Directors
Your Directors have pleasure in presenting the Forty-first Annual Report together with
the audited statements of account of the Company for the 18 months period ended 30th
September, 2012.
|
(Figures in millions of Rupees) |
|
18 months period ended 30.09.2012 |
Previous Year ended 31.03.2011 |
| PROFIT BEFORE TAX |
377.27 |
168.22 |
| Less: Provision for Taxation |
|
|
| Current Tax |
17.50 |
33.52 |
| Excess provision of Income-tax for prior years written back |
(23.88) |
(12.78) |
| PROFIT AFTER TAX |
383.65 |
147.48 |
| Add: Surplus brought forward from previous year |
942.92 |
934.92 |
| Amount available for appropriation |
1,326.57 |
1,082.40 |
Your Directors have recommended payment of dividend of Rs. 0.50 per equity share for
the 18 months period ended 30th September, 2012, which will absorb Rs. 75.00 million.
Additional amount of Rs. 12.17 million will be absorbed towards dividend distribution tax.
After the above appropriations, your Directors propose to carry forward a balance of Rs.
1,239.40 million in the Profit and Loss Account.
Freight and charter hire income for the 18 months period ended 30th September, 2012 was
Rs. 4,655.02 million compared to Rs. 4,914.27 million for the year ended 31st March, 2011.
Profit before tax was Rs. 375.27 million for the 18 months period ended 30th September,
2012 as against Rs. 168.22 million during the year ended 31st March, 2011 . Net profit
after tax was Rs. 383.65 million for the 1 8 months period ended 30th September, 2012 as
against Rs. 147.48 million during the year ended 31st March, 2011.
During the 18 months period ended 30th September, 2012, Company sold its AHTS vessel
Suvarna and Amba Bhargavi on Bareboat Charter cum Demise (BBCD) basis to Varun Cyprus
Limited, Cyprus and Varun Asia Pte. Ltd., Singapore respectively and thereafter
transferred the ownership of the vessels to the said companies. Further, the ownership of
the vessels Amba Bhakti and Amba Bhavanee sold earlier on BBCD basis was transferred to
Varun Asia Pte. Ltd., Singapore and the ownership of AHTS vessels Subhiksha and Sudaksha
sold earlier on BBCD basis was transferred to Varun Cyprus Limited, Cyprus. The Company
has also sold its AHTS vessels Subhadra and Suchandra to Varun Cyprus Limited. Due to
flexibility of crewing under foreign flag and financing and fiscal benefits available to
companies incorporated overseas, the subsidiaries/associate companies overseas have been
able to obtain long-term low cost financing and long-term contracts/employment for the
vessels acquired by them. The sale has also enabled the Company to reduce its debt from
Rs. 27,036.5 million as on 31st March, 2011 to Rs. 13,434.7 million as on 30th September,
2012.
The Company together with its associates is the 5th largest in the world in terms of
number of fully refrigerated LPG carriers and 7th largest in the world in terms of cbm,
i.e. cargo carrying capacity under 10,000 + cbm category. The LPG carrier fleet presently
owned and/or operated by the Company is the largest in India in terms of both fleet size
and cargo carrying capacity.
With a view to realign businesses and increase focus on individual growth strategies of
each business, the Company together with other companies has proposed to rearrange its
businesses by segregating its traditional shipping business, ship management (technical
and commercial management) and shipping investment business (presently confined to holding
investment in group companies) into separate entities through a Composite Scheme of
Arrangement and Amalgamation (the "Scheme") under the provisions of the
Companies Act, 1956 thereby resulting in enhancement of business prospects and
shareholders value. The Company has received approval of Competition Commission of India
and in-principle approvals from Bombay Stock Exchange Limited and National Stock Exchange
of India Limited for the said Scheme. The necessary application has also been made to the
Honble High Court of Judicature at Bombay for approval of the said Scheme.
During the period under review, following companies became wholly owned subsidiary
companies of the Company:
Varun Gas Infrastructure Limited - the Company holds 1,000,000 equity shares of Rs. 10
each.
