Your Directors are pleased to present their Thirty Second Report together with the
audited financial statements of the Company for the year ended 31st March, 2013.
||Rs. in Lakhs
||As on 31-03-2013
||As on 31-03-2012
|Revenue from Operations (Net)
|Earnings before Interest, Tax, Depreciation and Amortization (EBITDA)
|Profit before Tax
|Total of tax expenses
|Profit after Tax
|Add : Profit brought forward from the previous year
|Profit available for appropriation
|Proposed Dividend on Equity Shares
|Tax on Dividend proposed
|Earnings Per Share (Basic and Diluted) (Rs.)
Constrained by the lower profit earned during the year under report and to ensure
adequate cash flow to meet the ongoing capital expenditure which are necessary in the long
term interest of the operations of your company, your directors have recommended the
dividend for the financial year 2012-13 restricting it to 10%, i.e. Re.1/- per equity
Transfer to reserves
After providing for the dividend as mentioned above, the entire balance available in
the Profit and Loss Account is proposed to be carried to Balance Sheet.
The year 2012-13 saw the continuance of the slowdown in the construction sector
observed in the previous year, keeping the demand for cement at a low level especially in
Andhra Pradesh, which is a major market for your company. Despite this, Sagar Cements was
able to maintain its sales volume, though at a marginally lower level than that of the
previous year. Average net sales realization per ton of cement was lower by 6% as compared
to the previous year. Rising cost of all inputs remained a concern for your company
particularly in the context of lower demand which offers little scope for better price
realization to offset the increase in the input costs.
The performance of your company in terms of production and sale of cement and average
net sales realization per ton is given below:
|Cement production in MTs
|Cement Sales in MTs
|Average Net Sales Realisation per MT (Rs.)
|Total Revenue - Rs. In lakhs
A detailed analysis of the operations of your Company during the year under report is
given in the Management Discussion and Analysis Report, which forms part of this report.
With the low government expenditure presently witnessed on public projects and a fall
in investment levels in the housing and construction industry, it will be some time before
the cement industry again sees a significant growth. It is fervently hoped that in the
context of the ensuing general elections, the Government may come out with some major
policy announcements to further boost the infrastructure, road network and housing sectors
which will provide the required stimulus for the growth of cement industry. However, till
such time your company may have to face the problems like rising input costs, higher
freight and distribution costs and low price realizations due to weak demand. Your company
therefore attaches greater importance to keep its energy cost to the minimum by ensuring
an optimum combination in the consumption of imported and indigenous coal. It is also
proposed to set up a waste heat recovery plant to ease the pressure on energy cost.
Further, as you are aware, a railway siding project is under implementation near your
plant at Mattampally and it is hoped that the completion of this project would see the
optimization of the transportation cost and reduced dependence on road transport apart
from enabling your company to reach newer markets. Your Board, if therefore cautiously
optimistic about the future outlook for your company.
Corporate Governance Report and Management Discussion and Analysis Report
In accordance with Clause 49 of the Listing Agreement with the Stock Exchanges,
Corporate Governance Report with the auditors` certificate thereon and the Management
Discussion and Analysis Report are attached to form part of this report.
Internal Control Systems
Your Company has adequate internal control systems in all important areas of its
operations and effectiveness of these is periodically reviewed for possible improvement in
All the properties of the Company have been adequately insured. Particulars of
There were no employees whose details are required to be furnished pursuant to Sec.217
(2A) of the Companies Act, 1956.
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 and Outgo:
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 plant.
Shri Werner C.R.Poot resigned from the Board with effect from 28.09.2012. Your
directors wish to place on record their deep sense of appreciation of the invaluable
contribution made by him during his tenure as a Board member. In the casual vacancy caused
by the resignation of Shri C.R.Poot, your Board has appointed Mr. John-Eric Fernand Pascal
Cesar Bertrand with effect from 17th October 2012.
In compliance with Sec.256 of the Companies Act, 1956, Shri Gilbert Natta and Shri
S.Sreekanth Reddy will retire by rotation at the ensuing Annual General Meeting and, being
eligible, they offer themselves for re-appointment.
Sub Committees of the Board
The Board has Audit Committee, Remuneration Committee, Investment Committee and
Investors` Grievance Committee, the composition and other 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. The Audit Committee of your Board has recommended the re-appointment of
the retiring auditors, who, being eligible for reappointment, 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 21 7 (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 judgement 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
(iv) that the directors had prepared the annual accounts on a going concern basis.
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
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 Corporate Governance.
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
O. Swaminatha Reddy
24th July 2013
Management Discussion and Analysis
As one of the basic infrastructure industries, cement industry contributes in a
significant way to the Indian economy in terms of employment generation, tax revenues, and
industrial growth. The per capita consumption of cement, which is an important indicator
of a country`s economic development, is very much low in India, despite India being the
second largest cement producer in the world. However this offers vast scope for the cement
industry to grow.
This industry 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
Indian cement industry 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.
Andhra Pradesh, with its 37 large cement plants of combined capacity of 68 MTPA, has
the maximum number of cement plants in India.
