CHAIRMANS ADDRESS

Global Outlook
In the aftermath of the global financial crisis in 2008, negative growth continued from the 4th quarter of 2008 to 3rd quarter of 2009. Production cuts over this period led to 58% capacity utilization. Financial stimulus packages declared by different countries facilitated production from 4th quarter of 2009 and the growth rate rebounded to pre-crisis level of over 6% per annum. Present utilization of capacity is around 80%. De stocking has also taken place. Production growth at around 25% in the first seven months is robust in 2010. World Steel Association (WSA) in its latest demand forecast has projected a growth in consumption of Finished Steel by 10.7% and 5.3% in 2011 & 2012. While advanced economies are expected to grow by 2.6% in 2010, emerging & developing economies are expected to grow at 6%. China & India are slated to be the major drivers of Growth in the consumption of steel.

Indian Prospects
In India, the outlook appears to be positive. As compared to a GDP growth of 6.7% in 2008-09, the revised estimate for 2009-10 projects a growth of 7.4%. This has been possible due to higher growth of 10.4% in the Index of Industrial Production in 2009-10 as compared to 2.8% in 2008-09 and also due to higher demand for capital goods and consumer

durables to the tune of 19.2% and 26%, respectively. There is a degree of optimism regarding the performance of the Indian economy. The International Monetary Fund (IMF) has projected a growth of 9.4% for 2010 and 8.4% for 2011 for India. The apparent consumption of finished carbon steel in India at 53 million tonnes in 2009-10 registered a growth of 7.8% over the previous year. The overall saleable carbon steel production during 2010 was 56.8 million tonnes. WSA has projected a growth of more than 13% for India during 2010 and 2011, with overall consumption reaching 72 million tonnes by 2011. In fact, it is expected that India will emerge as one of the highest steel consuming countries during the next decade, touching the level of 150 million tonnes by 2020. This assumes a growth rate of 9% in consumption, which can well be achieved considering the strong growth trend that is already emerging from steel-consuming sectors like machinery & equipment manufacturing and automobiles. Demand from the construction sector is also rising, mainly due to growing infrastructure-related projects in the power sector, including power transmission, highways, airports, ports and industrial construction. Besides, growth is expected in individual housing and small and medium commercial construction. The projected investment in infrastructure, encompassing all these sectors, in the 11th Five year plan (2007-12) at 20,54,205 crore is 9% of GDP as against 5% of GDP in the 10th Five year plan. Approximately, 125 MT (million tonnes) of steel will be needed to achieve these investments in infrastructure in 11th Five- year plan.

Performance of Your Company

company is now producing almost 100% of TMT in special earthquake resistant (EQR) grade to make quality steel available for the infrastructure segment. During 2009-10, the SAIL plants improved operational efficiency in major techno-economic parameters by achieving best-ever coke rate at 517 kg/thm; highest-ever BF productivity of 1.57 tonnes/m3/day; highest-ever converter lining life at 11,036 blows in a converter at Bhilai Steel Plant; best-ever Coal Dust Injection (CDI) rate; highest-ever power generation at 568 MW; and the best ever specific energy consumption at 6.72 Gcal/tcs. During the year, all the five integrated steel plants recorded their bestever labour productivity with average productivity of 226 tonnes/man/year. Though the companys turnover of 43,935 crore during the year was lower as compared to the previous year, your company recorded the second best profit before tax of 10,132 crore since inception. This could be possible due to higher saleable steel production and sales volume, improved production of value-added products, improvement in technoeconomic parameters and optimum utilisation of funds. The company had liquid assets of 22,023 crore as on 31st March, 2010 invested in short-term deposits with scheduled banks. Considering borrowings of 16,511 crore, the company maintained its virtual debt-free status. The debt-equity ratio of the company was 0.5:1 as on 31st March, 2010. The SAIL Board has recommended a final dividend of 17% on paid-up equity, apart from an interim dividend of 16% already paid earlier this year, taking the total dividend to 33%. You will be glad to know that as a result of concerted and collective action, SAIL emerged as the second highest net profit earning company amongst all steel companies of the world during the calendar year 2009. In January, 2010, SAILs overall ranking was second in the list of WorldClass Steelmaker Rankings by World Steel Dynamics, a leading steel information services provider.

