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Chairman's Address
I have great pleasure in welcoming you all to the Thirty Fifth Annual General Meeting of your Company and placing before you the Annual Report of your Company for the financial year 2010-11. Annual Financial Statement, Balance Sheet and Directors’ Report for the year ended 31st March 2011 are already with you.
I am happy to announce here that the financial year 2010-11 remained reasonably satisfying year in terms of business growth. This gives us tremendous level of confidence to achieve higher objectives in the years to come. In the financial year 2010-11, the Company has not only registered highest ever production and despatch of Pellets but also achieved highest ever turnover after the closure of its mine at Kudremukh since 2006. I heartily congratulate each one of you for these relentless and dedicated efforts.
I also bring to your notice that the Company is encountering lot of challenges from various fronts particularly, in the backdrop of absence of captive mine and shortage of Iron Ore supply. I hope we will work together to achieve the goals set in.
Now I briefly analyze the economic environment of the Country-vis-à-vis world in Steel and Iron Ore sector and your Company’s performance.
GLOBAL SCENARIO OF IRON & STEEL MARKET
Steel Market:
World crude Steel production reached 1,414 million metric tonnes (Mt) for the year 2010. This is an increase of 15% compared to 2009 and is a new record for global crude Steel production.
All the major Steel producing countries and regions showed double-digit growth in 2010. The EU and North America had higher growth rates due to the lower base effect from 2009 while Asia and the CIS recorded relatively lower growth.
Production for Asia was 897.9 million tonnes of crude Steel in 2010, an increase of 11.6% compared to 2009. Its share of world Steel production decreased to 63.5% in 2010 from 65.5% in 2009. China's crude Steel production in 2010 reached 626.7 Mt, an increase of 9.3% over 2009. China's share of world crude Steel production declined from 46.7% in 2009 to 44.3% in 2010. Japan produced 109.6 Mt in 2010, 25.2% higher than 2009. In 2010, South Korea's crude Steel production was 58.5 Mt, a 20.3% growth compared to 2009. India increased its annual production by 6.4% to nearly 67 million tonnes.
Iron Ore Market:
The demand for Iron Ore continued to improve during the first half of 2010 with rebounding of global economy from middle of 2009. With main stream countries embarking on many infrastructural projects, the demand for Steel went up resulting in improved demand for Iron Ore.
The total Iron Ore production during 2010 was around 1,851 Mt, an increase of about 15.4% over 2009 production of 1,603 Mt. This is also a new record for global Iron Ore production.
Australia with a production of 433 Mt of Iron Ore stood first, Brazil occupied the second spot with a production of 398 Mt followed by China and India with production of 359 Mt and 231.5 Mt (estimated) respectively. Above four major Iron Ore producing Countries accounted for 76.8% of total Iron Ore produced globally during 2010.
Year 2010 witnessed shifting of Iron Ore pricing system from 40 year old Annual Bench Mark Pricing System to Quarterly Pricing Mechanism. This has induced a new element of volatility to the market.
Current Scenario on Indian Iron and Steel Market :
During 2010, India produced about 231.5 Mt (Estimated) of Iron Ore out of which about 117 Mt (Estimated) of Iron Ore was exported. This figure is likely to come down in 2011 due to restrictions imposed by Government of Karnataka on export of Iron Ore. Karnataka accounts for 35 to 40 % of Iron Ore exported from India. Also in order to discourage Iron Ore exports, Government of India imposed export duty of 20% on Iron Ore fines & lumps. However, the export duty of 15 % which was levied on Iron Ore Pellets was withdrawn as Iron Ore Pellet is a value added product.
I take this opportunity to thank the Ministry of Steel and Govt. of India for the same. The removal of export duty on Pellets would improve the profitability and the turnover of your Company in the coming years.
