Rathi Ispat Ltd Directors Report

RATHI ISPAT LIMITED ANNUAL REPORT 2006-2007 DIRECTORS REPORT Your Directors have the pleasure in presenting the Annual Report together with audited accounts of the Company for the year ended March 31, 2007. This report includes Management Discussion and Analysis as it has been considered appropriate to do so, in order to avoid duplication and overlap with the Directors Report. 1. FINANCIAL HIGHLIGHTS (Rs. in Lacs) PARTICULARS 2006-2007 2005-2006 Sales 32345.96 43213.51 Gross Profit /(Loss) before Int. and Dep. (3258.31) 956.51 Interest & Bank Charges 1797.48 1191.98 Depreciation 519.99 496.28 Profit/(Loss) before tax (5575.78) (730.97) Less: Provision for Taxation: Fringe Benefit Tax 5.92 1.15 Other Direct Tax 0.96 7.55 Deferred Tax (296.28) 8.49 Net Profit/(Loss) (5286.38) (748.16) Transfer to General Reserve - - Balance Carried to Balance Sheet (4878.62) (748.16) 2. DIRECTORS RESPONSIBILITY STATEMENT Pursuant to Section 217(2AA) of the Companies Act 1956, as amended, with respect to the directors responsibility statement, it is hereby confirmed: (i) That in the preparation of the accounts for the financial year ended on 31st March, 2007, the applicable Accounting Standards have been followed along with proper explanation relating to the material departures. (ii) That the director of the Company have selected such accounting policies and applied them consistently and made judgments 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 financial year ended 31st March 2007 and Loss of the company for the financial year ended 31st March 2007. (iii) That proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. (iv) That the accounts of the company for the financial year ended 31st March, 2007, has been prepared on a going concern basis. 3. REASON OF EROSION OF NET WORTH OF THE COMPANY. Net worth of the Company has been fully eroded during the year 2006-2007 due to heavy losses incurred by the company. On account of inferior quality of the raw material, the company was not able to recover better yield from the raw material & the burning loss of the production process remain high during the year. Further, the Company was not able to recover its overhead due to lower utilisation of production capacity on account of non availability of raw material at economical price to the Company. Financial expenses of the Company has rapidly increased by 54% as compared to the previous year. The expenses on salary and wages has increased by 30% as compared to the last year .On account of all above reasons, the cost of production of the finished product was high incomparision to its sale price. Further, the Company was having old raw material stock i.e. scarp which was not upto the mark for finished product due its inferior quality. On receipts of the complaints from customers, the Company identified inferior quality of raw material. A quality control committee was set up to look into the matter. Keeping in view of technical expert report, Quality Control Committee recommendation and lab test report of the Company, the Board decided to dispose of the remaining inferior quality scrap which was not usable for making the final product. Finally, debit notes were raised to suppliers those were responsible for supply of inferior quality of scrap. Keeping in view such tremendous situation and pursuant to proviso of Section 15(1) of the SICA, the Board of Directors has decided to file the reference with the BIFR. 4. CORPORATE GOVERNANCE The Company has continued its quest to follow the best practice of corporate governance towards building trust among the shareholders, employee, customers, and suppliers on four key elements of corporate governance-transparency, fairness, disclosures, and accountability. This report on the corporate governance with the separate section on shareholders information along with the certificate from the Statutory Auditors in this regards has also been incorporated in this Annual Report. 5. MANAGEMENT DISCUSSION & ANALYSIS A. PLANT PERFORMANCE: The sales of the Company during the financial year ended 31stMarch 2007 aggregate to Rs.323.45 Crores which has declined by 25% approximately as compared to the previous year. The production of the Company has declined approximately by 23% in SS Billets, in SS Flats is down by 20% and in Steel casting by 47% approximately resulting in under recovery of the overheads. On sales front SS flats has declined by 18% in value resulting in reduction our market share significantly due to which the company could not able fetch better sales price. Sales of steel casting which is high margin product have declined by 19% in value due to the lower production. During the year under review, the company incurred huge loses mainly on inferior quality of raw material, non availability