On a steady path towards long term returns
The address of Mr Arun Kumar Jagatramka, Chairman & Managing Director, on the occasion of the 24th AGM held on 30th September, 2011 at Kalamandir, Kolkata
Dear Friends,
I deem it a great honour to chair the 24th Annual General Meeting of our esteemed company. On behalf of the Board of Directors of the Company and also on my personal behalf, I extend a warm welcome to all of you present here today.
FINANCIAL PERFORMANCE:
Let me now, for a few minutes give you a brief on the financial performance of our Company, Gujarat NRE Coke Limited for the year ended March 31, 2011.
For the financial year ended 31st March 2011, our activities were on the right track and I am satisfied by the improvement in our performance. Gujarat NRE Coke Ltd has recorded a five fold jump in the consolidated net profit for the year ended 31st March, 2011 over the previous year. Figure wise, the consolidated net profit has increased to Rs 109.17 Crores from Rs 20.40 crores last year. This reflects the strong growth momentum in the performance of the company. We have started the financial year 2011 on a positive note and expect to further improve the same as the Indian industrial demand picks up post monsoon.
Our expansion plans in India and in Australia are on a sustained growth track. We would be introducing longwall mining at NRE No. 1 Colliery, for which the company had placed an order for $90 million for new machinery and the first batch of longwall equipment is on site and ready to go underground as per schedule. The installation of the most modern longwall systems available globally in NRE No 1 is a step in our continued effort to increase coking coal production from our mines to reach the target production of 6 million tones per annum by 2015.
Back in India, hectic activity is underway for integrating and consolidating the existing facilities. The launch pad is being prepared for meeting the growth targets and once the company receives all the approvals and clearances for the Greenfield project in Andhra Pradesh, process for which is underway and progressing, it plans to start work on a firm footing to reach 4 MTPA production target in the next 4 years.
Also, dividend for the year 2010-11 has been recommended by the Board @ 10% i.e. Re 1 per share. The same is payable subject to its approval by the members at the Annual General Meeting today and if approved, the same will be paid on or before 28th October 2011 to those shareholders holding shares on the relevant date.
THE STEEL INDUSTRY IN INDIA TODAY
The steel consumption in India has been stagnant for the greater part of the year. Domestic demand has not risen as per expectation and we are yet to see the anticipated surge in rural demand. The Indian steel industry has long been wagering high on the potential of rural steel consumption which would have been able to take the Indian steel consumption to the next level and induce the country’s steel production capacity to the next orbit. The external global economic conditions particularly the Euro zone crisis has been the real dampener, however most analysts feel that the USA would be able to get its act together.
The domestic status quo has been the prime reason for the sloth like pace of growth of Indian Steel Consumption. It has been a well known fact that the gross fixed capital formation has plummeted. The Gross Domestic Product has also been much below the target. According to CMIE data, the volume of capital locked up in stalled projects, that is projects that have been initiated but are now stagnant and thus are suffering from time and cost over-runs, is at present a staggering three times more than those in 2007. All the above reasons only point to the fact that infrastructure growth and other manufacturing expansions are not at the pace which would have augmented steel consumption. In the first five months of the year, Indian steel consumption rose by a mere 1.2%, which in real terms means 29.7 million tonnes (compared to 29.3 million tonnes in 2010). Indian steel mills are presently running at a 70-80% capacity utilisation. In face of this alarming degrowth of steel industry, comes the Karnataka mining debacle.
However, in a longer period, Indian steel production capacity is expected to reach 200 MT by 2020 as per the revised estimates of Ministry of Steel Government of India, for which the coke demand would be as high as 85 MTPA. On a conservative estimate, if India produces 150 MT of steel by 2020, it would mean that coke consumption would be over 50 MTPA, an increase in demand by over 100% in less than 10 years.
THE MET COAL AND MET COKE SCENERIO TODAY
Interesting to note is that in spite of this stagnancy in steel growth, the price of coking coal and coke has been considerably high. High demand and the floods in Queensland have resulted in a peak price in coking coal. The price of coking coal has been in the range of $280 - $320 per tone as against $129 two years back and $225 last year and that of met coke has been moving around the $450 per tonne mark. This high price can only be attributed to the supply scarcity.
GUJARAT NRE: THE FUTURE
I can assure you at this point that we are a company focused on the long run. You all will accept the fact that long term investors have been benefited a lot by investing in Gujarat NRE. I would like to reiterate that the company’s operations are on the right track and we are progressing well as per our plan.
The economic stagnation is beyond our control and we should not spend our energy in thinking over it. However, what is in our hand is to work for the future and prepare ourselves for the demand growth which is inevitable at any time in the future. In our industry, if winter is here, spring can’t be far behind. Historically we have seen such upturns particularly every leap year for the last two decades and 2012 happens to be the next leap year.
Our Company is working on building capacity in line with the projected steel consumption growth to harvest rich benefits when the market rebounds. The company is preparing itself to reap the boom of the sunny days which can not hide long behind the twilight.
And when the steel growth rebounds, riding on a high coke price, Gujarat NRE will be ready to ride the crest of the wave. The domestic coke prices are reasonably high and when the demand increases due to the increase in steel consumption and consequently steel production, it is only anybody’s guess the high level which the coke prices may attain.
CSR: OUR DEEP COMMITMENT
We believe in giving back to the Society, what we take from it. CSR activities to us are not an act of philanthropy but a necessity. We are continuing our partnership with the state and the central government in upgrading the ITI, Jamkhambalia to a centre of excellence, having contributed in building a High School in Jamnagar, Gujarat, organizing regular blood donation camps and plantation activities. We take special initiatives like organizing school buses and helping in literacy and education programmes in villages.
To conclude, may I once again thank each of you, our valued shareholders, for your unstinted and continued support and shall continue to look for the same in the years to come that will help us to move from strength to strength.
I, on behalf of all the employees at the Company, will look to you as always for your continued encouragement in this journey of ours.
Thank You.
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