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Electrosteel Steels Ltd.

BSE: 533264 Sector: Metals & Mining
NSE: ELECTROSL ISIN Code: INE481K01021
BSE 00:00 | 12 Dec Electrosteel Steels Ltd
NSE 05:30 | 01 Jan Electrosteel Steels Ltd
OPEN 31.05
PREVIOUS CLOSE 31.05
VOLUME 17202
52-Week high 31.05
52-Week low 0.00
P/E 24.26
Mkt Cap.(Rs cr) 6,091
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 31.05
CLOSE 31.05
VOLUME 17202
52-Week high 31.05
52-Week low 0.00
P/E 24.26
Mkt Cap.(Rs cr) 6,091
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Electrosteel Steels Ltd. (ELECTROSL) - Director Report

Company director report

ELECTROSTEEL STEELS LIMITED ANNUAL REPORT 2011-2012 DIRECTOR'S REPORT Dear Shareholders, Your Directors take pleasure in presenting their Fifth Annual Report and the Audited Accounts of your Company for the year ended March 31, 2012. FINANCIAL RESULTS: Amount (Rs/Lakhs) Particulars FY 2011-12 FY 2010-11 i. Gross Turnover 6,424.12 814.81 ii. Net Turnover 6,068.76 743.19 iii. Other Income 41.81 22.00 iv. Total Revenue 6,110.57 765.19 v. Earnings Before Interest, Depreciation, Taxation and Amortization (EBIDTA) (4,560.84) (351.25) vi. Interest 8,022.83 157.78 vii. Depreciation 2,394.55 104.32 viii. Profit before Taxation (PBT) (14,978.22) (613.35) ix. Tax including Deferred Tax 3.48 - x. Profit after Taxation (PAT) (14,981.70) (613.35) xi. Profit brought forward from previous year - - xii. Amount available for appropriation (14,981.70) (613.35) xiii. Transfer to general reserve - - xiv. Surplus/(Deficit) carried to Balance Sheet (14,981.70) (613.35) OPERATIONS: As you are aware, that your Company is setting up a 2.2 MTPA integrated steel & Ductile Iron (DI) Pipe project, at Siyaljori village, in Bokaro District, in the state of Jharkhand, which is about 22 kms from Bokaro city, a well developed industrial town of Jharkhand. During the project implementation process, some modifications were suggested by the technical experts to meet the technical superiority and efficiency improvement of the plant. Hence, for better balancing of the product with optimized product mix and better value addition, your Company is contemplating to enhance the plant capacity from 2.2 MTPA to 2.51 MTPA. The enhanced capacity of the plant is based on Blast Furnace (BF) - Basic Oxygen Furnace (BOF) - Billet Caster & Hot Rolling Route. The enhanced capacity of the plant will produce; Finished Products MTPA Wire rods 0.60 Reinforcement bars in straight lengths 0.85 Ductile Iron Pipe 0.33 Commercial Billets 0.33 Pig Iron 0.40 One of the Blast Furnaces (350 M3) out of the three, has commenced operation of pig iron in September, 2010. The Company has taken shut down of the above Blast Furnace for synchronization with other facilities and the same was restarted subsequently. Currently, the said furnace is giving sales to your Company. Your Company has also started production of Ductile Iron Pipes from its plant. The Company's plant is at its advance stage of completion and its operations are currently in a nascent stage. Due to a variety of technical reasons, the plant has undergone improvements and changes, which will in turn benefit the operations of the Company in the long run. The target completion date of the balance facilities have been extended by few months. The main reason for the delay was due to sudden decrease in availability of Chinese manpower, due to guidelines issued by the Central Government of India on Visa Policy restricting the Chinese manpower with work visa. This was beyond the control of Company's management. However, the Company made significant efforts to mitigate the effect of this Force Majeure situation with the following alternative plans; * Appointment of local Sub-contractors under the supervision of Chinese Contractors. * Reducing the scope of Chinese Contractors and offloading the same to Indian Contractors. Subsequently, the Central Government of India has allowed work permits to a specified number of Chinese manpower, since then the work at the site is going on smoothly. Your Company is confident in achieving the revised completion target in the current financial year. The project cost for the earlier 2.2 MTPA plant was Rs 7,262 crores and the revised project cost for the 2.51 MTPA plant is estimated at Rs 9,562 crores. The revised cost of the project has been verified by Lenders Independent Engineer and vetted by Mecon Limited. The estimated additional capital expenditure required for capacity enhancement would be around Rs.1,236 crores and for infrastructural/other facilities & efficiency improvement Rs 1,064 crores. The above additional cost of Rs 1,236 crores is proposed to be funded in the debt to equity ratio of 2:1. Out of the above debt requirement of Rs 824 crores, our Lead Banker, State Bank of India has sanctioned Rs.250 crores with a provision of interim disbursement of 40% of the sanctioned amount. Proposal with other banks is at an advance stage and we are hopeful to complete the same very soon. Your Company had also proposed to raise Rupee Term Loan of around Rs 2,200 crores by securitizing the future receivables from the sale of DI pipe and Pig iron with various banks. For