Grasim Industries Limited “Time and again, the supremacy of the human element cannot be over emphasized. The success or failure of an organisation depends on people, on human beings, on their talent, on their initiative, on their ability to lead, and coordinate with others, to work as a team. It also depends on the ability of the organisation, to motivate them to greater heights”. We carry forth his vision of people power. GRASIM INDUSTRIES LIMITED BOARD OF DIRECTORS EXECUTIVES Staple Fibre & Pulp Divisions Mr. Kumar Mangalam Birla, Chairman Mr. Shailendra K. Jain President & Business Head Mrs. Rajashree Birla Mr. S. K. Saboo Group Executive President Mr. O. P. Rungta Sr. Executive President, Mr. M. L. Apte Staple Fibre Division, Nagda Mr. M. C. Bagrodia Mr. S. S. Maru Sr. Executive President, Pulp and Grasilene Divisions, Harihar Mr. B. V. Bhargava Mr. Vijay Kaul Sr. Executive President, Mr. R. C. Bhargava Birla Cellulosic Division, Kharach Mr. S. V. Kulkarni Executive President, Mr. Y. P. Gupta Birla Cellulosic Division, Kharach Mr. Thomas Varghese Executive President (Mktg.) Mr. Cyril Shroff Cement Divisions Mr. S. G. Subrahmanyan Mr. Saurabh Misra Business Head Mr. O. P. Puranmalka Group Executive President & Mr. Shailendra K. Jain, Whole Time Director Chief Marketing Officer Mr. S. K. Maheshwari Sr. Executive President & Adviser Chief Manufacturing Officer Mr. L. N. Rawat Sr. Executive President, Mr. D. P. Mandelia Rajashree Cement Mr. R. M. Gupta Sr. Executive President, Grasim Cement Chief Financial Officer Mr. D. P. Somani Executive President, Vikram Cement & Mr. D. D. Rathi – Group Executive President & CFO Aditya Cement Mr. S. N. Jajoo Executive President, Birla White Cement Company Secretary Mr. K. C. Birla Jt. President, Cement Division (South) Mr. Ashok Malu Vikram Ispat Mr. H. N. Singh Executive President Auditors M/s G. P. Kapadia & Co., Mumbai Chemical Division Mr. G. K. Tulsian Executive President M/s Lodha & Co., New Delhi Mr. Sunil Kulwal Executive President Solicitors Textile Divisions M/s Mulla & Mulla and Craigie, Blunt & Caroe, Mr. Vikram D. Rao Group Executive President (Textiles) Mumbai Mr. S. Krishnamoorthy Chief Operating Officer Contents Chairman’s Letter.............................................................. 2 Schedules............................................................................ 50 Financial Highlights.......................................................... 7 Cash Flow Statement........................................................ 75 Management Discussion and Analysis............................. 8 Statement Relating to Subsidiary Companies................. 76 Auditors’ Report on Consolidated Financial Statement..... 77 Report on Corporate Governance.................................... 18 Consolidated Balance Sheet............................................. 78 Social Report..................................................................... 25 Consolidated Profit and Loss Account............................ 79 Environment Report.......................................................... 27 Schedules forming part of Consolidated Financial Statements... 80 Shareholder Information................................................... 29 Consolidated Cash Flow Statement................................. 92 Directors’ Report ............................................................... 37 Subsidiary Companies’ Reports & Accounts Auditors’ Report................................................................ 44 Shree Digvijay Cement Company Limited................ 93 Balance Sheet.................................................................... 48 Sun God Trading and Investments Limited.............. 107 Profit and Loss Account ................................................... 49 Samruddhi Swastik Trading and Investments Limited... 