Director's Report
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UltraTech Cement LtdIndustry : Cement - North India
BSE Code:532538
ISIN Demat:INE481G01011
Book Value(Rs):943.95
NSE Symbol:ULTRACEMCO
Div & Yield %:0.24
Market Cap (Rs Cr.):119155.39
P/E(TTM):57.2
EPS(TTM):75.85
Face Value(Rs):10
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Dear Shareholders,

Your Directors present the Eighteenth Annual Report together with the Audited Accounts of your Company for the year ended 31st March, 2018.

OVERVIEW AND THE STATE OF THE COMPANY'S AFFAIRS

The global cyclical upswing since mid - 2016 strengthened during the year. Among the advanced economies, notably Germany, Japan, Korea and the United States, growth in the third quarter of 2017 was higher than projected. Key emerging markets and developing economies like Brazil, China and South Africa also posted impressive growth. Global trade was significantly higher, supported by a good flow of investment, particularly among advanced economies and increased Asian manufacturing output. The stronger momentum experienced in 2017 is expected to carry into 2018 and 2019, with global growth rising to 3.9% for both years.

The International Monetary Fund (IMF) remained optimistic of India's potential and retained GDP growth forecast for the country at 6.7% in 2017 and 7.4% in 2018. In its World Economic Outlook Update, it also estimated that the Indian economy could grow 7.8% in 2019, making it the world's fastest-growing economy in 2018 and 2019, a ranking that it briefly lost to China in 2017. The economy's growth trajectory was sustained on the back of a series of reforms undertaken over the past year.

India is the world's second largest cement producer. In anticipation of demand, ~ 90 million tonnes of capacity was added during the past five years. During the year, the industry reported a rise in cement demand and after seven years' the industry is likely to report historical demand growth multiple against GDP. The Government's thrust on infrastructure development remained the key growth driver. Besides, revival in rural housing demand and accelerated execution under the low cost housing program, bolstered volume off-take. However, demand from urban housing remained sluggish owing to the implementation of Real Estate (Regulation and Development) Act, 2016 (RERA) and the lingering impact of demonetisation. FY 2017-18 was also a year of challenges as major States imposed a ban on sand mining, arising out of environmental concerns and entry of the unorganised sector. Sand is used as raw material by the construction industry and the ban impacted construction activity in Uttar Pradesh, Madhya Pradesh, Bihar, Tamil Nadu, Maharashtra and Rajasthan. The Hon'ble Supreme Court of India introduced a ban on the use of petcoke in Haryana, Rajasthan and Uttar Pradesh to curb pollution and even though the restriction was subsequently relaxed, there was a hike in import duty on petcoke from 2.5% to 10%. An increase in diesel prices pushed freight cost northwards. All of this resulted in increased operating costs.

India's cement sector growth is projected at around 8% in FY 2018-19, which is good as compared to the trends of the last few years. This is likely to be driven by a slew of infrastructure projects which have been announced by the government, among which are the construction of around 84,000 kilometers of roads by 2022 including the Bharatmala Project, construction of rural roads under the Pradhan Mantri Gram Sadak Yozana by 2019, Housing for All by 2022, the metro rail networks in several cities, bullet train and various irrigation projects. Regardless, the sector could face some headwinds in the form of higher fuel prices that could have a negative impact on margins.

It is against this background, that we share your Company's performance during 2017-18. The major highlight was the successful acquisition of the cement plants of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL). This enabled your Company to further consolidate its position in the domestic cement industry. More information on the acquisition is detailed in the Corporate Development section of this report.

BUSINESS PERFORMANCE

Production and Capacity Utilisation (grey cement):

Particulars FY18 FY17 % change
Installed capacity (MTPA) 85.00 66.25 28
Production (MMT) 57.23 47.91 19
Capacity Utilisation 71% 72% (1)

MTPA – Million Metric Tonnes Per Annum. MMT– Million Metric Tonnes.

With the acquisition of the cement plants of JAL and JCCL, having cement capacity of 21.2 MTPA; including 4.0 MTPA under installation, your Company's total cement capacity was augmented to 85.00 MTPA. Cement production improved from 47.91 million tonnes in the previous year to 57.23 million tonnes, a growth of 19%. Capacity utilisation remained almost on par with the previous year, despite a 28% increase in the capacity base. This includes a gradual ramp-up of acquired capacities, which operated at an average capacity utilisation of ~ 53%.

Figures in MMT
Particulars FY18 FY17 % change
Domestic Sales 57.75 47.62 21
Exports & Others 2.90 2.56 13
Total Sales Volume 60.65 50.19 21

Domestic sales volume jumped 21% from 47.62 MMT to 57.75 MMT. This was supported by the additional volumes from the acquired assets, the robust volume growth from institutional sales, increased penetration in rural markets and a higher contribution from UltraTech Building Solutions (UBS) outlets. At the end of the year, the total number of UBS outlets rose to ~ 1,600. They are a key segment for connecting with the end consumer.

