Essar Steel

The Directors have pleasure in presenting the 32nd Annual Report of
 your Company together with the Audited Statement of Accounts for the
 year ended 31st March, 2008.
 
 FINANCIALS
                                                       (Rs. in Crores)
 Particulars                                      Year ended
                                      March 31, 2008   March 31, 2007
 
 Sales and other Income                    11,926.87         9,019.68
 
 Profit before Finance Cost
 (net), Depreciation, Charges
 pertaining to earlier years,
 Exceptional Item and Taxation              2,324.30         1,955.25
 
 Less: Finance Cost (Net)                     726.40           617.94
 
 Profit before Depreciation,
 Charges pertaining to earlier
 years, Exceptional Item and
 Taxation                                   1,597.90         1,337.31
 
 Less: Depreciation                           766.52           631.04
 
 Proft before charges pertaining
 to earlier years, Exceptional
 Item and Taxation                            831.38           706.27
 
 Less: Charges pertaining to
 earlier years and exceptional
 items                                             -            22.81
 
 Proft before Taxation                        831.38           683.46
 
 Less: Provision for Deferred tax             267.97           187.52
 
 Less: Current Tax                            108.88            55.01
 
 Less: Short / (excess) tax                    19.83            (1.22)
 
 provisions related to earlier
 years (Net)
 
 Less: Provision for Fringe
 
 Beneft Tax                                     6.08             5.66
 
 Proft after taxation                         428.62           436.49
 
 (Less)/Add: Balance brought
 
 forward from previous year                 1,444.29         1,008.30
 
 Add: Net Gain on adoption of
 AS-15 (Revised)                                1.87                -
 
 Add: Transfer from Debenture
 
 Redemption Reserve                            15.50             7.25
 
 Less: Transfer to Debenture
 
 Redemption Reserve                                -             7.75
 
 Less: Transfer to Capital
 
 Redemption Reserve                           202.92                -
 
 Less: Preference Dividend
 
 (Including DDT)                               13.46                -
 
 Balance carried forward to
 next year                                   1673.90          1444.29
 
 
 DIVIDEND
 
 During the year under review the Company paid Dividend (cumulated for
 three years) on 0.01% Cumulative Redeemable Preference Shares of
 Rs.10/- each alongwith redemption proceeds in terms of authority
 obtained from those shareholders vide postal ballot process held in
 December, 2007. The Company also paid dividend (cumulated for two and
 half years) on 10% Cumulative Redeemable Preference Shares of Rs.10/-
 each. In view of the need to conserve resources, the Board does not
 recommend any equity dividend for the year.
 
 Manufacturing:
 
 Company has made efforts to increase its operational effciency and
 quality of products at Essar Steel, Hazira during FY 2007-08
 
 The major steps taken in this regard were:
 
 - Physical and chemistry improvement in the quality of pellets at the
 pelletisation plant.
 
 - All the HBI modules were run effciently and the process was stable.
 
 - Increase in usage of Hot DRI by 20% and saving power in Steel Melt
 Shop.
 
 - Utilisation Index of HSM increased by 0.7%, from 83.7 in 2006-07 to
 84.4 in 2007-08.
 
 - Quality improvement programme with Kobe Steel Japan was implemented
 to supply to Auto majors and the white goods sector.
 
 The major benefts derived from the above steps are:
 
 - HBI production has been increased by 16% over what was achieved in
 the last fnancial year.
 
 - Natural gas consumption in the HBI process was reduced by 5 sm3/tonne
 compared to what was consumed in the last fnancial year.
 
 - Steel production was increased by 19% over what was achieved in the
 last fnancial year.
 
 - Power consumption was reduced by 23 kwh/tonne compared to what was
 consumed in the last fnancial year.
 
 - Hot Strip Mill production was increased by 15 percent over what was
 achieved in the last fnancial year.
 
 Sales and Marketing
 
 - Sales of fat rolled products were up 20% y-o-y to 3.36 million tonnes
 
 - Revenues were up 32% to Rs. 11,911 crore and net sales realisation
 per tonne was up 5% y-o-y
 
 - 34% of sales were made in value added segments -- up from 27% in
 2006-07.
 
 - Domestic sales at 2.57 million tones grew 41% y-o-y. Domestic market
 share was 12.4% in 2007-08 -- up from 10.5% in 2006-07.
 
