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Usha Ispat Ltd.

BSE: 500432 Sector: Metals & Mining
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Usha Ispat Ltd. (USHAISPAT) - Director Report

Company director report

USHA ISPAT LIMITED ANNUAL REPORT 2004-2005 DIRECTOR'S REPORT To our Shareholders Your Directors are pleased to present the Seventeenth Annual Report together with the Audited Statement of Accounts and the Auditors' Report of your Company for the Financial Year ended 31st March, 2005. FINANCIAL RESULTS: Rupees in Thousands Particulars 2004-2005 2003-2004 Total Income 1119486 1484119 Gross Profit/ (Loss) (34574) 180790 Less: Interest 376618 347140 Depreciation 132873 133953 Profit / (Loss) before tax (544065) (300303) Less: Extraordinary Items (Preoperative Exp. And Interest of Abandoned Projects) (38108) (42208) Interest on Suspended Projects - - Prior Period Adjustments 658 (942) Less: Provision for taxation - - Profit / (Loss) after taxation (581515) (343453) Add: Profit/(Loss) for the earlier years (13614600) (13271147) Profit / (Loss) available for appropriation (14196115) (13614600) General Reserve - - Debenture Redemption Reserve - - Balance carried to Balance Sheet (14196115) (13614600) DECLARATION OF DIVIDEND AND TRANSFER TO RESERVES: In view of losses being suffered by the Company, the Board of Directors do not recommend any dividend and nothing is proposed to carry to any reserves in the Balance Sheet. The company during the year has recognised Rs.316800/- as deferred income and adjusted the amount of Rs. 316800/- from the Government Grants received by the company in the previous years under the head Capital Reserves as per Accounting Standard - 12. BUSINESS OPERATIONS OVERVIEW AND OUTLOOK: The Board of Industrial and Financial Reconstruction (BIFR) vide its order dated 29th December, 2003 had rejected both the references made by the company registered with BIFR viz. first reference filed with the BIFR in September, 2001 and registered with the BIFR as Case No. 409/2001 and second reference filed with the BIFR in September, 2002 and registered with the BIFR as Case No. 75012002. The Company has filed appeals against rejection order passed by BIFR with the Appellate Authority for Industrial and Financial Reconstruction, New Delhi (AAIFR). The first appeal registered as Case no. 34/04 dated 20.02.2004 against rejection of our first reference registered with BIFR as Case No 409/2001 and same has been admitted by the AAIFR vide its order dated 25th May, 2005. The second appeal has also been registered by the AAIFR as Case No 46/04 dated 01.03.2004 against rejection of our second reference registered with BIFR as Case No. 750/2002 and the same is pending. The Company has filed reference applications based on Audited Accounts for the financial year ended on 31st March, 2003 and 31st March, 2004 since the earlier references filed by the company based on its audited accounts as on 31st March, 2001 and 31st March, 2002 were rejected by the BIFR vide their orders dated 29th December, 2003. The references have been registered by the BIFR as Case No. 149/2004 vide weir letter no. F3 (U-1) BC/2004 dated 12.03.2004 and Case No. 330/2004 vide their letter no. F3 (U-5) BC/2004 dated 04.11.2004. The sickness had set-in the operations of the Company in the financial year 2000-2001, when in June, 2001, the Financial / Investment Institutions, viz. IDBI and LIC of India cancelled the sanctioned loans and recalled the loans obtained by the Company for the Sinter project at Redi (Sinter) and Integrated Steel Plant project at Satarda (ISP), consequent to which these projects were abandoned. Subsequently, the General Insurance Corporation of India, IFCI Limited, Sumitomo Mitsubishi Bank Corporation Limited, New India Assurance Company, United India Assurance Company Limited and Oriental Insurance Company Limited have also recalled their loans. Both the appeals filed with AAIFR along with the third and fourth reference of the Company filed with the BIFR are still pending and Company is just awaiting the decision of BIFR which will be discussed with the Financial Institutions for further course of action. The debt profile of the company is about Rs.1000 crore (only Principal). A joint meeting of secured creditors of the Company was held us on 5th May, 2005. The meeting was attended by the representatives of SASF (IDBI), IFCI, UTI, GIC, LIC, OIC, Standard Chartered Bank, United Western Bank Ltd., who constitute almost the whole of the Debt profile of the company. In the meeting it was decided that action should be taken against