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Shipping Corporation of India Ltd.-இன் இயக்குநர் அறிக்கை

Mar 31, 2018

DIRECTORS’ REPORT

To the Members,

The Directors have pleasure in presenting the 68th Annual Report on the working of your Company for the financial year ended 31st March, 2018.

Accounting Year

The year under report covers a period   of 12 months ended on 31st March, 2018.

FINANCIAL PERFORMANCE

The comparative position of the working results for the year under report vis-a-vis earlier year is as under:

                                                                                                                      (Rs,in Crores

   

2017-18

 

2016-17

Gross Earnings

 

3617

 

3592

Gross Profit (before interest, depreciation & exceptional items & tax)

 

820

 

923

Less : Interest

180

 

172

 

Depreciation and Impairment

610

790

566

738

Profit before exceptional items & tax

 

30

 

185

Exceptional items

 

-

 

-

Provision for Taxation

 

224

 

(43)

Net Profit

 

254

 

142

The above figures have been extracted from the standalone financial statements as per Indian Accounting Standards (Ind-AS). The financial statement for the year 2016-17 has been restated to comply with Ind AS 8.

Appropriations:

The working results for your company for the year 2017-18 shows a net profit of Rs.253.75 crores. A sum of Rs. 9.07 crores has been transferred to Capital Reserve for financial year 2017-18. After adjusting an opening credit balance of Rs. 166.95 crores (being balance retained earnings brought forward from previous year) and adding items of other comprehensive income of Rs. 11.03 crores that are recognized directly in retained earnings, there is a credit balance in retained earnings of Rs. 422.67 crores as on 31st March 2018.

Brief Analysis of Financial Performance

SCI has reported a net profit after tax of Rs. 253.75 crores for the financial year 2017-18. The freight and charter hire rates in the tanker segment continued its downward trend due to depressed shipping market. Efficient capacity utilization of offshore and liner vessels coupled with cost control measures resulted profit in liner and offshore segment. During the year SCI has reversed the deferred tax liability on shifting of base year of indexation from year 1981 to 2001 as announced in Union Budget 2017 which has resulted in reduction in liability by Rs. 284.27 Cr. The consolidated net profit for the company for Financial Year 2017-18 was Rs. 306.50 crores.

Performance and Financial positions of joint ventures and subsidiary included in Consolidated Financial Statements: Fig (Rs, in lacs

Particulars

ILT 1

ILT 2

ILT 3

ILT 4

ICSL

As on

31.03.2018

31.03.2018

31.03.2018

31.03.2018

31.03.2018

Total Income

17056

15659

17218

22278

0.21

PAT

7311

5954

848

5450

-0.14

Equity capital

14

14

6

27528

5

Number of equity shares

10,000

10,000

10,000

42448300

50000

EPS (Rs/share)

73110

59540

8480

12.84

-0.27

Dividend

0

0

0

0

0

Net worth

25537

24800

-14713

25006

-5

The Consolidated profits for the year ended 31st March 2018 is increased by Rs 52.75 crores upon consolidation of above joint ventures and subsidiary and on Net worth there is an increase of Rs 136.61 crores.

1.0 Fleet Position during the Year:

During the year under report, there has been an addition of three vessels (Desh Abhimaan, SCI Saraswati and Nanda Devi) and deletion of six vessels (Indira Gandhi, Rajiv Gandhi, SCI Ratna, B.C. Chatterjee, A.K. Azad and Harshavardhana) to SCI’s fleet. Thus the overall fleet of SCI stood at 66 vessels of 5.86 million DWT at the end of the year.

Fleet Profile during the Year

Particulars

As on 1.4.2017

Additions

Deletions

As on 31.3.2018

No.

DWT

No.

DWT

No.

DWT

No.

DWT

1.

(a) Crude Oil Tanker

21

3,608,001

1

1,58,710

1

92,687

21

3,674,024

 

(b) Product Tankers

14

908,059

-

-

1

45,134

13

862,925

 

(c) Gas Carriers

2

35,202

1

53,503

-

-

3

88,705

2.

Bulk Carriers

16

1,068,088

-

-

   

16

1,068,088

3.

Liner Ships

5

202,413

-

-

2

57,913

3

144,500

4.

Offshore Supply Vessels

10

23,502

1

3,719

1

1,983

10

25,238

5.

Passenger-Cum-Cargo Vessels

1

5,140

-

-

1

5,140

0

0

Total

69

5,850,405

3

215,932

6

202,857

66

5,863,480

2.0 During the period under report, the following vessel was inducted in SCI fleet:

Vessel Name

Type

Yard Built

DWT

Desh Abhimaan

Suezmax Tanker

2007

158,710

SCI Saraswati

MPSV

2017

3,719

Nanda Devi

VLGC

2001

53,503

2.1 During the same period, the following vessels were disposed off from SCI fleet:

Vessel Name

Type

Year Built

DWT

Indira Gandhi

Container vessel

1993

28,948

Rajiv Gandhi

Container vessel

1994

28,965

SCI Ratna 1

AHTSV

2011

1,983

Bankimchandra Chatterjee

Product Tanker

1994

45,134

Abul Kalam Azad

Crude Oil Tanker

1999

92,687

Harshavardhana

Passenger-cum-cargo carrier

1974

5,140

2.9 Conservation of Energy, Technology Absorption

The information pertaining to conservation of energy, technology absorption is forming a part of the Management Discussion and Analysis Report.

3.0 Foreign exchange earnings and outgo

                                                                                                  (Rs, in crores)

Particulars

2017-18

2016-17

Foreign exchange earned & saved including deemed earned & saved

3459.77

3555.76

Foreign exchange used including deemed used

3767.53

3675.89

3.1 Expenses on entertainment, foreign tours etc - FY 2017-18

During the year under report, your Company spent Rs.21 lakhs on entertainment, Rs.97 lakhs on publicity & advertisements and Rs.269 lakhs on foreign tours of Company’s executives.

MANAGEMENT DISCUSSION AND ANALYSIS

The overall scenario under which the Shipping industry operated and which impacted the various segments is discussed below.

A. INDUSTRY STRUCTURE AND DEVELOPMENTS

i)    World Scenario

The world GDP grew by 3.8% in 2017, compared to the economic expansion of about 3.1% in the previous year. Emerging European economies also contributed positively to the growth, having shown considerable upward momentum. An accommodative financial policy was also adopted by other developed countries; some due to positive global signals, others owing to cyclic periods of relaxation in their financial policies. It is estimated that the developed market growth rose from 1.6% in 2016 to 2.2% in 2017 while the emerging market growth rose from 3.8% to 4.6% in 2017. The growth in volume of global trade in goods and services during 2017 exceeded the growth rate of world GDP for the first time since 2014. This year commodity prices upturn has lent a helping hand to the commodity-exporting economies (For ex. Brazil, Russia, Angola, Equador, Nigeria) which were severely hampered by commodity prices downturn in 2015-16.

For the next two years, the global GDP growth is forecasted to be comparatively stronger (3.9%), owing to positive global indications. This may lead to an investment-friendly environment & give traction to capital investments around the globe. Expansionary fiscal policy of US along with similar policies of other developed countries is also expected to generate stronger momentum & healthy sentiments. China, the world’s second largest economy will be critical to global supply and demand and signs of higher GDP growth in 2017 at 6.9% over 6.7% in 2016 is a positive indicator. The One Belt One Road initiative will extend China’s influence westward and add to the infrastructure along with it. The possibility of US trade war with China starting with steel, aluminum, solar panels and white goods may to an extent upset the process, unless an early resolution is reached. After these two years i.e. 2019 onwards, the prospects seem to be slightly subdued due to eventual cyclical tightening of financial policies by advanced economies & pressure on export-intensive economies due to rising inflation levels.

ii)    Global GDP

According to IMF, Global Trade Volume growth (goods & services) has been 4.9% in 2017 and is expected to be up to around 5.1% in 2018. Developed countries having large exports have performed quite well through the year & contributed strongly to the rise in trade volumes. This rebounding of trade in advanced economies came as a positive. In the recent years it is observed that advanced countries have been gradually recovering from the aftermath of economic crises in the recent past. The expected output levels are mainly being attributed to policy relaxations creating favorable market sentiments. Intensely conservative tax reforms by the incumbent US government are supposed to drive up the country’s output numbers.

In the EMDE (Emerging Markets & Developing Economies) area, the growth in trade volume during the year 2017 was 6.4% in imports & 6.4% in exports as well. Sharp recovery in commodity prices acted as a catalyst for the rebound in many EMDE economies. Some countries which particularly benefitted from this development are commodity-export oriented economies like Brazil, Russia, Angola, Equador & Nigeria. A facilitative environment for exports meant China’s numbers also surged up, showing impressive growth figures. This jump in export growth led to return of the investments (especially capital investments) & rise in trade volumes of the developing countries. Overall, the world’s total trade volume is expected to go up by 5% or so in 2018.

IMF’s World Economic Outlook states that global trade volume will expand by 5.1% in 2018 and marginally slow down thereafter to 4.7% in 2019, as against 4.9% in 2017. The economy (GDP) of developed nations is expected to grow by 2.5% in 2018 and 2.2% in 2019. Whereas, the report forecasts that economies of Emerging Markets & Developing Countries will grow by 4.9% and 5.1% in 2018 and 2019 respectively, as against the growth of 4.8% in 2017. Going forward, strong organic demand and accompanying domestic as well as international trade will be the key growth driver for the EMDE countries.

The global GDP growth and corresponding economic activity directly represents the international trade (export and imports) and in turn provides useful pointers to the shipping industry as about 80% of the international trade by volume is carried out by shipping.

iii)    Seaborne Trade, Fleet & Market

Globally, the seaborne oil trade (i.e. ‘Crude Oil’ and ‘Products’ segments) exhibited a growth of 3.49% in 2017 as compared to 4.17% growth in 2016. Within the seaborne oil trade development, the ‘Crude oil’ trade increased by 4.06% with total figure at 2,125 million tonnes in 2017,whereas, ‘Products’ trade was at 898 million tonnes in 2017, increasing by 2.16%. The crude & product tanker fleets expanded by 4.24% & 5.17% respectively in 2017 (when calculated by gross dwt.), as compared to figures of 6.48% & 6.16% during the previous year. The downward trend in tanker charter rates is expected to continue further because of oversupply of tonnage and efforts by OPEC and other oil producing countries to limit production in order to get better price for crude. Hence, the overall outlook on tanker markets in large part of 2018 is projected to be quite bearish.

The dry bulk trade showed moderate growth of 2.53% in volume over the course of the year 2017 and the freight forecasts are quite positive due to continual slowdown in fleet growth. In view of these developments, Drewry has revised its forecasts to higher freight levels & has opined that dry bulk markets will grow steadily, citing the driving factors as decreasing tonnage supply & increase in tonne-mile demand owing to wider sourcing of iron ore and coal. The total dry bulk fleet growth rate was about 4.75% in 2017, significantly up from -0.08% (fleet shrinkage) in 2016. The shrinking supply of tonnage bodes well for the market and charter rates are likely to see moderate upturn in short term & medium term, provided cargo growth is maintained.

iv)    Indian Scenario

As per Central Statistics Office (CSO), Indian economy grew by a moderate 6.7 % (estimated) in FY 2017-18, as compared to the growth rate of 7.1% in 2016-17. The growth numbers have exhibited a downslide due to the strain caused by multitude of long-term structural economic changes taken up. A substantial increase in the oil prices has also been another factor which has put significant strain on import bill of the country. On the other hand there have been no major factors rendering an upwards swing in the gDp thereby causing the growth to slip up. As per IMF Economic Outlook, India’s GDP growth has fallen marginally below China for this year 2017, thereby losing India’s GDP growth lead for consecutive years over China. The agriculture/farming sector exhibited a subdued annual GVA (Gross Value Added) growth of 3.4% in 2017-18, while the sector had registered 6.3% GVA expansion in the earlier period. The power and utility sectors also posted GVA growth at an annual rate of 7.2% in 2017-18 as compared with 9.2% growth rate in the previous year 2016-17.

According to sources from Ministry of Commerce, India’s exports in value terms has increased by 12.06% to US$ 303.38 billion in 2017-18, while imports surged up with a spike of 21.13% to US$ 465.58 billion. As per Indian Port Association (IPA) statistics, the quantum of Cargo Traffic at India’s 13 major ports rose by 4.77% during 2017-18 i.e. cargo traffic rose from around 648.40 million tons in 2016-17 to 679.37 million tons in the corresponding period a year later. Looking at commodity-wise breakdown of cargo traffic, the largest commodity group in the total traffic was PO.L.(Petroleum, Oil & Lubricants) with around 33.74% share, followed by Container traffic at 19.7%, Thermal & Steam Coal at 13.72%, ‘Other Misc. Cargo’ (12.09%), Coking & Other Coal (7.60%), Iron Ore & Pellets (6.72%), Other Liquid (4.15%), finished Fertilizer (1.17%) and FRM (1.11%) respectively. This improvement of performance is the result of many measures initiated by the Ministry of Shipping to improve the performance of the ports. These include mechanization of the terminals, focus on improving the TAT (turn-around time), introduction of new processes & practices for quick evacuation of cargo, thrust on coastal transportation, expansion of infrastructure and skill development of employees. Similarly, the existing non-major ports, especially private ports, continue to grow due to factors such as a diversified cargo portfolio, superior operating efficiency and contemporary infrastructure and the presence of captive cargo streams.

v)    Strengths

Years of experience in Shipping together with diversified fleet across all major segments gives SCI a unique ability to exploit demand growth in any given segment with a quick-mover advantage. New acquisitions have brought down average age from 18 years in 2007 to about 10.2 years presently (excluding the 2 LPG Tankers of 26 years each). Longstanding COA relationships with major Indian Oil Refineries offer cargo security and employment assurance for major part of the tanker fleet.

vi)    Outlook

The prospects for global economy point to a reasonable growth at about 3.9% in 2018-19. The global overall oil demand is expected to be sluggish in the coming 2 years with a clear shift towards renewable energy in the developed world. This era of low demand growth is supposed to bring new challenges to the tanker owners. The recovery prospects of an already stressed market are further marred by slow growth of oil demand. There are many factors putting pressure on ton-mile oil demand, such as increase in the refinery capacity especially within Middle East & Asian regions, crude pipelines from Russia to Chinese refinery zones, persistent overcapacity. Hence tanker freight markets are forecasted to continue on their downward path at least till 2019. Some scenarios such as increase in US crude oil export could provide much needed support to the market, by offering the possibility of long haul voyages, provided adequate evacuation infrastructure is in place. Another factor which would support the tanker markets is the encouraging pace of demolitions/scrapings of 15 years plus tonnage due to sulphur emission and ballast water treatment regulation, which would diffuse the oversupply to some extent. Middle East & Asia will account for a combined 78% in the global refinery capacity rise (Middle East 48% & Asia 30%). Asian refineries are predicted to curb product tanker demand. Overall the tanker markets are forecasted to be bearish during the next 1.5 - 2 years with freight levels sliding further downwards.

In the dry bulk market, things are looking optimistic & freight rates are continually exhibiting upwards trend. Drewry has also upwardly revised their forecast for 2018 & 2019. Healthy growth in dry bulk demand, complemented by gradual downsizing in supply has rendered a favourable market situation in the dry bulk trade. Charter rate forecasts for the first two quarters of 2018 are quite optimistic & are above the corresponding figures in 2017. The rising demand for high-grade iron ore in China instead of domestically produced iron ore is expected to raise tonne-mile demand, whereas, significant increase in the seaborne trades of bauxite & grain trade is projected to generate firm demand for dry bulk carriers. The controlled tonnage supply, along with increased possibility of demolitions due to IMO regulations would further enhance the supply-demand balance, leading to an owner-favourable market scenario.

The impending IMO 2020 regulations on Ballast Water Management & usage of Low Sulphur Bunkers could play a key part in both tankers & bulk carrier fleets, due to possible demolitions. However the actual impact of these regulations will depend upon the framework & strictness adopted by IMO in implementing these regulations & its acceptance & adherence within the shipping community.

vii)    Opportunities

The global GDP is expected to grow at 3.9% in 2018. This however, is dependent on the two largest economies, US and China followed by emerging economies such as India, Russia, Brazil. US economy is expected to grow by 2.9% in 2018, up from 2.3% growth achieved in the year 2017. A wholesome rise in the refinery capacities of Middle East as well as Asia regions will offer a new dynamic in both crude & product tanker markets. Strategically placed vessels in these regions will be primed to take advantage of this shifting dynamic. The Chinese GDP growth is expected to be 6.6% in 2018, marginally lower than the 6.9% growth exhibited in 2017, on the backdrop of cyclical gradual slowdown. The Indian GDP growth is again predicted to surge ahead of China in the year 2018. The Asia region (Emerging & Developing Asia) is expected to grow by 6.5% in 2018, on par with the level of 6.5% growth in 2017, with India poised to grow at 7.4%. The Euro economy is expected to show a reasonable growth of 2.4% in 2018, with growth coming in primarily from the recovering Euro economies & stronger domestic demand. The Japanese economy is expected to grow at a modest rate of about 1% in 2018.

viii)    Risks & Concerns

The return of cyclical monetary policy tightening, adverse impact of aging population & reduced productivity on GDPs of European countries, the near-constant inflation hampering growth figures, more conservative & tight financial policies especially by advanced nations, on-going cyclical recovery in Europe & timid growth in crude oil demand remain the major macro risks. Also, the possibility of eruption of geopolitical tensions within various regions may bog down the economic activity & as such present a significant risk. The recent US decision to re-impose sanctions on Iran will marginally disrupt the oil trade requiring the other producers to fill in the gap in oil production and may also result in increased crude oil prices. Saber rattling on protectionist trade and imposition of duties by large economies would curb trade growth. More recently, the high tariffs by the US on its Chinese imports & subsequent retaliatory steps initiated by China may hamper a lot of the dry bulk trade. The already rising crude oil prices have strained the economies of oil importing countries in both Africa & Asia who in turn may be forced to cut subsidies and this may consequently hurt overall demand. In South America, Venezuela remains in deep economic & political crisis, as its GDP is expected to contract by a staggering 15.0% in 2018 & further 6% in 2019. In Africa, frequent port outages & resurgence of Piracy on the Nigeria region is a major cause for concern. The crude tanker freight rates are also expected to remain at depressed levels during 2018-19.

Similarly in the dry bulk segment, although the freight levels are on the upside the oversupply has not completely vanished yet. There is always a possibility of localized oversupply situation in some regular trade routes and continued occurrence of local volatility is liable to affect the rates. Additionally, the declining cost of renewable energy & its growing acceptance & compatibility remains a concern for the traditional coal importers. In India, Coal India, which is the major coal producer, continues to increase its domestic production and this thrust to reduce coal imports might adversely affect the seaborne coal trade to India.

B. SEGMENT-WISE FLEET & MARKET STUDY

1.1 BULK CARRIERS & TANKERS

a) Crude Oil & Product Tankers

In the year 2017 the global consumption of Crude Oil registered a marginal increase of 1.55% to 97.81 mbpd (million barrels per day) over the previous year. It is anticipated that the oil demand growth will decline slightly over the course of next 4-5 years. Sluggish forecasts for oil demand growth could primarily be attributed to following factors: (i) rising crude oil prices, (ii) upcoming paradigm shift in China about diversifying their economy & shifting the focus away from an oil-intensive, heavy manufacturing, export-driven economy, (iii) rising presence of electric vehicles (EVs) & overall movement towards cleaner fuels etc. In India’s case, the Indian government has announced plans for shifting from oil based vehicles to EVs. The Indian crude oil demand has been fairly constant over the year 2017, languishing around 4 mbpd levels. The oil demand of the country is likely to grow as the recovery from the recent structural reforms gathers pace but crude oil price increase could be a dampener. While OECD oil demand/consumption is expected to be more or less on the same levels as that of previous year, China & Asia’s demand is expected to grow at a good pace.

US domestic crude output is likely to increase by about 1 mbpd, a rise of strong 11.36% over the year. For US, the surging oil prices, combined with supply problems of its neighbouring producers Venezuela, will motivate it to keep its production at high levels. Meanwhile, OPEC countries & Russia-led OECD members have extended the production cuts till 2018 year-end. Both these phenomena combined should increase the exports from US, which would boost the tonne-mile demand. There were deliveries of 26.3 million dwt of Crude oil tanker tonnage and 10.2 million dwt of Products tanker tonnage in 2017. Further down the line, the expected deliveries of Crude oil tankers are 19.8 million dwt and 19.2 million dwt in 2018 and 2019 respectively. For Product tankers, the respective figures are 8.0 million dwt and 6.6 million dwt each. New building prices for tankers went further down in 2017, falling by about 7%, due to falling markets sending negative sentiments thereby hampering ordering activity. In tonne-mile terms, the crude oil trade increased by 5.67% in 2017 as compared to the previous year, while products trade decreased by 1.16% in the same period.

The lack of demand for VLCCs in the AG & Latin America regions is bound to worsen the freight rates. Also, higher crude prices & consequent inventory drawdown by refiners is likely to have adverse effect on freight rates on both crude & product freight markets. The average spot rate of TD3 route of AG/East for VLCC was US$ 22,600/day in 2017. The future market in this segment seems to be very volatile, with rates in the range of US$ 14,500-24,500/day, hugely impacted by the oversupply of vessels & decline in cargoes. One Year tC rate for VLCC was about US$ 27,200/day in 2017, with some fixtures done at higher levels during the latter part of the year. The Suezmax rate on West Africa -North West Europe (TD20) route was about US$ 12,100/day in 2017 which is expected to significantly decrease by about 33.98% year over year. For Aframax, the spot rate on AG/Far East route (TD8) was US$7,000/day. These freight levels are very low and they are forecasted to remain low as there is still no upside on the horizon over the next 2 years. For Product tankers, LR1 Spot rate on AG/East was US$ 8,600/day in 2017 and expected to exhibit depressed levels in 2018 & 2019. One year TC rate for LR1 was US$ 11,700/day, which is almost on par or slightly lesser than operating costs. In MR tankers, on US Gulf/NWE route the spot rate was as low as US$ 2,800/day in 2017. One Year TC rate for MR tankers was US$ 12,400/day in 2017 and is expected to be around US$ 12,600/day over the next year.

Your company has five VLCCs & all were operational during the year 2017-18. They were mainly employed on a mix of Time charter with Indian Oil Corporation & Voyage Charters with Indian as well as foreign charterers. The time charters earned reasonable returns, while spot trades faced the wrath of markets due to highly depressed markets. Your Suezmax tankers were mainly deployed with the Indian oil industry and performed COA voyages under HPCL & BPCL COAs, except occasionally performing spot voyages for Indian and foreign charterers. Older Suezmax vessels however, had lesser employment days due to performance issues & problems in port acceptances. The COA earnings are based on AFRA & TD8, which has been moderate to low. The time charter rates compare well with market benchmarks.

Five LR-I tankers of the Swarna series were employed on Indian coast, catering to coastal crude movement of the Indian oil industry. They also had a few other kinds of employment such as lighterage operations, FPSO loadings etc. Their earnings compare well with market levels. Another LR-I tanker MT Swarna Kaveri was used as a CPP tanker for Product cargoes, mainly in the AG to Indian coast & Far East regions, with market equivalent freight levels achieved.

Your product tankers in the Swarajya Series were well employed with Indian charterers on time charter & sporadic voyage charters and their earnings are in line with market averages.

The three MR product tankers in the Swarna series were gainfully employed with Indian as well as Foreign charterers and their earnings are comparable with the market. MT Swarna Mala was deployed with foreign charterers for long periods during the financial year. MT Swarna Kalash was deployed along Indian coast, employed in a mix of time & voyage charters in coastal product movements. Meanwhile, MT Swarna Pushp was employed with a pool in the 1st half of year & was brought to Indian coast to participate in the Indian coastal movements of clean products.

The two LR-II tankers MT Swarna Jayanti and MT Swarna Kamal were employed with foreign charterers in a mix of pools & voyage charters. Their returns were stable and in line with available markets.

Earnings of your coiled Aframax tankers were in line with markets, along with the average of benchmark yields under AFRA / TD8 (Arabian Gulf to Singapore) and TD14 (Indo-Australia) routes on the back of COA voyages under TD8 pricing formula and triangulation spot voyages due to intermittent fuel oil arbitrage trades which minimized ballast voyages. The Aframaxes mainly performed India centric / Far East / Red Sea voyages.

i) Opportunities

Tanker trade is currently undergoing a paradigm shift. OPEC’s decision to continue the production cuts till end of 2018, upcoming big increases in the refinery capacities of Middle East and Asia, US decision to re-impose sanctions on Iran and rise in US exports due to increased oil prices are some of the major factors which will have adverse impact on tanker markets. The ship-owners who position the ships in prospective basins will stand to reap benefits of positional advantage.

The looming era of low crude oil demand growth presents a challenge as well as an opportunity. The tonnage demand is forecasted to be low for large crude oil tankers, however the bulging capacity rises in the Middle East & Asian refinery capacities may present demand spike for product tanker tonnage. Since, Asia & especially China are growth drivers for the product oil demand, trade routes of MEG-SEA, AG-Far East may get lot of employment, especially for Clean MR & LR-I tankers.

In Indian context, the country’s economy has recovered from the last few sluggish quarters and recorded higher growth in the fourth quarter 2017-18.The increased tax collection owing to structural reforms & tax system overhaul (GST) is also expected to increase government spending. On similar lines, policies implemented by the government to encourage the manufacturing industry under ‘Make In India’ will generate significant demand. India’s crude oil imports hovered to reasonable levels around 4.3 million barrels per day in the January -October 2017 period. Post October the imports spiked to almost 4.6 mbpd & are likely to increase further in 2018. Indian tanker tonnage will have opportunities to grab such import cargoes though at prevailing subdued market rates.

The US crude oil imports are set to remain low, and the Asian demand for the same is expected to increase, banking on strong GDP performances by the corresponding economies & rising refinery throughputs. Net global crude trade flow is expected to shift eastwards, with Asian appetite being the key driver.

With its diversified tanker fleet & especially a modern clean tanker fleet, your company’s vessels stand to secure employment and the company is well-equipped to withstand contingent market pressures.

ii) Risks and Concerns

The growth in global oil trade is expected to be slow in the coming years. The global oil trade (both crude & products) is expected to grow by a meagre 1.89% in the year 2018. This is set to hurt the tanker demand in already depressed markets. Although the crude tanker fleet is expected to grow moderately by 2.76% in 2018, there is still a lot of supply overhang & this combined with low demand growth, may hold the overcapacity situation in the markets & reduce freight levels.

In products trade, the impact of increasing oil prices globally may deter buyers & thereby restrict free movements of product cargoes. The other impact of increased oil prices is the falling inventory levels & deterrence to building inventory levels. This may pose challenges to the product tanker demand. China has added additional refinery capacity, which is set to effect the product trade in the region. Apart from this there are no major factors directly affecting the demand but unfortunately the supply overhang persists in the product segment also. Thus freight markets are expected to soften over the course of next years. Prolonged depressed earning may be a cause of concern.

b) Dry Bulk

The benchmark Baltic Dry Index (BDI) rose to an average of 1204 in 2017-18 against an average of 820 in 2016-17 registering a staggering 46.83% increase, reaching its highest average monthly value in December 2017.

When compared to 2017, dry bulk trade is set to exhibit a trade growth of 2.28% in 2018, with tonne-mile demand growing by an estimated 3.27%. The dry bulk global trade is expected to grow on an average of 2 - 2.10% for subsequent 3 years.

