Weathering Challenges
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weathering challenges ANNUAL REPORT 2014-15 CONTENTS The corporate Statement from Competitive 08 12 the Chairman’s desk 14 advantages Management Directors’ Corporate 15 discussion and analysis 28 Report 52 Governance Report Standalone Financial Consolidated Financial 63 Statements 96 Statements In a sluggish business environment... The global economy underperformed. Geopolitical tensions increased. Business uncertainty deepened. Fresh infrastructure investments declined. Steel demand growth decelerated, more so for the EAF segment. Peripheral steel sectors struggled. …graphite electrode demand remained weak … Demand weakened. Prices dropped. Margins were affected. Global players shut high cost capacities. …but the Company’s strategy to counter operational challenges paid off. HEG Limited reported an EBIDTA of H208 crore and a net profit of H39 crore in 2014-15. HEG Limited Annual Report 2014-15 We right-sized our cost structure through innovation IT WOULD HAVE BEEN USUAL FOR A COMPANY TO BE AFFECTED BY FIXED COSTS AS SOON AS REVENUES DECLINED. But at HEG, we used this slowdown to implement alternate strategies and processes, which have improved every element of costs. Optimised the product mix, leading to better cost management. Introduced innovative recipes, the output of which has stabilised during the year and is likely to have a positive impact over the coming years. Monitored process controls, which strengthened material consumption and reduced in-process wastage. 22 01-11 12-27 28-62 63-126 Corporate Overview Management Review Statutory Reports Financial Statements 33 HEG Limited Annual Report 2014-15 44 01-11 12-27 28-62 63-126 Corporate Overview Management Review Statutory Reports Financial Statements We remained prudently liquid ONE OF THE FIRST CASUALTIES IN A SLOWDOWN IS LIQUIDITY, WHICH AFFECTS A COMPAny’S ABILITY TO PROCURE RAW MATERIAL, ADDRESS OVERHEADS AND REPAY LENDERS. At HEG, we selected to strengthen our cash resources in an increasingly cash-starved economy through the following initiatives: Liquidated export incentives through proactive preparation and continuous follow-ups; our related receivables declined significantly. Enhanced our focus on receivable management; streamlined our supply chain by reinforcing just-in-time input delivery; adjusted our production cycle to suit customer requirements, moderating the inventory cycle. HEG generated H270 crore from operations in 2014-15, which facilitated an overall reduction in its debt that strengthened competitiveness and liquidity. 55 HEG Limited Annual Report 2014-15 We ring-fenced our opportunities A SIGNIFICANT CASUALTY DURING A SLOWDOWN IS NOT JUST AN OFFTAKE- DECLINE BY CUSTOMERS; IT IS CUSTOMER ATTRITION. At HEG, as the market size shrank, we worked closer with all our customers with the objective to protect our market share. We did so through the following initiatives: Maintained close touch with key customers, which ensured steady volumes despite depressed conditions. Reopened product lines which helped in cushioning the impact of decline. Added 25 new customers in 2014-15. The result was that HEG strengthened its hold in the market place despite challenging times. 66 01-11 12-27 28-62 63-126 Corporate Overview Management Review Statutory Reports Financial Statements 77 HEG Limited Annual Report 2014-15 HEG Limited. Among the world’s large manufacturers of graphite electrodes. Operating the world’s largest single-site integrated graphite electrodes plant. VISION MISSION BACKGROUND STANDARDS A vibrant globally To become a leading Established Certified for ISO acknowledged top international player technical and financial 9001:2008, ISO league player in in graphite electrodes collaboration with 14001:2004 and OHSAS graphite electrodes and and allied business by Societe Des Electrodes 18000:2007. allied business with a leveraging our core Et Refractaires Savoie commitment to growth, competence and thereby (SERS) in 1977. innovation, quality and enhancing value to our Leading manufacturer customer focus. customers, shareholders, and largest exporter of employees and society. graphite electrodes from India. 88 01-11 12-27 28-62 63-126 Corporate Overview Management Review Statutory Reports Financial Statements LISTING CaPACITY 868.71 Listed on BSE Limited, Installed capacity Market capitalisation National Stock Exchange of 80,000 tonnes per (Hcrore) of India Limited and annum. Madhya Pradesh Stock Operates three power 1,000+ Exchange Limited. generation facilities Team size (76.5 MW). 