the company under SARFAESI and the transfer of account of Usha Ispat Limited to Stressed Assets Stabilization Fund (SASF), a trust formed with the object of acquiring by transfer the stressed assets of IDBI Limited. Accordingly, it was decided to (i) identify a custodian/ manager for take over the unit who would run the unit (ii) Get a valuation of assets (iii) Obtain consent from all the lender for initiating the action under SARFAESI (iv) take over the assets and hand it over to the custodian / manager who would run the unit if a buyer is not identified Till now no further action has been taken / initiated by lending institution except visit of some prospective buyers from the steel industry, sent by lending institution. The lenders are, also, in favour of reviving the unit by taking it over and handing it to a party who would be running the unit continuouly. In an attempt to improve the operational bottom-line, the coke-oven unit of the Company was made functional on contract basis. The coke produced being cheaper than the imported coke has given better margins to the Company besides reducing the dependability on the imported coke for running one blast furnace. During the year the production at plant was resumed of the only operational furnace out of the three furnaces w.e.f. 11th August. 2004 which was closed due to shutdown for acute shortage of raw material. The Company has approached the Maharashtra Government to seek its aid in the matter of the exemption of its sales tax liability. The Company was enjoying a ten year Sales Tax holiday, upto the limit of Rs. 106.74 crores which ended on 31st May, 2003. Whereas the time period of the exemption has been expired, the Company could not achieve its anticipated production levels and capacities, the value of exemption is still unutilized to the extent of 60%. On these basis the company has requested the state government to review the period of exemption and a favourable response is expected in the matter. In the current Financial Year, sales tax demands to the tune of Rs. 323427 thousand have been raised by the Sales Tax authorities, Kolhapur disallowing exemption on some of the products of the company, which are being contested. MATERIAL CHANGES AND COMMITMENTS IF ANY EFFECTING THE FINANCIAL POSITION OF THE COMPANY WHICH HAVE OCCURRED BETWEEN THE END OF THE FINANCIAL YEAR OF THE COMPANY TO WHICH THE BALANCE SHEET RELATES AND THE DATE OF REPORT: The Production at plant had been closed due to shutdown w.e.f. 31st July. 2005 of the only operational furnace out of the three furnaces due to shortage of raw material, paucity of funds and bad market conditions of pig iron. During the month of April, 05 the company has received a demand notice of Rs. 49361 thousands, from Commissionerate of Central Excise & Customs, Goa. on account of non fulfillment of export obligation towards import of coke against advance license. The company has filed an appeal against the said demand before The Custom, Excise and Service Tax Appellate Tribunal, Mumbai. FINANCE: The Company's main banker United Western Bank Ltd provided the working capital facilities to the Company. In pursuance of the terms of the arrangement with the Banker, the company has to make a payment of Rs. 30 lacs P.M. to the banker. Your company has fulfilled its obligation under the contractual arrangement and an amount of Rs. 36139 thousand in the current financial year has been paid to the Bank. DIRECTORS: Dr. Rajesh Kumar Gupta, Director, retires by rotation at the ensuing Annual General Meeting and has expressed his unwillingness to be reappointed. The Board has decided that the vacancy caused by his retirement shall not be filled. A notice in writing has been received from Mr. Gopal Kishan Garg, under Section 257 of the Companies Act, 1956, signifying her intention for the candidature for the office of Director of the Company. It would therefore be in the interests of the Company that the Board of Directors should avail the benefit of his experience and expertise. Brief resume relating to director who is proposed to be appointed has been given in the explanatory statement to the notice of the ensuing Annual General Meeting. DIRECTOR'S RESPONSIBILITY STATEMENT: Pursuant to the requirement under Sub-section (2AA) of Section 217 of the Companies Act, 1956 with respect to the Directors' Responsibility Statement, it is hereby confirmed That in preparation of the annual accounts for the financial year ended 31.03.2005, the applicable accounting standards have been followed along with proper explanations relating to material departures. That