DIRECTORS' REPORT DEAR MEMBERS, Your directors are pleased to present the 42nd Annual Report on business and operations of your Company for the financial year ended 31st March, 2015 Review of performance The financial year 2014-15 was challenging year due to slowdown in the global economy and resultant sharp fall in the commodity prices. Steel prices fell in the country without corresponding correction in the price of iron ore. The Supreme Court of India cancelled all the coal mine allocations made by the Government since 1993 through Screening Committee or Government dispensation route and also imposed additional levy @ Rs. 295/- per MT on the coal extracted from the mines since inception. The Gare Palma IV/7 coal mine operated by the Company has also been cancelled w.e.f. 1st April, 2015 and the Company had to pay additional levy of Rs. 143 Crore on the coal extracted from the mine. The Company has provided for the full liability, including Rs. 126 crore for earlier years, in the financial year 2014-15, adversely affecting the profitability and liquidity. Government has started the process of reallocation of the coal mines through auction, which were cancelled due to Supreme Court order. In the first phase 23 operating coal mines were auctioned. Your company participated in the auction and offered a bid price which was comparable to the alternate sources in the longer run. Your Directors believe that operation of the mines at the price at which the auctions were concluded would not have been commercially sustainable. The Company would, however, continue to participate in coal mine auctions. The pace of economic activity is yet to pick up. RBI continued to follow tight monetary policy with high interest rates to keep check on the inflation. Exports were also hit due to falling prices, relatively strong Rupee and slowdown in other economies. However, in spite of these constraints and the challenging environment, the performance of your Company was satisfactory. This was achieved through a constant endeavor at all levels for excellence and cost control combined with a series of safety initiatives. A detailed analysis of the performance is given in the Management Discussion and Analysis Report appended hereto. No material changes and commitments have occurred after the close of the year till the date of this Report, which affect the financial position of the Company. Further, there was no change in the nature of the business of the Company Dividend Your Directors have recommended a dividend of Rs. 3/- (i.e. 30%) per equity share (last year Rs. 3/- per equity share) for the financial year ended March 31, 2015. The dividend payout is subject to approval of members at the ensuing Annual General Meeting. During the year, your Company has transferred the unpaid dividend amount in respect of the F.Y. 2006-07 to the Investor Education and Protection Fund. During the year, no amount has been transferred to Reserves. Subsidiaries / Controlled Entities / Joint Ventures During the year, Natural Resources Energy Pvt. Ltd. became subsidiary of your Company. Further, your Company made fresh investments for acquiring 29.98% in Godawari Natural Resources Limited for participation in the auction of coal mines. A brief on the business operations of subsidiaries /controlled entities / joint ventures consolidated with SEML is given hereunder: Subsidiaries • Sarda Energy & Minerals Hongkong Ltd, Hongkong (SEMHKL), is a wholly owned subsidiary, functioning as global investment arm of your Company. During the year under review, the subsidiary reported a net profit of Rs. 10.83 crore as against Rs. 23.76 crore in the previous year. The company paid a dividend of USD 2 Million during the year. Last year also, the Company has paid a dividend of USD 3 Mn. • Sarda Global Venture Pte. Ltd. Singapore (SGV), a wholly owned subsidiary, has acquired economic interest in coal mines in Indonesia but the mining project has not seen any progress during the year. The company is evaluating the various options for its stake in the coal mine in the best interest of all stake holders. • Sarda Metals & Alloys Ltd. (SMAL), a wholly owned subsidiary is operating 2 x 33 MVA Ferro Alloys plant backed by 80 MW captive thermal power plant. In view of the better market conditions, the company had started production of ferro alloys from June but due to global down turn in commodities ferro alloys plant did not perform as expected. During the year, the operation of the plants and assets were badly affected by the HUDHUD Cyclone causing stoppage of production for around 27 days. The team restored operation in reasonably quick time. Due to adverse market condition and disruption in operations due to cyclone, inspite of fall in the interest burden, during the year, SMAL has reported a net profit of Rs. 3.80 crore against Rs. 6.89 crore reported in the previous year. • Sarda Energy Ltd. (SEL), a wholly owned subsidiary was incorporated as an SPV to put-up 1320 MW super critical IPP thermal power project in Chhattisgarh. In view of inordinate delay in acquisition of land and delay in getting various approvals, the Company has decided to abandon the project. Accordingly the preliminary and pre-operative expenses of Rs. 11.98 crore incurred by the SPV has been written off and booked as expense during the year. • Parvatiya Power Ltd. (PPL), is operating 4.8 MW Loharkhet Hydro Power Project in Bageshwar District of Uttarakhand since 2008. During the year 2014-15, the plant generated and supplied 203.42 lac KWh (previous year: 209.17 lac KWh) power achieving 48% capacity utilization factor. The Company has earned profit after tax of Rs. 2.87 crore as against Rs. 2.20 crore in the previous year. The Company is evaluating capacity enhancement in the project. Your Company continues to hold 51% stake in PPL. • Madhya Bharat Power Corporation Ltd. (MBPCL), is implementing the 96 MW Rongnichu Hydro Power Project near Gangtok in East Sikkim as a run-of-the-river scheme. Work on the project is progressing slower than expected due to poor geology. The project has faced time and cost overruns. The Company has applied for additional funding for cost overrun, which is under active consideration of the lenders. The Project has been successfully registered as a CDM Project with UNFCCC. Consequent to additional equity infusion during the year, share of your Company as on 31st March, 2015 has gone up from 58.73% to 67.59%. • Sarda Hydro Power Pvt. Ltd. (SHPPL) has been allotted 24 MW Kotaiveera and 9MW Ganeshpur Small Hydro Power Project in Chhattisgarh. Land acquisition and statutory approvals are in progress. Your Company holds 60% stake in SHPPL. • Raipur Fabritech Pvt. Ltd. (RFPL) has been incorporated to undertake steel fabrication activities at the site of closed steel plant of your Company. The Company is also exploring possibility of developing a logistic park. The Company is yet to start operations. Your Company holds 52.38% stake in RFPL. • Raipur Industrial Gases Pvt. Ltd. (RIGPL) has been incorporated to undertake activities related to production of industrial gases. The Company is yet to start operations. Your Company holds 51% stake in RFPL. • Natural Resources Energy Pvt. Ltd. (NREPL) is an SPV to carry on the business of development of mines and minerals, generation and trading of power and infrastructure development. The company had participated in the recently concluded auction of coal mines as an SPV. NREPL has become subsidiary in the F.Y. 2014-15. The entire share capital of the company is held by SEML and its wholly owned subsidiary SMAL. Controlled Entities • Chhattisgarh Hydro Power LLP (CHP LLP) has been allotted four run-of-the river Small Hydro Power Projects in Chhattisgarh with a total generation capacity of 77 MW. The work on the first 24 MW Gullu hydro power project is progressing as per schedule and the project is expected to achieve the commercial operation in the next financial year. The project is entitled for CDM benefits. MOEF has conveyed Host Country Approval to the Project for CDM registration. The project is currently under validation stage. All these projects are entitled for benefits in the form of subsidy from Ministry of New & Renewable Energy, Clean Development Mechanism as well as Renewable Energy Certificates. Your Company has made additional contribution of Rs. 1.61 crore during the year towards its share in the LLP and holds 60.95% stake in CHP LLP. • Shri Ram Electricity LLP (SRELLP) was incorporated as a special purpose vehicle (SPV) for setting up a captive thermal power plant of 40 MW in the State of Chhattisgarh. In view of the cancellation of coal linkage for the power project, the LLP is reviewing its decision to implement the project. Your Company continues to hold 51% stake in SRELLP. Joint Ventures • Raipur Infrastructure Company Ltd. (RICL) operates a private Railway Siding in Mandhar, Raipur. During the year 2014-15 the Company has earned profit of Rs. 1.02 crore as against Rs. 2.76 crore in the previous year. In view of changed market scenario, the Company has dropped railway siding proposed in Odisha. An amount of Rs. 1.37 crore spent on the project has been written off during the year in view of the decision. Your Company holds one third share in the Joint Venture. • Madanpur South Coal Co. Ltd. (MSCCL) was SPV for the Madanpur South coal block allotted to a consortium. The Supreme Court has cancelled all coal block allotments made by the Government through Screening Committee and govt. dispensation. The SPV holds certain assets, including land, acquired for the project. The SPV would be woundup after disposal of these assets. The SPV has bought back part of the equity shares during the current year out of the surplus funds as permitted by the law. Your Company holds a 20.63% stake in the joint venture. • Godawari Natural Resources Ltd. (GNRL) is an SPV for acquisition and development of mines and minerals, generation and trading of power and infrastructure development. SEML had participated in auction for acquisition of coal mine jointly with others through this SPV to meet the prescribed eligibility criteria. Your Company acquired 29.98% stake in GNRL during the year. A report on the performance and financial position of each of the subsidiaries, associates and