109 REGISTERED OFFICE: Birlagram, Nagda 456 331 (M.P.) (1) M C Y K THE CHAIRMAN’S LETTER TO SHAREHOLDERS D ear Fellow Shareholders, With the economy having gained its sheen, and having surged at 8 per cent during the year, backed by a good monsoon, and a resurgence on all fronts, consumer sentiments naturally revived. These developments at the macro level had a salutary effect on your Company’s operations. All the sectors that your Company operates in gained in revenues and earnings. Your Company’s results have been indeed path-breaking. Gross revenues at Rs.6130 crores have risen by 13 per cent vis-à-vis Rs.5413 crores attained in the previous year. Profit before tax and exceptional items at Rs.1048 crores over Rs.713 crores of the previous year has soared by 47 per cent. Significant progress has been made with regard to Ultra Tech Cemco Limited, which as you may be aware, is the demerged cement entity of Larsen & Toubro Ltd. The Divestment of your Company’s stake in Indo-Gulf, has been a value-creating move that unlocked capital. (2) M C Y K Asset sweating, maximizing operational efficiencies, innovative “Asset sweating, management of finances and a tight rein on costs wherever possible, maximizing operational continue to be the hallmark of your Company. To amplify its bottom- efficiencies and a tight rein on line, your Company has been increasingly moving towards value-added costs wherever possible, continue to be the hallmark of your products that provide innovative customer offerings. Company. To amplify the I would now like to brief you on our business sectors and the growth bottom-line, your Company trajectories that we have blue-printed. has been increasingly moving towards value-added products that provide innovative Viscose Staple Fibre (VSF) customer offerings.” Your Company continues to be a pre-eminent global player in the VSF sector, with a global market share in excess of 14 percent. To penetrate into newer market segments, and to grow further, the Division has ventured into production of High Performance viscose fibres aptly named Viscose Plus, High Wet Modulus Fibres (Modal) and new generation Solvent Spun Fibres. The market has welcomed these novel introductions. Hitherto all of the Division’s offerings have been marketed under the “Birla Viscose” umbrella. To contemporarise the look of the brand and the image it evokes as “a natural fibre”, we have evolved a distinctive logo and are in the process of weaving all VSF products under the “Birla Cellulosic” mother brand. Cement In Cement, the Division’s thrust is on amplifying its markets through enhanced volumes resulting from de-bottlenecking. An enriched product-mix with a greater share of blended cements, a focus on RMC (Ready Mix Concrete), which we view as the business of the future, and exemplary client service, I believe, will provide greater momentum to the business. (3) Sponge Iron The fortunes of the Sponge Iron business are inextricably linked with those of the steel sector. During the year, the steel sector was on an upswing, and continues to be on a high. Hence, the outlook for your Company’s Sponge Iron business remains bright. Outlook “I believe that VSF and Cement I believe that VSF and Cement will continue to spur growth. will continue to spur growth. I expect enhanced performance from the Sponge Iron and Chemical businesses as well. I expect enhanced performance from the Sponge Iron and Given your Company’s strong fundamentals and its business focus, I am sure, your Company is poised for a significant growth ahead. Chemical businesses as well.” Behind your Company’s considerable achievements, lies the intellectual and emotional commitment that our people bring to their work. Besides operational efficiency and project management skills, honed under the most demanding and competitive conditions, it is the spirit of entrepreneurship and the way all of our employees bond cohesively with the organization. I wish to record my genuine appreciation of their contribution. The Aditya Birla Group in Perspective Let me now take you through some of the key events of the last year: • One, we completed