Varun Global Private Limited - the Company holds 100,000 equity shares of Rs. 1 each.
Varun Resources Private Limited - the Company holds 150,007,773 equity shares of Rs. 1
each.
Further, Varun Asia Pte. Ltd., Singapore was a wholly owned subsidiary of the Company
for the period from 3rd April, 2012 to 28th September, 2012 and is now an associate of the
Company.
Further, Varun Cyprus Limited, Cyprus became a wholly owned subsidiary of the Company
on 15th December, 2011 - the Company holds 1,000 equity shares of US$ 1 each.
The consolidated financial statements presented by the Company include financial
information of its subsidiaries prepared in compliance with applicable Accounting
Standards. The Ministry of Corporate Affairs, Government of India vide its Circular No.
51/12/2007-CL-III dated 8th February, 2011 has granted general exemption under Section
212(8) of the Companies Act, 1956 from attaching the balance sheet, profit and loss
account and other documents of the subsidiary companies to the balance sheet of the
Company, provided certain conditions are fulfilled. Accordingly, annual accounts of the
subsidiary companies and the related detailed information will be made available to the
Company and subsidiary companies shareholders seeking such information at any point of
time. The annual accounts of the subsidiary companies will also be kept for inspection by
any shareholder at Companys Registered Office in Mumbai and that of the subsidiary
companies concerned.
Details of subsidiaries of the Company are covered in this Annual Report.
Management Discussion and Analysis :
(a) Industry Structure and Development :
Transportation by sea is the leading and also most preferred mode of transportation the
world over. The international shipping industry transports hydrocarbons and bulk
commodities in wet bulk, dry bulk, liquefied gas, bulk chemicals and container sectors.
Further, specialized vessels are also used to carry passengers, automobiles and project
cargoes the world over. In addition thereto, offshore support vessels are used to provide
services to offshore oil and gas exploration and production industry. The Company owns
and/or operates a diversified fleet of 20 vessels, in the oil, gas and offshore support
services sector.
According to Platou Report 201 2, the steady relationship between the global GDP growth
and sea-borne trade growth continued in 2011. Tonnage demand rose by 6.7 per cent compared
to world GDP growth of 3.8 per cent. The respective figures were somewhat below observed
long-term averages but broadly confirmed the 2:1 relationship between tonnage demand
growth and GDP growth. However, had it not been for the strong increase in LNG volume,
tonnage demand growth would have been weaker than expected based solely on the GDP vs.
trade relationship. The main factor behind the slump in tonnage demand growth was the
container trades which were hit hard by the weakness in the US and European economies. In
addition, the continued strengthening of the Chinese yuan caused Chinese export growth to
slow to 20 per cent from more than 30 per cent in 2010.
According to Platou Report 2012, the start of the year 2011 turned out to be a tough
twelve months for the shipping industry overall. Market performance was weak, with the
notable exception of LNG, despite relatively strong trade growth. With expectations for
the world economy undergoing a marked shift to the negative and scheduled newbuilding
deliveries still high for 2012, any meaningful increase in capacity utilisation will be
hard to come by for the main segments.
Further, overall capacity utilisation of 84 per cent was above the very depressed level
of 2009 and in line with the low levels seen at the start of the previous decade which was
not a satisfactory time for shipping. Big differences among segments still exist.
According to Platou Report 2012, the year 2011 turned out to be one of the most
volatile and eventful years ever for the global shipping environment. Three sets of events
stand out; another financial crisis raised its head, the social upheaval in the Middle
East (known as the Arab Spring) continued and, lastly, it was a major year for natural
disasters with the two biggest - a tsunami and earthquake in Japan and the "flood of
the century" in Australia, having a direct impact on shipping. While the effect of
these disasters varied among segments, the overall impact was negative for world growth
and hence for tonnage demand.
High new building deliveries for the third year in a row continued to drive a large
increase in fleet capacity. Total fleet growth came in at 8.2 per cent, the highest level
in more than 20 years.
