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Surana Industries Ltd.

BSE: 513597 Sector: Metals & Mining
NSE: SURANAIND ISIN Code: INE659D01019
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VOLUME 2020
52-Week high 5.36
52-Week low 2.40
P/E
Mkt Cap.(Rs cr) 16
Buy Price 3.10
Buy Qty 2000.00
Sell Price 3.15
Sell Qty 325.00

Surana Industries Ltd. (SURANAIND) - Director Report

Company director report

To The Members

The Directors of the Company present to you the 26th Annual Report of the Companytogether with the Audited Balance Sheet as at 31st March 2017 and the Statement ofProfit and Loss for the year ending on 31st March 2017.

1. FINANCIAL RESULTS

The Financial Results of the Company for the year under review is summarized below foryour information and consideration.

(Rs. in Crores)

PARTICULARS 2016-17 2015-16
NET REVENUE 68.41 602.76
PROFIT BEFORE TAX AND (568.47) (483.52)
DEPRECIATION
PROFIT /(LOSS) BEFORE TAX (PBT) (608.26) (525.72)
PROVISION FOR CURRENT TAX - -
TAX EXPENSE - -
PROFIT AFTER TAXES/(LOSS) (PAT) (608.26) (525.72)

1.1 FINANCIAL PERFORMANCE

The Company has achieved Net sales of Rs. 63.24 Crores for the year ended 31st March2017 as compared to Rs.584.83 Crores in the previous year. The Company has incurred a netloss of Rs. 608.26 Crores as against a net loss of Rs. 525.73 Crores in the previous year.The losses are attributable due to high input costs irregular supply of raw materialshigh finance costs and unfavourable market conditions. While the Raichur plant wasparticularly affected by the iron ore mining ban and labour issues the Gummudipoondiplant faced with irregular power supply and adverse market conditions.

1.2 CORPORATE DEBT RESTRUCTURING (CDR)

The company approached the lenders for restructuring of its loan liabilities which wasdone under the CDR route. The CDR EG on 07th March 2014 approved the restructuring schemeof the lenders and accordingly MRA was signed between the company and the lenders on 24thMarch 2014 effective from 01st June 2013.

The lenders have restructured the debts of the Company to the extent of Rs.1331 Croresunder the CDR mechanism. All overdues have been restructured with effect from 01st June2013 on the basis of the terms of moratorium and revised repayment schedule contained inthe Final Letter of Approval (Final LOA) dated March 13 2014. The package also includes apriority loan of Rs.41.72 Crores for balancing equipment required for the Rolling mill andelectric arc furnace. Overdues on the existing loans as on the Cut-off date have beenconverted into funded interest term loans. Further repayment of loans has been rescheduledover a 10 year period ending the year 2023.

PREMISES BEHIND CDR:

The company went under the aegis of Corporate Debt Restructuring with a cut-off date asJune 01 2013 due to the following major issues faced by the Company.

1. Non availability of Raw Materials due to the Iron Ore mining ban imposed byHonorable Supreme Court of India.

2. Deep depreciation of Indian Rupee in Dollar terms which had a cascading effect onthe price of the raw materials.

3. Severe Power Cuts in the State of Tamil Nadu to the tune of 40% for High TensionIndustry users resulting in low levels of manufacturing.

4. Labour Agitation and Strike resulting in drastic reduction of production and revenuegeneration resulting in liquidity constraint.

5. Interest burden also piled up in the wake of low production levels and nonavailability of Raw Materials.

1.3 ISSUES POST CDR:

DELAY IN IMPLEMENTATION OF CDR PACKAGE:

The CDR package was proposed/ projected to be implemented in December 2013 primarilyconsidering a Cut-Off Date of 1st June 2013. However there was considerable time delaydue to consortium internal procedures and approvals resulting in the implementation of theCDR package only in March 2014. This had a cascading effect on the release of priorityloan for refurbishment work which in turn had an effect on the re-commissioning andrestart of operations at Raichur.

LABOR AGITATION:

The labor unrest and workforce agitation was one of the major issues faced by theCompany which affected the operations of the Company significantly in the Financial Year2012-13. Thereafter during April–May 2013 the strike went out of hand with workersresorting to violence. Subsequently with the intervention of Deputy Labor Commissioner(DLC) we were able to move positively to an agreement by way of having conciliationmeeting with our employees. However workforce was still not cooperative and resorted tounfair practices like theft/ go-slow/ sabotage causing damage to company's property duringJanuary-February 2014.

Thereafter the company attended conciliation meetings based on representation fromCentre of Indian Trade Unions (CITU) Raichur in the presence of Deputy Commissioner (DC)Raichur on 5th May 2014. After Two (2) more rounds of conciliation meetings with the DCit was decided to resolve the issue once and for all at the DLC's Chamber. Subsequently on14th August 2014 the company could achieve some progress in this issue with some portionof the labor agreeing for amicable settlement.

Further to this there continued to be some agitations/ sabotage/ theft/ strike at theplant and the company could get the issue completely resolved only after the District andSessions Court Raichur issued their Judgment vide Order No. 972/15 on 18th April 2015.

The aftermath of this issue which is a "Force Majeure" condition (since theworkforce resorted to agitation/ go-slow) not only had adverse effect on the operationalperformance of the company significantly in the Financial Year 2013-14 and Financial Year2014-15 by way of huge losses but also took its toll on the precious time of themanagement as the company could not commence the operations of the plant from June 2014onwards as per CDR package.

In view of the above problem the original plan of the company to restart the plant asper CDR projection was disturbed and this was further complicated due to non-release offunds (Priority Loan as well as Working Capital) from the lenders in the absence of plantoperations not being commenced resulting in a vicious circle.

The above facts were presented by the company during the various Joint Lenders Meeting(JLM) held in the presence of representative of CDR Cell. Though the lenders understoodthe difficulties faced by the company adequate measures by way of releasing priority loanor enhanced working capital were not forthcoming from the lenders on account of variouseconomic factors especially the negative sentiments and market conditions prevailing inthe Steel Sector.

NON-RELEASE OF PRIORITY LOAN ON TIME:

As a part of the CDR Package priority loan to the tune of Rs.41.72 Crores wasenvisaged for release by the consortium of lenders for carrying out the refurbishment andre-commissioning of the Plant at Raichur. This release of priority loan was not made ontime by the lenders. Though the company had bought in their contribution towards releaseof priority loan the same was not forthcoming from the lenders. In fact the firstdisbursement of the priority loan happened only in the month of December 2014 (9 monthspost the CDR implementation date) from IDBI Bank and 18 months from the cut of date.Further after several rounds of follow up's written correspondences and representationsduring the JLM/ JLF/ MC meeting with the consortium of lenders the Priority Loan wasprogressively released. Even during the representations by the company during the JLM/ JLFfor expeditious release of Priority Loan unwarranted conditions would be stipulated bythe lenders. For example during the MC meeting with the consortium dated 25th February2015 it was stipulated to the company that the release of priority loan would be subjectto clearance of outstanding critical dues with all the lenders. The lenders were awarethat payment of critical dues would not be possible since the Raichur Plant was yet tocommence operations in the absence of release of priority loan by the lenders. The cash flows from Gummidipoondi Operations were minimal and were utilized for meeting the day today operational expenses of the company.

However despite the above difficulties the company has been unfailingly pleading andmaking request to all the lenders of the consortium about the release of priority loan onpriority basis to enable recommissioning and restart of operations of the plant duringevery JLM starting from 26th September 2014. It may also be not out of place to mentionthat the entire release of priority loan is yet to happen fully and the majority of theamount released so far by the lenders has been utilized only for adjustment of theircritical interest dues.

Moreover after traversing one and half years post finalization of CDR proposal and oneyear post CDR implementation the lenders were not aware of the purpose of the priorityloan. The purpose of the Priority Loan (which was approved and sanctioned as part of theCDR Package) was debated at length during the JLM held on 19th June 2015 which wasincongruous.

NON-RELEASE OF ENHANCED WORKING CAPITAL:

On account of the aforementioned vicious circle viz. non release of priority loanleading to non-restart of operations at Raichur the release of working capital as per thesanctioned limits could not happen on a timely basis as per the CDR projections. Thisfurther affected the difficult situations since the company could not make payments to theRefurbishment/O & M agency. Though the lead bank issued their working capitalassessment note for the Financial Year 2014-15 as part of CDR itself in the Month ofDecember 2013 and circulated to all the lenders only few lenders took approval andreleased the same. The other lenders however took approval only for the Financial Year2013-14 alone and for the Financial Year 2014-15 the approval and release is stillcontinuing. This Working Capital which should be used for increasing top line ended up inservicing the debt/ interest obligations. This non-availability of WC contributed heavilyto the delay of commencement of operation of Raichur Plant.

STATUS OF WORKING CAPITAL ASSESSMENT RELEASE:

(Amount In Rs. Crs)

FY – 2013-14 FY – 2014-15
Bank Sanctioned Disbursed Sanctioned Disbursed Pending
IDBI Bank Ltd 78.15 78.15 133.49 133.49 Nil
Central Bank of India 41.35 37.21 76.28 37.61 38.67
Allahabad Bank 34.64 34.64 57.21 45.65 11.56
State Bank of India 28.70 26.51 50.88 28.70 22.18
Oriental Bank of Commerce 28.54 28.54 44.81 28.54 16.27
Bank of India 23.39 23.39 40.87 23.39 17.48
Canara Bank 27.72 27.72 53.81 27.72 26.09
Bank of Baroda 15.97 15.97 27.92 15.97 11.95
UCO Bank 12.44 12.44 20.44 12.44 08.00
Syndicate Bank 3.18 3.18 4.76 3.18 1.58
Punjab National Bank 107.53 107.53 182.53 107.53 75.00
TOTAL 401.61 395.28 693.00 464.22 228.78

During the period starting from April 2014 to September 2015 the company has made atotal interest and overdue clearance payments of Rs. 130.34 Crores for the consortium oflenders. Similarly in the same period the promoters had infused equity of Rs. 46.47Crores. The consortium of lenders during the said period had released only Rs. 77.23Crores as part of the enhanced working capital limits under the CDR Package.