of raw material at economical price. Since, most of the vendors were exporting the raw materials; there was unexpected rise in raw material price. The average purchase price of raw material has increased by 23% which could not be passed to the consumers and average sales price of our finished goods was also reduced by 2% as compared to previous year. The Company also tried to change its product mix by developing the new grade of Stainless steel. However, due to the poor quality of raw material the company could not dent the market with its new product since the quality of new product did not match the expectations of the market. B. OPPORTUNITIES AND THREATS: The Stainless Steel has wider application in the form of utensils as well as crockery, cutlery. It is further used in making consumer durables like Kitchen sinks, bath tubs and home appliances like toasters, mixer-grinders, refrigerators washing machines, etc in piping in process plants, chemicals plants and refineries including gas industries pipelines, pollution control equipments, in food processing industries because of superior hygienic properties, in architectural & structural applications, ladders, ventilation louvers, fire walls cable trays, module cladding, door & window frames, in roofing materials, in public transport viz. Railway, Cars and Passenger buses, in decorative applications and in Nuclear industry. Demand for stainless steel is increasing rapidly. The finished Products being manufactured by the company are industrial commodity products which are susceptible to price volatility. Further, the change in Government policies relating to export adversely affects the companys profits. Due to export of Ferro alloys to the other countries, all the producers of the steel , except those having mining rights, are facing problems to procure its raw material at economical price. C. INTERNAL CONTROL SYSTEM The Company has a well defined internal Control system that is adequate and Commensurate with size and nature of business. Clear roles, responsibilities and authorities, coupled with internal information Systems, and ensure appropriate information flow to facilitate effective monitoring. Adequate Controls are established to achieve efficiency in operations, optimum utilization of resources and effective monitoring thereof and compliance with applicable laws and these are being regularly reviewed by our Internal Auditors and Statutory Auditors of the Company. The Audit Committee of your Board met four times during the year. It reviewed the adequacy and effectiveness of the internal Control and monitored implementation of Internal Audit function. D. HUMAN RESOURCES Your Organisation possesses a pool of talented employees where all the individuals are committed towards the sustained growth of the company. Your management enjoys a high degree of participation and confidence of all the employees towards the betterment of the organisation. Information in accordance with the provisions of section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rule, 1975 as amended, there is no employee employed by the Company either for whole or part of the year drawing remuneration in excess of the limits laid down under the rules mentioned above. 6. RESEARCH AND DEVELOPMENT EXPENDITURE The Company carried out in house research for value added products targeted the best realisation as per pertaining market rates. During the year, due care was taken to produce the value added quality product by means of our technical know how and as per market requirement. The Chemistry was aimed to manufacture the high valued item which could give the best performance as per market requirement. The Chemistry was aimed for spinning and cutlery items which could give best realizations out of this product. The Chemistry was meant for excellent corrosion resistance, uninterrupted heat resistance & minimum loss during buffing. With the above factors in view, the R & D was carried out and, with the passage of time various changes in the chemistry mode were incorporated. The factors effecting the corrosion properties was chromium only. During our R & D, we have taken care of vital elements like Copper and Nitrogen addition also which could avoid the delayed cracking tendency of the material. The R & D practices with certain changes was again carried out with a motive to achieve value added product as well as product mix ,which could be largely utilised in cutlery and kitchen wares. R & D was mainly aimed to induce high toughness during pressing of the material. The manganese (Mn) was the prime element which could enhance the toughness of the material with the set percentage of Mn the R & D was carried out. At the end, The Company arrived at conclusion that certain level of burning loss can be reduced with the introduction of some elements in production. 