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Essar Shipping Ltd.

BSE: 533704 Sector: Infrastructure
NSE: ESSARSHPNG ISIN Code: INE122M01019
BSE 00:00 | 30 Nov 8.94 0.01
(0.11%)
OPEN

8.65

HIGH

9.26

LOW

8.65

NSE 00:00 | 30 Nov 8.85 -0.10
(-1.12%)
OPEN

8.95

HIGH

9.20

LOW

8.70

OPEN 8.65
PREVIOUS CLOSE 8.93
VOLUME 16469
52-Week high 14.02
52-Week low 7.26
P/E
Mkt Cap.(Rs cr) 185
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 8.65
CLOSE 8.93
VOLUME 16469
52-Week high 14.02
52-Week low 7.26
P/E
Mkt Cap.(Rs cr) 185
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Essar Shipping Ltd. (ESSARSHPNG) - Director Report

Company director report

To the Members of Essar Shipping Limited

Your Directors are pleased to present the Tenth Annual Report andAudited Financial Statements of the Company for the financial year ended March 31 2020.

FINANCIAL RESULTS:

Company's financial performance for the year ended March 31 2020is summarized below:

Rs. in Crore

Particulars Consolidated Standalone
For the year ended 31-03-2020 For the Year ended 31-03-2019 For the year ended 31-03-2020 For the Year ended 31-03-2019
Total Income 1494.30 1366.48 551.00 535.04
Total Expenditure 1083.54 977.41 403.70 417.58
EBITDA 410.75 389.07 147.31 117.46
Less: Interest & Finance charges 432.58 395.74 209.87 206.17
Less: Provision for Depreciation 172.25 282.49 110.35 103.33
Profit / (Loss) before Tax (194.08) (289.16) (172.91) (192.04)
Less: Provision for Tax (1.11) (1.45) (1.11) (1.45)
Profit / (Loss) for the year before share of profit of associate (195.19) (290.61) (174.02) (193.49)
Add: Exceptional item (1491.66) (3486.97) (2779.42) (1400.00)
Add: Share of profit of associate - 6.21 - -
Add: Other Comprehensive Income/loss 2.84 1.48 2.91 1.42
Profit / (Loss) for the year (1683.94) (3769.89) (2950.53) (1592.07)

DIVIDEND

Due to accumulated losses the Board of Directors have not recommendedany dividend for the year under review.

MANAGEMENT DISCUSSION AND ANALYSIS Overview of the World Economy &Shipping Industry

Maritime transport remains the backbone of globalized trade and themanufacturing supply chain as more than four __hs of world merchandise trade by volume iscarried by sea. However growth in international maritime trade fell slightly in 2018owing to offer economic indicators amid heightened uncertainty and the build-up ofwide-ranging downside risks. is decline reflects the downward trend in the world economyand trade activity.

A range of downside risks such as Trade tensions and protectionism followed by the decision by the United Kingdom of Great Britain and Northern Ireland toleave the European Union ("Brexit"); the economic transition in China;geopolitical turmoil; and supply-side disruptions such as those occurring in the oilsector country-specific developments including recessions in some emerging economiesweakness in industrial sectors across many regions a slowdown in China and weaker importdemand in both developed and developing countries all contributed to the slowdown inmaritime growth. Despite the setbacks a milestone reached in 2018 with total volumesamounting to 11 billion tons.

Global economic growth is expected to decline further in 2019 &2020. Growth in world gross domestic product (GDP) remained steady but edged down to 3.0per cent in 2018 from 3.1 percent in the previous year going below the historicalaverages. Global industrial production – a leading indicator of demand for maritimetransport services – decelerated to 3.1 per cent down from 3.6 per cent in 2017.

Maritime business

Despite facing strong winds of challenges and crises year after yearthe shipping industry continues to create business opportunities for other sectors. Lossesand unprofitability have rocked the industry forcing even the strongest players to forgealliances. The Organization for Economic Cooperation and Development (OECD) the group ofmost advanced economies said that on a business-as-usual scenario the global value ofocean-based enterprises could double by 2030 to reach more than $3 trillion. Thesepotential businesses can contribute significantly to employment growth with 40 millionjobs expected to be generated worldwide. Blue economy's advocacy goes beyond businessas usual and pushes for economic development through optimum use of resources withoutcompromising the marine ecosystem. Components of the blue economy include not onlytraditional ocean-based industries like maritime transport _shing and tourism but alsoemerging business ideas in aquaculture offshore renewable energy exploration and mining.According to DNV-GL report the world energy system will undergo a major transition in theyears leading up to 2050 and this will have significant implications on shipping. Theoverall demand for seaborne transport will increase by 60% making the pace of growth thehighest up to 2030. It is also expected that the seaborne transport growth will be thestrongest in the Asian and African regions. Maritime sector primarily comprises ofshipping ports and the transport involved. Innovative business models latesttechnologies and a vision of growth have become the main drivers for change and growth inthe industry. While the last year had witnessed an upturn in the regional maritimeindustry the majority of shipping segments are still challenged by overcapacity issuesand low charter rates. Looking ahead shipping historically has followed long cycles.Hence the outlook for seaborne trade growth the ocean economy and maritime businesspotential on a general basispositive.

