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Surana Industries Ltd.

BSE: 513597 | NSE: SURANAIND | Series: NA | ISIN: INE659D01019 | SECTOR: Steel - Rolling

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Surana Industries is not traded on NSE in the last 30 days

Annual Report

For Year :
2015 2014 2013 2012 2011 2010 2009 2008 2007

Director’s Report

Dear Members, The Directors of the Company present to you the 24th Annual Report of the Company, together with the Audited Balance Sheet as at 31st March, 2015 and the Statement of Profit and Loss for the year ending on 31st March, 2015. 1. FINANCIAL RESULTS The Financial Results of the Company for the year under review is summarized below for your perusal and consideration. (Rs. in Crores) PARTICULARS 2014-15 2013-14 NET REVENUE 642.17 555.20 PROFIT BEFORE TAX AND DEPRECIATION (172.66) (201.95) PROFIT /(LOSS) BEFORE TAX (PBT) (234.49) (233.87) PROVISION FOR CURRENT TAX - - TAX EXPENSE 28.29 (78.41) PROFIT AFTER TAXES/(LOSS) (PAT) (262.78) (155.46) 1.1 FINANCIAL PERFORMANCE The Company has achieved Net sales of Rs. 642.17 Crores for the year ended 31st March, 2015 as compared to Rs.555.20 crores in the previous year. The Company has incurred a Net loss of Rs. 262.78 Crores as against a loss after taxes of Rs. 155.46 Crores in the previous year. The losses are attributable to high input costs, irregular supply of raw materials, high finance costs and unfavourable market conditions. While the Raichur plant was particularly affected by the iron ore mining ban and labour issues, the Gummudipoondi plant faced with irregular power supply and adverse market conditions. 1.2 CORPORATE DEBT RESTRUCTURING (CDR) The lenders have restructured the debts of the Company to the extent of Rs.1331 crs under the CDR mechanism. All overdues have been restructured with effect from 1st June 2013, on the basis of the terms of moratorium and revised repayment schedule contained in the Final Letter of Approval (Final LOA) dated March 13, 2014. The package also includes a priority loan of Rs.41.72 crs for balancing equipment required for the Rolling mill and electric arc furnace. Overdues on the existing loans as on the Cut-off date have been converted into funded interest term loans. Further repayment of loans has been resched- uled over a 10 year period ending the year 2023. 2. SHARE CAPITAL The paid up Equity Share Capital as on 31st March, 2015 was Rs. 44.52 Crores. During the year under report, the Company has not issued any shares with differential voting rights nor granted stock options nor sweat equity. 3. DIVIDEND Your Directors have not recommended any dividend for the financial year 2014-15 in view of the losses incurred and the need to conserve resources of the Company. The Company is also required to seek prior approval of the lenders for declaration of dividend, in terms of the Corporate Debt Restructuring package. 5. OPERATIONS 5.1 SIL OPERATIONS AT CHENNAI PLANT Production at Chennai Plant had adversely been affected for the last couple of years due to severe power cut in Tamil Nadu. The plant faced a 20% power cut and this situation continued for most part of the financial year. The power shortage coupled with unfavourable market prices for end products have resulted in lower operation level at the plant. 5.2 SIL OPERATIONS AT RAICHUR PLANT EXISTING OPERATIONS The existing operations at the Integrated Steel Complex at Raichur comprises of the Sponge Iron Plant (Direct Reduction of Iron), Steel Melting Shop and the Rolling Mill. The Company has been facing labour unrest at the plant for the majority of the financial year. Consequently, production had been adversely affected, post implementation of the CDR package. The Company is set to re-start the DRI operations in full swing by June 2015. The company is using pellets for producing sponge iron due to non-availability of high grade iron ore lumps. However, the SMS Plant and Rolling Mill is expected to commence productions once the refurbishment work is completed which is subject to release of the priority loan by the consortium lenders. The existing facilities at the Raichur plant are summarized below: Facility Metric Tonnes Per Annum DRI Plant 160,000 Electric Arc Furnace 250,000 Billet Caster 240,000 Bar Mill 400,000 EXPANSION PROJECT- BENEFICIATION & PELLET PLANT Earlier in terms of the Hon''ble Supreme Court order the illegal mines were all closed down in Karnataka. And the Hon''ble Supreme Court wanted to regulate the mining activities. As a result, there was a shortage of iron ore supply in the State of Karnataka. Your company resorted to buy pellets instead of iron ore lumps. In order to obviate this difficulty the company had planned a Backward Integration exercise of setting up a Beneficiation and Pelletisation Plant. This expansion envisages Beneficiation of Iron ore fines and the company will be producing Pellets which in turn will be utilized for the production of Sponge Iron. In other words, the Pellets which will be produced will become the raw materials for the manufacture of Sponge Iron in our Direct Reduction of Iron (DRI) Kilns. The Techno Economic Viability of the project was also carried out by M/s. MITCON Consultancy which has found the project to be viable. 6. WAY FORWARD FOR THE COMPANY As stated earlier, the Company has availed the CDR mechanism to restructure its existing debts with the lenders. The Company has signed a Master Restructuring Agreement (MRA) with its lenders. The repayment is spread over a ten year period ending in the year 2023-24. The mechanism also stipulates stringent monitoring by the lenders including monthly cash flows. The lenders have constituted a Monitoring Committee (MC) lead by the Monitoring Institution (MI) viz. IDBI Bank Ltd. The Company with a view to augment the operational profitability has introduced certain concepts which will help in utilizing the full capacity of the plant and simultaneously contributing towards the recovery of fixed cost. Further, the cost optimization exercise is being undertaken on continuous basis for improving the overall productivity and thereby helping in improving the bottom line. Even though there has been delay in expected commencement of operations at Raichur, the resolution of the Labour dispute