SAGAR CEMENTS LIMITED
ANNUAL REPORT 2011-2012
Your Directors are pleased to present their Thirty First Report together
with the audited accounts of the Company for the year ended 31st March,
The performance of your company during the year 2011-12 was satisfying in
the context of the slowdown of the economy in general and infrastructure
industry in particular during the said period.
A summarized financial performance of your company during the year under
review is given below:
Rs. in Millions
Description 2011-12 2010-11
Net Sales 6061 4250
Other Income 7 89
Total Income 6068 4339
Profit before Depreciation,
Financial Charges and Tax 1247 814
Less: Depreciation 259 276
Financial Charges 342 601 311 587
Profit before Tax 646 227
Less: Net Provision for Tax 205 53
Profit After Tax 441 174
Add: Profit brought forward 829 711
Profit available for
appropriation 1270 885
Dividend @ 30% (Rs.3.00
per equity share) 52 35
Dividend Tax 9 4
Transfer to General Reserve 200 17
Carried to Balance Sheet 1009 829
Total 1270 885
Basic Earnings Per Share 25.37 11.61
Diluted Earnings Per Share 25.37 10.01
Based on the Company`s performance, the Directors are pleased to recommend
for approval of the members a dividend of Rs.3/- per share for the
financial year 2011-12.
Transfer to reserves:
The Company proposes to transfer Rs.200 millions to the general reserve out
of the amount available for appropriations and an amount of Rs.1009.48
million is proposed to be retained in the Balance Sheet.
While the total income of your Company rose by 40%, the Profit before and
after tax went up by 185% and 153% respectively over the previous year.
The performance of your company in terms of production and sale of
clinker/cement is given below:
Description 2011-12 2010-11
Production (in MT)
Clinker 1348080 1510135
Cement 1625336 1490662
Clinker 0 30840
Cement 1631392 1470049
Sagar Cements could register a reasonable level of growth in 2011-12, both
in terms of volume as well as price. Its sales in quantitative terms went
up by 11% over the previous year. The average net sales realization per ton
of cement was also higher at Rs.2,945/-, an increase of 32%, over the
previous year, resulting in an net operating revenue of Rs.6061 million.
Your Company has complied with the mandatory provisions relating to
Corporate Governance as prescribed under Clause 49 of the Listing Agreement
with the Stock Exchanges. A separate report detailing such compliance
together with the Certificate obtained from the Statutory Auditors in
connection therewith is included as part of the Annual Report.
Internal Control Systems:
Your Company has adequate internal control systems in all important areas
of its operations and effectiveness of these systems is periodically
reviewed for possible improvement in them.
All the properties of the Company have been adequately insured.
Particulars of Employees:
Particulars of employees required to be furnished in this Report pursuant
to Sec.217 (2A) of the Companies Act, 1956 are given in the annexure.
Your Company continues to enjoy cordial relationship with all its personnel
at the Plant, Office and on the field.
Conservation of Energy, Technology absorption and Foreign Exchange Earnings
The particulars required under Sec.217 (1)(e) of the Companies Act, 1956
have been provided in the annexure, which forms part of the Report.
Your company is committed to keep the pollution at its plant within the
acceptable norms and as part of this commitment, it has an ESP system at
The APIDC, has appointed Shri K. Rajendra Prasad as its nominee director in
the place of its earlier nominee Shri P. Rajeswara Rao. Your Board placed
on record its appreciation of the guidance and co-operation extended by
Shri Rajeswara Rao during his tenure as the nominee director. In compliance
with Sec.256 of the Companies Act, 1956, Dr. S. Anand Reddy and Shri Werner
C.R. Poot retire by rotation at the ensuing Annual General Meeting and,
being eligible, offer themselves for re-appointment.
Sub Committees of the Board:
The Board has Audit Committee, Remuneration Committee, Investment Committee
and Investors` Grievances Committee, the composition and details of which
have been given in the Report on the Corporate Governance forming part of
the Annual Report.