the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company Al the end of financial year and of the profit/loss of the Company for the year under report. Material departures have been properly explained by the directors in this report elsewhere. That the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and by preventing and detecting fraud and other irregularities. That the Directors had prepared the accounts for the financial year ended 31 03.2005 on a 'going concern basis'. AUDIT COMMITTEE: The Audit Committee of Directors constituted by the Board of Directors in terms of the provisions of Section 292A of the Companies Act, 1956, and the Listing Agreement presently comprises of Dr. Rajesh Kumar Gupta, Mr. Ashok Kumar Gupta, Mrs. Shraddha S. Wadkar, Directors as its members and Mr. S. C. Gupta, Wholetime Director also attends the committee meetings. CORPORATE GOVERNANCE: A separate report on the Corporate Governance is appended elsewhere as a part of the Annual Report. STOCK OPTIONS TO THE EMPLOYEES OF THE COMPANY: An ESOS for the employees was introduced during the year 2000. A total of 1460260 stock options have been granted to the eligible employees and directors of the Company on 29-04-2000 and each option is convertible into one equity share. It may be informed here that the company has not received application from any option holder so far for exercise of the option of converting the options into shares of the Company PARTICULARS OF EMPLOYEES UNDER SECTION 217(2A) OF THE COMPANIES ACT, 1956: There were no employees in the Company during the year covered under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975. None of the employees is related to any of the Directors of the Company. DEPOSITS: The schemes for accepting deposits from public and shareholders were discontinued from 10th November, 1997. The deposits received before such discontinuation of the schemes have been repaid on their maturity. The deposits matured but not yet claimed was Rs.7,820/- (maturity value) on 31st March, 2005. The Company has reminded the deposit holder to claim his deposit and surrender the FDR, but Of no avail. This has been intimated to the Registrar of Companies, Pune vide Company's letter dated 15th March, 2004. DEPOSITORY SYSTEM: The Company's shares are admitted to the Central Depository Services (India) Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) for dematerialization. This enables you to hold your share in dematerialized form. Your Company's share is in the compulsory denial list for trading for all investors as per the SEBI directives. M/s Abhipra Capital Limited. New Delhi are the Common Share Transfer Agents of the Company for the security related matters of the Company in both physical and dematerialized forms. LISTING AGREEMENT: The Company's Shares are listed on the Mumbai and Delhi Stock Exchanges. The Company has paid listing fee to the Mumbai Stock Exchange up to 31.03.2000 and Delhi Stock Exchange up to 31.03.1999. The trading of shares of the Company continued to remain suspended during the financial year under report on both stock exchanges. PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO: Information pursuant to Section 217(1)(e) of the Companies Act, 1956 read with Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is annexed and forms part of this report. AUDITORS' REPORT: With regard to Auditor's observation regarding to balance confirmations and reconciliation it is to state that amount outstanding is as per terms of agreements executed with the lenders except for the non provision of interest on loans for abandoned/ suspended projects for which explanation has been given in para below and non receipt of party balances. Due to non provision of interest on loans for suspended/ abandoned projects, auditor's has observed that financial statements do not give a true and fair view. The said interest provision has not been provided in view of total erosion of company's net worth and pending references/ appeals with BIFR/ AAIFR. Physical verification of fixed assets of abandoned/suspended projects has not been done because there is no activity at these projects. Delay in payments/ non payment of dues to financial institutions, banks and the mutual funds was due to the financial sickness of the company. Delay in payments of statutory dues was due to the financial sickness of the company. However the same has been deposited alongwith interest and nothing is outstanding as arrears for the financial year 2004-05 The appointment of the debenture trustee for 145543, 16% Secured Redeemable Non Convertible