GUJARAT NRE COKE IS NOT ONLY INDIA S LARGEST COKE MANUFACTURER. IT IS ALSO AN EXCITING INTERNATIONAL STORY.

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1 GUJARAT NRE COKE IS NOT ONLY INDIA S LARGEST COKE MANUFACTURER. IT IS ALSO AN EXCITING INTERNATIONAL STORY. Gujarat NRE Coke s sharp profit growth from Rs cr in to Rs cr in helped it strengthen its leadership position in India. The company has now embarked on a number of pioneering and significant initiatives with the objective to emerge as one of the largest and most competitive merchant producers of coke in the world. Strengthening its business sustainability. And vindicating its strategy of being Coked to perfection.

2 What we ACHIEVED in Operations Increase in production by per cent to 252, MT. Increase in capacity by 36,000 TPA at the Jamnagar plant. Merger of Aparna Project, enhancing capacity by 78,000 TPA. Commencement of production from the Bhachau unit. Marketing Finance Revenue growth of per cent to Rs cr. EBIDTA margin growth of per cent to per cent. Post-tax profit growth of more than four times to Rs cr. Improvement in credit rating by CARE from A+ to AA- for non-convertible debentures signifying a high asset quality by all standards and a high investment grade. Shareholder value Third successive bonus issue to the shareholders. In , the ratio is 1:1. Earnings per share of Rs Increase in dividend payout by per cent. Economic Value Addition (EVA) of Rs cr. Total Shareholder Return (TSR) of Rs cr. The first industry instance of coke export from India - to Brazil. A reduction in the average coupon rate, from per cent to 5.37 per cent. Year-on-year increase in market capitalisation by per cent. Revenue (Rs./cr) EBIDTA (Rs./cr) Cash profit (Rs./cr) PAT (Rs./cr) EPS (Rs.) Book Value (Rs.)

3 Europe Canada USA China Japan India Major coking coal movement. Brazil Major coke export from China. First time coke export from India through Gujarat NRE Coke. Further export opportunities for India through Gujarat NRE Coke. South Africa Gujarat NRE Coke s growing international presence Australia 4 5

4 CHAIRMAN S OVERVIEW From the cyclical to the sustainable; from the Indian to the international. G. L. Jagatramka, Chairman Inflection point This then is the opportunity: a supply gap in China s traditional export markets; the migration of manufacturing capacities from developed nations to developing geographies; the growing emergence of India as an alternative to China s longstanding exporting position. An inflection point of this nature warrants a differentiated strategy. I am proud to state that Gujarat NRE Coke has risen commensurately to the demands of the situation; its new business model is expected to evolve it from the position of India s leading manufacturer to one of the fastest growing international entities. Differentiated strategy These are the elements of the company s strategy: Supply side Big leap: An increase in our installed capacity from 2.44 lac TPA in to a projected 14 lac TPA by Demand side A growing international presence through exports to Brazil, South Africa and a number of other countries in Cost side An investment in an Australian coking coalmine, de-risking the company s raw materials cost and availability. Plus an investment in wind energy to make the company energy self-sufficient and independent of high power costs. At Gujarat NRE Coke, we are convinced that a combination of these strategies will make us a relatively non-cyclical company in a cyclical business, resulting in profitable and sustainable growth for years to come. Girdhari Lal Jagatramka Chairman IT WAS INEVITABLE THAT AN INDUSTRY TROUGH OVER THE LAST FEW YEARS WOULD GRADUALLY YIELD TO A CREST AS INDUSTRY REALITIES CHANGED. Capacity creation HOWEVER, WHAT WAS NOT ANTICIPATED WAS THE SHARPNESS AND SUDDENNESS OF THIS TRANSFORMATION: COKE PRICES STRENGTHENED FROM A LOW OF USD 120 PER TONNE TO A HIGH OF USD 485 PER TONNE WITHIN A SINGLE FINANCIAL YEAR. Increased profitability SHAREHOLDER VALUE CREATION Phased capacity start-up Unprecedented Seldom if ever has such a boom transpired in the international coke industry in living memory. It would be relevant then to conclude that an unprecedented phenomenon of this nature has transpired because of the unmistakably unusual circumstances underlying it. In this instance, the rationing of coke exports from China, the largest coke exporter in the world, created what appears as a not-too-temporary imbalance in the coke industry, generating a price disturbance of significance and an industry opportunity of paradigm importance. Reduced capital costs Technology improvisation Economies of scale Cash plough back Business model Quicker pay-back 6 7

5 Driver of success AT GUJARAT NRE COKE, WE UNDERSTAND THAT WE CAN PROTECT AND STRENGTHEN OUR LEADING INDUSTRY POSITION ONLY IF WE EMBARK ON BUSINESS-STRENGTHENING STRATEGY AND PROJECT IMPLEMENTATION FASTER THAN THE COMPETITION. In line with this, the company embarked on a number of initiatives: Aggressive as opposed to usual - capacity expansion in proactive anticipation of growing customer needs. Multi-locational dispersal of manufacturing capacity, closer to customers. First-time foray by any Indian coke manufacturer in the international market when consuming nations are seeking a secondary coke supply source. Pioneering acquisition of a coking coal mine by an Indian coke manufacturer. As a result, the company has facilitated India establish itself on the global map for merchant coke supplies. STRATEGY Driver of success SIZE AT GUJARAT NRE COKE, WE RECOGNISE THAT SIZE REPRESENTS THE MOST EFFECTIVE INTERNATIONAL PASSPORT. LEADING TO LARGE, CONSISTENT AND ECONOMIC SUPPLY. In view of this, the company expanded its capacity from 1.30 lac TPA in to 5.02 lac TPA in It is now increasing its capacity to 14 lac TPA by December This expansion will reinforce the company s position as the largest non-captive producer of coke in India across the foreseeable future. 8 9

6 AT GUJARAT NRE COKE, WE HOLD THE OPINION THAT IN A VOLATILE RAW MATERIAL ENVIRONMENT, BUSINESS STABILITY CAN ONLY BE ACHIEVED THROUGH BACKWARD/FORWARD INTEGRATION. In view of this, the company successfully concluded the landmark ownership of a coking coalmine NRE No.1 Colliery in Australia in late This captive ownership (through a subsidiary) the first such instance for the Indian coke industry - represents a significant de-risking against erratic supply and pricing, protecting the company and customer interests. This mine, operational from April 2005, will also facilitate an insider s perspective into the coking coal industry, enabling the company to assess the prevailing sentiment and plan better in response to industry trends. Driver of success VALUE CHAIN Driver of success COST AT GUJARAT NRE COKE, WE ARE CONVINCED THAT A LOW COST STRUCTURE REPRESENTS THE BEST INSURANCE AGAINST INDUSTRY CYCLICALITY. The company created a significant foundation for sustainable long-term profitability through a low capital cost per tonne when it went into production in Thereafter, it reinforced this advantage with each subsequent expansion in 1999, 2001, 2002, 2003 and As a result, the company s capital cost per tonne declined with every subsequent expansion; its cumulative gross block of Rs cr was only per cent of the replacement value at the end of

7 Driver of success AT GUJARAT NRE COKE, WE RECOGNISE THAT NO COMPANY CAN CLAIM TO BE TRULY COMPETITIVE OR SUCCESSFUL UNLESS ITS MARKET LEADERSHIP EXTENDS FROM A LIMITED REGION TO ACROSS THE GLOBAL PLAYING FIELD. In view of this, the company made two significant global-integrating initiatives during 2004: the successful ownership of a coalmine in Australia (discussed earlier) and the first-time exports made by it (or any coke manufacturer from India). The company leveraged its port-based location to report Rs cr of exports to Brazil in , being followed by despatches to South Africa. In addition to repeat orders from these countries, the company presently enjoys attractive long-term export enquiries for coke from USA, Japan and Europe. The growing export exposure will be as timely as it will be critical: from a macro perspective, it will help the company plug the growing supply gap created by China s restriction on coke exports; on a micro-level, it will enable the company to achieve a high asset utilisation and a payback on its investment quicker than anticipated. EXPORTS Driver of success TECHNOLOGY AT GUJARAT NRE COKE, WE RESPECT THE CRITICAL ROLE OF TECHNOLOGY IN RAISING OUR OPERATIONAL EFFICIENCY, ENHANCING PRODUCT QUALITY AND MITIGATING POLLUTION. In view of this, the company made prudent technology investments leading to the following improvements: Reduction in the per batch carbonisation time. Increase in productivity. Reduction in the manpower requirement for core operations. Cleaner management of gaseous emissions. Going ahead, the company will be setting up 50 MW of power generation capacity based on waste heat recovery across its three coking plants. Further, the company is working towards introducing stamp charging to charge coking coal into the coke ovens at its facilities

8 AT GUJARAT NRE COKE, WE UNDERSTAND THAT WE CAN STRENGTHEN OUR BUSINESS BY STRENGTHENING THAT OF OUR CUSTOMERS IN A MEANINGFUL WAY To enhance customer value, the company implemented the following initiatives: Introduction of long term contracts to protect customers from sharp price variations. Increasing focus on quicker despatch cycles, enabling customers to hold smaller inventories. Customised product quality to specific customer needs. Progressive capacity increase timed with the growing needs of customers. Multi-locational presence in proximity to a diverse set of customers. As a result, the company now services the ongoing requirements of a number of brand-enhancing corporates. Driver of success SERVICE Driver of success QUALITY AT GUJARAT NRE COKE, WE APPRECIATE THE REALITY THAT AN INCREASING NUMBER OF CONSUMERS WILL REQUIRE GROWING VOLUMES OF THE HIGHEST GRADES, REQUIRING US TO BENCHMARK OUR CAPABILITY IN LINE WITH THE BEST STANDARDS IN THE WORLD. In view of this, the company: Purchases only the best quality raw material. Has continuously improved its coke oven design. Introduced improved manufacturing techniques like stamp charging, pre-crushing among others. Extended quality control from an individualcentric to an institutionalised system. Over the years, these initiatives strengthened the company s brand and resulted in an overflowing order book

