Ispat Industries

The Directors are pleased to present their Twenty-third Annual Report
 and Audited Accounts of the Company for the year ended 31st March,
 2008.
 
 FINANCIAL RESULTS
 
 The highlights of the financial results for the year are as under-
 
                                                        (Rs. in crores)
                                           Year ended        Year ended
                                     31st March, 2008  31st March, 2007
 
 1 Sales / Income from operations             9401.67           8378.44 
 
 Less: Excise Duty                            1117.53            891.87
 
                                              8284.14           7486.57
 
 2 Other Income                                426.86            115.63
 
 3 Total Income                               8711.00           7602.20
 
 4 Total Expenditure                          7108.01           5977.42
 
 5 Profit before Interest & Finance 
 Charges and Depreciation                     1602.99           1624.78
 
 6 Less: Interest & Finance Charges            849.25            997.58
 
 7 Profit before Depreciation                  753.74            627.20
 
 8 Less: Depreciation                          638.12            623.83
 
 9 Profit before Tax                           115.62              3.37
 
 10 Provision for Taxation (Net)
 
 - Current Tax                                  (0.04)            (0.03)
 
 - Fringe Benefit Tax                           (3.74)            (3.00)
 
 Deferred Tax (Charge) / Credit                (77.04)            (9.87)
 
 11 Net Profit/(Loss)                           34.80             (9.53) 
 
 Add: Debenture Redemption Reserve
 written back                                   25.35             12.10 
 
 Add:
 
 a) Balance brought forward 
 from previous year.                         (1106.15)         (1098.51)
 
 b) Adjustment towards additional 
 Employees benefit liability                      -              (10.21)
 
 12 Amount carried to next year              (1046.00)         (1106.15)
 
 
 Income from sales during the year under review was Rs.9401.67 crores
 representing an increase of 12% over the previous year. Profit before
 interest, finance charges and depreciation was Rs. 1602.99 crores.
 
 After providing for interest and finance charges of Rs.849.25 crores,
 profit before depreciation was Rs.753.74 crores compared to profit of
 Rs.627.20 crores for the previous year representing an increase of 20%.
 After providing for depreciation of Rs.638.12 crores, profit before tax
 for the year was Rs.115.62 crores compared to profit of Rs.3.37 crores
 during the previous year.  Considering provisions for wealth tax and
 fringe benefit tax aggregating to Rs.3.78 crores and deferred tax
 charge of Rs.77.04 crores,
 
 profit after tax for the year was Rs.34.80 crores compared to loss
 after tax of Rs.9.53 crores for the previous year. After considering
 Debenture Redemption Reserve written back Rs.25.35 crores and the
 accumulated losses of Rs. 1106.15 crores brought forward from the
 previous year, the losses as at 31st March, 2008 was Rs.1046.00 crores.
 The losses are proposed to be carried to next years accounts.
 
 DIVIDEND
 
 In view of the accumulated losses, the Board of Directors does not
 recommend any dividend on the Equity Shares. The Board of Directors
 does not also declare dividend on Cumulative Redeemable Preference
 Shares.
 
 OPERATIONS
 
 Crude steel output, world-wide, was over 1340 Million Metric Tons (MTs)
 during 2007, higher by around 8% over output during 2006. World crude
 steel production grew by more than 7% for the fifth consecutive year.
 Steel production in China was over 480 Million MTs, an increase of
 nearly 16% over the previous year. Indian steel production was around
 55 Million MTs during 2007, higher by 5% over the previous year. Global
 steel consumption continues to accelerate and had grown by over 7%
 during 2007, compared to the previous year. Steel prices continue to be
 driven by the robust growth in demand as well as the persistent
 increase in prices of all inputs.
 
