Samruddhi Cement Ltd merged Directors Report

SAMRUDDHI CEMENT LIMITED ANNUAL REPORT 2009-2010 DIRECTORS REPORT To The Members Dear Shareholders, Your Company was incorporated on 4th September, 2009. As such, your Directors present the First Annual Report of your Company together with the Audited Accounts for the period ended 31st March, 2010. SCHEME OF ARRANGEMENT: As you are aware, the Cement Business of Grasim Industries Limited (Grasim), the holding company, has been demerged into your Company w.e.f. 1st October, 2009, being the Appointed Date fixed for this purpose, pursuant to a Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956 (the Scheme of Arrangement). Pursuant to the Scheme of Arrangement and in consideration thereof, your Company shall issue 1 (one) equity share of the face value of Rs. 5/- credited as fully paid up, to the shareholders of Grasim for every equity share they hold in Grasim as on 28th May, 2010, being the Record Date fixed for this purpose. The Scheme of Arrangement has become effective on 18th May, 2010, having received the regulatory approvals, interalia, the sanction of the Honble High Court of Madhya Pradesh, Indore and Honble High Court of Gujarat, Ahmedabad. MERGER WITH ULTRATECH CEMENT LIMITED: As a separate matter, the Board of Directors of your Company and that of UltraTech Cement Limited (UltraTech), another subsidiary of Grasim, have decided to amalgamate your Company with UltraTech under a Scheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956 (Scheme of Amalgamation), subject to necessary approvals, w.e.f. 1st July, 2010, being the Appointed Date fixed for the purpose. In terms of the Scheme, the shareholders of the Company will receive 4 (four) equity shares of UltraTech of the face value of Rs.10 each, credited as fully paid up, for every 7 (seven) equity shares of the Company of the face value of Rs.5 each held on the record date to be fixed for the purpose. The Scheme of Amalgamation is pending for sanction before the Honble High Courts of Bombay and Gujarat. The amalgamation of your Company with UltraTech will result in UltraTech emerging as the largest Cement Company in India and the 10th largest in the world. FINANCIAL PERFORMANCE: The results of your Company on consolidated basis for the period ended 31st March, 2010 are as under. As the Company has been incorporated during the year under review, the figures of the previous year are not available. (Rs. Crores) Consolidated Stand-alone 2009-10 2009-10 Gross Turnover 4,745.70 4,745.70 Gross Profit (PBDT) 1,155.07 1155.11 Less: Depreciation 213.12 213.12 Profit before Tax 941.95 941.99 Tax Expenses 324.03 324.03 Surplus available for Appropriation 617.92 617.96 Appropriation: General Reserve 200.00 200.00 Debenture Redemption Reserve 12.50 12.50 Proposed Dividend 45.79 45.79 Corporate Tax on Dividend 7.61 7.61 Balance carried to Balance Sheet 352.02 352.06 617.92 617.96 OPERATIONS: A review of operations of your Company for the period ended 31st March, 2010 is provided in the Management Discussion and Analysis Section, which forms part of this Annual Report. DIVIDEND: Your Directors are pleased to recommend a maiden Dividend @ Rs. 1.75 per fully paid-up equity share of Rs. 5 each for the period ended on 31st March, 2010. The total outgo of the dividend to be paid to the shareholders will be Rs. 53.40 crores (inclusive of Corporate Tax on Dividend). EMPLOYEE STOCK OPTION SCHEME (ESOS): Pursuant to the Scheme of Arrangement between Grasim Industries Limited (Grasim), the Company and their respective shareholders and creditors under the provisions of Sections 391 to 394 of the Companies Act, 1956 (Scheme of Arrangement), the Cement Business of Grasim was transferred to the Company. Grasim had constituted an employees stock option scheme in 2006 (ESOS-2006) under which Grasim had granted options to its eligible employees. In respect of the stock options granted by Grasim under ESOS- 2006, the Company is required to offer one (1) employee stock option for every employee stock option held by an employee in Grasim, as on the date as may be determined by Grasim for this purpose, under the Compensatory Stock Option Scheme created by the Company (ESOS-2010), pursuant to the Scheme of Arrangement. The details of Employee Stock Options granted pursuant to ESOS - 2010, as also the disclosures in compliance with Clause 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, are set out in the Annexure to this Report. DEBENTURES AND TERM LOANS: Your Company has raised long term loans aggregating Rs.450 Crores to meet the requirements of capital expenditure and other approved purposes. AWARDS & ACCOLADES: Your Company has earned several honours. Some of the significant accolades received include: * National Energy Conservation Award 2009 in Cement Sector : Birla White Division. * CAPEXIL Export Award - Certificate of Merit for Export Recognition : Birla White Division. * IMC - Ramakrishna Bajaj National Quality Award for Outstanding Achievement Trophy 2009 : Birla White Division. RESEARCH AND DEVELOPMENT: In an increasingly competitive business environment, your Company recognizes the importance of Research & Development (R&D) to maintain its leadership position. To further its competitive edge through product innovations and quality upgradation as part of its customer-centric endeavors, your Company pursues a focused R&D strategy. Its R&D efforts also aim at ensuring cost optimization and environment protection. Your Companys R&D efforts are focused on development of new products and processes for creating greater value for its customers. While meeting customer needs is at the centre of all R&D activities, your Company is committed to sustainable development and looks for new ways to preserve the environment and manage resources responsibly. Towards this, your Company aims to maximise use of industrial waste, alternative sources of fuel and chemicals and mineral evaluation of captive limestone reserves. HUMAN RESOURCES: Your