3i Infotech

Investors with a one/two-year horizon can buy the shares of 3i Infotech.
The stock trades at a modest valuation despite a blended business model, a favourable geographic-mix and strong deal wins in recent times.
The current price of Rs 71 discounts the company’s likely 2009-10 per share earnings by four times, leaving ample scope for capital appreciation.
Service-mix
3i Infotech has three different kinds of offerings — software products, regular IT services and transaction processing. IT products contribute 31 per cent of the revenues, while services and transaction processing contribute 36 per cent and 33 per cent respectively. This model, with a blend of margins- and volume-based services, makes for a holistic service-mix.
Such a service-mix may also insulate the company from cuts in IT discretionary spends, as services and transaction processing address critical operations such as payment processing, mutual funds transactions, insurance payments and basic banking operations.
A more integrated offering becomes necessary in the current environment where clients are engaged in vendor consolidation and may look for vendors with end-to-end offerings in a given vertical. Despite the move away from software products to lower-margin services, 3i Infotech’s operating profit margin continues to sustain at 20 per cent levels.
Geographic mix
Geographically, the company’s footprint in the US has improved to contribute 53 per cent of revenues, largely due to the acquisition of Regulus Group, with much of the rest contributed from India, West Asiant and Asian countries (Europe contributes only six per cent of revenues). Most Indian IT players have experienced an increase in contribution from the US geography over the past year. The National Association of Software and Services Companies (Nasscom) has indicated that the US market and the financial services vertical are stabilising; this makes for a favourable geographic mix for 3i Infotech.
In the recent June quarter, the revenues grew 27.7 per cent over the June 2008 quarter, to Rs 602 crore while net profits grew 8.3 per cent to Rs 63 crore. A slower growth in net profits may be attributable to the steep increase in interest and depreciation. The company may take up a QIP offering to reduce its debt burden; it has already bought back a significant portion of outstanding FCCBs. Valuations appear modest even after factoring in possible equity dilution.
Recent large deal wins span a range of offerings - with orders for anti-money laundering solutions for State Bank of India, banking and treasury products for primary dealers in India and West Asia and domestic e-governance solutions. The company has an order book of Rs 1,450 crore as of June 2009 -about 63 per cent of 2008-09 revenues.
3i Infotech has an equal split between fixed-price and time & material billing modes, which ensures optimal resource planning and realisations.
The company maintains a negligible bench at any point in time
via BL

HDFC trims home loan rates again

Housing Development Finance Corporation Ltd. (HDFC) cut interest rates by 50 basis points from 9.5% to 9% for home loans between Rs 30 lakh and Rs 50 lakh. But, the private sector housing loan major has retained old rates for other categories of loans. Earlier in July, HDFC had cut lending rates for new home loan customers by 25-50 basis points. According to the revised structure, loans between Rs 15 lakh and Rs 30 lakh are now available at 9% (as against 9.25% earlier) and loans above Rs 30 lakh are priced at 9.5% (9.75%). Following the reduction, the EMI on a Rs 1-lakh loan with a 20-year tenure will shrink to Rs 884. HDFC’s prime lending rate (PLR) remains unchanged at 13.75%, which means that existing home loan customers will not see any change in EMIs or the cost of fund. A 50-basis point cut in interest rate lowers EMI by around Rs 34 for a Rs 1-lakh loan. HDFC has restructured its loan baskets to create a new product where loans up to Rs 15 lakh are available at 8.75% as against 9.25% earlier, according to reports.

SEZs...2 get formal nod, 1 in-principle approval

The Board of Approval of the Special Economic Zones (SEZs) considered even proposals for setting up new SEZs. The Board recommended grant of two formal approvals and one In-Principle approval. Formal approvals were granted to the Bangalore IT-ITES SEZ of Brooke Bond Real Estates Pvt. Ltd. and Shimoga ITES SEZ of Karnataka State Electronics Development Corporation Ltd. In-Principle approval was given to the Cuttak-based Solar SEZ of Lanco Solar Pvt. Ltd. at village Ramdaspur. Among other items, nine proposals for grant of co-developer status were also approved. The BoA decide to enlarge the list of default operations and also decided to authorise the Unit Approval Committee to approve the default operations. A notification in this regard is being issued separately.

GSM subscriber addition at 9.47mn in July: COAI

The GSM-based cellular service providers reported subscriber additions of 9.47mn (excluding the GSM subscribers of RCOM) during July, as against addition of 8.89mn in June, the Cellular Operators Association of India (COAI) said. With this, the cumulative All India GSM subscriber base has now grown to 325.7mn in July (excluding RCOM), up from 315.78mn in June, the lobby group for GSM operators said. Among the companies, Vodafone Essar added 2.2mn new users in July, taking its total base to 78.68mn while market leader Bharti Airtel saw its total base rise by 2.8mn to 105.18mn. Idea Cellular added 1.42mn new customers, boosting its subscriber base to 48.51mn, while Aircel increased its base by over 1.3mn to 23.1mn. BSNL added 1.62mn new customers, taking its reach to 5mn. Loop Mobile added 44,897 new subscribers, taking its total to 2.35mn. MTNL added 35,413 new customers, boosting its total base to 4.33mn. Bharti Airtel continues to be the top GSM operator in the country, with a market share of 32.29% followed by Vodafone Essar at 24.16%, BSNL at 15.57% and Idea at 14.9%.

India signs good FTA with ASEAN

After being in dialogue for six long years, India signed a Free Trade Agreement (FTA) in goods with the 10-nation Association of South East Asian Nations (ASEAN) following the meeting of the ASEAN-India Economic Ministers, in Bangkok. The pact on trade in goods under the Comprehensive Economic Cooperation Agreement (CECA) was signed by India's Commerce & Industry Minister Anand Sharma and ASEAN Economic Ministers. Thai and Indian officials said that the FTA would eliminate tariffs on products, including electronics, chemicals, capital goods and textiles. It is targeted to eliminate tariffs on 80% of the tariff lines accounting for 75% of the trade in a gradual manner starting from 1st January, 2010. Tariffs on these products would be reduced to zero between 2013 and 2016, according to a joint statement. The pact, on which the Prime Minister, Dr. Manmohan Singh has formed a GoM to allay domestic concerns, will eliminate duties on 4,000 items by 2016. The FTA has provided flexibilities to India and ASEAN countries to exclude some of the products from the tariff concessions or eliminations to address their respective domestic sensitivity. India on its part has excluded 489 items from the list of tariff concessions and 590 items from the list of tariff elimination to address sensitivities in agriculture, textiles, auto, chemicals, crude and refined palm oil, coffee, tea, pepper etc. ASEAN countries have also maintained similar exclusion list from the proposed tariff concessions or eliminations.

Inflation plunges to record low

India's inflation, as measured by the wholesale price index (WPI) stood at -1.74% in the week ended August 1 as compared to 1.58% in the previous week, the Government said. This was the ninth straight week of decline in the barometer of wholesale prices. Incidentally, inflation had peaked at 12.91% during the week ended Aug. 2, 2008. For the week ended 1st August, 2009 the WPI for "All Commodities" rose by 0.1% to 237.2 from 236.9 in the previous week. Inflation for Primary Articles stood at 5.17% while the same for Food Articles was 10.16%, Fuel & Power at -11.07%, Manufactured Products at -0.77% and Food Products at 8.68%. The Government announced that it had revised the inflation rate for the week ended June 6 to -1.01% from -1.61%. The WPI for the same week has been revised to 234.1 as compared to the preliminary estimate of 232.7.
Primary food prices rose again, 0.2% Week on Week. Just in the past month, they are up 3% (36% annualised). Year on Year, primary food prices are up over 10% now and with the poor monsoon, they will stay elevated at least for 2-3 months more. Given the decelerating momentum behind WPI, IIFL expects it to revert to positive YoY reading in October, but the rebound will be sharp, given the sharp decline in the base. It expects WPI inflation of over 5% by the end of the year.

India`s industrial output jumps in June

India’s industrial production accelerated in June 2009 to 7.8% from 5.4% in the same period last year, the Government said. Markets had expected industrial output growth of 3.5-4% in June. The Government also announced that it had revised the May IIP growth figure to 2.2% from the provisional estimate of 2.7%. Industrial production grew by 3.7% during April-June 2009-10, the first quarter of the current fiscal year, as against 5.3% in the same period of last year. For the month of June 2009, Electricity production stood at 8% (2.6%) while Manufacturing output grew by 7.3% (6.1%) and Mining surged by 15.4% (0.1%). For the first three months, the output for the three IIP components stood at 6%, 3.2% and 7.3%, respectively. As many as 12 out of the 17 industry groups showed positive growth during June 2009 compared to the corresponding month of the previous year. Growth rate in Basic Goods, Capital Goods and Intermediate Goods for July stood at 10.1%, 11.8% and 7.9%, respectively versus 2.2%, 7.8% and 2.8% in July last year. Consumer Durables and Consumer Non-durables recorded a growth rate of 15.5% and 0.3% respectively with the overall growth in Consumer Goods being 4%. In the same month last year, the growth rate in Consumer Durables, Consumer Non-durables and Consumer Goods was 4.6%, 11.6% and 9.9%