Debentures is pending till the decision of cases with BIFR/ AAIFR. The Boards views on other Auditors' observations have been detailed in Schedule P i.e. Significant Accounting Policies and Notes to the Accounts and are self explanatory. AUDITORS: M/s. Barisal & Co., Chartered Accountants, Auditors of the Company shall retire at the conclusion of the ensuing Annual General Meeting of the Company and being eligible offer themselves for re-appointment. The Company has received certificate from the retiring Auditors to the effect that their appointment, if made, will be within the permissible limits specified under Section 224 (1B) of the Companies Act, 1956. INTERNAL CONTROL SYSTEM: The Company's internal control system comprises audit and compliance by independent professionals The company had appointed M/s S V Modak & Co., Chartered Accountants. as the internal auditors of the company from 1st April, 2004 to 31st March. 2005 The internal auditors independently evaluate the adequacy of internal controls and concurrently audit the majority of the transactions in value terms Independence of audit and compliance is ensured by the direct reporting of the internal auditors to the management. MANAGEMENT DISCUSSION AND ANALYSIS: A detailed section of the Management Discussion and Analysis forms part of the Director's Report. APPRECIATION: Your Directors wish to acknowledge and thank the Central and State Governments for their support and guidance. Your Directors wish to place on record their deep appreciation of the continued support of shareholder, debenture holders, warrant holders and the devoted services rendered by the executives., staff and workers of the Company at all levels. Your Directors also acknowledge with gratitude the co-operation and assistance given by the Financial Institutions. Mutual Funds, Banks and Business Constituents. For and on Behalf of the Board S. C. Gupta S. A. Bhat Wholetime Director Wholetime Director Place : Redi (Maharashtra) Date : 30th July, 2005 ADDENDUM TO DIRECTORS' REPORT: (IN COMPLIANCE TO SECTION 217(1)(e) OF THE COMPANIES ACT,1956) A. CONSERVATION OF ENERGY: a. Energy conservation measures taken: Financial year 2004-2005 witnessed in the recent past one of the worst ore crisis. Ore prices sky rocketed and it became practically impossible to get Mini Blast Furnace grade good reduceable Iron ore. Hence we had to resort to inferior grade less reduceable ores leading to higher coke consumption rate. However utmost care was taken to re-process the available Iron ore to make it usable in our blast furnaces. The right sizing exercise of ore has yielded better result. b. Additional investment and proposals, if any, being implemented for reduction of consumption of energy: None c. Impact of the measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods: Cost of production reduced by approximately Its 125/- per ton d. Total energy consumption and energy consumption per unit: As per Form A B. TECHNOLOGY ABSORPTION: e. Efforts made in technology absorption: (i) A coal feed conveyor is installed at coke oven to bring down the handling cost of coal. (ii) Major revamping of coke pusher car is done at coke oven to improve the coke oven operation. (iii) Coke & coal cutter major overhauling for improving the efficiency. (iv) Yard screening of Iron ore to improve the BF efficiency. (v) Rain water harvesting to overcome water crisis, (vi) Pig casting machine metal runner modification for better pig yield (vii) Maximum demand (MD) reduction from 3 MW to 2 MW to reduce the power cost. (viii) Unity power factor maintained. C. FOREIGN EXCHANGE EARNING AND OUTGO: f. Activities relating to exports; initiatives taken to increase exports; development of new export markets for products and services and export plans: Nil g. Total foreign exchange earned and used: Earned Rs. : NIL Used Rs. : 247480.00 FORM A (See Rule 2) Form for disclosure of particulars with respect to Conservation of Energy: A. Power and fuel consumption: 1. Electricity : Current year Previous year (a) Purchased units 1066890 441990 Total amount (Rs.) 7128218 7561155 Rate/Unit 6.68 17.11 (b) Own generation: I) Through diesel generators - - Units - - Units per Ltr. of diesel oil - - Cost/Unit - - II) Through steam turbine generators Units 4913400 10677000 Units per Ltr. of fuel/gas 18.68 22.24 Cost/Unit 2.76 1.79 2. Furnace Oil Quantity (K. Ltrs) 263 480 Total amount (Rs.) 3096214 5918400 Average rate 11.77 12.33 B. Consumption per unit of production Products Standards Current year Previous Year (if any) Pig Iron M.T 54205.000 106898.000 Electricity Units 