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7/28/2019 Dalmia Annual Report 2007-2008
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DalmiaCement(Bharat)Ltd.
AnnualReport2007-08
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InsideManagement Discussion & Analysis 24
Directors' Report 38
Corporate Governance Report 45
Standalone Financials 58
Consolidated Financials 87
Letter from Vice Chairmen 02
Key Financial Highlights 04
Directors Profile 06
Session with the Managing Director 10
Accelerating Growth 14
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Today's successful businesses have set a clear goal for themselves. They continuouslyfocus on creating and delivering value to their stakeholders. Something that can only bemeasured in terms of company's strategic relevance to its stakeholders.
The last few years have seen Dalmia Cement (Bharat) Ltd. (DCBL) move from strengthto strength. Our revenues have more than doubled; volumes have grown; and brandawareness has improved considerably. All of this has been made possible by an astutebusiness plan, careful execution and extensive market mapping.
This is also a result of back-breaking efforts put in by our 3300 employees, all of whomhave not just believed in the DCBL story, but also in its culture of excellence, and in thefuture that it is walking fast towards...
To us, growth is a sustained activity. Our achievements in the past year are just the
stepping stones towards the future that we have envisioned for the Company and itsstakeholders.
This past year has seen strategic restructuring keeping in view our future goals. We havelaunched large scale projects in cement, accepted key business challenges, exploreddiversification opportunities, took initiatives towards organization building and broughtabout process and system improvements.
Accelerating Growth
01
Evening view of our cement plant at Dalmiapuram
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Dear Shareholder,
Financial Year 2008 was a year of challenges and accomplishments for your Company.On many counts, it was a landmark year as the accelerated growth momentumcontinued for a major part of the year. As a proof of economy with sound fundamentals,
India achieved a GDP growth rate which is amongst the best in the global arena.
Having clocked over 9% growth in the preceding two years, India has again logged aGDP growth of 9% in FY 2008 . With a CAGR of 8.8% in the past 5 years, our belief is thatthe economy shall continue to grow at a higher CAGR in the coming 5 years.
With an accelerated rate of GDP growth, improving infrastructure, rising per capitaincome and overall consumption and burgeoning success of small and mediumenterprises, Indian economic growth momentum is further going to establish itsimportance globally. The bottleneck though, could be the rising inflation and interestcosts and the over dependence on imported petroleum products. The government, withthe participation of concerned institutions and private organisations is taking effectivesteps to address these concerns.
Letter from Vice Chairmen
02
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The India growth story is being augmented by both manufacturing and services sectors.Manufacturing sector has consistently grown at 9%. This coupled with 12% growth in servicessector has led to a veritable construction boom across the country. Over a sustainable period ofthree years, growth of the construction sector has outpaced that of the GDP.
This boom has been beneficial for cement industry. In the last five years, the Indian cementindustry had added 49 MnTPA capacities and its production has grown by 60 MnTPA, registeringa CAGR of 6% and 9% respectively. Going forward, we firmly believe that cement demand willgrow at a double digit CAGR on a long term basis even though yearly growth numbers may be abit volatile.
From being a highly fragmented and a bit localised industry some decades ago, cement industryis registering rapid transition into a more consolidated industry with key players making pan India
manufacturing and sales presence. As the anticipated demand growth looks promising inmedium to long term, cement players are investing heavily in rapidly expanding capacities.
Having been in the industry for almost seven decades, your Company has envisaged the futureof cement industry much in advance and undertook capacity addition program in the year goneby. After adding 2 MnTPA capacity at its plant at Dalmiapuram, it initiated Greenfield expansionin Andhra Pradesh and Tamil Nadu. Having identified the southern region (in context of demandsupply situation) amongst the most promising areas and leveraging its brand strength amongstcustomers, your Company will be amongst the frontrunners to benefit from the booming cementdemand in years to come. Construction and developmental activity at both these projects is infull swing and we expect the same to be completed well within the stipulated time. To expand itsfootprint from Southern region towards Eastern India, your Company acquired 21.7% stake inthe equity capital of OCL India Ltd., consequent upon amalgamation of its subsidiary, DalmiaCement (Meghalaya) Limited.
Other area of your Company's operation Sugar is also expected to witness a sweeter timeahead. Sugar production in the current sugar season of 2007-08 is expected to be 25 MnT aftersitting on the record production in previous fiscal which led to lower realisations. This is likely tocontinue in coming years as the availability of sugar cane is expected to reduce on account ofreduced acreage of cultivation. Based on these macro parameters, we envisage the domesticsugar prices to firm up. Value added segments of power co-generation and distillery from the byproducts shall add to the bottom line of integrated players l ike your Company.
Let us now share with you your Company's excellent financial performance for FY 2008,highlights of which are given below.
?Net Revenue from your Company's operations increased by 50% to Rs.14,807 million.
?Profit before depreciation, interest and taxes (PBDIT) increased by 56% to Rs. 6,334 million.
?Profit before tax (PBT) grew by 46% to Rs. 4,341 million.
?Profit after tax (PAT) grew by 52% to Rs. 3,472 million.
These are creditable results in the distinctly different economic environments of your Company'stwo dominant business segments, cement and sugar, both of which are cyclical plays. The entirecredit goes to the Company fraternity for their untiring efforts in making this possible. Needless tosay, we are grateful to all our stakeholders for their faith and trust reposed in us.
03
Jai Hari Dalmia Yadu Hari Dalmia
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Key Financial Highlights
Particulars
Total Income Rs. Mn 4,017 4,743 6,506 11,426 16,452
Operating Profit (PBDIT) Rs. Mn 789 785 1,603 4,054 6,334
Cash Profits Rs. Mn 433 535 1,267 3,403 4,673
Profits before Tax (PBT) Rs. Mn 309 357 1,089 2,964 4,341
Profit after Tax (PAT) Rs. Mn 254 309 848 2,289 3,472
Share Capital Rs. Mn 77 77 77 85 162
Reserves & Surplus Rs. Mn 3,407 3,507 4,199 7,449 11,310
Loan Funds Rs. Mn 2,825 4,988 6,832 10,146 15,833
Gross Block Rs. Mn 7,049 7,691 10,446 16,971 18,830
Net Current Assets Rs. Mn 1,783 2,130 2,199 1,752 4,536
Operating Profit Margin 20% 17% 25% 35% 39%
Net Profit Margin 6% 7% 13% 20% 21%
Return on Average Net Worth 7% 9% 22% 39% 37%
Debt Equity Ratio x 0.81 1.39 1.60 1.35 1.38
Interest coverage x 2.1 2.6 5.6 6.5 4.8
Current Ratio x 2.89 2.38 1.93 1.35 1.68
#EPS (fully diluted) Rs. 4.27 4.91 11.78 29.18 42.87
#Cash EPS (fully diluted) Rs. 7.29 8.52 17.60 43.40 57.70
Dividend per share Rs. 5* 5* 2 3 4
Dividend Rate 50% 50% 100% 150% 200%
Share Price Rs. 287.9* 392.0* 264.5 361.3 284.8Market Capitalization Rs. Mn 2,203 2,999 10,119 15,438 23,020
FY 2004 FY 2005 FY 2006 FY 2007 FY 2008
Clinker
Cement
1,0
43
1,2
93
1,1
51
1,4
05
1,2
62 1
,569
2,0
05
2,7
37
2,4
44
3,2
94
FY04
CEMENT&CLINKERPRODUCTION
(000T)FY05 FY06 FY07 FY08
89
73 8
4108
246
FY04SU
GARPRODUCTION
(000T)FY05 FY06 FY07 FY08
*Face Value Rs 10 per share, split to Rs 2 per share in FY 06. #Based on shares at year end.outstanding
04
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Year at a Glance
RevenueMix
5%
18%
77%
Cement (Rs. 11,322 mn.)
Sugar (Rs. 2,720 mn.)
Others (Rs. 765 mn.)
SugarRevenueMix
Sugar
Power Co-generation
Distillery
4%
61%
35%
CementGeographicMix
Tamil Nadu
Kerala
Karnataka
Others
4%
60%
27%
9%
FY07FY08
11
,426
16
,452
TOT
ALINCOME
(RsMn)
92
,482
141
,151
FY07FY08
SUGARSALESVOLUMES
(T)
2,2
89
3,4
72
FY07FY08
PRO
FITAFTERTAX
(RsMn)
2,7
13
3,2
65
FY07FY08
CEMENTSALESVOLUMES
('000T)
05
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Mr. Pradip Kumar Khaitan, 67, has been associated with the cement
industry for over 41 years. He was co-opted as a Director of the Company
in 1996. He holds an LL.B. degree from the University of Calcutta. As a
partner of Khaitan & Co., Solicitors and Advocates, he has extensive
experience in legal and commercial matters. He is a Director of several
leading public limited companies in India.
Chairman and Non-Executive Director
Pradip Kumar Khaitan
Mr. J. H. Dalmia, 63, holds a B.E. degree in electrical engineering from
Jadavpur University and a Master's degree in electrical engineering from
the University of Illinois, Urbana Champagne. He has more than 36 years
of experience cutting across various industries which includes wide
knowledge and experience of refractory, sugar and cement businesses.
Mr. J.H. Dalmia has vast experience in research and development having
personally received several patents for the Company's businesses and
has been instrumental in establishing the Companys research and
development efforts more than 20 years ago.
