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Modi Cement Directors Report, Modi Cement Reports by Directors
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Modi Cement

BSE: 518014|NSE: MODICEMENT|SECTOR: Cement - Mini
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Directors Report Year End : Dec '05   
We have pleasure in presenting to you the 23rd Annual Report together
 with the Audited statement of accounts of the company for the 18 months
 period ended 31st December 2005.
 
 EXTENSION IN ACCOUNTING YEAR
 
 At the outset, we would report that the accounting year of the company
 for the year 2004-05 was extended by a period of six months ending 31st
 December 2005 for which necessary approval was obtained from the
 Registrar of Companies. In consequence of the above, for holding the
 Annual General Meeting of the members of the company also before 31st
 March 2006, extension of time was obtained from the Registrar of
 Companies in accordance with statutory requirements.
 
 During the 18 months period under review, the company has made
 significant strides both in terms of profitability as also in
 operational parameters. For the 18 months period, the company achieved
 record profit of Rs.136.63 crores before taxation. On an year on year
 basis too, profitability increased by 38% which is remarkable
 considering that this has been achieved in the face of stiff
 competition and on the back of a steep increase in cost of inputs, fuel
 costs as also in the cost of both inbound and outbound logistics.
 
 The quantitative data relating to production and sales on a comparative
 basis is as under:
 
                                                    (In Million Tonnes)
 
 Description                          18 Months' Period  Year ended
                                      Ended 31.12.2005   30th June 2004
 
 Clinker                                     1.76            1.17
                                           (1.19)
 Cement Production                           2.57            1.62
                                           (1.76)
 Sale of Cement                              2.57            1.62
                                           (1.75)       
 
 Note: Figures in brackets represent figures for 12 Months ended 30th
 June 2005.
 
 FINANCIAL RESULTS
 
 The operating and financial results for the 18 months period ended 31st
 December 2005 are as follows :
 
                                                        (Rs. In Crores)
 
                                                 2004-05      2003-04
                                               (18 Months)  (12 months)
 
 Sales (Net of Excise Duty)                       691.84       406.39
 Operating Profit                                 184.67       107.68
 Interest & Finance Charges                         7.25        10.63
 Gross Profit                                     177.42        97.05
 Depreciation & Amortisation                       40.79        28.25
 Profit before exceptional item & Taxation        136.63        68.80
 Exceptional Item - Depreciation                       -         1.87
 Profit after exceptional item
 but before taxation                              136.63        66.93
 Provision for Tax
 a) Current Tax                                    11.00            -
 b) Deferred Tax                                   49.54        21.86
 c) Fringe Benefit Tax                              0.59            -
 d) Income Tax for earlier year                     2.36            -
    Profit after Tax                               73.14        45.07
 Balance brought forward from previous year       (1.83)      (46.91)
 Balance carried to Balance Sheet                  71.31       (1.83)
 
 The Directors do not recommend any dividend due to the need for
 conserving resources for financing the future expansion projects of the
 company.
 
 The operating margin on an year on year basis was 27.5% against 26%
 achieved in the previous year.
 
 CHANGE IN SUBSIDIARY STATUS
 
 The Directors inform that consequent upon the change in the
 shareholding of Ambuja Cement India Limited, the company's immediate
 holding company, effective from 7th April 2005, the company ceased to
 be a subsidiary of Gujarat Ambuja Cements Limited. The company is also
 now a subsidiary company of Holcim Limited, Switzerland which is the
 ultimate Holding Company. Holcim Limited is the second largest
 manufacturer of cement in the world having operations in over 70
 countries. It is also a company which features in the Fortune 500 list
 and the Directors envisage that its association with Holcim will prove
 to be fruitful to the shareholders of the company in the long run.
 
 REVIEW OF PERFORMANCE
 
 Production
 
 As stated earlier, clinker production for the 18 months period recorded
 a new high of 17.63.lacs MT. On an year on year basis, the production
 of clinker showed a marginal increase over last year's levels.
 Bhatapara Unit continued to achieve a satisfactory kiln run factor and
 Sankrail Unit too sustained its growth both in quantity as also in
 quality terms.
 
 Sankrail Unit recorded the highest levels of production and despatches
 during the period under review. It also achieved the lowest plant
 specific power consumption per KWH/MT during the period. At Bhatapara
 also power consumption was optimized.
 