FINANCIAL PERFORMANCE

(` in crores)

Standalone

Consolidated

2017-18 2016-17 2017-18 2016-17
Net Turnover 29,363 23,616 30,973 25,092
Domestic 27,866 23,191 27,866 23,191
Exports 475 425 3,108 1,901
Other Income 1,022 936 1,021 931
Total Expenditure 23,907 18,922 25,266 20,163
Profit before Interest, Depreciation and Tax (PBIDT) 6,478 5,629 6,729 5,861
Less: Depreciation 1,764 1,268 1,848 1,349
Profit before Interest and Tax (PBIT) 4,714 4,361 4,881 4,512
Interest 1,186 571 1,233 640
Profit before Impairment and Tax Expenses / share 3,528 3,790 3,648 3,872
in profit of Associates
Stamp duty on acquisition of assets (226) - (226) -
Provision for diminution in value of Investment - (14) - -
Impairment of assets - - (75) -
Impairment on deconsolidation of subsidiary - - (46) -
Profit before Tax Expenses 3,302 3,776 3,301 3,872
Tax Expenses 1,071 1,148 1,077 1,158
Profit after Tax 2,231 2,628 2,224 2,714
Profit attributable to Non-controlling Interest - - 2 (1)
Profit attributable to Owner of the parent 2,231 2,628 2,222 2,715

(Note: the figures for 2017-18 include those of the acquired cement units of JAL and JCCL and are therefore not strictly comparable with the previous years' figures.)

Net Turnover:

Your Company's net turnover at ` 29,363 crores is higher over the previous year, driven by higher sales volume and improvement in cement prices.

Other Income:

Other income is 9% higher compared to the previous year. Your Company received higher fiscal incentives under the Industrial Promotion Schemes of various States.

Operating Profit (PBIDT) and Margin:

PBIDT for the year at ` 6,478 crores is higher by 15% over the previous year. The operating margin declined marginally due to increase in operating costs.

Cost Highlights:

(i) Energy Cost:

Overall energy cost rose by 23% from ` 763/t to ` 938/t, attributable to substantial increase in petcoke and coal prices. Imported petcoke prices went up by 45% from $66/t to $96/t. Energy costs were also impacted due to the ban on petcoke usage in thermal power plants in Rajasthan, Uttar Pradesh and Haryana.

Controlling costs is an on-going exercise at your Company. To mitigate the impact of rising fuel prices, your Company was engaged in a cost control program leading to the following efficiencies:

- Reduction in power consumption at cement plants by 3%;

- Improved thermal power plant efficiency by reducing auxiliary consumption power by 10%;

- Enhanced usage of waste heat recovery power to 8%;

- Increased power wheeling from integrated plants to grinding units to reduce dependency on grid;

- Entering into solar power purchase agreements to cut power costs at grinding units and to meet renewable energy obligations;

- Improved petcoke usage in acquired units in line with your Company's standards;

- Use of low cost fuels viz. industrial waste and lignite increased from 2% in the previous year to 5%. Around 2.52 lmt industrial waste has been used in the kilns.

(ii) Input material cost:

Raw materials cost saw a marginal uptick from ` 467/t to ` 473/t inspite of increase in slag and fly-ash prices and additional limestone royalty for the acquired assets.

This was achieved by shifting to alternative additives and identifying new sources of material.

(iii) Freight and Forwarding expenses:

Logistics cost increased from ` 1,074/t to ` 1,124/t, due to 7% higher diesel prices. Its impact was partially restricted with the reduction in average lead distance by 3% as a result of improved utilisation of new cement grinding capacities and integration of acquired capacities.

(iv) Employee costs:

Employee costs extended by 21% from ` 1,413 crores in the previous year to ` 1,706 crores, on account of normal annual increments, commissioning of new plants and acquired plants.

Depreciation:

Depreciation for the year at ` 1,764 crores is higher by ` 496 crores over the previous year, mainly on account of the acquired assets and capitalisation of new assets commissioned.

Finance Cost:

Finance cost at ` 1,186 crores is up by ` 615 crores vis-a-vis ` 571 crores mainly due to the debt taken for acquiring the JAL and JCCL assets.

Your Company does not accept any fixed deposits from the public falling under Section 73 of the Companies Act, 2013 (the Act) and the Companies (Acceptance of Deposits) Rules, 2014.

Your Company has adequate liquidity and a strong Balance Sheet. CRISIL and India Ratings and Research has re-affirmed their credit rating as CRISIL AAA and IND AAA for Long Term and CRISIL A1+ IND A1+ for Short Term.

Income Tax:

Income tax expenses decreased in line with the decrease in taxable income.

Net Profit:

Profit after tax declined by 15% from ` 2,628 crores to ` 2,231 crores. The normalised PAT for the year is ` 2,420 crores, after adjusting the impact of stamp duty charged on acquired assets and a one-time charge for deferred tax due to the change in income-tax rates. Net profit is also impacted on account of an additional interest charge of ` 725 crores and depreciation of ` 500 crores related to acquired assets.

