Project Report

“RISK MANAGEMENT AS A BUSINESS NEED”

SUBMITTED BY

PRADEEPTA KUMAR PUHAN

Regn. No. 200626975

Course: Post Graduate Diploma in Business Administration

Specialization: Financial Management

Address: A-39, Block – A/5

Sector – 71, Noida – 201 301 (U.P.)

UNDER THE SUPERVISION OF

Mr. Anil Jain, FCA, CS, FICWA
Group Chief Financial Officer
D P Jindal Group

Academic year 2009

1
 NO OBJECTION CERTIFICATE

This is to certify that Mr. Pradeepta Kumar Puhan is an employee of Maharashtra Seamless
Ltd. for the past two years.

We have no objection for him to carry out a project work titled “BUSINESS RISK
MANAGEMENT” in our organization and for submitting the same to the Director, SCDL
as a part of fulfillment of the “Post Graduate Diploma in Business Administration”
program.

We wish him/her all the success.

For MAHARASHTRA SEAMLESS LTD.

Sd/-
AUTHORISED SIGNATORY

Place: Gurgaon

Date: 4th May 2009

2
 Acknowledgement
The successful completion of the project work gives me a feeling of elevation and
encouragement to perform and grow. However there are always people who helped
me in completing the endeavors. I take this opportunity to thank all the people whose
tremendous support and guidance helped me in completing my project work
successfully. I wish to express my thanks to all the staff members for their valuable
suggestion and guidance to every step. I am highly grateful to my Guide I wish to
express my sincere thanks to Mr. Anil Jain, Group CFO (D P Jindal Group) for
valuable support without their help and cooperation the training never have been a
successful.

Finally I am also thankful to my family and friends for continuous faith in me.

PRADEEPTA KUMAR PUHAN

REGN. NO. 200626975

3
 ABSTRACT

Business and Risk are inseparable. Risk is an event that can impact on the income and/or
reputation of an organization. In project situation, which has primarily futuristic connotations,
managing risk through analysis, identification, measurement and monitoring for mitigation are
significant steps. Doing business is an effort wherein financial; material and manpower
resources are brought together in an organized way to accomplish a desired goal within the
given constraints. Business risk relates to uncertain events or situations that potentially can
adversely affect the entire business of the organization or any specific business units. Risk is a
function of event, probability and possible damage. The paper would provide a conceptual
framework on causes of risk situations, process of management of risk and means to minimize
or avoid the occurrence of risk situations. The paper would discuss typical risk events in a
business life cycle. The endeavor is to share the learning from real life experience of
professional managers handling different situations in the course of their employment.

Sd/- Sd/-
Signature of student Signature of supervisor
Name: PRADEEPTA KUMAR PUHAN Name : ANIL JAIN
Date : 4th May 2009 Date : 4th May 2009
Place : GURGAON Place : GURGAON

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 CONTENTS

1. Objective of the research 6

2. Limitations of the research 7
3. Introduction 8
Company profile 15
Risk Management policy & procedure 25
Risk Management policy overview 25
Roles & responsibility 27
Risk Management systems 29
Sample Risk Form 36
Foreign Exchange Risk Management Policy 37
5. Conclusion 63
6. Suggestion and Recommendations 64
7. Bibliography 65

5
Objective of the research

The objective of the research is:

To know how to manage day-to-day affairs of an organization

• To know the risks involved in doing business
• To know how to identify and mitigate business risks
• To know the mechanism of risk management in corporate sector

6
LIMITATIONS OF THE STUDY

It is important here to mention the hurdles and limitation that may come while working on
the project. It is necessary to enlist these problems or limitations of project work. The main
limitations are as follows: -

1. Time availability is limited

2. Due to use of non-probability method of sampling, in spite of my despite efforts
one can expect a little element of biasness.
3. Scope of the study is very wide. It becomes difficult for me to give complete
description of each and every relevant topic.
4. May be some responses to the question were very ambiguous. It becomes very
difficult to interpret from them.
5. As the study was limited so samples will be Convenience sample
6. Some responses may not be willing to give any answer of the question.

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 Introduction

OVERVIEW
OF
MAHARASHTRA SEAMLESS LTD.

Maharashtra Seamless Limited (MSL) belongs to one of the eminent and respected
Industrial House owned by D.P. Jindal Group having turnover of over INR 30 Billion (US
$ 750 million) & market cap of INR 50 Billion (US $ 1.2 billion). Today it is one of the
largest producers of Steel Pipes & Tubes (in both Seamless and ERW pipes) in India. The
Company was incorporated in the year 1988 and started its commercial production in
1992. D.P. Jindal Group is in the businesses of manufacturing of Seamless Pipes & Tubes,
ERW Pipes, Offshore Oil & Gas Drilling activities, Wind Power Generation, Merchant &
Project exports etc. It also executes turnkey overseas projects through one of the group
company.

MSL is the only Indian manufacturer of Seamless pipes & tubes up to 14” OD and ERW
pipes up to 21” OD, having a capacity of 350000 TPA & 200000 TPA respectively. MSL
is also having 3 Layer Polyethylene & Dual Fusion Bond Epoxy Coating facilities for
cross country line pipes.

Assets
MSL’s major assets include Goodwill earned by performance as a leading player in the
market scenario prevailing under all circumstances and the team of well-qualified and
experienced professionals such as Ex-Bankers/CA/CS/MBA/Legal consultants, Marketing
Executives etc.

Technology
i) “CPE Technology”, used for Seamless Pipes & Tubes production (upto 7” OD), is the
world renowned technology.

8
ii) “Plug Mill Technology”, used for Higher Dia Seamless Pipes & Tubes production (from
7” to 14” OD), is the most reliable technology, in higher dia segment.

iii) High Frequency Induction Welding Technology, is used for ERW Pipes & Tubes (upto
21” OD).

iv) “FUSION BOND EPOXY (FBE)” used for its already existing 3 layer polyethylene
(LPE) coating facility. It is considered to be equally effective but economical coating
process and all major oil companies in India like IOCL, BPCL etc are now looking for
coated cross country line pipe with this coating.

The basic Raw material required for manufacturing Seamless & ERW Pipes are Steel
Round Billets are required to manufacture Seamless Pipe. Billets are procured both from
indigenous suppliers and from abroad. Major Indigenous suppliers are JSPL, JSW &
Kalyani and steel round billets are imported from renowned mills from Europe, Far East
countries, Canada. HR Coils are required to manufacture ERW Pipes. Major Indigenous
suppliers are SAIL, Essar, Ispat, JSW, Lloyds etc. In Seamless pipe, there are no welding
or joints and is manufactured from solid round billets. It is mainly used for High-pressure
applications such as Oil & Gas Exploration & Drilling, Air and Hydraulic cylinders,
Bearings, Boilers, Automobiles etc. ERW (Electric Resistance Welded) pipes are welded
longitudinally, manufactured from Strip / Coil and can be manufactured upto 24” OD. It is
mainly used for low/ medium pressure applications such as transportation of water / oil.
SAW (Submerged Arc Welded) pipes are either longitudinally or spiral welded,
manufactured from plate / coil and can be manufactured upto 100” OD. It is used for
transportation of large volume of liquid / gases. Depending upon the application, pipes are
selected according to its uses and Seamless pipes cannot be substituted for others. Only
ERW & SAW pipes can be substituted.

The exploration and production of crude oil is going up, this will lead to increasing
demand of Seamless pipes mainly for Oil Companies & Tubular Goods (OCTG). Globally
Exploration & Production activities have increased considerably which will lead to

9
increase in demand of Seamless Pipe world over. We are also in the process of creating
additional capacity to meet emerging market needs at competitive cost by reaping benefits
of scale of production. As per market feedback from Indian as well international
manufacturers, we do not foresee any possibility of lowering of demand in near future
owing to Energy shortages. Thus, the demand appears to continue to remain buoyant.

CORPORATE GOVERNANCE REPORT

MSL believes in conducting its affairs with the highest levels of integrity, with proper
authorizations, accountability, disclosure and transparency. The Company strongly
believes in maintaining a simple and transparent corporate structure driven solely by
business needs. Shareholders interests are on utmost priority and the management is only a
trustee to carry out the activities in a truthful and fruitful manner.