Usage of Pellets in Steel making is increasing due to, decline in availability of good quality Iron Ore lumps & also to adhere to stringent pollution norms put in place by various governments. Global Pellet production capacity was around 380 million tonnesl during 2009 is expected to cross 500 million tonnesl by the end of 2011. Vale the biggest producer of Iron Ore Pellets is continuously increasing pellet production capacity by setting up plants near to markets to cover total global demand.
India the third biggest exporter of Iron Ore is also increasing the pellet production capacity continuously to utilize low grade Iron Ore and to meet the increased demand. The pellet capacity in India is expected to touch 50 million tonnesl by the end of 2012. Most of the plants are coming up in Karnataka and Orissa where low grade fines are available abundantly with good water supply and logistics. But the cost of production in India is higher due to high energy costs, due to which Indian Pellet manufactures are in a disadvantageous position. However removal of export duty on Pellets by considering it as a value added product has provided some relief to pellet producers.
Future Outlook:
The outlook of year 2011 has been positive. Year 2010 saw a steady recovery of Steel demand which began in the second half of 2009 driven by stimulus packages globally, the resilience of emerging economies and an overall market recovery. In 2011, a further growth of 5.9% in world Steel demand is expected.
The short range outlook published by World Steel predicts that the Steel use in the developed world will still be at 14% below the 2007 level whereas in the emerging and developing economies, it will be 38% above. In 2012, the emerging and developing economies will account for 72% of world Steel demand in contrast to 61% in 2007.
Chinese economy is likely to maintain its growth at around 9%. China's Ministry of Housing and Urban-Rural Development (MOHURD) has raised its construction target of affordable housing to 10 million units in 2011. However, series of measures have been initiated by Chinese Government to discourage high energy consuming Steel mills from operating. This may act as a dampener to the demand for Iron Ore. Shifting from annual bench mark pricing mechanism to quarterly pricing system has already infused some amount of volatility to the market. Added to this, there is a move in the market to introduce monthly pricing mechanism which is strongly resisted by Chinese Steel industry. In general, though the projections are positive, high degree of volatility makes it difficult to predict market direction.
PHYSICO FINANCIAL PERFORMANCE OF THE COMPANY FOR THE YEAR 2010-11 :
Financial year 2010-11 was a year of improved performance, recovery and consolidation for us. The global economic climate posed several challenges, but we made the best use of our resources and abilities for growth. At the beginning of the year, we had projected a revenue growth of 77% whereas in actual, we could post higher growth of 82% over the previous year. The total revenue stood at Rs. 1803.46 crore, a YoY growth of 81.67%. The profit after tax was Rs.76.27 crore, a YoY growth of 143.02%.
DIVIDEND :
We are pleased to announce a final dividend of Re.0.25 per equity share including the Interim Dividend already paid. The dividends are payable on the equity shares as on book closure date and are subject to approval by the shareholders. Earlier in the year, we paid an interim dividend of Re.0.08 per share.
Before we go ahead, I will touch upon some of the projects as envisaged in the 11th Five Year Plan (2007-2012) and the progress made.
PROJECTS UNDER CONSTRUCTION :
In my last year statement, I have mentioned under the upgradation and modernization programme, your Company is in the process of setting up of some major capital projects like Installation of Horizontal Pressure Filters and constructing RCC Silo and associated material handling equipment along with screens in the grinding circuit for augmentation of feeding systems to its existing ball mill. The execution of work is in progress and likely to be completed as per schedule. After commissioning of these projects, your Company will be able to improve its productivity.
PROJECTS UNDER EXPANSION AND DIVERSIFICATION PLAN
1. Setting up of 0.3 mtpa non-recovery type coke oven battery with 25mw cpp at blast furnace unit at Mangalore :-
To make the Blast Furnace Unit economically viable on standalone basis, your Board of Directors have approved a proposal to set up 3 lakh TPA capacity Coke Oven Plant, adopting non recovery route with 25 MW CPP, at its Blast Furnace unit at Mangalore. The project is intended mainly for supply of Low Ash Metallurgical coke for the existing Blast Furnace and the surplus Coke would be sold in the market. The project also envisages generation of electricity (25 MW) by utilizing the sensible heat of hot flue gases from the ovens. The part power generated would be consumed in Blast Furnace and the balance in the adjacent pellet plant. Surplus power, as available, if any, will be wheeled to the grid depending upon the comparative advantages. The estimated cost of the project will be Rs.452.22 crores which will be funded through a debt equity ratio of 1:2. KIOCL has already initiated the action for getting the necessary clearances from MoEF and KSPCB for the project. Parallelly action is being taken for appointment of Consultant for providing engineering services for the project.