securitisation of the above, your Company has entered into an Off-take agreement with Stemcor India Private Limited and Electrosteel Castings Limited for off-taking DI Pipes and Pig Iron for a period of 12 years. Out of the above requirement, State Bank of India has sanctioned Rs. 600 crores and also disbursed 40% of the sanctioned amount as interim disbursement pending full tie-up. The proposal with other banks is at an advance stage and we are hopeful to complete it very soon. A part of the proceeds from the securitization of future receivables will be utilised in meeting expenditure towards other capital expenditures/implementing systems, ensuring efficiency improvement and redundancies improvement in Feeder sections like Sinter Plant, Pellet Plant, Coke Oven, Control Systems, Material Handling & other allied facilities. DIVIDEND: You will appreciate that since the project is under implementation and only one Blast Furnace had commenced operation, there is no much earnings as of now, hence your Directors are not recommending any dividend on Equity Shares for the year ended 31st March 2012. CORPORATE GOVERNANCE: Your Company has fully complied with the requirements of Clause 49 of the Listing Agreement regarding Corporate Governance. A Report on Corporate Governance Practices and the Auditors Certificate on compliance of mandatory requirements thereof is given as annexure to this report. MANAGEMENT DISCUSSIONS AND ANALYSIS: A report on Management discussion and analysis is given as annexure to this report. FIXED DEPOSITS: The Company has not accepted any fixed deposit during the period under review. DIRECTORS' RESPONSIBILITY STATEMENT: Your Directors hereby confirm that:- a) In the preparation of annual accounts, containing financial statements for the year ended March 31, 2012, the applicable accounting standards have been followed along with proper explanations, wherever required. b) The Board had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company for that period. c) The Board has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with provisions of the Companies Act, 1956 for safe guarding the assets of the company and for preventing and detecting any fraud and other irregularities. d) The annual accounts have been prepared on a going concern basis. PERSONNEL: Particulars of employees as required under Section 217(2A) of the Companies Act, 1956 and the Companies (Particulars of Employees) Rules, 1975, as amended, forming a part of this report. However, pursuant to Section 219(1)(b)(iv) of the Companies Act, 1956, the Annual Report is being sent to all the members of the Company, excluding the aforesaid information. Those members desirous of obtaining such particulars may write to the Company at its registered office. INFORMATION AS PER SECTION 217(1)(e) OF THE COMPANIES ACT, 1956: Information as per Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 related to conservation of energy, technology absorption, foreign exchange earnings and outgo are given in Annexure - 'A' attached hereto and forming part of this Report. FINANCIAL STATEMENTS: Pursuant to Clause 41 of the Listing Agreement entered into with the stock exchanges, the Board of Directors has pleasure in attaching the Financial Statement prepared in accordance with the Accounting Standards prescribed by the Institute of Chartered Accountants of India. Since your Company does not have any subsidiary, preparation of the Consolidated Financial Statement is not required. DIRECTORS: Pursuant to the provisions of section 260 of the Companies Act, 1956 and the Articles of Association of the Company, Mr. Lalit Kumar Singhi was appointed as the Additional Independent Director (Non Executive) of the Company with effect from February 6, 2012 and will hold office upto the date of the next Annual General Meeting of the Company. Mr. Sanjoy Tekriwal, Non- Executive Independent Director of the Company, have resigned from the Board of your Company with effect from February 6, 2012. The Board places on record its deep appreciation for the guidance and the invaluable services rendered by him during the tenure of his office as Director of the Company. Mr. Naresh Pachisia and Mr. Nigam Chander Bahl, Directors of the Company, retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment. None of the Directors of the Company are disqualified as per section 274(1)(g) of the Companies Act, 1956. The Directors have made necessary disclosures as required under various provisions of the Act and Clause 49 of the Listing Agreement. STATUTORY AUDITORS: The Statutory Auditor M/s. B Chhawchharia & Co., Chartered Accountants, retire at the conclusion of the forthcoming Annual General Meeting and being eligible, offer themselves for re-appointment. Certificate from the Auditors has been obtained to the effect that their re-appointment, if made, would be within the limits prescribed under section 224(1B) of the Companies Act, 1956. The Notes to Accounts forming part of the financial statements are self explanatory and needs no further explanation. There are no qualifications or adverse remarks in the Auditors' Report which require any clarification/ explanation. COST AUDITORS: Pursuant