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Southern Ispat & Energy Ltd.

BSE: 531645 Sector: Others
NSE: SOUISPAT ISIN Code: INE943B01029
BSE 00:00 | 04 Mar Southern Ispat & Energy Ltd
NSE 05:30 | 01 Jan Southern Ispat & Energy Ltd
OPEN 0.16
PREVIOUS CLOSE 0.15
VOLUME 1844235
52-Week high 0.16
52-Week low 0.00
P/E
Mkt Cap.(Rs cr) 20
Buy Price 0.14
Buy Qty 3275008.00
Sell Price 0.15
Sell Qty 306450.00
OPEN 0.16
CLOSE 0.15
VOLUME 1844235
52-Week high 0.16
52-Week low 0.00
P/E
Mkt Cap.(Rs cr) 20
Buy Price 0.14
Buy Qty 3275008.00
Sell Price 0.15
Sell Qty 306450.00

Southern Ispat & Energy Ltd. (SOUISPAT) - Chairman Speech

Company chairman speech

Chairman

Dear Shareholders

It is my pleasure and privilege to reach you through this momentous Annual Report &share with you the highlights of our Company's performance during the year 2012-13.

The global economic scenario in FY 2012-13 continued to be abounding with extremechallenges. As the year forges ahead business environment remained difficult andoperating in such a testing environment proved challenging. The Indian economy has sloweddown in the last 12 months and some of the sectors including the automotive and capitalgoods have been faced with demand slowdown that is unlikely to turn around quickly. TheChinese economy too has witnessed a moderation in its growth rate and it is widelyexpected that following the political transition China would look at rebalancing theeconomy to a sustainable level.

I am delighted to inform you that in such a worst scenario still your company manage tosustained growth and registered a satisfactory performance during Financial 2012-13 with atop line of Rs.9282.37 millions and bottom line to Rs.426.84 Millions.

Steel Industry Overview Global Scenario:

The FY 2012-13 has been one of the most challenging years for the Steel Industry. Thecombined effect of European debt crisis and global economic slowdown along with thedomestic challenges of non availability and high cost of raw material has impacted theIron & Steel industry. The global economy in FY 2012-13 improved slowly and did notrecover to the extent anticipated in the beginning of the year. Several European economiesexperienced recession due to high unemployment banking fragility fiscal tightening andsluggish growth. The U.S. economy improved marginally driven mainly by housing and theconsumer sectors; however capital investments remained sluggish. Among the Asianeconomies China going through a political transition experienced considerably slowergrowth. Deceleration in industrial output and exports weakened India's economic growthsignificantly. The weak macro environment and slower growth caused the margin environmentto remain volatile with downward bias.

Despite a slight increase in demand for steel and the removal of some older steelmakingcapacity in 2012 the global percentage level of excess capacity is greater now than itwas 12 months ago due to the continued growth in new steelmaking facilities particularlyin developing economies. Capacity utilization rates in the sector remain below 80% and in2013 excess capacity will remain the most significant issue in the steel sector.

Growth in global steel demand is unlikely to improve significantly in 2013. Sluggishdemand combined with excess steelmaking capacity and ongoing volatility in raw materialscosts will challenge the sustainability of high-cost producers.

The continued closure of older higher-cost steel making capacity and increased demandgrowth should lead to improved profitability for the sector in 2014 and 2015 driven bybetter utilization rates. The closure of inefficient capacity will require the sector toavoid political interference with commercially rational decisions.

Domestic Scenario:

India has emerged as the fourth largest steel producing nation in the world as per therecent figures release by World Steel Association in April 2011. In 2010 India was the5th largest producer after China Japan USA and Russia and had recorded a growth of11.3% in steel production as compared to 2009. Overall domestic crude steel productiongrew at a compounded annual growth rate of 8.4% during 2005-06 to 2009-10. The Indiansteel industry accounted for around 5% of the world's total production in 2010.

Total crude steel production in India for 2010-11 was around 69 million tonnes and it'sexpected that the crude steel production in capacity in the country will increase tonearly 110 million tonne by 2012-13. Further if the proposed expansion plans areimplemented as per schedule India may become the second largest crude steel producer inthe world by 2015-16.