Vice-Chairman
Jai Hari Dalmia
Mr. Y. H. Dalmia, 60, holds a B.Com (Hon) degree from Delhi University
and is a Fellow Member of the Institute of Chartered Accountants of India.
He has more than 35 years of experience in the cement industry. Mr. Y.H.
Dalmia has served as President of the Cement Manufacturers Association
and is a known figure in the cement industry.
Vice-Chairman
Yadu Hari Dalmia
Directors' Profile
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Mr. Mridu Hari Dalmia, 66, is a gold medallist in chemical engineering from
Jadavpur University. He was co-opted as a Director of the Company in
2005. In his present capacity he is the President and CEO of OCL having
been associated with the Company since 1970. He brings with him wealth
of over 38 years of experience in the cement industry and has led the
Group in various sectors in national and international operations. He has
held leadership positions in various Indian business associations and has
been associated with various industry organisations in the past including
those as Managing Committee member of the Federation of Indian
Chambers of Commerce and Industry, President of Indian Refractories
Manufacturers Association, Cement Manufacturers Association and
National Council for Cement and Building Materials. Currently he is a
member of the Management Committee and the Expert Committee onDirect Taxes of the Associated Chambers of Commerce and Industry.
Non-Executive Director
Mridu Hari Dalmia
Mr. Puneet Dalmia, 35, holds a B.Tech. degree from the Indian Institute of
Technology, Delhi and is a gold medalist from the Indian Institute of
Management, Bangalore in strategy and marketing. He has eleven years
of experience in the industry having started his career as the co-founder
and Chairman of one of the most profitable e-recruitment websites in India,
JobsAhead.com, which was later acquired by Monster.com, a Nasdaq-
listed multinational company. Mr. Puneet Dalmia conceptualized the
growth strategy and governance architecture for the Company to focus on
its core businesses and is spearheading the growth plans for the group.
Managing Director
Puneet Dalmia
Mr. Gautam Dalmia, 40, holds B.S. and M.S. degrees in electrical
engineering from Columbia University. He has 15 years of experience in
the cement and sugar industries. He was part of the team that led the
diversification of the Company into sugar business in 1994. He was
personally responsible for implementing a new strategy to turnaround the
sugar business. He has led the effort to design and implement the
Companys integrated sugar, ethanol and cogeneration business. He is
directly responsible for managing the sugar business and is leading all
operations and execution of cement projects besides providing leadership
to the commercial functions for the group.
Joint Managing Director
Gautam Dalmia
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Directors' Profile
Mr. Nil Ratan Khaitan, 71, holds an LL.B. degree from the University of
Calcutta. He has over 22 years of experience in the cement industry. He
was co-opted as a Director of the Company on August 24, 1979. He is an
advocate by profession and has extensive experience in legal, taxation
and commercial matters. He holds directorships in two public companies,
namely, Universal Conveyor Belting Limited and Jay Cylinders Limited.
Independent Non-Executive Director
Nil Ratan Khaitan
Mr. M. Raghupathy, 71, holds an M.A. degree in Economics from Madras University,with Statistics as the special subject. He was Co-opted as a Director of the Companyin 1997. He is the Chairman of the Audit Committee and Shareholders' Committee ofthe Company. He joined the Indian Administrative Service (IAS) in 1960 and hasheld various positions in the Government of Tamilnadu such as Deputy Secretary toGovernment in the Revenue Department, Collector of Salem District, Director ofRural Development, Managing Director of TamilNadu Dairy DevelopmentCorporation, Commissioner of Animal Husbandry Department, Commissioner &Secretary to Government of TamilNadu in various departments like Transport,Housing and Urban Development, Agriculture (as Agriculture ProductionCommissioner) & Textiles, Principal Commissioner of Land Administration, LandReforms and Revenue departments of the Government of Tamilnadu, Chairman ofThiruvalluvar Transport Corporation Limited, Chairman of the Tamilnadu TransportDevelopment Finance Corporation, Chief Electoral Officer of Government OfTamilnadu, Principal Vigilance Commissioner and Principal Commissioner ofRevenue Administration. He has over 11 years of experience in the cement industry.
Independent Non-Executive Director
M. Raghupathy
Mr. J. S. Baijal, 77, holds an M.A. degree in economics from Allahabad University. Asenior fellow in Harvard University, USA, he joined the Indian Administrative Service(IAS) in 1954 and has held the posts of Secretary, Finance, Government of Orissa;Joint Secretary to the Government of India, Ministry of Finance, Department ofEconomic Affairs; Director of National Fertilizers Limited, IFFCO; MinisterEconomic, Embassy of India, Washington D.C.; Chairman of the IndustrialDevelopment Corporation of Orissa; Officer on Special Duty with the Reserve Bank
of India; Secretary, Irrigation & Power, Government of Orissa; Additional Secretaryto the Government of India, Health & Family Welfare; Additional Secretary to theGovernment of India, Ministry of Finance, Department of Economic Affairs; Ex-officio Director of the Mineral & Metals Trading Corporation of India Limited, ONGCLimited, and Punjab National Bank; Secretary to the Government of India, PlanningCommission; and Executive Director, World Bank, International FinanceCorporation, and International Development Association, Washington. After hisretirement, he has held positions as Director of HDFC Bank Limited, before beingappointed as a Director of the Company on May 31, 1999. He is a Trustee of MorganStanely Mutual Fund since 1994 and has over eight years of experience in thecement industry.
Independent Non-Executive Director
J. S. Baijal
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Mr. N.Gopalaswamy, 76, holds a B.Sc. degree in chemistry from Madras
University and a B.E. degree in chemical engineering from Annamalai
University. Having joined the company in 1980 he was co-opted as a
Whole-time Director in 1989. He is a member of the Institute of Industrial
Engineers, USA, the Indian Institution of Industrial Engineering, the Indian
Institute of Chemical Engineering, and the Institution of Engineers (India).
Having held the position of President for 25 years, since last year, he is a
Council Member of the Tiruchirapalli Productivity Council. He has over 40
years of experience in the cement industry. He ceased to be a Whole-time
Director of the Company and was appointed as an Additional Director with
effect from 1-8-2007.
Non-Executive Director
N. Gopalaswamy
Mr. Donald Peck, 54, holds an M.A. degree and a doctorate in economic
history from Oxford University. He was nominated as a Director of the
Company in July, 2006. Mr. Peck's expertise lies in emerging markets
investing, both in the equity investment/fund management business,
experience in which was acquired by him when he was with International
Finance Corporation in Washington and prior to that in the investment
banks of Lloyds Bank and Morgan Grenfell. He joined CDC Capital
Partners and was responsible for helping it to develop its equity investment
business and setting up its fund management business worldwide. Hewent on to become a Director in 1999. Having run the CDC/Actis private
equity business in India from 1995 to 2007, Mr Peck became one of the
senior founding partners in Actisin 2004.
Independent Non-Executive Director
Donald Peck
Mr. T. Venkatesan, 55 years, Whole-time Director, is a B.A. (Economics)and a fellow member of the Institute of Chartered Accountants of India. Hebrings with him a rich experience of over 28 years having commenced hiscareer with Thiru Arooran Sugars Limited in the finance and accountsdepartment. He has worked with reputed companies such as EicherTractors Limited, Triveni Engineering Limited and the Aditya Birla group. Inhis previous assignment with the Sterlite Group, he was instrumental inspearheading the expansion from 180 KTPA to 400 KTPA, as CEO forSterlite Industries' copper business. In addition he was also holdingadditional charge as CEO and director on the Board of Vedanta AluminaLimited and has successfully implemented a Rs. 5000 crores project in theState of Orissa. His expertise lies in accelerating growth and buildingorganisational capability to ensure delivery of business goals. In his
present capacity he is responsible for operations and future growth ofcement segment.
Whole Time Director
T. Venkatesan
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What is the vision of your company in global business environment?
Globally, India is the second largest producer in both our lines of business, second to China in
cement and second to Brazil in sugar. Considering the low per capita consumption of cementin India and the energy based opportunity in sugar business, India is a high growth market forthe two industries.
While we are leveraging the best of knowledge, technology and practices available globally;our growth will be dictated by the manner in which the Indian economy is going to unfold. Weat Dalmia Cement have utmost faith in the India growth story. We have participated for almostseven decades in the nation building activity and have grown consistently over these yearsgaining traditional wisdom in these markets.
To us the single most important challenge is to build scale in both the businesses. Our midterm aim is to break into top five producers in both our businesses. While we are chasing thecapacity build program in cement, we are also practicing strict discipline on return on capitalemployed. We aspire to attain profitable growth. This discipline on returns restrains us frompursuing every possible opportunity and helps us identify and grab opportunities which will
help us outperform the industry and create greater stakeholders' return on sustainable basis.In sugar business we follow the integrated model, which helps us manage the marketvagaries better. Ethanol and Power enhance the profitability in good times and protectbottom-lines in down cycles. We consider our ability to access high yield variety sugarcane asthe foremost focus of our sugar business. Going beyond rhetoric development work withfarmers in our region, our recovery is amongst the best in the industry and our endeavour is toconsistently enhance accessing high quality cane.