amicably has created a positive working environment. The Company in all its earnest is looking to capitalize this positive environment and immediately commence the operations at Raichur subject to necessary approvals for release of sanctioned funds from the consortium lenders. The Company is very positive that on the commencement of Raichur operations the overall financial outlook of the company will become vibrant. The Company in the past few years had suffered severe liquidity crunch on account of negative market sentiments per se prevailing in steel industry. This had been the major contributing factor for the company''s decision to utilize the CDR forum for restructuring its debts with consortium of bankers. With a view to improve the financial viability of the company conscious decision to dilute the company''s holding in its subsidiaries is envisaged. It is also planned to unlock the inherent valuations of each of the projects by bringing in strategic partners to augment the parent company in realizing its investment. UNLOCKING INVESTMENTS IN SUBSIDIARIES SIL has made total investments of Rs.534.24 Crores in its subsidiaries viz. SPL (Rs. 418.50 Crores), SGPL (Rs. 56.15 Crores) & SMML (Rs. 59.59 Crores). These investments are yet to yield returns. While the investment decision is sound, the execution of these businesses have faced various bottlenecks in the form of non-availability of working capital, un-favourable market conditions, coal linkage, inordinate delay in getting certain regulatory approvals and other macroeconomic issues. These have stressed the cash flows of the parent company, SIL. Presently, we are in advanced discussions with various investors. Going forward, it is proposed to unlock their value by divesting majority equity stake in these Companies. The Board of Directors of SIL has in principle approved the divestment of the three subsidiaries viz; M/s. Surana Power Limited, M/s. Surana Green Power Limited and M/s. Surana Mines & Minerals Limited. 7. SUBSIDIARIES In accordance with the General Circular issued by the Ministry of Corporate Affairs, Government of India, the Balance Sheet, Statement of Profit and Loss and other documents of the subsidiary companies are not being attached with the Balance Sheet of the Company. However, the financial information of the subsidiary companies is disclosed in the Annual Report in compliance with the said circular. SURANA POWER LIMITED Surana Power Limited a 100% subsidiary of Surana Industries Limited is in the process of setting up of 2 x 210 MW Thermal Power Plant at Raichur. The original project cost was estimated at Rs.2400 crs in the year 2010. However, the project cost has been revised to Rs.3090 crores on account of increase in Interest during Construction (IDC). SPL has an 35MW operational thermal power plant. After completing the 2 x 210 MW Thermal Power Plant, the generation capacity of Surana Power Limited will be increased to 455 MW. The operations of the 35MW were adversely affected during the year due to fall in power tariff rates and increase in input costs. Consequently, the debt under sole banking with UCO Bank was restructured. During the financial year 2014-15, the revenue from operation is stood at Rs. 51.77 Crores as compared to Rs.70.97 Crores for the previous financial year 2013-14. Revenue from operation is only through sale of coal in stock and the 35 MW Captive Power Plant was not in operation for the entire financial year due to labour unrest, financial constraint and other unviable market conditions. During the financial year 2014-15, the Other Income stood at Rs. 0.09 Crores as compared to Rs. 0.12 Crores for the previous financial year 2013-14. Finance cost stood at Rs. 25.90 Crores for the financial year 2014-15 as against Rs. 23.80 Crores for the financial year 2013-14. Depreciation and amortization expenses stood at Rs. 76.90 Crores for the financial year 2014-15 as against Rs. 12.13 Crores for the financial year 2013-14. Other expenses stood at Rs. 53.02 Crores for the financial year 2014-15 as against Rs. 36.61 Crores for the financial year 2013-14. Loss before tax is Rs. 150.84 Crores for the financial year 2014-15 and Rs.29.07 Crores for the financial year 2013-14. Loss after tax for the financial year 2014-15 stood at Rs.160.08 Crores and Rs. 116.24 Crores for the financial year 2013-14. Surana Industries Limited has already infused a capital contribution of Rs.418.50 Crores. SPL has already spent around Rs. 1929.66 Crores as on 31st March 2015. The source for the same was equity contribution of Rs. 350 Crores, and balance by way of term loan from consortium of lenders. SURANA MINES AND MINERALS LIMITED Surana Mines and Minerals Ltd, SMML a 100% subsidiary of Surana Industries Limited, at Singapore is expected to commence trading activities in coal as well as scraps in the global market for supply to steel and power plants in the group. SMML has a step down subsidiary PT Borneo Mines & Minerals Ltd which has acquired mining rights in the Sassanga coal mines in Indonesia. The 2640 acres of the Sassanga coal mines have proven reserves of 60-70 million tonnes of coal. The Company is facing difficulty in raising funds for working capital due to the restructuring of the debts of the parent company Surana Industries Ltd and has incurred a loss of US$ 1,17,971/- on a consolidated basis for the FY 2014-15. SURANA GREEN POWER LIMITED SGPL, a 100% subsidiary of Surana Industries Limited, is in the business of Power Generation. SGPL has currently 7 windmills of 1.5MW capac- ity. SGPL has a step down subsidiary (wholly owned subsidiary) M/s. Surana Green Energy Limited (SGEL), an SPV through which the Company is availing the Group Captive Scheme (GCS), whereby SGEL is able to sell electricity to other Captive users. SGPL has also been registered under the UNFCCC (United Nations Framework Convention on Climate Change) Clean Development Mechanism Scheme (CDM). The project is eligible for Carbon Credits which are sold in the international markets. This has provided additional revenue to SGPL. For the FY 2014-15, the Company has operated on average PLF of 14.95% and generated 152.22 lakh units. During the year there was a decline in the turnover and it stood at Rs.0.70 Crs compared to Rs. 0.95 Crs in the