On account of the above factors there has been considerable delay in theimplementation of CDR Package and delay in commencement of operations because of which setmilestones could not be achieved. However the company in the right earnest and withavailable resources completed the refurbishment work for the DRI Plant and also completedthe trial run. However even at the behest of the company and the lead bank/ MonitoringInstitution release of enhanced working capital was not forthcoming. Thereafter duringthe JLM held on 19th June 2015 "MI requested the member banks to de-link the issueof release of enhanced WC limits receipt of Fresh TEV Report and also assessment of

WC limits for Financial Year 2015-16. MI also requested member banks to expeditesanction of enhanced working capital limits as some of the banks had released enhanced WClimits for which Joint Documentation and security completion formalities were yet to becompleted.

Due to the above factors since the Raichur Plant could not recommence the operationsthe Priority Loan which was released by the Lenders was used to adjust their criticalinterest dues.

TEV STUDY:

In view of the non release of enhanced working capital by some of the lendersconsequentially leading to non-start of operations of the Plant the Monitoring Committeewas called on 27th August 2015 wherein the lenders deliberated amongst themselves anddecided to consider Strategic Debt Restructuring (SDR) mechanism for the earlier revivaland restart of the plant for which the company rendered their full support andcooperation. Based on the above deliberation and discussions amongst the consortium forconsidering SDR mechanism the Monitoring Institution (MI) appointed ITCOT for carryingout the TEV Study the final report of which had already been circulated to all thelenders.

CORRECTIVE ACTION PLAN BY WAY OF SDR PROPOSED BY THE LENDERS:

Subsequently on receipt of the report IDBI vide their email dated 02nd November 2015to all the lenders indicated the status of SDR mandate from the consortium wherein it wasbeen mentioned that the date of invocation of SDR would be 22nd September 2015 by the time28 months completed from the CDR cut-off date.

It may be noted that the MI and lead bank has received SDR Sanctions/ Mandates fromSeven (7) Lenders amounting to 50.44% of their total exposure. Subsequently at the behestof lenders M/s. Think Capital was appointed as an external consultant by MI forexamining/ preparing SDR Package for the company. M/s. Think Capital was part of the JLMheld on 27th August 2015 as well 11th September 2015 and gave their presentation/views onthe same.

However during the JLM held on 28th December 2015 it was informed by IDBI that someof the banks do not have the mandates to convert part of loan into equity under SDR routeand lead bank requested all the other lenders to convey their mandates by the next highlevel JLM to be held at Mumbai in January 2016.

HIGH LEVEL JLM AT MUMBAI:

On 22nd January 2016 a high level Joint Lenders Meeting was held at Mumbai to discussthe way forward in terms of mandates from other lenders for invocation of SDR. During themeeting it was concluded that requisite percentage of mandates for invocation of SDR wasnot available and hence SDR cannot be invoked as a corrective action plan for SIL.

It was opined that change of management could be considered for which the company aswell as the lenders would in parallel scout for a potential buyer. Monitoring Institution(MI) also opined that change of management and restructuring could be considered outsideSDR in line with RBI circular dated 24th September 2015. Subsequently a time till 15thMarch 2016 was given by the lender to SIL for finding an acceptable investor.

STATUS POST HLJLM:

The company identified a prospective investor M/s. TCP Limited (TPCL) for infusion ofequity into the Company for restarting the ISP at Raichur Karnataka and had a discussionwith Lead Bank on

26th February 2016. In this regard the company had sent a detailed letter includingthe background and presence of TCPL to the lead bank on 26th February 2016. Subsequently aHLJLM was held at Chennai on 05th April 2016 to discuss on the investment proposalsubmitted by TCPL. During the meeting MI informed the company that the change inmanagement could be done only through transparent bidding process and requested TCPL toparticipate in their tender process which would be published in news dailies.

Further to the above again a JLM was held on 02nd May 2016 to discuss on the wayforward. During the meeting MI informed that against the backdrop of IFCI declaring thecompany as Willful Defaulter though contested by the company the member banks wouldinitiate recovery measures against the company including SARFAESI.

ISSUES WITH IFCI:

The company had taken a corporate loan from IFCI. At the time of implementation/proposal stages of CDR Package at the behest of IFCI in order to move forward thecompany had offered additional collateral securities to IFCI over and above the securitystipulated by CDR EG. This was done since IFCI threatened the company that they would notbe supporting the CDR Package without the collateral security in place.

In addition to the above IFCI had computed their Pre-COD dues by considering aninterest rate of 15% plus penal interest and other charges. Even after repeated request ofthe company the calculation and basis for arriving at the Pre-COD dues by IFCI was notshared with the company at the time of implementation of CDR Package. Subsequently postCDR implementation the company requested IFCI crystallize the Pre-COD due by reducing theadditional interest/ charges and penal interest which was not forthcoming from IFCI.Hence the company approached IDBI Bank and other consortium lenders. Based on the aboverequest MI invited IFCI as special invitee to the Monitoring Committee meeting dated 12thJuly 2014. However due to other prior commitments IFCI did not attend the meeting. In theabsence of IFCI and also to resolve this issue at the earliest MI had sought views frommember banks regarding payment of FITL interest to IFCI Ltd. The MC members were of theview that post CDR the security structure should be same for all lenders other than thelenders who had exclusive security pre CDR and the same was approved by CDR EG to continuepost CDR also. The members also opined that since IFCI had not mentioned any additionalsecurity held by them in their sanction communicated to company post CDR IFCI shouldrelease the additional securities and the same to be pooled to secure all lenders.

Subsequently during the MC Meeting held on 26th September 2014 IFCI officials informedlenders that reworking and release of exclusive securities would be considered by themonly upon clearing the overdues and the same was communicated to the company on variousoccasions. Unexpectedly it was decided by MI during the MC that "Since the matterwas specific to company and IFCI the member banks requested both the company and IFCI tosolve the issue amicably and inform MI about their decision." Even after the aboveaspects the company decided and put their all out efforts to resolve the issue with IFCIby written communication personal representation at the highest level and during variouscorrespondences/ meetings. However the results were not fruitful.

Thereafter during the JLM held on 13th April 2015 the details of the additionalsecurity available with IFCI were divulged by the Company. The member banks afterdeliberations made by both the parties felt that the issue should be amicably resolvedbetween IFCI and the Company. Further the member banks allowed time till 30th June 2015for resolving the issue and requested IFCI to release the additional security held by themto the common pool. The member bank also resolved that in case if IFCI is not releasingthe additional security within the stipulated time of 30th June 2015 the securityextended to them as per CDR package would be revoked.

Once again during the subsequent JLM held on 19th June 2015 MI requested the companyto resolve the issue with IFCI clear the overdues as per CDR package and report thedevelopment. After multiple meetings with IFCI the differences of opinion on rate ofinterest calculation and release of security to common pool could not be resolved. FinallyIFCI in January 2016 decided to declare the company and its managing director as willfuldefaulter on the grounds of company being deliberately avoiding payment of interest andinstallment dues. As per the legal opinion obtained by the company the contention of IFCIis legally not tenable on the ground that the company had not generated any operationalcash surplus and hence could not pay the interest. As far as the payment of interest toother lenders is concerned the lenders had never given the money to the common TRA forusage by the company for its operations and had instead adjusted it towards their interestdues as and when it became due. Further IFCI suo moto has invoked Section 13 (2) ofSARFAESI Act to recall the loans extended to the company. As per the legal opinionobtained by the company IFCI has faulted in invoking Sec 13 (2) of the SARFAESI act asit being a member of the consortium and signatory to MRA under sec 13 (9) of the SARFAESIact the revocation / recalling of loan can happen only after 60% of the lendersconsortium agree to do the same. In this regard the company had written to Reserve Bankof India a detailed letter on March 16 2017 and Reserve Bank of India vide its letterdated May 22 2017 has mentioned that the matter will be examined and shall revert back tothe company shortly.

CURRENT SCENARIO: The consortium of lenders led by M/s. IDBI has initiated stepsunder SARFAESI with respect to our Gummudipoondi and Raichur factories. In the integrumthe company had multiple level of negotiations with labor union in presence of DLCRaichur and have amicably arrived at an understanding wherein the demands of the laborshave been satisfied to a great extent.

Accordingly the labor force since March 2017 has started clearing the vegetation atRaichur factory. However on May 05 2017 the factory was physically possessed by theconsortium under SARFAESI.

On physical possession the company had requested the consortium to give the companythe limited access to the plant at Raichur for cleaning up-keeping and maintenance ofplant and machinery so that the economic value of the plant does not erode. The companywith the positive improvements in the steel sectors and with the support of the creditorsis interested to re-start the DRI operations on a holding on basis. In case of thepermission for the same is given by the consortium the company can re-start the plant inimmediately. In this regard and also with the view to maintain the economic value of theplant we have requested the consortium to permit access to our plant to do the variousparity checks and up keep the value of plant. Further to the above the company vide itsletter dated June 23 2016 informed the consortium bankers that the company has been intouch with various vendors in and around Karnataka area who have shown interest instarting the plant on a strategic investment basis. The discussion with these interestedparties has come to a matured stage whereby the DRI plant can be restarted immediately asthere is a readymade market for the finished products. With the support of such strategicpartners the company is confident of starting the DRI plant operations at Raichur in thefirst available opportunity. Further the company also informed that as a next step ofrestarting the plant the company is in the process of initiating discussions with variousstatutory bodies of Karnataka for getting necessary permissions and approvals to make thepayments due to them in a phased manner. In addition to this the company is already inthe process of reducing the laborers to maintainable/sustainable levels. In case of thelenders consortium permitting the company to restart the operations on a holding on basisthe company can immediately take steps to restart the Raichur Operations. However thecompany is yet to receive the approval from the consortium to commence the production on"Holding on operations" Further the company had requested the consortium toconsider the deep restructuring debts of the company in line with the latest RBI circularno. DBR.BP.BC.No.67/21.04.048/2016-17 issued by Reserve Bank of India on May 05 2017.

2. SHARE CAPITAL:

The paid up Equity Share Capital as on 31st March 2017 was Rs. 50.91 Crores.