Cash Flow Statement

(` in crores)
FY18 FY17
Sources of Cash
Cash from operations 4,885 4,222
Non-operating cash flow 187 138
Proceeds from issue of share capital 16 7
Proceeds from sale of Investment 3,540 -
Decrease in working capital - 501
Total 8,628 4,868
Uses of Cash
Net capital expenditure 1,836 1,233
Increase in investment - 1,270
Increase in working capital 1,267 -
Repayment of borrowings (net) 4,027 1,535
Interest 1,154 547
Dividend 331 308
Total 8,615 4,893
Increase / (Decrease) in cash & cash equivalents 13 (25)

Sources of Cash Cash from operations:

Cash from operations was higher compared to the previous year, as a result of higher revenues.

Non-Operating Cash Flow:

Cash from non-operations was higher due to higher interest income coupled with higher income from the sale of investment in Mutual Funds.

Uses of Cash Borrowings:

During the year, your Company raised ` 10,189 crores for repayment of transferred loans relating to the acquisition of JAL and JCCL's cement capacity. Your Company also redeemed ` 3,125 crores of debentures and ` 500 crores of preference shares issued in terms of the Scheme of Arrangement between JAL, JCCL, your Company and their respective shareholders and creditors (Scheme of Arrangement). Besides this, your Company raised ` 322 crores of long term debt in the form of external commercial borrowings for meeting its capex requirement.

Your Company has repaid the existing long-term borrowings of ` 884 crores in keeping with repayment schedule.

Net Capital Expenditure:

Your Company spent over ` 1,900 crores on various capital expenditure during the year. These include the green field project at Manavar, District Dhar in Madhya Pradesh; Bara grinding unit in Uttar Pradesh; Waste Heat Recovery System (WHRS) in Chhattisgarh and capex related to modernisation.

Increase in Working Capital:

Working capital increased on account of initial working capital infusion for the acquired assets including the upfront royalty payment for transfer of mines.

Transfer to General Reserve:

Your Company proposes to transfer an amount of ` 1,600 crores to the General Reserve.

DIVIDEND

Despite completing a major acquisition during the year, your Directors have recommended a dividend of ` 10.50 per equity share (` 10 per equity share in the previous year) of ` 10/- each for the year ended 31st March, 2018. The dividend distribution would result in a cash outgo of ` 347.61 crores (including tax on dividend of ` 59.27 crores) compared to ` 330.41 crores (including tax on dividend of ` 55.89 crores) paid for 2016-17.

In terms of the provisions of Regulation 43A of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) your Company has formulated a dividend distribution policy. The policy is given in Annexure I to this Report. It is also accessible from your Company's website www.ultratechcement.com.

CAPITAL EXPENDITURE PLAN

Your Company commissioned a greenfield clinker capacity of 2.5 MTPA at Manawar, District Dhar, Madhya Pradesh. Your Company also commissioned a cement grinding facility of 1.75 MTPA capacity and an auto loading facility. This state-of-the-art manufacturing facility has been built with best in class safety standards. Another cement grinding facility of 1.75 MTPA capacity as well as a WHRS of 13 MW capacity is under erection and both are expected to be completed before September, 2018. The plant has been commissioned in record time of less than 365 days, setting a global benchmark for size of such capacity. Yet another benchmark is setting up the greenfield plant at a capital cost of less than $90/mt.

During the year, your Company's Board of Directors approved the setting up of a 3.5 MTPA integrated cement plant at Pali, Rajasthan, at an investment of around ` 1,850 crores. Commercial production from the plant is expected to commence by June, 2020.

Capital expenditure during the next financial year is estimated at approximately ` 2,500 crores. This is for capacity expansion projects, waste heat recovery systems, regulatory requirements, plant infrastructure and routine maintenance.

CORPORATE DEVELOPMENT

TheSchemeofArrangementfortheacquisitionofsixintegrated cement plants and five grinding units of JAL and JCCL spread across Himachal Pradesh, Uttar Pradesh, Uttarakhand, Madhya Pradesh, and Andhra Pradesh with a capacity of 21.2 MTPA was made effective on 29th June, 2017. Consequently, the acquired cement plants of JAL and JCCL stood transferred to your Company. This transaction valued at ` 16,189 crores ($ 2.5 bn) is the largest deal to be concluded so far.

This acquisition was essentially towards a geographic market expansion, enabling your Company's entry into the high growth markets of India where it needed greater reinforcement. Upon acquiring the plants, your Company has injected the much needed working capital, strengthened operations by upgrading technology and plant maintenance. This has resulted in improving efficiencies, enhancing capacity utilisation and bringing the cement manufactured at these plants up to your Company's standard. New dealers have been appointed to penetrate the markets and completing a successful transition of the acquired cement plants to the ‘UltraTech' brand. Furthermore, economies of scale and reduced lead-time to markets will enhance your Company's competitiveness, benefit customers and, in turn, create value for all stakeholders.