previous year ended March 31,2014. For the FY 2014-15, SGEL had achieved a total turnover of Rs. 8.14 Crores as against Rs.7.87 Crores during the previous year ended March 31,2014. A Statement Pursuant to first proviso to sub-section (3) of section 129 read with rule 5 of Companies (Accounts) Rules, 2014 containing salient features of the financial statement of subsidiaries/associate companies/joint ventures in Form AOC-1 is annexed to this report as Annexure A. 8. OPPORTUNITIES The steel production capacity in the country has increased substantially and the production may touch around 200 million tonnes by the year 2020. The country has the necessary iron ore reserves to achieve this level of steel production. Due to expected acceleration in GDP growth rate in the medium and long term, the demand for steel is bound to go up significantly. This will benefit all steel producers including your Company. The Infrastructure sector is expected to get an impetus under the new government, which will also translate into substantial increase in steel demand. The Company also undertakes Cold Rolling operations which provide a good margin of profitability. The Company procures materials mainly from leading steel producers and after cold rolling, sells the same in the market. This shall also add to the overall profitability of the Company. 9. THREAT PERCEPTION Your Directors feel that the Company will have to gear up its marketing activities so as to compete effectively with the established producers. Marketing of Alloy Steel and Special Steels needs concerted efforts and experience. In the Raichur steel plant, the Company will be manufacturing Special Alloy Steels which are mostly meant for Automobile Manufacturers who will demand strict adherence to the quality of the products. The alloy steel market has high competition. There- fore, it is essential for the Company''s marketing team to aggressively and effectively market the products. Similarly, in the case of TMT Bars, there can be good competition from the various producers. Builders and contractors are the ultimate end users of TMT Bars and it is necessary for the Company to aggressively market these products. Shortage of quality raw materials, surging freight costs and escalation of the costs of inputs, fuels etc. will continue to keep the cost of production high for steel manufacturers. The main threat perception is linkage of iron ore and coal. Delay in completion of the backward integration project can also affect profitability of future operations. Further, in regards to financial implications, there can be threat perceptions, due to tough competition it would be difficult for the Company to pass on the entire cost push to the Customers by way of increased finished steel prices. Faced with aggressive marketing strategy and cost cutting initiatives, the Company constantly reviews/ monitors the costs of various inputs and finds out ways (either technological or commercial) to reduce the cost of steel production, wherever is possible. The Directors have been taking requisite measures to overcome various impediments which may come in the way of smooth functioning of the Company. 10. RISK PERCEPTION The Directors are constantly assessing the business risks pertaining to the performance of the Company. The following are the important risks perceptions: * Quality Maintenance of the End Products * Adequate availability of Raw Materials * Requisite Power Supply * Removal of Transport Bottlenecks * Sudden Increase in Prices of Inputs * Customers Default * Inadequacy of Finance Arrangement * Statutory Policies * Events Due to Unforeseen Circumstances * Volatility in international supply/demand of steel products Your Directors are fully conscious of the various business risks and have taken adequate care to tackle any situation. Strict controls are enforced on the quality front and all other matters for smooth operation of the steel plants. 11. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY The Company has a internal control system which is in the process of streamlining. All transactions are subject to proper scrutiny. The Company also has Independent Internal Auditors who carry out the internal audit on a quarterly basis covering all areas during the financial year and submit their report on a quarterly basis to the Audit Commit- tee. The Management takes immediate correc- tive action wherever it is being pointed out to help streamline the internal control process. The Audit Committee further insisted that there should be stronger internal control systems to be in place. A policy on internal controls had already been devised and implemented for the company and the management shall ensure the effectiveness of the working of such policy. 12. CONSOLIDATED FINANCIAL STATEMENTS In accordance with the Accounting Standard (AS) - 21 on Consolidated Financial Statements read with AS - 23 on Accounting for Investments in Associates and AS - 27 on Financial Reporting of Interests in Joint Ventures, the audited consolidated financial statements is provided in the Annual Report. 13. HUMAN RESOURCES The Management envisions trained and motivated employees as the backbone of the Company. Special attention is given to recruit trained and experienced personnel not only in the production department but also in marketing, finance and accounts. The Management strives to retain and improve employee morale. The Company has total staff strength of about 300 employees. The Company is in the process of revamping the employer employee engagement program. The labour unrest at the Raichur Integrated steel plant plagued the operations of the plant for the major part of the financial year. For the last three years a certain section of the workers of our Raichur Integrated Steel Plant have been resorting to illegal activities and have been instigated by local elements with vested interests. The Company would like to bring to the notice of the share holders that the said strike / labour dispute have been amicably resolved and we expect no turbulence in the near future. The Company has streamlined its manpower strength at the Chennai offices including the corporate head office. As a result of manpower rationalization exercise, the monthly payroll has been optimized. The decision for rationalization of labour has enabled the company to curtail fixed manpower costs. However, the core technical expert team is retained to guide the Company to achieve higher and efficient level of production. 