malvika steel ltd Directors report

MALVIKA STEEL LIMITED ANNUAL REPORT 2000-2001 DIRECTORS REPORT TO THE SHAREHOLDERS Your Directors are presenting the Thirteenth Annual Report of your Company together with the Audited Statement of Accounts for the year ended 30th June, 2001. 1. INDUSTRIAL PERFORMANCE The domestic and global steel industry is in an un-precedented state of recession for the longest period ever. Correspondingly trading operations has also been marginal. 2. PROJECT IMPLEMENTATION Both the Blast Furnaces were operative till 1997-98 and had to be shut down for want of funds coupled with depressed market conditions and correspondingly low sales realisation and the adverse impact of anti- dumping duty on coke. With support of the Financial Institutions, the company is taking steps to re-start both the Blast Furnaces in phased manner and it is expected that the commissioning of the first Blast Furnace shall take place by May, 2002 and the second Blast Furnace by Sept., 2002. The anti-dumping duty for coke has since been withdrawn. The prevailing and potential price of foundry pig iron in Northern India in particular provides opportunity for generation of gross margin. This can be achieved with highest level of productivity and specific consumptions with corresponding low cost of production. Presently the participating Financial Institutions have reviewed the status along with Lenders Engineers and Auditors and have given the clearance for completion of the steel project, which includes the 2 LD Convertors, Lime Calcining Plant, Oxygen Plant Ladle Furnace and Continuous Casting Plant. On the basis of the review, appraisal, sanction and disbursement of the funds, the steel project is now expected to be completed by March, 2003. 3. FUTURE OUTLOOK Though industry has not been able to quantify the exact quantum of growth in the steel sector, a recent report put out by consultancy major Mckinsey and Company, has pointed out that the domestic steel sector overall would soon see a 8 to 10% surge in demand mainly on the back of a good performance by the housing, construction and retail sectors. This view is reinforced by the 15% growth posted by the Cement Sector. The price of long products has also increased lately by around 7%. Scrap prices are also on the increase and Electric Arc / Induction Furnace user would be more inclined to buy Pig Iron. We are also exploring the market for both Billet and Bars. Our strategic advantage of having the plant in Northern India helps us to economically sell our products in Punjab, U.P, Haryana and Rajasthan markets and generate contributions and help in generation of cash for sustaining the business. The Directors wish to point out that barring unforeseen circumstances, the anticipated turnaround and the proposed project implementation plan depend substantially upon the availability of finance and the related disbursements becoming available in accordance with the time schedule presently adopted. 4. RESTRUCTURING OF MANAGEMENT AND CAPITAL The members may be aware that the Integrated Steel Protect of the company at Jagdishpur has undergone time and cost overruns. The Promoters could not bring in further funds for the Project and the Financial Institutions were requested again for additional financial assistance for completion of the Project. The Financial Institutions as a condition for further financial assistance to the Company for completion of ifs Integrated Steel Project situated at Jagdishpur, L.P., amongst other things, asked the Company for both Management and Capital restructuring. Accordingly the Board of Directors of the Company was re-structured and Dr S K Gupta, a renowned figure in steel industry, was appointed as non-executive Chairman of the Company. Besides Dr.Bhaskar Dutta, holding a doctorate in Metallurgy from U.K. and having three decades of experience in the Steel Industry in India and abroad has been appointed as Managing Director. Mr. Anil Rai, Co- Chairman, Mr. S.K.Mittal Managing Director and other Directors mentioned elsewhere in the report resigned from the Board. As regards capital restructuring as advised by the Financial Institutions, steps are already underway for approval by you and the concerned authorities of a scheme for restructuring of financial liabilities by :- 1. Converting 40% of the existing a quity share capital into 0.0001% Cumulative Redeemable Preference Shares (CRPS) to be redeemed inn 5 equal annual installments commencing in the year 2016. 