 Going down memory lane, towards the end of the year 1997 when the
 resuscitation process of .the company was set in motion, we have every
 reason to feel overwhelmed as also humbled by the significant progress
 that we have achieved within a short span of eight years. Our dedicated
 group of employees have contributed largely for the success achieved
 and deserve every accolade for their efforts.
 
 Marketing
 
 Net sales for 18 months period ended 31st December 2005 was Rs.691.84
 crores. On an annualised basis, growth in sales in value terms was 16%.
 Annualized growth in volume was 8%. Our major markets continue to be in
 the eastern region with West Bengal being the predominant market.
 Growth in demand in West Bengal was 10.2% and we have continued to
 consolidate our position in the state. Prices were by and large stable
 in most markets for the most part of the year. In between there were
 however, seasonal upheavals in prices which is a normal phenomenon in
 the cement industry.
 
 Quality Control & Customer Satisfaction
 
 Our constant endeavour is to strive for achieving excellence in
 quality. Fly ash utilization at Sankrail was kept at optimum level
 without in any way sacrificing quality.
 
 The Technical Services Cell continues to act as an invaluable foil to
 our Marketing efforts and has been largely instrumental in increasing
 consumer awareness about the product attributes. Mason meetings and
 training programmes were a regular feature.
 
 Engineers' Meets involving participation of eminent Architects and
 experts were held during the period.
 
 Other innovative promotional efforts were also carried out on a regular
 basis to increase the sense of bonding and loyalty of the dealers. More
 and more Dealers were brought within the ambit of `Authorised Stockists
 Scheme.' Dealer Meets and Utsavs were also organised regularly
 involving participation of Dealers with their families to strengthen
 bonding.
 
 Awards & Accreditations
 
 Sankrail Unit also achieved a significant landmark. It was awarded
 during the period OHSAS: 18001:1999 certification for Occupational
 Health & Safety. We feel proud that Sankrail Unit is one of the few
 units in the country to have achieved this distinction.
 
 During the year Bhatapara Unit was awarded the following state level
 awards by the Government of Chhattisgarh.
 
 * First prize for achieving maximum percentage reduction in electrical
 energy consumption, (Both for Clinker & Cement production).
 
 * Second prize for maximum percentage reduction in thermal energy
 consumption.
 
 The Directors wish to place on record their sincere appreciation to the
 entire team of employees at Sankrail and Bhatapara and at other
 locations for their outstanding efforts.
 
 Costs & Profitability
 
 Costs of major inputs such as Limestone, Gypsum registered a
 significant increase. Coal procurement was dearer and an upward spiral
 in the fuel costs also led to increase in outbound freight costs as
 also in procurement cost of inputs. Despite the over all cost
 increases, in view of the impressive gains registered in operational
 parameters and in sales margins, we were in a position to absorb the
 cost increases substantially.
 
 CAPTIVE POWER PLANT AT BHATAPARA
 
 The 15 MW captive power plant at Bhatapara was commissioned in May 2005
 and the plant is running satisfactorily. The generation cost of power
 has already registered a decline. In the coming years we foresee
 significant savings in power costs due to the captive power plant. The
 total cost of the project was Rs.61 crores approx. and the entire cost
 was funded from internal accruals.
 
 SECOND GRINDING UNIT AT FARAKKA, WEST BENGAL
 
 The Directors are pleased to inform that the company is in the process
 of setting up a green field fly ash Cement grinding Unit at Farakka in
 West Bengal. Fly ash for the unit will be sourced from the nearby power
 station and clinker shall be procured from Bhatapara Unit. The
 foundation stone for the unit was laid on 17th December 2005 and we are
 hopeful that the plant will come into commercial production towards the
 end of the year 2006.  Setting up of the grinding unit will further
 consolidate our presence in West Bengal and it will also enable us to
 cater better to the markets in Bihar, Jharkhand apart from North
 Bengal. The total cost of the project is estimated at Rs.115 crores and
 this is being funded entirely through internal accruals.
 
 With a view to increase the clinker availability from Bhatapara Unit
 commensurate with the additional requirements, plans are also being
 finalized for carrying out necessary modifications/upgradation to the
 existing facilities at Bhatapara.
 
 Having regard to the need to conserve resources to finance the above
 ambitious expansion programmes launched by the company, the Directors
 as stated earlier, do not recommend any dividend on the Equity Shares
 for the period 2004-05.
 