CODE OF CONDUCT

The Board of Directors has adopted the Code Conduct and Ethics for Directors and Senior
Management personnel. The Code has also been posted on the Company’s website
www.jindal.com.

CREDIT RATING OF THE COMPANY

1. CRISIL has pronounced, “Double A” i.e. “AA” rating for the Company’s Debt
Programme. This rating indicates high degree of safety with regard to timely payment of
interest and principal on the instrument.

2. Fitch Ratings assigned a “AA (ind)” rating to the Company’s NCD Programme.

3. ICRA assigned a “LAA” rating to fund-based and non-fund-based facilities sanctioned

by Company’s bankers. This is the high-creditquality rating assigned by ICRA.

10
4. ICRA assigned a “A1+” rating to short-term sanctioned bank limits for non-fund-based
facilities. This is the highest-credit-quality rating assigned by ICRA.

DIVIDEND POLICY

It is a continuous endeavor of the management to keep a nice balance between retention of

profit and dividend payout. MSL is a growing company and funding its capex and working
capital requirement largely by internal accruals. Currently MSL is having a policy of
dividend payout between 15% to 20% of the Earnings of the company. The diluted EPS for
the year i.e. 2007-08 was Rs. 27.70/- and the Company had declared a dividend of 100%
i.e. Rs.5.00 per equity share of Rs.5/- each.

IPOs

The first ever Initial Public Offer (IPO) came out in the year 1991. The Company raised
Rs.24.57 Crores through this IPO. The equity shares of Rs.10/- each were issued at par. In
2005, the Company had raised USD 75 Million through FCCBs. These FCCBs were fully
converted into equity shares of Rs.5/- each at a premium of Rs.253.34 per share. The
Company believes in judicious utilization of its funds raised from public/private placement
of securities/financial institutions/internal accruals etc. To part finance its business plans,
the Company had raised funds in the aforesaid years. The consistent Capex plans were
supported largely by company’s internal accruals.

INDUSTRY STRUCTURE AND DEVELOPMENT

The Indian Pipe Industry is among the world’s top three manufacturing hubs after Japan
and Europe. India is today at the centre stage of huge Economic turmoil across the Globe.
As the US and Europe have receded into slowing down, China and India have emerged as

11
the two engines which can fuel Economic growth in these tough times. This is the right
moment for India to take its rightful position as Economic Superpower fueled by huge
Entrepreneurial growth and emerging opportunities. The Steel prices have been extremely
volatile and have increased considerably with the rise in the prices of scarce raw materials
like coal and iron ore. However the Company has largely been able to pass on this burden
as there has been a good demand in the market. The competition from China has eased out
and your Company has regained its market share in the boiler segment. The recent
imposition of export tax on steel pipes has been withdrawn by the government and rightly
so, as it would have been a hurdle for all domestic players.

STRATEGIC ACQUISITIONS

MSL has acquired a Seamless Plant in Romania having an installed capacity of 200000
TPA. The plant has been acquired on Assets Sale basis without any Liability, having the
capacity to manufacture Seamless Pipes upto 6" OD including Drill Pipes. The plant is
being dismantled and will be relocated to, in the District of Raigad, Maharashtra and is
likely to be operational in the next 2 years. Necessary land has been purchased and civil
construction work has already started. The total cost of the project including setting up of
the infrastructure at the new location for the facility and complete modernization is
estimated to cost INR 325 Crores, which will be largely funded out of internal resources
only. The Plant Facility would also include the Drill Pipe capability, which has a very
strong demand in the current OCTG segment. It is likely to add to the substantial growth in
the businesses and profitability of the Company.

12
OPPORTUNITIES & THREATS

The oil prices have crossed the $100 per barrel mark which is promoting exploration and
drilling activity worldwide and in turn increase demand for seamless pipes. Recently the
Company has bagged export orders from USA at high realizations and the market is
expected to remain bullish in the near term.

Your Company is under process of procuring a state of the art solid state welder from
Thermatool, UK which shall upgrade the ERW facility and also finalizing a full body
ultrasonic testing machine from Tuboscope, USA which shall help the Company in
obtaining Approvals from global oil MNCs.

Higher steel prices would lead to higher cost of production and ultimately reduce
Company’s margins. US slowdown may affect the export business of the Company.
Foreign exchange volatility, high cost of energy, rising interest rates may affect the
business of the Company.

ENHANCEMENT OF SHAREHOLDERS VALUE

Owing to increased exploration activities, many new companies have come up in

exploration activity. New opportunities have been generated; demands for Seamless &
ERW pipes have been increased and in turn we are able to grow the revenues consistently.
The company is able to pass on successfully the raw material price hike to the final
customers both in domestic as well as exports markets. MSL had a JV with Hydril
International LP, USA (now Tenaris) to manufacture premium thread connections which is
a perfect situation for oil companies patronizing only premium connection. Tenaris is a
global leader in manufacturing of seamless pipes & tubes and this new alliance should

13
open up number of other business opportunities apart from premium threading. We have
also developed & supplied 13 CR, casing & tubing, which is a high value added product,
used in oil & gas wells. There are a few companies in the world who are manufacturing
these grades. We also have a coating plant – 3LPE + DFBE for our own pipes as well as
market requirement. It is considered to be equally effective but economical coating process
and all major oil companies in India like IOCL, BPCL etc. are now looking for coated
cross country line pipe with this coating and MSL will be now participating in the cross
country coated line pipe tenders floated by these companies in near future.

14
 Company profile

MSL’S SNAPSHOT
• Registered Office: Pipe Nagar,
Village-Sukeli,
N.H. 17, B.K.G. Road,
Taluka Roha, Distt.
Raigad-402 126, Maharashtra
• Tel.: 02194 - 238511
• Fax: 02194 - 238513
• Website http://www.jindal.com
• Incorporation Date: 10.05.1988
• Chief Executive: Mr. D.P. Jindal, Chairman
• Chief Financial Officer: Mr. Anil Jain
• Company Secretary Name Mr. Pradeepta Kumar Puhan
• Market Lot of securities: 1 Business Group Name D P Jindal Group
• Industry Name: Pipe industry
• Registrar & Transfer Agent: Alankit Assignments Limited,
Alankit House, 2E/21, Jhandelwalan Extension,
New Delhi – 110 055
Phone : 011-23541234,42541234
Fax : 011-42541201
e-mail : rta@alankit.com
• Listed on: Mumbai Stock Exchange Ltd., NSE and Madras Stock Exchange.
• ISIN Code - INE271B01025

15
 500265
BSE Code
MAHSEAMLES
NSE Code
Market Cap 1,200 Cr.

Face Value Rs.5/-

16
 STOCK PRICES FOR THE LAST SIX MONTHS

Stock Prices

Scrip Code:500265 Company::MAHARASH SEA For the Period:October 2008 to

April 2009
Open High Low Close No. of No. of Total * Spread (Rs.)
Month
Price Price Price Price Shares Trades Turnover(Rs.) H - L C - O
October
2008 274.00 278.00 132.40 173.75 777027 4697 145,371,957.00 145.60 -100.25
November
2008 175.00 200.50 126.00 127.90 803749 8788 116,251,502.00 74.50 -47.10
December
2008 128.00 167.95 124.00 149.30 752797 8158 115,233,767.00 43.95 21.30
January
2009 152.00 174.45 120.25 125.85 262673 6740 38,741,460.00 54.20 -26.15
February
2009 127.00 135.95 115.00 122.60 1049692 12187 131,375,422.00 20.95 -4.40
March
2009 129.90 148.30 111.80 140.40 1109003 8765 143,228,257.00 36.50 10.50
April
2009 143.60 184.90 140.95 160.30 563613 9461 92,871,788.00 43.95 16.70
* Spread
H - L -> High - Low
C - 0 -> Close - Open

17
BOARD OF DIRECTORS:

S. Name Designation
N
o
.
1 Mr. D.P. Jindal Chairman
2 Mr. Saket Jindal Managing Director
3 Mr. U.C. Agarwal, IAS (Retd.) Director
4 Mr. D.K. Parikh Director
5 Mr. S.P. Raj Director
6 Mr. S.D. Sharma Director

The Company has a Non-Executive Chairman who is also a promoter of the Company.
One-half of the Board of the Company consists of Independent Directors. The number of
Non-Executive Directors (NEDs) exceeds 50% of the total number of Directors. None of
the Directors on the Board is a Member on more than 10 Committees and Chairman of
more than 5 Committees (as specified in Clause 49 of the Listing Agreement with Stock
Exchanges), across all the companies in which they are Directors.