Company continuously strives to foster a culture of high performance. Your Management has infused a lot of rigor and intensity in its people development processes and in honing skill sets. Its HR processes are absolutely aligned to organizational goals. The implementation of People Soft HRMS (Human Resource Management System), the variable pay plan and job bands have been institutionalized. Ongoing learning, refreshing HR systems in line with global benchmarks, aligning rewards and recognition with performance, have enabled your Company sustain its reputation of a meritocratic organization. The Groups Corporate Human Resources function has played and continues to play an integral role in your Companys Talent Management Processes. CORPORATE GOVERNANCE: As required by Clause 49 of the Listing Agreement of Stock Exchanges, the report on Corporate Governance forms part of this Annual Report. The Companys Statutory Auditors Certificate dated 18th May, 2010 in terms of Clause 49 of the Listing Agreement is annexed to and forms part of the Directors Report. DIRECTORS RESPONSIBILITY STATEMENT: As stipulated in Section 217(2AA) of the Companies Act, 1956, your Directors subscribe to the Directors Responsibility Statement and confirm that: i) in the preparation of the accounts for the period ended 31st March, 2010, the applicable accounting standards have been followed along with proper explanation relating to material departures; ii) the Directors 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 end of the financial year and of the profit or loss of the Company for that period; iii) the Directors have taken proper and sufficient care of the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and iv) the Directors have prepared the accounts for the period ended 31st March, 2010 on a going concern basis. CONSOLIDATED FINANCIAL STATEMENTS: Upon effectiveness of the Scheme of Arrangement, Harish Cement Limited has become a wholly owned subsidiary of your Company and Bhaskarpara Coal Company Limited has become a joint venture of your Company, with effect from 1st October, 2009. The Consolidated Financial Statements have been prepared by your Company in accordance with the applicable Accounting Standards (AS-21 and AS-27) issued by the Institute of Chartered Accountants of India. Together with the Auditors Report, these form part of the Annual Report. PARTICULARS AS PER SECTION 217 OF THE COMPANIES ACT, 1956: Information on Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo, stipulated under Section 217(1)(e) of the Companies Act, 1956 is set out in a separate statement, attached to this report and forms part of it. In accordance with the provisions of Section 217(2A) ot the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, the names and other particulars of employees are to be set out in the Directors report, as an addendum thereto. However, in tandem with the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report and Accounts as set out therein, are being sent to all members of the Company excluding the aforesaid information about the employees. Any member, who is interested in obtaining these particulars about employees, may write to the Company Secretary at the Registered Office of the Company. DIRECTORS: Your Company had initially three directors, viz., Mr. Adesh Gupta, Mr. Sanjeev Bafna and Mr. Ashok Malu. Subsequent to the resignation of Mr. Sanjeev Bafna, Mr. Saurabh Misra was appointed as an additional director of your Company with effect from 17th September, 2009. Upon the resignation of Mr. Saurabh Misra, Mr. O.P. Puranmalka was appointed as an additional director of your Company with effect from 16th February, 2010. The Directors place on record their appreciation of the services rendered by Mr. Sanjeev Bafna and Mr. Saurabh Misra during their tenure as members of the Board. Upon effectiveness of the Scheme of Arrangement between Grasim and the Company, whereby the Cement Business of Grasim has been transferred to the Company pursuant to the Scheme, the appointment of Mr. O.P. Puranmalka as an Additional Director of the Company was deemed to be treated as Whole Time Director of the Company with effect from the date of his appointment, viz. 16th February, 2010 to 31st March, 2010 under the provisions of Section 269 and 314 read with Schedule XIII and other applicable provisions, if any, of the Companies Act, 1956. Mr. Kumar Mangalam Birla, Mr. R.C. Bhargava, Mr. G.M. Dave, Mr. N.J. Jhaveri and Mr. S.B. Mathur, who were appointed as the Additional Directors at the Board Meeting held on 18th May, 2010, hold office till the conclusion of the ensuing Annual General Meeting. The Company has received the notices in writing from a member proposing their candidature for the office of Directors, liable to retire by rotation. Mr. Adesh Gupta retires from office by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment. AUDITORS: The observations made in the Auditors Report are self explanatory and therefore do not call for any further comments under Section 217(3) of the Companies Act, 1956. The Board, on the recommendation of the Audit Committee, has proposed that M/s. G.P. Kapadia & Co., Chartered Accountants, Mumbai and M/s. Deloitte Haskins & Sells, Chartered Accountants, Mumbai, be appointed as the Joint Statutory Auditors of the Company to hold office from the conclusion of the ensuing Annual General Meeting till the conclusion of the next Annual General Meeting of the Company. M/s. G.P. Kapadia & Co., Chartered Accountants, Mumbai and M/s. Deloitte Haskins & Sells, Chartered Accountants, Mumbai have forwarded their certificates to the Company, stating that their appointment, if made, will be within the limit specified in that behalf in Sub-section (1B) of Section 224 of the Companies Act, 1956. Resolutions seeking your approval on these items are included in the Notice of the ensuing Annual General Meeting. COST AUDITORS: In pursuance of Section 233-B of the Companies Act, 1956, your Directors have appointed