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BHARAT ALUMINIUM COMPANY LIMITED ANNUAL REPORT 2009-2010 MANAGEMENT DISCUSSION AND ANALYSIS Operational performance: During the year, the production of saleable metal was reduced to 268425 MT as compared to 356781 mt in the previous year consequent to the phasing out of the 1.0 lac mtpa VSS Technology smelter. Consequently Sales during the year was 267802 mt as compared to 356513 in the previous year. The Highlights of the year under review were: * Highest ever production of hot metal from plant II smelter - 254745 MT * Highest ever production of Rods - 148280 MT * Highest ever production of Rolled Products - 65972 MT The operating profit during the year increased by 31.990% due to higher power sale on account of phasing out of VSS technology smelter and lower operating costs, The Cost of production reduced during the year on account of lower input costs of alumina, CP Coke and CT pitch. The 1.0 lac mtpa Verticle Stud Soderburg [VSS] smelter plant of the Company has been completely phased out during the year. The implementation of a prebake technology smelter is under progress. The surplus power generated is being presently sold to the Chhattisgarh State Power Distribution Company Limited and to open access customers. As reported previously, the Company could not set up independent water supply facility for its 270 MW captive power plant due to the NTPCs stand in denying the companys easement right. The matter continues to be sub- judice. The Honble High Court of Chhattisgarh had in 2006 declared the levy of energy development cess at 10 paise per unit on CPPs under the Chhattisgarh Upkar Adhiniyam, 1981 Act, for imposition of energy development cess as unconstitutional. The said order has been challenged by the Government of Chhattisgarh in the Honble Supreme Court of India. The Companys operations including its captive power plants and its mines at Mainpat continued to be certified with all three management system certifications - EMS ISO 14001 : 2004 in environment management, OHSAS 18001:2007 in safety and ISO 9001(2000) for quality management system. Exports Domestic sales were the focus during the year for ensuring better sales realisation through improved product mix. The exports during the year was 16832 MT of aluminium generating revenues of Rs.161.88 crores. New projects: The Company is in the process of setting up the 1200MW power plant project pursuant to the Memorandum of Understanding with the Government of Chhattisgarh dated 7th October 2006 at a cost of Rs.4650 crores. The project was progressing as per schedule till the 23rd September 2009 when one of the under construction chimneys of the 1200 MW Power Project, constructed up to 248 meters collapsed during aberrant weather conditions at Korba. The collapse led to the unfortunate demise of 40 employees of the contractor. The investigation by various authorities on the cause of the accident is under progress. Payment of compensation of Rs.10 lacs for the kin of each of deceased has been ensured by the Company and its contractors. Consequent to the accident the work at the project site stood suspended and resumed on 11th January 2010. The Company has spent Rs.2106 crores on the project commitments as on 31st March 2010. The Company has commenced implementation of the Memorandum of Understanding dated 8th August 2007 with the Government of Chhattisgarh for setting up of a new smelter with a 6.5 lakh mtpa capacity at an estimated cost of Rs. 8100 crores. Towards this the company has commenced the implementation process of the first phase of expansion for setting up 3.25 lakh mtpa pre- bake aluminium smelter at an estimated project cost of Rs.3800 crores as approved by the Board on 25th July 2008 with a target date of completion by September 2011. The Company has spent Rs. 694 crores towards the project till 31st March 2010. Information technology and communication: The Company continued to improve its IT capabilities for leveraging the same for operational excellence in the business of the Company. Towards this, during the year the Company enhanced its IT capabilities in capturing LME based pricing in sales, customer complaints and handling marketing process, commercial applications, logistic operations and enhancement of IT network connection to regional marketing offices. Human resources, training and development: Employee relations continued to be peaceful and productive during the year. The Company follows the policy of recruitment for Graduate Engineer Trainees from reputed and listed Engineering Colleges in various states across India. In the year, there were 280 entries in the Company including 222 GETS, 9 MTs and 5 CAs. The Company continues to give preference to locally domiciled candidates and also to employee wards. During the year, the Company continued to pursue its polity of delegating and empowering the young managers with the objective of evolving potential future leaders. The Companys focus on manpower training and development continued. During the year 2.29 training man-days were achieved per employee and 3.13 man-days per executive through 89 on-site and 50 off-site training programmes conducted by reputed institutions including, National Safety Council, Confederation of Indian Industry, Indian Institute of Management, Ahmadabad, Institute for Miners and Metalworkers Education, Dhanbad, BITS, Pilani amongst others. During the year the Company offered Voluntary Retirement to its employee which was opted for by 250 employees. A sum of Rs.23.43 crores has been disbursed on account of the voluntary retirement and the same has been charged to the profit and loss account of the Company. The number of employees as on 31st March 2010 was 4973 as compared to 5310 as on 31st March 2009. The attrition rate during the year was 3.40% as compared to 3.49% in the previous year. Safety, health and environment: In line with the principle of sustainable development, the Company continues to practise safety, health and environment as its key business drivers. The Company is certified by IRQS for OHSAS 18001:2007 and EMS 14001:2004. The Company achieved the lowest ever LTIFR of 0.82% a reduction of 43% over the 2008-09. The major awards won by the Company in the area of Safety, Health and Environment include International Safety Award for Alumina Plant and 54OMW captive power plant from British Safety Council, UK, Safety Innovation Award from Institution of Engineers, India for smelter plant, First Prize on safety education from Director General of Mine Safety, Environment Best Practices Silver winner for Balco Fuse Technology from International Green Apple Awards. Industry outlook: The recovery in the global aluminium industry gained momentum during the year as the fiscal and monetary stimulus package of the Government as well the inventory cycle gave a boost to industrial production. The overall global aluminium demand is expected to rise by 9.4% in 2010 and by 9.9% in 2011. The Indian Economy has shown greater resilience to the global recession as compared to many other economies of the world. India is poised to be a significant constituent of the world aluminium production and is expected to contribute 22% of the global growth in aluminium by 2015 with its competitive labour costs, proximity to fast growing end markets and substantial bauxite and coal reserves which are estimated at 2.6 billion tonnes and 250 billion tonnes respectively. With the picking up of the global economic activity in 2010 and 2011 together with ongoing thrust on infrastructure development by the Government, aluminium consumption in India is expected to grow to 1.5 million tonnes and 1.56 million tonnes in 2010 and 2011 respectively. In the long term Indian aluminium demand is expected to grow at an average annual rate of 6.7% which will result in Indian demand reaching 4.8 million tonnes by 2025 making India the worlds third largest aluminium consumer.