Chairman's Address 2010

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Nation's Pride SAIL, a Maharatna Company
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Nation's Pride SAIL, a Maharatna Company.

Dear Shareholders,

It is my proud privilege to welcome you to the 38th Annual General Meeting of your company. My maiden address to you is of special significance to me, since your company has recently been accorded the status of a ‘Maharatna’ by the Government. Achievement of this distinction is a reflection of your company’s consistent good performance and stellar progress made over the years. Undoubtedly, concerted efforts made by many visionary leaders in the past have helped in shaping the fortunes of the company and I feel humbled by the enormous responsibility that has been entrusted upon me now to carry their legacy forward.  It is my goal to build on our many achievements so far, to ensure that SAIL continues on its growth path with determination and vigour.

Global Outlook

In the aftermath of the global financial crisis in 2008, negative growth continued from the 4th quarter of 2008 to 3rd quarter of 2009. Production cuts over this period led to 58% capacity utilization. Financial stimulus packages declared by different countries facilitated production from 4th quarter of 2009 and the growth rate rebounded to pre crisis level of over 6% per annum. Present utilization of capacity is around 80%. De stocking has also taken place. Production growth at around 25% in the first seven months is robust in 2010. World Steel Association (WSA) in its latest demand forecast has projected a growth in consumption of ‘Finished Steel’ by 10.7% and 5.3% in 2011 & 2012. While advanced economies are expected to grow by 2.6% in 2010, emerging & developing economies are expected to grow at 6%. China & India are slated to be the major drivers of ‘Growth’ in the consumption of steel.

Indian Prospects

In India, the outlook appears to be positive. As compared to a GDP growth of 6.7% in 2008-09, the revised estimate for 2009-10 projects a growth of 7.4%. This has been possible due to higher growth of 10.4% in the Index of Industrial Production in 2009-10 as compared to 2.8% in 2008-09 and also due to higher demand for capital goods and consumer durables to the tune of 19.2% and 26%, respectively. There is a degree of optimism regarding the performance of the Indian economy. The International Monetary Fund (IMF) has projected a growth of 9.4% for 2010 and 8.4% for 2011 for India.

The apparent consumption of finished carbon steel in India at 53 million tonnes in 2009-10 registered a growth of 7.8% over the previous year. The overall saleable carbon steel production during 2010 was 56.8 million tonnes. WSA has projected a growth of more than 13% for India during 2010 and 2011, with overall consumption reaching 72 million tonnes by 2011. In fact, it is expected that India will emerge as one of the highest steel consuming countries during the next decade, touching the level of 150 million tonnes by 2020. This assumes a growth rate of 9% in consumption, which can well be achieved considering the strong growth trend that is already emerging from steel-consuming sectors like machinery & equipment manufacturing and automobiles. Demand from the construction sector is also rising, mainly due to growing infrastructure-related projects in the power sector, including power transmission, highways, airports, ports and industrial construction. Besides, growth is expected in individual housing and small and medium commercial construction. The projected investment in infrastructure, encompassing all these sectors, in the 11th Five – year plan (2007-12) at 20,54,205 crore  is 9% of GDP as against 5% of GDP in the 10th Five year plan. Approximately, 125 MT (million tonnes) of steel will be needed to achieve these investments in infrastructure in 11th Five- year plan.

Performance of Your Company

Despite the fact that the year 2009-10 began with uncertainty due to market slowdown in the previous year, production of 12.6 million tonnes of saleable steel by SAIL during the year was higher than that of the previous year. Production of hot metal at 14.5 million tonnes and crude steel at 13.5 million tonnes achieved was at 105% of rated capacity each. SAIL plants achieved the highest-ever continuous cast production of 9.1 million tonnes – a growth of 3% over the last year. Product-mix was further improved during the year with highest-ever special quality and value-added products at 4.63 million tonnes – a growth of 24% over the previous year. Esteemed shareholders, you will be glad to know that your company is now producing almost 100% of TMT in special earthquake resistant (EQR) grade to make quality steel available for the infrastructure segment.