Unitech - Annual Report - 2008-2009

UNITECH LIMITED
ANNUAL REPORT 2008-2009
DIRECTOR'S REPORT
To the Members,
Your directors have pleasure in presenting the 38th Annual Report of your
company, together with the Audited Accounts for the year ended March 31,
2009.
FINANCIAL RESULTS
Your company's performance during the year as compared with that during the
previous year is summarized below:
(Figures in Rs. million)
Particulars 2008-09 2007-08
1. Total Income 24549.13 29,697.25
Less: Operating Expenses 8029.15 12,372.02
2. Gross profit before Interest
and Depreciation 16519.98 17,325.23
Less: i) Interest 6853.16 3,584.35
ii) Depreciation 100.38 6953.54 85.79 3,670.14
3. profit before Tax 9566.44 13,655.09
Less: Provision for Tax
i) Current 2150.00 3,340.00
ii) Fringe Benefit 15.00 15.00
iii) Deferred 4.81 (6.68)
2169.81 3,348.32
4. profit after Tax 7396.63 10,306.77
Add/(Less):
i) Balance of Profit as per
last Balance Sheet 13940.30 4,342.12
ii) Foreign Project Reserve
Written Back 20.00 20.00
iii) Taxes Paid for earlier
years (Net of Provision) - (3.77)
iv) Debenture Redemption
Reserve written back 1250.00 1,600.00
15210.30 5,958.35
balance available for
appropriation 22606.93 16,265.12
5. Appropriations
i) Proposed Dividend 204.44 405.85
ii) Tax on Dividend 34.75 68.97
iii) Transfer to Debenture
Redemption Reserve 6400.00 1,250.00
iv) Transfer to General Reserve 600.00 600.00
v) Balance carried over to
Balance Sheet 15367.74 13,940.30
22606.93 16,265.12
FINANCIAL HIGHLIGHTS AND OPERATIONS
The total income of your Company for the year under review is Rs 24,549.13
million. The real estate division contributed Rs. 16,598.17 million in the
revenues of your company for the year, whereas the revenues from
construction division and consultancy stands at Rs.963.68 million and Rs
756.33 million respectively.
On consolidated basis, the total income of your Company and its
subsidiaries stands at Rs. 33,156.35 million. The consolidated profit
before tax (PBT) and profit after tax (PAT) stood at Rs.14,392.03 million
and Rs. 11,968.06 million respectively. The earning per share (EPS), on an
equity share having face value of Rs. 2/-, stands at Rs. 7.37 considering
the total equity capital of Rs. 3,246.75 million.
The key highlights pertaining to the business of your company, including
its subsidiaries and joint venture companies, for the year 2008-09 and
period subsequent thereto, are given hereunder:
* In order to strengthen its financial position and capital base of the
Company and for execution of projects, repayment of loans and general
corporate purposes, the Company had successfully raised USD 325 million (Rs
1621 Crores) of equity capital (including premium), through Qualified
Institutional Buyers, mostly reputable foreign investors. It gave immense
satisfaction to the Company, that even in the time of crisis; our Company
continues to enjoy investors' confidence.
* New business initiative- The Company believes that India's
telecommunications sector presents potential for growth. Last year, Unitech
Wireless received pan- India telecommunication licenses viz. Unified Access
Service Licences ('UASL'), in all 22 telecom circles and this year they
have received initial spectrum (4.4 Mhz) in 21 telecom circles. The Company
and Unitech Wireless, along with other group companies of Unitech have
entered into a subscription agreement with Telenor Mobile Communications
AS, Norway and its subsidiary, Telenor Asia Pte Ltd, Singapore ('Telenor'),
a global telecommunications company wherein Telenor agreed to acquire 67.25
per cent stake in Unitech Wireless, subject to receipt of requisite
regulatory approvals. Under the agreement, Telenor has agreed to subscribe
to fresh issuance of equity shares of Unitech Wireless in four phases for a
total amount of investment of Rs. 61.2 billion with an anticipated
completion date of December 2009. Upon completion of the fourth phase,
Telenor will have a 67.25 per cent stake in Unitech Wireless.
Unitech Wireless also entered into an infrastructure sharing agreement with
Wireless-TT Infoservices Ltd. ('WTTIL'), the tower arm of Tata Teleservices
Limited and Quippo Telecom Infrastructure Limited ('QTIL'), under which
Unitech Wireless will lease tower infrastructure from WTTIL and QTIL across
India to operate its telecommunications business. In addition, Unitech
Wireless has also entered into an agreement for the provision of
transmission services with Tata Teleservices Limited. Unitech Wireless has
also placed orders for equipment with Alcatel-Lucent, Huawei and Ericsson
and entered into an IT services outsourcing contract with Wipro.
* Primary focus on the affordable housing segment- The Company has recently
started focusing on the affordable housing segment of its business. It
believes that this is a segment where a demand-supply mismatch exists and
which is relatively less affected by the recent fall in demand for real
estate projects in India. In this segment, the Company is offering products
in the price range of Rs. 1 million to Rs. 5 million, depending on location
of the project. The Company believes that there is stronggrowth potential
in this price range as the demand for such properties can be expected to
continue to increase with the growth in the Indian economy and the
corresponding increase in urbanization. To enable it to provide housing at
affordable prices, the Company is striving to reduce its costs of
development and is also decreasing the area of the units in each project.
Within the affordable housing segment, the Company is planning to launch
relatively lower priced affordable housing projects under the brand name of
'Unihomes' in eight cities across India. These projects will be in the
price range of Rs. 1 million to Rs. 2.5 million. The other launches in the
affordable category are Uniworld Gardens II- Gurgaon, The Residences at
Uniworld Resorts- Gurgaon, Brahma at North Town, Chennai, Ananda at North
Town, Chennai, Wood Stock Villas at Nirvana Country- Gurgaon, The
Residences- Mumbai and Vistas at Uniworld City, Kolkata.
* Implementation of value engineering to reduce costs and enhance customer
value -The Company has commenced implementation of 'value engineering'
across all its ongoing and future projects with the objective of reducing
expenditure and optimising space usage while maintaining the high quality
standards of the Company. In this regard, the Company has standardised the
systems, processes and technology deployment. The Company has also
undertaken data analysis of past projects to set up internal benchmarks for
evaluating ongoing and new projects. Implementation of these techniques
have already resulted in reducing costs of various inputs including steel
and civil works, electrical, water supply and plumbing works amongst
others. The Company expects that these savings will reduce its costs and
enable it to offer its projects more competitively, especially in the
affordable housing segment.
* Reducing capital-intensive projects- The Company has a large, low cost
and diversified land bank which it believes is sufficient to meet its
expansion plans over the coming years. The Company intends to focus on
exploiting its existing land bank to develop its future projects in order
to improve the cash realisation from its projects. In addition, the Company
plans to acquire new land very selectively and only when it considers that
the acquisition affords an exceptional value proposition. The Company
intends to concentrate its future construction and development activities
towards projects that are presold or pre-leased. Further, in the commercial
segment, the Company is planning to adopt a strata sale model rather than a
lease model. The Company believes that this business model will ensure that
the Company does not need to raise capital extensively from external
sources for developing each project. For instance, the Company has recently
launched a commercial project under the strata sales model, The Chambers at
Vile Parle, Mumbai. More details about the business and operations of your
Company are provided in the Report on Management Discussion and Analysis
forming part of the Annual Report.
DIVIDEND
Keeping in view the current economic scenario and the future fund
requirements of the Company, your directors have recommended a dividend @
Re. 0.10 per equity share of face value of Rs. 2/- each fully paid-up for
the year ended March 31, 2009. The dividend, if approved, will be paid:
(i) to those members, holding shares in physical form, whose names appear
on the Register of Members of the Company at the close of business hours on
20th August 2009, after giving effect to all valid transfers in physical
form lodged with the Company or its Registrar and Shares Transfer Agent
before 8th August 2009 and
(ii) to those beneficial owners, holding shares in electronic form, whose
names appear in the statement of beneficial owners furnished by the
Depositories to the Company as at the close of business hours on 7th August
2009.
SUBSIDIARIES
During the year, 35 companies were added as the subsidiaries of your
company, thereby taking the total number of subsidiary companies to 351 as
on March 31, 2009. The financial details of the subsidiary companies as
well as the extent of holdings therein are provided in a separate section
of the Annual Report.
SUBSIDIARY COMPANIES' ACCOUNTS
The company has applied to the Central Government under section 212(8) of
the Companies Act, 1956, seeking an exemption from attaching a copy of the
balance sheet, Profit & Loss Account, Directors' Report and Auditors'
Report of the subsidiary companies and other documents required to be
attached under section 212(1) of the Act to the Balance sheet of the
Company and the said approval is expected shortly. Accordingly, the said
documents are not being attached with the Balance sheet of the Company. The
Annual Accounts of the subsidiary Companies are available for inspection by
any member/investor and the Company will make available these
documents/details upon request by any Member of the Company or its
subsidiaries interested in obtaining the same. However, the financial data
of the subsidiaries has been furnished alongwith the statement pursuant to
Section 212 of the Companies Act, 1956 forming part of the Annual Report.
Further, pursuant to Accounting Standard (AS)-21 issued by the Institute of
Chartered Accountants of India, your company has presented the consolidated
financial statements which include the financial information relating to
its subsidiaries and forms part of the Annual Report.
CHANGES IN CAPITAL STRUCTURE
Authorised Share Capital
During the year under review, the authorised share capital of your Company
was increased from Rs 5,000 million divided into 2,500,000,000 equity
shares( 2500 million equity shares) of Rs.2/- each to Rs.10,000 million
divided into 4,000,000,000 equity shares( 4,000 million) of Rs.2/- each and
200 million preference shares of Rs. 10/- each.
Issued and Paid-up Share Capital
On 22nd April 2009, your Company allotted 421064935 equity shares of Rs.2/-
each at a premium of Rs. 36.50 per share on private placement basis to
Qualified Institutional Buyers (QIBs) in terms of Chapter XIIIA of the
Securities and Exchange Board of India (Disclosure and Investor Protection)
Guidelines, 2000. Accordingly, after the said allotment, the issued and
paid-up share capital of your Company stood at Rs. 4,088,879,870/-,
comprising of 2044439935 equity shares of Rs. 2/- each.
DIRECTORS
In accordance with the relevant provisions of the Companies Act, 1956 and
Article 101 of the Articles of Association of the Company, Mr. Anil Harish,
Ms. Minoti Bahri, Mr. A. S. Johar and Mr. Ravinder Singhania are liable to
retire by rotation at the ensuing Annual General Meeting. Mr. Anil Harish,
Ms. Minoti Bahri and Mr. Ravinder Singhania, being eligible, offer
themselves for re-appointment and therefore, the board recommends their re-
appointment at the ensuing Annual General Meeting.
Further, the approval of Shareholders pursuant to Section 269 of the
Companies Act, 1956 read with Schedule XIII thereof, is sought w.e.f. 1st
January 2009, for the reappointment of Mr. Ramesh Chandra - Executive
Chairman, Mr. Ajay Chandra - Managing Director and Mr. Sanjay Chandra -
Managing Director for a period of five years and of Mr. A. S. Johar as
Executive Director upto the date of forthcoming Annual General Meeting. The
brief resume and other details relating to the directors, who are to be re-
appointed as stipulated under Clause 49(IV)(G) of the Listing Agreement,
are furnished in the Corporate Governance Report forming part of the Annual
Report.
DIRECTORS' RESPONSIBILITY STATEMENT
As required under Section 217(2AA) of the Companies Act, 1956, your
directors confirm that:
i) in the preparation of the Annual Accounts for the financial year ended
March 31, 2009, the applicable accounting standards have been followed with
proper explanation relating to material departures, if any;
ii) the Directors have 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 your
Company at the end of the financial year and of the profit of your Company
for that period;
iii) the Directors have 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;
iv) the Directors have prepared the Annual Accounts for the financial year
ended March 31, 2009 on a going concern basis.
REPORT ON CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSION & ANALYSIS
Committed to good corporate governance practices, your company fully
conform to the standards set out by the Securities and Exchange Board of
India and other regulatory authorities and has implemented and complied
with all of its major stipulations. The Report on Corporate Governance
along with the Compliance Certificate issued by M/s. K. K. Singh &
Associates, Company Secretaries in line with Clause 49 of the Listing
Agreement validating our claim and the Report on Management Discussion and
Analysis are annexed and forms part of this Annual Report.
AUDITORS AND AUDITORS' REPORT
The auditors, M/s. Goel Garg & Co., Chartered Accountants, hold office
until the conclusion of the ensuing Annual General Meeting and being
eligible, are recommended for re-appointment. A certificate from the
auditors has been received to the effect that the re-appointment, if made,
would be in accordance with Section 224(1B) of the Companies Act, 1956.
M/s A. Zalmet, Certified and Legal Public Accountant, Libya who had been
appointed as Branch Auditor for Libya Branch of your Company will also
retire at the ensuing Annual General Meeting and being eligible, are
recommended for re-appointment.
There is no qualification in the auditors' report on the annual accounts
for the financial year ended March 31, 2009.
CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT, TECHNOLOGY ABSORPTION,
FOREIGN EXCHANGE EARNINGS AND OUTGO
Since your Company does not own any manufacturing facility, the
requirements pertaining to disclosure of particulars relating to
conservation of energy, research & development and technology absorption,
as prescribed under the Companies (Disclosure of Particulars in the Report
of Board of Directors) Rules, 1988 are not applicable.
