Kirloskar Ferrous Industries

The Directors have pleasure in presenting 17th Annual Report together
 with the Audited Annual Accounts for the year ended 31st March, 2008.
 
 FINANCIAL PERFORMANCE:
 
 The financial results of the Company for the financial year 2007 - 2008
 as compared with the previous year are as follows -
 
                                                      (Amount in Rupees)
                                           2007 - 2008      2006 - 2007
 
 Sales and other Income                   7,448,032,539    5,315,689,166
 Profit before tax                          658,127,620      665,595,413
 Provision for tax 
 (including Deferred Tax)                   167,808,071      220,967,959
 Profit after tax                           490,319,549      444,627,454
 Balance of Profit 
 (Loss) brought forward from previous year   17,035,363     (379,117,455)
 Profit available for appropriation         507,354,912       65,509,999
 
 
 APPROPRIATIONS:
 
 Your Directors propose to appropriate the Profit as under - Interim
 Dividend @ 15% on 137,005,165 Equity Shares of Rs. 5/- each 102,753,874
 Dividend on Preference Shares -
 
 i.  12% Redeemable Cumulative Non - convertible Preference Shares -
 35,864,091
 
 ii.  1% Redeemable Cumulative Non - convertible Preference Shares -
 6,648,197 Tax on Dividend 17,463,021 5,962,348 Transfer to General
 Reserve 50,000,000 Balance carried to Balance Sheet 337,138,017
 17,035,363
 
 DIVIDEND:
 
 Your Directors at their meeting held on 20th February, 2008 declared an
 Interim Dividend of 15 percent (75 paise per Equity share) on the
 Equity share capital of the Company. The date of payment of Interim
 Dividend was 18th March, 2008. The interim dividend paid is being
 placed for the confirmation of the shareholders at the ensuing Annual
 General Meeting. No additional dividend is being proposed and Interim
 Dividend declared shall be the final dividend.
 
 MANAGEMENT DISCUSSION AND ANALYSIS
 
 A.  Economy and Industry Overview:
 
 The growth in the World economy for the year 2007 - 2008 slipped down
 to 4.95 percent from a level of 5.1 percent for the previous year. The
 oil and metal prices have peaked to new heights.
 
 During the same period, the Indian Economy recorded a growth of 8
 percent as compared to 9.4 percent in the earlier year.  In the Auto
 sector, the passenger vehicles registered an increase of 14.45 % and
 the commercial vehicles an increase of 4.9% in the year 2007 - 2008.
 
 The growth in the Tractor industry remained flat for the year.  The
 demand for the castings was stable throughout the year.  On the Iron
 and Steel front, the crude steel production in India reached a level of
 53.1 million ton for the year against 49.5 million ton for the previous
 year, thus registering a growth of 7.3 %. India is now the Fifth
 largest producer in the world. The production of Steel in India is
 expected to reach 209 million ton by the year 2013.
 
 The global demand for Metallurgical coal and coke has been increasing,
 consequent to which the prices are rising. The met coke prices
 increased to a level of USD 520 per ton by the end of the year 2007 -
 2008 against a price of USD 215 per ton in the beginning of the year.
 
 The demand for the pig iron in the domestic as well as in the
 international market was good, and the Company could sell the entire
 pig iron produced during the period.
 
 The long term outlook of Indian economy looks good as India is set to
 become the third largest economy after China & USA by the year 2020.
 However, the inflation level hovering around 8% has become a matter of
 serious concern.
 
 The entire economic scenario has made the business more challenging in
 terms of precise planning, timely execution and driving down the
 manufacturing cost.
 
 There has been a rise in the interest rates on borrowings during the
 year under review. This has set another challenge of managing the
 working capital properly by maximising the productivity of various
 resources.
 
 With the continued growth in various sectors of the economy, the Indian
 Industry is experiencing the crunch of talented and skilled manpower,
 thereby facing the vagaries of high attrition rate.
 
 B.  Company Performance:
 
 During the year under review, your Company achieved Net Sales of Rs.
 7,264 Million (previous year Rs. 5,251 million). The sales value
 increased as compared to previous year due to the increase in sales of
 pig iron and castings.
 