14. CORPORATE GOVERNANCE The Directors pay special attention to ensure that the guidelines given for the corporate governance are strictly adhered to. All possible steps are taken to adhere to the requirements set out by SEBI Guidelines on Corporate Governance. The Company is also aligning itself to implement global corporate governance practices. This is ensured by taking ethical business decisions and conducting business with a firm commitment to values, while meeting stakeholder''s expectations. At Surana, it is imperative that the company affairs are managed in a fair and transparent manner. This is vital to gain and retain the trust of our stakeholders. A separate report on the Corporate Governance also forms part of the Annual Report. Requisite certificates from the Auditors of your Company regarding compliance of the conditions of the corporate governance as stipulated under Clauses 49 of the Listing Agreement with the Stock Exchanges is also attached to the corporate governance report. With regard to the Business Responsibility Report, the Company is not covered in the top 100 listed entities, based on the market capitalization at BSE & NSE, in terms of SEBI Circular CIR/CFD/DIL/8/2012 dated August 13, 2012. 15. CORPORATE SOCIAL RESPONSIBILITY AND GOVERNANCE COMMITTEE The Board of Directors has constituted a Corporate Social Responsibility and Governance Committee (CSR&G Committee) in compliance with the provisions under the Companies Act, 2013. The committee comprises of Shri K.N Prithiviraj as the Chairman, Shri Krishna Udupa and Shri. Dineshchand Surana as its other members. The said Committee has been entrusted with the responsibility of formulating and recommending to the Board, a Corporate Social Responsibility Policy (CSR Policy) indicating the activities to be undertaken by the Company, monitoring the implementation of the framework of the CSR Policy and recommending the amount to be spent on CSR activities. Since the company is making losses for the past three years, CSR spend does not apply to the company for the financial year 2014-15. Hence submission of a report on CSR activities does not apply. 16. RISK MANAGEMENT COMMITTEE AND POLICY The Board of Directors has constituted a Risk Management Committee and framed a Risk Management Policy in compliance with the provisions under the Companies Act, 2013 and Clause 49 of the Listing Agreement. The committee comprises of Shri Dineshchand Surana as the Chairman, Shri Krishna Udupa, Shri. Anil Gupta and Shri. D. Hem Senthil Raj as its other members. 17. SEXUAL HARASSMENT POLICY The Company had adopted the sexual harassment policy as recommended by the Audit Committee of the Board of Directors; however the Company is in the process of constituting a committee for the same. 18. DEPOSITORY SYSTEM / E-VOTING MECHANISM: The Company has entered into a Tripartite Agreement with both the Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (I) Ltd (CSDL) along with Registrars M/s Cameo Corporate Service Ltd, Chennai for providing electronic connectivity for dematerialization on the Company''s shares facilitating the investors to hold the shares in electronic form and trade in those shares. The shares of your Company are being traded now in on the Bombay and National Stock Exchanges under compulsory demat form. Further, in accordance with provisions stipulated under Companies Act, 2013, the facility of e-voting is also made available to all shareholders of the Company. The instructions regarding e-voting are available in a separate section of the Annual report. All shareholders are also requested to update their email ids with the Company or our RTA M/s. Cameo Corporate Services Ltd. 19. TRANSFER OF AMOUNTS TO INVESTOR EDUCATION AND PROTECTION FUND Pursuant to the provisions of Section 205A(5) and 205C of the Companies Act, 1956, relevant amounts which remained unpaid or unclaimed for a period of seven years have been transferred by the Company, from to time to time on due dates, to the Investor Education and Protection Fund. The details of the same are covered under the Corporate Governance Report. Pursuant to the provisions of Investor Education and Protection Fund (Uploading of information regarding unpaid and unclaimed amounts lying with companies) Rules, 2012, the Company has uploaded the details of unpaid and unclaimed amounts lying with the Company as on 18th July 2014 (date of last Annual General Meeting) on the Company''s website (www.suranaind.com), as also on the Ministry of Corporate Affairs'' website. 20. AUDITORS STATUTORY AUDITORS During the year M/s Deloitte Haskins & Sells LLP., Chartered Accountants, having firm registration number 117366W/W 100018 have been appointed as statutory auditors of the company to fill the casual vacancy arisen on account of resignation of M/s. CSP Jain & Co due to their pre-occupation with other assignments. The said appointment has been approved by the share- holders at the Extra-Ordinary General Meeting of the company held on 30th September 2014. M/s. Deloitte Haskins & Sells LLP., Chartered Accountants, Chennai having firm registration number 117366W/W 100018, Statutory Auditor hold office up to the conclusion of the 24th AGM and are eligible for re-appointment. The Company has appointed M/s. M/s. Deloitte Haskins & Sells LLP for a period of five years starting from the financial year 2015-16 to 2019- 20, subject to rati- fication of members in the each annual general meeting. Further, the company had received letters to the effect that their re-appointment, if made, would be within the prescribed limits under Section 141(3) (g) of the Companies Act, 2013 and that they are not disqualified for such re-appointment. Your Board of Directors recommends their re-appointment as Statutory Auditors to hold office from the conclusion of the 24th AGM till the conclusion of the 29th AGM of the Company. 