M/s R.J. Goel & Co., Delhi, M/s K.G. Goyal & Co., Jaipur and M/s N.D. Birla & Co., Ahmedabad, as the Cost Auditors for the year 2010-11, subject to the approval of the Central Government. APPRECIATION: Your Directors wish to place on record their appreciation of the dedication and commitment of your Companys employees to the growth of your Company. Your Directors express their gratitude to the Central and State Governments, banks, financial institutions, shareholders and business associates for their ongoing co-operation and support. For and on behalf of the Board Adesh Gupta O.P. Puranmalka Directors Place : Mumbai Date : 18th May, 2010 ANNEXURE A TO THE DIRECTORS REPORT: In terms of the Scheme of Arrangement for demerger of the Cement Business of Grasim Industries Limited (Grasim) to the Company (Scheme of Arrangement), the Company is required to offer one (1) employee stock option for every employee stock option held by the eligible employees in Grasim, as on the date as may be determined by Grasim for this purpose, under the Compensatory Stock Option Scheme created by the Company (ESOS- 2010), pursuant to the Scheme of Arrangement. The stock options enumerated in the table below are in accordance with the Scheme of Arrangement. Nature of disclosure : Particulars a) Options granted : 1,85,654 b) The pricing formula : Exercise Price: 1st Tranche : Rs. 405 per option 2nd Tranche : Rs. 606 per option In terms of the Scheme of Arrangement, the Exercise Price of the stock options granted by Grasim under its Stock Option Scheme (ESOS-2006) has been divided between its stock options under ESOS-2006 and the stock options of the Company. The Exercise Price as aforesaid has been determined accordingly. c) Options vested : 97,534 d) Options exercised : Nil e) The total number of shares : Nil arising as a result of exercise of options f) Options lapsed : Nil g) Variation of terms of options : None h) Money realized by exercise of : Nil options i) Total number of options in force : 1,85,654 j) Employee-wise details of options : granted i) Senior managerial personnel : Mr. O.P. Puranmalka : 9,430 (Whole-Time Director till 31.03.2010) ii) Any other employee who receives : None agrant in any one year of option amounting to 5% or more of option granted during that year iii) Identified employees who were : None granted option, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant k) Diluted Earnings Per Share (EPS) : Rs. 55.90 pursuant to issue of shares on exercise of options calculated in accordance with Accounting Standard (AS) 20 Earning per share. l) Difference between the employee : Rs. 0.13 crore compensation cost computed using the intrinsic value of the stock options and the employee compensation cost that shall have been recognized if the fair value of the options had been used. The impact of this difference on profits and on EPS of the company: Particulars Rs. Crores Net Profit 617.96 Add: Intrinsic value Compensation Cost 0.17 Less: Fair Value Compensation Cost 0.30 Adjusted Net Profit 617.83 Earnings Per share (Rs.) (Basic and diluted) Basic Diluted As reported : 55.92 55.90 As adjusted : 55.91 55.89 m) Weighted-average exercise prices and weighted average fair values of options whose exercise price either equals or exceeds or is less than the market price of the stock: Options granted under 1st Tranche: Weighted average exercise price : (Rs.) 405.00 Weighted average fair value : (Rs.) 276.19 Options granted under 2nd Tranche: Weighted average exercise price : (Rs.) 606.00 Weighted average fair value : (Rs.) 231.87 As the shares of the Company are currently not listed, the market price thereof is not available. Hence, the classification is not applicable n) A description of the method and significant assumptions used to estimate the fair values of options, including the following weighted average information : (i) risk-free interest rate (%) : 7.78 (ii) expected life (No. of years) : 5 (iii) expected volatility (%) : 33.40 (iv) dividend yield (%) : 2.38 (v) the price of the underlying : Not applicable, as the shares of share in market at the time of the Company are currently not option grant listed ANNEXURE B TO DIRECTORS REPORT: Information under Section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of Board of Directors) Rule, 1988 and forming part of the Directors Report for the year ending 31st March, 2010: A. CONSERVATION OF ENERGY: a) Energy Conservation measures taken: The Company is continuously engaged in the process of energy conservation through improved operational and maintenance practices. Following measures have been taken by different units of the company: - Use of grinding aids for increasing blended cement production and fly ash absorption in blended cement. - Process Optimization in Raw Mill, Coal Mill and Cement Mills. - Installation of Variable Frequency Drives. - Modification in Compressed Air System and Cooling Tower. - Installation of reject recirculation system and increasing filtration area of bag house. - Modification in Pre-heater cyclones, immersion tube and guide vanes for Kiln. - Usage of thermal power plant ash as fuel to recover residual heat value from petcoke. b) Additional investment and proposals, if any, being implemented for reduction of consumption of energy: - Installation of waste heat recovery systems in pre heater and cooler. - Cooler modification for recovery of cooler heat losses. - Use of Solar Lighting System with LED lights. - Improve efficiency of process fans. - Installation of additional Air Heater Module for waste heat recovery at Kiln. - Modification in Pre-heater cyclones and installation of higher efficiency fan at Dryer and Decoloriser at Kiln. c) Impact of Measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods: - The above measures have resulted/will result in reduction in fuel & power consumption, increase in productivity and reduction in energy cost. d) Total Energy Consumption and Energy Consumption per Unit of Production: As per Form A attached. B. TECHNOLOGY ABSORPTION: Efforts made in Technology Absorption in Form B. RESEARCH & DEVELOPMENT (R&D): FORM B: 1. Specific areas in which R&D carried out by the Company: - Development of variants of wall care putty. 