In terms of the Scheme of Arrangement, your Company has allotted 150,010 Unlisted Non-Convertible Cumulative Redeemable Preference Shares having a face value of ` 1,00,000/- each and 31,249 Unsecured Unlisted Redeemable Non-Convertible Debentures with a face value of ` 10,00,000/- each to JAL and JCCL.

Your Company now has 19 Integrated Plants, 1 clinkerisation unit, 25 Grinding Units and 7 bulk terminals. With the commissioning of the grinding units at Dhar and at Bara, your Company's cement manufacturing capacity will stand augmented to 96.5 MTPA.

In a separate development, your Company participated in an insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 and submitted a resolution plan for the acquisition of Binani Cement Limited (BCL). BCL's assets, which are proposed to be acquired, fall in line with your Company's long-term strategy to expand, grow and consolidate its position in an economically efficient manner in the markets of Rajasthan and Gujarat. Currently hearings are pending before regulatory authorities like the National Company Law Tribunal, the National Company Law Appellate Tribunal and the Supreme Court of India. That said, your Company has received the requisite approval from the Competition Commission of India (CCI) for the proposed transaction.

CORPORATE GOVERNANCE

Your Directors reaffirm their continued commitment to good corporate governance practices. During the year under review, your Company was in compliance with the provisions relating to corporate governance as provided under the Listing Regulations. The compliance report is provided in the Corporate Governance section of this Annual Report. The auditor's certificate on compliance with the conditions of corporate governance of the Listing Regulations is given in Annexure II to this Report.

EMPLOYEE STOCK OPTION SCHEMES ESOS – 2006

The Nomination, Remuneration and Compensation Committee (the NRC) allotted 8,791 equity shares of ` 10/- each of your Company upon exercise of Stock Options by the employees.

ESOS – 2013

During the year, 47,374 Stock Options and 11,848 Restricted Stock Units (RSUs) have been vested in eligible employees. The NRC allotted 97,288 equity shares of ` 10/- each of your Company upon exercise of Stock Options and RSUs by the employees.

The paid-up equity share capital of your Company increased from 27,45,07,906 equity shares of ` 10/- each to 27,46,13,985 equity shares of ` 10/- each.

In terms of the provisions of the SEBI (Share Based Employee Benefits) Regulations, 2014, the details of the Stock Options and RSUs granted under the above mentioned Schemes are available on your Company's website viz. www.ultratechcement.com.

A certificate from the Statutory Auditor on the implementation of your Company's Employee Stock Option Schemes will be placed at the ensuing Annual General Meeting (AGM) for inspection by the Members.

AWARDS

Your Company's efforts in various areas of its operations continue to receive recognition. Some of the prestigious awards and recognition conferred on your Company during the year comprise of:

- Golden Peacock National Quality Award: Aditya Cement Works;

- Gold Medal for ‘National Awards for Manufacturing Competitiveness (NAMC) 2015-16' in Building Material & Cement Sector: Aditya Cement Works;

- National Energy Conservation Awards-2017 (TPP - Certificate of Merit): Andhra Pradesh Cement Works;

- 14th National Award for Excellence in Energy Management Conducted by Confederation of Indian Industry: Dalla Cement Works;

- National Energy Conservation Award (Thermal Power Plant): Kotputli Cement Works.

RESEARCH AND DEVELOPMENT

Your Company's Research and Development (R&D) activities are aimed at facilitating sustained growth of the business by developing new cement and concrete products, providing environment friendly and innovative solutions to cement manufacturing Units and to the ever increasing customer demands in concrete applications. Continuous product quality improvement, customisation and enhancing cement plant productivity are its main forte as it leads to greater profitability, customer value and delight.

Your Company's R&D Centre has a clear mission of integrating the latest scientific and technological developments in the field of cement and concrete. With this objective, your Company's R&D Centre provides comprehensive technical and analytical support to the business.

Your Company's R&D activities include basic as well as applied research for:

- Fostering a better understanding of advanced building materials based on cement;

- Providing a forum for closer customer-manufacturer interaction;

- Increased customer delight;

- Demonstrating and encouraging development of low cost energy-saving materials; and

- Bridging the gap between theory and practice.

Customers, Quality and Cost are core to all R&D product and process projects. This results in process optimisation and debottlenecking, natural raw materials conservation and promotion of alternative fuels while complying with the increasingly stringent quality and environmental norms. It not only explores newer ways of preserving the environment and non-renewable resources but also encourages all the stakeholders to utilise resources responsibly. Towards this end, your Company has developed premium products that aid in limestone deposits and clinker conservation, energy savings, ensuring enhanced concrete durability and maintaining top product attributes and functionality.

Your Company's R&D Centre has:

- Developed and patented a new variant of green and low-temperature clinker; - new type of high early and long-term strength cement;

- 3 types of high-early strength water saving cement.

Your Company has implemented in-house grinding aids technology in the Eastern Cluster to further reduce the clinker factor (clinker content in cement), extend the life of its limestone deposits and significantly reduce its carbon footprint.