21. AUDITORS REPORT AND MANAGEMENT''S RESPONSE TO AUDITORS OBSERVATIONS The Auditors have qualified and emphasized certain matters in their report. AUDITORS QUALIFICATION I. Capital work in progress relating to the Pelletisation and Beneficiation (P&B) Project includes: a) Interest on borrowings aggregating to Rs. 40765 Lakhs (including Rs. 22339 Lakhs for the year) relating to the periods during which the project has been stalled, which constitutes a departure from Accounting Standard 16 (AS-16) on Borrowing Costs. Had the interest capitalized during the period in which the project was stalled been charged to the Statement of Profit & Loss, the loss for the year and, the Deficit in the Statement of Profit and Loss, will be higher by Rs. 40765 Lakhs and Capital Work in Progress will be lower by Rs. 40765 Lakhs. b) Preoperative expenses incurred in relation to the project aggregating to Rs. 68 Lakhs (including Rs. 19.82 Lakhs for the year) relat- ing to the periods during which the project has been stalled, which constitutes a departure from Accounting Standard 10 (AS-10) on Fixed Assets. Had such expenditure capi- talized during the period in which the project was stalled been charged to the Statement of Profit & Loss, the loss for the year and the Deficit in the Statement of Profit and Loss, will be higher by Rs. 68 Lakhs and Capital Work in Progress will be lower by Rs. 68 Lakhs. MANAGEMENT''S RESPONSE We submit that Interest and pre-operative expen- diture have been capitalised considering the exceptional nature of this industry and prolonged project implementation period and is being retained under capital work in progress as per the CDR package. AUDITORS QUALIFICATION II. Current investments include investments in subsidiaries aggregating to Rs 53424 Lakhs which are held for sale and valued at cost. As per Accounting Standard 13 - Accounting for Investments, these invest- ments should be valued at the lower of cost and net realizable value. In the absence of the net realizable value, we are unable to comment on the adjustments, if any, to the carrying value of the value of investments as at March 31, 2015. MANAGEMENT''S RESPONSE We submit that, our Company is in negotiations with prospective buyers. In the opinion of the management, the Company will be able to realize the carrying value of the said investments and hence, no adjustment to their carrying values is considered necessary. AUDITORS QUALIFICATION III. As at 31 March, 2015, the quantity, quality and realizable value of Inventory aggregating to Rs. 25869 Lakhs, was not assessed and determined. As per by Accounting Standard 2 - Inventories these inventories should be valued at the lower of cost and net realizable value. In the absence of the net realizable value, we are unable to comment on the adjustments that may be required to the carrying values of inventories as at March 31, 2015. MANAGEMENT''S RESPONSE We submit that, currently efforts are being made to segregate the inventory at Raichur plant with that inventory belonging to a subsidiary and physically verify the stock of stores and spares. Raw Materials lying at the Raichur plant will be segregated and physically weighed on resumption of production and blended with fresh materials purchased for use in production. The extent of deterioration or obsolescence, if any on the above inventory will be assessed at the time of physical verification / resumption of production and appropriate adjustments will be recorded on completion of the exercise. In the opinion of the management, any such adjustment arising out of physical verification / assessment of the quality will not be material and will be appropriately dealt with on completion of the exercise. AUDITOR''S OBSERVATIONS ON CONSOLI- DATED FINANCIAL STATEMENTS AND MANAGEMENT''S RESPONSE TO THE OBSERVATIONS The Statutory Auditors have issued a qualified opinion dated 30th May 2015 on the consolidated audited financial statements for the year ended March 31, 2015 and the basis for qualified opinion and management responses are as under: AUDITORS QUALIFICATION IV. a) Interest on borrowings aggregating to Rs. 48535 Lakhs (including Rs. 22872 Lakhs for the year) relating to the periods during project have been stalled, which constitutes a departure from Accounting Standard 16 (AS-16) on Borrowing Costs. Had the interest capitalized during the period in which the projects were stalled been charged to the Statement of Profit & Loss, the loss for the year and, the Deficit in the Statement of Profit and Loss, will be higher by Rs. 48535 Lakhs and Capital Work in Progress will be lower by Rs. 48535 Lakhs. b) Preoperative expenses incurred in relation to the project aggregating to Rs. 5475 Lakhs (including Rs. 448 Lakhs for the year) relating to the periods during which the project has been stalled, which constitutes a departure from Accounting Standard 10 (AS-10) on Fixed Assets. Had such expenditure capitalized during the period in which the project was stalled been charged to the Statement of Profit & Loss, the loss for the year and the Deficit in the Statement of Profit and Loss, will be higher by Rs. 5475 Lakhs and Capital Work in Progress will be lower by Rs. 5475 Lakhs. MANAGEMENT''S RESPONSE Please refer our submission to our responses in note I (a & b) above. AUDITORS QUALIFICATION V. As at 31 March, 2015, the quantity, quality and realizable value of inventory aggregating to Rs. 29369 Lakhs was not assessed and determined. As per Accounting Standard 2 - Inventories these inventories should be valued at the lower of cost and net realiz- able value. In the absence of the net real- izable value, we are unable to comment on the adjustments that may be required to the carrying value of these inventories as at March 31, 2015. MANAGEMENT''S RESPONSE Please refer our submission to our responses in note III above. AUDITORS QUALIFICATION VI. Long term loans and advances include dues from subcontractors aggregating to Rs 4034 Lakhs represent the amounts taken over from the EPC contractors which are considered good and recoverable by the management. In the absence of any confirmation / agreement from these parties, we are unable to comment on the adjustments that may be required on the carrying value of these advances. MANAGEMENT''S RESPONSE We submit that, the dues are collectable /adjustable on resumption of project work, and no provision is considered necessary. AUDITORS QUALIFICATION VII. Trade payables include amounts payable to subcontractors aggregating to Rs. 3141 Lakhs and retention monies aggregating to Rs 661 Lakhs In the absence of details or confirmations from the parties, we are unable to comment on the completeness of these liabilities. MANAGEMENT''S RESPONSE: We submit that, the Management is of the opin- ion that the said payables are complete and will be settled in the normal course of business on resumption of the 2 X 210 MW project work and there will be no additional liabilities on this account. INTERNAL AUDITOR The Board has appointed M/s. Agrya Consulting Private Limited, (CIN: U74900TN2010PTC078072) Chennai as the Internal Auditors of the Company pursuant to Section 138 of Companies Act, 2013 and Rule No. 13 of The Companies (Accounts of Companies) Rules, 2014 for the financial year 2015-16. The Internal Auditors of the Company has a qualified team of Internal Audit professionals, who shall be reporting directly to the Audit Committee of the Company. The Internal Audit would ensure that strong internal control mechanism is put in place in the Company as per the recommendations and guidance of Audit Committee. COST AUDITOR The Board of Directors had appointed M/s. JV Associates, Cost & Management Accountants, Chennai (M.No. 6128) as the Cost Auditors of the Company to audit the cost accounting records of the Company for the financial year 2015-16. SECRETARIAL AUDIT Pursuant to the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed M/s. Lakshmmi Subramanian & Associates, Practising Company Secretaries, Chennai to undertake the Secretarial Audit of the Company. The report of the Secretarial Audit Report is annexed herewith as Annexure B MANAGEMENT''S RESPONSE TO SECRETARIAL AUDITOR''S OBSERVATIONS 1. The Company is yet to appoint a woman director on its Board as per section 149(1) of the Companies Act, 2013 The Company had taken necessary steps for inducting a woman director on its Board pursuant to the provisions of Section 149 of the Companies Act, 2013 and the same will be complied on or before June 30, 2015. 2. For the 3rd and 4th Quarter, there was a vacancy in the Board in place of the Independent director which was not filled in during the audit period as required under section 149(4) read with Schedule IV and revised Clause 49 of the Listing Agreement entered with the Stock Exchange. As per the provisions of revised Clause 49(D)(4) of the Listing Agreement any vacancy caused due to resignation or removal of an Independent Director from the Board shall be replaced by a new Independent Director at the earliest but not later than the immediate next Board meeting or three months from the date of such vacancy, whichever is later. However the company had taken appropriate steps in inducting an Independent Director on its Board including registration in the Independent Directors Repository for finding a suitable candidate who has a sound technical knowledge in the field of steel and power industry. 3. The composition of the audit committee in the 3rd and 4th quarter had fallen below the minimum threshold limit of independent directors and total number of members. Further, there was a lack of quorum in the audit committee meeting held in the 4th quarter of the audit period. The Composition of the audit committee during the 3rd and 4th quarter had fallen below the minimum threshold limit of independent directors as per the revised clause 49 of the Listing Agreement due to resignation of few independent directors on the board with retrospective effect due to their other pre-occupations. Further, the lack of quorum for the audit committee meeting held during the 4th quarter was unexceptional due to the resig- nation of an independent director on the board who formed part of the Audit Committee as Member and the same was intimated to the stock exchanges by way of outcome of Board Meeting. 4. Directors retiring by rotation under section 152 of the Companies Act, 2013 in the 23rd Annual General Meeting of the Company held on 18th July 2014, as per Companies Act, 1956 and Independent directors was appointed and under section 149 of the Companies Act 2013 on 30th September 2014 in the extra-ordinary general meet- ing of the company. The Independent Directors of the company who retired by rotation at the 23rd Annual General Meeting of the company held on July 18, 2014 are those Independent Directors who are appointed under the erstwhile Companies Act, 1956, Further it is to be noted that the Independent Directors are not liable to retire by rotation only under the Companies Act, 2013. Subsequently the Company had appointed all its Independent Directors at the Extraordi- nary General Meeting of the Company held on September 30, 2014 as per the provisions of Section 149 of the Companies Act, 2013. 5. The service of notice of annual general meeting together with the annual report of the company for the financial year 2013- 14 was done partly through courier and by book post. The Company had served the notice of 23rd annual general meeting together with the annual report of the company for the finan- cial year 2013-14 well within the stipulated time period under the Companies Act 2013 by way of electronic mode, the confirmation from the Registrar and Share Transfer Agents is also obtained evidencing the same. 6. The Company is yet to ratify the limits for inter-corporate investments, loans, guar- antees and securities as per section 186 of the Companies Act, 2013 and the Rules made thereunder which is required to be complied not within 1 year from the date of notification of the provisions of the Companies Act, 2013. The Company had proposed to ratify the limits for inter-corporate investments, loans, guarantees and securities as per section 186 of the Companies Act, 2013 and the Rules made thereunder from the shareholders by way of postal ballot which will be held during the month of July 2015. 