With the third generation of the family taking the anchoring role, we are making consciousefforts to bring about a cultural shift in the way our businesses will be managed. We are fasttransiting from 'family run' to 'family owned, professionally managed' company withdesignated heads for the two main business lines. We are empowering people to takeappropriate decisions at various levels. Many platforms for interaction are being createdwhereby employees can communicate and discuss ideas openly; cutting across the
hierarchy.
Session with the Managing Director
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What are the value systems of your company? Why do you think they are important forany organisation?
How do you view your company's performance in FY 2008?
How are your two Greenfield expansion projects in Andhra Pradesh and Tamil Naduprogressing?
At Dalmia Cement, we are committed to constantly create value for our stake-holders whilepracticing integrity. In our endeavour to create a forward marching DCBL, we have adopted a setof values which will govern all our actions, create differentiation and make us a respectableemployer for leaders of tomorrow. Forming the very basis of our vision, these values areLearning, Pursuit of Excellence, Speed and Teamwork.
Learning: The world around us is continuously evolving and changing. Past knowledge isbecoming obsolete at a pace faster than ever before. In order to excel and propel us to greaterheights, our leaders must possess child l ike curiosity and humility to learn from anyone at any
level.
Pursuit of excellence: Competing in a global environment, we aspire to set and surpass globalbenchmarks on key value drivers. We will continuously inculcate the habit of taking impossiblechallenges before creating possible solutions. Our channels of communication are open acrosshierarchy to allow for free flow of knowledge and innovation.
Speed: In the fast changing competitive business environment, the big may not necessarilybeat the small but fast will definitely lead the slow. We choose our professional leaders to carryon the entrepreneurial culture, based on their passion for growth. We empower them to takequick decisions taking due cognizance of the possible risks involved.
Teamwork: We believe that sustainable growth can not be achieved by an individual but is anoutcome of collaborative efforts and ideas of a group. We create options for people to networkacross businesses, locations and functional teams to achieve excellence. At Dalmia Cement,
we encourage people to display high level of mutual trust and respect for colleagues.
FY 2008 was an exciting year of performance at Dalmia Cement (Bharat) Limited. Results werepretty satisfactory across multiple areas of financial performance, operational efficiency, projectimplementation and organisational transformation. I can see the passion of our people toachieve results quickly across various performance metrics. The Years financial performancereflects improved operational efficiency of our company as is depicted below.
?Gross sales of Rs. 16,908 million, registered an impressive year on year growth of 51%.
?Profit before tax grew by 46% to reach Rs. 4,341 million.
?Net Profit grew by 52% to reach Rs. 3,472 million.
?In cement, we achieved over 20% volume growth backed by high 94% capacity utilisation.
?As for sugar, the three plants ran on enhanced capacity for the first full financial year andderived benefits from volume growth of 128% in production and 53% in sales.
Of the two Greenfield projects, Cudappa plant of 2.25MnTPA Cement capacity at AndhraPradesh is expected to be commissioned in second half of CY2008. The main plant andmachinery had been ordered well in time in financial year 2007. Major achievement of the grouphas been the construction of Pre Heater tower with a height of over 139 meters within 10months, against an industry standard of 12-14 months.
For an equivalent cement capacity project in Ariyalur, Tamil Nadu; the group now has requisiteexpertise and the methodologies for achieving its target of commissioning in first half ofCY2009.
The company is facing challenges in terms of skilled manpower across managerial andoperational levels but we are confident of project completion well within time lines and costs.
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There are diverse opinions on Indian cement sector's prospects. How does yourcompany see the sector in near future?
In the fast paced competitive environment, one national agenda being ignored is that ofcommunity development. What are your views on this issue?
We believe in India growth story. And hence we are making significant investments in India.Being an emerging markets frontrunner, India is expected to remain an attractive cementdestination. MNCs and Indian Cement players are responding to the increased demandopportunity in the country by expanding capacities. In our view, capacity expansion will bear asignificant mark in India's development considering that the sector employs 70,000 peopledirectly and almost 10 million people indirectly.
Demand for cement is growing consistently. For the quantum of housing units, hotels, malls,SEZs and office space needed; kilometers of roads/rail tracks/metros to be constructed &renovated across highways and hinterland; industrial expansion in key sectors including steeland power; scope of improvement in port and aerodrome network; we see a favourable demandsupply situation for cement manufacturers in times to come, with some volatility, here and there.
Indian cement industry is expected to be on fast track of consolidation. Players with smallercapacities and localised presence will be dominated by national players having capacities inexcess of 20 MnTPA. Hence it is imperative for smaller companies to grow at a rapid pace andhave national presence to be amongst significant players in the industry.
At Dalmia Cement, we are responsible for carrying on the traditional legacy of inclusive growthfor all. Our commitment to be a good corporate citizen with conscience has two focus areas ofcommunity development and concern for environment.
On community development front, we focus on providing basic education and healthcare to thecommunities we operate in. Our educational initiatives benefit thousands of students pursuingtheir primary and secondary education. We also have investments in Industrial TrainingInstitutes that prepare workers on technical skills required for getting better job opportunities.Our plants have been set up in villages which did not even have basic economic or socialinfrastructure. The Company has consistently invested to uplift these areas in both aspects.
As for our environment protection, we follow the best practices towards controlling emission,water conservation and efficient energy consumption. The company has used technology andappropriate structures to reduce dust emissions. The company ensures zero chemicaldischarges through water treatment plants, using recycle water for plantation. Initiatives forafforestation and plantation have been undertaken at our cement manufacturing plant tocontribute towards a greener environment.
Realising that much more needs to be done, the company has plans to allocate upto 2% of its
annual profits to Dalmia Foundation to undertake CSR activities across all its regional facilities.
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Bankers
AXIS Bank LimitedBank of IndiaBNP ParibasCanara Bank
Corporation BankICICI Bank LimitedIndian BankPunjab National BankState Bank of IndiaState Bank of TravancoreUnion Bank of IndiaYES Bank Limited
Head Office
11th & 12th Floors, 'Hansalaya'15, Barakhamba RoadNew Delhi 110001
Registered OfficeDalmiapuram 621 651District Tiruchirapalli(Tamilnadu)
AuditorsStatutory : S.S. Kothari Mehta & Co.Internal : KPMG & Axis Risk Consulting
Services Pvt. Ltd.
Company Information
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The next ten years will be critically important for India. As itprogresses towards becoming one of the largesteconomies in the world, its new passport to success will beinfrastructure development.
The demand for cement in India is expected grow at aCAGR of 10% between FY2007 and FY2010. SouthIndia's share in the all-India consumption of Cement isabout thirty percent. It also has between 30 to 33 percentof the country's installed cement capacity. In this region,
which has been the focus of DCBL, the growth in demandduring the next five years is expected to be in doubledigits.
The magnet shows south...
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It may be added that the Southern region enjoys amongst the highest realizations inthe country on account of favorable cement demand supply scenario.
The states which account for about 60% of the off take in the South, namely AndhraPradesh and Tamil Nadu are likely to grow in teens, driven by government projects,SEZs, Infrastructure projects, and IT Parks.
Thus, DCBL's already commissioned 2 MnTPA brownfield expansion, as well as theupcoming 4.5 MnTPA Greenfield projects under implementation are favorablytimed. By responding to the demand escalation with rapid expansion, the Company
is well-poised to achieve higher sales volume in i ts core markets in Southern India.
15
Aerial view of our cement plant at Dalmiapuram
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DCBL, being in a cyclical industry such as Cement,where the demand-supply position alternates betweendeficit and glut over a period of time, has diversified intoSugar, Ethanol and Power industries. In recent past, ittripled its capacity in Sugar to 22500 TCD at threelocations in state of Uttar Pradesh.
Diversified for stability
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It also set up a 80 KLPD Ethanol plant next to one of its Sugar plants. It has installed79 MW cogeneration power plants across the three Sugar units for captiveconsumption & export of surplus power. DCBL has access to power for its Cementplants from thermal power plant and wind farm in South. These measures help tomitigate the risk during a downside period in the Cement industry's cycles.
The consistency in its corporate performance is adequately reflected in its trackrecord over the years of growth with profitability.
17
Integrated Sugar Plant at Jawaharpur
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Importance of people as assets can not be undermined inany organization, and especially in a company embarkingon an accelerated growth path. With increasing scale ofoperations, people capacity and capabilities need to beenhanced at an equally rapid pace. We follow a rigorousselection procedure across operational and managerialcadre so that we attract talent which matches our valuesystems.
People, Performance and Progress.
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Each group has exhibited capability to deliver up to the challenges and performed well,accomplishing operational and process improvements of the growing Company.Various annual awards have been instituted to recognize exemplary performers acrossall locations and levels.
Whether in carving out career and development plans to take them forward in work andlife or tying up with global institutes such as Indian Institute of Management,
Ahmedabad and Centre for Creative Leadership for upgrading their skills andknowledge; the focus is on strengthening individual assets so that they not only
contribute towards the growth of the Company but also spur a culture of excellence insociety at large.
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Customer acceptance of quality is an important aspectof building market-share and DCBL's brands haveupheld customer confidence in the markets in whichthey are currently available.
Stronger Brand Strength
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The Company has a formidable reputation for its specialty Cements forniche applications. Both the range of products manufactured and thebrand support activities regularly undertaken, play a significant role inmaintaining a positive and substantial mind-share for DCBL's brands.
