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Chairman's Letter to Shareholders:
It gives me great pleasure to present the Annual Report on performance of the Company during the year ended 31 March 2013. Against a background of fast–changing and unpredictable operating conditions, Alstom maintained strength and momentum in the last financial year with robust earnings, strong order intake book position and improved sales from all of its business segments. The year was marked with solid execution, growth and accomplishment for Alstom's employees and stakeholders as we progress towards our vision of maintaining our leading position in the market.
For a variety of reasons, the last year has been a difficult one for the Indian economy which is suffering the consequences of high fiscal deficit and the Current Account Deficit has grown to twice the size at an unacceptable level of 5.5%. However, driven by strong government policies and positive reforms, the Indian infrastructure market is on the rise. Despite the challenging environment, Alstom India has strengthened its position as a leading player in its space by winning important contracts and accomplishing them successfully. There has been very good growth in terms of expansion and investments. Till date Alstom in India has installed power projects of 15 GW and 21 GW projects are under execution. In hydro power Alstom enjoys the number two position with a market share of 31%.
We will continue to build long–term value and meet the evolving needs of our stakeholders through strategic investments. Our strong order intake suggests that there is growth and opportunities in the markets that we operate in – India and South Asian markets. However, the competition is growing with intensity and the markets are no longer expanding but contracting, so there is a need to remain ever vigilant and work harder to maintain our position already achieved.
Before I dwell upon about the performance of your Company in the year under review and our future plans, I would briefly outline the major developments that framed our operating environment.
The electricity sector in India had an installed capacity of 223.625 GW as of April 2013, the world's fifth largest. Captive power plants generate an additional 34.444 GW. Non Renewable Power Plants constitute 87.55% of the installed capacity and 12.45% of Renewable Capacity.
In terms of fuel, coal–fired plants account for 57% of India's installed electricity capacity, compared to South Africa's 92%; China's 77%; and Australia's 76% After coal, renewal hydropower accounts for 19% renewable energy for 12% and natural gas for about 9%.
India currently suffers from a major shortage of electricity generation capacity, even though it is the world's fourth largest energy consumer after United States, China and Russia.The International Energy Agency estimates India needs an investment of at least $135 billion to provide universal access of electricity to its population.
Key implementation challenges for India's electricity sector include new project management and execution, ensuring availability of fuel quantities and qualities, lack of initiative to develop large coal and natural gas resources present in India, land acquisition, environmental clearances at state and central government level, and training of skilled manpower to prevent talent shortages for operating latest technology plants. Domestic demand will increase more rapidly as the quality of life for more Indians improve and India's manufacturing sector is expected to grow faster than in the past.
As per the Rail budget announced on 26 February 2013 a host of projects is now lined up for the private sector like the Dedicated Freight Corridor (DFC), re–development of railway stations, power generation, energy saving projects, freight terminal operations, setting up of wagon and locomotive units, gauge conversion and network expansion, among others.
The magnitude of the Indian Railways' infrastructure upgrade and modernization program has made private participation an integral component of all developments for key initiatives. The ongoing and proposed Metro Rail projects in several Indian cities, including Delhi and Mumbai, have encouraged large–scale private participation in the areas of providing engines and coaches as well as infrastructure development for both domestic and multinational companies. Furthermore, the global railroad transport industry is expected to hit the $800 billion mark by 2015, according to research from Global Industry Analysts.
Your Company is poised to participate and contribute in the emerging opportunities in both power and rail transport sectors.
I would like to inform you that during the financial year ended 31 March 2013, your Company has achieved revenues of Rs. 27,775 million and Profit after tax of Rs. 1,837 million as against the revenues of Rs. 24,121 million and Profit after Tax of Rs. 1,678 million in the previous fiscal 2011–12. This has resulted in higher earnings per share of Rs. 27.33 as compared to Rs. 24.95 in the previous year.
Keeping this in view, your Board of Directors has recommended a dividend of Rs.10/– (100%) per share on the equity shares of the Company.
I would now like to briefly highlight the two segments in which your Company operates:
The year 2012 witnessed sluggishness in the market mainly due to fuel constraint for Thermal (Coal & Gas) and statutory clearances for Hydro projects. However, Government seen taking some measures to revive the sector namely Presidential directive to Coal India to implement Fuel Supply Agreements, revision of power tariffs, restructuring package offered to loss making Discoms. Tariff hike for imported coal based new plants is also expected. Furthermore, given the aggressive targets being set for the 12th Five Year Plan of the Government of India, it is still expected that the demand for power equipment and services will grow in near future. Coal will still be the major fuel for power generation; growth is also expected in nuclear, hydro and renewable energy.
Power sector has huge potential to grow and generate significant gains for the investors due to the huge market size. The government's efforts to some extent are paving way for electricity in every household of nation.