2. Conversion of Institutional loans to the extent of Rs. 2,800 million into equity shares of Fell. 10 each. 5. DIRECTORS Dr. S.K.Gupta, whose nomination has been withdrawn by IFCI Ltd., has been appointed as additional director (independent) and non-executive Chairman of the Company. Dr Bhaskar Dutta and Mr. Rajeshwar Singh and Dr Ramesh C Vaish were appointed by the Board as Additional Directors of the Company. Dr Bhaskar Dutta and Mr. Raieshwar Singh have also been appointed as Managing Director and Whole time Director respectively of the Company. Mr. Anil Rai, Mr Vijay Bhushan, Mr Y P Sharma, Mr J R Gupta, Mr S K Mittal, Mr M F Mehta and Mr K C Gupta resigned from the directorship of the Company. The Board places on record its appreciation for the services rendered by them during they tenure as Directors of the Company. Nomination of Mr. Mr. S G Galati, nominated by IDBI and Mr P K Sengupta nominated by IFCI Ltd. on the Board of the company, were subsequently withdrawn by IDBI and IFCI Ltd. respectively. The IDBI has nominated Mr. K Raghavan and IFCI Ltd. has nominated Mr. D U Rao as Directors on the Board of the Company. 6. AUDIT COMMITTEE The Board has in pursuance of Section 292A of the Companies Act, 1956, constituted an Audit Committee consisting of Mr. M.Sankarnarayanan (UTI Nominee), Mr. D.U.Rao (IFCI Nominee) and Dr. R.C.Vaish, Director of the Company. 7. CORPORATE GOVERNANCE The Stock Exchanges have introduced clause 49 on Corporate Governance in the Listing Agreements. As per this clause the Corporate Governance has to be implemented by the Company during the financial year 2001 - 2002. Your Company has already initiated steps to put in place system of corporate governance in right earnest. 8. STOCK OPTIONS TO THE EMPLOYEES OF THE COMPANY An Employee Stock option Scheme (ESOS) for the employees of the company, prepared in accordance with the SEBI (Employee Stock option Scheme and Employee Stock purchase Scheme) Guidelines, 1999 notified by the SEBI, and approved by the members of the Company, was introduced during the last year. In accordance with the scheme, a total of 18,84,680 stock options have been granted to the eligible employees and directors of the Company on 14.04.2000 and each option is convertible into one equity share. 25% of the options granted shall vest after one year, another 25% of the grant after two years and balance 50% of the grant after three years from the date of grant mentioned above. The exercise price is at par i.e. Rs.10/- per share with a power to the Board to decide the premium, if any, in subsequent grants. It may be informed here that the company has not received application from any option holder so tar for exercise of the option of converting the options into shares of the company. 9. HUMAN RESOURCES In our previous report we had mentioned about the formation of cross functional core teams to enable your company to utilize the Human Resource potential. With the fund flow for the project coming to a hall, these core teams at Jagdishpur were utilized for various construction and fabrication work which should have otherwise been contracted to outside agencies. Activities related to maintenance of equipment and machinery were also carried out by these core teams. With the induction of new management an exercise is being carried out to bring the manpower requirement to such levels that the productivity are at par with the international norms. This would involve re-building the management structure where responsibilities are well defined and hierarchy barriers are reduced. Parallely positional manning is to be replaced by the concept of total work load. 10. DEPOSITORY The Companys shares are also now admitted to the Central Depository Services (India) Ltd. (CDSL) for dematerlisation. As you are aware the company has already joined the National Securities Depository Limited (NSDL). This enables you to hold your shares in dematerialsed form. The holding of shares in demat form facilitates quicker transfers and prevents forgery. Accordingly the shareholders who have not opted yet for this facility are advised to dematerialise their shares in their own interest. Alankit Assignments Limited, New Delhi are the R 8T agents for the purpose of dematerlisation of shares of the company. 11. LISTING The Companys Shares are listed at the Uttar Pradesh, Moral and Delhi Stock Exchanges The Company has paid listing fee to these Stock Exchanges upto the year 1997 - 98. The Mumbai Stock Exchange has suspended the trading in securities of the Company for nonpayment of annual listing lee. Application for delisting has been made in January, 1997 to the Stock Exchanges at Ahmedabad, Madras, Calcutta and Jaipur for reasons of infrequent and low volumes of trading in the Companys shares at these Stock Exchanges. 12. DEPOSITS The Company has not accepted any Public Deposits during the year. There are no outstanding public deposits. 13. PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO Information pursuant to Section 277(1)(e) of the Companies Act, 1956 read with Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is annexed and forms part of this report. 