 Production of Hot Rolled Coils at 2.74 Million MTs was higher by 2%
 over the previous year. Simultaneously, utilization of capacity of the
 Hot Rolled Coils plant had increased to 91 % during the year.
 Production of Hot Metal at 1.65 Million MTs had registered a growth of
 9% over the previous year. Utilization of capacity of the Blast Furnace
 was higher during the year at 82% due to improved plant availability.
 Production of Direct Reduced Iron (Sponge Iron) at 1.10 Million MTs
 was, however, lower by 4% compared to the previous year, largely due to
 non-availability of required quantities of Natural Gas. Production of
 Sinter was higher by 13% over the previous year, as a result of
 technical modifications carried out in the Sinter Plant.
 
 Production of Galvanized Coils/Sheets at 0.22 Million MTs and
 production of Cold Rolled Coils/ Sheets at 0.27 Million MTs were lower
 in comparison to previous year, in view of policy initiatives
 undertaken to facilitate higher sales of Hot Rolled Coils in domestic
 markets. Production of PVC Coated Sheets was higher during the year and
 capacity utilization was around 97%.
 
 Sales of Hot Rolled Coils during the year at 2.49 Million MTs was
 higher by 4% over the previous year. Export sales of Hot Rolled Coils
 at 0.30 Million MTs was, however, lower by 21%, due to increased thrust
 on sales in domestic markets. Average price realizations had improved
 during the last quarter of the financial year. The Company continues to
 develop various grades of value-added steel products with a view to
 cater to the sophisticated demand - segment, both in India and abroad.
 
 While productivity, operating efficiencies and plant- utilization had
 improved during the year, the high costs of all inputs and lower
 availability of Natural Gas had impacted the financial results for the
 year under review. Due to increase in prices of iron-bearing raw
 materials, metallurgical coke etc., the direct cost of production of
 Hot Metal and Hot Rolled Coils had increased by 20% and 19%,
 respectively, on an year-to-year basis. The Company continues to face
 severe pressures on input-cost front, due to spiraling prices of all
 inputs.
 
 Landed Property, which was under commercial development on a principal
 to principal basis, has been completed and sold during the year.
 
 EXPORTS
 
 Global steel demand continues to grow in all major economies,
 notwithstanding the spurt in prices of crude. Steel - demand pattern
 has been witnessing a significant shift to Chinese and other Asian and
 Middle East markets. Estimates of world demand - supply balance
 envisage an ex-China demand of over 800 Million MTs, growing at 4%.
 
 The Companys export earnings during the year was Rs.853 crores, lower
 by 41% compared to the previous year. The Company had strategically
 adjusted its sales portfolios to cater to the increased demand in
 domestic markets.
 
 The Company shall continue to strengthen its presence in all mature
 markets for its value - added products. Marketing strategies shall be
 re-aligned to meet the high - end speciality steel requirements of the
 overseas markets.
 
 NEW PROJECTS AND CAPACITY OPTIMIZATION
 
 While steel demand, worldwide, has been on a growth path, cost of steel
 - making has been spiraling to new heights due to high input costs. Raw
 material prices have spiked to hitherto unreached levels, exerting
 significant pressures on margins.
 
 The Companys larger exposure to spot markets for inputs leads to
 volatility in sources as well as costs. In the prevailing scenario, it
 is imperative that raw material security is ensured to avoid the
 rigours of market - driven input costs and also enhance productivity of
 all manufacturing facilities.
 
 With the ultimate aim of ensuring security of basic inputs, cost
 reduction and optimization of capacity, the Company proposes to
 accelerate implementation of the following capital projects :-
 
 - Pellet plant of the capacity of 4.5 Million MTs annually (initial
 capacity of 2 Million MTs annually).
 
 - Coke oven plant of the capacity of 1 Million MTs annually, in a
 proposed joint-venture.
 
 - Second Blast Furnace of the capacity of 1.2 Million MTs annually.
 
 - Optimize capacity of existing Hot Rolled Coils plant by 0.6 Million
 MTs annually.
 
 All the aforesaid projects are likely to be implemented, in phases,
 during the calendar years 2009 and 2010.
 