Accelerating environmental and regulatory agenda:

In recent years environmental sustainability has become a priority onthe global policy agenda. Accordingly a wave of environmentally driven regulation isaffecting shipping market dynamics and putting pressure on the maritime transport industryto deliver on the environmental and social responsibility imperative. With the loomingimplementation by January 2020 of the International Maritime Organization's (IMO) capon greenhouse gas (GHG) emissions shipping companies scrambled to seek ways forcompliance. IMO 2020 specifically aimed for 0.5 percent cap in sulphur content in fuel.Approaches to compliance include investing in environmental equipment particularlyscrubbers low sulphur fuels and vessels powered by lique_ed natural gas. The entry intoforce of several global environmental instruments and the adoption of voluntary standardsin the sector will have an impact on the maritime transport industry particularly in theshipbuilding subsector which will be responsible for incorporating these new standardsinto the design and construction of ships. Accordingly considerable investments are goinginto research and development for better hydrodynamics more energy-e_cient engines lowercarbon fuels and carbon-free fuels for ships. It is estimated that as many as 50% of thefleet worldwide below 10 years of age has made investments in installing scrubbers totheir assets. As the industry grows and adapts to the new regulation the overall economicenvironment gives stability to the sector.

Freight rates and Maritime trade by Cargo type

(a) Tanker trade: As per estimates World trade in crude oil was 1.9billion tons in 2018 following an increase of less than 1.0 per cent. Growth was partlylimited by declining imports into Europe and the United States and a slowdown in importdemand in China owing to refinery capacity constraints su_ered earlier during the year.

(b) Dry cargo trade: Growth in dry bulks (major and minor bulks)trade expanded by 2.6 per cent in 2018 down from 4.0 per cent in 2017. Backed by robustgrowth in coal trade in major dry bulks (iron ore coal and grain) grew at 1.9 per centin 2018 down from 4.7 per cent in 2017. Growth in iron ore shipments nearly came to ahalt as import demand in China contracted. Coal trade expanded at 5.1 per cent butremained nevertheless under pressure due to the growing concerns about coal'senvironmental footprint and the emphasis on diversifying the energy mix in major importingcountries such those of the European Union where coal imports contracted by about 5.8 percent in 2018. As trade in iron ore and coal represents 28.2 per cent and 24.1 per centrespectively of global dry bulk trade which in turn accounts for nearly half of globalmaritime trade any pressure on these sectors does not bode well for shipping or demandfor maritime transport services in general. Daily earnings of Bulk carrier vessels forlast 2 yrs is summarized as below:

Shipbuilding New Orders & Demolition

Ships delivered in 2018 were mostly bulk carriers (26.7 per cent oftotal gross tons) followed by oil tankers (25 per cent) container ships (23.5 per cent)and gas carriers (13 per cent) Between 2014 and 2018 dry bulk carriers recorded the mostnew building deliveries although they experienced a downturn trend starting in 2016Subsequently oil tankers recorded the second-highest delivery level since 2016overtaking container ships which stood third followed by gas carriers. trendline duringthis period suggests an increasing number of container ships and gas carriers and adecreasing number of oil tankers and dry bulk carriers. is could be attributed to a demandfor container ships of large capacity and lower growth in demand for oil tankers and bulkcarriers due to existing oversupply capacity.

Structure of the world fleet: In early 2019 the total world fleetstood at 95402 ships accounting for 1.97 billion dead-weight tons (dwt) of capacity.Bulk carriers and oil tankers maintained the largest market shares of vessels in the worldfleet (dwt) at 42.6 per cent and 28.7 per cent respectively. Carrying capacity grew by2.6 per cent compared with the beginning of 2018. The growth rate has been decliningsince 2011 except for a slight increase in 2017 and remains below the trend for the pastdecade Oversupply has remained a structural feature in most shipping segments causingdownward pressure on freight rates Gas carriers were the most dynamic segment of the worldfleet experiencing the highest growth rate in the 12 months to 1 January 2019 (7.25 percent of dwt. One of the reasons behind this trend is the lique_ed natural gas sectorwhich has witnessed significant growth in recent years. islikely to continue in thefuture given heightening environmental concerns and the pressure of the maritime sectorto switch to cleaner fuels.

Overview of the Indian Maritime Economy

For years maritime routes have been used for trade and a show ofstrategic strength. According to the Ministry of Shipping around 95% of India'strading by volume and 70% by value is done through maritime transport. The recentinitiatives undertaken by the Government such as the Sagarmala Project speedymodernisation of port infrastructure granting infrastructure status to the shipyards toencourage investments partnerships with successful maritime nations for technology &man power development of maritime clusters encouraging use of coastal route displays itszeal to holistically develop the maritime sector of the country.

Cargo tra_c in India at its major & non- major ports grew at a CAGRof 3.83 % & 7.70% respectively in last 5 years._With the recent changes in theGovernment policies to "Go Local" for contracts less than Rs.200 crores theIndian shipping sector is geared to get the necessary boost for assured cargo contracts byIndian PSU (Public Sector Units) Refiners / Steel Authority / Power companies/Cementproducers which will propel further investments & growth in the sector.

In FY20 the dry cargo tra_c at major ports was 293 million metrictonnes (MT) implying a CAGR of 4% over FY16-20. India's crude oil & petroleumproducts import touched 247 MT in FY20 implying a CAGR of 5% over FY16-20. Despite asignificant growth in the volumes of cargo handled and traded the share of Indianshipping in the nation's seaborne trade stood barely at 7.5%.