Messrs. P. Srinivasan & Co., Chartered Accountants, the present Auditors of
your Company will be holding their office up to the ensuing Annual General
Meeting. Shareholders are requested to appoint Auditors to the Company to
hold office from the conclusion of its ensuing Annual General Meeting until
the conclusion of its next Annual General Meeting. Your Board has accepted
the recommendation of its Audit Committee to re-appoint the retiring
auditors, who, being eligible for re-appointment, have since consented to
the proposed re-appointment and confirmed that the said re-appointment, if
approved by the shareholders, would be within the limits specified in Sub
Section (1B) of Section 224 of the Companies Act, 1956.
Directors` Responsibility Statement:
Pursuant to Section 217 (2AA) of the Companies Act, 1956, we state:-
(i) That in the preparation of the annual accounts, the applicable
accounting standards had been followed along with proper explanation
relating to material developments;
(ii) That the directors had selected such accounting policies and applied
them consistently and made judgment and estimates that were 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 period;
(iii) That the directors had taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act, 1956 for safeguarding the assets of the
Company and for preventing and detecting fraud and other irregularities;
(iv) That the directors had prepared the annual accounts on a going concern
Your Company has not accepted any Deposits from the public and as such, no
amount on account of principal or interest on public deposits was
outstanding as on the date of the balance sheet.
A certificate from the Auditors of the Company regarding compliance of
conditions of Corporate Governance as stipulated under Clause 49 of the
Listing Agreement is attached to this Report along with a report on
Management Discussion and Analysis Report:
In accordance with Clause 49 of the Listing Agreement with the Stock
Exchanges, the Management Discussion and Analysis Report is given in the
Annexure, to form part of the Annual Report.
Your Directors wish to place on record their appreciation of the valuable
co-operation extended to the Company by its bankers and various authorities
of the State and Central Government. They thank the Distributors, Dealers,
Consignment Agents, suppliers and other business associates of your Company
for their continued support. Your Board also takes this opportunity to
place on record its appreciation of the contributions made by the employees
at all levels and last but not least, of the continued confidence reposed
by you in the Management.
For and on behalf of the Board of Directors
Place: Hyderabad O. Swaminatha Reddy
Date : 18th July 2012 Chairman
Annexure - 1
MANAGEMENT DISCUSSION AND ANALYSIS
Cement is produced in around 150 countries across the Global. Global cement
production in 2011 stood at 3400 million tones, with China accounting for
2000 million tones, followed by India, a distant second, with a total
production of 210 million tones. The production of Cement is highly skewed
with China, India and United States together accounting for more than 65%
of total cement production.
As cement is an essential component of infrastructure development world
over, the need for housing and continued thrust on the investments in
infrastructure development are driving the global demand for cement, more
particularly among the developing countries. But, with the current global
economic crisis affecting the majority of countries, regions such as North
America, Europe and the Middle East registered significantly decreased
cement consumption due to reduced construction activity.
However, a robust outlook in the construction sector in the developing
regions and growing capital investment abroad by large trans-national
cement manufacturers are expected to stimulate demand for cement globally.
As one of the basic infrastructure industries, cement industry continues to
contribute in a significant way to the Indian economy in terms of
employment generation, tax revenues, and industrial growth. The per capita
consumption of cement is an important indicator of the country`s economic
Cement industry in India comprises of around 185 large cement plants with a
combined installed capacity of around 318 MTPA and more than 360 mini
cement plants. Large producers contribute about 97% to the installed
capacity while mini plants account for the rest. Among these, 98% of the
capacity is in the private sector and the rest in the public sector.
Maximum number of cement plants are located in Andhra Pradesh, which has 37
large cement plants with a total capacity of 68 MTPA.
This industry, which is the second largest in the world, produces several
varieties of cement such as Ordinary Portland Cement (OPC), Portland
Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well
Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland
Cement, White Cement, etc.
Cement industry in India has made great progress in technological up-
gradation and assimilation of latest technology. Presently, about 97 per
cent of the total capacity in the industry is based on modern and
environment-friendly dry process technology.
Being a huge country, there is a difference in the region wise demand for
cement in the country, which is broadly divided into the western, eastern,
northern and southern regions. Cement being a bulk item, transporting it
over long distances can prove to be uneconomical. Thus, the industry is
completely domestic driven.
