SAIL is growing and poised for a big leap

Chairman's Address-2011

Dear Shareholders,

Good morning, ladies and gentlemen. It gives me immense pleasure to welcome you to the 39th Annual General Meeting of your company. I look forward to using this opportunity to update you on your company's performance in the past year and share with you our strategy for the future.

The report of the Directors and Audited Accounts for the year ending 31st March 2011, with the reports of Auditors and comments of Comptroller and Auditor General have already been circulated to the shareholders, and with your permission, I shall take them as read.

First let me begin by looking at the broader environment and how it is shaping our priorities. The world is continuing its journey to regain economic stability from the global meltdown of 2008. The industrialized countries have resumed positive growth after contracting in 2009, but economic prospects in many of these countries remain clouded with uncertainty with macro-economic imbalances and concerns about sovereign debt. Emerging markets are growing more robustly, being the driving engine for global growth and opportunity. However, economies worldwide in the immediate future have to cope with various difficult factors viz. steep increase in the commodity prices, particularly of crude oil, minerals and food items; and volatility in the currency and equity markets.


The global steel production, which had been severally impacted on account of the intervening global financial crisis, registered a smart recovery in 2010 with a record level of crude steel production of 1414 million tonne, up by 15% over 2009. The World finished steel consumption

at 1283 million tonne in 2010 grew at 13% over the previous year.

For 2011 and 2012, the World Steel Association (WSA) has projected a growth rate of 6% per annum in global steel consumption. Against the same, during the period Jan. - July, 2011, the global crude steel production at 887 million tonne was up by 8.3% over the production in the corresponding period of last year. Therefore, we can see that the growth in global steel production has been exceeding the estimated consumption growth, with the world steel production capacity utilization hovering around 80%.


Revised estimate for GDP growth for 2010-11 is around 8%. Compared to other economies of the world, undoubtedly, India is growing at a faster pace and thereby creating demand for multi-sectoral investment.

With respect to the Indian Steel Industry, as per WSA, India was the world's fourth largest producer of crude steel globally in 2010 with a production of over 68 million tonne. As per JPC estimate, the finished steel consumption of carbon steel in India grew by 10.8% in 2010-11 over the previous year. Over the past few years, consumption has been driven primarily by the continuous increase in infrastructure related investments. There exists a high potential for steel demand with increase in per capita consumption linked to higher income growth in the country, as the per capita steel consumption in the country is still one of the lowest in the world, presently around 52 kg. versus, 427 kg. for China and a global average of about 203 kg.

WSA has projected a growth of more than 13% in apparent steel consumption in India in 2011 with overall consumption reaching 69 million tonnes. In fact, it is expected that India will emerge as one of the highest steel consuming countries in the world during the next decade. The growth in consumption would be achieved from steel consuming sectors like construction, machines & equipment, manufacturing & automobiles. The likely growth in infrastructure related projects in the power sector, highways, ports, airports and industrial construction etc. indicates strong demand ahead for steel. In the 12th five year plan period (2012-17), the expenditure on infrastructure development has been projected at US $ one trillion by the Planning Commission as against US $ 450 billion in the

11th five year plan, thus assuring good demand of steel.


Fiscal 2010-11 represented a year of relentless improvement in production, product-mix and efficiency parameters. The production of saleable steel at 12.9 million tonne in 2010-11 was up by 2% over corresponding period last year (CPLY), with capacity utilization of 116%. You will be glad to know that higher production of special quality and value added products at 4.8 million tonne, besides registering a growth of 3% over CPLY, resulted in further improvement of the product-mix. Your company continued its endeavour to become energy & cost efficient in the year 2010-11 by achieving highest ever crude steel production through continuous casting route at 9.32 million tonne with a growth of 3% over CPLY.