3. DIVIDEND:

Your Directors have not recommended any dividend for the financial year 2016-17 in viewof the losses incurred and the need to conserve resources of the Company. The Company isalso required to seek prior approval of the lenders for declaration of dividend in termsof the Corporate Debt Restructuring package.

4. MANAGEMENT DISCUSSION AND ANALYSIS: STEEL INDUSTRY OUTLOOK: GLOBAL SCENARIO: WorldSteel Short Range Outlook April 2017:

The World Steel Association (world steel) released its Short Range Outlook (SRO) for2017 and 2018. World steel forecasts that global steel demand will increase by 1.3% to1535.2 Mt in 2017 following growth of 1.0% in 2016. In 2018 it is forecast that globalsteel demand will grow by 0.9% and will reach 1548.5 Mt. Global Economy Is GainingStrength But Uncertainty Escalates:

With the risk of global recession receding and economic performance improving acrossmost regions a number of geopolitical changes still create some concern. US policyuncertainties Brexit the rising populist wave in current European elections and thepotential retreat from globalisation and free trade under the pressure of risingnationalism adds a new dimension of uncertainty in investment environments. To balancethis risks from ongoing confl icts in the Middle East and in Eastern Ukraine appear to bereducing. In the capital markets the probable US FED interest rate increase and anyappreciation of the US dollar is likely to have global impact. In particular it mayprovoke capital outfl ows from the emerging economies and place a risk on corporate debtin the developing countries which has climbed significantly over the last few years.

Oil And Other Commodities:

The pickup in oil prices in 2016 helped the fiscal position of oil producing countries.In 2017-18 oil prices are expected to show a moderate gain but any spike in oil prices tothe levels seen in 2010- 12 seems unlikely despite the recent OPEC agreement on oilproduction cuts. Other commodity prices also rebounded due to stronger activities inChina but no further hikes are envisaged. The mildly rising oil prices may stimulateinvestment in economies worldwide

Automotive Sector Will Decelerate But Construction Sector Could Pick Up:

The automotive sector has been the top performer among key steel using sectors thanksto the consumption driven recovery in the developed economies low oil prices and thegovernment stimuli programmes supporting automobile purchases in several countries.However this may now be approaching a peak. The construction building and infrastructuresector which accounts for 50% of global steel use has been showing a divided picturebetween the developing and developed economies. This sector has been a major driver forsteel demand in the developing countries driven by urbanisation but activity in thedeveloped economies since the 2008 financial crisis has been more subdued. This appears tobe about to change with a recovery in construction activities apparent in the EU throughthe improving economic conditions and the potential renewal initiatives for infrastructurein the US. The machinery sector could also benefit from rising investment activities ifthe uncertainties surrounding the global economy can be contained. On the other handdepression in shipbuilding activities is expected to continue for some time given theglobal glut in shipping capacity.

China Slowdown:

The economic rebalancing and reform agenda of the Chinese economy continued for thefirst half of 2016 only to be interrupted by the government's mini stimulus measuresdesigned to reduce the speed of the decline. This produced a short term boom ininfrastructure investment and the housing market which stimulated demand for steel andother commodities. As a result China's steel demand showed growth of 1.3% in 2016. Whilethe Chinese economic outlook appears stable and steel demand continues to remain strong inthe early part of 2017 this is expected to gradually decelerate as the government triesto retighten its real estate policies. China's steel demand is expected to remain fl at in2017 and then decline by -2% in 2018.

Developed World:

Benefiting from strong fundamentals newly announced measures related to fiscal stimuliand rising infrastructure spending the United States is expected to continue to leadgrowth in the developed world in 2017-18. However despite a recovery in oil prices arebound of investments in the oil and gas sector may be limited given the increasedefficiency of shale producers. The EU recovery is solidifying with many positivedevelopments. Eurozone monetary policy is expected to remain on its current path at leastin 2017 while fiscal tightening is not expected to strengthen further and risk of disinflation has significantly receded. If political stability can be maintained investment isexpected to pick up to provide a further boost to the recovery. Benefiting from theimproving global economy and weak yen Japan's steel demand is expected to show a stablerecovery. Steel demand in the developed economies will increase by 0.7 % in 2017 and 1.2 %in 2018.

Developing World:

Having dealt with the structural problems and fall in commodity prices the Russian andBrazilian economies are stabilising and expected to show modest growth in 2017. Russiangrowth will continue to pick up in 2018 as structural reforms take more effect. After thedemonetization shock the Indian economy is expected to resume growth although on aslightly weakened basis. The ASEAN countries are expected to demonstrate solid growth in2017-18. However the region remains vulnerable to currency volatilities associated withUS interest rate hikes and dollar appreciation. Steel demand in the emerging anddeveloping economies excluding China which accounts for 30% of world total is expectedto grow by 4.0% in 2017 and then 4.9% in 2018.

(Source: www.worldsteel.org website)

DOMESTIC INDUSTRY OVERVIEW:

India was the world's third-largest steel producer in 2016. The growth in the Indiansteel sector has been driven by domestic availability of raw materials such as iron oreand cost-effective labour. Consequently the steel sector has been a major contributor toIndia's manufacturing output. The Indian steel industry is very modern withstate-of-the-art steel mills. It has always strived for continuous modernisation andup-gradation of older plants and higher energy efficiency levels. During the year India'ssteel sector was impacted by intense competitive pressure with a surge in domestic steelproduction and elevated level of steel imports at predatory pricing. In FY2016-17 India'scrude steel production grew by 8.5% y-o-y to 97.4 million tonnes. India imposed‘Minimum Import Price' (MIP) in Feb 2016 on various iron and steel products afterseeing that the provisional safeguard duty of hot rolled sheet failed to have a desirableimpact on unbridled and unfair fl ow of steel imports into the country. This was anemergency provision which provided some relief to the industry.

Later on the Government imposed provisional anti-dumping duty on: hot rolled and coldroll products in August 2016; wire rods in November 2016; and colour coated rods inJanuary 2017 as the industry needed adequate swifter and longer shelf-life trade remedialmeasures to check unbridled and unfair steel imports. India also notified final safeguardduty on hot rolled sheets and plates in November 2016. However steel imports remained ataround 8 million tonnes on an annualised basis despite these trade remedial measures. Thedomestic steel industry suspects circumvention of these trade remedial measures.Therefore a stringent monitoring mechanism is required. The situation was furtheraggravated by the fact that the apparent finished steel consumption in the country grew byjust 2.6% y-o-y for the same period. India's steel demand was expected to gather momentumin the second half of FY2016-17 driven by the Government's measures to drive the economyand manage quantifiable progress on various policy reforms. Normal monsoon and the SeventhPay Commission announcements were also likely to drive consumer discretionary spending.However the steel demand did not to see the desirable upswing in the second half of theyear amid poor liquidity following the Government's de-monetisation initiative. This ledto a liquidity crunch and a contraction of the major consuming sectors such as realestate. However this does not negate the fact that the long-term potential of the Indiansteel industry remains bright. The opportunities for the industry have been identified andefforts are being taken by both public and private entities to achieve sustainable growth.

MARKET SIZE

India's crude steel output grew 10.7 per cent year-on-year to 25.76 million tonnes (MT)during January-March 2017. India's crude steel output during April 2017 grew by 5.4 percent year-on-year to 8.107 MT. India's finished steel exports rose 102.1 per cent to 8.24MT while imports fell by 36.6 per cent to 7.42 MT in 2016-17. India's steel exports rose142 per cent in April 2017 to 747000 tonnes over April 2016 while imports fell by 23 percent to 504000 tonnes in April 2017 over April 2016. Total consumption of finished steelgrew by 3.4 per cent year-on-year at 6.015 MT during April 2017.

GOVERNMENT INITIATIVES

Some of the other recent government initiatives in Steel sector are as follows:

• The Union Cabinet Government of India has approved the National Steel Policy(NSP) 2017 as it seeks to create a globally competitive steel industry in India. NSP 2017targets 300 million tonnes (MT) steel-making capacity and 160 kgs per capita steelconsumption by 2030.

• Metal Scrap Trade Corporation (MSTC) Limited and the Ministry of Steel havejointly launched an e-platform called ‘MSTC Metal Mandi' under the ‘DigitalIndia' initiative which will facilitate sale of finished and semi-finished steelproducts.

• The Ministry of Steel is facilitating setting up of an industry driven SteelResearch and Technology Mission of India (SRTMI) in association with the public andprivate sector steel companies to spearhead research and development activities in theiron and steel industry at an initial corpus of Rs 200 crore (US$ 30 million).

(Source: www.ibef.org website)

ROAD AHEAD:

India is expected to become the second largest steel producer in the world by 2018based on increased capacity addition in anticipation of upcoming demand and the new steelpolicy that has been approved by the Union Cabinet in May 2017 is expected to boostIndia's steel production.* Huge scope for growth is offered by India's comparatively lowper capita steel consumption and the expected rise in consumption due to increasedinfrastructure construction and the thriving automobile and railways sectors.

Steel demand has outpaced supply over the Last Five Years

• Driven by rising infrastructure development and growing demand for automotivessteel consumption is expected to reach 104 MT by 2017

• It is expected that consumption per capita would increase supported by rapidgrowth in the industrial sector and rising infra expenditure projects in railways roads& highways etc.

• It is expected that consumption per capita would increase supported by rapidgrowth in the industrial sector and rising infra expenditure projects in railways roads& highways etc.

DOMESTIC SCENARIO

Post liberalization of the steel sector in 1991-92 the Indian steel industry haswitnessed unprecedented growth. The steel sector in India like any major steel producingcountry shows a strong co-relation with growth in domestic economy.

The growth in Indian economy has fueled the infrastructure and industrial manufacturingsectors in the country which have in turn led to significant increase in steel demand. Thedomestic steel industry has in turn grown in line to meet the steel demand. From a modestcapacity of 22 MT and production of 17 million tonnes of crude steel in 1991-92 it hasgrown by over 400% to reach a capacity of 122 MT and a production level of ~89 milliontonnes in 2015-16. In fact in 2015 India overtook the United States to become the thirdlargest steel producer and is well on course to become the second largest producer soon.Even during the global economic downturn of 2008-09 when the steel industries of rest ofthe major producing countries faltered Indian steel industry stood resilient.