 OPEN OFFER TO SHARE HOLDERS
 
 Following the change in the shareholding pattern in Ambuja Cement India
 Limited, in accordance with the requirements of SEBI (Substantial
 Acquisition of Shares and Takeovers) Regulations 1997, an open offer to
 acquire the balance shares of the company was made by Holcim Cements
 Private Limited along with Ambuja Cement India Limited as person acting
 in concert, in the month of June 2005. In consequence of the above
 exercise, the non-promoter holdings in the company has reduced to 3.06%
 against 5.92% at the end of the previous year.
 
 ECONOMY AND BUSINESS ENVIRONMENT
 
 The Indian economy has recorded a robust growth rate with the
 industrial sector growing by 9.7%. The prevailing economic indicators
 point to the possibility of the above growth rates being sustained, if
 not improved upon, in the near future. The Government continues to
 focus its attention on infrastructure development and this augurs well
 for the industry. After many years, the growth in demand in the cement
 industry has substantially kept pace with the growth in the Economy,
 thus neutralizing the demand-supply mismatch. We anticipate that this
 momentum shall be sustained in the future also.
 
 RISKS AND CONCERNS
 
 (i) Demand for cement is inextricably linked to the vagaries of the
 monsoon as a major source of demand comes from rural India. Failure of
 the monsoon or the excess of it leading to floods, therefore, has a
 cascading effect on cement demand.
 
 (ii) Any perceptible shift in Government policies resulting into
 slowdown in infrastructure development will also adversely impact the
 cement industry.
 
 (iii) Wagon availability on a regular and consistent basis was a major
 concern in the previous year. This led to an increase in distribution
 costs apart from delaying dispatches. Availability of rolling stock on
 a regular basis will therefore be a cause for concern in the coming
 year. Hikes in fuel costs have also pushed up road transportation
 costs.
 
 (iv) Value Added Tax (VAT) was introduced at the state level in many
 states last year. The Central Government has indicated that the Central
 Sales Tax will be phased out in the next two years. However until such
 time VAT is introduced in all the states and the benefits of set off
 become available fully on inter-state movement of goods and further in
 the absence of a uniform floor rate, the distortions caused by the VAT
 regime will continue.
 
 (v) Fringe Benefit Tax (FBT) introduced in the last Union Budget is
 inequitous in the form in which it exists. There does not exist any
 scope in a tax regime for penalising legitimate business expenditure.
 It is therefore hoped that either necessary amendments to FBT be made
 in the ensuing year to iron out the imperfections in its present form
 or alternatively FBT as a whole should be obliterated from the statute.
 
 Given the above scenario, the future prospects of the industry have to
 be reviewed with cautious optimism.
 
 HUMAN RESOURCES
 
 The company firmly believes that its dedicated band of employees are
 its major source of strength. Accordingly our endeavour has been to
 continue with employee initiatives on a sustained basis so as to
 maintain motivation and the morale level of the employees. The 6-Sigma
 initiative which was launched in the previous year has contributed
 towards innovative exercises being carried out by employees across the
 organisation leading to reduction in costs apart from leading to
 improvement in systems and procedure in many areas. Performance
 Management System (PMS) exercise was launched during the period with a
 view to, inter-alia, ensure that the employee goals are in harmony with
 the corporate goals.
 
 On the Industrial Relationship front our relationship with the
 employees continued to remain cordial as in previous years.
 
 CODE OF CORPORATE GOVERNANCE
 
 The provisions contained in Clause 49 of the Listing Agreement with the
 Stock Exchange in regard to corporate governance were revised by SEBI
 and these provisions have become operational effective from 31st
 December, 2005. The Board of Directors have taken the necessary
 initiatives to ensure compliance of all the revised requirements. A
 code of conduct as applicable to the Directors and members of the
 Senior Management has also been put in place as on the date of this
 report.
 
 INTERNAL CONTROL SYSTEM
 
 The company believes that a strong internal control system is a
 sine-qua-non for maintaining a high level of governance across the
 organization. With this objective in view, where necessary, control
 systems have been made more stringent based on the initiatives taken by
 a dedicated internal audit team.
 
 The IT environment is being upgraded on a continuous basis with a view
 to keep pace with the rapid changes taking place in the external
 environment.
 
 The Audit Committee constituted by the Board meets at regular intervals
 and discharges the responsibilities entrusted on it in line with the
 provisions contained in the Companies Act 1956 as also the provisions
 relating to corporate governance. The ambit of coverage of the Audit
 Committee has been enlarged further in line with the requirements of
 revised clause 49 of the Listing Agreement.
 