It is universally recognized that transport is crucial for sustained growth and modernization. Adequacy of this vital infrastructure is an important determinant of the success of a nation's effort in diversifying its production base, expanding trade and linking together resources and markets into an integrated economy.
During the financial year under review, several opportunities of the Indian Railways did not materialize as anticipated due to deferment and rescheduling. However, we will continue to seek these out in order to work with Indian Railways to upgrade its infrastructure as well as participate in network expansion. On the Metro front, we have gradually expanded our footprint and at the same time, participated in signaling opportunities with existing customers, the results for which are awaited.
During the year, our primary focus was on successful and timely execution of contracts for Jaipur, Bangalore and Chennai. We finalized the detailed design for Jaipur and hope to complete the work during the current year. We successfully commissioned the Baiyapanhalli Depot for Bangalore Metro. Further, as part of our ongoing engagement with Delhi Metro, we successfully commissioned the updated signaling system for the first 8 car train for Delhi. This achievement was acknowledged by the Delhi Metro, our esteemed customer.
The Transport Information Systems (TIS) operation in Bangalore continues to expand with a greater role being assigned to it in engineering and R&D projects, both for local as well as global customers. It is an important regional centre being equipped to cater to the APAC region and is gradually acquiring the competence to attain this leadership position. We therefore expect the expansion of activities in Bangalore TIS to continue in the forthcoming year as well. AIL's Transport Unit in Coimbatore is now well geared for the manufacture of traction components and this will be used on the Metro trains for Chennai Metro, as well as for serving the global demand.
The Government of India recognizes the importance of the private sector in bridging the resource gap in investment and improving the operational and managerial efficiency in the transport sector in order to address capacity constraints and deficiencies in the existing transport infrastructure and meet rapidly growing demand. The Government is actively pursuing policies to promote private sector involvement in the development of transport infrastructure and services. This will help your Company to increase the volume of its current activities in the transport business.
Environment, Health & Safety (EHS)
Your Company conducts its business operations fully respecting and following the internal EHS Directives and instructions, so as to protect the employees, contractors, customers and stakeholders. Your Company's sharp focus on EHS ensures maintaining high standards of safety, health and environment care at all our operating locations. Compliance with relevant regulations and effective management of these issues is an integral part of the Company's operating philosophy. EHS is managed and controlled in your Company through an integrated EHS Management System providing continuous improvement in the EHS Performance. EHS Management System is based on an "EHS Roadmap", which has been developed with the objective that it will become a tool for self–assessment as well as formal assessments and a management tool to evaluate the performance of EHS, Security and Loss prevention management for all its sites and identify action points for improvement.
Established systems and procedures are constantly updated for improvement to achieve higher standards of safety, occupational health and environment protection. The Group launched the Alstom Zero Deviation Plan in June 2012 specifically to prevent accidents when our employees, contractors and other stakeholders are engaged in high risk activities.
All major locations of your Company have well equipped health care facilities / arrangements. The Company constantly endeavours to create an understanding of Environment, Health and Safety strategy among its employees and how it fits within the context of the organization and how it contributes to achieve your Company's Goal.
Corporate Social Responsibility
At ALSTOM, we believe that Corporate Social Responsibility (CSR) is an opportunity and a privilege to serve the community in which we live. Alstom supports a wide range of initiatives based in the heart of communities. The Alstom Foundation identifies and initiates projects that combine economic development, social progress and environmental protection.
Through Alstom's collaboration with Husk Power Systems, for its ground breaking Dry Gasifier project of electrifying rural India, we have been able to facilitate inclusive rural development on the backbone of electric power. The project has made significant strides in the past one year since its inception, with the successful creation of a self–sustaining ecosystem in the villages of Bihar. The project aims at improvement of power plants by retro–fitting dry gasifiers to 65 small existing biomass plants in the state of Bihar in India. It will also provide vocational programmes and training for women through manufacture of incense sticks using the ash from these plants. The project has not only enabled economic development and physical well–being but also helped in strengthening of the rural communities.
The project aims at improving power plants by converting–retro fitting the existing Biomass gasifier to dry gasifiers, thus reducing the consumption of water at the plant. One of the aims of this project was to provide vocational training to women through manufacture of incense sticks.There are now 4 manufacturing units, all of which together produce 7–10 tonnes of incense sticks per month, using char (not ash) from these power plants.
I wish to take this opportunity to express my sincere gratitude to the members of the Board of Directors for their professionalism and dedicated contribution to steer the Company towards excellence. My special thanks also go to the management team and staff members for their continued contributions and commitment towards the Company. I also wish to extend our thanks to our valuable shareholders, customers, business associates, investors as well as banking institutions and relevant authorities for their continued support, guidance and confidence in the Company. In addition, I am particularly thankful for the strong support of the ALSTOM Group throughout the year as always.
I look forward to reporting to you on our successes and progress in 2013–14.
With warm regards,
Chairman & Whole–time Director
ALSTOM India Limited
20 June 2013