 Financing of the projects shall be through a combination of proceeds of
 Equity Warrants issued to Promoters of the Company, on preferential
 basis, internal accruals and borrowings, as may be considered
 appropriate. The issue of Foreign Currency Notes, earlier envisaged,
 could not be made due to changes in the Guidelines for External
 Commercial Borrowings.
 
 Additionally, to ensure improved logistics, the Company plans to
 upgrade its Jetty at Dharamtar Port. The project is likely to be
 commissioned during the current fiscal.
 
 The Company had entered into separate Memorandum of Understanding with
 the State Governments of Jharkhand and Chattisgarh for setting-up an
 integrated steel plant (capacity 2.8 Million MTs annually) and a Power
 Plant (capacity 1200 MW) respectively.  Special Purpose Vehicle (SPV)
 Companies have since been incorporated for execution of the Projects.
 Financial structuring of the projects has been undertaken.
 Simultaneously, the Company proposes to set-up a Multi-product Special
 Economic Zone (SEZ) in the State of Maharashtra, through a SPV Company.
 Initial activities have since commenced.
 
 Considering the urgent need for achieving self-sufficiency in
 availability of two basic inputs, namely. Iron Ore and Coking Coal/
 Coal, the Company is focusing on attaining ownership of these natural
 resources. Sources of Iron Ore and Coking Coal/Coal have been
 identified, both within India and certain other countries, namely,
 Brazil, Columbia and Mozambique. The overseas mining activities are
 proposed to be undertaken, in joint - venture, through separate
 Subsidiary Companies formed for the purpose.
 
 CAPTIVE POWER PLANT OF ISPAT ENERGY LIMITED
 
 The cost of the power plant project (combined capacity of 110 MW) being
 implemented by Ispat Energy Limited, a Subsidiary Company, has
 increased from Rs.348 crores to Rs.387 crores. Ispat Energy Limited has
 initiated suitable steps for infusion of additional equity to meet the
 increase in project cost. The project is expected to be commissioned
 during 2009.
 
 Ispat Energy Limited has entered into a Memorandum of Understanding
 with the Government of Jharkhand for setting up a power plant project
 of the capacity of 1980 MW in the State of Jharkhand.
 
 ISSUE OF EQUITY SHARE WARRANTS
 
 With a view to meet part of its fund requirements for various
 identified purposes, consent of shareholders was obtained during the
 year for issue of Equity Warrants to eligible Promoters of the Company,
 on preferential basis. Upon receiving approval of shareholders and
 other concerned authorities, the Board of Directors have allotted, on
 18th April, 2008, 11,32,44,580 Equity Warrants to the eligible
 Promoters, on preferential basis. Each equity warrant can be converted
 into one equity share of Rs.10/- each of the Company within a period of
 eighteen months from the date of allotment, at the option of the
 warrant holder. In accordance with applicable guidelines of Securities
 and Exchange Board of India, the price of each equity share, arising
 upon conversion of the equity warrant, has been determined at Rs.44.69.
 
 REDEMPTION OF 12% CUMULATIVE REDEEMABLE PREFRENCE SHARES (CRPS)
 
 In accordance with the terms governing issue of 12% CRPS, the Company
 has redeemed 5% of the face value (Rs. 100/- each) of the 12% CRPS.
 Upon redemption, the adjusted face value of the 12% CRPS is Rs.95/-
 each.
 
 DIRECTORS
 
 Mr V K Mittal has been re-appointed as Managing Director of the Company
 for a period of five years with effect from 28th June, 2007. Mr V K
 Mittal has been re-designated as Vice Chairman & Managing Director with
 effect from 18th April, 2008.
 
 Mr Vinod Garg has been re-designated as Executive Director (Commercial)
 with effect from 18th April, 2008. Mr Vinod Garg has been re-appointed
 as Whole-time Director designated as Executive Director (Commercial)
 for a period of five years with effect from 21st April, 2008, subject
 to the approvals of the Members and other authority (ies), as may be
 required.
 
