Essar Steel Limited

Annual Report 2006 - 2007

BOARD OF DIRECTORS BANKERS
Shashi Ruia Chairman State Bank of India
Ravi Ruia Vice-Chairman
Punjab National Bank
Prashant Ruia
Rewant Ruia Bank of India
Vikram Amin Director - Marketing Allahabad Bank
Robin Banerjee Director - Finance IDBI Bank
V. G. Raghavan
State Bank of Patiala
Jatinder Mehra
S. V. Venkatesan State Bank of Mysore
Sanjeev Shriya Indian Bank
K. V. Krishnamurthy State Bank of Saurashtra
G. D. Goswami Nominee - ICICI Bank Ltd.
State Bank of Indore
Narottam B. Vyas Company Secretary State Bank of Bikaner & Jaipur
REGISTERED OFFICE
AUDITORS
Post : Hazira Pin: 394 270
Dist : Surat M/s. S.R. Batliboi & Co.
Gujarat Chartered Accountants,
Tel. : 0261-668 2400 6th Floor, Express Towers,
Fax : 0261-668 2796
Nariman Point, Mumbai 400 021
CORPORATE OFFICE
SOLICITORS
Essar House,
11 Keshavrao Khadye Marg, M/s. Crawford Bayley & Co.
Mahalaxmi, State Bank Buildings,
Mumbai - 400 034. NGN Vaidya Marg, Fort,
Tel. : 022-66601100
Mumbai - 400 023.
Fax : 022-66602748
TRANSFER AGENTS
Data Software Research Co. Pvt. Ltd.
Sree Sovereign Complex,
No. 22, IVth Cross Street,
CONTENTS
Trustpuram, Kodambakkam,
Board of Directors .................................................. 01 Chennai - 600 024.
Tel. : 044-24834487/3738
Notice ..................................................................... 02 Fax : 044-24834636
E-mail : dsrcmd@md3.vsnl.net.in
Directors’ Report ................................................... 05 Visit us at our website
http://www.essar.com
Corporate Governance Report .............................. 12

Auditors’ Report ..................................................... 17

Balance Sheet ....................................................... 20

Profit & Loss Account ............................................. 21

Schedules forming part of Accounts ..................... 22

Balance Sheet Abstract ......................................... 45

Cash Flow Statement ............................................ 46

Accounts of Subsidiaries ....................................... 47

Consolidated Financial Statements ...................... 64

Proxy ...................................................................... 85
Please send in your e-mail address to: webmaster@essar.com
to keep you informed about the progress of the Company.

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Essar Steel Limited
NOTICE
NOTICE is hereby given that the Thirty First Annual General
Meeting of the Members of Essar Steel Limited will be held at
the Registered Office of the Company at Post: Hazira,
Pin: 394 270, Dist.: Surat, Gujarat on Friday, 28th September,
2007 at 2.30 pm to transact, the following business:
ORDINARY BUSINESS:
1. To consider and adopt the Audited Balance Sheet as at
March 31, 2007 and the Profit and Loss Account for the
year ended on that date and the Reports of the Directors
and Auditors thereon.
2. To appoint a Director in the place of Shri S N Ruia who
retires by rotation and being eligible, offers himself for
reappointment.
3. To appoint a Director in the place of Shri P S Ruia who
retires by rotation and being eligible, offers himself for
reappointment.
4. To appoint a Director in the place of Shri V G Raghavan
who retires by rotation and being eligible, offers himself for
reappointment.
5. To appoint a Director in the place of Shri Sanjeev Shriya
who retires by rotation and being eligible, offers himself for
reappointment.
6. To appoint M/s S R Batliboi & Co., Chartered Accountants,
as Auditors of the Company and to fix their remuneration.
SPECIAL BUSINESS
7. To consider, and if thought fit, to pass with or without
modification(s), the following resolution as an Ordinary
Resolution:
“RESOLVED THAT Shri Rewant Ruia, who was appointed by
the Board of Directors as an Additional Director of the Company
w.e.f January 29, 2007, and who holds office upto the date of
this Annual General Meeting of the Company under Section
260 of the Companies Act, 1956, and in respect of whom a
notice under Section 257 of the Companies Act, 1956 has been
received from a member signifying his intention to propose him
as a candidate for the office of Director of the Company, be and
is hereby appointed as a Director of the Company whose period
of office shall be liable to determination by retirement of Directors
by rotation.”
8. To consider, and if thought fit, to pass with or without
modification(s), the following resolution as an Ordinary
Resolution:
“RESOLVED THAT Shri K V Krishnamurthy, who was appointed
by the Board of Directors as an Additional Director of the
Company w.e.f October 31, 2006, and who holds office upto
the date of this Annual General Meeting of the Company under
Section 260 of the Companies Act, 1956, and in respect of
whom a notice under Section 257 of the Companies Act, 1956
has been received from a member signifying his intention to
propose him as a candidate for the office of Director of the
Company, be and is hereby appointed as a Director of the
Company whose period of office shall be liable to determination
by retirement of Directors by rotation.”
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9. To consider and, if thought fit, to pass with or without
modification(s), the following resolution as an ordinary
resolution:
“RESOLVED THAT pursuant to the provisions of Article 100 of
the Articles of Association of the Company and Sections 198,
269 and 309 read with Schedule XIII and other applicable
provisions, if any, of the Companies Act, 1956 and subject to
such consents, approvals and permissions as may be needed,
Shri Robin Banerjee be and is hereby appointed as Whole-time
Director designated as Director Finance of the Company not
liable to retire by rotation for a period of three years with effect
from 1st February, 2007 at a remuneration and on the terms
and conditions set out below :–
a) Salary:
Basic salary of Rs. 4,81,250/- per month in the scale of
Rs.3,00,000 to Rs.8,00,000 per month, as may be
determined by the Board of Directors or Committee of
Directors (Remuneration) or such other authority as may
be delegated by the Board of Directors from time to time.
b) Perquisites
i. Provident Fund, Superannuation, Gratuity, Leave travel
concession, reimbursement of medical expenses - as
per rules of the company.
ii. House rent allowance subject to ceiling of sixty percent
of the basic salary.
iii. Allowances, performance bonus and reimbursements
not exceeding Rs. 9,00,000 per month.
c) The proposed remuneration is commensurate with the size
of the company, the industry that the company belongs to
and the profile & position of Shri Robin Banerjee
d) The Director (Finance) shall not be entitled under any
circumstances whatsoever, to any compensation for loss
of office, unless otherwise decided by the Company.
“RESOLVED FURTHER that the Board of Directors ( which
expression shall include any Committee thereof) of the Company
be and is hereby authorised to amend, alter or otherwise vary
the terms and conditions of the appointment of the Whole-time
Director including remuneration from time to time as they may
deem fit, provided that such remuneration shall not exceed the
maximum limits for payment of managerial remuneration as
may be admissible within the overall limits specified in the
Companies Act, 1956 as existing or as amended, modified or
re-enacted from time to time.”
“RESOLVED FURTHER that the Board of Directors ( which
expression shall include any Committee thereof) of the Company
be and is hereby authorised to do all such acts, deeds, matters
and things, as in its absolute discretion, it may consider,
necessary, expedient or desirable, in order to give effect to this
Resolution.”
By Order of the Board of Directors
Mumbai Narottam B Vyas
20th August, 2007 Company Secretary
 NOTES
1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS
ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE (ON A
POLL ONLY) INSTEAD OF HIMSELF /HERSELF AND THE PROXY
NEED NOT BE A MEMBER OF THE COMPANY. PROXIES IN ORDER
TO BE EFFECTIVE MUST BE RECEIVED AT THE REGISTERED
OFFICE OF THE COMPANY NOT LESS THAN 48 HOURS BEFORE
THE MEETING
2. The Register of Members and Share Transfer Books of the Company
will remain closed from Thursday, 27th September, 2007 to Friday,
28th September, 2007 (both days inclusive)
3. The Chairman of the Audit Committee of Directors shall be present at
the Annual General Meeting to answer queries of shareholders arising
out of the Accounts of the Company.
4. Members are requested to notify any change in their address to the
Company’s R & T Agents, Data Software Research Co. Pvt. Ltd.,
Sree Sovereign Complex No. 22, IVth Cross Street, Trustpuram,
Kodambakkam, Chennai 600 024.
5. All documents referred to in the accompanying notice and the
explanatory statement are open for inspection at the Registered
Office of the Company on all working days between 11.00 a.m. and
1.00 p.m. upto the date of the Annual General Meeting.
6. Members / Proxies should bring the Attendance Slip duly filled in for
attending the meeting.
7. Members desiring any information as regards the Accounts are
requested to write to the Company at least 15 days before the date
of the meeting, as to enable the management to keep the information
ready.
8. Directors retiring by rotation:
Shri Shashikant Ruia, Shashi Ruia, Chairman, Essar Global Limited,
is a first generation entrepreneur industrialist. He has made
invaluable contributions in strengthening the core and infrastructure
sectors in India and has steered the Essar Group to a premier
position amongst industrial houses in the country.
Mr. Ruia began his career in the family business in 1965 under the
guidance of his father, the late Mr. Nand Kishore Ruia. Shashi
Ruia, along with his brother Ravi Ruia, were instrumental in Essar’s
foray into businesses that were the domain of multinational giants
or Indian public sector units: Shipping, marine construction, steel,
power, telecom, offshore engineering and oil exploration.
Mr. Ruia is on several important national bodies and industry
associations. He was on the managing committee of the Federation
of Indian Chambers of Commerce and Industry (FICCI), an apex
body of India’s trade and business associations. He has also been
the chairman of the prestigious Indo-US Joint Business Council
and is a former president of the Indian National Ship-owners
Association (INSA).The other companies in which Shri S N Ruia is a
Director are:
1. Essar Shipping Ltd.
2. Essar Oil Ltd.
3. Essar Constructions (India)Ltd.
4. Essar Power Ltd
5. Hazira Plate Ltd.
6. Hazira Steel Ltd.
7. Essar Steel (Hazira) Ltd.
8. India Securities Ltd.
9. Vadinar Oil Terminal Ltd.
He does not hold any shares in the Company. Shri S N Ruia retires by
rotation at the Annual General Meeting and offers himself for
reappointment.
Shri Prashant S. Ruia has been on the Board of Essar Steel as
Director since 1988 and served as Managing Director of the Company
from October 2003 to October 2006. On expiry of his term as Managing
Director, he stepped down as Managing Director but continues as
Director on the Board liable to retire by rotation. Prashant Ruia is a
Promoter Director of Essar Global Limited, which is registered in
Cayman Islands and has offices in 50 countries worldwide. It is one
of India’s largest corporate houses, with interests in steel, energy,
power, communications, shipping & logistics and construction. Essar
Global has an enterprise value of over USD 20 billion and employs
20,000 people.
Prashant Ruia is responsible for the overall management and
operations of companies in the Essar Global fold, especially the
flagship businesses of steel and oil & gas. He is an integral part of
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the strategy thinktank of Essar Global and is actively involved in
the growth and diversification projects of all group companies, both
within India and internationally.
He was responsible for integrating the operations of the steel
business, making it internationally competitive. Mr Ruia helped
Essar Steel make a mark in international markets as a value added,
quality driven manufacturer. Prashant was instrumental in the setting
up of Essar’s first manufacturing facility outside India when Essar
commissioned a cold rolling complex in Indonesia in 1997. The 10.5
million ton per annum petroleum refinery and associated port, power
and other infrastructure facilities have been his other major
achievements.
Prashant Ruia is on the Board of the International Iron and Steel
Institute, a member on the Board of the Steel Committee of the
Confederation Indian Industry and on the Board of Trade of the
Ministry of Commerce and Industry, Government of India. He is
also on the committee of the Indian Steel Alliance and an active
member of the Young President’s Organization, Mumbai Chapter.
The other companies in which Shri Prashant Ruia is a Director are:-
1. Essar Power Ltd.
2. Essar Oil Limited
3. Kama Jewellery (India) Ltd.
4. Hazira Plate Ltd.
5. Hazira Steel Limited
6. Vadinar Properties Ltd.
7. Vadinar Oil Terminal Ltd
8. Hutchison Essar Ltd
9. Essar Bulk Terminal Ltd.
10. Essar Steel Orissa Ltd.
11. Hazira Pipe Mill Ltd.
He does not hold any shares in the Company. Shri P S Ruia retires
by rotation at the ensuing Annual General Meeting and offers himself
for reappointment.
Shri. V G Raghavan has been associated with Essar Group from
1976. He was re-appointed as Director (Finance) in October 2006 for
a period of three years. He relinquished his office as Director (Finance)
from January 31, 2007 but continues as Director on the Board liable
to retire by rotation. He has also served as the Chief Financial Officer
of Essar Shipping Limited and Essar Power Limited. He has handled
special assignments in capacity expansion projects of Essar Steel.
Prior to joining the Essar Group Shri. V G Raghavan was working for
the State Bank of India. The other companies in which Shri V G
Raghavan is a Director are: .
1. Essar Steel Chhattisgarh Ltd.
2. Essar Steel Jharkhand Ltd
3. Essar Steel Orissa Ltd
4. Bhander Power Ltd
5. Essar Power (Jharkhand) Ltd.
6. Futura Aviation Ltd
7. Hazira Pipe Mill Ltd.
8. Essar Information Technology Ltd.
9. Essar Steel (Hazira) Ltd
10. Essar Power (Orissa) Ltd.
11. Essar Mineral Resources Ltd.
He does not hold any shares in the Company. Shri V.G. Raghavan
retires by rotation at the Annual General Meeting and offers himself
for reappointment.
Shri Sanjeev Shriya has been a Director of the Company since 1984
and is actively engaged in the industry for 20 years. In 1978, he
entered the family business in Lohia Machines Limited. He has also
promoted several other companies of which a few are engaged in
technology related activities including telecom, smart cards etc. The
other Companies in which Sanjeev Shriya is a Director are:-
1. Gold Rock Investments Ltd.
2. Smart Chip Ltd.
3. Syscom Corporation Ltd.
4. Smart Chip Syscom Ltd.
5. LML Ltd.
He does not hold any shares directly in the Company.
Shri Sanjeev Shriya retires by rotation at the Annual General Meeting
and offers himself for reappointment.
9. The Explanatory Statements pursuant to Section 173(2) of the
Companies Act, 1956 relating to the Special Business mentioned in
Item Nos. 7 to 9 of the accompanying Notice are annexed herewith.
Essar Steel Limited
ANNEXURE TO NOTICE
EXPLANATORY STATEMENT
Pursuant to Section 173 (2) of the Companies Act, 1956 the
following Explanatory Statement sets out the material facts relating
to Items No. 7 to 9.
SPECIAL BUSINESS
Item No. 7
Shri Rewant Ruia was appointed as an Additional Director of the
Company on January 29, 2007. In terms of Section 260 of the
Companies Act, 1956 and Articles 82 of Articles of Association of
the Company Shri Rewant Ruia would hold office as a Director
upto the date of the ensuing Annual General Meeting. Rewant
Ruia is the youngest member in the family of the Promoter Directors
of the Essar Group. The Essar Group is one of India’s largest
corporate houses with an asset base of $6 billion and interests
spanning the core, infrastructure sectors of the economy - Steel,
Oil & Gas, Power, Telecom & BPO, Shipping & Logistics and
Construction. The Group has also drawn up plans to enter
consumer- centric businesses.
Rewant did his high school education from the Hackley School in
Tarrytown, New York and completed his Bachelors in Business
Administration from Bentley College, Boston.
He began his formal career with the group in mid 2005. After a few
months of understanding each of the group businesses, Rewant
has been focusing in the telecom space, retail and new business
development. He has been involved with managing the group’s
telecom assets and has also been spearheading the group’s new
venture into the telecom, oil and steel retail businesses. Rewant
has also been part of Essar’s drive to go international with new
steel plants and identifying new business opportunities for the
group.
Rewant is also actively involved in business strategy and brand
management practices across Group companies.
Rewant is 23 years old and has a keen interest in squash, music
and boats. His appointment would be in the interest of the
Company. The company has received necessary notice from a
member under section 257 of the Companies Act, 1956 proposing
his candidature to the office of Director. None of the Directors
other than Shri Rewant Ruia, Shri S N Ruia, Shri R N Ruia and Shri
P S Ruia are any way concerned or interested in the resolution.
Your Directors recommend the resolution as at Item no.7 for your
approval.
Item no. 8
Shri K V Krishnamurthy was appointed as an Additional Director
of the Company on October 31, 2006. In terms of Section 260 of
the Companies Act, 1956 and Articles 82 of Articles of Association
"Persons constituting 'group' coming within the definition of group as defined in the Monopolies Restrictive Trade Practices Act, 1969 for
the purpose of interse transfer of shares of the Company under regulation 3(1)(e)(i) of SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997".
Sr. no. Name of the Company
1. Essar Investments Limited
2. Essar Power Limited
3. Teletech Investments (India) Limited
4. ETHL Global Capital Limited
5. Asia Pacific Corporation Limited
6. Asia Pacific Enterprise Limited
7. Essar Power Holdings Limited
of the Company. Shri K V Krishnamurthy would hold office as a
Director upto the date of the ensuing Annual General Meeting.
Shri K V Krishnamurthy is the Ex-Chairman of Bank of India. The
Company shall immensely benefit from the vast experience of Shri
K V Krishnamurthy in the Banking and financial sector.
Shri K V Krishnamurthy will act as an Independent Director on the
Board. His appointment would be in the interest of the Company.
The company has received necessary notice from a member under
Section 257 of the Companies Act, 1956 proposing his candidature
to the office of Director. None of the Directors other than
Shri K V Krishnamurthy is any way concerned or interested in the
resolution. Your Directors recommend the resolution as at Item
no. 8 for your approval.
Item no. 9
Shri Robin Banerjee was associated with Hindustan Lever Ltd for
several years and with Thomas Cook as Executive Director
(Finance). Shri Robin Banerjee is a Post Graduate in Commerce
from the University of Calcutta. He is also a Fellow of the Institute
of Chartered Accountants of India, an Associate of the Institiute
of Company Secretaries of India and an Associate of the Institute
of Cost & Works Accountants of India. Shri Robin Banerjee has
vast experience in various fields. His appointment as Director
(Finance) on the Board shall be of immense help for the Company.
Accordingly, the Board of Directors at its meeting held on 29th
January, 2007 has appointed Shri Robin Banerjee as Whole-
Time Director designated as Director (Finance) for a period of
three years with effect from 1st February, 2007 on the terms and
conditions as approved by the Remuneration Committee of
Directors and as set out in the Resolution in Item No. 9 of the
convening Notice. The Company has received a Notice under
Section 257 of the Companies Act, 1956 from a member signifying
his intention to propose the name of Shri Robin Banerjee as a
Director of the Company. The appointment and remuneration of
Shri Robin Banerjee as Whole-time Director requires the approval
of the Shareholders in terms of Section 269 read with Part II of
Schedule XIII and Section 309 of the Companies Act, 1956. Your
Directors recommend the resolution set out in Item No. 9 of the
convening Notice for your approval. Except Shri Robin Banerjee
no other Director is in any way concerned or interested in the
aforesaid Resolution.
By Order of the Board
Narottam B Vyas
Company Secretary
Date : August 20, 2007
Place : Mumbai,
Sr. no. Name of the Company
8. Asia Pacific Far East Limited
9. Essar Global Limited
10. Essar Infrastructure Holdings Limited
11. Essar Energy Holdings Limited
12. Asia Pacific Markets Limited
13. Essar Logistics Holdings Limited
14. Essar Steel Holdings Limited
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 DIRECTORS' REPORT