The foreign exchange earnings and expenditure of the company during the
year under review were Rs. 16.81 million and Rs. 79.42 million as compared
to NIL and Rs. 147.73 million in the previous year respectively.
FIXED DEPOSITS
Your Company has Fixed Deposits to the tune of Rs. 73.48 million as on
March 31, 2009. 78 deposits aggregating Rs.1.93 million were due for
renewal/repayment on or before March 31, 2009 against which no
communication was received from the deposit holders.
PARTICULARS OF EMPLOYEES
In accordance with the provisions of Section 217(2A) of the Companies Act,
1956, read with the Companies (Particulars of Employees) Rules, 1975, the
names and other particulars of employees are set out in the annexure
included in the directors' report. However, as per the provisions of
Section 219(1)(b)(v) of the Companies Act, 1956, the directors' report and
the accounts are being sent to all members of the Company excluding the
aforesaid information. Any member interested in obtaining such particulars
may write to the Company.
ACKNOWLEDGEMENTS
The Board acknowledges with gratitude the co-operation and assistance
provided to your Company by its bankers, financial institutions, government
as well as nongovernment agencies. The Board wishes to place on record its
appreciation to the contribution made by employees of the Company and its
subsidiaries during the year under review. Your Directors thank the
customers, clients, vendors and other business associates for their
continued support. Your directors are thankful to the shareholders and
depositors for their continued patronage.
For and on behalf of the Board
Ramesh Chandra
Chairman
Place : New Delhi
Date : June 25, 2009
MANAGEMENT DISCUSSION AND ANALYSIS
2008-09 has been a challenging year for the world economy and the global
real estate sector in particular. While India hasn't witnessed the kind of
major turmoil witnessed in some advanced economies it has certainly been
impacted adversely. Given its leadership position in the Indian real estate
space with a large diversified portfolio of businesses that includes
development of residential space, commercial office space, retail
destinations, entertainment centres, hospitality properties and SEZ
projects, Unitech Limited (also referred to as 'Unitech' or 'the Company')
had to face and confront most of these challenges. As was reported in last
year's Annual Report, a slowdown in the sector was evident but the
deterioration was far more rapid and widespread than what was expected.
Consequently, on several fronts, Unitech had to rapidly recalibrate its
strategy and execution plans to align them with the needs of the
transformed business environment.
In order to get the right perspective of the Company's operations in 2008-
09, it is important to track the development of the real estate sector in
the last few years, understand the critical elements that were driving
growth and trace how they were affected by the developments in the macro-
economic environment in 2008-09.
REAL ESTATE IN INDIA - THE GROWTH PHASE
The Indian real estate sector grew at an accelerated pace of 40%-45% per
annum between 2004-05 and 2007-08. There was boom in demand for real estate
across segments driven mainly by the sustained high growth trajectory of
the Indian economy. Chart A shows the year on year growth in GDP and
construction in India in real terms over this period. There is strong
correlation between the two.
Much of this growth was driven by the following factors in different major
segments of the real estate sector:
* Residential Segment: The economic growth in India contributed to
increasing income levels. This, combined with trends of higher urbanisation
and nuclear families created greater demand for housing. Much of the demand
was backed by easier availability of housing finance that often converted
people from living on rent to having their own housing asset
* Commercial Segment: India rapidly emerged as a global back office for
services. There was huge demand for commercial space from information
technology (IT) and IT based businesses. Also, the sustained growth in the
economy prompted several multinational companies to open their operations
in India increasing demand foroffice property
* Retail and Entertainment: Given growing disposable incomes and the
emergence of organised retail in India, there was demand for retail
development and entertainment destinations
In this backdrop, prices of residential, office and commercial properties
reached dizzy heights (up 100%-200% from the levels prevailing in 2005).
The spurt in demand and rapid asset appreciation made real estate very
attractive for investments. While, initially much of these investments were
from domestic sources, with easing up of government regulations on foreign
direct investments (FDI), there were high levels of global capital inflows
into this sector. Most developers could sustain large developments that
have long gestation lags with the help of these large capital flows.
However, by the end of 2006-07, the Reserve Bank of India (RBI) had reacted
to concerns on rapid appreciation in asset values in India. It had asked
banks to set apart 1% (raised from the earlier 0.4%) of personal loans,
capital market exposures, residential housing loans beyond Rs.20 lakh and
commercial real estate loans, as a reserve to safeguard against the impact
of bad loans in the event of an asset bubble burst. There were also
restrictions introduced on external commercial borrowings (ECBs). This
tightened capital flows into the sector and removed speculative investments
in the market. And, the real estate market growth subsided to some extent
with only end-user demand. The capital squeeze became much more apparent
with the macro-economic developments in 2008-09.
MACRO ENVIRONMEN
The fall in housing prices in the US had sparked off the subprime lending
crisis in the middle of 2007. Downgrading and increased default risk of
various housing backed paper - particularly collateralised debt obligations
(CDOs) that were sliced, diced and far removed from the original assets -
rapidly spread throughout the US, and then to the European and Asian
financial systems.
In a matter of months, what had started as a US housing problem became a
major crisis that affected the entire global financial system. While
financial markets in the US and Europe were feeling the pressure in the
second half of 2007-08, other capital markets, especially in emerging
economies, did not seem to think that the sub-prime problem would play out
into a full blown crisis of financial confidence. That changed by the first
half of 2008-09, when everyone began to see a clearer picture of the extent
of write-downs undertaken by the major international financial houses on
account of their non-performing assets. Even accounting for under-
reporting, the numbers were staggering.
Reported write-downs reached US$760 billion by end- September 2008, of
which US$580 billion were incurred by global banks. As expected, losses
were mostly mortgagerelated, and primarily related to the US and European
banks. It only increased with an increase in loan-loss provisioning and
further mark-to-market write-downs. Chart B shows how such a crisis in the
global financial system has been unprecedented in modern history. The
estimated losses incurred by the financial system is over five times what
was witnessed in the nearest other such banking crisis seen in Japan
between 1990 and 1999.
Naturally, several large international financial institutions were left to
grapple with the consequences of large asset write-downs. The plight for
deleveraging led to an unprecedented contraction of credit in the system -
especially in the last three and a half months of 2008, after the collapse
of Lehman Brothers on 14 September 2008.
While the Indian financial intermediaries did not witness such fragility,
the global financial system had an adverse effect on India as well. There
was a significant capital flight especially by foreign institutional
investors; lower capital inflows; sharp depreciation of the Indian rupee
against most major currencies, but especially the US dollar; and huge fall
in equity values on account of reverse capital flows. Moreover, virtually
all overseas lines of credit for banks and Indian companies dried up. The
months of September, October and November were particularly bad as the
financial system witnessed significant pressures on the liquidity front.
Within the real estate sector, Unitech has been focusing on large-scale
mixed-use developments. In the last few years, as has been reported in past
Annual Reports, the Company has grown rapidly. While, initially it had been
ploughing back its internal accruals into its growth plans, in the next
phase, which was centred around being a pan-India diversified real estate
major, it leveraged its balance sheet to expand. This was done consciously
as at the prevailing market conditions, debt financing was optimal in terms
of costs. While the underlying expansion plans are starting to bear fruit,
on hindsight the debt based financing strategy put the Company under
pressure.
However, the developments in the global financial system, especially after
September 2008 were unprecedented and the sharp downward spiral in cash and
credit in the system exacerbated by very negative investor confidence and
business sentiments was beyond any realm of expectation. It left Unitech,
like many other companies in this sector under major refinancing risk in a
market with very tight liquidity.
And, matters were made much worse by the fall-out that the financial crisis
has had on the global real economy. Chart C shows the decline in global
output growth from 5.2% in 2007 to 3.2% in 2008 and an estimated -1.3% in
2009. Much of the slowdown has been in the advanced economies of the USA
and the EU. US growth reduced to 1.1% in 2008 and is estimated to be -2.9%
in 2009. EU growth was a mere 0.9% in 2008. In 2009, it is expected to be -
3.5%. Japan has got into yet another crisis, with 2009 growth forecasted at
-6.5%. Thanks to such acute de-growth in the real sectors of developed
economies, global trade is predicted to shrink by 11% in 2009 - the worst
since the Great Depression.
India, too, has been affected. After growing by over 9% for three
successive years - 2005-06, 2006-07 and 2007-08 - India's growth for 2008-
09 fell to 6.7%, particularly because of poor performance in the second
half of the fiscal year. To be sure, it is better than all developed and
most emerging markets. Nevertheless, a 230 basis point compression in
growth has affected demand and sentiments. Chart D plots the Indian growth
data.
The slowdown in the real economy has had a very negative impact on
discretionary and high value purchases in India. Much of this was triggered
by a sudden reduction in disposable income and doubts about job security.
The demonstrative effects of slowdown in some of the previously faster
growing sectors like IT led to widespread negative economic sentiments in
India. These developments directly affected demand for residential housing
in India as customers refrained from getting into long term indebtedness by
taking housing loans and preferred to hold on to liquid assets like cash.
The global downturn has severely affected services exports from India and
IT and ITES companies started cutting down expansion plans and costs. This
affected growth of commercial real estate. With consumer sentiments hitting
lows, retail and tourism has also suffered. As a result, most segments
within the real estate space witnessed pressure from the demand side and it
became very difficult to sell projects at a rapid pace to improve cash
flows.
Therefore, large real estate companies like Unitech faced a crisis of short
term asset liability mismatch in Q3, 2008-09. And, overcoming this became
the single most important challenge for the Company in the second half of
2008-09.
UNITECH'S FOCUS: BALANCING ASSETS AND LIABILITIES
With demand coming to a virtual standstill post September 2008, there was
little scope of generating cash. Even existing customers started delaying
payments. In 2007-08, with the tightening of RBI regulations for bank
credit to real estate, Unitech had to raise funds from mutual funds. With
negative investor sentiments, the mutual funds faced redemption pressures
and the severe capital squeeze not only raised capital costs but merely
raising capital became a major challenge. Box 1 lists the adverse
developments at Unitech during Q3, 2008-09
While operations and project execution continued to be important, much of
the Company's energies in the second half of 2008-09 were spent on
addressing the cash flow mismatch.
box 1: The dismal third quarter of 2008-09
* Sundry Debtors increased substantially from Rs.746 crore on 31 March 2008
to Rs.1,345 crore on 31 December 2008
* Sales dipped to an all time low. If sales are indexed to1 for Q3, 2008-
09, the sales in Q2, 2008-09 was 6.8 and in Q1,2008-09, it was 3
* The Company became highly leveraged. Outstanding debt increased from
Rs.8,552 crore on 31 March 2008 to Rs.10,900 crore on 31 December 2008
* Significant near term maturities of loans. Approximately Rs.2,600 crore
of loan repayments were scheduled between October 2008 and March 2009
* The cost of debt increased by about 200 bps
The strategy adopted was four pronged. It included:
1. Debt management: Despite a challenging environment, through its
proactive approach, Unitech has been able to successfully manage its debt
obligations
2. Monetization of non-core assets: By de-leveraging through sale of assets
like hotels, commercial properties, office buildings and infusion of
private equity at individual project level
3. Reduced the capital intensity of business: By shifting the strategy from
'land banking to banking on land'
4. Improve operational cash flows: By changing the mindset from
maximization of realizations to maximization of volumes
DEBT MANAGEMENT
As part of its strategy to strengthen its financial position, the Company
undertook restructuring of some of its existing indebtedness. Since
September 2008, the Company had engaged in discussions with some of its
lenders and had undertaken a significant restructuring exercise in January
2009.
For this initiative, the Company was able to benefit from the relaxation of
the restructuring norms of the RBI pursuant to which restructured loans
extended to real estate sector are permitted to be treated as _ Standard
Account loans instead of non-performing assets.
This restructuring has been undertaken through different arrangements.
These include agreements to extend the maturity of loans particularly those
with near term maturities and replacing short term loans with long term
ones. Following the restructuring exercise, the Company was able to defer
the payment of a total aggregate amount of approximately Rs. 1,647 crore
due as repayment of principal under various loan agreements during the
period from October 2008 to March 2009. On this front, the Company also
focused on collateralising loans wherever possible and reducing cost of
debt.
MONETISATION OF NON-CORE ASSETS
The Company sold The Mariott Courtyard Hotel, Gurgaon and is in the process