 Resolution seeking approval of the Members for the re-appointment of Mr
 Vinod Garg as Executive Director (Commercial) is being proposed at the
 ensuing Annual General Meeting. The Board of Directors recommends
 adoption of the resolution. A brief profile of Mr Vinod Garg, including
 areas of his expertise and other details, are attached to the Notice
 convening the ensuing Annual General Meeting.
 
 Mr B K Singh has been appointed as an Additional Director of the
 Company with effect from 1st May, 2008. Mr B K Singh holds office upto
 the date of the ensuing Annual General Meeting. Notice has been
 received from a Member, under Section 257 of the Companies Act, 1956,
 proposing the name of Mr B K Singh for appointment as Director.
 
 Mr B K Singh has also been appointed as Whole-time Director designated
 as Executive Director (Steel Plant) for a period of five years with
 effect from 1st May, 2008, subject to approval of the Members and other
 authority(ies), as may be required.
 
 Resolutions seeking approval of the Members for the appointment of Mr B
 K Singh as Director and also as Whole-time Director, designated as
 Executive Director (Steel Plant), are being proposed at the ensuing
 Annual General Meeting. The Board of Directors recommends adoption of
 the resolutions. A brief profile of Mr B K Singh, including areas of
 his expertise and other details, are attached to the Notice convening
 the ensuing Annual General Meeting.
 
 Mr Satya Pal Talwar has been appointed as an Additional Director with
 effect from 30th June, 2008. Mr Satya Pal Talwar holds office upto the
 date of the ensuing Annual General Meeting. Notice has been received
 from a Member, under Section 257 of the Companies Act, 1956, proposing
 the name of Mr Satya Pal Talwar for appointment as Director.
 
 Dr Basudeb Sen has been appointed as an Additional Director with effect
 from 30th June, 2008. Dr Basudeb Sen holds office upto the date of the
 ensuing Annual General Meeting. Notice has been received from a Member,
 under Section 257 of the Companies Act, 1956, proposing the name of Dr
 Basudeb Sen for appointment as Director.
 
 Resolutions seeking approval of the Members for the appointment of Mr
 Satya Pal Talwar and Dr Basudeb Sen, as Directors of the Company, are
 being proposed at the ensuing Annual General Meeting. The Board of
 Directors recommends adoption of the resolutions.  Brief profiles of Mr
 Satya Pal Talwar and Dr Basudeb Sen, including areas of their expertise
 and other details, are attached to the Notice convening the ensuing
 Annual General Meeting.
 
 Mr Anil Sureka and Mr Manu Chadha retire by rotation at the ensuing
 Annual General Meeting and, being eligible, offer themselves for
 re-appointment. Brief profiles of the retiring Directors, including
 areas of their expertise and other details, are attached to the Notice
 convening the ensuing Annual General Meeting.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 Pursuant to Section 217(2AA) of the Companies Act, 1956, with respect
 to the Directors Responsibility Statement, it is hereby confirmed
 that: -
 
 (i) in the preparation of the annual accounts for the financial year
 ended 31st March, 2008, the applicable accounting standards have been
 followed and there have been no material departures;
 
 (ii) the Directors have selected such 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 financial year and of the profit of
 the Company for that period;
 
 (iii) the Directors have taken proper and sufficient 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; and
 
 (iv) the Directors have prepared the annual accounts for the financial
 year ended 31st March, 2008 on a going concern basis.
 
 The above statement has been taken note of by the Audit Committee at
 its meeting held on 30th June, 2008.
 
 SUBSIDIARY COMPANIES
 
 During the year under review, the Company had acquired shares of Erebus
 Limited, a Company incoiporated in Mauritius, resulting in Erebus
 Limited becoming a Wholly-owned Subsidiary of the Company. Erebus
 Limited, the Wholly-owned subsidiary, shall be implementing, in
 joint-venture, the proposed iron - ore mining project in Brazil. As at
 the date of Balance Sheet, the Company had acquired shares of Erebus
 Limited, aggregating, in value, to USD 10,00,100 (Rupees equivalent
 Rs.4.05 crores).
 