A marked slowdown in tonnage demand growth added to the tanker markets supply problems
in 2012 and brought average freight rates down to the lowest level since 1994. Seaborne
trade volume showed only marginal growth from the previous year. Fleet capacity continued
its steady increase with a 6.2 per cent gain. Overall fleet utilisation fell by more than
3 percentage points to an estimated 83 per cent in the tanker market.
The dry bulk market weakened in 2011, average freight rates fell by more than 40 per
cent with Capesize rates leading the way with a 50 per cent drop. A sharp jump in fleet
capacity outweighed continued strong albeit volatile, tonnage demand, which grew at 10 per
cent. Fleet capacity growth was massive, despite ongoing delays, slippage and
cancellations. Net fleet growth topped 15 per cent, a modern day record. Fleet utilisation
fell by 4 percentage points but at 88 per cent remained well above the low levels seen for
tankers and containers.
Average freight rates for container vessels rose in 2011 but market performance was
very uneven. Demand growth was only half of the previous years sturdy pace, at 7.5 per
cent. Fleet capacity added another 8.0 per cent resulting in a modest fall in capacity
utilisation, keeping it below 80 per cent for the third straight year.
The LNG market had a fantastic year, in contrast to the rest of the industry. It is
estimated that tonnage demand grew by more than 20 per cent while the active fleet
increased only by 10 per cent. This led to a significant tightening of market
fundamentals.
According to Platou Report 2012 in the year 2011 in the crude oil tanker market, fleet
capacity continued its above-trend expansion but the real negative surprise was that
seaborne trade growth slowed to a trickle, only a year after one of the strongest
performance on record. Fleet utilisation thus moved significantly lower. VLCCs led the
sharp drop in rates. Suezmaxes and Aframaxes also suffered, but rates did not fall as
dramatically as for VLCCs. The seasonal upturn during the winter months was remarkably
short and from the start of the second quarter and well into the fourth the market was
exceptionally low for all segments.
LPG markets began a transition period in 2008. The year 2009 was the end of this
beginning and start of a new era of sharply rising seaborne LPG supplies. The year 2012
has started seeing better utilisation of LPG vessels. Due to large expansion of Qatar Gas
and Ras Gas LNG plants and establishment of new LNG export/import terminals, more LPG
production and transportation is expected to take place during the times to come. Seaborne
LPG supply is forecast to rise 47 percent to 83 mm t/year between 2008 and 2016. The
growth a difference of 27 mm t/year of exports in 2016 v/s 2008 will alter the way LPG
markets trade, changing trade dynamics and forcing product to new buyers.
According to Platou Report 2012, spending on oil and gas E & P accelerated further
in 2011 and rose by an estimated 14 per cent, a very impressive figure considering that it
came on top of robust double-digit growth in 2010. The sustained jump in oil prices to
above $ 100 was an obvious catalyst. The demand for offshore support vessels (OSVs) in
2011 clearly benefited from significant increase in global offshore activity. The increase
in offshore activity came on the back of rising oil prices and an estimated 14 per cent
rise in global E&P spending. The rise in upstream investments produced growth across
all the major drivers of OSV demand.
While day rates for large AHTS vessels generally increased in 2011, smaller sized
vessels were left struggling to perform in many regions throughout the year.
Brazil was the epicentre of activity and increasing demand there attracted a number of
AHTS vessels from other regions.
(b) Opportunities and Threats :
Indian flag ships have a "Right of First Refusal" for any cargo of Indian
Public Sector Undertakings which are imported into India. This enables Indian companies to
ensure better utilisation of its vessels in Indian trade.
India is the 4th largest consumer of LPG in the world after USA, China and Japan, but
Indian LPG consumption per capita is very low compared to other countries. There is a
tremendous growth prospect for LPG consumption/demand in India in future and total LPG
demand is expected to grow at the rate of 8-9 per cent per annum. With vision 2015 of the
Government of India, the Rajiv Gandhi Gramin Vitrak Yojna, LPG penetration in rural areas
will improve.