The company achieved a sales turnover of ` 47,041 crore in 2010-11, the second highest in the history of the Company and higher by 7% over the previous year, and made a profit before tax of ` 7,194 crore. Profit for the year was, however, impacted mainly due to escalations in input prices, particularly imported coking coal. The average FOB price of imported hard prime coking coal during 2010-11 was US $ 213 per tonne as against the US $ 128 per tonne in 2009-10. Further, as against the annual price settlement under the long term agreement for import of coal till 2009-10, the price settlements have moved to quarterly basis in 2010-11. The price of imported hard coking coal, which went up to the unprecedented high level of US $ 330 per tonne in the first quarter of 2011-12, is only slowly coming down during the current year.

With continued thrust on optimum utilization of funds, your company had liquid assets worth ` 17,142 crore as on

31st March, 2011, invested in short term deposits with scheduled banks. With total borrowings of ` 20,165 crore, the debt : equity ratio of the company was at a comfortable level of 0.54 : 1 as on 31st March, 2011. The SAIL Board has recommended a final dividend @ 12% of paid-up equity share capital, in addition to interim dividend @ 12% already paid, thus making the total dividend @ 24% for the year 2010-11.

M/s. FITCH and M/s. CARE, the credit rating agencies, maintained "AAA" ratings indicating the highest safety to your company's long term borrowing programme.

Your company has recently introduced a Rural Dealership Scheme to encourage use of quality steel items in predominantly rural areas, and to increase the penetration of the company's branded products in the country's hinterland. The initiative is also important in view of the fact that rural consumption is likely to grow substantially from present level of 10 kg per capita per annum.


As per 2010 World Steel Dynamics Report, India will become the epicenter of sizeable capacity additions. In order to maintain the market leadership position in the country and also to enhance competitiveness, it is important that capabilities of your company are continuously enhanced. Keeping this in view, your company is currently implementing modernization & expansion of all of its plants which would enhance the hot metal capacity from the current level of 13.8 million tonne per annum to 23.5 million tonne by 2012-13. The modernisation & expansion plans aim at inducting new technologies, enriching the product-mix by raising the share of value added products and making operations more energy efficient and environment friendly. Cumulative orders worth about ` 54,000 crore have been placed under the modernisation & expansion plan of SAIL. During the year 2010-11, capital expenditure of ` 11,280 crore has been incurred and for the year 2011-12, an outlay of ` 14,337 crore has been planned. After having completed the modernisation & expansion plan at Salem, execution of various packages in all the five integrated steel plants of your company are under various stages of completion. To maintain its current dominance in the domestic market and to meet the future challenges, your company is also working on a long term strategic plan "Lakshya 2020" which will steer the company towards meeting its strategic objectives of achieving profitability through growth and customer satisfaction.

Towards attaining 'Lakshya 2020', it gives me great pleasure to inform the esteemed shareholders that Cabinet Committee on Economic Affairs (CCEA) in its meeting held in Aug'11, has approved the revival of Sindri Unit of Fertilizer Corporation of India Ltd (FCIL) and selected SAIL on nomination basis as Lead shareholder. SAIL plans to set up a 5.6 mtpa steel plant, 1.15 mtpa Urea Plant and 1000 MW power plant at this site along with suitable JV partners.


Your Company has been meeting the total requirement of iron ore of its steel plants from its captive mines. Post-modernization & expansion, the iron ore requirement is estimated to go upto about 43 million tonnes. Your company is determined to meet this enhanced requirement of iron ore by augmenting the production from the existing mines and also by developing new mines at Rowghat and Chiria. Grant of stage-I forest clearance and final environmental clearance for the Ajitaburu and Budhaburu leases of Manoharpur Iron Ore Mines of Chiria by the Ministry of Environment & Forest, in March, 2011 has been a landmark development in paving the way for early development of

7 mtpa state-of-the-art mechanised mines in the first phase. Statutory clearances for Rowghat have already been received though the developmental work at the location is affected currently due to law and order problems in the area. Your company has been taking up this issue with the concerned officials at the State and the Central level so that work could be started at the earliest.