 The Directors Reports of Nippon Ispat Singapore (Pte) Ltd. and Erebus
 Limited, wholly- owned subsidiaries and Ispat Energy Limited, a
 subsidiary of your Company and their audited Statement of Accounts
 together with respective Auditors Reports thereon for the year ended
 31st March, 2008 form part of this Report. Statement pursuant to
 Section 212 of the Companies Act, 1956 relating to Subsidiary
 Companies, as at 31st March, 2008, is also annexed to this Report.
 
 CONSOLIDATED FINANCIAL STATEMENTS
 
 The Consolidated Financial Statements of the Company and its
 subsidiaries, prepared and presented in accordance with Accounting
 Standard (AS) 21, are attached to and form part of the Annual Report.
 
 AUDITORS
 
 The Auditors, M/s S R Batliboi & Co., Chartered Accountants, retire at
 the ensuing Annual General Meeting and have expressed their willingness
 to be re-appointed.
 
 The Company has obtained a letter from the Auditors to the effect that
 re-appointment, if made, will be in conformity with the limits
 specified in Section 224 (1B) of the Companies Act, 1956.
 
 AUDITORS REPORT
 
 The Auditors in their report have, while referring to Note No. 9 of
 Schedule 22 of the Accounts for the year ended 31st March, 2008,
 commented on their inability to express any opinion on the future
 profitability projections made by the Company and their consequential
 impact, if any, on Deferred Tax Asset recognized in the said Accounts.
 
 The Auditors, in their statement under Companies (Auditors Report)
 Order 2003 annexed to the aforesaid Report, have drawn attention to the
 following :-
 
 a.  Delays in few cases in depositing undisputed statutory dues;
 
 b.  Accumulated losses as at end of the financial year, without
 considering the impact of Deferred Tax Asset indicated in Note No.  9
 of Schedule 22, exceeding fifty percent of the Companys net worth;
 
 c.  Certain delays in repayment of dues to domestic financial
 institutions, banks and debentureholders during the year and the
 arrears of such dues as on the Balance Sheet date, and
 
 d.  Use by the Company of funds raised on short-term basis for
 repayment of long - term loans.
 
 In the opinion of Board of Directors, based on future profitability
 projections and the turnaround in the operational performance during
 the financial year 2007-08, which trend is likely to continue, and
 further evidenced by the Deferred Tax Charge (reversal) in the accounts
 for the year, the Company is virtually certain that there would be
 sufficient taxable income in the future, to claim the tax credit.
 
 Further, the Board of Directors inform that :-
 
 a.  Delays in few cases in depositing undisputed statutory dues have
 been due to mis-matches in cash flows, which were subsequently
 rectified.
 
 b.  In the opinion of the Board, based on future profitability
 projections and the significant turnaround in the operational
 performance during the financial year 2007-08, which trend is likely to
 continue, and further evidenced by the Deferred Tax Charge (reversal)
 in the accounts for the year, the Company is virtually certain that
 there would be sufficient taxable income in the future, to claim the
 tax credit.
 
 c.  Delays were mainly due to mis-matches in cash-flows, which were
 subsequently rectified.
 
 d.  Repayment of long-term loans have largely been made out of earnings
 (accruals) before depreciation. However, certain long- term loans have
 been repaid out of the funds raised on short - term basis, due to
 mis-matches in cash flows.
 
 CORPORATE GOVERNANCE
 
 Pursuant to Clause 49 of the Listing Agreement with the Stock
 Exchanges, the Management Discussion and Analysis and Corporate
 Governance Report together with the Certificate from the Auditors of
 the Company confirming compliance of the conditions of Corporate
 Governance form part of this Report.
 