14. AUDIT REPORT The Auditors comments regarding note no. 6 8 14 state the factual position and the relevant notes are self explanatory. Due to closure of trading activities at the Ghaziabad branch, the relevant books of accounts and records could not be available and the relevant accounts were compiled on the basis of data available in computerized system. No provision is made for claim for rent and charges for equipment lying in the bonded warehouse at this stage since the necessary adjustments are proposed to be made when the matter is finalized and the equipment is cleared. 15. AUDITORS M/s. Barisal & Co., Chartered Accountants, the retiring auditors of the Company have expressed their unwillingness fir re-appointment. The Board of Directors of the Company have in their meeting held on 5 November, 2001 considered the appointment of M/s Ray & Ray, chartered accountants, as statutory auditors of the company and recommend the same for your approval. The Company has received certificate from the firm viz. M/s Ray & Ray to the effect that their appointment, if made, will be within the permissible limits specified under Section 224(1B) of the Companies Act, 1956. 16. DIRECTORS RESPONSIBILITY STATEMENT Pursuant to the requirement under sub section 2AA of Section 277 of the Companies Act, 1956 with respect to the Directors Responsibility Statement, it is hereby confirmed: i) That in preparation of the annual accounts for the financial year ended 30.06.2001, the applicable accounting standards had been followed along with proper explanations relating to material departures. ii) That the Directors had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of financial year and of the profit of the Company for the year under report. iii) That the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and by preventing and detecting fraud and other irregularities. iv) That the Directors had prepared the accounts for the financial year ended 30.06.2001 on a going concern basis. 17. APPRECIATION Your Directors wish to acknowledge and thank the Central & State Governments for their support and guidance. Your Directors wish to place on record their deep appreciation of the continued support of shareholders, debentureholders and the devoted services rendered by the executives, staff and workers of the Company at all levels. Your Directors also acknowledge with gratitude the co-operation and assistance given by the Financial Institutions, Mutual Funds, Banks and Business Constituents. On behalf of the Board Place: New Delhi (Dr. S K GUPTA) Date : 05.17.2001 CHAIRMAN ANNEXURE TO DIRECTORS REPORT A. (CONSERVATION IN COMPLIANCE OF ENERGY ON 217(1)(e) OF THE COMPANIES ACT, 1956 (a) Energy Conservation Measures taken : NIL (b) Additional investment and proposals, if any being implemented for reduction of consumption of energy: Proposal is to install a Turbo Generator of 3.5 MW capacity utilizing excess BF gas to generate Electrical Power to reduce the consumption of purchased electric energy. The investment is to the tune of Rs.3.5 Cores. (c) Impact of the measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods ; The bought out electrical energy shelf be reduced to the extent of 3 MW for 2 Blast Furnaces operation saving about Rs. 300/- per ton of hot metal. (d) Total energy consumption and energy consumption per unit: As per Form A B. TECHNOLOGY ABSORPTION: (e) Efforts made in technology absorption As per Form B G. FOREIGN EXCHANGE EARNING AND OUTGO (f) Activities relating to exports; initiatives taken to increase ex ports; development of new export markets for products and services and export plans : NIL (g) Total foreign exchange earned and used : Earned: NIL Used : NIL FORM B (See rule 2) Form for disclosure of particulars with respect to Absorption, Research And Development (R & D) 1. Specific areas In which R & D Carried out by the Company None 2. Benefits derived as a result of the above efforts Not Applicable 3. Future plan of action To optimize the operation of Blast Furnace Computer Simulation Model from Rautaruukki shall be implemented. 4. Expenditure on (R & D) (a) Capital (b) Recurring (c) Total (d) Total R&D expenditure as a percentage of turnover Technology absorption adaptation and innovation NIL Technology, absorption, adaptation and innovation (i) Efforts, in brief, made towards technology absorption, adaptation and innovation None (ii) Benefits derived as a result of the above efforts None (iii) In case of imported technology (imported during the last 5 years recokned from the beginning of the financial year) following information may be furnished (a) Technology imported : Mini Blast Furnace Data Logging System for Level II Automation from Rautaruukki Engineering Oy, Finland. (b) Year of import : 7997 (c) Has technology been fully absorbed?: No (d) If not fully absorbed, areas where this has not taken place, reasons there for and future plans of action: Shall be implemented when BF operation resumes. On behalf of the Board Place: New Delhi Dr. S.K.Gupta Date : 5.11.2001 Chairman