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| ANNUAL
GENERAL MEETING |
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Ladies and Gentlemen, I feel great pleasure to welcome you all to the 42nd Annual General Meeting of your Company. The Annual Report has been sent to you in due time and must be in your hands. At the outset, I would like to inform you that Vedanta Resources plc has acquired, through its subsidiaries, 51% controlling stake in Sesa Goa Limited from Mitsui & Company Limited, in April 2007. With the open offer being now completed, Vedanta now effectively holds 51.2% of your company’s shares. Vedanta Resources plc is a diversified metals and mining group, listed on London Stock Exchange. It has emerged as one of the top diversified metal and mining companies in the world with resource base in aluminium, copper, zinc, lead and now iron ore. These are located in India, Zambia and Australia. I am sure their vast experience and expertise in these fields will greatly benefit your company The merger of the Subsidiary Company, Sesa Industries Limited (SIL) with the Company is still pending for approval of the High Court of Bombay at Goa, owing to objection from one shareholder of SIL. On receipt of the High Court’s approval, the Annual Audited Accounts giving effect to the merger, effective 1st April, 2005, will have to be placed again for your approval. The report now circulated is drawn for the Company on a stand-alone basis. Economic Environment The global real GDP growth is expected to be 5.2% for 2007 & 2008 as against 5.5% for 2006 as per the World Economic Outlook of the International Monetary Fund. As per latest indications the global crude steel production is expected to increase by another 100 million tonnes in 2007 and further 75 million tonnes in 2008 taking the production figure above 1.4 billion tonne mark. The Chinese crude steel production is also correspondingly poised to grow to the level of 480 and 540 million tonnes levels in 2007 and 2008 respectively. The growth in crude steel production in India is also picking up - the revised crude steel production figure of 49.45 million tonnes for the calendar year 2006 released by the Ministry of Steel, makes India the 5th largest producer of crude steel in the world. The Indian economy continues to witness rapid growth, led by manufacturing and services sectors.. Real GDP growth accelerated from 9.0 per cent in 2005-06 to 9.4 per cent during 2006-07. The mining and quarrying sector posted a growth rate of 5.1% as against 1% in the earlier year. The growth momentum is expected to be maintained during 2007-08, with the real GDP growth for 2007-08 projected at around 8.5 per cent. Headline inflation, based on movements in the wholesale price index (WPI), moderated to 4.1 per cent, y-o-y, on August 11, 2007 from 5.9 per cent at end-March 2007 and 5.1 per cent a year ago. The Reserve Bank of India has indicated in the First Quarter Review of Monetary Policy in July 2007 that holding headline inflation within 5.0 per cent in 2007-08 assumed priority in the policy hierarchy; while reinforcing the medium-term objective to condition policy and perceptions to reduce inflation to 4.0-4.5 per cent on a sustained basis. Strong appreciation of rupee of about 8% since the beginning of the year on the back of robust foreign investment inflows poses huge concern for export-oriented industries and does not auger well for Sesa. Iron Ore Business Performance The year 2006-07 was a landmark year for your Company: Sales of iron ore, for the first time, touched double digit figure of 10.871 million tonnes. The increase in volume of iron ore sales during the year was primarily on account of higher volume of low grade ore from Goa /Karnataka prompted by strong prices in Chinese market and increased volume from Orissa. You will be happy to note that your company had started shipments to South Korea on a regular basis from Goa during the year. The geographical distribution of the direct/in-direct exports of the company during the year was: China - 58%, followed by Japan 12%, Europe 11%, Pakistan 8% and South Korea 4% with domestic sales at 7%. The domestic sales have increased by 31%. During the year, the company had commissioned four railway rakes under Wagon Investment Scheme of Indian railways – 2 rakes each in Orissa and Karnataka sector, enabling the company to have captive capacity of rail transport to the extent of about 0.350 Mt per rake on an annual basis. However, the company could not get the full benefit of its rakes in the Karnataka sector since the date of commissioning them, due to stoppage of Karnataka mine and dispatches for about 4 months This was due to delay in various regulatory approvals in spite of complying with all the conditions much before the due date. While the international benchmark price of iron ore increased by 19% on FOB basis during the year ended 31st March, 2007, the net realization of the company on iron ore sales, however, increased by about 6% on an average mainly on account of the following factors:
Increase in railway freight and diesel exerted maximum pressure on cost. In the Orissa sector, the cost of road transportation continued to remain very high because of pressure on the logistics and hence, in spite of all direct and indirect exports from Orissa being linked to spot prices, the margin from Orissa sector continues to be the lowest. These negative factors were partly offset by marginally higher exchange rate realized on an average. The Government of India had imposed an export duty of Rs.300/t. on all grades of iron ore effective 1st March, 2007 and consequently, the exports made during the month of March 2007 suffered this high rate of duty. However, the duty on fine ore with Fe content of less than 62% was reduced to Rs. 50/t effective 3rd May, 2007. Business Outlook Forecast from various sources indicate that the demand for iron ore will continue to remain strong in the near to medium term on the back of increasing world steel production led by China. However, the effect of various measures taken by the Chinese government to curtail the growth in steel production including abolishing export rebate, and increasing transportation cost will need to be watched carefully. Going by the current trend the crude steel production in China is likely to grow by about 15% touching the level of around 480 Mt. The statistics for first seven months of the current calendar year indicate that the iron ore imports by China have increased by 19% and at this rate the annual imports will be in the region of 380 Mt. According to some sources, China’s iron ore imports are expected to be at the level of 437 million tonnes in 2008 – a growth of 15% over 2007. On the back of buoyancy in demand, the international benchmark iron ore price has gone up by 9.5% during the current year. The spot price in Chinese market for imported ore from India has gone up during the current year as a result of unprecedented level of ocean freight and disruption in delivery of Australian iron ore owing to port congestion. This has helped to off set the impact of export duty on spot sales. However, the export duty impact on contracts with term prices is quite significant, particularly without any domestic demand at benchmark prices for company’s iron ore fines and low /medium grade lumps from Goa/Karnataka. The National Mineral Policy is yet to be formalized by Government of India and in the absence of the same, the procedural delays in clearances and interventions from various quarters in allotment of new mining leases continue. The environmental and forest clearance required for renewal of the existing mining leases has also become time consuming. The prospecting license obtained by the company in the year 2005 from Jharkhand government is still awaiting forest clearance. However, the company is hopeful that sooner or later, the National Mineral Policy with simplified system of approvals from various authorities would emerge and being a professional miner the company would be able to reap the benefits there from, which will also ensure supply of iron ore for the projected domestic steel capacity.
Motivated campaign to curtail / ban export of iron ore and increasing
export duty further, remains a cause for concern. Sesa is continuously looking for opportunities to de-bottleneck its operations and logistics chain to optimize production. The efforts to control cost by introduction of cost effective machinery, equipment, barges and renewal of loading capacity of M.V. Orissa is continuously on. Additional investment in railway rakes although planned, is awaiting acceptance by the railway authorities on the grounds of constraints in the capacity of the railway line in the concerned sector. The new railway line in Orissa has been commissioned after prolonged delay but without any valid reason the railway authorities are not allowing any traffic on that route, at reduced cost, which are originating at a point outside the new corridor. Consequently, the company’s expectation of cost saving and higher availability of railing capacity, as an alternative to high cost road transport has been belied. The land acquisition process to develop a dedicated road and jetty facility at Panchwadi in Goa is yet to be completed by Government of Goa. The company is following up regularly with the authorities in this matter. Metallurgical Coke Business Performance The coke business suffered loss during the year under review primarily due to further reduction in average price realization in line with international price of metallurgical coke which has shown a steep down turn. This is because of abnormally low benchmark landed price of Chinese coke as compared to the previous year. Production of metallurgical coke also continued to suffer due to lower quality of coal (but still within the contractual specifications) imported in the previous year. Consequently, the recycling of coke breeze also had to be restricted, which in turn affected optimization of revenue. This, coupled with, repairs to ovens after more than 10 years of operation and commissioning trials for compact charging also impeded production. However the reduction in sales quantity was lower than the drop in production with consequent drawing down of inventory. Although, no new order for sale of coke technology was booked during the year, there was income of Rs.72 million against the order booked two years earlier. Business Outlook
Sesa’s Coke Plant primarily caters to the requirement of Pig
Iron Plant of the Group. The remaining production of about 35-40%
is supplied to foundries, ferro alloy units and cement industry.
The metallurgical coke is produced from hard coking coal imported
mainly from Australia. Since the cost of coal constitutes about
85% of cost of production of coke, a product mix of high cost hard
coking coal and cheaper softer variety of coal is worked out to
optimize revenue. The Power Plant based on waste heat generated by coke plant and blast furnace gas of pig iron plant, has recently been commissioned by the Videocon Group on BOO basis and on stabilization, this will augment revenue of coke business. Additional revenue from sale of carbon credits will also add to the bottom line of the Company. The international price of metallurgical coke is going up while the international coal price for the current year has been settled with about 15% reduction. While the ocean freight for import of coal is going up, the company expects to post positive results from the coke business in the current year. The volatility of coal and coke prices in international market will continuously pose a challenge to the sustainability of bottom line of the coke business.. The stabilization of Compact Charging and Power Plant will to some extent mitigate the situation. ,In the near to medium term, the fortune of the metallurgical coke business of the company is expected to be reasonably stable on account of increasing price of coke, increased productivity & lower cost of coal blend on stabilization of compact charging project and additional revenue through sale of waste heat to the power plant set up on BOO basis & realization of Carbon Credits. Pig Iron Business Operations of the Subsidiary Company, Sesa Industries Limited witnessed another year of robust growth. The pig iron business of the company has posted higher profit of Rs.416 million during 2006-07 - an increase of 35%. On commissioning of the Hot Blast Stoves, productivity has gone up and the specific consumption of coke, the costliest raw material, has come down. The productivity gained is substantial when seen against the backdrop of the fact that one of the blast furnace was shut down for relining for 50 days during the year. Growth in auto and auto component sector is expected to give fillip to demand for pig iron. However margins are expected to be under pressure owing to increasing price of inputs viz., metallurgical coke and iron ore in international markets. Availability of high-grade lumpy iron ore, volatility in the price of pig iron and rate of inflation remain a cause for concern. At the same time, income of the Pig Iron business is expected to get a boost following sale of waste gas generated by the Pig Iron Plant to the Power Plant commissioned during the year. Your Company is seriously considering expansion of Pig Iron and Metallurgical Coke production capacity. Social Responsibility Your company has increasingly pursued business objectives with a larger sense of societal purpose. The spirit of ‘a commitment beyond the market’ propels your company to contribute across the three dimensions of the ‘triple bottom line’ – economic, social and environment. The Group, apart from contribution to the society by paying various statutory dues of over Rs.460 crores has also contributed Rs.6 crore to directly and indirectly support various socio-economic programmes. These include:
The Company has also sponsored two medical centres run by an NGO in Goa to provide free medical diagnosis and medicines. During the year greater emphasis has been laid on discharging its corporate social responsibility. A formal regular “Stakeholder Consultation Process” has been initiated. This has helped your company to develop better understanding of the community needs as well as to involve them in planning, implementation and owning the programmes. Your company has made significant progress in improving Ecology and Environment. The Plantation Management Plan of reclaimed Sanquelim mine, which has been approved by Forest Department - Government of Goa, would be implemented over a period of three years to improve Bio-diversity status of the area as well as to add educational value. Your company has also supported research project for identification of fungus & Bio-diversity plantation programme in association with Goa University; this is besides planting over a lakh saplings and covering over 10,000 sq.m area with Geo-textiles at various mining locations, coke & pig iron plant areas. Appreciation Your company has received many an accolade in recognition of its path breaking initiatives. I would like to take this opportunity to highlight some of them. Your company’s Codli mine has won the prestigious Bala Gulshan Tandon Excellence Award constituted by the FIMI for the year 2006-07. Codli mine was selected from a short list of 12 mines from all over India in the entire mining sector. Your Company has been listed as the 12th Fastest Wealth Creator in the list of companies that had been ranked in terms of speed of wealth creation as per the 11th Wealth Creation Study report by Motilal Oswal Financial Services Ltd. I am also glad to inform you that your company was among India’s top 500 non financial listed and unlisted companies surveyed by the magazine Business World. Amongst various ranks based on different criteria, your company was ranked 33rd with respect to Shareholders’ Return. Acknowledgment I have special words to acknowledge the collective efforts of Company’s Management team under the able leadership of our Managing Director Mr. PK Mukherjee, and all the employees working tirelessly to realize the corporate agenda, meeting stakeholders’ aspirations and moving towards growth and success of the Company. I would also like to thank my colleagues on the Board for their support and guidance. I also take this opportunity to recognise the support of our customers, suppliers, all regulatory authorities, our bankers, auditors, consultants, other business associates and legal advisors/counsels. Last but not the least, I am really grateful to all our shareholders for their continued patronage, confidence and interest in our Company. Our Company is built over five decades and draws its strength from transparency, accountability, fairness, merit based professional environment and mutual confidence & trust. I would like to assure you that all our efforts will be directed at strong growth in the future so as to outperform our previous records. Thank you, SD Kulkarni |
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| ANNUAL
GENERAL MEETING |
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Ladies and Gentlemen, I have great pleasure in welcoming you all to the 14th Annual General Meeting of your Company. The Annual Report of the Company for the year 2006-07 has already been circulated to you and the same must be in your hands now. You would be aware that the entire shareholding of FINCO, U.K., the principal shareholder of Sesa Goa Limited, your Company’s Holding Company, has been acquired by two wholly owned Subsidiary Companies of Vedanta Resources plc., U.K. Consequently, your Company has become a part of Vedanta Group. Vedanta is listed on London Stock Exchange and is one of the world’s leading metal and mining companies with significant base in Copper, Aluminum, Zinc, Lead and now iron ore with metallurgical coke and pig iron of Sesa Group. As already stated in the Annual Report, the proposed merger of your Company with the Holding Company, Sesa Goa Limited (SGL) is still awaiting approval of the High Court of Bombay at Goa, owing to objection from one shareholder. In view of the pending merger with effect from 1st April, 2005, no dividend could be proposed inspite of available profit for appropriation; however you will receive the total dividend declared by SGL for the year 2005-06 and 2006-07 on the shares of SGL that you would receive upon approval of the merger. SGL has already declared and paid dividend of 400% for the year 2005-06, interim dividend of 150% for the year 2006-07 and proposed a final dividend of 250%. Economic Environment The global economy is expected to continue its growth trend with about 5% despite slow-down in the US economy. However, Asia could sustain the growth rate led primarily by China. India is one of the fastest growing economies globally with GDP growing at 9.4% last year. The global pig iron production – both merchant and for internal consumption, has grown 8.5% in the first eight months of 2007 compared with the same period last year. Pitted against the robust growth in world pig iron industry, the Indian pig iron industry is also poised to perform satisfactorily. Production of merchant pig iron in India during 2006-07 was 4.960 million tons as compared to 4.695 million tons during 2005-06, a growth of 5.6%. In India, merchant pig iron consumption has shown a strong growth due to rapid growth in automobile, infrastructure and real estate sectors. The apparent consumption has gone up to 4.649 million tons, an increase of 12.4% as compared to 2005-06. With the automobile and engineering sector expected to grow at 10% and 5% respectively, pig iron consumption is also likely to witness growth of 7-10% in the medium term. Performance Your company has earned a net profit of Rs.416 million as against Rs.307 million for the previous year. Consequent upon commissioning of Hot Blast Stoves, production increased significantly during the year, despite shut down of one blast furnace for 50 days for relining. Production for the year was 0.243 million tones as against 0.207 million tones for the previous year, an increase of about 0.036 million. Sales too increased by about 49000 tonnes to 0.249 million tonnes as against 0.199 million tonnes. During the year, there was a significant reduction in cost of metallurgical coke, a major raw material for pig iron production due to lower international price (used as benchmark for purchase price of coke from the parent company) and lower consumption due to commissioning of Hot Blast Stoves. However, the benefit was partly offset by higher price of iron ore owing to its strong demand in both domestic and international market. The inventory particularly of pig iron has come down significantly – both quantity and value – during the year. As I had reported to you in my last year’s statement, your Company continues to be debt-free. Business Outlook Rapid growth in Indian infrastructure, real estate and automobile industries is likely to give fillip to the demand for metallicks and consequently to sustainable demand for pig iron also. The demand is particularly favorable to the plant location of your Company in the south west part of the country owing to the continuous growth of the auto and auto component sector in this region. However, increasing prices of metallurgical coke lately and continuous spurt in iron ore prices exert pressure on margins. Availability of high-grade lumpy iron ore, volatility in the price of pig iron and high rate of inflation also remain a cause of concern. The Power Plant set up by the Videocon Group has become operational and is expected to stablise during the year. This will facilitate your Company to augment income as well as savings in cost of power by supply of excess waste gases . The income of your Company is expected to be further augmented by sale of carbon credits in future. Your company continues to have its niche customer base with supplies of consistent quality and timely deliveries. Sesa’s position in the value chain of its customers continues to be enviable. Your company is also seriously considering to further de-bottleneck the production capacity. Acknowledgement I convey my heartfelt thanks to all our shareholders for their continued trust and confidence in the Management of the Company. My gratitude is due to my colleagues on the Board for their valuable guidance. I convey my deep appreciation to the Company’s Management team under the able leadership of Mr. P K Mukherjee, Managing Director for posting commendable results for the year. The Company could come out with yet another successful year owing to the strong support of all stakeholders and business associates and I convey my sincere thanks to our customers, suppliers, bankers, auditors, legal advisors, consultants and all other business associates and the Government and various authorities for their continued support, interest and confidence in the Company and its Management. I also convey my heartfelt appreciation for the dedication and contribution of the employees of the Company at all levels. I look forward to sustainable and continuous growth of the pig iron business. Thank you very much for the patient hearing. P G Kakodkar |
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