissa, Jharkhand, Chhattisgarh & Karnataka. Our country is the third
largest exporter of iron ore with approximately 60 of the total
production being exported. Iron ore production and consumption has
grown at a compounded annual growth rate of 11 % and 17% during
Financial Year 2005 to Financial Year 2009 period.
6.2 Allotment of Iron Ore Mines
The Company has already applied for allotment of Iron Ore Mines to the
Government of Karnataka. The matter is being actively followed up. Not
withstanding this, your company is in a position to source this
raw material from the market or from other agencies. However, having
captive mines will improve the competitive advantage for company's
workings.
6.3 Coal Supplies
Your Directors are pleased the state our Subsidiary Company viz Surana
Mines and Minerals Limited, Singapore has acquired miring rights in
Sassing Mines in Indonesia. This will ensure Regular supply of coal
from Indonesia to both Surana Power Limited as well as to Surana
Industries Limited. The prices of coal will be very competitive and
this will ensure greater viability for the Company.
7. OPERATIONAL ISSUES:
7.1 Gummidipoondi Plant:
The Production at Gummidipoondi Plant was affected for the last couple
of years due to severe power auto in Tamil Nadu. From June 2008orwards
there was a 40 % power cost for the industries in Tamil Nadu and this
situation continued for most part of 2009-2010 and also in 2011-2012.
7.2 Integrated Steel Plant at Richer:
The Integrated Steel Complex at Richer was implemented in two phases.
The first phase comprising of Sponge Iron Plant (Direct Reduction of
Iron) and Steel Melting Shop were completed in June 2008 and February,
2009 respectively The Rolling Mill operation was taken up in the second
phase in as much the capacity of the rolling mill was increased from
0.2 million tonnes per annum to 0.3 million tonnes per annum which has
become fully operational. Recent stoppage of mining activities in
large part of Bellary area has affected smooth supply of iron ore to
the plant.
8 SUBSIDIARIES:
8.1 Surana Power Limited
Surana Power Limited is in the processor of setting up of 2 x 210 MW
Thermal Power Plant at Richer at a total cost of Rs.2400 crores. SPL
already has an existing 35MW Power Plant. After completion of the 420
MW Thermal Power Plant, the generation capacity of Surana Power Limited
will be increased to 455 MW.
Surana Industries Limited has already infused a capital contribution of
Rs.37P crores and the Foreign Private Equity Investors and their
Associates and Others are expected to bring in their share or Rs.300
crores in due course.
The estimated funding requirement for the 420 MW Power plant Is Rs.2400
crores. The Company has achieved financial closure. Tire Company has
already spent around Rs. 1030 crores as on 31st March 2012. This has
been met out of the equity contributing of Rs. 300 froes and term loan
of Rs. 770.84 crores. The Project implementation is on schedule and
expected to go on stream by April 2013.
8.2 Surana Mines And Minerals Limited, Singapore
Surana Mines and Minerals Ltd, is the wholly owned subsidiary of Surana
Industries Ltd at Singapore.
The Company is expected to commence trading activities in coal as
well as scraps in the global market for supply to steel and power plant
in the group. The Company has a step down subsidiary M/s. PT Borneo
Mines & Minerals which has acquired reining rights in the Sassanga coal
mines in Indonesia.
8.3 Surana Green power limited:
SGPL, a 100% subsidiary of Surana Industries Limited, is in the
business of Power Generation. It had acquired 8 windmills from the
parent company if the previous year of which one windmill of 0.6 MW has
been sold during the year.
SGPL is in the process of availing the Group Captive Scheme (GCS)
wherein it may sell electricity to other Captive users. SGPL has
incorporated a 100 % subsidiary M/s. Surana Green Energy Limited in
order to avail the benefits under the GCS.
SGPL has also submitted its project for registration under the UNFCCC
(United Nations Framework Convention on Climate Change)Clean
Development Mechanism Scheme(CDM). Once registered the project shall be
eligible for Carbon Credits which can be sold in the international
markets.
The Company has already registered its project for Voluntary Carbon
Credits and will continue claim the credits under this scheme till
registration under the CDM.
The Company has plans to setup a 101 MW wind- mill project and also has
plans to enter the Solar energy sector.
9. outlook AND expansion PLANS:
The World Steel production and consumption have recorded a continuous
increase since 1995. There was a remarkable increase in the growth rate
with the start of the 21st Century. According to economists, the growth
trend is likely to continue well pastiness years wilts global
production and consumption estimated to increase at least at a rate of
6ð% per annum.
Though a number of green field steel plants have been announced,
because of various constraints there is likely to be delay In creation
of new capacities. Thus the supply side may not meet the growth in
domestic demand.
Taking into account the above factors and as there will be a large
scale demand for special steels, your Company have embarked upon an
expansion programme for addition of 1.4 Million togas and annum of
steel production. The details are given below:
Surana Industries Limited (SIL) is currently into manufacturing of7
long products out of its facility at Richer & Gummidipoondi islands.
To bring economies of scale and product diversification. on, the Company
Is setting up new facilities through an expansion plan in phases, at
Richer adjacent to the existing plant. As a part of this strategy, the
Company is setting up iron ore beneficiation & pelletisation facilities
of capacities 1.3 MTPA & 1.2 MTPA respectively. Upon implementation of
the Project, SIL would have the following facilities:
(MTPA)
Facility Existing Expansion Total
A. Raw Material
Preparation Unit _ _ _
Beneficiation Plant - 1.30 1.30
Pellet Plant - 1.20 1.20
B. Iron making Unit
DRI Plant 0.16 - 0.16
C. Liquid Steel &
Semis making Unit
Electric Arc Furnace 0.25 - 0.25
Billet Caster 0.24 - 0.24
D. Rolling Unit
Bar Mill 0.40 - 0.40
Oxygen Plant 500 TPD - 500
The proposed site is located within the Industrial Growth Centre
developed by KIADB at Richer. The connectivity of the site to the key
logistic/raw mutual/utility centers has been tabulated below:
Connectivity Details
Nearest Railway station is Yeramaras on Guntakal - Wadi
section of South Central Railway, at a distance of 7 Km
from plant site. SPL is in Rail possession of 42 acres
of land near the railway station for setting up railway
siding. SIL will enter into MOU with SPL to use railway
siding.
Road NH 7 is located at a distance of about 120 Km from the
plant site Nearest state highway SH 13 is about1.5 Km
from the site.
Airport Nearest airport is Rajeev Gandhi International Airport,
Hyderabad located at a distance of about 151 Km.
Port Company proposes to utilize the Krishnapatnam port for
import of non-coking coal. The port is at a distance of
480 Km from the plant site.
Mines SIL would purchase iron ore fines from the nearby mines
in Bellary-Hasped region. Coal will also be sourced
through SPL from Indonesia.
Water Krishna River is at a distance of 8 km and SIL has
obtained Govt approval for drawing 60 MLD of water from
the river.
Power DISCOM grid at Chiksugur having 33 KV sub - station is
about 1.5 Km away.
Land is being done through KIADB to the extent of about 99.4 acres for
this phase of the Project. Of this area, 32.8 acres is towards green
belt and balance 66.6 acres considered for core land development,
evolving excavation and refilling with suitable soil, landscaping,
creation of boundaries, development of internal roads, drainage. The
detail land use plan is shown in the table below:
Description Area in Acres
Main Plant 54.7
Green Belt 32.8
Tail dumps and water
reservoir 11.9
Total Land Requirement 99.4
Govt. of Karnataka vide Gazette Notification in 2011 has identified
the land organist for the Project for industrial.
9.1 Project Implementation Schedule:
The facilities for beneficiation and pelletisation would be completed
in 24 months.
Key activity-wise implementation schedule for the Project is as
follows:
Activites Commencement Completion
Land & Sale Development Apr-12 Jul-12
Building & Civil Works July-12 May-13
Plant & Machinery
- placement of Order Oct-12 Jan-13
- Delivery at Sale Mar-13 Sep-13
- Erection & Commissioning May-13 Dec-13
- Trail Production Jan-14 Mar-14
Commercial Production April-14
10 PROJECTCOST:
10.1ProjeetCost Summary:
The; total Project cost estimated at Rs.1,253 Crore, would be
implemented as enumerated earlier under Project Implementation
schedule. The break-up of the Project cost is as under :
(Rs.Crore)
Particulars Amount
Land & Site Development* 100
Building & Civil Works 121
Plant & Machinery 861
Contingencies 37
Hard Cost 1119
Preoperative Expenses 17
Interest During Construction 78
Margin Money for Working Capital 39
Total 1253
*Cost for 280 acres of land has been considered
The cost estimates are based on the TEFR prepared by Mott Mc Donald and
as per the tentative prices quoted by major suppliers of equipments.