Some of the key features of the Shipping sector in India are –

Domestic Demand Growth

• Increase in consumption & trade volumes are driving growth.

• Rise in infrastructure development & increase in productionof Steel Power & cement industries also aiding growth in the sector.

Attractive Opportunities

• There is significant scope for additions to the Indian tonnagegiven that 90% of the country's cargo volumes is handled by foreign lines.

• The current Indian fleet is older than global average age ofvessels.

• India is the world's second largest steel producer thelargest importer of coal & the third largest importer of crude oil. India's sharein the global seaborne dry bulk & oil trade is estimated to increase from 6% to 9%& 12% to 16% resp. in 2018 to 2020-21

Competitive Advantage

• Prices of assets are at their average lows - Timing of purchaseof an asset is extremely critical to capitalize on the investment.

• Vast coastline of 7500 km with 12 major and 204 non-majorports & its strategic location along most major global shipping highways.

Policy Support

• Right of First Refusal (RoFR) for domestic shipping companiesfor all cargoes traded to & fro in the country. is also covers controlled tonnagewhich can be flagged out of India.

• Lower Taxation rate under the benefit of Tonnage Tax scheme forthe shipping sector

Opportunity along the India Coast

Coastal Movement of MR Tankers

Currently ~51 MR and smaller size Indian owned vessels are employed inthe Indian Coast. Increasing consumption in the oil sector and lack of vessel availabilityprovides for a huge gap for investment opportunities. As per data estimates there is anadditional requirement of ~7 – 8 ships each day by Indian refiners.

Coastal Movement of LNG

India's LNG imports increased to 27.43 billion cubic meters (bcm)in FY20 from 24.48 bcm in 2016-17. Gas pipeline infrastructure in the country stood onlyat 16226 km at the beginning of 2019 with 11377 under development. Natural Gasconsumption is forecasted to increase at a CAGR of 4.31 per cent to 143.08 million tonnesby 2040 from 54.20 million tonnes in 2017. Lack of LNG terminals and infrastructure tosupport growing consumption provides an opportunity to invest in the sector to reachcustomers not served by Gas pipelines grid. It is viewed that with the policy changes& focus brought in for the maritime sector's transformation India is on the cuspof major maritime revolution which will play out over the next couple of years.

Outlook

In 2018 maritime imports into China accounted for about a quarter ofmaritime trade and half of dry bulk commodity trade Because of the importance of Chinathe outlook for maritime trade is highly dependent on developments taking place in theChinese economy. In recent years China has embarked on a reform agenda that promotes atransition towards a more sustainable economic growth model. Shifting the economy awayfrom_ investment and manufacturing towards consumer spending and services is indicative ofan economy that is maturing. The concern however is that the central role of China indriving maritime trade exposes the vulnerability of this trade to developments in thatcountry. With China cutting excess capacity in the steel and coal industries theimplications for maritime trade and demand for shipping and ports are of strategicimportance. Its import demand supporting heavy industries – iron ore coal and minorbulks – can be expected to moderate.

Conclusion: The face of maritime transport is changing reflectinga shi_ to a new normal. is characterized by a moderation in global economic and tradegrowth the expanding regionalization of supply chains and trade patterns a continuedrebalancing of the Chinese economy a larger role of technology and services in valuechains and logistics intensified and more frequent natural disasters and climate-relateddisruptions and an accelerated environmental sustainability agenda with an increasedawareness of the impact of global warming in particular. In addition to the demand sidethe new normal also entails some new trends on the supply side. Carriers have seeminglyabandoned the quest for ever bigger ships and are increasingly eyeing growth prospectsassociated with the landside of operations. Ports and shipping interests appear to befocusing more attention on expanding activities to inland logistics and tapping potentialunderlying sources of revenue._ Given the regionalization of trade flows and the trendtowards restructuring supply chains the new normal – despite the potentialchallenges – could generate opportunities especially for developing countriesstriving to integrate more effectively into global trading networks.

IMPACT OF COVID 19 ON SHIPPING AND BUSINESS DEVELOPMENT

TANKER MARKET

Around the middle of March 2020 the Saudi led oil price war manifestedby flooding of the market by crude oil at hugely discounted prices caused the demand forVLCC's to shoot up spectacularly with TD3C shooting up from WS50 levels to aboutws160 levels in the space of a few days. It eventually peaked at a shade below ws200levels. Most of the crude was loaded from Saudi ports was destined for westerndestinations-mainly USA. is huge in_ux of Crude into the US led to an unprecedentedcollapse in the price of WTI and Brent well into negative territory for a short instant.The resulting contango due to the Saudi induced depressed spot prices and of course theCovid inspired demand destruction caused the land based storage fill up rapidly and as aconsequence made floating storage viable. Several units were fixed for floating storagefrom varying periods from 3 months to a year at rates peaking at about usd130k per day.

In May of 2020 with oil prices beginning to recover partly due anagreement amongst OPEC+ to agree to cut supply by and unprecedented 9.7 mill bbls/daycoinciding with a sharp recovery in demand for crude due to economy's emerging fromlockdown -caused the contango to fiatten out as well beginning a much earlier thanexpected unwinding of the storage play. The markets in the beginning of June had causedTD3C to recede down to ws60 levels. June and July saw record low fixtures on the spotmarket from AG in the double digits. August seems to be heading the same way. The earningare now well below break-even for the global VLCC fleet and heading towards OPEX levels.