 - Essar moved into 2nd position in fats production in India from a
 single-unit-single-location.
 
 - Export volumes, at 0.92 million tonnes, dropped 9%, a deliberate
 strategy to reduce exposure to the rising rupee. Despite a 9% rupee
 appreciation during the year, the realisation in fat rolled exports
 increased by 2%. This was achieved by rationalisation of geographies
 and a better product mix.
 
 - PLATES, which is India’s fastest growing product segment in the fat
 products basket in India because of the infrastructure and construction
 boom, registered a record 1 million tonnes of sales, a growth of more
 than 50% over the previous year. This was achieved through augmenting
 the Hazira service centre with third-party processors.
 
 - The Steel Hypermart business took off in 2007-08 and at 0.53 million
 tonnes registered a 243% growth in volumes. Revenues of Steel Hypermart
 has crossed more than Rs.1,900 crore.  Consolidation of business
 processes through JDA (a retail ERP software), real time pricing
 mechanisms and rationalisation of Steel Hypermart locations through
 express marts together contributed to delivering higher volumes and
 realisations with a leaner setup.
 
 - Better planning and inventory management led to a 38% reduction in
 year-end closing stocks.
 
 Finance:
 
 Your Company concluded its steel making capacity enhancement programme
 of 4.6 million tonnes per annum in the previous fnancial year. In the
 current fnancial year, it has focussed on de-leveraging the balance
 sheet. This has resulted in an improvement in your Company’s credit
 profle which is evidenced in the ratings published by ICRA Ltd.  (an
 associate of Moody’s Investors Service).
 
 ICRA Limited has assigned an
 
 - ‘LA’ rating to the fund based bank facilities and to the Rs. 6,000
 crore Long Term Debt programme of the Company, recognising the
 improvement in the credit quality of the Company’s Long Term Debt.
 
 ICRA has also assigned an
 
 - ‘A1’ rating to the non fund based bank facilities of the Company,
 indicating highest credit quality in the short term.
 
 The above ratings refect your Company’s established position in the
 value-added segments in the steel industry, a diversifed export base,
 integrated nature of operations, healthy operating proftability and
 improving capital structure.
 
 During the year, your Company has made efforts to signifcantly reduce
 the total debt burden with a reduction in the term debt position by
 over Rs. 1,000 crore. Further, with an increase in the Net Worth of
 over Rs. 300 crore, the Company has seen a signifcant improvement in
 the gearing ratio for FY 08 over the previous fnancial year. The net
 cash accrual to term debt ratio has also improved from 18% to 25%. Your
 company has therefore been prudently managing its fnancials, thus
 helping it to grow from strength to strength.
 
 In light of the growth in business and plans for setting up Steel
 Hypermarts (75 Hypermarts/Express Marts commissioned till date with a
 plan to increase the same to 100 Hypermarts/ Express Marts in the near
 term) and steel service centres in various regions, the Company is in
 the process of enhancing its working capital limits from Rs. 2,600
 crore to Rs. 3,150 crore.
 
 SUBSIDIARIES
 
 As on March 31, 2008 the Company had following subsidiaries:
 
 - Essar Steel Jharkhand Ltd.
 
 - Essar Steel Orissa Ltd.
 
 - Essar Steel Trading FZE, Dubai
 
 A statement pursuant to section 212 of the Companies Act, 1956, and
 also a copy of each of the audited accounts and other documents
 referred under section 212 of the Companies Act, 1956, of the
 abovementioned companies is attached to this report.
 
 HOLDING COMPANY
 
 Essar Steel Holdings Ltd (which in turn is a subsidiary of Essar Global
 Ltd) continues to be the Holding Company of our Company. The ultimate
 holding company viz. Essar Global Ltd, along with its other
 subsidiaries, as of date holds 93.05% equity shares in the total paid
 up equity capital of the Company.
 
 DELISTING OF EQUITY SHARES
 
 In accordance with the permission obtained from shareholders vide
 postal ballot held in March, 2007 and in compliance with the SEBI
 (Delisting of Securities) Guidelines, 2003 (“the Guidelines), the
 Company’s Equity Shares have been delisted from the Bombay Stock
 Exchange Ltd. and National Stock Exchange of India Ltd. with effect
 from December 24, 2007. Further in accordance with the Guidelines,
 Essar Steel Holdings Ltd. (Acquirer and one of the Promoter Group
 Company), provided an Exit Option to the remaining equity shareholders
 of the Company at the discovered price of Rs. 48 per share. This Exit
 Option was open for a period of six months and closed on 30th June,
 2008.
 
