for the year 2015-16

NMDC, a Navratna PSU under Ministry of Steel, has been actively contributing to development of the nation for more than five decades and has grown from strength to strength in its journey of nation building. Primarily engaged in the business of exploring minerals and developing mines to produce raw materials for the steel industry, it is now integrating forward into value-added products like pellets. Additionally, it is in advanced stages of setting up a 3 Million tonnes per annum (Mtpa) integrated steel plant at Nagarnar, Jagdalpur in Chhattisgarh State.

NMDC continues to pursue policies and programmes to deliver long term value to all its stakeholders. Whilst it has a strong history of rewarding its shareholders through dividend payments, it has also over the years continued to enhance its investment in the socio-economic development of the local communities.

1. Industry Structure and Developments

The steel industry witnessed a major growth cycle over the past 15 years, on account of China's growth. It, in-turn, stimulated a massive increase in global iron ore production, more than doubling from 950 million tonnes per annum (Mtpa) in 2000 to over 2200 Mtpa in 2015. These market fundamentals incentivized new iron ore producers to enter the industry, and encouraged existing players to expand their operations, to meet this unprecedented demand. Now there are clear signs of the Chinese steel demand slowing down, the industry is passing through a phase where the iron ore supply is exceeding demand globally. The surplus scenario is likely to continue in the coming years. As a result, the prices of steel products and iron ore have come down substantially in the recent past. At the same time, low cost capacity additions are taking place which are expected to displace a part of the high-cost supplies.

NMDC, however, is bullish on the growth prospects of India's steel industry with its competitive advantages and the impetus being given by the government to infrastructure growth, urbanization and rising incomes. Low per capita steel consumption in the country at 60.6 kg/t vis--vis the world average of 208 kg/t also indicate the huge growth potential of the Indian steel industry.

It would also be pertinent to mention that iron mining industry in India is expected to witness enhanced competition over the next few years. On one hand, with iron ore imports are becoming competitive / viable with respect to domestic supplies, especially on the west coast (with lower global prices and lower seaborne freight rates). On the other hand, domestic iron ore production is on the rise, with easing of restrictions on mining - production increased by over 20% in FY 2016 over FY 2015 and this trend is likely to continue in the near term. Additionally, with domestic steelmakers now having the options are likely to integrate backwards with acquisition of iron ore mines through the auction route under MMDR Amendment Act 2015 this may well impact the market for merchant miners adversely in the medium to long-term. Iron mining industry in India is expected to witness enhanced competition over the next few years.

Ministry of Steel's objective of raising India's steel production to 300mtpa by FY2025 on the back of strong long-term growth prospects is expected to remain a primary growth driver for Indian steel and iron ore industry in the long term.

NMDC's business would continue to be affected by developments impacting the demand-supply scenario of iron ore in both the global and domestic markets.

2. Opportunities and Threats a) Opportunities

i) Envisaged growth in domestic steel demand in the housing, infrastructure, automotive, consumer durables and other sectors in the coming years.

ii) Growing urbanization of the Indian economy coupled with rising income levels of the burgeoning Indian middle class.

iii) Government initiatives such as Make-in-India, Freight corridors, 100 Smart cities, Rural electrification and Housing for all by 2022.

iv) Acquisition of Strategic mineral assets based on business potential and national interest.

v) Grow business through Special Purpose Vehicles (SPVs) envisaged in mineral rich states.

Play an important role in both the Steel and Mining SPVs being set up in these states.

vi) NMDC being one of the agencies nominated to undertake exploration activities - to intensify exploration for mapping of minerals across the country.

b) Threats

i) Backward integration by Steel makers into iron ore mining through auction route will significantly shrink the market of the Company.

ii) Quantum jump of production of merchant miners in Orissa may lead to oversupply situation in the near term.

iii) Lowering of the global iron ore prices coupled with all-time low seaborne freight rates have made imports competitive for coastal based plants particularly on west-coast.

iv) Huge surplus Steel capacity in most regions including China will continue to exert downward pressure on steel prices.

v) Indian iron ore industry will continue to be uncompetitive on a global level due to higher rates of royalty and other levies such as DMF, NMET, Export duty etc. as well as significantly higher logistic costs.

vi) Increasing regulatory pressure on environment, safety and sustainability.

vii) Disturbances due to Maoist activities in Bailadila region from where majority of NMDC's production comes.

viii) NMDC may be affected by government actions, including the imposition of tariffs and duties, speculative trades, regulatory issues arising due to judicial verdicts, the development of products substitutes or replacements, recycling practices, an increase in capacity or an oversupply of the Company's products in its main markets.

3. Product-wise performance Financial Performance of NMDC

(Rs. in Cr.)