To the Members of Essar Steel Limited
Selling closer to low freight areas in the domestic market
Your Directors have pleasure in presenting the 31st Annual Report of your
Increasing the proportion of value added grades in the sales
Company together with the Audited Statement of Accounts for the year portfolio
ended 31st March, 2007.
Rationalising the customer base to optimise order quantity service
FINANCIALS levels.
(Rs. in crores) The success of the implementation of these policies is outlined
below:
Year ended
Close to 70% sales in the domestic market were in the West
Particulars 31st March 31st March zone and 40% of our exports were to the Middle East – markets
2007 2006 close to our manufacturing facilities at Hazira.
Sales and other Income 9019.68 7058.59
60% of total sales were to value added segments like API (for oil
Profit before Finance Cost (net), & gas pipelines), HSLA (high strength low alloy steels for the
Depreciation, Charges pertaining to auto sector), IF (interstitial free steel for critical components of
earlier years and Taxation 1955.25 1689.11 automobiles), CORTEN (corrosion resistant steel), plates for
Less: Finance Cost (Net) 617.94 422.67 Boilers and Ship building, etc.
Profit before Depreciation, Charges
The average sales quantity per customer went up by more than
pertaining to earlier years and Taxation 1337.31 1266.44 100% leading to better planning and delivery schedules
Less: Depreciation 631.04 482.10 The Company began a new initiative in the year to address the large
Profit before charges pertaining to earlier and untapped potential in the retail market for steel products. In a bid
to reach out to end users directly, the Company began commissioning
years and Taxation 706.27 784.34
Essar Steel Hypermarts in April 2006 and in 12 months was able to
Less: charges pertaining to earlier years 22.81 88.36
setup more than 80 retail outlets which, clocked more than 1.1 lakh
Profit before Taxation 683.46 695.98 tonnes of sales valued at over Rs. 350 crores. This business is
Less: Provision for Deferred tax 187.52 152.35 expected to grow multifold in the current fiscal. The introduction of the
Less: Current Tax 55.01 11.74 most advanced communication tools for placing steel orders, such as
Add: Reversal of excess tax provisions mobile messaging, and exclusive in-bound and out-bound call centers
related to earlier years 1.22 3.39 has met with tremendous response from small customers. Your
Less: Provision for Fringe Benefit Tax 5.66 5.10 company believes that this move will bring proximity, speed and higher
Profit after taxation 436.49 530.18 customer satisfaction to a market that has been exclusively catered
(Less)/Add: Balance brought forward to by traders.
from previous year 1008.30 (1203.82) Awards and recognition
Add: Transfer from Securities Your Company continued to receive awards and commendations for its
premium account — 1356.30 performance on several fronts.
Add: Transfer from Debenture 1. The prestigious Engineering Export Promotion Council (EEPC)
Redemption Reserve 7.25 340.64 Gold Award for the second consecutive year for the best export
performance. The award is instituted by the Ministry of Commerce,
Less: Transfer to Debenture
Government of India.
Redemption Reserve (7.75) (15.00)
2. Golden Peacock Innovative product / Service award, CII, Kolkatta.
Balance carried forward to next year 1444.29 1008.30
3. Golden Jubilee Memorial Trust Award in Research and Development
DIVIDEND from the Southern Gujarat Chambers of Commerce and Industry
In view of the need to conserve resources, the Board of Directors does (SGCCI), Surat
not recommend dividend payment for the year. 4. Best House keeping award from Baroda Productivity Council, Baroda
OPERATIONS 5. Ispat Suraksha Puraskar for the year 2004-05 from the Joint
Manufacturing: Committee on Safety, Health & Environment in the Steel Industry
The Company’s production of liquid steel at its plant at Hazira was 3.05 (JCSSI), a committee set up by the Steel Authority of India Ltd.
million tonnes, an increase of 20% from the 2.54 million tonnes produced 6. Greentech Environment Excellence Silver award in the Metals &
in the last financial year. The production of HR coils was up 15% to 2.95 Mining Sector.
million tonnes from 2.57 million tonnes last year. 7. Best Management Award to Essar Steel Ltd, Visakhapatnam, in
During the year, the Company completed its capacity expansion to 4.6 recognition of its “People Management Practices” in 2006-07, by
million tonnes per annum at Hazira. The pellet plant capacity at Government of .Andhra Pradesh.
Visakhapatnam was also increased to 8 million tonnes per annum to cater MANAGEMENT DISCUSSION & ANALYSIS
to the increased requirements at the steel plant. Your Company also Global outlook:
made additions to plant and equipment in the Cold Rolling Complex as part
Driven by buoyant steel - intensive economic activity including construction
of its efforts to further strengthen its product offering. Your Company
and infrastructure building in many developing economies, global apparent
spent Rs. 3122 crores during the year for assets that were created in the
consumption of steel increased at an average rate of more than 7% per
manufacturing and other support functions. annum since 2002, to reach a record level of 1.11 billion tonnes in 2006.
Sales and marketing This growth rate is expected to continue in 2007. Global crude steel
The year under review saw some significant developments in the marketing production grew 8% from 1.15 bn tonnes in 2005 to 1.24 bn tonnes in
of the Company’s products. Exports crossed the 1 million tonne mark and 2006. This is faster than the 6% growth in production seen last year.
your company continued to be the highest exporter of flat steel from Global steel markets continued to remain firm in the first quarter of the
India. calendar year with domestic demand in China rising sharply. Chinese
Overall sales volumes grew 13% to 2.8 million tonnes and revenues grew exports dropped 21 percent in January 2007, in comparison to December
by 31% to Rs 9,000 crores from Rs 6,850 crores in the previous year. 2006. Globally, restocking activity was under way in the last quarter of the
Domestic sales accounted for Rs 6,012 crores and export sales were fiscal leading to higher apparent demand. Most global mills operated at
Rs 2,988 crores. maximum capacity in January 2007.
Net average realisation across all products went up by 19% from Rs The global steel demand outlook for 2007 remains favourable. From a
23,380 per tonne to Rs 27,820 per tonne. macro point of view the key factor is rising fixed asset investment as a
The Company’s strategy to increase net sales realisation per tonne of share of global GDP, which is good news for the steel industry and your
steel involved action in three areas: company.

