Tata Sponge Iron

I think all companies need to keep looking at their business definition
 and, possibly from time to time, to see if that definition needs to be
 redefined. - Ratan Tata
 
 Dear Shareholder
 
 The year 2007-08 was the silver jubilee year of your company and it was
 only befitting that your company achieved the highest-ever profits
 during the year. The year witnessed a continuing strong demand and
 prices for your Company’s products. On behalf of your Company and the
 Board of Directors, I express my sincere thanks to the past chairman
 Mr. B Muthuraman whose leadership and vision has led your Company to
 embark on this new path of growth with a greater focus on the steel
 industry.
 
 The allotment of the Radhikapur (East) Coal block and the many other
 initiatives which the executive team launched, further demonstrated the
 strength and depth of Company’s managerial capability to deliver value
 to shareholders.
 
 The fiscal was a good year for the Indian sponge iron industry backed
 by 12% growth in secondary steel sector (the key customers for the
 industry). The sponge iron industry grew by 23% and within this overall
 growth, the coal-based sponge iron capacity grew by 28%.
 
 Although the market remained exuberant, external events like the
 escalation of raw material prices pose a challenge. For coal, your
 company largely depends on the domestic collieries and was hurt due to
 poor quality. Domestic coal with high ash content and lower fixed
 carbon adversely impacted productivity of the kilns. Therefore, the
 company imported low ash coal from Indonesia/South Africa to blend it
 along with the domestic coal to improve the productivity. Further, bad
 condition of roads surrounding the plant makes mobility difficult,
 specially transportation of incoming iron ore by road. This also leads
 to increase in road freight adversely impacting profitability
 
 The Company’s EBITDA during 2007-08 was a record Rs.168 crores, i.e
 179% above 2006-07. Net Profit were Rs.95.5 crores compared with
 Rs.21.2 crores in previous year . Your company’s sponge iron capacity
 utilisation was higher by 13% and despatches registered a growth of
 17%. The power plants generated a net surplus of 110.78 million units,
 the sale of which significantly contributed to the revenues.
 
 The company is examining various backward and forward integration
 plans, which include setting up additional kilns for sponge iron
 production, establishing a facility to pelletise iron ore fines,
 setting up additional power plants to generate power from waste heat
 and coal fines and steel making etc As a result, the Board, keeping in
 view funds required to develop the coal block and other capital
 schemes, have recommended a dividend of 70% for the financial year
 2007-08.
 
 The development of the Radhikapur (East) Coal block, was fully
 consistent with our long term strategy. Preliminary activities like
 obtaining mining lease, approval of the mining plan, environmental
 clearance, land acquisition and infrastructure development are at
 various stages of progress. We remain focused on creating value for
 shareholders. While the allotment of the Radhikapur Coal Block enables
 us to capture value from growing Sponge Iron demand, the Company will
 have to vigorously pursue the allotment of an iron ore lease which will
 not only enable the Company to ensure raw material security but will
 also lend a platform for launching a sustainable growth plan towards
 integrating the company with the steel industry.
 
 On a more fundamental level, with the Indian economy bullish on growth,
 corporations, central and state governments as well as non-governmental
 agencies need to develop a long-term vision to conserve our natural
 resources.
 
 There is a need for the Company to gear up to seize the opportunities
 presented by the industry today by strengthening its knowledge pool.
 The Company will therefore require to put in place a dynamic Human
 Resource Development Plan which will enable us to develop our human
 resources by proper trainings and also enable retention of valuable
 talent.
 
 Your company continues its march towards business excellence by
 adopting the reputed Tata Business Excellence Model and made a notable
 improvement in this direction. During the year, your company has won
 several recognitions, which are described in the Directors’ Report.
 
 A successful business is one that is sustainable. It is one that
 maintains long term profitability by pursuing value creating projects
 which adequately address the social and environmental issues. We will
 have to ensure that our operations achieve a level of reliability and
 repeatability, which shall not only ensure that the performance
 improvement is maintained year on year, it would also serve as the
 launching pad for the ambitious growth plans.
 
 Over the past 25 years, the greatest strength of your company has
 always been its stakeholders - the shareholders, customers, vendors,
 the immediate community, government agencies, and the bankers. I thank
 all of them for their unstinted support and co-operation.
 
 Kolkata                                              A.D. Baijal
 29th April, 2008                                        Chairman