to the notification of the Companies (Cost Accounting Records) Rules, 2011 published vide GSR 429(E) dated June 3, 2011, and in reference to the order FNo. 52/26/CAB-2010 dated June 30, 2011 issued by Ministry of Corporate Affairs, Cost Audit Branch, Government of India, your Directors in their meeting held on July 27, 2011, have proposed M/s S. G. & Associates, Cost Accountants, to be appointed as the Cost Auditors of the Company for the year 2011-12, subject to such approvals as may be applicable. Necessary certificate and consent letter from the said Auditor has been obtained to the effect that their appointment, if made, would be within the limits prescribed under section 224(1B) of the Companies Act, 1956. SECRETARIAL AUDIT/COMPLIANCE REPORT: The Secretarial Compliance Certificate confirms that the Company had complied with all the applicable provisions of the Companies Act, 1956, Listing Agreements with the Stock Exchanges, Securities Contract (Regulation) Act, 1956, and all the other Regulations of SEBI as applicable to the Company, including the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (as amended) and the SEBI (Prohibition of Insider Trading) Regulations, 1992. APPRECIATION: Your Directors take this opportunity to thank the Financial Institutions, Bankers, Government Authorities, Customers, Vendors, Shareholders and Employees for their continued assistance, cooperation and support to the Company. For and on behalf of the Board of Directors Place: Kolkata Binod Khaitan N C Bhal Dated: May 8, 2012 Chairman Wholetime Director ANNEXURE 'A' to Directors' Report: Information as per Section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 and forming part of the Directors' Report for the year ended 31st March 2012. CONSERVATION OF ENERGY & TECHNOLOGY ABSORPTION: Since the Project is under implementation, conscious efforts are being made during the design, engineering and construction stage itself to ensure that the technology is understood and necessary measures to minimize energy consumption are incorporated in the Project. FOREIGN EXCHANGE EARNINGS AND OUTGO: 2011-12 2010-11 Amount (Rs) Amount (Rs) a) Foreign Exchange Earnings 1,08,44,713/- 2,717/- b) Foreign Exchange Outgo 4,84,04,56,009/- 10,44,04,29,089/- FORM - A 2011 - 12 2010 - 11 A. POWER & FUEL CONSUMPTION Electricity a. Purchased: Units (KWH) 1,34,00,000 - Total amounts (Rs/Lakhs) 526.67 - Rate/Units (Rs/KWH) Rs 3.93 - b. Own Generation: Through Diesel Generator Units (KWH) 1,01,71,693 4,34,375 Units/Ltr. of Diesel oil 3.23 4.09 Cost/Unit (Rs/KWH) Rs.11.34 Rs. 9.58 Coal Quantity (Tones) - - Total Cost - - Average Rate - - B. CONSUMPTION PER UNIT OF PRODUCTION (MT) Pig Iron 234.00 (KW) 125.00 (KW) D. I. Pipe 971.41 (KW) - Coke 37.73 (KW) - MANAGEMENT DISCUSSION AND ANALYSIS OVERVIEW: The Company is promoted by Electrosteel Castings Limited (ECL) to setup a 2.2 MTPA Integrated Steel & Ductile Iron (DI) Pipes project in the district of Bokaro, Jharkhand. Pursuant to group's strategy of focusing on identification of opportunities for backward integration, new DI pipe capacity as well as investment in the steel sector, ECL has been allotted mining blocks of iron ore and coking coal in the state of Jharkhand and has promoted this Company for implementing the integrated steel & DI pipe plant. ECL, the Promoter of your Company, is a premier manufacturer of Cast Iron pipes for over four decades and DI Pipes since last 16 years. For the fiscal year 2010-11, ECL recorded consolidated net sales of Rs. 18,72,55.97 lakhs. ECL has four manufacturing facilities, two located at Khardah and Haldia, both in the State of West Bengal, one at Elavur in the State of Tamil Nadu and one Coal washery plant at Parbatpur in the State of Jharkhand. During the project implementation process, some modifications were suggested by the technical experts to meet the technical superiority and efficiency improvement of the plant. Hence, for better balancing of the product with optimized product mix and better value addition, your Company is contemplating to enhance the plant capacity from 2.2 MTPA to 2.51 MTPA. The enhanced capacity of the plant is based on Blast Furnace (BF) - Basic Oxygen Furnace (BOF) - Billet Caster & Hot Rolling Route. The enhanced capacity of the plant will produce 1.45 MTPA of long steel products, comprising 0.60 MTPA wire rods and 0.85 MTPA of reinforcement bars in straight lengths, bundles and plain rounds. The plant will have a 0.33 MTPA DI pipe production facility in the same complex and will be provided with hot metal from the Blast Furnaces. The plant will also have production facilities for 0.33 MTPA of Commercial Billets and 0.40 MTPA of Pig Iron. The Company will be manufacturing basically the long steels which will be used as construction steel along with intermediary products like commercial billets and pig iron. The Company will also produce DI Pipes. Your Company has acquired approximately 2,187.82 acres of land for the proposed plant, taking into account the scope for future expansion. INDUSTRY STRUCTURE: The Indian steel industry is broadly classified into two groups: Primary steel producers & Secondary steel producers. Primary steel producers