Each niche brand has a strong back up both at retailer and distributionlevels. Regular brand promotions have ensured loyalty and acceptance ofDCBL's brands amongst a growing base of quality and brand-consciouscustomers.
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As a concerned corporate, we are conscious of ourresponsibilities towards the communities in whose midstour manufacturing and business operations areconducted. Our community development initiatives areundertaken to improve the quality of life of people in thesurrounding areas. Notable thrust areas of some ofthese initiatives are education, community developmentand cultural enrichment.
Our might to empower communities
22
Cane crop ready for harvesting
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In education for the young, the company endeavours to provide for basic studymaterial, midday meals and even entire school infrastructure. It also runs anindustrial training institute for up-skilling and providing vocational training for theworkers.
For the development of the farming community around its sugar business, DCBLhelps farmers with superior farming techniques to aid them to increase their farmoutput and thereby their income. From extending loans to farmers, to organisingexperience and knowledge sharing fairs, it all forms part of the companys CSRactivities.
To enrich cultural lives of the communities the company strives to host annualfestivals, provides for festivities during the season, sponsors dramas and musicprogrammes.
Through these efforts DCBL has endeavored to maintain a harmonious relationshipwith the environment and its social surroundings by adding value to the bio-systemof which it is an integral part.
23
Afforestation in mining areaAfforestation in mining area
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Indian Economy Overview
What proved to be a challenging year for the global economiesturned out to be a year of manifestation of might for the Indianeconomy. While there were increased global uncertainties andfear of slow down of the US economy with crude oil pricesreaching all time highs, Indian Economy maintained its growthmomentum in FY 2008.
According to the data released by the Central StatisticalOrganisation, Indian Economy has posted GDP growth of 9%.
As per the said report, manufacturing registered growth of
8.8%, agriculture 4.5% and construction 9.8%. Services,contributing almost 63% to the GDP recorded another year ofdouble digit growth.
Despite the overall pressure of global uncertainties and theinflation reaching beyond 7%, this GDP growth is a truereflection of the sound fundamentals and the maturity of oureconomy. We, at Dalmia Cement, believe that our economywill sustain its growth momentum over the next three to fiveyears.
Management Discussion and Analysis
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Financial Highlights
The sustained macro economic performance of the country also benefitted thecompany with its cement operations scaling further to higher levels both in terms ofrevenues and earnings. The success story of the Company continued this year withthe robust all round performance in its operations.
(Rs. Million)
Gross Sales 11,176 16,908 51%Net Sales 9,865 14,807 50%Total Income 11,433 16,481 44%PBT 2,966 4,394 48%PAT (including Share of Profit from Associates) 2,290 3,688 61%
The Company posted Consolidated Gross Sales of Rs. 16,908 million in FY 2008,up from Rs. 11,176 million in the previous year, depicting a growth of 51%.Consolidated Profit after Tax improved to Rs. 3,688 million this year from Rs. 2,290million, up 61% (after taking into account the share of profit from associates of Rs.184 million).
Consolidated Financial Highlights FY 2007 FY 2008 Growth
25
RailwaysidingviewofDalmiapuram
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6,3
34
4,0
54
FY07FY08
EBITDA
(RsMn)
Stand alone Net Sales in FY 2008 were up from Rs. 9,865 million to Rs. 14,807Million for the Company. EBITDA for the Company grew from Rs. 4,054 mill ion to Rs.6,334 million, depicting a growth of 56%.
Share of contribution at Net Sales level of each business to the total net sales hasnot changed much over last year. However, EBITDA contribution from the cementbusiness has significantly improved, as is evident from the table above.
The net sales of cement business grew by 49% to Rs. 11,322 million in FY 2008. NetSales from the integrated sugar business of the Company increased to Rs. 2,720million in FY 2008, up 61%. Net Sales from other businesses, which includemagnesite and refractory amongst others, were up from Rs. 556 million in FY 2007
to Rs. 765 million.In the Earnings Before Interest, Tax and Depreciation, huge surge was witnessed incement and integrated sugar businesses in FY 2008 as compared to previous year.Cement EBITDA has grown last year on account of higher volumes as well asimproved realisations taking margins to 44% from 37% last year. Sugar businessEBITDA improved due to profitability contribution from the co-generation unit.
Stand Alone Financial Highlights FY 2007 FY 2008 Growth % Mix % Mix
(FY 2007) (FY 2008)Net Sales*
Cement 7,620 11,322 49% 77% 77%Sugar 1,689 2,720 61% 17% 18%Others 556 765 38% 6% 5%
9,865 14,807 50% 100% 100%EBITDA*
Cement 2,830 5,063 79% 70% 80%Sugar 207 373 80% 5% 6%Others 1,017 898 -12% 25% 14%
4,054 6,334 56% 100% 100%
PAT 2,289 3,472 52% 100% 100%
(Rs. Million)
* Cement includes Wind-Farm: Sugar includes Co-generation and Distillery unit financials.
2,0
77 2,4
96
2,3
1
1
2,9
81
3,4
82
3,5
47
3,6
33
4,1
45
NETSALES
(RsMn)Q1Q2Q3Q4
FY07FY08
44%
37%
FY07FY08C
EMENTEBITDAMARGINS
(%)
26
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Cement Business
IndustryIndian Cement industry added 23 MnTPA (Million Tonne Per Annum) to its installedcapacity in FY 2008 to take it to 189 MnTPA, showing a year on year growth of 14%with utilizations improving to 96% for the same period. Production grew by just over8% over the last fiscal to reach 168 MnTPA. Cement consumption In India registeredan encouraging double digit growth of 10 %backed by a similar growth in the Constructionactivity. Southern states of Andhra Pradesh,Karnataka, Kerala & Tamil Nadu accounted foralmost 30% of the All India Domestic Demand of164 MnTPA.
However, per capita cement consumption in Indiais still very low at around 130 kg against the world
average of 260 kg and China at 450 kg. Thisunderlines the tremendous scope for growth ofthe Indian cement industry in the long term.
Cement OperationsCement operations contribute 77% to the revenues of the company. The plants arecurrently at a single location in Dalmiapuram, District Trichy in Tamil Nadu, whichfalls in the southern region of India where cement demand in last one year hasgrown 10% year on year, which is at almost the same rate as the country.
The Company services the southern states of Tamil Nadu, Kerala and Karnataka.Revenue contribution from Tamil Nadu in FY 2008 is 60% while Kerala andKarnataka contribute 27% and 9% respectively. Balance 4% contribution is fromother areas.
There has been a notable growth in capacity utilization of cement business whichhas increased from 78% in FY 2007 to 94% in FY 2008. This is on account of brownfield expansion of 2 MnTPA that was undertaken in FY 2007 which yielded thebenefit of enhanced operations for the entire year.
The company with its continued zest to improve efficiency and benefit fromeconomies of scale worked ceaselessly to optimise cost. While efficiency wasreflected in better performance in terms of cement and clinker production andcapacity utilizations, margins improved with higher realizations and better costmanagement.
The installed capacity of the company stands at 3.5 MnTPA at its Dalmiapuramplant. In order to take advantage of the growing domestic demand for cement, twonew cement plants at Cuddapah (Andhra Pradesh) and Ariyalur (Tamil Nadu) of2.25 MnTPA each are being set up. The commissioning of these will take the
installed capacity of the company to 8 MnTPA, an increase of 129%. To expand itsfootprint in Southern region Rs 1,550 crore of capital expenditure has been outlinedin these two upcoming cement plants. The Greenfield project at Cuddapah in
Andhra Pradesh is expect? d to be commissioned in second half of CY 2008 and theone in Ariyalur (Tamil Nadu) will be operational within first half of CY 2009.
To mitigate the increase in energy costs, the company uses its wind mills with 16 MWcapacity at Muppandal in Tamil Nadu. This ensures generation of inexpensive andeco-friendly captive power supply to its plant through the State grid route. Existingthermal power capacity of Dalmia is 27MW which in near term would increase to45 MW this year.
The viability of locations plays a pivotal role in the economics of cementmanufacturing. It is determined by certain factors such as proximity to raw material,availability of continuous power supply and distance to market. With plants located
in close proximity to the raw material, the freight and transportation costs are alsokept at lower level resulting in higher productivity and better net realizations.
CapacityProductionUtilization%
81.4%84.3% 79.1%
94.0%96.0%
144
151
160
166
189
118
128
142
155
168
2004 2005 2006 20072008INDI
ANCEMENTINDUSTRY
(Mn T)
Source:
CMAEstimates
63%
80%
75%
95%
94%
101%
85%
97%
CAPACITYUTILISATION
(%)Q1Q2Q3Q4
FY07FY08
27
2726
2999
3545
3558
2655
2786
323
2 3543
NETSALESREALISATIO
NS
(Rs/T)Q1Q2Q3Q4
FY07FY08
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The Company continued to enjoy goodwill in its market place and its brands such asDalmia Superroof and Vajram continued to be preferred products and commandedpremium over other products in the market. The most prominent aspect ofcompany's market is its significant presence in infrastructure applications whichincludes cement used for constructing airstrips, oil wells and railway sleepers. TheCompany's oil well cement is the first cement in the country to receive theprestigious American Petroleum Institute (API) certification. It is used for cementingthe walls of on-shore and off-shore oil wells of ONGC, Reliance and other oilexploration companies.