The financing charges have been assumed based on proposed schedule of
implementation, financing pattern, financing cost etc.
As stated elsewhere, Govt has given in-principle approval for
allotting 280 are land adjacent to the existing Plant at Richer. The
total land requirement for the current phase of the Project is
estimated around 99.40 acres. The site development cost estimated at R.
29.74 Crores, includes cost of leveling land and site development,
internal roads, fencing, gates, cable trenches, drains and sewers etc.
10.2 Means of Finance:
The Project cost estimated at R.1253 Crores is proposed to be financed
in the debt equity ratio of 1.5:1, details of which are as under :
(Rs crores)
Particulars Amount
Equity
Promoters/PE Investors 401
Internal accruals 100
Sub Total (A) 501
Debt
Rupee Term. Loan (B) 732
Total (A 3) 1253
10.2.1 Equity infusion by Investors
The Company has among others engaged Sycamore Ventures LLC
(Sycamore), New York an existing investor to the sundering of USD60
trillion.
10.2.2 internal Scruples
The Company has already brought in Rs. 100 Ceores from Internal
accruals.
10.2.3Debt:
The Company proposes to raise Rupee Term Loan from domestic
banks/financial institutions to part finance the Project to the extent
of R. 752 Crore. Some institutions / banks have already given
In principle approval and some more are considering their participation.
12. AUDITORS:
M/s. C.S.P Jain &Co., Chartered Accountants, Chennai and M/s. R
Subramanian & Company, Chartered Accountants, Joint Auditors of the
Company retire from their Office. They are eligible for reappointment.
13. COST AUDITORS:
Pursuant to the directors of the Central Government in compliance
with the provisions of Section 233B of the Companies Act 1d56i
qualified cost Auditor Shri. Sivasnbramanian have been appointed to
conduct the cost audit relating to the Steel Products by thin Company.
14. ADDITIONAL INFORMATION:
14.1 Conservations of Energy and Technology Absorption:
A statement containing the particulars relating to con- serration of
energy, research and development and technology absorption as
required under Section 217 (1)(e) of the Companies Act, 195(5 and with
Companies (Disclosures of Particulars in the Report of the Board of
Directors) Rules 1988 are annexed herewith.
14.2 Directors:
Shri. K.N.Prithviraj and Shri.B.S.Patil, Directors of the Company are
eligible to retire by rotation and offer them- selves for
reappointment.
10.3 Particulars of Employees:
Particulars of those employees in receipt of remuneration to be
disclosed pursuant to Section 217 (2A) of the Companies Act 1956 read
with Companies (Particulars of Employees) Rules 1975 are annexed
herewith.
14.4 Directors Responsibility Statement:
Pursuant to the requirements under Section 217 (2AA) of the Companies
Art .956 the Board of Directors hereby confirm:
That in the proration of Annual Account of the Company for the
financial year ending on 31st March, 2012 tie applicable accounting
standards have been strictly followed along with proper explanations
and that no material departures have been made from the same.
That the Directors have taken such accounting policies and these have
been applied consistently. The estimates and judgments have been
reasonableness and prudence so as to give a true and fair view of the
state of affairs of the Company at the end of the financial year
2011-2012 and profits of the Company for the year which ended on 31st
March, 2012. That the Management have taken proper and sufficient care
for the maintenance of the accounting records in accordance with the
provisions of the Companies Act 1hi6 hour safeguarding the assets of the
Company and for preventing and detecting frauds and other
irregularities, if any That the Directors have caused preparation of the
Annual Accounts for the financial year which ended on 31st March, 2012
on a going concern basis.
15. Acknowledgement
The Board of Directors of the Company wish to express their deep sense
of appreciation and proffer their sincere thanks to all the Share
holders; of the Company for their unstinted support to the Company.
The Board also wishes to express their sincere thanks to all the
esteemed Customers for their support to the Company's products
The Board would also like the place on record their deep sense of
gratitude to the financial Institutions; and Banks for their timely
support to the Company not only for the working capital needs but also
for aha implementation of the vainer projects. The Company would Nzo
like to thank all the Bankers/Institutions who have auctioned the
facilities for and expansion programme. We are also grateful to SBI
CAPITAL MARKETS LIMITED for reappraising our expansion project and also
for syndication of the necessary term loans for the same.
In the end, the Board would like to place on record their deep sense of
appreciation to all the Executives, Officers, Employees, Staff Members,
and workers at the Factory. Their active and loyal involvement in the
Company's working has enabled your Company to show all round
diversification of growth.
ON BEHALF OF THE BOARD,
For SURANA INDUSTRIES LIMITED
DINESHCHAND SURANA
MANAGING DIRECTOR
place : Chennai 14.
Date: 28th May,2012
Mar 31, 2011
The Directors of the Company have great pleasure in presenting to you
the 20th ANNUAL REPORT of the Company, together with the Audited
Balance Sheet as on 31st March, 2011 and the Profit and Loss Account
for the year ending on 31st March, 2011.
1. Financial Results :
The Financial Results of the Company for the year under review is
summarized below for your perusal and consideration.
2010-2011 2009-2010
(Rs. in Crores)
Net Sales 1223.02 945.02
Profit before Tax and
Depreciation 76.39 6.94
Profit before Tax 50.72 15.09
Income from Exceptional Items 3.73 55.52
Provision for Current
Year Tax + FBT 11.40 7.65
Deferred Tax Provision 4.43 (1.93)
Mat Credit Entitlement (17.93) -
Profit after Taxes 56.54 34.71
Proposed Dividend 4.88 4.07
Dividend Tax 0.79 0.69
Transfer to General Reserves 5.65 3.47
Balance carried forward from
previous year 132.65 106.17
Balance Carried Forward to
Balance Sheet 177.85 132.65
1.1. Financial Performance :
With the improved market sentiments and sustained demand from key
sectors i.e infrastructure and automobiles, the Company posted a total
revenue of Rs. 1223.02 crores during 2010-11, up by 29 percent, against
Rs. 945.02 crores in 2009- 10. The Companys EBIDTA improved by 142
percent, to Rs. 158.59 crores in 2010-11, against Rs. 65.43 crores in
2009-10. The Companys EBIDTA margin improved to 13 percent, on account
of strong cost control measures, efficient inventory management and
higher realization. The Companys profit after taxes stood at Rs. 56.54
crore in 2010-11, up 63 percent.
2. Key financial indicators :
The salient features of the performance of the Company can be seen from
the following financial indicators:
Particulars 2010-2011 2009-2010
Earning Per Share (Rs) 20.83 16.73
Dividend Per Share (Rs) 1.80 1.50
Dividend Payout Ratio (%) 8.64 11.72
Return on Net Worth (%) 10.34 6.60
3. Dividend :
Your Directors have recommended a final dividend of Rs. 1.80/- per
equity share (18 percent) for the financial year ended on 31st March,
2011. The dividend distribution would result in a cash outflow of Rs.
4.88 crores and tax on dividend of Rs. 0.79 crore as against Rs. 4.07
crores, and tax on dividend of Rs. 0.69 crore, in the previous year.
4.1. Global overview :
The world crude steel-making capacity has increased from around 1,062
MTPA in 2000 to an estimated 1,700 MTPA in 2009, followed by an
increase to 1,800 MTPA in 2010. By 1998, capacity had already increased
by 10 per cent over the level for 1990 and subsequently, the annual
growth rate has declined from 1.35 per cent in 1999 to 0.15 per cent in
2002. However, growth rates have improved during 2004-08, mainly driven
by a significant increase in China. Between 2002 and 2009, capacity
expansions in China have accounted for 63-65 per cent of worldwide
capacity expansions.