During 2009-10, the SAIL plants improved operational efficiency in major techno-economic parameters by achieving best-ever coke rate at 517 kg/thm; highest-ever BF productivity of 1.57 tonnes/m3/day; highest-ever converter lining life at 11,036 blows in a converter at Bhilai Steel Plant; best-ever Coal Dust Injection (CDI) rate; highest-ever power generation at 568 MW; and the best ever specific energy consumption at 6.72 Gcal/tcs. During the year, all the five integrated steel plants recorded their best-ever labour productivity with average productivity of 226 tonnes/man/year.

Though the company’s turnover of 43,935 crore during the year was lower as compared to the previous year, your company recorded the second best profit before tax of 10,132 crore since inception. This could be possible due to higher saleable steel production and sales volume, improved production of value-added products, improvement in techno-economic parameters and optimum utilisation of funds. The company had liquid assets of 22,023 crore as on 31st March, 2010 invested in short-term deposits with scheduled banks. Considering borrowings of 16,511 crore, the company maintained its virtual debt-free status. The debt-equity ratio of the company was 0.5:1 as on 31st March, 2010. The SAIL Board has recommended a final dividend of 17% on paid-up equity, apart from an interim dividend of 16% already paid earlier this year, taking the total dividend to 33%.

You will be glad to know that as a result of concerted and collective action, SAIL emerged as the second highest net profit earning company amongst all steel companies of the world during the calendar year 2009. In January, 2010, SAIL’s overall ranking was second in the list of ‘World-Class Steelmaker Rankings’ by World Steel Dynamics, a leading steel information services provider.

FPO & Disinvestment

Dear Shareholders, I take this opportunity to inform you that the Government has approved 10% Further Public Offer (FPO) of shares by SAIL and offer for sale (disinvestment) of 10% of the Government’s holding in the company in two discrete tranches. The total issue in two equal tranches will comprise fresh issue of 41.3 crore shares and disinvestment by the Government of its holding in SAIL of equivalent amount. Each tranche will consist of 5% (i.e. 20.65 crore shares) of FPO and 5% of disinvestment of Government’s shareholding in SAIL. The offers are to be issued at appropriate times in consideration of SEBI guidelines and prevailing market conditions. The first tranche is likely to hit the market during 2010-11, subject to Government and regulatory approvals.

Growth Plan

When the economy is booming, growth comes easy. It is definitely not a cause for concern. However, to move up the performance ladder, we will need to have an added edge over our competitors. That edge will  come from innovation, and our continued endeavours to look for new growth segments and at the same time strengthening our existing portfolio.

The emerging demand scenario in the country will bring in suitable strategic responses from other domestic steel producers and also strengthen the resolve of global players to partake a slice of the domestic market. In order to retain the market leadership position in the country and maintain competitiveness, your company is currently implementing a growth plan to enhance its production capacity in a phased manner. Under the ongoing phase of the modernisation & expansion plan, hot metal production capacity will get expanded to 23.46 million tonnes by 2012-13. The growth plan, besides targeting higher production, also addresses the need for cost competitiveness by eliminating technological obsolescence, achieving energy savings, enriching product-mix, reducing pollution, developing mines and collieries, introducing customer centric processes and developing matching infrastructure facilities.

To meet future challenges, SAIL is working on a long-term strategic plan ‘Lakshya 2020’, with the objective of achieving hot metal production capacity of 60 million tonnes by 2020 and a market share of 30%. This will steer the company towards meeting its strategic objectives of achieving profitability through growth and customer satisfaction.