Outlook
Realty will continue to play a major role as the development of commercial spaceincluding malls, hotels, SEZs will go on full swing. Residential realty has seen aslight moderation in demand as the cost and availability of retail finance has
adversely impacted its growth. This slowdown is momentary. Recommended payhike of government employees by the Sixth Pay Commission and the otherwserising prosperity of the Indian middle class segment with improved economicconditions will drive the growth momentum of the retail realty sector.
Going forward, dedicated rail freight corridor, rapid expansion of airport network tocover tier II & III cities, ongoing up-gradation of important ports and airports, slew ofcapacity expansion in steel, power and other manufacturing sectors and 2010Commonwealth Games to be held in Delhi will all continue to augment the growthmomentum in key infrastructure areas. The country is likely to double itsinfrastructure spending over the next five years towards creating and modernisingits infrastructure and sustaining its growth momentum.
In light of above and based on the last 3 year CAGR of 10% in cement demand, theCompany estimates that the industry shall continue to see double digit demandgrowth.
The Cement Manufacturers Association estimates addition of over 75 MnTPAcapacity spread across India, in next twoyears. This would take the country'scement capacity to over 260 MnTPA, tomeet its rising demand growth. TheCompany would endeavour to maintainits market share in its core geographiesand expand network in its new market,State of Andhra Pradesh.
77%
66%
FY07FY08
PPC
(%)
1.3
9
1.3
0
FY07FY08C
ementClinkerRatio
28
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Sugar Business
IndustryIndia continues to remain the largest consumerof sugar followed by China, Brazil and USA. Infact consumption in above countries is growingat a rate higher than the world average.Consequently these topographies are expectedto play a pivotal role in global sugar trade incoming years.
Sugar is now perceived as an energy cropowing to derivation of ethanol which isincreasingly being used as a mixture in petrol.With rising crude prices but softer sugar prices,Brazil has been increasingly diverting the
sugarcane juice for manufacture of ethanol.Currently about 55-56 % of the total sugarcaneproduction of Brazil is used for manufacturingethanol.
The Indian Sugar industry is the country's second largest agro processing industrywith an estimated production of 27 MnT (Million Tonnes) in the 2007-08 sugarseason. This sector is a key driver of rural development, supporting India'seconomic growth. The industry, in the past two to three seasons has shownrespectable growth in terms of quantities produced. This was primarily on account ofgood climatic conditions, remunerative sugar cane prices, setting up of newproduction capacities and on time payments to farmers. The cane acreage grew by4.4% in 2007-08 across India and by 7% in UP where thecompany operates its three units.
In FY 2008, sugar prices remained slightly soft asproduction in India was at 28.3 MnT in sugar season 2006-07. Delayed commencement of crushing on account ofuncertainty in cane prices and lower per hectare yield ofsugar cane has moderated production estimates for theseason. Crushing days reduced significantly in 2007-08season and is expected to favourably impact therealisations.
14
17
.5
12
.7
18
.5
19
.3
19
.622
.7
28
.3
26
.1
25
.5
ProductionOfftake(inclexports)
2004 2005 20062007e2008eIN
DIANSUGARINDUSTRY
(Mn T)
13
,108
13
,095
13
,375 1
4,0
72
Q108
SUGARS
ALES
REALISATIONS
(Rs/T)Q208Q308Q408
29
Source:ISMA
,IndustryEstimates
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Sugar Operations
Dalmia embarked on the manufacture of sugar in the mid-nineties and set up its firstunit at Ramgarh (Distt. Sitapur) U.P. The installed capacity at the time of diversifyinginto sugar business was 2500 TCD (tonnes cane crushing per day), which has beenexpanded to 7500 TCD. From a single sugar-manufacturing unit the Company hasnow grown to three operational units with total installed capacity of 22500 TCDleading to sugar manufacturing of about 300,000 TPA. With co-generation capacityof 79MW and distillery capacity of 80 KL per day, it is a forward integrated sugarmanufacturing set up.
The sale of sugar accounts for more than 10% of Company's revenues and it aims tobuild deep capabilities in this segment. The sugar manufacturing plants incorporatestate-of-the-art technology that ensures high productivity and efficiency, across allplants. Due to emphasis on quality throughout the processes, the Companyproduces high quality sugar both in terms of grain size and colour, which leads to
better realizations.In this challenging business environment of huge sugar stocks and highadministered sugarcane prices, the Company's sugar business performance isnoteworthy.
Sugar
Sugar production and cane crushed has grown substantially in FY 2008 ascompared to the previous year. Sugar production grew by 128% to 2.46 lac tons inFY 2008. Crushed cane increased by 142% to 24.45 lac tons. Volumes jumped dueto the fact that two new sugar plants at Jawarharpur and Nigohi started operating atfull scale in FY 2008. Though sugar recovery rate in FY 2008 was at 10.06%, thebusiness saw 53% growth in sales volumes at 1.41 lac tones.
Co-generation
The Cogeneration plants at three locations Ramgarh, Jawaharpur and Nigohi withtotal installed capacity of 79 MW started operating at full scale last year. Powergenerated during FY 2008 was 299 million units and gross Power exported duringthe year was 201 million units. Cogeneration is major contributor to top and bottomline of business and it helped to pull up sugar contribution in the overall Companyrevenues and profits.
Distillery
Distillery plant at Jawaharpur (U.P.) with capacity of 80 KLPD too is now operationaland contributing to the top-line of the Company. Distillery Production in FY 2008touched 9557 KL and sales volume during this period was at 7490 KL
Being highly regulated, the performance of the sugar industry in India is largelydependent on Government policies and regulations. This year, free level of buffer
stock of 20 million tonnes for free sale was released by the Government and it hasimpacted the realizations. Sugar prices which had fallen to historically low levelsduring last year have only recently shown slight signs of recovery.
2445
1009
20072008C
ANECRUSHED
(000T)
13
,460
16
,766
20072008
SUGARSALES
REALISATIONS
(Rs.T)
30
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Outlook
This season, it is expected that sugar production would be lower in the range of 25-26 MnT against the earlier estimates of 30-31 MnT and this should bode well forsugar realisations to inch upwards.
The industry has been under tremendous pressure on various issues of canesourcing, cane pricing and lower sugar realisations. Thorat Commission was set upby the Central Government to look into various aspects of sugar industry includingcane prices, reservation of cane area, dispensing with monthly release mechanism,abolishing of levy sugar and distance criteria between the factories. The industry ishopeful that the issues would be resolved in a manner that is beneficial to allstakeholders.
Going forward the shift of sugar towards manufacture of ethanol would be crucial forthe volume of sugar available for international market. Within our country, thegovernment's fiat that with effect from 1st Oct'08, oil marketing companies will have
to blend 10 per cent ethanol with petrol from existing 5% will provide value-additionto the sugar by-product, molasses. This will open up further opportunities for yourcompany.
The overall financial position of the company continued to be healthy and promising.The snapshot of the financial performance of the company in FY 2008 vis--vis itsperformance in FY 2007 is presented below.
(Rs. Millions)
Net Sales from Operations 9,865 14,807 50%Other Income 1,561 1,645 5%
Total Income 11,426 16,452 44%
Material Costs adjusted for change in stocks 2,237 2,806 25%Salaries & Wages 486 849 75%Other Expenses 5,188 7,592 46%
Total Expenditure 7,911 11,247 42%
Profit before Depreciation and Tax (PBDT) 3,515 5,205 48%Depreciation 551 864 57%Profit before Tax (PBT) 2,964 4,341 46%Taxes 675 869 29%
Profit After Tax (PAT) 2,289 3,472 52%
The company witnessed increased turnover on account of growth in volumes incement as well as sugar units. Improved realisations along with change in productmix led to higher profitability.
Total Expenses before Depreciation and Tax for the company are Rs. 11,247 Million,up from Rs. 7,911 Million last year. Power and Fuel costs are the highest contributorto the expenses of the company in FY 2008, at Rs. 2,887 million. Raw Material costsat Rs. 2,806 million are close to 25% of the expenditure. Freight & transportationcharges along with Repairs & Maintenance contributed another 15% to the costs.Salaries and Wages contribute only 8% to the costs of the company at Rs. 849million. Interest cost was 10% of expenses.
Financial Performance
Stand Alone Financials FY 2007 FY 2008 Growth
6%
28%
5%
10%
7%
18%
FY2007
Raw Material
Salaries
Power & Fuel
Repair & Mtc
Freight &Trsptn
Interest
Others
26%
31
8%
25%
5%
10%
10%
16%
FY2008
26%
Raw Material
Salaries
Power & Fuel
Repair & Mtc
Freight &Trsptn
Interest
Others
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Depreciation was higher at Rs. 864 Million on account of addition in gross assetsfrom Rs. 16,971 million to Rs. 18,830 million at end of FY 2008.
Tax expense too has gone up, from Rs. 675 Million to Rs. 869 Million primarily onaccount of increase in current tax. Fringe Benefit Tax constitutes a small element ofoverall taxs at 2.2%.