 DIRECTORS
 
 Shri R N Ruia, Shri S V Venkatesan and Shri J Mehra retire by rotation
 at the ensuing Annual General Meeting and, being eligible, offer
 themselves for reappointment. Shri G D Goswami, Nominee Director
 appointed by ICICI Bank Ltd. ceased to be Director of the Company w.e.f
 June 20, 2008. Shri Sanjeev Shriya ceased to be Director of the Company
 w.e.f July 7, 2008. The Board wish to place on record their sincere
 appreciation for the contribution made by Shri G D Goswami and Shri
 Sanjeev Shriya during their tenure as Directors of the Company.
 
 The tenure of Shri Vikram Amin as wholetime director ended on 31st
 October, 2007. The Board has appointed Shri Vikram Amin as wholetime
 director for a further period of three years w.e.f November 01, 2007.
 Shri Dilip Oommen has been appointed as an Additional Director on
 wholetime basis for a period of three years on the Board w.e.f. July
 07, 2008 and would hold offce as a Director up to the date of this
 Annual General Meeting. Necessary resolutions for their appointment as
 wholetime directors of the company forms part of the notice of the
 annual general meeting.
 
 DIRECTORS’ RESPONSIBILITY STATEMENT
 
 Pursuant to the requirements under Section 217(2AA) of the Companies
 Act, 1956, the Board of Directors of the Company hereby state and
 confrm that
 
 i. In the preparation of the Annual Accounts, applicable accounting
 standards have been followed along with proper explanation relating to
 material departures.
 
 ii. Directors have selected accounting policies and applied them
 consistently and made judgements and estimates that are reasonable and
 prudent so as to give a true and fair view of the state of affairs of
 the Company at the end of the fnancial year and of the proft or loss of
 the Company for the year under review.
 
 iii. Directors have taken proper and suffcient care for the maintenance
 of adequate accounting records in accordance with the provisions of the
 Companies Act, 1956, for safeguarding the assets of the Company and for
 preventing and detecting fraud and other irregularities.
 
 iv. Directors have arranged preparation of the accounts for the year
 ended March 31, 2008, on a “going concern” basis.
 
 AUDIT COMMITTEE
 
 The Audit Committee of the Board comprises of three non-executive
 directors, viz. Shri S.V. Venkatesan, Shri J. Mehra and Shri K.V.
 
 Krishnamurthy. The Audit Committee is Chaired by Shri S.V.  Venkatesan.
 The terms of reference of the Audit Committee are as per Section 292A
 of the Companies Act, 1956.
 
 AUDITORS
 
 M/s S R Batliboi & Co., Chartered Accountants, will retire at the
 conclusion of the ensuing Annual General Meeting. M/s S R Batliboi &
 Co., Chartered Accountants have informed the Company that if appointed,
 their appointment will be within the prescribed limits under Section
 224(1B) of the Companies Act, 1956. Accordingly, members’ approval is
 being sought for their re-appointment as the Auditors of the Company at
 the ensuing Annual General Meeting.
 
 ENERGY, TECHNOLOGY & FOREIGN EXCHANGE
 
 Details of energy conservation and research and development activities
 undertaken by the Company along with the information in accordance with
 the provisions of Section 217(1) (e) of the Companies Act, 1956, read
 with the Companies (Disclosure of Particulars in the Report of the
 Board of Directors) Rules, 1988, is provided in Annexure ‘A’, forming
 part of this Report.
 
 PERSONNEL
 
 As per the provisions of Section 217(2A) of the Companies Act, 1956,
 read with Companies (Particulars of Employees) Rules, 1975, as amended
 the names and other particulars of the employees is seperately
 attached, as Annexure ‘B’, forming part of this Report.
 
 ACKNOWLEDGEMENT
 
 Your directors would like to express their grateful appreciation for
 the assistance and cooperation received from the Financial
 Institutions, Banks, Government Authorities and Shareholders during the
 year under review. Your Directors wish to place on record their deep
 sense of appreciation to all the employees for their commendable
 teamwork, exemplary professionalism and enthusiastic contribution made
 during the year.
 
                                      For and on behalf of the Board
 
                                                         Shashi Ruia
 Date: August 27, 2008                                      Chairman