Cumulative approval of about 48,000 crore has been accorded by the SAIL Board for the modernisation & expansion plan till date. During the year 2009-10, capital expenditure of  10,606 crore has been incurred and for 2010-11, an outlay of 12,254 crore has been planned mainly for various modernization & expansion schemes. Commissioning of the new steel making facilities that have come up at Salem Steel Plant as part of the plan is expected shortly. In the integrated steel plants, execution of various packages is in progress. We expect that the new facilities at IISCO Steel Plant will be commissioned in 2011.

Power

One of the key inputs to maintain the rhythm of operations of steel plants is electric power. Power also constitutes a major and critical input in maintaining the cost competitiveness of a steel plant. The power requirement of SAIL is expected to grow to around 1900 MW by 2012 -13 from the current level of about 1180 MW. By 2020 the average load of steel plants including the power requirement of mines is likely to grow to about 4600 MW. Your company has made plans to meet this power demand by setting up additional incremental power generation capacity of 1725 MW in the first stage and the balance in the second stage.

As a responsible corporate citizen, your company is making forays into green energy. SAIL has decided to set up solar power plants in its steel plants in a phased manner and is also looking at opportunities in wind energy. This is likely to reduce carbon footprint of the company in a substantial way and help SAIL to reap additional benefits through ‘Clean Development Mechanism’ (CDM).

Short-Term Outlook

Focusing on its fundamentals, including the expansion plan, your company has been growing from strength to strength. However, several concerns, some of them quite critical in nature, continue to hover in our horizon. First and foremost is the continuing trend of rising input costs. With few indigenous sources of the required quality and quantity of coking coal, your company has to depend on imports of higher volumes every year to maintain production targets. Prices of imported coking coal have been volatile in recent times, putting pressure on our margins. Though some improvement is expected in coming quarters, it is expected that fluctuations will continue on this account. To offset the rise in cost of inputs, which also includes manpower, fuel, power, minerals, etc., we have laid a thrust on improving productivity across the organization, encompassing people as well as production facilities and processes.

Raw Material Security

Your company has been fulfilling the requirement of iron ore of its steel plants from its captive mines. Post-modernisation & expansion, the iron ore requirement is estimated to go upto about 43 million tonnes. To meet this challenge, besides augmenting production from the existing mines, your company is vigorously pursuing with the state government of Jharkhand for early renewal of leases of Chiria and Gua Mines. The Chhattisgarh government is being approached for speedy development of Rowghat Mine. In order to meet the requirement of other raw materials like coking coal, low-silica limestone and dolomite, the company is trying to enhance raw material  security by exploring input assets acquisition on its own and also through its JV companies.

For securing raw material supplies, your company has co-promoted International Coal Ventures Private Limited (ICVL) with CIL, RINL, NMDC and NTPC for the purpose of acquisition of coal assets in overseas territories. ICVL is currently actively examining proposals for acquisition of equity stakes in coal mines in Australia, Indonesia, Mozambique and USA.

Enhancing Share of Value-Added Products

Presently, around 37% of SAIL’s product basket comprises value-added products. You will be glad to know that your company is looking at increasing this proportion to around 50-55% of the product mix. While our modernization & expansion plan will take care of a great part of this endeavour by bringing on-stream a number of facilities that will produce world-class steel to better feed sectors such as high-end consumer durables and automobiles, efforts are also on to develop new products that will fetch a premium in the market through R&D.

Fostering Technology Leadership

Technology leadership is our other focus area. For this, the following strategic initiatives have been taken to augment technological interventions on a long-term basis:

  • MoU has been signed with POSCO, Korea and a detailed feasibility study is being conducted to explore (a) Exploration of upstream and downstream opportunities based on FINEX technology which utilizes iron ore fines for steel making and (b) Manufacture and commercialisation of CRNO steel.
  • MoU has been signed with Kobe Steel Limited of Japan for exploring the technical and economic feasibility of ITmK3 technology for producing premium grade iron in the form of nuggets.
  • Dialogue on technology intervention in steel and related areas has been initiated with other leading steel producers.