Your Company's R&D has become future ready. It has created totally new capabilities in the area of Pollution Abatement and Carbon Capture, Nanotechnology of Cement and Concrete, Concrete Durability, Concrete Rheology, 3D printable Concrete, Geopolymer Concrete, Modelling Cement & Concrete hydration and Chemical Admixtures for Cement and Concrete.

Your Company has successfully completed the application process for the NABL (National Accreditation Board for Testing and Calibration Laboratories) accreditation i.e. the test results of your Company's Central R&D Laboratories will automatically be recognised by the Bureau of Indian Standards, the Government of India and all its regulatory bodies, as well as by your Company's customers and competitors. Your Company's R&D test results will be issuable with NABL accreditation stamp.

Your Company's R&D actively collaborates with Aditya Birla Science and Technology Company Private Limited (ABSTCPL) and Academia. It represents your Company in national and international cement and concrete conferences and seminars.

HUMAN RESOURCES

Your Company's human resources is the strong foundation for creating many possibilities for its business. During the year, your Company added greater employee talent through seamless integration of acquired assets. The rapid ramp-up of manufacturing units and markets was the highlight of our people effort.

Continuous people development through the Sales & Service Academy and Cement Manufacturing Excellence Academy, for developing knowledge and skills coupled with the Talent Management practices will deliver the talent needs of the organisation. Your Company's employee engagement score reflects high engagement and pride in being part of the organisation. The first batch of participants of StepAhead, your Company's flagship program for developing Sales leaders created in association with Xavier School of Management, (earlier Xavier Labour Relations Institute), graduated during the year.

As on 31st March 2018, your Company's employee strength stood at 19,681 employees.

SAFETY

The Safety excellence journey is a continuing process at your Company. Safety of the people working for and on behalf of your Company is an integral part of business. Your Company's Managing Director chairs the Safety Board, they review the safety performance of your Company on a regular basis. In addition, there are eight safety sub-committees headed by senior leaders to closely monitor various key performance indicators related to safety. During the year, more than 6,00,000 safety observations have been carried out. Corporate safety audit by cross functional teams and structural stability assessment by third parties is carried out across your Company's locations and around 95% of identified high-priority points have been completed to ensure that the structures across our units are safe.

CORPORATE SOCIAL RESPONSIBILITY

In terms of the provisions of Section 135 of the Act read with Companies (Corporate Social Responsibility Policy) Rules, 2014, the Board of Directors of your Company has constituted a Corporate Social Responsibility (CSR) Committee which is chaired by Mrs. Rajashree Birla. The other Members of the Committee are Mr. G. M. Dave, Independent Director; Mr. O. P. Puranmalka, Non-Executive Director and Mr. K. K. Maheshwari, Managing Director. Dr. Pragnya Ram, Group Executive President, Corporate Communication & CSR is a permanent invitee to the Committee. Your Company also has in place a CSR Policy which is available on your Company's website viz. www.ultratechcement.com.

Your Company's CSR activities are focused on Social Empowerment & Welfare, Infrastructure Development, Sustainable Livelihood, Health Care and Education. Various activities have been initiated during the year in neighboring villages around its plant locations. It infused over ` 60.71 crores, over 2% of the average net profits of the last three years for the purposes of CSR.

A report on CSR activities is attached as Annexure III forming part of this report.

SUBSIDIARY, JOINT VENTURE OR ASSOCIATE COMPANIES

In the matter of your Company's wholly-owned subsidiary, Gotan Lime Stone Khanij Udyog Private Limited (GKUPL), the Supreme Court of India has directed the State of Rajasthan to frame and notify its policy relating to transfer of mining lease and thereafter pass appropriate order in respect of the mining lease of GKUPL. The State Government has notified the new policy related to transfer of new mining lease, based on which your Company has requested the Government to consider reinstatement of the mines in its favour.

The audited financial statements of your Company's subsidiaries and joint ventures viz. Dakshin Cements Limited, Harish Cement Limited, GKUPL, Bhagwati Lime Stone Company Private Limited, UltraTech Cement Middle East Investments Limited, UltraTech Cement Lanka (Pvt.) Limited, PT UltraTech Mining Indonesia and PT UltraTech Investments Indonesia as well as related information are available on the website of your Company viz. www.ultratechcement.com and also available for inspection during business hours at the registered office of your Company. During the year UltraTech Cement SA (PTY) and UltraTech Cement Mozambique Limitada, subsidiaries of your Company were closed.

Any Member, who is interested in obtaining a copy of the audited financial statements of your Company's subsidiaries may write to the Company Secretary at the Registered Office of your Company.

In accordance with the provisions of Section 129(3) of the Act, read with the Companies (Accounts) Rules, 2014, a report on the performance and financial position of each of the subsidiaries, joint venture or associate companies is attached as Annexure IV to this Report.