110.33 104.01 Furnace Oil Ltrs 4.85 4.49 MANAGEMENT DISCUSSION AND ANALYSIS REPORT: AN OVERVIEW OF STEEL SECTOR: Global Scenario: As a result of the economic developments IISI had projected an increase by 6.2% or 53 million metric tonnes in 2004 in the global consumption of finished steel products. IISI has split the growth into two separate areas, China and the Rest of the World (ROW). Steel consumption in China has been estimated to increase by 13.1% or 31 mmt in 2004. Market Scenario: Apparent consumption of finished carbon steel increased from 14.84 Million Tonnes in 1991-92 to 33.370 million tonnes in 2004-05. China has been an important export destination for Indian steel. The steel industry is buoyant due to strong growth in demand particularly by the demand for steel in China.Pig Iron production in 2004-05 was 3.171 Million Tonnes (Prov). (Source: Joint Plant Committee) Exports of Iron & Steel Iron & Steel are freely exportable. Advance Licensing Scheme allows duty free import of raw materials for exports. Duty Entitlement Pass Book Scheme (DEPB) introduced to facilitate exports. Under this scheme exporters on the basis of notified entitlement rates, are granted due credits which would entitle them to import duty free goods. The DEPB scheme was temporarily suspended from 27th March 2004 to 12 July, 2004 for export of steel items. The-Scheme has since been restarted. The DEPB rates have also been substantially reduced. Duties & Levies on Iron & Steel: Customs Duty: The customs duty on items falling under Chapter 72 has been reduced sharply during the last five years The customs duty on non-alloy steel and alloy steel was brought down to the level of 5% and 15% respectively in 2004-05. In the Union Budget 2005-06 customs duty on alloy steel has been further brought down to 10%. Currently the customs duty on prime non-alloy steel and prime alloy steel is 5% and 10% respectively. The peak rate of customs duty on Chapter 72 items was brought down from 40% to 20% w.e.f. 1.1.2005, as a result the customs duty on seconds and defectives also stands reduced from 40% to 20%. Some of the other changes made during the last one year in the structure of customs duty on items falling under Chapter 72 are as follows: i. Customs duty on melting scrap reduced from 5% to Zero. ii. Customs duty on ships for breaking reduced from 15% to 5%. iii. Customs duty on steel making raw materials like non coking coal, metcoke and charged nickel have been reduced to 5%. Excise Duty: The excise duty on all iron and steel items falling under Chapter 72 has been increased from 12% to 16% in the Union Budget 2005-06. Opportunities for growth of Iron and Steel in Private Sector: (i) The New Industrial Policy Regime: The New Industrial policy has opened up the iron and steel sector for private investment by (a) removing it from the list of industries reserved for public sector and (b) exempting it from compulsory licensing. Imports of foreign technology as well as foreign direct investment are freely permitted up to certain limits under an automatic route. Ministry of Steel plays the role of facilitator, providing broad directions and assistance to new and existing. steel plants, in the liberalized scenario. ii) Pig Iron: In pig iron also, the growth has been substantial. Prior to 1991, there was only one unit in the secondary sector. Post liberalization, the AIFIs have sanctioned 21 new projects with a total capacity of approx 3.9 million tonnes. Of these, 16 units have already been commissioned. The production of pig iron has also increased from 1.6 million tonnes in 1991-92 to 5.28 million tonnes in 2002-03. During the year 2003-04, the production of Pig Iron was 5.221 million tonnes Profitability of players to increase in 2004-05: Higher price realizations and increased volumes led to healthy operating profits and an improvement in the margins of domestic steel manufacturers. Restructuring and repayment of debt, with better accruals, led to a reduction in interest costs and, consequently. higher net margins. In the first 7 months of 2004-05, apparent consumption of steel increased by around 6 per cent, compared to the previous year. The domestic demand for steel is expected to be 7-8 per cent in 2005-06. The demand for steel in the domestic markets will be driven by sectors like automobiles. construction and tubes and pipes. The domestic demand-supply balance is expected to remain favorable with operating rates continuing to remain high. Growth in domestic prices was curtailed due to stiff user resistance and an unfavourable government stance with respect to frequent