Adhunik Metaliks Ltd.

THE BIG PICTURE IS THAT INDIA REBOUNDED FROM THE STEEL SECTOR SLOWDOWN (ARISING OUT OF THE GENERAL MELTDOWN) FASTER THAN MOST COUNTRIES AND ADHUNIK METALIKS STRENGTHENED ITS BUSINESS WITHIN INDIAS STEEL SECTOR. The relatively small picture is that Adhunik Metaliks reported a 10.51% growth in consolidated revenues and 83.68% in consolidated EBIDTA 2009-10 over the previous year. Clearly, the best is yet to be at the Company for two basic reasons: - Our growth is higher-than the global-average growth in the Indian steel sector - Various initiatives are been taken by Adhunik Metaliks to build value Reviewing 2009-10 Adhunik Metaliks was created as a steel Company but thereafter responded entrepreneurially to emerging opportunities and diversified. The result is that today we are effectively three companies in one � steel, mining and power. Steel: Adhunik is positioned as a mid- sized integrated steel player with all the corresponding advantages arising out of its prevailing size � focus, value- addition, quick implementation and the managerial bandwidth required to sustain the business. We are one of the most extensively integrated secondary steel companies in India today. We possess a single-location alloy steel capacity (0.45 MTPA) dedicated to the growing needs of the auto, power, oil and engineering segments. We are evolving our presence from mere commodity manufacture to value-added products (from 40% of our revenues to 70%). We received approvals from five Tier I and II automobile OEMs. The result is that our EBIDTA of 20.39% in 2009-10 was higher than the prevailing industry average. Mining: We invested in mines for captive use and merchant sales. We commercialised mines belonging to Orissa Manganese & Minerals Limited over the last year, mining 1.15 mn tons of iron ore and 0.14 mn tons of manganese ore. We invested in a jigging plant and ore washery to utilise wastes. Our merchant mining contributed 16.47% of consolidated revenue. We expect to commence operations from the Kulum iron ore mine from the second half of 2010-11; we expect to commercialise our captive coal mine at Talcher in two years. Going ahead, we are investing in a 1.2 MTPA pellet plant along with iron-ore beneficiation plant to utilise the fines and low-grade materials. Following the establishing of these plants, we intend to beneficiate these fines and low grade materials and convert them into iron ore pellets for merchant sale. We believe that this initiative will extend our value chain. We have made substantial progress on the project by placing all the major orders for plant and machinery. The project is in full swing and expected to be commissioned by September, 2010. Power: We invested in power- generation from the perspective of captive use and merchant sale. While captive units were created within the Company, we are implementing the large plants (dedicated to merchant sales) under a subsidiary. We possess 34 MW of captive power generation capacity (as on March 31, 2010) and expect to scale it to 80 MW by October 2012. On the other hand, we embarked on the first two phases of the cumulative 540 MW power plants dedicated to merchant sale (out of the planned 1,080 MW). We were allocated a coal mine (JV with TATA Steel), which will secure our resource needs; we secured back-to-back coal linkages for the entire 540 MW capacity from Central Coalfields. On the other hand, we entered into a purchase agreement for the first 100 MW with Tata Power Trading Company Limited and expect to commission the first unit of 270 MW by January 2012 and the second unit of 270 MW by April 2012. We intend to enhance our capacity following the firm procurement of captive resources. Derisking our business We intend to secure Rs,600 cr of cumulative investments in our steel, power and mining businesses through extensive derisking. One, our extension into these spaces - value-added steel products, mining (captive and merchant) and power generation (captive and merchant) - will evolve us into a high-margin steel and resource organisation. Two, by 2015, we expect to increase steel capacity to a million tons per annum with a dominant proportion of our capacity dedicated to the value- added segment. The combined use of the blast furnace and electric arc furnace through the virgin route (as opposed to the conventional use of scrap) will reduce our power consumption. Our growing focus on supplies to the automobiles, oil and gas, power, railways and construction sectors will enhance realisations. Three, we possess a complement of directly-owned mines (iron ore and coal) and subsidiary-owned mines (iron ore and manganese ore) with a flexibility to use resources for our captive use and merchant sale. The result is that these mines will not just enable us to save cost but also generate high-margin revenues. Four, we intend to market 50% of the power (through our subsidiary) that we generate through long-term contracts and the rest through spot sales. The margin-accretive power business is expected to generate significant tax-free cash flow, which we expect to re-invest in Chattisgarh, Orissa and Bihar (1,000 MW each) power projects (signed MoUs in 2009-10). Five, we mobilised around Rs, 700 cr of debt in the last four years to fund our expansion and have started repaying it through internal accruals. We repaid Rs, 100 cr in 2009-10 and intend to repay Rs, 90 cr in 2010-11, which will strengthen our debt-equity ratio from 1.98 in 2009-10 to 1.70 in 2010-11. Caring for people As a responsible corporate, we will continue to invest in developing our people. We are working in the areas of educational development, womens empowerment, infrastructure development, income generation and sports promotion. We established an NGO called Nav Nirman Sanstha to carry out development initiatives for the economically underprivileged. We adopted six villages near our manufacturing units and mines. During 2009-10, we invested Rs, 2.5 cr in community initiatives. At Adhunik Metaliks, the sum of these initiatives will be progressively reflected in one number: the gradual reduction in our resource purchases and a growing increase in resource use from captive means. This increase will evolve our personality into a relatively non-cyclica value-added steel products business that protects its bottomline in the most challenging markets and maximises returns during favourable times. Regards, Manoj Agarwal Managing Director