DRY BULK MARKET

Dry bulk shipping had maximum negative impact due to COVID 19. Althoughthe virus was declared on 8th Dec 2019 the impact was restricted to China. Since Jan thisyear market was down due to New Year and followed by Chinese New Year. It was expectedthe freights will go up after Chinese NY. However on 12th Feb dry cargo index dropped to418 from 1528 as on 8th Dec 2019. Drop of 72.6%. Capes were trading at USD 2500 per dayPanamax at USD 4500 and Supramax at USD 5000 per day. Market remained range bound till31st May all sectors of dry bulk were earning below OPEX. With the relaxation of lockdown the trade has started to pick up post mid-June. As of now the worst seems to bebehind us and it is expected that we will see better July/ Sept quarter and thereafter.Most of the ports which had declared Force Majeure have started living. is givingconfidence to traders to book cargoes. Quarantine restrictions are still in place. Vesselmust be at sea for 14 days prior calling port. Else have to anchor and wait for quarantineperiod to get over. Thereafter the vessel is inspected by Port health officer. Oncecleared then only Notice of Readiness can be tendered. isstill causing loss to Owners.

Once again the PHO of different port follow different rules Gujarat isallowing vessels to berth on arrival whereas most of the other ports in India want proper14 days of quarantine. Essar Shipping was also impacted due to Quarantine and ForceMajeure restrictions our CoA partner declared FM and three Mini Capes which are on CVCwith AMNS were released. We were prompt to find alternate employment and have raised claimagainst AMNS for the losses.

S&P MARKET

The COVID period had a negative impact on the SNP activities on thenumber of transactions and the price levels have seen higher volatility. The initial phaseof COVID had a little impact as the strong tanker market and contango had the tanker SNPmarket reaching very strong levels. The dry bulk was rather subdued through. As COVIDstarted to have the worldwide impact March – April onwards and countries started toclose borders the activities almost came to a halt. The uncertainty and lock downs gotthe majority of players to have a wait and watch attitude with very few deals takingplace. Although the activities have picked up with easing measure the biggest challengeimposed by COVID has been the crew change. With no clear rules or changing rules fortravel/ Crew change there is still a lot of uncertainty as to the practical aspect ofdelivery of ships. As commercial activities further pick up shipping SNP market hasadapted to the uncertainty by using local inspectors/ waiting inspection or delivering theships at locations where its most feasible for crew changes. The current uncertainty maynot end completely however the activities are catching pace and Calendar year fourthquarter looks positive.

OTHER MAJOR IMPACT

Crew change has been adversely impacted due to restrictions intravelling and port regulations. While most of the world Ship owners su_ered due to mentalhealth of seafarer due to restrictions in relieving crew Essar Shipping was in muchbetter state. With proper communication with vessel crew there was no request forimmediate relief. No crew change was done until 31st May. Thereafter we are relieving thecrew as and when opportunity arise. However thishaving a financial impact as cost of eachperson joining or leaving is costing almost Rs 1 Lac.

BUSINESS DEVELOPMENT

Essar Shipping had employed 75% of its fleet in captive business forthe past 5 years. Presently all the vessels are employed for third party business.

We have developed close relations with JSW Steel Shree Cement Jindalsteel and Power Power International IMC Singapore IMR Amubja Cement Jindal ShaddedSeagull shipping Delta Corporation Seatrek Singapore Zeel Shipping Victory Shipping.We have good working relations with Steel and Cement industry. The chartering mic are intouch with us on daily basis for vessel requirement. MT Smiti vessel has always been onmarket. She is employed with major refinery/ traders like Vitol Formosa Shell and manymore.

OILFIELD BUSINESS Industry outlook GLOBAL PERSPECTIVE

Over the long history of oil the market has endured multiple shocksbut none comes closer in ferocity and severity to what it faced in April this year. Themarket has been hit by a double whammy of falling prices and shrinking demand. Early inthe month of March crude oil prices nose-dived due to a fallout between Russia and SaudiArabia over production cuts. In any otherwise situation falling oil prices would havespurred a rise in demand and the market would have stabilised. However March 2020 wasdifferent.

The increasing number of COVID-19 cases and the mounting death toll ledto sweeping lockdowns and travel bans across all major demand centres resulting in ashrinkage of demand. As a result on 21 April 2020 due to the widespread containmentmeasures taken by 187 countries and territories for the first time in the almost 150years long history of the oil industry US WTI prices entered the negative territory. Theglobal lockdown prompted by the pandemic shuttered factories and stopped movement ofpeople and goods leading to an overall contraction of economy. Consequently 29 Millionbarrels per day (Mbpd) of oil demand was wiped off from nearly 100 Mbpd a year ago. Takingaccount of the grim outlook for oil consumption OPEC Russia and other oil producingnations on 12 April agreed to cut output by ten per cent amounting to 9.7 Mbpd.However in face of the unprecedented demand contraction the production cut proved toolittle too late. is resulted in an over-supply situation for the oil market.