 FIXED DEPOSITS
 
 The company has not received any fixed deposits from the
 shareholders/public during the period under review.
 
 DIRECTORS
 
 The following Directors tendered their resignations from the Board
 during the period under review:
 
 1.  Mr. A.L. Kapur
 2.  Mr. P.B. Kulkarni
 3.  Mr. Santosh Senapati
 
 The Board of Directors place on record their sincere appreciation for
 the valuable contributions extended by the above named persons during
 the tenure of their association with the company as Directors.
 
 The following persons were appointed as Additional Directors during the
 period.
 
 1. Mr. Paul Heinz Hugentoubler
 2. Mr. Onne Van der Weijde
 3. Mr. Ramit Budhraja
 
 Pursuant to the provisions of the Companies Act 1956 the above named
 Directors hold office only till the date of the next Annual General
 Meeting. Notices have been received in accordance with section 257 of
 the Companies Act 1956 from a member proposing the candidature of the
 above named persons for appointment as Directors at the ensuing Annual
 General Meeting.
 
 In accordance with the provisions of the Companies Act 1956,
 Mr.S.K.Neotia, Mr. Anil Singhvi and Mr. Shailesh Haribhakti, being
 longest in office retire by rotation and being eligible, offer
 themselves for reappointment.
 
 AUDITORS
 
 Lodha & Company one of the two retiring Auditors have expressed their
 unwillingness to seek reappointment as statutory auditors. S.R.
 Batliboi & Associates, who will retire at the ensuing Annual General
 Meeting, have expressed their willingness to seek reappointment.
 Members are requested to reappoint S.R. Batliboi & Associates as the
 statutory Auditors and to fix their remuneration.
 
 N. Radhakrishnan & Company, Cost Accountants have been re-appointed
 Cost Auditors of the company for the calendar year 2006, subject to the
 approval of the Central Government.
 
 DIRECTORS' RESPONSIBILITY STATEMENT
 
 In terms of section 217(2AA) of the Companies Act, 1956, your directors
 have :
 
 a) followed in the preparation of the Annual Accounts, the applicable
 Accounting Standards with proper explanation relating to material
 departures.
 
 b) 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 your company at
 the end of the financial period and of the profit of your Company for
 that period.
 
 c) 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 your Company and for
 preventing and detecting fraud and other irregularities, and
 
 d) prepared the Annual Accounts on a going concern basis.
 
 ENERGY CONSERVATION, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS
 AND OUTGO.
 
 Information on conservation of energy, technology absorption, foreign
 exchange earnings and outgo required to be given pursuant to 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 is annexed hereto and marked as Annexure-1 and forms part
 of this Report.
 
 EMPLOYEES
 
 Labour relations continued to be cordial at the plants.  Information
 required to be given pursuant to the provisions of Section 217(2A) of
 the Companies Act, 1956 is annexed hereto marked Annexure II and forms
 part of this report.
 
 CAUTIONARY STATEMENT
 
 Statements in the Management Discussion and Analysis may be considered
 as forward looking within the meaning of applicable securities laws and
 regulations. The actual results may differ materially from the views
 expressed.
 
 Important factors that could influence the Company's operations include
 demand and supply conditions, availability of inputs and their prices
 both domestic and global, changes in government regulations, tax laws,
 the monsoon, economic developments within the country and other factors
 such as litigation and industrial relations.
 
 ACKNOWLEDGEMENTS
 
 We are extremely thankful to the Governments of West Bengal and
 Chhattisgarh for their continued cooperation and support.
 
 Our grateful thanks also go to the Financial Institutions and Banks for
 their active support and encouragement.
 
 We place on record our sincere appreciation of the total
 commitment, dedication and hard work put in by all the
 employees of the Company.
 
 We also thank our shareholders, the various Departments
 of the Central and State Governments and the local
 authorities for their continued support.
 
 For and on behalf of the Board
 
 Harshavardhan Neotia
 Managing Director
 
 Place : Mumbai                 Onne van der Weijde
 Date  : 23rd January, 2006     Director
 
 ANNEXURE - 1
 
 DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY,
 TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO AS
 REQUIRED UNDER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT
 OF BOARD OF DIRECTORS) RULES, 1988.
 