18
19
COMPANY FACTS:

AUDITORS
KANODIA SANYAL & ASSOCIATES
Chartered Accountants
New Delhi

BANKERS
STATE BANK OF PATIALA
STATE BANK OF BIKANER & JAIPUR
STANDARD CHARTERED BANK
HDFC BANK LTD.
ICICI BANK LTD.
HSBC LTD.
DEUTSCHE BANK
CORPORATION BANK
BANK OF INDIA

REGISTERED OFFICE & FACTORY

PIPE NAGAR, VILLAGE-SUKELI,
N.H. 17, B.K.G. ROAD, TALUKA ROHA,
DISTT. RAIGAD - 402 126, MAHARASHTRA

CORPORATE OFFICE
PLOT NO.30, INSTITUTIONAL SECTOR – 44,
GURGAON – 122 002 (HARYANA)
E-mail: secretarial@mahaseam.com

REGISTRAR
ALANKIT ASSIGNMENTS LIMITED,
ALANKIT HOUSE, 2E/21, JHANDELWALAN EXTENSION,
NEW DELHI – 110 055
PHONE : 011-23541234,42541234
FAX : 011-42541201
E-MAIL : RTA@ALANKIT.COM

20
BRANCH OFFICES

Mumbai

402, Sarjan Plaza,

100, Anne Besant Road,
Opp. Telco Showroom,
Worli, Mumbai – 400 018

Kolkata
Sukhsagar Apptt.,
Flat No.8A, 8th Floor,
2/5, Sarat Bose Road,
Kolkata – 700 020

Chennai
3A, Royal Court,
44, Venkatanarayana Road,
T. Nagar, Chennai – 600 017

21
AUDIT COMMITTEE: -
Members Category
Mr. U.C. Agarwal Chairman, Independent, Non-Executive
Mr. D.P. Jindal Member, Non-Executive
Mr. D. K. Parikh Member, Independent, Non-Executive

The terms of reference of the Audit Committee mandated by the statutory and
regulatory requirements viz. Listing Agreement, Companies Act, 1956 etc., which
are also in line with the mandate given by your Board of Directors, are:

a. Oversight of the Company’s financial reporting process and the disclosure of its
financial information to ensure that the financial statement is correct, sufficient and
credible;
b. Recommending to the Board, the appointment, re-appointment and, if required,
the replacement or removal of the statutory auditor and the fixation of audit fees;
c. Approval of payment to statutory auditors for any other services rendered by the
statutory auditors;
d. Reviewing, with the management, the annual financial statements before
submission to the Board for approval, with particular reference to:
i. Matters required to be included in the Director’s Responsibility Statement to be
included in the Board’s Report in terms of clause (2AA) of Section 217 of the
Companies Act, 1956;
ii. Changes, if any, in accounting policies and practices and reasons for the same;
iii. Major accounting entries involving estimates based on the exercise of judgment
by management;

22
iv. Significant adjustments made in the financial statements arising out of audit
findings;
v. Compliance with listing and other legal requirements relating to financial
statements;
vi. Disclosure of any related party transactions; and
vii. Qualifications in the draft audit report;

e. Reviewing, with the management, the quarterly financial statements before

submission to the Board for approval;
f. Reviewing, with the management, performance of statutory and internal auditors,
and adequacy of the internal control systems;
g. Reviewing the adequacy of internal audit function, if any, including the structure
of the internal audit department, staffing and seniority of the official heading the
department, reporting structure, coverage and frequency of internal audit;
h. Discussion with internal auditors any significant findings and follow up thereon;
i. Reviewing the findings of any internal investigations by the internal auditors into
matters where there is suspected fraud or irregularity or a failure of internal control
systems of a material nature and reporting the matter to the Board;
j. Discussion with statutory auditors before the audit commences, about the nature
and scope of audit as well as post-audit discussion to ascertain any area of concern;
k. To look into the reasons for substantial defaults in payment to the depositors,
debenture holders, shareholders (in case of non payment of declared dividends) and
creditors;
l. To review the functioning of the Whistle Blower mechanism, in case the same
exists;
m. Carrying out any other function as is mentioned in the terms of reference of the
Audit Committee.

23
SHAREHOLDERS’/INVESTORS’ SHARE TRANSFER
CUM GRIEVANCE COMMITTEE:
Name of the Members Category
Mr. U.C. Agarwal Chairman, Independent, Non-Executive
Mr. Saket Jindal Member, Promoter, Executive

The Board has constituted a Committee of three members under the Chairmanship
of a Non Executive Director. The Committee generally meets twice in a month, to
approve inter-alia, transfer/transmission of shares, issue of duplicate share
certificates and reviews the status of investors’ grievances and redressal
mechanism and recommends measures to improve the level of investor services.

24
KEY EXECUTIVES:

S. Name Designation
No
.
1 Mr. D.P. Jindal Chairman
2 Mr. Saket Jindal Managing Director
3 Mr. S.P. Raj Wholetime Director
4 Mr. Anil Jain CFO
5 Mr. Manish Kumar President
6 Mr. R.K. Abrol V.P. - Works

25
RISK MANAGEMENT POLICY & PROCEDURE OF
MAHARASHTRA SEAMLESS LTD.

1 RISK MANAGEMENT POLICY

1.1 Risk Management Policy Overview

Maharashtra Seamless Ltd. (MSL) is committed to effectively managing operational,

financial and other risk in the context of MSL’s business strategies and with a view to
achieving a balance between acceptable levels of risk and reward. MSL recognizes that
risk management is of concern to all levels of the business and requires a risk management
policy and process involving all personnel, with reporting structures to the MSL Board.
The types of risk which may be faced by the company include:

Strategic Risk – The risk arising from concentration of resources in or dependence on a

narrow range of products, markets, customers or suppliers.

Operational Risk – The risk associated with losses resulting from inadequate or failed
processes, people and systems or from external events.

Market Risk – The risk associated with financial losses arising from MSL’s activities in its
core business areas.

Credit Risk – The potential for financial loss where a customer or other party fails to meet
their financial obligations to MSL.

Insurance Risk – The risk that a claim on a policy of insurance is not met by an insurer.

26
Financial Risk – The risk and losses associated with inadequate or inaccurate financial
reporting.

Foreign Currency fluctuation Risk – The Foreign exchange risk is the possibility of a
gain or loss occurred due to unanticipated changes in exchange rate.

This policy describes the risk management methodology, structure and system employed
across the MSL Units. The policy was developed with reference to the Corporate
Governance guidelines issued by the Stock Exchanges under Clause 49 of the Standard
Listing Agreement.

1.2 MSL Risk Management System Overview

MSL’s risk management system (“the Policy”) focuses on:

1. Identifying risk;
2. Analyzing risk;
3. Evaluating risk; and
4. Managing risk.

The risks are documented and recorded in a risk management database that reports to all
participants and stakeholders of the process.

1.2.1 Identifying, Analyzing and Evaluating the Risk

Each business unit is responsible for identifying and documenting the risks to that
business. The risks to the business, including its causes, are identified and documented.
Each risk is then analyzed in terms of likelihood and consequence and the adequacy of
existing controls. These criteria are used to determine the level of risk, ranging from ‘low’

27
to ‘extreme’, and to aid in identifying the order of priority in which risks and their
associated mitigating actions should be addressed by the businesses.

1.2.2 Managing the Risk

The Board oversees, reviews and monitors the risk register half yearly, or in the case of
escalated and high priority risks, quarterly.

The Board receives reports from the Risk & Compliance Management Committee. This
Risk & Compliance Management Committee comprises the risk management delegates of
all business units. It is charged with overseeing the management of all business risks across
the units with a particular view to ensuring that mitigating actions are being performed and
overall risks are minimized. In order to perform this task, the Risk & Compliance
Management Committee may require input from various work teams or specialists within
each business.