of selling some of its other hotel properties. It has also sold an office
building at Saket. Having identified a strategic partner, Unitech has
operationally exited its telecom business Unitech Wireless. This had a
positive impact on Unitech's balance sheet and cash flows. The Company is
also exploring ways of infusing private equity into some of its projects.
REDUCTION IN CAPITAL INTENSITY OF BUSINESSES
Unitech has a large, low cost and well diversified land bank, which is
sufficient to meet its development plans for the next seven to eight years.
As a result, Unitech has no plans to acquire further land in the near
future except for extremely attractive opportunities. The Company has also
not undertaken any construction or development activity on a speculative
basis. Construction is currently underway only for presold or preleased
projects. For commercial assets, Unitech has shifted its strategy from a
lease model to a sale model.
IMPROVING OPERATIONAL CASH FLOWS
Unitech's focus going forward is on rapidly developing, marketing and
selling projects on its existing land base. The focus is on tapping the
large untapped low cost housing market. Details of developments on this
front are given in a subsequent section on Unitech's residential real
estate operations.
These initiatives have paid dividends (see chart E).
* Debt outstanding has reduced from Rs.10,900 crore as on 31 December 2008
to Rs.9,055 crore as on 31 March 2009
* Cost of debt has reduced by approximately 70 bps.
The Company's cash position has been further improved in April 2009 with
the successful raising of Rs. 1,621 crores of equity through a QIP. This
equity raising enabled the Company to have better negotiating power with
banks for loans and with potential buyers of non-core assets for price
negotiations. Further, it will provide greater confidence to customers on
project delivery.
Apart from balancing assets and liabilities, the other major non-
operational development during 2008-09 was that of finding a strategic
partner for Unitech Wireless - the Company's telecom venture.
UNITECH WIRELESS
The Company believes that Indias telecom sector presents significant
potential for growth. Consequently, through its subsidiary Unitech Wireless
it bid and received pan-Indian telecommunication licenses in all 22 telecom
circles in February 2008. As of March 2009, it received initial spectrum
(4.4 Mhz) in 21 telecom circles.
While it believed in the investment, Unitech did not intend to have
operational control of this business as it was not part of its core
competency. After evaluating several potential strategic partners, on 28
October 2008, the Company and Unitech Wireless entered into a subscription
agreement with Telenor Mobile Communications AS, Norway and its subsidiary,
Telenor Asia Pte Ltd, Singapore, a global telecom major. Subject to
compliance with certain conditions mentioned in the agreements and receipt
of requisite regulatory approvals, Telenor has agreed to subscribe to
shares of the companies comprising Unitech Wireless in four phases for a
total amount of Rs. 6120 crores with an anticipated completion date of
December 2009. With this investment, Telenor will acquire a 67.25 % stake
in the companies comprising Unitech Wireless. The first phase of investment
by Telenor was completed on 20 March 2009, where Telenor invested Rs. 1250
crores in Unitech Wireless for a 33.5 % stake in the companies comprising
Unitech Wireless. And, in mid-May 2009, the second tranche of investment
worth Rs.1,300 crores was completed. With this, Telenor's paid out stake
increased to 49%.
In January 2009, the Company transferred 75% of its stake in Unitech
Wireless to three associate companies, namely Cestos Unitech Wireless
Private Limited, Simpson Unitech Wireless Private Limited and Acorus
Unitech Wireless Private Limited, to fulfil the conditions precedent for
investment under the Subscription Agreement. However, the Company continues
to hold economic interest in Unitech Wireless through compulsorily
convertible debentures and options in the three associate companies.
These developments had the following direct or indirect financial impact on
Unitech Limited:
* Transfer of Debt and Guarantees totalling Rs. 2,100 Cr on Unitech's
balance sheet to Unitech Wireless.
* Unitech Ltd. has an economic interest of 32.75% in the companies
comprising Unitech Wireless. Based on entry valuation of Telenor, Unitech's
economic interest in the companies comprising Unitech Wireless is valued at
around Rs. 3,000 Cr translating into a per share valuation of around
Rs.12.50
The day to day management of Unitech Wireless will be undertaken by
Telenor. A strong management team of over 300 employees is in place.
Several regional offices have been established with critical manpower.
Unitech Wireless has entered into an infrastructure sharing agreement with
Wireless-TT Infoservices Ltd. (WTTIL), the tower arm of Tata Teleservices
Limited and Quippo Telecom Infrastructure .Limited (QTIL), under which
Unitech Wireless will lease tower infrastructure from WTTIL and QTIL across
India to operate its telecom business. In addition, an agreement for the
provision of transmission services has been entered into with Tata
Teleservices Limited. It has also closed major contracts with best in class
parameters for network equipment and IT services.
For Unitech Wireless, development of value proposition and brand position
is underway, while a robust distribution and retail strategy is also being
put in place. Roll-out of services is expected by the end of calendar year
- 2009. While operationally, Unitech will focus on its core real estate,
the telecom business will be managed with the domain expertise of Telenor.
This business will leverage various strengths of Unitech such as its strong
relationships with regulatory authorities and financial institutions, well
recognised brand name, real estate domain knowledge etc.
BUSINESS OPERATIONS
The operations of the Company can be divided into three principal business
lines:
* Real Estate - Residential, Retail, Entertainment, Hospitality, Commercial
and SEZs
* Property Management and Consultancy Services
* Construction
Clearly, real estate development is by far the largest business in
Unitech's portfolio. The other two segments supplement the core business.
REAL ESTATE SEGMENT
With a share of 83.6% in the Company's total revenues, real estate remains
the Company's core business. Revenues from this segment reduced from
Rs.3,602 crore in 2007-08 to Rs.2,416 crore in 2008-09. The Companys
activities in the real estate sector include identification of projects,
land acquisition, architectural and engineering design, project management
and marketing of projects. The focus has been on mixed use development and
extended from residential to commercial, retail, hospitality and
entertainment hubs. As has been discussed earlier, demand for different
real estate has been subdued through 2008-09.
However, towards the end of 2008-09 there has been an improvement. Much of
this has been driven by higher demand for low cost residential housing.
Stimulus packages by Central Government, coupled with RBI's monetary policy
interventions, have had a positive impact on the real estate sector in
India. Demand has also increased with a reduction in interest rates and
greater availability of housing loans.
Having successfully tided over the adversities in 2008-09, particularly on
the financing front, Unitech is well poised to make the most of the
resurgence in demand in the housing sector. On the operations front, too,
it has adopted a changed business strategy.
Unitech continues to enjoy a competitive edge in the market. There are some
intrinsic factors that differentiate Unitech from its competition. The
factors include:
* Ability to identify new projects and successfully implement existing
projects: The Company believes that its experience in the real estate
sector, established market position and industry knowledge allow it to
identify and acquire new projects effectively. This experience also gives
it an advantage in managing third-party contractors and thereby completing
projects in a timely and efficient manner. The Company is also able to
assess the potential risks and returns of its projects because of its
experience in the development of diverse projects. The Company believes
that it has earned a reputation for reliability among its customers by
completing projects on schedule.
* Track record of profitability and a successful business model: The
Company was one of the early participants in the Indian real estate
industry and has grown to become a leading player with a track record of
profitability. Throughout its 22-year history as a listed company, the
Company has not recorded a loss in earnings before interest, tax and
extraordinary items for any financial year.
* Strong relationships with leading financial institutions, contractors and
consultants: The Company believes that it has developed strong
relationships with leading national and international financial
institutions, thirdparty contractors and consultants. The relationships
with financial institutions enhance the Companys ability to raise funding
for large, capital-intensive projects. The Companys strong working
relationships with third-party contractors provides it with an edge in the
Indian industry. In the past the Company has worked with
internationallyrenowned consultants such as Callison Inc. (USA), FORREC
(Canada), SWA and HOK (USA) for its projects which has enabled it to
provide products with a superior quality and design.
* Well-recognised brand name: The Unitech brand is well recognised in India
and was given the title of Superbrand' by Superbrand India in October
2007. The Company is also the recipient of the CW Architect and Builders
Award, 2008 for being one of Indias Top Ten Builders. The Company believes
that the distinctive design, construction and innovative nature of its
projects are responsible for its brand recognition. Further, the Company
has a dedicated Customer Relations Management (CRM) department to address
any customer concerns. The Company believes that its widely recognised
brand name facilitates a higher level of trust and acceptance among
customers.
Unitech intends to utilise these strengths and implement a new business
strategy. Given market conditions, the focus of the Company's operations
will be on three fundamental pillars.
FOCUSING ON THE RESIDENTIAL SEGMENT WITH THRUST ON AFFORDABLE HOUSING
The Company's focus is now on the residential segment with a thrust on
affordable housing, a segment where a demandsupply mis-match exists and it
is relatively less affected by the recent economic downturn. The Company
will concentrate on offering products, primarily in the price range of Rs.
10 to 50 lakhs. Unitech believes that there is strong growth potential in
this price range as the demand for such properties will continue to
increase with the growth in the Indian economy, especially of the middle
income group (see table 1). Differential lower interest rates introduced by
banks for loans below Rs. 20 lakh will also boost demand in the affordable
housing segment.
Table 1 Income-wise household distribution in India
Number of households
(Million)
2005 2015 2025
High Income Group 1.2 3.3 9.5
Middle Income Group 13.3 60.6 128.0
Low Income Group 192.4 180.1 143.0
Total 206.9 244.0 280.5
Source: McKinsey Global Institute
To enable it to provide housing at affordable prices, the Company will
strive to reduce its costs of development in order to keep its cost
structure low, maintain reasonable profit margins and decrease the area of
the units in each project. Through a combination of reduction in costs,
decrease in unit sizes and reduction in margins, Unitech has been able to
offer housing at prices affordable to a wider cross section of customers.
And, the initial response has been very positive.
Uniworld Gardens II, a recently launched project in the affordable housing
segment, in Gurgaon, has received overwhelming response and the entire
project comprising nearly 800 units was sold out within 7 weeks of launch.
The company also launched affordable housing projects - Ananda (504 units)
and Brahma (672 units) - in Chennai. These projects also have been sold
out. This bears testimony to the widespread demand for such affordable
housing.
The company also plans to offer products priced in the range of Rs. 10 to
25 lakhs. This new low cost housing will be under the 'Unihomes' brand.
The company has plans in place to launch projects totalling an area of 30
million square feet across 15 cities during 2009- 10. Ninety per cent of
these projects will be residential. It already has land for these projects
and the projects are going to be financed through pre-sales.
The Company believes that its low cost land bank and strong in-house design
and development capabilities will provide it with a competitive advantage
in this segment of the housing market.
IMPLEMENTATION OF VALUE ENGINEERING
The Company has commenced implementation of value engineering' across all
its ongoing and future projects with the objective of reducing expenditure
and optimising space usage while maintaining the high quality standards of
the Company. The Company has undertaken rigorous data analysis of past
projects to set up internal benchmarks for evaluating ongoing and new
projects. Implementation of these techniques have already resulted in
reducing costs of various inputs including steel and civil works,
electrical, water supply and plumbing works amongst others. The Company
expects that these savings will reduce its costs and enable it to offer its
projects more competitively, especially in the affordable housing segment.
REDUCING CAPITAL-INTENSIVE PROJECTS
The Company has a large, low cost and well diversified land bank which is
sufficient to meet its development plans for the next seven to eight years.
The Company intends to focus on exploiting its existing land bank to
develop its future projects in order to improve the cash realisation from
its projects. In addition, the Company plans to acquire new land very
selectively and only when it considers that the acquisition affords an
exceptional value proposition for it.
Over the last few years, the company has been investing in developing a
large pan-India land bank. The Company has extensive land reserves, which
are geographically well spread across India (see Map 1). As of 31 March
2009, these land reserves amounted to 11,178.52 acres. Of these,
approximately 6,406.18 acres of land have been allotted or agreed to be
allotted to the Group by State Governments and their agencies, and
approximately 4,772.34 acres of land have been acquired or agreed to be
acquired by the Group from private parties. The Companys land reserves
consist of land legally and validly owned by the Group, land over which the
Group has sole development rights, land awarded to the Group by State
Governments and their agencies pursuant to letters of allotment that have
yet to be transferred to the Company, and land that is subject to memoranda
of understanding, agreements to acquire or letters of acceptance executed