5
Essar Steel Limited
The most significant developments in the global steel industry were the
two mega mergers of the last year: Arcelor-Mittal and Tata-Corus. The two
deals are fine examples of the wave of consolidation that is sweeping the
steel industry. Consolidation of this kind is not just restricted to regional
amalgamation but also gives rise to wider product mix, higher capacity
utilisation, increased competition and reduced cyclicality in steel prices.
The US economy seems poised for a rebound form the 4th quarter of this
year (October 07 onwards) with improving market conditions, decreasing
import levels and the continued decline of excess inventory levels at
service centers. Recession fears receded in the US market, and barring
the automobile industry, most sectors are expected to pick up. The EU
and Japanese economies are still expanding. Middle East countries fuelled
by income from sustained global oil and gas demand and elevated prices
are experiencing explosive growth in steel demand on the back of
investments in oil and gas pipelines and real estate.
Global steel prices are expected to be firm over the next 12 months
despite a dip in Q2 of the current fiscal. This is mainly because Chinese
steel exports, which were at an unrealistic annual rate of 96 mtpa, are
expected to decline to an annual rate of 50 mtpa with the Chinese
government imposing significant tariff and non-tariff restraints in an effort
to correct trade imbalances.
On the input front, iron ore prices which has averaged a 9.5% increase
this year, are expected to tighten further due to soaring freight rates,
rapid escalation in cost of new mine developments leading to slowing
down of green field mine projects. Coking coal fundamentals are also
strong and prices are expected to remain firm accentuated by the severe
port congestions in Australia. Zinc after a brief period of stability is
expected to be firm through FY 07-08.
India Outlook:
India produced 48 million tonnes of finished steel in FY07, a 9% increase
over last year. Exports also grew 6.5% to 4.1 million tonnes. With GDP
growing at 8.2%, steel consumption sectors that grew and fuelled steel
demand were Construction (19%), Automobile (18%), Oil & Gas (30%) and
Power (40%). Robust growth in industrial projects, favourable government
policies and private participation in infrastructure, favourable demographics,
rising incomes, and availability of cheap finance, contributed to this growth.
However, at 40 kg, India’s per capita consumption remains abysmally low
when compared to China (270 kg per capita). Forward looking steelmakers
the world over are beginning to realise the value of partnering with their
customers to offer total solutions and ensure long-term stability and
profitability. Partnering, collaboration and consolidation will help the industry
tap into a shared pool of resources, from procurement to R&D and customer
retention.
In the first half of 2007 steel prices are expected to be under pressure
from a rising rupee which has spiked the availability of cheaper imports
and higher interest rates which have slowed consumption of steel
consuming products. Increased availability of steel due to expansions of
existing capacities and coming on stream of new capacities are also
expected to keep downward pressure on the prices. But with sustained
growth in consumption and no sign of abatement in the near future, the
overall outlook for 2007 looks stable.
Material Handling & Logistics:
In last year, your company undertook the following steps to upgrade its
handling capability:
1. Oxide yard expanded, from storage capacity of 4.5 lakh metric
tonnes (MT) to 12 lakh MT
2. Barge Un loader BU-IV constructed and commissioned
3. Direct feeding conveyor PC-1 & 2.
4. Long conveyor oxide transfer from Hot Briquetted Iron (HBI) to Hot
Rolled Coil (HRC) unit.
The above upgrades have prepared your Company to match the handling
needs of the enhanced (4.6 MTPA) plant capacity.
Capacity Expansion:
In 2006, your company completed the capacity expansion at its Hazira
Steel Plant, from 2.4 million tonnes per annum (MTPA) to 4.6 MTPA. The
process was completed in November last year at an investment of around
Rs 2,000 crore. Additionally, the capacity of the cold rolling mill and
galvanising plant was also augmented.
Research & Development (R&D):
The R&D Centre at Essar Steel maintains an advanced understanding of
key processes and process-product relationships in iron and steel
production and works to develop semi-finished products with specific
attributes. In the area of product research, it focuses on new products as
required by the customer which includes various application segments
6
such as automotive products, line pipe steel, boiler quality steel, shipbuilding
quality plates and various cold rolled products in CRCA and galvanised
conditions.
Your Company has an outstanding record of developing products that
were hitherto imported. Some of the products that were developed by
Essar Steel for the first time in the country included;

Line Pipe Steel, in higher thicknesses and sour service applications
for the oil industry

High strength dual phase steel, precision tubes and plates for use in
the auto sector

High strength steel for the Indian Navy

Pressure vessel plates and for glass coat and sour service applications
in the boiler industry

Structural steel for containers and high strength galvanised steel
Essar Steel has been a pioneer in developing new grades and new
dimensions for use in the domestic as well as international markets..
Health Safety & Environment (HSE):
Your Company initiated a number of new measures in Health, Safety and
environment, such as;

Safety time out sessions to iterate importance and significance of
safety to our operations

Audiometry and spirometry tests and corrective measures for
employees exposed to noise and dust hazards.

Detailed analysis and procedure for the management of serious and
high potential incidents
Assessments were made through external expert agencies on road safety,
legislative and voluntary HSE requirements, and review of existing overall
safety management systems. Apart from focusing on safety in plants, the
company has also extended good safety practices in businesses outside
the plants, for instance, during transportation of products and conducting
safety audits at Steel Hypermarts. A four-day DuPont Executive Leadership
program on safety was organised for senior executives, which exposed
our team to concepts in safe behaviour and safety leadership.
Health initiatives, like blood donation, polio immunisation, arthritis awareness
and diagnostic camps, were organised at the Hazira residential township.
Free medical camps for villages in the area were organised by the Company.
On the environment front, your company is already certified at ISO-14001
since 1999. Recent improvements include:

Focus on process dust control,

Strengthened waste oil balancing systems

Enhanced water conservation through harvesting and close monitoring,

Substituting ozone depleting substances and

Implementing online emission monitoring of NOX, SOX & O2.
During the period Essar Steel also received safety awards from Joint
Committee on Safety in Steel Industry (JCSSI), a steel industry committee
of HSE, led by Steel Authority of India Ltd. (SAIL) and state-level awards
from Gujarat Safety Council.
FINANCE
During the year, the Company achieved the financial closure for its capex
programme of increasing its steel making capacity from 2.4 million tonnes
to 4.6 million tonnes per annum at Hazira. The Company also tied up the
required loans for other capital expenditure projects including loans required
for setting up of service centers. The Company deployed the required
internal accruals and raised debt of Rs. 1,338 crores for funding the
various capital expenditure programmes. A portion of these loans was
raised in the form of External Commercial Borrowings (ECBs) of USD 155
mio i.e. equivalent to Rs. 695 crores (out of the sanctioned amount of USD
190 mio). The 4.6 mtpa expansion programme was completed and the
increased capacity was commissioned during the year. The Company
expects the full benefits of the expansion projects to accrue in the
coming years.
In addition to the term loans, the Company also raised Export Advances
aggregating to USD 100 mio i.e. equivalent to Rs. 457 crores. These
export advances show the commitment of the buyers towards purchasing
of steel products from the Company. One such export advance of USD 75
mio was awarded the ‘BEST DEALS of 2006’ by Global Trade Review
(GTR).
As a result of merger of pelletisation unit and cold-rolling unit with Essar
Steel Limited and ramping-up of the steel making capacity, the Company
enhanced its working capital banking limits from Rs. 1,730 crores to
Rs. 2,600 crores, thereby enhancing the liquidity position.
SUBSIDIARIES & CONSOLIDATED FINANCIAL STATEMENTS
During the year under review Essar Steel Orissa Ltd., and Essar Steel
Trading FZE, U.A.E. became subsidiaries of the Company. Essar Steel
Jharkhand Ltd., continues to be the subsidiary of the Company. Essar
Steel Chattisgarh Ltd. ceased to be the subsidiary upon disinvestment.
A Statement pursuant to Section 212 of The Companies Act, 1956 and
Audited Financial Statements in respect of these Subsidiaries are attached
to this Report. Further Consolidated Financial Statements as required
under clause 32 of the Listing Agreement are also attached to this Report.
HOLDING COMPANY
During the year Essar Steel Holdings Ltd (which in turn is subsidiary of
Essar Global Ltd) has become the Holding Company of our Company as
it holds 584,641,861 equity shares comprising of 51.29% of the paid up
equity capital of the Company. The ultimate holding company viz. Essar
Global Ltd alongwith its other subsidiaries now holds 87.05% equity
shares in the total paid up equity capital of the Company.
VOLUNTARILY DELISTING OF EQUITY SHARES
The members of the Company have passed a Special Resolution for
Delisting of Equity Shares from Bombay Stock Exchange Ltd and The
National Stock Exchange of India Ltd through Postal Ballot. The process
of Delisting of the Equity Shares is expected to be started shortly in
accordance with the Securities and Exchange Board of India (Delisting of
Securities) Guidelines 2003.
DIRECTORS
Shri S N Ruia, Shri P S Ruia, Shri V G Raghavan and Shri Sanjeev Shriya
retire by rotation at the ensuing Annual General Meeting and, being
eligible, offers themselves for reappointment. The Board recommends
their reappointment.
Shri V G Raghavan resigned as Director (Finance), effective January 31,
2007. Shri P S Ruia ceased to be the Managing Director of the Company
with effect from 29th October, 2006 upon completion of his tenure of 3
years. However, both Shri P S Ruia and Shri V G Raghavan continue to be
on the Board. The Board placed on record its appreciation of the valuable
contributions made by them during their tenure.
Shri K V Krishnamurthy and Shri Rewant Ruia have been appointed as
Additional Directors on the Board. Shri Robin Banerjee has also been
appointed as Director (Finance) by the Board.
DIRECTORS’ RESPONSIBILITY STATEMENT
Pursuant to the requirements under Section 217(2AA) of the Companies
Act, 1956, the Board of Directors of the Company hereby state and
confirm that
i. In the preparation of the Annual Accounts, applicable accounting
standards have been followed along with proper explanation relating
to material departures.
ii. Directors have selected accounting policies and applied them
consistently and made judgements and estimates that are 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 of the
Company for the year under review.
iii. 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.
iv. Directors have arranged preparation of the accounts for the year
ended March 31, 2007 on a “going concern” basis.
AUDITORS
Your Company’s auditors, M/s. S R Batliboi & Co, Chartered Accountants,
will retire at the conclusion of the ensuing Annual General Meeting.
M/s S R Batliboi & Co, Chartered Acountants have informed the Company
that if appointed, their appointment will be within the prescribed limits
under Section 224(1B) of the Companies Act, 1956. Accordingly, the
members approval is being sought to their appointment as the Auditors of
the Company at the ensuing Annual General Meeting.
Information and explanation on reservations / qualifications / adverse
remarks in the Audit Report.
1. As regards Auditors’ disclaimer with respect to recognition of Deferred
Tax Asset it is clarified that the Company has recognized Deferred
Tax Asset on the following grounds:
i. The Company has been consistently making profits in the last 5
years.
ii. The Company has nearly doubled its capacity and has resulted
in higher production.
iii. Steel Industry is witnessing healthy trend in their realisation.
iv. Strong domestic and export demand for steel following higher
investment in infrastructure sector.
7
v. The Company began a new initiative in the year to address the
large and untapped potential in the retail market for steel products.
In a bid to reach out to end user directly, the company began
commissioning Essar Steel Hypermarts & Service centers.
2. In respect of Auditor’s observation regarding certain delays in
repayment of dues (including interest) to domestic financial institutions
and banks, it is clarified that the Company’s cheques in respect of
certain interest and repayments have been encashed subsequent to
the dates on which they fell due. Further, these were due to systemic
delay and the lenders have treated the accounts as regular.
HUMAN RESOURCES
The Company continues to nurture talent by systematic training programmes
aimed at knowledge enhancement, improvement of skills, leadership and
team building. The Essar Learning Centre and the Manufacturing Excellence
program have imparted on-job and academic training at different levels in
the organisation. The Company conducted an employee satisfaction survey
during the year and the Human Resources team will address issues
arising out of the findings. The Company’s employee strength was 3,080
employees and it is matter of satisfaction that productivity per employee
at Essar Steel is among the highest in this industry.
RISKS AND CONCERNS
The Company has adopted Risk Management Policy commensurate to the
size and nature of its business.
SOCIAL RESPONSIBILITY
In keeping with its philosophy of concentrating on social responsibility
programs that are relevant and useful to the communities in and around
its manufacturing facilities, your Company continued its activities aimed
at improving their environment and life style. Besides running a school
and a hospital, it conducts regular health camps and blood donation
drives, equip community centres with computers and other knowledge
tools. Our major contribution has been in the form of direct and indirect
employment to qualified youth in the vicinity and creation of self
employment opportunities.
ENERGY, TECHNOLOGY & FOREIGN EXCHANGE
Details of energy conservation and research and development activities
undertaken by the Company along with the information in accordance with
the provisions of section 217(1) (e) of the Companies Act, 1956 read with
the Companies (Disclosure of Particulars in the Report of the Board of
Directors) Rules, 1988, are given in the Annexure, forming part of this report.
CORPORATE GOVERNANCE
Your Company attaches considerable significance to good corporate
governance as an important step towards building investor confidence,
improve investors’ protection and maximise long term shareholder value.
Pursuant to amended Clause 49 of the Listing Agreement with the Stock
Exchanges, a compliance report on the Corporate Governance forms part
of the Annual Report along with Auditors’ Certificate on its compliance.
PERSONNEL
As required by the provisions of Section 217(2A) of the Companies Act,
1956 read with Companies (Particulars of Employees) Rules, 1975, as
amended the names and other particulars of the employees are set out in
the Annexure to the Directors’ Report. However, as per the provisions of
section 219(1) (b) (iv) of the Companies Act, 1956, the Report and
Accounts are being sent to all shareholders of the Company excluding the
aforesaid information. Any shareholder interested in obtaining a copy of
the particulars may write to the Company Secretary at the Registered
Office of the Company.
ACKNOWLEDGEMENT
Your directors would like to express their grateful appreciation for the
assistance and cooperation received from the Financial Institutions, Banks,
Government Authorities and Shareholders during the year under review.
Your Directors wish to place on record their deep sense of appreciation to
all the employees for their commendable teamwork, exemplary
professionalism and enthusiastic contribution during the year.
For and on behalf of the Board
S. N. Ruia
Chairman
Date: August 20, 2007
Essar Steel Limited
ANNEXURE TO DIRECTORS' REPORT
Particulars required under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988
A. CONSERVATION OF ENERGY:
a) Energy Conservation measures taken:
1. Hot DRI charging: 1.59 million MT of HBI plant product was
discharged in form of Hot DRI during the FY 2006-07. The
power saving due to Hot DRI charging is observed about
100 kWh for each ton of Hot DRI charged at EAF.
2. Replacement of over capacity pumps of quench tank pumps
thereby reducing specific power consumption @ 0.2 kWh/t.
3. At Module 2, existing seal gas compressor replaced with
water ring compressor, thereby reducing specific power
consumption.
4. At all modules reduction in oxygen consumption and zero
Flaring operation, to reduce NG specific consumption @8
SM3/t.
5. HDRI vessel capacity increased from 90 MT to 100 MT, to
increase HDRI percentage in product, thereby reducing
power consumption at EAF end.
6. Six additional HDRI vessels increased in circulation so as
to enable HDRI usage to 50 % of the charge mix with
increasing productivity.
7. RH usage to bring down LF heating requirement thereby
saving in electric power consumption.
8. Argon production from plant - II started by injecting Argon
from Plant – II to Argon purification unit of plant – I, thus
energy saved at argon purification unit of Plant – II. ( ~ 2640
KWH / day)
9. York chiller of plant – II bypassed with modified water circuit.
Thus, energy conservation of ~ 1800 KWH / day.
10. Installation of VVVF Drives in the rapid cooling circuit of
BAF Bases has resulted in reduction of cycle time by 5 hrs
and power saving of Rs 36 lacs per annum based on the
average production data.
11. Installed and erection of Lighting transformer for GAL-1 and
GAL-2 as per recommendation of ERDA ,Vadodara resulting
in reduced consumption of Energy by having servo stabilizers
in the voltage circuit. Saving due to this is to the tune of Rs
4.50 lacs per annum.
12. Energy saving due to VVVF drives installed for MH and CT
of Crane 9 & 10 of DSC and Crane 6 of CRM.
13. Lime plant no.2 bag house centrifugal fan was ruining on fix
& maximum rpm (1480) and was contributing in power
consumption at 16 kwh/Ton of production. By the
commissioning of new Variable speed, Voltage, frequency
drives, we have been able to bring power consumption
down up to 15 Kwh/Ton of production
14. Replacement of electronic ballasts for Tube light fittings.
Replaced - 700 nos. Energy saving 16 KW.Energy saving
per Year - 1.4 lacs kWh. Saving per year - 5.60 lacs kWh.
15. Electronic Timers in peripherals and inside the plants. Energy
saving per year - 1.75 lacs kWh.
16. Switched–off one Cooling Tower and Pressure Filter Pump
HT motors. Presently running with 1 no each out of 2.
Annual savings Rs 128.60 lacs.
17. RM hydraulic system - Addition of accumulator bank to
have stand by pump/ to save power in HSM. Annual savings
Rs 22.95 lacs.
18. Process Optimization in HSM - Stopping idle running of
applications during shutdown and long stoppage. Annual
savings Rs 38.40 lacs
19. Utility Department: Impeller of P – 14 series pumps for HSM
Direct Cooling replaced with higher size (Full dia.) impeller.
Annual Savings Rs 150 lacs .
20. Utility Department- purge type level transmitters (23 nos.)
replaced with head mounted pressure transmitter and
ultrasonic level transmitters. Annual savings Rs 34.50 lacs.
21. EAF 1 & 2 Pump House, One running pump stopped by
reducing system resistance by installing Second heat
exchanger. Annual savings Rs 192 lacs.
22. Power savings due to slag door modification in SMP Rs 342
lacs.
23. Use of LT compressors with 93% efficiency instead of HT
compressors of lower efficiency (80%), we have been able
to save upto Rs 48.20 lacs per annum.
8
b) Additional Investments and proposals being implemented for
reduction in consumption of energy:
1. Metallic blades of six cooling tower fans will be replaced
with FRP blades. Power saving of about 42500 units per fan
per year.
2. Water system up-gradation: Counter current flow cooling
towers with splash bar modification to run the plant at
optimum load.
3. Recuperator up gradation of one of the Module. Productivity
will improve and reduction in the specific consumption of
power and NG.
4. Small modification in feed gas circuit to reduce pressure
drop, hence reduction in specific power consumption of 0.4
kWh/t.
5. Modification at Mod-1/2 pump house: Independent water
supply, improve plant availability and reduces the specific
power consumption. 15MW/day Power saving when one
module is under shut down.
6. Roll coolant motors being provided with VVVF drive. This will
help us save about 17 lacs per annum.
7. Fume exhaust of Tandem mill will be provided with drive
which will become free after CTCM (Continuous Tandem
Cold Mill) commissioning. This will help us regulate the speed
as per the fume generation (load) and hence will result in
energy saving.
8. We are providing temperature control in both the pickling
lines to have better pickling and less of losses.
9. Energy saving due to VVVF drive installation at Crane1,12
&13 of CRM.
10. Lime plant no.3 is using Approximately 273 m3/day service
water for cooling of hydraulic oil in Heat exchangers. This is
being discharged into drains. We are going to put cooling
tower on water path to recycle & save total wastage of
water as previously done for plant no 1&2.
c) Impact of measures at (a) and (b) above for reduction of
energy conservation and on the cost of production of goods:
As mentioned in (a) & (b) above
B. TECHNOLOGY ABSORPTION:
The Company has fully absorbed the MIDREX technology obtained
from Voest Alpine, Austria for the production of HBI. It has also
absorbed technology supplied by METCHEM for HRC plant including
DC-Electric Arc Furnace , Continuous Casters and the Hot Strip Mill.
The Company has emerged as the largest user of HBI in DC EAF and
developed satisfactory technology for the same.

Technical tie-up with M/s. DML Steel Tech – USA on the objective
of process up gradation at continuous casting plant for reducing
the conditioning activity in the critical grades slabs.
Benefits derived: By reducing the conditioning activity on critical
grades slabs thus saving the precious metal, residence time in
slab yard hence rollable stock increased.