2. Ductile iron spun pipe project :-
KIOCL Board has agreed in principle for the formation of a Joint Venture between M/s KIOCL & M/s RINL towards setting up of DISP Plant and Oxygen Plant etc. under forward and backward integration in Blast Furnace Unit.
A Detailed Project Report for setting up of a Ductile Iron Spun Pipe Plant of one lakh tonnesl per annum capacity to produce the pipes of sizes ranging from 100 mm dia to 1000 mm dia. at our Blast Furnace Unit Premises has been prepared by M/S MECON LTD. and the same will be placed before the KIOCL Board in the forthcoming meeting for approval & implementation. As per the DPR and the market study report, there is good market potential for this value added product. KIOCL has to implement the same on fast track basis in order to reap the benefits. Statutory approvals are in place for this project.
3. Bulk material handling system and permanent railway siding at Mangalore :-
To facilitate the movement of inward goods to the plants without any problems, the Company is proposing to set up Bulk Material Handling and Permanent Railway siding system at Mangalore at a capital investment of Rs.303 crores. Land required for the said projects has already been acquired and registered in the name of your Company except a portion of land admeasuring 2.045 acres through a private party. Negotiation is still on with the party. DPR for the project has already been prepared by M/S Konkan Railway Corporation Ltd, (KRCL). Your Company has already obtained the necessary clearances from the MoEF and Karnataka State Pollution Control Board for this project. The project shall be taken forward with the Board approval after acquiring the complete land required for the project.
4. Eco-tourism : -
In order to gainfully utilize the existing excellent infrastructure and facilities already created at Kudremukh, KIOCL is planning to enter into new business opportunities like eco-tourism and also imparting knowledge of the fragile eco-system and bio-diversity. These activities could generate revenue for the State with additional employment potential for the local people.
KIOCL has already approached State Government for extending the lease of revenue land to the extent of 1220.03 hectares for further period of 30 years for creation of eco- tourism facilities at Kudremukh. Further, State Government has agreed in principle to KIOCL’s request to accord permission for change of purpose from mining to eco-tourism to utilize the land leased to KIOCL.
As per the State Government directives, KIOCL also got prepared Detailed Project Report for the creation of Eco-Tourism facilities at Kudremukh and approached M/s Jungle Lodge and Resorts Ltd. (A Govt. of Karnataka Undertaking) for possible Joint Venture for the project.
The estimated project cost is Rs. 806 Crores which includes Revenue expenditure (Expenditure on Operation and Maintenance) as well as Capital Expenditure.
5. Selection of joint venture partner for the equity participation by kiocl for setting up of an integrated steel plant in the state of Karnataka : -
In my last communiqué, I had informed that State Government as a policy for granting mining lease clearly envisages that it is in favor of Entrepreneurs establishing real value addition to the Iron Ore like setting up of Steel plant in the State of Karnataka.
In this backdrop, KIOCL Board of Directors has accorded approval in principle to establish an integrated Steel plant in Karnataka in JV partnership with a firm selected through tender route.
The proposal has been in advance stage of discussion to formulate a draft JV agreement with the JV partner, in consultation with our project consultant and legal experts.
CAPTIVE IRON ORE MINE
The Company is making efforts for allocation of captive mine since 2006. Mining lease applications has been made across the Country. The same could not be materialized till date.
