KIRLOSKAR FERROUS INDUSTRIES LIMITED
ANNUAL REPORT 2004-2005
14th Annual General Meeting of Kirloskar Ferrous Industries Limited on
August 5, 2005.
Good morning Ladies and Gentlemen
On behalf of the Board of Directors, I extend a very warm welcome to all of
you to this 14th Annual General Meeting of your Company. The notice,
convening the meeting, the Directors' Report and the audited accounts have
been with you for some time and with your permission, I shall take them as
In the year under review, the Country's GDP recorded a healthy growth of
6.9%. While the growth in the agricultural sector was only 1.1%, the growth
in industrial sector was 7.3% with services topping the growth chart at 8%.
The manufacturing sector recorded an impressive growth of 8.9%. With
increase in crude oil prices, inflationary pressures during the year firmed
up and annual rate of inflation was 6.4% as compared to 5.4% in 2003-04. On
the external front, the country's exports went up by 19% while the imports
clocked a higher growth of 23%. The foreign exchange reserves of the
country stood at USD 141.2 billion as at the end of March 2005. Thus
India's forex reserve was fifth largest in the world.
The two major constituents of pig iron and casting industries are coke and
iron ore. In the first half of the year under review, the price of coke and
iron ore went up considerably.
China is a major exporter of coke, which is required by iron and steel
industry. To meet the domestic demands of the local iron and steel
manufacturers, the Chinese government curtailed export of coke, which
resulted in coke prices going up. China was also importing iron ore, a raw
material required for their steel industry. This resulted in huge exports
of iron ore from India leading to increase in iron ore price in the Indian
As a consequence to the increase in price of both coke and iron ore, the
price of pig iron had to be increased to compensate for the steep increase
in input cost. The increase in price of pig iron could not be sustained for
long, as many foundries opted for better priced steel scrap, which was
available in plenty.
This situation created a pressure on the margins and to control the erosion
in the profitability, your company decided to shut down one furnace for
three months when the price of coke had reached a peak level of $ 462 per
However in the second half of the year, the operating margins improved with
stability in the market conditions and softening in price of coke.
Though the impact of iron ore and coke cost increase was also felt in
casting business, it was difficult to fully pass on the cost increases to
customers of castings. Also increase in cost on items such as chemicals
also put pressure on margins. However sustained demand of castings from
both tractor and auto industries and with the increase in business volumes,
the company was able to achieve a better capacity utilization. Higher
productivity and reduced process rejections led to improved profitability
in the foundry business.
The automobile industry registered another year of strong growth, with
passenger car segment growing by 18%, utility vehicles by 20.5% and
commercial vehicles by 22%. The tractor industry recorded a growth of 30%,
which is highest growth, in tractor industry, in the last 5 years. The
growth in demand from Utility vehicles, commercial vehicles and the
tractors helped the foundry to achieve higher capacity utiliasation.
Year under Review:
Now I would like share with you some highlights on the achievements of your
The sales and operating income increased to Rs.500 Crores from Rs.385
Crores of the previous year, registering a growth of 30%. The increase in
sales was due to increase in pig iron prices and growth in volumes as well
as price in foundry business.
Consequent to increase in sales and other income and due to cost control
measures, the profit before tax for the year under review stood at Rs.20.8
Crores, as against Rs. 27.2 Crores in the previous year, after providing
for depreciation and amortisation. There is a drop in profitability during
the year under review with respect to the previous year as the buoyancy
experienced in the last quarter of the previous year was absent in the
first half of the year under review.
The pig iron sale of your company was higher by 34% at Rs. 325.3 Crores
(last year Rs 242.9 Crores) while the sale of castings was higher by 30% at
Rs.121.7 Crores (last year Rs. 93.6 Crores). Other Sales was higher by 27%
at Rs.50 crores (last year Rs.39.4 crores).
The rise in pig iron sales was due to higher prices while the quantity sold
was lower at 203091 MT (Last year 212002 MT). The production and
consequently the sale of pig iron were lower in the year under review as
one furnace was shut down for three months due to the adverse market
conditions as explained earlier. In spite of this shut down, your company
could achieve higher turnover for the remaining period of the year.
The profit after tax for the year under review is Rs.21.83 Crores as
compared to Rs 31.71 Crores in the previous year. The company has also has
been able to prepay long term loans out of internal accruals and through
the raising of new low cost borrowings. The interest cost in the year under
review has been reduced due to the prepayments of high cost debts as well
as repayment of other low cost loans.
Taking into consideration the profit made by your Company for the year
under review, your Board of Directors have decided to recommend a dividend
Rs. 11.33 Crores to the holders of 12% Cumulative redeemable preference
Other Achievements of your company:
Your company received 'a honest taxpayer award' from the Commissioner of
Commercial Taxes, Government of Karnataka.
Your company received the accreditation of TS 16949 Quality Management
Certification, which would be useful to increase business with Automobile
During the year, the industrial relations were cordial. Agreement with the
Union has expired and the negotiations are on for the agreement for the
Business Scenario and Current year prospects:
The prospects for overall automobile industry is projected to register
double digit growth. The utility vehicle and light commercial vehicle
segments are projected to have higher growth than the commercial vehicle
segment. The tractor industry is revising its projections to marginal
growth in the current year. The overall growth in the automotive industry
will result into increased demand for castings.
Multinational companies operating in industries like automobiles and diesel
engines are setting up global purchasing offices in India. This will open
additional markets for the castings. Your company is aggressively pursuing
these new opportunities for export.
The foundry continues to broad base the customer to reduce dependency on
one industry sector. The dependency on the tractor industry for casting
business has reduced from 57% during 2003-04 to 52% during the year under
review, while the share of casting business from Automobile industry has
increased from 32% in 2003-04 to 36% in 2004-05. This strategy will also
help the company to increase its casting business.
Coke prices have also started coming down from a high level. This will
reduce the input cost in the manufacture of pig iron. Pig iron prices have
also come down in line with coke prices.
In order to minimize the fluctuation in the price of coke, your company has
already entered into an agreement with a domestic manufacturer of coke for
the procurement of coke through coal conversion route.
The above arrangement will result in reducing the risk in price fluctuation
and will also cater to the company's requirement of coke to the extent of
25% approximately of the coke consumption.
Your company has also applied to the Government of Karnataka for the
leasing of iron ore mines. Investment in railway siding at the company's
factory premises will reduce the transportation cost of materials and
setting up of MBF Stoves will result in reduction in coke consumption.
All these steps should result in reduction in material cost.
The current year 2005-06 has started off on a good note, which has been
reflected in the results of the first quarter showing a turnover of
Rs.129.11 Crores and a profit after tax of Rs. 4.78 Crores.
Reduction in Equity Share Capital:
Members are aware that the company had made profits in the initial years up
to 31st March 1996 and there after started incurring losses. There after
company took several proactive steps, which resulted in company turning
around and registering profits for the last three years. However inspite of
showing profits the company has accumulated losses of Rs. 74.13 Crores at
the end of 31st March 2005.
The Board of Directors at their meeting held on 10th June, 2005 felt it
appropriate to consider a reduction issue and therefore proposed to the
members recommending the reduction of 50% of the issued, paid up equity
share capital aggregating to Rs.36.11 Crores for writing of the debit
balance in Profit and Loss Account to the same extent. The balance of
accumulated losses in the profit and loss account there after will be
On receipt of your approval for reduction and on confirmation of reduction
by the honorable High court, Mumbai, the equity share capital will stand
Members are aware, that the company has Rs.104.68 Crores of preference
share capital. The Board of Directors is considering various options for
redeeming the preference shares so that the liability on preference shares
is eliminated and there after profit will be available for servicing of the
equity shares. The reduction of equity share capital will therefore be in
their long term interest.
Corporate social responsibility:
As responsible corporate entity the Kirloskar Group continues to discharge
its social responsibility. In measure of support to the victims of Tsunami,
which devastated the southern parts of the country, the group along with
its employees contributed Rs. 71 Lakhs (of which KFIL's contribution was
Rs.3 Lakhs) to Prime Ministers National Relief Fund.
Your company has been supporting and providing assistance to the nearby
villages by supply of good quality drinking water, educational assistance
and medical assistance for the people.
Besides effluent treatment of waste products and suppression of fugitive
emissions through sprinklers, lot of attention has been given to improve
greenery all around the plant, through massive tree plantation programs.
Your board is committed to complying with the standards of corporate
Governance. The Board has and will take steps and measures in fulfilling
its responsibility and in ensuring transparency with regard to financial
statements, internal control and investor related information.
On behalf of the Board and myself, I take this opportunity to thank our
Customers, Bankers, Financial Institutions and suppliers for the
cooperation and assistance extended to your Company. I thank all the
shareholders for their support and confidence posed with the Company. I
also place on record my appreciation to the leadership of Mr. Gumaste and
the teamwork displayed by the employees of your Company.
Thank you !
ATUL C KIRLOSKAR
Source Date : 22-10-2005