JAYASWAL NECO INDUSTRIES LIMITED
ANNUAL REPORT 2007-2008
The Company ended the year 2007-08 with an impressive and all time high
performance, bringing almost an end to the struggle phase; the Company had
to pass through in the last few years. You would be pleased to see a
pleasantly different performance of your Company in the years to come as
the long cherished dream of having an Integrated Steel Plant is going to be
realized shortly. The Company which began its journey as a small Grey Iron
Foundry in 1975, and has now grown into Rs. 1700 Crore empire. Your Company
is to-day, ranked 16th in terms of total Income under 'Dun 8: Bradstreet's
India's top 500 companies 2007'.
It is a time to took beyond as the Company is poised to achieve greater
heights and new milestones in its 37th year of existence. The Company has
planned ambitious expansions and capacity augmentations. Two major projects
namely, 2 x 500 TPD Sponge Iron plant with a 35 MW waste heat recovery
based captive power plant at Raigarh and expansion of the capacity of Coke
Oven plant from 1 Lac MT to 3 Lac MT p.a. with 18 MW captive power plant at
Raipur at an estimated total capital outlay of about Rs. 800 crores are
under active consideration.
It gives me pleasure to communicate and share my views with you all about
the industrial scenario in which your Company operates.
Global Steel Scenario
The year 2007 was the fourth year in succession when the global Crude steel
production crossed the 1 Billion Tonnes mark, the CAGR being 8.20o during
the period. Likewise, Global finished steel consumption during the year
2007, grew by 6.6%
During 2007, China was at the top of the global crude steel production with
489 Million Tonnes and consumption with 408 Million Tonnes, while; India
emerged as fifth with 55 Million Tonnes of production and 51 Million Tonnes
of consumption. Despite being the fifth largest producer of steel in the
world, the per capita consumption of steel in India is very low at around
38 kg to 40 kg compared to the world average of 200 kg.
The production and demand of steel in India and abroad is expected to
increase at 10% p. a. in the coming years. The steel prices all over the
globe have increased steeply so also the raw material costs. Rising raw
material prices in the spot market specially, of Iron ore, Pig iron, Soap
and Metcoke have squeezed the margins of steel producers.
Nevertheless, with global expansions and consolidations, the steel industry
all over the world is most likely to see a promising growth in the days to
The Indian Economy has grown at a much faster pace than anticipated in the
recent years. The growth in GDP at market prices has exceeded 8 per cent
during the last 5 years. The projected economic growth of 8.7 per cent for
2007-08 was fully in line with this trend. There is acceleration in
domestic investment and saving rates to drive growth and provide the
resources for meeting the 9 percent (average) growth target of the Eleventh
As far as Iron and Steel sector is concerned, it is apparent that the
market for Steel in India has a large untapped potential in various
consuming sectors for the coming years. This is evidenced by strong
economy, huge planned expenditure in infrastructure, House building and
automotive sectors. Rising income levels and consumer spending patterns
also point towards the same. India's steel appetite is likely to match the
developed countries in the years to come as it has entered the era of
increasing demand and capacity addition. The estimated production of steel
will go up to 125 million Tonnes by 2012. The demand for long and flat
steel products is already growing at nearly 12% and it is expected to reach
13% in near future.
Raw Material Challenges
The joy of visualizing a bright future is not without challenges. Two most
important raw materials for making steel are Iron Ore Et Coking Coal.
Present situation of the lifeline of this industry is briefly as under.
India ranks sixth in the world in terms of iron ore reserves of about 24
billion Tonnes. However, the scenario is a matter of concern as reserves
are depleting faster and the availability is becoming a recurring problem
notwithstanding the steadily rising prices. According to a study by
National Council of Applied Economic Research, it is estimated that
resources of high and medium grade iron ore may not last for more than 19
years; although there is a possibility of discovering additional resources.
With constant exports of 100 Million Tonnes and growing steel industry,
hematite ore reserves (at 55% cut-off grade of iron) may last for about 37
years only and magnetite reserves may last for about 44 years. It is
strongly suggested that leadership of this country must foresee tong term
prospects of the country and stop exports of this vital, scarce material.
Instead, a proactive policy for encouraging the exports of high value steel
products should be formulated and adopted to facilitate much needed faster
industrialization of the domestic industries.
For the blast furnace based steel plants, coking coal is a very critical
raw material. India has only 32 Billion Tonnes of coking coal and 221
Billion Tonnes of non-coking coal reserves as on 1 January 2006. For steel
production coking coal with 17% ash content (maximum) is suitable, the ash
content available in ROM coking coal in India is 26-35%. Although India's
coking coal production has been projected to increase from 18.8 Million
Tonnes in Tenth Five Year Plan to about 26 Million Tonnes by the end of
Eleventh Five Year Plan period it would be short of the projected capacity
of 125 Million Tonnes in 2011-12.
Good quality of coking coal is a scarce commodity in India. Consequently,
for the purpose of steel production, it is imperative to utilize either
100% imported coking coal with low ash content or adopt a suitable blend of
domestic and imported coal. The National Steel policy 2005 envisages that
by 2019-20, about 85% of total coal requirements will have to met through
Infrastructure & Logistics
Apart from the principal materials as above, there is a serious concern on
infrastructure and logistics. Availability of railway rakes, its allotment
for steel sector, the freight etc are always the issues to reckon with. The
projected growth of steel sector and huge movement of raw materials and
finished steel calls for massive investments in laying new tracks,
strengthening existing tracks, electrification and signaling and in
rotting-stock. There wit[ have to be dedicated freight trains. Freight
structure needs re-examination.
The share of Roadways is assumed at 40% for the overall steel industry,
with 30% for raw materials, 70% for finished steel. This does not include
iron ore export. To achieve the targeted level of growth in the steel
industry, the road structure also has to be expanded and strengthened
considerably. Currently, roads carry 70% of freight traffic on all India
Unless issues related to Railways & Roadways are addressed on war footing,
transportation will become a bottleneck to achieve the envisaged levels of
steel production by 2020.
Consolidation is the buzz word today as it gives economies of scale and
synergies in operation. Today we have a number of small units particularly
in coal based sponge iron sector, mini blast furnace sector, induction
furnace sector, EAF sector, re-rotting sector etc. It is time some
consolidation takes place in these sectors so that they will be in a better
position to face rising costs of inputs and become cost competitive in the
Indian and Global markets.
Iron and Steel Castings business
India's Foundry market is growing at about 17% as against an average growth
rate of 9% in the global market. For the year 2007-08, India produced 8
million tones of castings and is pushing the production level towards 11 to
12 million tones in the coming years.
Production and Sales in the automotive sector in India have picked up in
all the segments in the recent times. About 30% of the foundry output is
consumed by the booming automobile segment alone. Most of the European
Original Equipment Manufacturers are sourcing castings from low cost
destinations like India and it is upto the Indian foundry industry to
gainfully explore this business opportunity by focusing on becoming quality
concious and cost-competitive in the markets.
The automotive sector is poised for a growth of 15% on account of focus by
government on roads & infrastructure, availability of consumer finance,
excise duty reduction, tax sops by government and higher disposable income
with the households. India is emerging as an auto hub for exports to
Africa, Europe and SE Asia by global Automotive majors like GM, Toyota,
Hyundai, Ford and Suzuki.
The Company has in tune with market trends adopted a strategy for its
automotive castings units to focus on Cylinder Heads and Axle Housings.
Gradually the production of Brake drum castings would be phased out.
However, the area of concern in this segment is rising cost of materials
consumed in foundries serious affecting the bottom lines and dampening the
spirit of expansions and growth. Large number of foundries in india are
operating at low capacity utilizations and some are in the process of
exiting the business. The remedy to these problems lie in improvement in
infrastructure, better material movements, minimizing inventory carrying
costs and other measures to give improved quality and higher productivity.
The government could consider granting relief from duties on materials used
by foundries and increase of DEPB benefits forcastings exporters.
I am quite hopeful that the Company would perform better in the years to
come. I appreciate and thank you all for the confidence posed in the
management during the turbulent times. The turnaround of the Company is the
result of untiring efforts of everybody in it at all levels and - needless
to mention - the cooperation from all the business associates without whose
support; it would not have been possible.
I along with my team look forward to receive your patronage in future as
25th August, 2008.