Dear Shareholders,
The transformation of any steel company into a
resource-cum-utilities-cum alloy steel organisation is painstaking. At
Adhunik, the transformation will be completed quicker than usual and be
fully operational by 2012- 13. Once commissioned, the business model
will generate sizeable unencumbered cash, which will help rightsize the
balance sheet and enhance significant value in a sustainable way.
A number of people still make the mistake of dismissing Adhunik as a
steel company when we are clearly a resource-cum-utilities
cum-special-steel organisation. This complement not only makes us
unique from a mid-sized organisational perspective in India, but a
number of initiatives undertaken over the years helped us emerge as a
''different'' company.
This ''difference'' was partly reflected in our financials of 2010-11. We
reported a sizeable EBIDTA of Rs.587.86 cr even as some of our
facilities were yet to be commissioned, and the full import of our
investments will only reflect this year and more visibly from 2012-13.
The difference
We are a different kind of company in the Indian power, metals and
minerals sector for the following reasons:
- We represent a combination of the robust growth emerging out of three
sectors in India - power, mining and special steel. There are a number
of Indian companies with an integration across two of these businesses.
There is perhaps none with as strong an exposure across all three
sectors, and definitely none in the country''s mid-cap space. These
business complements are not mere add-ons; if spun off into separate
companies, each can potentially hold its own in terms of scale and
related economies
- We possess a core process competence in our business space that
translates into high operational efficiency. For instance, yields in
our steel melting shop and rolling mill are attractively high with a
declining proportion of rework
- We demonstrated a high proportion of by-product utilisation with the
objective of reducing conversion costs. We utilised our blast furnace
and coke oven gases as fuel in our heating furnace; the gasification of
coal helped us reduce oil and diesel consumption
- We made a better utilisation of waste through the sale of fly ash to
cement makers, the pioneering beneficiation of char for onward use in
our rotary kiln and boilers
- We rapidly transformed the major part (two-thirds) of our end product
mix towards alloy steel
- We pioneered the technology of recovery of sub grade manganese ore
through a jigging plant
The result is that we are low cost at one end and high value-added at
the other, combining two diverse competencies into our organisational
culture, now increasingly marked by prudent delegation, responsible
experimentation and precise enumeration.
Reviewing 2010-11
During 2010-11, we reported a 24.8% increase in consolidated revenue,
37.6% increase in consolidated EBIDTA, 346 basis point increase in
consolidated EBIDTA margin and 34.2 % increase in consolidated net
income. We are convinced that this performance represents the start of
a J curve for the following reasons:
Alloy steel business: The Company is present in the niche alloy steel
segment, catering to the growing needs of downstream sectors like
automobile, power, engineering and oil and gas. The Company has one of
the largest single location alloy steel manufacturing units with 50% of
the product portfolio comprising value- added products. Our products
were approved by all major automobile OEMs (tier I and II) within just
five years. This strengthened our average realisations for rolled steel
production from Rs. 39,419 per tonne in 2009-10 to Rs.46,905 per tonne
in 2010-11
Mining business: Our mining business (merchant mining through Orissa
Manganese and Minerals Limited) grew 73% in 2010-11 over 2009-10.
During the year under review, realisations for iron ore and manganese
ore increased 70.2% and 83.9% respectively. This resulted in an
increase in the share of revenue from mining increasing to 23% of
consolidated revenues in 2010-11 against 16% in 2009-10. We expect to
commence our Suleipat mine (50:50 JV) by the second half of FY 2011-12.
The iron ore beneficiation plant commenced operations in March 2011
(benefits to accrue in 2011-12) and we plan to commence our pellet
plant from the second half of 2011-12. The beneficiation and
pelletisation plants will help us transform low-grade materials and
fines into pellets. Our captive iron ore mine will be operational by
the second half of 2011- 12 and we plan to commission captive coal
mining by end 2013.
Power: We enhanced our resource base through investments in captive and
merchant power generation. Our captive power plant of 34 MW is running
to full capacity. Besides, the construction of the first two phases of
our merchant power plant in Jharkhand (through APNRL) is proceeding as
per schedule. We were allocated a captive coal mine (reserve of 69 MMT)
with Tata Steel for our merchant power plant and expect to commence
mining from 2013.
Growing competencies
At Adhunik, we expect to drive our profitability for the following
reasons:
One, we invested significantly in ERP to integrate our entire
manufacturing process - from the weigh bridge to production planning to
debtors management. We introduced shared services through a centralised
department to monitor the entire group activity rather than the same
department being replicated across our businesses. This helped
streamline our processes, enhance manpower management and increase
process efficiency. We partnered with leading global IT giants like
SAP, Microsoft, GE and Accenture in different areas to automate our
business process.
Two, our power investment is expected to drive consolidated revenues
from 2012-13 onwards as Phase I & Phase II will have been entirely
commissioned by then. We intend to expand the Jharkhand project by
another 540 MW at the same location. We also signed MoUs with the
Chhattisgarh, Bihar and Orissa governments to commission 1,000 MW power
plants in each state, which will expand our merchant power portfolio.
Three, our subsidiary which owns merchant mines is growing at more than
50% annually. Besides, the flexibility of using these resources helps
us control costs and ensure raw material availability.
Four, we expect to swap high-cost loans with low-cost alternatives and
repay debt through accruals.
Five, we plan to encash a part of the value of our mining assets when
fully commissioned.
Spreading smiles
Adhunik is a responsible corporate citizen. The Company adopted six
villages near Rourkela through timely investments in village
infrastructure, healthcare, education, infrastructure, women
empowerment and economic development (through Nav Nirman Sanstha).
Overview
The transformation of any steel company into a resource-cum-utilities-
cum-alloy steel organisation is painstaking. At Adhunik, the
transformation is being completed quicker and should be fully
operational in 2012-13.
Once commissioned, our business model will generate a fair amount of
unencumbered cash that will rightsize the balance sheet and enhance
significant value in a sustainable way.
Regards,
Mr. Manoj Agarwal
Managing Director