has backward integration & normally has a higher capacity over 1.0 MTPA. The manufacturing process starts with steel making from Iron ore. The investment needed is also much higher as compared to secondary producers. Secondary producers essentially have mini steel plants with capacities below 1.0 MTPA. This category mainly employs Electric Arc Furnace (EAF) or Induction Furnace (IF) route, which use scrap and sponge iron or a mix of both as raw materials to produce steel. This group also consists of processors and re-rollers of steel products. Secondary producers primarily manufacture long products and the route adopted by them is highly energy intensive for which they have to depend upon the purchased power. Although, there are over 3,500 varieties of regular and special steel available, steel products can be broadly classified into two basic types according to their shape viz. flats and longs. All finished steel products are made from semi*finished steel that comes in the form of slabs, billets and blooms. GLOBAL STEEL INDUSTRY: Based on World Steel Association data, the world's crude steel production has reached a level of 1527 MTPA in the CY 2011. The crude steel production in India has reached 72.2 MTPA . The steel production has increased by 6.8% as compared to the CY 2010. This was the 2nd consecutive year where the growth was positive after negative growth in 2009. China has maintained its leadership position with the production of 695.5 MTPA followed by Japan with 107.6 MTPA. India's steel production has registered a growth of 5.7% in CY 2011 as compared to previous CY while china has shown growth of 8.9%. Asian countries have a lion's share of 64% of total world's steel production. This is also visible from the economic growth of these countries as compared to western countries. India's steel industry is likely to grow at similar rate in the next few years. The steel production is increasing in line with the projection made in Annual Budget and the infrastructure investments planned by the government. Sectors like Roads, Highways, Airports, Power Generation, Power distribution etc. are expected to have a robust growth. The targeted steel production in India by 2019-2020 is over 100 MTPA. The steel production in India is likely to grow at a CAGR of 7-8% per annum as indicated by the government and external research. GLOBAL STEEL DEMAND AND PRICES: Your Company had planned to derive revenues primarily from the sale of finished steel products. The market for steel is substantially driven by changes in supply and demand in the global steel market, which are significantly affected by the state of the global economy and competition and consolidation within the steel industry. Your sales revenues will be affected by price fluctuation of steel in international markets. The global prices of steel, in turn, depends upon a combination of factors, including the availability and cost of raw material inputs, worldwide production and capacity, fluctuations in the volume of steel imports, transportation costs and protective trade measures. Historically, domestic steel prices have closely followed international steel price trends. INDIAN STEEL INDUSTRY: India has moved to 4th position among the top steel producing nations in the world. Considering the substantial increase in outlay for construction sector, the demand for steel is going to be strong. Per capita consumption of steel in India is low at 56.3 kg as compared to 445 Kg for China & world average of 220.8 kg. As India is on a growth path, steel which is the basic ingredient will be needed for achieving the desired growth in GDP. DUCTILE IRON (DI) PIPES: The DI pipes have been recognized as the industry standard for modern water and sewage transportation systems. DI pipes are preferred over Cast Iron (CI) pipes on account of being lighter, stronger, more durable and cost efficient, these being corrosion resistant, ductile, etc. The DI pipes also have higher water carrying capacity. The DI pipes can also be laid out much faster and are virtually maintenance free. Internationally, DI pipes have increasingly replaced CI pipes and Mild Steel pipes in most applications, including water and sewage transportation and management. This is primarily due to the qualitative and structural benefits provided by DI pipes in comparison to CI pipes and mild steel pipes such as superior tensile strength, yield strength, greater impact resistance, corrosion resistance and ductility. In addition, DI pipes require less support and provide greater flow area as compared to pipes made from other materials. DI pipes have a lower life cycle cost. In difficult terrain, these can be a better choice than Polyvinyl chloride concrete, polyethylene and steel pipes. The following factors would drive the demand for DI pipes: 1. Thrust of the government to provide drinking water and sanitation to 100% of the population and make funds available to achieve it. 2. The need to conserve water and reduce leakage. The need to focus on life cycle cost rather than initial cost; and to consider inconvenience to public in replacement of pipes. 