The freight rates are mainly determined by the fine balance between future demand and
supply of vessels and therefore may get adversely affected in case of mismatch between
demand and supply of vessels over a period of time.
The Indian shipping industry continues to be burdened with several taxes such as
service tax and withholding tax on interest which prevent healthy growth and development
of shipping industry. In order to be globally competitive, it is essential that taxes are
rationalised to ensure that Indian shipping companies are able to achieve a level playing
field in the international arena.
Also, shortage of skilled and quality manpower due to continuous drifting of qualified
seafarers to foreign shipping companies on account of peculiar tax provisions continues to
be an area of grave concern for Indian shipping companies.
(c) Segment-wise Performance :
The Company is primarily engaged in the business of shipping and hence there are no
separate reportable segments.
The Company together with its subsidiaries and associates, owns and/or operates a fleet
of ten LPG carriers, including seven mid-size Gas Carriers (MGCs), one Large Gas Carrier
(LGC) and two Very Large Gas Carriers (VLGCs), which have been deployed on a mix of time
charters and spot charters with charterers such as Indian Oil Corporation Limited,
Hindustan Petroleum Corporation Limited, Bharat Petroleum Corporation Limited, Reliance
Industries Limited and Pertamina.
In the crude oil sector, as a ship manager, the Company operates three double hull
Aframax crude oil tankers, which are placed in the Sigma Tanker Pool, trading globally.
The benefit of working in the pool is that earnings of group of vessels owned by different
owners are pooled together and distributed amongst various owners.
In the offshore support services sector, as a ship manager, the Company operates a
fleet of five large Anchor Handling Towing and Supply (AHTS) vessels. The 3 large AHTS
Vessels are on time charter to Petrobras, Brazil for a firm period of four years with four
extension options of one year each. The other 2 large AHTS Vessels are on charter to Topaz
Group in Caspian Sea for ultimate charter to BP Exploration (Caspian Sea) Limited for a
period of two years with two extension options of one year each.
(d) Outlook :
There are encouraging signs that market mechanisms are being allowed to work and one
may hope that a more balanced situation will emerge from 2013 onwards, world economy
permitting.
One of the few bright spots for owners in 2011 has been the substantial reduction in
the newbuilding order book. New orders fell by almost 20 per cent, with conventional
shipping segments seeing a decline of more than 50 per cent. That has brought the overall
order book down to around 20 percent of the fleet, in line with the long-term pre 2007
trend. Another year of relatively high deliveries and limited ordering should take the
ratio below trend. This is positive for everyone involved because the first step towards a
balanced market and adequate earnings begins with a manageable supply side.
It appears that 2012 is another challenging year for world shipping markets, in line
with 2011.
According to Platou Report 2012, freight market in the three major shipping
segments-tankers, bulk carriers and container ships is expected to be subdued. However,
less demand from the major segments may result in higher focus on smaller, industrial
segment.
Increasing focus on fuel efficiency and new regulations for new tonnage might help
boost ordering activity, as shipyards respond by offering new, improved designs. Another
factor that will affect the balance in the new building markets is the potential
downsizing of the building capacity. In difficult time shipbuilders will have to close
down facilities due to lack of employment, but historically this has proven to be a slow
process. However, yards may adopt conventional ship building capacity to offshore capacity
or even utilize their capacity for other means than shipbuilding.
In conclusion, we foresee an oversupplied new building market in the coming year.
On the tanker markets, the supply side of the market will be the biggest challenge as
more than 10 per cent of the fleet is scheduled to be delivered and considering other
factors a net fleet growth of 6 per cent is expected. This will continue the downward
pressure on fleet utilisation through 2012.