 The profit before tax for the year under review stood at Rs. 658.13
 Million as compared to Rs. 665.60 Million of the previous year after
 providing for depreciation and amortization. Despite higher sales, the
 profit was flat due to abnormal increase in the raw material cost in
 the last quarter of the year.
 
 Installation of Hot Blast Stoves for one Mini Blast Furnace was one of
 the objects of the Rights Issue as mentioned in the Letter of Offer
 dated 2nd January, 2007. During the year under review, the installation
 of Hot Blast Stoves was completed and they have become operative. This
 has resulted in the reduced coke consumption and increased
 productivity.
 
 Further on the castings front, the revamping of the moulding machine
 and installation of new casting handling system coupled with
 productivity increase, resulted in increased production and decline in
 rejection, which contributed to improve the profitability of the
 Company.
 
 Having experienced steep increases in the prices of imported coke, and
 towards countering this, as a strategy, your Company started partly
 sourcing the coke from the domestic market.  Your Company has concluded
 the wage negotiations with the workmen at both the units i.e., Hospet
 and Solapur. The wage settlement is linked to the productivity and as
 such the increased wage bill is being absorbed by the increase in
 production.
 
 During the year under review, your Company has been able to reduce the
 quantum of loans, and declared a maiden Interim Dividend of 15% to the
 equity shareholders.
 
 It has been an endeavour of your Company to acquire iron ore mines for
 its captive consumption. The Government of Karnataka has recommended to
 the Central Government for allotment of iron ore mines to your Company.
 This has however been challenged by other applicants in the Hble High
 Court of Karnataka and also in Mines Tribunal, New Delhi. As such the
 matter is subjudice as on date.
 
 C.  Operational Performance:
 
 The coke prices which were at a level of USD 215/MT at the beginning of
 the year increased steadily to reach a level of USD 520/MT towards the
 close of the year. The prices of iron ore continued to increase
 throughout the year. The prices increased from the level of Rs. 1,950
 PMT in the beginning of the year to Rs. 3,600 PMT by the end of the
 year. This is on account of the increased demand from China as well as
 from the domestic industry.
 
 Increased diesel cost had its impact on the logistic cost of raw
 materials.  Your Company sold 212,792 MT of pig iron valued at Rs.
 3,684 Million as compared to 206,365 MT valued at of Rs. 3,017 Million
 in the previous year.  With the increased demand for castings from both
 the auto and the tractor industry, your Company was able to sell 49,964
 MT castings aggregating to Rs. 2,578 Million as compared to 35,599 MT
 castings aggregating to Rs. 1,657 Million in the previous year.
 
 D.  Cost Control:
 
 Your Company adopted following measures to reduce the cost -
 
 a) Installation of stoves for one of the mini blast furnace;
 
 b) Improved processes resulting in reduction in rejection; and
 
 c) Initiation of energy conservation projects
 
 E.  Concerns and Threats:
 
 Continuous increase in coke and iron ore prices will result in increase
 in input costs and thereby putting pressure on profitability margins.
 
 Coke is a vital material required for the manufacture of pig iron. Any
 rise in the price or change in duty structure or change in the policy
 of the Chinese Government may adversely affect the availability / cost
 of the coke.
 
 Any slow down in the economy growth will have an adverse impact.
 
 Attrition of the experienced managers is an area of concern. The
 Company is making all efforts to retain the talent through proper
 rewarding and career planning systems.
 
 F.  Prospects for the Current Year:
 
 The Steel Industry, the multi utility vehicle, and the tractor segments
 have direct impact on the business of the Company. Despite the slowdown
 in the general economy, the above sectors are expected to perform well.
 This will help in having a sustained demand both for pig iron and
 castings.  The installation of a new high pressure moulding line with
 other utility equipments at Solapur is in progress and is expected to
 be commissioned in the current year.
 