Being a huge country, there is a difference in the region wise demand for cement in
India, 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. As the cement is a low
value and high volume product, it does not offer much scope for export either.
During the last few years, most cement companies expanded their capacities hoping for
increased consumption of cement on account of anticipated hike in government spending,
which however did not materialize to the extent hoped for and because of the continuing
depressed housing / real estate market, the construction spending levels remained low in
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 production.
The slowdown in the economy continued in 2012-13 as well, 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, putting pressure on the price.
Sagar Cements - Overall performance
Performance of Sagar Cement during the year 2012-13 needs to be reviewed against the
backdrops of the current mismatch between cement demand and its supply in Andhra Pradesh,
which is the major market for the Company. The increasing cost of coal and other input
materials is pushing up the cost of production of cement, squeezing the earnings of the
company. The lower demand for cement in Andhra Pradesh and in the neibhouring states, has
put severe pressure on the price. Due to these reasons, there was a marginal dip in
production, sales as well as in net sales realization per ton of cement.
During the year the company earned a total revenue of Rs.58454 lakhs, marginally lower
by 3.67 % than that of the Constrained by the reduced earnings during the year 2012-13,
the Board has recommended a modest dividend at 10% (Re.1 per share) for the year on the
1,73,88,014 equity shares of the Company. This would help the company in maintaining the
much needed cash flow to partly meet capital expenditures like provision for a railway
siding at the company plant, setting up of a waste heat recovery plant and for
installation of a few balancing equipments, all of which, currently under active
evaluation by the internal committees of the Board, will go a long way in pruning the
During the year the company sold 1585003 MT`s of cement with an average gross
realization of Rs.4550/MT, whereas in the previous year, the company had sold 1631392 MT`s
at an average gross realization of Rs.4633/MT.
The net revenue from operations during the year under discussion is about Rs.55851.55
lakhs as compared to Rs.59482.72 lakhs during the previous year.
Other income included an amount of Rs.426 lakhs being the profit realized on sale of
assets and an amount of Rs.235 lakhs towards excise duty refund receivable against price
difference given to the customers.
The balance retained in the Statement of Profit and Loss as on 31st March 2013 is
Rs.10769.40 lakhs, after making provision for a dividend of Rs.1 73.88 lakhs and a tax of
Rs.29.55 lakhs thereon
Investments in the Joint Venture
In the year 2008-09, Sagar Cements entered into a Joint Venture agreement 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) was later formed for the purpose. This project is implemented in two phases, each
phase with a capacity of 2.75 Milllion ton cement per annum. To facilitate the speedy
implementation of the captive power plant mentioned above, the VSCPL and Parficim SAS, a
wholly owned subsidiary of Vicat SA have jointly formed an SPV, "Gulbarga Power
Private Ltd". The first phase of the cement project has since commenced its
commercial operations. Sagar Cements and the Vicat Group have respectively invested a sum
of Rs.860 million and Rs. 4140 million and are holding 47% and 53% of the Equity Capital
of the said Joint Venture.
Opportunities and threats:
Constrains 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 and the
company is forced to procure power at a higher costs from the open market through power
Logistics is another area of concern for the Company, distribution cost being a
significant component of the cost structure. Company is implementing a proposal to provide
a railways siding near its plant, the completion of which will go a long way in reducing
the freight cost.
There is a continued 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, greater expenditure on advertising,
strengthening its distribution networks as well as by customer-focused initiatives. Apart
from these, Sagar Cements is looking for opportunities to expand its own 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.
On the brighter side, the per capita consumption of cement being very low in India,
there is a 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, notwithstanding the substantial additions to
capacity recently 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. Sagar Cements will be
focusing on penetration into more districts of A.P., to increase its market share in the
said State and continue to explore its other markets and with this strategy, Sagar Cements
is confident of achieving a higher capacity utilization.
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 before implementation.
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
Malerial developments in Human Resources Industrial Relations, including number of
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 430 employees on its rolls.
The views and statements expressed or implied in this Management Discussions and
Analysis are based on available information, assessments and judgements. 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.
(Forming part of the Directors ` Report)
[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
A. Power & Fuel Consumption
||01.04.2012 to 31.03.2013
||01.04.2009 to 31.03.2012
|a) Purchased Units
|Rate / Unit (Rs.)
|b) Ow n Generation (Units)
|Unit / Ltr.Of Diesel Oil
|Rate / Unit (Rs.)
|2. Coal (C & D Grade used as fuel in Kiln)
|Total Cost (Rs.)
|Average Rate (Rs.)
B. Consumption per unit o f production
||01.04.2012 to 31.03.2013
||01.04.2009 to 31.03.2012
|Products - OPC
|Electricity (in KWH)
|Coal (MT) (For Clinker)
[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
1. Research and Development
Collaborates with the National Council for Cement and Building Materials for R & D
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. Company ordered for
pre-grinder for cement mill to increase the production capacity and to reduce power
Foreign Exchange Earnings and Outgo: