Dear Shareholder,
 
 It is now well accepted by economic pundits and studies conducted
 across the globe that India and China will dominate the world economy
 in the 21st century. India is today the fourth largest economy in terms
 of purchasing power parity and is expected to overtake Japan and become
 third largest economic power after the United States of America and
 China, before the end of this decade. As India prepares to become an
 economic super power, it must further quicken the pace of reform and
 liberalization by enabling the development of world class
 infrastructure, competitive manufacturing in scale and technology and
 sustainable development.
 
 GDP growth of over 6.5%, significant investments in infrastructure, a
 good agricultural output and a spurt in consumer demand across all
 sectors augurs well for industry. If we are able to achieve a GDP
 growth of 8% annually, India will be the fastest growing free market
 democracy in the world.
 
 Steel - the backbone of industry
 
 The steel industry is crucial to a nation's economic competitiveness
 and security. Steel is integral to building of bridges, railroads,
 homes, automobiles, appliances and much more. Today's steels are
 radically different than what was available ten years ago. They are
 lighter, higher in strength and more versatile.
 
 The industry has undergone a major transformation in the last few years
 with companies investing in new process and product technologies,
 capacity enhancements and customer service initiatives. Indian steel
 companies are at the leading edge of technology and spend
 considerable amounts on research and development. The industry and
 particularly your Company are able to compete internationally on
 technology, quality and price and have demonstrated that the India of
 tomorrow belongs to Indian entrepreneurs and Indian consumers. The
 Government needs to encourage and support the industry with a more
 realistic iron ore policy that creates a level playing field.
 
 Essar Steel - an eventful year
 
 Essar Steel's excellent results demonstrate the Company's success in
 structurally improving its operating performance as a result of
 strategic actions and timely execution of projects. We have seen some
 signs of over-supply in international markets, but we do not see this
 as a long term issue. Your Company is also much better prepared to
 manage cyclically in markets due to its geographic coverage and product
 portfolio.
 
 Essar Steel is now a fully integrated producer with end-to-end control
 of all operations related to steel making. The acquisition of Hy-Grade
 Pellets Ltd. and Steel Corporation of Gujarat Ltd. make your Company a
 totally integrated steel producer. The Company has taken a number of
 initiatives in its manufacturing facilities to fulfil its mission of
 being one of the most cost efficient producers of steel globally. From
 Bailadilla - where the iron ore beneficiation plant is located, close
 to the iron mines - to the final stage where the end products are
 dispatched to domestic and international destinations, your Company has
 ensured that every stage of manufacture is seamlessly integrated. This
 will enable us to offer high quality, customized products for use by a
 wide range of industries such as automobile and auto components, white
 goods, construction and consumer durables.
 
 We focus on value addition at every stage of manufacture and also
 direct our efforts to high revenue generating markets. We do this by
 targeted marketing in specialized customer segments and technical and
 after market support. We expect these value added products to
 contribute over 35% of the Company's revenues in the coming year.
 
 Looking Ahead
 
 Currently we are producing at a capacity of 3 million tonnes and we
 have planned to augment this to 4.6 million tonnes by June 2006, making
 us the largest producer of flat steel in the private sector in India.
 This will involve an incremental investment of Rs. 2000 crore, which is
 much below industry average and will considerably reduce our cost of
 production. We also plan to increase the pellet making capacity at
 Visakhapatnam from 4 to 8 million tonnes in this fiscal year. The
 acquisitions, capacity expansions, technology upgradation and other
 productivity improvement measures will give your Company a significant
 competitive edge in domestic and international markets. Ourthrust on
 maintaining cost leadership through integrated manufacturing processes,
 research and new innovation and high productivity will provide a hedge
 against cyclically.
 
 Managing Financial Turnaround
 
 Your Company has been able to build a platform for consolidation and
 sustain the rejuvenation of its performance. In October 2002, at the
 time of the announcement of the CDR package, the Company * had a term
 debt of Rs.5371 crore, which has been reduced to Rs.4262 crore as at
 March 31, 2005, a reduction of over Rs.1100 crore. The significant
 financial turnaround by the Company in such a short period of time is
 indeed noteworthy. With all other parameters of financial performance
 showing considerable improvement, your Company is in a much stronger
 position to plan for more aggressive growth.
 
 Our Driving Force
 
 Essar Steel is today at a significant point in its history. The past
 has given us learnings that we have used to build a platform of
 security for the future. I must acknowledge the tremendous efforts put
 in by employees at all levels, who have so admirably risen to the
 challenges that change inevitably brings. Organizations must
 continuously change in order to survive and prosper. The Essar family
 has shown the capability and resilience to manage this change.  We look
 to the future with confidence that arises out of our actions and the
 achievements of our people, as we prepare to face the Brave New
 World.
 
 I also take this opportunity to thank our customers, vendors, business
 associates and bankers who have helped us come this far and look
 forward to their continued support in our journey to globalization.
 
 Thank you.
 
                                                 Shashi Ruia
                                                 Chairman