While production cuts and voluntary shut downs have helped bringing thesupply and demand closer there is still enough oil in tank farms and on ships that couldfood the market. Additionally speculations are ripe among the traders that the demandwill remain low in the coming few months as economist around the world have predicted fora COVID in_icted economic downturn.

Impact of Low Oil Prices and COVID on Future Investment

According to Rystad Energy Global oil and gas investments are set tofall to USD 383 Billion in 2020 registering a fall of 29 per cent compared to USD 539Billion in 2019. The report expects investments to only marginally recover to USD 386billion in 2021. Investment in shale and tight oil are expected to see the biggest hit dueto the COVID induced recession and are expected to witness over 52 per cent shrinkage ininvestment. Rystad Energy forecasts that the offshore investments will prove to be themost resilient during these testing times and will only lose 14 per cent in investment.

The Recovery

By mid-June the global crude oil prices had recovered and surpassedUSD 40/bbl. The recovery was fuelled chief by an easing global supply glut and nationsbeginning to relax lockdown restrictions that have crippled oil-intensive sectors liketransport and manufacturing. The crude oil prices were further stabilized as the oilministers of OPEC and other major oil producing countries led by Russia met on 6 June anddecided to continue the 9.7 Mbpd production cut through July.

One risk is that reviving the world economy after the worst of thepandemic passes will prove more difficult than investors are now anticipating.

On-shore segment (Indian Perspective)

Growth in the market is anticipated to be weak in the recent quartershowever it is expected to pick up owing to indigenous demand and push by the Government ofIndia. Western and Eastern regions of India are expected to witness a faster growth due tothe presence of larger oil fields and allocation of new blocks. Although the demand foronshore drilling rigs is quite high India has a dearth of quality drilling contractors.is primarily due to contractors struggling to maintain HSE and quality standards withreduced cash flows. The market seems to be already bottomed out and with the crude priceshovering around $45 / bbl However due to upcoming demand coupled with GOI initiatives suchas HELP and OALP more operators are expected to firm up their drilling plans in thecoming decade.

On-shore segment (International)

The industry has been completely reshaped during the downturn.Break-evens w.r.t. production cost are estimated to have fallen by close to one-thirdfrom ~$65/bbl to ~$45/bbl. is new paradigm in the offshore arena is creating enormousopportunity; not only for equipment and asset supplies but also for operators. Withreduced project economics lower cost structures for oil companies and their suppliersthe economic potential of proli_c offshore wells has likely never been better. A newgrowth cycle is set to emerge and while some areas will always be hot spots like WestAfrica Brazil and the US Gulf of

Mexico new regions such as East Africa Guyana and Mexico are openingas well. We are also witnessing higher activity in the South East Asia region with regardsto off shore drilling. Companies such as Pertamina (Indonesia) Petro Vietnam (Vietnam)and PTTEP (Myanmar) have shown higher interest in off shore drilling projects.

SUBSIDIARIES & ASSOCIATES

Your Company has three direct subsidiaries and two indirectsubsidiaries. OGD Holdings Services Limited (previously Essar Oilfields Services Limited)Mauritius Energy II Limited Bermuda and Essar Shipping DMCC are direct subsidiaries ofthe Company. Further Energy Transportation International Limited Bermuda cesses to besubsidiary w.e.f. March 13 2020 on account of winding up. OGD Services Limited (formerlyknown as Essar Oilfield Services (India) Limited India and Essar Oilfield Middle EastDMCC Dubai UAE are step down_subsidiary of the Company.

A report on the performance and financial position of each of thesubsidiaries and associates companies as per the Companies Act 2013 is provided asAnnexure to this report and hence not repeated here for the sake of brevity. The Policyfor determining material subsidiaries as approved by the Board is available onCompany's website www.essar.com.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with the Companies Act 2013 and Indian AccountingStandard (IND-AS) - 110 on Consolidated Financial Statements read with IND-AS-28 onAccounting for Investments in Associates the audited Consolidated Financial Statementsare provided in the Annual Report. The audited Consolidated Financial Statements togetherwith Auditors' Report thereon form part of the Annual Report.

HUMAN RESOURCE

Your Company believes that employee competence and motivation arenecessary to achieve its business objectives. Your Company has undertaken many traininginitiatives to enhance technical and managerial competence of the employees and to furtherleverage their capabilities to enhance their performance. The Company has taken a seriesof initiatives to enhance emotional and intellectual engagement of employees. During theyear under review the Company held many employee's engagement programs at theCompany premises and outside. Families of employees were invited and attended theseprograms. The Company has policies on conduct sexual harassment of women at workplacewhistle blower corporate governance insider trading etc. guiding the human assets of theCompany. For the year under review there was no instance of the sexual harassmentreported pursuant to the Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013.

DIRECTORS

During the year under review Ms. Sunita Kotian (DIN: 08699296) wasappointed as Additional Director under Non-Executive category in order to comply with therequirement of Woman Director. Further her candidature was received from the Nominationand Remuneration Committee under Section 160 of the Companies Act 2013 it is furtherproposed to regularize her appointment as non-executive Director liable to retire byrotation wherein declaration and consent to act as Director has been received from her.