9 Debt/Equity AT GUJARAT NRE COKE, WE * ACKNOWLEDGE THE REALITY THAT AN OPTIMAL FINANCIAL STRUCTURE NOT ONLY SERVES AS A BUFFER AGAINST INDUSTRY TROUGHS BUT ALSO PROVIDES A LAUNCHING PAD TO CAPITALISE ON BUSINESS-ENHANCING OPPORTUNITIES WITH SPEED. Driver of success * The D/E ratio has jumped as the company has tied up the debt fund for its expansion projects to be executed in In view of this, the company prudently selected to grow the business in line with the following priorities: Progressive repayment of debt leading to a declining debt-equity ratio from 1.56 in to 0.41 in LOW LEVERAGE Ongoing renegotiation of the cost of debt. As a result of this fiscal conservatism, the company s interest cover of 84 (as on 30 September, 2004) was one of the highest and most comfortable among Indian companies. Driver of success ENVIRONMENT AT GUJARAT NRE COKE, WE WORSHIP THE THINKING THAT A BUSINESS MUST FIRST BE ENVIRONMENTALLY SUSTAINABLE FOR IT TO REMAIN ECONOMICALLY VIABLE. In line with this, the company made proactive investments in environment-protecting initiatives of the following nature: Better technology: We adopted the non-polluting nonrecovery technology of coke manufacture. Improved design: Our improved coke oven design combusts volatile matter in the flue gas more comprehensively, reducing emission to well below the regulatory norms. Ongoing vigilance: We instituted a documentation discipline, wherein we monitor, measure and compare emissions hourly. Rainwater harvesting: We constructed two big trenches for collecting rainwater in a district that receives only 600 mm of annual rainfall; we recycle 100 per cent water in our plant; we have also invested in Check dams to harness rainwater in partnership with the Government of Gujarat. Power generation: We invested in a wind turbine generator having a capacity of 1.25 MW for a clean form of renewable energy, saving precious fossil fuel. Plantation: We created green belts in the towns of our presence. As a result, we enjoy a clean environment record and received the Greentech Safety Silver Award in recognition of our environment management initiatives in June

10 FIVE MINUTES WITH THE MANAGING DIRECTOR We are leveraging the industry boom to create a stronger and sustainable business model Arun Kumar Jagatramka, Managing Director, reviews the performance of the company during Were you pleased with the performance of the company during the financial year under review? Of course I was. We did a number of things right - and this does not include the sharp increase in our coke realisations simply because we played no role in that phenomenon including the accelerated commissioning of our increased capacity to coincide with the boom, growing our exposure to large, long-term and brand enhancing buyers, evolving our role from manufacture to just-in-time service delivery and embarking on a business derisking to enhance our sustainability. Shareholders will be concerned about the decline in realisations from a high of USD 485 per tonne (May, 2004) to around USD 200 a tonne (October, 2004). I would like to take the opportunity to tell shareholders that the price range of between USD 220 per tonne to USD 485 per tonne lasted for only three months and whose impact is hardly reflected in our results of So a decline is not going to affect our performance significantly. On the contrary, we see the decline as welcome for a number of reasons: the price of coke above a certain level would only have inspired users to look for alternative fuel sources. The subsequent decline has made prices relatively affordable: low cost of raw material for the consumer on the one hand and a sustainable income for the company on the other, creating the basis for business continuity and reinvestment. I must take the opportunity to assure shareholders that we have already embarked on a number of initiatives to more than neutralise the impact of any decline in realisations over the foreseeable future. What is the basis for the company s long-term optimism? Interestingly, what a number of shareholders might overlook in this recent boom is the inflection point of a move of paradigm importance. For a number of years we prided on our cost of production being significantly lower than that in the developed countries almost one fourth of the coke manufacturing cost of a US based coke manufacturer. However, Indian coke manufacturers needed a global opportunity to leverage this inherent competitive advantage. It finally got one when the Chinese government restricted exports of coke with a view to making it available for their own steel makers. This has given Indian coke producers an excellent opportunity to emerge as a global force. What we are doing is growing our capacity in line with the acceptable global economies of scale our installed capacity of 14 lac TPA by December 2005 will be higher by about 300,000 TPA over any average established producer in the US. So, as soon as we merge this scale with our costs, we expect to migrate from a position of national importance to one of international reckoning. How has Gujarat NRE Coke already capitalised on this trend? In fact, we were the quickest off the block with a pioneering despatch of coke to Brazil in 2004 the first ever time this was done by any Indian coke producer as well and we are following this with a consignment for South Africa as well as a repeat order for Brazil. We have a number of steel makers in Europe and Japan now seeking to replace a part of their Chinese imports with supplies from our company. These developments give me the optimism that as a country we could soon emerge as the second source of coke the world over and as a company we could emerge as one of the fastest growing producers over the coming years

11 Our technology capability Consistently high product quality. Multiple sources of coal. Improving yields. Enhanced automation. Stronger environment compliance. Use of non-recovery technology with plans for waste-heat cogeneration. Introduction of stamp charging the best in practice coking coal charging technique. A significant capacity expansion is one initiative that the company has already embarked on. Shareholders are apprehensive that perhaps there may not be an immediate market for this sharp increase in supply. There are a number of ways to look at this capacity expansion. With the kind of profits that the company reported, it was inevitable that we should put it back into our assets, reduce our capital cost of production and become more competitive. More pertinently, India s coke production will need to rise sharply to plug the gap created by a sudden decline in the material being imported from China. Besides, the steel industry boom is inspiring significant investments, which will only enhance steel production and the consequent requirement of coke in the foreseeable future. On the basis of this, today s coke demand of around 22 million tonnes is expected to increase to around 60 million tonnes over the next seven years. Estimated coke production and coking coal demand projections (million tonnes) Coke production Coking coal requirement Indian coal Net import demand How does the company expect to enhance shareholder value over the foreseeable future? Through the various business-strengthening initiatives that we have already indicated: low cost capacity expansion, backward integration and a wider geographical sales distribution, among others. As a management, we are concerned about the low discounting of our equity and feel that this is a reflection of the low investor-perception of the cyclicality of the steel industry and low level of awareness about the coke industry. We are addressing these concerns through a transparent report, a prompt announcement of our annual results, a respectable dividend payout and regular bonus issues. We expect that as our business model strengthens over the next year, positioning us as a global supplier of importance, this discounting aberration will correct itself, enhancing our value in the hands of those who own our company

12 ENHANCING SHAREHOLDER VALUE Gujarat NRE Coke reported a TSR of 352 per cent in , indicating that the company s shareowners gained directly and indirectly during the year under review. Gujarat NRE Coke reported a positive EVA of Rs cr. for , emphasising that its returns exceeded shareholder expectations. GUJARAT NRE COKE HAS ENHANCED VALUE IN AN ATTRACTIVE WAY FOR ITS SHAREOWNERS ACROSS A NUMBER OF POPULAR AND WIDELY ACCEPTED PARAMETERS OVER THE LAST FEW YEARS. Economic value-added (EVA) The company reported a positive EVA of Rs cr. for , emphasising that its returns exceeded shareholder expectations. The EVA is an internationally respected value measurement tool. It is unique in a number of ways: it accounts for the profit generated by a company in excess of the return that the company would have earned from a risk-free instrument. It arrives at this number through a unique methodology: it factors in the cost of debt and equity through techniques that measure them separately, as opposed to the conventionally cumulative calculation. Net OPAT/Sales The following considerations were used in EVA measurement: For the cost of shareholders funds, the actual outgo towards shareholders (dividend etc) was ignored and instead a marketdriven cost of equity funds was considered. The cost of equity was arrived at using the 1.10 beta-factor for the scrip. A risk-free return of 6.75 per cent was taken. To this was added the product of the beta factor and the stock market risk premium. The stock market risk premium of seven per cent is what investors expect to earn over the risk free return from the market. The product of the premium and the beta is what investors expect to earn (over and above the risk-free return of 6.75 per cent) from the company scrip in the financial year under review - the correct cost of equity funds to consider for the EVA calculation. The base for calculating the rupee cost of equity was the market capitalisation as on 30 September Actual tax outgo was inflated for the tax shield on interest at the marginal rate of tax actually paid. This adjusted tax was deducted from the Earnings before Interest and Tax to arrive at the corrected EBIT figure. A rupee cost of capital was calculated on the average capital employed over the year by using WACC. This cost of capital was subtracted from the adjusted EBIT figure to obtain the EVA for the year. Total shareholders return (TSR) Gujarat NRE Coke reported a TSR of 352 per cent in , indicating that the company s shareowners gained directly (in the form of the dividend and bonuses received by them) and indirectly (in the form of capital appreciation) during the year under review. TSR was derived from the subtraction of the year-start market capitalisation from the year-end market capitalisation, its subsequent addition to the dividend payout and bonus shares during the year and the division of the subsequent figure by the opening market capitalisation. Return on capital employed EVA (Rs. lacs) Total shareholder return (Rs. lacs) Value Addition (%) Sales/Capital EVA Cost of Capital Capital invested in business 22 23