by the Group with private parties. Additionally, the Company has entered
into a number of joint development agreements for land. As of 31 March
2009, land available to the Company was 7,466.78 acres.
Much of this land has been strategically purchased at low costs and is
amenable to generating profits from even low cost affordable housing. The
Company's stress on low cost of land is further seen in its projects in
Mumbai, where thefocus is on slum rehabilitation - a low cost method of
gaining access to land.
The Company intends to concentrate its future construction and development
activities towards projects that are pre-sold or pre-leased. Further, the
Company is planning to adopt a strata sale model rather than a lease model
for its commercial properties. This will ensure that the Company does not
need to raise capital extensively from external sources for developing each
project.
SLUM REHABILITATION: PENETRATING THE MUMBAI MARKET
Unitech has managed to create a significant presence in Mumbai. The
developments here are in line with the Company's model of obtaining low
cost land and developing projects with low capital intensity. This has been
achieved by tapping opportunities in slum rehabilitation. The Company has
adopted a model of partnering local developers who have experience and
knowledge about local issues, which are essential for any slum
rehabilitation project. On this front, Unitech has formed Joint Ventures
with two local developers. Unitech has already built a sizable professional
team of projects managers, architects and legal officials that are
dedicated to this form of project development.
The JV partners have good relationships, goodwill and trust amongst slum
dwellers and excellent relations with local Governments and Slum
Rehabilitation Authority (SRA). They also have good prior experience in
such projects. Unitech brings to the table its strong corporate governance
and organizational systems, execution capability for 'large scale' projects
and township development, high quality standards in design and
construction, strong branding and sales network, and ability for
institutionalised fund raising. The complementing skills of Unitech and its
JV partners are being channelized in a structured manner.
The low land acquisition costs have enabled superior returns for investors
and private equity (PE) players have already started showing interest on
many of the slum development projects. Unitech has already successfully
managed PE fund infusion in the 1st phase of its Golibar project. Project
finance has also been arranged from banks to support these projects.
There are already 15 projects, which are at an advanced stage. The total
land size of these projects is 163 acres, of which 80 acres is private
land. The number of slum dwellers that have to be rehabilitated is 30,714.
Consent has been obtained from over 85% of the slum dwellers and over 2,200
of them have been evacuated. Construction has started in 3 projects.
Another 10 projects are in the preliminary stage of development. The total
land size is 145 acres of which 60 acres is private land. These projects
cover around 30,000 slum dwellers. So far, consent has been obtained from
over 30% of the slum dwellers.
The Company has recently launched its first project, The Chambers, in
Mumbai. It is a commercial project under the strata sales model targeted at
the small and medium enterprises and professionals. This project has
received good response and is nearly sold out.
The company believes that its projects in Mumbai will create immense value
in the coming years.
COMMERCIAL REAL ESTATE
The Companys commercial space offerings are a mix of built to suit'
offices, customised facilities and pure multi-tenanted facilities. The
Company has been developing large projects in multiple phases. These
projects attract tenants who, in turn, have significant growth plans. As
the business operations of these tenants grow, they tend to take up
additional space in the same project at different phases of its
development.
The commercial business model has also witnessed a change in focus. Earlier
it involved either the leasing or the outright sale of its developed
properties, determined on a case by case basis. Now with depressed demand
the focus is on aggressively getting tenants for older projects and only
developing properties that will be sold such as office suites or build to
suit' projects.
RETAIL SPACE
The Companys retail business model involves the leasing or the outright
sale of its developed properties, determined on a case-by-case basis. This
is one of the worst affected segments in the real estate space
characterised by over supply and sharp fall in rentals.
The Company has developed two malls, which form an integral part of its
amusement park projects situated in Noida and Rohini, New Delhi. The Great
India Place, located in Noida, is built over 14 acres of land and has
approximately one million square feet of retail space. The entire retail
space has been leased out to retailers such as Pantaloon, Shoppers Stop,
Lifestyle, Globus, Levis Strauss & Co, Benetton, Adlabs, Marks & Spencer,
Home Centre and Home Town.
In 2008, the Company completed the construction of Gurgaon Central, a
retail mall spread over an area of 100,000 square feet. Gurgaon Central is
completely leased to the Future Group. The Company has recently launched
another retail mall in Lucknow under the brand name Garden Galleria with an
approximate area of over 180,000 square feet. This retail mall is expected
to be completed by 2010. Developments in this business will remain slow and
focus will be on developing projects that are less capital intensive and
have a market.
ENTERTAINMENT SPACE
The Company started developing amusement parks in 2006. The first two
amusement parks are being developed in a phased manner through two joint
venture companies, IRPPL and UAPL. IRPPL is developing a large-scale, high-
tech amusement park spread over 148 acres in Noida called the
Entertainment City'. All the rides in the amusement park have been
imported from other countries. The first phase of development, which
includes the development of an amusement park with 20 rides and a retail
mall spread over an area of one million square feet, is already
operational. The other phases are currently under development.
UAPL is developing the second amusement park called the Adventure Island',
which is located in Rohini, New Delhi over 61.7 acres of land. The project
is being developed in a phased manner. Phase I of the project, which
includes the development of an amusement park with 22 rides and a retail
mall spread over an area of 200,000 square feet, is already operational.
Phase II of the project is underway and is expected to be completed by
2011.
All the rides installed in both parks have been certified for safety by
TUV, a certifying agency. TUV-NORD Systems Gmbh is an agency involved in
the certification of amusement park rides. The focus in this segment is on
operating the existing hubs and increasing footfalls and revenues of these
projects
HOSPITALITY PROJECTS
The Companys strategy in the hospitality segment is to build hotels, clubs
and serviced apartments as an integral part of its mixed-use development
projects. The Company intends to principally build and sell its hotel
properties. In some cases however, the Company may build and operate the
hotel property for a short term with the aim of selling the property
subsequently. In such cases the Company will outsource themanagement of its
hotels to global operators such as Marriott and Carlson. The Company has
signed an agreement with Marriott for the management of four of its hotel
properties. The Company plans to develop different types of
hospitalityproperties such as luxury or business hotels, serviced
apartments, resorts, clubs and limited service budget hotels. The Company
completed the development of Nirvana Club at Nirvana, Gurgaon in 2008.
SPECIAL ECONOMIC ZONES
Company is currently developing five notified IT SEZs. These SEZs are
jointly owned with Unitech Corporate Parks Plc (UCP) which holds 60% stake
in these projects.
PROPERTY MANAGEMENT AND CONSULTING SEGMENT
The Company provides property management services through its property
management subsidiary, Unising Projects Private Limited (UPPL). A few
examples of the maintenance and management services include power
distribution, backup power generation, central air conditioning, water
supply, drainage pumping, janitorial services, security services, parking
management, pest control, fire detection and solid waste disposal and
management. UPPL outsources most of these operations to qualified and
experienced vendors, although it takes responsibility for 117 developing
standard operating procedures, maintenance schedules and addressing
complaints. The fees are typically on a cost-plus basis. UPPL is ISO
9001:2000 certified, which is an international quality standard that
appeals to multi-national clients who expect superior quality standards.
UPPL works closely with the Companys CRM department to identify potential
problem areas and to provide solutions. Company also provides project
management services. Revenues from the Consultancy segment dropped
marginally from Rs.123 crore in 2007-08 to Rs.116 crore in 2008-09.
CONSTRUCTION SEGMENT
The Companys construction business has a proven track record in civil
construction and infrastructure projects. The construction business
includes operations in integrated engineering, procurement and services for
civil construction and infrastructure projects. The Company believes that
its expertise and proven track record in executing construction contracts
for various government, quasi-government and private sector enterprises and
pan-Indian location gives it an advantage when bidding for new contracts
and helps to prequalify it for large build-operate-transfer projects. In
the past, the Company has bid for build-operate-transfer projects along
with third parties. With the company increasingly focussing on its real
estate business, revenues from construction segment reduced significantly
from Rs.213 crore in 2007-08 to Rs.101 crore in 2008-09.
HUMAN RESOURCE
Preserving and developing the human resource base is a very important
element of Unitech's business. In 2007-08, focus was laid in reorganising
the Company to develop internal leaders. During 2008-09, much of this was
put to practice and the strength of the internal team has played a major
role in assisting Unitech to overcome the difficult business environment in
2008-09.
Due to subdued business, there has also been a reduction in the Company's
human resource base. As of 31 March 2009, the Company had approximately 967
permanent employees. The Company regularly organises in-house and external
training programmes for employees to improve operational efficiency. As
part of the Companys strategy, it aims to recruit qualified and talented
employees. The Companys employees are not covered by any collective
bargaining agreements and it has not experienced any material strikes, work
stoppages or labour disputes by its employees. The Company believes that it
has good working relationships with its employees. With over 20 years of
experience of property development in India, the Companys management team
has extensive knowledge and understanding of the property market in India.
This enables the Company to understand market trends and the preferences of
its target clientele.
FINANCIAL REVIEW
Table 2 lists the abridged financial performance of Unitech, as a
consolidated entity
Table 3 Abridged profit and loss Statement;
(Rs.crore)
2008-09 2007-08
Income from operations 2889.74 4140.42
Income from sale of investments 4.72 45.49
Other income 421.18 94.20
Total Revenues 3315.64 4280.11
Operating Expenditure 1300.95 1911.39
PBDIT 2014.69 2368.72
Depreciation 20.92 20.53
PBIT 1993.77 2348.19
Interest 554.57 280.41
PBT 1439.2 2067.78
Tax 242.39 398.59
PAT 1196.81 1669.19
Minority Interests 2.14 -12.87
Profit / (Loss) of associates -1.24 5.54
PAT 1197.71 1661.86
* Income from operations decreased by 30% from Rs.4,140 crore in 2007-08 to
Rs.2,890 crore in 2008-09. Income from sale of investments decreased by
89.6% from Rs.45.5 crore in 2007-08 to Rs.4 crore in 2008-09, while other
income increased significantly to Rs. 421.18 crore in 2007-08. Overall,
total revenues decreased by 22.5%.
* The major fall in revenues contributed to Profits before interest, tax,
depreciation and amortisation (PBDIT) decreasing by 14.9% to Rs.2,015 crore
in 2008-09.
* With the financing crisis, interest outgo increased by over 97% to Rs.555
crore in 2008-09.
* After adjusting for minority interest and profits from associates, the
Company's net Profit after tax (PAT) decreased by 27.9% to Rs.1,198 crore
in 2008-09
* EPS was Rs.7.37 in 2008-09
* The Board of the company has recommended payment of a dividend of 5% on
the Rs.2 face value of the shares for the year ended March 2009
INTERNAL CONTROLS AND THEIR ADEQUACY
Unitech has a proper and adequate system of internal controls to ensure
that all assets are safeguarded and protected against loss from
unauthorised use or disposition, and to ensure that all transactions are
authorised, recorded and reported correctly and adequately.
The Company's internal controls are supplemented by an extensive programme
of internal audits, review by management and documented policies,
guidelines and procedures. The internal control is designed to ensure that
financial and other records are reliable for preparing financial
information and for maintaining accountability of assets. All financial and
audit control systems are also reviewed by the Audit Committee of the Board
of Directors of the company.
RISKS AND CONCERNS
The Company is exposed to different types of risks such as credit risk,
market risk (including liquidity risk, interest rate risk and foreign
exchange risk), operational risk and legal risk. The Company monitors
credit and market risks, as well as portfolio and operational risk through
the oversight of senior management personnel in each of its business
segments. Legal risk is subject to the review of the Companys legal
department and external advisers. The Company is exposed to specific risks
in connection with the management of investments and the environment within
which it operates.
The Company aims to understand, measure and monitor the various risks to
which it is exposed and to ensure that it adheres, as far as reasonably and
practically possible, to the policies and procedures established by it to
mitigate these risks
CAUTIONARY STATEMENT
Statements in this Management Discussion and Analysis describing the
company's objectives, projections, estimates and expectations may be
forward looking statements' within the meaning of applicable laws and
regulations. Actual results might differ substantially or materially from
those expressed or implied. Important developments that could affect the
company's operations include a downtrend in the real estate sector,
significant changes in political and economic environment in India or key
financial markets abroad, tax laws, litigation, labour relations, exchange
rate fluctuations, interest and other costs.