2. Future Plan of Action: - Development of new variants of value added products 3. Expenditure on R & D: Expenditure Rs. Crs. a. Capital 0.87 b. Recurring 1.99 2.86 c. Total R & D Expenditure as a percentage of turnover 0.07% 4. Technology Absorption, Adoption and Innovation: The Company continuously strives to adopt latest technology for improving productivity and product quality and reducing consumption of scarce raw material, energy and other inputs. Information regarding technology imported during the last five years: - Installation of Loop Duct and TCS System through M/s Taiheiyo Engineering Corporation, Japan for both kiln lines. C. FOREIGN EXCHANGE EARNINGS AND OUTGO: (a) Activities related to Exports: Exports on F.O.B. basis during the year were Rs. 10.39 Crores (b) Total Foreign Exchange used and earned: Foreign Exchange used : Rs. 5.21 Crores Foreign Exchange earned : Rs. 10.43 Crores FORM A: Total Energy Consumption and Energy Consumption per unit of Production: (A) POWER & FUEL CONSUMPTION: Unit Current Year 1. Electricity: a) Purchased - Unit 000 168449 Total amount Rs. in lacs 7942 Rate per Unit Rs./Unit 4.72 b) Own Generation: I) Through Diesel Generator - Unit 000 52465 Unit per Liter of Diesel Oil Units/Ltr. 3.62 Cost / Unit Rs./Unit 8.06 II) Through Steam Turbine - Units 000 644967 Units per Kg. Of Steam Co-generation of Steam & Power Cost / Unit Rs./Unit 3.28 (Cost of fuel and duties only) 2. Coal (Slack, Steam & ROM including Lignite Coal & other Alternative Fuel): For Co-generation of Steam & Power Tonne 775841 For Process in Cement Plants Tonne 1039120 Total amount Rs. in lacs 68121 Average rate Rs./Tonne 3753.33 3. Furnace Oil (Including LSHS): Quantity K. Ltrs. 13986 Total amount Rs. in lacs 3534 Average rate Rs./K. Ltrs. 25266 4. Light Diesel Oil (LDO): Quantity K. Ltrs. 0 Total amount Rs. in lacs 0 Average rate Rs./K. Ltrs. 40833 5. High Speed Diesel Oil (HSD): Quantity K. Ltrs. 2284 Total amount Rs. in lacs 761 Average rate Rs./K. Ltrs. 33327 (B) CONSUMPTION PER UNIT OF PRODUCTION: Electricity (units) Coal/Petcoke Current Current Unit Year Year Name of the Product Cement: Grey Cement: Electricity Standard Per Tonne 100 - Actual Per Tonne 81 - Coal/Petcoke Standard K.Cal Per - 710-800 Kg of Clinker Actual K.Cal Per - 709 Kg of Clinker White Cement: Electricity: Actual Per Tonne 119 - Coal/Petcoke Actual Kg Per Tonne - 132 MANAGEMENT DISCUSSION AND ANALYSIS: OVERVIEW: This is the first year of operation of your Company. The Cement business of Grasim Industries Ltd. (Grasim) was demerged and vested into your Company effective from 1st October, 2009. Therefore, the business operations are only for six month during the current financial year. During the year, Cement demand saw a double digit growth of 11%, one of the highest in the decade, recording total despatches of around 200 million tons. The growth was supported by economic recovery, reduction in excise duty, Governments initiatives viz. National Rural Employment Guarantee and low cost housing. The demand upturn has been generally broad based, with all regions recording double digit growth, except Southern Region which was impacted due to floods and political unrest in Andhra Pradesh during part of the year. BUSINESS PERFORMANCE REVIEW: 2009-10* Unit (from 1st October 2009 to 31st March 2010) Grey Cement Capacity** Mn. TPA 25.65 Production Mn. MT 9.85 Sales Volumes$ Mn. MT 10.03 Average Realisation Rs./MT 3,390 White Cement: Capacity** TPA 560,000 Production MT 276,416 Sales Volumes$$ MT 273,172 Average Realisation Rs./MT 8,499 * This being the first financial year of the Company since incorporation, disclosure of previous year figures is not applicable. ** Production quantity is for six months only, whereas the installed capacity given above is for full year. $ Includes captive consumption for RMC. $$ Includes captive consumption for value added products. Your Company completed its ongoing cement expansion. The 3.1 million TPA grinding capacity at Kotputli, Rajasthan became operational during quarter ended March, 2010. Cement production was 9.85 million tons during the six months ended March, 2010. The sales volumes were 10.03 million tons. The bunching of new capacities created a downward pressure in cement prices across the regions during the quarter ended December, 2009. The decline was more pronounced in the Southern Region. Unavailability of railway wagons in various pockets of the country resulted in under utilisation of capacity. There was partial recovery in cement prices in the last quarter due to renewed construction activity and increase in taxes and energy prices. White Cement division registered an impressive performance and achieved 99% capacity utilisation. The Ready mix concrete division is emerging out of the sluggishness, with recovery in the real estate segment. On the cost front, the business gained from the global softness in energy prices in the first three months. It has petered off in the last quarter. Outlook: Cement demand is expected to remain buoyant with increased domestic consumption, both in the government as well as the private sector. The government has reiterated its commitment to infrastructure spending in the budget. The Planning Commission in its midterm appraisal of the 11th year plan has envisaged an expenditure of Rs. 20.5 trillion on infrastructure during the plan period. Additionally, the broad based economic growth will continue to drive cement demand from semi urban and rural India with their rising prosperity levels. With the economy having recovered from the slow down, revival in organised real estate and corporate capex are also expected to add to the buoyancy in demand. Overall, cement demand is expected to grow at a robust 10% + for the next five years. The surplus supply