Your company has extensive plans to set up beneficiation & pelletization facilities which include a 10 mtpa beneficiation and 4 mtpa pelletisation plant at Gua Iron Ore Mines. This would not only improve the quality of iron ore for use at our plants but would also make the mines' operation more sustainable through usage of low grade ores, dumped fines and slimes.

Your company is making efforts for development of existing coal blocks as well as for fresh allocation of coking coal and thermal coal blocks for captive mining to enhance indigenous coal availability.

With respect to acquisition of coal assets in overseas territories, all out efforts are being made under the aegis of International Coal Ventures Pvt. Ltd. (ICVL) which is a joint venture company set up by the Government of India with SAIL, CIL, RINL, NMDC and NTPC as its promoter companies. It gives me great pleasure to inform you that ICVL has signed an MOU with the Government of Central Kalimantan, Indonesia which envisages direct allocation of coking coal for ICVL. Actions for implementation of the MOU have been initiated. Efforts are also being made to have strategic partnerships in other countries viz. Australia, Mozambique, USA and Mongolia.


SAIL subsidiary, Maharashtra Elektrosmelt Ltd., has been merged with SAIL with effect from 13th July' 11 and

re-named as ‘Chandrapur Ferro Alloy Plant'. This will ensure sourcing of ferro alloy for steelmaking at competitive prices for your company.

The Cabinet Committee on Economic Affairs in June, 2010 approved transfer of a Refractory Unit of M/s. Burn Standard Company Ltd. (BSCL) at Salem to a subsidiary company of SAIL. Accordingly, "SAIL Refractory Company Ltd." has been incorporated in Tamil Nadu and modalities of transfer of the unit are at an advanced stage.

New areas have been explored for strengthening partnership with Indian Railways with initiatives such as, incorporation of a joint venture company "SAIL RITES Bengal Wagon Industry Pvt. Ltd." in December, 2010, after entering into a Joint Venture agreement with M/s. RITES. This Company will have the capacity to manufacture 1500 wagons per annum including manufacture of specialized high-end wagons and modern stainless steel wagons.

SAIL and BSCL have signed an MOU for setting up facilities to manufacture cast steel bogies, couplers and other related products at Jellingham, West Bengal. The Indian Railways would provide an assured off-take of 5000 bogies and equal number of couplers per annum for a period of 10 years. An MOU has also been signed with IRCON International Ltd., a PSU under the Ministry of Railways, for jointly working on Rail Infrastructure Projects, both in India and abroad.

Another an MOU has been signed with M/s. Hindustan Prefab Ltd., for carrying out business of pre-fabricated structures in steel & cement, which is a rapidly growing business segment.

Your company has also signed an MOU with M/s. Mishra Dhatu Nigam Limited (MIDHANI) to enhance value-added product development for Defence sector by exploring synergetic business opportunities and enhance joint research & development activities.


Attaining technology leadership is a key focus area in SAIL. To augment technological interventions, the following strategic initiatives have been taken:

a) Your company has prepared a R&D master plan in order to facilitate acquisition and development of appropriate technologies for sustainable growth. As per the master plan, SAIL will undertake at the corporate level, Technology Missions and High Impact Projects targeted at reducing raw material and energy consumption coupled with initiatives for imparting greater flexibility for raw material usage, reducing carbon-dioxide emissions and improved waste utilization. Besides, at the individual steel plant level, Centres of Excellence (COEs) would be created which would primarily focus on various product development and improvements in collaboration with key customers and technology suppliers.

