Chairman's Address-2006

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Towards a Glorious Future
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Towards a Glorious Future

Dear shareholders,
Chairman's Address 2006It gives me great pleasure to address you on the 34th Annual General Meeting of your company. This is my first opportunity to speak to you after taking over as Chairman, SAIL. With your support, it will be my endevour to take our company forward to attain newer heights, and provide greater value to our stakeholders.

I am glad to inform that with sound foundation and supportive business outlook your company is set to consolidate its position further in the domestic steel sector. Our profit at Rs. 4,013 crore during 2005-06 was the second highest ever. In addition to already paid interim dividend of 12.5%, a final dividend of 7.5% has been recommended by the Board, taking the total dividend for 2005-06 to 20% of the paid-up equity. This will also be the company’s second highest dividend payout.

Continuing its record breaking performance, your company set new peaks in production, sales, and operating efficiency parameters. Our saleable steel capacity utilisation touched 109%, providing confidence to embark on our expansion plan in line with the growth opportunities offered by the expanding domestic market.

Business Outlook
The Indian economy is set on a high growth path. During the last three years the economy registered an average GDP growth rate of more than 8%. For the current year also the growth is expected to be of similar level, placing India amongst the fastest growing economies in the world. 

The rate of growth of construction has been in double digits since 2003-04 while manufacturing has been on the upswing since 2002-03, reaching a high of 9% growth during the last fiscal. There is a growing optimism that these growth trends experienced in recent times are sustainable, especially as the Indian industry has emerged fundamentally strong after restructuring itself in the wake of recessionary phase of the late Nineties.

Market for Steel
The upbeat mood of the Indian economy has been paralleled by the boom in the global steel industry. Experiencing a strong growth phase, world consumption of finished steel surpassed a billion tonnes – almost 25% higher than levels prevailing three years back. In the first seven months of the year 2006 too, world production of steel has grown at an impressive rate of 9%, a pointer to another good year for the steel industry.

India in recent years has been amongst the leading countries in the world with strong growth in production and consumption of steel. India’s production grew at an average of 10% per annum during the last three years, and the country is ranked 7th largest on the basis of current production in the world. Apparent consumption of finished steel grew at 10.8% last fiscal. In the current year as well similar growth is expected. 

In the next 10 to 15 years, we may witness unprecedented developments and opportunities for the steel industry. Growing need for infrastructure, urban development, renewed competitiveness of the industrial sector, likelihood of India emerging as a manufacturing hub, all beckon towards a new era. SAIL as the leading domestic steel company is ideally positioned to seize the emerging opportunities and acquire the scale of a global company. 

SAIL’s Growth Strategy 
Your company has embarked on a modernization and expansion plan by which our hot metal production is slated to increase to 23 million tonnes – an increase of nearly 60% compared to the existing levels. 

These expansion plans are not aimed at volume gains alone. There will be benefits by way of all round improvement in productivity levels covering all stages from captive mines up to rolling mills. Issues pertaining to elimination of technological gaps, energy savings, yield improvement, pollution control, matching infrastructure facilities etc. will be fully addressed. Wider product-mix with emphasis on value added products, improved product quality, enhancement in terms of grades and dimensions will be ensured with latest automation. 

In the IT initiatives, direction is towards integrating all the existing business systems by incorporating best practices. Your company will be introducing Enterprise Resource Planning, presently under implementation at Bhilai and Bokaro Steel Plants, across all the plants and units. In order to utilise the optimum benefits from ERP, Manufacturing. Execution System is also being envisaged which will lead to more efficient operations and lower cost.

Project Implementation 
In line with the growth strategy, SAIL already has projects worth Rs.18,500 crore in various stages of implementation. The major projects cleared in recent months include modernisation-cum-expansion of IISCO Steel Plant (ISP) at a cost of around Rs. 9,500 crore, steel melting and additional cold rolling facility at Salem Steel Plant at an approximate cost of Rs.1,550 crore, and a bar & rod mill at Durgapur Steel Plant (DSP) at a cost of around Rs. 740 crore.

Latest steel making and rolling technologies will be incorporated during the expansion of IISCO Steel Plant to raise product quality and process productivity to international standards. The proposed 7 lakh tonne per annum bar & rod mill at DSP, besides giving much-needed variety in the product-mix, will enhance the plant’s finished steel output from the present level of around 45% to over 75%. The other benefit will be in terms of substantial increase in production of SAIL’s branded product TMT bars required for general construction and infrastructure. 

Current Performance
We have started operations in the current financial year on a strong footing. Production and sales were best-ever in the first quarter. Turnover registered a 29% growth, and the profit after tax at Rs.1,386 crore was 23% higher over the same period last year. There was improvement in key operating efficiency parameters as well. Energy consumption was reduced to 7.22 giga calories per tonne of crude steel, blast furnace productivity rose to 1.48 tonnes/cubic metre/day, and continuous cast production grew by 7%. 

Your company has been active in the area of product development, and new applications. Special quality steel plates and bulb bars for naval warships which were earlier being imported have been successfully taken up for indigenous development, Long rail panels of 260-metre length were produced and supplied for the first time to the Indian Railways in 2005-06. Bhilai Steel Plant has also achieved major success in design and manufacture of web asymmetric rails, a profile made by only a few manufacturers in the world. You will be happy to know that your company has developed and supplied special quality plates for construction of a railway bridge on the Chenab river at the highest altitude in the world for any rail construction. 

In recognition of the pioneering contribution in design, development, and application of new special steels products, your company’s R&D Centre for Iron & Steel (RDCIS) won the ‘National Award for R&D efforts in Industry’ for the year 2005, instituted by the Department of Scientific and Industrial Research, Ministry of Science & Technology.

Human Resource Development
Your company has always believed in the importance of human resources and continues to work for its development. During 2005-06, HRD activities focused on multi-skill training, enhancement of managerial competencies, e-learning, rightsizing, restructuring of organisation, innovation and creativity, and all round enriching of the motivational climate. Labour productivity during the year improved by 12%. Following the example of Bhilai Steel Plant, all other plants and units are in the process of obtaining ISO 9001:2000 certifications for their HR functions. The thrust today is to fully prepare the human resource for new facilities and technologies envisaged under the growth plan. 

As a fitting tribute to skill and commitment of our workforce, forty-one SAIL employees were chosen for Government of India’s Vishwakarma Rashtriya Puraskar 2005. What is commendable is that out of 28 groups representing various industries from the private and public sectors, 10 groups from SAIL were selected for this prestigious award. 

While implementing Presidential Directives on scheduled castes & scheduled tribes, your company continues to work for the weaker section of the society by extending them and their families several benefits like scholarship for their children, exemption from payment of tuition fee, and peripheral development work in predominantly economically backward areas. 

Performance Recognition
The performance of your company has found recognition by way of a number of accolades. It is a matter of great honour that Bhilai Steel Plant won the Prime Minister’s Trophy consecutively for the years 2003-04 and 2004-05, being adjudged as the best performing integrated steel plant in the country. BSP has the unparalleled distinction of winning the PM’s Trophy seven out of thirteen times. 

SAIL has won the Gold Trophy of the prestigious ‘SCOPE Award for Excellence and Outstanding Contribution to the Public Sector Management’ for the year 2004-05. This was in addition to SCOPE’s ‘Meritorious Award for Environmental Excellence & Sustainable Development’ for 2004-05. 

Other awards during the year include ‘Indira Priyadarshini Vrikshamitra Award’ to the Rourkela Steel Plant by the Ministry of Environment & Forest, Govt. of India, in recognition of its afforestation activities, and the “National Award’ for the year 2005, to SAIL’s Management Training Institute, by Indian Society for Training and Development (ISTD) for innovative training practices. 

Business Development
The world over the trend in industry has been towards mergers and consolidation leading to greater value creation for stakeholders. IISCO’s merger with SAIL in February 2006 has provided added opportunity for synergy and growth. The process for merger of Neelanchal Ispat Nigam Ltd (NINL) and Maharashtra Electrosmelt Lts (MEL) with SAIL has also been initiated. Merger of NINL will follow after acquisition of its shares. Merger of MEL, a subsidiary of SAIL, will result in backward integration by way of manufacture of ferro-alloys, a key input for steel making. 

We are also at an advanced stage in the formation of a joint venture company for a cement plant which will use blast furnace slag of Bhilai Steel Plant as an input and will result in twin benefit of value addition as well as assured solid waste disposal. 

To gain security of iron ore, your company has plans to develop linkage with new iron ore mines in Chhattisgarh and Jharkhand. Supply of iron ore from the new mines will be crucial for attaining the production targets set in our growth plan. I am happy to inform you that Government of India has reserved ‘F’ deposit of Rowghat mines for Bhilai Steel Plant and we are moving positively towards obtaining statutory clearances. Linkage to Rowghat will take care of the Bhilai’s long-term iron ore requirement. 

To augment availability of indigenous coking coal, your company has entered into an MoU with Bharat Coking Coal Ltd for funding phase-1 upgradation of Moonidih mines by providing a soft loan. The entire output of about 5 lakh tonnes from the mine will be for earmarked for the use in SAIL plants. The future strategy for obtaining coking coal from domestic sources will be to develop larger productive coking coal mines so that the base material has a high level of homogeneity. 

Contributing to Society
Your company has been a pioneer in the area of Corporate Social Responsibility (CSR) since inception. We have already created large health and education infrastructure at our plants and mines locations for the benefit of communities beyond SAIL. Today your company directly operates 150 schools employing more than 6,000 teachers and providing education to 1.2 lakh children. The health infrastructure network comprising among others, 19 hospitals including 4 super- speciality hospitals, provide health care to over 2 million people every year.

We also continue to provide access to potable drinking water, support growth of ancillary industries and preserve the cultural heritage of the areas around the steel plants and other important places in the country. Our association as an inter-sectoral collaborator of National AIDS Control Organisation under the Ministry of Health and Family Welfare is also progressing well. Your company’s CSR efforts have been well recognized by several bodies. Confederation of Indian Industry (CII) conferred its first ‘Sustainability Award’ to Bhilai Steel Plant in the independent unit category, for excellence in social, economic and environmental performance. 

I, on behalf of SAIL collective and my colleagues on the SAIL Board, acknowledge the support extended by the esteemed shareholders of the company. We look forward to your continued support. We are also thankful to our stakeholders, Ministry of Steel, Government of India, State Governments, and other organisations and institutions. Employees being our biggest asset, SAIL owes a great deal to them for achieving excellence in performance. 

I am confident that with focused efforts in areas of cost competitiveness and quality improvement, solid financial foundation, and above all with skilled, committed, and experienced human resource, your company is on its way to a glorious future. 

Thank you, 

22nd September, 2006 New Delhi

(S.K. Roongta) , Chairman

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