scenario, however, is expected to create short term pressure. New capacities commissioned during FY10 are in various stages of ramp up while additional capacities continue to be set up. This might lead to a surplus scenario after peak demand in Q1FY11, which may last for 6 to 8 quarters. On the cost front, higher coal prices are likely to exert pressure on margins in FY 11. The Companys focus on higher volume growth, better logistics support, together with cost efficiency, should help in partially mitigating the impact. Your Company continues to focus on achieving greater than industry growth and building sustainable competitive advantage through its reach, service and cost competitiveness. Its distribution network is being further expanded throughout India particularly in rural areas to increase the reach. Customer responsiveness is being further improved with the implementation of online order booking and tracking system. Capex Plan: An overall capital outlay of Rs. 2,375 Crores has been earmarked. This will be spent over the next 2 years on logistics infrastructure, waste heat recovery systems, completion of existing projects and modernization. FINANCIAL REVIEW AND ANALYSIS: (Rs. in Crores) 2009-10 (from 4th September 2009* to 31st March 2010) Net Turnover 4,290.6 Other Operating Income and Other Income 50.0 Profit Before Interest, Depreciation and Tax 1,242.2 PBIDT Margin (%) 28.6 Interest 87.1 Depreciation 213.1 Profit before Tax Expenses 942.0 Total Tax Expenses 324.0 Net Profit 618.0 During the current period ended 31st March 2010, your Company has recorded a net turnover of Rs. 4,291 Crores and net profit of Rs. 618 Crores. It earned a healthy 28.6% PBIDT margin. CASH FLOW ANALYSIS: (Rs. in Crores) 2009-10 (from 4th September 2009* to 31st March 2010) Sources of Cash: Cash from Operations 1,029 Non-operating Cash Flow (Dividend Income) 10 Proceeds from Equity 85 Increase in Debts 409 Decrease in Working Capital 181 Decrease in Cash and Cash equivalent 28 1,742 Uses of Cash: Net Increase in Investments 1,265 Capital Expenditure (net) 376 Interest 101 1,742 * Date of Incorporation Sources of Cash: Cash from Operations: Cash from operations was Rs. 1,029 Crores during the six months of operation. Increase in Debts: Term Loans of Rs.450 Crores were raised to fund capacity expansion. Short term loan of Rs. 42 Crores were repaid. Proceeds from Equity: 17 Crores equity shares of Rs.5 each were issued at par to Grasim, the Holding Company. Decrease in Working Capital: Reduction in trade receivables and inventories and increase in trade payables led to decrease in working capital. Uses of Cash: Net Increase in Investments: Your Company invested Rs. 1,234 Crores in the debt scheme of various mutual funds. An investment of Rs.3.9 Crores was made in equity share capital of Bhaskarpara Coal Company Ltd., a joint venture of the Company. Further, a sum of Rs.27 Crores was advanced to Harish Cement Ltd., a subsidiary of the Company. Capital Expenditure (Net): Your Company have spent Rs. 376 Crores towards the completion of expansion projects and normal modernisation. RISKS AND CONCERNS: Upon transfer of Cement business from Grasim (Holding Company), your Company has adopted its risk management policy. The risk management policy inter alia provides for risk identification, assessment, reporting and mitigation procedure. The risk management framework actively supports the Board in its strategic decision making. An analysis of the Companys key business risks and mitigation plans is as follows: Competitor Risk: The market is highly competitive with no fiscal barriers and entry of large MNCs into the country with inorganic growth strategies. Your Company continues to focus on increasing its market share and taking marketing initiatives that help create differentiation and provide optimum service to its customers. Human Resource Risk: Your Companys ability to deliver value is shaped by its ability to attract, train, motivate, empower and retain the best professional talents. Your Company continuously benchmarks HR policies and practices with the best in the industry and carries out the necessary improvements to attract and retain the best talent. Foreign Exchange Risk: Your Companys policy is to hedge all long-term foreign exchange risk as well as short-term exposures within the defined parameters. The long-term foreign exchange liability is fully hedged and hedges are on held to maturity basis. Interest Rate Risk: The Company is exposed to interest rate fluctuations on its borrowings. It uses a judicious mix of fixed and floating rate debts within the stipulated parameters to mitigate the interest rate risk and whenever required, uses hedging tools to minimise interest rate risk. Commodity Price Risk: Your Company is exposed to the risk of price fluctuation on raw materials, energy sources as well as finished goods. However, considering the normal correlation in the prices of raw materials and finished goods, the risk is reduced. Setting up of captive power plants helps control the effect of rise in energy cost, a major cost element for cement manufacturing. Forward integration in value added products e.g., ready mix concrete in cement, wall care putty in white cement, help reduce the impact of price fluctuation in finished goods. Input Availability Risk: Availability of natural resource for current needs and future growth requirements is a key risk. Indian coal availability continues to be insufficient to meet the current and growing demand in the country. To meet the shortfall, your Company procures coal from various sources including imports, open market purchases and pet coke. One coal block has also been allocated by Government of India to our joint venture with other corporates. This coal block will, however, meet only a small part of our requirement on becoming operational. Your Company has intensified its efforts to increase use of various alternative fuels. Waste heat recovery systems are being planned to reduce energy