LPG demand growth has been strong in Asia and the Middle East and while Asia is the
largest LPG consuming region, it is still expanding. The Middle East has become a
significant LPG demand centre due to rapid expansion of petrochemical industry and
continued growth in both residential and commercial sectors. Overall demand in Europe and
North America is reasonably flat but could increase if price sensitive LPG supplies are
available. Also, demand will continue to expand slowly in Latin America due to rising
consumption in residential and commercial markets. In the LPG sector, the order book is
balanced considering the increased LPG demand in Asia, Middle East and Latin America. It
is therefore expected that the freight rates will remain firm.
On a global basis, OSV day rates and fleet utilisation for OSVs are forecast to rise
but will vary by asset and region. OSV demand growth is likely to be driven by a further
focus on exploring and developing deepwater assets. It seems likely that the main region
propelling demand further will be Brazil. As vessels per unit serviced in Brazil tend to
be relatively high compared to other regions combined with longer distances offshore,
demand for Offshore Supply Vessels is expected to receive an additional boost.
(e) Risks and Concerns :
Shipping industry being global in nature is prone to several risks and uncertainties
including international competition, state of global economy, marine mishaps and
accidents, force majeure such as tsunami, floods, earthquakes, volcanic eruptions, etc.,
amendments in Government policies, rules and regulations, new regulatory compliances, port
state control, increase in financial costs, exchange rate fluctuations, changes in tax
laws, acts of terrorism, wars, piracy, arrest of vessel by maritime claimants, shortage of
qualified seafarers, global recession etc. Incidences of attack by pirates are still
continuing. However, international forces including India are taking maximum measures to
monitor and protect shipping companies.
The Company endeavours to counteract these risks by adopting certain measures like
hedging its freight rates through long-term time charter contracts, complying with
international ship management practices, and also insuring its vessels against various
maritime risks with hull and machinery underwriters and Protection and Indemnity Clubs.
The companies are also adopting "Best Management Practices" to counter piracy
risks.
The Board of Directors periodically reviews and assesses the adequacy of risk
assessment and minimisation procedures so that various risks can be assessed and minimised
through well defined framework/procedures.
(f) Internal Control Systems and their adequacy :
The Company has proper and effective internal control systems commensurate with its
size of operations in order to ensure that all systems and procedures are functioning
satisfactorily. Internal audit function is carried out by the Chief Internal Auditor on a
regular basis.
The Audit Committee of the Board of Directors regularly reviews the effectiveness and
adequacy of the internal control systems to monitor due and proper implementation thereof
and for due compliance with various applicable laws, rules and regulations, accounting
standards and regulatory guidelines.
(g) Discussion on financial performance with respect to operational performance :
The details of the financial performance of the Company have already been dealt with in
the earlier part of the report.
(h) Human Resources :
The relations between the employees and the Company remained cordial throughout the
year. The Company had 88 shore based staff and 412 floating staff employees as on 30th
September, 2012. The committed shore based staff provides its prompt and efficient support
and guidance to the floating staff on a continuous basis, which helps to maintain
effective performance and operational efficiency at all times. The Company continues to
focus on safety and training and development of the employees.
The Board of Directors and the management is deeply saddened by the incident on
Companys vessel Maharshi Krishnatreya on 5th November, 2012 in which 5 officers/crew
members lost their lives. The Board of Directors and the management is with their families
in this hour of grief. Upon the preliminary investigation carried out by the Company, it
appears that the team of officers and crew disassembled a spectacle blank (which prevents
flow through the pipe) on a pipeline carrying inert gas while the vessel was undergoing a
standard gas freeing operation. The removal of the spectacle blank without shutting off
the inert gas supply and failure to ensure that there was no inert gas in the pipe caused
an inert gas release into the compressor room causing asphyxiation of the team. There was
no event of any LPG leakage, fire, explosion or damage to the vessel.
The Company continues to conduct post-sea training programme for its marine officers.
The Company under the said programme imparted 19440 man-days of training. Further, under
its expanded Trainee Marine Engineer (TME) and Deck Cadet Programme, the Company on an
average trained 36 TMEs and Deck Cadets on its fleet during each month. These programmes
are helping the Company to build up an efficient and well qualified cadre of experienced
seafarers for its fleet.