the restructuring of the non-ferrous metals business. Consequently, Hindalco has become a non-ferrous metals powerhouse with at least global visibility. • Two, consistent with our objective of becoming a world-class, globally competitive, integrated copper player, we forayed into Australia with the acquisition of two copper mines – the Nifty Mines (2002-03) and Mount Gordon in the last year. (4) • Three, we entered the land of the dragon, i.e., we ventured into China, with the acquisition of Liaoning Carbon Black. This 12,000 tonne Carbon Black plant will enhance our global presence in this business. We are now the fourth largest Carbon Black player globally. • And finally, coming to market capitalization: The market capitalization of the listed Group companies in India increased 97.4% over the past year, far outpacing the rise of 62.7% in the BSE Sensex, over the same period. This measure reflects more than just numbers; it provides a sense of our standing in terms of governance, and the faith investors repose in us, and a recognition – at long last - of our efforts at value creation. The year that has just gone by has been I believe, a watershed year for “All these years, our team our Group. Because, in this year, we have seen the last of the major across the Group, has stretched restructuring initiatives that we needed to undertake. We have emerged stronger, fitter and a leader in many ways. And, now, we are at an incessantly to make the inflection point. We stand at the threshold of a new phase in the life Aditya Birla Group a great place of our organisation. I do believe that the rest of the decade – from to work in. In one sentence, here on - will be marked by a distinctly different theme. The earlier we have sharply focused on accent - on restructuring and consolidation – will give way to a phase of growth, not just incremental and normal growth, but accelerated creating a meritocracy. growth. So, the dominant theme, from here on, will be aggressive For us, this meant putting in growth. place systems to induct the Focus On People right talent, for spotting and All these years, our team across the Group, has stretched incessantly tracking nascent talent, for to make the Aditya Birla Group a great place to work in. In one sentence, we have sharply focused on creating a meritocracy. For us, creating leaders with a cocktail this meant putting in place systems to induct the right talent, for of skills, who have exposure spotting and tracking nascent talent, for creating leaders with a cocktail to different functions, of skills, who have exposure to different functions, businesses and businesses and countries.” countries. (5) Working with Hay Consultants, we have carried out an extensive job analysis and evaluation exercise. More than 4500 jobs have been evaluated and competencies mapped. Succession plans are in place too. By and large, our objective is to make sure that the leadership-pipeline is always full of talented individuals who are raring to shoulder responsibilities that our various businesses offer. To foster a learning culture, at Gyanodaya, the Aditya Birla Institute of Management Learning, which is now looked upon as a benchmark for training, more than 2130 executives were trained in 86 diverse programmes for honing their competencies, both for their current and future roles. A virtual campus has been launched through an e-learning portal. Over 3884 unique users, from top-down and bottom-up have enrolled in these self-learning projects. More than 25,725 man-hours of learning have been logged. Our intent is to “Today, our Group is anchored provide unrivalled learning opportunities to our people across levels. by an extraordinary force of 72,000 employees. More than Today, our Group is anchored by an extraordinary force of 72,000 70 percent of these are under employees. More than 70 percent of these are under the age of 40 and over 12,000 of our people are drawn from 20 foreign the age of 40 and over 12,000 