consumption. Your Company has sufficient limestone reserves at its existing facilities. Prospecting and acquiring leases of new limestone mines are being undertaken on a regular basis to ensure future growth. INTERNAL CONTROL SYSTEM: The Company has appropriate internal control systems for business processes, with regards to efficiency of operations, financial reporting, compliance with applicable laws and regulations, etc. Clearly defined roles and responsibilities down the line for all managerial positions have also been institutionalised. All operating parameters are monitored and controlled. Regular internal audits and checks ensure that responsibilities are executed effectively. The Audit Committee of the Board of Directors reviews the adequacy and effectiveness of internal control systems and suggests improvement for strengthening them, from time to time. CONCLUSION: Your Company has decided to amalgamate with UltraTech Cement Ltd., another subsidiary of Grasim with effect from 1st July, 2010 under a scheme of amalgamation, subject to receipt of requisite approvals. The merger will create largest Cement Company in India creating a platform that will help in pursuing aggressive growth going forward. CAUTIONARY STATEMENT: Statement in this Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global and Indian demand supply conditions, finished goods prices, feedstock availability and prices, cyclical demand and pricing in the Companys principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the Company conducts businesses and other factors such as litigation and labour negotiations. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent development, information or events or otherwise. SUSTAINABILITY REPORT/INCLUSIVE GROWTH: Corporate Social Responsibility Policy: For us in the Aditya Birla Group, reaching out to underserved communities is part of our DNA. We believe in the trusteeship concept. This entails transcending business interests and grappling with the quality of life challenges that underserved communities face, and working towards making a meaningful difference to them. Our vision is - to actively contribute to the social and economic development of the communities in which we operate. In so doing build a better, sustainable way of life for the weaker sections of society and raise the countrys human development index (Mrs. Rajashree Birla, Chairperson, Aditya Birla Centre for Community Initiatives and Rural Development). Implementation process: Identification of projects: All projects are identified in a participatory manner, in consultation with the community, literally sitting with them and gauging their basic needs. We recourse to the participatory rural appraisal mapping process. Subsequently, based on a consensus and in discussion with the village panchayats, and other influentials, projects are prioritized. Arising from this, the focus areas that have emerged are Education, Health care, Sustainable livelihood, Infrastructure development, and espousing social causes. All of our community projects are carried out under the aegis of The Aditya Birla Centre for Community Initiatives and Rural Development. In Education, our endeavour is to spark the desire for learning and knowledge at every stage through * Formal schools * Balwadis for elementary education * Quality primary education * Aditya Bal Vidya Mandirs * Girl child education * Adult education programmes. In Health care, our goal is to render quality health care facilities to people living in the villages and elsewhere through our Hospitals. * Primary health care centres * Mother and Child care projects * Immunization programmes with a thrust on polio eradication * Health care for the visually impaired, and physically challenged * Preventive health through awareness programmes. In Sustainable Livelihood, our programmes aim at providing livelihood in a locally appropriate and environmentally sustainable manner through * Formation of Self Help Groups for women empowerment * Vocational training through Aditya Birla Rural Technology Parks * Agriculture development and better farmer focus * Watershed development * Partnership with Industrial Training Institutes. In Infrastructure Development, we endeavour to set up essential services that form the foundation of sustainable development through * Basic infrastructure facilities * Housing facilities * Safe drinking water * Sanitation & hygiene * Renewable sources of energy. To bring about Social Change, we advocate and support * Dowryless marriage * Widow remarriage * Awareness programmes on anti social issues * De- addiction campaigns and programmes * Espousing basic moral values. Activities, setting measurable targets with time frames and performance management: Prior to the commencement of projects, we carry out a baseline study of the villages. The study encompasses various parameters such as - health indicators, literacy levels, sustainable livelihood processes, population data - below the poverty line and above the poverty line, state of infrastructure, among others. From the data generated, a 1-year plan and a 5-year rolling plan are developed for the holistic and integrated development of the marginalized. These plans are presented at the Annual Planning and Budgeting meet. All projects are assessed under the agreed strategy, and are monitored every quarter, measured against targets and budgets. Wherever necessary, midcourse corrections are effected. Organizational mechanism and responsibilities: The Aditya Birla Centre for Community Initiatives and Rural Development provides the vision under the leadership of its Chairperson, Mrs. Rajashree Birla. This vision underlines all CSR activities. Every Manufacturing Unit has a CSR Cell. Every Company has a CSR Head, who reports to the Group Executive President (Communications & CSR) at the Centre. At the Company, the Business Director takes on the role of the mentor, while the onus for the successful and time bound implementation of the projects is on the