22. DIRECTORS: The following changes have occurred in the Board of Directors during the financial year 2014-2015: 22.1 INDUCTIONS/ CHANGE IN DESIGNATION Appointment of Shri. V. Subramanian as Nomi- nee Director of M/s. IFCI Ltd on 18th July 2014 and Appointment of Shri. Biju George as Nominee Director of M/s. IDBI Ltd on 6th September 2014; Further on the recommendations of the nomination and remuneration committee, the Board appointed Shri. Babu Srinivasan and Smt. Soundharya Panchapakeran as additional Directors of the Company We seek your support in conforming the appointment of Shri. Babu Srinivasan and Smt. Soundharya Panchapakeran in the ensuing Annual General Meeting. At the Extra-ordinary General Meeting held on 30th September 2014, the members had appointed the existing Independent Director viz., Shri. K.N. Prithviraj as Independent Director under the Companies Act, 2013 for a term of five years with effect from 30th September 2014. Shri. Krishna Udupa, Director (Projects) has been redesignated as Director (Non-Executive) of the Company with effect from 18th July 2014. 22.2 DECLARATION BY INDEPENDENT DIRECTORS All Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. 22.3 RESIGNATIONS Dr. B. Samal has resigned from the position of Independent Director with effect from 25th September 2014; Shri. S.K. Gupta has resigned from the position of Independent Director with effect from 14th October, 2014, Shri. B.S. Patil has resigned from the position of Independent Director with effect from 1st December 2014 and Shri. V. Aranganathan has resigned from the position of Executive Director with effect from 31st May 2014. The Board had placed on record its appreciation for the outstanding contributions made by Dr. B. Samal, Shri. S.K. Gupta, Shri. B.S. Patil and Shri. V. Aranganathan during their tenure of office with the Company. Shri. G.R. Surana has resigned from the position of Executive Chairman of the company with effect from 29th April 2015 due to personal reasons. Shri. G.R. Surana is a co-founder of the Company and has played a seminal role in shaping its destiny. The Board appreciates and thanks him for his efforts in driving delivery and quality excellence for the Company, The Board also places on record its gratitude for the services rendered by Shri. G.R. Surana during his long association with the Company. 22.4 RE-APPOINTMENTS In accordance with the provisions of the Companies Act, 2013 and in terms of the Memorandum & Articles of Association of the Company, At the ensuing 24th Annual General Meeting, Shri. Dineshchand Surana, Director and Shri. Biju George, Director of the Company are liable to retire by rotation and being eligible offer them selves for re-appointment. The Board recommends their re-appointment. The Companies Act, 2013, provides for the appointment of independent directors. Sub section (10) of Section 149 of the Companies Act, 2013 provides that independent directors shall hold office for a term of up to five consecutive years on the board of a company; and shall be eligible for re-appointment on passing a special resolution by the shareholders of the Company. Accordingly all independent directors except for Shri. Babu Srinivasan & Smt. Soundharya Panchapakeran who were appointed as additional director of the Company & Smt. Soundharya Panchapakeran were appointed by the shareholders at the General Meeting as required under Section 149(10). Further, accord- ing to sub section (11) of Section 149, no inde- pendent director shall be eligible for appointment for more than two consecutive terms of five years. Sub section (13) states that the provisions of retirement by rotation as defined in Sub section (6) and (7) of Section 152 of the Act shall not apply to such independent directors. None of the independent directors will retire at the ensuing Annual General Meeting. 22.5 BOARD EVALUATION Pursuant to the provisions of Clause 49 of the Listing Agreement, the Board shall monitor and review the Board evaluation framework. The Companies Act, 2013 states that a formal annual evaluation needs to be made by the Board of its own performance and that of its committees and individual directors. Schedule IV of the Companies Act, 2013 states that the performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated. The Board has carried out an annual performance evaluation of its own performance, the directors individually as well as the evaluation of the working of its Audit, Nomination & Remuneration and Compliance Committees. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report. 22.6 FAMILIARIZATION PROGRAMME / TRAINING OF INDEPENDENT DIRECTORS Every new independent director of the Board attends an orientation program. To familiarize the new inductees with the strategy, operations and functions of our Company, the executive directors/senior managerial personnel make presentations to the inductees about the Company''s strategy, operations, product and service offerings, markets, organization structure, finance, human resources, technology, quality, facilities and risk management. 22.7 REMUNERATION POLICY The Board has, on the recommendation of the Nomination & Remuneration Committee framed a policy for selection and appointment of Directors, Senior Management and their remuneration. The Remuneration Policy is stated in the Corporate Governance Report. All remuneration paid to the Directors, Key Managerial Personnel and senior management personnel are as per the remuneration policy of the Company. 23. DIRECTORS'' RESPONSIBILITY STATE- MENT: To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors, make the following statement in terms of Section 134 (3) (c) of the Companies Act, 2013: (a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period; (c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; (d) the directors had prepared the annual accounts on a going concern basis; and (e) the directors, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. (f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. 24. CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION A statement containing the particulars relating to conservation of energy, research and develop- ment and technology absorption as required under Section 134 (3) (m) of the Companies Act, 2013 and Rule 8 (3) (A), (3) (B) and 3 (A) (C) of The Companies (Accounts) Rules, 2014 is annexed to this report as Annexure C 25. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186 OF COMPANIES ACT, 2013 Details of Loan, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to financial statements refer note 27B, 30B and 30C of notes to financial statement. 