Collaborative Growth

Consequent upon amalgamation of Bharat Refractories Limited (BRL) with SAIL as per the Ministry of Corporate Affairs’ order dated 28th July, 2009, it has become a unit of SAIL and renamed as SAIL Refractory Unit (SRU). Revival of the unit is in progress and its performance has improved after its coming into the fold of SAIL. Further, the scheme of merger of Maharashtra Elektrosmelt Limited (MEL) with SAIL under sections 391-394 of the Companies Act, 1956 is under consideration of the Ministry of Corporate Affairs. Approval of esteemed shareholders is being obtained today in this AGM to the Scheme of Merger of MEL with SAIL. Besides, acquisition of the Refractory Unit of Burn Standard Company Limited by SAIL is also under consideration.

After entering into a Joint Venture Agreement with Shipping Corporation of India, a joint venture shipping company has been incorporated in May, 2010 for bulk transportation of SAIL’s cargo initially for 1.2 million tonnes per annum, which would be further scaled upto 4 million tonnes per annum.

SAIL has also signed a Joint Venture Agreement with RITES Ltd. for setting up a wagon manufacturing unit at Kulti in West Bengal, with a capacity to handle 1,500 wagons per annum. The unit will be set up in the premises of SAIL Growth Works Division at Kulti at an estimated cost of ` 85 crore. The state-of-the-art Plant will be equipped for manufacture of 1,200 wagons and rehabilitation of 300 wagons per year in the initial stage. Besides manufacture of BOXN type wagons, the plant will also be able to produce specialised high-end wagons and modern stainless steel wagons with marginal investment in plant and machinery.

Emerging Global Opportunities

Your company will spread its wings and pursue overseas opportunities for marketing of products as well as sourcing of raw materials. Developing countries like Africa and South East Asia are going in for huge infrastructure projects as part of their economic development plans. This provides a good marketing opportunity that SAIL can exploit. Your company intends to become a global player in the coming years.

Protecting Health of Our Planet

Your company reaffirms its commitment to contribute towards a clean, sustainable environment and continually enhance its environmental performance as an integral part of its business philosophy and values. As a responsible corporate citizen, SAIL is fully committed towards achieving targets set in Corporate Responsibility for Environment Protection (CREP). As a result of measures taken by SAIL plants, Particulate Matter Emission load from stacks and Fugitive emission has been reduced during 2009-10 as compared to the previous year. Reductions in Specific Energy Consumption and Carbon dioxide Gas Emmision have been achieved due to various energy reduction initiatives. Utilisation of solid wastes has been enhanced during 2009-10 compared to the previous year.

Responsible Corporate Citizen

SAIL’s ‘Credo’ specifically highlights the company’s commitment towards society at large which, inter-alia, states “Making a meaningful difference in people’s life”. Apart from the business of manufacturing steel, the objective of your company is to conduct business in a way that produces social, environmental and economic benefits to the communities in which it operates. To meet this objective, specific Corporate Social Responsibility (CSR) departments have been formed at the corporate level and at all plants/units in SAIL. Your company was the first Public Sector Enterprise which started allocating around 2% of its distributable surplus for CSR since 2006-07. In fact, the recent DPE guidelines also provide for allocating upto 2% of distributable surplus for CSR by Public Sector Enterprises whose net profit (previous year) is more than ` 500 crore.

Your company has established 54 Primary Health Centres, 8 Reproductive and Child Health Centres, 17 Hospitals and 7 Super-Specialty Hospitals for specialised healthcare to almost 30.6 million people since inception. 146 schools have been set up in the steel townships for providing modern education to about 70,000 children. Assistance has been provided to over 286 schools in villages surrounding SAIL’s plants/units for free education of more than 14,000 students. Out of 79 villages adopted for development as Model Steel Villages across 8 states, work in 54 villages has been completed by March, 2010. The developmental activities being undertaken in these villages include provision of medical & health services, educational facilities, roads & connectivity, sanitation, community centres, livelihood generation, sports facilities, etc. Special initiatives taken include 6 special schools for the underprivileged children at 5 integrated steel plants’ locations.