various Unit Presidents and CSR teams. To measure the impact of the work done, a social satisfaction survey / audit is carried out by an external agency. Partnerships: Collaborative partnerships are formed with the Government, the District Authorities, the village panchayats, NGOs and other like-minded stakeholders. This helps widen the Companys reach and leverage upon the collective expertise, wisdom and experience that these partnerships bring to the table. In collaboration with FICCI, we have set up Aditya Birla CSR Centre for Excellence to make CSR an integral part of corporate culture. The Company engages with well established and recognized programmes and national platforms such as the CII, FICCI, ASSOCHAM to name a few, given their commitment to inclusive growth. Budgets: A specific budget is allocated for CSR activities. This budget is project driven. Information dissemination: The Companys engagement in this domain is disseminated on its website, Annual Reports, its house journals and through the media. Management Commitment: Our Board of Directors, our Management and all of our employees subscribe to the philosophy of compassionate care. We believe and act on an ethos of generosity and compassion, characterized by a willingness to build a society that works for everyone. This is the cornerstone of our CSR policy. Our Corporate Social Responsibility policy conforms to the Corporate Social Responsibility Voluntary Guidelines spelt out by the Ministry of Corporate Affairs, Government of India in collaboration with FICCI (2009). Towards inclusive growth: A snapshot of your Companys work: Your Companys CSR activities extend to 310 villages, in proximity to its plants, across the country. Health Care: At the rural medical camps organized for general health check-ups 15,388 villagers were examined. Over 91,400 patients were treated at our hospitals. Those afflicted with serious ailments were taken to the Companys hospitals for treatment. Intra Ocular lens surgery benefited 3,662 cataract patients at Khor (M.P.), Shambhupura (Rajasthan) and Kharia Khangar (Rajasthan). More than 35,050 truck drivers, their helpers and migrant workers were sensitized to the dangers of HIV/AIDS. The DOTS centre at Kotputli continues to treat patients with TB. 596 patients were treated for dental problems. Over 3,630 villagers benefited from specific disease camps organized for cardiac checkup, skin diseases, arthritis and other specific health problems. A special programme for drug de-addiction organized at Bhatinda was attended by 550 people. Mother and Child Care: We administered 1,19,457 polio doses to children at Birla White, Kharia Khangar and Vikram Cement, Khor. Nearly 10,000 children were immunized against diphtheria, tetanus, measles and hepatitis-B across the locations mainly in Khor, Shambhupura, Kharia Khangar and Kotputli. More than 1,886 couples have opted for planned families and responsible parenting at Rawan, Kotputli, Khor, Kharia Khangar, Sawa, Malkhed and Reddipalayam. Over 1,500 mothers were provided pre and post natal care at Reddipalayam, Khor, Shambhupura, Kotputli, Rawan and Kharia Khangar. Education: Over 507 students were enlisted this year in our Balwadis at Khor, Nawalgarh, Shambhupura and Reddipalayam. To encourage the spirit of excellence, 361 children from the adopted rural schools were awarded scholarships at Rawan and Malkhed. This year we were able to persuade the parents of 290 girls who had dropped out from their schools in the villages to get back to their studies at Malkhed and Kharia Khangar. To focus on the girl child we support the Kasturba Gandhi Balika Vidhyalayas (KGBV) - residential schools for girls at Kharia Khangar. More than 15 education centres across Rawan and Kharia Khangar provide bridge education to girls who had dropped out from the education stream, mid-way. So far, 290 girls have been successfully placed in KGBVs and other Government schools. Over 80 people have joined our adult literacy classes at Malkhed. More than 8,100 students at various Government schools have been provided educational aids such as school bags, notebooks, stationery and utensils for mid-day meal support at Kharia Khangar, Neemuch, Shambhupura, Rawan and Malkhed. At the Kagina Industrial Training Centre, which we are running at Malkhed, 171 students have been trained as fitters, welders, electronic, electric and mechanical repairmen. They have been successfully placed. This centre is recognized by the Department of Employment & Training of the Government of Karnataka. Free coaching classes for underprivileged students were conducted at Rawan. Safe drinking water and sanitation: Water tanks have been set up at Neemuch, Chittorgarh, Kharia Khangar and Reddipalayam. Under the Nirmal Gram Yojana, your Company facilitated the construction of individual toilets in villages around Khor and Shambhupura plants. At schools around Shambhupura, 8 roof rain water harvesting structures were constructed. Sustainable Livelihood: Towards fostering renewable energy, 50 bio-gas units have been promoted in villages around our Vikram Cement Plant near Khor. Immunized 9,061 animals in animal husbandry and other veterinary camps at Vikram Cement, Khor, Grasim Rawan, Birla White Kharia Khangar and Aditya Cement Shambhupura. Farm based income generation activities have benefitted 70 farmers at Kharia Khangar, Khor and Shambhupura. Self Help Groups and Income Generation: Our 120 Self Help Groups empower 1,200 rural households financially and socially at Malkhed, Kharia Khangar and Reddipalayam. Most of these groups have been linked with the economic schemes of NABARD and the District Industries Centre. Vocational training programmes were conducted for 637 youngsters. Among these were two-wheeler repairing, driving, domestic electric fitting, motor rewinding, mobile repairing, training on refrigeration, computer training and beauty parlour courses in Khor, Shambhupura, Kharia Khangar, Reddipalayam, Malkhed and Rawan. At the various