Balance Sheet (Rs. Million)
SHAREHOLDERS FUNDSShare Capital 85 162
Reserves and Surplus 7,449 11,310
7,534 11,472LOAN FUNDS
Secured Loans 9,306 10,501Unsecured Loans 840 5,332
10,146 15,833
DEFERRED TAX 1,293 1,630
18,973 28,935
FIXED ASSETSGross Block 16,971 18,830Less: Depreciation 4,700 5,582
Net Block 12,271 13,248Capital work-in-progress(including capital advances) 1,165 5,013
13,436 18,261
INVESTMENTS 3,785 6,138
Current AssetsInventories 1,975 4,916Sundry Debtors 821 1,051Cash and Bank balances 1,038 870Loans and Advances 2,921 4,332
6,755 11,169
Less: Current Liabilities and ProvisionsCurrent Liabilities 4,453 5,483
Provisions 550 1,150
5,003 6,633
NET CURRENT ASSETS 1,752 4,536
18,973 28,935
As at 31.3.2007 As at 31.3.2008
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Capital Structure
The Companys equity capital increased to Rs. 162 million as on March 31, 2008comprising 8,08,43,643 equity shares (4,27,28,693 shares) of Re. 2 each (fully paidup) on account of warrant conversion.
During the FY 2002, the Company had issued 76,51,621 Non-ConvertibleDebentures of Rs.10/-each along with detachable tradeable warrants. The holdersof these warrants had the option to subscribe to Ordinary Shares of the Company (5Ordinary Shares of Rs.2 each) at Rs. 23.76 per Share upon the call option beingexercised by the Board of Directors on or before September 11, 2008, in terms of theLetter of Offer dated June 26, 2001. During the year, the Board of Directors have
exercised the call option in respect of such warrants and called upon all the existingwarrant holders to submit their applications for conversion of the warrants held bythem into Ordinary Shares of the Company. Warrant holders holding 76,22,990warrants exercised the option and consequently the Company allotted 3,81,14,950Ordinary Shares of Rs.2/- each fully paid-up.
Reserves & Surplus
The Companys reserves and surplus increased to Rs. 11,310 million in FY 2008.During the year under review, Share Premium Reserve has increased by Rs. 830million, Debenture Redemption Reserve by Rs. 108 million while RevaluationReserve has reduced by Rs. 62 million. General Reserve too increased by Rs. 350million.
Loan Profile
The borrowed funds of the Company increased to Rs. 15,833 million in FY 2008.Secured loans at Rs. 10,501 million comprise 66% of the total loans. Average cost offunds of the Company is over 9% per annum.
Capital Employed
The capital employed by the Company in the business increased by 54% from Rs.17,680 million in FY 2007 to Rs. 27,305 million in FY 2008. The Companys Net fixedassets as a proportion of total capital employed were at 67% at the end of the year.
Gross Block and Depreciation
The 11% increase in gross block of the Company can be attributed to the installationof new plant and machinery of Rs. 1,640 million during the year. The Companycontinued to upgrade its infrastructure and technology across all its manufacturingfacilities. It provided depreciation of Rs. 864 million for FY 2008. Capital Work in
progress including the two green field cement projects is Rs. 5,013 million.
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Investments
Cumulative investments of the Company at Rs 6,138 million include investments ofRs 2,000 million towards acquisition of 21.7% shares of de-merged OCL India Ltd.
Sundry Debtors
The debtors of the Company increased to Rs. 1,051 million in FY 2008, of which only4% amounting to Rs. 47 million are more than six months old.
Loans and Advances
Loans and Advances comprised 39% of the Companys current assets. Loans andAdvances made by the Company were up at Rs. 4,332 million in FY 2008 due toincrease in advance income tax payments and increased MODVAT creditavailability on the new projects.
Your Companys human resources continue to be its biggest asset. Carrying on thelegacy of almost seven decades, the Company has endeavoured to always be apeople-centric organisation. In the recent years, the Company has shifted from afamily operated setup to a professionally managed one. The Companys talented
pool of over 3300 executives and workers is leading its growth plans throughcapacity expansion projects and improved systems and processes.
The Company believes that its ability to attract, train, reward and retain its humanresources will play a critical role in its future success. This challenge is beingaddressed through several structured initiatives. The Company has also instituted aVariable Pay Plan and Performance Management System for evaluation purposes.
As always, the Company continued to enjoy healthy and mutually respectfulindustrial relations this year with excellent support from its trade unions.
Keeping pace with the ambitious expansion program and to bring in standardizationat all levels of operations through IT, the company decided to migrate its existingBusiness Application into industry standard SAP, ECC 6.0 suite. In the first phase,
core business modules of Finance, Costing, Sales and Distribution, MaterialsManagement, Production Planning and Quality module of the SAP suite are beingimplemented. During the year the Company implemented industry specific ERP forits sugar units.
The Company took a major step in moving out its Data Centre from its own locationto a Level 3 Data Centre so as to provide the Company world class hosting andbandwidth on demand facilities. During the year it invested in third party multi-engine SPAM and virus protection services for improving its existing email servicesacross all locations.
The Company continued with expansion of its fully capable multi-service Voice /Video / Data IT network for new locations, Ariyalur, Cuddapah and Hyderabad byseamlessly integrating them with existing domain. All the current locations country-wide enjoy same level of point to multi-point video conferencing facilities in addition
to integrated data network.
Human Resources
Information Technology
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The company is also imparting extensive training to its employees to ensure smoothimplementation of SAP operations.
The company has a robust system for identification of key risks to the business,assessment of the possible impact and formulating strategies to mitigate such risksin an appropriate manner. Such risks could arise as a result of the industry,environment, regulation, nature of operations and the companys growth plans intothe future. Given below is a brief on the underlying risks.
Market and Competition Risk
The company is aware that cement and sugar are commodities and, therefore,inherently cyclical in nature. Fluctuations in the demand supply gap in the future canhave significant impact on the realisations and on the competitive scenario. TheCompanys objective therefore is to understand measure and monitor these risks
regularly, and take appropriate measures to minimise their impact.The Company has taken several initiatives to mitigate the market risks associatedwith its operations. The cement business, over the years, has continuously investedin creating strong brands which have led to significant increase in market share inrelevant markets. This has helped the Company to command a premium on itsproducts, even in relatively adverse market conditions. The company has furtherinitiated a detailed micro-market analysis to foresee the demand supply situation indifferent markets.
In the sugar business, the newly commissioned industrial alcohol/ethanolmanufacturing capability will allow the Company to realise new businessopportunities and, to that extent, insulate it from the sugar cycle. Its powergeneration capacity of 79 MW is also generating revenues by selling excess powerto Uttar Pradesh Power Corporation Limited.
Regulatory Risk
There is a fair amount of regulatory control exercised by the Government on both thebusinesses i.e. Cement and Sugar. The cement sector has seen changes in theexcise duty structure during FY 2008. However, the company has been able to passon the impact of such duty structure changes to the user to some extent and havebeen able to sustain the bottom-line impact.
The sugar business has seen some impact as a result of the cane pricesadministration and withdrawal of incentives available to new units set up in the Stateof Uttar Pradesh. However, the company has been able to sustain reasonableprofitability through its diversification into the Power Cogeneration and Ethanolbusinesses which have opened new avenues for the company to derisk the cyclicalnature of Sugar business. Given the situation of unprecedented rise in crude prices
worldwide, the company sees a big opportunity here.
Risks and Concerns
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Project Execution Risk
The company is expanding its production capacities with a view to cater to thegrowing demand of cement in domestic market. The company is currently executingtwo green-field cement projects one in Cuddapah (Andhra Pradesh) and second at
Ariyalur (Tamil Nadu). Project execution is largely dependent on varied factors astimely delivery of capital equipments by suppliers, timely completion of work bycontractors etc. Adherence to their envisaged commissioning date and allocatedbudget poses a challenge in light of rising steel prices, huge demand for capitalgoods engineering and scarcity of reputed and experienced contractors in theconstruction industry.
The company has set up a dedicated and experienced Project Management and
Commercial Team supported by experienced advisors and consultants. Further, thecompany believes in partnering well with its vendors and contractors therebyenabling the company to get priority in executing projects on time and better costs.Further, there exists a strong review mechanism at each level to ensure timelysupport for completion of the projects.
Raw Material Risk
Access to raw materials like limestone and coal is critical to the cement business ofthe Company. Further, FY 2008 has seen unprecedented increase in coal andgypsum prices which has led to significant increase in the variable cost for theindustry. The company has initiated a process to augment its limestone reserves toensure uninterrupted supply of raw material to the plants and is also evaluatingalternate sources of fuel. Further, the company is maintaining reasonable
inventories and has sufficient order booking to ensure smooth operations.Shortage of sugarcane poses similar risks for the sugar business. Sugarcane is aperishable item, and the Government controls its price as well as the area allotted tosugar units for growing cane. The Company has engaged proactively withsugarcane farmers and has been able to significantly augment the area under canefor the new sugar units. Further, significant work is being done by the business toincrease the yield per hectare of cane thereby making it lucrative for the farmers togrow cane instead of other options like wheat and paddy.
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Currency risk
The Companys exposure to currency risk arises out of the import of coal for itscement plants and project equipment imports for its Greenfield projects. TheCompany continuously monitors exchange rate movements and hedges majortransactions in foreign currency by taking forward contracts in the currency market,as considered appropriate.
The Company has robust and adequate internal audit and control systems. Thecompany has a strong and robust internal audit function and has a co-sourcingarrangement with reputed audit firms including the Big Fours. Every unit is subject to
a quarterly internal audit as per the Audit plan approved by the Audit Committee ofthe Board.