ACC - Annual Report - 2008-2009

ACC LIMITED
ANNUAL REPORT 2008
DIRECTOR'S REPORT
DIRECTORS' REPORT & MANAGEMENT DISCUSSION AND ANALYSIS:
TO
THE MEMBERS OF
ACC LIMITED
The Directors have pleasure in presenting the Seventy Third Annual Report,
together with the audited accounts, for the year ended December 31, 2008.
The Management Discussion and Analysis has also been incorporated into this
report.
1. PREAMBLE - 2008: A YEAR IN WHICH WE OVERCAME THE ODDS:
During the year, your Company concentrated on robust cost management
processes and productivity gains to negotiate the challenges posed by a
progressively worsening external business environment.
We began 2008 with plans to meet the needs of a rapidly growing economy.
But India, like other world markets, soon began showing signs of strain, as
inflation reached double digits, and prices of commodities such as coal,
petroleum products, steel and food items escalated. Your Company's input
costs increased sharply, as prices of coal and gypsum rose, and
distribution costs also went up with higher oil prices. As inflation
reached a 16-year high by August, growth slowed and the cement industry was
also blamed for the rise in inflation. Banks continued to raise interest
rates to tame inflation. The cost of funds for both home buyers and
companies dealing in real estate increased accordingly, hurting demand for
cement.
Against this backdrop, your Company had to adjust its plans to weather the
uncertainties. ACC focused on enhancing productivity and efficiency, as it
sought to attain its twin objectives-one to emerge stronger through the
downturn and the other to maintain its leadership position. To reduce
operating and input costs, your Company focused on augmenting blended
cement production, improving the efficiency of factory equipment and
lowering power consumption. The Company also launched an organization wide
cost reduction project to improve its competitiveness.
A large number of human capital initiatives were implemented with the
objective of creating a more accountable and motivated team.
2. HIGHLIGHTS OF PERFORMANCE / EVENTS:
* Production at 20.83 million tonnes and sale of cement at 21.01 million
tonnes grew by 4.6% and 5% respectively.
* Total consolidated income for the year 2008 at Rs. 8000 crore, up 11%
over the previous year.
* The consolidated profit before exceptional items and tax for the year
ended December 31, 2008 was Rs. 1582 crore against Rs. 1716 crore in 2007.
* Consolidated profit after tax for the year ended December 31, 2008 was
Rs. 1100 crore against Rs. 1427 crore in 2007.
* There was substantial progress in the implementation of projects
augmenting capacity at Bargarh and Wadi II, with satellite grinding units
in Karnataka.
* The Company began building a new clinker and cement line of 3 MTPA
capacity at Chanda.
3. FINANCIAL RESULTS:
The consolidated profit before tax and exceptional items for the financial
year under review was Rs. 1582 crore, while profit after tax (including
extraordinary items) was Rs. 1100 crore, as against Rs. 1716 crore and
Rs.1427 crore, respectively, in the previous year.
FINANCIAL RESULTS:
A B C D
Sale of products and 8000.03 7221.71 7597.33 7168.17
services (net of excise
duty) and other income
Profit before 1942.75 2103.17 2021.88 2096.12
depreciation, interest,
exceptional items, tax
and minority interest
Depreciation 320.53 313.02 294.18 305.07
Interest 39.98 74.38 39.96 73.87
360.51 387.40 334.14 378.94
Minority Interest 0.03 (0.19) - -
Profit before 1582.27 1715.58 1687.74 1717.18
exceptional items and
tax Exceptional Items
Profit on sale of 29.97 8.42 36.57 11.68
investment in
subsidiary and
associate
Profit on sale of land 12.58 201.43 12.29 201.43
Profit after exceptional 1624.82 1925.43 1736.60 1930.29
items and before tax
Consists of:
Continuing Operation 1624.82 1925.43 1736.60 1991.00
Discontinued Operation - - - (60.71)
1624.82 1925.43 1736.60 1930.29
Provision for Tax:
Current Tax (511.68) (478.22) (510.47) (472.75)
Deferred Tax (3.71) (11.60) (4.34) (10.73)
Fringe benefit tax (9.78) (8.27) (9.00) (8.22)
(525.17) (498.09) (523.81) (491.70)
Profit after Tax 1099.65 1427.34 1212.79 1438.59
Consists of:
Continuing Operation 1099.65 1427.34 1212.79 1478.87
Discontinued Operation - - - (40.28)
1099.65 1427.34 1212.79 1438.59
Balance brought forward 2057.37 1254.97 2064.89 1248.94
from previous year
Transferred from - 166.63 - 166.63
Debenture redemption
reserve
Profit available for 3157.02 2848.94 3277.68 2854.16
appropriations
Appropriations:
Interim Dividend 187.65 187.40 187.65 187.40
Proposed Dividend 187.68 187.62 187.68 187.62
Dividend Distribution 63.79 65.04 63.79 63.74
Tax
General Reserve 350.00 351.00 350.00 350.00
Debenture Redemption 10.00 - 10.00 -
Reserve
Previous Year Dividend 0.02 0.16 0.02 0.16
Amortisation Reserves 0.63 0.35 0.63 0.35
799.77 791.57 799.77 789.27
Balance carried forward 2357.25 2057.37 2477.91 2064.89
to the next year's
account
A = Consolidated - This year - Rs. Crore
B = Consolidated - Previous year - Rs. Crore
C = Standalone - This year - Rs. Crore
D = Standalone - Previous year - Rs. Crore
4. DIVIDEND:
In July 2008, your Company had paid an interim dividend of Rs. 10 per
share, involving an outgo (including the dividend distribution tax) of
Rs.219.54 crore. Your Directors are pleased to recommend a final dividend
of Rs. 10 per equity share of Rs. 10 each. Thus, the total dividend for the
year 2008 would be Rs. 20 per equity share as against the same amount per
equity share for the year ended December 31, 2007.
The total dividend outgo for the current year would amount to Rs. 439.12
crore, including dividend distribution tax of Rs. 63.79 crore, as against
Rs. 438.76 crore, including dividend distribution tax of Rs. 63.74 crore,
in the previous year.
5. ECONOMIC SCENARIO AND OUTLOOK:
The year 2008 was unparalleled, with the unfolding of an unprecedented
financial crisis on Wall Street. Falling property prices, coupled with
massive leveraging, sparked off the sub-prime crisis in the housing
mortgage sector in the U.S. Due to the tight integration of the financial
markets across the world, this contagion has spread to the global banking
sector. Finally, this has traversed from the financial to the real estate
sector, and has precipitated into a global economic slowdown.
The global financial situation is uncertain as the financial markets in
major advanced economies are in a tailspin, causing dramatic reversals in
investment flows to emerging economies. Growth rates in the industrial
economies have turned negative, forcing a liquidity crunch. It now appears
that the recession will be deeper and the recovery longer than earlier
anticipated.
The growth prospects of emerging economies such as India have most
definitively been undermined by the ongoing crisis and the resilience of
the Indian economy is being tested like never before. There is evidence of
a slowdown in the economy with moderation of real GDP growth in the first
half of 2008-09. Industrial activity, particularly in the manufacturing and
infrastructure sectors, is decelerating. The services sector, which has
been our prime growth engine in the past five years, is slowing, mainly in
the sub-sectors of construction, transport, communication, trade and
hotels. For the first time in seven years, exports have declined in
absolute terms in the October-December 2008 quarter. Higher input costs and
softening demand have dented corporate margins, while the uncertainty
surrounding the crisis has affected business confidence.
The Central Government and the Reserve Bank of India have announced fiscal
and monetary measures to revive growth. The Government is seeking to boost
demand through enhanced expenditure on infrastructure and through tax
reductions. The central bank has progressively lowered benchmark rates to
infuse liquidity in the system and spur consumers to borrow but business
confidence and economy may take a while to rebound due to the traditional
lag effect associated with stimulus packages.
It is heartening to note that as our growth has relatively strong domestic
underpinnings, the fundamentals of our economy remain strong. Once
confidence is restored in the global markets, economic activity in India
will rebound quickly but a period of painful adjustment looks inevitable.
6. CEMENT INDUSTRY OUTLOOK AND OPPORTUNITIES:
India's cement industry recorded a growth of 7.8% in the calendar year
2008, reflecting the slowing trend in the Indian economy. The cost of
inputs, such as coal, power, gypsum and packing bags increased steeply
during the year 2008. The sharp increase in the prices of diesel, India's
primary cargo fuel, and higher railway freight tariffs pushed up our
transportation and logistics expenses substantially.
The Government's responses to the cement industry's requirements remain
ambivalent. The change in the excise duty structure imposed by the
Government during early 2008 adversely affected our sales realization. The
Government abolished import duty on cement, affecting our sales in the
Punjab and Haryana markets, where cement imported from Pakistan was
relatively cheap. Furthermore, the ban on cement exports upset the demand
and supply balance in the western Indian markets. A four percent cut in
excise duty and a stimulus package for the housing industry (which consumes
around 65% of the cement produced) were announced later in December 2008
but potential gains of this may be offset by an announced increase in
railway freight costs.
Some companies in the cement industry, including ACC, had voluntarily
decided to hold cement prices in response to the Government's concerns over
acceleration in inflation and, therefore, were unable to materially pass on
the increases in input costs to customers.
As the economic downturn became more evident and pronounced in the second
half of 2008, demand growth crawled. The realty sector started reeling
under the combined impact of a liquidity crunch, erosion in demand,
oversupply in key urban centers and falling prices - all leading to softer
institutional demand for cement.
Across the country, planned capacity additions have started to come on
stream. Cement capacity increased by around 28 million tonnes to 207
million tonnes in 2008. Further capacity additions of approximately 46
million tonnes are expected in 2009, based on the capacity expansion plans
announced by companies. The additional capacity, coupled with slowing
demand, will potentially bring down capacity utilizations.
Demand in 2009 will largely be driven by the pass-through effect of the
stimulus packages announced by the Government for housing and
infrastructure sectors. While urban demand has slackened significantly,
semi-urban and rural demands in the housing sector still show some
robustness. Affordable housing in India, as noted by Goldman Sachs Global
ECS Research, still remains a dream for many citizens while demand exceeds
supply by more than 30 million units. With an increasing number of joint
families splitting up and increasing urbanization, the demand for housing
is only expected to grow.
7. RISKS AND CONCERNS:
Although cement prices may be reasonably stable, the bunching of fresh
capacity, particularly in the second half of 2009, could cause a supply
overhang.
The economic slowdown has affected all sectors of the economy, reducing the
rate of GDP growth. The Reserve Bank of India has also progressively
reduced its forecast growth rate for 2008-09. It is expected that the
impetus to economic growth will largely come from investments in the
infrastructure sector. However, the efficacy of the stimulus packages
remains to be seen.
The major inputs for cement - coal, limestone and gypsum - show varying
signs of difficulty in assured availability at stable prices. Although
international coal prices have retreated from record highs, the
availability of indigenous coal is an area of great concern.
8. CEMENT BUSINESS - PERFORMANCE AT A GLANCE:
2008 2007 Change %
Production-million tonnes 20.83 19.92 4.6%
Sales volume-million tonnes* 21.01 19.97 5.0%
Sales value - Rs crore** 7308.62 6623.66 10.3%
EBITDA % 26.00% 31.00%
* Cement sales volume included sale to RMX and trading sales.
** Sales value as per cement segment / activity (includes trading).
9. 2008 - INNOVATION AND STRATEGIES:
As the economic slowdown, extreme volatility, steep increases in input
costs and falling margins evolved through 2008, your Company proactively
initiated a series of internal actions to weather the tough externalities.
Our technical and operational innovations have sought to reduce costs,
improve our cash flow and enhance the Company's sustainable competitive
advantage in the cement industry.
As part of processes innovation and adoption of technologies, your Company
promoted the use of alternative fuels and focused on the production of
blended cement, saving on expensive fossil fuels and input costs. Your
Company also continued to invest in renewable energy resources, expanding
its wind farm in Rajasthan.
Marketing was a focus area of our strategy in the year under review. Your
Company enhanced its marketing capability with select institutional
customers and strengthened its existing relationships with the extensive
dealer network. Furthermore, to harvest the rural and semi-urban
consumption demand, your Company is seeking to bolster the distribution
network and the brand in these areas.
Your Company also maximized cash generation by reducing its working capital
build-up and by spending its capex budget judiciously.
10. OVERSEAS BUSINESS:
The contract with Yanbu Cement Company, Saudi Arabia, for management and
operation of its cement plants crossed 29 years of successful operation,
and the contract stands renewed up to February 28, 2011.
The contracts with Dangote Group of Nigeria for providing operations and
maintenance services for its plants at Obajana and Benue have been
completed successfully and the agreement came to an end during 2008.
The project management and consultancy services contract with Dangote Group
for Benue, Nigeria, also ended in December 2008, after successful
completion of the project.
The contracts with M/s. IHI, Japan, for providing support/assistance have
been completed successfully.
The contract with Mugher Cement Enterprises, Ethiopia, for providing
project engineering and consultancy services for setting up a 3,000 TPD
greenfield clinkering line, along with a satellite grinding and packing
plant, is progressing satisfactorily.
11. MODERNISATION / EXPANSION PROJECTS:
The project to expand capacity at the Bargarh works to 2.3 million tonnes
per annum, together with two captive power plants of 15 MW each, made
considerable progress during the year. The project is now slated to be
completed by mid-2009.
The expansion of Wadi II plant with two captive power plants of 25 MW each,
along with the setting up of two separate new grinding plants near Bellary
and Kolar in Karnataka, has made further headway during the year and will
be commissioned in phases between August 2009 and February 2010. These
projects would add three million tonnes additional cement capacity.
Your Company commenced work on a new clinker line, with a capacity of 7,000
TPD, at Chanda in Maharashtra, where a new 25-MW captive power plant is
also being set up. This project is expected to be completed by mid-2010.
The total capacity of ACC as on December 31, 2008 was 22.63 million tonnes
per annum. After completion of all the above projects, the total capacity
of ACC will stand enhanced to 30.58 million tonnes per annum.
12. ACQUISITIONS / DIVESTMENTS:
To strengthen the presence in Goa and its adjoining markets, your Company
has acquired 40% in Alcon Cement Company Private Limited (Alcon). Alcon has
a cement grinding facility at Surla in Saqualim Taluka, Goa. Your Company
already had a trading arrangement for cement manufactured by Alcon.
Your Company acquired from IDBI Bank Limited 12.41% equity shares of Bulk
Cement Corporation (India) Limited, thereby increasing its shareholding in
the said subsidiary company to 94.65%.
Your Company sold its wholly owned subsidiary, ACC Machinery Company
Limited, in March 2008 for a consideration of Rs. 45 crore.
13. CORPORATE SOCIAL RESPONSIBILITY & SUSTAINABLE DEVELOPMENT:
The year saw your Company achieve a milestone by bringing out its first
report on sustainable development. The report brings out in detail various
initiatives taken by your Company on the 'triple bottom line' goals, viz.
social, economic and environmental fronts, befitting the status of India's
leading cement producer.
To ensure accountability to the sustainable development agenda and to
better integrate it with business strategy, your Company has put in place a
sustainable development organisation through a nominated apex corporate
council and plant-specific councils. This can be seen as one of the rare
achievements by an Indian cement producer with the scale and geographical
diversity of your Company. This would also go a long way in reinforcing the
sustainable development mindset at various levels across functions. It also
is a step toward the Company's goal of a matrix form of working, a
structure and culture that would enhance stakeholder responsiveness.
Accordingly, a cross-functional team actively participated in discussions
on the role of business in the National Action Plan on Climate Change. In
yet another step in this direction, your Company undertook a materiality
mapping of issues that are of concern to stakeholders. This map would guide
the sustainable development organisation about prioritizing the proposed
initiatives.
Corporate social responsibility continued to be actively pursued during the
year. Our involvement in communities around our manufacturing sites saw us
undertake a structured approach, commencing with an assessment of their
needs. We involved independent NGOs and academic organisations to avoid
biases and conflicts of interests. Based on these assessments, projects
were designed and implementation initiated in these communities. Your
Company supported important national issues like the fight against
HIV/AIDS, tuberculosis and leprosy. At the same time, we supported
sustainable construction.
Your Company's outstanding contribution towards achieving the national goal
of sustainable development was rewarded by the Federation of Indian Mineral
Industries, New Delhi, which chose ACC and three other companies to be
members of the Sustainable Miners' Club.
ACC's sustained focus on building renewable energy assets was evident in
the expansion of the wind farm in Rajasthan. The fresh investment would
help ACC achieve its objective of attaining sustainable development of its
business and underscore the Company's commitment to a greener tomorrow.
During the year, the Company generated 27.2 million units of clean and
green power from its wind farms in Tamil Nadu and Rajasthan.