 SECRETARIAL COMPLIANCE REPORT
 
 The Company had voluntarily appointed M/s Robert Pavrey & Associates,
 Practising Company Secretaries, to review Secretarial Compliance for
 the financial year ended 31st March, 2008. The Secretarial Compliance
 Certificate addressed to the Board of Directors of the Company is
 attached to the Annual Report. The Secretarial Compliance Certificate
 confirms that the Company has complied with the applicable provisions
 of the Companies Act, 1956, Depositories Act, 1996, Listing Agreement
 with Stock Exchanges and all the Regulations of SEBI as applicable to
 the Company including SEBI (Substantial Acquisition of Shares and
 Takeovers) Regulations, 1997 and the SEBi (Prohibition of Insider
 Trading) Regulations, 1992.
 
 Though not mandatory, the Secretarial Compliance Certificate is also
 obtained, on a quarterly basis, from the aforementioned Practising
 Company Secretaries, and reviewed by the Board.
 
 CODE OF CONDUCT
 
 The Board has laid down a Code of Conduct for all Board Members and
 Senior Management of the Company. The Code of Conduct has been posted
 on the Companys website.
 
 Board Members and Senior Management personnel have affirmed compliance
 with the Code for the financial year 2007-08. A separate declaration to
 this effect is annexed to the Corporate Governance Report.
 
 CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE
 EARNINGS AND OUTGO
 
 In accordance with the requirements of Section 217(l)(e) of the
 Companies Act, 1956 read with Companies (Disclosure of Particulars in
 the Report of Board of Directors) Rules, 1988, particulars with respect
 to Conservation of Energy, Technology Absorption and Foreign Exchange
 Earnings and Outgo are annexed hereto and form part of this Report.
 
 PERSONNEL
 
 The Company has introduced a robust Balance Score Card (BSC) and
 Performance Management System (PMS) to evaluate the performance of its
 employees. The Balance Score Card (BSC) and Performance Management
 System (PMS) programmes are linked to the organizational goals to
 ensure a focused approach and facilitate effective performance -
 monitoring. Talent - development and retention strategies are
 constantly adjusted to meet employee aspirations.  Employee
 Productivity is sought to be continuously enhanced through effective
 utilization of MySAP modules. The Companys EVA - linked Performance
 Management System facilitates a Company-wide goal-oriented approach
 towards employee compensation.
 
 The Board wishes to place on record its appreciation for the efforts of
 all employees.
 
 Information in terms of Section 217(2A) of the Companies Act, 1956 read
 with the Companies (Particulars of Employees) Rules, 1975 forms part of
 this Report. However, as per the provisions of Section 219 (l)(b) (iv)
 of the Companies Act, 1956, the Annual Report is being sent to all the
 Shareholders of the Company excluding the statement of particulars of
 employees. The statement of particulars of employees referred to
 hereinabove shall be made available for inspection at the Registered
 Office of the Company during working hours for a period of 21 days
 before the date of the Annual General Meeting. Any shareholder
 interested in obtaining a copy of the said statement may write to the
 Company Secretary at the Registered Office of the Company.
 
 EMPLOYEES STOCK OPTION SCHEME
 
 With a view to inculcate a sense of ownership among the employees and
 also attract fresh talent, the Company is proposing introduction of an
 Employee Stock Option Scheme (ESOS) during the year. The Scheme shall
 be in accordance with the Securities and Exchange Board of India
 (Employee Stock Option Scheme and Employee Stock Purchase Scheme)
 Guidelines, 1999 and would be subject to approval of members of the
 Company. The enabling resolution is being proposed at the ensuing
 Annual General Meeting of the members of the Company.
 
 APPRECIATION
 
 Your Directors record their appreciation for the support extended to
 the Company by its lenders, the Central and State Governments as well
 as its business partners. Your Directors also thank the members for
 their continued support.
 
                                   For and on behalf of the Board
 
                           ANIL SUREKA                 V K MITTAL
           Executive Director (Finance)           Vice Chairman &
                                                Managing Director
 
 Mumbai,
 the 30th day of June, 2008.