1. Chikkanayakanahalli Deposit in Tumkur Dist. : -
Govt. of Karnataka had granted mining lease over an area of 116.55 ha in Hombalghatta and Hosahalli villages in favour of KIOCL. Indian Bureau of Mines approved the mine plan and MoEF has accorded the clearance for the project. Application has been submitted with State Forest Department for Forest Clearance.
At the time of joint Survey for demarcation of ML boundary, it was observed that there is an overlapping of the areas which is allotted to your Company and other allottees.
To resolve this issue as per the order, in the meeting held on 13.12.2010 by DC Tumkur, it was decided to carryout the joint survey of entire ten blocks to sort out the overlapping issues as per the Government directions. The same has been carried out in the month of December 2010 and the survey report was submitted to Director (Mines & Geology) to resolve the overlapping issue amicably. Matter is being followed up at higher level.
2. Ramandurga Deposit : -
Secretary (Mines, Textile and SSI) Govt. of Karnataka has conducted a hearing on 31.08.2010 and 02.09.2010 for consideration of KIOCL’s application for grant of mining lease in block no. 13/1 vide Govt. Notification No. CI 33 MMM 1994 dated 15.03.2003 (Ramandurga Iron Ore deposit) for Iron Ore.
A meeting was held with Principal Secretary to Hon’ble CM, GOK, on 03.09.2010 and a request to allot the mining leases in accordance with commitment made by Govt. was placed.
KIOCL also submitted to Principal Secretary to Hon’ble Chief Minister, Govt. of Karnataka with a copy to Secretary (Mines, Textile and SSI), Govt. of Karnataka, a map on 14.09.2010 demarcating 50% of area available in block no. 13/1 Ramandurga Range to an extent of 840 hectares for grant of mining lease as Govt. of Karnataka has decided to reserve 50% of area in the said block against the Notification No. CI 33 MMM 1994 dated 15.03.2003 vide their DO letter no. CI 119 MMM 2002 dated 21.03.2005.
The allotment of Ramandurga was flagged in the meeting between Secretary, Ministry of Steel and Chief Secretary, Govt. of Karnataka held on 12.05.2011 at Bangalore and also in the meeting between Chief Secretary & KIOCL on 25.05.2011
3. Re-opening of Kudremukh mine : -
Around 24 million tonnes of loose secondary weathered ore is available at Kudremukh Iron Ore mine in the already broken up area. Ministry of Steel has already filed a petition before the Hon’ble Supreme Court seeking permission to remove the secondary weathered ore with latest technology without disturbing the environment & ecology of that region. The IA No. allotted is 3087 of 2010.
CORPORATE GOVERNANCE
The Company has given due importance to the concept of Corporate governance and has been following the principles and practices of good governance, for enhancing stakeholders satisfaction.
CORPORATE SOCIAL RESPONSIBILITY
As a socially conscious corporate citizen, your Company has contributed towards community development in and around the project particularly in the areas of education and health care. During the year, the Company has spent Rs.59.36 lakhs as against budget allocation of Rs.100 lakhs on various activities.
ACKNOWLEDGEMENT
I am grateful to the various officials of the Government, especially from the Ministry of Steel, Ministry of Environment and Forests, Port and Railways for their co-operation and for their contribution to the growth of the Company. I also take this opportunity to thank the untiring efforts put in by all the employees and the unions at various levels, and their support over the years which has enabled your Company to achieve the present position. With such continued support, I am sure, your Company will grow from strength to strength and would be able to expand its areas of activities, scale greater heights of success and contribute positively for better stakeholders' delight.
I am confident that the Management team will continue to strive hard to meet the corporate objectives and growth of the Company and wealth creation for the shareholders. I also convey my deep gratitude to our customers, suppliers, regulatory authorities and all others associated with the Company.
Last but not the least, I would like to thank my colleagues on the Board who have given their valuable time and assistance in charting Company’s progressive move.
My speech would not be complete without thanking you - our shareholders - for the immense confidence you have reposed in the Company. I look forward to your continued support in the years to come.
Thanking you,
K. Ranganath
Chairman – cum – Managing Director
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