 A) CONSERVATION OF ENERGY
 
 a) Energy Conservation Measures
 
 Bhatapara Unit:
 
 1. Undergrate compartments have been properly sealed resulting into
 better heat recuperation efficiency.
 
 2. Modification of outlet duct of VRM resulting into less press drop
 and reduction in energy loss.
 
 3. Crusher Appron feeder DC drive replaced with VVVF drive.
 
 4. First Chamber length of Cement Mill-1 shortened.
 
 5. System for direct feeding of fly ash to feed bin eliminating double
 handling of fly ash.
 
 Sankrail Unit:
 
 1. Incorporation of water supply system through automation.
 
 2. System installed for fly ash conveying to Mill directly.
 
 3. Unloading of Bulker for fly ash.
 
 4. Implementation of study of fan efficiency.
 
 B) TECHNOLOGY ABSORPTION
 
 Efforts made in technology absorption are given in prescribed Form B
 annexed.
 
 C) FOREIGN EXCHANGE EARNINGS AND OUTGO
 
 a) Activities relating to exports, initiatives taken to increase
 exports, development of new export markets for products and services
 and export plans :
 
                                                  2004-05    2003-2004
                                               (18 months)  (12 months)
 
 Clinker Export (in MT)                              -          2220
 FOB Value of exports (Rs in lacs)                   -         36.35
 
 b) Total Foreign Exchange used and earned :
 
                                                2004-05     2003-2004
                                              (18 months)  (12 months)
                                              (Rs in lacs)  (Rs in lacs)
 
 Used                                             687.02       698.19
 Earned                                                -        36.35
 
 FORM B
 
 (See Rule 2)
 
 Form for disclosure of particulars with respect to Absorption
 
 A) RESEARCH & DEVELOPMENT (R&D)
 
 1. Specific areas in which R&D was carried out by the Company:
 
 * Study for reduction of electrical energy consumption of certient mill
 auxilliaries.
 
 * Optimization of compressed air circuit, modification in conveying
 line.
 
 * Trial commissioning of Acoustic Horns and Electric level sensor for
 improved operation of cement silos to reduce coating formation.
 
 2. Benefits derived as a result of above R&D:
 
 * Reduction in energy consumption and operational efficiency.
 
 * Improvement in silo holding capacity.
 
 3. Future plan of action :
 
 * Unloading of fly ash through bulker (Pneumatic system).
 
 * Improved automisation in process control.
 
 * Noise reduction measures for cement mills and other locations in
 plant.
 
 * Study of particle size distribution of PPG through Particle Size
 Analyser.
 
 * Thermo-chemical beneficiation for Gypsum.
 
 4. Expenditure in R&D                       2004-2005    2003-2004
                                            (18 months)   (12 months)
                                           (Rs. in lacs)  (Rs.in lacs)
 
 a) Capital Expenditure                             NIL           NIL
 b) Recurring expenditure                         25.36         16.31
 c) Total expenditure                             25.36         16.31
 d) Total R&D expenditure as a percentage of      0.04%         0.04%
 
 B) TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION
 
 1. Efforts, in brief, made towards Technology Absorption and
 innovation:
 
 * Rice husk as alternative fuel fired in the coal based Power Plant
 after mixing with coal.
 
 * Hosch scrappers and impact pads installed in lime stone belt
 conveyors for arresting fugitive emission and for dampening direct
 impact on the belt conveyors.
 
 * Installation of Pneumatic gates below cooler for better sealing of
 cooler to arrest false air.
 
 * Air spacers used in drilled holes in the mines for improving
 fragmentation during blasting.
 
 * Rebuilding of table liners of raw mill VRM for improving life of
 liners.
 
 * Repairing of cracks in the yoke of raw mill VRM by adopting better
 welding technology.
 
 2. Benefits derived as a result of above efforts:
 
 * Reduction in maintenance and operating cost.
 
 * Reduction of fugitive emission.
 
 3. Information regarding technology imported during last five years:
 
 a) Technology Imported :              1. LV Technology in Raw Mill
                                       2. MANN Technology in DG Sets
                                       3. DCS based PLC Control System
 
 b) Year of Import                     :  2000 and 2002
 c) Has technology been fully absorbed :  Yes
 
 d)  If not fully absorbed, areas
     where this has not taken place,
     reasons therefor and future
     plans of action                   :  Not applicable
Source : Dion Global Solutions Limited
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