The Indian steel industry also enjoys inherent advantages in terms of availability ofhigh grade iron ore and non-coking coal – the two critical inputs of steelproduction. In addition it also has a vast and rapidly growing market for steel strongMSME sector and a relatively young work force with competitive labour costs. These factorshave so far ably supported the growth of steel industry in the country.

The Indian steel industry has entered into a new development stage post de-regulationriding high on the resurgent economy and rising demand for steel. Rapid rise in productionhas resulted in India becoming the 3rd largest producer of crude steel in 2015 as well asin 2016. The country was the largest producer of sponge iron or DRI in the world duringthe period 2003-2015 and emerged as the 2nd largest global producer of DRI in 2016 (afterIran). India is also the 3rd largest finished steel consumer in the world and maintainedthis status in 2016. Such rankings are based on provisional data released by the WorldSteel Association for the above year.

In a de-regulated liberalized economic/market scenario like India the Government'srole is that of a facilitator which lays down the policy guidelines and establishes theinstitutional mechanism/ structure for creating conducive environment for improvingefficiency and performance of the steel sector. In this role the Government has releasedthe National Steel Policy 2017 which has laid down the broad roadmap for encouraging longterm growth for the Indian steel industry both on demand and supply sides by 2030-31.

The said Policy is an updated version of National Steel Policy 2005 which was releasedearlier and provided a long-term growth perspective for the domestic iron and steelindustry by 2019-20. The Government has also announced a policy for providing preferenceto domestically manufactured Iron & Steel products in Government procurement. Thispolicy seeks to accomplish PM's vision of ‘Make in India' with objective of nationbuilding and encourage domestic manufacturing and is applicable on all government tenderswhere price bid is yet to be opened. Further the Policy provides a minimum value additionof 15% in notified steel products which are covered under preferential procurement. Inorder to provide fl exibility Ministry of Steel may review specified steel products andthe minimum value addition criterion.

Production:

• Steel industry was de-licensed and de-controlled in 1991 & 1992respectively.

• India is currently the 3rd largest producer of crude steel in the world.

• In 2016-17 (prov.) production for sale of total finished steel (alloy + nonalloy) was 100.74 mt a growth of 10.7% over 2015-16.

• Production for sale of Pig Iron in 2016-17 (prov.) was 9.39 mt a growth of 1.8%over 2015-16.

• India was the largest producer of sponge iron in the world during the period2003-2015 and was the 2nd largest producer in 2016 (after Iran). The coal based routeaccounted for 79% of total sponge iron production in the country in 2016-17 (prov).

• Data on production / production for sale of pig iron sponge iron and totalfinished steel (alloy stainless + non-alloy) are given below for last five years andApril-May 2017:

Indian steel industry :(in million tonnes)

Category 2012-13 2013-14 2014-15 2015-16 2016-17* April-May 2017*
Pig Iron Production for sale 6.870 7.950 9.694 9.228 9.391 1.53
Sponge Iron Production 23.01 22.87 24.24 22.43 24.39 4.23
Total Finished Steel Production for sale (alloy/ stainless + non alloy) 81.68 87.67 92.16 90.98 100.74 17.48

Source: Joint Plant Committee; *prov.

Demand – Availability:

• Industry dynamics including demand – availability of iron and steel in thecountry are largely determined by market forces and gaps in demand-availability are metmostly through imports.

• Interface with consumers exists by way of meeting of the Steel Consumers'Council which is conducted on regular basis.

• Interface helps in redressing availability problems complaints related toquality.

OPPORTUNITIES FOR GROWTH OF STEEL IN PRIVATE SECTOR THE NEW INDUSTRIAL POLICY REGIME

The New Industrial policy opened up the Indian iron and steel industry for privateinvestment by (a) removing it from the list of industries reserved for public sector and(b) exempting it from compulsory licensing. Imports of foreign technology as well asforeign direct investment are now freely permitted up to certain limits under an automaticroute. Ministry of Steel plays the role of a facilitator providing broad directions andassistance to new and existing steel plants in the liberalized scenario.

The liberalization of industrial policy and other initiatives taken by the Governmenthave given a definite impetus for entry participation and growth of the private sector inthe steel industry. While the existing units are being modernized/expanded a large numberof new steel plants have also come up in different parts of the country based on moderncost effective state of-the-art technologies. In the last few years the rapid and stablegrowth of the demand side has also prompted domestic entrepreneurs to set up freshgreenfield projects in different states of the country.

Crude steel capacity was 126.33 mt in 2016-17 (prov.) up by 3.6% over 2015-16 andIndia which emerged as the 3rd largest producer of crude steel in the world in 2016 asper provisional ranking released by the World Steel Association has to its credit thecapability to produce a variety of grades and that too of international qualitystandards. The country is expected to become the 2nd largest producer of crude steel inthe world soon.

CHALLENGES

1. Domestic iron ore production declined continuously over the last three years andthe trend has been continuing in the current year as well on account of variousrestrictions in key iron ore producing states. While the Supreme Court has allowedCategory A and B mines in Karnataka to resume mining operations in the state therequirement of fulfilling various conditions has resulted in only a limited number ofmines commencing operations till now leading to a significant supply shortage in thestate. While the Mining ban in the state of Goa has been lifted mining is yet to resumepending policy formation by the State government. The iron ore mining industry in Odishamay also face a ban in light of the report of the Justice M. B. Shah Commission. Despitefalling supplies domestic iron ore prices nevertheless declined over the last one year.Domestic lump ore prices are ruling at levels which are 10-15% lower than the rates oneyear back. This is because of the ongoing downturn in the steel industry leading to anominal production growth for steel players without captive iron ore mines.

2. Insufficient infrastructure and logistics. The steel industry is a major user ofinfrastructure resources like railways roads and ports. A growth in steel production willincrease the burden of the country's already stretched logistics infrastructure. To meetthe needs of a growing steel industry major improvements in various infrastructurefacilities are required.

FUTURE OUTLOOK OF THE INDUSTRY:

In emerging economies the structural factors of population growth linked tourbanisation and (hopefully) industrialisation suggest a bright future for our product.It is estimated that a bit more than 1 billion people will move to towns and citiesbetween now and 2030. This major fl ow not only creates substantial new demand for steelto be used in infrastructure developments such as water energy and mass transit systemsas well as major construction and housing programmes but the process of urbanisation alsoleads to an increased and hopefully more equitable distribution of wealth. This in turndrives demand for steel for additional consumer products such as household appliancesvehicles and additional machine building that supports the industrial processes tomanufacture these consumer goods. Moreover continued transformation of urban areas playsan important role even in the countries having already reached a high level ofurbanisation. Cities are in the process towards improvements in city organisation andliving standards. Over the last 10 years many countries have started revising their urbanpolicies to increase living standards in urban areas to improve energy efficiency and tomake cities more environmentally friendly. Given the expected population growth emergingnew applications for steel and more sophisticated steel applications the global steelmarket has a potential to grow by between 700 and 1000 million tonnes in the next 50years. That is equivalent to a market that is 60% larger than that of today. That betweennow and 2030; global use of steel will increase by as much as 400 million tons annually.India being a developing economy with a large population. The forces of economic growthwill require continued investments in new infrastructure new and larger cities machineryand production to employ more people and drive the economy forward. India already is thethird largest producer of steel. It is also expected to be one of the fastest growingareas in steel use this year and next year.

The GDP/capita in India of around 5815 US$ per person (2010 PPP) coupled withurbanisation that is below 35% of the total population and a steel use per person of lessthan 100 kg per person per year are all indicating towards an economy that is approachingthe structural conditions for rapid acceleration. This phase usually has its ownchallenges such as lack of adequate availability of land insufficient infrastructureinadequate regulatory capacity lack of sufficient manufacturing capacity and most largeskills shortages. But for a country with imaginative managers relatively competentbureaucracy and available raw materials the positives in the longer term outlast thenegatives. In particular the implementation of the reform agenda has a crucial importancefor growth. Moreover with good raw material supply conditions a growing market andcompetent producers the India is at the start of a new growth curve. It may not comeimmediately but the fundamental conditions for growth is in place and is positive.

THREAT PERCEPTION

Your Directors feel that the Company will have to gear up its marketing activities soas to compete effectively with the established producers. Marketing of Alloy Steel andSpecial Steels needs concerted efforts and experience. In the Raichur steel plant theCompany will be manufacturing Special Alloy Steels which are mostly meant for AutomobileManufacturers who will demand strict adherence to the quality of the products. The alloysteel market has high competition. Therefore it is essential for the Company's marketingteam to aggressively and effectively market the products. Similarly in the case of TMTBars there can be good competition from the various producers.

Builders and contractors are the ultimate end users of TMT Bars and it is necessary forthe Company to aggressively market these products.

Shortage of quality raw materials surging freight costs and escalation of the costs ofinputs fuels etc. will continue to keep the cost of production high for steelmanufacturers. The main threat perception is linkage of iron ore and coal. Delay incompletion of the backward integration project can also affect profitability of futureoperations.

Further in regards to financial implications there can be threat perceptions due totough competition it would be difficult for the Company to pass on the entire cost push tothe Customers by way of increased finished steel prices. Faced with aggressive marketingstrategy and cost cutting initiatives the Company constantly reviews/monitors the costsof various inputs and finds out ways (either technological or commercial) to reduce thecost of steel production wherever is possible. The Directors have been taking requisitemeasures to overcome various impediments which may come in the way of smooth functioningof the Company.

RISK PERCEPTION

The Directors are constantly assessing the business risks pertaining to the performanceof 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 takenadequate care to tackle any situation. Strict controls are enforced on the quality frontand all other matters for smooth operation of the steel plants.

5. OPERATIONS

5.1 SIL OPERATIONS AT GUMMUDIPOONDI PLANT

Production at Gummudipoondi Plant had adversely been affected for the last 4 years dueto severe power cut in Tamil Nadu. The plant faced a 20% power cut and this situationcontinued for most part of the financial year. Due to power shortage coupled withunfavourable market prices for end products have resulted in lower operation level at theplant during the year and forced the company to close the operations of the unit duringthe Month of October 2016.