 In order to become cost competitive, the Company has identified the
 following projects for cost saving-
 
 a) Installation of stoves in second Mini Blast Furnace to reduce coke
 consumption and increase productivity;
 
 b) Installation of sinter plant to utilise the iron ore fines to
 convert the same into sinters to be used in the manufacture of pig iron
 which will result in reduction in operating cost and increase in
 productivity;
 
 c) Installation of turbo blower to utilise the excess blast furnace gas
 generated in the mini blast furnace to reduce power cost;
 
 d) A manipulator for evacuation of hot castings to reduce the damages
 of castings.
 
 The Company proposes to finance the Installation of stoves in second
 Mini Blast Furnace, Installation of sinter plant and a manipulator out
 of the funds generated from internal accruals while the installation of
 Turbo Blower will be financed out of remaining proceeds of the Rights
 Issue.
 
 Cautionary Statement:
 
 Statements in this Report, particularly those which relate to
 Management Discussion and Analysis, describing the Companys
 objectives, projections, estimates and expectations may constitute
 forward looking statements within the meaning of applicable laws and
 regulations. Actual results may differ materially from those either
 expressed or implied.
 
 G.  Internal Control Systems and their adequacy:
 
 The Company has a proper and adequate system of controls in order to
 ensure that all assets are safeguarded against loss from unauthorized
 use or disposal. All transactions are properly checked, verified,
 recorded and reported correctly.  Regular Internal Audit checks are
 carried out to ensure that the responsibilities are executed
 effectively and that proper and adequate systems are in place.  Your
 Company has migrated from the Informix RDBMS to Oracle based system in
 the month of December 2007.
 
 H.  Safety, Health and Environment:
 
 Your Company is giving utmost importance to safety, health and
 environment related issues. The employees are educated and trained to
 improve their awareness and skills.
 
 All safety statutory requirements like licenses, mock drills under
 emergency conditions and testing of lifting tackles and pressure
 vessels etc are being complied with. As a proactive approach,
 periodical safety audit is conducted to identify and eliminate possible
 potential causes of accidents.
 
 Requirements of environmental acts and regulations are also complied
 with. Monitoring and analysis of waste water, stack emissions and
 Ambient Air Quality are undertaken periodically to verify whether the
 level of environmental parameters are well within the specified limits.
 Immediate, corrective and preventive measures are undertaken in case of
 deviations from the specified norms. I SO-14001:2004 for Environment
 systems has been re-certified for the Company by the M/s IRQS, Chennai
 in March 2008.
 
 Effluent treatment of waste products and suppression of fugitive
 emissions through sprinklers is also carried out effectively. Massive
 tree plantation has been undertaken to improve the greenery all around
 the plant.
 
 Medical check up for the employees is being conducted at the
 pre-employment stage and thereafter periodical check up is undertaken
 during the continuance of the employment period. Based on the medical
 reports of the employees, necessary measures are taken to improve the
 health condition of the employees. Your Company has appointed a full
 time Doctor and qualified nurses for the Occupational Health Centre,
 which cater to the medical needs of the employees.
 
 I.  Social Responsibility:
 
 As a part of its corporate responsibility to the society, your Company
 has been supporting and providing assistance to nearby villages at
 Hospet by supply of good quality drinking water and educational
 assistance for the village people. Also some basic facilities such as
 roads, drainages, school building and medical centre have been provided
 though the Trust set up by your Company.  Biweekly medical check ups by
 the specialist doctors with medicine is provided in the neighbouring
 village. Seed money has also been provided to rural women for self
 employment scheme. Financial assistance to needy farmers and supply of
 water for irrigation during summer are some measures taken by the
 Company.
 
 J.  Human Resources:
 
 Your Company considers human resource to be an important valuable asset
 for the organisation and therefore constantly strives to attract and
 recruit best talent for the current and future needs. The Company has
 taken necessary steps to upgrade the skills of present employees by
 conducting various in-house training programs and courses. Further
 measures for the safety of the employees are also adopted through
 training programs on safety and mock drills. As on 31st March, 2008 the
 total number of salaried employees stood at 1,316. The Employer -
 Employee Relations have been generally cordial throughout the year.
 