Dry bulk markets are exhibiting optimistic signs. The steady improvement in tonnage demand growth is accompanied by gradual contraction in supply. The dry bulk freight rates have shown promising increases year-on-year in 2017 when compared with the rates in 2016. The dry bulk commodity trade is expected to grow handsomely for the next 5 years. China’s demand for high-grade iron ore & bauxite is set to increase in the coming year. Since indigenously produced iron in China is not of sufficiently high grade, the country’s imports of iron are set to rise, giving boost to tonne-mile demand in the region. The probability of demolitions of some older tonnage on account of looming IMO’s Ballast Water Management System & revised Sox emission guidelines, may further improve the demand-supply balance, lending a supporting hand to the rates.

The dry bulk fleet grew by 4.75% in the year 2017. However, considering the fleet shrinkage during 2016, the controlled fleet supply bodes well for the dry bulk market as the oversupply situation is likely to diffuse. The dry bulk market has been underperforming every year for the past several years. Naturally this has put a strain on new building orders over the years & resultantly the fleet growth has been low to moderate at best.

The total dry bulk cargo demand is expected to be on growing track for the next few years. The dry bulk seaborne trade is expected to grow by 2.28% in 2018, while the tonne-mile demand is expected to register a growth of 3.36%.

India’s iron ore exports rebounded to 32.8 mmt in 2017 as compared to 21.4 mmt exported in 2016. Global seaborne iron ore trade continues to show a healthy growth of 2.77% (forecasted) in 2018. With regard to Thermal Coal, India’s imports are predicted to remain constant, from the levels of 147.5 million tons in 2017 to a forecast of around 145.3 million tons for 2018.

India’s urea imports rose by 9.01% to 5.97 million tons last fiscal on the basis of revived demand. The country, which is among the world’s top three consumers of urea, produces about 22 million tons urea as against the annual domestic demand of 30 MMT. India imported 5.97 million mt of urea in fiscal 2017-2018. Out of this, 2.51 million mt came from Oman and 2.034 million mt came from Iran. Urea movements into India, which is a key cargo for dry bulk vessels and is part of minor dry bulk commodities, has for the last few years been a “supporting trade” for bulkers ranging from Handysize to Panamax.

Grain trade provided a positive boost to dry segment during the FY 17-18. Seaborne trade (imports) of major grains grew by 4.59% in the year 2017, with major exporters being USA, Australia, Canada, Argentina & European Union. On demand side, encouraging trends are there such as growing population, increasing demand from Asian & African countries & overall global economy performing well.

Global steel production is projected to increase by 1.59% in 2018 with increased production from China, India & other countries. The causes of this growth in steel production are overall increase in industrial activity, rise in Global GDP & rise in steel-intensive sectors such as construction & automobiles. India’s steel production is expected to grow at the fastest rate among major steel producers. This is likely because of increased economic activity due to a recovering economy & increased government spending on infrastructure.

So far, in this year 2018, 22 dry bulk ships are sold for demolition as against 218 dry bulkers for the last entire year. 67 Supramax bulkers were scrapped in 2017. Such high scrapping numbers is an encouraging sign for future dry bulk market.

In the year 2018, One-year Time Charter rate of Handymax is projected to be US$ 12,800/- pdpr, whereas for Supramaxes the same is US$ 14,000/- pdpr. In the Panamax segment, the one-year TC rate in 2018 is forecasted to be US$ 15,000/- pdpr. In the upcoming years, the freight rate estimates exhibit an upward trend, with market forecasts showing handsome increases year-on-year.

The company’s dry bulk fleet now comprises of one Handymax, eight modern Supramax vessels of around 57,000 dwt each & seven modern Panamax / Kamsarmax dry carriers of around 80-82,000 dwt as on 31st March, 2018.The bulk carriers fleet is very young with an average age of about 6.9 years. The earnings of our dry bulk fleet were in line with markets. Our dry bulk carriers were also employed on Indian coast with a few coastal time charters & voyage charters, whose earnings compare well with markets. In order to maintain a healthy cash flow your company preferred fixing the bulk carriers on trip time charter and short-to-medium term time charters.

i)    Opportunities

Dry bulk market is looking optimistic at least in the near future. Drewry has revised its estimates upwards, which is clearly an indication of an upward trend. China has been a major driver for the dry bulk trade and the rising Chinese demand for iron ore & bauxite presents a good opportunity for dry bulk tonnage. The high-grade iron ore required by China & other rising Asian powers will be procured majorly from Brazil & Australia. This trade will give a good boost to tonne-mile demand & smart positioning of vessels will be key in tapping these routes. India’s coal import trade is gradually shifting the focus from Indonesia to South Africa & Australia. This is a welcome development for our dry bulk ships, hauling a good share of import coal cargoes for India. The coking coal markets seem pretty favourable for the trade, since shipping costs for the trade have declined & coking coal prices have endured quite a hit. India’s prime source of coking coal is Australia, and hence this route may see handsome dividends.

India has launched many schemes such as ‘Saubhagya Yojna’, which plan to electrify all the Indian households. Such ambitious plans for domestic electricity, along with focus on creation Industrial infrastructure, is expected to generate a significant demand for electricity. Government has also proposed other projects like ‘Bharatmala’ which plan to create a unprecedented road network in India by constructing roads spanning thousands of kilometers. The coal, steel & cement needed to implement these schemes will see a high demand growth. This elevated demand will contribute to increased demand for dry bulk tonnage, both for coastal movements as well as for imports.

Shrinking fleet profiles due to a high number of scrapings/demolitions (on account of various reasons like - reduced profitability, lack of sustaining capacity, costly overhauls required to comply to IMO regulations etc.) may create tonnage vacuums across the markets & dry bulkers in respective trades may take advantage of the same.

ii)    Risks & Concerns

Advent of renewable energy-centric policies & use of renewable energy sources as a means of mass-scale production poses a significant threat to the dry bulk trade. Many countries are shifting focus from traditional sources of energy to renewable sources & are actively taking strategic initiatives for the same. This will not only reduce the demand for shipping of traditional sources of energy like coal & oil, but bring their prices down which will make shipping costs unviable.

Domestic factors such as ban on iron ore mining in Goa / Karnataka, lengthy legal process involved in clearing the procedures to re-start the mines, high export duty on iron ore in India will continue to negatively affect the growth of dry bulk demand on India’s export centric dry bulk trades.

In parallel, the traditional coal trade is also showing signs of nervousness. Both India & China, the top importers of coal worldwide, are introducing policies to reduce the dependence on imported coal. Although China’s coal imports are forecasted to remain high in 2018 since the country is putting a stop to its unproductive coal mines & will prefer to import the coal instead, the medium term and long term future of the thermal coal trade is not very encouraging. Along with many other countries globally, India is also shifting focus towards renewable energy. Indian government has publicly stated its plan on cutting dependency on coal. As such the long term future of traditional thermal coal shipping appears bleak.

Grain and fertilizer trades are seasonal and could be relatively short term in nature with uncertain parcel sizes which require timely positioning of tonnage to exploit the trade.

SCI’s presence in Panamaxes is catering to transportation of three major commodities such as Iron ore, coal and grain, which are prone to be affected by economy slowdowns. View slowdown in these major trades globally the earnings of Panamaxes may suffer.

The absence of long-standing COAs & similar assured business opportunities stand to make your company’s dry bulk trade volatile & open for adverse impacts by the market forces. One more aspect that may turn charter rates volatile is sluggishness by the other owners in the scrapping/demolitions of the vessels, on account of temporary spikes in rates, leading to recurrence of overcapacity situation in the market. The macro economic factors such as interest rate volatility, subsidies on petroleum products, volatile rupee value vis-a-vis the dollar and inflation continue to plague the national demand. Shipping being a derived demand will be negatively affected by these factors.

c) LNG Transportation

The global demand for gas is expected to grow at an average of 2 percent per year until 2035, which would make gas the fastest-growing source of energy over the period. The surge in demand will be driven by environmental measures in China, South Korea & India, rising power generation in Southeast Asia and reduction in the domestic production in Europe.

India plans to double the share of natural gas in its energy mix from 6.5% now to 15% by 2025, but this will require construction of LNG receiving terminals for increased imports. India presently imports around 20 mtpa through 4 LNG receiving terminals, but within a decade there are plans to build another 11 terminals to raise India’s LNG import capacity to more than 70 mtpa. New terminals are planned at Mangalore, Mundra, Pipapav, Ennore, Haldia and capacity additions at Hazira and Dahej. The Government is intent upon reducing carbon emissions and is encouraging Indian railway companies, LNG importers to look at fuelling trains by LNG instead of diesel. India also wants to become a hub for supplying ships that run on LNG, with plans to build more facilities like the LNG fuelling station at Kochi port.

With LNG being encouraged as green fuel for future, the LNG market has been seeing a steady growth over the years. Owing to the high demand and potential for LNG, the LNG shipyards enjoyed increased order books. However with the LNG production not increasing in line with demand, a situation of over-supply of the LNG vessels was witnessed, leading to lower charter hire rates. The global LNG fleet as on

March 2018 consists of 522 ships. With increased competition and ever changing market dynamics in the LNG segment, there is a shift in the charter trends to short term contracts. The high capital investment involved in the construction of the loading and discharge terminals on land, is leading the LNG market players to simultaneously look at alternate options such as Floating Storage Regasification Units (FSRUs), Small LNG carriers for coastal lNg shipping, Floating Liquefied Natural Gas (FLNG) carriers etc.

Your company jointly owns and operates 3 LNG carriers under long term charters with charterers Petronet LNG Limited, India for transportation of LNG predominantly from Qatar. The 4th LNG carrier is under long term charter to Exxon Mobil LNG Services B.V, Netherlands. In order to ensure its presence in the new areas of the LNG market, your company is exploring opportunities for participation by ownership and in operations of FSRU, small LNG carriers and coastal LNG shipping.

SCI and GAIL had signed a Memorandum of Understanding for cooperation in transportation of 5.8 MMTPA LNG sourced by GAIL from U.S. terminals. In line with the objectives under the MOU, SCI has been awarded two contracts, one for assisting GAIL in In-Chartering of LNG ships and the other for Post-fixture Management services to GAIL for their In-chartered vessels which will be carrying LNG from USA to India. The initial contract is for a period of three years effective from 2018. This collaboration between GAIL and SCI aims to augment the natural gas supply through LNG imports.

Your company has built up a pool of trained LNG officers and the experience of independent technical operation of LNG tankers has helped to provide ship management services. Your company is jointly working with one of its Japanese partners, and will start training its LNG officers on construction and operations of FSRU from 2018.

d)    RGPPL Terminal Management

Your company has successfully performed the Port and Marine Services Contract at the RGPPL Dabhol Terminal for further 3 years i.e. 2015 - 2018. The SCI team successfully handled 53 LNG tanker calls at the Dabhol LNG receiving terminal and the total imported LNG under the contract stands at 7.36 million cbm. The contract is due for renewal and expected to be awarded to SCI.

e)    LPG Carriers

Given the continued demand for LPG, your company has acquired second hand VLGC named Nandadevi in September 2017 to ensure SCI's continued presence in the LPG segment. Your company is in the process of phasing out the other two older and smaller LPG carriers and replacing them with larger capacity vessels.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial performance of the tanker segment has been largely influenced by low earnings on the VLCC, Suezmax and Aframax segments where SCI has had a mix of cross trade charters, market linked Contract of Affreightments and Time charter businesses to effectively hedge employment and earnings risks. On the smaller segment product carriers and LR I dirty carriers; the employment was mainly to meet the domestic product and indigenous crude movements on long term contracts and time charter business. The mix of employment types and geographical concentration in niche coastal business segments has ensured returns in line with market trends. However, with globally weak tanker markets, there was strong competition in product trades which hampered their earnings to some extent. Internationally, the sharp fall in market fortunes across all segments resulted in very low freight rates, due to which the tankers segment gave a very subdued performance. The dry bulk segment is still recovering from historically bad period and loss of key cargoes such as Iron ore from India resulting in non-profitable ballast voyage legs thereby reducing earnings. Although some relief was offered by coal cargoes & minor bulks, earnings remained subdued and below the breakeven levels due to low freight markets. Few profitable trades emerged during the year where dry bulk charter rates went into profitable levels, but this bliss was short-lived & the markets stabilized to their normal levels. In the early parts of 2018, continuous flow of coals & iron ore cargoes from Indian companies helped to assure reasonable alternate employment options.

2 LINER & PASSENGER SERVICES A Industry Structure & Developments

i) World Scenario

The liner shipping industry is encountering myriad of major issues including burgeoning overcapacity, influx of mega ships and its cascading effect, infrastructure insufficiency, competing modes of transport, cost inflationary regulations, reluctance of investors & financiers and many more. Such factors have given rise to an unprecedented imbalance between supply and demand in the industry. On the other hand, certain key developments viz. consolidation, mergers & acquisitions, shipping alliances, accelerated ship demolition, and technological developments viz. smart / eco ships etc. are at play to restore the balance in the marketplace in the coming years.

The maritime world witnessed an eventful 2016 and proved to be the most challenging period of a six-year long slump the liner shipping industry has fallen into. Liner freight rates dipped to historical lows in 1st Half of 2016 and liner operating losses piled up by year end. Last year saw a spate of consolidation in the industry, as several carriers sought safety in numbers. The year was full of surprises, which saw the collapse of giants like Hanjin Shipping in the liner industry, to unprecedented consolidation among other operators led by the merger of NYK, MOL& K Line to ONE, Hapag-Lloyd and UASC, COSCO Shipping and OOCL to name a few. Along expected lines, the formidable amount of overcapacity that was built up not only deteriorated the marketplace completely, but also led an unprecedented number of vessels being sent to the ship breaking yards. The slowdown of global economic growth also worsened the conditions for liner shipping, weakening the revenue streams & capacity utilisation and eventually leading the global liner industry incurring a collective loss of US$ 3billion.

The year 2017 began with a slow recovery in the markets bringing some improvement to freight rates in the main trade lanes. Global container traffic grew by more than 5% in 2017. Container traffic in North America and Europe grew by 3% and 3.9% respectively in 2017. The tide is turning in Latin America, particularly in Brazil that was in doldrums until the third quarter of 2016. The positive demand global outlook had its impact on the box traffic in India. However, trends indicate that the road to the heights of prosperity in liner business is a long and bumpy one with geopolitical tensions and trade protectionism remaining the biggest threat for economic and, particularly, for trade growth. Bilateral trade disputes and national frictions can easily proliferate and exert a global impact given today’s interconnectivity of the world economy, thus derailing the global economic recovery.

Indian Scenario

As per Indian container market trends over the last few years, installed capacities and handled volumes have been growing proportionately showing a positive sign for the industry apart from achieving best capacity utilization levels. Govt. of India has announced a massive investment in India’s ports and roads sector, which is likely to help boost the country’s economy. The Indian Government plans to develop 10 coastal economic regions as part of plans to revive the country’s Sagarmala (string of ports) project. The zones would be converted into manufacturing hubs, supported by port modernization projects, and could span 300-500 km of the coastline. The government is also looking to develop the inland waterway sector as an alternative to road and rail routes to transport goods to the nation’s ports and hopes to attract private investment in the sector. This is expected to boost the coastal shipping and SCI is an active partner in the above projects of GOI. Strength & Weaknesses

The vast experience in the Liner trade, accumulated over last several decades, is the foremost and most formidable force which instils confidence in the cargo interests / owners who lend their invaluable support to SCI. The customer friendly approach at all the levels and SCI’s customized services puts SCI ahead in the league. The wide network of the agents all across the world, provides and facilitates for localized contacts in markets to offer customized logistics solutions. Operating partnerships have been forged with internationally recognized container carriers in select consortia, to enhance coverage and frequency on the major trading routes. SCI is a licensed MTO in India and also has International Freight Forwarding License. Break-bulk operations are largely profitable and passenger services provided by SCI provide stable source of revenue, not to mention the vital link that supports the islander’s to the mainland. Efforts are on to expand the India-centric focus to garner the benefits of economies of scale.

iv) Opportunities & Threats

The liner market is poised to witness significant improvement in operating profitability in the future despite the continuous influx of mega-ship new-buildings, underpinned by market sentiments of a reviving global economy and upbeat economic forecasts. New operating alliances are expected to contribute by allowing global carriers to further synergize network efficiencies and vessel deployment optimization bringing about higher savings. Improving economic conditions in the US and Europe is expected to boost market fundamentals and support carriers in their effort to restore freight rates. An improvement in liner operating profitability is also expected to act as a catalyst for higher charter vessel demand and higher charter rates. Despite improving market fundamentals, the industry has to overcome challenges in the year ahead due to increase of mega-ship deliveries before the capacity growth moderates in 2017. The break bulk sector continues to maintain good potential in respect of ocean freight arrangements of General cargoes, Over-Dimensional Cargoes (ODC), Project cargoes, Heavy Lift cargoes etc. on account of the Government Departments / PSUs and other GOI organizations.

B Segment-Wise Performance

1 Liner Vessels: The table below shows the profile of your Company’s owned liner fleet having total container carrying capacity of 14,407 TEU.

Type of Ships

As on 31.03.2017

Addition

Scra

pping

As on 31.03.2018

 

No.

Dwt (MT)

No.

Dwt.

No.

Dwt.

No.

Dwt (MT)

Fully Cellular

5

202,413

-

-

2

57,913

3

144,500

Average age of three owned Container vessels is approx. 15 years (one vessel aged about 25 years and two 10 years). As on 31.03.2018, an in-chartered container vessel having total Net Tonnage of 55,203 MT was operated by your Company. In addition to the above owned and in-chartered vessel, your Company also has cargo loading rights on 27 vessels of its partners in various consortia arrangements that your Company has with leading shipping lines, such as Mediterranean Shipping Company (MSC), PIL of Singapore, K-Line of Japan, etc. to name a few. Your Company continued to deploy its owned / operated Container vessels in the following sectors.

2 Container Services

i) Himalaya Service (Erstwhile ISE Service)

The UK-C Cellular Container Service commenced in 1994 with SCI as a single operator operating three vessels with 1,800 TEU capacities, which was later upgraded to a fixed day weekly service operating with seven vessels of similar capacity. The service, from May 2009, is being operated in consortia comprising of two partners viz. SCI and MSC, with eight vessels of which two vessels have been contributed by SCI. Since end-Feb 2016, the consortia contribution has been changed to one SCI vessel. This strategic reduction has been done to improve profitability of the service. The service is operated on round voyage duration of 56 days.

ii)    IPAK Service

In a slot swap arrangement between SCI and MSC, SCI has been allotted 200 TEUs slots by MSC, which operates IPAK service in exchange for similar slots allotted to MSC on the ISE service.

iii)    India / Far East Cellular Service (INDFEX 1)

This service commenced in June, 2001. Presently, it is operated with 6 vessels, with 1 vessel each deployed by 6 partners viz. K-Line, PIL, Simatech, Wanhai, Cosco and SCI. The service is operated as a weekly direct service from India’s West Coast to Central China, Hong Kong, Singapore and Malaysia with round voyage duration of 42 days. The service also links North Chinese ports, Busan and Japan through feeder services via Shanghai on Indfex Service. The SCI has deployed m.v. SCI Chennai in this service. This service would end in June’2018 and m.v. SCI Chennai would be deployed in coastal (SMILE) service.

iv)    SCI Middle East India Liner Express (SMILE) Service & Pan India Service (PIX2):

SMILE and PIX 2 services seamlessly links up Persian Gulf with East Coast of India and West Coast of India, thereby, strengthening and expanding SCI’s presence in the Coastal Shipping Sector. The joint operation on this route will be a force multiplier for SCI which will provide a high quality of Coastal Services on fixed day fixed window basis with potential for even bigger expansion in Coastal and near Coastal trades with special emphasis on the East Coast of India ports. Two services viz. SMILE and PIX2 with their service rotations makes it feasible to connect pan-Indian ports with an improved transit time. SCI seeks to cooperate with other Indian Companies to work out the best transportation solutions for the trading community vis-a-vis commercially, economically viable and environmentally feasible options. SCI connected west coast of India to southern and eastern ports of India viz Katupalli / Krishnapatnam/Vizag/Haldia/Kolkata during 2016-17 and the Pan India service got stabilized during 2017-18, thus, promoting GOI initiative ‘Sagarmala’ and increased coastal shipping.

v)    Feeder Operations

SCI makes feeder arrangements with ‘Common Carriers’ between various destinations on the Indian subcontinent.

vi)    Slot swap arrangements:

SCI enters into slot swap arrangements with service providers depending upon trade requirements.

vii)    Break-Bulk Services

SCI arranges carriage of break-bulk cargoes on space charter basis from various regions across the globe including USA, Europe and Far East for imports on account of the Government Departments / PSUs and other GOI organisations, which includes Shipments of Over-Dimensional Cargoes (ODC)/Project cargoes / Heavy Lift cargoes/ IMO Class I Cargoes etc. and also containers.

viii)    Coastal Operations

Domestic Passenger-Cum-Cargo Service: In addition to International operations, SCI with its one owned Passenger-cum-Cargo vessel and eleven (11) managed vessels operates domestic passenger and cargo transportation services between the Mainland and the Andaman & Nicobar (A&N) group of islands and inter-islands, on behalf of the Government of India. Also, 17 numbers of Foreshore passenger vessels of A&N Administration are technically managed by SCI. Informatively, SCI’s owned Passenger cum cargo vessel viz. m.v. Harshavardhana was sold for scrapping on 28.03.2018.

ix)    Other Coastal Services

SCI also manages Oceanographic & Coastal Research vessels on behalf of Government Agencies/ Departments viz. three vessels owned by Geological Survey of India, under Ministry of Mines and one vessel of National Centre for Antarctic & Ocean Research, one vessel of Centre of Marine Living Resources and Ecology and three vessels of National Institute of Ocean Technology under Ministry of Earth Sciences.

3 Manned & Managed Vessels

The following table shows the profile of the Passenger-cum-Cargo vessels and other vessels managed by your Company on behalf of the various Governmental Organizations/Departments:

Type of Ships

As on 31.03.2017

Additions

Nos.

Scrap/

Redelivered

(Nos.)

As on 31.03.201

8

Nos.

Pax.

Cap.

Cargo Cap. (MT)

Nos.

Pax.

Cap.

Cargo Cap. (MT)

Pax-Cum-Cargo Ships

11

7,066

6,200

0

1

10

6,317

5,200

Cargo barge

1

 

500

0

0

1

 

500

Other vessels

17 Foreshore & 8 Research

1,599

100

0

0

17 Foreshore & 8 Research

1,599

100

Total

37

8,665

6,800

0

0

36

7,916

5,800

The pattern of deployment of these vessels is as follows:

- Four vessels for carrying Passengers and cargo between the Mainland and Andaman and Nicobar Islands. - Six vessels and One Cargo ship for Inter-Islands run (A&N Islands).

- Seventeen vessels for Fore Shore Sector run (A&N Islands).

- Eight Research vessels of GSI, NCAOR, NIOT, CLMRE carrying out scientific expedition in the Indian Coast.

C Marketing

SCI’s marketing team continues to make regular customer calls through its own offices and also through agents appointed at various ports in India and abroad in order to market its container and break-bulk services. Meetings with the agents are held periodically, and SCI representatives also participate in various trade meets at important locations in India. Your Company has obtained Freight Forwarding and Multimodal Transport Operator (MTO) licenses and continues to use its vast experience and large agency network to render 3PL (Third Party Logistics) services to the customers. This helps your Company to retain the clients while generating additional revenue.

D Outlook

Under the new Foreign Trade Policy (2015 - 2020), India aims to increase its share in the global trade to 3.5% by 2020. Incentives to agricultural exports and extension of the same under Merchandise Exports from India Scheme to units in SEZ are part of the new FTP! This is aimed to integrate with Make in India and Digital India initiatives. Multiple infrastructure projects, eyeing to improve India’s logistics efficiency and hinterland connectivity, will boost the country’s box trade in the coming years. Some of the key projects that will be a game changer when fully operational is (A) Multi-modal terminal under Jal Marg Vikas project: The 170 crore multi-modal terminal at Varanasi, under the Jal Marg Vikas project that will open before December 2018, will be a major logistics hub connecting North India to North East India. The government will also develop 35 multi-modal logistics parks for freight aggregation and distribution, multi-modal transportation and warehousing. (B) Port based multi-product SEZ at JNPT, first of its kind, a port-based SEZ at JNPT will be developed with Free Trade Warehousing Zone, Engineering Goods sector, Electronics & Hardware sector and Pharma sector. (C) Dedicated Freight Corridor (DFC), DFC will provide logistics support for the Make in India initiative. Two of the three DFCs are scheduled to be operational in the next three years. DFC will reduce the inland transit time significantly. (D) Sagarmala programme, The Indian government is implementing the Sagarmala programme in phases, spanning over 20 years from 2015-2035. Four hundred and fifteen projects have been identified for port modernisation, new port development, port connectivity enhancement and port linked industrialisation. Six new port locations have also been identified for proposed transhipment hubs in the south. The government has approved Rs. 27,000 crore port project at Enayam.

E.    Risks & Concerns

There are several trends that may affect transport costs in the coming years. First of all, ship size growth trend that has targeted economies of scale in sea, has practically raised diseconomy in ports. This trend has caused essential need for capacity enhancement in ports, which unfortunately cannot keep pace with the developments of shipping in terms of time. This usually ends with chronic shortage of port capacity in the short term and added costs both in the short and long run. In container shipping, which is the more competitive part of the industry, this trend also exacerbates the need for hub and spoke networks, which involve addition of transhipment costs (and costs of delay in delivery of goods) to overall transport costs in supply chains of regional hinterlands. Some shipping lines are also inclined to adopt monopolistic behaviour in markets, which can increase dissatisfaction and resistance of stakeholders in supply chains i.e. government, consumers, tax payers, manufacturers, etc. and motivate them to react to such measures and arrangements which contribute to higher transport prices or more concentration in the industry.

The rise of the protectionism in US, UK and some other developed countries is a matter of grave concern that can affect trade and investment throughout the world. A vast series of disrupting consequences can be perceived in this context that can include re-shoring or near-shoring of industries, significant changes in the trade balance of countries, rescinding of trade treaties, disrupting military conflicts, wars, etc. While the world is still recovering from the global financial credit crisis, the nations as well as international businesses are encountering an increasing number of financial risks. Among the crucial financial concerns, we can point to the financial challenges of Greece as the leading ship owner state in the world. Insolvency of Hanjin shipping in 2016 was an instance of the possible ground breaking financial shocks in the industry and their acute consequences in the global supply chains. There are multitudes of micro-economic level financial risks and concerns that can afflict the industry in the coming years.

F.    Discussion on Financial Performance With Respect To Operational Performance

Your Company’s liner segment registered a profit of Rs. 79.66 crores in FY 2017-18 as against loss of Rs 95.54 crores in 2016-17. The Operating Income increased from Rs. 445.90 crores in 2016-17 to Rs. 676.38 crores in 2017-18 due to better volumes and better freight levels. Further, your Company was able to reduce losses by adopting various cost saving measures accruing to the liner services viz. considerable saving on feeder and transhipment costs by reducing carrying cargoes to non-base ports, better inventory management, control on repair costs of vessels and containers. Our on time schedule reliability on our services, particularly in Europe sector continues to be very good and comparable or better than the global players.