5.2 SIL OPERATIONS AT RAICHUR PLANT EXISTING OPERATIONS

The existing plant at the Integrated Steel Complex at Raichur comprises of the SpongeIron Plant (Direct Reduction of Iron) Steel Melting Shop and the Rolling Mill.

The Company was not able to re-start/re-commence its operation at Raichur due tonon-release of enhanced working capital non-release of priority loans on time andadjusting the same towards the critical interest dues of the Company. The company is usingpellets 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 therefurbishment work is completed which is subject to release of the priority loan by theconsortium lenders and SARFAESI initiation against the said project. The existingfacilities at the Raichur plant are summarized below:

Facility Metric Tonnes Per Annum
DRI Plant 160000
Electric Arc Furnace 250000
Billet Caster 240000
Bar Mill 400000

6. SUBSIDIARIES:

In accordance with the General Circular issued by the Ministry of Corporate AffairsGovernment of India the Balance Sheet Statement of Profit and Loss and other documentsof 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 AnnualReport in compliance with the said circular.

SIL has investments in three subsidiaries viz. Surana Power Limited Surana GreenPower Limited and Surana Mines and Minerals Limited.

6.1 SURANA POWER LIMITED (SPL):

Surana Power Limited a 100% subsidiary of Surana Industries Limited is in the processof setting up of 2 x 210 MW Thermal Power Plant at Raichur. The original project cost wasestimated at Rs.2400

Crs in the year 2010. However the project cost has been revised to Rs.3090 crores onaccount of increase in Interest during Construction (IDC). SPL has a 35 MW operationalthermal power plant. After completing the 2 x 210 MW Thermal Power Plant the generationcapacity of Surana Power Limited will be increased to 455 MW.

Surana Power Limited deals with two power projects. One 35 MW Captive Power Plantwhich was commissioned and currently is non operational due to various stress factors andthe same has been repossessed by UCO Bank under SARFAESI Act. Another 2 x 210 MW ThermalPower Project is under implementation and is in stalled condition. The 2 x 210 MW powerproject has been repossessed by the consortium of lenders under SARFAESI Act on December21 2015. As the 2 x 210 MW project is stalled and possession being taken over by thelenders the related asset and the corresponding liabilities has moved out of companies'control. It is also expected that the lenders would utilize the realization on the sale ofassets relating to the projects for settling their outstanding from the company in fulland final manner. Consequent to this the company's ability to service the pared debt willimprove substantially. During the financial year 2016-17 the revenue from operation isstood at Nil as compared to Rs. 12.82 Crores for the previous financial year 2015-16. TheCaptive Power Plant was not in operation for the entire financial year due to labourunrest financial constraint and other unviable market conditions. During the financialyear 2016-17 the Other Income stood at Rs. 0.69 Crores as compared to Rs. 5.89 Crores forthe previous financial year 2015-16. Finance cost stood at Rs. 45.20 Crores for thefinancial year 2016-17 as against Rs. 4.09 Crores for the financial year 2015-16.

Depreciation and amortization expenses stood at Rs. 7.09 Crores for the financial year2016-17 as against Rs. 7.27 Crores for the financial year 2015-16.

Other expenses stood at Rs. 0.50 Crores for the financial year 2016-17 as against Rs.0.39 Crores for the financial year 2015-16.

Loss before tax is Rs. 431.32 Crores for the financial year 2016-17 and Rs. 686.04Crores for the financial year 2015-16. Loss after tax for the financial year 2016-17 stoodat Rs. 431.32 Crores and Rs. 686.04 Crores for the financial year 2015-16.

6.2 SURANA GREEN POWER LIMITED (SGPL):

SGPL a 100% subsidiary of Surana Industries Limited is in the business of PowerGeneration. SGPL has currently 7 windmills of 1.5MW capacity. SGPL has a step downsubsidiary (wholly owned subsidiary) M/s. Surana Green Energy Limited (SGEL) an SPVthrough which the Company is availing the Group Captive Scheme (GCS) whereby SGEL is ableto sell electricity to other Captive users.

SGPL has also been registered under the UNFCCC (United Nations Framework Convention onClimate Change) Clean Development Mechanism Scheme (CDM). The project is eligible forCarbon Credits which are sold in the international markets. This has provided additionalrevenue to SGPL. The said windmills of SGEL are financed by State Bank of India and IFCIVentures. The combined outstanding of loans with these two institutions amounts toRs.43.65 crores. The company had settled the outstanding dues to State Bank of India byselling the property to the prospective buyer. However the loan relating to M/s. IFCIVentures are still outstanding and the company is in advance stage of negotiation withvarious parties for selling the windmill which is under the loan component of M/s. IFCIVenture to settle their dues. Accordingly the said investments have been impaired duringthe year.

For the Financial Year 2016-17 the Company has not generated any units. During theyear there was no turnover as compared to Rs. 0.31 Crs in the previous year ended March31 2016.

6.3 SURANA MINES & MINERALS LIMITED (SMML):

Surana Mines and Minerals Ltd SMML a 100% subsidiary of Surana Industries Limited atSingapore is expected to commence trading activities in coal as well as scraps in theglobal market for supply to steel and power plants in the group. SMML has a step downsubsidiary PT Borneo Mines & Minerals Ltd which has acquired mining rights in theSassanga coal mines in Indonesia. The 2640 acres of the Sassanga coal mines have provenreserves of 60-70 million tonnes of coal. The Company is facing difficulty in raisingfunds for working capital due to the restructuring of the debts of the parent companySurana Industries Ltd and has incurred a loss of US$ 32020/- on a consolidated basis forthe Financial Year 2016-17.

SIL is confident of recovering its complete investment in the company on restarting ofmining operations. Accordingly SIL considers this long term investment in SMML asrealizable and consequently no impairment is anticipated.

A Statement Pursuant to first proviso to sub-section (3) of section 129 read with rule5 of Companies (Accounts) Rules 2014 containing salient features of the financialstatement of subsidiaries/associate companies/joint ventures in Form AOC-1 is annexed tothis report as "Annexure A".

UNLOCKING INVESTMENTS IN SUBSIDIARIES

SIL has made total investments of Rs.569.24 Crores in its subsidiaries viz. SPL (Rs.453.50 Crores) SGPL (Rs. 56.15 Crores) & SMML (Rs. 59.59 Crores). These investmentsare yet to yield returns. While the investment decision is sound the execution of thesebusinesses have faced various bottlenecks in the form of non- availability of workingcapital un-favourable market conditions coal linkage inordinate delay in gettingcertain regulatory approvals and other macroeconomic issues. These have stressed the cashfl ows of the parent company SIL. Presently we are in advanced discussions with variousinvestors. Going forward it is proposed to unlock their value by divesting majorityequity stake in these Companies.

The Board of Directors and the Shareholders of SIL has approved the divestment of thethree subsidiaries viz; M/s. Surana Power Limited M/s. Surana Green Power Limited andM/s. Surana Mines & Minerals Limited. In view of the above SIL are in the process ofexploring variable options in order to divest the respective stakes held in thesesubsidiaries as referred above and thus hope to increase the liquidity position of thecompany and to concentrate on its core business.

7. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:

The Company has a sound internal control system framed by the expert professional inconsultation with the Audit Committee and Statutory Auditors of the Company. Alltransactions are subject to proper scrutiny. The Company also has Independent InternalAuditors who carry out the internal audit on a quarterly basis covering all areas duringthe financial year and submit their report on a quarterly basis to the Audit Committee.The Management takes immediate corrective action wherever it is being pointed out to helpstreamline the internal control process. The Audit Committee further insisted that thereshould be stronger internal control systems to be in place. A policy on internal controlshad already been devised and implemented for the company and the management shall ensurethe effectiveness of the working of such policy.

8. CONSOLIDATED FINANCIAL STATEMENTS:

In accordance with the Ind AS 110 - Consolidated Financial Statements read with Ind AS28 - Invesments in Associates and Joint Ventures. the audited consolidated financialstatements is provided in the Annual Report.

9. HUMAN RESOURCES

The Management envisions trained and motivated employees as the backbone of theCompany. Special attention is given to recruit trained and experienced personnel not onlyin the production department but also in marketing finance and accounts. The Managementstrives to retain and improve employee morale. The Company has total staff strength ofabout 150 employees. The Company is in the process of revamping the employer employeeengagement program.

The labour unrest at the Raichur Integrated steel plant plagued the operations of theplant for the major part of the financial year. For the last three years a certain sectionof the workers of our Raichur Integrated Steel Plant have been resorting to illegalactivities and have been instigated by local elements with vested interests. The Companywould like to bring to the notice of the share holders that the said strike / labourdispute have been amicably resolved and we expect no turbulence in the near future.

The Company has streamlined its manpower strength at the registered office of thecompany. As a result of manpower rationalization exercise the monthly payroll has beenoptimized. The decision for rationalization of labour has enabled the company to curtailfixed manpower costs. However the core technical expert team is retained to guide theCompany to achieve higher and efficient level of production. Further to the above duringthe financial year 2016-17 the company had fully resolved the labor unrest at Raichur.

10. CORPORATE GOVERNANCE

The Directors pay special attention to ensure that the guidelines given for thecorporate governance are strictly adhered to. All possible steps are taken to adhere tothe requirements set out by SEBI Guidelines on Corporate Governance. The Company is alsoaligning itself to implement global corporate governance practices. This is ensured bytaking ethical business decisions and conducting business with a firm commitment tovalues while meeting stakeholder's expectations. At Surana it is imperative that thecompany affairs are managed in a fair and transparent manner. This is vital to gain andretain the trust of our stakeholders.

A separate compliance certificate on compliance of conditions of Corporate Governancealso forms part of the Annual Report. Requisite compliance certificate from the practicingcompany secretaries of your Company regarding compliance of the conditions of thecorporate governance as stipulated under Regulation 34(3) of the SEBI (LODR) Regulationwith the Stock Exchanges is also attached to the corporate governance report. With regardto the Business Responsibility Report the Company is not covered in the top 100 listedentities based on the market capitalization at BSE & NSE in terms of SEBI CircularCIR/CFD/DIL/8/2012 dated August 13 2012.