price hikes, resulting in weakening linkage between domestic and international prices. The industry's operating profit margins will come under pressure in 2005- 06, due to the sharp increase in the cost of raw materials, mainly iron ore and coking coal, while the cost of sponge iron, coke and scrap will remain at high levels. Your Company is primarily engaged in the production of industrial intermediaries. The companies main business is production of pig iron During the the financial year 2004-2005 witnessed scarcity of raw materials and other inputs along with increase in prices of raw materials and other inputs. Despite plant having been to be shut down upto 10th August, 2004 due to the said reasons. Because of its constant efforts at improving operational efficiencies, Usha Ispat Ltd was able to contain the impact of the adverse raw material price hikes and softening end product prices. The highlights of Usha [spat Ltd. financial performance in 2004-2005 are: The Turnover during the year was Rs. 1119485 thousands (for apporx Eight Months) compared to last year (Full year) Rs 1438690 thousands The loss during the year under review is Rs. 544065 Thousand as against a loss of Rs. 300303 Thousand during the previous year. The total loss suffered by the company as on 31st March 2005 is Rs 14196115 thousand. The production during the year under review along with previous years figures are given below: Class of Goods Unit Production Production Current Year Previous Year Pig Iron M.T. 54205.000 106898.000 Power KWH 4913400 10677000.00 Coke M.T. 30623.046 51354.945 During the year under review the prices of iron ore went up sharply However, your company could negotiate a higher increase from many of its suppliers. During the year, the average price of coke was quite high owing to nigher international price. The international price of coke was abnormally high at the beginning of the Financial Year mainly due to lower exports from China. The cost of transportation continued to remain high because of poor availability of railway rakes and high road transport charges On the cost front, there was an increase in the diesel prices, higher wages & salaries owing to new wage settlement signed during the year and cost of ore purchased due to prevalent market situation. While many of the coke producers faced uncertainty as to supply of coal owing to buoyant steel production, your company was also affected with the same problem in getting the scheduled shipments. OUTLOOK: The demand for raw materials required for production of steel continues to be very strong. As a result, the international price of both iron ore and coal have registered an unprecedented increase during the current year 71.5% for iron ore and 120% for coal on FOB basis. In spite of various measures adopted by the Chinese authorities to cool down the pace of growth of its economy, the production of steel in China is still growing at a phenomenal rate. The Indian economy is also growing at a rate of around 7% while the growth of manufacturing sector is even higher. Indian steel production is also planned to be almost doubled from its current capacity to more than 60 million tonnes in the course of next 6 to 7 years. In view of the above, your company does not foresee any let up in demand for iron ore in the medium term. However, there are reports of new capacities coming on stream, if they materialize, will definitely create a supply side pressure and consequently, the iron ore price is likely to come down from the current unprecedented level. Pig Iron Business: Engineering, automobile and infrastructure sectors in the Indian economy are the drivers of growth for the pig iron business. The industry has undergone a metamorphosis since the liberalization. In the past, integrated steel mills mainly supplied pig iron. However, after liberalization, secondary sector capacities I-ave increased substantially to cater to the large requirements in the domestic market and even export to niche markets. The major raw materials used for manufacturing pig iron are iron ore and coke. Both together constitute about 80-85% of the cost of production Iron ore is procured locally. Coke is either imported or procured from domestic producers. The demand supply gap this year, has resulted in decrease in pig iron prices on the other hand hike in the cost of its main raw materials, viz. coke and iron ore had adverse effect on the bottom-line. Though the global coke market passed through a turbulent phase, the company is assured of coke supply intra-group. The productivity level of the blast furnace continues