Despite the fast-changing business environment imposing operational
challenges, your Company will steadfastly pursue its 'triple bottom line'
goals.
14. ALTERNATIVE FUELS AND RAW MATERIALS:
This year, the Alternative Fuels and Raw Materials (AFR) business of your
Company focused on extending sustainable waste management solutions to
industries through conserving natural resources. We are now in the
acceleration stage of the growth cycle of our AFR business, which has
expanded 37% in 2008 as compared to 2007. This year, the AFR business has
recorded savings of Rs. 22.8 crore (previous year, Rs 16.7 crores), with a
paradigm shift in the focus on the industrial wastes market. In 2008, the
team has put in concerted effort in building up a strong clientele,
comprising leaders in industrial sectors such as chemicals, automobiles,
pharmaceuticals, fast-moving consumer goods (FMCGs), etc. This year, our
works have co-processed around 12,900 tonnes of industrial waste as
compared to around 3200 tonnes in 2007. The business has also increased its
portfolio, safely and successfully co-processing twenty different
industrial-waste streams at our various cement works. The global experience
and expertise of the Holcim Group in this field has helped the team in
working intensively on the difficult-to-handle materials and making them
compatible with the process of cement manufacturing.
The efforts made by the AFR Department and its contributions to the cause
of sustainable development were recognized by the World Environment
Foundation (WEF) and an eminent body of juries conferred upon ACC the
prestigious Golden Peacock Eco-Innovation Award in 2008. ACC has also won
the Greentech Foundation's Silver Award for Environment Excellence in the
cement sector.
15. OCCUPATIONAL HEALTH & SAFETY (OH&S):
Occupational Health and Safety (OH&S) was on the top of your Company's
priority list and various initiatives were implemented during the year for
improving safety performance. To drive our OH&S Policy of 'No Harm' to
contractors and visitors, a new directive on contractor safety management
has been introduced to ensure that adequate processes are developed and
implemented to control and minimize risks associated with outsourced
activities. Emphasis has been laid on safety-induction training for a
period of two days for all contract workers at our sites. Safety-induction
training for visitors has also been strengthened for making them aware of
risks during site visits.
Training in auditing principles for internal auditors was organized to
improve the auditing skills, thereby making them more competent for
validating the implementation of the OH&S management system at our sites.
Second-party audits were conducted during 2008 for checking the progress of
implementation of the OH&S management system. Construction safety audits
were also carried out to check the effectiveness of the safety measures
adopted at our projects' sites.
The system for reporting 'near-miss' incidents online, a feature accessible
to all employee-users, has been developed so that everybody can share the
learnings from any incident and take appropriate measures to avoid re-
occurrence.
A safety campaign was conducted to generate awareness amongst the persons
working in the offices. During this campaign, OH&S policy, principles, OH&S
management system and off-the job safety aspects were communicated. Besides
this, a safety leadership workshop was organized for our top management
team to make them more passionate about safety.
ACC has won the Safety Innovation Award 2008, conferred by the Safety and
Quality Forum of the Institute of Engineers for outstanding performance in
safety and for introducing innovative measures.
16. HUMAN RESOURCES:
Our Vision:
Our Vision statement is a critical thread to connect our people. The Vision
drives strategic and management decision, business plans, processes, team
and individual goals and day to day behaviour across organization. The
Vision statement reads as:
'To be one of the most respected companies in India; recognized for
challenging conventions and delivering on our promises.'
There are three key components of our Vision statement:
* We wish to be one of the most respected companies in India - respect that
is earned through professionalism, excellence and community service.
* We wish to be recognized for challenging conventions - displaying a
questioning mind, retaining convention that merit continuity, discarding
those that are obsolete, thinking out of the box and being innovative.
* We wish to be recognized for delivering on our promises - keeping our
word, honoring our commitments and emphasizing integrity.
Productive high performing employees are vital to the Company's success.
The Board values and appreciates the contribution and commitment of the
employees towards the performance of your Company during the year. To
create the leadership bench and for sustainable competitive advantage, your
Company has inducted 2600 employees since 2005. Majority of the new hires
have joined in critical functions like Alternative Fuel and Raw Materials,
Corporate Social Responsibility (CSR), Safety, Logistics, Customer
Services, Projects and Internal Audit.
ACC has created an enabling work environment that fosters transparency,
agility, and meritocracy. This can be seen from the improvement in the
Company's Employee Engagement Scores in which 87% of full time employees
participated. The overall satisfaction score in the 2008 survey has
improved from 3.6 to 3.9, while the overall engagement score has improved
from 3.6 to 3.8, on a 5-point scale.
Employee safety:
Employee safety is of paramount importance for ACC. All the Executives in
ACC have a personal objective of ensuring a safe working environment for
its employees. The Safety performance is analyzed in all the important
forums.
Enabling employees:
In 2008 ACC launched several new initiatives that favourably impacted its
employees:
* ACC modified its Performance Management System that aligns all its
employees around six corporate objectives covering Safety, EBIDTA, Market
Share, Competitiveness, Organization and Corporate Citizenship.
* ACC launched an employee Portal called 'Accelerate' for its employees to
share views and to communicate across levels and locations on a wide
variety of work and Company related themes.
* ACC introduced the Hay Job Evaluation System for its senior management.
This will be extended to all other levels of management in 2009.
* ACC launched a number of transformation initiatives that involve a cross
section of employees. These initiatives will help the Company and its
employee teams to become more competitive and agile. Some of these are the
Sales and Marketing Excellence Project, Manufacturing Transformation
Project, Safety Transformation Project, the Value Chain Excellence Project
and the Human Resources Transformation Project.
Employee Learning and Development:
The Company continues to place emphasis on enhancement of skills and
capabilities of its employees and on imparting required training for
meeting customers' requirements. The training inputs are focused to suit
the specific needs of the Company and also attain all round employee
development and growth objectives.
* Members of the Company's senior management team have participated in
assessment centers customized around the strategic business needs of the
Company and the Holcim Leadership Competencies. Individual Development
Plans have been developed and are being implemented.
* ACC's Sumant Moolgaonkar Technical Institute (SMTI) at Kymore, Madhya
Pradesh conducts an 18 months Post National Council for Vocational Training
(NCVT) course in the trades of Electrical cum Instrumentation and Diesel
Mechanic cum Fitter. The annual intake on an all India basis is of about
100 students who meet the prescribed norms. Students who successfully
complete this course can be absorbed as Technicians in any cement company,
including ACC. This facility is also being utilized to upgrade the skills
of the existing technicians at ACC Plants through short term skill
development programmes.
* ACC has built a state-of-the-art training facility 'ACC Academy' which
was inaugurated in January 2008 at the Company's Thane complex. This
facility has an auditorium, classrooms and break-out rooms which can
accommodate 100 participants to undergo training programmes simultaneously.
Programmes involving technical courses, commercial courses and management
courses are conducted throughout the year for the executive and other
personnel.
* ACC has also built a training facility plus residential campus 'ACC
Cement Technology Institute' in July 2008 at its Plant at Jamul,
Chattisgarh, and started a 12 months Advanced Course in Cement Technology.
Students completing this course successfully could be absorbed by ACC as
frontline managers. This is an approach by ACC to give academic knowledge
coupled with practical training in the operations and maintenance of cement
plants so that the qualified candidates become knowledgeable and effective
in shop floor activities of cement plants. ACC thus develops its technical
talent pipeline.
* The Company has framed an HR policy to ensure achievement of a target of
at least five man days of training per employee per year. This target has
been consistently achieved by the Company since 2006. The effectiveness is
now being measured not only by man days attended but also by computing the
impact of these programmes on the Company's performance.
For sustainable competitive advantage, the Company believes in putting
people at the center of the strategy. All the efforts are towards creating
a learning and self-refreshing organization with in-depth engagement of
people.
17. FINANCE:
Your Company's rating for long-term non convertible debenture programme has
been upgraded to AAA by CRISIL. The bank loan rating for working capital
facilities has been rated AAA by both CRISIL and FITCH, and the prime
rating of A1+ for short-term borrowing has been retained by ICRA. In
December 2008, your Company borrowed Rs. 200 crore by a non-convertible
bond placement, with a five- year tenor and coupon rate of 11.30% per
annum.
The debt-equity ratio of the Company stands, as on December 31, 2008, at a
very comfortable 0.10:1. When one factors the cash and cash equivalents,
the Company has negative net financial debt as at the end of financial year
2008. This is a vindication of various measures taken by your Board and
Management for conserving cash and maintaining liquiditythat are paramount
in the present business context. Your Company is committed to following
these conservative and prudential policies in future.
18. SHARE CAPITAL:
The Company allotted 57401 equity shares of the face value of Rs. 10 each,
consequent to the exercising of stock options by its employees.
Details of Employees' Stock Option Schemes, as required to be disclosed
under the SEBI Guidelines, are set out in Annexure C' to the Directors'
Report.
19. FIXED DEPOSITS:
Your Company had discontinued its fixed deposits scheme in financial year
2001-02 and as on December 31, 2008, the total amount of fixed deposits
held by your Company was Rs. 0.23 crore, which represents the unclaimed
deposits that have matured.
20. PERFORMANCE OF SUBSIDIARY COMPANIES:
20.1 ACC Concrete Limited (ACCCL):
The strategic importance of ready mix concrete (RMX) as a channel business
for cement was recognized some time ago and a commitment was made to expand
this vertically integrated and value-adding business exponentially during
2008 and throughout the following four years with a view to establish a
strong position in this fast growing channel market.
To operate the business and carry out the planned expansion in the most
effective manner, it was decided that an independent and wholly dedicated
business led by a professional and experienced RMX management team be put
in place. In 2008, the required platform for total resource building,
including human capacity and capability as well as plant and equipment, was
initiated.
Sales volumes in 2008 grew by 37.4% from 2007, as the number of available
production units increased from 23 to 38. Turnover showed corresponding
increase of 40% from Rs.367.02 crore to Rs. 514.53 crore. However, being
the first year of its operations and with the global sub-prime crises
taking its toll on the Indian Market and in particular the real estate and
construction businesses, ACC Concrete Limited posted a net loss of Rs.96.81
crore after providing for Fringe Benefit Tax.
ACC Concrete Limited is taking steps to improve its performance in the
current financial year 2009. The extensive expansion plans have been put on
hold for 2009. Focus shall be on consolidating the existing business,
whilst continuing to grow volumes from the current base of available 38
batching plants as well as from dedicated onsite project solutions.
The current plant capacity of ACC Concrete Limited is more than seven
million cubic meters per annum from batching plants based in all of the
main cities across India. The business has been set up to ensure that the
best international standards are achieved within the total operation, with
quality and service being the top priority. Computerized controlled
production is fully integrated with dispatching and quality systems linked
to the Company's ERP platform.
ACC Concrete Limited is well placed to add value to the Group companies in
both the immediate challenging times and well into the future.
20.2 Bulk Cement Corporation of (India) Limited (BCCI):
BCCI, which is located at Kalamboli near Mumbai, handled 7.60 lakh tonnes
of bulk cement during the year, as compared to 7.59 lakh tonnes in the
previous year. BCCI reported a net loss of Rs. 0.53 crore during the year
as compared to a net profit of Rs. 1.07 crore reported during the previous
year, due to reduction in freight rebate by railways and unplanned empty
haulage charges. However, BCCI has improved plant performance in terms of
specific power consumption, packer output, equipment conditions, safety and
environment during the year 2008. BCCI made record dispatch of 83,044
tonnes to the market in December 2008.
BCCI is procuring its fourth rake that will be in operation by April 2009.
Land sub-lease agreement was registered in the name of Bulk Cement
Corporation (India) Limited up to December 31, 2051.
20.3 Lucky Minmat Limited (LML):
Lucky Minmat Limited did not undertake commercial operations during the
year under review. The company which was acquired in November 2007, owns
mining leases in Rajasthan. It proposes to commence mining operations
shortly. During the year under review, ACC invested Rs. 3 crore in the
Equity of that company.
20.4 As required under Section 212 of the Companies Act 1956, the audited
statements of accounts, along with the report of the Board of Directors
relating to the Company's subsidiaries, ACC Concrete Limited, Bulk Cement
Corporation (India) Limited, Lucky Minmat Limited and The Cement Marketing
Company of India Limited and respective Auditors' Report thereon for the
year ended December 31, 2008, are annexed.
21. DIRECTORS:
Mr. A.L. Kapur, who was appointed on the Board of Directors of this Company
on December 27, 1999, resigned as a Director with effect from July 24,
2008. The Board has placed on record its warm appreciation of the valuable
services rendered by Mr. A.L. Kapur during his tenure as Director of the
Company.
Dr. Nirmalya Kumar, who was appointed on the Board of Directors with effect
from January 24, 2006, resigned as Director with effect from January 9,
2009. The Board has placed on record its warm appreciation of the valuable
services rendered by Dr. Nirmalya Kumar during his tenure as Director of
the Company.
Mr. Onne van der Weijde, the former Chief Financial Officer of your Company
and presently Senior Vice President, Holcim Ltd., South Asia Operations, is
appointed as an Additional Director to hold office until the ensuing Annual
General Meeting (AGM). Accordingly, his appointment as a Director is
included in the AGM Notice.
In accordance with the provisions of the Companies Act, 1956, and the
Articles of Association,
Mr. N.S. Sekhsaria, Mr. Paul Hugentobler, Mr. Markus Akermann and Mr. M.L.
Narula retire by rotation and are eligible for reappointment.
22. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:
Your Company's Internal Audit Department is headed by the Chief Internal
Auditor and assisted by a team of highly qualified finance and engineering
professionals. The audit team is fully trained in 'state-of-the-art'
internal audit methodology and equipped with latest audit tools and
techniques to audit in SAP environment. Adopting the 'closer to business'
approach, the Department has been reorganized and in addition to having
audit teams based in Mumbai for South & West region and HO operations,
there are two audit teams based in Delhi and Kolkata for the Northern and
Eastern regions' operations, respectively.
The Department functions independently to ensure smooth operations of the
Organization. It closely monitors and evaluates the efficacy and adequacy
of internal control systems, their compliance with operating systems,
accounting procedures and policies at all the Company's locations,
including its subsidiaries. The Department is authorized to give
suggestions on various operations, finance and risk management. The
Department follows risk-based audit approach and draws annual audit plan
based on the risks perceived in each business process, validated by the
line management and top management. The audit plan is approved by the Audit
Committee.
Besides, your Company has also implemented a well-structured internal
control system (ICS) and the Internal Audit Department periodically tests
all the defined controls to ensure full compliance. This testing forms the
basis for the Chief Executive Officer/Chief Financial Officer certification
for financial reporting required under Clause 49 of the Listing Agreement.
23. ENHANCING SHAREHOLDER VALUE:
Your Company's strategic vision statement accords top position to value
creation. All the Company's operations are guided and aligned toward
maximizing shareholder value. New projects for capacity expansion and cost
reduction are taken up to enhance growth in sales and profitability. During
the year, your Company also divested its remaining non-core assets to
unlock value.
24. DIRECTORS' RESPONSIBILITIES:
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 217(2AA) of the Companies Act, 1956:
a) That in the preparation of the annual accounts for the year ended
December 31, 2008, the applicable accounting standards have been followed
along with proper explanation relating to material departures, if any;
b) That such accounting policies as mentioned in Note 1 of the Notes to the
Accounts have been selected and applied consistently and judgements and
estimates have been made that are reasonable and prudent so as to give a
