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DIRECTORS' REPORT AND MANAGEMENT DISCUSSION AND ANALYSIS
We are pleased to present the Annual Report of the Company for the year 2011.
1. TWENTY FIVE EVENTFUL YEARS
The year 2011 is a year of great significance to the Company as it records completion of 25 years of operations. In October 1986, the first cement bag rolled out from the packer belt to the truck. The journey of 25 years has been very satisfying and full of pride. The Company has grown from 0.7 million tonne Cement Grinding capacity to 27.35 million tonnes. The net worth of the Company has multiplied from Rs. 17 crores to over Rs. 8000 crores and the market capitalisation from Rs. 18 crores to around Rs. 27500 crores during this period of 25 years. A salute to the visionary, dedicated and committed team who have made this happen!
2. YEAR 2011: SUSTENANCE IN TURBULENT TIMES
Indian economy facing short term headwinds
India has had a strong economic growth in the past averaging 8.0% during 2007-2011 on the back of a high domestic savings and investment rates (both above 30% of GDP), favourable demographic trends, strengthening corporate competitiveness and increased infrastructure. While these structural factors are unlikely to change in the long-run, we do see a slowdown in the near-term growth.
GDP after a healthy growth of 7.7% during Apr-Jun 2011 3. period, fell sharply to 6.9% in the subsequent July - Sept 2011 quarter due to high inflation, lower rate of growth of manufacturing, slower growth in government spending, and an uncertain global outlook especially the Euro zone concerns.
Industrial growth took the biggest hit, mainly due to poor performance of manufacturing and mining sector. Services sector growth moderated too, but remained above 9%. On the demand-side, total business spending on fixed assets and capital formation contracted due to high interest rates and policy log-jam.
Inflation during the year continued to remain high. In addition, the recent sharp depreciation in rupee of around 14% further increased the imported component of inflation. Domestic fuel price hikes, which are expected to continue, are likely to exert additional upward pressures on overall inflation numbers. The RBI with its continuous efforts and tight monetary policy, managed to arrest inflation at an average of 9% for 2011. Overall, the GDP is most likely to grow at around 7% for 2011-12.
While challenges do remain, it is encouraging that the reform agenda is moving in the right direction and the Company, on the back of sustainable economic growth, would be well positioned to attain a high growth trajectory.
Year 2011 began with an expectation of brighter outlook & double digit growth for the Indian cement industry but this could not be realised due to slow pace of housing / infrastructure development and global slowdown. Demand trends in first half of 2011 remained below expectations. Channel checks suggest that the construction activity picked up in many pockets of the country during the second half of 2011. Overall cement industry grew by 6% on year on year basis for entire 2011. Export market continued its slowdown, mostly due to global macro economic slowdown.
On the supply side, the pace of capacity additions has slowed down in 2011, though overcapacity is still a major concern for the industry. The lower than expected demand growth resulted in lower capacity utilisation in the industry.
On the cost front, India's cement industry suffered early setbacks in February 2011 in the form of coal price hikes by over 30% by Coal India Ltd., the largest domestic supplier of coal to cement plants. The alternative of importing coal also turned costlier with the sharp depreciation of the rupee against the dollar. Consistently high inflation further added to the input cost, distribution costs and overhead cost increase. Industry margins were also impacted adversely due to 2% hike in excise due announced in the Union Budget 2011-12.
Despite all the odds and challenges, the Company with its inherent potentials and strong financials has maintained its market position.
3. FINANCIAL RESULTS 2011
At a glance (Stand alone results):
? Cement production increased by 4% to reach 20.97 million tonnes from 20.13 million tonnes. Clinker production increased to 14.70 million tonnes with a modest growth of 4.7% over 14.05 million tonnes in the year 2010.
? Cement Sales volume growth remained sluggish at 4.5% to reach 20.91 million tonnes from 20.00 million tonnes. Clinker sale (including exports) was up by 58% at 0.54 million tonne from 0.34 million tonne. Total cement exports were down by 27% to 0.37 million tonne. Thus, total volume increased from 20.34 million tonnes to 21.45 million tonnes, i.e. an increase of 5.45%.
? Net sales were 15% higher, at Rs. 8515 crores partly due to increased volumes and partly due to improved realisation. Average sales realisation improved by around 10%, to Rs. 3960 per tonne versus Rs. 3600 per tonne in 2010.
? Total operating costs in 2011 increased by 18% over that of year 2010.
? EBITDA improved by 2.23%, at Rs. 1994 crores vis-d-vis Rs. 1951 crores in the year 2010.
? Net Profit ended up lower by 2.75% at Rs. 1229 crores against Rs. 1264 crores during the previous year, due to higher tax incidence.
The Company has paid an interim dividend of 70 % (Rs. 1.40 per share) during the year. The directors are pleased to recommend a final dividend of 90% (Rs. 1.80 per share). Thus the aggregate dividend for the year 2011 works out to 160% (Rs. 3.20 per share) and the total payout will be Rs. 570.29 crores, including dividend distribution tax of Rs. 79.60 crores. This represents a payout ratio of 46%.
5. MARKET DEVELOPMENTS
India's cement industry witnessed subdued demand growth of 6% in 2011, growing at par with 2010 growth level. Weak demand in various key cement consuming markets was primarily on account of lower infrastructure spending by the government, slowdown in the realty sector due to high interest rates, an extended monsoon and non-availability of railway wagons in some clusters.
Against this, the Company's domestic cement sales grew by 5.4% to 20.54 million tonnes as compared to 19.49 million tonnes achieved in 2010. Total cement sales (including exports) increased by 4.5% on YoY basis to 20.91 million tonnes as compared to 20.00 million tonnes achieved in 2010. The Company's clinker sales grew by 58% on YoY basis to 0.54 million tonne as compared to 0.34 million tonne achieved in 2010.
The Company has maintained its market share of around 9.5 % on pan-India basis, despite the prevalent challenging environment.
In the North region, domestic cement sales of the Company grew by 4.7% to 8.07 million tonnes as compared to 7.71 million tonnes achieved in 2010. Clinker sales during the year 2011 were 0.12 million tonne.
In the East region, our Company sold 3.95 million tonnes in domestic market, higher than 3.72 million tonnes in 2010 by 6.2%. Clinker sales growth was at 39%, i.e. from 0.30 million tonne in 2010 to 0.42 million tonne in 2011.
In the West / South region, Company's domestic cement sales grew by 5.7% to 8.52 million tonnes as compared to 8.06 million tonnes achieved in 2010.
Cement exports declined by 27.5% to