to remain at optimum level. Therefore, the company is confident of maintaining its market share. OPPORTUNITIES AND THREATS: The expected increase in per capita consumption of steel in India shall provide a good opportunity for the company. The increase in steel production will improve the demand for metallic like pig iron. Moreover, with the automobile and engineering sectors likely to grow at 10% and 5% respectively during the current year, the demand for pig iron from the foundry industry is likely to grow further. On the other hand, the increased pig iron capacities which may result in temporary over-supply situation in the industry, Technological changes, Cheaper substitute of steel, Use of more scrap, Delay in forward integration projects to manufacture steel are the major threats to the company. PRODUCT ANALYSIS: Pig Iron Business: The Company produces Basic and Foundry Grade pig iron for the Steel Mills and foundries. Various grades manufactured by the company, have been accepted by the customers for consistency in quality and deliveries, resulting in a strong customer base over a long period of time. OUTLOOK: Pig iron consumption, in India, is expected to grow moderately at the rate of 5-6%. The expected high growth rate in the automobile sector will increase the demand by about 10%. Moreover, with reasonably good monsoon, demand in the agricultural sector for tractors and pumps will further improve the demand. Pig iron growth is likely to rise further with increase in investment in India in the engineering and machinery sector. On the other hand, the pig iron market being a volatile market and also a seasonal one, it faces competition from other competing materials like scrap, and sponge iron. The Production cost of pig iron is under severe pressure owing to increase in iron ore price and transportation cost. RISKS AND CONCERNS: The product of the company i.e. pig iron continues to suffer from over/ increasing capacities and moderate demand of the product. Product is also effected by: 1. Technological Obsolescence 2. Increased cost of Raw Materials 3. Intense competition 4. Increased cost of Logistics The company has no control on the external factors which are adverse to the companies operations. However, risk factors are taken into consideration while evolving business plans and they are continuously monitored by the management. FINANCIAL / OPERATIONAL PERFORMANCE: The gross turnover of the company during the year is Rs. 1119485 thousands as against previous year turnover of Rs. 1438690 Thousand. The decrease in turnover is due to shut down of plant during the year. The higher cost of coke and iron ore during the year, which are major raw materials for manufacture of pig iron, had checked the growth in profit during the year under review. While the price of coke appears to have stabilized to a more reasonable level, the high cost of iron ore would continue to put its bottom line under pressure during the year. INTERNAL CONTROL SYSTEM: Usha Ispat Limited has appointed M/s S V Modak & Company, Chartered Accountants, as the internal auditors of the company from 1st April 2004 to 31st March, 2005, in order to ensure better internal control and a professional view on the affairs of the company The internal control systems designed by internal auditors ensure that the financial and other records are reliable for preparing financial statements and other data and for maintaining accountability of assets There are well- established procedures for internal control at various levels of the company. The internal auditors are reporting independently to the top management to ensure that all assets are safeguarded, and protected against loss from unauthorized use or disposition and that all transactions are authorized, recorded, and reported correctly. HUMAN RESOURCES & INDUSTRIAL RELATIONS: Employee relations continued to be cordial and harmonious rooted in the philosophy of bilateralism. Appox. 560 people were employed in the company as on the date of the report. CAUTIONARY STATEMENT: Statements and opinions in the Management Discussion and Analysis Report given to the shareholders reflects the Company's assessment and perception of the situation and reports and other publications of various agencies. The Board of Directors do not in any way guarantee to their accuracy or correctness and that it may differ materially with the change in the Government regulations, policies and other related factors. For and on Behalf of the Board S. C. Gupta S. A. Bhat Wholetime Director Wholetime Director Place : Redi (Maharashtra) Date : 30th July,2005