tailoring centres across our Units, linkages with entrepreneurs have been developed to close the marketing loop. Over 36 women have been the beneficiaries. Infrastructure Development: To augment the ground water storage by minimizing the excess runoff, two water harvesting structures in the form of Anicuts were constructed at Kharia Khangar. A community hall has been provided for Segwa village in Neemuch to facilitate informative and cultural exchanges among communities. School buildings, boundary walls, anganwadi centres, panchayat offices, Primary Health Centre and cattle sheds have been constructed/renovated at the Companys Neemuch, Chittorgarh, Kharia Khangar, Rawan and Kotputli plants. Your Company has repaired the village approach roads at Rawan and Shambhupura. Vikram Cement has set up a 20-bed maternity ward at the District Hospital. Public sanitation facilities have been provided at Neemuch and other units. At the Navjeevan Gaushala at Kharia Khangar, 3,500 cattle were vaccinated. The vermin compost pits produce manure which is supplied to farmers. The Gaushala also serves as a demonstration site for better bred cattle and farming practices. Social Welfare: Under the mass marriage programme, 104 couples have wed. We helped more than 120 new beneficiaries at Reddipalayam, Malkhed and Rawan access Government pension funds for old age widows and the physically handicapped. Other social security programmes were facilitated by us. The drug de-addiction campaign organized at Bhatinda, was attended by 8,000 people so far, of which 250 addicts have been cured and successfully rehabilitated. At the week long Yoga and Sanskar classes organized for school children at Malkhed 1,177 children participated. Our Board of Directors, our Management and all of our employees subscribe to the philosophy of compassionate care and to the upliftment of our rural societies. ENVIRONMENT REPORT: The challenges that the world faces on environment conservation, are indeed alarming. Just to highlight a few - climate change, the severity of droughts and floods, their impact on rain fed agriculture, the emission of greenhouse gases and our ability to pursue sustainable development. We in India are no exception to these issues. Environment conservation and sustainable development are continuously on your Companys radar. Hence these are integrated into its business strategies as well as its efforts towards fostering inclusive growth through its rural development and community initiatives. All of your Companys plants are ISO14001 EMS, OHSAS 14001 and SA8000 certified. A rigorous in-depth environment audit of each of our plants is conducted by external specialists in this domain. Among the auditors enlisted by us are KPMG Peat Maverick, Det Norkse Veritas and Environmental Systems Auditors. Alongside these experts, the State Pollution Control Boards certified auditors also carry out these audits. They reconfirm our commitment to environment conservation as a major operating principle. Your Company has developed and implemented measures to monitor and reduce green house gas (GHG) emissions from its manufacturing operations. The GHG emission details and mitigation plan are being audited by KPMG as Independent Third Party Auditors. This is work-in-progress. We expect to publish their findings in the 3rd quarter of FY 2010-11. Whatever course correction or innovative suggestions emanate from the report, will be implemented. Their findings will be published by mid 2010-11. Your Company is greatly advantaged by its linkages with its parent Company, Grasim Industries Limited, which is a voluntary member of the Cement Sustainability Initiative (CSI). The CSI sets common measures and is a knowledge networking forum on environmental impact issues. Your Companys sustainable development program is in sync with the parameters of the CSI. Your Company is a voluntary member of the Cement Sustainability Initiative (CSI). The CSI sets common measures and is a knowledge networking forum on environmental impact issues. Your Companys sustainable development program is in sync with the parameters of the CSI. Your Companys Cement plants continue to validate its energy efficiency, kiln reliability and productivity based on data from Global Benchmarking Surveys, conducted annually by Whitehopleman - an independent UK based consulting firm. Your Companys thrust on use of alternate fuels is gaining momentum. We have been continuing our efforts to reduce consumption of fossil fuels by substituting these with wastes from other industries. It is difficult for the waste generating industries to safely dispose these wastes generated and the only other choice is through incineration. We have saved using coal by recoursing to alternate fuels such as processed municipal solid waste, agro waste, tyre chips and used polythene and plastics. In 2009-10, we substituted the use of natural resources with 18,000 tons of waste materials as fuel, equivalent to 9,000 tons of coal burning. This has helped our environmental conservation efforts significantly. We are building competency and installing machinery at our plants to handle waste fuels in the most eco-friendly manner. Rain water harvesting continues to be a priority area. Water bodies in the catchment areas for rainwater storage and ground water recharging have been set up. At the same time in shopping complexes, hospital roofs, school and mine offices at our plant locations, rain water harvesting system has been instituted. This effectively recharges rain water in the bore wells and helps maintain ground water levels. The greenbelt at our plants is simply awesome and is surrounded by trees all around. At some points, you cannot even see the skyline. Only the leaves and the flowers and hear the cacophony of the birds. When you walk through this wooded ambience, you can never imagine that there would be a plant in the midst of nature. Our Board, our Management and all of our colleagues are committed to living in harmony with nature.