G.    Measures Taken By Us to Improve Our Services & Operations

Liner Division is ensuring General Rate Increases are being strictly implemented keeping in mind the market sentiments and demand-supply gap. Performance of each Container Service is being reviewed monthly from the point of view of profitability. Ultra slow steaming planned / achieved on the container ships. Fuel additives are also being used to save on fuel consumption. Liner division is also looking out for further expanding on the Coastal, Feeder Services and Services to the Indian Sub-continent and the adjacent areas in the Indian Ocean countries. SCI’s strategy has been to use all our Indian Flag ships on these routes when Indian Flag commands a premium and to use Foreign Flag vessels on the other routes. The big game plan is to run seamless services between Persian Gulf and Iran to East Coast India - Bangladesh with several port calls in West Coast Indian ports by forming a consortium of Indian operators. Foreign companies dominate in Indian Subcontinent feeder routes and provide seamless connections. By mutual cooperation with the other Indian Companies through slot exchange, it is envisaged that feeding freight would be retained within the country, which would also help in minimizing the working capital requirements for the Division. Further, ports like Kandla and newly emerging container ports in East Coast of India like Kattupalli, Krishnapatnam and Vizag are offering substantial discounts on transhipment costs and storage charges, and by using these ports optimally, substantial system costs reductions are being achieved. The Division is in advance state of negotiations for starting multipurpose services on Indian Coast using heavy lift geared and ramped ships. Our focus is to maintain right sized leased equipment inventory to optimum levels to make services sustainable and undertaking firm negotiations with leasing companies and vendors for achieving desired results. Aging inventory is being replaced by the younger fleet at better terms. We are identifying niche sectors to commence new services, like, feasibility study has been done for intended services viz. Ex-India / Maldives, Ex-India / Myanmar / Bangladesh / Thailand, extending Coastal Services to include Iranian port(s) viz. Chabahar & Bandar Abbas. Other feasibility studies have been conducted for services like Ex-India / East African ports. Liner division has slowed down on new acquisitions for now with ISE / Himalaya Service and is continuing to operate with one in-chartered vessel of about 8,500 TEU capacity. No CAPEX expansion planned this year so far. But option are kept on and Division is scouting for second hand vessel(s) if it fits commercial requirements. Engagement with landside Logistics PSU firms viz. CONCOR, Balmer Lawrie, CWC etc. for offering seamless multi-modal services between Inland locations and ports on the Indian Coasts as well as overseas ports. We have also undertaken feasibility study for setting up owned or jointly operated CFS / ICDs for various viable routes and also freight forwarding operations.

H.    Important Developments

a)    Induction of higher capacity vessel (m.v. SCI Chennai) in SMILE Service, thereby, increasing the slot allocation & revenue realization.

b)    Induction of higher capacity vessel in ISE service to meet trade requirements.

I.    Awards and Accolades

1)    Mrs. Sangeeta Sharma, Director (Liner & Passenger Services) is the winner of India Maritime Awards of “Woman Professional in Shipping & Logistics” for her outstanding contribution in the shipping business. She was conferred with the prestigious trophy in an award ceremony held on 22nd June 2018 in Mumbai.

2)    The Shipping Corporation of India Ltd. has been awarded with the Certificate as the Runner-Up for the "Best Shipping Line of the Year -Break bulk / Heavy Lift Operator".

J. Material changes and commitments, if any, affecting the financial position of the Company, which have occurred between the end of the financial year of the Company to which the financial statement relates and date of report: None

3 TECHNICAL & OFFSHORE SERVICES

A) TECHNICAL SERVICES ACTIVITIES

i)    World scenario

The offshore support vessels industry is dependent on utilization of rigs, E&P activities and other activities in oil fields, which in turn depends upon strategic decisions of energy security by oil and gas producers, shifts in Government policies and long term crude oil price trends.

Till mid of FY 2017-18, in last four years the oil price were falling. However, since winter of 2017, the oil prices are showing some recovery and by end of FY 2017-18 average OPEC basket crude oil is improving. The positive is that at the end of 17-18, crude prices moved beyond US$70 and is showing further signs of strengthening. Some new E&P activities across the globe are expected to take place during FY 201819. During 2017-18, with low crude oil prices, oversupply of offshore assets across globe, less number of offshore E&P activities and hence the lower charter / freight rates for offshore vessels, the utilization of offshore assets globally was below 60% range throughout the year.

ii)    Outlook:

The lower charter hire rate for the vessels has resulted in fall in selling price of the assets and many asset owners filed bankruptcy during the year. Many assets exchanged ownership, with purchase of second-hand ships at lower price and considering competition of already oversupplied market, the freight rates for offshore assets are expected to remain under pressure. However, with improvement in crude prices during Q4 of FY 2017-18, the E&P activities are expected to rise and hence the requirement of offshore assets. Experts believe that the crude

oil price is expected to breach US$ 80.00 per barrel mark in near future. Considering self-sufficient policy by Governments of most of the developed and developing countries for the requirement of energy resources, the E&P activities throughout the world are expected to show upward trend soon and hence the requirement of offshore assets are expected to rise.

iii)    Indian scenario

Historically, India’s domestic production of oil and gas has fallen short of its burgeoning energy requirements, compelling our country to rely on imports. In view of stable crude oil prices, there has been increase in import of crude and private players are avoiding any new exploration and discovery activities. Though, there is an increase in consumption of crude by the country over the years, the requirement is majorly fulfilled by import of crude / petroleum products. In terms of quantity, the Crude oil imports in India was 213 million tonne (MT) in FY 2016

17 and same is pegged at 219 million tonne (MMT) for FY 2017-18. The oil import bill for FY 2016-17 was at US$ 70.196 billion, which is expected to be at US$ 87.7 billion for FY 2017-18, which is an increase of about 25%. The outcome of ONGC and other E&P operators tender shows that the expected per day rates for offshore assets were at bottom during the first quarter of FY 2017-18. However, by the end of FY 2017-18, the rates are firming up and freight market is showing some upward movement. During last quarter of FY 2017-18, crude oil prices shot up by around 24% and same rise was reflected in freight rates as well.

iv) Outlook:

With upward movement of crude oil prices and the Government of India’s intervention on reduction of oil import bill, E&P activities on Indian coast is definitely expected to rise. And with increasing E&P activities, requirement of offshore assets would automatically see a surge in demand.

B OFFSHORE ACTIVITIES:

1    SCI owned Offshore vessels

In the previous year, your Company’s owned offshore fleet comprised of 10 vessels i.e. 03 nos. 80T Anchor Handling, Towing Supply Vessels (AHTSVs), 04 nos. 120T AHTSVs, 02 nos. Platform Supply Vessels (PSVs) and 01 no. Multi-Purpose Support Vessel (MPSV). During the year, your company acquired one resale Multi-Purpose Support Vessel (MPSV), “SCI Saraswati”, on 07.07.2017 of 3,616GT and 3,719 DWT. This vessel is successfully deployed on a distinguished long term charter with Defence Research & Development Organization (DRDO). During the year, one 120 T BP AHTSV viz. SCI Kundan continued to remain on long term charter with ONGC, while 3 nos. 120 T BP AHTSVs (Viz. SCI Pawan, SCI Ahimsa and SCI Urja) completed their contract during first half of the financial year. After completion of long term charter, these 3 nos. 120 T AHTSVs were operating in spot market /short-term charter. 2 nos. MPSVs (viz. SCI Sabarmati and SCI Saraswati) are on long term contract with DRDO. One 80 T AHTSV (SCI Ratna) of your company capsized on 21st November, 2017, due to ingress of water in the engine room. The incident took place 96 nautical miles off the coast of Mumbai and there was neither loss of life nor any oil spill in the vicinity. Further your company has already received the Insurance amount due in the matter. Remaining 2 nos. PSVs and 2 nos. 80T AHTSVs were predominantly operating in spot charter.

2    O&M of ONGC owned vessels

2.1    Mobile Offshore Drilling Units (MODU)

In view of the expertise of your Company in management of offshore vessels, ONGC has awarded long term contract for Marine Man Management services of their two MODUs viz. “Sagar Vijay” and “Sagar Bhushan” with effect from July 2016 and August 2016, respectively, for a period of 06 years.

The interim Document of Compliance (DOC) Audit for MODUs was completed successfully by the Directorate General of Shipping on 28.12.2016    without any NC or observation. This is a significant achievement in terms of MODU operations, which is completely different from other vessels and has proved Company’s expertise in the diversified field.

2.2    Newly acquired OSVs by ONGC

ONGC had placed orders for 12 new built OSVs at M/s Pipavav Defence and Offshore Engineering Company Ltd. Your company has successfully included seven ONGC owned vessels under its fleet of managed vessels, delivered from the shipyard, from 2013 onwards. Balance 5 vessels will also be handed over to SCI under O&M contract as per their respective construction & delivery schedule.

ONGC has already given Notification of Award to your Company to operate, man and manage all these 12 vessels under Operations & Maintenance (O&M) contract on cost plus remuneration basis valid till 31.03.2023, thus ensuring continued long term business for SCI.

2.3    Specialized vessels

Your Company has continued the Operation & Maintenance management (O&M) of ONGC’s 2 Multi Support Vessels (MSVs)(“Samudra Sevak” & “Samudra Prabha”) and one Geotechnical Vessel (GTV)(“Samudra Sarvekshak”) on nomination basis under ‘Cost plus’ arrangement. The existing contract for GTV is valid up to  31.03.2018, extension of which is in process and that of MSVs is valid till 31.03.2019.

Your Company has also continued the Operation & Maintenance management (O&M) of ONGC owned Well Stimulation Vessel (WSV) “Samudra Nidhi” on ‘cost plus basis’ since the vessel's delivery in year 1986. Your company has been awarded 6 years long term contract by ONGC for Samudra Nidhi, valid till 31.03.2023.

3    Emergency Towing Vessel (ETV) 2017

On request of Directorate General of Shipping (DGS), this year also your company provided one Emergency Towing Vessel (ETV), "SCI Panna", for emergency services in the monsoon period, on West Coast of India and East Coast of India, for a total of about 153 days, w.e.f. 01.07.2017    till 30.11.2017.

4    DRDO Project

The Defence Research & Development Organization (DRDO), Government of India (GOI), Ministry of Defence (MOD) had requested your company for hiring of three support vessels as a platform for ship-borne tracking stations for flight trials over the Bay of Bengal and Indian Ocean. Your company had in-chartered two suitable vessels w.e.f. 27.03.2012 and 05.04.2012. The contract for these vessels had come to an end in 2016.

Thereafter, your company has acquired two suitable offshore vessels (Multi-Purpose Support Vessels) and has provided the same to DRDO on a long term charter of 4 years, for their above missions of national importance. The two MPSVs acquired by SCI are “SCI Sabarmati” on 18.11.2016 and “SCI Saraswati” on 07.07.2017, which have been deployed with DRDO.

5    Risks and Concerns

About 7 vessels are primarily operating in spot market. In spot market, per day charter hire rates are generally higher than the long term rates (industry average), however, there are more operational challenges and loss of employable days during frequent change of charter in spot market for conducting inspections/clearances. Hence efforts are being made by your company to obtain long term charters, albeit the prevailing rates are on the lower side.

Your company is keeping contacts with many E&P operators and EPC contractors with expected future requirement for offshore vessels for their offshore activities. Simultaneously, your company is also continuously on lookout for any long term employment for these vessels, not only in the Indian waters but also in Foreign waters. Informatively, majority charterers in spot market are satisfied with performance of your company’s vessels during FY 2017-18.

Strengths and Weaknesses

Your company has a diversified fleet of offshore vessels with 02 nos.80T AHTSVs, 04 nos.120T AHTSVs, 02 nos.PSVs and 02 nos.MPSVs, thus enabling it to cater to requirements of various clients in the offshore market. Your company also owns a fleet of young offshore vessels, thus giving a technological advantage compared to the older vessels in the market.

SCI has always focused on employing its vessels on long term basis with ONGC, which is the biggest E&P Company in India. However, dependence for majority activities on one client has its own dis-advantages, especially considering the de-hiring of vessels by ONGC last year. Thereafter, in view of the subdued markets and increased supply of vessels in the market, employing these off-hired vessels was difficult for SCI. By the end of year, only three out of ten offshore vessels owned by SCI were on long term charter. Though the per day charter hire rates for spot is more than the long term ONGC rates (industry average), there are more operational challenges and loss of employable days during frequent change of charter in spot market for conducting inspections/clearances. Meanwhile, your Company has been approaching and employing its vessels aggressively with other private players in the market and yielding successful results. Further, with the ‘Make in India’ campaign of Government of India and with the Governments’ view of being self-sufficient in all possible ways, the offshore industry is also expected to improve in coming years.

7 Opportunities and Threats

With increase in crude oil prices and increase in oil import bill, the E&P activities are expected to rise, thereby creating shipping demand for offshore assets in Indian coast. Further, with merger of ONGC (E&P player) and HPCL (Oil Marketing Company), their strategic decisions are now inter-linked with each other’s requirement. Your company’s offshore vessels have an average age of only 5 years and have balance economic life of about 20 years. The long remaining years of economic life will definitely help your company’s offshore division to take advantage of growing offshore market in future.The weakness in asset prices also presents opportunities for SCI to acquire good vessels in the second hand / resale markets at a very competitive prices, which can earn good profits at lower charter levels as currently prevailing in the short term.

However, with falling charter hire rates and fall in asset prices, many new players entered in India’s offshore market. Entry of new players and availability of old offshore assets at lower price are leading to high competition resulting in charter hire rates in ONGC’s recent tenders to be very low and it has not been gainful for offshore assets of your company to be employed at these low levels.

Your company is also looking at various other prospects for employing its vessels, which include Government organizations, like DRDO, and is also trying to boost its revenues by enhancing its managed vessel fleet/technical consultancy services. Your company is also approaching new clients like Inland Waterways Authority of India (IWAI) for providing technical consultancy services for their forthcoming ship acquisition plans for development of the inland waterways.

C) Technical Services:

1    Technical Consultancy Services

During the year under report the Company continued to provide technical consultancy services to A&N Administration, UTL Administration, Geological Survey of India, Andaman Lakshadweep Harbour Works (ALHW), Union Territory of Daman and Diu Administration (UTDD) and other Government Departments for their various ship acquisition/retrofit projects.

2    Tonnage Acquisition Programme

During the year under report, your company had proposed an outlay of Rs.500 crore towards acquisition of vessels. Your company had envisaged acquisition of second-hand/ resale offshore vessel, Suezmax Tankers and VLGC size LPG carriers. SCI has taken delivery of three vessels during the year, and named as “SCI Saraswati” (MPSV); “Desh Abhimaan” (Suezmax Tanker); and “Nanda Devi” (VLGC).

Presently, the asset prices are comparatively at low levels, hence looking at the favourable market for second-hand/resale vessels, your company is endeavouring to buy second-hand/resale vessels to increase the Indian/SCI tonnage and for immediate deployment in the market. Your company is optimistic to acquire offshore vessels and oil tankers/gas carriers at this opportune time, with low asset prices so as to expand its fleet size.

3    Eco-Friendly and Conservation of Energy

As a policy, your Company remained committed to environmental protection as per International Convention for the Prevention of Pollution from Ships. Necessary steps have been taken to minimize air pollution and oil pollution from ships.

On new vessels electronic engines are being fitted in order to reduce fuel consumption and improve operational efficiency. Your company has decided to implement specific measures to improve fuel consumption and operational efficiency, like turbocharger cut out device was fitted on some of the Container vessels and trim optimization was implemented on some of the Aframax tankers and bulk carriers.

As per directive from IMO, all ship owners are required to report fuel oil consumption data from 1st January 2019. Your company is geared up to meet IMO's fuel oil data collection system directive.

For the existing vessels, your company had developed a Ship Specific energy efficiency management plan to further improve and monitor energy efficiency in ship operations. All engines being fitted on board are meeting latest requirement of NOx compliance. Installation of Ballast Water Treatment plants, Silt Water Management, usage of eco-friendly refrigerants, usage of TBT free paints, ship recycling plan, etc are some of the measures showing your company’s commitment to Eco-friendly policies and conservation of energy.

4    Technology Absorption, Adoption and Innovation

The SCI has taken all steps to comply with requirements of The International Maritime Organization’s MARPOL Annex-VI aimed at Controlling Air Pollution and setting limits on Emissions to the Atmosphere from Ships. On the new vessels SCI has voluntarily accepted higher than mandatory requirements on emission standards.

For 500 passenger vessels under construction at M/s Cochin Shipyard Ltd., SCI as a technical consultant recommended installation of "Active Fin Stabilizers" to reduce the rolling periods thereby increasing the passenger comfort. Further on 1200 Passenger vessels under construction at same yard, automatic anti-heeling system, Ballast Water Treatment Plant (BWTP) and Integrated Alarm & Monitoring System (IAMS) have been recommended by SCI.

The main engines and auxiliaries on board existing vessels in the fleet are being modified and equipped to handle low sulphur distillate fuels in order to comply with regulatory fuel sulphur limits in IMO emission control areas, ports in the European Union and ports in the State of California. Further, on new 1200 Passenger ships for A&N Administration, SCI has recommended diesel-electric propulsion system to improve operational efficiency.

5    Situation in Coastal operation and Offshore areas

The offshore industry has been through a very difficult phase over the past three years, and hence, all the companies in the Offshore Support Vessel market (OSV) have been severely affected. Exploration & Production (E&P) companies have reduced their rig counts drastically, causing demand for OSV services to plunge. Excess rig capacity has hit Platform Supply Vessels (PSVs) and Anchor Handling, Towing & Supply (AHTS) vessels the hardest. However, as the oil price has doubled since reaching the bottom in January 2016, the OSV market to some extent moved into recovery stage during the period under review, especially during the last quarter of 2017-18.

6    Measures taken to improve services and operations

During the year under review, your company has taken continuous efforts to maintain the offshore fleet to the required standards for optimal utilization in the tough shipping market. The greater emphasis has been given on preventive and planned maintenance for cost effective operations and maintenance of OSVs. Your company has availed every opportunity to employ vessels on spot charter. The available downtime was well utilized for maintenance and overhauls of machinery.

To improve its operations, your Company has taken various steps, like upgrading the conventional seals of 80T AHTSV vessel in a phased manner with advance sealing system with additional sealing arrangement called UNNET assembly to protect seals from nets, ropes and foreign particles. Also necessary changes have been made in the A/C system of 120T AHTSVs resulting in smooth operation of the vessels. Further, your company has already entered into long term rate contracts with Original Equipment Manufacturers (OEMs) of major spare suppliers, so as to benefit from the discounted rates and streamline un-interrupted supply to our vessels.

7    Awards and Accolades:

The following managed vessels have received the BEST HSE PERFORMANCE award from ONGC during the year 2017-18 for the category mentioned against the vessel:

1.    MODU Sagar Vijay - ONGC Drillship

2.    OSV L.J. Johnson - ONGC Offshore Logistic Vessel

3.    WSV Samudra Nidhi - ONGC MSV (IMR & Stimulation Vessel)

Further, MSV Samudra Sevak has received appreciation from ONGC for the commendable job undertaken by the vessel of recovery of damaged boat landing of B55 platform successfully and resumption of huge blocked gas production. The praiseworthy accomplishment of MSV Samudra Sevak team deserves highest level of appreciation.

Also, MSV Samudra Sevak has received appreciation from Master of "Aban Ice" (oil rig) for carrying out commendable job of disconnecting kill line from sub-sea - BOP (blow out preventer) of "Aban Ice" and connecting new line lowered from rig in zero visibility and very rough sea conditions.

8    Material changes and commitments, if any, affecting the financial position of the Company, which have occurred between the end of the financial year of the Company to which the financial statement relates and date of report

M.t. Guru Gobind Singh disposed off on 12.07.2018. The vessel was a crude oil tanker built in 1995 with 147,474 DWT and 80,130 GT

IV International Safety Management Cell

The SCI has introduced the Safety Management System by setting up a dedicated International Safety Management (ISM) Cell, which has developed, structured and documented procedures in compliance with the International Management Code for Safe Operation of Ships and for Pollution Prevention (ISM Code), in accordance with the resolution A.788(9) of the International Maritime Organization (IMO) and SOLAS, Chapter IX.

The SCI has laid the foundation of the Safety Management System (SMS) by recognizing that the cornerstone of good Safety Management is a commitment from the top management, coupled with the competence, attitude and motivation of individuals at all levels, that determines the expectations of a good Safety Management System.

The SCI has complied with all the functional requirements of the ISM Code, which includes the Safety, Occupational Health & Environment Protection Policy and Drug & Alcohol Policy.

Presently SCI holds 07 (Seven) separate Document of Compliance for individual ship types as under:

1.    Bulk Carriers (Indian Administration) - Valid till 31.10.2022.

2.    Oil Tankers and Gas Carriers (Indian Administration) - Valid till 31.10.2022.

3.    Passenger Ships (Indian Administration) - Valid till 31.10.2022.

4.    Other Cargo Ships (Indian Administration) - Valid till 31.10.2022.

5.    MODU Vessels (Indian Administration) - Valid till 31.10.2022.

6.    Gas Carriers (Malta) for LNG Vessels - Valid till 26.05.2019.

7.    Gas Carrier (Singapore) for LNG Vessel - Valid till 26.05.2019.

As regards, Safety Management Certificate (SMC) for SCI fleet, all ships are put up for periodical/ renewal SMC audits within time frame and respective SMCs are accordingly endorsed.

The last Renewal/ annual DOC Verification Audit of the Company was carried out as follows:

1.    DOC issued by Indian Administration - 01.11.2017 (Renewal Audit)

2.    DOC issued by Malta Administration - 20.07.2017 (Annual Audit)

3.    DOC issued by Singapore Administration - 20.07.2017(Annual Audit)

Also, the requirements of various amendments to ISM Code and Statutory regulations from IMO/Flag are also complied with. New acquisitions are brought under the SMS, before delivery, with full compliance of the ISM Code.

The achievement of time-bound certifications was the result of the SCI’s strength of professional experience, planning, training, execution, systematic analysis and quality expertise, which is an asset for any world-class ship operator or owner. The SCI is also in a position to provide such management expertise to other national/international ship operators.

Awards & Appreciation:-

1.    Appreciation received from Chief Scientist to vessel Sagar Sampada towards retrieval of SREP on 16.05.2017.

2.    Appreciation was received on 03.07.2017 to team of MSV Samudra Sevak for commendable job of recovery of damaged boat landing of B55 platform successfully and resumption of huge blocked gas production.

3.    Various vessels of your company were awarded the AMVER award - trophies from U.S.Coast Guard through United States Consulate, Mumbai in September 2017.

Company's Safety, Occupational Health and Environment Protection Policy was reviewed and amended on 01.03.2018.

ISPS Cell

The SCI has successfully implemented the ISPS Code on all vessels on international voyages and coastal trade vessel as per the Administration requirement.

SCI is committed to the following objectives to fulfil the requirements of its security policy:

-    Security of its ships and their crew, passengers and cargo

-    Support to its ships in implementing and maintaining the Ship Security Plan.

Integrated Management System (IMS)

SCI has successfully upgraded to 2015 version of ISO 9001:2008-Quality Management System and ISO 14001:2004 - Environmental Management System on board all vessels and shore establishments.

SCI is certified with IMS (ISO 9001:2015-Quality Management System, ISO 14001:2015 -Environmental Management System and OHSAS 18001:2007-Occupational Health and Safety Management System) w.e.f. 27.04.2018 and Certification is valid till 22.12.2019.

V PERSONNEL AND ADMINISTRATION FLEET PERSONNEL

Consequent to the negotiations held between INSA Negotiating Committee and MUI Representatives for revision of INSA-MUI Wage

Agreements of Officers serving on Foreign-Going, Home Trade and Offshore Support Vessels, the revised INSA-MUI Wage Agreement for the period effective 01.04.2015 to 31.03.2019 was signed on 03.10.2017.

There is an acute shortage of senior Floating Staff officers, especially in the ranks of Masters, Chief Engineer Officers and 2nd Engineer Officers. The Fleet Personnel Department is trying to mitigate the shortage by recruiting officers on direct contract and through manning agents by offering market-related wages which have been revised significantly in the Main Fleet and Offshore Sector. However, the shortage continues due to taxation issues.

To facilitate development of employees with an aptitude for learning and for improving their in-born skills, the department organized the following seminars and training programmes:

i.    Professional Development Course for ratings on 30th November and 1st December 2017.

ii.    Professional Development Seminar for the senior officers on 30th November and 1st December 2017 covering topics like Maritime Labour Convention, Automation and Control Engineering, SEEMP Risk Management, Vetting Requirements, Safety and Security Issues, Vessel Resource Management, Hydraulic and Pneumatic control etc.

To uphold and appreciate the safety culture, the Fleet Safety Awards function was organized on 01.12.2017. The fleet was divided into nine groups and against stiff competition the following nine vessels were awarded Fleet Safety Awards for being the Safest Ships in the year 2016.

Tanker Group T1:    M.T. Desh Viraat

Tanker Group T2:    M.T. Swarma Kamal

Specialized Vessels Cell (SVC Gas Carrier) Group: Aseem Bulk Carrier Group:    M.V. Vishva Preeti

Container, Research and Survey:    M.V. Samudra Ratnakar

Passenger Ship Group:    M.V. Campbell Bay

SCI Offshore Vessels Group:    SCI Kundan

ONGC Offshore Vessels Group:    N.B. Prasad

MSV Offshore Vessels Group:    Samudra Sevak

The Master and leading categories of officers and ratings of the prize winning ships were invited and they participated in the event.

To ensure an uninterrupted supply of officers, deck cadets, on completion of their shipboard training and subsequent to their obtaining the certificate of competency, are being offered regular employment on the terms of INSA-MUI Agreement.

2 MARITIME TRAINING INSTITUTE

Your company’s Maritime Training Institute (MTI) at Powai has been awarded two prestigious awards in 2017 for excellence in maritime education - The Maritime Standard Award, Dubai and Lloyd’s List: South Asia Middle East & Africa Award, Dubai. Approvals have been sought for commencing new courses at MTI Powai, including Second Mate (F.G.) function course (competency course), Electro -Technical Officer (ETO) Course, ROC-ARPA (Radar Observer's Course - Automatic Radar Plotting Aids), Proficiency in Survival Craft and Rescue Boats (PSCRB), and few others to cater to SCI and external participants in both - Nautical and Engineering domain. Presently, four batches of Diploma in Nautical Sciences (DNS) at Powai campus and two batches of Diploma in Nautical Science (DNS) Course at Tuticorin campus are underway. MTI, Powai has also successfully commenced two batches of Graduate Marine Engineering (GME) this year. Regular Guest lectures, seminars, professional development programs and skill enhancement programs are being conducted for all ranks of officers, petty officers, ratings and shore officers to enhance their competence and build a sense of belonging in them towards the company.

Your Company’s Training Centre - Maritime Training Institute at Powai, Mumbai has been assigned GRADE A1 (Outstanding) rating by Class NKK after the inspection as per the Comprehensive Inspection Programme Guidelines of the Director General of Shipping. The Institute has also improved upon the Indian Maritime University (IMU) ranking from 19th to 14th and aims to reach in top 10 Maritime Training Institutes. MTI has actively contributed to the discussions and meeting for skill development and employment creation in Maritime sector under the purview of Sagarmala, Ministry of Shipping, Government of India.