SAIL’s CSR efforts have been well recognised. This is evident from the fact that your company was presented the annual ‘SCOPE Meritorious Award for Corporate Social Responsibility & Responsiveness for the year 2008-09’ by the Hon’ble President of India.

The Annual FICCI Awards 2008-09 in the category of ‘The Vision Corporate Triple Impact – Business Performance, Social & Environmental Action & Globalisation Award’ was presented to SAIL by the Hon’ble Finance Minister of India.

Recognition of Excellence

Your company’s excellent across-the-board performance got recognition from several quarters during the year 2009-10. It is a matter of pride for all of us that 56 out of 179 awardees who have won the Prime Minister’s Shram Awards for calendar years 2005, 2006 and 2007 are from SAIL. 24 from a total of 52 awardees  for the Prime Minister's Shram Awards for calendar year 2008 are from SAIL. SAIL employees have been registering a growing presence in the Vishwakarma Rashtriya Awards-up from 52% awardees in 2007 to 58% in 2008. For the production year 2008, of the total 128 awardees, 74 were from SAIL. Of these, 4 out of 5 Class A awards went to SAIL employees, which is the highest ever won by any PSU.

Our Bhilai Steel Plant (BSP) bagged Prime Minister's Trophy for Best Integrated Steel Plant in India for the years 2006-07 and 2007-08 in February, 2010. With this BSP has gained the unparalleled distinction of being the only Steel Plant in the country, Public or Private, to have been honoured with the prestigious PM's Trophy 9 times out of 16 times so far. 

At the SCOPE & DPE awards function held in October, 2009, SAIL had the unique distinction of receiving four awards from the Hon’ble Prime Minister, which was the highest amongst all PSUs. This included the SCOPE Gold Trophy for Excellence & Outstanding Contribution to Public Sector Management in the ‘Institutional’ category for the year 2006-07 and two MoU Excellence Awards in the categories of ‘Mining & Metals’ and ‘Listed companies’ for the year 2007-08. The Gold Trophy of ‘SCOPE Meritorious Awards 2007-08 for Research & Development, Technology Development & Innovation’ was also bagged by SAIL.

Corporate Governance

Your company is committed to conforming to the highest standards of Corporate Governance by ensuring transparency, disclosures and reporting as required under various laws, regulations and guidelines, including those issued by the Department of Public Enterprises, Government of India.

Acknowledgement

I join the other members of the Board in conveying our deepest appreciation to all members of the SAIL family for their sincerity, devotion and perseverance that has helped the Company to achieve good financial performance despite several adversities.

I gratefully acknowledge the guidance and support extended by the various Ministries particularly the Ministry of Steel under the Government of India and various State Governments. I would also like to thank all the stakeholders of the Company for their continued support in all our endeavors.

I express my sincere appreciation for the invaluable contribution and cooperation of my colleagues on the Board in charting the road map of the Company for growth and profitability, thereby steering it to greater heights.

We are indebted to our loyal set of customers who have been a constant source of inspiration for us to provide them value-added services. The contribution of our dealers, bankers, contractors and suppliers and other outside agencies deserve special mention. Their continued support has sustained our excellent performance through the years.

As we move forward into FY2011, we will remain focused on profitable growth, developing and nurturing a strong pipeline of products, improving operating margins and cash generation, and prudently managing our costs.

The road ahead is steep, rocky and full of challenges but the company armed with the passion and the indomitable spirit of its steel men is determined to embark on this exciting journey and firmly establish SAIL as a global steel player.

As I conclude, I sincerely thank each and every one of you, our shareowners, for the confidence and trust you have reposed on us. We will try our best to surpass your expectations.

30th September, 2010
New Delhi

(C.S. Verma)
Chairman

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