Despite higher cement prices realized occasionally, the margins continue to
be under severe pressure particularly over the last couple of years due to
steep hike in cost of all major inputs like raw material, fuel, power and
freight, which together account for around 70 per cent of the cost of
The year 2011-12 saw a slowdown in the economy, forcing the financial
institutions to tighten their credit norms, which inter-alia, impacted the
on-going as well as upcoming real estate, infrastructure and other projects
leading to a fall in the demand for cement and resulting in its excess
supply, thus putting pressure on price. Cement being a low value and high
volume output, does not offer much scope for export either.
Sagar Cements - Financial Highlights:
Despite constraints, Sagar Cements registered a reasonable growth, both in
terms of volume as well as price in 2011-12. Its sales in quantitative
terms went up by 11% over the previous year. The average net sales
realization per tone of cement was also higher at Rs.2,945/-, an increase
of 32%, over the previous year, resulting in an net operating revenue of
Rs.6061 million. The Board of Directors has recommended a dividend at
Rs.3/- (30%) per share on the 17388014 equity shares of the Company.
Production and sales performance:
While the year 2010-11 saw Sagar Cements not being able to take full
advantage of the just then increased capacity due to lower demand for
cement, which had forced the Company to curtail its production in the said
year, the year under discussion saw an increase in production by around 9%,
accompanied by an increase in the net sales realization by around 32% over
the previous year.
Description 2011-12 2010-11 2009-10
Production (in MT)
Clinker 1348080 1510135 1430000
Cement 1625336 1490662 1120351
Clinker 30840 350133
Cement 1627456 1469172 1127739
Cement - Second sales 0 0 204191
Self consumption 3936 877 2897
Total Cement Sales 1631392 1470049 1334827
Net Sales realization per M.T. Rs.2945 Rs.2239 Rs.2273
The company during the year registered Net Sales of Rs.6061.14 Millions, an
increase of 43% over previous year. The Profit Before Tax (PBT) for the
year stood at Rs. 646.13 Millions compared to Rs. 226.55 Millions during
the previous year, an increase by 185%.
The paid up share capital of the company stood at Rs.173880140 divided into
17388014 Equity Shares of Rs.10/- each. During the year under discussion
and analysis, the Company had issued 32,85,714 equity shares and canceled
9,00,000 equity shares, both under the scheme of merger earlier approved by
the shareholders and later confirmed by the Court.
Reserves and Surplus:
There is no change in the Capital Reserve and Share Premium Account during
the year. Reserves and surplus at the end of the year stood at Rs.2423.13
millions, an increase of 18% over Rs.2042.59 millions at the end of the
previous year. Rs.200 millions were transferred to the general reserve from
the profit and loss account for the year 2011-12.
There was a reduction in the non-current liabilities due to repayment of
installments of long term borrowings.
Increase in trade payable was mainly on account of increased production and
they pertain mostly to coal suppliers and transporters.
Sundry creditors for stores:
There was no major change in the consumption pattern of Limestone, Gypsum
and other additives during the year compared to the previous year.
The quantitative details of major inventories as of balance sheet date were
Quantity in MT
Description 2011-12 2010-11 2009-10
Limestone 50361 47560 33049
Coal 38493 24350 52330
Iron Ores 1495
Mill Scale 4398 2669 -
Laterite 6203 3772 3342
Gypsum 4469 5467 981
Raw Meal 19975 18657 9400
Clinker 65337 160401 46363
Cement 20022 27806 6629
The Increase in coal cost was mainly on account of increased price of Coal
(Indigenous & Imported Coal). The increase in power was mainly on account
of decreased production of clinker by 162055 MT and Increase of Cement
Production by 134674 MT. The power consumption per ton of cement during the
year was at 94 units whereas it was 95 units during previous year.
Employee Benefit Expenses:
An average increase of 15% in salary was given during the year 2011-12 to
the employees of the company.
Gratuity and leave encashment are valued on actuarial basis by an
independent valuer and provided accordingly. The gratuity amount has
increased from Rs.5.22 Millions to Rs. 12.32 Millions as the maximum
benefit payable under the Payment of Gratuity Act is increased from Rs.3.50
lakhs to 10.00 lakhs from the year 2011-12.