Your Company’s Training Centre at the Maritime Training Institute at Powai, Mumbai has conducted 333 Courses for 5545 participants and the total man-days trained during this year is 101114. These included 92321 man-days for SCI’s personnel and 8793 man-days for personnel from other companies. In addition to this, 164 of SCI’s personnel were trained outside MTI and the additional man-days of training are 535. However, 105 SCI shore personnel were provided 105 man-days of in-house training. Every endeavour is made to ensure that our training institute is self-sustaining.

Reservation policy

- At MTI we have followed centre's policy of reservation during the cadet admissions. We had admitted the DNS cadets as per the table below:

Intake

Batch

ST

SC

OBC

GEN

Jul 2017

42, 43 & 44

3

8

50

56

Jan 2018

45, 46 & 47

2

12

47

57

 

Batch

ST

SC

OBC

GEN

GME-06

02

08

14

16

GME-0703

07

12

18

 

2.2 Information towards major achievement during the year under Review i.e. FY 2017-18 Non-Academic Achievements:

A.    SOLAR POWER PLANT

SCI-MTI became the first Green Campus in Maritime Education Industry in 2017.

SCI-MTI has already increased its solar power generation capacity to 0.5 MW and reduced its electricity bills by approx. 50 - 60% on monthly basis.

SCI-MTI is also utilizing the in-campus natural waste (leaves etc) to create manure and Lake/Well Water for gardening work in MTI campus.

B.    Wi-Fi

SCI-MTI has sought management approval for becoming a Wi-Fi enabled campus. M/s. Reliance Jio is in process of providing the Wi-Fi infrastructure and required internet access in the campus.

Academic Achievements

SCI-MTI has been awarded with the following awards this year;

Lloyd’s List: South Asia Middle East & Africa Award - ‘Training Award’, Dubai

The Maritime Education & Training Award at The Maritime Standard Award (TMSA), Dubai

Pass percentage for first semester IMU exams have gone up from 62% to 79% in December 2017 examinations in comparison to June 2017 examinations.

Sessions, lectures and training beyond academia has been provided to participants at SCI-MTI, pertaining to stress management, yoga and holistic development.

C.    Business Development Initiatives

SCI-MTI has aggressively communicated about its pre-sea courses (DNS and GME) to various schools, colleges, and coaching institutes for increasing awareness of Merchant Navy as a career and about academic and career opportunities with SCI-Maritime Training Institute. Institute’s various courses are being offered to non-marine industry as well for skill development and enhancement, such as Fire Prevention and Fire Fighting Techniques, Training of Trainers and Assessors etc.

D.    Others

E.    The Fleet Safety Awards function was held at the MTI Auditorium on 01st December, 2017.

3    Shore Personnel

The total manpower as on 01.05.2018 is 718 excluding CMD, five Functional Directors and CVO, out of which 661 are officers and 86 are staff members.

Various training programmes, both in-house and outside, including General Management Training programmes have been held for the employees for development of their skill sets and domain knowledge.

4    Reservation Policy

Your company is complying with all government guidelines as applicable from time to time in respect of reservation policy so as to empower the weaker sections of the society.

5    SC/ST/OBC REPORT

Annual Statement showing the representation of SCs, STs and OBCs as on 1st January 2018 and number of appointments made during the preceding calendar year:

Name of the Public Enterprise: The Shipping Corporation of India Ltd.

Groups

Representation of SCs/STs/OBCs (As on 1.1.2018)

Number of appointments made during the calendar year 2017

By Direct Recruitment

By Deputation/ Absorption

Total no. of employees

SCs

STs

OBCs

Total

SCs

STs

OBCs

Total

SCs

STs

1

2

3

4

5

6

7

8

9

10

11

12

Executives

A

636

125

52

99

2

0

0

1

0

0

0

Non Executives B

68

22

4

3

0

0

0

0

0

0

0

C

19

6

1

0

0

0

0

0

0

0

0

D

1

0

0

0

0

0

0

0

0

0

0

Total

(Executives in Grade ‘A’ plus Non - executives)

724

153

57

102

0

0

0

0

0

0

0

6    Women Representation

Your company is committed to the principle of equal employment opportunity and strives to provide employees with a work place free of discrimination. All HR activities of recruitment, placement, promotion, transfer, separation, compensation, benefits and training ensure equal opportunities for skill enhancement and career progression.

Your company’s efforts are reflected in the representation of women across various hierarchical grades. At present women constitute around 20.75% of total workforce at shore establishments of your company.

SCI has been the pioneer in India with regards to recruiting women for jobs on board its fleet. Presently, four Masters, five Chief Officers, two Second Engineers, 36 Second/Third Officers and Third/Fourth Engineers are women serving on various types of ships.

Your company encourages active involvement in the activities of the Forum of Women in Public Sector (WIPS) since its inception. WIPS, Western Region, under the aegis of SCOPE has appreciated your company’s efforts by conferring the “Best Enterprise Award (2nd Prize)” under Navratna Category.

7    Policy to prevent sexual harassment in workplace

Your company promotes gender equality and has been taking proactive measures to prevent any Sexual Harassment at workplace. Your company has constituted a committee comprising of senior women executives and a woman representative from the NGO Pratham to enquire into complaints of Sexual Harassment at the workplace. One case of sexual harassment have been reported during the year ended 31st March, 2018 for which enquiry is in progress.

8    Corporate Social Responsibility (CSR) and Sustainable Development (SD)

The Corporate Social Responsibility vision of your company articulates its aim to be a corporate with its strategies, policies and actions aligned with wider social concerns, through initiatives in education, public health, environment and other areas of social upliftment.

Your company has framed its CSR policy in line with the guidelines contained in the Companies Act 2013 and Companies (CSR Policy) Rules, 2014 notified therein and constituted a CSR - SD committees as per the act to coordinate and oversee the implementation of CSR initiatives. The budget available for CSR initiatives in the year 2017 - 18, as per applicable provisions was Rs. 5.85 Crores. Against the available budget, your company allocated Rs. 5.85 Crores against following initiatives in the year 2017-18. The details about the policy developed and implemented by your Company on CSR initiatives taken during the year is available on SCI's website at the following link : http://www. shipindia.com/investor-relations/Notice.shareholders.aspx In line with the above vision following initiatives have been undertaken:

(i)    Promoting Preventive Health Care: Your Company has joined hands with Vivekananda Medical Research Trust, Palampur to start Urology Surgeries program at Vivekananda Medical Institute. Your company has also joined hands with Sri Chaitanya Seva Trust for supporting financially weaker patients battling with Cancer for surgeries at Bhaktivedanta Hospital & Research Institute, Thane.

(ii)    Promotion of Education - Your company awarded scholarships to meritorious students from weaker section of the society, viz. SC/ST/ BPl candidates, pursuing Ocean Engineering/Naval Architecture/Nautical Science/GME courses at premier institutes (IMU’s, IIT’s & MTI) to encourage and support Maritime Education in the country.

9    Women Empowerment & Gender Equality

Your Company has undertaken following initiatives under this head:

a) Supporting Parichay Foundation for providing bicycles to 59 girls coming from financially weaker background of tribal areas of Orissa. This will help these girls to reach their place of study, thus empowering them to continue with their education.

b)    Joining hands with Sahayog Society for Participatory Rural Development for supporting the project ‘Badhte Kadam, Buland Awaazein’ -An initiative to reduce girl dropout rates in schools by reducing violence against girls and promoting menstrual hygiene management facilities.

c)    Supporting Uddipan Educational Trust (UET) for construction of Girls’ Hostel for less privileged girls.

d)    Joining hands with Apparel Made-Ups & Home Furnishing Sector Skill Council (AMHSSC) for skill development training of 150 women

10    Environmental Sustainability & Rural Development - Your Company has joined hands with Rajasthan Electronic & Instruments Ltd. for Installation & Commissioning 100 Solar Photovoltaic Based Led Street Lighting Systems at Purna, Bihar for ensuring better illumination in the streets, safety and security and extended night life in the villages.

11    Eradicating Hunger & Malnutrition - Your Company is supporting Akshaya Patra Foundation for provision of mid-day meals to 1121 school children.

12    Employment Enhancing Vocational Skills for Divyangjans - Your Company has joined hands with The National Association of Disabled's Enterprises for setting up a Livelihood Project, "printing & stationary manufacturing" to provide training & employment to 100 divyangjans. Your Company has also joined hands with National Handicapped Finance & Development Corporation to provide skill development training to the 150 divyangjan to make them capable and self-dependent.

13    Swachh Bharat Abhiyan & Ganga Rejuventaion - Your Company undertook the construction/renovation/maintenance of 145 toilets across the country and your Company is also supporting for Solid Waste Management at port Blair under Swachh Bharat Abhiyan of Govt. of India. Additionally, your Company has joined hands with the National Mission for Clean Ganga for development of Katwa Ghat, West Bengal.

14    Recently, in wake of the Okhi Cyclone, your Company also initiated distribution of blankets to cyclone affected fishermen.

Against the allocation of Rs. 5.85 Crores, Rs. 1.70 Crores have already been spent and balance will be released on achievement/completion of project specific timelines.

15    Implementation of Official Language Policy

With an objective to implement the Official Language policy of the Govt of India, your Company remain committed to enhance the usage of Hindi in its day-to-day affairs during the year under report. In order to achieve the targets prescribed in the Annual Programme issued by the Ministry of Home Affairs, your Company organized various Hindi activities and competitions at a regular interval. Besides this, a half-day Hindi Unicode computer workshops were also conducted on monthly basis to train employees in Hindi on computers.

Your Company has also created an atmosphere to spread the use of Hindi through email correspondence by introducing a Quarterly Hindi correspondence incentive scheme. As a result, a number of employees are encouraged to take active part in this Scheme, and the eligible employees are being rewarded every quarter.

During the Hindi Pakhwara in September 2017, an appeal by CMD was emailed to all employees calling upon them to increase Hindi work in official correspondence, and thereafter, a Linguistic Harmony Culture Programme was organized for employees wherein poetry recitals and songs in different regional Indian languages like Marathi, Gujarati, Punjabi were presented. Your Company also attended TOLIC meetings during the year under report.

16    Procurement

Your company enters into rate contract on periodical basis for procurement and supply of high value and safety items like Marine Lubes, Marine Paints, Charts, Wire ropes, LSA / FfA, Life Rafts etc. This ensures timely supply of quality goods / services to the vessels at reasonable price. Being a responsible Corporate, your Company continues to support the medium and small scale Enterprises by procuring a part of its supplies and services from MSME.

17    Protection & Indemnity (P&I) Insurance

Protection and Indemnity (P&I) Insurance cover entered with 3 Group P&I Clubs for your company’s fleet for the policy year 2018-19 commencing from 20.02.2018 has been negotiated by your Company. Your Company, after protracted negotiations, was able to obtain a further reduction of 3.47% over and above the reductions obtained in the last financial year in the renewal premium over the expiring premium resulting in a net reduction of USD 178,727 towards renewal premium for policy year 2018-19.

Further, your company is glad to inform you that Group P&I Clubs have refunded 5% - 10% of the annual premium for the policy year 2017-18 to your company (and other members) in view of their better financial performance.

18    Appointment and Remuneration Policy

The appointments in your company are done in accordance with Government of India guidelines. The remuneration to the senior management and other shore employees of your company is governed by the Presidential Directives issued by the Ministry of Shipping and Department of Public Enterprises (DPE), from time to time, which form the remuneration policy of your company.

VI RIGHT TO INFORMATION ACT 2005 (RTI ACT 2005)

A suitable mechanism has been put in place for dealing with the requests and appeals under RTI Act 2005. The RTI manual is posted on the Company’s website. Your Company has been complying with the provisions of the Act within the stipulated time limit provided under the Act. As on 31.03.2018, your Company has disposed off most of the applications and appeals received from the parties.

VII (A) JOINT VENTURE COMPANIES

India LNG Transport Co.(No.1), (No.2) and (No.3) Ltd

SCI has entered into three JVCs with three Japanese Companies viz. Mitsui O.S.K.Lines (MOL), Nippon Yusen Kabushiki Kaisha (NYK) and Kawasaki Kisen Kaisha Ltd (K Line) along with Qatar Shipping Company (Q Ship) in case of ILT No. 1&2 and Qatar Gas Transport Company (QGTC) in case of ILT No. 3, each owning and operating an LNG tanker deployed in the import of a total of 7.5 million metric ton per annum of LNG for the Dahej Terminal of M/s Petronet LNG Ltd (PLL). SCI is the first and only Indian company to enter into the high-technology oriented

& sunrise sector of LNG. SCI is the manager for these three companies and managing techno-commercial operations of 3 LNG tankers. India LNG Transport Co. No. 4 Ltd

SCI had entered into 4th JV formed in Singapore, with the same three Japanese companies viz. Mitsui O.S.K.Lines (MOL), Nippon Yusen Kabushiki Kaisha (NYK) and Kawasaki Kisen Kaisha Ltd (K Line) along with Petronet LNG Limited (PLL), to own and operate one 173,000 CBM LNG Tanker for transporting 1.44 million metric tons of lNg from Gorgon, Australia to Kochi, India for charterers PLL. The 4th LNG carrier has been constructed at the Hyundai Heavy Industries, South Korea and was delivered on 30th November 2016. However with effect from 1st January 2018, PLL novated the time charter agreement to the new charterers Exxon Mobil Services B.V., Netherlands and the vessel is now trading worldwide. SCI is the manager for this company and is managing the techno-commercial operations since the delivery of the vessel.

SAIL SCI Shipping Pvt Ltd (SSSPL)

SCI and SAIL had co-promoted a JVC “SAIL SCI Shipping Pvt Ltd” (SSSPL), which was primarily to cater to SAILs shipping requirements. The JVC was incorporated on 19.05.2010. However, due to continued depressed freight levels, the JVC could not justify tonnage acquisition and both the Boards of SCI & SAIL decided to voluntarily wind up the company. The company is in the process of winding up.

Irano Hind Shipping Company Ltd. (IHSC)

The decision for dissolution of the Company taken by the Cabinet has been reiterated by the Ministry of Shipping and steps in this regard are being taken. Determination of assets and liabilities of the Company is being undertaken after which closure of the company as per the process stipulated under the Iranian Commercial Code will be achieved.

VII (B) SUBSIDIARY

Inland and Coastal Shipping Limited

India has a long coastline admeasuring 7500 km. and a large network of river systems. Despite this, very little attempt has been made to interlink these natural assets for a seamless, environment friendly transport system. In a bid to remedy this lacuna, during the Maritime India Summit 2016, the Inland Waterways Authority of India (IWAI) entered into a Memorandum of Understanding with The Shipping Corporation of India (SCI) on 15th of April 2016 to develop this field of domestic transport. Both parties agreed to work towards tapping the synergies of high sea shipping, coastal shipping and inland waterways to establish an integrated system of water transportation across the hinterland, the coasts and the high seas.

For this purpose, the SCI Board approved the formation of a dedicated subsidiary company of SCI, based in Kolkata. The Company has been named as “INLAND and COASTAL SHIPPING LIMITED” (ICSL). The subsidiary company is working on development of a viable business plan on this segment.

VII    (C) SPECIAL PURPOSE VEHICLE Sethusamudram Corporation Ltd.

The Government of India had constituted Sethusamudram Corporation Limited (SCL) to raise finance and to undertake activities to facilitate operation of a navigable channel from Gulf of Mannar to Bay of Bengal through Palk Bay (Sethusamudram Ship Channel Project). As per the Government directive, this project is to be funded by way of equity contributions from various PSUs including the SCI. As on FY 201617, SCI has invested ' 50 crore in the project. Work suspended since 17.09.2007 consequent to an interim stay by the Hon'ble Supreme Court for carrying out dredging operations in Adam's bridge area. Pending a final decision on alternative alignment, all the dredgers were withdrawn since 27.7.2009. Supreme Court's final hearing on the matter was scheduled on 06.04.2018, outcome of which is not yet known. Informatively, M/s RITES was given the task of finding an alternative alignment to execute the project without affecting the Ram Sethu. The report submitted by them is under Ministry consideration.

VIII    Memorandum of Understanding (MOU) with the Ministry of Shipping

The MOU for the financial year 2018-2019 was signed on 08.05.2018. The MOU, finalized as per the guidelines issued by the Department of Public Enterprise (DPE) for the year incorporates performance targets in sync with the changing dynamics of the shipping scenario. In addition to Financial Parameters, Sector-Specific Operational Parameters and Human Resource Management parameters, as per the DPE requirements, have also been incorporated in the mOu for achieving sustained overall growth. The MOU for the financial year 2017-18 would be due for evaluation by the DPE in November 2018.

IX. Details of shares lying unclaimed

The details of the shares issued pursuant to FPO remaining unclaimed and lying in the escrow account, the voting rights of which shall remain frozen till the rightful owner of such shares claims the shares, are given as under:

Sr. No.

Details

No. of Shareholders

No. of Shares

1

Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 01.04.2017

4

436

2

Number of shareholders who approached for transfer of shares from suspense account till 31.03.2017

0

0

3

Number of shareholders to whom shares were transferred from suspense account till 31.03.2017

0

0

4

Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 31.03.2018

4

436

5

Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 30.05.2018 *

0

000

* 2 shareholders claimed 224 & 50 shares respectively and the said shares were accordingly transferred to them in the month of May 2018. The remaining shares have been transferred to IEPF.

An amount of Rs.15,14,484/- w.r.t. 46 applicants lying unclaimed in the Refund Account has been transferred to IEPF.

X Utilization of FPO Proceeds

Proceeds from public issues, right issues, preferential issues etc.

During the year 2010-11, your Company had floated a “Further Public Offer”, (FPO), comprising of a ‘fresh issue’ of 42,345,365 equity shares in your company and an ‘offer for sale’ of 42,345,365 equity shares by the President of India. The FPO proceeds of Rs. 58245 lakhs were fully utilized in the financial year 2011-12 as per object of the issue for part financing of capital expenditure on nine shipbuilding projects. However, due to delays in the projects resulting in default by the shipyards, during the period January 2014 to May 2014, your Company rescinded contracts for four shipbuilding projects and also, re-negotiated the payments for two projects. The investment in the rescinded contracts out of the FPO Proceeds was Rs. 330.65 crores.

Your Company has received back entire sum of Rs. 330.65 crores from the shipyards. The shareholders vide the resolution passed through postal ballot on 11.02.2017 approved the proposal to re-deploy the said sum of Rs. 330.65 crores received as refund from Shipyards, towards various shipbuilding projects including offshore assets and liquid petroleum gas (LPG) vessels and also for acquisition of any other such vessels, on such terms and conditions as the Board would deem fit from time to time as mentioned in the aforesaid resolution. Further based on the approval granted by the shareholders, the Company can also utilize the sum towards the balance payments remaining due for the tonnage acquisition made by it.

Out of the said amount of Rs.330.65 crs, an amount of Rs. 196.80 crs has been utilized till date as under -

Month and Year

' Crs.

Utilized for

November 2016

34.37

Equity portion of PSV - SCI Sabarmati

April 2017

63.82

Equity portion of Suezmax Tanker - Desh Abhiman

July 2017

27.63

Equity portion of PSV - SCI Saraswati

September 2017

70.98

Equity Portion of VLGC - Nanda Devi

Total Utilised till date

196.80

 

XI    Segment-wise Performance

Report on performance of the various operating segments of the Company (audited) is included at Note No. 32 of Notes on Financial Statements (Standalone) for the year ended 31st March 2018, which is forming part of the Annual Accounts.

XII    Internal Control System

The Company has an internal control system, commensurate with the size, scale and complexity of its operations. Internal audit is carried out by an independent firm of Chartered Accountants M/s T.R. Chadha and Co. LLP on concurrent basis. The scope and authority of the Internal Audit function is defined in the Internal Audit Plan, which is approved by the Audit Committee. To maintain its objectivity and independence, the Internal Audit function submits quarterly reports to the Chairman of the Audit Committee of the Board. The Internal Audit examine, evaluate and report on the adequacy and effectiveness of the internal control systems in the Company, its compliance with the laid down policies and procedures and ensure compliance with applicable laws and regulations. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are reviewed, deliberated and presented to the Audit Committee of the Board.

XIII    Dividend Distribution Policy

The Dividend Distribution Policy of SCI seeks to reward its shareholders for their trust and investment in Company’s business objectives. The declaration and payment of dividend will be regulated by the Companies Act 2013 (LoDR) Govt. of India’s guidelines as amended from time to time. The quantum of dividend payments will depend on annual consolidated Profits, fund requirement for company’s expansion plans, present and anticipated future business environment with special reference to Shipping Industry and various other factors impacting company’s performance. The dividend distribution will also be subjected to restrictions / conditions, if any, imposed by lenders, orders of Courts and / or statutory bodies.

XIV    Role of Vigilance Division in SCI

During the year under review, the Chief Vigilance Officer continued to ensure the integration of preventive vigilance initiatives in the business process thus striving towards greater transparency and towards improved ethical and corporate governance standards. Vigilance Division undertook activities of preventive and punitive vigilance and also ensured adoption of good and ethical corporate governance practices towards achieving the stated objective of making your Company processes fair, transparent and corruption-free.

Technology has been leveraged for achieving greater transparency and for eliminating systemic weaknesses through various implemented and ongoing initiatives such as e-payments, promoting online registration of complaints via the Vigilance Webpage contained in the SCI website; migration to Supplier Relationship Management platform for all procurements; bill tracking system and dissemination of important circulars/guidelines on the webpage.

Vigilance Division has been propagating the culture of lodging of complaints under the Public Interest Disclosure and Protection of Informers’ Resolution (PIDPI Resolution - popularly known as Whistle Blowers Resolution) whereby the identity of the complainant would be kept secret and he/she would be protected from victimization.

Vigilance Division continued to interact with various employees of SCI as well as various stake holders including Suppliers, Ship Repair Workshops, Vendors, Contractors etc. which has helped in understanding the issues from their perspective as well.

Activities of the Vigilance Division carried out in 2017-18:

During the year under review, the Vigilance Division continued the following normal activities which encompassed the 5 Ps of Vigilance:-

-    Preventive Vigilance

-    Punitive Vigilance

-    Participative Vigilance

-    Proactive vigilance

-    Predictive vigilance

The important activities that were carried out in 2017-18 by the Vigilance Division were as follows:-

A)    Investigations into complaints of corruption/malpractice were conducted.

B)    Random scrutiny of Annual Property Returns (APRs).

C)    Active monitoring of the implementation of Integrity Pact in SCI

D)    Acted as a catalyst in the implementation of preventive vigilance measures by your Management such as e-payments, bill tracking systems, phased transfers of employees posted in sensitive areas etc.

E)    Conducting surprise and periodic inspections, CTE type inspections, conducting Systems Studies and recommending systemic improvements.

F)    Selective scrutiny of Voyage Repairs Bills, dry-docking bills, various accounts.

G)    Ensuring training of Vigilance Officers both on vigilance related subjects as well as general management

H)    Imparting training to fresh recruits on vigilance issues.

I)    For the annual Vigilance Awareness Programme, apart from in-house programmes major emphasis was placed on reaching out to youth through various programmes in schools and colleges as desired by the Central Vigilance Commission.

J) The message of Vigilance Division of SCI was spread to the public via a live interview of Chief Vigilance Officer in FM Rainbow during Vigilance Awareness Week-2017.

K) Awareness campaign on board SCI ships: In order to spread the awareness about Vigilance amongst them, the Integrity pledge was administered on board the ships and banners were displayed. This was the first time that the VAW activity has been also extended to SCI’s ships.

An annual Newsletter titled “SCI Voyager” was also brought out on the occasion of Vigilance Awareness Week. This is being done with a view to spreading vigilance awareness amongst employees.

Vigilance Study Circle Mumbai Chapter:

The Vigilance Study Circle Mumbai Chapter was started on the initiative of SCI Vigilance Division on 16-8-2010. It continues to spread Vigilance awareness and develop the knowledge and skills of Vigilance Professionals and provides an ideal platform for the Chief Vigilance Officers of Mumbai based PSUs, Banks etc. to meet and exchange their views/ experiences, etc. Following activities are carried out by VSC

Mumbai chapter during the year 2017-18:

1)    Organised WALKATHON on November 02, 2017 at BKC, Bandra (E), Mumbai during the Vigilance Awareness Week - 2017. CVOs and Employees from over 25 PSUs / PSBs participated in the march against Corruption.

2)    Workshop for senior officials of PSUs/PSBs on "Principles of Procurement and Departmental Proceedings" was organized by VSC-Mumbai at the office of Bank of Baroda on February 02, 2018. Expert speakers on the subject were invited to share their experiences with the participants. About 50 senior officials from different PSUs/PSBs attended the workshop.

During the period under review, the Vigilance Division had investigated 27 complaints (i.e. 14 complaints B/F from previous year - 13 new complaints registered during the period and 17 complaints closed after investigation leaving 10 balance complaints.

Integrity Pact in the Shipping Corporation of India Ltd.

SCI had signed a Memorandum of Understanding (MoU) with Transparency International India for the adoption of Integrity Pact. By signing the MoU, your Company is committed to have most ethical and corruption free business dealings with the counterparties whether they are bidders, contractors or suppliers. The ‘threshold value’ for implementation of Integrity Pact in domestic goods and service contracts is Rs.1 crore. Thus, any goods/services contract of Rs.1 crore and above will incorporate the Integrity Pact thereby assuring the concerned parties of the transparent and ethical practices in SCI. During the year under review, the Integrity Pact was monitored by a panel of 2 eminent Independent External Monitors (IEMs). Meetings were held periodically with the IEMs to review the progress of implementation of Integrity Pact in SCI.

XV    UNGC compliance

Your company is a signatory to UN Global Compact initiative which signifies our commitment to uphold the ten principles of Global Compact on protection of human rights, prevention of child labour, protection of environment and anti-corruption initiatives. Your company is an equal opportunity employer and does not discriminate on grounds of sex, religion, caste, creed, colour etc. The freedom of association is recognized and allowed. Fair labour practices are followed and it is ensured that no child labour is directly/indirectly employed. Your company is committed to do business consciously and responsibly setting sustainable systems to protect the environment. Your company ensures transparency, equity and competitiveness in public procurement through various inbuilt mechanism and anti-corruption initiatives.

XVI    SET IT

The GST Project went live on 01.07.2017 and SCI systems are GST ready for tax compliances. Other IT initiatives such as implementation of Business Intelligence Dashboard are being implemented. Hardware refresh project is kick started to have the latest hardware for a better performance.

XVII    Cautionary Statement

The statements made in the Management Discussion and Analysis describing Company’s objectives, projections, estimates and expectations may be “forward-looking statements” within the meaning of applicable laws and regulations. Actual results might differ materially from those expressed or implied.

XVIII    Board of Directors

Capt. Anoop Kumar Sharma, CMD (SCI) held additional charge of Director (T&OS) and Director (L&PS) up to  28.12.2017. Shri Rajesh Sood and Smt. Sangeeta Sharma were appointed as Director (T&OS) and Director (L&PS) respectively w.e.f 29.12.2017.

Shri Shambhu Singh was appointed as Additional Secretary and Financial Advisor w.e.f 3.5.2018 in place of Smt. Leena Nandan who ceased to be Director on the Board of SCI w.e.f 2.5.2018. Shri Satinder Pal Singh, Joint Secretary (MoS) was appointed as Director on the Board of SCI on 28.8.2017 in place of Shri Pravir Krishn, Joint Secretary who ceased to be on the Board of SCI w.e.f 25.7.2017.