13 MANAGEMENT S DISCUSSION AND ANALYSIS opposed to its traditional status of being a steel exporter. Chinese steel market (million tonnes) Production Imports Exports Consumption Consequently, coke being produced in the country is being consumed internally. This has created a major imbalance in the worldwide coke trade. As a result, the prices of international coke have risen sharply from an average of USD 75 per tonne FOB in to USD 220 per tonne in , touching an all-time high of USD 485 per tonne FOB in May Price movement (USD per tonne FOB) Industry overview Coke is a derivative of coking coal. It plays a very significant role in the metallurgical process. Coke is the main source of heat and is also the reducing agent required to facilitate the conversion of metallurgical ores into metal during the smelting process. Coke production has traditionally been captive in the integrated steel and pig iron plants. Hence there is no surplus for merchant trading. Most of the coke oven batteries are located in the eastern region of the country in proximity to steel units. As a result, coke consumers in the western and southern regions rely primarily on imported coke. Coke also finds application in a number of other sectors such as the cement industry, pit furnaces for small castings and gas producers among others. World industry The world coke consumption was 357 million tonnes in 2001, which has grown to 385 million tonnes in While only 5.7 million TPA of new capacity was added (between ), capacity closure was to the extent of 17 million TPA driven by the high replacement costs and environmental constraints on replacing ageing batteries. In North America, coke production has declined over the last decade. The shortage is currently estimated at 7.5 million tonnes and is likely to increase. In UK and France each, a shortage of two million TPA has been estimated. Other European countries are also shutting capacity and coke-manufacturing capacities are being relocated to Asian countries. China is the leading coke producer in the world. Its total coke consumption of coke was about million tonnes in Its annual coke exports have increased from around 600 tonnes in 1986 to million tonnes in 2003, which was more than 50 per cent of the world s total trading volume of coke. In 2003, China s coke was exported to more than 30 countries and regions in the world. Around 80 per cent of the coke that India, Italy, Germany and Brazil import originates from China. The steel industry in China accounts for nearly 70 per cent of the total demand for coke. The rapid infrastructure development in China has turned the country into a steel importer as Coke price Coking coal price Oct-Dec'03 Jan-Mar'04 Apr-Jun'04 Jul-Sept'04 Domestic industry Coke is an essential raw material for many industries. Hence we need to look at the industry structure in line with the major consuming sectors of the economy. Integrated steel producers The Indian coke industry is dominated by the integrated steel plants (ISPs). These units possess captive coking facilities. The production/consumption of coke by the ISPs is estimated at 12.8 million tonnes (FY ). Coke produced by these units is a blend of imported coal and indigenous varieties; hence, the coke quality differs with each producer and cannot be sold in the open market in large quantities. Secondary steel sector (Mini blast furnaces) There are currently 17 pig iron producing units (mini-blast furnace route). These units need an annual 2.87 million tonnes of coke for their operations. Presently, only a few companies possess captive coke manufacturing facilities while the other units rely largely on imported Chinese coke. Foundries, chemical units Large number of small consumers scattered throughout the country. Their individual consumption is not large enough to justify the setting up of a captive coke plant This graph depicts the spurt in coking coal and coke prices due to the increased consumption of coke by China. China s annual coke exports of million tonnes in 2003, accounts for more than 50 per cent of the world s total trading volume of coke. Around 80 per cent of the coke that India, Italy, Germany and Brazil import, originate from China

14 Continued dependence on merchant cookeries/imported coke. Cumulative demand by the foundries is estimated at 3.5 million tonnes per annum. Chemical/zinc units Few units in this category, primarily concentrated in the west. Increased demand of coke within China as a result of which exports from the country were rationed, creating an imbalance in the world trade. This largely affected domestic users as more than 80 per cent of the Indian imports were sourced from China. Global exports from China declined by about 43 per cent in the Q1/2004 over the corresponding period in the previous year. Gross annual demand estimated at 0.37 million tonnes. Demand met by local production. A gradual erosion of coke capacities in the developed countries due to environmental reasons. In India, the coke price has grown exponentially over the previous fiscal, from a modest Rs per tonne in early 2003 to Rs. 17,000 per tonne in The demand and production of coke in India for is: Demand (million tonnes) Production (million tonnes) Integrated steel plants Integrated steel plants Secondary steel sector 2.87 Secondary steel sector 0.40 Foundries 3.50 Dhanbad/East coast cookeries 4.50 Others 1.87 Met coke plants (West coast) 0.70 TOTAL TOTAL DEFICIT 4.01 India has largely been an importer of coke from China and Japan. More than 85 per cent of the imported coke is of Chinese origin. Even the coke imported from Japan is indirectly Chinese since Japan s imports from China are more than what it exports to other countries. A major part of the imported coke is consumed in the southern and western regions. Imports of coking coal and coke into India (million tonnes) This graph illustrates India s increasing dependence on external sources for coking coal and coke over the years. In India, the merchant metallurgical coke capacities are largely situated in western India, logistics and proximity to a large consumer market being the primary factors contributing to this skewed concentration. In the East, there are a large number of small cokeries with capacities ranging between 6,000 TPA to 48,000 TPA. Their cumulative capacity is estimated at around 50 lac TPA. These units are primarily situated near the Dhanbad coal belt. Besides, there are government-owned coke plants on the east coast. Human resource At Gujarat NRE Coke, the quality of human resource directly affects the performance and profitability of its business. In our organisation, we are proud to possess one of the most technically competent and knowledgeable pool of people resources within our industry in India. This has translated into a number of achievements: Macro: Gujarat NRE Coke has been able to grow at an aggressive pace - more than three-fold during the last five years. Gujarat NRE Coke has emerged as the largest non-captive manufacturer of metallurgical coke in India. Micro: A consistent improvement in the process flow, improved productivity, higher capacity utilisation, a reduction in the production cost, better customer servicing. As a result of its resident knowledge pool, the company has been able to set up its unit at Bhachau at a third of the cost of a similar-sized greenfield project Coking coal imports Coke imports Besides, the strength of its human ability has provided a competitive edge to the company: a reduction in the capital employed per tonne of capacity - from Rs per tonne in to Rs per tonne in As a result of its resident knowledge pool, the company has been able to set up its unit at Bhachau at a third of the cost of a similar-sized greenfield project. Coke price grew exponentially from a modest Rs per tonne in early 2003 to Rs. 17,000 per tonne in This unprecedented rise was on account of: A huge increase in domestic consumption to million tonnes in without a commensurate hike in capacity, primarily within the steel sector. This sustainable progress is the result of a member-management relationship of mutual respect. The company is a fair employer, conforming with progressive human resource practices that extend well beyond statutory benchmarks. These practices comprise: Remunerating its employees at higher than industry standards

15 Providing safety gear to all employees. Providing uniforms to all employees. Providing subsidised meals to the employees at the plant site. Providing free accommodation and transport facilities to its employees. Providing for recreational facilities at the resident colonies for its employees. Making a provision for a resident doctor at the plant site for any unforeseen incident. Conducting training programmes for all employees on health safety and operation skills, accompanied by mock drills. Encouraging employee feedback on improvements in operations and also on the implementation of strategies. Micro: Traditionally, Gujarat NRE Coke has sourced its raw material requirement solely from BHP Billiton, Australia, the single largest exporter of metallurgical coal in the world. The company contracts with its Australian business partner for its estimated requirement at the beginning of the year. Together with the quantity, the pricing of the raw material is decided on an annual basis, protecting Gujarat NRE Coke s operating margins. This is largely due to Gujarat NRE Coke s credentials and their established relations with its business partner. For the increased requirement (due to its additional capacity at its existing and new site) the company has contracted with other Australian and South African coal companies. Gujarat NRE Coke has contracted a part of its additional coking coal requirements for the current fiscal as well as the next few years with these companies. Macro: The company has purchased coking coalmines with one of the best hard coking coal reserves in New South Wales, Australia, and has already set up a subsidiary for the purpose. This backward integration will enable a long-term commitment for an uninterrupted supply of quality raw material. These mines possess an estimated mining reserve of 400 million tonnes, which is expected to sustain the company s operations for the foreseeable future and protect Gujarat NRE Coke s profitability despite tightening raw material availability. Gujarat NRE Coke has sourced its raw material requirement solely from the BHP Billiton, Australia, the single largest exporter of metallurgical coal in the world. Celebrating company achievements with employees, increasing their bonding with the company. This long-standing relationship has allowed the company to grow at an exponential rate of per cent CAGR over the last four years, without a corresponding increase in the employee strength. This achievement has been without a single day s disruption in operation due to employee issues. Efficient material management At Gujarat NRE Coke, raw material cost, quantity and quality influence margins more critically than in most other businesses, revealed in a simple statistic - it consumed close to 0.34 million tonnes of coking coal during the year to sustain its operations to increase to about two million tonnes per annum by December For a number of important reasons: Raw material accounts for per cent of the turnover, the highest cost component for the company. A change in the prices of the same can alter the company s profitability significantly. Indiscriminate mining of this fossil fuel is not permitted worldwide due to environmental hazards, disturbance to the earth s strata and health and safety reasons of the miners. Availability of coking coal is diminishing due to the closure of a number of mines. The quality of the raw material available domestically is not suitable for the desired quality of finished product, necessitating imports. The price of this product fluctuates considerably making forecasting a difficult task. As a result of these initiatives, despite a shortage in world hard coking coal supplies, the company has not lost a single day of operations due to the non-availability of raw material. Sustained operational efficiency At Gujarat NRE Coke, manufacturing excellence resides at the heart of its competitiveness. For a number of reasons: Capital investment in the coke industry is high, which makes a high utilisation imperative at all times. Raw material quality, which may vary across batches and regions, must be transformed into an end product customised to user requirements. Marginal improvements in the operational infrastructure and process flow can translate into substantial gains in productivity. This understanding has enabled the company to continually improvise on the coke oven design to improve productivity, reduce costs and enhance product quality. Besides, the company has made a number of minor changes in its operations to improve the shop-floor performance. For instance, the company has commissioned small pay loaders to load the finished products from the sides of the coke oven (could be done only by manual intervention earlier), significantly improving the time utilisation and efficient deployment of its available work force. Gujarat NRE Coke has purchased coking coalmines in Australia having best hard coking coal reserves estimated at 400 mn tonnes which is expected to sustain the company s operations for the foreseeable future. Over the years, Gujarat NRE Coke has addressed the various challenges through a number of initiatives: 28 29

16 Uncompromising quality Incoming coking coal At Gujarat NRE Coke, we draw our customers on the basis of our reputation, but retain them on the basis of our quality. The ability to deliver consistent quality is of critical importance to our existence. For a number of reasons: Coking coal stock yard Our end-product is the raw material (reductant) for a number of manufacturing units especially steel, soda ash, ferro alloys, zinc to name a few. Inconsistent quality will increase cost and dampen the productivity for the user industry. Separation of impurities Crushing of coal Over the years, the company has taken a number of initiatives to provide consistent quality to its customers. Commitment to quality excellence at Gujarat NRE Coke begins from the procurement of raw materials. It procures its coking coal requirement only from established quality suppliers. This coal has an ash content between 8-9 per cent as opposed to the domestic varieties containing per cent ash. Further, all incoming material is checked at the port and at the plant site for size, moisture, chemical composition and handling loss. The company has improved its coke oven design for consistent quality and better yield. The new coke oven design utilises the flue gases emerging from the heating of the coal. This is Gujarat NRE Coke has an in-house fully equipped laboratory with sophisticated equipment for all required tests on coking coal/met coke. Screening of coal for oversize Charging into oven for carbonisation Discharge of coke & quenching with water Oversize coal lumps burnt in the absence of oxygen. This provides for heating the coal charge consistently from the bottom improving the quality of coke. Besides, the company has cemented the plant floor completely. This has substantially reduced the ground dust and other impurities from being mixed with the coking coal and coke. Besides, the company practices a rigorous quality control at various stages of the process flow: Hourly and continuous test of raw coal being charged into the ovens for its consistent coking properties. Hourly temperature readings in flues and tunnels and zero tolerance maintenance. Individual finished product batches are tested for size, bulk density, porosity, ash, moisture, volatile matter and Sulphur among others. Gujarat NRE Coke has an order book position, which extends well beyond the current year s production, a significant part of which comprise export orders. Cutting of coke to requisite size The company has set up an in-house fully equipped laboratory with sophisticated equipment for all required tests on coking coal/met coke. Daily, weekly and monthly results are monitored for deriving trends for improved quality control for subsequent batches. As a result, the company has recorded reduced rejections substantially. It also strengthened Despatch/storage the company s brand, supplying products to quality conscious corporate customers. In 2004, the company exported the first ever coke consignment from India. Besides, a significant part of its current year s order book comprises of export orders. Manufacturing process Proactive marketing At Gujarat NRE Coke, we proactively extended our product strength to a value proposition for our customers: 30 31

