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Vedanta Ltd.

BSE: 500295 | NSE: VEDL |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE205A01025 | SECTOR: Mining & Minerals

BSE Live

Jun 18, 16:00
251.85 -9.35 (-3.58%)
Volume
AVERAGE VOLUME
5-Day
657,712
10-Day
595,695
30-Day
848,668
1,065,149
  • Prev. Close

    261.20

  • Open Price

    259.00

  • Bid Price (Qty.)

    251.00 (1010)

  • Offer Price (Qty.)

    251.85 (220)

NSE Live

Jun 18, 15:59
251.65 -9.60 (-3.67%)
Volume
AVERAGE VOLUME
5-Day
11,554,467
10-Day
11,032,418
30-Day
15,421,159
25,178,889
  • Prev. Close

    261.25

  • Open Price

    258.60

  • Bid Price (Qty.)

    0.00 (0)

  • Offer Price (Qty.)

    251.65 (143768)

Annual Report

For Year :
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Chairman's Speech

2009-10 was a testing time for two fundamental convictions that have underpinned Sesa Goas business in the last few years. First, the faith that the Company has on the growth potential of emerging economies like India and China. In fact, its vision of becoming a major global enterprise is based largely on leveraging opportunities emerging from demand growth in these markets. Second, the Company believes that it has the internal ability to continuously deliver value and sustain long term growth. Despite the difficult global business conditions, it pleases me to inform you that the Company succeeded on both these fronts in 2009-10. Let me elucidate. Macro-Economic Perspective As you would recall, given the events of the global financial markets in 2008, most of us were expecting the worst at the beginning of 2009-10. Several developed economies, including the US had gone into recession. Even rapidly growing emerging economies including China and India were witnessing a slowdown. However, it was heartening to see positive signals emerge as one progressed through 2009-10. As the global financial system began to stabilise, one saw renewed capital flow especially to emerging economies. In the third quarter of 2009, USA came out of its economic contraction and registered positive quarter-on-quarter growth, which has continued for the next three quarters. It does seem that the world economy has started recovering from the lows of 2008-09. Having said so, it is important to understand that there are still some concerns. Although the US is expected to grow its real GDP by a bit over 3% in 2010, the same cannot be said about most of the developed world. Most countries in the Euro zone recorded negative or very low GDP growth in the same period. There are also some concerns with sovereign deficits in these countries. Clearly, there are considerable uncertainties about the economic prospects of these advanced countries. Simultaneously, one is witnessing a clear shift in economic plays across geographies. Despite a slow first half and expectations of a sharp drop in growth, China achieved 8.7% GDP growth in 2009, and is forecasted to grow at around 9.7% in 2010. India is estimated to grow by 7.4% in 2009-10, and then cross 8.4% in 2010-11. Brazil is stated to grow at over 5.5% in 2010. These three major emerging economies have not only emerged out of the slowdown, but are also expected to deliver significantly higher GDP growth in the next few years. From a macroeconomic point of view these developments reinforce the strength in Sesa Goas business strategy for emerging economies. Business Perspective While strategic positioning is important, the mettle of an enterprise is best judged when its execution skills pass the tests in difficult business conditions. On the one hand, it is true that India and China are back on their high economic growth trajectory. Equally, on the other hand, it is important to note that the first six months of 2009-10 saw very subdued economic activity and demand in these countries. It is in the second half that the growth momentum picked up. In this business environment, your Companys performance speaks for its execution skills. Sesa Goa had adopted an aggressive growth oriented business model since becoming a part of the Vedanta group in 2007. Since then, year on year, your Company has been delivering significantly higher revenues, profits and returns to shareholders. With the performance in 2009-10, Sesa Goas total revenues have grown at a compounded annual growth rate (CAGR) of 41% since 2006-07, while PAT has grown at a CAGR of 60% over the last three years a testament to the Companys continuously delivering results. Organic Growth With a share of 88% of total external sales, iron ore is the Companys primary business segment. The iron ore business thrives on low cost production and transportation of the ore for export to the Chinese market. As discussed earlier, while there were positive movements in demand in the second half of 2009-10, prices have still not recovered to the days of the pre-economic crisis. Sesa Goa had to operate in a difficult and fiercely competitive market. To offset the lower price realisations, the Company had to significantly increase its ore output and sales. There was an 11.6% increase in volume sales of iron ore from Sesa Goas existing business, while revenues dropped by 1%. Production and sales growth could have been higher if not for longer monsoons and cyclonic conditions in Goa, forest permit related issues in Karnataka and logistics problems in Orissa. The same price-volume equation was seen in the met coke business where volume of sales increased by 22% but revenues fell by 23%. So too, in pig iron, where sales volume grew by 25%, while revenues dipped by 5%. Clearly, in subdued markets, Sesa Goa had to work on much higher production and sales volumes to maintain revenues at last years levels for its existing businesses. It also focused on cost control and productivity to generate better profits. In addition, the Company gained from the strategic acquisition of Dempo. Acquisition While there has been organic growth, a significant portion of the growth in 2009-10 has come from the acquisition. Sesa Goa views acquisition of quality assets that fit its low cost production theme as an important component of its growth oriented strategy. For this purpose, it has always maintained healthy levels of cash and cash equivalents in its balance sheet, and continues to do so. In June 2009, your Company acquired