DIRECTORS' REPORT AND
It is a pleasure to present the Annual Report of the Company for the year 2012.
1. THE JOURNEY OF EXCELLENCE CONTINUES
The Company continues to occupy an important and benchmarked position in the cementindustry through continual capacity enhancement, operational efficiencies, financialexcellence and focussed sustainability efforts which promote the well-being of society.With sound tactical and strategic initiatives and the indomitable spirit of "Ican" the Company is well poised to continue its journey of excellence in the shortand long time frame.
2. BRAVING THE SLOWDOWN
INDIAN ECONOMY LOOKING FOR SILVER LINING IN SPATE OF REFORMS
The Indian economy has shown remarkable resilience compared to other global economies.However, the stress was visible in below 6% projected GDP growth in 2012 vis-a-visaspirations of over 7% growth, in stark contrast to an average of 8% growth achievedduring 2007 -2011.
Economic growth declined across all the sectors due to domestic and external factors,high inflation, wide fiscal deficit and unfavourable domestic savings and investment rate.Despite strong fundamentals and structural support, uncertainty and consequent lack ofconfidence held back investments in capital formation. Output was disrupted due to poweroutages and stalled projects. Services also slowed down due to both cyclical andstructural factors.
High inflation was a cause of worry, with wholesale price index hovering over 7%. Theweak rupee, settling around Rs. 55 against USD, increased the import bill of crucial fuelsupplies, thus driving up the current account deficit.
In an attempt to rekindle India's economic slowdown, the Government unveiled a seriesof economic reforms. These have certainly led to a revival in investors' sentiment. Thoughthe first half of the financial year 2012-13 grew by just 5.4%. the reforms-drivenpositive sentiment is expected to help achieve growth rate of approx 5.5% by the end ofthe financial year. Manufacturing PMI data for December 2012 published by HSBC, reflectsthis sentiment as it surged to 6-month high, backed by strong factory output and a spikein new orders.
Steps taken by the Government to reform the economy has given a positive tone to thechallenging scenario.
A MIXED YEAR FOR THE CEMENT INDUSTRY
The first half of 2012 augured well with robust demand backed by states holdingelections and due to extended construction period owing to a delayed monsoon. This demandwas largely driven by rural housing and road construction while other infrastructureactivities remained sluggish.
In the second half, demand faltered as construction activities remained subdued withthe onset of the monsoon, which extended till late October, and uneven distribution ofrain across the country, leading to floods in some parts of the country while some areasfaced drought/ drought-like situation.
Cement industry also suffered due to shortage of essential construction materials likesand, bricks, water (due to drought), etc. High interest rates and an overall slowdown inthe economy kept demand suppressed.
In spite of slowing down of capacity additions, supply side pressures continued toremain. Adverse demand supply situation, mainly post monsoon, resulted in lower capacityutilisation.
On the cost front, India's cement industry continues to reel under the pressure ofrising input costs and high inflation rates. In March 2012, the railways rationalisedfreight rates, by effecting major changes in freight slabs which resulted in approximately20-25% increase in freight charges. The Government also hiked diesel prices by 7 5/- perlitre (excluding VAT) in the middle of September, putting further pressure on freight& distribution costs, Some respite came in the form of reduced imported coal prices inthe later part of the year, however, the cost benefit was restricted by a volatile rupee.Overall, the cost of coal increased in double digits.
3. FINANCIAL RESULTS 2012
AT A GLANCE (STAND ALONE RESULTS}:
Cement production increased modestly by 3.1% to reach 21.62million tonnes, from 20.97 million tonnes while clinker production went up to 15-81million tonnes registering growth of 7.5% over 14.70 million tonnes in the year 2011.
Domestic cement sales volume reflected sluggish demand scenario by growing at 3.8%to reach 21.31 million tonnes from 20,54 million tonnes a year ago. Cement exportsfell to 0.12 million tonnes from 0.37 million tonnes a year ago. Clinker sales (includingexports) grew by 2.4%, settling at 0.55 million tonnes from 0.54 million tonnes in 2011.
Net sales at Rs. 9,675 crores were 13.8% higher than that of previous year Rs.8,504 crores. Average sales realisation improved by around 11% at Rs. 4,400 per tonneagainst approx 7 3.960 per tonne in 2011.
Total (operating) expenses for the year 2012 increased by 11.4% over that ofyear 2011.
The company achieved an absolute EBITDA of Rs. 2,473 crores in 2012. This ishigher by 25.09% over the corresponding regrouped figure 1.977 crores) of 2011.
Net Profit at Rs. 1.297 crores improved by 5.6% over corresponding figure of Rs.1229 crores for previous year.
| || || |
Amount in Rs. crores
| || |
| ||Current Year ||Previous Year ||Current Year ||Previous Year |
| ||31.12.2012 ||31.12.2011 ||31.12.2012 ||31.12.2011 |
|Sales (net to excise duty) ||9674.94 ||8504.32 ||9739.54 ||8521.03 |
|Profit before interest and depreciation ||2821.84 ||2224.9 ||2821.95 ||2225.13 |
|Less: Interest ||75.66 ||52.63 ||78.46 ||53.44 |
|Gross profit ||2746.18 ||2172.27 ||2743.49 ||2171.69 |
|Less: Depreciation ||565.22 ||445.15 ||568.68 ||446.20 |
|Profit before tax and exceptional items ||2180.96 ||1727.12 ||2174.81 ||1725.49 |
|Less: Exceptional items ||279.13 ||24.25 ||279.13 ||24.25 |
|Profit before tax ||1901.83 ||1702.87 ||1895.68 ||1701.24 |
|Less: Provision for tax ||604.77 ||474.01 ||603.86 ||473.75 |
|Profit after tax but before minority interest ||1297.06 ||1228.86 ||1291.82 ||1227.49 |
|Less: Minority interest ||- ||- ||(1.39) ||(0.25) |
|Net profit alter tax ||1297.06 ||1228.86 ||1293.21 ||1227.74 |
|Add; Balance brought forward from previous year || |
|Prolit available tor appropriation ||1581.81 ||1554.21 ||1891.93 ||1868.18 |
| || || |
Amount in Rs. crores
| || |
| ||Current Year ||Previous Year ||Current Year ||Previous Year |
| ||31.12.2012 ||31.12.2011 ||31.12 2012 ||31.12.2011 |
|Appropriations: || || || || |
|Consequent to change in group's interest ||- ||- ||(0.96) ||- |
|General reserve ||200.00 ||700.00 ||200.00 ||700.00 |
|Provision for dividend distribution Tax written back ||- ||0.83 ||- ||0.83 |
|Dividend on equity shares (including interim) ||554.80 ||490.69 ||554.80 ||490.69 |
|Dividend distribution tax ||90.00 ||79.60 ||90.00 ||79.60 |
|Total Appropriations ||844.80 ||1269.46 ||843.84 ||1269.46 |
|Balance earned forward to Balance Sheet ||737.01 ||284.76 ||1048.09 ||598.72 |
The Company has paid an interim dividend of 70% (Rs. 1.40 per share) during the year.The Directors are pleased to recommend a final dividend of 110% 2.20 per share). Thus theaggregate dividend for the year 2012 works out to 180% (Rs. 3.60 per share) and the totalpayout will be Rs. 644.80 crores. including dividend distribution tax of Rs. 90 crores.This represents a payout ratio of 50%.
5. MARKET DEVELOPMENTS
The Company's domestic cement sales in 2012 grew by 3.8% to 21.31 million tonnes ascompared to 20.54 million tonnes achieved in 2011. Total cement sales (including exports)grew by 2.5% to 21.43 million tonnes as compared to 20.91 million tonnes achieved in 2011.The company's clinker sales in 2012 grew by 2.4% to 0.55 million tonnes as compared to0.54 million tonnes achieved in 2011.
REGION WISE SALES VOLUME / GROWTH
In the North region, domestic cement sales of the Company grew by 8.9% to 8.79 milliontonnes in 2012 as compared to 8.07 million tonnes in 2011. Clinker sales during 2012 wereat 0.10 million tonnes as compared to 0.12 million tonnes achieved in 2011.
In the Eastern region, the Company achieved sales of 4.22 million tonnes of cement inthe domestic market, registering a growth of 7% over the previous year sales of 3.95million tonnes. Clinker sales also grew by 7% to 0.45 million tonnes in 2012 as comparedto 0.42 million tonnes in 2011.
In the West & South region, the Company's domestic cement sales in 2012 declined by2.6% to 8.30 million tonnes as compared to 8.52 million tonnes achieved in 2011. This wasmainly on account of poor demand owing to the drought-like situation in many parts ofMaharashtra, extended shortage of essential construction materials, poor liquidity, fewernew projects, etc.
Cement exports were reduced further to 0.12 million tonnes as compared to 0.37 milliontonnes in 2011 due to adverse international market and diversion of material to domesticmarket. The Company continues to develop and leverage its large and able network of around8000 dealers and 25,000 retailers across India. Their reach and penetration helps theCompany across the country in core rural and semi-urban markets. This, coupled with thestrong brand equity and efficient channel management, helped the Company to withstandsevere competition in an over-supply market.