4.2. Indian overview :
The Indian steel industry ranks fifth in the world with estimated crude
steel production of 67 MTPA in calendar year (CY) 2010. The share of
India in global crude steel production has increased from 3 per cent in
1998 to 4.7 per cent in 2010.
As a consuming market, India presents a high growth potential with a
low annual per capita finished steel consumption 4 of 48 kg, as
compared with 405 kg in China.
The structure of the Indian steel industry comprises of primary
producers, secondary producers and small scale stand-alone processors,
with an estimated installed capacity of 73 MTPA of crude steel during
2009-10, comprising main producers (22.5 MTPA), major secondary
producers (17.2 MTPA), and others (33 MTPA).
The robust growth of global steel demand in the previous years
provided significant pricing power to steel producers and they were
able to pass on the increase in raw material prices to buyers. This
prompted many players to increase their steel making capacities to
capitalize on the rising global steel demand, with major expansions
taking place in China and India.
The domestic steel production forecasts indicate that the demand will
go up during financial years ending 31st March, 2012 and 2013.
As per CRISIL Research, the Indian steel industry is expected to
witness continued demand in wake of sustained demand for the key
consumer industries such as automobiles, oil & gas, construction and
infrastructure. With a combined share of 74 per cent, the Indian
construction and infrastructure industry is the largest consumer of
steel, followed by automotive and capital goods segments.
To support a growing economy, creating superior infrastructure has been
the key agenda of the countrys government. With the Public-Private
Partnership (PPP) bridging the crucial funding gap, the momentum from
several projects in the urban as well as rural India will further the
growth of steel sector. Besides, the recent entry of foreign players in
the automobile sector will further boost steel demand.
4.3. Industry outlook:
Infrastructure spends account for 5.5 per cent of the total Indian GDP
and is expected to increase to 9 per cent by 2011 -12 onwards, thereby
fuelling the demand for steel. The finished steel consumption is
expected to grow by 12 per cent and 14 percent respectively in 2011-12
and 2012-13, after an estimated 9.5 per cent growth in 2010-11. A
significant driver of this demand growth is the Eleventh five-year
plan, which has targeted investments of Rs. 16,800 crore focused
towards infrastructure development.
Power, Roads, Telecommunication and Railways will constitute 72 per
cent of the proposed spending. Based on the current estimates,
infrastructure investment of USD 514 Billion would generate steel
demand of 125 Million Tonnes over a period of 5 years. The Twelfth Five
Year plan (2012-13 to 2016-17) estimates an investment outlay of USD
1.03 trillion at 2006-07 prices, a 100 per cent increase over the
previous plan entailing a huge demand potential for steel in the coming
years.
In order to keep up with this demand, the steel industry is expected to
add substantial quantity of finished steel capacity during 2010-11 to
2012-13. By March 2013, finished steel production is expected to touch
84 MT from around 63.6 MT in the financial year 2011 as per CMIE. The
installed capacity for crude steel is projected to be 200 MTPA by
2019-20 as per the National Steel Policy, formulated by the Ministry of
Steel.
5. Raw Material Dynamics :
5.1. Raw Materials
Iron-ore is the main raw material for our production. India has total
iron ore reserves of 25 bn tonnes available mainly in Orissa,
Jharkhand, Chhattisgarh & Karnataka. Our country is the third largest
exporter of iron-ore with approximately 60 per cent of the total
production being exported. Iron-ore production and consumption has
grown at a compounded annual growth rate of 11 per cent and 17 per cent
respectively, during the 2004-09 period.
During 2010-2011, there has been an upward movement in iron ore prices
on account of economics and government policy factors. In Karnataka,
the supply of iron ore was affected due to closure of certain iron-ore
mines due to disputes between the Government Departments and some of
the Iron Ore Producers. During January 2010, the National Mineral
Development Corporation increased iron-ore prices by 15 per cent.
Coking coal prices have also been revised upwards, resulting in further
increase in cost of steel production.
5.2. Transport Issues:
During the year, the Company had to deal with a number of
transportation bottlenecks. It became increasingly difficult to move
iron-ore to the factory mainly on account of unusually disruptive
monsoon rains, which caused the roads to flood. Raichur, being a small
town in the interior of Karnataka, availability of adequate transport
became difficult at such time and resulted in higher transportation
costs. However, your Company has since then made arrangements with
transporters and has significantly eased the movement of iron-ore to
the factory.
5.3. Allotment of Iron Ore Mines :
The Company has already applied to the Government of Karnataka for
allotment of Iron Ore Mines. The matter is under their active
consideration. Meanwhile, the Company has made arrangements for the
purchase of Iron Ore from private parties and enough supplies have been
assured at reasonable prices.
5.4 Coal Supplies :
Your Directors are pleased to state that our subsidiary company, viz.,
Surana Mines and Minerals Limited, Singapore has entered into an
agreement with an Indonesian firm for exploitation of coal mines in
Indonesia. This will ensure regular supply of coal from Indonesia to
both Surana Power Limited as well as to Surana Industries Limited. The
prices of coal will be very competitive and this will ensure cost
competitiveness for the Companys steel production.
6. Operational Issues :
6.1. Gummidipoondi Plant
During the last couple of years, the production at Gummidipoondi plant
was affected due to severe power shortage in Tamil Nadu. From June 2008
onwards, there has
been a 40 per cent power cut for the industries in Tamil Nadu and this
situation continued for most part of 2009-2010. The situation has not
improved significantly and the normalcy has not been restored.
6.2. Integrated Steel Plant at Raichur :
The Integrated Steel Complex at Raichur is being implemented in two
phases. The first phase comprising of Sponge Iron Plant (Direct
Reduction of Iron) and Steel Melting Shop was completed in June 2008
and February 2009, respectively. The Rolling Mill operation has been
taken up in the second phase wherein the capacity of the rolling mill
is being increased from 0.2 MT per annum to 3 MT per annum. This
expansion is expected to be fully operational by June 2011.
7. Subsidiaries :
7.1 Surana Power Limited
The captive power plant of 35 MW at the Raichur plant site has been
hived off for a consideration of Rs. 237 crore to our subsidiary
company Surana Power Limited with the approval of the Shareholders
through Postal Ballot on 21st October, 2009.
Surana Industries Limited received the consideration for the above hive
off of the assets as under;
By way of shares in Surana Rs. 67.77 crores
Power Limited
Proceeds of Bank Loan Rs. 168.75 crores
Total Consideration amount Rs. 236.52 crores
Out of the amount of Rs. 168.75 crore, SIL has repaid to the banks a
sum of around Rs. 89 crore, being the term loan component meant for the
35 MW Power Plant. Surana Power Limited is now setting up 2 x 210 MW
Thermal Power Plant at Raichur at a total cost of Rs. 2400 crore after
acquiring the captive power plant of 35 MW Thermal Power Plant from
Surana Industries Limited as mentioned above. After completion of the
420 MW Thermal Power Plant, the generation capacity of Surana Power
Limited will be increased to 455 MW.
Surana Industries Limited has already infused capital contribution of
Rs. 375 crore and their Associates and others are expected to bring in
their share of Rs. 300 crore in due course.
Loans of Rs. 1,800 crore have been tied up for the 420 MW power plant.
The financial closure is over and the consortium banks have started
disbursement of the loans as per the implementation schedule.
7.2 Surana Mines and Minerals Limited :
As indicated earlier, Surana Mines and Minerals Limited was established
as a subsidiary company of Surana Power Limited. This Company was
incorporated in Singapore and is engaged in the task of acquiring
mining rights for excavating coal from Indonesian mines and exporting
the same to Surana Power Limited.
Surana Industries Limited has acquired the entire shareholdings of
Surana Mines and Minerals from Surana Power Limited for a total
consideration of Singapore $ 15,000,001 (Singapore Dollars Fifteen
Million and one only). Therefore, with effect from 14th March, 2011
Surana Mines and Minerals Limited has become a subsidiary of your
Company.
7.3 Surana Green Power Limited :
Until recently, your Company owned 8.20 windmills located in
Radhapuram, Dist. Tirunelveli, Tamil Nadu. Of these, the Company
decided to hive off eight windmills to our subsidiary company, viz.,
Surana Green Power Limited, which was incorporated on 3st March, 2010.