17 For a number of reasons An understanding that when the supply crunch would even out, these long standing relations would sustain offtake. As a result, the company has capitalised on present industry scenario. And recorded a more than four fold increase in its profits. In addition, the company has also taken the pathbreaking step to export coke for the first time from India, justifying its capacity increase. A recognition that buyers prefer to transact with suppliers that match deliverables consistently. Capital investment (Rs/cr) Installed Capacity ( 000TPA) Gujarat NRE Coke has adopted a two-pronged marketing strategy. A part of its production is supplied to the corporates in nearby states. In addition, the company has a dealership network to cater to small volume consumers As per the company s strategy, production from the new capacity at Bhachau will be marketed in the North and a part of the produce to its existing customers. As a result, the company has an order book position, which extends well beyond the current year s production Prudent capital investment Gujarat NRE Coke invested in a new greenfield plant at Bhachau, Gujarat, with a capacity of 3.24 lac TPA. A third plant is also being set up at Dharwad, Karnataka with a capacity of 7.24 lac TPA that is scalable to 10 lac TPA. At Gujarat NRE Coke, we have consistently invested in the business to put India on the global map for the industry. For a number of reasons: Large capacities in the developed world are shutting due to increasing replacement costs and ageing issues, creating a significant demand supply imbalance. Increasing domestic Chinese demand has rationed the supply to the other coke consumers in the world. We can offer a value-for-money proposition to the coke consumer industry with our product strength. The company was early to capitalise on the emerging forthcoming opportunity. As a result, while most companies were planning on expanding capacity, Gujarat NRE Coke was the first to implement and commission its expansion plans. This has provided the company a first mover s advantage over others whose expansion programmes are yet to be commissioned. Over the years, Gujarat NRE Coke has embarked on a number of capital investment initiatives: It has invested Rs cr in the last five years in capacity enhancement. This has positioned it as the leader in the industry. In , capacity was increased to 3.58 lac tonnes from 2.44 lac tonnes at Khambhalia, Gujarat. Invested in a new greenfield plant at Bhachau, Gujarat, with a capacity of 3.24 lac TPA vs The benefit of being in the right industry with the right capacity at the right time translated into record profits for the company during Total income grew by phenomenal per cent to Rs cr. EBIDTA grew more than five-fold from Rs cr to Rs cr. Profit after tax increased from Rs cr to Rs cr. Earning per share increased from Rs in to Rs in Revenues Net sales grew more than 100 per cent to Rs cr in primarily on account of an average increase in coke realisations by 95 per cent as against a volume growth of 10 per cent. The company reported a compounded revenue growth of per cent over four years. Average realisation/tonne (Rs.) The graph shows how the company has reaped the benefit of an international demand-supply imbalance in coke leading to a huge jump in revenues. The benefit of being in the right industry with the right capacity at the right time translated into record profits for the company during The plant has commenced operations in a phased manner (1.44 lac TPA was in operation at the end of ) and is expected to be fully operational in the current fiscal. A third plant is being set up at Dharwad, Karnataka. This plant has a capacity of 7.24 lac TPA that is scalable to 10 lac TPA Creating a special export processing facility adjacent to its existing facility at Khambhalia. Purchased coking coalmines in Australia to ensure sustained raw material supplies. Expenses The company is also planning to set up power capacities of 50 MW at an investment of Rs cr based on the waste heat co-generation process. The prudent management of operations resulted in effective cost control, especially in terms of raw materials and freight

18 Distribution of every Rupee earned Raw material Consumables Manufacturing expenses Own funds Equity capital: The company s equity share capital comprised 471,59,408 equity shares of a face value of Rs. 10 each as on 30 September, Around per cent of the equity capital comprised shares allotted by way of bonus issues through a capitalisation of the company s general reserves. The promoters held around per cent of the total subscribed and paid-up capital of the company. Admin and selling expenses Capital history (Rs. cr) Year Nature of issue Amount mobilised Cumulative capital Operating profit 1994 Initial public offer Bonus issue Raw materials: Coking coal accounted for the company s principal raw material. Nearly 2000 Allotment to promoters tonnes of coking coal was required to manufacture one tonne of the end product. The company contained its raw material cost despite a significant price hike by entering into long-term purchase agreements. So even as spot coking coal price rose to Rs per tonne in the year under review, the company procured its raw material at an average cost of Rs per tonne Allotment to promoters Bonus issue Issued on amalgamation of Gujarat NRE Power Ltd Bonus issue Freight: In , global freight rates increased significantly from USD 15 per tonne to USD 40 per tonne. The company imported eight consignments of coking coal during the 2004 Issued on the merger of Aparna Project Ltd year. Being import-dependant, the company entered into long-term de-risking freight Even as spot coking coal price rose to Rs per tonne in the year under review, Gujarat NRE Coke procured its raw material at an average cost of Rs per tonne. contracts with reputed vessel owners. As a result, the company saved more than 50 per cent of its projected freight bill during the year under review. Employee cost: The carbonisation of coking coal leading to the manufacture of coke is labour-intensive. As a rule of thumb, an investment of Rs. 100 cr entails the employment of 500 individuals. However, even as investment increased, the company enhanced automation and increased incentive-driven productivity. As a result, employee cost remained largely at the previous year level at about two per cent of total expenses. Margins At a time when realisations increased sharply, it was inevitable that margins would increase: EBIDTA margin from per cent in to per cent in Cash margin from per cent in to per cent in Net margin from per cent in to per cent in However, the company takes pride in having contributed to the increase in margins also Reserves: Reserves represent the lowest cost of funds for a company, especially when created out of accruals. During the year under review, reserves increased significantly from Rs cr in to Rs cr in Free reserves stood at Rs cr towards the close of , accounting for per cent of the total reserves. Retained earnings (Rs./cr) This graph demonstrates the company s growing retained earnings that will enable it to survive industry downturns and capitalise on all emerging opportunities. Around per cent of the equity capital comprised shares allotted by way of bonus issues through capitalisation of the company s general reserves. through an increased volume and cost management EBIDTA margin (%) PAT margin (%) Improved margins are a clear reflection of disciplined operations and improved realisation, as expressed by the graph. Loan funds and costs In a capital-intensive business, the size and cost of debt often makes the difference between a company s success and failure. At Gujarat NRE Coke, a competent management of the material and financial resources translated into a relatively modest use and low cost of debt. Loans declined from 61 per cent of the total capital employed in to only 27 per cent as on 30 September, 2004 as a result of the following virtuous cycle: quality product manufacture, improved realisations, cost cutting, increased profitability, enhanced ploughback and debt neutralisation. Consequently, the company s low debt-equity ratio of 0.41 and an average funds cost of 5.37 per cent as on 30 September, 2004 translated into a platform for 34 35

19 sustainable growth. Relatively lower cost secured term loans comprised close to 90 per cent of the total debt of the company towards the close of the financial year under review. During , the principal initiatives in debt management comprised the following: five years. This resulted in a significant increase in gross block from Rs cr in to Rs cr in and operational capacity from 1.00 lac TPA in 1999 to 5.02 lac TPA (as on 30 September, 2004). A P1+ rating (highest) was received from CARE for the proposed issue of commercial paper by the company. CARE upgraded the A+ rating (August 2003) for NCD issued by the company to AArating (March 2004). Improved cash flow management, which reduced the utilisation of cash credit facilities from Rs cr in to Rs cr as at the end of Better coupon rate negotiation with banks/other finance suppliers reduced interest rates by nearly 300 basis points. A P1+ rating (highest) was received from CARE for the proposed issue of commercial paper. The A+ (August 2003) by CARE for non-convertible debentures issued by the company improved to AA- rating (March 2004). In view of these and other initiatives, the company s interest liability declined from Rs cr to Rs cr and the average debt cost declined from per cent in to 5.37 per cent in The company financed its aggressive expansion through low cost debt (average cost seven per cent). Capital employed In a capital-intensive business, the company s fiscal efficiency is gauged by its ability to report a return that is higher than what investors would ordinarily have derived out of an investment in fixed income instruments. Over the years, the company sweated both man and machine intelligently, moving towards enhanced productivity and improved margins. The impact is visible in the numbers: while the average employed capital increased at a CAGR of 49 per cent over the last three years, PBIT grew by 160 per cent over the same period, indicating a higher return on employed capital Return on net worth (%) Return on capital employed (%) The graph illustrates improved returns resulting from its ability to grow earnings faster than infusion of capital into the business. Year Coke ovens added Batteries added In-house improvisations enabled the company to reduce its capital costs significantly, facilitating quicker payback. So even as the capital cost per tonne at its new unit at Bhachau was approximately Rs. 1700, PBIT per tonne in was Rs per tonne, indicating the company s comfort in being able to recover its capital costs with speed even in the face of price erosion. In view of this scenario, the company is investing Rs. 197 cr in two greenfield coke plants - in Gujarat (3.24 lac tonnes) and in Karnataka (7.24 lac tonnes). The unit at Bhachau was partly operational at the close of the financial year under review while the entire capacity is expected to be on stream within the first quarter of The capacity of the unit in Karnataka is progressively scalable to 10 lac TPA. It would be pertinent to indicate that the Rs. 55 cr Bhachau project will be financed from internal accruals to the extent of Rs. 30 cr while the Rs. 142 cr Dharwad plant will be financed through a prudent mix of debt and equity in the ratio 1.2:1. Working capital The management of working capital is critical to the company for a number of reasons: In view of the growing business, increasing raw material must be stocked at all times. The company s entire raw material must be imported with a long purchase-toconsumption cycle. In view of the tightening supply situation, creditors demand quicker payment. A labour-intensive business requires sufficient liquidity. To cater to the export markets a significantly large finished goods inventory needs to be maintained. As a result, working capital as a proportion of the capital employed increased from about 19 per cent in to 47 per cent in Gujarat NRE Coke consistently invested its business surplus in capacity expansion during the last five years. This resulted in a significant increase in operational capacity from 1.00 lac TPA in 1999 to 5.02 lac TPA in The company s employed capital increased from Rs cr in to Rs cr in , driven primarily by an increase in the earned reserves, surplus and debt. This was primarily on account of the company tying-up the funds for the capital expenditure planned over the next two years during Fixed assets The company consistently invested its business surplus in capacity expansion during the last The company sweated its capital better: while working capital increased at a compounded rate of 93 per cent in the four years leading to , profit after tax grew by 170 per cent. Inventory Inventory management is a critical driver of profitability: raw material (coking coal) must be stored from different sources (Australia, China and South Africa) across a period of time before it is used in the production. Inventory increased substantially: from Rs cr at the 36 37