While the company's network of ports, bulk cement terminals and captive ships on thewest coast has supported a sustainable and strong market position in Mumbai, Sural andCochin, the Mangalore Bulk Cement Terminal, which is expected to commence commercialoperations in the first half of 20t3. will further strengthen Company's position andenhance footprints in the southern region.
With the support of Holcim's rich experience of operating in 70 countries, the Companyhas now added sophisticated IT and channel management tools to its traditional Indianmodel. This has enhanced Company's capability to face stiff competition more convincinglyand maintain a strong market position.
The Company has embarked upon Marketing and Commercial excellence program (MaCX) tofurther sharpen its marketing, sales and distribution functions. This ambitious program ispart of comprehensive Holcim Leadership Journey (HLJ), announced by Holcim managementacross the globe, to deliver substantial tangible and intangible gains and create value incompetitive environment over next few years. MaCX aims to supplement in-house skills withglobal expertise of Holcim and that of advisory firms, to revamp customer interfacingfunctions by focusing on core value levers. This is an investment to future proof thecompany and to promote environment of innovation and excellence.
6. COST DEVELOPMENTS
The major cost elements of the Company continued their upward movement in line withunyielding inflation in the economy and volatile foreign exchange rates.
MAJOR COST MOVEMENTS:
i) Cost of major raw materials, namely, fly ash and gypsum, increased by 14% and 25%respectively on per tonne basis, mainly on account of increase in transportation costs.Excise burden on fly ash introduced in the Union Budget 2011 continues. Overall, theabsolute raw material costs increased by approx 16% over the previous year. During theyear, the Company did not purchase clinker from open market. Costs on account of rawmaterials consumed, excluding purchased clinker, increased by a little over 18% ascompared to over 2011 costs.
ii) Power and fuel costs registered an increase of around 16% in terms of absolutecosts over last year. These costs account for approximately 30% of total operating costsof the Company and are mainly driven by movement in cost of fuel, especially coal.
Cost of coal used in kilns and power plants increased by 12.5% and 8.6% respectively onan average basis, over the year 2011. Concerns associated with linkage coal, likenon-availability commensurate with increased production, inordinate delay in conversion ofallotted linkages into Fuel Supply Agreements (FSA) and deteriorating quality continues tobe an issue. The Company is proactively taking measures to mitigate expenses by tryingcost-effective fuel mix, exploring energy efficient technologies, and increasing the useof pet coke in lieu of coal. Significant volatility and devaluation in Indian currency in2012, especially in the second half, has made imported coal costlier, even when USDdenominated coal prices relaxed.
Cost of grid power continued its upward movement with per kwh rate increasing atapproximately 6% over the previous year. Expensive thermal power was substituted byrelatively cheaper grid power. Captive power generation supported 60% of total powerrequirements of the Company in 2012 as against 70% in 2011.
Savings on account of efficiency in operations helped reduction of costs by 2% of totalenergy costs.
iii) Freight forwarding costs, makes around 29% of total operational cost, alsohardened by approx 18% in absolute terms over previous year.
iv) Cost of packing went up by around 15% driven by increase in PPgranule prices in line with oil price increase.
COST MITIGATION MEASURES / EFFICIENCY IMPROVEMENT INITIATIVES:
i) The Company continued to focus on production of fly ash based PPC and maintained anaverage blending ratio of approximately 1.48.
ii) The Company has embarked upon an ambitious journey, named 'Holcim LeadershipJourney" (HLJ), as a part of global efforts launched by its parent, Holcim, to addhigher value for its shareholders.
The Company is channelising its efforts into exploring and utilising excellence in theareas of customer development and cost leadership. Focus on customers, products andservices innovation, constructive pricing policies and empowered sales force is expectedto deliver customer excellence. Incisive studies have been initiated to find the mostefficient use of energy resources, maximising usage of Alternative Fuels and Raw materials(AFR), optimisation of clinker and cement movement to save on logistics costs.
iii) Railway siding at Bhatinda grinding unit was made operational in mid January 2013.This will help us to optimise transportation costs for the unit and reduce dependence onroad transport.
iv) A dedicated corridor (road), measuring 8.5 km, connecting highway to our captivejetty at Muldwarka port has been completed to enable the company to shift the entiretransport to Muldwarka port through own road. This would ensure seamless flow ofdespatches to coastal markets using jetty at Muldwarka port, which makes 60% of totaldespatches from Ambujanagar plant. Besides, this would also address some serious concernsof road safety.
v) Dumas Channel, the shorter sea route to BCT Sural explored in year 2011, is beingused extensively and facilitating transportation cost savings in coastal freight.
7. EXPANSION PROJECTS AND NEW INVESTMENTS
The Company took up several projects to serve its customers in a more efficient,cost-effective, reliable and environmentally-friendly manner, while bolstering its marketposition in the industry.
CAPACITY EXPANSION DURING THE YEAR:
In the Eastern region, the Company commissioned a pre-grinder at its Bhatapara unit inthe State of Chhattisgarh at an approximate cost of Rs. 40 crores resulting in an increasein total cement capacity by 0.60 million tonnes per annum. With the above addition, theCompany has achieved cement grinding capacity of 27.95 million tonnes as at 31st December2012.
EFFICIENCY IMPROVEMENT MEASURES:
The Company focussed on consolidation and optimisation of its existing capacities inall the three regions. Capital investments kept flowing in during the year, to ensure thehighest standards of safety in order to meet the company policies of 'Zero Harm', cleanand energy efficient infrastructure, cost efficient and environment-friendly materialhandling systems and process optimisation.
i) Waste Heat Recovery (WHR) project at Rabriyawas unit in Rajasthan was initiated inyear 2011 to bring efficiency in fuel utilisation and optimise power costs. This isexpected to complete by September 2013 at a total cost of Rs. 75 crores. The MarathaCement Works unit in Maharashtra has also taken up this project tor implementation in2013-14 at approximate cost of 7 90 crores.
ii) In order to strengthen logistics capability and extend reach to customers, a newrailway siding project has been initiated at Rabriyawas unit in Rajasthan.
iii) An automatic wagon loading system at Farraka unit in West Bengal being built at acost of approximately 7 32 crores, is nearing completion. This will reduce the costand improve the efficiency of material handling.
UPCOMING CAPACITIES AND INVESTMENTS:
i) A new Bulk Cement Terminal (BCT) is nearing completion at Mangalore. With operationsto commence early 2013, it will help the company to expand its footprints in southernmarkets of India.
ii) A new brown-field expansion project was announced in 2011 at Sankrail Grinding Unitin the eastern region comprising of a roller press and related logistics. The project hasstarted progressing, with extended scope to include advanced technical specifications.This would add 0.80 million tonne grinding capacity to the unit, along with otherfacilities.
iii) Significant cement capacity addition of approximately 4,50 MT at proposedintegrated plant (with extended grinding capacities) is coming up at Marwar Mundwa, Nagaurdistrict in Rajasthan, with associated clinkerisation capacity of 2.20 million tonnes.Environmental clearances for the project are already in place while mining landacquisition is in an advanced stage. The Company is also in the process of tying-up watersources required for construction and operations. Full-fledged construction work isexpected in the later part of year 2013.
iv) The Company has taken up 13 new ambitious projects at different locations worth 7272 crores to optimise and enhance efficiency. These projects have a quick payback of2.5 to 4 years and likely to be completed in first half of 2014.
v) A new brown-field expansion project at the Rabriyawas unit in Rajasthan, forcommissioning a roller press at a cost of Rs. 70 crores, will add 0.30 million tonnegrinding capacity by the end of the year 2013.
vi) Plans are afoot to set up a state-of-the-art blending facility at Sanand in Gujaratwith grinding and mechanised packing facilities at an investment of 7 267 crores.This facility, once operational by the 3rd quarter of 2015, will lend a competitive edgein the nearby central markets of Gujarat.
The year 2013 would see capital expenditure worth 7 1100 crores. over and above 7600 crores investment made in the year 2012. The entire proposed expenditure would befinanced by internal accruals.
ALTERNATIVE FUELS - THE GREEN ENERGY
An ambitious project, named 'Geo20', taken up by the Company to substitute costliertraditional fossil fuels by Alternative Fuels (AF). is progressing well and supportingcost-cutting. Holcim is actively supporting our efforts by making available its world-wideexperience and technical expertise in the area of clean and green technology and burningall sorts of wastes without corresponding release of harmful gases and CO2in the air. Besides, Holcim's rich experience in the area has helped deviseinnovative ways of sourcing.
The Company envisions being the most sustainable Company in the cement industry anddraws heavily on Holcim's sustainability policy on CO2 andenergy, eco-efficient products, atmospheric emissions, sustainable construction, etc. Thestrategic stress on environmentally-friendly and cost effective resources resulted in theestablishment of the Geocycle department to focus on Alternative Fuels and Raw Material(AFR).
In order to optimise the furnaces at 5 of the integrated plants, to support higherutilisation of lower cost, environmentally-friendly, alternative fuels, the Company hasplanned investments involving capital expenditure of 7 200 crores. Some work onthese ambitious projects has already started.