The main objectives of Surana Green Power Limited is to generate and
distribute energy using non-conventional and renewal sources including
wind energy, solar energy, hydro, wave, tidal, ocean, geo thermal, bio
mass hydrogen and fuel cells.
The value of the eight wind mills was assessed by Messrs Grant
Thornton, a leading firm of Chartered Accountants, at Rs. 70.11 crore
and sold to Surana Green Power Limited at Rs. 70.11 crore. The Company
paid the full consideration to Surana Industries Limited as under:
By way of Cash which we repaid to - Rs. 24.17 crore
the Banks towards Liquidation of
the term loans against the Wind
Mills.
By way of issue of capital to
Surana Industries Ltd - Rs. 44.90 crore
Balance Payable - Rs. 1.04 crore
8. Outlook and Companys Expansion Plans :
The world steel production and consumption have recorded a continuous
increase since 1995. There was a remarkable
increase in the growth rate with the start of the 21st Century.
According to economists, the growth trend is likely to continue well
past these years with global production and consumption estimated to
increase at least at a rate of 6 per cent per annum.
Though a number of green field steel plants have been announced,
because of various constraints there is likely to be delay in creation
of new capacities. Thus, the supply side may not meet the growth in
domestic demand.
Taking into account the above factors and as there will be a large
scale demand for special steels, your Company have embarked upon an
expansion programme for addition of 1.4 Million tonnes per annum of
steel production. The details are given as under:
8.1. Expansion programme :
To further tap the growth potential in the steel industry and diversify
its product portfolio, SIL envisages setting up a 1.4 MTPA integrated
crude steel making facility ("Project"), at Raichur. The key facilities
to be set up as part of the Project are Beneficiation Plant, Pellet
Plant, Coke Oven Plant, Hot Rolling Mill, Cold Rolling Mill (including
Galvanizing line, Colour Coating line and CRNGO line) and Captive Power
Plant. The Techno Economic Feasibility Report (TEFR) has been prepared
by Messrs Ferro Green Technologies P Ltd. and independently vetted by
Messrs Mot Macdonald. The Project cost estimated at Rs. 7,937 Crore is
proposed to be financed by way of Rs. 5,291 Crore of rupee term loan
and Rs. 2,646 Crore of equity.
The total land requirements for the Project is estimated around 350
acres. The Company has 70 acres of vacant land at its existing site
adjacent to the proposed plant site. The Company would utilize the
surplus land for the Project. The balance 280 acres are being acquired
through Karnataka Industrial Area Development Board.
SIL is currently into manufacturing of long products out of its
facility at Raichur & Gummidipoondi. In its endeavor to bring economies
of scale and product diversification, the Company envisages setting up
a 1.4 MTPA crude steel making facility at Raichur adjacent to the
existing plant to take its crude steel making capacity from 0.2 MTPA to
1.6 MTPA and saleable steel capacity from 0.4 MTPA to 1.5 MTPA. Upon
implementation of the Project, SIL would have the following facilities:
(MTPA)
Facility Existing Expansion Total
A. Raw Material
Preparation Unit
Beneficiation Plant - 3.09 3.09
Sinter Plant - 1.92 1.92
Pellet Plant - 1.20 1.20
Coke Oven - 0.77 0.77
B. Iron making Unit
DRI Plant 0.16 0.08 0.24
Blast Furnace - 1.51 1.51
C. Liquid Steel & Semis
making Unit
Basic Oxygen Furnace - 1.19 1.19
Electric Arc Furnace 0.25 0.22 0.47
Slab Caster - 0.80 0.80
Bloom Caster - 0.35 0.35
Billet Caster 0.24 0.21 0.45
D. Rolling Unit
Hot Rolling Mill - 0.78 0.78
Bar Mill 0.40* - 0.40
Cold Rolling Complex - 0.48 0.48
E. Other Facilities
Captive Power Plant# - 60.00 60.00
Calcination Plant - 0.35 0.35
Oxygen Plant## - 163.00 163.00
# Measured in MW ## Measured in Million NM3 per Annum
* 0.3 MTPA (under implementation) @ Raichur & 0.1 MTPA @ Gummidipoondi
8.1.1. Key strengths:
The key competitive strengths of the Project are as follows:
8.1.1.1. Strategic Location:
The Project site is located within a radius of 200 Km from the iron ore
mines of the Bellary-Hospet region. The proximity to the iron ore mines
would reduce the transportation cost of iron ore fines for the Company.
8.1.1.2. Raw Material Linkage:
Beside the presence of nearby iron ore mines, the Company has also
entered into long-term arrangements for supply of coking and non-coking
coal, the other key raw material. The Company has entered into a 20
year contract for supply of
coking coal with Sycamore Reserves LLC through its subsidiary Surana
Mines & Minerals Limited. The Company would also source non-coking coal
from the JV firm of SMML. Through these arrangements, the Project
would be reasonably protected from the price volatility and risk of raw
material shortage.
8.1.1.3. Captive Power:
The Project envisages setting up of a captive power plant of 60 MW,
which would partly meet the requirement of power for the Project. The
remaining power requirement of Project has been tied up through a Power
Purchase Agreement (PPA) entered with SURANA POWER LIMITED. As you are
aware, SPL has an existing capacity to generate 35 MW and is
currently setting up a 420 MW power plant adjacent to the Project site,
thereby ensuring a dependable power linkage .
8.1.1.4. Logistics:
SIL is in discussions with reputed logistics service provider(s), viz.,
VNR Logistics Pvt. Ltd (VNR) and Grant India Logistics Pvt. Ltd (GIL)
for inbound transportation of key raw materials (iron ore, coking coal
and non-coking coal) for the Project. The Company proposes to enter
into a firm contract for the logistics arrangements before commencement
of operations.
8.1.2. Saleable Steel Product Mix:
The proposed saleable products and by-products from the expansion
Project have been tabulated below:
(TPA)
Particulars Quantity
Saleable Products
Blooms 350,000
Billets 213,000
Hot Rolled Coil 275,000
Cold Rolled Coil 17,000
CRNGO 100,000
GP/AZ Coil 298,000
Colour Coated 60,000
Total Finished Steel 1,313,000
Less: Consumption at (213.000)
existing facilities
Saleable Steel 1,100,000
Other Products
Coke/Coke Breeze 70,000
Pellet 359,000
Slag 417,000
Benzol 9,500
Coal Tar 30,800
Sulphur 1,400
The Technical Feasibility Report (TEFR) has been prepared by Messrs
Ferro Green Technologies P Limited. Further, this TEFR was vetted by
M/s Mott Macdonold, a leading consultancy firm in the panel of
Institutions and banks.
8.1.3. Project cost Summary :
The total Project cost is estimated at Rs. 7,937 Crore. The Project
would be implemented in a phased manner. The break- up of the Project
cost is as under:
(Rs. Crore)
Particulars RM Plant HRM CRN Total Cost
Land & Site Development 185 - - 185
Building & Civil Works 155 474 114 743
Plant & Machinery 622 4,288 863 5,773
Contingencies 33 177 42 252
Hard Cost 995 4,939 1,019 6,953
Preoperative Expenses 28 113 25 166
Interest During Construction 70 522 37 629
Margin Money for Working
Capital 37 152 - 189
Total 1,130 5,726 1,081 7,937
8.2. Means of Finance :
The Project cost estimated at Rs. 7,937 Crore is proposed to be
financed in the debt equity ratio of 2:1. The proposed means of finance
has been given in the table below:
(Rs. Crore)
Particular Amount
Equity
Promoters 310
Private Equity Investors 1,820
Internal accruals 516
Sub Total (A) 2,646
Debt
Rupee Term Loan (B) 5,291
Total (A+B) 7,937
8.2.1. Equity
8.2.1.1. Equity- Fresh Infusion by Promoters
The promoters would infuse Rs. 310 Crore to partly fund the equity
requirement for the Project. The same would be raised, partly by way of
sale of land and/or development of land in
joint venture with prospective parties and the balance by way of
dilution of their stake in Surana Industries Limited and/or Surana
Corporation Ltd.
8.2.1.2. Equity - Private Equity Investors :
The equity requirement would be met partly by tie up of USD 400 million
with foreign equity investors. Your Company has engaged Sycamore
Management Company LLC (Sycamore), New York and Power India (Singapore)
Pte. Ltd. to raise USD 300 million and USD 100 million, respectively.