PARTICULARS OF LOAN, GUARANTEE AND INVESTMENT

Details of Loan, Guarantee and Investment covered under the provisions of Section 186 of the Act read with the Companies (Meetings of Board and its Powers) Rules, 2014 are given in the Notes to the standalone financial statements.

ENERGY, TECHNOLOGY AND FOREIGN EXCHANGE

Information on conservation of energy, technology absorption and foreign exchange earnings and outgo, required to be disclosed pursuant to Section 134(3)(m) of the Act read with the Companies (Accounts) Rules, 2014 is given in Annexure V to this Report.

PARTICULARS OF EMPLOYEES

Disclosures pertaining to remuneration and other details as required under Section 197(12) read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are attached as Annexure VI. In accordance with the provisions of Section 197(12) of the Act read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the names and other particulars of employees drawing remuneration in excess of the limits set out in the aforesaid Rules, forms part of this Report. However, in line with the provisions of Section 136(1) of the Act, the Report and Accounts as set out therein, are being sent to all Members of your Company excluding the aforesaid information. Any Member, who is interested in obtaining these particulars, may write to the Company Secretary at the Registered Office of your Company.

BUSINESS RESPONSIBILITY REPORT

In terms of Regulation 34(2)(f) of the Listing Regulations, a Business Responsibility Report forms part of the Annual Report.

CONTRACT AND ARRANGEMENT WITH RELATED PARTIES

During the financial year, your Company entered into related party transactions which were on arm's length basis and in the ordinary course of business. There are no material transactions with any related party as defined under Section 188 of the Act read with the Companies (Meetings of Board and its Powers) Rules, 2014. All related party transactions have been approved by the Audit Committee of your Company and are reviewed by it on periodic basis.

The policy on Related Party Transactions as approved by the Audit Committee and the Board is available on your Company's website viz. www.ultratechcement.com.

The details of contracts and arrangement with related parties of your Company for the financial year ended 31st March, 2018 is given in Note 38 to the standalone financial statements of your Company.

RISK MANAGEMENT

The Risk Management Committee of your Company is mandated to review the risk management plan / process of your Company. Through the annual risk report processes which are based upon Business Environment, Operational Controls and Compliance Procedures, your Company aims to assess and prioritise risks according to their significance and likelihood. The risk assessment is not limited to threat analysis, but also identifies potential opportunities. The Risk Management Committee oversees the risk management processes to analyse the risks more deeply and to define risk mitigation actions where necessary. The risk horizon considered includes long term strategic risks, short to medium term risks as well as single events.

Key Business Risks identified by your Company –

Market Demand

The risk that the cement demand growth in the country may remain muted due to low economic activity. The demand for the construction material is fundamentally driven by economic growth / contraction in the country. Over the last couple of financial year's growth in construction activity in the country has been slow, impacting the cement demand. In a scenario where incremental capacity exceeds incremental demand the Government's push on infrastructure and housing will help in increasing cement consumption and reduce the demand-supply gap.

Energy costs

The risk of rising prices for power and fuel. Changes in fuel prices can significantly alter the production costs as cement industry is extremely energy intensive. The fuel prices have been rising continuously during the year driven by global demand supply scenario. Your Company continuously optimises its fuel mix and energy efficiency as well as explores alternative fuels for use in the plants.

Raw Materials and Mineral Components

The risk that the raw materials cannot be supplied at economical cost or of suitable quality. Limestone being the primary raw material required for production of cement, its continuous and long term availability is critical, particularly under the dynamic regulatory environment. Your Company currently possesses sufficient limestone reserves. Securing additional reserves is critical to address your Company's expansion plans. Apart from preservation and elongation of existing reserves, a range of measures including strategic sourcing and changing input mix are adopted by your Company.

Legal and Compliance

The risk that your Company is found to have inadvertently violated laws covering business conduct. The country's regulatory framework is ever evolving and the risk of non-compliance and penalties may increase for your Company, leading to reputational risks. A comprehensive risk based compliance program involving inclusive training and adherence to Code of Conduct is institutionalised by your Company. Periodic and ad hoc reporting to various internal committees for oversight ensures effectiveness of such program.

Competition Risks

The risk that your Company loses market share. The cement industry in India is a myriad aggregation of small and large players. With the expanding capacities of existing players and also the emergence of new entrant's, competition is a sustained risk. Strategic initiatives to enhance brand equity through enhanced marketing activities and continuous efforts in enhancing the product portfolio and value adding services have been the thrust areas of your Company.

Financial Risks

The risk of exposure to interest rates, foreign exchange rates and commodity price fluctuations. Your Company has elaborate financial risk management policies which are followed for every transaction undertaken. Your Company's policies to counter such risks are reviewed periodically and aligned with the financial market practices and regulations.