Details 2011-12 2012-13 2013-14 2014-15 2015-16
Sale of Iron Ore 11,167.56 10,558.71 11,899.52 12,197.69 6,327.93
Sale of Diamonds 9.84 28.51 49.85 50.06 52.61
Sale of Wind Power - - 1.05 5.96 6.30
Sale of Sponge Iron 65.93 73.50 56.01 48.09 11.67
Sales - Others 1.36 5.60 5.91 8.75 1.78
Income from Services 17.20 37.95 45.86 45.87 55.51
Turnover 11,261.89 10,704.27 12,058.20 12,356.41 6,455.80
PBT 10,759.47 9,465.12 9,759.20 9,767.84 4,505.27
PAT 7,265.39 6,342.37 6,420.08 6,422.00 3,028.33
Dividend 1,784.12 2,775.30 3,370.01 3,390.00 4,361.19

Physical Performance of NMDC

Details 2011-12 2012-13 2013-14 2014-15 2015-16
Production:
Production of Iron Ore WMT (In lakh tonnes) 272.60 271.84 300.25 304.41 285.74
Production of Sponge Iron (tonnes) 37,260.00 36,289.00 29,734.00 28,993.96 6,614.26
Production of Diamonds (carats) 18,043.44 31,533.39 37,081.70 35,085.46 35,558.31
Sales:
Sale of Iron Ore (in lakh tonnes) 273.01 262.74 305.00 305.16 288.39
Sale of Diamonds (carats) 8,085.00 17,862.57 43,487.63 38,788.58 36,682.93
Sale of Sponge Iron (tonnes) 33,731.79 37,599.54 30,572.34 25,191.38 8,364.52

4. Outlook for NMDC

NMDC proposes to augment its production capacity of iron ore from the present level of about 37 million tonnes to 50 million tonnes by 2018-19 and 67 million tonnes by 2021-22. It has also embarked on value addition projects by setting up pelletization plants by utilizing slimes and 3.0 MTPA integrated steel plant in Chhattisgarh.

Government of India has charted a road map to augment India's Steel production capacity to 300 Mtpa in the next decade. To fulfill this vision NMDC proposes to act as a facilitator and developer of green field steel plants by creating Special Purpose Vehicles (SPVs) in the mineral rich states of Jharkhand, Karnataka and Chhattisgarh.

NMDC proposes to diversify into other commodities like Steel making raw materials (coking coal, manganese ore nickel); Fertilizer raw materials (rock phosphate potash); as well as thermal coal based on business and long term growth potential. It also proposes to invest in strategic raw materials like: tungsten, rare earth minerals, etc. which are required by our nation for long term supply security. In line with this strategy, NMDC plans to expand its geographical footprint beyond India selectively into key mining countries.

NMDC is committed to focus on maintaining cost competitiveness in global and domestic market in a scenario where prices are expected to remain subdued.

Along with robust strategic planning to support its growth agenda, NMDC continues to enhance organizational capabilities and other enablers to achieve its short-term and long-term objectives.

5. Risks and Concerns

NMDC is exposed to sharp fluctuations in demand for its products and volatility in prices. Weaker commodity price outlook would continue to impact NMDC over the next few years till the global and domestic markets recover.

The MMDR Amendment Act 2015 poses increased risks for NMDC related with acquisition of new mining leases along with potential impact of reduction in existing customer base.

One of the major risks that NMDC is facing is the disturbances due to Maoist activities in Bailadila region. The Company is in contact with the Government agencies at all levels for support and protection of its employees and installations. The initiatives taken by the Government of Chhattisgarh and the Central Government are expected to find a solution to the risk at the earliest.

Timely enhancement of evacuation capacity in line with production plans also remains a potential risk. This could impact production and inventory levels for NMDC.

6. Internal control systems and their adequacy

NMDC has put in place all the necessary internal control system. Necessary disclosure in respect of Internal Control Systems and their adequacy has been made in Annexure-C to the Independent Auditors' Report dated 27.05.2016 which forms part of the Annual Report.

7. Discussion on financial performance with respect to operational performance

Details on financial performance with respect to operational performance are given in detail in the Directors' Report. However, for the year under review, the Company has achieved production of 285.74 MT of Iron Ore. In respect of diamond, the Company achieved production of 35,558.31 carats. On the financial performance, the turnover of the Company for the year under review was Rs.6,456 crores. PBT for the year under review was Rs.4,505 crores crores. PAT for the year under review was Rs.3,028 crores. Net worth of the Company was Rs.30,106 crores.

8. Material developments in Human Resources/ Industrial Relations front, including number of people employed.

The employees of the Company have been dedicated and loyal to the Company. Though there has been attrition in certain disciplines, the employees in general have remained with the Company through thick and thin. On the part of the Management, it is ensuring all-round comfort levels to its employees, including the required training at all levels based on the need.

It is worth highlighting that industrial relations have been cordial all along during the year. Any difference is sorted out through bipartite discussions at appropriate fora. The cooperation and support of workmen represented by AINMDCWF in this regard is praiseworthy.

The Company is planning and also initiated various diversification projects viz. Steel Plant, Pellet Plant, coal mining etc. Since inception, the employees of the Company are exposed only to Iron Ore industry. The Company's diversification project needs people with specific skill and knowledge in other industries viz. up gradation of skills for operating equipment with latest technology. In order to get people with requisite knowledge and skills, the Company has decided to train /retrain its existing manpower and also to go for fresh induction.

During the last five years, the number of people on rolls as on 31st March 2016 are as follows:

2011-12 5,924
2012-13 5,777
2013-14 5,664
2014-15 5,490
2015-16 5,773

9. Environmental Protection and Conservation, Technological Conservation, Renewable Energy Developments, Foreign Exchange Conservation.

Relevant Information in this regard is disclosed in the Directors' Report.

10. Corporate Social Responsibility

The Company is actively involved in various CSR initiatives. Detailed information is disclosed in the Directors' Report.