Sycamore is an existing investor in the Company and has entirely
subscribed to Foreign Currency Convertible Bonds amounting to USD 25
million.
8.2.1.3. Equity- Internal Accruals :
Your Company would be utilizing internal accruals to the extent of Rs.
516 Crore for the Project. The projected cash flow of SIL indicates a
cumulative generation of Rs. 1,162 Crore of internal accruals net of
all the repayment obligations over 2012-15. Therefore, the demand for
internal accruals for Project as a percentage of net generation is only
around 44 per cent and the Company is confident of meeting the
requirement.
8.2.2. Debt:
Your Company proposes to raise Rupee Term Loan from domestic
banks/financial institutions to part finance the Project to the extent
of Rs. 5,291 Crore. Within such facility, the Company proposes a
onetime Letter of Credit facility of Rs. 4,233 Crore (80 per cent of
RTL) as a sub-limit to the Rupee Term Loan for placing orders for the
major items of Plant and Machinery.
As indicated earlier, your Company has retained SBI CAPITAL MARKETS
LIMITED (SBI Caps) to appraise the Project and prepare a Project Report
for syndication of the loans. SBI Caps has prepared the Information
Memorandum, which has been circulated to a number of banks, including
State Bank of India. We are confident of achieving financial closure
for the Project very soon.
Your Company is planning for 1st June, 2011 to be the zero date and
thereafter implement the Project within the scheduled time. Your
Company has geared up its activities so that the expansion programme is
smoothly implemented
9. Management Discussion and Industry Analysis :
9.8. Aspirations of the Shareholders :
The Board is fully aware of and whole-heartedly acknowledges the
excellent support given to the Company by its esteemed shareholders.
Their valuable suggestions and guidance have given the Directors much
impetus for undertaking constant review of the Companys working and
its growth.
9.9. Corporate Governance :
The Directors pay special attention to ensure that the guidelines given
for the corporate governance are strictly adhered to. All possible
steps are being taken to this effect. The Directors are also fully
aware of their responsibilities towards:
. Shareholders of the Company
. Customers of the Company
. Government of India, State Governments, as well as
. various statutory bodies for following strictly, their
rules and regulations
. Implementation of Government Guidelines
. Strict adherence to the Environmental Regulations
and Guidelines
. Following strictly the various labor laws
. Ensuring transparency
. Strict abeyance of all the Rules and Regulations of
SEBI and Stock Exchanges and also Company Authorities.
. Corporate Social Responsibility.
Certificates of the Auditors of your Company regarding compliance of
the conditions of the Corporate Governance as stipulated in Clauses 49
of the Listed Agreement with the Stock Exchanges is attached. A
separate report on the Corporate Governance is also annexed as part of
the Annual Report.
9.10. Depository System / Dematerialization of Shares :
As indicated in the last Annual Report, the Company has entered into
Tripartite Agreement with both the Depositories, viz., National
Securities Depository Limited (NSDL) and Central Depository Services
(I) Ltd (CSDL) along with Registrars M/s Cameo Corporate Services Ltd,
Chennai for providing electronic connectivity for dematerialization on
the Companys shares facilitating the investors to hold the shares in
electronic form and trade in those shares. The shares of your Company
are being traded now in Stock Exchanges under compulsory demat form.
9.11. Registration with the NSE :
The Directors are pleased to state that the Company shares are now
being traded in the National Stock Exchange besides the Mumbai and
Chennai Stock Exchanges.
10. Auditors:
M/s. CSP Jain & Co., Chartered Accountants, Chennai and M/s. R.
Subramanian & Company, Chartered Accountants, Joint Auditors of the
Company, retire from their Office. They are, however, eligible for
reappointment.
11. Conservation of Energy and Technology Absorption :
A statement containing the particulars relating to conservation of
energy, research and development and technology absorption as required
under Section 217 (1)(e) of the Companies Act, 1956 read with Companies
(Disclosures of Particulars in the Report of the Board of Directors)
Rules, 1988 are annexed herewith.
12. Directors:
Dr. S.K. Gupta and Dr. B. Samal, Directors of the Company are eligible
to retire by Rotation and offer themselves for reappointment.
13. Particulars of Employees :
Particulars of those employees who were in receipt of remuneration to
be disclosed pursuant to Section 217 (2A) of the Companies Act, 1956
read with Companies (Particulars of Employees) Rules, 1975 are
furnished separately in the Balance Sheet.
14. Directors Responsibility Statement:
Pursuant to the requirements under Section 217 (2AA) of the Companies
Act, 1956 the Board of Directors hereby confirm:
That, in the preparation of Annual Accounts of the Company for the
financial year ending on 31st March, 2011 the applicable accounting
standards have been strictly followed along with proper explanations
and that no material departures have been made from the same.
That the Company has adopted accounting policies that have been applied
consistently. The estimates and judgments have been reasonableness and
prudence so as to give a true and fair view of the state of affairs of
the Company at the end of the financial year 2010Ã2011 and profits of
the Company for the year which ended on 31st March, 2011. That the
Directors have taken proper and sufficient care for the maintenance of
the accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding
the assets of the Company and for preventing and detecting frauds and
other irregularities, if any.
That the Directors have caused preparation of the Annual Accounts for
the financial year which ended on 31st March, 2011 on a going concern
basis.
15. Acknowledgements :
The Board of Directors of the Company wish to express their deep sense
of appreciation and proffer their sincere thanks to all the
Shareholders of the Company for their unstinted support to the Company.
The Board also wishes to express their sincere thanks to all the
esteemed Customers for their support to the Companys products.
The Board would also like to place on record their deep sense of
gratitude to the Financial Institutions and Banks for their timely
support to the Company not only for the working capital needs but also
for the implementation of the various projects.
The Company would also like to thank all the Bankers/ Institutions who
have sanctioned the facilities for our 1. 4 million tonnes expansion
programme. We are also grateful to SBI CAPITAL MARKETS LIMITED for
appraising our 1.4 million tonnes expansion project and also for
syndication of the necessary term loans for the same. But for their
active support of all these Institutions and Banks, it would not be
possible to maintain the Companys growth momentum.
In the end, the Board would like to place on record their deep sense of
appreciation to all the Executives, Officers, Employees, Staff Members,
and Workers at the Factory. Their active and loyal involvement in the
Companys Working has enabled your Company to achieve these heights.
FOR ON BEHALF OF THE BOARD,
Surana Industries Limited
G. R. SURANA
CHAIRMAN
Date: 3rd May 2011
Mar 31, 2010
The Directors have great pleasure in presenting you with the 19th
ANNUAL REPORT of the Company, together with the Audited Balance Sheet
as on 31st March, 2010 and the Profit and Loss Account for the year
ending on 31st March, 2010.
1. Financial Results
The Financial Results of the Company for the year under review is
summarized below for your perusal and consideration.
2009-2010 2008-2009
(Rs. in lacs)
Turnover 94501.80 87113.43
Profit before Tax and Depreciation 6247.16 6226.00
Profit before Tax 4043.93 4996.98
Provision for Current Year Tax + FBT 765.08 631.58
Deferred Tax Provision -193.00 1115.83
Profit after Taxes 3471.30 3249.57
Proposed Dividend 407.25 302.25
Dividend Tax 69.21 51.36
Transfer to General Reserves 347.13 324.96
Balance carried forward from previous year 10617.03 8046.03
Balance Carried Forward to Balance Sheet 13264.74 10617.03
Financial Performance
Directors are pleased to state that the Company achieved total sales of
Rs.945.02 crores for the year ending on 31st March, 2010 as compared to
Rs.871.13 crores in the previous year.
Profits after taxes amounted to Rs. 34.71 crores as compared to Rs.
32.49 crores for the previous year.
Constant efforts are being made to improve the working of the Company
by achieving greater efficiency in operations and overall cost
reduction.