Dr. Gautam Sinha and Shri Raj Kishore Tewari joined the Board of SCI on 29.9.2017 as Independent Directors on the Board of SCI. Dr. P Kanagasabapathi joined the Board of SCI as an Independent Director on the Board of SCI on 20.11.2017 and Shri Vijay Tulshiramji Jadhao joined as an Independent Director on the Board of SCI on 3.7.2018.

Capt. Sinha ceased to be Director on the Board of SCI w.e.f 12.8.2017 as he decided to opt for VRS which was accepted by Government of India. Mrs. H.K. Joshi, Director (F) held additional charge of Director (P&A) up to  23.4.2018. Shri Surinder Pal Singh Jaggi joined SCI as Director (P&A) on 24.4.2018.

Capt. S. Narula ceased to be Director on the Board of SCI w.e.f 1.8.2017 due to superannuation.

The Board record its appreciation for the services rendered by the concerned Directors.

XIX    Declaration of Independence

The Company has received Declaration from Independent Directors conforming that they meet the criteria of Independence as prescribed under Companies Act 2013, the SEBI (Listing Obligations and Disclosure Requirements), Regulations 2015 and DPE guidelines.

XX    Auditors Report

There are no qualifications made by Statutory Auditors & no comments made by the Comptroller and Auditor General of India on the Standalone and Consolidated Financial Statements for the year ended 31st March 2018.

XXI    Secretarial Audit

Pursuant to Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial personnel) Rules, 2014, the Board has appointed Mr. Upendra Shukla, Practicing Company Secretary to conduct the Secretarial Audit for the Company for Financial Years 2017-18 and 2018-19. The Secretarial Audit report for the FY 2017-18 is appended to the Director’s Report. The secretarial auditor in his report for the year ended 31st March, 2018 has brought out that:

The Corporation has complied with the requirements of Corporate Governance as provided under Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and DPE Guidelines on Corporate Governance, with the exception of appointment of Independent Directors to the extent of 50% of the total strength of the Board. It is clarified by the Corporation that the matter is being pursued with the Administrative Ministry for appointing required number of Independent Directors on the Board.

The Management views on the above observation are as follows:

As on date, the Board of SCI includes the following six Independent Directors: Shri Arun Balakrishnan (appointed on 30.03.2016) and Shri Sukamal Chandra Basu (appointed on 26.05.2016), Shri Gautam Sinha, Shri Raj Kishore Tewari (appointed on 29.09.2017), Shri P Kanagasabapathi (appointed on 20.11.2017) and Shri Vijay Tulshiramji Jadhao (appointed on 03.07.2018). SCI is following up with the Ministry of Shipping for appointment of required number of Independent Directors.

XXII    Corporate Governance

Pursuant to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, report on Corporate Governance is attached to this Report.

XXIII    Directors’ Responsibility Statement

Pursuant to the requirement under Section 134(5) of the Companies Act, 2013, with respect to Directors’ Responsibility Statement, it is hereby confirmed:

(a)    That in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b)    the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so asto give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;

(c)    the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(d)    the directors had prepared the annual accounts on a going concern basis; and

(e)    the directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.

Explanation — For the purposes of this clause, the term “internal financial controls” means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information;

(f)    the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

XXIV    Acknowledgements

Your Directors extend their gratitude to Shri Nitin Gadkari, Union Minister of Shipping, and Shri Pon Radhakrishnan, Minister of State for Shipping and Shri Mansukhlal Mandaviya, Minister of State for Shipping and look forward to their support and guidance in managing the affairs of the Company. Your Directors also extend their gratitude to Shri Ravikant, former Secretary to the Government of India, Ministry of Shipping and the existing Secretary, Shri Gopal Krishna, Ministry of Shipping for their guidance.

Your Directors also wish to express their thanks to the officials in the Ministry of Shipping, Road Transport and Highways for the unstinted support given by them in various matters concerning the Company. Your Directors would also like to convey their thanks to other Ministries, Trade Organizations, and Shippers’ Councils, who have played a vital role in the continued success of your Company. The Directors thank the shareholders and valued customers for the continued patronage extended by them to your Company.

Last but not the least, your Directors wish to record their deep appreciation for the dedicated and loyal service of your Company’s employees, both afloat and ashore, without whose co-operation and efforts the achievements made by your Company would not have been possible.

                                                                       For and on behalf of the Board of Directors

Place : Mumbai                                              Capt. Anoop Kumar Sharma

Dated: 3rd August, 2018                                Chairman & Managing Director

 

 


Mar 31, 2014

Dear Members,

The Directors have pleasure in presenting the 64th Annual Report on the working of your Company for the financial year ended 31st March 2014.

Accounting Year

The year under report covers a period of 12 months ended on 31st March 2014.

FINANCIAL PERFORMANCE

The comparative position of the working results for the year under report vis-a-vis earlier year is as under:

( in Crores) 2013-14 2012-13

Gross Earnings 4539 4796 Gross Profit (before interest, depreciation, items relating to earlier years, exceptional items & tax) 896 492

Less : Interest 208 162

Depreciation 856 1,064 760 922

Profit before items relating to earlier years, exceptional

items & tax (168) (430)

Prior year''s adjustments (53) 62

Profit before Extraordinary items & tax (221) (368)

Extraordinary items - 300

Provision for Taxation (53) (46)

Net Profit/Loss (-) (274) (114)

Appropriations:

The working results for your company for the year 2013-14 after considering prior period adjustments show a loss of Rs. 274.66 crores. After adjusting a sum of Rs. 46.20 crores (being balance profit and loss account brought forward from previous year), there is a debit balance in Profit & Loss A/c of Rs. 228.46 crores.

Brief Analysis of Financial Performance:

At an overall level SCI has incurred a loss of Rs. 274.66 crores in the current year as against loss of Rs. 114.31 crores in the preceding year. The financial performance of your Company continued to be impacted by the low levels of freight rates during the year. The Company rescinded nine shipbuilding contracts during the year due to default by the shipyard and this has resulted in foreign exchange gain and interest income upside to the Company by about Rs. 66 crores. However operationally, SCI has improved its performance as can be seen from the fact that our loss before items relating to earlier years, exceptional items & tax has reduced from Rs. 430 crores to Rs. 168 crores. It may also be observed that the preceding year had a write back of Rs. 300 crores of borrowing cost.

Fleet Position during the Year:

During the year under report, nine vessels aggregating to 217,943 DWT were phased out from the SCI fleet whereas two new building bulk carriers, vessels aggregating to 163,430 DWT were delivered to SCI. Thus, the overall fleet position, which was 80 ships at the beginning of the year, declined to 73 ships at the end of the year as shown in the following table. However, there has been only a marginal reduction in the total tonnage.

FLEET PROFILE DURING THE YEAR

Particulars As on 1.4.2013 Additions

No. DWT No. DWT

1. (a) Crude Oil Tanker 23 3,627,893 - -

(b) Product Tankers 15 952,728 - -

(c) Chemical Tankers 1 33,058 - -

(d) Gas Carriers 2 35,202 - -

2. Bulk Carriers 17 1,020,214 2 163,430

3. Liner Ships 5 202,413 - -

4. Offshore Supply Vsls. 16 32,650 - -

5. Passenger-Cum-Cargo Vessels 1 5,140 - -

TOTAL 80 5,909,298 2 163,430

Particulars Deletions As on 31.3.2014

No. DWT No. DWT

1. (a) Crude Oil Tanker 1 94,540 22 3,533,353

(b) Product Tankers 1 44,669 14 908,059

(c) Chemical Tankers - - 1 33,058

(d) Gas Carriers - - 2 35,202

2. Bulk Carriers 2 69,755 17 1,113,889

3. Liner Ships - - 5 202,413

4. Offshore Supply Vsls. 5 8,979 11 23,670

5. Passenger-Cum-Cargo Vessels - - 1 5,140

TOTAL 9 217,943 73 5,854,784

NEW BUILDING VESSELS DELIVERED DURING THE YEAR

Vessel Name Type Yard Built DWT

m.v. Vishva Chetna Dry Bulk carrier Jiangsu Eastern Heavy 81,733 Industries

m.v. Vishva Uday Dry Bulk carrier Jiangsu Eastern Heavy 81,696 Industries

VESSELS DISPOSED OF DURING THE YEAR

Vessel Name Type Yard Built DWT

m.v. Lok Pratap Dry Bulk 1993 26,718

m.v. Maharashtra Dry Bulk 1996 43,037

m.t. Motilal Nehru Crude Oil Tanker 1990 94,540

m.t. Rabindranath Tagore Product Carrier 1993 44,669

m.v. Feroze Gandhi AHTSV 1984 1,758

m.v. SCI-02 AHTSV 1984 1,776

m.v. SCI-05 AHTSV 1984 1,818

m.v. SCI-06 AHTSV 1985 1,817

m.v. Capt F M Juvale AHTSV 1985 1,809

VESSELS ON ORDER AT THE END OF THE YEAR

The number of vessels on order of your company reduced from sixteen vessels at the start of the year to seven vessels at the end of the year. Thereafter your company has rescinded contracts of four more vessels (2 nos. 6,500 TEU Container vessels and 2 nos. AHTSVs) thus bringing the vessels on order to three vessels as on 31.07.2014.

Type No. Shipyard Total DWT

VLCC 2 Jiangsu Rongsheng Heavy Industries Co. Ltd. 634,000 6,500 TEU Cellular Container vessel 2 STX (Dalian) Shipbuilding Co. Ltd. 171,200

AHTSV (80T BP) 3 ABG Shipyard Ltd. 6,000

7* 811,200

*- Vessels on order as on 31.07.2014, stood at three vessels of 636,000 dwt.

Implementation of Official Language Policy

In accordance with the Official Language Policy of the Government of India, Constitutional provisions of the Official Language Act, 1963, the Official Language Rules, 1976 your Company continued its consistent efforts to spread the usage of Hindi language during the year.

Besides various Hindi competitions and computer training workshops, your Company also organized a Hindi Talk on "Social Media" in January 2014 and an Annual Hindi Review Meeting in February 2014 in Mumbai. In order to create a conducive atmosphere, Bhashayee Sauhard Sanskritik Karyakram was also conducted in October 2013 wherein a good number of SCI employees presented their items like songs, poetries, etc in Hindi and other Indian languages. Your company also took active participation in the Town Official Languages Implementation Committee (TOLIC) meetings held twice during the year under report.

Particulars of Employees

Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 and Companies (Particulars of Employees) Amendment Rules, 1988, forms part of this report. Any shareholder interested in obtaining a copy of this information may write to the Company Secretary at the Registered Office of the Company.

Companies (Disclosure of Particulars in the Report of Board of Directors) Rules 1988 In terms of the Notification No. GSR 1029 dated 31.12.1988, your Company is required to furnish information under Clause (e) of Sub-section (1) of Section 217 of the Companies Act, 1956. The information to be furnished in Form A is not applicable to the shipping industry. Your Company, being a shipping company, has no particulars to furnish in Form B as regards technology absorption. The foreign exchange earnings and outgo during the year under report were as under: Rs. in Crores 2013-14 2012-13 Foreign exchange earned and saved including deemed earned and saved 4301.70 4258.93

Foreign exchange used including deemed used 4570.05 4332.55

Expenses on Entertainment, Foreign tours etc. - FY 2013-14

During the year under report your Company spent Rs. 52 lakhs on entertainment, Rs. 258 lakhs on publicity & advertisements and Rs. 307 lakhs on foreign tours of Company''s executives.

Board of Directors

Shri J. N. Das, Director (L&PS) ceased to be a director on the Board of SCI due to superannuation on 30.04.2014. On 07.07.2014, the Board appointed Capt S Narula as Director (L&PS). Shri B. K. Mandal, Director (Finance), who was holding additional charge as CMD from 01.01.2013 to 27.01.2014, ceased to be a director on the Board of SCI due to superannuation on 31.05.2014. Shri A. K. Gupta was appointed Chairman & Managing Director (CMD) w.e.f. 28.01.2014. Shri A. K. Gupta also holds additional charge of the post of Director (T&OS) and Director (Finance). The following independent directors ceased to be a part of the Board of Directors on expiry of their term:

Sr. Name of Director Date of Completion of Tenure No.

1. Shri T. S. Ganeshan 10.08.2013

2. Shri Arun Ramanathan 10.08.2013

3. Shri Arun K. Verma 10.08.2013

4. Shri Nasser Munjee 10.08.2013

5. Shri U. Sunderarajan 10.08.2013

6. Shri S. C. Tripathi 10.08.2013

7. Shri S. K. Roongta 28.10.2013

Subsequently the following Independent Directors were appointed/ reappointed on the Board of Directors of SCI:

Name Date of Appointment/ Remarks Reappointment Shri T. S. Ganeshan 12.11.2013

Shri Arun Ramanathan 12.11.2013 Reappointment

Shri Arun K. Verma 12.11.2013

Shri Ashish Makhja 26.05.2014

Shri P Umashankar 26.05.2014

Shri N. C. Sridharan 26.05.2014 Appointment

Prof. Gopal V 26.05.2014

Shri R. Santhanam 26.05.2014

Auditors'' Report

The auditors in their audit report for the quarter ended 31st March, 2014 have brought out that;

a. In absence of sufficient documentary evidence to comply with clause 50 and 51 of AS 28 Impairment of Assets issued by ICAI in respect of the adjustments required to the Discount rate currently taken at 6% for the specific risks associated with the cash flows such as currency risk, price risk, country risk, cash flow risk etc. and estimation of expected rate of return on equity to arrive at the Weighted Average Cost of Capital, the effect of which on discount rate remains unascertainable on the statement of profit and loss account, fixed assets and provision for impairment.

b. In the absence of positive confirmations required in response of letters issued by the management as per para 13 of SA 505 External confirmations issued by ICAI for trade receivables that may require adjustment to the statement of profit and loss account and their balances respectively, the consequential impact of the same on statement of profit and loss account and balance sheet remains unascertainable.

c. We draw attention toward the direct access of the Accounting Software provided to the Agents for accounting of the expenses relating to the port and 36% of the same are yet to be verified by the Company, due to which global netting is done without reconciliation towards the prefunding to agents and Vendor Reconciliation account, the consequential effect of the same on the Statement of Profit and Loss remains unascertainable.

d. In our opinion and according to the information and explanations given to us, special emphasis is required on the continued failure to correct major weakness in internal control systems as applicable to SAP and other sub systems in relation to the agents working, accounting and timely and proper verification by the Corporation. Emphasis also needs to be given on the implementation of the system audit report conducted by the organization in relation to the SAP - ERP and other critical business process, to establish checks on the complete and proper recording of the transaction relating to the expenses and revenue.

e. In our opinion, the company does have an internal audit system commensurate with its size and the nature of its business. However due care needs to be given to the timely and proper recording of transactions and the inspection of agents needs to be conducted.

f. We have been informed that one of the foreign agents of the company has manipulated the container movement report submitted from time to time and thus did not pay to the company its rightful dues. After the discovery of the same, the agent has deposited an amount of Rs. 13 crores on adhoc basis for last five years. The company has constituted a committee to further investigate the matter and to exactly quantify the actual amount. The report of the committee has not been submitted as yet. Except as mentioned in the Foregoing lines, any other material fraud on or by the Company has not been noticed or reported during the year nor we have been informed of any such case by the management that causes the financial statements to be materially misstated.

The management''s views on the above observations are as below:

a. While doing the impairment exercise, company has taken weighted average cost of capital as the discounting factor as per clause 50 of AS 28 which works out to approximately 6%. The Company has done analysis of risks such as country risk, currency risk, price risk, cashflow risk and asset specific risks. It is found that there is no necessity to make any adjustment to the discounting rate as per clause 51 of AS 28.

b. The PSUs and government organisations constitute more than 50% of the trade receivables. The Company had sent letters requesting balance confirmation to all major customers including PSUs. However, despite persistent follow up through letters, emails, personal visits and correspondence at highest levels, most of the debtors did not respond. The management does not expect any material impact on the Statement of Profit & Loss Account due to this.

c. As per the system adopted by the company, port related expenses are booked by the agents through specially designed software. The same are subsequently verified by an external firm & approved by the company. This process takes time due to involvement of multiple departments in the approval process. About 64.3 % of the expenses have been verified and approved by the company and the balance is in process for FY 2013-14. From our past experience it has been observed that relatively minor amount of expenses are disallowed by the company subsequently. Hence, the impact on Statement of Profit & Loss Account is not expected to be material.

d. The Management is continuously reviewing the functioning of ERP system and incorporating changes to remove deficiencies found / brought to its notice. The systems are reviewed constantly and additional controls are introduced as considered necessary. The accounts and supporting documents are thoroughly checked by the Company and then transactions are approved in the system. System audit was carried out by M/s Deloitte and their recommendations are under implementation.

e. The company is making serious efforts to ensure timely recording of transactions. However, since substantial business is carried out through global network of agents, the receipt of accounts with supporting documents takes some time. We have already commenced inspection of agents accounts. During the year 2014-15, one Indian Agent was inspected by our statutory auditors and four overseas agents were inspected by a team of the company and external internal audit personnel. Management has taken steps to conduct such inspections on regular basis in future as well for better internal controls on agency accounts.

f. As a consequence of discovery of such irregularity in case of one agent, the container movement reporting is being scrutinized thoroughly in respect of all the agents. A specially constituted team of the management comprising representatives from the commercial division, SCI London office representative and a senior partner of SCI''s external-internal auditor had visited four agents in Europe. The movement of containers was scrutinized by this team in all the four locations and no discrepancy was observed. Currently, even in case of agent, who has deposited the above mentioned Rs. 13 crores no further discrepancy has been observed by the visiting team. Management is of the view that this issue is an isolated matter and the financial statements are not materially misstated.

Corporate Governance

Pursuant to Clause 49 of the Listing Agreement, Report on Corporate Governance is attached to this Report.

Directors’ Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors’ Responsibility

Statement, it is hereby confirmed:

* That in the preparation of the accounts for the financial year ended 31st March 2014, the applicable accounting standards have been followed along with proper explanation relating to material disclosures;

* That the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for the year under review;

* That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

* That the Directors have prepared the accounts for the financial year ended 31st March 2014 on a “going concern” basis.

Acknowledgements

Your Directors extend their gratitude to Dr. Vishwapati Trivedi, Secretary to the Government of India, Ministry of Shipping, and look forward to his continued support and guidance. Your Directors also welcome Shri Nitin Gadkari, Minister of Shipping and Shri Krishan Pal, Minister of State for Shipping and look forward to their support and guidance in managing the affairs of the Company.

Your Directors also wish to express their thanks to the officials in the Ministry of Shipping, Road Transport & Highways for the unstinted support given by them in various matters concerning the Company. Your Directors would also like to convey their thanks to other Ministries, Trade Organizations, Shippers’ Councils, who have played a vital role in the continued success of your Company.

The Directors thank the shareholders and valued customers for the continued patronage extended by them to your Company. Last but not the least, your Directors wish to record their deep appreciation for the dedicated and loyal service of your Company’s employees, both afloat and ashore, without whose co-operation and efforts the achievements made by your Company would not have been possible.

Place : Mumbai Dated : 12th August, 2014 For and on behalf of the Board of Directors

A. K. Gupta Chairman & Managing Director


Mar 31, 2013

To the Members,

The Directors have pleasure in presenting the 63rd Annual Report on the working of your Company for the financial year ended 31st March, 2013.

Accounting Year

The year under report covers a period of 12 months ending on 31st March, 2013.

FINANCIAL PERFORMANCE

The comparative position of the working results for the year under report vis-a-vis earlier year is as under:

(Rs. In crores)

2012-13 2011-12

Gross Earnings 4796 4500

Gross Profit (before interest, depreciation, items relating to earlier years, exceptional items & tax) 492 623

Less : Interest 162 387

Depreciation 760 922 609 996

Profit before items relating to earlier years, exceptional items & tax (430) (373)

Prior year''s adjustments 62 33

Profit before Extraordinary items & tax (368) (340)

Extraordinary items 300 -

Provision for Indian Taxation (46) (88)

Net Profit / Loss (-) (114) (428)

Appropriations :

The working results for your company for the year 2012-13 after considering prior period adjustments & extraordinary items show a loss of Rs. 114.31 crores.

After adding a sum of Rs. 161.71 crores (being balance profit and loss account brought forward from previous year), the amount available for disposal works out to 47.4 crores.

Your directors propose to make the following appropriations from this amount:

Staff Welfare Fund 1.2 crores

Total 1.2 crores

After the proposed appropriation, the sum available is Rs. 46.20 crores which is being carried forward to next year''s accounts.

Brief Analysis of Financial Performance:

The financial performance of your Company was impacted by the adverse freight markets during the year. There has been an increase in the operating earnings due to induction of twelve new vessels during the year though freight rates were depressed. The Company also had extraordinary income of Rs. 300 crs being the reversal of borrowing cost (arising on account of exchange loss arising out of revaluation of the foreign currency loans) of earlier years. However, the same has been offset primarily by increase in depreciation, creation of provision for diminution in value of investments and higher interest cost due to the new vessels inducted.

Fleet Position during the Year:

During the year under report, 8 vessels aggregating to 287,460 DWT were phased out from the SCI fleet whereas 12 vessels comprising of six newbuilding bulk carriers, one resale Crude oil tanker and five new building offshore vessels aggregating to 630,172 DWT were added to SCI fleet. Thus, the overall fleet position, which was 76 ships at the beginning of the year, improved to 80 ships at the end of the year as shown in the following table:

NEWBUILDING VESSELS DELIVERED DURING THE YEAR

Vessel Name Type Yard Built DWT

SCI KUNDAN AHTSV (120T Bollard Pull) Cochin Shipyard 2,011

m.v. Vishva Diksha Dry Bulk carrier STX (Dalian) yard 57,132

m.v. Vishva Anand Dry Bulk carrier STX (Dalian) yard 80,204

m.v. Vishva Vinay Dry Bulk carrier STX (Dalian) yard 80,139

SCI Ahimsa AHTSV (120T Bollard Pull) Cochin Shipyard 2,005

SCI Nalanda Platform Supply Vessel Cochin Shipyard 3,093

m.t. Desh Shobha Crude Oil Tanker Hyundai Samho Heavy Industries 158,034

m.v. Vishva Vijay Dry Bulk carrier STX (Dalian) yard 80,312

m.v. Vishva Preeti Dry Bulk Carrier STX (Dalian) yard 80,250

SCI Yamuna Platform Supply Vessel Cochin Shipyard 3,095

m.v. Vishva Jyoti Dry Bulk carrier Jiangsu Eastern Heavy Industries 81,894

SCI Urja AHTSV (120T Bollard Pull) Cochin Shipyard 2,003

Total 630,172

VESSELS DISPOSED OF DURING THE YEAR

Vessel Name Type Year Built DWT

m.v. Ramanujam Passenger 1987 163

m.v. Dakshineshwar Dry Bulk carrier 1987 47,277

m.v. Gangasagar Dry Bulk carrier 1987 47,281

m.t. Maharshi Karve Crude Oil Tanker 1978 122,109

m.t. C.V. Raman Crude Oil Tanker 1981 40,329

m.v. Lok Prem Dry Bulk carrier 1990 26,714

SCI-01 AHTSV 1984 1,775

SCI-04 AHTSV 1984 1,812

VESSELS ON ORDER AT THE END OF THE YEAR

Type No. Shipyard Total DWT

Anchor Handling, Towing & Supply Vessel (AHTSV) (80T BP) 1 Bharati Shipyard Ltd. 2,000

Kamsarmax bulk carrier 3 Jiangsu Eastern Heavy Industries Co. Ltd. 246,000

VLCC 2 Jiangsu Rongsheng Heavy Industries Co. Ltd. 634,000

6.500 teu Cellular Container vessel 3 STX (Dalian) Shipbuilding Co. Ltd. 256,800

3.500 teu Cellular Container vessel 1 Rongcheng Shenfei Shipbuilding Co. Ltd. 43,000

Anchor Handling, Towing & Supply Vessel (AHTSV) (80T BP) 6 ABG Shipyard Ltd. 12,000

16 1,193,800

Particulars of Employees

Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 and Companies (Particulars of Employees) Amendment Rules, 1988, forms part of this report. Any shareholder interested in obtaining a copy of this information may write to the Company Secretary at the Registered Office of the Company.

Companies (Disclosure of Particulars in the Report of Board of Directors) Rules 1988

In terms of the Notification No. GSR 1029 dated 31.12.1988, your Company is required to furnish information under Clause (e) of Sub-section (1) of Section 217 of the Companies Act, 1956. The information to be furnished in Form A is not applicable to the shipping industry. Your Company, being a shipping company, has no particulars to furnish in Form B as regards technology absorption. The foreign exchange earnings and outgo during the year under report were as under:

- Foreign exchange earned and saved including deemed earned and saved Rs. 4258.93 crores.

- Foreign exchange used including deemed used Rs. 4332.55 crores.

Expenses on Entertainment, Foreign tours etc.

During the year under report your Company spent Rs. 56 lakhs on entertainment, Rs. 270 lakhs on publicity & advertisements and Rs. 293 lakhs on foreign tours of Company''s executives.

Board of Directors

During the year under review, the Ministry of Shipping appointed Shri Sunil Kohli, Joint Secretary & Financial Advisor (JS&FA) as Non-Executive Director (ex-officio) on the Board of SCI w.e.f. 21.09.2012 in place of Shri Vijay Chibber who had relinquished his charge as Additional Secretary & Financial Advisor (Shipping). Subsequently, on relinquishment of the additional charge of JS&FA (Shipping) by Shri Sunil Kohli on 25.1 1.2012, the Ministry of Shipping appointed Dr. (Ms.) T. Kumar as Additional Secretary & Financial Advisor (Shipping) as Non-Executive Director (ex-officio) and her appointment on the SCI Board took effect on 26.11.2012.

Shri Kailash Gupta, Director (P&A) and Shri S. Hajara, Chairman & Managing Director (CMD) ceased to be directors on the Board of SCI due to superannuation w.e.f. 31.12.2012. Capt. B. B. Sinha was appointed Director (P&A) w.e.f. 1.1.2013. Shri B.K. Mandal, Director (Finance), Shipping Corporation of India (SCI) Ltd., holds additional charge of the post of Chairman & Managing Director (CMD), SCI w.e.f. 01.01.2013 to 31.3.2013 or until further orders of the Ministry, whichever is earlier. The tenure of Shri B K Mandal as CMD has been extended from time to time by the Ministry of Shipping. Prof. Sushil Khanna (Independent Director) tendered his resignation vide his email on 25.03.2013. The said resignation is under process at Ministry level. The tenure of Independent Directors has come to a close on 10th August, 2013. Ministry of Shipping is taking necessary action to fill up the vacant positions of Independent Directors.

Details of shares lying unclaimed

The details of the shares issued pursuant to FPO remaining unclaimed and lying in the escrow account, the voting rights of which shall remain frozen till the rightful owner of such shares claim the shares, are given as under:

Sr. No. Details No. of Share holders No. of Shares

1 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 01.04.2013 4 436

2 Number of shareholders who approached for transfer of shares from suspense account till 31.03.2013 0 0

3 Number of shareholders to whom shares were transferred from suspense account till 31.03.2013 0 0

4 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 31.03.2013 4 436

5 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 10.06.2013 4 436

Auditors'' Report

The auditors in their audit report for the year ended 31st March, 2013 have brought out that;

The Company has not complied with the requirements of AS - 28 - Impairment of Assets, issued by ICAI, the effect of which is unascertainable.