Selling and Distribution expenses:
Consumption of packing material: The increase under this head is mainly
attributable to increased volumes and increase in cost per bag from Rs.6.97
in previous year to Rs.7.60 during the year under review. The main increase
of transport cost is on account of increase in lead distance and also
increase in freight cost on account of increase in diesel prices.
Investments in the Joint Venture:
In the year 2008-09, Sagar Cements entered into a Joint Venture with Vicat
S.A. a cement major and the flagship company of the globally known Vicat
Group of France, to set up a green field cement plant of 5.5 million tonne
capacity with a captive power plant of 60 MW capacity at Chatrasala Village
of Chincholi Taluk in Gulbarga District of Karnataka State. A separate
entity under the name `Vicat Sagar Cement Private Limited` (VSCPL) has been
formed for the purpose. This project is implemented in two phases, each
phase with a capacity of 2.75 mtpa. To facilitate the speedy implementation
of the captive power plant stated above, the VSCPL and Parficim SAS, a
wholly owned subsidiary of Vicat SA have jointly formed an SPV, "Gulbarga
Power Private Limited` and the said project is also simultaneously
progressing along with the cement project. The first phase of the project,
barring unforeseen circumstances, is expected to go on stream by the end of
the current year. Sagar Cements and the Vicat Group have invested a sum of
Rs.860 million and Rs. 4140 million respectively representing 47% and 53%
of the Equity Capital of the said Joint Venture.
Opportunities and threats: Constraints on inputs:
The cement industry is a highly energy intensive sector. Energy, along with
other raw materials mainly comprising coal and lime stone, forms the most
critical component in the manufacture of cement. While there are no
problems with respect to the availability of limestone, concerns however do
exist with regard to non-availability of adequate quantity of good quality
coal, which is forcing the Company to take recourse to imported coal at a
much higher cost. There is also a severe shortage of power in Andhra
Pradesh leading to frequent power cuts resulting in stoppage of production.
Logistics is another area of concern for the Company, distribution cost
being a significant component of the cost structure. A proposal to provide
a railway siding near the Company`s plant is under implementation, the
completion of which will go a long way in reducing the freight cost.
There is a lull in the housing sector, which accounts for over 60-70
percent of the cement demand. There has also been a low government
expenditure on public projects and a fall in investment levels in the
housing and construction industry. It will be some time before the cement
industry sees a revival in demand to the tune of 8 to 9 percent. The
negative sentiment currently seen in the economy has also found its
repercussions in the cement sector.
Impact of entry of global players:
The Indian cement industry with its huge potential continues to attract the
entry of more global cement majors and encourages the strengthening of
production bases by existing companies. This may lead to a substantial part
of the cement capacity being controlled by a few players. Sagar Cements
proposes to meet some of the challenges posed by this development by
further improving its brand image, strengthening its distribution networks
as well as by customer-focused initiatives. Apart from these, Sagar Cements
is looking for opportunities to expand its manufacturing facilities
geographically through organic as well as inorganic routes.
In the prevailing economic scenario, the future, atleast in the near term,
does not appear to be rosy for the cement industry. The industry will have
to deal with problems like rising energy costs compounded with the
depreciation of the rupee, higher freight and distribution costs and low
price realizations due to weak demand. The weak economic climate will also
have an impact on smaller cement producers and their operations, leading to
a spate of consolidations. The next couple of years may see a period of
consolidation in the industry with the smaller players withdrawing from the
industry by selling out to the financially stronger cement producers.
The per capita consumption of cement being very low in India, there is vast
scope for growth in demand for cement on the long term. The main drivers
for the growth in demand for cement being road and housing projects, the
increased spending by the Government in these areas and the revival of the
real estate sector would ensure no let up in the demand for cement, not
withstanding the substantial additions to capacity now being witnessed in
the industry. Sagar Cements is operationally strong and poised to benefit
from such a demand positive situation and will continue to focus on
maintaining good plant performance and optimizing efficiencies.
The Company attaches utmost importance to the assessment of internal risks
and the management thereof in all its dealings. Company is constantly on
the look out for identifying opportunities to enhance the enterprise value
and keeping the need to minimize the risks associated with such efforts,
every proposal of significant nature is screened and evaluated for the
risks involved and then approved at different levels in the organization
With a view to overcoming the risk of dependence upon any particular
marketing segment or region, the Company is trying to reach a wider section
of its ultimate consumers. As the cement industry is witnessing rapid
additions to its capacity, in order to mitigate the risk associated with
it, Sagar Cements whose revenue is mainly from its sales in Andhra Pradesh,
is looking for growth opportunities in other States, where infrastructure
spending is set to get a boost.
The Company has adequate system to manage the financial risks of its
operations. The system is implemented through imposition of checks and
balances on extending credit to the customers, internal audit, which is
periodically carried out through an external audit firm, proper appraisal
of major capital expenditure, adherence to the budget covering all areas of
its operations and by insurance coverage for the company`s facilities.
Internal Control System and its adequacy:
The Board of Directors is fully satisfied with the adequacy of the internal
control system in force in all major areas of operations of the Company,
which has an ERP to further strengthen the system. The effectiveness of the
System is reviewed periodically for its further improvement. Audit
committee also assists the board in monitoring the integrity of the
financial statements, external auditor qualifications, if any, performance
of the internal audit function and external auditors, and company`s
compliance with regulatory requirements.
Material developments in Human Resources/Industrial Relations, including
number of employees:
As the Company considers Man Power as one of its most important assets,
developing functional competencies of its human resources continues to be
one of its key focus areas. Accordingly, need based training in relevant
areas is arranged at different levels and senior managers are also
encouraged to attend seminars and conferences of the professional bodies as
part of updating their skills. The Company continues to enjoy excellent
industrial relations. As of date, the Company has 448 employees on its
The views and statements expressed or implied in this Management
Discussions and Analysis are based on available information, assessments
and judgments. They are subject to alteration. The Company`s actual
performance may differ due to national or international ramification,
Governmental Regulations and policies, tax laws and other unforeseen
factors over which the Company has no control.
ANNEXURE - 3
(Forming part of the Directors` Report)
FORM - A
[Pursuant to Rule 2 of the Companies (Disclosure of particulars in the
Report of Board of Directors) Rules, 1988]
Form of disclosure of particulars with respect to conservation of energy:
Particulars 01.04.2011 to 01.04.2010 to
A. Power & Fuel Consumption
Purchased Units 1406.33 lakhs 1470.08 lakhs
Total Amount 5463.71 lakhs 5461.58 lakhs
Rate/Unit (Rs.) 3.89 3.72
Own Generation (Units) 0.08 lakhs 0.11 lakhs
Unit/Ltr. Of Diesel Oil 1.19 units 0.29 units
Rate/Unit (Rs.) 37.18 18.95 per unit
2. Coal (C & D Grade used as fuel in Kiln)
Quantity 301932 MT 302438 MT
Total Cost (Rs.) 13174 lakhs 10358 lakhs
Average Rate (Rs.) 4363.35 3424.97
B. Consumption per unit of production:
Particulars Standard 01.04.2011 to 01.04.2010 to
Products - OPC, PPC & SRC - 1625336 1490662
Electricity (in KWH) 140 94.00 95.06
Coal (MT) (For Clinker) 0.28 0.224 0.200
FORM - B
[See Rule 2]
[Pursuant to Rule 2 of the Companies (Disclosure of particulars in the
Report of Board of Directors) Rules, 1988]
Form for disclosure of particulars with respect to Technology Absorption,
Research and Development:
1. Research and Development:
Collaborates with the National Council for Cement and Building Materials
for R & D activities.
2. Technology absorption, adaptation and innovation:
The company is operating at optimum capacity, employing the vertical roller
mill technology and IKN pendulum cooler. FLSmidth Automation`s QCX/Robolab
system has been installed at the plant and Sagar Cements is one of the
first few Indian companies to have implemented this system. This ensures
the best quality in lab operations to facilitate high product quality and
would optimize overall plant operation.
Foreign Exchange Earnings and Outgo:
Earnings : Nil
Outgo : Rs.81.20 lakhs