2. Key Ratios
The salient features of the performance of the Company can be seen from
the following key ratios:
Particulars 2009-2010 2008-2009
Earning Per Share (Rs) 16.73 17.20
Dividend Per Share (Rs) 1.50 1.50
Dividend Payout Ratio (%) 11.72 9.30
Return on Net Worth (%) 6.60 12.08
3. Global Steel Industry Performance
It was estimated that in 2009 the global Crude Steel Production would
be around 1194 Million Tonnes, the major producers being China (519
Million Tonnes), European Union (200 Million Tonnes), Japan (114
Million Tonnes), United States (92 Million Tonnes), and India (57
Million tonnes) among others.
During the period January 2009 to November 2009, global crude steel
production reached a level of 1088 Million tonnes, a decline of around
11 % on a year to year basis. Among the top five steel producing
countries, China and India were the only countries which registered a
positive growth during this period. China registered the highest growth
in crude steel production at 13% on a year to year basis.
Considering the cumulative crude steel production, top crude steel
producing countries like Japan, Russia and US registered negative
growth. Crude Steel Production in Japan, Russia and US declined by
about 29.4%, 18.4% and 39.6% on a year to year basis respectively.
During the same period India became the fifth largest crude steel
producer with the production of about 51.2 million tonnes registering a
growth of 1.4% on a year to year basis. Indias Crude Production
recorded a growth of about 5% on a year to year basis in the month of
February, 2010 while China recorded a growth of about 22% during the
same month.
As per the revised figures indicated by the Joint Plant Committee,
domestic crude steel production increased to 52.20 million tonnes by
the end of the first ten months of the financial year ending 31st
March, 2010 registering a growth of about 7.20% on a year to year
basis. Considering the first ten months of the fiscal year 2010, the
overall domestic steel consumption registered a robust growth of 9.1%.
The flat products category recorded a double digit growth of 12.3%on
year to year basis. Share of flats and long products in the overall
domestic steel demand was almost equal at 48% each while the rest was
contributed by the others category.
In the month of January 2010, prices of both long and flat products
have increased on a month to month basis. Average prices of long
products increased by around 4% while that of
flat products increased by around 2% to 3%. Momentum in the demand for
long products from the real estate and infrastructure segment supported
the price rise from the steel manufacturers.
India continued to remain the net importer of the finished steel to the
tune of about 2.9 million tonnes in the first ten months of the fiscal
year 2009-2010. During the same period imports grew by 14% while the
exports were down by about 35%. imports of steel products were
dominated by the flats category which showed an increase of
approximately 12% on a year to year basis.
4. Domestic Steel Industry Scene
4.1 Raw Materials
During 2009-2010 there has been an upward movement in iron ore prices.
In Karnataka, the supply of iron ore was affected due to closure of
certain iron ore Mines due to disputes between the Government of Andhra
Pradesh and some of the iron ore producers. During January 2010, the
National Mineral Development Corporation increased iron ore prices by
15%. Coking Coal prices have also been revised upwards. This has
resulted in the final cost of production going up.
4.2 Transport Issues
There have been a number of transport bottlenecks that the Company had
to deal. Regular iron ore ferrying was difficult and not up to the mark
due to Raichur being a small town in the interior of Karnataka. This
increased the input costs of the Company. Moreover, due to unusually
heavy rains in the area, the mining of Iron Ore was affected to a large
extent.
4.3 Allotment of Iron Ore Mines
The Company has already applied for allotment of Iron Ore Mines to the
Government of Karnataka. The matter is under their active
consideration. Meanwhile, the Company has made arrangements for the
purchase of Iron Ore from private parties and enough supplies have been
assured at reasonable prices.
4.4 Coal Supplies
As indicated to the members earlier, the Company has a Joint Venture
arrangement with a Malaysian Company through the purchases of shares of
that particular company.
The Company has finalized arrangements for investing approximately
Rs.50 crores in the Venture, which will fully meet the requirements of
Coal for the Raichur Plant. Further, the Indonesian Mines will also
supply coal to SURANA POWER LIMITED for its 35 MW Power Plant.
5. Operational Issues
5.1 Gummidipoondi Plant
The Gummidipoondi Plant was facing a very tough time during 2008-2009.
From June 2008 onwards there was a 40% power cut for the industries in
Tamil Nadu and this situation continued for most part of 2009-2010.
This crippled the operations of the plant which reduced the overall
production capacity. The situation returned to normal recently, but
will not continue for long and the power cut is likely to revert back
to the original 40% power cut situation, during the year 2010-11.
5.2 Raichur Plant
There were unprecedented rains in the Raichur area in the month of
September-October, 2009, which were unheard off in the last 100 hundred
years in Northern Karnataka Area. The Raichur Town and Industrial
Area, where the plant is located was under 5 ft deep water for a number
of days. As a result some of the vital equipments for the Rolling Mill,
Power Plant and Steel Melting Shop were affected. Production for
fifteen days in the month of October, 2009 came to a standstill.
Further due to these heavy rains, movement of iron ore from Bellary was
affected to a great extent, resulting in disruption in the supply of
raw materials to the plant further affecting production.
6. Raichur Integrated Steel Plant
The Directors are pleased to state that the upgrades to the Raichur
integrated steel complex have been completed and implemented. The
integrated steel complex consists of the following production segments:
à Direct Reduction of Iron (DRI) Plant for production of Sponge Iron
à Steel Melting Shop
à Rolling Mill
The DRI Plant has been working in full swing. For the year ending on
31st March, 2010, the total production of sponge iron was around 52,878
tonnes.
7. Surana Wind Mill Division
The Wind Mill Division of the Company has been doing well. The Company
has 8.2 wind mills in the Tirunelveli district of Tamil Nadu. Out of
the 8.2 wind mills, 1 wind mill has the capacity to produce 0.65MW and
the remaining 7.2 wind mills are having a total capacity of 10.8 MW
i.e., 1.5 MW each.
Total cost of the project for 7.2 wind mills was approximately Rs. 72
crores. This was financed out of term loans from banks to the extent of
Rs. 60 crores and the balance amount were met out of the Companys
revenue generation. Apart from this one more wind mill with a capacity
of 0.65 MW was established in the year 2002.
During the financial year ended 31stMarch, 2010 the wind mills produced
a total of 2, 24, 60,344 units of electricity as against 1, 63, 46,669
units during the previous year.
Besides captive consumption, the Company was also able to export the
surplus electricity to the Electricity Board thus gaining through this
process. The wind mills have a life span of 25 Years. Thus, there will
be enormous benefits to the Company in the years to come.
8. Subsidiaries
8.1 Surana Power Limited
The captive power plant at the Raichur plant site has been hived off to
our subsidiary company Surana Power Limited, It may be recalled that
the sale of 35MW Power Plant to Surana Power Limited, the wholly owned
Subsidiary of the Company was approved by the shareholders through
postal ballot; the results thereof were announced on the 21st October,
2009.
The total value of the assets of the 35 MW Power Plant was Rs.236.52
crores, as appraised by Axis Bank. By hiving off, Surana Industries
Limited received the amount from Surana Power Limited as under:
By way of shares in Surana Rs.67.77 crores
Power Limited
Proceeds of Bank Loan Rs.168.75 crores
Total Consideration amount Rs.236.52 crores
Out of the amount of Rs. 168.75 crores, the Company has repaid to the
banks a sum of around Rs. 89 crores being the term loan component meant
for the 35 MW Power Plant. Out of the remaining amount, a sum of Rs.
70 crores has been invested by the Company back into the share capital
of Surana Power Limited as per the original estimated investment plans.
Total Project Costs and Means of Financing
Surana Power Limited is setting up Thermal Power Plants with aggregate
capacities as under:
Two 210 MW Power Plants 420 MW
(Acquired 35 MW Power 35 MW
Plant from Surana Industries
Limited)
Total Capacity 455 MW
The project report was prepared by M/s M. N. Dastur & Com- pany Private
Limited, who are leading industrial consultants. The total cost of the
project was assessed as under:
(Rs. In Crores)
For 2 x 210MW Thermal Power 2400.00
Plant
For 35 MW Power Plant value 236.52
(assessed By AXIS BANK)
Total Cost of the Project 2636.52
Means of Financing
Equity Funds 667.77
Term Loans sanctioned to 1968.8875
Surana Power Limited
Total Funds tied up 2636.52
The IDBI Bank Limited, Mumbai appraised the proposal and agreed for
syndication for the entire term loans required for 420 MW. The total
amount of loans which have been tied up is approximately Rs.1800
crores. IDBI Bank will be the major financer. Apart from this, Punjab
National Bank, UCO Bank, Allahabad Bank, State Bank of Patiala, L & T
Infrastructure Finance Co Ltd, and few other banks have agreed to
participate.