The accuracy of exchange gain / loss in respect of customer reconciliation / advances received from customers / trade payables recognized on revaluation as per accounting standard-11- "The effects of changes in foreign exchange rates" remains unverifiable and unascertainable.

The Company is unable to provide confirmation for accounts receivable, accounts of agents. In the absence of the reasonable audit evidence, the effect of the same remains unascertainable /unverifiable on the statement of profit and loss account and balance sheet.

We draw attention towards the direct access of the Accounting Software provided to the Agents for accounting of expenses relating to the port and 83% of the same are yet to be verified by the Company, the consequential effect of the same on the statement of profit and loss remains unascertainable.

The management''s views on the abovementioned points are as below:

The management has tested its assets for impairment and has computed the recoverable value for all the ships owned by the company following AS 28. The methodology adopted by the company has been consistent over the last 3 years. As per the calculations, there is no impairment on the assets hence provision for impairment is not considered necessary.

The company has developed software to match the collectibles and collections related to customers. Substantial progress has been achieved in this regard upto 31st March, 2013.

In case of vendors, the expenditure incurred by the agents is prefunded through Proforma Disbursement Account after scrutiny of the prefunding claims. The final claims for the expenditure booked by the agent are received through Final Disbursement Account which is verified after the physical documents are received from the agent. This process takes time due to the nature of the business.

We do not expect any material impact on the profit / loss due to this.

We have sent letters seeking confirmation of balances to all our major debtors. However; the confirmations have not been received. This does not have material impact on the accounts of the company.

SCI has a worldwide network of agents. As per the system adopted by the company, port related expenses are booked by the agents. The same are subsequently verified by an external firm. About 45% of the expenses have been verified by the company and the balance is in process. From our past experience it has been observed that relatively minor amount of expenses are disallowed by the company subsequently.

The audited accounts has been reviewed by the Comptroller & Auditor General of India (CAG) and the certificate of CAG is also annexed to this report.

Corporate Governance

Pursuant to Clause 49 of the Listing Agreement, Report on Corporate Governance is attached to this Report. Directors'' Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors'' Responsibility Statement, it is hereby confirmed:

- That in the preparation of the accounts for the financial year ended 31st March, 2013, the applicable accounting standards have been followed along with proper explanation relating to material disclosures;

- That the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for the year under review;

- That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

- That the Directors have prepared the accounts for the financial year ended 31st March, 2013 on a "going concern" basis.

Acknowledgements

Your Directors extend their gratitude to Shri G. K. Vasan, Hon''ble Minister for Shipping, and look forward to his continued support and guidance. Your Directors also welcome Shri Milind Deora, Minister of State for Shipping and Shri Vishwapati Trivedi, Secretary to the Government of India, Ministry of Shipping, and look forward to their support and guidance in managing the affairs of the Company.

Your Directors also take this opportunity to express their gratitude and thanks to Shri Pradeep K. Sinha, former Secretary to the Government of India, Ministry of Shipping for the support and guidance extended to your Company during his tenure. Your Directors also wish to express their thanks to the officials in the Ministry of Shipping, for the unstinted support given by them in various matters concerning the Company. Your Directors would also like to convey their thanks to other Ministries, Trade Organizations, Shippers'' Councils, who have played a vital role in the continued success of your Company.

The Directors thank the shareholders and valued customers for the continued patronage extended by them to your Company.

Last but not the least, your Directors wish to record their deep appreciation for the dedicated and unstinted service of your Company''s employees, both afloat and ashore, without whose co-operation and efforts the achievements made by your Company would not have been possible.

For and on behalf of the

Board of Directors

Place : Mumbai B.K.Mandal

Dated : 8th August, 2013 Chairman & Managing Director


Mar 31, 2012

To the Members,

The Directors have pleasure in presenting the 62nd Annual Report on the working of your Company for the financial year ended 31st March 2012.

Accounting Year

The year under report covers a period of 12 months ended on 31st March 2012.

Financial Performance

The comparative position of the working results for the year under report vis-à-vis earlier year is as under:

(Rs. Crores)

2011-12 2010-11

Gross Earnings 4500 4018

Gross Profit (before interest, depreciation, items relating to earlier years, exceptional items & tax) 623 1159

Less : Interest 387 67

Depreciation 609 996 465 532

Profit before items relating to earlier years, exceptional items & tax (373) 627

Prior year's adjustments 33 30

Excess Provision / sundry credit balances written back 0 0

Profit before Exceptional items & tax (340) 657

Exceptional items -

Provision for Indian Taxation (88) (89)

Net Profit (428) 568

Appropriations

The working results of your Company for the year 2011-2012 after considering prior period adjustments show a loss of Rs. 428.21 crores. After adjusting a sum of Rs. 590.42 crores (being balance profit and loss account brought forward from the previous year), the amount available for disposal works out to Rs.162.21 crores. Your Directors propose to make an appropriation of Rs. 0.5 crore towards Staff Welfare Fund from this amount. After the proposed appropriation, the sum available is Rs. 161.71 crores which is being carried forward to next year's accounts.

Brief Analysis of Financial Performance :

The financial performance of your Company was impacted by the adverse freight markets during the year. There has been an increase in the gross earnings due to induction of ten new vessels during the year even though freight rates were depressed. However, the same have been offset primarily by an increase in fuel prices. Further your Company has also reported finance cost at Rs. 387.30 crores during the year which includes Rs. 296.73 crores on account of exchange loss arising out of revaluation of the foreign currency loans as a result of the depreciation of the Indian rupee to the US Dollar. This exchange loss has been considered as finance cost as per the requirement of the relevant accounting standard. The actual interest outgo in the current year was only Rs. 90.57 crores as against Rs. 63.94 crores in the earlier year.

Fleet Position during the Year :

During the year under report, fourteen vessels aggregating 570,443 dwt. tonnage were disposed of whereas eleven vessels comprising of seven newbuilding bulk carriers and four newbuilding offshore vessels total aggregating to 406,927 dwt. were delivered. Thus, the overall fleet position, which was 79 ships at the beginning of the year, closed at 76 ships at the end of the year as shown in the following table:

Implementation of Official Language Policy

During the year under report, your Company organized quarterly meetings of its Departmental Official Language Implementation Committee wherein a review on overall progress of Hindi in its offices was made and thereafter appropriate follow up actions were taken. Your Company has also represented by co-chairing the Town Official Language Implementation Committee (TOLIC) meetings with HPCL, during the year under report.

Particulars of Employees

Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 and Companies (Particulars of Employees) Amendment Rules, 1988, forms part of this report. Any shareholder interested in obtaining a copy of this information may write to the Company Secretary at the Registered Office of the Company.

Companies (Disclosure of Particulars in the Report of Board of Directors) Rules 1988

In terms of the Notification No. GSR 1029 dated 31.12.1988, your Company is required to furnish information under Clause (e) of Sub-section (1) of Section 217 of the Companies Act, 1956. The information to be furnished in Form A is not applicable to the shipping industry. Your Company, being a shipping company, has no particulars to furnish in Form B as regards technology absorption. The foreign exchange earnings and outgo during the year under report were as under:

Foreign exchange earned and saved including deemed earned and saved ? 4206.80 crores.

Foreign exchange used including deemed used ? 4258.09 crores.

Expenses on Entertainment, Foreign Tours, etc.

During the year under report your Company spent? 63 lakhs on entertainment, ? 356 lakhs on publicity & advertisements and ? 606 lakhs on foreign tours of Company's executives.

Board of Directors

Shri Rajeev Gupta ceased to be a Director w.e.f. 7.12.2011 consequent to relinquishment of the charge of Joint Secretary (Shipping) in the Ministry of Shipping. The Board places on record its appreciation for the valuable services rendered by him.

The Ministry of Shipping (MoS) thereafter communicated appointment of Shri Rakesh Srivastava [who had taken additional charge of Joint Secretary (Shipping) in the MoS] as a Director on the Board of your Company which took effect on 23.12.2011. However, on his relinquishment of the additional charge of Joint Secretary (Shipping), he ceased to be a Director on the Company's Board w.e.f. 1.2.2012 and Shri M. C. Jauhari who took over the charge of Joint Secretary (Shipping), was appointed on the SCI Board w.e.f. 2.2.2012.

Shri U. Sundararajan, Prof. Sushil Khanna, Shri Arun Kumar Verma and Shri Arun Ramanathan are retiring by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for appointment.

Auditors' Report

The Auditors' Report is attached to the Report. The Statutory Auditors had, in respect to the Audited Accounts for the year ended 31.03.2012, drawn the attention of the members on issues mainly arising out of switching over to integrated ERP System which are mentioned below :

1. Refer Note No 35 (i) accompanying to the Financial Statement deals with Netting of certain Balances with trade receivables and payables pending adjustment of likely transaction, verification of physical documents and its authorisation and Note No. 35 (ii) in respect of accounting of the effects of changes in foreign exchanges rates of monetary items and consequential accounting of the exchange gain / losses of which impact on the financial statement is not ascertainable in respect of loss for the year and trade receivables and payables.

2. During the course of audit, failure to correct weaknesses in internal control systems is observed in accounting of transactions, interface of transactions amongst the subsystems and SAP-ERP. Further, no system audit is carried out for interface of the data from functional subsystems to SAP-ERP and other critical business process, to establish checks on the complete and proper recording of the transaction relating to the expenses and revenue, post implementation of functional and accounting software - SAP.

3. The Company has an internal audit system; however the same is not commensurate with the size and nature of its business. In view of implementation of ERP and other functional packages it requires further strengthening.

The replies of the Management to the Auditors' observations are given below :

1. The problem had arisen on account of implementation of the new IT system which is in the process of stabilization. To overcome this, the company has developed software to match the collectibles and collections related to customers. Substantial progress has been achieved in this regard upto 31st March, 2012. The management does not expect the impact to be material.

In case of vendors, the expenditure incurred by the agents are prefunded through Proforma Disbursement Account after scrutiny of the prefunding claims. The final claims for the expenditure booked by the agent are received through Final Disbursement Account which are verified after the physical documents are received from the agent. This process takes time due to the nature of the business.

2. FY 2011-12 was the first full year of operations after the new systems were implemented. Expectedly, there were initial interface errors amongst the systems which were all effectively handled with the help of system vendors and consultants.

It was decided to carry out the system audit after stabilization of the systems. Accordingly, the management proposes to carry out system audit in FY 2012-13.

3. Internal audit is carried out in the organization by an external firm of Chartered Accountants. After assessing the necessity of having internal auditors with SAP certification, system audit related qualifications, capacity to engage more number of staff in SCI and sufficient experience of audits in ERP environment, a new firm of Chartered Accountants fulfilling these requirements has been engaged w.e.f. 01.04.2012. With the stabilization of new IT systems, the scope of internal audit has also been widened.

Corporate Governance

Pursuant to Clause 49 of the Listing Agreement, Report on Corporate Governance is attached to this Report.

Directors' Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors' Responsibility Statement, it is hereby confirmed:

That in the preparation of the accounts for the financial year ended 31st March 2012, the applicable accounting standards have been followed along with proper explanation relating to material departures;

That the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for the year under review;

That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

That the Directors have prepared the accounts for the financial year ended 31st March 2012 on a "going concern" basis.

Acknowledgements

Your Directors extend their gratitude to Shri G. K. Vasan, Hon'ble Minister for Shipping, and look forward to his continued support and guidance. Your Directors also extend a hearty welcome to Shri Pradeep K. Sinha, Secretary to the Government of India, Ministry of Shipping and look forward to his support and guidance in managing the affairs of the Company.

Your Directors also take this opportunity to express their gratitude and thanks to Shri Mukul Roy, former Hon'ble Minister of State in the Ministry of Shipping, and Shri K. Mohandaas, former Secretary to the Government of India, Ministry of Shipping for the support and guidance extended to your Company during their tenure. Your Directors also wish to express their thanks to the officials in the Ministry of Shipping, Road Transport & Highways for the unstinted support given by them in various matters concerning the Company. Your Directors would also like to convey their thanks to other Ministries, Trade Organizations, Shippers' Councils, who have played a vital role in the continued success of your Company.

The Directors thank the shareholders and valued customers for the continued patronage extended by them to your Company.

Last but not the least, your Directors wish to record their deep appreciation for the dedicated and loyal service of your Company's employees, both afloat and ashore, without whose co-operation and efforts the achievements made by your Company would not have been possible. For and on behalf of the Board of Directors

Place : Mumbai S. Hajara

Dated : 13.08.2012 Chairman & Managing Director


Mar 31, 2011

To the Members,

The Directors have pleasure in presenting the 61st Annual Report on the working of your Company for the financial year ended 31st March 2011.

Accounting Year

The year under report covers a period of 12 months ended on 31st March 2011. Financial Performance

The Comparative position of the working results for the year ended vis-à-vis earlier year is as under:

(Rs. Crores)

2010-2011 2009 -2010

Gross Earnings 4020 3896

Gross Profit (before interest, depreciation, items relating to earlier years, exceptional items & tax) 1156 849

Less: Interest 64 53

Depreciation 465 529 380 433

Profit before items relating to earlier years, exceptional items & tax 627 416

Prior year's adjustments 30 (6)

Excess Provision / sundry credit balances written back 0 66

Profit before Exceptional items & tax 657 476

Exceptional items -

Provision for Indian Taxation (89) (99)

Net Profit 568 377

Appropriations

The working results of your Company for the year 2010-2011 after considering prior period adjustments show a profit of Rs. 567.35 crores. An amount of Rs. 114 crores has been transferred to Tonnage Tax Reserve u/s 115VT of Income Tax Act. After adding a sum of Rs. 516.63 crores (being balance profit and loss account brought forward from the previous year), the amount available for disposal works out to Rs. 969.98 crores. Your Directors propose to make the following appropriations from this amount:

1. Capital Reserve Rs. 17.59 crores

2. General Reserve Rs. 57.00 crores

3. Staff Welfare Fund Rs. 1.00 crore

4. Corporate Social Responsibility Reserve Rs. 5.67 crores

Total Rs. 81.26 crores

Dividend

The Board of Directors, in addition to the interim dividend @ 30% already paid for the year 2010-11, now recommends payment of final dividend @ 25% for the year 2010-11 absorbing a sum of Rs. 116.45 crores. In addition, dividend tax of Rs.18.89 crores will be payable by the Company. After the proposed appropriations, the sum available is Rs. 590.43 crores which is being carried forward to next year's accounts.

Fleet Position during the Year :

During the year under report, nine vessels aggregating 520,259 dwt. tonnage were disposed of whereas four new building crude oil tankers and eight new building product tankers aggregating to 1,109,145 dwt. were delivered. Thus, the overall fleet position, which was 76 ships at the beginning of the year, closed at 79 ships at the end of the year as shown in the following table:

FLEET PROFILE DURING THE YEAR

Particulars As on 1.4.2010 Additions Deletions As on 31.3.2011

No. Dwt. No. Dwt. No. Dwt. No. Dwt.

1. (a) Crude Oil Tanker 26 35,76,271 4 458,942 6 402,916 24 36,32,297

(b) Product Tankers 10 4,23,172 8 650,203 2 90,893 16 9,82,483

(c) Chemical Tankers 3 99,174 - - - - 3 99,174

(d) Gas Carriers 2 35,202 - - - - 2 35,202

2. Bulk Carriers 18 781,777 - - 1 26,450 17 755,327

3. Liner Ships 5 202,413 - - - - 5 202,413

4. Offshore Supply Vsls. 10 17,904 - - - - 10 17,904

5. Passenger- Cum- Cargo Vessels 2 5,303 - - - - 2 5,303

Total 76 51,41,216 12 1,109145 9 520,259 79 57,30,103

NEWBUILDING VESSELS DELIVERED DURING THE YEAR

Vessel Name Type Yard Built Dwt.

m.t. Desh Mahima Crude oil Tanker Hyundai Heavy Industries (HHI), S.Korea 114,686

m.t. Desh Garima Crude oil Tanker HHI, S.Korea 114,790

m.t. Desh Suraksha Crude oil Tanker HHI, S.Korea 114,783

m.t. Desh Samman Crude oil Tanker HHI, S.Korea 114,683

m.t. Swarna Sindhu Product Tanker STX Shipyard, S.Korea 73,368

m.t. Swarna Ganga Product Tanker STX Shipyard, S.Korea 73,368

m.t. Swarna Brahmaputra Product Tanker STX Shipyard, S.Korea 73,606

m.t. Swarna Godavari Product Tanker STX Shipyard, S.Korea 73,368

m.t. Swarna Krishna Product Tanker STX Shipyard, S.Korea 73,368

m.t. Swarna Kaveri Product Tanker STX Shipyard, S.Korea 73,368

m.t. Swarna Jayanti Product Tanker HHI, S.Korea 104,895

m.t. Swarna Kamal Product Tanker HHI, S.Korea 104,862

VESSELS DISPOSED OF DURING THE YEAR

Vessel Name Type Year Built Dwt.

m.v. Lok Rajeshwari Bulk Carrier 1988 26,450

m.t. Lance Naik Karam Singh, PVC Crude Oil Tanker 1984 67,153

m.t. Lt. Rama Raghoba Rane, PVC Crude Oil Tanker 1984 67,153

m.t. Subedar Joginder Singh, PVC Crude Oil Tanker 1984 67,137

m.t. Major Saitan Singh, PVC Crude Oil Tanker 1985 67,185

m.t. Havildar Abdul Hamid, PVC Crude Oil Tanker 1985 67,164

m.t. Col. Ardeshir Burzorji Tarapore, PVC Crude Oil Tanker 1985 67,124

m.t. Major Hoshiar Singh, PVC Product Tanker 1985 45,420

m.t. Lance Naik Albert Ekka, PVC Product Tanker 1985 45,473

VESSELS ON ORDER AT THE END OF THE YEAR

Type No. Shipyard Total Dwt.

VLCC 2 Jiangsu Rongsheng Heavy Industries Co. Ltd. China 6,34,000

Handymax Bulk Carriers 6 STX (Dalian) Shipbuilding Co. Ltd. China 3,44,400

Kamsarmax Bulk Carriers 4 Jiangsu Eastern Heavy Industry Co. Ltd. China 3,28,000

Panamax Bulk Carriers 4 STX (Dalian) Shipbuilding Co. Ltd. China 3,22,620

6,500 TEU Cellular Container vessels 3 STX (Dalian) Shipbuilding Co. Ltd. China 2,56,800

Anchor Handling, Towing & Supply Vessels (AHTSVs) (80T BP) 4 Bharati Shipyard Ltd. India 8,000

Anchor Handling, Towing & Supply vessels (AHTSVs) (120 T BP) 2 Cochin Shipyard Ltd. India 3,940

Anchor Handling, Towing & Supply vessels (AHTSVs) (120 T BP) 2 Cochin Shipyard Ltd. India 3,940

Platform Supply Vessels (UT 755 Design) 2 Cochin Shipyard Ltd. India 6,120

TOTAL VESSELS ON ORDER 29 19,07,820

Implementation of Official Language Policy

Your Company put in all-out efforts to promote and popularize the use of Official Language Hindi in its day-to-day official work and ensured compliance of the provisions of the Official Language Act, 1963 and the Official Language Rules, 1976 during the year under report. On the occasion of Golden Jubilee Year celebration, you company organized an all-India level conference "Sagar Manthan" at its Maritime Training Institute, Mumbai, which was attended to by over 120 participants from various PSUs and Government Offices across the country.

In addition to this, your Company also acquired corporate license (unlimited users) of bilingual software viz. APS Saral, to increase the use of Hindi on computers, and made almost all PCs Unicode Hindi font enabled. As far as Hindi training is concerned, SCI is determined to impart bilingual software training to its employees regularly at its Maritime Training Institute so as to achieve the set targets in the Annual Programme issued by the Central Government. SCI's website is also available in Hindi and English bilingually.

During the year under report, your Company organized quarterly meetings of its Departmental Official Language Implementation Committee wherein a review on overall progress of Hindi in its offices was made and thereafter appropriate follow up actions were taken. Besides this, a number of Hindi promotional activities, competitions and programmes like Hindi Kavi Sammelan were also organized.

Particulars of Employees

Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 and Companies (Particulars of Employees) Amendment Rules, 1988, forms part of this report. Any shareholder interested in obtaining a copy of this information may write to the Company Secretary at the Registered Office of the Company.

Companies (Disclosure of Particulars in the Report of Board of Directors) Rules 1988

In terms of the Notification No. GSR 1029 dated 31.12.1988, your Company is required to furnish information under Clause (e) of Sub-section (1) of Section 217 of the Companies Act, 1956. The information to be furnished in Form A is not applicable to the shipping industry. Your Company, being a shipping company, has no particulars to furnish in Form B as regards technology absorption. The foreign exchange earnings and outgo during the year under report were as under:

Foreign exchange earned and saved including deemed earned and saved Rs. 3736.53 crores.

Foreign exchange used including deemed used Rs. 3103.94 crores.

Expenses on Entertainment, Foreign Tours, etc.

During the year under report your Company spentRs. 61 lakhs on entertainment, Rs. 269 lakhs on publicity & advertisements and Rs. 371 lakhs on foreign tours of Company's executives.

Board of Directors

Shri A.K. Mago, A.D. Fernando, U. Sundararajan, J.N.L. Srivastava, B.H. Dholakia and Keshav Saran ceased to be Directors w.e.f. 28.07.2010 consequent to the cessation of their tenure as non-official part-time Directors. Shri U.C. Grover and Capt. K.S. Nair ceased to be Directors on the Board consequent to their superannuation on 31.08.2010 and 31.12.2010, respectively. The Board places on record its appreciation for the valuable services rendered by them.

In terms of the nominations received from the Ministry of Shipping, eight non-official part time(independent) Directors have been appointed / reappointed on the Board of Directors. S/Shri Nasser Munjee, Sushil Tripathi and U. Sundararajan have been reappointed and S/Shri Arun Ramanathan, Arun Kumar Verma, Prof. Sushil Khanna and Rear Admiral (Retd.) T.S. Ganeshan have been appointed on the Board w.e.f 11.08.2010.

The Board has also appointed Shri S.K. Roongta as non-official part time Director w.e.f. 13.12.2007 on his nomination by the Ministry of Shipping Road Transport & Highways. Shri Arun Kumar Gupta and Capt. Sunil Thapar have been appointed as Director (Technical & Offshore Services) and Director (Bulk Carriers & Tankers) by the President of India w.e.f. 24.10.2010 and 11.01.2011, respectively. They hold office up to the date of the forthcoming Annual General Meeting and being eligible, offer themselves for appointment Shri B.K. Mandal, Shri J.N. Das, Shri Nasser Munjee and Shri S.C. Tripathi are retiring by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for appointment.

Auditors Report

The Auditors Report is attached to the Report. The Statutory Auditors had, in respect to the Audited Accounts for the year ended 31.03.2011, drawn the attention of the members on issues mainly arising out of switching over to integrated ERP System which are mentioned below.

1) The Auditors observed that various errors and omissions were made by the Company during the process of migration / uploading of data post migration in the new accounting software ERP-SAP in respect of accounting of the income and expenses, assets and liabilities for which necessary rectification were carried out by the Company.

2) They further observed that, there remain certain items where the company is unable to make appropriate adjustment and the effects of errors and adjustments, if any, as might have been determined to be necessary in the data migrated / uploaded in the accounting software post migration.

3) It has been further pointed out by them that the Company has:

i) Not accounted the income and expenditure in respect of unfinished voyages as per accounting policy No. 2 (c) having no impact on the profit for the year.

ii) Not accounted the foreign currency transactions at the rates as stipulated in Accounting Policy No. 8 (a) for the months of January 2011 and February 2011 instead, the same have been accounted at the exchange rates applicable for the month of March 2011.

4) The statutory Auditors observed some weakness in design of internal control in respect of migration of the data / uploading of the data in the process of implementation of ERP-SAP. They however concluded that as at the balance sheet data, the material errors and omission affecting the results as observed during the course of their audit were rectified by the company.

5) The Statutory Auditors further pointed out that post implementation of the ERP-SAP, the internal auditor expressed inability to cover many areas and report thereon including accounting of income and expenses on finished and unfinished voyages, etc.

The replies of the Management to the Auditors' observations are given below.

1) Post migration to SAP, errors coming to our notice have been attended to and necessary adjustments are carried out.

2) The Management has brought out in Schedule 25, Notes on Accounts, such cases where adjustments have not been possible due to issues arising on migration and uploading of data in the new system. The Management has also brought out therein that these have no material impact on the results of the Corporation.

3) (i) As per accounting policy no. 2 (c) of the company, for all unfinished voyages, amount received on account of freight earning and other charges in respect of such voyages are carried forward as Unfinished Voyage Earnings. Direct operating expenses incurred for such voyages including hire charges and freight for vessels chartered-in are carried forward as Unfinished Voyage Expenses except in case of time charter. As far as unfinished voyages are concerned the booking of both income and expenditure is done by SCI consistently on receipt / disbursement basis. It is in line with the accounting policy 2 (c) of the company.

(ii) As per accounting policy 8(a), "All foreign currency transactions are recorded at the exchange rate of the last Friday of the preceding month published in Financial Times, London."

There were no transactions from 1st February to 27th February either in the legacy or in the new system as it was a "Blackout period" prior to data migration to SAP.

The comparative rates for some of the major currencies for February 2011 and March 2011 are as below:

Currency February 2011 March 2011 % difference

Euro 62.632 62.311 (-) 0.005%

USD 45.615 45.325 (-) 0.006%

SGD 35.670 35.591 (-) 0.002%

UKP 72.705 72.846 ( ) 0.002%

Since the exchange rate difference for the month of February 2011 and March 2011 are insignificant, there is no material impact. Moreover, before migration, revaluation run was carried out in legacy system for January, 2011.

4) During data migration, even though a matched trial balance was uploaded but certain deficiencies were subsequently observed by the company in respect of line item wise migrations indicating details like foreign currency component, dates of invoices and debit notes, etc. Care has been taken to rectify such deficiencies as and when observed.

The new system went live on 28.02.2011. The time available before the Annual Closing was not sufficient for the Internal Auditors; at present, the Internal auditors are carrying out the audit.

Corporate Governance

Pursuant to Clause 49 of the Listing Agreement, Report on Corporate Governance is attached to this Report.

Directors' Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors' Responsibility Statement, it is hereby confirmed:

That in the preparation of the accounts for the financial year ended 31st March 2011, the applicable accounting standards have been followed along with proper explanation relating to material departures;

That the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for the year under review;

That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

That the Directors have prepared the accounts for the financial year ended 31st March, 2011 on a "going concern" basis.

Acknowledgements

Your Directors take this opportunity to express their gratitude and thanks to Shri G.K. Vasan, Hon'ble Minister for Shipping, and Shri Mukul Roy, Hon'ble Minister of State in the Ministry of Shipping, and look forward to their support and guidance in managing the affairs of the Company.

Your Directors also extend a hearty welcome to Shri K. Mohandaas, Secretary to the Government of India, Department of Shipping, Ministry of Shipping, and look forward to his support and guidance.

Your Directors also wish to express their thanks to the officials in the Ministry of Shipping, for the unstinted support given by them in various matters concerning the Company. Your Directors would also like to convey their thanks to other Ministries, Trade Organizations, Shippers' Councils, who have played a vital role in the continued success of your Company.

The Directors thank the shareholders and valued customers for the continued patronage extended by them to your Company.