11. CORPORATE SOCIAL RESPONSIBILITY AND GOVERNANCE COMMITTEE

The Board of Directors has constituted a Corporate Social Responsibility and GovernanceCommittee (CSR&G Committee) in compliance with the provisions under the Companies Act2013. The committee comprises of Shri Babu Srinivasan as the Chairman Smt Agnes RoselindJoseph and Shri. Dineshchand Surana as its other members.

The said Committee has been entrusted with the responsibility of formulating andrecommending to the Board a Corporate Social Responsibility Policy (CSR Policy)indicating the activities to be undertaken by the Company monitoring the implementationof the framework of the CSR Policy and recommending the amount to be spent on CSRactivities.

Since the company is making losses for the past three years CSR spend does not applyto the company for the financial year 2016-17. Hence submission of a report on CSRactivities does not apply.

12. RISK MANAGEMENT COMMITTEE AND POLICY:

The Board of Directors has constituted a Risk Management Committee and framed a RiskManagement Policy in compliance with the provisions under the Companies Act 2013 and SEBI(Listing Obligations & Disclosure Requirements) Regulations 2015. The committeecomprises of Shri Dineshchand Surana as the Chairman Shri. Babu Srinivasan and Shri.Agnes Roselind Joseph as its other members.

13. SEXUAL HARASSMENT POLICY:

The Company had adopted the sexual harassment policy as recommended by the AuditCommittee of the Board of Directors.

14. 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 providingelectronic connectivity for dematerialization on the Company's shares facilitating theinvestors to hold the shares in electronic form and trade in those shares. The shares ofyour Company are being traded now in on the Bombay and National Stock Exchanges undercompulsory demat form. Further in accordance with provisions stipulated under CompaniesAct 2013 the facility of e-voting is also made available to all shareholders of theCompany. The instructions regarding e-voting are available in a separate section of theAnnual report. All shareholders are also requested to update their email id's with theCompany or our RTA M/s. Cameo Corporate Services Ltd.

15. TRANSFER OF AMOUNTS TO INVESTOR EDUCATION AND PROTECTION FUND

Pursuant to the provisions of Companies Act 2013 and rules framed thereunder relevantamounts which remained unpaid or unclaimed for a period of seven years have beentransferred by the Company from to time to time on due dates to the Investor Educationand Protection Fund. The details of the same are covered under the Corporate GovernanceReport.

Pursuant to the provisions of Investor Education and Protection Fund (Uploading ofinformation regarding unpaid and unclaimed amounts lying with companies) Rules 2012 theCompany has uploaded the details of unpaid and unclaimed amounts lying with the Company ason 30th September 2016 (date of last Annual General Meeting) on the Company's website(www.suranaind. com) as also on the Ministry of Corporate Affairs' website.

16. AUDITORS

STATUTORY AUDITORS

M/s. VDSR & Co Chartered Accountants Chennai having Firm Registration Number001626S Statutory Auditor of the Company has been appointed for a period of five yearsstarting from the financial year 2015-16 to 2019- 20 subject to ratification of membersin the each annual general meeting. Your Board of Directors recommends their appointmentas Statutory Auditors to hold office from the conclusion of the 26th AGM till theconclusion of the 31st AGM of the Company.

17. AUDITORS REPORT AND MANAGEMENT'S RESPONSE TO AUDITORS OBSERVATIONS

The Auditors have qualified and emphasized certain matters in their report.

Auditors Report – Qualifications & Management response thereof: StandaloneFinancial Statement:

i. Auditor's Qualification:

We refer to the Note No.7 relating to the investment in its subsidiaries Surana PowerLimited (SPL). The carrying value of the investment in the SPL as at March 31 2017 wasRs. 45350 lakhs. In addition the Company has also issued a financial guarantee of Rs.10000 lakhs to the lenders against the loan taken by the SPL. The net worth of thissubsidiary has been fully eroded and its current liability exceeds its current assets. Theindependent auditor of the subsidiary had given the adverse opinion on its financialstatements for the year ended March 31 2017 stating that going concern assumption is notappropriate and the carrying value of the assets may also be impaired. No provision hasbeen considered by the management for the diminution in the value of the investment inthis subsidiary in the likelihood of devolvement of the guarantee on the Company.

Management Response:

Based on the preliminary negotiations with prospective buyers the company currently isof the opinion that actual realizable value of the current assets of the subsidiarycompany will be sufficient to discharge its current liabilities. The company is also indiscussions with some Financial Institutions who have evinced interest in restarting theproject by pumping in additional equity and debt required for completing the project.These discussions are being held at tripartite level between the prospective FinancialInstitution Leader of the Consortium and the Company. Consequently the company does notenvisage any prospective devolvement of liability on account of revocation of guarantee.And also the company has appointed an advisory to revive the operation of the company andto bring the current debts to sustainable levels by negotiating with the consortium oflenders. Accordingly the company has not made any provision in this regard. The AuditReport for the year ended March 31 2016 was also modified in respect of the above matterunder the previous GAAP (in accordance with the Accounting Standards specified in theAnnexure to the Companies (Accounting Standards) Rules 2006).

ii. Auditor's Qualification:

Attention is invited to Note No. 7 regarding investments in Subsidiaries Surana Mines& Minerals Limited (having a carrying value aggregating to Rs. 5848.26 lakhs) thatwere approved for divestment due to continuing adverse market scenario which was impactingthe survival of the parent Company. This investment is carried at cost and has not beenassessed for any impairment to the carrying values.

Management Response:

In view of the ongoing negotiations with the prospective buyers and the lenders andalso considering the expected realizable value of the assets the Company will be able torealize the carrying value of the said investments in SMML.

The Audit Report for the year ended March 31 2016 was also modified in respect of theabove matter under the previous GAAP (in accordance with the Accounting Standardsspecified in the Annexure to the Companies (Accounting Standards) Rules 2006).

iii. Auditor's Qualification:

Inventory as at March 31 2017 aggregated to Rs.14878/- lakhs for which the quantityquality and realizable value were not assessed and determined by the management. In theabsence of evidence for physical existence of inventory as at March 31 2017 and netrealizable value of inventory we are unable to comment on the adjustment that may berequired to the carrying value of the inventory.

Management Response:

During the year the stocks have been provided to the extent of Rs. 6176.37 lakhsarising on account of deterioration obsolescence and quality issues identified on ascientific and technical basis. The management is of the opinion post the saidprovisioning the stocks refl ects the realizable value. The Audit report for the yearended March 31 2016 was also modified in respect of the above matter under the previousGAAP (in accordance with the Accounting Standards specified in the Annexure to theCompanies (Accounting Standards) Rules 2006).

iv. Auditor's Qualification:

The financial results for the quarter ended March 31 2017 have been prepared on agoing concern basis in spite of negative net worth after considering the impact of themodifications mentioned in paragraph ( a ) and ( b ) above. The ability of the Company tocontinue as a going concern is significantly dependent on the successful outcome of theongoing negotiations with the lenders and therefore we are unable to comment if the goingconcern assumption is appropriate and any effect it may have on the financial results forthe quarter ended March 2017.

Management Response:

The company was not in a position to restart its operations in Raichur in time due tonon release of sufficient working capital funding by the lenders The negotiations with theconcerned parties including the consortium of lenders are on for restarting theoperations of the Raichur Plant. Meanwhile the company has appointed an advisory torevive the operation of the company and to bring the current debts to sustainable levelsby negotiating with the consortium of lenders. Accordingly the company is of the opinionthat the assumption of going concern is appropriate.

v. Auditor's Qualification:

The carrying values of the financial assets as at March 31 2017 are not measured inaccordance with the Ind-AS 39 and we are unable to comment on the adjustments that may berequired to the carrying values of the financial assets.

Management Response:

The Company has implemented Ind As 39 and as all the necessary provisions on thefinancial assets and financial liabilities have been recognized the company is of theview that the financial assets and financial liabilities of the company are represented atfair market value.Financial assets includes long term receivables which are covered underthe MOU consisting of definitive repayment schedule wherein the recoveries either in cashor in kind from the said parties is happening as per the schedule and accordingly sincethese receivables are of nature of financial assets having definitive maturity thestatement of the figures is in compliance with Ind AS 39.

vi. Auditor's Qualification:

The Company has considered trade receivables outstanding for more than 1 year of Rs.11597.36 Lakhs and capital advances of Rs. 6170.88 as good and recoverable. However wewere unable to confirm or verify by alternative means balances of such trade receivablesand we are unable to comment on the adjustments that may be required as at March 31 2017.

Management Response:

The company has treated the capital advances of Rs.6170.88 lakhs as good andrecoverable due to the fact that the said receivables are covered under the MOU consistingof definitive repayment schedule. As far as the trade receivables of Rs. 11597.36 lakhsis concern it is adequately provided and the same is considered good and fullyrecoverable.

vii. Auditor's Qualification:

Had the provision been made for the financial liability arising out of the guarantee asreferred to in paragraph (a) above had the provision been made for trade receivables andcapital advances as referred to in paragraph (b) the loss would have been increased byRs. 27768.24 Lakhs and consequently net worth would have been reduced by Rs. 27768.24Lakhs respectively.

Management Response:

Covered by responses to the individual items mentioned in (i) and (vi) above

Consolidated Financial Statement:

i. Auditor's Qualification:

Attention is invited to Note No 9 relating to 35MW coal fired power plant at Raichurhaving a carrying value of Rs. 21830.49 lakhs as at March 31 2017 has not beenoperational since July 2013.

Further UCO Bank has issued a notice on August 19 2015 under Securitisation andReconstruction of Financial Assets and Enforcement of Security Interest Act 2002(SARFAESI) for discharge of the entire liabilities relating to the said plant. The Grouphas not determined the recoverable amount of these assets on March 31 2016 as requiredunder Ind AS 36 Impairment of Assets. Accordingly we are unable to comment on theimpairment losses if any that may arise in respect of the said assets.