26. PARTICULARS OF EMPLOYEES: The information required pursuant to Section 197 of the Companies Act 2013 read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 in respect of the employees of the company, will be provided upon request. In terms of Section 136 of the Act, the Report and Accounts are being sent to the Members and others entitled thereto, excluding the information on employees'' particulars which is available for inspection by the Members at the Registered Office of the Company during business hours on working days of the Company up to the date of the ensuing Annual General Meeting. If any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary in this regard. 27. DEPOSITS Your Company has not accepted any deposits from the public during the year under review. 28. MEETINGS During the year five Board Meetings and four Audit Committee Meetings were convened and held. The details of which are given in the Corporate Governance Report. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013. 29. COMMITTEES Currently, the Board of Directors of the Company pursuant to the mandatory provisions of Companies Act, 2013 has the following committees namely: a) Audit Committee b) Nomination & Remuneration Committee c) Stakeholders Relationship Committee d) Corporate Social Responsibility & Governance Committee e) Risk Management Committee A detailed note on the Board and its committees along with the composition of the committees and compliances is provided under the Corporate Governance Report section in this Annual Report. 30. AUDIT COMMITTEE Currently, the Company has an independent and qualified Audit Committee as per the provisions of Section 177 (8) of the Companies Act, 2013 and Rule 7 of The Companies (Meetings of Board and its Powers) Rules, 2014 and Clause 49 of the Listing Agreement, the following is the current composition of Audit Committee: Name of the Director Category Status Shri. Babu Srinivasan Non-Executive Independent Director Chairman Shri. K.N. Prithviraj Non-Executive Independent Director Member Shri. Krishna Udupa Non-Executive Director Member The Board has accepted all the recommendations provided by the Audit Committee. 31. VIGIL MECHANISM/WHISTLE BLOWER POLICY The Company has a vigil mechanism/whistle blower Policy to deal with instance of fraud and misman- agement, if any. The details of the vigil mechanism Policy is explained in the Corporate Governance Report and also posted on the website of the Company. 32. PARTICULARS OF CONTRACTS OR ARRAGEMENTS WITH RELATED PARTIES REFERRED TO IN SECTION 188(1) OF THE COMPANIES ACT, 2013: All related party transactions that were entered into during the financial year were on an arm''s length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons which may have a potential con- flict with the interest of the Company at large. All Related Party Transactions are placed before the Audit Committee as also the Board for approval. The Company is in the process of developing a Related Party Transactions Manual, Standard Operating Procedures for purpose of identifica- tion and monitoring of such transactions. The policy on Related Party Transactions as approved by the Board is uploaded on the Company''s website at the Weblink, http://www. suranaind. com/related-party-transaction-policy. None of the Directors has any pecuniary relationships or trans- actions vis-a-vis the Company. Particulars of Contracts or arrangement with related parties referred to in Section 188(1) of the Companies Act, 2013, in the prescribed Form AOC-2, is appended as Annexure D to the Board''s Report. 33. ENHANCING SHAREHOLDER VALUE Your Company believes that its Members are among its most important stakeholders. Accordingly your company''s operations are committed to the pursuit of achieving high levels of operating performance and cost competitiveness, consolidating and building for growth, enhancing the productive asset and resource base and nurturing overall corporate reputation. Your company is also committed to creating value for its other stakeholders by ensuring its corporate actions positively impact the socio-economic and environmental dimensions and contribute to sustainable growth and development. 34. EXTRACT OF ANNUAL RETURN The details forming part of the extract of the Annual Return in form MGT 9 is annexed herewith as Annexure E. 35. GREEN INITIATIVES During fiscal 2014-15, we started a sustainability initiative with the aim of going green and minimizing our impact on the environment. This year, we are publishing only the statutory disclosures in the print version of the Annual Report. Additional information is available on our website, www.suranaind.com. Electronic copies of the Annual Report 2014-15 and Notice of the 24th Annual General Meeting are sent to all the members whose email addresses are registered with the Company/ Depository Participant(s). For members who have not registered their email addresses, physical copies of the Annual Report 2015 and the Notice of 24th Annual General Meeting are sent in the permitted mode. Members requiring physical copies can send a request to the Company. 36. ACKNOWLEDGEMENT The Board of Directors of the Company wishes to express their deep sense of appreciation and offer their sincere thanks to all the Shareholders of the Company for their unstinted support to the Company. The Board also wishes to express their sincere thanks to all the esteemed Customers for their support to the Company''s products. The Board would also like to place on record their deep sense of gratitude to the various Central and State Government Departments, Organizations and Agencies for the continued help and co-operation extended by them. The Directors also gratefully acknowledge and thank all financial institutions and banks for their timely support in restructuring the Company''s debt under the CDR mechanism failing which the Company would have succumbed to the recession faced by the Steel Industry. In the end, the Board would like to place on record their deep sense of appreciation to all the executives, officers, employees, staff members, and workers at the factories. For and on behalf of the Board of Directors -Sd- -Sd- Babu Srinivasan Dineshchand Surana Date : June 29, 2015 Chairman Managing Director Place : Chennai (DIN: 06608264) (DIN: 00007032)

Director’s Report