Clearly, the new strategy takes R&D to a much higher pedestal in SAIL, with R&D expenditure set to exceed 1% of gross sales in a gradual manner, in the coming years.

b) After signing an MOU with M/s. KOBE Steel Ltd. (KSL) of Japan, your company is jointly working for ascertaining the feasibility of using ITmK3 technology developed by KSL for producing premium grade iron in the form of nuggets. The pre-feasibility report for setting up of 0.5 mtpa facility using ITmK3 technology has been prepared and the terms & conditions of the Joint Venture are being worked out.

c) Your company has also entered into an MOU with

M/s POSCO, Korea for a comprehensive strategic alliance for setting up a Finex-technology based plant, for which a Detailed Project Report has been prepared. Currently, discussions are being held for finalizing the terms & conditions of the joint venture.

Both FINEX and ITmK3 are environment friendly alternate iron-making technologies which utilize low grade iron ore fines and non-coking coal.

d) A collaborative agreement has been signed with M/s. CBMM, Brazil for developing high strength steel of API X-80 grade, primarily used in oil and gas pipeline applications.


Due to rapid advancement in steel technology and need for optimal resource utilization, the global steel industry is undergoing structural changes. In order to become a global player, your company is pursuing opportunities overseas for marketing of products as well as sourcing of raw materials. Your company, as the leader of the consortium of seven Indian steel companies, has submitted a bid for multiple exploration concessions in the Hajigak Iron Ore deposits, Afghanistan. As a global player, your company intends to pursue more such projects in other countries.


Power is a major and critical input for ensuring smooth operations in a steel plant and also for maintaining cost competitiveness. With the implementation of on-going phase of modernisation & expansion plan, the power requirement of SAIL would go up to about 1900 MW by 2012-13 from the current level of around 1200 MW. By 2020, the average load of steel plants including the power requirement of Mines is likely to go up to about 4600 MW. For this, SAIL is planning to expand captive power generating capacity at BSP and RSP through its JV with NTPC, namely NSPCL, by installing 2 x 250 MW units in BSP and 1x 250 MW unit at RSP. NSPCL has applied for various statutory and environmental clearances and also for allocation of coal and water. More such power related projects would be undertaken in due course.

In line with policy framework provided by Electricity Act, 2003 and National Electricity Policy, your Company has worked out a long term strategy to meet renewable energy purchase obligations and options are being evaluated for installing captive power generation facility based on renewable energy sources.


As a responsible corporate citizen, your company re-affirms its commitment to contributing towards a clean and sustainable environment as an integral part of its business philosophy. SAIL plants have attained improvement in major environmental parameters by continuous efforts which have resulted in further reduction in Particulate Matter emission load, specific effluent discharge and specific water consumption in 2010-11. During 2010-11, 1.74 lakh saplings were planted in SAIL steel plants and mines with cumulative saplings going up to 177 lakhs. Besides, Kuteshwar Limestone Mine was accredited with ISO-14001 certification. With this, five of our major iron ore mines have already been awarded this certification besides most of our steel plants.


SAIL, as a responsible corporate entity, is fully aware of its obligations towards the Society and is fully committed to sustainable development. In fact, the Credo of SAIL specifically highlights our commitment towards society at large which states, inter-alia, ‘making a meaningful difference in people's life’. Our business strategy reflects our dedication to good corporate citizenship. SAIL's business practices span the areas of ethics, human resources, environmental management, governance, and financial disclosure to create sustainability for competitive advantage.

CSR activities of your company are focused in the areas of Health & Medical care, Education, Access to potable water, Connectivity/roads, Income generation through Self Help Groups (SHGs), etc. On the health front, SAIL is operating 54 Primary Health Centres, 12 Reproductive and Child Health Centres, 17 Hospitals and 7 Super Speciality Hospitals which provide specialized healthcare to almost 30.6 million people living in the vicinity of its plants and units. Over 3800 camps were organized during 2010-11 benefiting around 2.64 lakh people. Further, 24 ambulances were provided to various NGOs like Helpage India and Bharat Sewa Shram Sangha during the year.

In the field of education, SAIL is running over 146 schools in the steel townships to provide quality education to about 70,000 children.

SAIL has taken up comprehensive development of 79 Model Steel Villages (MSVs) spanning eight states. The development work being undertaken in these villages includes medical & health services, education, roads & connectivity, sanitation, community centres, income generation, sports facilities etc. 62 MSVs have been completed by 2011.

Your company's role as a responsible corporate citizen in nation building has been appreciated at various fora in the form of prestigious awards, honours and accolades. Your company was conferred with 'India Shining Star CSR Award' by Wockhard Foundation, 'SCOPE Meritorious Award for Corporate Social Responsibility & Responsiveness', Annual FICCI Awards in the category of 'The Vision Corporate Triple Impact', CSR Award of the Ministry of Rural Development, Govt. of India and the Golden Peacock Award.


The excellent performance of your Company as well as its employees witnessed several laurels and appreciation being bestowed during the year 2010-11. The employees of your company continued to win maximum number of Prime Minister's Shram Awards and Vishwakarma Rashtriya Award declared by Govt. of India which recognizes the creativity and innovative abilities of employees. Of the

33 Prime Minister's Shram Awards announced for 2010 by the Ministry of Labour, Government of India, SAIL employees bagged 11 awards of the 17 meant for PSUs. Of the total number of 76 awardees for the year, 45 i.e. 59%, belonged to SAIL - a remarkable distinction for any organization. Out of total 117 awardees who have won the prestigious Vishwakarma Rashtriya Puraskar (VRP), 73 are from SAIL. In the International Convention on Quality Concept Circles - 2010 held at Hyderabad, your company employees bagged 18 gold, 6 silver and 2 bronze awards.

Organisation excellence of your company garnered recognition and accolades at various prestigious forums. Some of the notable ones are - ‘SCOPE Meritorious Awards' for Environment Excellence and Sustainable Development, "Asia Best Employer Award" for 'Continuous Innovation in HR Strategies at Work', "PSU Excellence Awards" for "Best Human Resource Management" and "Research & Development, Technology Development & Innovation" by Indian Chamber of Commerce and "India Pride Award" under Metals and Minerals & Trade Award Category.

SAIL's efforts in promoting use of Rajbhasha have been recognized in the form of 1st prize at Town Level by Govt. of India for best official language implementation. "Rashtriya Rajbhasha Shield" was also awarded to SAIL for best official language implementation by Rashtriya Hindi Academy. The in-house Hindi journal of SAIL "Ispat Bhasha Bharti" bagged the 1st prize at National Level.


In my last address to the esteemed shareholders on

30th September, 2010, I had mentioned about the

10% FPO of shares by SAIL and offer for sale of 10% of the Government's holding in the company, in two equal discrete tranches of 5% each of FPO and 5% offer for sale by the Government. The first tranche was to hit the market during 2010-11. I have to inform you now that due to continued volatile stock market conditions, the first tranche of FPO could not take place in 2010-11. The issue would be taken up based on the advice of Book Running Lead Managers (BRLMs) and in consultation with Ministry of Steel and Department of Disinvestment when the market conditions are conducive.


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 Department of Public Enterprises.


I am thankful to all whose commitment and wisdom started us on our path of building this great organization. I am even more grateful to those who are working so hard today in this current stage of growth of your company.

I would like to thank all our esteemed shareholders for their continued support and encouragement which enabled your company to achieve good financial performance in 2010-11 despite escalations in input costs. Each one of you has contributed in your own remarkable way to build this great company. I am carrying the baton of an organization whose character is founded in its incredible base of its stakeholders which, inter-alia, include esteemed shareholders, employees and respectable customers.

SAIL is growing and poised for a big leap. I look forward to your unwavering and steadfast support as we work together to make SAIL a global giant in the years ahead. I am thankful for immense support extended by the Board, our stakeholders and members of SAIL collective. I also wish to put on record, my sincere thanks to Ministry of Steel, Government of India, State Governments, and other Organisations & Institutions for the guidance and cooperation extended by them.

22nd September, 2011
New Delhi

(C.S. Verma)