Further Mr. Ramesh Krishnan (DIN: 08633771) non-executive Director hadtendered his resignation from Board w.e.f. May 21 2020 due to pre-occupation. FurtherBoard is in the process to find suitable candidature in order to comply with requirementof Regulation 17(1)(c) of SEBI (LODR) Regulations 2015. Mr. Ranjit Singh was Whole timeDirector of the Company ceases to be a Director w.e.f. 21st September 2019.However he continues to be the Chief Executive Officer of Company and redesignated as thePresident and CEO.

In accordance with the provisions of the Act and the Article ofAssociation of the Company Captain Rahul Bhargava the Whole time Director of the Companyis liable to retire by rotation at current Annual General Meeting and unwilling to getreappointed.

In terms of Section 149 of the Companies Act 2013 and the SEBI LODR2015 Mr. N. Srinivasan and Captain B. S. Kumar are the Independent Directors of theCompany on the day of this Report. The Company has received declarations from theIndependent Directors confirming that they meet with the criteria of independence asprescribed under sub-section (6) of Section 149 of the Companies Act 2013 and underRegulation 16 (b) (iv) of SEBI (LODR) Regulations 2015. The Independent Directors of theCompany have undertaken the requisite steps towards the inclusion of their names in thedatabank of Independent Directors maintained with the Indian Institute of corporateAffairs in terms of Section 150 read with the Rule 6 of Companies (Appointment andQualification of Directors) Rules 2014.

Pursuant to Sections 134 and 178 of the Act and the Regulations 17 and19 of the Listing Regulations Nomination and Remuneration Committee (‘NRC') hasset the policy for performance evaluation of Independent Directors Board Committees andother individual directors; separate meeting of Independent Directors; familiarizationprogramme for Independent Directors etc. is provided under Corporate Governance Reportannexed with this Report and the relevant policies are also available on the website ofthe Company www. essar.com.

Based on the criteria set by NRC the Board has carried out the annualevaluation of its own performance its committees and individual Directors for FY 2019-20.The questionnaires on performance evaluation were prepared in line with the Guidance Noteon Board Evaluation dated January 5 2017 issued by SEBI The performance of the Board andIndividual Directors were evaluated by the Board seeking inputs from all the Directors. Inthe opinion of the Board the Independent Directors possess the requisite expertise andexperience and are the persons of high integrity and repute. The performance of theCommittees was evaluated by the Board taking input from all the Committee members. NRCreviewed the performance of individual Directors separate meetings of IndependentDirectors was also held to review the performance of Non-Independent Directors andperformance of the Board as the whole. Thereafter at the board meeting performance ofthe Board its committees and individual Directors was discussed and deliberated.

BOARD MEETINGS

During the year ended on March 31 2020 Five (5) meetings of the Boardwere held on May 30 2019 June 29 2019 August 14 2019 November 13 2019 and February12 2020.

DIRECTORS' RESPONSIBILITY STATEMENT

Your Directors state that:

(a) in the preparation of the annual accounts for the year ended March31 2020 the applicable accounting standards had been followed and there are no materialdepartures from the same;

(b) the Directors have selected such accounting policies and appliedthem consistently and made judgments and estimates that are reasonable and prudent so asto give a true and fair view of the state of affairs of the Company as at March 31 2020and of the loss of the Company for the year ended on that date;

(c) the Directors had taken proper and sufficient care for themaintenance of adequate accounting records in accordance with the provisions of theCompanies Act 2013 for safeguarding the assets of the Company and for preventing anddetecting fraud and other irregularities;

(d) the Directors had prepared the annual accounts on a going concernbasis. The auditors have expressed an emphasis of matter on Going Concern in theirConsolidated Audit Report relating to a step down subsidiary.

(e) the Directors had laid down internal financial controls followedby the Company and that such internal financial controls are adequate and were operatingeffectively as endorsed by Statutory Auditor in their separate report annexed to theAnnual Report

(f) the Directors had devised proper systems to ensure compliance withthe provisions of all applicable laws and that such systems were adequate and operatingeffectively.

RISK MANAGEMENT

Your Company has a Risk Management Policy that outlines the frameworkand procedures to assess and mitigate the impact of risks and to update the Board and thesenior management on a periodical basis on the risk assessed actions taken for mitigationand efficacy of mitigation measures. With efficient Risk Management Framework yourCompany is able to manage:

(a) Economic Risks by entering into long term contracts with reputedglobal majors in each of its divisions thereby ensuring long term profitability of theCompany and assured cash flows;

(b) Interest Rate Risk by undertaking suitable hedging strategies toovercome any adverse interest rate risks. It has formulated internal target rates at whichany open interest rate risk can be hedged;

(c) Control over the operational matrix of various vessels to reducecost and reduce downtime of vessels; and

(d) Control over various OPEX cost of the organization. As per LODRRegulation 2015 Risk Management Committee is required to be constituted by top 500Companies based on market capitalisation and your Company does not fall in that category.However your Company do believe and has put best efforts to minimise/mitigate the risk.

INTERNAL CONTROL SYSTEMS AND ITS ADEQUACY

Your Company has a well-established framework of internal operationaland financial controls including suitable monitoring procedures systems which areadequate for the nature of its business and the size of its operations. The detailedreport is given in Corporate Governance Report. Based on the performance of the internalfinancial control work performed by internal statutory and external consultants andreviews of Management and the Audit Committee the board is of the opinion that thecompany's internal financial controls were effective and adequate during the FY2019-20 for ensuring the orderly efficient conduct of its business including adherence tothe company's policies safeguarding of its assets the prevention and detection offraud and errors the accuracy and completeness of accounting records and timelypreparations of reliable financial disclosures. The Statutory Auditors have also furnishedtheir Report on Internal Financial Control forming part of accounts without anyqualifications.