2 ROLES AND RESPONSIBILITIES

2.1 The Board

The MSL Board is responsible for overall oversight of risk management of the Company
and reviews the risk register half yearly, or as required on escalation of high priority risks.

2.2 The Risk & Compliance Management Committee

The Risk & Compliance Management Committee shall be chaired by the MSL Chief
Executive Officer and comprises of:

1. MSL Chief Financial Officer;

28
2. appointed Risk Management Coordinator, who serves as secretary and coordinator of the
committee; and
3. appointed risk management delegates of each MSL business unit.

Additionally, the Committee may invite statutory and/or internal auditors and relevant
business specialists to attend meetings.

The Committee is responsible for:

1. monitoring the process of identification, analysis and evaluation of all risk and
reanalyzing and reevaluating as is appropriate;
2. prioritizing both internal and external risks facing MSL;
3. overseeing the management of risks with a view to improvement and minimization;
4. ensuring sufficient resources/infrastructure is allocated to managing risks within each
business unit;
5. implementing and ensuring the efficient and effective operation of the risk management
policy, system and database across the businesses of the MSL; and
6. escalation and reporting of risks according to defined escalation rules and tolerance
limits to the Board.

The Risk & Compliance Management Committee meets quarterly and as required to
address escalated risks from the business units.

2.3 The MSL Business Units

Each business unit has an appointed risk management delegate who will report to the Risk
& Compliance Management Committee in relation to all aspects of its risk management.
The delegate will perform the task of identifying, documenting, evaluating and
recommending actions in relation to risks of the relevant business unit. Additionally the
delegate will review and update of the business unit’s risk register on a quarterly basis.

29
Additional work teams or business specialists may be requested to aid in this process. The
Chief Executive Officer will ensure that the delegate has access to the required resources
and information in order to complete this task. Each business is responsible for:

1. identifying potential and actual risks to both the Business and MSL;
2. monitoring all risk and reanalyzing and reevaluating quarterly or as appropriate;
3. educating employees and contractors at all levels of the business on the importance of
risk management and assisting them with identifying such risks and bringing them to the
attention of management as soon as possible;
4. documenting risks including causes, analysis and evaluation of such risk;
5. recommending and implementing actions for the treatment of risks;
6. implementation of the risk management database and processes, including training of
required participants; and
7. reporting risks to the Risk & Compliance Management Committee, including immediate
escalation of risks according to defined escalation and tolerance rules.

3 RISK MANAGEMENT SYSTEMS

Risk management is a fundamental corporate governance matter.

3.1 Definitions

Risk: The chance of something happening that will have an impact upon objectives. It is
measured in terms of consequences and likelihood.

Risk Management System:

The culture, processes and structures that are directed towards the effective management of
risks.

30
Risk Management

Process:

The systematic application of management policies, procedures and practices to the tasks
of identifying, analyzing, assessing, treating and monitoring risk.

3.2 Risk Management Methodology

C
O ESTABLISH THE CONTEXT
M M
M O
U N
N I
I IDENTIFY RISKS T
C O
A R
T
E A
ANALYSE RISKS N
A D
N
D R
C E
O EVALUATE RISKS V
N I
S E
U W
L
T TREAT RISKS

The seven (7) main elements of the risk management process, as shown in the above
diagram, are:

31
1. Establish the Context: Establish the strategic, organizational and risk management
context in which the rest of the process will take place. Criteria against which risk will be
evaluated should be established and the structure of the analysis defined.

2. Identify Risks: Identify what, why and how things can arise.

3. Analyze Risks: Determine the existing controls and analyze risks in terms of
consequence and likelihood in the context of these controls. The analysis should consider
the range of potential consequences and how likely these consequences are to occur.
Consequence and likelihood may be combined to produce an estimated level of risk.

4. Evaluate Risks: Compare estimated levels of risk against the pre-established criteria.
This enables risks to be ranked so as to identify management priorities. If the levels of risk
established are low, then risks may fall into an acceptable category and treatment may not
be required.

5. Treat Risks: Accept low priority risks and monitor them for proper control. For other
risks, develop and implement a specific management plan, which includes consideration of
specific policies and procedures covering such issues as avoidance/reduction/transfer of
risk, insurance cover, business continuity and disaster recovery planning.

6. Monitor and Review: Monitor and review the performance of the risk management
system and changes, which might affect it.

7. Communicate and Consult: Communicate and consult with internal and external
stakeholders as appropriate at each stage of the risk management process to address issues
related to the risk and the process to manage it.

3.3 MSL Risk Management Process

32
3.3.1 Establishing the Context

Risk management defines the criteria for the identification of risks within the context of the
wider goals, objectives and strategies of the organization. Each business unit establishes
and reviews the list of relevant contexts within which risks should be identified. These
contexts may include categories such as ‘Business Continuity’, ‘Client Satisfaction’ and
‘Compliance’.

3.3.2 Identifying Risks

The MSL risk assessment methodology relies on the principle that those employees who
have a very good knowledge of their respective areas of the business are in the best
position to provide the necessary information and assessments of risks. A participative and
structured approach in the form of “workshop” sessions with nominated representatives of
each business unit may be adopted to identify and assess risks in each business unit. As
each risk is identified, a Risk Form is raised which will serve as the repository of all
information regarding this risk throughout the identification, analysis, evaluation and
treatment steps in relation to that risk. Appendix A provides a sample Risk Form.

3.3.3 Analyzing and Evaluating Risks

Each risk is analyzed to identify the consequence and likelihood of the risk occurring and
the adequacy of existing controls. Consequence and likelihood are measured using criteria
suggested by the Institute of Chartered Accountants of India (ICAI) or any other competent
authority as may be considered appropriate and beneficial to the Company. These
measures are used to establish the priority and ranking of the risk, which in turn indicates
the priority for risk treatment actions. The information resulting from this evaluation of the
risk is recorded on the risk form and forms the basis of the Risk Register which is used for
risk management, monitoring and reporting purposes. Each appointed business unit risk

33
management delegate is responsible for immediately intimating any risks which meet
defined escalation rules to the Risk Management Coordinator or relevant committee.

3.3.4 Treating Risks

Once the risks have been identified and assessed, risk treatment measures and actions are
to be initiated immediately.

Risk treatment activities may include tasks to:

1. reduce the likelihood of risks;

2. reduce the consequence of risks;
3. reduce both the likelihood and consequence of risk;
4. transfer the risk in part or in whole;
5. accept the low priority risk and do nothing; and/or
6. avoid the risk by changing business practices.

A priority is further established for each risk treatment action reflecting the complexity of
the treatment, effort, funding and resources required. Each risk treatment action must also
indicate the position manager responsible and the estimated time for implementation. The
actions are recorded on the Risk Form and form the basis of the Outstanding Risk
Treatment Action Report, which is provided to and monitored by the Risk & Compliance
Management Committee. Risks that have been treated are reevaluated and reprioritized.
The risk register is updated accordingly.

3.3.5 Monitoring Risks

The risk profile of every business area is dynamic and therefore subject to continuous
change with the ever-present chance of a risk occurring. To manage this change, the

34
following process of scheduled maintenance has been adopted to update and maintain the
Risk Management database.

Immediate:

Intimation of risks which have substantial impact to the business and meet determined
escalation tolerance levels to the relevant Committee or the Risk Management Coordinator.

Quarterly:

1. The appointed business unit risk management delegate will review the status of risks and
treatment actions with key staff in their respective business units.
2. Any new or changed risks will be identified and escalated if deemed necessary. Note
that there may be some external stakeholder impacts.
3. The appointed risk management delegates of each business unit will report to the Risk &
Compliance Management Committee.
4. The Risk & Compliance Management Committee is provided with a current Risk
Register and Outstanding Treatment Actions Report. Particular emphasis is to be given
to Extreme and High Risk Issues and any respective outstanding Proposed Corrective
Actions (Treatment).

Half yearly:

The Risk & Compliance Management Committee will report its collective findings to the
Board on a half yearly basis.

Annually:

1. The risk management process is reviewed by the Board for efficiency and effectiveness.
2. The risk contexts for each business unit are reviewed.

35
3. The Risk Management Plan will be subject to annual review by the Auditor.