During 2012, the Company increased use of alternative fuels in its kilns from 0.59% in2011 to 1.40% in 2012. The company is determined to achieve higher thermal energysubstitution rates in the coming years.
REFORMS WILL RESULT IN ECONOMIC REVIVAL
The major cost elements of the Company continued their upward movement in line withunyielding inflation in the nation's adverse fiscal deficit and negative current accountbalance calls for some bold rectification measures from the Government. The Governmentappears to be focussing on consolidation of the economic recovery through expeditiousclearances for the projects, selective disinvestment and accelerating foreign directinvestments through policy reforms.
While the impact of some recently announced progressive reforms would reflect only in ayear and a half, the Company agrees with experts and expects GDP to grow in 2013 at around6% plus and the cement industry at 7.5 - 8%. This optimism relies on the positive outlookfor infrastructure and construction, upcoming state and national elections, improvement inmonetary conditions and also possible upturn in investments post the structural reforms.Higher agricultural income, lower interest rates, pre-election welfare and Five Year Planinduced spending by the Government is expected to raise private consumption growth andimprove capacity utilisation in the economy.
GROWTH PROSPECTS FOR THE CEMENT INDUSTRY
Cement demand emanates from four key segments. Namely housing, which accounts forappro- 67% of cement demand, infrastructure (13%). commercial construction (11%) andindustrial construction (9%). Economic reforms announced by the Government and RBI.including the expected lowering of interest rates in 2013. will surely boost sentimentsand rejuvenate the economy.
The cement industry is looking for an up*cycle after muted growth for the last threeyears, backed by an increase in rural consumption and the recovery in the infrastructureactivity. The recent government measures to fast-track infrastructure projects & withgeneral elections a year away, construction activity is expected to pick up steam, leadingto strong demand for cement.
Long-term growth prospects for cement demand are favourable, riding on the back of agrowing economy and the impetus provided to the housing and infrastructure constructionactivities in the 12th Five-Year Plan period (2012-17). The total investment ininfrastructure sectors in the Twelfth Five Year Plan is estimated to be * 56 lakh crores(one trillion USD).
Rising input costs, particularly energy, raw material, freight & distribution, willremain a key challenge for the cement industry. Any adverse changes to existing laws/taxesmay impact the industry. Land acquisition, environment clearances, inadequate supply ofraw materials like limestone, linkage coal & fly ash are likely to hamper expansionplans of many cement companies.
The Company plans to mitigate such cost escalations through varied measures, includingthe increased use of alternative fuels and higher production of blended cement. Theleadership journey adopted by the company will drive cost efficiency and customerexcellence to increase margins. The Company will continuously strive to further strengthenits operational platform to manage cost, remain competitive and create value-addition forstakeholders with a long-term perspective.
9. RISKS AND AREAS OF CONCERN
Coal price escalations, stressed supplies and faltering quality continue to remain amajor area of concern. Depleting coal linkages and volatility in the Indian rupee isescalating the cost concern. The company constantly works on efficiency improvement byplugging heat loss at every possible stage of coal consumption, looking at cost effectivefuel mixes and increasing the usage of alternative fuels. These measures would partlyaddress cost concerns. As a long term solution to energy security, capability developmentin area of utilisation of alternative fuels involving large investments has been taken upunder the banner of 'Geo20\ Waste
Heat Recovery (WHR) systems that improve fuel utilisation, and the tapping of renewableenergy sources are top priorities. Going forward the company realises the importance oftechnological innovations and the extensive usage of alternative fuels for the sustainablereduction in energy costs.
A long term solution to the problem resides in the development of alternative fuel (AF)sources, in particular industrial and agricultural waste materials, for which the Companyis making huge investments under the banner of 'Geo20'. Waste Heat Recovery (WHR) systemsto improve fuel utilisation efficiency would help mitigate fuel-associated risks.Renewable energy sources, such as wind and hydro, are being tapped as far as possible tomitigate the high costs associated with traditional energy sources. This is in line withthe company's vision and mission and to fulfil the Renewal Power Obligation (RPO) recentlyimposed by many states across India.
ORDER OF THE COMPETITION COMMISSION OF INDIA
On 20th June, 2012, the Competition Commission of India (CCI) passed an order imposingunprecedented penalties of more than Rs. 6300 crores against some cement manufacturers ofthe country, including the Company, in the matter of a complaint filed by the BuildersAssociation of India for the alleged contravention of the Competition Law. The penaltyimposed on the Company is Rs. 1164 crores. The Company has filed an Appeal before theCompetition Appellate Tribunal (COMPAT) against the order and for granting stay againstdeposit of penalty. The matter is pending before the COMPAT. The management, backed up bya legal opinion from the external legal counsel, strongly believes that the Company has agood case to succeed before the COMPAT and accordingly, no provision has been made in thebooks of accounts for the year 2012. However, the amount of penalty has been considered ascontingent liability.
DE-ALLOCATION OF COAL BLOCK
The Ministry of Coal allotted a coal block in the State of Maharashtra along with 1STSteel & Power Ltd. and Lafarge India Pvt. Ltd. The block was allotted for the captiveconsumption of the allottees. A joint venture company was formed for coal mining with thecompany holding 27.27% of shares. The JV company was in the process of achieving variousmilestones as per the terms of allocation letter. However, alleging delay in achieving themilestones, the Ministry of Coal passed an Order on 15th November, 2012 de-allocating thesaid coal block and invocation of partial bank guarantee. The Company immediately tiled awrit petition in the Delhi High Court against the said order and the Hon'ble High Courtwas pleased to pass the stay order on 30th November. 2012 against the encashment of bankguarantee. The Appeal is pending before Hon'ble High Court. The Company believes that theprogress made by the JV company in achieving the milestones was quite satisfactory. Thealleged delay is either misconstrued or is for the reasons beyond the control of the JVcompany. In view of these facts, the management strongly believes that the Company has agood case to succeed in the writ pending before the Hon'ble High Court.
ECONOMIC SLOWDOWN COUPLED WITH SURPLUS CAPACITY IN INDUSTRY
Implementation of various reforms and macro-economic initiatives being initiated byGovernment is important. In the absence of the rejuvenation of the national economy,aspired GDP growth may not be achieved, leading to restricted growth in cement demand. Itis perceived that, in this scenario, demand from infrastructure and commercial realitysegments would be constricted. Coupled with capacity additions, the adverse demand supplyscenario would continue, leading to pressure on volumes and prices.
The Company, having clear sight of this risk, is well equipped to continue the growthplan leveraging and building up on its strong brand equity and channel network in the coreretail segment. Marketing and Commercial Excellence (MaCX) would give the desired impetusto achieve excellence and provide a clear mitigation plan.
TAXATION / ADMINISTRATIVE BURDEN
External and internal pressures in the economy, the rising fiscal deficit and fallingsavings and investment rates are some of the challenges before the Government calling forstrict fiscal discipline, rollback of incentive and experimentation with tax laws tomobilise additional sources and improve Tax to GDP ratio. Retrospective tax proposalsstill haunt investors. Introduction of domestic transfer pricing provisions wouldnecessitate change in the way business is conducted in many areas besides entailingadministrative costs.
The much awaited reforms in the field of taxation, i.e. the implementation of Goods andServices Tax (GST) and Direct Tax Code (DTC) are yet to come in. Though the Government hastaken steps towards GST by introducing negative list in service tax. aligning provisionsfor excise and service tax, these have incremental cost impact without correspondingsimplification and reduction in the overall administrative burden on the Industry. Thus,the lack of uncertainty on tax policies remains a concern.
10. HUMAN RESOURCES
BUSINESS EXCELLENCE THROUGH HR LEADERSHIP
Our HR systems and processes are aimed towards making us an employer of choice withsustainable talent. This is in perfect alignment with the company vision of being the mostsustainable and competitive company in the industry. Towards this end, there have beenconstant efforts to ensure a capable talent pipeline.
The core of achieving business excellence lies in a dedicated and talented employeebase. The first step towards this is attracting the right talent through our streamlinedand structured recruitment process. We have structured systems for performance managementand for planning individual development with a vision of creating a wealth of highperformance employees. The organisation also believes in home-grown talent through variousmanagement development programs conducted in association with renowned business schoolslike MM, ISB, NMIMS as well as international B-Schools. We are focusing on creatingleaders across levels and in the early stages of an employee's career. The company hasrecently launched an initiative called "Sustainable Talent for EnhancedPerformance" (STEP) to develop a sustainable pool of leaders equipping them withessential leadership skills and competencies and enhancing their coaching skill capacity.Our people are also exposed to the Holcim way of working through leadership developmentprograms through talent movements to various Holcim operating companies across the globespecially in the areas of finance, safety, projects, manufacturing and commercial.
We believe that the success and milestones achieved during this year has been possiblebecause of our people and robust systems and processes across the organisation.
Over the last couple of years, we have initiated a very important and major ChangeManagement program called "People Power". This comprehensive program has evolvedto manage plant performance at each of our locations, as well as to develop a very strongleadership pipeline. We have completed the roll out of this program at 16 locations of theCompany and have invested significant time and resources for its implementation and tomake this a "way of life".