 WARRANTS CONVERSION IN TERMS OF THE LETTER OF OFFER DATED 2nd JANUARY,
 2007
 
 Pursuant to the Letter of Offer dated 2nd January, 2007, the Company
 had allotted 64,782,765 Equity Shares of Rs. 5/- each alongwith
 64,782,765 Detachable Warrants on 13th March, 2007.
 
 In terms of the Letter of Offer dated 2nd January, 2007, each
 Detachable Warrant can be converted into one Equity Share of Rs. 5/-
 each fully paid at a warrant exercise price Rs. 35/- per warrant during
 the warrant exercise period.
 
 The warrant exercise period has commenced on 13th March, 2008. The
 Company has received 13 applications for conversion of 1,880 Detachable
 Warrants into Equity Shares aggregating to Rs. 65,800/- till 31st
 March, 2008.
 
 DIRECTORS
 
 Mr. S. N. Inamdar, Mr. A. R. Jamenis and Mr. A. N. Alawani, retire by
 rotation and being eligible, offer themselves for re-appointment.
 
 The Board of Directors at its meeting held on 19th June, 2008 has
 reappointed Mr. R. V. Gumaste as the Managing Director of the Company
 for a period of 5 years with effect from 1st July, 2008. A proposal for
 his reappointment as the Managing Director and remuneration payable to
 him is being placed before the shareholders of Company for their
 approval at the ensuing Annual General Meeting.
 
 The brief resumes and other details relating to the Directors, who are
 proposed to be appointed / reappointed, as required to be disclosed
 under Clause 49 of the Listing Agreement, form part of the Report on
 Corporate Governance.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 Pursuant to the requirements under Section 217(2AA) of the Companies
 Act, 1956, with respect to Directors Responsibility Statement, it is
 hereby confirmed :
 
 i. That in the preparation of the Accounts for the financial year ended
 31st March, 2008 the applicable accounting standards have been
 followed;
 
 ii. That the Directors have selected such accounting policies and
 applied them consistently and made judgments and estimates that were
 reasonable and prudent so as to give a true and fair view of the state
 of affairs of the Company as at 31st March, 2008 and of the profit of
 the Company for the year ended 31st March, 2008;
 
 iii. That 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;
 
 iv. That the Directors have prepared the accounts for the year ended
 31st March, 2008 on a going concern basis.
 
 CASH FLOW STATEMENT
 
 A Cash Flow Statement for the year ended 31st March, 2008 is attached
 with the Annual Audited Accounts of the Company.
 
 AUDITORS
 
 M/s. RG. Bhagwat, Chartered Accountants, retire as the Auditors at the
 conclusion of the ensuing Annual General Meeting, and being eligible,
 offer themselves for re-appointment. The Company has received a
 certificate from the retiring auditors to the effect that the
 appointment, if made, will be in accordance with the limit specified in
 Section 224(1 B) of the Companies Act, 1956.
 
 The Audit Committee has recommended their re - appointment.
 
 ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE
 EARNINGS AND OUTGO
 
 Details of Energy Conservation, Technology Absorption, Research and
 Development and Foreign Exchange Earnings as required under 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 are given in the Annexure - A and forms part of this
 Report.
 
 PARTICULARS OF EMPLOYEES
 
 Information regarding employees in accordance with Section 217(2A) of
 the Companies Act, 1956 read with the Companies (Particulars of
 Employees) Rules, 1975 is given in Annexure - B and forms part of this
 report.
 
 CORPORATE GOVERNANCE
 
 The Company conforms to the norms of Corporate Governance as envisaged
 in the Companies Act, 1956 and the Listing Agreement with the Bombay
 Stock Exchange Limited. Pursuant to Clause 49 of the Listing Agreement,
 a Report on the Corporate Governance and the Auditors Certificate on
 Corporate Governance are annexed to this report.
 
 APPRECIATION
 
 Your Directors wish to place on record their appreciation towards the
 contribution of all the employees of the Company and their gratitude to
 the Companys valued customers, bankers, Financial Institutions,
 vendors and members for their continued support and confidence in the
 Company.
 
                             For and on behalf of the Board of Director
 
                                                  ATULC.KIRLOSKAR
 Pune :19th June, 2008                                  Chairman