Gauges supplied by Radio Thermometry require zeroing for all
thickness changes and would result in loss of productivity after
the mill is made continuous. To avoid this we are going for IMS
guage which is having 4 sets of detectors instead of one and is
able to re-adjust internally for changes in the ambient conditions
and does not require zeroing with each width change.
C. FOREIGN EXCHANGE EARNINGS AND OUTGO:
I) Activities relating to exports, initiatives to increase exports,
developments of new export markets for products and services
and export plan.
“During the financial year 2006-07 exports were to a record level
of over 1 Million Tons. During the year, the company
exported its full basket of steel products from HRC, Plates/
Sheets, Pickled & Oiled, Cold Rolled Full hard and Galvanized.
The company continued with its policy of maintaining a global
presence with supplies to markets ranging from USA, EU, Korea,
Middle East, China, South East Asia and neighboring countries
and also developed new countries like Australia, Latvia, Trinidad,
 Reunion Islands, etc. Essar is the only Indian mill to supply bulk Sr. Particulars Current Previous
quantities of Galvanised products to the Australian market. No. year year
The company focus on value added segments continued with 2. Coal (specify quality and where Steam coal for power
60% share of the total sales. The company continued its focus used) Generation by CPP
of doing direct business with end users and thereby entering Quantity (tones) 80,526 —
into long term contracts / MoU’s with direct customers. Total Cost (Rs. crs) 26.00 —
During the year the company successfully completed the $ 103 Average Rate (Rs. / MT) 3,230 N.A.
Million contract with Ahwaz Pipe Mills. Also during the year, 3. Furnace Oïl
some of the new customers with whom business was initiated Quantity (k. ltrs) 75,784 50,885
included CaterPillar, JCB Ltd (all globally established earth moving Total Cost (Rs. Crs) 141.38 70.47
equipment companies), Aziz European Pipers Ltd etc. Average Rate (Net of Modvat) 18,656 13,849
During the year, the company exported over 265,000 Tons of 4. Others
Galvanised Coils into various export markets. Quantity.(NGL) – MT 1,309.559 536.896
Consequent to the successful anti-dumping review conducted Total Cost (Rs.Crs) 4.05 1.51
by the company in US, it was possible to re-enter the US market Rate/Unit (Rs. per MT) 30,890 28,173
for sale of Hot Rolled Coils. Essar is the only Indian Steel Quantity.(NG) - ’000 SM3 162,410.71 128,481.24
company which was in a position to export HR Coils to the US Total Cost (Rs. Crs) 143.87 84.15
market. Rate/Unit 8.86 6.55
The focus for the forthcoming year will be on high end auto B. Consumption per unit of Production
application, niche segments like EDDS in galvanized and CRCA
Particulars Standard Current Previous
besides continuity in the current product ranges.”
(If any) year Year
II) Total Foreign exchange used and earned (Rs. in Crores)
Product: Iron Oxide Pellets Unit Per Unit Per Unit Per
a) Foreign exchange directly earned MT MT MT
through export 2,915.45 Electricity (Kwh) 38.00 43.64 50.52
b) Others 192.98 Furnace Oil / LSHS (Ltrs) 16.70 16.80 16.27
Total foreign exchange earned(a + b ) 3,108.43 Coal (Specify quality) N.A. N.A. N.A.
Others (Specify) N.A. N.A. N.A.
c) Total foreign exchange used
Product: Hot Briquetted Iron Unit Per Unit Per Unit Per
i) For import of plant and machinery/
MT MT MT
technical know-how 258.30
Electricity 125 117 122
ii) Others including raw Furnace Oil — — —
materials and interest 1,300.88 Coal (Specify quality) — — —
Total foreign exchange used (c ) 1,559.18 Diesel Oil — — —
Others - Natural Gas ( SM3 ) 325 298 310
Particulars with respect to Conservation of Energy: Others - Naptha ( Kg ) — — —
FORM A Product: Hot Rolled Coils & Unit Per Unit Per Unit Per
A. Power and Fuel Consumption Cold Roll/Galvanizing MT MT MT
Electricity — 877 865
Sr. Particulars Current Previous Furnace Oil — — —
No. year year Coal (Specify quality) — — —
Diesel Oil — — —
1. Electricity Others – NGL ( Ltr ) — 33 29
a) Purchased Other – NG (SM3) — 55 50
Unit (Lakhs) 2,997.66 2,191.12 FORM B
Total Amount (Rs. in crores) 142.12 110.48 RESEARCH AND DEVELOPMENT (R & D):
Rate/Unit (Rs.) 4.74 5.04 Essar has a well equipped R&D center with latest state-of-the-art facilities
b) Own generation and a highly qualified team of engineers and technologist who are conducting
(i) Through diesel generator developmental activities incessantly.
Unit (Lakhs) 59.58 — 1. Specific areas in which R & D carried by the Company and benefits
Units per ltr. of diesel oil 3.77 — derived
Cost/Unit (Rs.) 6.33 N.A. (a) Line pipe grades (API):
(ii) Through steam turbine/ (1) Development of API 5L X-70 for higher thickness (>14mm)
generator with DWTT guarantee at sub-zero temperatures.
Unit (Lakhs) 1,003.94 — (2) Development of API 5L X-60 for Sour service application.
Units per ltr. of fuel oil/ (3) Development of API 5L X-80 for thickness less than
gas/ steam coal 1.25 — 12 mm.

Cost/Unit (Rs.) 3.44 N.A. (b) Shipbuilding Grades:

(iii) Through gas turbine / Developed DMR 249A in 12mm and above for Indian Navy for
war shipbuilding application.
generator
Pressure vessel: Pressure vessel grade for sour service
Unit (Lakhs) 2,226.64 2,581.50
application is developed which is an import substitution.
Units / SM3 of gas 3.38 3.54
Cost of fuel/Unit (Rs.) 3.04 2.37 (c) CRCA: CQ, CRCA in micro alloyed condition, Electrical Steel,
Spheroid zed steels, DDQ, EDDQ and IF steel
(iv) Through third party on
conversion basis (d) Galvanizing: IF steel (zero spangle, DX57D)
Unit (Lakhs) 28,533.41 22,947.28 (e) Characterization of Iron ore pellets various studies done with
Units / Ltr of NGL/HSD/NG 4.36 4.07 SEM
Cost of fuel/Unit (Rs.) 3.14 1.96 (f) Mathematical modeling for process improvement.

9
Essar Steel Limited

(g) Oxide reducibility tests carried out with various gas compositions on the concepts of fluid mechanics and heat transfer. This
to study the impact of various %age of H2 and CO on reducibility. will facilitate the quality prediction and quality improvement
(h) Possibility of Sinter as HBI feed checked. of continuously cast slabs.

2. Future Plan of action. (c) QUALITY IMPROVEMENT PROJECTS

(a) Product Development (1) Minimization of centerline segregation in high strength API
grades.
HR PRODUCTS
(2) Elimination of the carbon soot problem in CRCA coils.
(1) API 5L X-80 up to 12.7 mm thickness through hot strip mill route.
(d) COST REDUCTION
(2) Development of API 5L X-80 in 12 mm or above thickness.
(1) Cost reduction by redesigning of chemistry and hence
(3) API 5L X-70 in thickness above 16 mm with performance reducing Ferro-alloy cost per MT.
guarantee in DWTT test at sub-zero temperatures.
(2) Cost reduction by re-engineering process/process route
(4) Commercialization of API 5L X-65 up to 12 mm thickness for
sour service applications. (e) Beneficiation Process, further recovery of Fe units from Tailings
by adopting Column Flotation Process.
(5) Grade DMR 249A (ABA grade as per Russian Specifications)
development of this grade up to 16 mm thickness and in bulb bar (f) Trial of DRI cooling to achieve more product carbon and to
section. operate plant without briquetting machines.

(6) Develop grades like 550 to 690 MC & higher, which demand a (g) Vacuum Pressure swing adsorption system for CO2 removal.
combination of high strength and fatigue properties. (h) REHEATING FURNACE UPGRADATION PLAN (HOT STRIP MILL)
(7) R&D and Product development is planning to develop QST 380 (1) REPLACE SKID AND POST CASTABLE LINING WITH PRE-
and QST 420 for laser cutting applications. CAST BLOCK
(8) R&D and Product development is planning to develop a high Advantages : Faster repair in Shut Down/Break Downs –
strength steel conforming to grade 590, for M/s Volvo for Reduce shut down period.
applications in long and cross members.
Reduce heat loss through skid and post by about 2%
CRCA PRODUCTS (hence energy savings).
R&D and product development has successfully developed the steels (2) REPLACE FURNACE ROOF BRICKS WITH PRE-CAST
starting from D quality to IF quality for deep drawing applications in BLOCKS
auto industries. In the current financial year the department intends
to develop and commercialize the following grades through batch Advantages : Reduce heat loss through roof by about 5%
annealing route. (hence energy savings).

(1) Development of high strength interstitial free steel (IFHS) or (a) Number of bricks joints will be reduced.
dent resistant steel for auto applications. (b) Surface area will increase with new block.
(2) Development of deep drawing quality steel (DD) for white good (c) Life will increase & Installed time will be less.
applications in the thickness range of 0.40 to 0.60mm.
(i) Utilities
(3) Development of structural steel conforming to H260LA to H420LA.
(1) Replacement of 02 nos. Reciprocating Compressor with 01
(4) Development of Bake Hardening (BH180) steel. nos.Centrifugal Compressor than annual saving Rs.80 lacs.
(5) Development of re-phosphorized steel for auto applications. (2) Replacement of Refrigerant type air dryer by membrane
(6) Development of Corten steel for railway wagons in CRCA dryer than annual saving Rs.40 lacs.
conditions. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION:
(7) Development of TMBP (Tin Mill Black Plate) for three pieces
1. Efforts, In brief made towards technology absorption, adaptation and
cans applications.
Innovation
(8) Development of Electrical Steel with silicon up to 0.6%, for fan,
inverter, refrigerator compressor pumps and mixer etc. (a) The unit has fully absorbed the LURGI GmbH technology for
conforming to grades 890DS, 660D and 560E of IS specifications. manufacture of Iron Oxide Pellets.
GALVANISED PRODUCTS (b) Required plant modifications have been carried out to produce
In the galvanized product category, R&D and Product development pellets using Organic Binder.
intends to accomplish the following projects.
(c) The Company has fully absorbed the MIDREX technology obtained
(1) Development of S550 GD in galvanized conditions for purlin from Voest Alpine, Austria for the production of HBI.
applications.
(d) The Company has fully absorbed the METCHEM technology
(2) Development of EDD and IF steels in galvanized and skin passed
condition, conforming to DX54 & 56, for auto and colour coating obtained from METCHEM Inc. Canada for the production of HRC.
applications. 2. Imported technology
(b) Process Improvement
Product Technology Year of Status of
(1) R&D and Product Development plans to accomplish a neural from import absorption/ adaptation
network model for the prediction of mechanical properties Pellets Lurgi Traveling 1993 Fully absorbed
in hot rolled plain carbon steel. This model will not only Grate Process
reduce the testing costs but also reduce the inventory and HBI MIDREX Corpn. 1989-90 Fully absorbed
order execution time. (Sponge U.S.A./Voest
Iron) Alpine, Austria
(2) R&D and Product Development intends to develop a coupled
HRC METCHEM 1991-94 Fully absorbed
field mathematical model for continuous casting mould based
Inc. Canada

10
STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956 RELATING TO SUBSIDIARY COMPANIES
(Amount in Rs.)

SR. PARTICULARS Essar Steel Essar Steel Essar Steel

NO. Jharkhand Ltd. Orissa Ltd. Trading FZE

1 The relevant financial year of the subsidiaries company ended on The financial The first financial The first financial
year ends year ends year ends
on 31-3-07 on 31-3-07 on 31-3-07

2 No. of Shares in the subsidiary Company held by Essar Steel Ltd 49,940 equity 49,940 equity 1 share of AED
shares of Rs.10 each shares of Rs.10 each 3 million each

3 Extent of holding by Essar Steel Ltd as at the end of the financial 99.88% 99.88% 100%
period

4 The net aggregate amount of the Subsidiary Companies Profit / (Loss)

so far as it concerns the members of the Holding Company — — —

a) Not dealt with in the Holding Company’s Accounts :

i) For the financial year ended 31st March, 2007 (Rs.119,090) (Rs. 291,919) (USD 157,936)

ii) For the previous Financial years of the Subsidiary

Companies since they became the Holding

Company’s subsidiaries (Rs. 195,761) — —

b) Dealt with in the Holding Company’s Accounts :

i) For the financial year ended 31st March, 2007 Nil Nil Nil

ii) For the previous Financial years of the Subsidiary

Companies since they became the Holding Company’s

subsidiaries — — —

5 Change of interest of Essar Steel Ltd in the subsidiary between the

end of the financial year of subsidiary and that of Essar Steel Ltd NA* NA* NA*

6 Material changes between the end of the financial year of the subsidiary

and the end of the financial year of Essar Steel Ltd in respect of

subsidiary’s fixed assets, investments, monieslent and borrowed. NA* NA* NA*

a) Fixed Assets

b) Investments

c) Money lent by the subsidiary

d) Money borrowed by the subsidiary company other for meeting

current liabilities (Net)

* Since the financial year of the subsidiary companies coincide with the financial year of Essar Steel Ltd.