During 2012, we made significant progress to strengthen all four basic pillars of thisprogram viz:
Organisation Structure and Manning
Technical Model and Capability Building
Cultural Change and Sustainability
This program will make the Company a Continuously Improving Organisation in a truesense. As a part of this program, we have set up a People Power Academy at different plantlocations and have introduced the Academy White Paper and the Academy CertificationProgram to ensure we get best quality people and offer them a visible career progressiontowards future leadership. This has now been embedded into our formal HR systems. Like anychange management program, there are still lots of challenges that remain to be addressedto maintain the level of energy and commitment of our people and to this end, we havedeveloped a comprehensive and objective-oriented 'People Power Excellence Index'. Theindex comprises of more than 50 indicators that give a fair idea of where each locationstands in terms of sustaining The People Power momentum and what specific actions arerequired to excel further.
We have also set up a dedicated PMO (Program Management Organization) at the corporateoffice for driving this change management program. Specific focus is given tocapability-building through various customised programs. We have put in place 7 communitypractices to replicate proven ideas with the help of plant champions. Conscious effortsare being made on unit-specific cultural aspects to build on their strengths and improvedevelopment areas.
We are confident that this program wilt continue to contribute very significantly torealise our vision "to be the most sustainable and competitive Company in ourindustry".
11. SUSTAINABILITY AND ENVIRONMENT
NURTURING SUSTAINABILITY AT THE CORE OF THE COMPANY
We renewed our commitment to sustainable development by revising our vision to be themost sustainable and competitive company in our industry. We continued to pursue oursustainability goals under the overarching 'Sustainability Policy'. In addition weinitiated the implementation of Sustainable Procurement Guidelines aimed at our supplychain. This is aligned to the Holcim Supplier Code of Conduct.
To embed sustainability as a strategic factor in our framework, Sustainability SteeringCommittees were constituted last year. These have continued to assess sustainability risksand opportunities both at the unit and corporate level, and monitor the varioussustainability initiatives. The Company's focus among others is on low carbon growth,being water positive, use of alternative fuel, renewable energy, bio-mass etc. Continuingour participation in the Global Programme of Clean Development Mechanism (COM) we arecurrently pursuing two CDM projects on Smokeless Chulhas in the Community around ourplants and Waste Heat Recovery.
We released our 5th Corporate Sustainable Development Report. The report is alignedwith Global Reporting Initiative (GRI) G3 guidelines for A+ Level of reporting, havingbeen 'Assured' by an independent certifying agency. Additionally, this year's report hasalso been GRI checked.
We continue to focus on developing our renewable energy portfolio in line withRenewable and Clean Energy Roadmap till 2020. We installed 330 KV of Solar energy atBhatapara, Chhattisgarh this year, in addition to the existing 7.5 MW of wind energy atKutch. Gujarat commissioned last year. A 6.5 MW Waste Heat Recovery based power generationsystem is being installed which is expected to be operational by 2013.
The Company is currently monitoring and reporting CO2 emissions as per the WBCSD CementSustainability Initiative (CSI) protocol. The Company is one of the Co-chairs of CSI Indiaand has been part of the Working Group on a Low Carbon Technology Road Map for the IndianCement Industry. The Low Carbon Technology Roadmap report has been released in December2012.
We attained independent third-party assurance for our water footprint. It wasestablished that we are water positive by a factor of two. Further, we meticulouslyestimated our carbon footprint that included our all operations, bulk cement terminals,shipping activity, and offices, as well as offsets due to our plantation initiatives forthe year 2010. This was verified independently by a third party in accordance with theinternational standard ISO 14064:2006.
In recognition of our endeavours in streamlining Corporate Sustainability within ouroperations, we have been awarded the CII Sustainability Award in the category ofcommendation for 'significant achievement' bettering our previous year's performance wherewe were adjudged winners in the category of commendation for 'strong commitment'. Further,we have been rated at Gold Level in the Sustainability Plus rating done by CII. The 100largest companies by market cap and market share were rated against ESG indicators by theCII for the Sustainability Plus rating. The rating was done across 3 categories, namelyPlatinum, Gold and Bronze.
PROACTIVE ENVIRONMENT MANAGEMENT
The Company ensured availability of Continuous Emission Monitoring Systems (CEMS) roundthe year at all the 9 kiln stacks above 95% for online monitoring of all vital pollutionparameters.
Three of our grinding units have attained certifications to the Energy ManagementSystem as per ISO 50001:2011. Our Rabriyawas unit is in the process of implementing thestandard. In addition to mapping the energy saved, corresponding greenhouse gas mitigationachieved through this initiative shall also be monitored.
The company has taken steps to ensure it meets its commitments under the PAT scheme andRPO-REC obligations. Further, we are anticipating emission standards to be notified forS02 and NOx emissions. We are taking steps to monitor and control our emissions so that wecan meet the requirements of the new standard as and when they are notified.
Most of our plants have done well in the Holcim Plant Environment Profile (PEP] annualassessment. While the Company average equalled the Holcim average score in the integratedunits, 4 of them scored above the Holcim average. Both individually and Company level, allthe grinding units have scored above the Holcim average PEP 2011 score.
As in previous years, this year we participated in Carbon Disclosure Project to makeour carbon emissions public as per CSI protocols.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
STRENGTHENING COMMUNITIES ACROSS THE COUNTRY
Ambuja Cements Ltd. is among very few companies that invest more than 2% of their netprofit in CSR. much before the new Companies Bill makes it mandatory for the corporatesector. The Company has clearly identified the community as one of the significantstakeholders, and is keenly interested in responding to their needs in a systematicmanner. This guides our efforts in community development.
Ambuja Cement Foundation (ACF), the CSR arm of the Company, has identified a broadspectrum of development initiatives, addressed macro level issues by strategising at themicro level, and subsequently replicated and scaled-up work, leading to larger impact.
When Ambuja Cements initially began identifying the needs of the communities, wateremerged as a prime requirement in Gujarat and Rajasthan amongst the most ecologicallyfragile regions of the country. Gujarat faces the problem of sea-water intrusion andingress; while Rajasthan faces perennial droughts and scarcity of water. Our multi-prongedapproach resulted in several projects aimed at water conservation and its effective usage,both for domestic as well as agricultural purposes. This extensive effort in waterresource development over a period of time, has resulted in contributing to thewater-positive status of the Company. The scale of work has been possible only due toextensive networking with other development organisations and project-based partnershipswith various government departments.
In Gujarat this year, aside from continuing to build and interlink waterharvesting structures, promoting micro irrigation and creative awareness on effectiveutilisation of water, ACF. in collaboration with the Government of Gujarat completedconstruction of a major check dam at Bhekheshwar to help recharge ground water. TheBhekeshwar dam has a water storage capacity of 1.01 MCM.
In Rajasthan, ACF's approach consists of reviving traditional water harvestingsystems like village ponds, khadins - a system of runoff farming, innovations likesub-surface dykes on sandy river beds and promoting Roof Rainwater Harvesting Systems(RRWHS) in the region. These methods have had an impact on the drinking water availabilityas well as the irrigation potential to increase the area under cultivation. RRWHS hasproved itself as a sustainable solution to address the issue of access to drinking waterat the household level. Ambuja Cements, with its sustainability agenda, now has a cleargoal for each functional unit to be water positive. ACF is now focussing its efforts onvarious water resource developments in each location.
Lack of employment opportunities and access to skill up gradation is another complexissue taken up at ACF through its livelihood promotion programs. Wateragriculture being a primary occupation for the majority people around our plants, ourCSR activities focus on agro-based livelihood programs which include promotion of Systemof Rice Intensification (SRI), organic farming, mushroom cultivation, honey collection,horticulture promotion, training programme on scientific and recommended agriculturalpractices through Krishi Vigyan Kendra at Kodinar. Additionally, in Rajasthan. with thesupport of Rajasthan State Seed Corporation, a large project on seed production isenabling higher returns for farmers.
By way of promoting weather-based insurance, ACF is also enabling farmers to bettermanage risk in agriculture crops. Since March 2010. ACF has participated in the BetterCotton Initiative, a global project to makes cotton production sustainable forproducers and the environment. The projects now reaches out to over 7000 farmers and about93% of the participating farmers have qualified as per BCI parameters.
To create alternate sources of employment and bridge the gap between required andavailable skills. ACF's 17 Skill and Entrepreneurship Development Institutes (SEDI) havetrained over 9000 candidates in over 40 different trades. Systematic study, analysinglocal demands for skills and maintaining market and industry linkages has helped theseinstitutes promote gainful employment with a placement rate of over 75%.
Health and Sanitation are important indicators for Human Development Index (HDI),and have prime significance in ACF's efforts in the area of social development. Thecomprehensive program, evolved over a period of time, places emphasis on clinical,preventive, as well as promotive healthcare. Across locations, a large team of 312 Sakhis(Village Health Functionaries) play a vital role in ensuring improved access to healthfacilities for all in the communities. These Sakhis are periodically trained by ACF toenhance their knowledge, capacities and skills in handling primary healthcare needs at thevillage level, and working closely with the gram panchayat and village health andsanitation committees (VHSCs) to improve health and sanitation facilities in the villages.Many of our units have taken measures to link Sakhis with government/government supportedprograms. Currently over 115 Sakhis have been absorbed as ASHA workers under NRHM,anganwadi workers or as anganwadi helpers.
We have continued to work on education and prevention of HIV/AIDS with truckersand migrant workers around our plants by providing services such as STI treatment,counselling and awareness sessions.
Ambuja Manovikas Kendra (AMK) at Ropar, is a centre of special education workingfor the welfare of persons with autism, cerebral palsy, mental retardation and multipledisabilities since 1999. The school provides various therapies and programmes for childrenalong with a strong emphasis on outdoor games. To reach the maximum number of specialchildren in need, this year AMK introduced a 'home-based rehabilitation programme' underwhich special educators from the school visit children at home on a weekly basis. This waythe school creates access for those children in need of specialised services, but cannotgo to school.
After the stellar performance of 4 of our AMK students in World Special Olympics 2011held in Greece this year, our athletes won 13 Gold, 07 silver and 02 Bronzemedals in athletic events in the Special Olympics Bharat, Punjab Chapter. Five studentsfrom AMK were adjudged best athletes of the tournament. AMK also won the "OverallChampionship Trophy" of the tournament and was adjudged the Best Institution insports in Punjab for a record 7th year in a row.
Clearly identifying groups of stakeholders helps the Company to respond to their needsin a focused manner. We endeavour to evolve active participation of various stakeholdersin the process of planning, implementation and monitoring of various programs. We set up aCommunity Advisory Panel (CAP) at each of our locations. This panel hasrepresentatives from the Company as well as from the host communities, including the localadministration, and is constituted to present the views and opinions of the people anddiscuss and build consensus on initiatives for the Company to implement jointly with thepeople in the area.
In the year 2012, all operational sites reviewed our CSR through our SocialEngagement Scorecard (SES). The exercise provided an opportunity for the community toreview and evaluate ACF's work. The scorecard result this year has been a rating of 75-100%across locations.
The Ambuja Volunteerism Program launched last year provides an opportunity tor ouremployees to engage and participate in the Company's social development projects. In 2012Ambuja Cements saw 1695 employees dedicating their services. Their volunteering effortsamounted to approximately 16.885 hours.
12. OCCUPATIONAL HEALTH AND SAFETY (OH&S)
WORKING TOWARDS "ZERO HARM" FOR OUR PEOPLE
We believe OH&S is one of our core values and we strive for "Zero Harm"to our employees, contractors and visitors.
A review of the Company's OH&S performance has led to addition of some key actionareas and a further reiteration of the earlier objectives. The key focus areas are:
1) Increase visible leadership in OH&S by the Front Line Management. Apart from theannual OH&S targets, each operational plant undertook one additional initiative basedon the Fatality Prevention Element (FPE) of Ambuja Cement.
2) Fatality Prevention Elements include working at heights, isolation and lockout,vehicle and traffic safety. These were implemented across our sites with a target of40-60%. The quality of implementation was assessed through an external certifying agency.
3) A formal OH&S management system, aligned with the Holcim OH&S Pyramid Systemand other directives, has been established over the past few years across theorganisation. All sites were assessed for implementation of the Holcim OH&S PyramidSystem through an external certifying agency The scores from the OH&S pyramidassessment were excellent and a clear demonstration of the implementation of an integratedOH&S management system in our operations.
4) Each of our plants has taken steps to ensure there is no reoccurrence of fatalincidents within the organisation, on the basis of investigation reports. A similarinitiative was also undertaken for fatalities reported within ACL since 1st January 2008,potential fatalities reported within ACL and fatalities reported within Holcim World since1st January 2012.
5) To reduce Risk Exposure through the application of the OH&S Management system,the following actions were initiated:
An interface between ACL OH&S Management system, Maintenance Cement (MAC)and the integration of Alternative Fuel & Raw Materials (AFR) OH&S (ACertrequirements) in the ACL OH&S management system was established.
A road map was developed for the implementation of OH&S directive for theContractor Safety Management System (CSM). Implementation of CSM was initiated among thehigh-risk category of contractors.
A process was initiated for the integration of OH&S requirements during theplanning and execution of a shutdown by applying the ACL OH&S management system. Riskassessments were conducted for all activities during the shutdown.
6) We established risk-specific and competency-based training as per the requirementsof the targeted Fatality Prevention Elements and other OH&S directives.
The Company is committed to reduce OH&S risks through continuous efforts and theintegration of OH&S requirements with other business processes. It makes us proud thattwo of our integrated plants -Rabriyawas and MCW have received National safety awards andFICCI Gold respectively, in recognition of their safety performance.
13. EMPLOYEE STOCK OPTION SCHEME
During the year, the Company has not granted any fresh stock option to its employees.
The particulars as on 31st December, 2012 as required to be disclosed pursuant toClause 12 of SE8I (Employees Stock Option Scheme) Guidelines 1999. in respect of past ESOSare as follows:
CUMULATIVE POSITION AS ON 31ST DECEMBER, 2012:
|Nature of disclosure ||Particulars || |
|a. Options granted ||37776800 || |
|b. The pricing tormula ||2007 to 2010 || |
| ||The exercise price was determined by averaging the daily closing price of the Company's equity shares during 7 (seven) days on the National Stock Exchange immediately preceding the grant || |
| ||2004-05 & 2005-06 || |
| ||The exercise price was determined by averaging the daily closing price of the Company's equity shares during 15 (fifteen) days on the National Stock Exchange immediately preceding the grant || |
| ||2003-2004 || |
| ||The exercise price was determined by averaging two weeks' High and Low price of the Company's equity shares on the National Stock Exchange immediately preceding the grant || |
| ||1999 2000 to 2002-2003 || |
| ||The exercise price was the average of the daily closing price of equity shares of the Company on the Stock Exchange, Mumbai during the period of 30 (thirty) days immediately preceding the date on which the options were granted || |
|c. Options vested ||32845925 || |
|d. Options exercised ||22680900 || |
|e. The total number of shares arising as a result of exercise of options ||Total number of shares arising as a result of exercise of options shall be 44041507 shares of Rs. 2 each || |
|f. Options lapsed / surrendered ||4930875 || |
|g. Variation of terms of option ||- || |
|h. Money realised by exercise of options ||Rs. 303.91 crores || |
|1. Total number of options In force ||10165025 || |
|j. i) Details of options granted/exercised by the former Managing Director and the former whole-time Directors ||No. of options granted ||No. of options exercised |
| ||32.85,000 ||26.00,000 |
|ii) Any other employee who received a grant In any one year of 5% or more of options granted during that year ||NIL ||NIL |
|k. Employees who were granted options during any one year, equal to or exceeding 1%of the issued capital of the Company at the time of grant ||NIL || |
|l. Diluted earning per share (EPS) pursuant to issue of shares on exercise of options calculated In accordance with Accounting Standard AS-20 ||Rs.8.41 || |
| ||200304 ||2004-05 ||2005-06 ||2007 ||2008 ||2009 ||2010 |
|m. Weighted average exercise price of options in Rs. ||310* ||443* ||69.60** ||113** ||82** ||96** ||119** |
|Weighted average fair value of options in Rs. ||67.44* ||96.73* ||19.23** ||29.28** ||16.95** ||26.38** ||39.37** |
*Options related to Equity Shares of the face value of Rs 10/-. ** Options related toequity shares of the face value of Rs 2/-.
As required under SEBI guidelines on ESOS, the information disclosed in respect of item(m) is for grants made after June 30, 2003.
14. CORPORATE GOVERNANCE
The company has complied with the corporate Governance requirements as stipulated underthe listing agreement with the stock exchanges. A separate section on corporategovernance, along with a certificate from the auditors confirming the compliance, isannexed and forms part of the Annual Report.
CORPORATE GOVERNANCE VOLUNTARY GUIDELINES:
The majority of the Corporate Governance Voluntary Guidelines. 2009. stand compliedwhile complying with the requirements under the Companies Act, 1956. the ListingAgreement, and the Company's own governance policies.
15. BUSINESS RESPONSIBILITY REPORT
The Business Responsibility Report for the year ended 31st December. 2012 as stipulatedunder clause 55 of the Listing Agreement is annexed and forms part of the Annual Report.
16. INTERNAL CONTROL SYSTEM
The Company has documented robust and comprehensive internal control systems for allthe major processes to ensure reliability of financial reporting, timely feedback onachievement of operational and strategic goals, compliance with policies, procedures,laws, and regulations, safeguarding of assets and economical and efficient use ofresources.
The formalised systems of control facilitate effective compliance as per Clause 49 ofthe Listing Agreement, and article 728 (a) of the Swiss Code of Obligations applicable tothe Holcim Group from 2008.
The Company's Internal Audit department tests, objectively and independently, thedesign and operating effectiveness of the internal control systems to provide a credibleassurance about their adequacy and effectiveness to the Board and the Audit Committee. TheInternal Audit function assesses the effectiveness of controls to provide an objective andindependent opinion on the overall governance processes within the company, including theapplication of a systematic risk management framework.
The scope and authority of the Internal Audit activity are well defined in the InternalAudit Charter, approved by the Audit Committee. Internal Audit plays a key role byproviding an assurance to the Board of Directors and value adding consultancy service tothe business operations.
17. MANAGING THE RISKS OF FRAUD, CORRUPTION AND UNETHICAL BUSINESS PRACTICES
Fraud and corruption-free work culture has been the part of the Company's DNA allalong. In view of the potential risk of fraud and corruption due to rapid growth andgeographical spread of the operations, the Company has put even greater emphasis toaddress this risk. To meet this objective a comprehensive Fraud Risk Management Policy(FRMP) has been laid down. More details on FRMP have been given in the CorporateGovernance Report.
In furtherance to the Company's philosophy of conducting business in a honest,transparent and ethical manner, the Board has laid down the Anti-Bribery and CorruptionDirectives (ABCD) as part of the Company's Code of Business Conduct and Ethics. As aCompany, we take a zero-tolerance approach to bribery and corruption and we are committedto acting professionally and fairly in all our business dealings.
To spread awareness about the Company's commitment to do its business professionally,fairly and free from bribery and corruption, training and awareness workshops areconducted through an independent consulting firm for all the relevant employees of theCompany.
These policies and their implementation are closely monitored by the Audit and theCompliance Committees of Directors and reviewed by the Board from time to time.
RETIREMENT BY ROTATION
In accordance with the provisions of Article 147 of the Articles of Association of thecompany, (i) Mr. M.L. Bhakta (ii) Mr. Naresh Chandra and (iii) Mr. Onne van der Weijdewill retire by rotation at the ensuing Annual General Meeting of the Company.
(i) Mr. M.L. Bhakta.
Mr. Bhakta will retire at the ensuing Annual General Meeting of the Company. Mr. Bhaktahas conveyed that he does not intend to seek re-election and will retire upon completionof his term at the ensuing Annual General Meeting.
Mr. M.L. Bhakta joined the Board in September, 1985. He was amongst the firstNon-executive Independent Directors on the Company's Board, much before the termIndependent Director became common in the Indian corporate sector. Over the lasttwo-and-a-half decades, Mr. Bhakta played an active role by providing expert advice andguidance to the Board and its committees on issues ranging from legal, taxation,governance etc.
(ii) Mr. Naresh Chandra
Mr. Chandra will retire at the ensuing Annual General Meeting of the Company. Mr.Chandra has conveyed that he does not intend to seek re-election and will retire uponcompletion of his term at the ensuing Annual General Meeting. Mr. Naresh Chandra joinedthe Company's Board in July, 2008 and during this period he guided the Board and itscommittees on the issues of governance, compliance, health and safety, etc.
The Board placed on record its appreciation for the valuable services rendered by Mr.M.L. Bhakta and Mr. Naresh Chandra.
In terms of Section 256(4) of the Companies Act. 1956. the vacancies created by theretirement of Mr. M.L. Bhakta and Mr. Naresh Chandra shall not be filled and a resolutionto that effect is proposed for the approval of the Members at the ensuing Annual GeneralMeeting.
(iii) Mr. Onne van der Weijde will retire by rotation at the ensuing Annual GeneralMeeting and being eligible, offers himself for re-appointment. The Board recommends hisappointment.
Mr. Haigreve Khaitan and Mr. B.L. Taparia have been appointed as Additional Directorsunder Section 260 of the Companies Act, 1956 to hold office up to the date of ensuingAnnual General Meeting and being eligible, has offered themselves for appointment.
(i) Mr. Haigreve Khaitan
Mr. Khaitan. aged 42 years is a Law graduate and is a partner of Khaitan & Co'sMumbai office. He heads Khaitan & Co's Mergers & Acquisition (M&A) practiceand over the years he has successfully handled many M&A. private equity and projectfinance transactions. He has published books and articles on foreign investments andarbitrations and has been a distinguished speaker at various conferences. He is alsoaffiliated with various Bar Councils and Law Institutes of India and abroad. He has beenappointed as Non-executive Independent Director on the Board of the Company w.e.f. 27thJuly, 2012.
(ii) Mr. B.L. Taparia
Mr. Taparia, aged 62 years is Commerce and Law graduate and a fellow member of theInstitute of Company Secretaries of India. He has over 40 years of experience in thefields of Legal. Secretarial, Finance and Accounts. Commercial, Corporate Strategies, HR,Health and Safety, CSR, Sustainability. etc. He joined the Company in the year 1983 as aDeputy Company Secretary and after working at different positions, he was appointed asWhole-time Director in the year 1999, where he served till the year 2009. After steppingdown from the Board. Mr. Taparia continued on the Executive Committee as a Legal Head,Company Secretary and Head of some key corporate functions. He superannuated from theCompany in July. 2012. Considering his vast knowledge and experience and expertise inhandling critical functions, he was appointed as Non-executive Director on the Board ofthe Company w.e.f. 1st September, 2012.
The board of directors recommends their appointment. Further details about theseDirectors are given in the Corporate Governance Report as well as in the Notice of theensuing Annual General Meeting being sent to the shareholders along with the AnnualReport.
19. DIRECTORS' RESPONSIBILITY
Pursuant to Section 217 (2AA) of the Companies Act, 1956 as amended, theDirectors confirm that:
i) In the preparation of the annual accounts, the applicable accounting standards havebeen followed along with proper explanations relating to material departures.
ii) Appropriate accounting policies have been selected and applied consistently, exceptfor the change in accounting policies stated in notes to the accounts and judgments andestimates made are reasonable and prudent, so as to give a true and fair view of the stateof affairs of the Company as on 31st December, 2012, and of the statement of profit &loss and cash flow of the company for the period ended 31st December, 2012.
iii) Proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act, 1956 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities.
iv) The annual accounts have been prepared on a going concern basis.
M/s S. R. Batliboi & Co, Statutory Auditors, will retire at the ensuing AnnualGeneral Meeting and are eligible for re-appointment. M/s S. R. Batliboi & Co. haveconfirmed that their re-appointment, if made, shall be within the limits specified underSection 224(1 B) of the Companies Act, 1956.
The Board recommends their re-appointment as Statutory Auditors and to fix theirremuneration.
COST AUDITORS AND COST AUDIT REPORT
Pursuant to section 233B(2) of the Companies Act 1956, the Board of Directors on therecommendation of the Audit Committee appointed M/s. P.M. Nanabhoy & Co. CostAccountants, as the Cost Auditors of the Company for the Financial Year 2013. M/s. RM.Nanabhoy & Co. have confirmed that their appointment is within the limits of theSection 224 (1B) of the Companies Act, 1956 and have also certified that they are freefrom any disqualifications specified under Section 233B(5) read with Section 224sub-section (3) or sub-section (4) of Section 226 of the Companies Act 1956.
The Audit Committee has also received a certificate from the Cost Auditor certifyingtheir independence and arm's length relationship with the Company. Pursuant to Cost Audit(Report) Rules 2001. the Cost Audit Report for the financial year 2012 was filed on 27thDecember. 2012 vide SRN No. S19608587 on the Ministry of Corporate Affairs website.
21. TRANSFER TO INVESTOR EDUCATION AND PROTECTION FUND
The Company has transferred a sum of Rs. 59.50 lacs during the financial year 2012 tothe Investor Education and Protection Fund established by the Central Government, incompliance with Section 205C of the Companies Act, 1956. The said amount representsunclaimed dividends which were lying with the Company for a period of 7 years from theirrespective due dates of payment. Prior to transferring the aforesaid sum. the Company hassent reminders to the shareholders for submitting their claims for unclaimed dividend.
22. ENERGY, TECHNOLOGY AND FOREIGN EXCHANGE
Information on conservation of energy, technology absorption, foreign exchange earningsand outgo, is required to be given pursuant to Section 217 (1) (e) of the Companies Act.1956 read with the Companies (Disclosure of Particulars in the Report of the Board ofDirectors) Rules. 1988 is annexed hereto marked Annexure- I, and forms part of thisreport.
23. PARTICULARS OF EMPLOYEES
The information required under Section 217 (2A) of the Companies Act, 1956 read withCompanies (Particulars of Employees) Rules, 1975 as amended, In respect of the employeesof the Company, is provided in the Annexure forming part of this Report. In terms ofSection 219(1)(b)(iv) of the Act. the Report and Accounts are being sent to the membersand others entitled thereto, excluding the aforesaid Annexure. The Annexure is availablefor inspection by the members at the Registered Office of the Company during businesshours on working days up to the date of the ensuing Annual General Meeting. If any memberis interested in obtaining a copy thereof, such member may write to the Company Secretary,whereupon a copy would be sent.
24. SUBSIDIARY COMPANIES
Ministry of Corporate Affairs, Government of India, vide its circular dated 8thFebruary. 2011 has exempted companies from attaching the Annual Reports and otherparticulars of its subsidiary companies along with the Annual Report of the Companyrequired u/s 212 of the Companies Act 1956. Therefore, the Annual Reports of thesubsidiary companies viz. (1) Chemical Limes Mundwa Pvt. Ltd. (2) M.G.T Cements Pvt. Ltd.(3) Kakinada Cements Ltd. (4) Dang Cement Industries Pvt. Ltd. (5) Dirk India Pvt. Ltd.and (6) Dirk Pozzocrete (MP) Pvt. Ltd. are not attached with this Annual Report. However,a statement giving certain information as required vide aforesaid circular dated 8thFebruary. 2011 is placed along with the Consolidated Accounts.
The annual accounts of the subsidiary Companies are kept for inspection by theshareholders at the Corporate (Head) Office of the Company. The Company shall provide freeof cost, the copy of the Annual Accounts of its subsidiary companies to the shareholdersupon their request.
25. CONSOLIDATED FINANCIAL STATEMENTS
As stipulated by Clause 32 of the listing agreement with the stock exchanges, theconsolidated financial statements have been prepared by the Company in accordance with theapplicable accounting standards issued by The Institute of Chartered Accountants of India.The audited consolidated financial statements together with Auditors' Report form part ofthe Annual Report.
The consolidated net profit of the Company and its subsidiaries amounted to Rs. 1293.21crores for the corporate financial year ended on 31st December. 2012 as compared to71297.06 crores on a standalone basis.
26. EQUAL OPPORTUNITY EMPLOYER
The Company has always provided a congenial atmosphere for work to all sections of thesociety. It has provided equal opportunities of employment to all without regard to theircaste, religion, colour, marital status and sex.
27. AWARDS AND ACCOLADES
(a) It is a matter of great pride that in recognition to the Company's efforts in thearea of sustainability, the Company was presented the CM Sustainability Award. 2012(Commendation Certificate for Significant Achievement) by the Hon'ble President of India,Shri Pranab Mukherjee.
At the same award ceremony, the company's MCW unit at Chandrapur was also presentedwith "Commendation on Strong Commitment" in sustainability by the Hon'blePresident of India.
(b) Our mines continued to be adjudged among the best mines in their respective regionsby the Director General of Mines on various parameters such as mine working, maintenance,innovations, health & safety, training, environment protection, etc.
(c) The CII conferred the "National Award for Excellence in Water Management"to our Rabriyawas unit and Marwar Mundwa project site in the 'Beyond the Fence' Category.
(d) Our Rabariyawas unit won the runner-up prize at the in National Safety Awards fromthe Ministry of Labour.
(e) Our MCW unit at Chandrapur received the Maharashtra Safety Award from the NationalSafety Council.
(f) Our MCW unit at Chandrapur also received the Environment Excellence Award from theGreentech Foundation.
(g) Ambuja won the "Zee Business Good Homes Awards" in the "Best AmongstEquals Brand" category.
28. CAUTIONARY STATEMENT
Statements in the Directors' Report and the Management Discussion and Analysisdescribing the Company's objectives, expectations or predictions, may be forward lookingwithin the meaning of applicable securities laws and regulations. Actual results maydiffer materially from those expressed in the statement. Important factors that couldinfluence the Company's operations include: global and domestic demand and supplyconditions affecting selling prices, new capacity additions, availability of criticalmaterials and their cost, changes in government policies and tax laws, economicdevelopment of the country, and other factors which are material to the businessoperations of the Company.
Your Directors take this opportunity to express their deep sense of gratitude to thebanks, Central and State governments and their departments and the local authorities fortheir continued guidance and support.
We would also like to place on record our sincere appreciation for the commitment,dedication and hard work put in by every member of the Ambuja family. To them goes thecredit for the Company's achievements.
And to you. our Shareholders, we are deeply grateful for the confidence and faith thatyou have always reposed in us.
For and on behalf of the Board,
N. S. Sekhsaria
Mumbai. 7th February, 2013
Annexure - I
DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTIONAND FOREIGN EXCHANGE EARNINGS AND OUTGO AS REQUIRED UNDER COMPANIES (DISCLOSURE OFPARTICULARS IN REPORT OF BOARD OF DIRECTORS) RULES, 1988
A) CONSERVATION OF ENERGY
(a) Energy Conservation Measures taken:
(1) Optimisation of Process & Equipments at Various Locations:
(i) Modification of various stages cyclones (Bhatapara, Rabriyawas)
(ii) Installation of Belt Bucket Elevator in place of aeropole for Raw Meal Silo feed.(Bhatapara)
(iii) Optimization of fuel mix. (Rabriyawas, Maratha, Ambujanagar)
(iv) Optimization of fans, bag filters & compressed air (Rabriyawas, Suli, Rauri,Dadri, Nalagarh)
(v) Installation of fuzzy logic control Cement Mill, Kiln and Cooler operation.(Bhatapara)
(vi) Modification & Optimization of raw mills, clinker cooler (Rabriyawas,Ambujanagar, Maratha, Rauri, Suli, Bhatapara)
(vii) Optimisation of cement mill and packing plant. (Roorkee, Nalagarh, Dadri)
(viii) Mechanised feeding system for Plastic Shredder. (Ambujanagar)
(ix) Maximise AFR usage by installation of AFR burnout chamber in SLC TA duct.(Rabriyawas)
(2) Installation of Speed Control Devices:
(i) Installation of Grid Rotor Resistance control in Bag house fan and AC drives inpacking plant. (Dadri)
(ii) Installation of speed control devices like VVF drives in fans of variousequipments. (Farakka, Sankrail, Bhatapara, Nalagarh, Bathinda, Suli)
(iii) SPRS Retrofitting from SLC Fan to Bag House Fan (Rabriyawas)
(3) Energy Conservation Measures for Plant & Township lighting:
(i) Installation of Light Emitting Diode (LED) and optimisation of lighting voltage.(Sankrail, Nalagarh, Maratha, Dadri)
(ii) Installation of lighting transformer. (Sankrail)
(iii) Transparent roof sheet in workshop to utilise day light. (Rabriyawas)
(4) Installation Of Energy Efficient Equipments:
(i) Installation of SPRS. (Rauri, Suli)
(ii) SPRS Retrofitting from SLC Fan to Bag House Fan (Rabriyawas)
(iii) Installation of less capacity compressor. (Dadri)
(iv) Installation of FRP fan impellor. (Bathinda)
(5) Solar and Wind Power Utilization:
(i) Solar lighting and heating system. (Nalagarh, Dadri, Roorkee)
(ii) 3*100 KW SVP solar energy plant. (Bhatapara)
(b) Additional investments and proposals, if any, being implemented for reduction ofconsumption of energy:
(1) Optimization of Process &Equipments at various locations:
(i) Modification in ILC calciner and better yard management. (Rabriyawas)
(ii) Coal mill up gradation with Dynamic Separator, Separate Fly Ash Grinding andBlending System. (Ambujanagar)
(iii) Installation of Expert Optimiser for Gaj-1. (Ambujanagar)
(iv) Raw mix and fuel mix optimization. (Ambujanagar, Bhatapara and Rabriyawas)
(v) Energy audit and bag filter optimisation. (Roorkee, Rabriyawas)
(2) Installation of Speed Control Devices:
(i) Installation of V VF Drives in various equipments. (Dadri, Rabriyawas, Rauri, Suli,Farakka, Nalagarh, Bhatapara, Bathinda)
(3) Energy Conservation Measures for Plant & Township lighting:
(i) Two way belt, lighting arrangement for silo tunnel auto start / stop of HTCapacitor with HT motor from CCR. (Dadri)
(ii) Energy and compressed air audit for power consumption. (Farakka, Roorkee)
(iii) Installation of Capacitor Banks. (Bhatapara)
(iv) Tipping of Raw Mill Fan, Kiln inlet enlargement with inlet seal replacement &riser modification. (Rauri, Suli)
(4) Installation of Energy Efficient Equipments:
(i) SPRS Installation for raw mill, preheater fan, cooler fan, ESP fan, coal mill fan.(Dadri, Rabriyawas, Suli)
(ii) LED lighting system. (Dadri, Rabriyawas, Sankrail)
(iii) Replacement of cooler fans. (Rabriyawas, Suli)
(iv) Power Transmission Line to BCT-Muldwarka from Ambujanagar. (Ambujanagar)
(v) Sepa Fan impeller replacement. (Bathinda)
(5) Solar and Wind Power Utilization:
(i) Installing 80 KW solar plant. (Surat)
(c) Impact of the measures at (a) and (b) above for reduction of energy consumption andconsequent impact on the cost of production of goods: Measures referred to in (a) willresult in saving of Rs. 35.34 crores per annum. Measures referred to in (b) is expected toresult in saving of Rs. 26.56 crores per annum.
(d) Total energy consumption and energy consumption per unit of production:
Information given in the prescribed Form-A annexed.
B) TECHNOLOGY ABSORPTION
Efforts made in technology absorption are given in prescribed
C) FOREIGN EXCHANGE EARNINGS AND OUTGO
(a) Activities relating to exports; initiatives taken to increase exports; developmentof new export markets for products & services; and export plans:
In view of good growth in domestic demand and fall in international demand and prices,the Company has reduced its exports to 0.89 lacs tonnes of cement as against 3.28 lacstonnes in the previous year. In terms of value, the exports during this year amounted toRs. 26.87 crores (FOB) as against Rs. 76.94 crores (FOB) in the previous year.
(b) Total foreign exchange used and earned:
|Category ||Current Year ||Previous Year |
| ||(Rs. in crores) ||(Rs. in crores) |
|Used ||881.32 ||552.43 |
|Earned ||53.34 ||72.00 |
FORM - A
(See Rule 2)
Form for Disclosure of Particulars with respect to Conservation of Energy
| ||Current Year ||Previous Year |
| ||Jan to Dec 2012 ||Jan to Dec 2011 |
|A. POWER & FUEL CONSUMPTION || || |
|1 Electricity * || || |
|(a) Purchased || || |
|Units (KWH) Crores ||65.82 ||53.16 |
|Total amount (Rs. in Crores) ||341.91 ||257.85 |
|Rate / Unit (Rs. ) ||5.19 ||4.85 |
|(b) Own Generation || || |
|( i ) Through DG Generator || || |
|Net Units (KWH) Crores ||3.31 ||5.61 |
|Net Units / Ltr of LDO / Furnace Oil ||3.77 ||3.77 |
|LDO / Furnace Oil Cost / Unit Generated (Rs. ) ||10.29 ||8.94 |
|( ii ) Through Steam Generator || || |
|Net Units (KWH) Crores # ||115.57 ||120.01 |
|Net Units / T of Fuel ||796 ||764 |
|Oil / Gas Cost / Unit ||3.84 ||3.51 |
|( iii ) Through Wind Mill / Solar Power || || |
|Net Units (KWH) Crores $ || |
|Net Units / T of Fuel || |
|Oil / Gas Cost / Unit ||NIL ||NIL |
|2 Coal & Other Fuels || || |
|Quantity (Million K. Cal) ||11643842 ||10869166 |
|Total Cost (Rs. in Crores) ||1354 ||1124 |
|Average Rate (Rs. / Million K.Cal) ||1162.99 ||1034.02 |
|3 Light Diesel Oil / HSD || || |
|Quantity (K.Litres) ||2577.05 ||3299.15 |
|Total Cost (Rs. in Crores) ||11.01 ||13.38 |
|Average Rate (Rs. / K.Litre) ||42742 ||40546 |
|4 Others / Internal Generation || || |
|Quantity || |
|Total Cost ||NIL ||NIL |
|Rate / Unit ||NIL ||NIL |
|B. CONSUMPTION PER UNIT OF PRODUCTION ||Industry Norms || || |
|Electricity (KWH / T of Cement) ** ||100 ||80.9 ||82.6 |
|LDO (Ltr / T of Clinker) ||N.A. ||0.15 ||0.22 |
|Coal & Other Fuels (K.Cal / Kg of Clinker) ||800 ||736 ||739 |
* Total power consumed includes 0.10 Crore kwh consumed for Capital Work in progressfor project work (previous year 0.34 Crore kwh) and also for distribution activities 0.70crore kwh. (previous year 0.70 crore kwh)
** Does not include Electricity consumed in residential colony which is 0.58 kwh /tonne of cement. (previous year 0.63 kwh / Tonne of cement). Total specific powerconsumption has been reworked due to change in allocation method of indirect power,previous years figure has also been restated accordingly.
# Includes 0.14 crore units of TG-power sold. (previous year 3.21 crore units)
$ Includes 0.08 crore units of Wind Mill power sold. (previous year 0.19 crore units)
FORM - B
(See Rule 2)
Form for disclosure of particulars with respect to Technology Absorption
A. RESEARCH AND DEVELOPMENT (R&D)
1) Specific areas in which R & D carried out by the Company:
a. Developing technology for utilization of industrial waste plastics, Vacuum cleaningmachine - to reduce fugitive emission. (Maratha)
b. Imported & indigenous gypsum mix Optimization. (Bathinda)
c. Trials with grinding aid. (Maratha)
2) Benefits derived as a result of above R & D:
a. Closed system to eliminate dust and other contaminants, reduction in CO2 emission bysequestration.
b. Increase TSR%, Reduction in fugitive emission.
c. Reduction in clinker factor, Increase in product quality and reduction in productioncost.
3) Future plan of action: a. Trial for grinding aids. (Surat, Bathinda) b. Developmentof techniques for utilizing industrial waste like plastics in kilns. (Ambujanagar,Maratha) c. Upgradation & installation of energy efficient equipments.
4) Expenditure on R&D
| ||Current Year ||Previous Year |
| ||31.12.2012 ||31.12.2011 |
| ||(Rs. Crores) ||(Rs. Crores) |
|Capital Expenditure ||1.25 ||0.50 |
|Recurring Expenditure ||0.02 ||0.27 |
|Total Expenditure ||1.27 ||0.77 |
|Total R & D expenditure as a percentage of total turnover ||0.01% ||0.01% |
B. TECHNOLOGY ABSORPTION, ADAPTION & INNOVATION
1) Efforts, in brief, made towards Technology Absorption, Adaption and Innovation:
a. Modification and automation in bulk loading system. (Surat, Rauri, Suli, Sankrail,Bathinda)
b. Modification in Raw Mill systems like Dorol initiatives and DALOG. (Bhatapara, Suli,Ambujanagar)
c. Installation of Laboratory Information Management System. (Rabriyawas, Maratha,Ambujanagar)
d. Installation of New AFR lab for testing of various AFR and En-Mass conveyor for AFRfeeding to ILC and SLC Preheater. (Rabriyawas)
e. Usage of Thermal Imaging Camera for determining hot spots. (Rauri, Suli)
f. Simulator based training centre for Automation. (Rauri)
g. Wireless communication system for operation of water supply pumps. (Suli)
h. Water heating system from Kiln shell radiations. (Suli)
i. Replacement of helium gas based XRF machine by XRF SPECTRO IQ II (multi Channel).(Sankrail)
j. Installations of UPS 20 KVA, suspended type weigh feeders, Automated Grinding aidfeeding system, Dozco. (Sankrail)
k. Implementation of technical Information system, Cement Mill Expert system, 3x100 KWSVP Solar Energy Plant. (Bhatapara)
l. Adoption of patented "KFP" technology for rainwater harvesting /recharging at site. (Bathinda)
m. Installation of new technology bag filter - Torit power core filter pack. (Bathinda)
2) Benefits derived as a result of the above efforts in the year 2012
a. Improved operational efficiencies, equipment reliability, productivity and quality.
b. Reduction in manufacturing cost, increase safety and protection of environment.
3) Information regarding Technology Imported during last 5 years
a. Modification in packing plants like bag printing machine, increase in spouts etc.(Surat, Rabriyawas, Maratha, Farakka)
b. Installation of Silo-level sensor. (Surat)
c. Installation of Coriolis fine coal feeding system. (Rabriyawas, Ambujanagar)
d. Replacement of reverse air bag house to jet pulse filters, MF HRB -12 for clinkercrushing to hammer crusher New Duo flex Burner. (Rabriyawas)
e. Installation of 500 TPD Synthetic Gypsum Manufacturing plant, VVVF drives on variousequipments. (Rabriyawas)
f. Installation of Continuous emission monitoring system (Maratha, Bhatapara line 1 and2, Ambujanagar) and Particle size analyzer. (Maratha, Farakka, Bathinda)
g. Rota scale for PC firing. (Maratha)
h. Installation of Hot Air Generator and High mast tower lighting. (Farakka)
i. PLC is upgraded by FLS automation to get all type of trends of equipments, requiredfor proper analysis. (Sankrail)
j. Existing ESP of Cement Mill-I & II converted into Hybrid ESP. (Bhatapara)
k. Installation of PGNAA. (Rabriyawas, Bhatapara line 1 and 2 )
l. Commissioned Mechanical kiln monitoring system, sound level sensor. (Bhatapara Line1 and 2, Ambujanagar)
m. Installation of Pfister system for Kiln Feed system and Coal firing system.(Bhatapara)
n. Installation of VRPM and Technical Information system. (Bhatapara)
o. Replacement of existing conventional burner pipe with third generation Multi ChannelBurner (Novaflam from Fives Pillard). (Bhatapara)
p. Fuzzy Logic High level control. (Bhatapara line-1, Roorkee)
q. Installation of Bag house IPO Raw Mill ESP, Conversion of 2 Fan to 3 Fan systems.(Bhatapara)
r. Installation of Kiln shell scanner, Kiln feed actuator, x-ray analyser.(Ambujanagar)
s. Installation of DALOG System. (Ambujanagar, Bhatapara line - 1 and 2)
t. Variable speed travel cage and oxy acetylene cutting machine. (Ambujanagar)
u. Microscope for clinker quality improvement. (Ambujanagar)
v. Procurement of thermal imager-Condition monitoring tool, vibration analyzer, laseralignment tool. (Bathinda)
w. Grid Rotor Resistance for bag House Fan Instead of Liquid Resistance Starter.(Nalagarh)
x. Online Filtration machine installed in VRM gear Box and Hydraulic Tipplers.(Nalagarh)
y. TPS Machine for Cleaning the Packing plant. (Nalagarh)