true and fair view of the state of affairs of the Company as on December
31, 2008, and of the profit of the Company for the year ended on that date;
c) That proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and
d) The annual accounts have been prepared on a going concern basis.
25. AUDIT:
Messrs. S.R. Batliboi & Associates, Chartered Accountants, who are the
Statutory Auditors of the Company, hold office upto the date of the ensuing
Annual General Meeting and are eligible for reappointment. As required
under the provisions of Section 224(1B) of the Companies Act, 1956, the
Company has obtained written confirmation from M/s. S.R. Batliboi &
Associates that their appointment, if made, would be in conformity with the
limits specified in the said Section.
As per the requirement of the Central Government and pursuant to Section
233 B of the Companies Act, 1956, your Company carries out an audit of cost
records relating to cement every year. Subject to the approval of the
Central Government, the Company has appointed M/s. N.I. Mehta & Co., Cost
Auditors, to audit the cost accounts for the financial year 2009.
In 2008, your Company's Audit Committee was presented the Best Audit
Committee Award by the Asian Centre for Corporate Governance &
Sustainability and Indian Merchants' Chamber. The award was given in
recognition of the high ethical standards adopted by the Directors of your
Company, and for their contribution to overall transparent and accountable
governance.
26. CORPORATE GOVERNANCE:
As per Clause 49 of the Listing Agreement with the Stock Exchanges, a
separate section on corporate governance practices followed by the Company,
together with a certificate from the Company's auditors confirming
compliance, is set out in the Annexure forming part of this report.
27. CONSOLIDATED FINANCIAL STATEMENTS:
The Consolidated Financial Statements are attached. The consolidated net
worth as on December 31, 2008 is Rs. 4789.72 crore, as against Rs. 4125.55
crore, as at the end of the previous year.
28. ENERGY, TECHNOLOGY & FOREIGN EXCHANGE:
Details of conservation of energy, technology absorption and foreign
exchange earnings and outgo in accordance with the provisions of 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 are given
in Annexure A' to the Directors' Report.
29. PARTICULARS OF EMPLOYEES:
Information in accordance with the provisions of Section 217(2A) of the
Companies Act, 1956, read with the Companies (Particulars of Employees)
Rules 1975 as amended regarding employees is given in Annexure B' to the
Directors' Report.
30. CAUTIONARY STATEMENT:
Statements in the Directors' Report and the Management Discussion &
Analysis describing the Company's objectives, expectations or predictions
may be forward-looking within the meaning of applicable securities laws and
regulations. Actual results may differ materially from those expressed in
the statement. Important factors that could influence the Company's
operations include global and domestic demand and supply conditions
affecting selling prices of finished goods, input availability and prices,
changes in government regulations, tax laws, economic developments within
the country and other factors such as litigation and industrial relations.
31. ACKNOWLEDGEMENT:
Your Directors wish to acknowledge all their stakeholders and are grateful
for the excellent support received from the shareholders, banks, dealers
and other business associates. Your Directors recognize and appreciate the
hard work and efforts put in by all the employees of the Company and their
contribution to the progress of the Company in a very challenging
environment.
For and on behalf of the Board
Place: Mumbai N.S. Sekhsaria
Dated: February 5, 2009 Chairman
ANNEXURE A' TO DIRECTORS' REPORT
Section 217(1)(e) of the Companies Act, 1956, read with the Companies
(Disclosure of Particulars in the Report of Board of Directors) Rules,
1988.
A. CONSERVATION OF ENERGY:
(a) Energy conservation and efficiency measures were undertaken in various
areas of the cement plants:
At Kymore, synchronization of mines, crushers and over land conveyor
operation facilitated two shift operations instead of three shift
operation. A new Coal Stacker - Reclaimer was installed to improve coal
feed thereby improving the kiln stability. Replacement of HT Motor's by LT
motors with Variable Voltage Variable Frequency Drive (VVVFD). Close
circuiting of all Raw Mills with a common hydro cyclone at Madukkarai.
Operation of all Kilns through Distributed Control System (DCS) at Jamul
and up-gradation of DCS at Wadi-I. Optimisation of major fans across ACC
Plants. Augmentation of cement grinding capacity by installing Pre-grinders
at Wadi - II and at Madukkarai. Operation of cement mills through PLC at
Jamul & operation of slag grinding through DCS at Bargarh. Installation of
mechanical conveying in place of pneumatic conveying for cement mills at
Jamul. Replacement of Cement Mill main drive motor with energy efficient
motor at Gagal and Sindri. Converted Stoker Fired Boilers to AFBC boilers
at Wadi, and commenced the conversion to AFBC at Chaibasa. Optimized the
operating voltage and frequency of turbines for all CPP's to reduce
auxiliary power consumption. Detailed compressor audit was conducted at
Gagal which has resulted in energy savings. Similar studies have been
initiated at Wadi. New energy efficient compressors were procured for
Madukkarai, Damodhar, Gagal, Kymore, Chaibasa, Jamul and Wadi II plants.
Energy Management System (EMS) installed at Damodhar and is being planned
to be installed at other locations. Installation of capacitor banks with
series reactor helped to improve power factor from 0.93 lagging to 0.99
lagging at Bargarh. Capacitor Banks were also installed to improve the
power factor in most of the plants which also resulted in reduction in
losses.
Green power Installation of 7.5 MW Wind Power Plant in Rajasthan. Three
fold increase in power generated from Wind Power Plant in Tamil Nadu as
compared to year 2007.
Alternative fuels The utilization of alternative fuels was increased at
Kymore, Lakheri, Gagal, Madukkarai, Bargarh, Chaibasa and Wadi I.
(b) Additional Proposals being implemented for further conservation of
energy:
Installation of mechanical conveying (Bucket elevator) in place of
pneumatic conveying for kiln feed at Bargarh. Compressed air audit is being
planned at Bargarh and Lakheri. Uses of grinding aid for reduction of
grinding power and productivity improvement at Bargarh. Installation of
VVVFD for various bag filter fans, Vent fans ,instrument air compressor.
Installation of ROTO SCALE for fine coal firing in Kiln I at Kymore.
Replacement of low efficiency pumps with a single high efficiency pump at
Lakheri.
(c) Impact of the above measures for reduction of energy consumption and
consequent impact on cost of production The measures stated in points (a)
and (b) above would improve the thermal and electrical energy efficiency of
the Plants. Year 2008 saw a reduction of 2.25% in Electrical Energy over
2007.
(d) Total energy consumption and energy consumption per unit of production
as per Form A.
Form A
Power and Fuel Consumption:
A B C D E F
1. Electricity:
a) Purchased 6812 25868 3.80 6667 23635 3.55
b) Own Generation:
i) Through DG 129 1294 10.00 144 1411 9.81
ii) Through Steam 15437 47627 3.09 14398 34580 2.40
Turbine/Generator*
A = Current year - Lakh Units (Kwh)
B = Current year - Total Cost (Rs. Lakhs)
C = Current year - Rs. per Unit
D = Previous year - Lakh Units (Kwh)
E = Previous year - Total Cost (Rs. Lakhs)
F = Previous year - Rs. per Unit
* Includes WTG generation.
A B C D E F
2. Coal (for Kiln)** 22.89 84628 3697 24.72 62006 2,508
A = Quantity (Lakh Tonnes) - Current Year
B = Total Cost - Current Year
C = Average Rate (Rs./Tonne) - Current Year
D = Quantity (Lakh Tonnes) - Previous Year
E = Total Cost - Previous Year
F = Average Rate (Rs./Tonne) - Previous Year
** Does not include other fuel/alternative fuels used in Kiln.
Consumption Per Unit of Production:
Standard Current Year Previous Year
a) Electricity Kwh/T*:
Cement:
Wet Process 89-105 - -
Semidry/Dry process 98-110 87 89
b) Furnace Oil KLtrs/T:
Cement - - -
c) Coal for Kiln:
Kcal/Kg of clinker:
Cement:
Wet process 1350 - -
Semidry/Dry process 720-990 754 752
@Source: Publication of Confederation of Indian Industries
* Excludes non-process power consumption.
(B) TECHNOLOGY ABSORPTION:
Research & Development:
1. Specific areas in which R&D is carried out by the Company:
a) Improving quality of blended cement through innovative processing
utilizing industrial by-products.
b) Conservation of resources through use of low-grade limestone for cement
manufacture.
c) Enhanced absorption of blending materials.
d) Process / product design improvements.
e) Development of new products or discovering new methods of analysis.
f) Productivity research for increase efficiency in use of resources.
g) Recycling of wastes and research for efficient use of scarce materials.
h) Beneficiations of raw materials and fuels.
i) Quality Benchmarking exercise for different market clusters of ACC
products.
j) Characterization and evolving recommendation for use of alternative
fuels and raw materials.
2. Benefits derived as result of above R&D:
a) Effective use of marginal quality raw materials and fuels with improved
clinker quality.
b) Increased absorption of blending materials in blended cements.
c) Effective replacement of the costlier natural Gypsum by cheaper by-
product phospho-gypsum without affecting the quality of cement.
d) Maintain a lead position in all the market clusters of the country.
e) Fuel efficiency.
3. Future plan of action:
a) Exploratory research works on the above specific areas.
b) Focus on development of products aimed at enhancing use of cement in
various applications.
c) Use of waste / by-products in cement manufacture as alternative
materials.
d) Improve product quality particularly with respect to long term
durability and reduction in cost of manufacture.
4. Expenditure on R&D:
Rs. Lakhs
a) Capital 180
b) Recurring (Gross) 329
c) Total 509
d) Total R&D expenditure as percentage of total turnover 0.07%
5. Foreign Exchange Earnings & Outgo:
Rs. Lakhs
Foreign exchange earned 7170
Foreign exchange used 6123
For and on behalf of the Board
Place: Mumbai N.S. Sekhsaria
Dated: February 5, 2009 Chairman
ANNEXURE C' TO DIRECTORS' REPORT:
Statement pursuant to Clause 12 'Disclosure in the Directors' Report' of
SEBI (Employees' Stock Option Scheme and Employees' Stock Purchase Scheme)
Guidelines, 1999.
Pursuant to the Resolutions passed by the shareholders at the Annual
General Meetings held on July 12, 2001, July 9, 2003 and July 9, 2004 the
Compensation Committee of Directors have granted Stock Options to eligible
employees and Wholetime Directors for the financial years 2001-2002, 2003-
2004 and 2004-2005. The employees are entitled to get one equity share per
option. The details of the Stock Options are given here below.
ESOS 2001: Financial year 2001-2002
a. Options granted:
7,30,000 (on 31.10.2001)
b. The pricing formula:
@ Rs.127/-(Being the average of the daily closing price of the Equity
shares of the Company on the Stock Exchange, Mumbai (BSE) during the period
of ninety days immediately preceding the date on which the options were
granted) No discount on the above price was granted by the Compensation
Committee.(The closing market price on BSE as on the date of grant was
Rs.133/-)
c. Options vested:
6,47,336
d. Options exercised (till 31.12.2008) (including 749 options of ESOS 2003
exercised before 17.12.2008 and shares allotted in January 2009):
6,31,033
e. The total number of shares arising as a result of exercise of options:
6,31,033
f. Options Lapsed:
91,400
g. Variation of terms of options:
Nil
h. Money realised by exercise of Options:
Rs.801.41 lakhs
i. Total number of options in force:
7,567
j. Employee wise details of options granted to:
i) Senior Managerial Personnel:
Nil
(ii) Any other employee who receives a grant in any one year of option
amounting to 5% or more of option granted during that year:
Nil
(iii) Identified Employees who were granted option during any one year,
equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the Company at the time of grant:
NIL
k. Diluted Earnings Per Share (EPS) pursuant to issue of Shares on exercise
of option calculated in accordance with Accounting Standard (AS) 20 -
Earnings Per Share:
7.62
l. Where the company has calculated the employee compensation cost using
the intrinsic value of the stock options, the difference between the
employee compensation cost so computed and the employee compensation cost
that shall have been recognised if it had used the fair value of the
options, shall be disclosed. The impact of this difference on profits and
on EPS of the Company shall also be disclosed:
N/A
m. Weighted average exercise prices and weighted average fair values of
options shall be disclosed separately for options whose exercise price
either equals or exceeds or is less than the market price of the stock:
N/A
n. A description of the method and significant assumptions used during the
year to estimate the fair values of options, including the following
weighted average information:
(i) Risk free interest rate }
}
(ii) Expected life }
}
(iii) Expected volatility } N/A
}
(iv) Expected dividends and }
}
(v) The price of the underlying share in }
market at the time of option grant }
ESOS 2003
Financial year 2003-2004
a. Options granted:
6,45,850 (on 17.12.2003)
b. The pricing formula:
@Rs.225/- (Being the average of the daily closing price of the Equity
Shares of the Company on the Stock Exchange Mumbai (BSE) during the period
of thirty days immediately preceding the date on which the options were
granted or the day's closing price whichever is higher.) Accordingly, the
exercise price has been determined at Rs.225/- per share.
c. Options vested:
6,29,850
d. Options exercised (till 31.12.2008) (including 749 options of ESOS 2003
exercised before 17.12.2008 and shares allotted in January 2009):
6,16,544
e. The total number of shares arising as a result of exercise of options:
6,16,544
f. Options Lapsed:
Nil
g. Variation of terms of options:
Rs.1,378,722 lakhs
h. Money realised by exercise of Options:
Nil
i. Total number of options in force:
Nil
j. Employee wise details of options granted to:
(i) Senior Managerial Personnel:
Nil
(ii) Any other employee who receives a grant in any one year of option
amounting to 5% or more of option granted during that year:
Nil
(iii) Identified Employees who were granted option during any one year,
equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the Company at the time of grant:
Nil
k. Diluted Earnings Per Share (EPS) pursuant to issue of Shares on exercise
of option calculated in accordance with Accounting Standard (AS) 20 -
Earnings Per Share:
11.61
l. Where the company has calculated the employee compensation cost using
the intrinsic value of the stock options, the difference between the
employee compensation cost so computed and the employee compensation cost
that shall have been recognised if it had used the fair value of the
options, shall be disclosed. The impact of this difference on profits and
on EPS of the Company shall also be disclosed:
N/A
m. Weighted average exercise prices and weighted average fair values of
options shall be disclosed separately for options whose exercise price
either equals or exceeds or is less than the market price of the stock:
N/A
n. A description of the method and significant assumptions used during the
year to estimate the fair values of options, including the following
weighted average information:
(i) Risk free interest rate }
}
(ii) Expected life }
}
(iii) Expected volatility }
}
(iv) Expected dividends and } N/A
}
(v) The price of the underlying share in }
market at the time of option grant }
ESOS 2004
Financial year 2004-2005
a. Options granted:
6,04,150, (on 16.12.2004)
b. The pricing formula:
@ Rs.314/- (Being the average of the two weeks high and low price of the
share preceding the date of grant of options on either BSE / NSE where the
trading volume is higher or the latest available closing price prior to the
Meeting of the Committee as may be decided by the Committee.
Notwithstanding what is stated above, the Committee shall have the
discretion to fix the exercise price at a level higher than the one
indicated above). Accordingly, the exercise price has been determined at
Rs. 314/- per share (The closing price as on 15.12.2004 at NSE being
Rs.313.70).
c. Options vested:
5,82,150
d. Options exercised (till 31.12.2008) (including 749 options of ESOS 2003
exercised before 17.12.2008 and shares allotted in January 2009):
5,08,063
e. The total number of shares arising as a result of exercise of options:
5,08,063
f. Options Lapsed:
22,000
g. Variation of terms of options:
Rs.1,595.32 lakhs
h. Money realised by exercise of Options:
74087
i. Total number of options in force:
Nil
j. Employee wise details of options granted to:
(i) Senior Managerial Personnel:
Nil
(ii) Any other employee who receives a grant in any one year of option
amounting to 5% or more of option granted during that year:
Nil
(iii) Identified Employees who were granted option during any one year,
equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the Company at the time of grant:
Nil
k. Diluted Earnings Per Share (EPS) pursuant to issue of Shares on exercise
of option calculated in accordance with Accounting Standard (AS) 20 -
Earnings Per Share:
20.43
l. Where the company has calculated the employee compensation cost using
the intrinsic value of the stock options, the difference between the
employee compensation cost so computed and the employee compensation cost
that shall have been recognised if it had used the fair value of the
options, shall be disclosed. The impact of this difference on profits and
on EPS of the Company shall also be disclosed:
N/A
m. Weighted average exercise prices and weighted average fair values of
options shall be disclosed separately for options whose exercise price
either equals or exceeds or is less than the market price of the stock:
N/A
n. A description of the method and significant assumptions used during the
year to estimate the fair values of options, including the following
weighted average information:
(i) Risk free interest rate }
}
(ii) Expected life }
}
(iii) Expected volatility } N/A
}
(iv) Expected dividends and }
}
(v) The price of the underlying share in }
market at the time of option grant }
Note:
i) The Employee stock Option Scheme 2002 (ESOS 2002) expired on 19.09.2007.
Hence the details of that scheme are not shown above.
ii) Details of options granted to Employees who had retired in earlier
years have not been considered for Disclosure against item (j).
For and on behalf of the Board
Place: Mumbai N.S. Sekhsaria
Dated: February 5, 2009 Chairman