Management Response:

In view of the ongoing negotiations with the prospective buyers and the lenders andalso considering the expected realizable value of the assets the Company will be able torealize the carrying value of the said investment.

ii. Auditor's Qualification:

In respect of the 2X210 MW power project at Raichur Long term loans and advancesinclude dues from subcontractors aggregating to Rs. 4089.65 Lakhs representing theamounts taken over from the EPC Contractors in an earlier year which are considered goodand recoverable by the management. In the absence of any confirmation from / agreementwith these parties we are unable to comment on the adjustments including provision ifany that may be required with respect to these advances.

Management Response:

It is submitted that the dues are collectable/adjustable on resumption of project workand no provision is considered necessary.

iii. Auditor's Qualification:

Inventory as at March 31 2017 aggregated to Rs.14878/- lakhs for which the quantityquality and realizable value were not assessed and determined by the management. In theabsence of evidence for physical existence of inventory as at March 31 2017 and netrealizable value of inventory we are unable to comment on the adjustment that may berequired to the carrying value of the inventory.

Management Response:

During the year the stocks have been provided to the extent of Rs. 6176.37 lakhsarising on account of deterioration obsolescence and quality issues identified on ascientific and technical basis. The management is of the opinion post the saidprovisioning the stocks refl ects the realizable value.

iv. Auditor's Qualification:

The carrying values of the financial assets as at March 31 2017 are not measured inaccordance with the Ind-AS 39 and we are unable to comment on the adjustments that may berequired to the carrying values of the financial assets.

Management Response:

The Company has implemented Ind AS 39 and as all the necessary provisions on thefinancial assets and financial liabilities have been recognized the company is of theview that the financial assets and financial liabilities of the company are represented atfair market value. Financial assets includes long term receivables which are covered underthe MOU consisting of definitive repayment schedule wherein the recoveries either in cashor in kind from the said parties is happening as per the schedule and accordingly sincethese receivables are of nature of financial assets having definitive maturity thestatement of the figures is in compliance with Ind AS 39.

v. Auditor's Qualification:

The Holding Company has considered trade receivables outstanding for more than 1 yearof Rs. 11597.36 Lakhs and capital advances of Rs. 6170.88 as good and recoverable.However we were unable to confirm or verify by alternative means balances of such tradereceivables and we are unable to comment on the adjustments that may be required as atMarch 31 2017.

Management Response:

The company has treated the capital advances of Rs.6170.88 lakhs as good andrecoverable due to the fact that the said receivables are covered under the MOU consistingof definitive repayment schedule. As far as the trade receivables of Rs. 11597.36 lakhsis concern it is adequately provided and the same is considered good and fullyrecoverable.

vi. Auditor's Qualification:

A subsidiary Surana Power Limited has not provided for interest and penal interest oncertain borrowings for the year ended March 31 2017which is estimated at Rs. 5248.70Lakhs.

Management Response:

With the takeover of the assets of the project by the lenders the company has notprovided for Interest during the current financial year.

vii. Auditor's Qualification:

The Consolidated Financial Statements regarding preparation of the financial statementson a going concern basis notwithstanding the fact that consolidated net worth has fullyeroded as on the Balance Sheet date and the current liabilities as per the consolidatedfinancial statements exceed the current assets as on that date.

1. Further with respect to a component Surana Power Limited : a. IDBI Bank (thelead bank with respect to the facilities availed by Surana Power Limited) has takenpossession of the project assets relating to the 2 X 210 MW power project having acarrying value of Rs. 125766.86 lakhs as March 31 2017 under SARFAESI on December212015.Theseprojectassetsaredisclosedundertheheading‘AssetsRepossessedbyLenders'.

Consequent to the possession of these assets being taken over by the lead bank thecomponent ceases to have control over such assets and accordingly no longer qualify asasset. Pending disposal of the project assets by the lead bank for discharge of loanliabilities we are unable to determine whether there would be any further financialobligation towards settlement of loan liabilities by the component and the component'sability to fulfil such obligation if any. b. As stated in paragraph (b) above the 35MWcoal fired power plant having a carrying value of Rs. 21830.49 lakhs as at March 312017 which is a subject matter under the SARFAESI Act has not been operational sinceJuly 2013. Pending any further action by UCO Bank in this regard we are unable todetermine whether the component would be able to recommence its commercial operations inthe foreseeable future. c. The independent auditor of the component has given an adverseaudit opinion on its financial statements for the year ended March 31 2017 stating thatthe going concern assumption is not appropriate and the carrying value of the assets ofthe subsidiary may also be impaired.

2. The Holding Company has not considered any impairment for the carrying value of theinvestments in the said component and has also not considered any provision for thelikelihood of the devolvement of the financial guarantee of Rs. 10000/- lakhs provided byit to the lenders of the component. However in the circumstance mentioned above in ouropinion the Holding Company should have provided for the obligations relating to thefinancial guarantee provided by them.

3. The ability of the Holding Company to continue as a going concern is significantlydependent on the successful outcome of the ongoing negotiations with the lenders andtherefore we are unable to comment if the going concern assumption is appropriate and anyeffect of the measurement and classification of assets and liabilities in the BalanceSheet.

4. The above events indicate that there are multiple material uncertainties for theGroup to be able to continue as a going concern and accordingly in our opinion the useof going concern assumption is not appropriate.

5. Had the provision been made for the financial liability arising out of the guaranteeas referred to in paragraph (ii) above had the provision been made for trade receivablesand capital advances as referred to in paragraph (e) and had the provision been made forinterest and penal interest as referred to in paragraph (f) the consolidated loss wouldhave been increased by Rs. 33016.94 Lakhs and consequently consolidated networth wouldhave been reduced by Rs. 33016.94 Lakhs respectively.

Management Response:

For Audit Qualification(s) where the impact is quantified by the auditorManagement's Views:

(i) Based on the preliminary negotiations with prospective buyers the companycurrently is of the opinion that actual realizable value of the current assets of thesubsidiary company will be sufficient to discharge its current liabilities. Consequentlythe company does not envisage any prospective devolvement of liability on account ofrevocation of guarantee. Accordingly the company has not made any provision in thisregard. (ii) Company could not comply with debt repayment schedule as embedded in the CDRpackage for want of non release of sufficient working capital funding by the lenders asper the package. Consequently the company was not in a position to restart its operationsin raichur in time and could not adhere to the debt repayment schedule. (iii) As mentionedin response to observation 10(iv) above there is no non compliance of debt covenants asper the CDR package since the company has disclosed the said amounts of recompense undercontingent liabilities.

The negotiations with concerned parties are on for restarting the operations of RaichurPlant and further the Operational capabilities of the Gummidipoondi Plant have beenimproving over the past years. Accordingly the company is of the opinion that theassumption of going concern is fully appropriate.

INTERNAL AUDITOR

The Board has appointed M/s. K. Balaji & Co Chartered Accountants Chennai as theInternal Auditors of the Company pursuant to Section 138 of The Companies Act 2013 andRule No. 13 of The Companies (Accounts of Companies) Rules 2014 for the financial year2017-18. The Internal Auditors of the Company has a qualified team of Internal Auditprofessionals who shall be reporting directly to the Audit Committee of the Company. TheInternal Audit would ensure that strong internal control mechanism is put in place in theCompany as per the recommendations and guidance of Audit Committee.

COST AUDITOR

The Board of Directors had appointed M/s. JV Associates Cost & ManagementAccountants Chennai (M.No. 6128) as the Cost Auditor of the Company to audit the costaccounting records of the Company for the financial year 2016-17.

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 hasappointed M/s. Lakshmmi Subramanian & Associates Practising Company SecretariesChennai to undertake the Secretarial Audit of the Company. The report of the SecretarialAudit Report is annexed herewith as "Annexure B"

MANAGEMENT'S RESPONSE TO SECRETARIAL AUDITOR'S OBSERVATION

1. The Company through its Allotment Committee of Board of Directors had allotted6391582 equity shares of Rs 10 each to Shri. Dineshchand Surana as per the terms andconditions of Corporate Debt Restructuring (CDR) Scheme however the company has notlisted the shares on the Stock Exchange as it could not be issued in Demat form due toLegal/Technical issue faced with the banker's and the depository participants.

As per the Corporate Debt Restructuring (CDR) Scheme empowered by the CDR EmpoweredGroup (CDR EG) the Allotment Committee of Board of Directors had allotted 6391582equity shares of Rs.10 each @ 72.82 (including a premium of Rs.62.82) to Shri DineshchandSurana. However the post issue process of listing of shares are pending with StockExchange due to legal/ technical issue pending for approval from consortium bankers.

2. The company has not adopted or filed the Financial Results for the quarter ended30th September 2016 on or before 14 December 2016 as mandated by the Securities andExchange Board of India vide circular CIR/CFD/FAC/62/2016 dated 05 July 2016. Since thecompany had adopted the Ind-AS for the first time the company had the time till December14 2016 for approving the Financial Results for the quarter ended September 30 2016 inline with the circular no. CIR/CFD/FAC/62/2016 dated 05 July 2016 issued by SecuritiesExchange Board of India. However the company could not approve the Financial Results forthe Quarter ended September 30 2016 on or before December 14 2016 due to casual vacancyin the office of the statutory auditors and the same was intimated to the Stock Exchangesaccordingly.

3. The Company has not held the meeting of the audit committee and Board meeting duringthe third quarter for the financial year 2016-17 due to absence of quorum on account ofthe cyclone in Chennai Tamil Nadu.

The company had held the audit committee and board meeting for the third quarter onDecember 14 2016 however the same was adjourned on account of the cyclone in ChennaiTamilnadu and the same was intimated to the Stock Exchange accordingly.

4. The Company is yet to strictly comply with all applicable provisions of theSecretarial Standards that are in force.

The Company is already in the process of fully complying with the provisions ofSecretarial Standards 1 and Secretarial Standards 2.

5. The Company has not filled in the vacancy in the post of Company Secretary and ChiefFinancial Officer as specified under section 203 of the Companies Act 2013 and asmandated under Securities and Exchange Board of India (Listing Obligations and DisclosureRequirements) Regulation 2015.

The company has appointed the whole time company secretary during the current financialyear and Group –CAO of the company is considered to be the Chief Financial Officer ofthe company as required under the Securities and Exchange Board of India (ListingObligations and Disclosure Requirements) Regulation 2015. The Company is taking allnecessary steps to comply with the provisions of Section 203 of Companies Act 2013.