20 end of to Rs cr in primarily on account of an increase in finished goods by Rs cr for the following reasons: nation-wide truckers strike that hampered despatches towards the year end and stocking up of finished goods for catering to export consignments earning valuable foreign exchange. The company has received its second export order as a result of this preparedness. Towards the close of the year under review, the company maintained a stock of raw material equivalent to two months of consumption. The increased operational capacity at Khambhalia and the part commissioning of operations at Bhachau necessitated the stocking of larger raw material volumes and a larger working capital outlay. Sundry debtors An average working day at the company during generated a turnover of around Rs. 80 lacs. To keep cash in healthy circulation, it became imperative for debtors to remit proceeds on schedule, any disruption of which could inflate working capital and, in turn, drive up the cost of funds. Sundry debtors during were equivalent to 40 days of revenues as against 34 days in In quantum terms, sundry debtors - dealers and corporate customers - increased from Rs cr in to Rs cr in Dealers generally clear their outstandings within a month and more than 99 per cent of the total debtors are outstanding for less than six months. size of the company and the nature of the business to ensure efficacy of operations and compliance with applicable legislations. There exists an adequate management reporting system comprising periodic managerial reporting and analysis on the various parameters. This ensures immediate corrective action whenever required. Outlook From a macro-perspective, the prospects for the sustained increase in the offtake of coke appear assured for important reasons: The world steel and pig iron production over grew annually at per cent and per cent respectively, while coke production increased by only per cent over the corresponding period. China, the largest coke producer and exporter, substantially curtailed its supply to the coke consuming nations due to a growing internal demand. For an important reason: pig iron production increase in China in 2003 accounted for close to 73 per cent of the global pig iron increase. Gujarat NRE Coke has received its second export order as a result of finished goods inventory preparedness. Loans and advances Since the company is engaged in an aggressive expansion and modernisation of its existing facilities, it gave loans and advances to vendors as capital support for the smooth and quick completion of projects. As a result, loans and advances grew from Rs cr to Rs cr in These loans and advances, made in the course of normal business, are fully recoverable and are being progressively adjusted against the phased completion of projects by vendor agencies. Creditors Creditors primarily comprised international coking coal suppliers. In view of the scarcity of this fossil fuel, timely payment and creditor management became critical. Thanks to better negotiation, the company extended its average creditor cycle from 102 days (30 September, 2003) to 134 days (30 September, 2004), which relieved the pressure on working capital. Taxation The company s corporate tax increased substantially to Rs cr largely on account of the increased operational scale. The company is paying a 35 per cent tax rate in line with the provisions of the Income Tax Act. The company could avail the benefit of a high depreciation shield arising from the fresh investments in modernisation-expansion and its investments in wind power generation for its captive consumption. Internal control The company has in place an adequate system of internal controls commensurate with the In 2003 Coke production Increased production Export trade (million tonne) (million tonne) (million tonne) Global China % of the global scenario Chinese coke industry In Q1/2004 Coke production Export trade (million tonne) (million tonne) Absolute numbers % increase over corresponding period of pr. year (43.38) The traditional by-product recovery route for coke manufacture using conventional batteries has been considered as highly polluting. Hence, a number of coke manufacturing facilities have been shutdown in the developed countries. North America has witnessed a fall in the coke production by 3.1 per cent over the last decade. Besides, there is a shortage of two million tonnes in Poland and UK respectively, while Germany has been importing approximately three million tonnes annually. These numbers are only expected to increase. With Chinese supplies being unreliable, the world is looking to India as a secondary coke supplier to the world. With additional capacity in place within the current year, Gujarat NRE Coke is perfectly positioned to take advantage of this situation and establish itself as a global player. Besides, the non-recovery technology being used by the company is environment-friendly and non- The world steel and pig iron production over grew annually at per cent and per cent respectively, while coke production increased by only per cent over the corresponding period

21 polluting, ensuring its sustainability in the long term. India had an estimated coke deficit of 3.5 million tonnes in This is expected to increase to 20 million tonnes over next seven years, while the additional coke capacity is estimated at 10.3 million tonnes. From a more micro perspective, the Indian economy has been growing consistently over the last five years at an average annual growth rate of five per cent. In the , the GDP recorded a growth of 8.2 per cent. The growth for the current year is estimated at seven per cent. Moreover, the housing and construction sectors have been on the high priority of the national agenda, providing a sustained demand for steel products. In line with this increased demand, additional steel capacity of 22.8 million tonnes is expected to be commissioned over the next few years. The Indian steel production is estimated to cross 60 million tonnes by Over the years, India has been a net importer of coke, an estimated deficit of 3.5 million tonnes in This is expected to grow to more than 20 million tonnes over next seven years, while the coke capacity expected to be commissioned in the medium term is estimated at 10.3 million tonnes, leaving a huge gap for sustained growth of the coke industry. Besides, with the industrial and agricultural sectors growing consistently over the years, the demand for chemicals has also increased substantially, fuelling the demand for coke. Disclaimer In this Annual Report we have disclosed forward-looking information to enable investors to comprehend our prospects and take informed investment decisions. This report and other statements-written and oral-that we periodically make, contain forward-looking statements that set out anticipated results based on the management s plans and assumptions. We have tried wherever possible to identify such statements by using words such as anticipate, estimate, expects, projects, intends, plans, believes, and words of similar substance in connection with any discussion of future performance. We cannot guarantee that these forward-looking statements will be realised, although we believe we have been prudent in our assumptions. The achievement of results is subject to risks, uncertainties and even inaccurate assumptions. Should known or unknown risks or uncertainties materialise, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Readers should bear this in mind. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise

22 RISK MANAGEMENT In a cyclical business impacted by developments with far-reaching consequences that transpire with speed, a successful survivor is one who builds business-protecting initiatives to escape the trough and business-enhancing initiative to capitalise on the crest. At Gujarat NRE Coke, we have done just this. We have formalised a risk management approach that has evolved from a dependence on a handful of individuals to an organisation-wide culture supported by effective systems and processes. As a result, business decisions at the company balance risk and reward in no uncertain terms. This ensures that initiatives that generate revenues are consistent with the risks taken. The company s risk-management revolves around the following: Risk identification and risk measurement: Facilitated through corporate policies that provide risk standards and guidelines (credit, market, liquidity, funding and operational). Risk management: Facilitated through the involvement of senior management for approval, reviews and other policy measures. The end-point responsibility in risk-management is vested with the senior management, which approves the initiatives and makes a continuous review of risk assessment. Risk control: Facilitated through an ongoing check of whether the risk taken is in line with the company s risk appetite The important risks faced by the industry in general and the company in particular as well as their mitigation initiatives are enumerated below. Risk definition Risk statement Risk mitigation Mitigation measurement Raw material risk Technology obsolescence risk A disruption in the supply of quality raw material could impact end product quality, output, realisations, customer relationships and existence. A technology that becomes obsolete could reduce the company s profitability. The company imports raw material from BHP Billiton, the world s largest resource company, secured by longterm supply, pricing and quality contracts. The size and status of this supplier ensures contractual continuity. The acquisition of coalmines in Australia will further ensure security of raw material supply in the longer term. The company has continuously improved its non-recovery coke manufacturing technology, recovering heat from the volatile matter, improving the heating process and reducing the heating time for a single product batch. The company did not experience a single day of operational disruption due to raw material shortage, despite an annual compounded increase of per cent in raw material consumption over the last four years. Batch processing time has reduced considerably. Despite a phased capacity hike, the capacity increased from 2.44 lac TPA to 5.02 lac TPA (0.72 lac TPA operational in March, 2004 and 0.72 lac TPA in September, 2004) production increased by more than 100 per cent over the previous year. Risk definition Risk statement Risk mitigation Mitigation measurement Industry risk A down turn in any of the user industries could affect the company s profits. Metallurgical coke is used primarily by the chemical, soda ash, steel and foundry industries. Steel is the largest consuming industry, growing at an average of 6.60 per cent since The announcement of a substantial increase in the country s steel capacity is only going to increase the demand for coke. The company has embarked on a rapid expansion to meet the projected shortfall in the supply of coke (expansion details on page 33). Environment risk The manufacture of coke could have an adverse environmental fallout, if not provided with safeguards. As a responsible corporate citizen, the company has minimised environment pollution through the complete combustion of the volatile matter escaping from the coke ovens. Conveyors transporting coal/coke fines are covered to prevent dispersal. The vibratory screens and cutters are covered to control the release of coal dust into the air. The company s gaseous emissions are far below the norms specified by the Pollution Control Board. Competition risk The doubling of coke realisations in less than a year is likely to increase competition. The demand for coke in India is likely to be more than the supply even after factoring in the proposed expansions by existing manufacturers and the commissioning of fresh projects. Besides, the emergence of exports following China s rationing of international supplies is likely to present a huge alternative market. The company is the largest non-captive coke manufacturer in India with the lowest capital and conversion costs reflected in the highest industry EBIDTA margin of per cent. Its incremental capacities will only strengthen this edge and create competition for the others instead of becoming a victim of it. Climatic risk Rains increase moisture in coal and coke, impacting quality and operations during the monsoons. The company has created a large covered shed with a storage area capable of holding its finished products without dampening its quality. It has also made a provision against the accumulation of water on the shop floor. In addition, it set up a 60,000 TPA drying oven based on waste-heat to prevent excessive moisture. All despatch trucks are completely covered to reduce moisture accretion in transit. The company is the sole supplier for a number of its customers, encouraging them to keep only a week s inventory, an endorsement of its quality and delivery commitment

23 Risk definition Risk statement Risk mitigation Mitigation measurement Risk definition Risk statement Risk mitigation Mitigation measurement Geographical risk Client concentration risk Theft risk The company could depend excessively on any one market, which could be detrimental. An over dependence on a few customers could affect revenues in the event of attrition. Nearly 50 trucks leave the company s plants with finished products while a larger number bring in raw material. Loss of goods (coal/coke) in transit could impact delivery schedule and profitability More than 50 per cent of the revenues are derived from the state in which it is located. Besides, the other customers are located in the contiguous states of western and south-west India, saving logistic costs. The company s greenfield facility at Bhachau will cater to the coke-short northern states of India. Its proposed facility in Karnataka will cater to the southern states. As a result, the company will emerge with an increasing pan-indian presence. The company is planning to earmark 25 per cent of its gross capacity after full expansion for exports. The company s customers are spread across corporates and dealers (who cater to smaller requirements). No single customer accounts for more than 20 per cent of its revenue. The appetite of its customers is reflected in the fact that despite a near four-fold capacity increase between 1999 and 2004, the company could not fully meet all of its customer requirements. The company has entered into longterm contracts with truck operators that specifically insulate it from a loss on account of theft. To mitigate the risk of theft in transit, the company has instituted various en route checks. As a result, material is checked for weight and extraneous material at various points. In , the company exported 8.32 per cent of its production the first time in its history. This strengthened the company s geographical de-risking (for more details, please read page 12). The company has a long-standing relation with majority of its corporate customers. Besides, all its dealers are with the company for more than five years. Assuring sustained offtake. The entry into the global market has further de-risked the company from customer attrition. The incidence of theft and fraud were negligible at the company in Liquidity risk Receivables risk Realisations risk At a time of rapid expansion, the company could run into a liquidity trap on account of increasing debt and overheads. A long debtors cycle will raise the need for working capital and interest, reducing profitability. A reduction in prices could dampen returns. Of the total investment of Rs cr in capacity expansions in , more than 40 per cent was financed through internal accruals. Concurrently, the company repaid Rs cr of its debt. Besides, the commissioning of the Bhachau facility at a third of the prevailing greenfield cost will only protect liquidity. A phased commissioning will help. The company has maintained a prudent mix of corporate and smallscale customers, maximising offtake from one and accelerating payments from the other. Sales to small-scale users is made only through dealers, facilitating recoveries within a month and allowing for a quicker rotation of funds to meet working capital requirements. Besides, periodic cash flow statements help the company gauge the extent and time of its various liabilities, accelerating collection. The company has no control on its realisations. To protect its profitability from a probable decline, it has embarked on a number of initiatives to reduce its cost structure (discussed elsewhere). The cash flow of Rs cr in will be more than sufficient to repay the company s debt of Rs cr in Interestingly, the entire debt obligation of the company at Rs cr (30 September, 2004) is only 49 per cent of the cash flow of Debtors cycle increased from 34 days to 40 days. While in absolute terms, debtors increased by Rs cr over the previous fiscal in view of the sharp increase in prices, more than 99 per cent of the debtors were less than six months old. To establish the viability of its expansion projects in good markets and bad, the company estimated realisations 35 per cent lower than the prevailing prices. Even on the basis of this conservative estimate, the company is expected to grow its topline and bottomline over the foreseeable future

24 GROWTH HISTORY VALUE-ADDED STATEMENT (Rs. Lacs) Equity capital 1, , , , , Reserves & surplus , , , Borrowings 2, , , , Deferred tax , Net fixed assets 2, , , , , Capital work-in-progress , Investments Net current assets , , , , Misc. expenditure (not w/off) Total income 5, , , , , Total expenses 4, , , , , Operating profit/(loss) , , , Interest Gross profit/(loss) , , , Depreciation Profit/(loss) before tax , , (Rs. Lacs) Turnover Other Income Stock Variation (450.36) Total Income Less: cost of materials ad services EARNINGS DISTRIBUTION TO EMPLOYEES TO PROVIDERS OF CAPITAL TO THE GOVERNMENT TO SHAREHOLDERS RETAINED IN BUSINESS Depreciation Deferred tax Retained profits Tax , Profit/(loss) after tax , , Retained in business Cash profit , , , To the shareholders Dividend , Tax on dividend To the Government Retained earnings , , Earnings per share (Rs.) Book value per equity share (Rs.) (Rs. Lacs) To the providers of capital To the employees Dividend per share (Rs.)

25 DIRECTORS REPORT To The Members, Your Directors have immense pleasure in presenting the Eighteenth Annual Report and the audited financial results of the Company for the year ended on 30th September Financial Highlights Review of Operations (Rs. Lacs) Income from operations Less: Interest Less: Depreciation Profit before tax Less: Provision for tax / deferred tax Profit after tax Add: Balance brought forward Amount available for appropriation Less: Appropriations Transfer to General Reserve Interim dividend Proposed dividend on equity shares Corporate tax on dividend Balance carried to Balance Sheet It was a year of records for the Company across a number of The improved performance was not just a result of an increase in parameters. On the financial front, the turnover grew from realisations; it was also due to a prudently-timed capacity Rs cr in to Rs cr in and the expansion, consolidation of presence, consistent quality and the bottomline exhibited more than six-fold increase from reliability of maintaining supply at a time of burgeoning demand Rs cr to Rs cr during the period. The Company and narrowing supply. Besides, long-term agreements with raw was successful in exporting its product for the first time since material suppliers and ship-owners not only ensured regular inception and thus became the first manufacturer-exporter of supplies leading to targeted production but also helped de-risk met coke from India. the company from significant cost variations. Dividend The Board is pleased to recommend a final dividend of 10% in addition to the two interim dividends of 15% each during the year under review. This has aggregated to 40% dividend for as against a dividend of 15% paid in The bonus shares allotted during the year are entitled to a full dividend, irrespective of their date of allotment. Bonus Issue Over the last five years, your Company has grown at a CAGR of 56.85%. In view of global macro-industry shifts and an optimistic outlook for the user industries, this growth is expected to further accelerate. It is the policy of your Company to continuously align its paid-up capital with its growing scale and also distribute profits judiciously, prompting the issue of bonus shares at periodic intervals. For the third year in succession, the Board proposes to issue bonus shares this year, the ratio is one share for every one share held without in any manner compromising the Company s ability to service it. Listing In view of the increasing investor interest, the shares of your Company are now listed on the National Stock Exchange of India Ltd. (NSE) in addition to Bombay and Calcutta Stock Exchanges. Expansion Your company has grown rapidly during the last few years: from three coke oven batteries in 1997 to 15 in During the year under review, the eleventh battery was commissioned at Jamnagar Plant while four were commissioned at the Bhachau plant. An additional five batteries are expected to be commissioned at Bhachau within the next quarter. Merger The merger of Aparna Project Private Limited was approved by the Hon ble Calcutta High Court during the year under review. Accordingly, its assets were taken over and merged with the Company. The shareholders of Aparna Project Private Limited were allotted equity shares of the Company as per the Scheme of Amalgamation. As a result of the merger, three batteries were added to the company s manufacturing capacity. Windpower In line with the Company s emphasis on Natural Resources and Sustainable Environment management, the Company invested in the generation of wind power for captive consumption. The first windmill was commissioned in , resulting in substantial savings in power cost at the Khambhalia Plant. The Company is now setting up its second windmill to cater to the power requirements of the Bhachau plant. Growth Through Integration The Indian industry is poised for spectacular growth during the coming year. Correspondingly, India s coke demand is envisaged to grow from 22 million tonnes to 60 million tonnes by ; while demand for imported coking coal is expected to grow by 47 million tonnes during the same period. In view of this imminent growth in end-product requirement, your Company strengthened its access to raw material. Your Company floated an Australian subsidiary company named Gujarat NRE Australia Pty. Ltd., which acquired a hard coking coal mine near Sydney in Australia (since renamed NRE No. 1 Colliery). This backward integration will secure the availability of quality hard coking coal across the long-term and, in turn, help the Company maintain a supply consistency to all its customers. Corporate Governance Your Company has taken adequate steps to ensure that all mandatory provisions of Corporate Governance, as provided under Clause 49 of the Listing Agreement with the Stock Exchanges with which the Company s shares are listed, are duly complied with