For and on behalf of the Board

S. N. Ruia

Mumbai, August 20, 2007 Chairman

11
Essar Steel Limited

CORPORATE GOVERNANCE REPORT

1 COMPANY’S PHILOSOPHY ON CORPORATE GOVERNANCE
Essar Steel Limited believes that good Corporate Governance is
essential to achieve long term corporate goals and to enhance
stakeholders’ value. The Company’s philosophy on Corporate Governance
envisages attainment of high level transparency, accountability and
integrity in the functioning of the Company and the conduct of its
business, its relationship with employees, stakeholders, creditors,
customers and institutional and other lenders. The company places due
emphasis on regulatory compliance.
The Company has complied with all the mandatory requirements mentioned
under Code of Corporate Governance except for proceedings of the
meetings of Investors Grievance Committee. The reasons for the same
are mentioned under details pertaining to Investors Grievance Committee
forming part of this Report. In respect of Non-Mandatory requirements the
Company has partially complied with the same. (Refer Point no.16 b of this
Report)
2 BOARD OF DIRECTORS
The Company has a non-executive Chairman and the number of
Independent Directors is more than one-third of the total number of
Directors. The number of Non-Executive Directors is more than 50%
of the total number of Directors.
The Board / Committee meetings are conducted as per well defined
procedures and systems. The information placed before the Board
includes Annual operating plans, capital budgets and any updates on
the same, Quarterly results of the Company, noting of the proceedings
of the meetings of audit Committee and other Committees of the Board,
Sale of material nature of investments, subsidiaries, assets which is
not in normal course of business and other items as mentioned under
Clause 49 of Listing Agreement.
During the year five Board Meetings were held and the gap between
two meetings did not exceed four months. The Board Meetings were
held on May 22, 2006, July 10, 2006, July 31, 2006, October 31, 2006
and January 29, 2007.
None of the Directors on the Board is a Member of more than 10
Committees and Chairman of more than 5 Committees across all the
companies in which he is a Director.
The names and categories of the Directors on the Board, their
attendance at Board Meetings during the year and at the last Annual
General Meeting, and also the number of Directorships and Committee
Memberships / Chairmanships held by them in other companies are
given below:

Name Category Attendance No. of Directorships and Other Committee

Memberships / Chairmanships
Board Last AGM Other Other Committee Other Committee
Meetings Directorships* Memberships** Chairmanships**

Shri Shashi Ruia Promoter 5 No 9 1 Nil

Non Independent
Non-Executive
Shri Ravi Ruia Promoter 1 No 8 1 Nil
Non Independent
Non-Executive
Shri Prashant Ruia *** Promoter 5 No 11 2 Nil
Non Independent
Non-Executive
Shri Rewant Ruia Promoter None No 5 Nil Nil
Non Independent
Non-Executive
Shri Sanjeev Shriya Independent None No 5 1 Nil
Non Executive
Shri Vikram Amin Non Independent 5 No 2 1 Nil
Executive
Shri S V Venkatesan Independent 4 Yes 10 4 3
Non Executive
Shri Jatinder Mehra Independent 3 No 10 Nil Nil
Non Executive
Shri V G Raghavan*** Non Independent 5 Yes 11 1 Nil
Non-Executive
Shri G D Goswami Independent 3 No 8 5 Nil
Non Executive
Nominee of ICICI
Shri K V Krishnamurthy*** Independent 1 No 11 7 Nil
Non Executive
Shri Robin Banerjee*** Non Independent 1 No 1 Nil Nil
Executive
*The Directorships held by Directors as mentioned above, do not include Alternate Directorships and Directorships of Foreign Companies, Section 25
Companies and Private Limited Companies.
** In accordance with Clause 49 of the listing agreement, Memberships / Chairmanships of only Audit Committee and Investors Grievance Committees
of all Public Limited Companies have been considered.
*** Shri K V Krishnamurthy has been appointed as a Director with effect from October 31, 2006. Shri P S Ruia, ceased to be Managing Director with
effect from October 29, 2006. Shri V G Raghavan ceased to be Director (Finance) with effect from January 31, 2007. Shri Rewant Ruia and Shri Robin
Banerjee have been appointed as a Director and Director (Finance) respectively with effect from January 29, 2007 and February 01, 2007 respectively.
Details of Directors seeking appointment/reappointment in the Thirty First Annual General Meeting (in pursuance of Clause 49 of the Listing Agreement).
Shri S N Ruia, Shri P S Ruia, Shri V G Raghavan and Shri Sanjeev Shriya retire by rotation and being eligible seek re-appointment at the ensuing Thirty
First Annual General Meeting (AGM). Further it is proposed to appoint Shri K V Krishnamurthy and Shri Rewant Ruia as Director liable to retire by rotation
and Shri Robin Banerjee as whole-time Director of the Company at the AGM. A brief resume of the Directors along with nature of their expertise and details
of other directorships, and their shareholdings in the Company have been disclosed to the shareholders through Notes and Explanatory Statement
annexed to the Notice for the AGM.

12
3 AUDIT COMMITTEE The Chairman of the Committee of Directors (Remuneration) was present
The Company has an Audit Committee with scope of activities as set out at the Annual General Meeting held on September 30, 2006.
in the amended clause 49 of the Listing Agreement with the Stock The Company while formulating policy for deciding the remuneration
Exchanges read with Section 292A of the Companies Act, 1956. The package of the senior management personnel takes into consideration
broad terms of reference of the Audit Committee are as under: the following :
a) To hold periodic discussions with the Statutory Auditors and Internal a) Employment scenario.
Auditors of the Company concerning the accounts of the Company, b) Remuneration levels prevalent in the industry
internal control systems, scope of audit and observations of the c) Remuneration levels prevalent in the company.
Auditors/Internal Auditors; Details of remuneration paid to all Directors for 2006-07.
b) To review the quarterly, half-yearly and annual financial results of the Executive Directors.
Company before submission to the Board;
Name Salary Perquisites Performance Contract,Notice Stock
c) To make recommendations to the Board on any matter relating to the
Rs. Lakhs & Allowance Bonus Period and Options
financial management of the Company, including the Audit Report;
Rs. Lakhs Rs. Lakhs Severance fees
d) Overseeing the Company’s financial process and disclosure of financial
information to ensure that the financial statement is correct. Shri Prashant NIL NIL NIL 3 years NIL
Ruia from October
e) Recommending the appointment and removal of external auditor,
Director* 29, 2003,
fixation of audit fee and approval for payment of any services.
3 months
f) Approval of payment to statutory auditors for any other services and Nil
rendered by the statutory auditors.
Shri Vikram 59.07 13.92 18.00 3 years NIL
g) Reviewing with the management performance of statutory and internal Amin Director from November
auditors, and adequacy of internal control system. (Marketing) 01, 2004,
h) Reviewing the adequacy of internal audit function. 3 months
i) Discussing with internal auditors any significant finding and follow up and Nil
on such issues. Shri V G 76.33 0.28 24.50 3 years NIL
j) Reviewing the findings of any internal investigations by the internal Raghavan from October
auditors into matters where there is suspected fraud or irregularity or Director* 29, 2006,
a failure of internal control system of a material nature and reporting 3 months
the matter to the Board. and Nil
k) Discussing with external auditors before the audit commences on the Shri Robin 25.19 NIL 35.00 3 years NIL
nature and scope of audit, as well as having post-audit discussion to Banerjee from February
ascertain any area of concern. Director 01,2007,
l) Reviewing the Company’s financial and risk management policies; (Finance)* 3 months
and and Nil
m) Examining reasons for substantial default in the payment to depositors,
* Shri P S Ruia ceased to be Managing Director with effect from October
debenture holders, shareholders and creditors, if any. 29, 2006 and Shri V G Raghavan ceased to be Director Finance with
The Audit Committee is presently comprised of Four independent directors. effect from January 31, 2007. Shri Robin Banerjee has been appointed as
The Director (Finance), General Manager (Corporate Accounts), Statutory Director (Finance )with effect from February 01, 2007.
Auditors and Internal Auditors of the Company attend the meetings. The
Company Secretary is the Secretary of the Committee. Non-Executive Directors
The Committee met 6 times during the year on the following dates viz. July The Company pays sitting fees of Rs.7500/- for each Board Meeting and
10, 2006, July 31, 2006, October 31, 2006, November 09, 2006, January Rs.5000/- for each Committee Meeting attended by its Non-Executive
29, 2007 and March 27, 2007. The attendance of the members at the Directors.
meetings is stated below: Details of Shares held by Non-Executive Directors as on March 31, 2007
Name of Director Category No. of meetings Name(s) No. of Shares held
attended during the
Equity Shares 0.01% Cumulative Redeemable
year 2006-07
of Rs.10 each Preference Shares
Shri S V Venkatesan Independent 6 Shri S V Venkatesan 1317 878
Chairman Non Executive Shri Shashi Ruia Nil Nil
Shri Jatinder Mehra Independent 2 Shri Ravi Ruia Nil Nil
Non Executive Shri Prashant Ruia Nil Nil
Dr G D Goswami Independent 4
Shri Rewant Ruia Nil Nil
Non Executive
Shri Sanjeev Shriya Nil Nil
Nominee of ICICI
Shri Jatinder Mehra Nil Nil
Shri K V Krishnamurthy* Independent 2
Shri G D Goswami Nil Nil
Non Executive
Shri K V Krishnamurthy Nil Nil
* Shri K V Krishnamurthy has been appointed as a Director with effect
from October 31, 2006. Shri V G Raghavan Nil Nil

The Chairman of the Committee Shri S V Venkatesan was present at the
Annual General Meeting held on September 30, 2006.
4 REMUNERATION COMMITTEE
The Company has a Committee of Directors (Remuneration) with broad
terms of reference covering all the key executives including Executive
Directors, Non Executive Directors & other employees to deal with:
a) Succession Plans, Appointments, Placements and Major proposals
b) Remuneration in general, market trends
c) Personnel Policies, including training and human resources
development
The Committee comprises of three non-executive Directors viz. Shri S V
Venkatesan, Chairman, Shri G D Goswami and Shri Jatinder Mehra.
Shri. Narottam B Vyas, Company Secretary is the Secretary of the
Committee. One meeting of the Committee was held during the financial
year 2006-2007 which was attended by Shri S V Venkatesan, Shri G D
Goswami. Shri S V Venkatesan chaired the meeting.
5 INVESTOR'S GRIEVANCES COMMITTEE
The Company has an Investors’ Grievances Committee to specifically
look into the redressing of shareholders and investors complaints, non
receipt of Balance Sheet etc.
The Investors’ Grievance Committee comprises of 6 members viz. Shri S
V Venkatesan, Shri P S Ruia, Shri J Mehra, Shri V G Raghavan, Shri
Vikram Amin and Shri Robin Banerjee. Shri S V Venkatesan, generally
chairs the meetings. As regards Auditors qualification it is clarified that in
terms of Clause 49 of the listing Agreement with the Stock Exchanges the
Investors Grievance Committee has to be chaired by a Non Executive
Director. However, for the meetings Shri S V Venkatesan Chairman of the
Committee was granted leave of absence from attending Committee
Meetings and in his place the meetings had to be chaired by Shri Vikram
Amin, Director (Marketing).
The Company Secretary, Shri Narottam B Vyas is Compliance Officer of
the Company.