Last but not the least, your Directors wish to record their deep appreciation for the dedicated and loyal service of your Company's employees, both afloat and ashore, without whose co-operation and efforts the achievements made by your Company would not have been possible.

For and on behalf of the Board of Directors

Place : Mumbai S. Hajara

Dated : 13th August, 2011 Chairman & Managing Director


Mar 31, 2010

The Directors have pleasure in presenting the 60th Annual Report on the working of your Company for the financial year ended 31st March 2010.

Accounting Year

The year under report covers a period of 12 months ended on 31st March, 2010.

Financial Performance

The comparative position of the working results for the year under report vis-à-vis earlier year is as under:

(Rs. Crores)

2009- 2010 2008 - 2009

Gross Earnings 3,896 4,564

Gross Profit (before interest, depreciation, items relating to earlier years, exceptional items & tax) 849 1,469

Less : Interest 53 65

Depreciation 380 433 324 389

Profit before items relating to earlier years,

exceptional items & tax 416 1,080

Prior year’s adjustments (6) 4

Excess Provision/sundry credit balances

written back 66 10

Profit before Exceptional items & tax 476 1,094

Exceptional items - (39)

Provision for Indian Taxation 99 (114)

Net Profit 377 941

Appropriations

The working results of your Company for the year 2009-2010 after considering prior period adjustments show a profit of Rs.376.91 crores. An amount of Rs.80 crores has been transferred to Tonnage Tax Reserve u/s 115VT of the Income Tax Act, 1960. After adding a sum of Rs.511.38 crores (being balance in profit and loss account brought forward from the previous year), the amount available for disposal works out to Rs.808.29 crores. Your" Directors propose to make the following appropriations from this amount:

1. General Reserve - Rs. 40.00 crores

2. Staff Welfare Fund - Rs. 1.00 crore

3. Corporate Social Responsibility Reserve - Rs. 3.77 crores

Total - Rs. 44.77 crores

Dividend

Your Directors recommend payment of dividend @ 50% for the year 2009-10 absorbing a sum of Rs.211.73 crores. In addition, dividend tax of Rs.35.16 crores will be payable by the Company. After the proposed appropriations, the sum available is Rs.516.63 crores which is being carried forward to next year’s accounts.

Fleet Position during the Year

During the year under report, eight vessels aggregating to 4,53,540 dwt. were disposed of; one newbuilding crude oil tanker and three newbuilding product tankers aggregating to 4,68,007 dwt. were delivered. Thus, the overall fleet position, which was 80 ships at the beginning of the year, closed at 76 ships at the end of the year as shown in the following table:

FLEET PROFILE DURING THE YEAR

Particulars As on 1.4.2009 Additions

No. Dwt. No. Dwt.

1. (a) Crude Oil Tanker 30 35,89,597 1 3,21,137

(b) Product Tankers 9 3,67,240 3 1,46,870

(c) Chemical Tankers 3 99,174 - -

(d) Gas Carriers 2 35,202 - -

2. Bulk Carriers 19 8,08,505 - -

3. Liner Ships 5 2,02,413 - -

4. Offshore Supply Vessels 10 17,904 - -

5. Passenger-Cum- 2 5,303 - - Cargo Vessels

Total 80 51,25,338 4 4,68,007







Particulars Deletions As on 31.3.2010 No. Dwt. No. Dwt.

1. (a) Crude Oil Tanker 5 3,35,875 26 35,76,271

(b) Product Tankers 2 90,937 10 4,23,172

(c) Chemical Tankers 3 99,174 - -

(d) Gas Carriers 2 35,202 - -

2. Bulk Carriers 1 26,728 18 7,81,777

3. Liner Ships - - 5 2,02,413

4. Offshore Supply Vessels - - 10 17,904

5. Passenger-Cum- - - 2 5,303

Total 8 4,53,540 76 51,41,216



NEWBUILDING VESSELS DELIVERED DURING THE YEAR

Vessel Name Type Yard Built Dwt.

m.t. Desh Vishal VLCC DSME , S.Korea 3,21,137

m.t. Swarna Kalash Product Tanker Jinling Shipyard, China 47,878

m.t. Swarna Pushp Product Tanker Jinling Shipyard, China 47,795

m.t. Swarna Mala Product Tanker STX Shipyard, S. Korea 51,196*

* Resale vessel acquired on 25.1.2010.



VESSELS DISPOSED OF DURING THE YEAR

Vessel Name Type Yard Built Dwt.

m.v Lok Prakash Bulk Carrier 1989 26,728

m.t. Major Somnath Sharma, PVC Crude Oil Tanker 1984 67,225

m.t. Naik Jadunath Singh, PVC Crude Oil Tanker 1984 67,169

m.t. CHM Piru Singh, PVC Crude Oil Tanker 1984 67,161

m.t. Capt. G.S. Salaria, PVC Crude Oil Tanker 1984 67,167

m.t. Major Dhan Singh Thapa, PVC Crude Oil Tanker 1984 67,153

m.t. F.O. Nirmaljit Singh Sekhon, PVC Product Tanker 1985 45,485

m.t. Lt. Arun Khetarpal, PVC Product Tanker 1985 45,452

VESSELS ON ORDER AT THE END OF THE YEAR

Type No. Shipyard Total Dwt.

LR-I Product Tankers 6 STX Shipbuilding Co. Ltd., S. Korea 4,33,800

LR-II Product Tanker 2 Hyundai Heavy Industries Co. Ltd., S. Korea 2,10,000

Aframax Crude Oil Carrier 4 Hyundai Heavy Industries

Co. Ltd., S. Korea 4,60,000

Anchor Handling, Towing & 4 Bharati Shipyard Ltd., India 8,000

Supply Vessel (AHTSV) (80T BP)

Handymax Bulk Carrier 6 STX (Dalian) Shipbuilding Co. Ltd., China 3,44,400

Panamax Bulk Carrier 4 STX (Dalian) Shipbuilding Co. Ltd., China 3,22,620

Anchor Handling, Towing & 2 Cochin Shipyard Ltd., India 3,940

Supply vessel (AHTSV) (120 T BP)

Platform Supply Vessels 2 Cochin Shipyard Ltd., India 6,120

(UT 755 Design)

MANAGEMENT DISCUSSION AND ANALYSIS

The overall scenario under which the Shipping industry operated and which impacted the various segments is discussed below.

A) INDUSTRY STRUCTURE AND DEVELOPMENTS

World Scenario

The global economy witnessed a 0.7% contraction in GDP during 2009 after registering a moderate growth of around 3% in the previous year. The performance of major economies / regions during 2009 indicated that, with the exception of China and ‘Other Asia’ which recorded positive growths of 8.3% and 2.6% respectively, the economies of North America, OECD Europe and Japan shrunk by 2.5%, 3.9% and 5.4%, respectively.

* China led the growth in the second half of 2009, mainly fuelled by its domestic demand with the government’s stimulus package contributing to off-set slowdown in exports; and South Korea, Singapore and India also posted significant growth. North American economy reversed the trend of contraction in the second half of 2009 with a surge in manufacturing activity on account of strong exports and inventory build-up. OECD Europe also showed a similar trend, though the pattern was not uniform across the region with Germany and Italy experiencing moderate growth while the British and Spanish economies continued to contract. Japanese economy also reversed the trend by mid-2009 after a double digit rate of decline since late 2008.

Although global Dry Bulk trade contracted slightly during 2009, the year witnessed a massive rebound in Chinese imports with around 50% increase and a stronger than expected recovery in trade in other countries. Deliveries of vessels were 40% below schedule and there was widespread port congestion. Together, these developments contributed to improvement in spot rates throughout the year.

The global Oil trade was characterised by very weak OECD demand, which was off-set to some extent by a massive 12% increase in Chinese imports as also by strong demand in rest of Asia. Overall, the oil trade shrank during 2009 with the crude trade falling somewhat more than the product trade. The total fleet grew by around 7% during the year. The year thus witnessed unfavourable conditions with spot rates falling by around 65% from the previous year. Crude tanker spot rates touched the low levels not experienced since 2002. However, late 2009 and early 2010 brought some encouraging signs with the crude tanker spot rates maintaining a rising trend.

Global "Dry Bulk" imports were 2.9 billion tonnes witnessing a fall of 0.5%. Global "Crude oil" imports during 2009 were around 1.96 billion tonnes, 3.7% lower than in 2008. "Products" imports were 0.8 billion tonnes, declining by 2.3% compared to its previous year’s level. The total "Oil" trade thus witnessed a decline of 3.3%. Global Container trade was in the region of 120 million TEUs, registering an unprecedented contraction of 7.7%.

The share of "Oil" trade in the total ‘Oil & Dry bulk imports in 2009 declined marginally to 48.7% from 50% in the previous year. The share of "Dry Bulk" trade correspondingly increased slightly to 51.3%.

Indian Scenario

As per the Advance Estimates of the Central Statistical Organisation (CSO), Indias GDP growth for 2009-10 is reckoned at 7.2%, nearly the same level as in the previous year despite the unfavourable global economic scenario. This was aided by strong growth in manufacturing and services’ sectors and a lower decline than previously expected in agriculture sector. As per another estimate, the IMF has projected India’s GDP growth in 2009-10 at 6.75% while the RBI has projected 7.5% growth. India’s Foreign Exchange reserves have increased by almost 10% from their year ago level and stood at US$ 277 billion at the end of March 2010. India’s Merchandise Exports in 2009-10 are estimated at US$176.5 billion, lower by 4.7% than the previous year mainly due to global economic meltdown. Imports during the same period were US$278.7 billion, a fall of 8.2% from last-year.

The total Cargo traffic handled by the Major Indian ports during 2009-10 was around 561 million tonnes, increasing by 5.7%. This comprised around 175 million tonnes of POL (Petroleum and Other Liquids) remaining constant at previous year’s level, 189 million tonnes of major Dry Bulk cargoes (Iron Ore, Fertilisers, Coal) which increased by 3.7%, 101 million tonnes of Container traffic showing a substantial increase of 8.6% (however, in terms of TEUs, the increase was around 4.3% indicating that heavy weight cargo was handled at major ports) and 95 million tonnes of "Other Cargoes" (i.e. minor bulks, breakbulk etc.), which declined by 21%.

The share of "Dry Bulk" cargo in Indias Major ports traffic was around 34%, followed by "POL" at 31%, Containerised cargoes at 18% and "Other cargo" accounting for the remaining 17%. The change in the traffic pattern from the previous year indicates that the share of Dry Bulk and POL cargoes has declined with Containerised cargoes and ‘Minor bulk & Breakbulk’ cargoes increasing their share in the trade.

B. OPPORTUNITIES & THREATS

Global Economy

Global GDP is expected to expand by 3.7% in 2010, indicating a considerable improvement over the contraction experienced in 2009. A slightly higher growth at 3.9% is projected for 2011 with similar growth likely to be witnessed over the next three years. However, even this improvement is still below the 4.7% growth witnessed during the 2004-2007 boom period. The overall scenario thus appears to present a somewhat limited growth opportunity for global trade and commerce. As per a recent CMIE (Centre for Monitoring Indian Economy) Report, world trade volume contracted by almost 13% in 2009 with a modest recovery of 5% projected for 2010, subject to a sustained global recovery setting in.

In the dry bulk segment, the Chinese infrastructure spending is expected to slow down and its steel demand projected to mature, with the growth in its overall imports likely to average around 7% p.a. over the next five years. Global demand is also expected to be quite strong over the next two years. However, with the bulk carrier fleet projected to continue growing rapidly in 2010, considerable tonnage would be available for employment. This trend of substantially high addition to the fleet is expected to continue for the next two years.

In the tanker segment, global oil trade is expected to recover in 2010 with both crude and product trades increasing by a little over 3% each. Long-haul shipments such as from Middle East to North America and Europe are projected to rise significantly. However, a new pipeline from Russia to China is scheduled to become operative in late 2010, which would slightly curtail seaborne import shipments. Also, the anticipated decline in floating storage of oil over the coming year would release additional tanker tonnage thereby tempering the demand for tankers. Although global economic growth is projected to accelerate slightly from 2011 to 2014, the demand for oil is expected to grow at a moderate pace as other energy forms such as LNG and nuclear power are likely to increase their market shares. Oil trade is thus projected to grow by around 3% p.a. during this period, with the product trade growing slightly faster than crude trade. China is reckoned to continue to be the most significant market in this segment, followed by ‘Developing Asia’ with India’s oil demand expected to be twice the level of this region. On the fleet side, tanker deliveries are expected to remain relatively high through 2011, and the tanker & combination carrier fleet is expected to continue to expand substantially through 2012.

The projections for the overall economic growth of various countries and regions and the developments in seaborne trade and shipping indicated above are expected to impact global trade as given below.

Global Trade

During 2010 "Dry Bulk" trade is expected to present substantial opportunity for shipping with a robust growth of 10.5% over 2009, however, in 2011 the growth is expected to slow down to about 6.1%.

The "Oil" trade is expected to witness a modest growth of 3.2% in 2010 with both crude and product trades increasing by a little over 3% each. However, in 2011, a lower growth of around 2.8% is projected for the total "Oil" trade with "crude oil" segment witnessing slower growth and the "products" segment likely to register a higher growth compared to their previous years levels.

The Container trade is expected to recover after a drastic contraction in 2009 with a substantial upswing of 8% in 2010, followed by 9% in 2011.

Indian Economy & Trade

A number of investment banks, including certain foreign-owned, have forecast Indias GDP growth of 8.5% for 2010-11. However, one of the foreign banks has projected a slightly lower GDP growth of 8.1% reflecting the global uncertainty arising from the European sovereign debt crisis. A recent CII (Confederation of Indian Industry) survey reckons the growth to be between 7.5% and 8.5%, fuelled mainly by rising capital investment and expanding exports.

C. OUTLOOK

With supply of dry bulk tonnage outpacing the expected growth in demand, the shipping market in this sector is projected to weaken during 2010 with average freight rates declining by more than 20% compared to their 2009 levels. The anticipated deliveries of vessels would continue to exert downward pressure on rates through the first half of 2012, and a recovery is expected to gain momentum only in 2013.

In the tanker segment, crude tanker spot rates are likely to fall back relative to their high levels in January 2010, however, they are expected to remain above 2009 average levels through to 2012. Thereafter, the rates are projected to witness an upturn during the next two years.

Your Company has formulated its Ship Acquisition Programme for the 11th Five Year Plan (2007-12) period reflecting the strategy of focusing on value-adding businesses by building on its core competencies so as to realize the objective of enhancing shareholder value. This Acquisition programme for expansion / diversification/ modernisation of SCI’s fleet envisages acquisition of 62 vessels aggregating to over 2.5 million GT (4.5 million Dwt.) and includes Bulk Carriers (Capesize / Panamax / Handymax), Crude Tankers (VLCC / Suezmax / Aframax, etc.), Product Tankers (LR-II / MR), Offshore Vessels, etc. The Ship acquisition programme is reviewed from time to time in order to sync it with the latest trend of pricing and the conditions of charter market. During the last financial year, your company acquired a resale MR Product tanker built in a first class Korean Yard for US$ 32.9 million (originally priced at US$ 45.2 million) from a Greek owner. Your Company is also on the look-out for suitable Liner vessels. Your Company believes that in the wake of erstwhile meltdown, opportunities for value buying in limited manner may come up and, the Company will consider these proposals.

D. RISKS & CONCERNS .

Although global economic recovery is presently reckoned to continue at a relatively steady pace over the next few years, there is considerable uncertainty with regard to the US economy, which may experience a recession during the second half of 2010, especially if its private sector demand does not improve as the Government’s stimulus package gets phased out. In such a scenario, global GDP growth would not continue at the pace being projected now, and consequently, there would be an adverse impact on trade and shipping activities.

As a result of improvement in freight rates / markets, there is a possibility of reduced slippages (postponement) in the deliveries of dry bulk and tanker vessels from the shipyards than what is presently envisaged and in case the slippages reduce substantially, the increased addition to the respective fleets would result in much faster deterioration in the freight rates.-

Another concern would be a much faster reduction of floating storage (in tankers) of refined products than presently reckoned which would also release much greater tonnage of tankers for employment than projected, thereby putting further downward pressure on rates.

These developments, singly or in combination, would adversely affect revenues and profitability of shipping operations.

A detailed analysis of how the above would impact or strengthen each segment of the Company is discussed below. The segments have been divided into three parts viz. (1) Bulk Carrier & Tanker (Bulk Segment), (2) Liner & Passenger Services (Liner Segment) and (3) Others.

(1) BULK CARRIER & TANKER

The Bulk Carrier & Tanker has been further sub-divided into two segments viz. (I) Tanker and (II) Dry Bulk.

I) TANKER

A) INDUSTRY STRUCTURE & DEVELOPMENTS

World Scenario

The global credit crisis and world economic downturn in 2008-09 dramatically undermined the prospects for tonnage demand for all main ship types; thus, the year 2009-10 opened amid far more negative sentiment than a year earlier.

In the financial year 2009-10, the shipping industry faced rough weather with tanker freight markets not being steady at all. There were huge declines in spot earnings, both for clean and dirty tankers, mainly due to (i) poor oil demand, particularly in the mature industrial economies, and resulting cuts in crude imports (ii) increased oil output from US and Former Soviet Union (FSU); in particular, a 0.58 mb/d (million barrels per day) rise in its domestic crude oil production made the US less dependent on imported supplies, (iii) far faster net fleet growth (net fleet expansion was also compounded by fewer removals from the fleet, as interest in buying "single-hulled" ships for conversion (to bulk carriers or FPSOs) had diminished significantly) (iv) relatively strict adherence by OPEC members to the oil output cuts that had been enacted from late 2008 onwards.

The fourth quarter of 2009-10 showed an upward trend in the tanker freight market as a steady recovery in oil demand (mainly non-OECD), amid bettering economic conditions, and rising offshore storage, pushed up the demand for tonnage.

Indian Scenario

The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian economy. According to the Ministry of Petroleum, India has total reserves of 775 million metric tonnes (mmt.) of crude oil and 1074 billion cubic metres (bcm.) of natural gas as on April 1, 2009.

Under New Exploration Licensing Policy (NELP VIII), 1.62 sq.km. of area comprising 70 blocks was put up for bidding.

Production

By the end of the Eleventh Plan, the refinery capacity is expected to reach 240.96 million metric tonnes per annum (mmtpa.).

- Crude oil production during 2009-10 was 33.68 mt. as compared to 33.50 mt. in 2008-09. -

- Refinery production in terms of crude throughput was 160.03 mt. in 2009-10.

- The production of natural gas went up to 47.57 bcm. in 2009-10 from 32.84 bcm. in 2008-09.

Consumption

The sales/consumption of petroleum products during 2008-09 was 133.40 mt. (including sales through private imports) registering an increase of 3.45 per cent over sales of 128.94 mt. during 2007-08, according to the Ministry of Petroleum.

India"s domestic demand for oil and gas is on the rise. As per the Ministry of Petroleum, demand for oil and gas would increase from 186.54 million metric tonnes of oil equivalent (mmtoe.) in 2009-10 to 233.58 mmtoe. in 2011-12.

The refining capacity in the country increased to 177.97 million tonnes per annum (mtpa.) as on April 1, 2009 as compared to 148.968 mtpa. as on April 1, 2008.

There are various projects under implementation to expand the capacity of the existing refineries and some projects are on the anvil to install new refineries. Considering the expected refining capacity, India is going to emerge as a major refining base and the main business hub for petroleum products for the whole world by 2011.

With respect to crude oil imports it has been observed that there is a shift to higher parcel sizes and, in order to obtain benefit from economies of scale, the use of VLCCs have increased considerably for transportation of crude oil to Indian shores. This is also evident as more number of SBMs are set up/being set up to handle VLCCs.

B) OPPORTUNITIES & THREATS

Opportunities

It is expected that there would be recovery in the global economy thereby brightening the near-term outlook for tanker trade. A pick up in vessel scrapping due to Marpol single-hull phase out deadline would tame growth in tonnage supply in 2010. Tonnage demand is also likely to grow faster with rising long-haul trade and offshore storage. The refining capacity is expected to grow at about 3.24 million bpd (barrels per day) across the world between the years 2009-14. The Indian refining capacity and utilization are set to increase which provides increased opportunity for tanker trade. Increased oil imports in 2 million barrel parcels is resulting into enhanced usage of VLCCs and thus an opportunity for acquisition of more VLCC units. Emergence of India as a significant refining base and the expansion of RIL refinery and Essar refinery would result in enhanced exports of products from India, which would require Clean LR-I and LR-II tankers. With the phase-out of single hulls, freight market levels are likely to improve in Indian crude oil import trade.

Threats

High supply growth next year on the back of hefty deliveries would place downward pressures in 2010 and 2011 as the tonnage supply may improve. Slack oil demand, particularly in the mature industrial economies viz. USA and Japan would adversely affect the trade activity. Demand growth, especially in short term, is heavily dependent on growth in India and China. However, this growth cannot offset the declines in imports by more mature . markets such as the US.

C) SEGMENTWISE PERFORMANCE

Crude Oil Tankers

Your Company has been competing with other players in the global competitive market as few tankers including . VLCCs were employed gainfully on cross trade. M/s. Hindustan Petroleum Corporation Ltd. (HPCL) and M/s. Bharat Petroleum Corporation Ltd. (BPCL) continue to have COA arrangements with SCI for their crude transportation.

During the year 2009-10, the total quantity of crude oil transported by your Company was about 24.89 mmt., which includes 2.89 mmt. in cross trade, 11.42 mmt. of imported crude for Indian Oil Industry and 6.90 mmt. coastal movement. In addition, through in-chartered vessels, your Company transported about 3.68 mmt. of imported crude for Indian Oil Industry.

Of the total 15.10 mmt. of crude oil transported by your Company for Indian PSU refineries, 75% was carried by owned vessels and 25% carried by in-chartered vessels.

Your Company, as an integrated service provider, has also handled lighterage operations during the year 2009-10 at various locations along the Indian Coast and has lightened liquid and dry bulk cargo of 7.16 mmt.

Ship-to-Ship (STS) Lighterage operations

During 2009-10, your Company’s Lighterage Cell carried out 192 STS lighterage operations for STS transfer of 2.541 mmt.(million metric tonnes) of crude oil ( import and indigenous) at various locations off the East & West Coasts of India, and 45 lighterage operations for STS transfer of 4.617 mmt. of bulk Iron ore off Goa.

In January 2010, the Lighterage Cell also commenced STS operations for transfer of Clean Petroleum Products (CPP) for M/s. Reliance Industries Ltd.(RIL) off Sikka.

During 2009-10, the Lighterage Cell supervised/conducted 52 Single Buoy Mooring (SBM) operations of storage tankers at Mumbai High and satellite oilfields.

Contract of Affreightment (COA)

During the year 2009-10, your Company successfully performed COA with HPCL and BPCL. The contracted quantities are 11 mmtpa. of imported crude plus 2 mmtpa. of indigenous crude for HPCL and 6 mmtpa. of imported crude plus 2.35 mmtpa. of indigenous crude for BPCL.

Your company is transporting Mumbai high crude to various Coastal refineries viz. M/s. MRPL(Mangalore Refinery & Petrochemicals Ltd.), M/s. HPCL, M/s. BPCL, M/s. IOCL and M/s.CPCL (Chennai Petroleum Corporation Ltd).

Product Carriers

During the year 2009-10, eight (8) product vessels were gainfully employed with the Indian Oil Industry on time charter basis and one vessel had been employed outside. Out of these, two vessels were phased out during the year.

Your Company took deliveries of 3 new MR tankers. m.t. "Swarna Kalash" was delivered on 10.10.2009, m.t. "Swarna Pushp" on 27.01.2010 and m.t. -Swarna Mala" on 25.01.2010.

Specialized Vessels

Your Companys LPG/Ammonia carriers were operated for carriage of both LPG and Ammonia. After spotting, for few voyages, these vessels, for a major part of the year, were deployed on time charter to M/s. Indian Oil Corporation Ltd.

The three chemical tankers continue to be deployed under COA with M/s. Maroc Phosphor and performed few coastal voyages for M/s. Sterlite Industries.

D) OUTLOOK

A recovery in the global economy, rising demolitions and a slowing pace of new tonnage deliveries are some factors which may bring some positive outlook for the tanker market. Global oil demand is now projected to recover by 1.9% in 2010, driven up by strong non-OECD demand. However, downside risks still remain, with OECD oil demand forecast to further decline by 0.6% (or 110,000 bpd) from 2009. Moreover, oil product stocks -in the US, even after declining significantly over the quarter, still stand at a significantly high level.

However, the tanker freight market is expected to witness downward pressures on freight rates over the next two years viz. 2010 and 2011 on account of a significant expansion in the tonnage supply-demand balance. While tonnage demand is anticipated to continue to grow at a steady rate of around 4% per annum, tonnage supply is forecast to expand at a much more rapid pace of 7% per year, further widening the tonnage supply- demand gap. Going further, decline in floating storage over the next twelve months shall increase the tonnage supply.

In short, the outlook for tanker market in the year 2010-11 looks grim as demand gains are likely to be offset by lower floating storage and steady fleet growth.

Your Company is expected to grow its tanker fleet in the financial year 2010-11 with new deliveries of LRIs, LR2s and Aframax tankers.

SCIs COA with M/s. HPCL and M/s. BPCL for transportation of crude oil has been extended by both the companies. M/s. BPCL has signed COA with SCI till September 2012 with an option of extension for a period of further two years on mutual consent of both parties. The COA signed with M/s. HPCL is valid till September 2010 with two extensions of one year each at charterers’ option.

SCI would continue its dominant position in transportation of indigenous crude.

The movement of clean petroleum products (CPP) along the Coast would remain steady and majority of our product tankers would continue to remain deployed on time charter basis to Indian oil companies.

D) RISKS & CONCERNS

Economic slump, higher tonnage, supply coupled with falling oil demand are the major areas of concern for Tanker market. However, with secured cargoes by way of COA with Indian oil companies and SCI’s quality fleet exposed to cross trades, SCI expects to tide over the challenges posed by the current market environment.

Taking into account the current levels of vessels on order and the further tonnage acquisition planned, SCI is likely to retain its dominant position among Indian Shipowners in terms of tonnage and actually widening the gap from other Indian Shipowners in the tanker segment.

Integrated Management System (IMS)

The Integrated Management System (IMS) is in force across our entire Tanker Fleet since 2006. Key Performance Indicators (KPIs) as stated in TMSA (Tanker Management and Self Assessment) guidelines are being continuously monitored and the status is regularly updated on the website. Accordingly, the tankers are maintained to the highest standards and remain competitive and marketable. The IMS also covers, within its ambit, Risk Assessment, Hazard Identification & Analysis (which will become a requirement under the revised ISM Code effective 1st July 2010).

TMSA compliance is the Oil Majors’ requirement under OCIMF (Oil Companies International Marine Forum), without which the tankers are not accepted by Oil Terminals around the world. TMSA offers a standard of "Best Practice" framework for assessment of Ship Operators’ Management system. Ship operators are expected to conduct and regularly review their TMSA assessment on line against the highest practices recommended in their programme.

Indian Register Quality System, IRQS (IRS) have certified that the Tankers manned and operated by SCI are compliant with ISO 9001 - 2008, EMS 14001 - 2004 and OHSAS 18001- 2008.

Outstanding Payment from the oil industry

As on 31.03.2010, payment under various heads outstanding from the oil industry was approximately Rs.149.92 crores. A substantial portion of the outstandings was in connection with the payment in respect of tankers’ oil transportation including freight, demurrage and charter hire. Your Company has been continuously following up with the oil industry for realization of overdue demurrage claims.