Information Technology Risks

Risks related to Information Technology systems; data integrity and physical assets. Your Company deploys Information

Technology systems including ERP, SCM, Data Historian and Mobile Solutions to support its business processes, communications, sales, logistics and production. Risks could primarily arise from unavailability of systems and/or loss or manipulation of information. To mitigate these risks, your Company uses back up procedures and stores information at two different locations. Systems are upgraded regularly with latest security standards. For critical applications, security policies and procedures are updated on a periodic basis and users educated on adherence to the policies so as to eliminate data leakages.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

Your Company has in place adequate internal control systems commensurate with the size of its operations. Internal control systems comprising of policies and procedures are designed to ensure sound management of your Company's operations, safekeeping of its assets, optimal utilisation of resources, reliability of its financial information and compliance. Clearly defined roles and responsibilities have been institutionalised. Systems and procedures are periodically reviewed to keep pace with the growing size and complexity of your Company's operations.

DIRECTOR'S RESPONSIBILITY STATEMENT

The audited accounts for the year under review are in conformity with the requirements of the Act and the Accounting Standards. The financial statements reflect fairly the form and substance of transactions carried out during the year under review and reasonably present your Company's financial condition and results of operations.

Your Directors confirm that: i. in the preparation of the Annual Accounts, applicable accounting standards have been followed along with proper explanations relating to material departures, if any; ii. the accounting policies selected have been applied consistently and judgments and estimates are made that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at 31st March, 2018 and of the profit of your Company for the year ended on that date; iii. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of your Company and for preventing and detecting frauds and other irregularities; iv. the Annual Accounts of your Company have been prepared on a going concern basis; v. your Company had laid down internal financial controls and that such internal financial controls are adequate and were operating effectively; vi. your Company has devised proper system to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

DIRECTORS

Re-appointment of Director

Mr. Kumar Mangalam Birla (DIN: 00012813) retires from office by rotation and being eligible, offers himself for re-appointment. A brief resume of Mr. Birla forms part of the Notice of the ensuing AGM.

Meetings of the Board

The Board of Directors of your Company met 6 times during the year to deliberate on various matters. The meetings were held on 24th April, 2017, 18th July, 2017, 18th October, 2017, 9th December, 2017, 18th January, 2018 and 19th March, 2018. Further details on the Board of Directors are provided in the Corporate Governance Report forming part of this Annual Report.

Independent Directors' Statement

Independent Directors on your Company's Board have submitted declarations of independence to the effect that they meet the criteria of independence as provided in Section 149(6) of the Act and Regulation 16(1) (b) of the Listing Regulations.

Formal Annual Evaluation

The evaluation framework for assessing the performance of Directors of your Company comprises of contributions at the meetings, strategic perspective or inputs regarding the growth and performance of your Company, among others. Pursuant to the provisions of the Act and the Listing Regulations, the Directors have carried out the annual performance evaluation of the Board, Independent Directors, Non-Executive Directors, Executive Directors, Committees and the Chairman of the Board.

The NRC and the Board have laid down the manner in which formal annual evaluation of the performance of the Board, its Committees and individual Directors has to be made. It includes circulation of evaluation forms separately for evaluation of the Board and its Committees, Independent Directors/Non-Executive Directors/Executive Directors and the Chairman of your Company.

The process of the annual performance evaluation broadly comprises:

Board and Committee Evaluation:

Evaluation of Board as a whole and the Committees is done by the individual Directors, followed by submission of collation to the NRC and feedback to the Board.

Independent / Non-Executive Directors Evaluation:

Evaluation done by Board members excluding the Director being evaluated is submitted to the Chairman of your Company and individual feedback provided to each Director.

Chairman/Executive Director Evaluation:

Evaluation as done by the individual Directors is submitted to the Chairperson of the NRC and subsequently to the Board. The details of program for familiarisation of Independent Directors of your Company are available on your Company's website viz. www.ultratechcement.com.

Policy on Appointment and Remuneration of Directors and Key Managerial Personnel and Remuneration Policy

The NRC has formulated the Remuneration policy of your Company which is attached as Annexure VII to this report.

KEY MANAGERIAL PERSONNEL

In terms of the provisions of Section 203 of the Act, Mr. K. K. Maheshwari, Managing Director; Mr. Atul Daga, Whole-time Director & Chief Financial Officer and Mr. S. K. Chatterjee, Company Secretary are the Key Managerial Personnel of your Company.

AUDIT COMMITTEE

The Audit Committee comprises of Mr. S. B. Mathur, Mr. G. M. Dave, Mrs. Renuka Ramnath, Mr. D. D. Rathi and Mrs. Alka Bharucha. The Committee comprises of majority of independent directors with Mr. Mathur being the Chairman. Mr. K. K. Maheshwari, Managing Director and Mr. Atul Daga, Whole-time Director & CFO are the permanent invitees.

Further details relating to the Audit Committee are provided in the Corporate Governance Report, forming part of this Annual Report.

During the year under review, all recommendations made by the Audit Committee were accepted by the Board.

VIGIL MECHANISM

Your Company has in place a vigil mechanism for directors and employees to report instances and concerns about unethical behaviour, actual or suspected fraud or violation of your Company's Code of Conduct. Adequate safeguards are provided against victimisation of those who avail of the mechanism and direct access to the Chairman of the Audit Committee in exceptional cases is provided to them.