13
Essar Steel Limited

Details of Shareholders complaints received, solved, not solved and 8 RISK MANAGEMENT AND COMPLIANCE WITH LAWS AND
pending share transfers : REGULATIONS
During the year, the total number of complaints received and attended to In accordance with revised guidelines under Clause 49 of the Listing
the satisfaction of shareholders were 1206. There were no complaints Agreement with the Stock Exchanges, the Company has formulated
outstanding as on March 31, 2007. All the valid share transfer requests a Risk Management Policy. The Company has also complied with all
received during the year were duly attended to and processed in time. There applicable Laws and Regulations.
were no valid requests pending for share transfers as on March 31, 2007. 9 MEANS OF COMMUNICATION
6 GENERAL BODY MEETINGS Half-yearly report sent to each No
a) Location and time where last three Annual General Meetings (AGMs) household of shareholders-
were held: Quarterly Results-which newspapers Indian Express
The last three AGMs were held on – August 07, 2004, September 17, normally published in – & Gujarat Mitra
2005 and September 30, 2006. Whether any presentation were made No
All the Annual General Meetings were held at Nandniketan School, to Institutional investors or to analysts
Hazira, Dist. Surat. at 2.30 p.m. Any Website, where displayed - www.essar.com
b) Special Resolution for voluntary delisting of equity shares from the www.sebiedifar.nic.in
Stock Exchanges was put through postal ballot during the previous Whether it also displays official news
year. The resolution was passed with 99.66% of votes in favour of releases, and the presentations made
voluntary delisting. The company has complied with the applicable to institutional investors or to analysts No
provisions of Companies ( Passing of the resolution by Postal Ballot)
Whether Management Discussion &
Rules, 2001. Shri T N V Visweswara Rao, Chartered Accountant was
Analysis is a part of annual report
appointed as the Scrutiniser.
or not Yes
c) No Special Resolution is proposed to be passed through postal ballot 10 GENERAL SHAREHOLDER INFORMATION
in the current year.
AGM – Date, 28th September 2007
d) Special Resolutions passed during the last three Annual General time and venue - Nandniketan School,
Meetings
Hazira – 394 270
AGM held on Particulars of Special Resolutions passed Financial Approval of results In following months of
August 07, 2004 1 Issue of Securities for an amount not Calendar for quarter ending the quarter ending
exceeding USD200 million June 30, 2007;
2 Issue of 0.01% Cumulative Convertible September 30, 2007;
Preference Shares for an amount not and December 31, 2007.
exceeding Rs.38 crs to Essar Annual Audited results Before June, 30 2008.
Investments. for year ended
3 Issue of 0.01% Cumulative Convertible March 31, 2008.
Preference Shares for an amount not Date of Book 27th September 2007 to
exceeding Rs.459 crs to Essar Power Closure 28th September 2007
Ltd. (bothdays inclusive)
4 Voluntarily Delisting of Equity Shares from Dividend
Stock Exchanges Payment Date NA
5 Appointment of Shri Vikram Amin as 11. LISTING ON STOCK EXCHANGES
Whole-time Director for a period of 3 years. The Company’s securities are listed on the following Stock Exchanges:
6 Appointment of Shri V G Raghavan as a) National Stock Exchange of India Ltd.
Whole-time Director for a period of 3 years. b) Bombay Stock Exchange Ltd, Mumbai
7 Appointment of Shri P S Ruia as Managing
Director for a period of 3 years Stock Code Equity 0.01% Cumulative
Redeemable
September 17, 2005 1 Alteration in the terms of the issue of Preference Shares
5.59 crore 8% Cumulative Compulsorily a) National Stock
Convertible Preference Shares. Exchange of
2 Increase in FI Limits to 74% of the issued India Ltd ESTL - EQ ESTL – P1
and paid up equity share capital of the b) Bombay Stock
Company. Exchange Ltd 500627 700098
3 Setting up of 3 subsidiaries outside India. c) ISIN No- Demat Form INE127A01021 INE127A04017
4 To make investment in Clickforsteel STOCK MARKET DATA
Services Limited
High / Low of market price of the Company’s shares traded on Bombay Stock
September 30, 2006 1 Adjustment of One-time Recompense Exchange Ltd (BSE) and National Stock Exchange of India Ltd. (NSE) during
Charges and Prepaid Power Charges each month in the last financial year ended March 31, 2007 is as under:
against balance in Securities Premium BSE NSE
Account. Month High (Rs.) Low (Rs.) High (Rs.) Low (Rs.)
7 DISCLOSURES April 2006 58.75 45.20 59.00 45.15
a) Disclosures of Related party transactions as required by Accounting May 2006 58.85 32.75 59.00 33.70
Standard –18 have been given in the Note no. 8 of Schedule no. 23 June 2006 46.15 29.60 46.10 29.20
forming part of the Accounts. There are no materially significant July 2006 48.00 33.00 41.70 22.85
August 2006 39.90 33.10 39.40 33.00
transactions with its Promoters, the Directors or the Management,
September 2006 37.95 33.60 38.30 33.80
their Subsidiaries or Relatives etc. that may have potential conflict
October 2006 40.90 35.50 40.85 35.60
with the interests of the Company at large. November 2006 41.15 34.30 40.95 34.25
b) There is no non-compliance by the Company, penalties, strictures December 2006 37.40 30.10 37.20 30.50
imposed on the Company by Stock Exchange or SEBI or any statutory January 2007 54.70 35.20 54.90 35.15
authority, on any matter related to capital markets, during the last February 2007 49.40 37.15 49.50 37.00
three years. March 2007 45.00 34.35 45.00 34.25

14
 14. DEMATERIALISATION OF SHARES AS ON 31ST MARCH 2007 AND
LIQUIDITY.

The Company’s shares are compulsory traded in dematerialised form and

are available for trading on both the Depositories in India- National Securities
Depository Limited (NSDL) and Central Depository Services (India) Ltd
(CDSL). 111,58,85,575 Equity Shares of the Company representing 97.90%
of the Company’s equity share capital are dematerialised as on March
31st, 2007.

The Company’s shares are regularly traded on Bombay Stock Exchange

Ltd and National Stock Exchange of India Ltd as is seen from the volume
of shares indicated in the Tables containing Stock Market Data.

There are no Outstanding GDRs / ADRs / Warrants or any Convertible

12. NOMINATION FACILITY:
Shareholders holding shares in physical form and desirous of making a
nomination in respect of their shareholding in the company, as permitted
under Section 109A of the Companies Act, 1956 are requested to submit
to the R&T Agent of the company the prescribed nomination form.
Registrar and Transfer Agents Data Software Research Co Pvt Ltd .
Sree Sovereign Complex No 22,
IVth Cross Street,Trustpuram,
Kodambakkam,Chennai 600 024.
Tel. Nos. 044 24834487 / 3738
Fax No. – 044 24834636
Share Transfer System The Company’s shares are traded on
the Stock Exchanges compulsorily
in demat mode. Share Transfer in
physical form can be lodged with the
Registrar and Transfer Agents, Data
Software Research Co Pvt Ltd at the
above mentioned address.The
Transfers are normally processed
within 15 - 20 days from the date of
receipt if the documents are complete
in all respects.
13. DISTRIBUTION OF SHAREHOLDING AS ON MARCH 31, 2007
Shareholding of Number of Percentage of Total number Percentage
Nominal value of Shareholders Shareholders of shares of holding
Upto 5,000 409744 95.69 44,002,983
Instruments which may have likely impact on equity.
15. SECRETARIAL AUDIT.
A qualified practicing Company Secretary carried out a secretarial audit to
reconcile the total admitted capital with National Securities Depository
Limited (NSDL) and Central Depository Services (India) Limited (CDSL)
and the total issued and listed capital. The audit confirms that the total
issued/paid up capital is in agreement with the total number of shares in
physical form and the total number of dematerialized shares held with
NSDL and CDSL.
16. ADOPTION OF MANDATORY / NON - MANDATORY REQUIREMENTS
a. Mandatory requirements
The Company has complied with all the mandatory requirements
mentioned under Code of Corporate Governance except for
proceedings of the meetings of Investors Grievance Committee. The
reasons for the same are mentioned under details pertaining to
Investor's Grievances Committee forming part of this Report.
b. Non Mandatory requirements
1. The Board : The Company has complied with this requirement and
the expenses incurred by non executive chairman are reimbursed by
the company.
2. Remuneration Committee: The Company has constituted a
Remuneration committee with terms of reference outlined in point
3.86 no.4 of this report.

5,001- 10,000 11162 2.61 8,012,535 0.70 3. Shareholders right: The Company has not sent the half yearly results
to the household of each shareholders but the same are posted on
10,001- 20,000 3984 0.93 5,778,262 0.51
the website of the company i.e. www.essar.com.
20,001- 30,000 1117 0.26 2,881,218 0.25
4. Audit qualifications: Coverd in Directors' Report.
30,001- 40,000 446 0.10 1,597,863 0.14
5. Training of Board members: The Company has not complied with this
40,001- 50,000 390 0.09 1,840,572 0.16 requirement but company is in the process of doing the same.
50,001- 1,00,000 680 0.16 5,014,017 0.44
6. Mechanism for evaluating non executive Board Members: The Company
1,00,001 & above 701 0.16 1,070,683,438 93.94 has not complied with this requirement.

Total 428224 100.00 1,139,810,888 100.00 7. Whistle Blower policy: The company has not established whistle
blower policy. However, no personnel have been denied access to
SHAREHOLDING PATTERN AS ON MARCH 31, 2007 the Audit Committee for the same.
CATEGORY No.of Equity Shares % To the total Plant Locations 27 KM, Surat Hazira Road,
Promoters & Associates 992,570,167 87.08 Surat – 394270

Fin. Institutions/ Banks/ Mutual Funds 9,947,554 0.87 Address for Correspondence

Other Companies 34,737,546 3.05 Registered Office Corporate Office

Essar Steel Ltd. Essar Steel Ltd,
Non Domestic Companies 309,114 0.03
27 Km, Surat Hazira Road, Essar House,
Foreign Institutional Investors 23,110,425 2.03
Surat : 394 270 11, Keshavrao Khadye Marg
Non Resident Individuals 2,524,549 0.22 Tel : 0261-2872400 Mahalaxmi, Mumbai 400 034
Public 76,611,533 6.72 Fax: 0261-2872796 Tel : 022-66601100
TOTAL 1,139,810,888 100.00 Fax: 022-66669426

15
Essar Steel Limited
Declaration on Compliance of the Company’s Code of Conduct
To the Members of Essar Steel Limited
The Company has framed a specific code of conduct for the members of the Board of Directors and the Senior Management Personnel of the Company
pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges to further strengthen corporate governance practices in the Company.
All the members of the Board and Senior Management Personnel of the Company have affirmed due observance of the said conduct in so far as it is
applicable to them and there is no non compliance thereof during the year ended March 31, 2007.
Place: Mumbai
Date: August 20, 2007
AUDITOR'S CERTIFICATE
To
The Members of Essar Steel Limited
We have examined the compliance of conditions of corporate
governance by Essar Steel Limited, for the year ended on March
31 2007, as stipulated in clause 49 of the Listing Agreement of
the said Company with stock exchanges.
The compliance of conditions of corporate governance is the
responsibility of the management. Our examination was limited to
procedures and implementation thereof, adopted by the Company
for ensuring the compliance of the conditions of the Corporate
Governance. It is neither an audit nor an expression of opinion
on the financial statements of the Company.
In our opinion and to the best of our information and according to
the explanations given to us, subject to the following:
The Investor Grievance Committee Meetings held during the period
April 1, 2006 to June 30, 2006 were chaired by an executive
director as against the requirement of Clause 49 that such
meetings be chaired by a non executive director,
CERTIFICATE
To
The Board of Directors
Essar Steel Limited
Essar House
Mahalaxmi
Mumbai 400034
We, Vikram Amin, Director (Marketing) and Robin Banerjee, Director
(Finance) of Essar Steel Limited, to the best of our knowledge and belief,
certify that:
1. We have reviewed the balance sheet and profit and loss account
and all its schedules and notes to accounts, as well as the cash flow
statements and the director’s report;
2. Based on our knowledge and information, these statements do not
contain any untrue statement of a material fact or omit to state a
material fact or contain statements that might be misleading;
3. Based on our knowledge and information, the financial statements,
and other financial information included in this report, present in all
material respects, a true and fair view of the company’s affairs and
are in compliance with the existing accounting standards and / or
applicable laws and regulations.
4. To the best of our knowledge and belief, no transactions entered into
by the Company during the year are fraudulent, illegal or violative of
the company’s code of conduct;
5. We are responsible for establishing and maintaining internal controls
over financial reporting for the Company, and we have:
16
Vikram Amin
Director (Marketing)
We certify that the Company has complied with the conditions of
Corporate Governace as stipulated in the above mentioned Listing
Agreement.
We further state that such compliance is neither an assurance as
to the future viability of the Company nor the efficiency or
effectiveness with which the management has conducted the
affairs of the Company.
S. R. Batliboi & Co.
Chartered Accountants
Per Hemal Shah
Partner
Membership No.: 42650
Mumbai
August 20, 2007
a. designed such internal control over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in accordance with
generally accepted accounting principles;
b. evaluated the effectiveness of the Company’s internal control
systems pertaining to financial reporting and
c. disclosed in this report any change in the Company’s internal
control over financial reporting that has materially affected the
Company’s internal control over financial reporting.
6. We have disclosed to the Company auditors and the Audit Committee
of the Company’s Board of Directors:
a. deficiencies in the design or operation of internal controls and
steps taken / proposed to be taken to rectify these deficiencies;
b. significant changes in internal controls over financing reporting,
if any, during the year covered by this report;
c. significant changes in accounting policies during the year, if
any, and that the same have been disclosed in the notes to the
financial statements and
d. instances of significant fraud of which we are aware, that involves
management or other employees who have a significant role in
the Company’s internal control system over financial reporting.
Signed Signed
Vikram Amin Robin Banerjee
Director (Marketing) Director (Finance)
Place: Mumbai
Date: August 20, 2007
 Auditors’ Report to the Members of Essar Steel Limited
1. We have audited the attached Balance Sheet of Essar
Steel Limited (‘the Company’) as at March 31, 2007 and
also the Profit and Loss account and the cash flow
statement for the year ended on that date annexed
thereto. These financial statements are the responsibility
of the Company’s management. Our responsibility is to
express an opinion on these financial statements based
on our audit.
2. We conducted our audit in accordance with auditing
standards generally accepted in India. Those Standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
3. As required by the Companies (Auditor’s Report) Order,
2003 (as amended) (‘the order’) issued by the Central
Government of India in terms of sub-section (4A) of
Section 227 of the Companies Act, 1956, we enclose in
the Annexure a statement on the matters specified in
paragraphs 4 and 5 of the said Order.
4. Further to our comments in the Annexure referred to
above, we report that:
i. We have obtained all the information and explana-
tions, which to the best of our knowledge and belief
were necessary for the purposes of our audit;
ii. In our opinion, proper books of account as required
by law have been kept by the Company so far as ap-
pears from our examination of those books;
iii. The balance sheet, profit and loss account and cash
flow statement dealt with by this report are in agree-
ment with the books of account;
iv. In our opinion, the balance sheet, profit and loss ac-
count and cash flow statement dealt with by this re-
port comply, subject to disclaimer regarding deferred
tax asset as stated in paragraph vi below, with the
accounting standards referred to in sub-section (3C)
of section 211 of the Companies Act, 1956.
v. On the basis of the written representations received
from the directors, as on March 31, 2007, and taken
17
on record by the Board of Directors, we report that
none of the directors is disqualified as on March 31,
2007 from being appointed as a director in terms of
clause (g) of sub-section (1) of section 274 of the
Companies Act, 1956.
vi. As on March 31, 2006, the Company had net de-
ferred tax asset of Rs 425.75 crores on unab-
sorbed losses and depreciation. As on March 31,
2007 net deferred tax asset is Rs. 238.23 crores
and net deferred tax reversal charge for the year
is Rs 187.52 crore. The Company had recognized
the above deferred tax asset based on the fact that
it has achieved profitability projections made ear-
lier and other factors as described in Note 5 of
schedule 23. Such recognition is based also on
future profitability projections. Hence , we are un-
able to comment whether such basis of recognition
complies with the definition of virtual certainty, as
required by Accounting Standard 22 on ‘Taxes on
income’, and on the appropriateness of such rec-
ognition along with deferred tax charge for the
year. We had also modified our audit report on the
financial statements relating to preceding year with
respect to the recognition of deferred tax asset.
vii. In our opinion and to the best of our information and
according to the explanations given to us, the said
accounts give the information required by the Com-
panies Act, 1956, in the manner so required and,
subject to the disclaimer in paragraph vi above
whose impact on the profit for the year cannot be
ascertained, give a true and fair view in conformity
with the accounting principles generally accepted in
India;
a) in the case of the balance sheet, of the state of
affairs of the Company as at March 31, 2007;
b) in the case of the profit and loss account, of the
profit for the year ended on that date; and
c) in the case of cash flow statement, of the cash
flows for the year ended on that date.
S. R. BATLIBOI & CO.
Chartered Accountants
Membership No.: 42650 per Hemal Shah
Place: Mumbai Partner
Date: July 06, 2007
Essar Steel Limited