nationalities. Even as the focus on managerial capability is becoming of our people are drawn from much sharper, we are building capabilities not for an Indian manager 20 foreign nationalities. who works internationally, but for a global manager, who happens Even as the focus on to be an Indian. managerial capability is We are positioned in almost all our businesses at the cusp of growth becoming much sharper, we are opportunity. Above all, our people have the passion that brings building capabilities not for an energy into the organisation. Indian manager who works internationally, but for a global Best regards, Yours sincerely, manager, who happens to be an Indian.” Date: 28th April, 2004 Kumar Mangalam Birla (6) FINANCIAL HIGHLIGHTS Year (cid:1) Unit 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99# 1997-98 1996-97 1995-96 1994-95 Production Viscose Staple Fibre Tonnes 221005 224610 176462 218847 188002 164355 174281 155385 162470 143421 Grey Cement Mn Tonnes 11.85 11.09 9.53 9.10 8.40 5.82 4.71 4.10 3.27 2.55 White Cement Tonnes 310578 310163 267915 251594 240492 131979 - - - - Sponge Iron Tonnes 687272 612879 559567 663998 709094 670231 667350 706510 347513 405224 Turnover Viscose Staple Fibre Tonnes 229110 227900 181520 203854 192452 164130 171148 151838 161993 144820 Grey Cement Mn Tonnes 11.96 11.16 9.68 9.16 8.42 5.88 4.70 4.14 3.15 2.56 White Cement Tonnes 314819 305223 266105 251291 240014 133660 - - - - Sponge Iron Tonnes 676921 612425 562334 673852 822996 565682 767255 585917 435503 354175 Profit & Loss Account Gross Sales Rs. Crs. 6130 5412 5070 5184 4982 4325 4023 3602 3199 2399 Net Sales Rs. Crs. 5213 4606 4372 4453 4273 3757 3500 3089 2742 2061 Other Income Rs. Crs. 200 133 129 108 88 110 124 135 211 113 Operating Profit (PBIDT) Rs. Crs. 1475 1136 909 900 739 674 698 706 773 558 Interest Rs. Crs. 154 168 190 239 256 292 256 259 230 142 Gross Profit (PBDT) Rs. Crs. 1321 967 719 661 482 381 443 447 543 416 Depreciation Rs. Crs. 273 254 252 252 237 210 167 148 124 75 Profit before Tax & Exceptional Items Rs. Crs. 1048 713 467 409 245 172 276 300 420 341 Current Tax Rs. Crs. 291 192 57 50 12 8 45 41 88 32 Deferred Tax Rs. Crs. 7 -15 52 0 0 0 0 0 0 0 Net Profit after Tax (before Exceptional Items) Rs. Crs. 750 536 359 359 233 164 231 259 332 309 Exceptional Items Rs. Crs. 29 -169 -56 18 0 0 0 16 0 0 Net Profit after Exceptional Items & Total Taxes Rs. Crs. 779 368 303 378 233 164 231 275 332 309 Equity Shares Dividend (including CTD) Rs. Crs. 145 103 83 81 72 63 54 52 45 41 Balance Sheet Net Fixed Assets* Rs. Crs. 3213 3264 3263 3303 3401 3354 2633 2473 2222 1866 Investments Rs. Crs. 2541 1796 1416 682 683 680 717 507 619 899 Net Current Assets Rs. Crs. 550 613 733 991 967 1002 1092 1250 1012 634 6303 5673 5412 4976 5052 5037 4442 4230 3853 3400 Share Capital Rs. Crs. 92 92 92 92 92 92 72 72 72 72 Reserves & Surplus* Rs. Crs. 3514 2879 2615 2395 2685 2524 2243 2068 1845 1558 Deferred Tax Balance Rs. Crs. 633 626 641 589 - - - - - - Loan Fund Rs. Crs. 2065 2076 2065 1900 2275 2421 2127 2090 1936 1769 Net Worth* Rs. Crs. 3606 2971 2707 2486 2777 2616 2316 2140 1917 1630 6303 5673 5412 4976 5052 5037 4442 4230 3853 3400 *Excluding Revaluation Reserve Rs. Crs. 5 6 7 18 20 22 25 28 31 34 Ratios & Statistics PBIDT Margin (%) 28.3 24.7 20.8 20.2 17.3 17.9 20.0 22.9 28.2 27.1 Interest Cover (PBIDT-Tax/Interest) (x) 7.70 5.60 4.48 3.56 2.84 2.28 2.56 2.57 2.98 3.70 ROACE (PBIT/Avg.CE) @ (%) 20.4 16.2 12.9 13.5 10.5 10.1 13.1 15.0 19.2 18.7 RONW (PAT/NW) @ (%) 22.8 18.9 13.8 13.7 8.6 6.6 10.4 12.8 18.7 23.0 Debt Equity Ratio (x) 0.57 0.70 0.76 0.76 0.82 0.93 0.92 0.98 1.01 1.09 Dividend per Share Rs./ Sh. 14.00 10.00 9.00 8.00 7.00 6.75 6.75 6.50 6.25 5.75 Earning per Share @ Rs./ Sh. 82 58 39 39 25 20 32 36 46 43 Cash Earning per Share @ Rs./ Sh. 112 85 72 67 51 41 55 56 63 53 Book Value per Share Rs./ Sh. 393 324 295 271 303 285 320 296 265 225 No. of Equity Shareholders No. 191770 242359 263549 279207 298232 199083 206851 