3.3.6 Communicating and Documenting Risks

The appointed business unit risk management delegate and the MSL Risk Management
Coordinator are responsible for ensuring effective communication across all internal and
external stakeholders of the risk management process. They ensure that the Risk
Management database is maintained and reported appropriately and in a timely fashion
according to the procedures defined in this policy. Any new or reanalyzed risks which
meet defined escalation criteria must be immediately escalated to the relevant process
stakeholder.

3.4 Other Stakeholders

3.4.1 Shareholders and Corporate Governance

The head of each business unit will provide a letter of representation to the CFO at the end
of each reporting period stating that the risk management system is operating effectively
and efficiently within their relevant business unit. These letters of representation from the
business units provide input for the letter of representation to be provided by the MSL
Chief Financial Officer and Chief Executive Officer to the Board, and shareholders, stating
that the information provided in the annual report is based on a sound system of risk
management and internal compliance.

3.4.2 Other Stakeholders

Other stakeholders, including shareholders, government regulators, lenders and clients that
may be impacted by some risk matters are considered when identifying risks.

36
 APPENDIX A – SAMPLE RISK FORM

Business Area:
Risk Context:
Risk Sub Category:
Risk Issue: Likelihood: (tick one)
(Describe what can happen and how it can happen)  A lmost certain
Likely
Possible
U  nlikely
Rare
Consequence Description: Consequence: (tick one)
(describe worst case impact of risk if it occurs – include Catastrophic
financial dollar impact where possible) M  ajor
M  oderate
M  inor
Insignificant
Overall Assessment of Existing Controls (tick one):

A
 dequate Borderline (requires improvement) Inadequate or Ineffective

Description of Existing Controls: Control Assessment:

(describe existing key controls to mitigate risk) (Adequate/Borderline/Inadequate)






Risk Rating:
Proposed Risk Treatment Actions:

Proposed Action Position Responsible Start End Priority

Date Date (High/
Medium/
Low)

Risk Assessment Consequence Likelihood Overall Control

after Treatment:

37
FOREIGN EXCHANGE RISK MANAGEMENT POLICY

1. INTRODUCTION

Maharashtra Seamless Limited (MSL) is the manufacturer of Seamless and ERW pipes.
The Company is procuring its major Raw materials i.e. Steel Round Billets / HR Coils
from external sources including imports from China and other countries. Almost 25-30%
of its revenues come from Exports. Further MSL also supplies finished products under
deemed exports to big domestic oil sector companies like ONGC, Oil India Limited,
IOCL, BPCL, HPCL, Reliance Petroleum and other reputed oil and gas explorers around
the world, from which inflow is in foreign currency.

2. OBJECTIVE:

The objective of the “Foreign Exchange Risk Management Policy” is to minimize and
mitigate risk arising from adverse currency movements by managing the uncertainty and
volatility of foreign exchange fluctuations to achieve greater predictability and stability.

MSL operates internationally and is exposed to foreign exchange risk arising from various
currency exposures, primarily with respect to the US Dollar, EURO etc. Foreign exchange
risk arises from future commercial transactions and recognized assets and liabilities. The
exchange rate between Indian rupee and the US dollar and various other currencies has
changed substantially in recent years and may fluctuate substantially in the future.

To mitigate the risk of changes in foreign exchange rates on cash flows denominated in US
dollars MSL may enter into foreign exchange forward and option contracts.

The Definite Future Foreign Currency Net Inflow is represented by the Excess of Foreign
Exchange Receipts over foreign exchange payments.

38
MSL’s risk management strategy is to identify risks it’s exposed to, evaluate and measure
those risks, decide on managing those risks, taking measures to minimise those risks,
regular monitoring and reporting to competent authorities. The risk management policies
include implementing strategies for foreign currency exposures, specification of
transaction limits; specifying authority and responsibility of the personnel involved in
executing, monitoring and controlling such transactions.

3. ROLES AND RESPONSIBILITIES

3.1 The Board

MSL Board is responsible for overall risk management of the Company and reviews the
forex risk quarterly, or as required on high priority risks. Some of the important policy
considerations, as mentioned in Appendix, are required to be strictly adhered to at all
operational level and monitored by the board or its appointed Risk Management and
Compliance Committee.

3.2 The Risk Management & Compliance Committee

The Risk Management & Compliance Committee shall be chaired by the MSL Chief
Executive Officer and comprises of:

i) MSL Chief Financial Officer;

ii) MSL Company Secretary who also acts as Risk Management Committee
Coordinator; and
iii) Dealing person / delegates of MSL finance unit who is looking after or
responsible for day to day treasury and foreign exchange related functions.

Additionally, the Committee may also invite statutory and/or internal auditors and relevant
business specialists to attend meetings, if it is desirable.

39
The Committee is responsible for:
• monitoring the process of identification, analysis and evaluation of foreign
exchange risk and re-analyzing and re-evaluating as it deems appropriate;
• prioritizing both internal and external factors affecting MSL Foreign exchange
flows;
• overseeing the management of risks with a view to improvement and minimization
of forex risk;
• ensuring adequate resources/infrastructure is allocated to the people who are
managing forex risks;
• implementing and ensuring the efficient and effective operation of the risk
management policy, system and database; and
• escalation and reporting of risks according to defined escalation rules and tolerance
limits to the Board.

The Risk Management & Compliance Committee meets quarterly and as required to
address escalated risks.

3.3 Designated Officials to Undertake Transactions

The Board of Directors shall authorize persons from time to time to take appropriate
actions and execute foreign exchange transactions on behalf of the Company.

4. FOREIGN EXCHANGE RISK MANAGEMENT: NECESSITY & PROCESS

4.1 NEED FOR A COMPREHENSIVE FOREIGN EXCHANGE RISK

MANAGEMENT POLICY

40
Previously, MSL was adopting the policy of setting-off the net outflows from net inflows
in a month. But, the said policy is fruitful when the average rate during the month is not
volatile or does not change rapidly. But in today’s scenario, the market is highly volatile.
The matching of outflow with inflow at the same time is not achieved because of the
inflows and outflows are affected on different dates. To avoid the foreign exchange rate
fluctuations, if the funds are kept in EEFC account, MSL will loose interest. In this volatile
market, this practice would not be appropriate..

The imports and exports are not very consistent all the time and the same is dependent on
the export commitments of the Company and the same is followed by procurement of raw
materials, manufacturing of goods, dispatch of the same to the customers and finally
realization of funds. This chain of activities takes a minimum period of 03-04 months
putting the Company exposed to foreign exchange gain or loss due to unanticipated
changes in Foreign exchange rates.

A key assumption in the concept of foreign exchange risk is that exchange rate changes are
not predictable and that this is determined by how efficient the markets for foreign
exchange are.

Considering the recent rise in volatility in the forex market all over the world - particularly
in US Dollar and based on the assumption that currency exchange rates fluctuations are not
precisely predictable, it becomes imperative for MSL to adopt a “Foreign Exchange Risk
Management Policy” to protect the company against the unpredictable currency
fluctuation financial risk.

4.2 PROCESS

4.2.1 Kinds of Foreign Exchange Exposures.

41
Risk management techniques vary with the type of exposures (Translation and economic)
and terms of exposure.

Translation exposures, results from the need to restate foreign subsidiaries’ financial
statements into the parent’s reporting currency and is the sensitivity of net income to the
variation in the exchange rate between a foreign subsidiary and its parent.

Economic exposure is the extent to which a firm’s market value, in any particular currency,
is sensitive to unexpected changes in foreign currency. Currency fluctuations affects the
value of the firm’s operating cash flow, income statement, and competitive position, hence
market share and stock price. Currency fluctuations also affect a balance sheet by changing
the value of the firm’s assets and liabilities, accounts payable, accounts receivables,
inventory, loans in foreign currency, investments (CD) in foreign banks; this type of
economic exposures is called balance sheet exposure.

Transaction exposure is a form of short term economic exposure due to fixed price
contracting in an atmosphere of exchange-rate volatility.

4.2.2 Foreign Exchange Exposure identification

The officials handling day to day forex matters are responsible for identifying, measuring
and documenting the foreign exchange risks to the company including its causes, These
Forex risks are then analyzed in terms of likelihood and consequence and the adequacy of
existing controls. These criteria are used to determine the level of risk, ranging from ‘low’
to ‘extreme’, and to aid in identifying the order of priority in which risks and their
associated mitigating actions should be addressed by the company.