The vigil mechanism is available on your Company's website viz. www.ultratechcement.com.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

The CCI by its order dated 31st August, 2016, imposed a penalty on eleven companies, including your Company. The CCI order is pursuant to the directions issued by the Competition Appellate Tribunal (COMPAT) by its Order dated 11th December, 2015 setting aside the original CCI order dated 20th June, 2012 and remitting the matter to CCI for fresh adjudication of the issue and passing a fresh order. Your Company filed an appeal against the CCI Order before COMPAT. COMPAT has granted stay on the CCI order on condition that your Company deposit 10% of the penalty, amounting to ` 117.56 crores, which has since been deposited.

In a separate matter, the CCI by its order dated 19th January, 2017 has imposed a penalty of ` 68.30 crores on your Company pursuant to a reference filed by the Government of Haryana. Your Company has filed an appeal against the said CCI order before COMPAT. COMPAT has granted stay on the said CCI order.

The Government has made changes in the constitution and operations of Tribunals, under which all matters with COMPAT have been transferred to the National Company Law Appellate Tribunal (NCLAT). Hearing of order dated 31st August, 2016 is completed at NCLAT and the order is awaited.

Your Company, backed by a legal opinion, believes that it has a good case in both the matters and accordingly no provision has been made in the accounts.

AUDITORS

Statutory Auditors

Pursuant to the provisions of Section 139 of the Act and the Companies (Audit and Auditors) Rules, 2014, M/s. BSR

& Co. LLP, Chartered Accountants, Mumbai (Registration No: 101248W/W-100022) and M/s. Khimji Kunverji & Co., Chartered Accountants, Mumbai (Registration No: 105146W) hadbeenappointedasJointStatutoryAuditorsofyourCompany for a term of five years until the conclusion of the 20th and 21st AGM respectively. In terms of the provisions of the Act, your ratification to their appointment as Joint Statutory Auditors of your Company is being sought at the ensuing AGM and forms part of the Notice convening the AGM. The Joint Statutory Auditors have confirmed that they are not disqualified to act as Auditors and are eligible to hold office as Auditors of your Company.

The observations made in the Auditor's Report are self-explanatory and therefore, do not call for any further comments under Section 134(3)(f) of the Act.

Cost Auditors

In terms of the provisions of Section 148 of the Act read with the Companies (Cost Records and Audit) Amendment Rules, 2014, the Board of Directors of your Company have on the recommendation of the Audit Committee appointed M/s. D. C. Dave & Co., Cost Accountants, Mumbai and M/s. N. D. Birla & Co., Cost Accountants, Ahmedabad, to conduct the cost audit of your Company for the financial year ending 31st March, 2019, at a remuneration as mentioned in the Notice convening the AGM.

As required under the Act, the remuneration payable to cost auditors has to be placed before the Members at a general meeting for ratification. Hence, a resolution seeking your ratification for the remuneration payable to the Cost Auditors forms part of the Notice of the ensuing AGM.

Secretarial Auditor

In terms of the provisions of Section 204 of the Act read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board has appointed M/s. BNP & Associates, Company Secretaries, Mumbai as Secretarial Auditors for conducting Secretarial Audit of your Company for the financial year ended 31st March, 2018. The report of the Secretarial Auditor is attached as Annexure VIII. The

Secretarial Audit Report does not contain any qualification, reservation or adverse remark.

Your Company is in compliance with the Secretarial Standards specified by the Institute of Company Secretaries of India.

EXTRACT OF ANNUAL RETURN

In terms of the provisions of Section 92 (3) of the Act read with the Companies (Management and Administration) Rules, 2014, an extract of the Annual Return of your Company for the financial year ended 31st March, 2018 is given in Annexure IX to this Report.

OTHER DISCLOSURES

– There were no material changes and commitments affecting the financial position of your Company between the end of the financial year and the date of this report.

– Your Company has not issued any shares with differential voting rights.

– There was no revision in the financial statements.

– There has been no change in the nature of business of your Company.

– Your Company has not issued any sweat equity shares.

– During the year your Company has not received any complaints under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

CAUTIONARY STATEMENT

Statements in the Directors Report and the Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to your Company's operations include global and Indian demand supply conditions, finished goods prices, feed stock availability and prices, cyclical demand and pricing in your Company's principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which your Company conducts business and other factors such as litigation and labour negotiations. Your Company is not obliged to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent development, information or events or otherwise.

ACKNOWLEDGEMENT

Your Directors express their deep sense of gratitude to the banks, financial institutions, stakeholders, business associates, Central and State Governments for their support and look forward to their continued assistance in future. We thank our employees for their contribution to your Company's performance. We applaud them for their superior levels of competence, dedication and commitment to your Company.

For and on behalf of the Board

Kumar Mangalam Birla

Chairman

(DIN: 00012813)

Mumbai, 25th April, 2018

   

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