7. DIRECTORS Mr. Dilip Mishra, non-executive director of your Company retires by rotation and is eligible for re-appointment. Your Board recommends the appointment of Mr. Dilip Mishra, as a Director. Mr. Varun Garg, non- executive director of your Company retires by rotation and is eligible for re-appointment. Your Board recommends the appointment of Mr. Varun Garg, as a Director. The information on the particulars of Directors seeking appointment/reappointment as required under clause 49 of the listing Agreement executed with the Stock Exchanges has been given under Corporate Governance (Annexure -II) of this report. 8. ENVIRONMENT SAFETY: Your Company has installed proper water and air treatment plants to fulfill its obligations towards environmental safety. The Company has also obtained required applicable permissions from Pollution Control authorities. Your Company has obtained ISO 14001:2004 certificate during the year 2006-2007. 9. AUDITORS The Auditors of the Company, M/s SNRS & Associates, Chartered Accountants, retire at the ensuing Annual General Meeting of the Company and have given their consent for re-appointment. The Company has also received a Certificate from them under Section 224(1B) of the Companies Act, 1956. The notes to the accounts referred to in the Auditors report and the observation made in the report under the Companies (Auditors Report) Order 2003 are self explanatory and therefore do not required for further comments. 10. COST AUDITORS The Central Governments Cost Audit order specifies audit of Cost Accounting Records for certain specified products every year. The Board of Directors, subject to the approval of the Central Government, has appointed M/s R.M. Bansal & Company, Cost Accountants, to carry out the cost audit for the current year at a remuneration to be decided by the Board of Directors. 11. FIXED DEPOSITS Your Company has not accepted any Fixed Deposits from the Public during the financial year 2006-2007. 12. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, AND FOREIGN EXCHANGE EARNINGS AND OUTGO. Information pursuant to Section 217(1) (e) of the Companies Act, 1956 read with the Companies (Disclosures of particulars in the report of Board of Directors) Rule, 1988 is given in the Annexure-I, to this report which form part of the Directors Report. 13. STOCK EXCHANGE LISTING: The equity shares of the Company are listed at Delhi Stock Exchange Association Limited, Delhi and Bombay Stock Exchange Limited, Mumbai. The Company confirms that it has paid annual listing fees for the year 2007- 2008 to both the Stock Exchanges. 14. APPRECIATION Your Directors also wish to place on record their sincere thanks for the wholehearted support received from distributors, suppliers, and shareholders towards conduct of operation of the Company. The Directors are thankful to the Bankers and Financial Institutions, for their continued support during the year. Your Directors are also appreciating of the continued dedication and senses of commitment shown by the employees at all levels during the year deserve special mention. For and on behalf of the Board For RATHI ISPAT LIMITED Place : Delhi ARUN KUMAR RATHI Date : 12th Day of May, 2007 Chairman ANNEXURE -I TO THE DIRECTORS REPORT Statement of particulars pursuant to Companies (Disclosure of Particulars in the report of Board of Directors) Rule, 1988 Year Ended Year Ended PARTICULARS 31.03.2007 31.03.2006 I. CONSERVATON OF ENERGY A. Power and Fuel Consumption a. Electricity Purchased units (KWH) 63477154 61537705 Total amounts (Rs.) 249878050 243377658 including demand charges) Rate/Units (Rs.) 3.94 3.95 b. Furnae Oil (including LDO) Quantity 298681 3283420 Total amounts (Rs.) 4513736 49606301 Average Rate (Rs./Ltr.) 15.11 15.11 c. R-LNG Gas Quantity (in MMBTU) 175277.072 48974.693 Total amounts (Rs.) 43024157 10976897 Average Rate (Rs./Ltr.)(MMBTU) 245.46 224.13 B. Consumption (per Unit) Furnace R-LNG Oil Gas Melting Shop Production (M.T) Billets / Steel Castings 4978 63186 88472 Electricity (KWH) 847 847 631 Furnace Oil (Ltrs) 18 18 R-LNG Gas 1.18 Upto From Nov.05 Dec.05 Rollig Mill With With Furnace R-LN Oil Gas Production Flat 4978 55781 42413 28563 Electricity (KWH) 95 95 81 84 Furnace Oil (Ltrs) 42 40 R-LNG Gas (MMBTU) 1.80 1.71 II. Technology Absorption The company is not using imported technology, however emphasis on continuous improvement of quality and development of new skills of production indigenously. III. Foreign Exchange Earnings and Outgo Total Foreign exchange used and caused A. CIF Values of 43590381 82314649 Import expenditure in Foreign Exchange B. Foreign Exchange Earned for and on behalf of the Board for RATHI ISPAT LIMITED Place : Delhi ARUN KUMAR RATHI Date : 12th Day of May, 2007 Chairman