the mining assets of V.S.Dempo and Company Private Limited (VSD or Dempo) and its subsidiaries and associates. T he acquisition of Dempos mining assets in Goa on a debt-free and cash-free basis for Rs. 1,750 crore (based on normative working capital) which was financed through internal accruals. Dempo is a logical and strategic fi t with Sesas existing iron ore business. While integration is continuing, your Company has already started leveraging synergie s to cr eate signi ficant long term value for al l shareholders. Some areas where work is progressing are: Utilisation of Sesa Goas mining and project management skills to develop and optimise Dempos operations; Further exploration of Dempos longer life mining assets; and Synergising Dempos operations with Sesa Goas to create mining and logistics efficiencies. The integration process is moving as planned and in doing so, there has been a significant growth in production of saleable ore for Dempo. These added to the consolidated growth of Sesa Goa. Dempo has been the first major acquisition by your Company. And the success of the post-merger fit has given us confidence to pursue the acquisition route for growth in coming years. I urge you to read the details of developments in markets and operations in the chapter on Management Discussion and Analysis. Here, I will touch upon some strategic and broader issues. Vision Over the last few years, Sesa Goa has been growing profitably, and at a rapid pace. The lessons learnt and the experience developed has given your Company the conviction to set a time bound target for aggressive growth. The goal is to be the fourth largest iron ore producer in the world by 2012-13 with an annual production of 50 million tonnes. This is the vision that your Company has adopted to guide its activities in the next three years. With a total consolidated production of 21.4 million tonnes in the 2009-10, Sesa Goa has become the 13th largest iron ore producing company in the world. The three major players Vale, Rio Tinto and BHP Billiton stand out with productions of 227 million tonnes, 218 million tonnes and 137 million tonnes respectively. Clearly, their scales of operations are much larger than any of the other players, with very different sets of challenges and risks. Sesa Goa believes that an annual production of 50 million tonnes will give it the right mix of global scale with the positioning of a low cost producer with flexible operations. Equally, the Company recognises that the task is challenging. According to the plan, in a span of three years, total production and transportation of iron ore has to grow 2-3 times. Such a large increase in production and transportation of iron ore over a short span of time will need aggressive investments and concerted efforts not only at the mines but also in developing the associated logistics infrastructure. The Company intends to invest around US$ 500 million to support this plan. The investments would be in machinery including improved processing plants and higher capacity heavy earth moving equipment (HEMM). On the logistics front, this includes developing access roads, port handling facilities, railway siding and the barge fleet. It is an aggressive goal but given the focused approach across departments and the history of delivery in the recent past, I am confident of your Companys success on this score subject to regulatory and community supports. Sustainability Sesa Goa remains committed to sustainable development, which focuses on maintaining a pre-eminent position in Health, Safety and Environment (HSE) practices, and contributing to the development of communities that it operates. On sustainable development, annual targets are set and monitored in line with your Companys HSE and social policies with a clear focus on integrating HSE aspects in the decision-making process. All locations are certified for ISO 9001, ISO 14001 and OHSAS 18001 except Orissa operations and OHSAS for Dempo operations. Your Companys community development work through the Sesa Community Development Foundation, Mineral Foundation of Goa and specific need based initiatives continues to focus on social projects in line with its over-all sustainability objectives. Outlook It is clear that the primary markets India and China are moving back to a relatively high growth trajectory. Chinese imports of iron ore continue to grow. Iron ore prices have recovered from the lows of 2009 and is expected to be buoyant on the back of strong demand for China and India. On the cost front, royalty rates have gone up in India, railway freight costs too are increasing, and there are always risks of export levies. In this milieu, while Sesa Goa is committed to its long term growth objective, it is aware of the critical role that internal efficiencies and operational productivity will play for the future fortunes of your Company. Your Company remains cautiously optimistic of overcoming the obstacles and delivering a strong performance in 2010-11. Corporate Governance At this juncture, as your Company is poised for aggressive growth, it has had a minor setback. During 2009-10, it was subjected to investigation by the Serious Fraud Investigation Office (SFIO), Ministry of Corporate Affairs, New Delhi. The investigation is in progress. From the order, the Company understands that the investigation was initiated pursuant to a report of the Registrar of Companies, and originates from a complaint filed by one of the shareholders against Sesa Goa Limited, the Company and their directors in 2003 prior to the acquisition of the holding company, Sesa Goa Limited by Vedanta in April 2007. Sesa Goa and Sesa Industries Limited are fully cooperating with the inquiry, and providing all the necessary information. Given the high standards of corporate governance practiced by the companies under scrutiny, I am confident that the issues will be favourably sorted out fairly soon. Let me take this opportunity to thank you our shareholders for reposing faith in our business. And, to all our employees and associates, let me extend my congratulations for taking Sesa Goa forward in a challenging business environment. Your Company has an ambitious vision. It has the execution capabilities. And it is confident of delivering the targets. Prasun K. Mukherjee Chief Executive Officer / Managing Director