26 A separate report on Corporate Governance along with auditors certificate for its due compliance and Management s Discussion and Analysis are annexed hereto and form a part of this Annual Report. Directors Shri Subodh Kumar Agarwal and Shri Chinubhai R Shah, Directors of the Company retire by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for re-appointment. Directors responsibility statement Pursuant to the requirements under Section 217(2AA) of the Companies Act, 1956 with respect to Directors Responsibility Statement, it is hereby confirmed that: a) in the preparation of annual accounts for the financial year ended 30th September, 2004, the applicable accounting standards had been followed and that no material departures have been made from the same; b) the Directors had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for the year ended on that date; c) the Directors have taken proper and sufficient care for 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 Directors had prepared the annual accounts for the financial year ended 30th September, 2004 on a going concern basis. Auditors M/s N. C. Banerjee & Co., Chartered Accountants, retire as auditors of the Company at the ensuing Annual General Meeting and are eligible for re-appointment. As required under section 224 of the Companies Act, 1956, the Company has obtained a written certificate from them to the effect that their re-appointment, if made, would be in conformity with the limits prescribed in the said section. Auditors report The Report of the Auditors read with the notes on the accounts, as annexed are self-explanatory and need no elaboration. Public deposits The Company has not accepted or renewed any Public Deposits, as defined under section 58A of the Companies Act, 1956, during the year. Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo as required under 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 the annexure attached hereto and forms part of this report. Particulars of employees Particulars of employees as required under section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended, are given in a separate annexure attached hereto and form part of this report. Personnel / industrial relations Industrial relations at the Company s plants remained cordial. Employees worked with determination and dedication in attaining varied objectives. Your Directors record their appreciation for this hard work and efficiency. Acknowledgement The Directors also wish to place on record their appreciation and acknowledgement of the support and co-operation extended by the customers, suppliers, bankers, financial institutions, investors, media, government and their agencies, which translated into a record performance. For and on behalf of the Board Place: Kolkata Dated the 9th day of November, 2004 Girdhari Lal Jagatramka Chairman Annexure to the DIRECTORS REPORT Information as required under section 217(1)(e) read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 A. Conservation of energy (a) Energy Conservation measures taken: A windmill at Bhogat in Gujarat with a capacity of 1.25 MW has already been commissioned resulting in a substantial savings in annual energy costs of the Company s plant at Khambhalia in Gujarat. The Company is taking adequate steps for reduction in non-essential loads to conserve power. (b) Additional investments and proposals being implemented for reduction of consumption of energy: The Company has decided to set up one more windmill for captive consumption of the Company s plant at Lunva, Bhachau in Gujarat. The new windmill is expected to be commissioned by February (c) Impact of above measures: More efficient utilisation of power and reduction in energy consumption. (d) Total energy consumption and energy consumption per unit of Production: As per Form-A annexed B. Technology absorption (a) Efforts made in technology absorption: As per Form-B annexed. C. Foreign exchange earning and outgo (a) Activities relating to export, initiative taken to increase exports; development of new export markets for products and services; and export plans: The Company has exported the first ever met coke cargo valued at Rs. 3, lacs to Brazil which has opened up export market for Company s product across the globe. The Company is expanding its production capacity to emerge as a leading coke exporter, steps have also been taken for the ISO certification. (b) Total foreign exchange used and earned: (Rs. Lacs) Amount Total Foreign exchange earning 3, Total Foreign exchange outgo 18,

27 FORM - A Disclosure of particulars with respect to Conservation of Energy for the year ended 30th September, 2004 A. Power and fuel consumption Current Year 1 Electricity a) Purchased: (Rs. Lacs) Previous Year Units (in Lacs) Total Amount (in Lacs) Rate (Rs./Unit) b) Through Diesel Generator Units (in Lacs) Units per ltr. of Diesel Oil Cost (Rs. /Unit) Technology absorption, adoption and innovation 1. Efforts made: Continuous efforts are being made towards improvements in the existing production process. 2. Benefits: The Company is successful in improving the quality of its products. 3. Particulars of technology imported during last 5 years: (a) Technology import : NIL (b) Year of import : NIL (c) Has technology been fully absorbed : NIL (d) If not fully absorbed, areas where this has not taken place, reasons thereof and future plan of action : NIL B. Consumption per unit of production Current Year Previous Year Electricity (Units/MT) Particulars of Employees as required under Section 217(2A) of the Companies Act, 1956 and forming part of the Directors Report for the year ended 30th September, 2004 FORM - B Form for disclosure of particulars with respect to technology absorption Research and development (R&D) 1. Specific areas in which R&D proposed to be carried out by the company: None 2. Benefits derived: Not Applicable. 3. Future plan of action: The Company is planning to set up power plants by utilising the waste heat emanating from the coke ovens. 4. Expenditure on R&D: (Rs. in Lacs) (a) Capital : NIL (b) Recurring : NIL (c) Total : NIL (d) Total R&D Expenditure as a Percentage of total turnover : NIL Name Designation Remuneration Qualification & Age (years) Date of Commencement Last Employer, (Rs.) Experience (years) of Employment Designation Shri A K Jagatramka Managing 22,03,200 B.Com [Hons.], FCA Self Director 21 years Employed Notes: 1) Remuneration includes salary, commission, company s contribution to provident fund, gratuity and monetary value of perquisites. 2) The appointment is contractual. Other terms and conditions are as per his agreement and as per the Rules of the Company. For and on behalf of the Board of Directors Kolkata Girdhari Lal Jagatramka 9th day of November, 2004 Chairman 52 53

28 The composition of the Board of Directors as of 30th September, 2004 and also the number of other Board of Directors or Board Committees of which he/she is a member/chairperson are as under: CORPORATE GOVERNANCE Name of the Director Category No. of other No. of other Board Directorships* Committee** position as Member Chairman Shri G L Jagatramka Promoter Chairman Non-Executive The Company s Corporate Governance Philosophy: Gujarat NRE Coke Limited defines Corporate Governance as a systematic process by which companies are directed and controlled keeping in mind the long-term interest of the stakeholders. It firmly believes that good Corporate Governance is the foundation of corporate excellence. It focuses on equitable treatment of all shareholders and reinforces that it is "your company" and it belongs to you, the shareholders. Gujarat NRE Coke is committed to good Corporate Governance by creating an environment based on entrepreneurship, professionalism and pursuit for excellence. Its Corporate Governance is based on two core principles: Management must have executive freedom to drive the enterprise forward without undue restraints: and This freedom of management should be exercised within a framework of effective accountability. The above belief and core principles of Corporate Governance adopted by Gujarat NRE Coke leads the company s governance philosophy, trusteeship, transparency, independence, fairness, accountability and social responsibility which in turn is the basis of public confidence in the corporate system. 2 Board Of Directors: Composition and category The Board of Directors of the Company consists of eminent persons with professional expertise. As on 30th September, 2004 the constitution of the Board was: One promoter, Non-Executive Director One promoter, Executive Director Four independent, Non-Executive Directors. Shri A K Jagatramka Promoter Managing Director Executive Shri S K Agarwal Independent Non-Executive 1 Dr. Basudeb Sen Independent (appointed on ) Non-Executive Shri Chinubhai R Shah Independent (appointed on ) Non-Executive Dr. M K Loyalka Independent (appointed on ) Non-Executive Shri S Ganguly Independent (ceased on ) Non-Executive 1 Shri R K Banka Independent (ceased on ) Non-Executive 1 * Directorship in Foreign Companies, Private Limited Companies and Companies covered under section 25 of the Companies Act, 1956 have not been considered. ** Only the positions held in other Committees, such as audit, remuneration and shareholders grievance committee in Indian Public Limited Companies have been considered

29 Meetings and Attendance Record of Directors. During the financial year ended on 30th September 2004, 9 (nine) Board Meetings were held on 20th October 2003, 18th December 2003, 25th January 2004, 18th February 2004, 29th March 2004, 30th April 2004, 18th June 2004, 27th July 2004 and 7th August papers to the Directors before such meetings. The Directors express their views freely and seek clarifications on various items of business taken up at such meetings. The discussions are held in a transparent manner. Various decisions emanating from such meetings are implemented to streamline the systems and procedures followed by the Company. To undertake such other matters as may be delegated by the Board from time to time. ii) Composition The present composition of the Audit Committee is as follows: Shri S K Agarwal (Chairman) (b) Share Transfer Committee. The Company has constituted a Share Transfer Committee with Shri S. K Agarwal (Chairman), Shri G. L. Jagatramka and Dr. M K Loyalka as its members which meets at regular intervals as per the requirements to approve transfers, transmissions, and issue of duplicate share certificates, etc. The last AGM was held on 29th March 2004 The attendance of each Director at these Board Meetings and the last Annual General Meeting (AGM) was as follows: Name of the No. of Board Meetings Attended Directors Attendance at last AGM held on Shri G L Jagatramka 8 Yes Shri A K Jagatramka 7 Yes Shri S K Agarwal 8 Yes Dr. Basudeb Sen (appointed on ) 7 Yes Shri Chinubhai R Shah (appointed on ) 2 Yes Dr. M K Loyalka (appointed on ) 3 Yes Shri S Ganguly (ceased on ) 3 N A Shri R K Banka (ceased on ) 3 N A All the Directors hold directorship/committee membership in other Companies within the limits prescribed in this regard. Board Procedure. The Board of Directors of the Company meets from time to time to transact business in respect of which the Boards attention is considered necessary. The Company is managed by the Managing Director under the supervision and control of the Board of Directors. There is a well-laid procedure to send detailed Agenda The Company has not entered into any materially significant transaction with its promoters, directors or their relatives etc. that may have potential conflict with the interest of the Company at large. 3. Board Committees: The Board has constituted three permanent Committees so far. (a) Audit Committee. i) Terms of Reference The terms of reference of the Audit Committee are in conformity with the requirements of the Listing Agreement and Section 292A of the Companies Act, These broadly cover the following: To oversee the Company s financial reporting process and the disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible. To review with the management, the financial statements before submission to the Board, focusing primarily on accounting policies; compliance with accounting standards; compliance with Stock Exchange and legal requirements and any related party transactions etc. To review with the management, external and internal auditors, the adequacy of internal control systems. To discuss with the Auditors on the scope and nature of Audit and also to have Post Audit discussion to ascertain any area of concern. To review the Company s financial and risk management policies. Shri G L Jagatramka Dr. Basudeb Sen All the members of the Committee are Non Executive Directors. Shri S K Agarwal, a qualified chartered accountant and Dr. Basudeb Sen, who has executive experience in financial institutions, are independent directors. Shri R K Banka ceased to be a member of the Committee with effect from 18th February 2004, consequent upon his resignation as a director of the Company. The Company Secretary acts as the Secretary to the Committee. iii) Meetings and Attendance During the year ended on 30th September 2004, six meetings were held on the 20th October 2003, 18th December 2003, 25th January 2004, 18th February 2004, 30th April 2004 and 27th July The attendance of the Audit Committee Members is as follows: Name(s) Held * Attended Shri G L Jagatramka 6 6 Shri S K Agarwal 6 6 Dr. Basudeb Sen 3 2 Shri R K Banka 3 3 * Indicates the number of meetings held only during the period of membership. The Statutory Auditors and the Internal Auditors attended the meeting whenever required. The Managing Director and other senior executives are also invited to attend and deliberate in the meetings. During the financial year , twenty meetings of the Committee were held on 10th October 2003, 28th October 2003, 29th November 2003, 1st January 2004, 16th January 2004, 31st January 2004, 14th February 2004, 25th February 2004, 1st March 2004, 29th March 2004, 2nd April 2004, 6th April 2004, 21st April 2004, 24th April 2004, 20th May 2004, 15th June 2004, 14th July 2004, 10th August 2004, 21st August 2004 and 13th September, (c) Shareholders /Investors Grievance committee The Committee, at present, consists of the following members: i. Shri G L Jagatramka (Chairman) ii. Shri S K Agarwal iii. Dr. M K Loyalka The Committee looks into the redressal of shareholders and investors complaints like transfer of shares, non receipt of balance sheet, non-receipt of declared dividends etc. The Company Secretary has been designated as the Compliance Officer by the Board and assigned with the responsibilities of overseeing shareholders /investors grievances under the supervision of the Committee. There is no grievance pending as on date. (d) Remuneration Committee. The Company has not formed a Remuneration Committee, which is a part of a non-mandatory requirement of the code. However, the compensation of the Executive and Non-Executive Directors is approved by the full Board. It is aimed at attracting and retaining high caliber talent. The Company does not currently have a stock option plan or performance-linked incentives for its Directors

30 Details of Remuneration to the Directors for the year ended 30th September 2004: Name of the Directors Salary Benefits Sitting Fees Total Service Contract/ (Rs.) (Rs.) (Rs.) (Rs.) Notice Period/ Severance Fees Shri G L Jagatramka 44, , Retire by Rotation Shri A K Jagatramka 18,00, ,03, ,03, Service Contract Shri S K Agarwal 44, , Retire by Rotation Dr. Basudeb Sen 34, , Retire by Rotation Shri Chinubhai R Shah 10, , Retire by Rotation Dr. M K Loyalka 14, , Retire by Rotation 4. General Body Meetings: a) The details of General Meetings held in last 3 years: Year Meeting Location Date Time th AGM Gyan Manch, 11, Pretoria Street, Kolkata :30 AM EGM Somany Conference Hall, 15B, Hemant Basu Sarani, Kolkata :00 AM EGM - do :45 AM th AGM - do :30 AM EGM -do : 00 AM th AGM - do :30 AM b) Postal Ballot. Special resolutions put through postal ballot last year : Nil nature, with its Promoters, the Directors or the Management, their subsidiaries or relatives etc. that may have potential conflict Items proposed to be conducted through postal ballot this year : Nil with the interest of the Company at large. The transactions undertaken during the year have been disclosed in Note no. 10 of Schedule 16 forming part of the Accounts for the year ended 30th 5. Disclosures: a)disclosures on materially significant related party transactions: The Company has not entered into any transactions of material September b) The Company has regularly complied with the requirements of the regulatory authorities on the Capital markets and no penalties/strictures have been imposed on the Company by Stock Exchange or SEBI or any statutory authority, during the last three years. 6. Means of Communication: a) Quarterly results and the half yearly results were published in leading newspapers such as Business Standard (English), The Financial Express (English), The Times of India (English), The Economic Times (English), Asian Age (English) and Dainik Lipi (Bengali). b) The quarterly, half yearly and yearly financial results of the Company are sent to the Stock exchange(s) at which the Company s shares are listed immediately after they are approved by the Board. c) Copies of the financial results and Annual Reports of the Company are provided to various Analysts, Government Departments, Investors and others interested in getting the same upon receipt of requests from them. d) The Management Discussion and Analysis forms a part of this Annual Report. 7. General Shareholders Information: a) Annual General Meeting: Date and Time : 8th January, 2005 at 11:30 AM Venue : Rotary Sadan, 94/2, Chowringhee Road, Kolkata b) Financial Calendar : 1st October to 30th September c) Book Closure Date : 1st January, 2005 to 8th January, 2005 (Both days inclusive) d) Dividend Payment Date : On or before 30 days from the date of Annual General Meeting e) Listing of Equity Shares on Stock Exchanges at (i) The Calcutta Stock Exchange Association Ltd. 7, Lyons Range, Kolkata (ii) The Stock Exchange, Mumbai P J Towers, Dalal Street, Fort, Mumbai (iii) National Stock Exchange of India Ltd. Exchange Plaza, Bandra Kurla Complex, Bandra (E), Mumbai f) Listing Fees: Listing Fees for the year have been paid to the above Stock Exchanges. g) Depositories: (i) National Securities Depository Ltd. Trade World, Kamala Mills Compound, Lower Parel, Mumbai (ii) Central Depository Services (India) Ltd. P J Towers, 28th Floor, Dalal Street, Fort, Mumbai h) Stock Code: Stock Exchange(s) Stock Code The Calcutta Stock Exchange Association Ltd. The Stock Exchange, Mumbai National Stock Exchange of India Ltd. GUJNRECOKE 58 59

31 i) Market Price Data: The Market Price of the Equity Shares of the Company during is given in the table below: Months CSE BSE NSE* High Low High Low High Low October November December January February March April May June July August September * The shares of the Company were listed on the NSE w.e.f 2nd August, 2004 j) Share Price Performance: Financial Year % Change in GNCL Share Price % Change in BSE Sensex , ,000 k) Registrar and Share Transfer Agents: electronically in the Depository. The RTA of the Company Niche Technologies Private Limited, periodically receives from the Depository, the beneficial D-511, Bagri Market, 71, B. R. B. Basu Road, Kolkata holding so as to enable them to update their records and to Phones: /7270 send all corporate communications and Dividend Warrants Fax: , nichetechpl@nichetechpl.com etc. to the beneficial owners of shares. l) Share Transfer System: Physical shares received for dematerialisation are processed Applications for transfer of shares held in physical form are and computerised within a period of fifteen days from the received at the office of the Registrar & Share Transfer Agents. date of receipt, provided they are found in order in every The Committee of Directors attend to Share transfer respect. Bad deliveries are immediately returned to the formalities at least once in every month depending upon the respective Depository Participant under advice to the requirements. Shares held in dematerialised form are traded Shareholders. m) Shareholding Pattern as on 30th September 2004: Category No. of Shares % of Holding Promoters & Persons Acting in Concert 28,960, Financial Institutions, Banks, Mutual Funds, etc. 1,007, FIIs 1,971, Indian Public (incl. Private Corporate Bodies) 14,407, NRIs 339, Clearing Members 472, Total 47,159, ,000 n) Distribution of Shareholding as on 30th September 2004: GNCL share price (Rs.) ,000 4,000 5,000 3,000 BSE Sensex Shareholding Range No. of Shareholders % of Shareholders No. of Shares Held % of Shareholding , ,283, , ,667, , ,038, ,338, , ,323, ,913, October 03 November 03 December 03 January 04 February 04 March 04 April 04 May 04 June 04 July 04 August 04 September and above ,594, Total 14, ,159,

32 AUDITORS REPORT o) Dematerialisation of Shares and Liquidity: About 51.49% of the Shares have been dematerialised as on 30th September The Equity Shares of Company are 2. Vill. : Lunva, Taluka-Bhachau Dist: Kutch, Gujarat Pin. : actively traded in Stock Exchanges and permitted to be traded r) Address for correspondence: only in dematerialised form w.e.f. 26th March Basant Tower 1, Clyde Row, Hastings, Kolkata p) Outstanding GDRs/ADRs/Warrants or any Convertible Phone: , Fax: instruments, Conversion date and likely impact on equity: nrecal@vsnl.net Nil For and on behalf of the Board q) Plant Location: 1. Vill. : Dharampur, P.O. Khambhalia Dist.: Jamnagar, Gujarat Place: Kolkata G. L. Jagatramka Pin: Dated the 9th day of November 2004 Chairman AUDITORS CERTIFICATE ON CORPORATE GOVERNANCE To the Members of Gujarat NRE Coke Limited As required by the guidance note issued by the Institute of Chartered Accountants of India, we have to state that as per the records maintained, there were no investors remaining We have examined the compliance of conditions of Corporate unattended/pending for more than 30 days as at 30th September Governance by Gujarat NRE Coke Limited for the year ended on th September 2004, as stipulated in Clause 49 of the Listing Agreement of the said Company with the Stock Exchanges. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or The compliances of the conditions of the Corporate Governance effectiveness with which the management has conducted the is the responsibility of the management. Our examination was affairs of the Company. limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of the Corporate Governance. It is neither an audit nor an expression of the opinion on the financial statements of the Company. For N. C. Banerjee & Co. Chartered Accountants In our opinion and to the best of our information and according to the explanations given to us, and the representation made by the Directors and the management, we certify that the Company B. BASU has complied with the conditions of Corporate Governance as Place: Kolkata Partner stipulated in the above-mentioned Listing Agreement. Dated the 9th day of November, 2004 Membership No To The Members of GUJARAT NRE COKE LIMITED 1. We have audited the attached Balance Sheet of GUJARAT NRE COKE LIMITED as at 30th September, 2004, the Profit and Loss Account for the year ended on that date and the Cash Flow Statement for the year ended on that date both annexed thereto. These financial statements are the responsibility of the company s management. Our responsibility is to express an opinion on the financial statements based on our Audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditor s Report) Order, 2003 issued by the Central Government of India in terms of Section 227(4A) of the Companies Act, 1956, and on the basis of such checks of the books and records of the company as we considered appropriate and according to the information and explanations given to us, we enclose in the Annexure hereto a statement on the matters specified in paragraph 4 and 5 of the said Order to the extent applicable. 4. Further to our comments in the Annexure referred to in para 3 above we report as under: a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our Audit; b) In our opinion, proper Books of Account, as required by law have been kept by the Company, so far as appears from our examination of such books. c) The Balance Sheet, the Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the Books of Account; d) In our opinion, the Profit & Loss Account and the Balance Sheet dealt with by this report complies with by the Accounting Standards referred to Sub-Sec (3C) of Sec 211 of the Companies Act, e) On the basis of written representations received from the directors as on 30th September, 2004 and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 30th September,2004 from being appointed as a director in terms of clause (g) of subsection (1) of Section 274 of the Companies Act f) In our opinion and to the best of our information and according to the explanations given to us, the said financial statements, read together with Notes thereon and attached thereto, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: a. in the case of the Balance Sheet, of the state of affairs of the Company as at 30th September, 2004; b. in the case of Profit and Loss Account, of the Profit of the Company for the year ended on that date; and c. in the case of Cash Flow Statement, of the cash flows for the year ended on that date. For N. C. Banerjee & Co. Chartered Accountants 2, Ganesh Chandra Avenue Bimalendu Basu Kolkata Partner Dated the 9th day of November, 2004 Membership No