3. The over reliance on ground water for rural water supply has resulted in twin problem of sustainability and water quality and suggested a shift to surface water source for tackling this issue. This will result in substantial increase in requirement of pipes. 4. Jawaharlal Nehru National Urban Renewal Mission JNNURM) is making a large investment in water sector but has limited coverage of only 63 cities with a population of over one lakh. COMPETITION: Going forward, your company may face stiff competition from both Indian & overseas steel mills and DI Pipes manufacturers. To establish & remain competitive we have designed an efficient distribution network & robust marketing set up. We will also have to continuously strive to reduce the cost of production and increase other operating efficiencies in addition to capture new markets. We have also formulated efficient sales process & improved our service levels to win customers confidence & have positive referrals. Your company has set up a marketing team for the sale of products. The initial plan is to sell our products in the Eastern region, moving onto North, West & eventually the Southern region making a pan India presence. The company has already appointed distributors for the sale of our products in the States of West Bengal, Sikkim, Jharkhand, Bihar, Orissa, Assam & the other states located in North East. The company has already finished market scoping for our products in the said states. Hence, as strong foundation has been laid for the marketing of the products by creation of the marketing team which was reflected in the sale of pig iron. A full fledged corporate campaign and product campaign is being made for the consumers. The marketing team is working on ATL (Above the line) and BTL (Below the line) activities for the consumers which will be rolled out at an appropriate time. The company believes that a focused brand building exercise will help in developing loyal customer. In order to assess the perception of the company's product and services, we have started a perception based Customer satisfaction study which will help us in improving our processes. OPPORTUNITIES AND THREATS: India is a fast developing economy endowed with rich mineral resources and has a vast market potential with ever increasing middle income class. The ongoing slowdown has resulted in consolidation of industry and due to economies of small scale units have either shut down or are merging with large units. The industry is devising innovative measures for reducing overall costs for staying competitive. This slowdown has also necessitated a rethinking on phasing out expansion plans or delaying increase in capacity additions. To achieve the status of a developed nation by 2020, India needs to put robust infrastructure in place. The urbanization will increase and all these will need a huge quantity of steel. In the emerging scenario of higher demand and stiff competition, the need of cost effectiveness and higher customer orientation can only guarantee success. Your Company has undertaken comprehensive exercise on reducing costs and is keeping a watch on pressures on demand and price of steel products. The Company has sufficient experience in setting up of projects and possesses experienced technical and managerial workforce to implement projects and is in a position to make necessary adjustments if circumstances so demand. Your promoter Company Electrosteel Castings Limited has agreed to supply iron ore and 30% of coking coal requirement on a cost plus basis for a period of 20 years from the date of commencement of commercial production. It has been continuous endeavor of your Directors to acquire additional iron ore and coal mines to ensure uninterrupted supply of these raw materials and reduce dependence on outside supplies. Learning the lessson from global meltdown & successfully emerging from that situation, india has emerged a country with robust economy whose success story is intact. The impressive growth rates in the recent difficult situation, India has shown the way to many other nations. The higher outlays in infrastructure segment and the projected growth rates in GDP of around 8% + in coming years will open up new opportunities for steel sector. INTERNAL CONTROL SYSTEMS: There are well established and documented internal control systems and procedures in line with the size of operations and business. The Company has engaged a firm of Chartered Accountants for conducting internal audit of site and Head Office who are providing internal audit reports on quarterly basis. Audit Committee reviews these reports and monitors effectiveness and operational efficiency of internal control systems. Audit Committee is giving valuable recommendations and suggestions from time to time for improving the business processes, systems and internal controls. Annual internal audit plans are prepared by internal auditors in consultation with Audit Committee and audit is conducted in accordance with this plan. Separate department headed by a senior officer looks after internal control systems and assists internal auditors and the Audit Committee and provides desired inputs to them. SAP system has been introduced and installed at all the works and offices of the Company