CORPORATE GOVERNANCE

The Company has complied with all mandatory provisions of SEBI (LODR)Regulations 2015 relating to Corporate Governance. A separate report on CorporateGovernance as stipulated under the SEBI (LODR) Regulations 2015 forms part of thisReport. The requisite certificate from the Auditors of the Company regarding compliancewith the conditions of corporate governance is attached to the report on CorporateGovernance.

VIGIL MECHANISM

The Company has in compliance with Section 177 of the Companies Act2013 and Regulation 18 and 22 of the Listing Regulations established Vigil Mechanism byadopting the ‘Whistle Blower Policy' for Directors and Employees. The WhistleBlower Policy provides for adequate safeguards against victimization of persons who usesuch mechanism and have provision for direct access to the Chairperson of the AuditCommittee in appropriate cases. A copy of the Whistle Blower Policy is available on thewebsite of the Company www.essar.com.

CORPORATE SOCIAL RESPONSIBILITY

The Corporate Social Responsibility Committee comprises Captain B. S.Kumar– Chairman; Mr. Ramesh Krishnan; and Mr. Rahul Bhargava as Member of saidCommittee. Since the Company has incurred losses in proceeding three financial years itwas not required to spend on CSR Activities in terms of provisions of section 135 readwith The Companies (Corporate Social Responsibility Policy) Rules 2014

EMPLOYEE STOCK OPTION SCHEME

The Company has implemented the "Essar Shipping Employees StockOption Scheme-2011" ("Scheme") in accordance with the Securities andExchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme)Guidelines 1999 ("the SEBI Guidelines"). The Nomination and RemunerationCommittee of the Board of Directors of the Company administers and monitors the Scheme.The applicable disclosures as stipulated under the SEBI Guidelines as at March 31 2019are provided in the Annexure - B to this Report. The term of scheme of Employee StockOption was for a period of seven years which got completed in the year 2018. As theobjective of the trust is attained process to settle the ESOS trust has been initiated.

AUDITORS

M/s. C N K & Associates LLP Chartered Accountants- StatutoryAuditors (Registration No. 101961 W/W - 100036) was appointed at 5th AGM of theCompany held on September 23 2015 to hold the office up to the conclusion of 10thAGM of the Company to be held in the year 2020. Further pursuant to provisions of section139 of the Companies Act 2013 a Statutory Audit firm may be appointed for period of twoconsecutive term of five years.

Being eligible for re-appointment consent and certificate under section141 and other applicable provisions of the Companies Act 2013 has been received and basedon recommendation of

Audit Committee Board be and hereby proposes appointment of M/s. C N K& Associates LLP Chartered Accountants as Statutory Auditors for period of five yearsfrom FY 2020-21 to 2024-25 i.e. upto conclusion of 15th AGM. Company hasreceived the Peer Review Certificate from the CNK & Associates LLP.

AUDITORS' REPORT:

Further with regard to the observations made in Annexure A to theAuditors' Report the management explanation is as under:

a) TDS & Service Tax dues: The Company is making all efforts toclear outstanding statutory dues at earliest.

b) Regarding the dues to the Bank/FI/Debenture-holders The Company iscontinuing its negotiation with lenders to monetize assets and settle the loans /restructure the loan to ensure that earnings from operations matches with debt servicecommitments.

c) The Company's Current Liabilities exceed its Currents Assets byRs. 1426.35 crores as at 31st March 2020. The following steps are taken torectify this mismatch:

1) Loan from public financial institution along with interest accruedthereon amounting to Rs. 1215.32 crores classified as Current Liability is expected to besettled.

2) Advance from a subsidiary for purchase of vessel amounting to Rs.331.26 crores is to be adjusted upon sale of vessel.

3) Certain loans classified as current owing to defaults are expectedto rescheduled such that they will not be repayable within one year.

SECRETARIAL AUDIT

The Board has appointed M/s. Martinho Ferrao & AssociatesPractising Company Secretaries to conduct Secretarial Audit for the financial year2019-20. The Secretarial Audit Report for the financial year ended March 31 2020 isannexed herewith marked as Annexure - C to this Report. The Secretarial Audit Report hasobserved that few of the forms have been filed with delays to which management hasresponded that it shall ensure timely filing of the same.

APPOINTMENT AND REMUNERATION POLICY FOR DIRECTORS AND SENIOR MANAGEMENT

The Board of Directors on recommendation of the Nomination

& Remuneration Committee has adopted a policy for appointment ofDirectors remuneration of Directors Key Managerial Personnel and other employees. Thebrief details on the above are provided in Corporate Governance Report and the policy isavailable on the website of the Company www.essar. com. The details of remuneration asrequired to be disclosed pursuant to the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 are annexed as Annexure - D to this Report.

PARTICULARS OF EMPLOYEES

In terms of the provisions of Section 197(12) of the Companies Act2013 read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 a statement showing the names and other particulars ofthe employees drawing remuneration in excess of the limits set out in the said rulestogether with disclosures pertaining to remuneration and other details as required underSection 197(12) of the Companies Act 2013 read with Rule 5(1) of the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 are provided in theAnnexure - The to this Report.

CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES

All contracts / arrangements / transactions entered by the Companyduring the financial year with related parties were in the ordinary course of business andon an arm's length basis. During the year the Company had entered into one or morecontract / arrangement / transaction with Essar Steel India Limited a Fellow Subsidiarywhich could be considered material in accordance with the policy of the Company onmateriality of related party transactions.

The Policy on materiality of related party transactions and dealingwith related party transactions as approved by the Board may be accessed on theCompany's website www.essar.com. The information on each of the transactions with therelated party as per the Companies Act 2013 is provided in note 28 of notes forming partof the financial statement and hence not repeated. The disclosure required pursuant toclause (h) of sub-section (3) of Section 134 of the Companies Act 2013 and Rule 8(2) ofthe Companies (Accounts) Rules 2014 in Form AOC-2 is annexed herewith as Annexure - F tothis Report.

EXTRACT OF ANNUAL RETURN

The extract of the Annual Return in Form MGT 9 is annexed herewith asAnnexure - G to this Report.

PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS

Particulars of Loans Guarantees and Investments covered under theprovisions of Section 186 of the Companies Act 2013 are given in the notes to thefinancial statements.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

There are no significant and material orders passed by the regulatorsor courts or tribunals impacting the going concern status and Company's operations infuture.

ENERGYCONSERVATIONTECHNOLOGYABSORPTION AND FOREIGN EXCHANGE EARNINGAND OUTGO Conservation of energy and Technology absorption

Your company is committed for continual environmental improvement. TheCompany has taken several initiatives towards conservation of energy. The Companyinitiated the process of monitoring carbon emissions as per IMO GHG Guidelines and alsoexplored opportunities to improve energy efficiency onboard the ships. Due to the natureof the business (transportation) fuel and lubricants are necessary to deliver theservices. Following are few steps taken towards conservation of energy and use ofalternate source of energy:

Ship Energy Efficient Management Plan (SEEMP): In line with currentguidelines that have been established by IMO this plan has been implemented all acrossfleet vessels. The capturing and monitoring of the data on regular basis prompts to takeappropriate corrective measures on a timely basis. Onboard performance monitoring systemswill give a holistic approach to ship operations with the aim of reducing fuel consumptionand emissions while achieving optimum vessel performance. The Company have alreadycompleted energy efficiency evaluation on our assets and are now in the process ofimplementing fuel efficiency measures. These include trim speed reduction and weatherrouting. These fuel efficiency measures will not only reduce energy consumption but alsobenefit customers through lower fuel cost where applicable.

Alternate source of energy: In order to reduce fuel consumptionthe Company's vessels utilize shore power during repair lay-up period and therebyreduce carbon foot print. Periodical cleaning of ship's hull and propellers apartfrom routine dry-docking of floating assets is another step which has been taken towardsconservation of energy with insignificant investment or expenses.

Technology Absorption

The Company has successfully implemented SAP in its financial andbudget management systems. The Company has also now implemented various methods ofautomation so as to have greater visibility and control over its assets and furtherimprove the turnaround time thereby increasing asset utilisation and profitability.Planned maintenance and purchase management system of all the vessels are now beingintegrated with SAP in order to have uniform platform. The Company has implemented arobust Document Management System thus improving the availability of critical informationin e-mode thereby reducing the use of paper. Ship-staff payroll system has been developedand implemented successfully.

In-house developed so_ware EIS system has now been upgraded to monitorall the above energy conservation measures and is now available online. Various energy andcargo related data are available in e-mode and helps in close monitoring and control ofenergy conservation related matters. Due to in-house developed so_ware your company hasnot only saved on investment towards purchase of third party so_ware but also reduceddependency on third party service provide.

The Company is upgrading its ships to meet future requirements of IMO2020 towards compliance of burning of 0.5% of sulphur this upgrade will not only aid tocompliance but will also add to revenue of your Company.

Foreign Exchange Earnings and Outgo

The details of Foreign Exchange Earnings and Outgo during the year areas follows: Foreign Exchanged Earned (including loan receipts sale of ships freightcharter hire earnings interest income etc.): Rs.102.76 Crore Foreign Exchanged Used(including cost of acquisition of ships loan repayments interest operating expensesetc.): Rs.284.01 Crore

PUBLIC DEPOSITS

Your Company has not accepted any public deposits under section 73 ofthe Companies Act 2013 during the Financial Year under report.

APPRECIATION AND ACKNOWLEDGEMENTS

Your Directors express their appreciation of commendable teamwork ofall employees. Your Directors express their thanks to all the offices of the Ministry ofShipping Directorate General of Shipping Ministry of Petroleum and Natural Gas IndianNavy Indian Coast Guard Mercantile Marine Department State Government and CentralGovernment Classification societies Oil Companies and Charterers creditors Banks andFinancial Institutions for the valuable support help and cooperation extended by them tothe Company.

Your Directors also thanks its other business associates including theMembers of the Company for their continued cooperation and support extended towards theCompany.

Sd/- Sd/-
Mumbai Ranjit Singh P.K. Srivastava
President &CEO Chairman
(DIN:00843258)

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