The internal audits are conducted with a view to periodically evaluate adequacy ofinternal control systems in all spheres of the companys operations namely financial,operations, compliance and projects. The audit plan is constantly reviewed toevaluate the risks posed by new ventures, polices and the environment andaccordingly modified to provide reasonable assurance to the management on keyrisk areas regarding the effectiveness and efficiency of operations, reliability offinancial reports, and compliance to applicable laws and regulations. There alsoexists a robust mechanism to ensure timely identification and reporting of fraud andnegligence within the Company. The Internal Audit Head reports independently tothe Audit Committee of the Board which is headed by a Non-Executive Directorthereby ensuring fair amount of independence of the function and transparency of
the process. The Committee meets every quarter to review the progress of theinternal audit initiatives, significant audit observations and the action plans. Detailson the composition and functions of the Audit Committee can be found in the chapteron Corporate Governance of the Annual Report.
Certain statements in this management discussion and analysis describing the
Companys objectives, projections, estimates and expectations may be forward
looking statements within the meaning of applicable laws and regulations. Forward
looking statements are identified in this report, by using the words anticipates,
believes, expects, intends and similar expressions in such statements.
Although we believe our expectations are based on reasonable assumptions, these
forward-looking statements may be influenced by numerous risks and uncertainties
that could cause actual outcomes and results to be materially different from thoseexpressed or implied. Some of these risks and uncertainties have been discussed in
the section on risks and concerns. The Company takes no responsibility for any
consequence of decisions made based on such statements and holds no obligation
to update these in the future.
Internal Control Systems
Cautionary Statement
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The Directors have pleasure in submitting the Annual Report and Audited Statements of Account of the Company for thest
year ended 31 March 2008.
(Rs. Million)
2007-08 2006-07
Net Sales Turnover 14807 9865
Profit before interest, depreciation and tax (EBITDA) 6334 4054Less: Interest 1129 540
Profit before depreciation and tax (PBDT) 5205 3514Less: Depreciation 864 551
Profit before tax (PBT) 4341 2963Provision for current tax (net of MAT credit) 513 100Provision for deferred tax 337 563Fringe Benefit tax 19 11
Profit after tax (PAT) 3472 2289Add:
(i) Surplus brought forward 3482 1755(ii) Transfer from Debenture Redemption Reserve - 7
(iii) Transfer from Reserve for Bad & Doubtful Debts - 17
Profit available for appropriation 6954 4068
APPROPRIATIONS:General Reserve 350 300
Debenture Redemption Reserve 108 139Interim/Proposed Dividend 323 128Dividend Distribution tax thereon 55 19Balance carried forward 6118 3482
6954 4068
Your Directors had disbursed an interim dividend of 125 per cent amounting to Rs. 2.50 per equity share of face value ofRs.2/- each in February 2008. In addition to the interim dividend, your Directors have decided to recommend a finaldividend of 75% amounting to Re. 1.50 per equity share of the face value of Rs. 2/- each, thus making the total dividendpayout for the year Rs. 4/- per equity share on increased capital as against Rs. 3/- per share last year.
Your Directors exercised the call option in respect of the detachable tradeable warrants issued by the Company inSeptember, 2001 along with the 6% Non-Convertible Secured Redeemable Debentures of Rs. 10/- each issued to theShareholders on a Rights basis. Out of the 76,51,621 outstanding warrants, warrant holders holding 76,22,990 warrantsopted for conversion of the warrants and were allotted 3,81,14,950 Equity Shares of Rs. 2/- each, which have been listedon the Stock Exchanges.
As a gesture of goodwill, your Directors have decided to permit the remaining warrant holders to opt for conversion of theoutstanding warrants into equity shares of the Company and have addressed letters to each one of them to apply for theconversion of warrants held by them.
Please refer to the chapter on Management Discussion and Analysis for a detailed analysis of the performance of theCompany during 2007-08. In addition, working results for key businesses have been provided as an annexure to thisreport (Annexure - A).
FINANCIAL RESULTS
DIVIDEND
SHARE CAPITAL
OPERATIONS AND BUSINESS PERFORMANCE
Directors ReportFor The Year Ended 31st March, 2008
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CORPORATE GOVERNANCE
LISTING OF SHARES
INDUSTRIAL RELATIONS
EMPLOYEES' PARTICULARS
ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE TRANSACTIONS
SUBSIDIARIES
FIXED DEPOSITS
DIRECTORS
The Company's corporate governance practices have been detailed in a separate chapter in this document. The Auditorscertificate on the compliance of Corporate Governance Code embodied in Clause 49 of the Listing Agreement is attachedas annexure and forms part of this Report.
thIn terms of the resolution passed by the Shareholders in the Annual General Meeting held on 27 September 2003, theCompany applied for delisting of its securities from dealings on the Calcutta Stock Exchange. The Company's shareshave since been delisted from the Calcutta Stock Exchange. The Company's shares continue to be listed on the MadrasStock Exchange, National Stock Exchange and Bombay Stock Exchange.
The industrial relations during the year under review remained harmonious and cordial. The Directors wish to place onrecord their appreciation for the excellent cooperation received from all employees at various units of the Company.
The statement giving particulars of employees who were in receipt of remuneration in excess of the limits prescribedunder Section 217(2A) of the Companies Act, 1956 read with the Rules and Notifications made thereunder, is annexed.However, in terms of Section 219(1)(b)(iv) of the Companies Act, 1956 the Report and Accounts are being sent to theShareholders excluding the aforesaid Annexure. Any Shareholder interested in obtaining copy of the same may write tothe Company Secretary at the Registered Office.
A statement giving details of Conservation of Energy, Technology Absorption and Foreign Exchange transactions, inaccordance with the Companies (Disclosure of particulars in the Report of the Board of Directors) Rules, 1988, forms apart of this report as Annexure - B.
Dalmia Cement (Meghalaya) Limited, a subsidiary of your Company, got amalgamated with OCL India Limited pursuantto the orders of the Gauhati High Court vide order dated 15-10-2007.
The Company has obtained exemption from the Central Government under Section 212(8) of the Companies Act, 1956,from attaching the Annual Reports of its subsidiaries vide letter No. 47/125/2008-CL-III dated 18-3-2008.
Accordingly, the Directors' Report and audited accounts of the Companies Subsidiaries, Kanika Investment Limited,Ishita Properties Limited, Shri Rangam Properties Limited, Geetee Estates Limited, D.I. Properties Limited, AvnijaProperties Limited, Hemshila Properties Limited, Himshikhar Investment Limited, Arjuna Brokers & Minerals Limited, ShriRadha Krishna Brokers & Holdings Limited, Shri Rangam Brokers & Holdings Limited, Dalmia Minerals & PropertiesLimited, Seeta Estates & Brokers Limited, Sri Kesava Mines & Minerals Limited, Sri Shanmugha Mines & MineralsLimited, Sri Subramanya Mines & Minerals Limited, Sri Swaminatha Mines & Minerals Limited, Sri Madhava Minerals &Properties Limited, Sri Dhandauthapani Mines and Minerals Limited, Eswar Cements Private Limited, Sri MadhusudanaMines and Properties Limited, Sri Trivikrama Mines and Properties Limited, Dalmia Sugar Ventures Limited and Dalmia
stCement Ventures Limited for the year ended 31 March 2008 are not being enclosed with this annual report. Any Memberdesiring to inspect the detailed Annual Reports of any of the aforementioned subsidiaries may inspect the same at theHead Office of the Company and that of the subsidiaries concerned. In event a Member desires to obtain a copy of the
Annual Report of any of the aforementioned subsidiaries, he may write to the Registered Office of the Company specifying
the name of the subsidiary whose annual report is required. The Company shall supply a copy of such Annual Report tosuch Member.
stThe total amount of deposits remaining due for payment and not claimed by the depositors as on 31 March 2008 wasRs. 9.30 lakhs in respect of 14 depositors, out of which deposit amounting to Rs. 0.61 lakhs in respect of 1 depositor hassince been paid.
Shri Jai H. Dalmia, was appointed as Vice-Chairman, of the Company effective 1-4-2007 in terms of the Resolution whichwas confirmed by the Shareholders by means of a Postal Ballot, the results of which were declared in March, 2007.
The following Directors retire by rotation at the ensuing Annual General Meeting:.
1. Shri M.H. Dalmia;
2. Shri N. Khaitan; and3. Shri J.S. Baijal
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Shri N. Gopalaswamy ceased to hold office as a Whole-time Director of the Company on 31-7-2007. Considering theservice rendered by Shri Gopalaswamy during his tenure as a Whole-time Director, the Board co-opted him as an
stAdditional Director effective 1 August, 2007. The Company has received a Notice from a Shareholder as required underthe provisions of Section 257 of the Companies Act, 1956 to the effect that he intends to propose the name ofShri N. Gopalaswamy to be appointed as a Director of the Company liable to retire by rotation.
stShri T. Venkatesan, was appointed as a Whole-time Director effective 1 November, 2007. The appointment of
thShri T. Venkatesan was confirmed by the Shareholders in the Extra-ordinary General Meeting held on 18 January, 2008.