which has resulted in better flow of information, control and transparency. FINANCIAL PERFORMANCES: Since the project is under implementation and only one Blast Furnace (i.e. a part of the entire facility) had commenced its operation and started to produce pig iron and D.I Pipes. The Company had only recorded the net turnover of Rs 57,78.81 lakhs in the year ended 2012. After the adjustment of other expenditures, the earnings before Interest, depreciation, taxation and amortization is Rs (45,60.84) lakhs. The Profit after Tax for the year 2012 is Rs. (1,49,81.70) Lakhs. FIXED ASSETS (including capital work in progress): As of March 31, 2012, we had Rs. 82,34,53.01 lakhs of fixed assets, comprising of Rs. 67,29,99.23 lakhs of capital work in progress and a Net Block of Rs 15,04,53.77 lakhs. Capital work in progress was primarily on account of expenditure including advances towards plant & machinery and construction & erection thereof. The expenditure incurred during the construction period is classified as 'Project Development Expenditure' pending capitalization to be allocated to the asset on the completion thereof. Necessary details as per Schedule VI of the Companies Act, 1956 have been disclosed in the notes to accounts forming part of the Annual Accounts for the year 2012. INDEBTEDNESS: The total secured outstanding indebtedness as on March 31, 2012 is Rs.52,33,33.93 lakhs out of which the long term borrowings is Rs.52,00,75.91 lakhs and short term borrowings is Rs 31,58.02 lakhs. It includes part of undrawn INR Term Loan converted into ECB Loan for reduction of interest cost. FINANCIAL CONDITION, LIQUIDITY & CAPITAL RESOURCES: The business of steel production is capital expenditure intensive. Our plans for the setting up of your Project will require substantial capital expenditures. We believe that going forward the availability of sources of cost effective funding for our working capital requirement will be crucial and the non availability of such funding on time, at favorable terms could affect our business, financial condition and results of operations. As explained, the Company has no operating cash flows since inception. Going forward, the Company expects to experience cash flows from operating activities as the plant starts operation fully. CREDIT RATING: Your Company enjoys the rating for long term facilities of the Company as 'CARE BBB (Triple B)'. This rating is applicable to the facilities having a tenure of more than one year. 'CARE BBB (Triple B)' rating indicates the moderate degree of safety regarding timely servicing the financial obligations. Further, 'CARE A3 (A Three)' rating has been assigned to short term facilities of your Company. This rating is considered to have the moderate degree of safety regarding timely payment of financial obligations. INDUSTRIAL RELATIONS AND HUMAN RESOURCE MANAGEMENT: Electrosteel Group recognizes people as the primary source of its competitiveness and continues to focus on people's development by leveraging technology and developing a continuous learning human resource base to unleash their potential and fulfill their aspirations. Your company is developing fast and has entered into diverse business interests requiring talent from various fields of business. The speed and quality of growth of the Company depends on the quality of human resources available with it. The Company firmly believes in it and accordingly gives top most priority to its human resource assets which act as the prime mover in attainment of its goals. The Company continuously strives for inculcating a culture of learning by building the capabilities and competencies of its workforce. Human Resource Department has appropriately been upgraded and strengthened to meet the challenging manpower requirements of business units. Last year we witnessed many HR initiatives which are directed towards building a knowledge sharing and performance enhancing organizational culture. The salient HR measures undertaken are mentioned below: a) Leadership development and Career planning. b) Sourcing of young and fresh talents for meeting the current and future needs of the Company. c) As a part of competency building and performance enhancement interventions, assessment exercises were conducted in the Company covering employees at Manager and above levels. The output of the intervention is being used for various developmental activities. d) The performance management system has been extended to all employees' upto level of executive. It has also been aligned further to meet the performance expectations of the Company and employees' aspirations. e) The employee benefit policies have also been revamped/ revisited based on the feedbacks received from cross section of employees including restructuring of remuneration structure. f) Fire Safety Awareness programs are frequently conducted to educate the employees on how to use the fire safety equipments in case of an emergency fire. g) Tie up with renowned health club for healthy body and a healthy mind for all the employees. SAP HR module with employee self service has also taken off so as to be quick in service delivery and have fully integrated network. Safety at project