For acquiring 35 MW, Surana Power Limited has obtained a term loan of
Rs. 168.75 crores from UCO Bank and they have paid this amount to
Surana Industries Ltd. as purchase consideration. Surana Industries
Ltd. will be contributing Rs. 659 crores towards the equity of Surana
Power Limited. The sum of Rs.659 crores is being contributed as under:
(Rs. In Crores)
Equity from Overseas Partners 300.00
Contribution of Surana 367.77
Industries Limited
Total Equity Contribution 667.77
Equity Contribution of Rs.359 crores from Surana Industries Limited has
been arranged as under:
(Rs. In Crores)
Promoter group contributing by 167.75
subscription of Warrants.
Equity from Surana Industries 67.77
Limited on account of Sale of
35 MW Power Plant.
Equity from Overseas Joint 40.00
Venture Partners supplying coal
to Surana Power Limited
Investment out of surplus from 70.0
sale of 35 MW Plant by Surana
Industries Limited
Value of Land given by Surana 22.25
Industries Limited
Total Equity Contribution 367.77
It may thus be observed that the entire equity contribution for Surana
Power Limited is being made by foreign investors as well as Surana
Industries Limited without affecting the revenues of Surana Industries
Limited. Also, the total equity
to be invested in Surana Power Limited inclusive of the Foreign
Investments will be around Rs. 659 crores.
8.2 Surana Mines and Minerals Limited
As indicated earlier, Surana Mines and Minerals Limited was established
as a Subsidiary Company of Surana Power Limited. This company was
incorporated in Singapore and is engaged in the task of acquiring
mining rights for excavating coal from Indonesian Mines and exporting
the same to Surana Power Limited. Thus, Surana Power Limited is assured
of regular supply of Indonesian Coal.
8.3 Surana Green Power Limited
The Company has established another subsidiary company under the name
Surana Green Power Limited. This company was incorporated on 3rd March,
2010. The main objectives of the company is to generate and distribute
energy using non-conventional and renewal sources including wind
energy, solar energy, hydro, wave, tidal, ocean, geo thermal, bio mass
hydrogen and fuel cells and other sources of inputs.
Initially this Company will acquire around 20 wind mills. They will
also put up plants for generating Solar Energy. Details of these
projects are being worked out and wherever required the Company will
obtain the requisite approval from the shareholders.
9. Future Outlook
The World Steel Association in its Short Range Outlook (SRO) for 2010
and 2011 forecasts that apparent steel use will increase by 8.05% to
1,295 mmt in 2010 and 1383 MMt in 2011, after contracting by -6.7% in
2009. This represents an improved figure over the autumn 2009 forecast
for both 2009 and 2010. With these projections, world steel demand in
2010 will exceed pre-crisis levels of 2007. The resilience of the
emerging economies, especially China, has been the critical factor
enabling the earlier than expected recovery of world steel demand.
The World Steel Production and Consumption have recorded a continuous
increase since 1995. There was a remarkable increase in the growth rate
with the start of the 21st Century. According to economists, the
growth trend is likely to continue well past these years with global
production and consumption estimated to increase at least at a rate of
6% per annum.
The domestic steel consumption registered a robust growth of 9.1 %. As
regards to long products viz. bars and rods, the total production in
the country for ten months amounted to 1,83,34,000 tonnes.
India is also poised for a leap in steel consumption and production.
During 2006-2007 the estimated production of steel in India was 50
Million tonnes which is around 50 Kg per capita. This in itself is a
marked increase from per capita consumption of 24 Kgs in 1995. Earlier,
the National Steel Policy projected that Indian Crude Steel Production
will be 110 Million tonnes per annum and domestic consumption will be
90 Million Tonnes per annum by 2019 - 2020, considering a moderate
growth rate of 7% to 8%. This will mean per capita consumption will
rise to approximately 80 Kgs.
However, the National Steel Policy has revised the Crude Steel Capacity
as 200 Million Tonnes by 2020 out of which 60% is expected to come
through Blast Furnaces, 33% through Direct Reduction - Electric Arc
Furnace and the balance through other routes. This has to be met by
expanding capacity of the existing plants as well as Green Field Steel
Plants. Large Steel Plants have adopted the Blast Furnace route. New
steel plants, particularly of smaller capacity, have adopted Direct
Reduction route, mainly because of environmental concerns, expensive
coking coal of which reserves are depleting and comparatively
inexpensive and abundantly available non coking coal. Converting sponge
iron into liquid steel in Induction Furnaces and further processing to
produce bars to meet the regional requirements has become a profitable
venture.
Though a number of green field steel plants have been announced,
because of various constraints there is likely to be delay in creation
of new capacities. Thus, the supply side may not meet the growth in
domestic demand.
10. Management Discussion and Industry Analysis
Until recently the Company was mainly engaged in the secondary steel
sector producing TMT Bars, Cold Twisted Deformed Bars, Mild Steel
Ingots, and Mild Steel Structurals etc. The Directors are pleased to
state that the Company has also been procuring Hot Rolled Coils,
Structural items and processing into Cold Rolled Sheets/Plates, cut to
size ensuring value addition.
During 2001-2002 the Company went for modernization, adding facilities
for producing TMT Bars. During 2004-2005 the Company added an Induction
Furnace with a capacity of
30.000 tonnes for the production of Mild Steel Ingots. Now the Company
has established an Integrated Steel Complex in Raichur by setting up
DRI plants for the production of Sponge Iron, Steel Melting Shop for
the production of Billets, Captive Power Plant for the generation of
Electricity and the Rolling Mill for the production of Special Steels.
10.1 Opportunities
Post the liberalization era, due to various initiatives taken by both
the Government of India and major steel companies (both private and
public), the steel production capacity has increased substantially in
the country. The production is expected to touch 200 million tonnes (to
be finalized) by the year 2020. Our country has the necessary iron ore
for production of steel.
Due to expected increase in infrastructure activities, the demand for
steel is bound to go up significantly. This will benefit all steel
producers including the Company. However, the demand for steel
products, being cyclical in nature, global happenings will affect the
Industry to a certain extent.
10.2 Threat Perception
The Directors feel that the Company will have to gear up its marketing
activities so as to compete effectively with the established producers.
Marketing of Alloy Steel and Special Steels needs a lot of concerted
efforts and experience. In the Raichur steel plant, the Company will be
manufacturing Special Alloy Steels which are mostly meant for
Automobile Manufacturers who will demand strict adherence to the
quality of the products. Therefore, it is essential for the Companys
marketing team to aggressively and effectively market the products.
Similarly, in the case of TMT Bars, there can be good competition from
the various producers. Builders and contractors are the ultimate end
users of TMT Bars and it is necessary for the Company to aggressively
market these products.
Shortage of quality raw materials, surging freight costs and escalation
of the costs of inputs, fuels etc. will continue to keep the cost of
production high for steel manufacturers. Further, in regards to
financial implications, there can be
threat perceptions in hardening of interest rates which will also pose
a problem for the Company. The Company has not received any major
reduction in the interest rates on the loans. At the same time, due to
tough competition it would be difficult for the Company to pass on the
entire cost push to the Customers by way of increased finished steel
prices. Faced with aggressive marketing strategy and cost cutting
initiatives, the Company constantly reviews/monitors the costs of
various inputs and finds out ways (either technological or commercial)
to reduce the cost of steel production, wherever it is possible. The
Directors have been taking requisite measures to overcome various
impediments which may come in the way of smooth functioning of the
Company.
The Company also undertakes Cold Rolling operations. There is a good
margin available on these transactions. The Company procures materials
mainly from Rashtriya Ispat Nigam and Steel Authority of India and
after cold rolling, sells the same in the market.
10.3 Risk Perception
The Directors are constantly assessing the business risks pertaining to
the performance of the Company. The following are the important risks
perceptions:
à Quality Maintenance of the End Products.
à Adequate Supply of Raw Materials.
à Adequate Power Supply.
à Transport Bottlenecks.
à Sudden increase in Prices of Inputs.
à Customers Default.
à Inadequacy of Finance Arrangement.
à Statutory Policies.
à Events Due to Unforeseen Circumstances.
à Global Recession.
The Directors are fully conscious of the various business risks and
have taken adequate care to tackle any situation. Strict controls are
enforced on the quality front and all other matters for smooth
operation of the steel plants.
10.4 Internal Control System and Their Adequacy
The Directors are pleased to state that the Company has a very good
internal control mechanism. All transactions are subjected to strict
scrutiny. The Company has appointed Internal Auditors who regularly
audit the various transactions in the company and report back to the
Management about any deficiencies noticed. There is a system of monthly
review
of the performance of the Company at the highest level. The following
aspects are monitored.
à Actual production achieved vis-a-vis Targets.
à Sales vis-a-vis Targets.
à Reasons for deviations from targets.
à Inventory Holding.
à Realization of Book Debts and NPAs.
à Identification of slow moving items.
à Expenditure control.
à Cost analysis of various inputs.
à Power and oil consumption.
à Bank limits and drawings their against.
à Monthly budgets and their analysis.
Accordingly, strategies are drawn to improve upon the working of the
company.
10.5 Implementation of International Financial Reporting standards
The Directors are pleased to state that the International Financial
Reporting Standard will be compulsory from the year ending 31st March,
2011 and the Company will have fully geared up its activities to meet
these standards.
10.6 Implementation of SAP-ERP
The Directors are pleased to state that the SAP-ERP system has been
fully implemented in the Company. All transactions of the Gummidipoondi
Operations are through the SAP-ERP system. The SAP-ERP system
integrates the operations of the Company. As a result, quick responses
to problems are received by the service providers. Prompt feed back is
also available from the customers. Inventory control is better managed
as a result of the implementation of SAP-ERP. Information about
SAP-ERP is available online.
10.7 Human Resources
The Company has been giving due attention for the development of Human
Resources. A trained and motivated employee is the backbone of the
Company. Adequate attention is given to this aspect. The Company has
been recruiting trained, experienced and qualified personnel for its
Raichur Project. The Company is fully aware of the necessity for the
same. Special attention is given to recruit trained and experienced
personnel not only in the production department but also in marketing
and finance and accounts. Motivation
is the most important factor. The Company strives very hard to do the
same.
10.8 Aspirations of the Share holders
The Board is fully aware of the excellent support given to the Company
by its esteemed shareholders. Their valuable suggestions and guidance
have given the Directors much impetus for undertaking constant review
of the Companys working and its growth. The Directors are all the time
considering the necessity of adding value for the shareholders wealth.
10.9 Corporate Governance
The Directors pay special attention to ensure that the guidelines given
for the corporate governance are strictly adhered to. All possible
steps are being taken to this effect. The Directors are also fully
aware of their responsibilities towards:
à Shareholders of the Company.
à Customers of the Company.
à Government of India, State Governments, as well as various statutory
bodies for following strictly, their rules and regulations.
à Implementation of Government Guidelines.
à Strict adherence to the Environmental Regulations and Guidelines.
à Following strictly the various labor laws.
à Ensuring transparency.
à Strict abeyance of all the Rules and Regulations of SEBI and Stock
Exchanges and also Company Authorities.
à Corporate Social Responsibility.
Certificates of the Auditors of your Company regarding compliance of he
conditions of the Corporate Governance as stipulated in Clauses 49 of
the Listing Agreement with the Stock Exchanges is attached. A separate
report on the Corporate Governance is also annexed as part of the
Annual Report.
10.9(a) Your Company is fully aware of Corporate Social Responsibility
In this connection we would like to state that when the entire factory
area and Wadaloor village was flooded owing to heavy reains during
October, 2009 your company undertook a number helpful measures.
Drinking and food items were
supplied freely to all the nearby villages. Further we have also
decided to setup a separate fund to undertake extensive plantation in
and around the factory to promote Eco Friendly activities. The company
has also plans to start training school in Raichur District to give
free training programmes to deserving students of the local area and
ultimately offering them employment also.
10.10 Depository System / Dematerialization of Shares
As indicated in the last Annual Report, the Company has entered into
Tripartite Agreement with both the Depositories viz. National
Securities Depository Limited (NSDL) and Central Depository Services
(I) Ltd (CSDL) along with Registrars M/ s Cameo Corporate Service Ltd,
Chennai for providing electronic connectivity for dematerialization on
the Companys shares facilitating the investors to hold the shares in
electronic form and trade in those shares. The shares of your Company
are being traded now in Stock Exchanges under compulsory dematform.
10.11 Listed with the Stock Exchanges
The Directors are pleased to state that the Company shares are now
being traded in the National Stock Exchange of India Limited, Bombay
Stock Exchange Limited and Madras Stock Exchange Limited.
11 .Auditors
M/s C.S.P. Jain & Co. Chartered Accountants, Chennai and M/s
R.Subramanian & Co. Chartered Accoutants, Auditors of the Company
retires from their Office. They are however eligible for reappointment.
12. Additional Information
12.1 Dividends
The Directors are pleased to recommend a Dividend payment of Rs. 1.50
per share on the Equity Capital of the Company as on 31st March, 2010
on pro-rata basis.
12.2 Conservation of Energy and Technology Absorption
A statement containing the particulars relating to conservation of
energy, research and development and technology absorption as required
under Section 217 (1)(e) of the Companies Act, 1956 read with Companies
(Disclosures of Particulars in the Report of the Board of Directors)
Rules 1988 are annexed herewith.
13. Directors
The Company is pleased to report that Shri. B.S. Patil, I.A.S (Retd.)
has joined the Board as an Additional Director on 30th October, 2009.
He was the Chief Secretary to Government of Karnataka. He was also the
Head of two State Financial Institutions for over 7 years. He held the
position of the Principal Secretary to Government in Department of
Commerce and Industries on three occasions with cumulative period of
over 8 years.
In 2009-2010, Shri. M. Ramasubramanian, Director (Operations) and Shri.
M. Thangavelu, Independent Director passed away. The Board gratefully
acknowledges the wonderful service, help and directions rendered by
these members and sincerely grieve their death. The Board conveys its
heartfelt condolences to the bereaved families.
14. Particulars of Employees
Particulars of those employees who were in receipt of remuneration to
be disclosed pursuant to Section 217 (2A) of the Companies Act 1956
read with Companies (Particulars of Employees) Rules 1975 are furnished
separately in the Balance Sheet.
15. Directors Responsibility Statement
Pursuant to the requirements under Section 217 (2AA) of the Companies
Act 1956 the Board of Directors hereby confirm:
That in the preparation of Annual Accounts of the Company for the
financial year ending on 31st March, 2010 the applicable accounting
standards have been strictly followed along with proper explanations
and that no material departures have been made from the same.
That the Directors have taken such accounting policies and these have
been applied consistently. The estimates and judgments have been
reasonableness and prudence so as to give a true and fair view of the
state of affairs of the Company at the end of the financial year
2009-2010 and profits of the Company for the year which ended on 31st
March, 2010. That the Directors have taken proper and sufficient care
for the maintenance of the accounting records in accordance with the
provisions of the Companies Act 1956 for
safeguarding the assets of the Company and for preventing and detecting
frauds and other irregularities, if any.
That the Directors have caused preparation of the Annual Accounts for
the financial year which ended on 31 st March, 2010 on a going concern
basis.
The Board of Directors of the Company wish to express their deep sense
of appreciation and proffer their sincere thanks to all the
Shareholders of the Company for their unstinted support to the Company.
The Board also wishes to express their sincere thanks to all the
esteemed Customers for their support to the Companys products.
The Board would also like to place on record their deep sense of
gratitude to the Financial Institutions and Banks for their timely
support to the Company not only for the working capital needs but also
for the implementation of the various projects. But for their active
support, the fast growth of the Company would not have been possible.
In the end, the Board would like to place on record their deep sense of
appreciation to all the Executives, Officers, Employees, Staff Members,
and Workers at the Factory. But for their active and loyal involvement,
the Company would not have achieved the excellent results.
FOR ON BEHALF OF THE BOARD
DINESHCHAND SURANA
Managing Director
Date : 15-05-2010
Place: Chennai
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