II) DRY BULK

A) INDUSTRY STRUCTURE & DEVELOPMENTS

World Scenario

The average BDI (Baltic Dry Index) during the year 2009-10 was 2978 (as compared to 4896 during 2008-09).

The Baltic Supramax Index (BSMI) also witnessed a decline from 2009-10 where the average stood at 2001 as compared to 2999 during 2008-09.

As mentioned earlier, 2009-10 started with a negative sentiment. The difficulties facing vessel owners were set to be accentuated by softer cargo demand at a time of accelerating net fleet growth. Though the year began in a depressed state, there were series of upturns witnessed during this year. These were largely linked to (a) continued firm import demand by China and (b) the build up of huge volumes of port congestion at some key dry bulk terminals in East Coast Australia and China. Dry bulk carrier earnings predominantly rose in the fourth quarter of financial year 2009-10.

Indian Scenario

Indian Iron Ore shipments and Coal imports are the driving forces for dry bulk demand in India. During the period from April to January 2010, India imported about 61.01 million tones of Coal as against 49.90 million tones imported during the period from Apr-Jan 2009. The iron ore traffic accelerated to 7.1% of total port cargo traffic

in 2009-10 from a modest 2.3% in 2008-09. The exports of iron ore, a key ingredient in steel manufacturing, increased in 2009-10 as compared to last year. Your Companys Handymax fleet continued to perform well in this segment. Growing domestic demand for steel and the augmentation of power generation capacities are driving the Coal demand and SCI is a major transporter for these imports.

B) OPPORTUNITIES & THREATS

Opportunities

Coal demand is increasing in India driven by rising steel production and thermal power plants. Many Ultra Mega Power Projects are being set up near ports and their requirements would be met mainly through shipping imports. Indian Power generation is projected to increase by 21355 MW (7.2%) in 2010-11. The thermal coal imports are projected at 30 MMT in 2008, 60 MMT in 2009 and 81 MMT in 2012. Indian Companies are acquiring coal mines abroad from which coal are to be shipped to India. Coking Coal imports are expected to increase in line with Steel capacity and thus, increasing shipping activity. Coastal Trade is increasing. Deepwater ports with better infrastructure are being developed thereby enabling Indian owners to opt for larger vessels like Panamaxes for shipments. World GDP growth is projected to grow in near future and dry-bulk trade has close co-relation to World GDP growth.

Threats

Changing Government Regulations and Duty structures can affect imports and exports of dry cargoes to a great extent. India is over dependent on Chinese demand for iron ore exports. Eurozone economic downturn will result in reduced demand for industrial raw-materials which can contribute to falling dry bulk freight rates. Large iron ore exports from Brazil to China can reduce demand for Indian iron ore, a trade in which SCI has been an active participant. Leading ore supplier M/s. VALE has embarked on large scale conversion of VLCCs to VLOCs. If shipments from Brazil to China take place on Very Large Ore Carriers (VLOCs), better economies of scale can be achieved and Chinese importers may shift to imports from Brazil. In the iron ore sector, China’s proposed import ban on lower grade iron ore below ‘Fe’ content 60% is likely to curb exports from India. Fleet growth of 10% per year till 2012 will delay any significant rise in freight rates. India’s exports of iron ore will decline as domestic demand is increasing and the Government has just raised the duty on iron ore exports (from 5% to 10% for iron ore lumps and from zero to 5% on fines).

C) SEGMENTWISE PERFORMANCE

Your Company owns 18 bulk carriers (average age 20 yrs.) as on 31st March, 2010 comprising of 15 Handymax and 3 Handysize vessels. .

Eleven (11) units of Handymax vessels were primarily deployed on a triangular voyage for transportation of coking Coal from Australia to ECI both on COA and spot basis for Steel Authority of India Ltd. (SAIL), Kolkata and then mainly deployed for carrying iron ore from ECI to China on spot basis. On account of SAIL, SCI tonnages had lifted from Australia about 13,43,850 mt. during the year 2009-10.

Few Handymax vessels, which are less older tonnages of 45000 DWT, were deployed on short period charter and occasionally to lift urea parcel under COA arrangements and 3 units of Handysize vessels were mainly employed on cross-trades or short-term period charters to carry cargoes like urea, steel, grain, fertilizers, , agri-products etc.

D) OUTLOOK

The Baltic Dry Index (BDI) opened the year in January 2010 at 3005 and reached 3300 in the middle of January 2010. However, the BDI then slipped back to close fourth quarter of 2009-10 at 2998. The major factor affecting poor business in the middle of Q4 of 2009-10 was China going into holiday mode and enquiry levels, therefore, - declined drastically. Another issue that affected the freight market, especially the Pacific, was the uncertainty over the pricing of iron ore.

The world dry bulk fleet at the end of Q4 of 2009-10 stood at 469 million dwt. and by end of this year it is expected to increase to 518 million dwt. showing an increase of 14% over the same period in the previous year. The increase in fleet size is expected to be more than 10% until 2012, after which the deliveries will slacken.

Wth deliveries likely to accelerate further in the short term as slipped and delayed vessels finally get completed, the outlook for the dry market remains weak. Demand is not expected to be sufficiently strong to meet the wave of dry bulk deliveries from shipyards.

Despite indications of some vessel cancellations and delays in 2010, dry bulk vessel supply is expected to negate any improvement in demand, capping freight market gains. However, if China again performs strongly this year and global demand recovers, the glut in supply could be negated to some extent.

E) RISKS & CONCERNS

Ageing fleet demands high level of maintenance and repairs which is adversely affecting Company’s profitability.

Due to shortage of shipbuilding steel globally, the cost of steel renewal in ship repair yard is rising.

The volatility in bunker prices is making the charterers look towards more fuel efficient ships.

Nevertheless, in the current market conditions, there is a niche for SCI’s bulk carriers. Further the delivery of the bulk carrier new buildings, which are Supramax vessels meeting the market requirements, shall be added to the SCI fleet when these vessels are close to reaching 25 years of age.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE (BULK CARRIER AND TANKER)

The overall financial performance of bulk carriers and tankers though had been on a decline on Y-O-Y basis has, however, remained competitive despite poor market conditions. The bulk carriers continued its contribution; the crude sector showed a decline in earnings as crude tanker shipping suffered a heavy fall in 2009-10 but the vessels on period charter served as a hedge both for revenues and against fluctuating bunker prices The product tankers have performed satisfactorily and the performance of LPG vessels has also been impressive. Acid Carriers were affected due to the downturn in the phosphoric acid trade.

The Bulk Carrier & Tanker segment (Tanker and Dry Bulk together) recorded a revenue of Rs.2670.94 crores in 2009-10 as compared to Rs.3271.01 crores in 2008-09. The segment recorded a Profit before Tax of Rs.485.93 . crores in 2009-10 as against Rs.980.11 crores in 2008-09.

(2) LINER & PASSENGER SERVICES

A) INDUSTRY STRUCTURE & DEVELOPMENTS

World Scenario:

The trend of contraction in global Container trade witnessed during 2008 continued in 2009 as well with trade volumes shrinking steeply by an unprecedented 7.7%. The contraction was particularly severe in the two premier lanes, the Asia-Europe West-Bound (15%) and the Transpacific East Bound (17%).

Operators embarked on a major programme of capacity management to substantially curtail vessel capacity through two measures i.e. ‘slow steaming of vessels and vessel lay-ups. The total container capable fleet growth fell drastically from a 12% annual pace at start of 2009 to 6% by year end. Further, there were record high scrappings and deferring of deliveries of new-building ships from the shipyards. By end of 2009, scrappings accounted for 2.8% of the cellular fleet capacity and deferment of deliveries amounted to 43% of total scheduled deliveries.

The container ship markets experienced the worst ever conditions with freight rates and charter rates declining sharply in 2009. Despite small charter rate gains in January 2010, the rates remained near historical lows, in most cases below operating expenses. Freight rate increases in early 2010 in the premier lanes are basically attributed to strict capacity control actions, although market fundamentals have also started to show improvement. For 2009 as a whole, however, most of the liner companies world wide have experienced substantial losses.

Indian Scenario:

The Major Indian ports handled 6.87 Million TEUs of Container traffic in 2009-10 which was only 4.3% higher than the previous year. This is equivalent to 101 Million Tonnes of containerised cargo, representing a significant growth of 8.6%. The SCI continues to be the only Indian mainline carrier providing services from India to some of the major global destinations including Far East / China, Europe, Middle-East / West Asia Gulf etc. However, several international container majors are offering direct services or calling Indian ports enroute on their East-West services.

B) OPPORTUNITIES & THREATS

Global Container trade is projected to rebound by 8% in 2010, which is, however, on a negative growth base seen in 2009. Subsequently, the projections indicate robust growth of 9% in 2011, followed by 8.5% average annual growth upto 2014. The positive growth in container trade is based on expectations of rapid economic growth in both emerging and developed economies. The expansion of emerging economies is particularly attributed to China and India as also Latin America etc., which would accelerate trade to these regions.

On the fleet side it is expected that delivery slippage of container vessels would reduce to around 33% of scheduled deliveries in 2010 and 2011. While this would ease fleet growth in the near term, it would in any case result in faster capacity expansion in later years. The container-Capable fleet is expected to grow by an average of 7% during the next three years (i.e. 2010 to 2012). Most of the expansion is in the Panamax and Post-panamax sizes, especially mega-ships of over 7500 TEU. Though the Smaller size fleet of under 3000 TEU is likely to actually decline slightly over next three years, the cascading down of larger vessels is likely to reduce the demand for charter-vessels and hinder recovery of charter rates.

The breakbulk sector continues to have good potential in respect of imports of Over-Dimensional Cargoes (ODC), Project cargoes, Heavy Lift cargoes etc. on account of the Government departments / PSUs and other commercial organisations as the Infrastructure sector in India will remain strong.

C) Segmentwise Performance of Liner & Passenger Services

Liner Vessels:

The table below shows the profile of SCI’s owned liner fleet having total container carrying capacity of 14,407 TEU.

Type of Ships As on 31.03.2009 Additions Scrapping As on 31.03.2010

No. Dwt. No. Dwt. No. Dwt. No. Dwt. Fully Cellular 5 2,02,413 - - - - 5 2,02,413

Total 5 2,02,413 - - - - 5 2,02,413

Average age of the five(5) owned Container vessels: Approx. 11 years, out of which 2 vessels are around

2 years old.

- As on 31.03.2010, the in-chartered container vessel tonnage operated by SCI comprised of 4 vessels of a total Dwt. of 1,62,399 tonnes and 11,784 TEU total capacity.

Your Company continued to deploy its owned/operated Container vessels and Breakbulk vessels in the various sectors as described below.

Container Services

UK - Continent sector:

Indian Subcontinent Europe Service (ISES):

The UK-Continent cellular container service was started in 1994, with a single operator viz. SCI deploying its

3 owned vessels.

SCI operates this service in consortium with M/s Mediterranean Shipping Lines (MSC) with SCI deploying 2 owned and 1 in-chartered vessel and MSC 4 vessels in this service. It has round voyage duration of 49 days.

Ports of call: Colombo / JNP / Mundra / Salalah / Port Said / Barcelona / Hamburg / Antwerp / Felixstowe / Jeddah / Colombo.

Due to recession, the freight rates had reduced severely. However, the freight rates have now shown signs of recovery.

Far Eastern Sector:

India / Far East Cellular (INDFEX 1): Service

This service commenced in June, 2001 with 5 vessels of 1,600 to 1,800 TEU capacity. It was upgraded in stages and the service is presently operated as a weekly direct service from India’s West Coast to Central China, Korea, Hong Kong, Singapore and Malaysia with 5 vessels of 1950-2250 TEU on a round voyage schedule of 35 days.

The main ports of call are NSICT / Colombo / Singapore / Busan / Shanghai / Ningbo / Hong Kong / Singapore/ Port Kelang / Colombo / NSICT.

The four Vessel Operating Partners are SCI, PIL of Singapore, K-Line of Japan and Wan Hai of Taiwan with one vessel each; and the other remaining one vessel which is shared by the partners (50% by Wan Hai & 50 % by other 3 Partners).

The One vessel deployed by SCI is of 2700 TEU capacity and the average weekly allocation for SCI is about 532 TEU considering owner’s merit.

India / Far East Cellular (INDFEX 2) Service

This service commenced in June 2002, connecting East coast of India to North China and is operated as a weekly direct service with 5 vessels on a round voyage schedule of 35 days.

The constituents of the consortium are SCI, PIL, K LINE and HANJIN.

The main ports of call are Chennai / Vizag / Singapore / Hong Kong / Xingang / Dalian / Qingdao / Hong Kong/ Shekou / Singapore / Port Kelang and Chennai.

Through the INDFEX 1 and INDFEX 2 services, SCI covers the Chinese market extensively with direct calls at 6 mainland Chinese ports and Hong Kong. Due to recession the freight rates continued to be severely affected in the Far East Sector. However, the Freight rates in the sector have started improving, and there is optimism - that the Far- East services will improve in the current year.

SCI Middle East India Liner Express (SMILE) Service

SCI is operating this new independent weekly service (commenced in March 2008) to the Gulf with its 3 owned vessels on a round voyage schedule of 21 days.

This service covers "India & the Indian Subcontinent - West Asia Gulf sector catering to the trade requirement in the Gulf markets as also the Far East, Red Sea, UK-Continent through transhipment at Colombo.

Upper Gulf locations are also covered by feeder services ex-Jebel Ali. In December 2008, the SMILE service was expanded to carry feeder and coastal cargoes on the west coast of India. With this service SCI is now one of the leading coastal carriers for domestic cargo on west coast of India.

The main ports of call are Colombo / Jebel Ali / Mundra / Pipavav / JNPT/ Cochin / Tuticorin / Colombo.

The freight rates between India and Gulf owing to recession have also dropped. However, catering to coastal shipping and some feeder cargoes mitigated the losses. As this service is also acting as feeder to other services, the revenues on this service also are reflected in other mainline services.

India-Red Sea Service

This is a new service launched at the end of 2008-09. This service was affected by the recession in the industry. In order to cut costs, this service has been discontinued and the vessel mv SCI Trust has been suitably redeployed in other services.

Break-Bulk Services

SCI is the only Indian company providing overseas liner break-bulk services to Indian trade. SCI arranges carriage of breakbulk cargoes on space charter basis from various regions across the globe including USA and Far East for imports on account of the Government departments / PSUs and other commercial organisations which includes Shipments of Over-Dimensional Cargoes (ODC) / Project cargoes / Heavy Lift cargoes / IMO

Class I Cargoes etc. and also containers. SCI continues to operate its India-UK Continent breakbulk service from European ports to India jointly with Rickmers Linie on space sharing basis on their vessels.

Feeder Service

SCI makes feeder arrangements with ‘Common Carriers’ between various destinations on the Indian subcontinent depending on market requirements.

SCIMAX Feeder Service

SCI operated a feeder service in consortium with another Indian Feeder operator i.e. Maxicon Line. This service was catering to Kolkata - Colombo sector. Besides SCI’s own captive cargoes, this service also catered to other mainline operators cargo as a feeder operator. With the completion of the charter period and redelivery of the vessel, SCI has suspended this service. Currently SCI is using common feeder lines to cater to its feeder cargoes in this sector.

Currently SCI is using common feeder lines to cater to its feeder cargoes in this sector.

Coastal Operations

Domestic Passenger-Cum-Cargo Service

In addition to International operations, the SCI with its 2 Owned Passenger-cum-Cargo vessels and 30 Managed vessels operates domestic passenger & cargo transportation services between the Mainland and Andaman & Nicobar and Lakshadweep groups of Islands and inter-island, on behalf of the Government of India.

Other Coastal Services:

SCI also manages / mans certain other types of (Coastal) Research vessels on behalf of Government agencies/ departments viz. 3 vessels of Ministry of Steel and Mines (Geological Survey of India) and 2 vessels of Ministry of Earth Sciences (Dept. of Ocean Development).

SCI’s Owned Passenger-Cum-Cargo Vessels:

The table below shows the profile of the owned Passenger-cum-Cargo carrier fleet owned by your Company:

Type of Ships As on 31.03.2009 Additions Scrapped As on 31.03.2010

Nos. Nos.

Nos. Pax. Cargo Nos. Pax. Cargo

Cap. Cap. Cap. Cap.

(mt.) (mt.)

Pax-Cum- Cargo Ships 2 1,502 1,500 - - 2 1,502 1,500

Total 2 1,502 1,500 - - 2 1,502 1,500

The deployment pattern of the above mentioned owned fleet of your Company was as under:

- m.v"Harshavardhana" was deployed in the Mainland/Andaman Sector.

- m.v"Ramanujam" was deployed in the Inter-Island Services of the Andaman and Nicobar Islands.

Manned and Managed Vessels:

The following table shows the profile of the vessels Passenger-cum-Cargo vessels and other vessels managed by your Company on behalf of the various Governmental Organisations/Departments:

Type of Ships As on 31.03.2009 Additions Scrapped As on 31.03.2010

Nos. Nos.

Nos. Pax. Cargo Nos. Pax. Cargo

Cap. Cap. Cap. Cap.

(mt.) (mt.)

Pax-Cum- Cargo Ships 29 9,178 6,498 1 - 30 9,278 6,498

Other vessels 6 - - - - 6 - -

Total 35 9,178 6,498 1 - 36 9,278 6,498

The deployment of these vessels on behalf of various organizations was as follows:

- Twenty Six (26) Ships on account of the A&N Administration, of which 4 are for carrying Passengers and cargo between the Mainland and Andaman and Nicobar Islands and 22 for Inter-Islands run.

- Five (5) Ships on account of the Union Territory of Lakshadweep Administration, of which two (2) are for carrying Passengers and cargo between the Mainland and Lakshadweep Islands, 2 for Inter Islands and the remaining One (1) is an Oil Barge.

- Five (5) Research vessels on behalf of various Governmental organisations/ Departments, of which three (3) ships on behalf of the Ministry of Steel and Mines (Geological Survey of India) and two (2) on behalf of the Ministry of Earth Sciences (Department of Ocean Development).

During the year under review, the SCI carried Passengers and cargo on the Mainland/Island sector on owned and managed vessels as under:

Sector No. of Passengers General Cargo (mt.)

Mainland/A&N Islands 1,76,962 16,485.62

Mainland/UTL Islands 24,718 NIL

Total 2,01,680 16,485.62

Marketing

Your Company has intensified the marketing efforts for its break-bulk and container services. Sales calls are being regularly made by the SCI’s marketing team, through own offices and also through agents appointed at various ports in India and abroad so as to build a sound rapport with its customers viz. various Government of India Departments, Public Sector Undertakings and major Export / Import Business Houses. Your Company has adopted a proactive approach towards competition by undertaking an all India customer contact programme, gathering market intelligence on trade activities, cargo prospects and projects in pipeline etc. Marketing efforts have also been specifically directed at various Departments of the Government of India, Public Sector Undertakings etc., for retaining their valuable patronage and cargo support.

D) OUTLOOK

Global container trade started to show signs of recovery in the fourth quarter of 2009-10 / first quarter of 2010-11, with only slight positive impact on the container freight rates. The losses in the SCIs Container services segment during 2009-10 are on account of severe drop in the freight rates and are a matter of serious concern to the management. The major reasons attributed to the dismal results are higher cost of operations like bunkers and port dues along with abysmally low freight rates ever experienced in the liner services.

The SCI’s flagship ISE (Indian Subcontinent Europe) service has undergone a change with the earlier partners having withdrawn from the consortium. The service is now continuing with a new partner, M/s. Mediterranean Shipping Company, Geneva. SCI has deployed two owned vessels and one in-chartered vessel at a very attractive charter rate in the service, and the service is expected to perform well in the future.

In the Far East sector, two of the high cost vessels were redelivered in 2009, thereby reducing the outgo of about US$ 50,000 per day, which has a positive effect in the INDFEX services. In the current year also, SCI is redelivering 2 inchartered vessels with high charter rates, which will reduce the input costs and thus improve the profitability of the services. However, INDFEX 2 Service would still be hampered by the deployment of m.v SCI Vijay, which is a relatively higher cost vessel.

The freight rate levels, as on date, are showing signs of revival in various sectors, and it is expected that this trend will improve. On its part, the Management is continuing to work on the loss mitigating plan in order to ensure overall profitability of SCI. Efforts are being made for acquiring the required tonnage from the market at attractive prices. This will enable the SCI to be insulated from the fluctuating charter markets in future and reap the benefits once the global economy recovers.

SCI has also obtained the freight forwarding licences, and is now registered as a Multimodal Transport Operator (MTO). With this, the SCI is also rendering in a limited way 3PL (Third Party Logistics) business using its vast experience and agency network.

The prospects of Breakbulk services provided by your Company continue to be reasonably bright in respect of both the independent space charter arrangements being made by SCI for carriage of import cargoes from various locations worldwide and also SCI’s joint service with M/s Rickmers Linie on space sharing basis on their vessels for imports from European ports to India.

Your Company will continue to operate Coastal and Passenger Services successfully by deploying its owned / managed vessels for the Andaman & Nicobar Administration, Ministry of Steel and Mines (Geological Survey of India), Ministry of Earth Sciences (Dept. of Ocean Development) and Union Territory of Lakshadweep Administration (till July 2010).

Developments of material nature affecting the financial position of the Company subsequent to the close of the year 2009-10 i.e. after 31.03.2010:

In the passenger-cum-cargo coastal service, UTL Administration has decided to take over 4 vessels and one vessel will be scrapped during 2010-11.

E) RISKS & CONCERNS

There is a concern regarding relapse of the global economic crisis in view of the debt problem in EU countries, a "job-less" economic recovery in the US, and an over-heating Chinese economy. These factors could affect the global economic recovery with the possibility of a "W" shaped recovery scenario which would have adverse impact on world trade. In such an event, the prospects of shipping industry including container shipping would not be very encouraging in the year ahead.

F) DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The freight rates on almost all the container services have been severely impacted by the global recession which has adversely affected performance of the Liner Services.

In the Breakbulk sector, your Company continued to achieve very encouraging positive results during the year under review. Coastal and Passenger services sector also earned good remuneration, thereby further enhancing the Company’s profitability.

In financial terms, overall the Liner segment recorded revenue of Rs.833.64 crores in 2009-10 as against Rs.825.46 crores in 2008-09. However, as compared to loss of Rs.187.23 crores in 2008-09, the Liner Division has recorded a loss of Rs. 225.09 crores in the year 2009-10.

(3) OTHERS

TECHNICAL & OFFSHORE SERVICES

OFFSHORE SERVICES

(A) DEVELOPMENTS

During the year under review, all the 10 Offshore Supply Vessels (OSVs) of your Company continued to be gainfully employed with ONGC. All the 10 vessels secured the contract against ONGCs global tender floated in 2006 for charter hire of OSVs, Anchor Handling Tug Supply Vessels (AHTSVs) and Platform Supply Vessels (PSVs) for Offshore operations. The contract period is for 5 years from the date of mobilization of vessels. As per the ONGCs tender requirements, the vessels were upgraded by installing DP1, Fresh water generator and partial UKOOA compliance. SCI has also imparted training, especially to Masters and other officers, to man these vessels.

Your Company also continued the Operation & Maintenance management (O&M) of ONGCs Seismic Survey Vessel (SSV) ‘Sagar Sandhani’ since 1986 on ‘cost plus’ basis. The previous contract expired on 31.03.2007 -and the same was renewed for a period of 39 months upto 30.06.2010 on ‘cost plus’ basis. The terms and conditions of the contract are similar, with some changes with regard to increase in payment of monthly advance to SCI and inclusion of "Monsoon lay up repairs" in Drydocking clause. The review of percentage of SCIs remuneration beyond 31.03.2008 had also been done and the same has been increased from 5% to 6% w.e.f. 01.04.2008.

Your Company has also continued to provide O&M services onboard ONGC’s Well Simulation Vessel (WSV) Samudra Nidhi on ‘cost plus’ basis. The present contract is upto 31.03.2011.

Your Company continues to provide O&M services to ONGCs two Multi Support Vessels (MSVs) "Samudra Sevak" and "Samudra Prabha" and one Geotechnical vessel (GSV) "Samudra Sarvekshak" since March 2003 on nomination basis under ‘cost plus’ arrangement. The existing contract is valid upto 23.03.2011.

Your company continues to provide O&M services to ONGC’s 16 "SAMUDRIKA" series OSVs on nomination basis under ‘cost plus’ arrangement.

ONGC has also entrusted O&M contract of ONGC owned 14 ‘Sindhu’ series OSVs to your Company on nomination basis under ‘cost plus’ arrangement. Accordingly SCI has already taken over 7 vessels during the period 09.11.2009 to 04.03.2010. This contract is valid till 31.03.2011. The terms and conditions of the contract are similar to existing "SAMUDRIKA" vessels’ O&M contract.

Outstanding amount from ONGC: An amount of Rs. 14.96 crores was outstanding charter hire as of 31.03.2010 from ONGC against SCI owned OSVs (including service tax).

B) OUTLOOK

Due to the global financial crisis, there was a slowdown in the industrial output which has had a direct impact on the demand for oil. In the first half of 2009-10, the oil prices were prevailing at low US$ 70 per barrel due to which many deep-sea exploration and new oil well drilling activities had been put on a slow burner. This had negatively impacted the offshore sector. However due to long ‘period charter’ arrangements, your Company was not affected with the falling charter rates for AHTSVs.

In the second half of the financial year 2009-10, however, things have started to look bright with the oil prices having risen to US$87.4 per barrel. Oil prices averaged to US$ 73 per barrel over the last 12 months and have been relatively stable. OPEC has increased its estimate for 2010 world oil demand growth and expects a 9,50,000 bpd increase for the year.

Considering the countrys low level of self sufficiency in the energy sector (only about 22%) and the recovery in the international crude oil prices, future prospects of the Indian offshore sector would remain attractive for many years to come. Your Company is taking active measures to increase its exposure in this promising sector.

C) RISKS AND CONCERNS:

Evolution of new markets in the Offshore shipping Sector has led to entry of new players in the industry including foreign operators, some of which are equipped with modern technologies. In order to survive the competition, your Company would require adequate resources in the form of modern vessels and expertise. * Your Company’s offshore fleet is about 25 years old and is being replaced in phased manner.

Considering Indian Oil Industrys requirement of advanced vessels which are equipped with DP1, Reverse Osmosis, etc., SCI also needs to acquire vessels such as MSVs, DSVs, PSVs, etc. meeting the existing / future offshore logistic requirement.

Information relating to period from 01.04.2009 till date: O&M of ONGC owned Vessels

16 SAMUDRIKA series OSVs:

Your Company has taken over sixteen (16) ONGC OSVs, out of which, as on 31.03.2010, fifteen (15) OSVs were put in operation. The remaining vessel "Samudrika-7" was not considered a viable proposal for revamping and ONGC has requested SCI to dispose of the vessel.

14 SINDHU series OSVs:

As requested by ONGC, the balance seven (7) Sindhu series vessels are being taken in phased manner, out of which three (3) Sindhu series vessels have been taken over till date. All these vessels are not viable for revamping; hence, ONGC has advised SCI to dispose of all these fourteen (14) vessels. One vessel (Sindhu-17) is being disposed of shortly and action is being initiated for disposing remaining vessels.

SSV "Sagar Sandhani":

ONGC has given e

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