joint venture companies as per the Companies Act, 2013 is provided as part of the Consolidated Financial Statements and hence not repeated here for the sake of brevity. The Policy for determining material subsidiaries as approved may be accessed on the Company's website www.seml.co.in under the head corporate governance/policies under the Investors' section. Consolidated financial statements The consolidated financial statements presented by the Company include financial information of its subsidiaries prepared in compliance with applicable Accounting Standards. The annual accounts and related information of the subsidiary companies are open for inspection by any member/investor at the Registered Office of your Company and the subsidiary concerned and your Company will make available these documents/ details upon request by any member of the Company who may be interested in obtaining the same. In accordance with Section 136 of the Companies Act, 2013, the Audited financial statements, including the consolidated financial statements and related information of the Company and audited accounts of each of its subsidiaries, are available on our website www.seml.co.in These documents are also available for inspection during business hours at our registered office in Nagpur, India. ESOP Scheme Your Company treats its human capital as the most valued asset and as a gesture of its feeling, your Company has implemented SEML ESOP Scheme 2012 for the employees and directors of your Company and its subsidiaries. As on 31st March, 2015, 2,22,240 options have been vested at a price of Rs. 125/- per share. Out of this 1,28,319 options have been exercised by the employees. The disclosures required to be made in the Directors' Report in respect of the aforesaid ESOP Scheme, are contained in Annexure A forming part of the Directors' Report. Directors In accordance with the provisions of the Act and the Articles of Association of the Company, Mr. Pankaj Sarda, Director of the Company, retire by rotation at the ensuing Annual General Meeting and being eligible has offered himself for re-appointment. Further, in terms of the approval of the Board of Directors, it is proposed to re-appoint Mr. K.K. Sarda, as Chairman & Managing Director for a fresh term of five year w.e.f. 1st April, 2015. Necessary resolution for the same is taken for approval of the members in the general meeting. Brief profile of the Directors proposed to be appointed / re-appointed, nature of their expertise in specific functional areas, names of the companies in which they hold directorships and shareholding are provided in the Corporate Governance Report forming part of the Annual Report. During the year under review, the members approved the appointment of Mrs. Uma Sarda as a non-executive Non-Independent woman Director who is liable to retire by rotation and reappointments of Mr. A.K. Basu, Mr. C.K. Lakshminarayanan, Mr. G.S. Sahni, Mr. J. Balakrishnan. Mr. P.R. Tripathi and Mr. Rakesh Mehra, as Independent Directors who are not liable to retire by rotation. Your Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence as prescribed both under the Act and Clause 49 of the Listing Agreement with the Stock Exchanges. Pursuant to the provisions of the Act and the corporate governance requirements as prescribed by SEBI under clause 49 of the Equity Listing Agreement, the Board of directors ("Board") has carried out an annual evaluation of its own performance, and that of its Committees and individual directors. The performance of the Board and individual directors was evaluated by the Board seeking inputs from all the directors. The performance of the Committees was evaluated by the Board seeking inputs from the Committee Members. The Nomination and Remuneration Committee ("NRC") reviewed the performance of the individual directors. A separate meeting of Independent Directors was also held to review the performance of Non-Independent directors; performance of the Board as a whole and performance of the Chairperson of the Company, taking into account the views of Executive Directors and Non-Executive Directors. The evaluation of Independent Directors was carried out without the presence of that director. This was followed by a Board meeting that discussed the performance of the Board, its Committees and individual directors. Key criteria's for performance evaluation are given in Annexure B to directors' report. Your Company follows a policy on remuneration of Directors, Key Managerial Personnel (KMP), Senior Management Personnel (SMP) and other employees of the Company. The policy is approved by the Nomination & Remuneration Committee of the Company. Remuneration Policy for Directors, Key Managerial Personnel and other employees is annexed as Annexure C to directors' report. Your Company with the approval of Nomination & Remuneration Committee has adopted a policy on Board diversity and the recommendation of candidature for Board appointment will be based on merit that complements and expands the skills, experience and expertise of the Board as a whole, taking into account gender, age, professional experience and qualifications, cultural and educational background, and any other factors that the Board might consider relevant and applicable from time to time towards achieving a diverse Board. The criteria for determining qualification, positive attributes and independence of director is enclosed as Annexure D to directors' report. Familiarisation programmes for Board Members Your Company provides information to familiarize the Independent Directors with the strategy, operations and functions of the Company. The Board members are provided with information/ presentations and are given the opportunity to interact with the Senior Management of your Company to help them to understand the Company's strategy, business model, operations, products, markets, organization structure, finance, human resources, technology, quality, facilities and risk management and such other matters as may arise from time to time. The Directors get an opportunity to visit Company's plants, where plant heads appraise them of the operational and sustainability aspects of the plants to enable them to have full understanding on the activities of your Company and initiatives taken on safety, quality, CSR, sustainability etc. At various Board meetings during the year, presentations are made to the Board on safety, health and environment and sustainability issue, risk management, company policies, changes in the regulatory environment applicable to the corporate sector and to the industry in which it operates. Quarterly presentations on operations made to the Board include information on business performance, operations, safety, market scenario, financial parameters, working capital management, fund flows, senior management change, major litigation, compliances, subsidiary information, donations, regulatory scenario, etc. The policy on familiarization programmes for Independent Directors is posted on the website of the Company www.seml.co.in and can be accessed under the head corporate governance/policies under the Investors' section. Directors' Responsibility Statement Your Directors state that: a) in the preparation of the annual accounts for the year ended March 31, 2015, the applicable accounting standards read with requirements set out under Schedule III to the Act, have been followed and there are no material departures from the same; b) the Directors have 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 as at March 31, 2015 and of the profit of the Company for the year ended on that date; c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; d) the Directors have prepared the annual accounts on a 'going concern' basis; e) the Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. Key managerial personnel During the year, the Board appointed Mr. Padam Kumar Jain as Chief Financial Officer and Mr. Manish Sethi as Company Secretary of the Company w.e.f. 14th August, 2014. Auditors and Auditors' Report Statutory Auditors M/s. O.P. Singhania & Co., Chartered Accountants, Statutory Auditors of the Company, hold office till the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. They have confirmed their eligibility to the effect that their re-appointment, if made, would be within the prescribed limits under the Act and that they are not disqualified for re-appointment. The Notes on financial statement referred to in the Auditors' Report are self-explanatory and do not call for any further comments. The Auditors' Report does not contain any qualification, reservation or adverse remark. Cost Auditors The Board has appointed the M/s. S.N. & Co., Cost & Management Accountants, as cost auditors for conducting the audit of cost records of the Company. Secretarial Auditor The Board has appointed S.G. Kankani & Associates, Practicing Company Secretaries, to conduct Secretarial Audit for the financial year 2014-15. The Secretarial Audit Report for the financial year ended March 31, 2015 is annexed herewith marked as Annexure E to this Report. The Secretarial Audit Report is self explanatory and do not call for any further comments. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. Corporate Social Responsibility (CSR) With the objective of sustainable development and continual improvement, your Company adopts a voluntary and proactive approach to CSR to connect with the society by creating a sense of belonging.Your Company strives for sustainable development programs in partnership with the community. Members are requested to refer the Corporate Governance Report forming part of this annual report for the composition of the CSR Committee. The CSR policy of the Company is available on the website of the Company - www.seml.co <http://www.seml.co>. in - under the head corporate governance/policies under the Investors' section. The annual report on the CSR activities is annexed as Annexure F to directors' report. Corporate Governance Pursuant to Clause 49 of the Listing Agreement with the stock exchanges, Corporate Governance Report along with the Auditors' Certificate regarding compliance of conditions of Corporate Governance is made a part of the Annual Report. Disclosures Board/Committees/Vigil Mechanism The Board of Directors met 6 (six) times in the financial year 2014-15. The details of the composition of Board of Directors, Corporate Social Responsibility Committee, Audit Committee, other committees of the Board, meetings of the board and committees and attendance of directors at the Board and committee meetings and implementation of Vigil Mechanism are given in the Corporate Governance Report forming part of this Annual Report. Particulars of Loans given, Investments made, Guarantees given and Securities provided Particulars of loans given, investments made and guarantees given are given in note no. 13, 16, 37 and 44 to the standalone financial statements. The Company, in its capacity of promoter, has pledged its entire holding in Parvatiya Power Ltd. and 67.54% of its holding in MBPCL with the lenders for loans granted to them. The loans and the guarantees given are utilized by the recipients for their business purposes. Members are requested to refer the notes for details which are not repeated here for the sake of brevity. Contracts and Arrangements with Related Parties All contracts/arrangements/transactions entered by the Company during the financial year with the related parties were in the ordinary course of business and on an arm's length basis in the best interest of the Company. During the year the company had not entered into any contract/ arrangement /transaction with related party which could be considered material in accordance with the policy of the company on materiality of related party transactions. The Policy on materiality of related party transaction and dealing with related party transactions as approved by the Board may be accessed on the Company's website - www.seml.co.in <http://www.seml.co.in> under the head corporate governance/policies under investors' section. Internal Financial Control The Company has in place adequate internal financial controls with reference to financial statements. During the year, such controls were tested and no reportable material weakness in the design or operation were observed. Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo The particulars relating to conservation of energy, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under the Act, are provided in Annexure G to this report. Extract of Annual Return Extract of Annual Return of the Company is annexed herewith as Annexure H to this report. Particulars of Employees and related disclosures In terms of the provisions of Section 197(12) of the Act read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules is annexed herewith as Annexure I to this report. Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are provided in Annexure J to this report. Risk Management During the year, your Directors have constituted a Risk Management Committee which has been entrusted with the responsibility to assist the Board in (a) Overseeing and approving the Company's enterprise wide risk management framework; and (b) Overseeing that all the risks that the organization faces such as strategic, financial, credit, market, liquidity, accident, security, property, IT, legal, regulatory, reputational and other risks have been identified and assessed and there is an adequate risk management infrastructure in place capable of addressing those risks. A Risk Management Policy was approved by the Committee. The Company monitors and manages the risks and uncertainties that can impact its ability to achieve its strategic objectives. General Your Directors state that no disclosure or reporting is required in respect of the following items as there were no transactions on these items during the year under review: 1. Details relating to deposits covered under Chapter V of the Act. 2. Issue of equity shares with differential rights as to dividend, voting or otherwise. 3. I ssue of shares (including sweat equity shares) to employees of the Company under any scheme save and except Employee Stock Options Scheme referred to in this Report. 4. Neither the Managing Director nor the Whole-time Directors of the Company receive any remuneration or commission from any of its subsidiaries. 5. No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company's operations in future. Your Directors further state that during the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The disclosures/information/details disclosed/given elsewhere in the annual report has not been repeated again in the directors' report for the sake of brevity. Members are requested to refer relevant sections for the information. Acknowledgement Your Directors wish to place on record their gratitude for the valuable guidance and support rendered by various Government departments, Financial Institutions, Banks and various stakeholders, such as, shareholders, surrounding societies, customers and suppliers, among others. The Directors also commend the continuing commitment and dedication of the employees at all levels, which has been critical for the Company's success. The Directors look forward to their continued support in future. On behalf of the Board of Directors, (K.K. Sarda) Chairman & Managing Director DIN: 00008170 Place : Raipur, date : 25th July, 2015 |