Text of the speech delivered by Shri. Shashi Ruia, Chairman, Essar Steel Limited at the company’s Annual General Meeting held on September 21, 2001
Dear Ladies and Gentlemen,
On behalf of the Board of Directors and on my personal behalf, it is my pleasure to extend to each one of you a cordial and warm welcome to the Twenty Fifth Annual General Meeting of your Company.
The report of the Directors on the performance of the Company during the financial year 2000-01 and the annual statement of accounts are with you and with your permission, I shall take them as read.
Terrorist attack on US :
The rising terrorism across the globe is playing havoc with the world economy. The recent terrorist attack in US needs to be condemned in no uncertain terms. It is high time we wake up to this reality and fight for the complete eradication of terrorism from this world. That is the only way we will attain world peace and create an amiable growth-oriented business environment. Progress is nothing but social upliftment and therefore is business opportunity. The terrorist attack in US has not only affected the American economy, but has had a cascading effect on the other economies of the world as well. Our country is no exception.
Effects on Indian economy:
The Indian economy is already feeling the effect of an economic slowdown. The investors in stock markets have under gone untold hardships. There are fears that Foreign Direct Investment might be impacted and efforts of Indian corporates to access American markets for funds may be difficult. The immediate casualty could be the Indian exports to US. The slowdown in the Indian economy, if not arrested now, may slip further. We in the steel industry can not insulate ourselves from this reality.
Steel industry scenario:
The Steel Industry met with mixed fortunes last year. In the first quarter it exhibited signs of recovery, which did not extend beyond the beginning of second quarter. The steel prices declined under the severe pressure as production volumes increased leading to surplus availability and inventory build up. International Iron & Steel Institute (IISI) estimates the global oversupply to the extent of 85 million tons. Currently the steel prices have touched historically low levels at US $180 mt with no signs of recovery. The situation has further worsened as many developed countries, in their attempt to protect their domestic industry, have raised trade barriers to restrain steel imports. The exports of steel products from India is likely to plummet in the current year.
Indian Steel scenario :
The scenario in the domestic market is not different. As against the domestic demand for flat products estimated at 8.5 million tons, capacity exists to produce flat steel to the extent of over 12 – 13 million tons. If the consumption growth is assumed at 6%, the demand – supply equilibrium will be restored in the next 5 – 6 years. In the interim period, the steel plants will have to streamline their operations and focus on reducing cost and enhance product mix in order to become competitive in the current downturn.
The heartening factor is that the Indian companies have posted operating profits in the first quarter of current fiscal even in this crisis vis-à-vis their US counter parts, many of whom have posted operating losses. This exhibits, beyond doubt, that the Indian Steel companies are not only viable, but are cost competitive.
Performance of Essar Steel :
I am happy to inform you that your Company has performed admirably during the last year, viewed in the context of stagnating demand in flat products and surplus capacity both locally and globally. Your Company’s performance could not have been better. While the sales volume at 16.32 lakh tonnes grew by 1%, the total income grew by 3.85%. The exports volume at 6.99 lakh tonnes grew by 8% and the income from exports at Rs. 886.27 crores grew by 16%. The operating profit improved significantly at Rs. 607.7 crores, a growth of 64%. This is a clear reflection of your Company’s focus to improve efficiency and reduce costs.
I am happy to inform you that your Company has been able to bring down the cost by about 6% compared to previous year. It could successfully launch new products in the premium segments. On the marketing front, your Company introduced unique concept of “web enabled distribution centres.” Your Company expects to penetrate the market through this concept by catering to retail segment through Internet based information and execution systems. These steps have made your Company operationally efficient.
Even though these achievements are a matter of great satisfaction, we cannot afford to be complacent in the current situation. In order to restructure the operations further, your Company has appointed KPMG to undertake the study of entire business including manufacturing, product mix, marketing, logistics, procurement and finance. This will enable your Company to emerge more resilient to face future downturns, while enhancing shareholder value.
Next 3 to 4 years are tough and to manage this period will be a test of our ability and capability. I seek support of all the stake holders, i.e. investors, employees, the government to support the company during this period of its efforts to sail through the difficult times. Let me assure you that we at Essar are watching the situation and strategising and taking action as much as we can to make Essar Steel Limited the great company that it really is and can stands on its own against the vagaries as mentioned above.
Before I end, I sincerely thank all of you for your support at this point in time which would go a long way in enabling your Company to tide over this difficult period. I also thank the employees for their commendable teamwork, Financial Institutions, Banks and Government authorities for their guidance and support.
Thank you one and all.
Chairman
This does not purport to be the proceedings of Twenty Fifth Annual General Meeting held on September 21, 2001.
CORPORATE