Risk Estimation procedure for three major headings are given below:

42
 Inflow: It is estimated on the basis of Definite Export Contracts in hand and their
tentative inflow dates, based on production and shipment planning.

Outflow: It is estimated on the basis of Import Contract and their tentative outflow
based on the due date of letter of credit and their estimated shipment date.

Value of Exposure: Then estimated Monthly Net Inflow, excess of Inflow over
Outflow, is arrived at and hedged.

4.2.3 The risks facing the organization.

In MSL’s context, the type of risks which may be faced by the company and identification
of the same is enumerated here below:

Credit Risk

Credit risk refers to the risk of default committed by the counterparty in fulfilling
its obligation resulting in a financial loss. Trade receivables are typically unsecured
and are derived from revenue earned from customers. Credit risk is managed
through credit approvals, establishing credit limits and continuously monitoring the
creditworthiness of customers to which MSL grants credit terms in the normal
course of business.

Liquidity Risk

Liquidity risk is a financial risk from possible loss of liquidity. Liquidity of an

organization depends upon:

- The company’s short term need for cash

- The company’s existing amounts of cash on hand

43
- The liquidity of the organization’s assets
- The company’s reputation in the market place in terms of being able to
transact trades or being able to borrow from it.

The factors affecting the volatility:

Current domestic and global market conditions which affect directly the key
foreign currencies are being analyzed regularly.

44
4.3 FOREIGN EXCHANGE RISK MANAGEMENT FRAMEWORK

Once MSL recognizes its exposure, then MSL has to deploy resources in managing it. A
heuristic for firms to manage this risk effectively is presented below which can be
modified to suit MSL’s specific needs i.e. some of the following tools could be used.

Forecasts : After determining exposures, MSL’s first step is to develop a forecast on the
market trends and what the main direction/trend is going to be on the foreign exchange
rates and for a specified period. MSL will make forecast of the valid assumptions. Along
with identifying trends, a probability should be estimated for the forecast coming true as
well as how much the change would be.

Risk Estimation : Based on the forecast, a measure of the Value at Risk (the actual profit
or loss for a move in rates according to the forecast) and the probability of this risk should
be ascertained. The risk that a transaction would fail due to market-specific problems
should be taken into account. Finally, the system risk that can arise due to inadequacies
such as reporting gaps and implementation gaps MSL’s exposure management system
should be estimated.

Benchmarking: Given the exposures and the risk estimates, MSL has to set its limits for
handling foreign exchange exposures. MSL will decide whether to manage its exposures
on a cost centre or profit centre basis.

Note: i) Cost centre approach is a defensive one and the main aim is to ensure that cash
flows of a firm are not adversely affected beyond a point. ii) A profit centre approach on
the other hand is more aggressive approach where the firm decides to generate a net profit
on its exposure over time.

45
Hedging Based on the limits to manage exposure, MSL decides an appropriate hedging
strategy. There are various financial instruments available such as: futures, forwards,
options and swaps and issue of foreign debt.

Stop Loss: MSL’s risk management decisions are based on forecast which is estimates of
reasonably unpredictable trends. It is imperative to have stop loss arrangements in order to
rescue MSL if forecasts turn out wrong. MSL ensure adequate monitoring system in place
to detect critical levels in the foreign exchange rates for appropriate measure to be taken.

Reporting and Review : MSL reviews reports which include profit/loss status on open
contracts after marking to market, the actual exchange/interest rate achieved on each
exposure, and profitability vis-à-vis the benchmark and the expected changes in overall
exposure due to forecasted exchange/interest rate movements. .

4.4 HEDGING AS A TOOL TO MANAGE FOREIGN EXCHANGE RISK

4.4.1 Definition of Hedging

Hedge is an action taken in order to reduce the risk of adverse Foreign Exchange rate
movements, by taking an offsetting position. These would include measures, such as
buying/selling forwards for the purpose of safeguarding the value of net cash flow.

4.4.2 Importance and Objectives of Hedging

The purpose of hedging is to reduce the loss due to the unpredictability arising on account
of exchange rate movements and currency movements on cash flows, earnings and equity.

The objective of hedging is to:

46
 - Minimize transaction and translation losses on balance sheet items; and to
- Protect the anticipated exposures and risks, in the process reducing the impact
on profits.

4.4.3 Rules for Hedging

A hedging transaction should be done keeping in mind the following guidelines:

- The Group Hedging Policy should have approved the hedging instruments and
procedure for transacting deals.
- There should be local know how of the hedging instruments.
- It should be possible to evaluate the deals as per the ‘marked-to-market’ concept in
case of need and should be reported in accordance with the guidelines of the Group
Hedging Policy.
- The hedging deals should be reported as per pre-defined reporting rules, regardless
of the responsibility or hedged amount or duration of the hedge.
- The decision to hedge and not to hedge should be made keeping in mind not only
the Hedging ratio of the group but also the relevant foreign exchange benchmark
rate as mentioned in the commercial purchase and sale contract of the merchandise
product.

However, hedging should not be done permanently and automatically as in most

circumstances the associated hedging cost would be expensive. Hedging should be carried
only after the following things have been taken care of:

1. There has been an assessment of the key currencies to track and exposures to
hedge.

47
 2. There is a mechanism in place, which allows real-time monitoring of market
conditions as to allow the company to take advantage of favorable market
development while minimizing the costs of hedging.

4.4.4 Natural Hedge

Natural hedge is a position that establishes assets and borrowings in same currency that
provides an offset to the expected cash flows.

4.4.5 Hedging Ratio

Hedging ratio is the ratio of number of forward / option contracts need to hedge a position
in the underlying instrument. Technically, it is defined as the total amount hedged divided
by the total exposure including the sum of booked and open.

4.4.6 Identification of the Hedging Instrument:

There are various kinds of financial Instruments (forwards, derivatives etc.) one can
adopt as a part of its Hedging Strategy. A derivative is a Final Contract whose value is
derived from the value of some other financial asset, such as a Stock Price, a
Commodity Price, an Exchange Rate, an Interest Rate, or even an Index of Prices. The
main role of these instruments is that they reallocate risk among financial market
participants.

Following Hedging Instruments can be used with Foreign Exchange being the only
Risk assumed.

48
4.4.7 Basic Hedging Instruments

Spot Transactions

A spot transaction is a binding obligation between a company and the bank to buy/sell a
specified amount of foreign currency at an agreed exchange rate in two business day’s
time. A company using spot market to deal in foreign currency is using the simplest
method of transaction available. However, it carries a huge risk, as it does not allow the
company to protect against adverse movement in exchange rates between pricing a contract
and the need to buy/sell the foreign currency.

FX Forward Contracts

A Currency forward Contract is affected when a company enters into an agreement with a
bank to buy or sell foreign currency at some future date at a predetermined rate of
exchange (called the “forward rate). The forward rate agreed upon by the customer and the
bank will be applied when the transaction is actually effected.

Principal Only Swaps

This would be and instrument to hedge against or gain by the movement of one currency
against another. Assuming constant interest rates, a corporate that has a fixed rate of INR
Liability, and holding the view that the INR would appreciate against the dollar in future,
will look at paying a fixed amount of USD receive fixed amount USD receive fixed
amount in Indian rupee.

49
Interest Rate Swap

An interest rate swap is a negotiated contractual agreement between two parties to

exchange a series of interest payments for a stated period of time. Usually, one party will
make fixed rate payments while the other makes floating rate payments on the same
Notional Principal amount. Fixed/Floating conversion can be used to accommodate interest
rate views, without altering the underlying asset or liability, or to achieve better rates than
are available in the primary markets.

Cross Currency Swaps

A Cross currency swap is an agreement between two parties to exchange principal amount
in two different currencies, to pay interest based on those amounts during some period of
time, and to re-exchange the principal amount at maturity and in the process also being
able to swap cross border interest rates.

FX Options – Put or Call

A currency option provides the right, but not the obligation, to exchange a specified
amount of one currency for another at an agreed rate of exchange (the Strike price), on or
between predetermined future date(s). In return for the flexibility the buyer of the option
pays the seller a fee or premium.