30+ Global presence (nations) 99 1010 P OUR H E EG RF Limited outperformance sectoral through challenges Weathering NET REVENUE (H crore) 2014-15 O R 2011-12 1,424 MA 2012-13 1,617 2013-14 1,459 NC 2014-15 1,241 E liquidity for higherproductivityandbusiness Streamlined operationaldiscipline OP EBIDTA (H crore) E 2011-12 259 R 2012-13 307 A TI 2013-14 268 O 2014-15 208 N AL PROFIT AFTER TAX (H crore) 2011-12 62 product qualityandperformance Crytallised innovativerecipes for enhancing DEVEL RE 2012-13 106 2013-14 87 S 2014-15 39 EA O RC P Annual Report2014-15 ME H EARNINGS PER SHARE (H) A NT ND 2011-12 15.34 2012-13 26.48 2013-14 21.68 2014-15 9.76 ( ) BOOK VALUE PER SHARE H Corporate industry sizeshrunk Added customersinaperiod wherethe M A 2011-12 191 01-11 RK 2012-13 216 O verview 2013-14 231 E TIN 2014-15 235 G (H crore) NET WORTH Management Review 2011-12 762 12-27 2012-13 863 2013-14 924 2014-15 941 on workingcapitalmanagement improvement initiativesandenhanced focus O F ptimised resourceallocationfor key IN A NC GROSS BLOCK (H crore) Statutory Reports E 2011-12 1,177 2012-13 1,211 28-62 2013-14 1,499 2014-15 1,538 DEBT-EQUITY RATIO Financial Statements 2011-12 0.63 2012-13 0.63 63-126 2013-14 0.39 2014-15 0.36 1111 HEG Limited Annual Report 2014-15 STATEMENT FROM THE CHAIRMAN’S DESK “The strength and relevance of our business model has enabled us to withstand volatility over the last two fiscals and deliver incremental shareholder value.” Despite our topline, EBIDTA and bottomline declining from the previous year, we bravely transformed challenges into opportunities in 2014-15. 1212 01-11 12-27 28-62 63-126 Corporate Overview Management Review Statutory Reports Financial Statements t a time when all global We stabilised our state-of-the-art, costlier, thus enabling the Indian graphite electrode players nipple machining chain, which graphite industry to compete with reported a sharp decline in improved the product. The products imports. their financial performance, were well received by customers and Global fortunes: The global demand AHEG Limited reported respectable are comparable with the best in the for steel is expected to remain subdued. results that represent a positive industry. As per the World Steel Association divergence from external realities. The result is that HEG emerged stronger forecast, steel consumption is projected in a weaker business environment, to increase only by 0.5% in 2015 and GLOBAL ENVIRONMENT attractively positioned to capitalise as 1.4% in 2016. On the other hand, The international graphite electrodes soon as fortunes rebound. following sizeable losses by large global industry was affected by overcapacity graphite electrode players, additional despite 1,20,000 tonnes per annum TREND REVERSAL capacity closures are not ruled out, capacity going off the market during The fortunes of the graphite electrode which could correct the demand-supply the year under review, indicating the sector are expected to improve in skew across the medium-term. grimness of the industry position. a phased manner as India offers To aggravate the reality, the key user reasonable growth in the current year OUR STRATEGY industry – the electric arc furnace even as global demand growth is HEG’s focus will be on enhancing segment of the steel industry – expected to only materialise over 18-24 domestic market share growth while remained affected by weak demand on months. expanding its global footprint across key account of surplus Chinese blast furnace electric arc furnace steel manufacturing Domestic optimism: The Indian steel production that was exported hubs. Besides, we intend to expand our government prioritised industry-driven at very low prices. This reduced EAF product basket of graphite specialities growth through favourable policies. As route steel production, moderated as an essential de-risking strategy. on-paper policies translate into tangible steel demand and eroded graphite growth, steel demand is expected HEG will continue to focus on electrode realisations. Besides, a to accelerate, leading to a renewed enhancing efficiency, optimising costs subdued economic sentiment in Europe demand for graphite electrodes. and increasing liquidity, preparing for and crude oil prices affected steel the big leap when the sector rebounds. consumption. The imposition of anti-dumping duty on imports from China in February 2015 MESSAGE TO OUR SHAREHOLDERS HEG’s response for five years should assist domestic The robustness of our business model At HEG, we tightened our business to players revive volumes in the immediate enabled us to counter sectoral weakness address this challenging scenario. near future. of the last two fiscals and as things We enhanced business liquidity, Besides, the cost of key electrode raw improve, we are confident of delivering deleveraging our Balance Sheet. material-needle coke, declined following superior results. a decline in crude prices and electrode We strengthened shop-floor efficiency demand. to enhance competitiveness. Further, the weakening of Indian rupee Ravi Jhunjhunwala We expanded our steel customer base is likely to make imports of electrodes Chairman, Managing Director & CEO and identified non-steel opportunities. 1313 HEG Limited Annual Report 2014-15 Competitive advantages SCALE INTEGRATION The Company is one of the globally The Company’s ability to integrate operations recognised quality players, which allows it to strengthens its reputation as one of the leverage economies-of-scale. most competitive manufacturers of graphite The Company’s single largest location offers electrodes. a large scope of cost-efficiency, enhancing The captive generation of power ensures flexibility in challenging times.