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Directors Report of Surana Industries Ltd.

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 on’ble 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 COMPANY’S 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 Company’sma 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-à-vis Targets Sales vis-à-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 Company’s 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 Company’s workin ga n d itsg rowth. The Directors are all the time con- sidering th e neces sity of adding value for the shareholder’s 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 Company’s 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 Company’s 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 Company’s 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 s° 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 6°% 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

 
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