When the spot exchange rate on maturity is more favourable to the company than the
option strike price, the option will be allowed to lapse and the underlying transaction will
be transacted on the spot market.

An option to buy currency at a future date is called a Call Option and an option to sell
currency at a future date is called a Put Option.

50
Cylinder Option

A Cylinder Option is a combination of two currency options. A company usually chooses

this instrument when the company does not hold a strong view on the movement of
currency or does not wish to leave itself to any risks.

In a Cylinder Option, the bank sells one option to the company at one strike rate and the
company sells an option to the bank at a different strike rate. Both options may have the
same principal amount and maturity date. The premium payable by the company to the
bank is thus offset in part or in full by the premium payable by the bank to the company.

Swaption

A Swaption is an option to enter into an interest rate swap at some future date. Generally
one party sells and the other party buys the right to pay or to receive at a specified fixed
rate in a standard fixed/floating swap.

- A Call Swaption is the right but not the obligation to pay a fixed rate.
- A Put Swaption is the right but not the obligation to pay fixed rate.

4.5 FORMULA TO AVOID EXCHANGE FLUCTUATION

MSL is in the business of manufacturing of Seamless Pipes and the process cycle includes
both import of raw materials and exports/deemed exports of Seamless/ERW Pipes. At the
time of booking orders, MSL is able to estimate the value of export orders, and the cost of
raw material associated to it in INR as well as USD terms. We need to synchronize
wherein we will book or imports outflows and equivalent exports inflows for the respective

51
execution dates for buying and selling at the same Spot rate. We further receive premiums
for the differential time span between import and export transaction.

The benefit of the above method can only be available, if we will execute our import and
exports orders with in the scheduled planned limit; otherwise it may lead to losses/gains on
account of mismatch depending upon prevailing market conditions.

For the net open position, we need to decide, whether to hedge or not to hedge for the open
exposure based on predetermined hedging principles as stated above.

4.6 ACCOUNTING STANDARDS AND PROCEDURES FOLLOWED

Exchange Gains/Losses
Exchange gains/losses arise when there is a change in between any two of the three below:

1. The Exchange rate as on the transaction date.

2. The exchange rate as on the settlement date.
3. The exchange rate as on the reporting date.

This results in gains/losses in the underlying exposures, which have to be accounted for.
Such unrealized exchange gains/losses should be updated periodically and should then be
re-valued at the end of the reporting period until such asset or liability is settled. However,
when the settlement occurs, i.e. when the organization settles its current liabilities or
receives its current assets, the exchange rate gain/loss must be recorded as realized
exchange gain/loss.

52
Revaluation Difference

Revaluation differences on the bank and cash balances of the company, every month-end,
must be accounted for as gains/losses.

Hedging Gains/Losses

Hedges have to be evaluated as per the Marked-to-Market technique. This amounts to

unrealized gains/losses in the reporting period. Such gains/losses should be updated in the
books and should then be re-valued as per MTM, which should be accounted for at the end
of the reporting period until such a hedges matures, as per relevant Accounting Standards
(AS-11 / AS-30 alongwith its relevant rules). On maturity, the hedging gain/loss must be
recorded as a realized Forex gain/loss.

5. REVIEW OF FOREX RISK MANAGEMENT POLICY:

Risk management policy is to be reviewed periodically to see its effectiveness in offsetting

the exposure to changes in the hedged item’s fair value or Cash Flows attributable to the
Hedged Risk.

If this review points to the need for a change in Policy, the changes are to be proposed and
with due approval of the Competent Authority, it will be incorporated in the policy.

53
 SHARE CAPITAL HISTORY

Sl. Date of Issue No. of Shares of Distn. Nos Amount

No. Rs.10/- each
Since
70 01 to 70 700
1 incorporation
2 29.12.1988 928,430 71 to 928500 9284300
928501 to
18.10.1991 24,571,500 245715000
3 25500000
3,322,56 25500001 to
24.03.2001 33225600
0 28822560
511,23 28822561 to
03.04.2006 5112360
4 6 29333796
Sub-division equity
shares of Rs.10/- to
Rs.5/- each.
293,
58,667,592 01 to 58667592
337,960
859,22 58667593 to
09.05.2006
5 0 59526812 4,296,100
85,92 59526813 to
11.05.2006
6 2 59612734 429,610
687,37 59612735 to
11.08.2006
7 6 60300110 3,436,880
601,45 60300111 to
30.08.2006
8 4 60901564 3,007,270
601,45 60901565 to
25.09.2006
9 4 61503018 3,007,270
1,374,75 61503019 to
13.10.2006
10 2 62877770 6,873,760
1,039,65 62877771 to
30.10.2006
11 6 63917426 5,198,280
1,976,20 63917427 to
23.11.2006
12 7 65893633 9,881,035
859,22 65893634 to
21.12.2006
13 0 66752853 4,296,100
859,22 66752854 to
15.01.2007
14 0 67612073 4,296,100
15 07.02.2007 68,73 67612074 to

54
 7 67680810 343,685
1,391,93 67680811 to
06.03.2007
16 7 69072747 6,959,685
859,22 69072748 to
16.03.2007
17 0 69931967 4,296,100
429, 69931968 to
01.05.2007
18 610 70361577 2,148,050
171, 70361578 to
13.06.2007
19 844 70533421 859,220
28.09.2007 70533422
20 1 5

55
DISTRIBUTION OF SHAREHOLDING AS ON 31ST MARCH, 2009

No. of Equity No. of % of No. of % of

Shares held Shareholders Shareholders Shares held Shareholding
Upto 500 27445 94.44 3711342 5.26
501 to 1000 1010 3.47 797659 1.13
1001 to 5000 406 1.40 872503 1.24
5001 to 10000 55 0.19 399500 0.57
10001 to 20000 31 0.11 468965 0.67
20001 to 30000 17 0.06 422638 0.60
30001 to 40000 9 0.03 306476 0.43
40001 to 50000 4 0.01 185146 0.26
50001 to 100000 23 0.08 1636422 2.32
100001 to 500000 38 0.13 8504551 12.06
500001 & above 24 0.08 53228220 75.46
Grand Total 29062 100.00 70533422 100.00

56
SHAREHOLDING PATTERN AS ON 31ST MARCH, 2009

CATEGORY NO. OF % OF HOLDING

SHARES HELD
Promoter 36035033 51.09
Mutual Funds 10211241 14.48
Financial Institutions/Banks 109682 0.15
Insurance Companies 1400928 1.99
Foreign Institutional Investors 4895108 6.94

Bodies Corporate 8837268 12.53

NRI/Foreign Companies 1256564 1.78
Indian Public & Others 7787598 11.04
Grand Total 70533422 100.000