site, medical care requirements of workers and on the job training is being provided at all the manufacturing facilities to avoid mishaps and ensure high level of security and confidence among employees. During the year, Company has maintained cordial relations with the employees. CAUTIONARY STATEMENT: This report contains projections, estimates and expectations etc. which are just 'forward-looking statements'. Actual results could differ from those expressed or implied in this report. Important factors that may have impact on Company's operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets, changes in the Government regulations/policies, tax laws and other statutes and other incidental factors. The Company assumes no responsibility to publicly modify or revise any forward looking statements on the basis of any future events or new information. Actual results may differ from those mentioned in the report. RISK MANAGEMENT: The Company is fully committed to strengthen its risk management capabilities on a continuous basis in order to protect and enhance shareholders' value. Further, the risk management framework ensures compliances with the requirements of amended clause 49 of the Listing Agreement. The framework establishes risk management process across all businesses and functions of the Company. These processes are periodically reviewed to ensure that the Management control risks through properly defined framework. The Company has already undertaken, extensive risk management efforts that include introduction of Risk Management Manual, compiling a comprehensive profile of the key risks to the Company, identifying the key gaps in managing those risks and developing preliminary action plans to address those risks. This effort accomplishes the following goals: * Responds to the Board's need for enhanced risk information and improved mitigation plan. * Provides the ability to prioritize, manage, and monitor the risks in the business and * Formalizes the explicit requirements for assessing risks on an ongoing basis, including an effective internal control and management reporting system. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK: Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign exchange rates, of financial instruments. We are exposed to various types of market risk, including changes in interest rates, foreign exchange rates and commodity prices, in the ordinary course of business. Suitable processes are being worked out by the Company in designing the new organization set up to tackle such issues. CONSTRUCTION RISK: Since a part of the Project is still in the construction phase and currently we do not have any major revenue generating operations or any significant operating history from which one can evaluate our business, future prospects and viability. One should not evaluate our prospects and project viability based on the performance of our promoter or other affiliates. Our financial condition, results of operations and liquidity would be materially and adversely affected if our project costs or construction costs materially exceed such budgeted amounts. The construction and operation of our project have faced opposition from various parties such as local communities and from special interest groups, government policies, who may oppose the possible negative impact of the project on the communities and the environment in the area where our project is located. The Company has already acquired approximately 2,187.82 acres of land for the proposed plant, taking into account the scope for future expansion. COST/TIME OVER RUN RISK: Steel and DI Pipe plants typically have long gestation period. The scheduled completion target for our Project is an estimate and is subject to delays as a result of, among other things, contractor performance shortfalls, unforeseen engineering problems, dispute with workers, force majeure events, unavailability/timely availability of finance, unanticipated cost increase or changes in scope and inability in obtaining certain property rights, fuel supply and government approvals, any of which could give rise to cost overruns or the delay in our implementation schedule. Failure to complete the project according to its specifications or schedule, if at all, may give rise to potential liabilities. As a result, our returns on investments may be lower than originally expected, which may have a material adverse impact on the business operations of your Company. TECHNOLOGY RISK: A key challenge for the Company is to ensure that its plants are equipped with updated technologies in order to serve clients, secure cost competitiveness and maintain R&D leadership. Even through the financial crisis, the Company did not cut back on investment in quality equipments, so that it could continue to develop technologies that could advance the project cost competitive position, while also reducing CO2 emissions from ore based steelmaking. R&D efforts are also being made to advance the Company's proprietary knowledge in order to produce new generation high strength steel, advanced and photovoltaic coating systems etc. For upgrading plant and equipment, funds are being made available to ensure