(i) Social Responsibility :
As a socially responsible corporate citizen, the Company supports a wide spectrum of
community initiatives through NGOs as well as programmes for health, education and
environment.
Total foreign exchange earned and saved including deemed earnings of the Company for
the 18 months period ended 30th September, 2012 was Rs. 29,846.40 million and the foreign
exchange used was Rs. 19,174.61 million.
As required under Section 217(2AA) of the Companies Act, 1956, your Directors confirm
to the best of their knowledge and belief that:
i) in the preparation of the annual accounts, the applicable accounting standards have
been followed;
ii) the Directors have 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 the financial year and of
the profit or loss of the Company for that period;
iii) the Directors have 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 for preventing and detecting fraud and
other irregularities; and
iv) the Directors have prepared the annual accounts on a going concern basis.
As required by the Listing Agreement with Stock Exchanges on which shares of the
Company are listed, a Report on Corporate Governance together with the certificate from
the Auditors of the Company regarding compliance with Corporate Governance is attached to
this report.
Mr. Arun Mehta retired as Chairman & Managing Director of the Company with effect
from 1st October, 2012. Mr. Mehta has been instrumental in the growth and development of
the Company through its various stages of expansion and under his able leadership the
Company was listed on the stock exchanges in 1986 and became a force to reckon with for
LPG transportation. The Board places on record its deep appreciation for the valuable
guidance, contribution and support given by Mr. Mehta during his tenure of services with
the Company.
Mr. Praveen Singh and Mr. Khurshed M. Thanawalla retire by rotation and being eligible,
offer themselves for re-appointment. Separate resolutions are being proposed for their
respective re-appointments.
You are requested to appoint Auditors of the Company and fix their remuneration. The
retiring Auditors Messrs. Sorab S. Engineer & Co. being eligible, offer themselves for
re-appointment.
In view of the continuing downturn in the shipping industry, the Companys
profitability is adversely affected. Consequently, since profits of the Company for the
eighteen months period ended 30th September, 2012 are not adequate, the Company is
applying to Central Government for seeking its approval for payment of minimum
remuneration to Mr. Arun Mehta for the period 1st April, 2012 to 30th September, 2012.
Accordingly, separate resolution is being proposed at the ensuing Annual General meeting
for your consideration.
Your Directors have re-appointed Mr. Yudhishthir D. Khatau as Vice Chairman &
Managing Director for a period from 25th August, 2012 to 18th October, 2012 and as
Chairman & Managing Director for the period from 19th October, 2012 to 24th August,
2017 subject to shareholders approval. Accordingly, resolution is being proposed for his
re-appointment at the ensuing Annual General Meeting for your consideration.
As required by Section 217(2A) of the Companies Act, 1956, read with Companies
(Particulars of Employees) Rules, 1975, as amended, the names and other particulars of the
employees are set out in the Annexure to the Directors Report. However, as per the
provisions of Section 219(1)(b) (iv) of the Companies Act, 1956, the Report and the
Accounts are being sent to all shareholders of the Company excluding the aforesaid
information. Any shareholder interested in obtaining such particulars may write to the
Vice President - Corporate Affairs, Secretarial & Legal and Company Secretary at the
registered office of the Company.
Your Directors express their thanks to all the officers of the Ministry of Shipping,
Directorate General of Shipping, Ministry of Petroleum and Natural Gas, Indian Navy,
Indian Coast Guard, Mercantile Marine Department, Class, oil companies and charterers for
the valuable help and co-operation extended by them to the Company. Your Directors also
thank the banks for their continued support to the Company. Your Directors also thank the
shareholders of the Company for their sustained confidence reposed in the Company and its
management. Last but not the least, your Directors express their deep appreciation for the
sincere and hard work put in by the floating as well as the shore based officers and staff
of the Company.
|
On behalf of the Board of Directors |
|
yudhishthir d. khatau |
| Mumbai, 29th November, 2012 |
Chairman and Managing Director |
+91-9892691696