The demand for steel in the country is currently growing at the rate of over 8% and itis expected that the demand would grow over by 10% in the next five years. However thesteel intensity in the country remains well below the world levels. Our per capitaconsumption of steel is around 110 pounds as compared to 330 Pounds for the globalaverage. This indicates that there is a lot of potential for increasing the steelconsumption in India.

But as anticipated the impact of Depreciation on the Indian currency the price hikesannounced by some steel mills in January and March 2013 due to cost pressures proved to betemporary in nature and domestic steel prices declined thereafter. In fact domesticprices fell by around 6% during the period from January till the first week of May 2013on the back of around 8% fall in the international prices while the USD/INR exchange rateremained largely flat. However between May and July the INR depreciated against the USDby almost 10%. Consequently despite a fall in international prices of HRC by around 6%during this period the depreciation of the INR led to firming up of landed cost of steelimports by around 4%. However domestic prices still remained flat during this periodinstead of following the import parity price trend because of weak demand conditions.

Prices of coking coal which has to be imported by producers using the blast furnaceroute also declined by around 10% in the international market during May-July 2013Causing the landed cost of imported coking coal to remain largely flat and thus deprivingsteel mills from the benefits of a lower raw material cost. On the other hand rawmaterial costs of various secondary players using imported scrap is likely to have beenadversely affected during May-July 2013 due to the depreciation of the INR whichcoupled with an imposition of a 2.5% import duty on steel scrap in May 2013 resulted ina hike in imported scrap costs by around 7% even though internationally scrap pricesdeclined by around 6% in this period.

Company Overview:

Your Company is focused on its vision to emerge as a low cost producer of value addedSteel products with captive mineral resources and captive power. The Company is alsofocused on mining its own iron ore in order to improve margins & also to setup aBeneficiation Plant to exploit the resources.

Company Strategic Measures:

IRON ORE MINES:

As a part of backward integration your Company had entered into Mining Activity inBuxwaha Iron Ore mine spread over 150 Hectares in Chattarpur area of Madhya PradeshIndia. The mining division has its iron ore operations in the mineral rich Chattarpur beltof Madhya Pradesh. The mines have a substantial resource base of superior quality iron orewith high Fe (iron) content and bulk density. The Fe content varies between 63 to 66 percent which makes it one of the best quality materials available in the country. Thepotential of the proven deposit as well as the quality and quantity of reserves are goodenough to sustain the mining operations for the next 20 years at the current operatingcapacity. The main products are:

• Calibrated Iron Ore Lump-inputs for steel making through the DRI/BF process.

• Iron Ore Fines inputs for sinters and pellets used for making steel.

• BENEFICIATION & PELLETIZATION PLANT:

The excessive fines generated from the iron ore crushing units are mostly going wastelying in tailing ponds for long years or exported. In order to capitalize the miningresources. Your Company has now proposed to set up 1.2 Million tonne per annum capacityiron ore benefication & pelletization plant in Chattarpur area of Madhya PradeshIndia for Agglomeration of beneficiated and ground iron ore into spherical shaped greenballs and subsequent heat hardening them is termed as Pelletizing.

Pellets thus produced to desired physical and chemical properties are much superior tothe conventionally sized iron ore lumps. Iron ore Pellets are in very high demand. TheCompany has also acquired adequate land near to mines for setting up of a Beneficiation& Pellatization plant for exploiting the mining operations & maximizing profits.

Corporate Governance:

Your Company is committed to conforming to the highest standards of CorporateGovernance by ensuring transparency disclosures and reporting as required under variouslaws regulations and guidelines including those issued by the Department of PublicEnterprises Government of India.

Acknowledgement:

In these trying times I gratefully acknowledge the guidance and support extended bythe various Ministries particularly the Ministry of Steel under the Government of Indiaand State Government of Kerala. I would also like to thank all my colleagues on the Boardcustomers employees banks and Stakeholders of the Company for their confidence forbeing a pillar of support in helping to accomplish our shared aspirations and providingcontinued support in all our endeavors.

As always I am looking forward for your continued support and encouragement.

Sd/-

Vivek Agarwal

Chairman and Managing Director

Place: Palakkad Kerala

Date: 17th October 2013.