that the Group remains technologically updated in order to meet the increasingly demanding requirements from customers across all its sectors particularly in the fast growing automotive sector in India. In light of the fact that the equipments are being procured by us from China, the Chinese contractors are also appointed so that there should not be any problems in integration of the equipments used in the Project. A good number of Chinese manpower, are working at site in full swing and your Company is also working on launching the suitable high end product in market to take care of the competition from existing players. FOREIGN EXCHANGE RATE RISK: We currently have incurred and expect to incur expenditure on account of import of equipment etc. Any depreciation of the rupee against the currencies in which we have an exposure will increase the rupee costs of servicing and repaying our expenditure. We have a policy to undertake forward cover to mitigate the foreign exchange rate risk. COMMODITY PRICE RISK: Our revenue would be exposed to the market risk of price fluctuations related to the sale of our steel and other products. Market forces generally determine prices for the steel and other products that we will sell both inside and outside India. These prices may be influenced by factors such as demand & supply, production costs (including the costs of raw material inputs) and global & Indian economic conditions & growth. Adverse changes in any of these factors may reduce the revenue that we earn from the sale of our products. In particular, our costs are exposed to fluctuations in prices of iron ore, coal, coking coal, ferro alloys and other raw material inputs. We use various spread risk management tools to hedge this risk. INTEREST RATE RISK: Our exposure to market risk for changes in interest rates relates primarily to our long-term floating rate debt obligations. All our outstanding long- term debt bears interest at floating rate and thus are exposed to market risk as a result of changes in interest rates. Upward fluctuations in interest rates increase the cost of both existing and new debts. It is likely that in the current fiscal year and in future periods our borrowings will rise substantially given our growth plans. We do not currently use any derivative instruments to modify the nature of our exposure to floating rate indebtedness or our deposits so as to manage interest rate risk. The Company had converted a part of undrawn INR Term Loan into ECB Loan to save the higher interest cost. COMPETITOR RISK: The Company is exposed to the risk of competition, as the market is highly competitive with the elimination of physical barriers and entry of new players. The Company continues to focus on increasing its market share and taking marketing initiatives that will help customers in taking better informed decisions. The demand of steel is also increasing due to Government of India's focus on infrastructure development. Further with the thrust given by Government on water and water related projects and with the estimated growth in water requirements, the demand of DI Pipes is expected to grow substantially and the Company is confident in retaining its market share. RAW MATERIAL RISK: The success of operations of your Company depends on, among other things, ability to source raw materials at competitive prices. Iron ore and coking coal are critical inputs for success of an integrated steel project. The project envisages part of captive power, which will be based on gas recovery from the coke oven, BF-BOF processes or from coal. Procurement of these raw materials from Electrosteel Castings Limited ('ECL') shall enable us to reduce our operating costs, ensure a steady supply of coal and iron ore. This would also insulate our Company from demand supply volatility in the market, to a significant extent. Also, procurement of coal and iron ore from the same mine will ensure that the raw material is of consistent quality thereby reducing the lead time in adjusting our blast furnace. Your Project will source a significant portion of its raw material requirements from the mines of ECL who has agreed to supply iron ore and coking coal to your Company for a period of 20 years. Your Company's requirement of coking coal is proposed to be primarily met from a mix of ECL's coking coal mine at Parbatpur (30%) and other sources (70%). We may be unable to procure our coking coal & Iron ore requirement from the aforesaid mines of ECL and have to procure the same at a higher prices from the market, which may adversely affect our results of operations and financial performance. ROAD AHEAD: We believe that the assured availability of iron ore and coking coal from mines allocated to ECL will ensure that we will be able to reduce our operating costs and ensure a steady supply of coal and iron ore, at a lower cost. The major capital equipment for the plant is based on Chinese technology which provides higher productivity with lower costs. We believe that these factors will result in strong project economics and help us to become one of the lowest cost producers of steel. Besides this, our locational advantage also enables us to enjoy lower costs.