6. The Company is not regular in filing forms with the Registrar of Companies.

The company is already into the system of filing forms with Registrar of Companies onregular basis.

18. DIRECTORS:

The following changes have occurred in the Board of Directors during the financial year2016 2017:

18.1 INDUCTION AND RESIGNATIONS

During the Financial Year 2016-17 on recommendations of the nomination andremuneration committee the Board appointed Smt. Agnes Roselind Joseph as an AdditionalDirector in the category of Independent Director of the Company with effect from June 012016. In continuation to the appointment of Smt. Agnes Roselind Joseph as AdditionalDirector she was regularized as an Independent Director of the Company at the 25th AnnualGeneral Meeting held on September 30 2016 to hold office for tenure of Five (5) years.

Further during the Financial Year 2016-17 Shri. Krishna Udupa has resigned as aNon-Executive Director of the Company with effect from September 30 2016. In addition tothis IDBI Limited had withdrawn his nominee director Shri. Biju George Kozhippattu fromthe Board of the company with effect from October 21 2016. The Board appreciates andthanks them for their efforts in driving delivery and quality excellence for the Company.The Board also places on record its gratitude for the services rendered by Shri. KrishnaUdupa and Shri. Biju George Kozhippattu during their long association with the Company.

18.2 RE-APPOINTMENTS

In accordance with the provisions of the Companies Act 2013 and in terms of theMemorandum

& Articles of Association of the Company At the ensuing 26th Annual GeneralMeeting Shri. Dineshchand Surana Director of the Company is liable to retire by rotationand being eligible offer him selves for re-appointment. The Board recommends hisre-appointment.

The Companies Act 2013 provides for the appointment of independent directors. Subsection (10) of Section 149 of the Companies Act 2013 provides that independent directorsshall hold office for a term of up to five consecutive years on the board of a company;and shall be eligible for reappointment on passing a special resolution by theshareholders of the Company. Accordingly all independent directors were appointed by theshareholders at the General Meeting as required under Section 149(10). Further accordingto sub section (11) of Section 149 no independent director shall be eligible forappointment for more than two consecutive terms of five years. Sub section (13) statesthat the provisions of retirement by rotation as defined in Sub section (6) and (7) ofSection 152 of the Act shall not apply to such independent directors.

None of the independent directors will retire at the ensuing Annual General Meeting. 18.3DECLARATION BY INDEPENDENT DIRECTORS

All Independent Directors have given declarations that they meet the criteria ofindependence as laid down under Section 149(6) of the Companies Act 2013 and Regulation16(b) of SEBI (Listing Obligations & Disclosure Requirements) Regulations 2015.

18.4 BOARD EVALUATION AND PERFORMANCE EVALUATION OF INDEPENDENT

DIRECTORS

Pursuant to the provisions of Regulation 19(10) of SEBI (Listing Obligations &Disclosure Requirements) Regulations 2015 the Board shall monitor and review the Boardevaluation framework. The Companies Act 2013 also states that a formal annual evaluationneeds to be made by the Board of its own performance and that of its committees andindividual directors. Schedule IV of the Companies Act 2013 states that the performanceevaluation of independent directors shall be done by the entire Board of Directorsexcluding the director being evaluated. The Board has carried out an annual performanceevaluation of its own performance the directors individually as well as the evaluation ofthe working of its Audit Nomination & Remuneration and Compliance Committees. Themanner in which the evaluation has been carried out has been explained in the CorporateGovernance Report.

18.5 TRAINING OF INDEPENDENT DIRECTORS

Every new independent director of the Board attends an orientation program. Tofamiliarize the new inductees with the strategy operations and functions of our Companythe executive directors/ senior managerial personnel make presentations to the inducteesabout the Company's strategy operations product and service offerings marketsorganization structure finance human resources technology quality facilities and riskmanagement.

18.6 REMUNERATION POLICY

The Board has on the recommendation of the Nomination & Remuneration Committeeframed a policy for selection and appointment of Directors Senior Management and theirremuneration. The Remuneration Policy is stated in the Corporate Governance Report. Allremuneration paid to the Directors Key Managerial Personnel and senior managementpersonnel are as per the remuneration policy of the Company.

19. DIRECTORS' RESPONSIBILITY STATEMENT:

To the best of their knowledge and belief and according to the information andexplanations obtained by them your Directors make the following statement in terms ofSection 134 (3) (c) of the Companies Act 2013: (a) in the preparation of the annualaccounts the applicable accounting standards had been followed along with properexplanation relating to material departures; (b) the directors had selected suchaccounting policies and applied them consistently and made judgments and estimates thatare reasonable and prudent so as to give a true and fair view of the state of affairs ofthe company at the end of the financial year and of the profit and loss of the company forthat period; (c) the directors had taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of this Act for safeguardingthe 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) thedirectors had laid down internal financial controls to be followed by the company andthat such internal financial controls are adequate and were operating effectively.

(f) the directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.

20. CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION

A statement containing the particulars relating to conservation of energy research anddevelopment and technology absorption as required under Section 134 (3) (m) of theCompanies Act 2013 and

Rule 8 (3) (A) (3) (B) and 3 (A) (C) of The Companies (Accounts) Rules 2014 isannexed to this report as "Annexure C"

21. PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS UNDER SECTION 186 OF COMPANIES ACT2013

Details of Loan Guarantees and Investments covered under the provisions of Section 186of the Companies Act 2013 are given in the notes to financial statements.

22. PARTICULARS OF EMPLOYEES:

The information required pursuant to Section 197 of the Companies Act 2013 read withRule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014in respect of the employees of the company will be provided upon request. In terms ofSection 136 of the Act the Report and Accounts are being sent to the Members and othersentitled thereto excluding the information on employees' particulars which is availablefor inspection by the Members at the Registered Office of the Company during businesshours 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 theCompany Secretary in this regard.

23. DEPOSITS

Your Company has not accepted any deposits from the public during the year underreview.

24. MEETINGS

During the year Eight Board Meetings and Seven Audit Committee Meetings were convenedand held. The details of which are given in the Corporate Governance Report. Theintervening gap between the meetings was within the period prescribed under the CompaniesAct 2013.

25. COMMITTEES

Currently the Board of Directors of the Company pursuant to the mandatory provisionsof 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 Adetailed note on the Board and its committees along with the composition of the committeesand compliances is provided under the Corporate Governance Report section in this AnnualReport.

26. AUDIT COMMITTEE

Currently the Company has an independent and qualified Audit Committee as per theprovisions of Section 177 (8) of the Companies Act 2013 and Rule 7 of The Companies(Meetings of Board and its Powers) Rules 2014 and Regulation 18 of the Securities andExchange Board of India (Listing Obligations and Disclosure Requirements) Regulations2015 the following is the current composition of Audit Committee:

Name of the Director Category Status
Shri. Babu Srinivasan Non-Executive Independent Director Chairman
Smt. Agnes Roselind Non-Executive Independent Director Member
Shri. Dineshchand Surana Managing Director Member

The Board has accepted all the recommendations provided by the Audit Committee.

27. VIGIL MECHANISM/WHISTLE BLOWER POLICY

The Company has a vigil mechanism/whistle blower Policy to deal with instance of fraudand mismanagement if any. The details of the vigil mechanism Policy is explained in theCorporate Governance Report and also posted on the website of the Company.

28. 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 onan arm's length basis and were in the ordinary course of business. There are no materiallysignificant related party transactions made by the Company with Promoters Directors KeyManagerial Personnel or other designated persons which may have a potential confl ict withthe interest of the Company at large. All Related Party Transactions are placed before theAudit Committee as also the Board for approval. The Company is in the process ofdeveloping a Related Party Transactions Manual Standard Operating Procedures for purposeof identification and monitoring of such transactions. The policy on Related PartyTransactions 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 anypecuniary relationships or transactions vis--vis the Company. Particulars of Contractsor arrangement with related parties referred to in Section 188(1) of the Companies Act2013 in the prescribed Form AOC-2 is appended as "Annexure D" to theBoard's Report.

29. 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 highlevels of operating performance and cost competitiveness consolidating and building forgrowth enhancing the productive asset and resource base and nurturing overall corporatereputation. Your company is also committed to creating value for its other stakeholders byensuring its corporate actions positively impact the socio-economic and environmentaldimensions and contribute to sustainable growth and development.

30. EXTRACT OF ANNUAL RETURN

The details forming part of the extract of the Annual Return in form MGT 9 is annexedherewith as

"Annexure E".

31. GREEN INITIATIVES

During fiscal 2016-17 we started a sustainability initiative with the aim of goinggreen and minimizing our impact on the environment. This year we are publishing only thestatutory disclosures in the print version of the Annual Report. Additional information isavailable on our website www.suranaind. com.

Electronic copies of the Annual Report 2016-17 and Notice of the 26th Annual GeneralMeeting are sent to all the members whose email addresses are registered with theCompany/Depository Participant(s). For members who have not registered their emailaddresses physical copies of the Annual Report 2017 and the Notice of 26th Annual GeneralMeeting are sent in the permitted mode. Members requiring physical copies can send arequest to the Company.

32. ACKNOWLEDGEMENT

The Board of Directors of the Company wishes to express their deep sense ofappreciation and offer their sincere thanks to all the Shareholders of the Company fortheir unstinted support to the Company.

The Board also wishes to express their sincere thanks to all the esteemed Customers fortheir support to the Company's products.

The Board would also like to place on record their deep sense of gratitude to thevarious Central and State Government Departments Organizations and Agencies for thecontinued help and cooperation extended by them. The Directors also gratefully acknowledgeand thank all financial institutions and banks for their timely support in restructuringthe Company's debt under the CDR mechanism failing which the Company would have succumbedto the recession faced by the Steel Industry.

In the end the Board would like to place on record their deep sense of appreciation toall the executives officers employees staff members and workers at the factories.

For and on behalf of the Board of Directors
Place: Gummudipoondi Babu Srinivasan Dineshchand Surana
Date: August 12 2017 Chairman Managing Director
(DIN: 06608264) (DIN: 00007032)