57
 Extract of Quarterly Financial Results (Company as a whole)

(R s. in L a c s)
FY08
P A R T I C U L A R S Q 4 F Y 0 9Q 4 F Y 0% 8 C h a n g eF Y 0 9 % Change
A U D IT E D
1 ( aS )a l e s & In c o m e fr o m O p e5 r7a, t0i o1 n9 s4 2 , 1 5 8 3 5 . 3 % 2 2 0 , 0 5 1 1 6 4 , 0 3 7 3 4 . 1 %
L e s s : E x c is e D u t y 2 ,1 5 4 3 ,7 2 7 -4 2 .2 % 1 3 ,5 7 1 1 4 ,2 7 1 -4 .9 %
N e t S a l e s & I n c o m e f r o 5m4 , 8O 6p5 e 3r 8a ,t4i o3 n1 s 4 2 . 8 % 2 0 6 , 4 8 0 1 4 9 , 7 6 6 3 7 . 9 %
( b O) t h e r O p e r a t i n g In c o m e 91 - 0 .0 % 2 ,6 7 7 1 ,4 5 2 0 .0 %
N e t I n c o m e f r o m O p e r a 5t i4o , n9 5s 6 3 8 , 4 3 1 4 3 . 0 % 2 0 9 , 1 5 7 1 5 1 , 2 1 8 3 8 .3 %
2 T o t a l E x p e n d itu re 4 4 ,7 5 7 3 0 ,9 2 3 4 4 .7 % 1 7 3 ,0 8 8 1 2 0 ,0 0 3 4 4 .2 %
( e x c l . D e p r e c i a t i o n , In t e r e s t & F X
T r a n s la t io n L o s s )
3 O p e r a t i n g P r o fi t ( E B ID T A ) 1 0 , 1 9 9 7 , 5 0 8 3 5 . 8 % 3 6 , 0 6 9 3 1 , 2 1 5 1 5 .6 %
4 O t h e r In c o m e 1 1 5 1 ,1 8 5 -9 0 .3 % 4 ,4 4 1 2 ,9 1 9 5 2 .1 %
5 P B ID T 1 0 ,3 1 4 8 ,6 9 3 1 8 .6 % 4 0 ,5 1 0 3 4 ,1 3 4 1 8 .7 %
6 F o r e i g n C u r r e n c y T r a n s l a t i o -n L o s s - 0 .0 % - 1 ,8 2 9 0 .0 %
7 In t e r e s t 118 131 -9 .9 % 1 ,1 5 6 375 2 0 8 .3 %
8 D e p r e c ia t io n
4
478 443 7 .9 % 1 ,8 3 3 1 ,7 4 0 5 .3 %
9 PBT 9 ,7 1 8 8 ,1 1 9 1 9 .7 % 3 7 ,5 2 1 3 0 ,1 9 0 2 4 .3 %
10 Taxes 3 ,2 5 5 2 ,7 1 4 1 9 .9 % 1 2 ,2 2 8 1 0 ,6 6 7 1 4 .6 %
11 P A T 6 ,4 6 3 5 ,4 0 5 1 9 .6 % 2 5 ,2 9 3 1 9 ,5 2 3 2 9 .6 %
1 2 C a s h P r o fit 6 ,9 3 9 5 ,8 2 4 1 9 .1 % 2 7 ,1 3 1 2 1 ,3 4 6 2 7 .1 %
1 3 E q u it y S h a r e C a p i t a l 3 ,5 2 7 3 ,5 2 7 0 .0 % 3 ,5 2 7 3 ,5 2 7 0 .0 %
1 4 N e t W o rth 1 3 4 , 6 3 31 0 9 , 3 4 0 2 3 . 1 % 1 3 4 , 6 3 3 1 0 9 , 3 4 0 2 3 . 1 %
1 5 B a s ic E P S ( A n n u a li s e d ) 9 .1 6 7 .6 6 1 9 .6 % 3 5 .8 6 2 7 .7 0 2 9 .5 %
1 6 B o o k V a l u e P e r E q u i t y S h a1r 9e 1 155 2 3 .2 % 191 155 2 3 .2 %

58
 

Segment Performance Mix – FY09 V/s FY08

Revenue Mix for FY08 Revenue Mix for FY09

WINDPOWER /
W INDPO WER / OTHERS
O THERS ERW
ERW 0.24%
0.30% 21.10%
23.72%

SEAMLESS,
SEAMLESS, 78.66%
78.98%

EBIDTA Mix FY08 EBIDTA Mix FY09

WINDPOWER / WINDPOWER /
ERW ERW
OTHERS OTHERS
5.52% 7.47%
1.25% 1.26%

SEAMLESS, SEAMLESS,
93.23%
10 91.27%

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 PROFITABILITY ANALYSIS Q4FY09 V/S Q4FY08

 EBIDTA Margin/MT increased from Rs. 11500 to Rs. 18140 of Seamless Pipe but
EBIDTA Margin (in %) decreased from 24.14% to 23.62%. This is mainly on
account of falling input cost / better sales realization.

 EBIDTA Margin/MT decrease from Rs.1689 to Rs.1304 of ERW Pipe on account

of inventory losses, due to falling steel price. EBIDTA Margin (in %) decreased
from 4.75% to 3.52% Again, the reasons are same as mentioned for Seamless.

 Unrealized gain during the period of Rs.2.65 Crores on Overseas Dollar Deposits &
Unrealized / MTM / Opportunity Loss of Rs.27.91 Crore on Forward contract
entered into hedge future receivables has been accounted for in Profit & Loss
Account, considering the closing exchange rate on that date, in line with revalent
Accounting Standards & ICAI Announcement.

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 SELECTED FINANCIAL INDICATORS OF LAST 5 YEARS

(R s . in L a c s )
FY05 FY06 FY07 FY08 FY09
Particulars
( A u d i t (e Ad u) d i t (e Ad u) d i t (e Ad u) d i t (e Udn)a u d i t e d )
G ro s s T u rn o ve r 86724 107695 151961 164037 220051
N e t T u rn o ve r 76941 96618 138897 149766 206480
O t h e r O p e r a t in g In c o m e - - - 1452 2677
E B ID T A 12851 20801 34101 31215 36069
E B ID T A ( % ) 1 6 .7 % 2 1 .5 % 2 4 .4 % 2 0 .6 % 1 7 .2 %
O t h e r In c o m e 1204 1823 3145 2919 4441
P r o fi t b e fo r e T a x 12626 20685 35269 30190 37521
P r o fi t A ft e r T a x 8488 13960 23384 19523 25293
N e t W o rth 31281 41391 92410 109340 134633
G ro s s B lo c k 32768 35303 37416 44321
N e t B lo c k 26992 28075 28579 33746
E P S ( B a s ic ) ( R s . ) * 1 4 .7 0 2 4 .2 3 3 8 .3 8 2 7 .7 0 3 5 .8 6
B o o k V a l u *e ( R s . ) 5 4 .5 0 72 132 155 191
D i v id e n d P e r S h a r e ( r s . ) 5 . 0 0 7 .0 0 5 .5 0 5 .0 0 -
D i v id e n d P a y o u t R a t i o ( 1%6 ). 9 % 1 4 . 5 % 1 4 . 3 % 1 8 . 1 % -

(*) Adjusted for stock split of shares from Rs. 10/- each to Rs. 5/- each for all years.

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 MARKET BACKGROUND & OUTLOOK

 Global Economy has witnessed strong recessionary pressures in the later part
of the year 2008-09 and is expected to continue in the current year as well.
Although the signs of recovery are seen on the horizon and to happen soon.

 Global Market Demand for Seamless Pipes from Oil & Gas Industry has
softened. But it is likely to go up in the third quarter onwards. However,
Domestic market conditions have not that adversely affected. Domestic Oil
companies are continuing their ongoing project and Exploration & production
activities.

 Some competition in the Domestic market for Seamless is expected from the
Imports, which could have bearing on both revenues and margins.

 The company will be now putting up intensive and aggressive marketing

approach by expanding customer base both within domestic as well as
international market to reduce the recessionary impact

62
63
Conclusion:

Risk is inherent part of Company’s business. Effective Risk Management is critical to any
organization for achieving financial soundness. In view of this, aligning Risk Management
to Company’s organizational structure and business strategy has become integral. Over a
period of year, Maharashtra Seamless Ltd. (MSL) has taken various initiatives for
strengthening risk management practices. MSL has an integrated approach for
management of risk and in tune with this, formulated policy documents taking into account
the business requirements / best business practices. These policies address the different risk
classes viz., Operational Risk, Market Risk, Credit Risk, Insurance Risk, Financial Risk,
Foreign Currency fluctuation Risk.

The foundation to minimizing risk was to understand it fully and to manage it effectively
through proper allocation and application during various stages of the business. It is very
essential that such factors of risks be analyzed and quantified to the extent possible before
any decisions are taken by the management. The risk avoidance or minimization shall be
beneficial for the organization, its employees, stakeholders and community at large.

64
Suggestions and Recommendations

1. The Company should train its employees at strategic level to apprehend/identify

risks beforehand to minimize or avoid any untoward events.
2. The risks faced and remedial majors taken thereof should be recorded for future
reference.
3. Sharing of information/data is essential for taking appropriate action at appropriate
times.
4. Efforts should be made to educate new entrants to follow standard procedures.
5. Special training should be given to the staff members handling Forex matters.
6. Company should strictly follow its comprehensive system of internal controls,
systems and procedures to monitor and mitigate risk.

65
BIBLIOGRAPHY :

WEBSITES
• www.jindal.com
• www.nseindia.com
• www.bseindia.com
• www.google.com

1. NEWSPAPER, MAGAZINES
2. MSL’S ANNUAL REPORT
3. MSL’S RISK MANAGEMENT POLICY

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