FPO & Disinvestment Dear Shareholders, I take this opportunity to inform you that the Government has approved 10% Further Public Offer (FPO) of shares by SAIL and offer for sale (disinvestment) of 10% of the Governments holding in the company in two discrete tranches. The total issue in two equal tranches will comprise fresh issue of 41.3 crore shares and disinvestment by the Government of its holding in SAIL of equivalent amount. Each tranche will consist of 5% (i.e. 20.65 crore shares) of FPO and 5% of disinvestment of Governments shareholding in SAIL. The offers are to be issued at appropriate times in consideration of SEBI guidelines and prevailing market conditions. The first tranche is likely to hit the market during 2010-11, subject to Government and regulatory approvals. Growth Plan When the economy is booming, growth comes easy. It is definitely not a cause for concern. However, to move up the performance ladder, we will need to have an added edge over our competitors. That edge will come from innovation, and our continued endeavours to look for new growth segments and at the same time strengthening our existing portfolio. The emerging demand scenario in the country will bring in suitable strategic responses from other domestic steel producers and also strengthen the resolve of global players to partake a slice of the domestic market. In order to retain the market leadership position in the country and maintain competitiveness, your company is currently implementing a growth plan to enhance its production capacity in a phased manner. Under the ongoing phase of the modernisation & expansion plan, hot metal production capacity will get expanded to 23.46 million tonnes by 2012-13. The growth plan, besides targeting higher production, also addresses the need for cost competitiveness by eliminating technological obsolescence, achieving energy savings, enriching product-mix, reducing pollution, developing mines and collieries, introducing customer centric processes and developing matching infrastructure facilities. To meet future challenges, SAIL is working on a long-term strategic plan Lakshya 2020, with the objective of achieving hot metal production capacity of 60 million tonnes by 2020 and a market share of 30%. This will

steer the company towards meeting its strategic objectives of achieving profitability through growth and customer satisfaction. Cumulative approval of about 48,000 crore has been accorded by the SAIL Board for the modernisation & expansion plan till date. During the year 2009-10, capital expenditure of 10,606 crore has been incurred and for 2010-11, an outlay of 12,254 crore has been planned mainly for various modernization & expansion schemes. Commissioning of the new steel making facilities that have come up at Salem Steel Plant as part of the plan is expected shortly. In the integrated steel plants, execution of various packages is in progress. We expect that the new facilities at IISCO Steel Plant will be commissioned in 2011. Power One of the key inputs to maintain the rhythm of operations of steel plants is electric power. Power also constitutes a major and critical input in maintaining the cost competitiveness of a steel plant. The power requirement of SAIL is expected to grow to around 1900 MW by 2012 -13 from the current level of about 1180 MW. By 2020 the average load of steel plants including the power requirement of mines is likely to grow to about 4600 MW. Your company has made plans to meet this power demand by setting up additional incremental power generation capacity of 1725 MW in the first stage and the balance in the second stage. As a responsible corporate citizen, your company is making forays into green energy. SAIL has decided to set up solar power plants in its steel plants in a phased manner and is also looking at opportunities in wind energy. This is likely to reduce carbon footprint of the company in a substantial way and help SAIL to reap additional benefits through Clean Development Mechanism (CDM).

Short-Term Outlook Focusing on its fundamentals, including the expansion plan, your company has been growing from strength to strength. However, several concerns, some of them quite critical in nature, continue to hover in our horizon. First and foremost is the continuing trend of rising input costs. With few indigenous sources of the required quality and quantity of coking coal, your company has to depend on imports of higher volumes every year to maintain production targets. Prices of imported coking coal have been volatile in recent times, putting pressure on our margins. Though some improvement is expected in coming quarters, it is expected that fluctuations will continue on this account. To offset the rise in cost of inputs, which also includes manpower, fuel, power, minerals, etc., we have laid a thrust on improving productivity across the organization, encompassing people as well as production facilities and processes. Raw Material Security Your company has been fulfilling the requirement of iron ore of its steel plants from its captive mines. Post-modernisation & expansion, the iron ore requirement is estimated to go upto about 43 million tonnes. To meet this challenge, besides augmenting production from the existing mines, your company is vigorously pursuing with the state government of Jharkhand for early renewal of leases of Chiria and Gua Mines. The Chhattisgarh government is being approached for speedy development of Rowghat Mine. In order to meet the requirement of other raw materials like coking coal, low-silica limestone and dolomite, the company is trying to enhance raw material security by exploring input assets acquisition on its own and also through its JV companies. For securing raw material supplies, your company has co-promoted International Coal Ventures Private Limited (ICVL) with CIL, RINL, NMDC and NTPC for the purpose of acquisition of coal assets in overseas territories. ICVL is currently actively examining proposals for acquisition of equity stakes in coal mines in Australia, Indonesia, Mozambique and USA.