213619 219859 229892 No. of Employees No. 15971 16648 16912 21473 23345 24407 23157 23397 22144 21582 # In FY 1998-99 Company had acquired the Cement business of Indian Rayon and Industries Ltd. pursuant to a Scheme of Arrangement. @ Before Exceptional Items Prior to FY01, Reserves & Surplus includes Deferred Tax balance. (7) MANAGEMENT DISCUSSION & ANALYSIS OVERVIEW It was yet another remarkable year for your Company, both strategically and operationally. The Company’s results have been exemplary backed by business performance and augmented by restructuring of debts and businesses over the last 5 years. A better economic environment provided an added stimulus. The economy grew by an estimated 8% in Fiscal 2004 (FY04), against a 4% growth last year, leading to the revival of consumer sentiments and demand in sectors in which we operate. Aggregate revenues grew by 13% year-on-year (YoY) while operating profits soared by 30% in FY04. Consequently, Profit After Tax (before exceptional items) moved up 40% while overall PAT rose by an impressive 112% YoY to Rs.779.3 Crores – the highest ever achieved. Grasim’s acquisition of management control in Ultra Tech CemCo Limited Your Company has made significant progress towards the acquisition of management control in Ultra Tech CemCo Limited (Ultra Tech), the de-merged cement business of Larsen & Toubro Limited (L&T). A proposal was developed for the acquisition of management control in its de-merged cement business. The proposal entailed that the cement business of L&T be first de-merged into a separate Company, wherein L&T will hold 20% stake and the balance to be distributed to shareholders of L&T proportionately. Through the process, Grasim and its wholly owned subsidiary Company will hold 12.6% stake in Ultra Tech while retaining a 15.7% stake in the remaining business of L&T. As a part of the composite Scheme, Grasim agreed to make an open offer for an additional 30% stake in UltraTech at Rs.342.60 per share. Grasim also agreed to buy an additional 8.5% stake in Ultra Tech from L&T at the same price of Rs.342.60 per share while simultaneously divesting 14.95% stake in L&T to the L&T Employees Welfare Foundation at Rs.240 per share. The proposal was approved by the Board of Directors of both companies and consequently a Scheme of Arrangement was filed by L&T u/s 391-394 of the Companies Act, 1956 in the Hon’ble High Court of Bombay. The Scheme was approved by the creditors and shareholders of L&T at the Extra-ordinary General Meeting convened by the Court on 3rd February 2004. Thereafter, the Hon’ble High Court of Bombay has approved the Scheme on 22nd April 2004. Upon the Scheme becoming effective, your Company is making the Open Offer for an additional 30% stake in Ultra Tech. As per the Scheme, Grasim has deposited Rs.l28.0 Crores in an Escrow Account, towards 10% of the gross Open Offer consideration in December 2003 and the balance Open Offer consideration of Rs.1,151.0 Crores in April 2004. With this, your Company has deposited the entire Open Offer consideration into an Escrow Account and the same has been funded out of internal accruals. On successful completion of the Open Offer, your Company will acquire controlling stake in Ultra Tech that houses 16.5 Mn TPA cement capacity spread across the country. Apart from the long-term strategic value, the acquisition will also bring significant synergy gains, to be realised in the coming years. On completion of the transaction, Grasim-Ultra Tech combine will be the 8th largest cement company in the world in terms of capacity. Value unlocked from shareholding in Indo Gulf In yet another value creating move, your Company divested its total holding of 5,528,289 shares of Indo Gulf Fertilisers Limited, being 12.3% of its equity capital, for an aggregate value of Rs.41.4 Crores through open market transaction. While unlocking capital, your Company realised profits of Rs.28.9 Crores, which has been shown as below the line item in FY04. (8)