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REI Agro Ltd.

BSE: 532106 Sector: Agri and agri inputs
NSE: REIAGROLTD ISIN Code: INE385B01031
BSE 00:00 | 04 Mar REI Agro Ltd
NSE 05:30 | 01 Jan REI Agro Ltd
OPEN 0.93
PREVIOUS CLOSE 0.94
VOLUME 1526147
52-Week high 0.95
52-Week low 0.00
P/E
Mkt Cap.(Rs cr) 90
Buy Price 0.92
Buy Qty 12500.00
Sell Price 0.94
Sell Qty 167937.00
OPEN 0.93
CLOSE 0.94
VOLUME 1526147
52-Week high 0.95
52-Week low 0.00
P/E
Mkt Cap.(Rs cr) 90
Buy Price 0.92
Buy Qty 12500.00
Sell Price 0.94
Sell Qty 167937.00

REI Agro Ltd. (REIAGROLTD) - Chairman Speech

Company chairman speech

REI AGRO LIMITED ANNUAL REPORT 2005-2006 CHAIRMAN'S REPORT Dear Shareholders, In a mere 11 years, REI Agro emerged as the largest basmati rice processor in the world with an aggregate installed capacity of 49 TPH. The second phase of expansion will be implemented in the first half of fiscal 2007, which will increase the capacity to 61 TPH. Even as the company enhanced shareholder value in an attractive way through this linear route over the last few years, the management considered it prudent to diversify its business into the attractive area of wind energy generation. In doing so, REI Agro became the first basmati company to enter wind power generation with capacities in the states of Rajasthan and Maharashtra. Business opportunity: For a number of observers, this diversification may appear to be unrelated and conducted with the short-term perspective of capitalising on related fiscal concessions. On the contrary, we have entered wind energy generation with a serious business motive prompted by the following realities: * India faces a demand supply gap of 8-9 per cent and a peak demand supply gap of 12-13 per cent and this is expected to increase, which means that there will never be any problem in marketing power. * Wind energy generation can play a significant role in this scenario; a wind farm can be commissioned in less than six months, is the cheapest source of renewable energy and from a long-term perspective provides cheap electricity across all forms on account of an established technology and inexhaustible resources of free fuel. * The capital cost of commissioning a wind farm comprises land, land development and equipment. Besides interest and depreciation, there are no major costs or provisions in the business as a result of which its operating margins are higher than most businesses. * Maharashtra is perhaps one of the most industrialized states in India on the one hand and suffers from one of the largest energy shortfalls in the country (estimated at nearly 5,000 MW) on the other. * The Government of Maharashtra has encouraged the setting up of wind turbines with a policy that promises attractive returns for power producers. In view of these realities, REI Agro invested in 29.9 MW of installed capacity by the close of 2005-06, decided to invest nearly 75 per cent of its capacity in Maharashtra, sourced turbines from two of India's leading turbine manufacturers like Suzlon and NEG Micon, delegated operational management and maintenance to these vendors and entered into attractive power purchase agreements with the respective State Electricity Boards. Business rationale: Our wind farm business is built around a compelling business rationale: * It provides us with a profitable diversification of our revenues; it represents a standalone business viability. * It enables us to de-risk ourselves. * It maximises return-on-time employed due to high returns with the deployment of minimal management time. * It provides us with fiscal incentives including depreciation benefits; profits from this business will be free from income tax for 10 years; the company retains the option to select any 10 consecutive years out of the first 15 years of operation. Business complementariness: Contrary to what a number of observers may believe, there exists complementariness between our basmati rice and wind energy businesses. * Both businesses complement each other in fiscal resource availability; the strength of our basmati rice business provides us with resources to invest in the wind energy business; the free cash flow from the wind power generation business will be invested in the working capital-intensive basmati business, creating a virtuous cycle of sustainable growth. * While our basmati rice business is working capital intensive, the wind farm business is gross block intensive, which will enable us balance our working capital to capital employed ratio as well as gross block to capital employed ratio. * Wind energy is a stable business as it requires no fuel; the cost of power is frozen at the time of project commissioning secured by a power purchase agreement even before actual sale. This is exactly like basmati rice business, which also enjoys stable paddy prices. * Both the basmati rice business and the wind farm business are fragmented as there are not too many large and focused wind farm companies. Outlook: Going forward, we expect to strengthen our leadership position in the basmati rice business while gaining a stronger foothold in the wind energy business. In our basmati business, we intend to focus on increased yield and value addition through an extension of the ageing period. In our wind farm business, we expect to extend our presence from Rajasthan and Maharashtra to Tamil Nadu and Karnataka, increasing our aggregate installed capacity in the process. In doing so, we expect to grow our topline and industry leadership in one business to two over the coming years. Sanjay Jhunjhunwala Chairman