Shareholdings in the Company by its Directors as at 31-3-2008, are as under:
Name of the Director No. of Shares of each held
Shri N. Khaitan 6,665
Shri Jai H. Dalmia 16,35,010
Shri Y.H. Dalmia 6,02,380
Shri Gautam Dalmia 6,77,290
Shri Puneet Dalmia 7,42,055Shri N. Gopalaswamy 6,665
Shri T. Venkatesan 1,800
OCL India Limited has become an associate of the Company upon the amalgamation of the Company's subsidiary,Dalmia Cement (Meghalaya) Limited with OCL India Limited effective 1-7-2007, and consequent allotment of shares byOCL India Limited to the extent of 21.71% of its issued and paid-up capital.
In compliance with the Accounting Standard 21 on Consolidated Financial Statements, this Annual Report also includesConsolidated Financial Statements for the financial year 2007-08.
As required under clause 49 of the Listing Agreement, the CEO/CFO's Report on the Accounts is attached.
In terms of the provisions of Section 217(2AA) of the Companies Act, 1956 your Directors declare that:
a) in the preparation of the annual accounts, the applicable Accounting Standards have been followed and nodepartures have been made there from;
b) the Directors had selected such accounting policies and applied them consistently and made judgements andestimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Companyat the end of the financial year and of the profit of the Company for that period;
c) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding the assets of the Company and for preventing anddetecting frauds and other irregularities; and
d) the Directors had prepared the annual accounts on a going concern basis.
M/s. S.S. Kothari Mehta & Co., Chartered Accountants, Auditors of the Company retire at the conclusion of the ensuingAnnual General Meeting and are eligible for re-appointment. As required under Section 224 of the Companies Act, 1956,the Company has obtained from them a certificate to the effect that their re-appointment, if made, would be in conformitywith the limits prescribed in the said Section.
For and on behalf of the Board
Place : New Delhind
Dated : 22 May, 2008
CHAIRMAN
Rs. 2/-
CONSOLIDATED FINANCIAL STATEMENTS
CEO/CFO REPORT ON ACCOUNTS
DIRECTORS RESPONSIBILITY STATEMENT
AUDITORS
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ANNEXURE - A
2007-08 2006-07 2005-06
CEMENT DIVISION ('000 MT)Clinker Production 2444 2055 1262Cement Production 3294 2737 1569Cement Sales and Self Consumption 3265 2713 1577
SUGAR DIVISION ('000 MT)Cane Crushed 2445 1009 817Sugar Production 246 108 84Sugar Sales 141 93 99Molasses Production 127 49 41
MAGNESITE DIVISION ('000 MT)Refractory Products production 27 31 22Refractory Products Sales and Self Consumption 31 27 26
REFRACTORIES DIVISION ('000 MT)Production 38 30 29Sales and Self Consumption 37 30 29
ELECTRONICS DIVISION (Million units)Chip Capacitors Production 1.6 4.2 6.4Chip Capacitors Sales 1.6 4.0 8.1Chip Resistors Production 0.9 1.7 3.3Chip Resistors Sales 1.1 1.6 3.4
WIND FARM
Installed Capacity (MW) 16.5 16.5 16.5Production (Million Units) 27 30 25Plant Load Factor 19.7% 22.0% 18.4%
GOVAN TRAVELSBusiness Handled (Rs. million) 215 265 288
CO-GENERATIONInstalled Capacity (MW) 79 54 -Production (Million Units) 299 20 -
ANNEXURE - B
A. CONSERVATION OF ENERGY
(a) Energy Conservation measures taken:
i) Dry Fly-ash addition increased by 4% in PPC reducing heat consumption.ii) Replacement of ESP Fan in Polysius Kiln by high efficiency Fans.iii) Cone nozzle head modified in CVRM I HAG in order to eliminate oil firing along with coal firing.
(b) Additional investments and proposals, if any, being implemented for reduction of consumption of energy:
i) Retrofitting of Cooler Vent Fans in KHD Kiln and FLS Kiln with high efficiency Fans.ii) Installation of rotopactor for pre-grinding clinker for feeding to Ball Mills.iii) Installation of Fly-ash Drier to increase percentage of Fly-ash in PPC resulting in power saving and Mill
throughput.
WORKING RESULTS
PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN
EXCHANGE OUTGO AND EARNINGS
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(c) Impact of measures taken already and proposed vide (a) and (b) above are aimed at:
i) Enabled the Company to save electrical energy and thermal energy as compared to previous levels.(d) Total energy consumption and consumption per unit of production as per Form A attached.
B. TECHNOLOGY ABSORPTION
Efforts made in technology absorption as per Form B attached.
C. FOREIGN EXCHANGE EARNINGS AND OUTGO
(a) Activities relating to exports; initiatives taken to increase exports; development of new export markets forproducts and services, and export plans:
i) Magnesite/Refractories: Ramming Mix, and Magnesia Carbon Bricks, were exported. Efforts continuedto explore possibilities of exports to Gulf, African and Asian Countries by making business visits andsupplying materials for field trials.
(b) Total foreign exchange used and earned during the year:
i) Used: Rs. 2098.23 million ii) Earned: Rs. 102.70 million
(Form of Disclosure of Particulars with respect to Conservation of Energy)
2007-08 2006-07
A. POWER AND FUEL CONSUMPTION
1. ELECTRICITY:a) Purchased:
Units (KWH in million) 241.3 202.3Total Amount (Rs. million) 606.1 500.3Rate/Unit (Rs.) 2.51 2.47
b) Own Generation:i) Through Diesel Generator:
Units (KWH in million) 10.4 10.1KWH per Litre of HSD/FO 3.91 3.89Rate/Unit (Rs.) 6.18 6.50
ii) Through Co-Gen Plant:Units (KWH in million) 61.8 4.0Total amount (Rs. Million) 241.2 13.1Rate/Unit (Rs.) 3.90 3.25
iii) Through Steam Turbine:(Generated out of own bagasse consumption)Units (KWH in million) 7.0 26.2
2. COAL-SLACK / STEAM - GRADES B TO E, LIGNITEAND COKE BREEZEQuantity ('000 MT) 424 375Total Cost (Rs. million) 1855.0 1329.8
Average Rate (Rs. / MT) 4349 3551
3. FURNACE OIL INCLUDING (LSHS & HSD)Quantity (KL) 12230 13058Total Amount ( Rs. million) 257.2 260.3
Average Rate (Rs. / KL) 21027 19933
4. OTHERS/INTERNAL GENERATIONQuantity (Lakh MT) 0.31 1.18Total Amount (Rs. million) 12.6 59.5
Average Rate (Rs. / MT) 400 506
FORM 'A
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B. CONSUMPTION PER UNIT OF PRODUCTION:
PRODUCT CEMENT DEAD BURNT MAGNESITE
Standard 2007-08 2006-07 Standard 2007-08 2006-07If any If any
Electricity (Units/MT) 74 77 83 84Furnace Oil (including LSHS)(Litres/MT) 0.86 1.30 204 216Coal (Kgs. / MT) 95 106 NIL NIL
PRODUCT SUGAR MgO-CARBON BRICKS
Standard 2007-08 2006-07 Standard 2007-08 2006-07If any If any
Electricity (Units/MT) 283 291 253 241
Diesel Oil (including LSHS) (KL/MT) N.A. N.A. 37 35
PRODUCT REFRACTORIES
Standard 2007-08 2006-07If any
Electricity (Units/MT) N.A. N.A.Furnace Oil (including LSHS) (Ltr./MT) 0 0.29Coal (Kgs./ MT) 129.70 158.63
(Form of Disclosure of Particulars with respect to Absorption)
1. Specific areas in which R&D is carried out by the Company:
a) Increasing the availability of CVRM II by carrying out design modifications in Mill feeder.
b) Increasing the flow of pre-heater CVRM II Mill Fan by tipping of the Impeller.
c) Development of Magnesia Alumina Spinel Brick was completed and used in our Rotary Kiln and small cementRotary Kiln at Dalmiapuram. Free samples were sent to Qatar National Cement Company for evaluation in theirsmall cement Rotary Kiln and the results are awaited.
d) Development of Tundish Spray Mix of different grades was completed. Evaluation through paid trials is inprogress. Good potential exists for sale to Steel Plants. Outlet to use low MgO Dead Burnt Magnesite also.
e) Field evaluation of Wear Resistant Ceramic Plates is continuing in Chutes, Pipes, Ducts with objective of
enhancing life in wear prone areas.
f) Due to non supply of Chrome ore by monopolistic sources in current year development of Chrome free RammingMixes was commenced with field trials in few induction furnaces. A few customers have accepted the newRamming Mix as a substitute. More field trials are continuing.
g) A special Ramming Mix was developed and supplied to Mishra Dhatu Nigam Limited for melting and refiningsuper alloys in Electric Arc Furnace.
2. Benefits derived as a result of the above R&D:
Availability and production from CVRM II has increased.
Extra production in Kiln and saving in power charges achieved.
Production of niche products, enhancement of product range, diversification of market and increased turnover. Alsoto offer price and performance wise superior products to customers to enable them to reduce their specific
consumption.
FORM B
RESEARCH AND DEVELOPMENT (R&D)
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3. Future plans of action:
a) Development of Spinel based Ramming Mixes for non ferrous alloys melting.4. Expenditure on R&D:
(Rs. Million)
a) Capital Nil
b) Recurring 0.1
c) Contribution/Expenditure on Research and Development -
d) Total 0.1
e) Total R&D Expenditure as a percentage of turnover Negligible
Above excludes material and other costs.