Auditors’ Report to the Members of Essar Steel Limited

Annexure referred to in paragraph [3] of our report of even assets and for the sale of goods. During the course of our
date audit, no major weakness has been noticed in the internal
Re: Essar Steel Limited (‘the Company’) control system in respect of these areas. There were no services
rendered by the Company during the year.
(i) (a) The Company has maintained proper records showing
full particulars, including quantitative details and situation (v) According to the information and explanations provided by
of fixed assets. the management, we are of the opinion that there are no
contracts or arrangements referred to in section 301 of the
(b) All fixed assets have not been physically verified by the
Act that need to be entered into the register maintained under
management during the year but there is a regular
that section.
programme of verification which, in our opinion, is
reasonable having regard to the size of the Company (vi) The Company has not accepted any deposits from the public.
and the nature of its assets. As informed, no material (vii) In our opinion, the Company has an internal audit system
discrepancies were noticed on such verification. commensurate with the size and nature of its business.
(c) There was no substantial disposal of fixed assets during (viii) We have broadly reviewed the books of account maintained
the year. by the Company pursuant to the rules made by the Central
(ii) (a) The management has conducted physical verification of Government for the maintenance of cost records under section
inventory at reasonable intervals during the year. 209(1)(d) of the Companies Act, 1956, and are of the opinion
that prima facie, the prescribed accounts and records have
(b) The procedures of physical verification of inventory
been made and maintained.
followed by the management are reasonable and
adequate in relation to the size of the Company and the (ix) (a) Undisputed statutory dues including provident fund,
nature of its business. investor education and protection fund, or employees’
state insurance, income-tax, sales-tax, wealth-tax, service
(c) The Company is maintaining proper records of inventory
tax, customs duty, excise duty, cess have generally been
and no material discrepancies were noticed on physical
regularly deposited with the appropriate authorities.
verification.
(b) According to the information and explanations given to
(iii) (a) As informed, the Company has not granted any loans,
us, no undisputed amounts payable in respect of provident
secured or unsecured to companies, firms or other parties
fund, investor education and protection fund, employees’
covered in the register maintained under section 301 of
state insurance, income-tax, wealth-tax, service tax, sales-
the Companies Act, 1956.
tax, customs duty, excise duty, cess and other undisputed
(b) As informed, the Company has not taken any loans,
statutory dues were outstanding, at the year end, for a
secured or unsecured from companies, firms or other
period of more than six months from the date they became
parties covered in the register maintained under section
payable.
301 of the Companies Act, 1956.
(c) According to the records of the Company, the dues
(iv) In our opinion and according to the information and
outstanding of income-tax, sales-tax, wealth-tax, service
explanations given to us, there is an adequate internal control
tax, customs duty, excise duty and cess on account of
system commensurate with the size of the Company and the
any dispute, are as follows:
nature of its business, for the purchase of inventory and fixed
Name of the statute Nature of dues Amount disputed Amount deposited Period to which Forum where
(Rs in Crores) (Rs. In crores) the amount dispute is pending
relates
The Custom Act, 1962 Custom duty for technical services availed 66.81 Nil 1991 Supreme Court
The Gujarat Sales tax Sales tax payable as per assessment order 14.29 1.25 1994-95 Assistant Commissioner
Act, The Orissa Sales for 94-95 & 97-98 & 98-99 1997-98 of sale tax, Deputy
tax Act, The Delhi Sales 1998-99 Commissioner of sales
tax Act and The Central tax, Sales tax tribunal
Sales tax Act and sales tax officer
The Gujarat Sales tax Act Sales tax payable as per order of Deputy commissioner 1,384.12 200.62 1995 to 2005 Sales tax tribunal
under section 50 and revisionary order of commissioner
under section 67
The Customs Act, 1962 Short fall in fulfilling of export obligations and customs 38.46 Nil 1998-99 Supreme Court
valuations
Central Excise Act, 1944 Excise Duty demand on iron ore chips 0.43 Nil 2000 to 2002 CESTAT
0.66 Nil 2002 to 2004 Commissioner (Appeals)
Andhra Pradesh State Sales tax on deemed purchase of iron ore fines, 5.05 2.24 2000-01 Sales tax appellate
Sales Tax interstate works contract & transfer of DEPB licenses tribunal – Hyderabad
Andhra Pradesh State VAT credit on opening stock 11.40 Nil 2005-06 Deputy Commissioner Appellate
Sales Tax
Andhra Pradesh State Sales tax payable on provisional assessment 1.86 Nil 2005-06 Appellate Deputy Commissioner
Sales Tax of 2005-06

18
(x) The Company has no accumulated losses at the end of the (xvi) Based on information and explanations given to us by the
financial year and it has not incurred cash losses in the management, term loans were applied for the purpose for
current and immediately preceding financial year. which the loans were obtained.
(xi) On the basis of the audit procedures performed by us, and (xvii) According to the information and explanations given to us
according to the information, explanations and and on an overall examination of the balance sheet of the
representations given to us by the management, the Company, we report that no funds raised on short-term
Company had delayed in certain repayments of dues basis have been used for long-term investment.
(including interest) to domestic financial institutions and
(xviii) The Company has not made any preferential allotment of
banks. We are unable to comment on the period and amount
shares to parties or companies covered in the register
of delay since the necessary information has not been
maintained under section 301 of the Companies Act, 1956.
compiled by the management. The Company has not
(xix) According to the information and explanations given to us,
defaulted in repayment of dues to debenture holders.
during the period covered by our audit report, the Company
(xii) According to the information and explanations given to us
had issued 3,000 Secured Redeemable Non Convertible
and based on the documents and records produced to us,
debentures of Rs. 10,00,000 each. The Company had
the Company has not granted loans and advances on the
created security in the previous year in respect of debentures
basis of security by way of pledge of shares, debentures
issued.
and other securities.
(xx) The Company has not raised money by public issue during
(xiii) In our opinion, the Company is not a chit fund or a nidhi /
the year.
mutual benefit fund / society. Therefore, the provisions of
(xxi) Based upon the audit procedures performed for the purpose
clause 4(xiii) of the order are not applicable to the Company.
of reporting the true and fair view of the financial statements
(xiv) In our opinion, the Company is not dealing in or trading in
and as per the information and explanations given by the
shares, securities, debentures and other investments.
management, we report that no fraud on or by the Company
Accordingly, the provisions of clause 4(xiv) of the order are
has been noticed or reported during the course of our audit.
not applicable to the Company.

(xv) According to the information and explanations given to us,

the Company has given guarantee for loans taken by others S. R. BATLIBOI & CO.
from bank or financial institutions, the terms and conditions Chartered Accountants

whereof in our opinion are not prima-facie prejudicial to the

interest of the Company. per Hemal Shah
Membership No.: 42650 Partner
Place: Mumbai
Date: July 06, 2007

19
Essar Steel Limited

Balance Sheet as at 31st March, 2007

As at As at
Schedules 31st March, 2007 31st March, 2006
Rs. in Crores Rs. in Crores Rs. in Crores Rs. in Crores
Sources of Funds
Shareholders’ Funds
Share Capital 1 1,387.00 2,785.29
Reserves and Surplus 2 3,080.95 1,246.18
4,467.95 4,031.47
Loan Funds
Secured Loans 3 6,533.32 6,409.91
Unsecured Loans 4 409.92 650.46
6,943.24 7,060.37
Long-term advances from customer
(Refer note 24 of schedule 23) 166.42 179.44
{Amount payable within a year Rs. 8.66 Crores
(Previous Year Rs. 6.31 Crores)}
Total 11,577.61 11,271.28

Application of Funds
Fixed Assets 5
Gross Block 13,554.19 10,447.54
Less: Accumulated Depreciation 4,664.60 4,049.09
Net Block 8,889.59 6,398.45
Capital Work-in-Progress (including Capital Advances) 1,107.78 2,887.36
(Refer note 23 of schedule 23) 9,997.37 9,285.81

Investments 6 433.43 182.97

Deferred Tax Assets (net) 7 238.23 425.75
Current Assets, Loans and Advances
Interest accrued on Investment 4.51 4.51
Inventories 8 2,328.77 1,485.34
Sundry Debtors 9 546.85 540.16
Cash and Bank Balances 10 432.86 725.79
Loans and Advances 11 1,084.42 1,117.71
4,397.41 3,873.51
Less: Current Liabilities and Provisions
Liabilities 12 3,453.27 2,487.69
Provisions 13 35.56 9.07
Net Current Assets 908.58 1,376.75
Total 11,577.61 11,271.28
Notes to Accounts 23

Schedules 1 to 13 and 23 referred to above form an integral part of the Balance Sheet.

For and on behalf of the Board of Directors of Essar Steel Limited

As per our report of even date
S.R. BATLIBOI & CO. P. S. Ruia Robin Banerjee
Chartered Accountants Director Director Finance

per Hemal Shah V.G.Raghavan Vikram Amin

Partner Director Director Marketing
Membership No. 42650
Mumbai, July 06, 2007 Narottam B Vyas
Mumbai, June 29 , 2007 Company Secretary

20
Profit and Loss Account for the Year Ended 31st March, 2007
Year Ended Year Ended
Schedules 31st March, 2007 31st March, 2006
Rs. in Crores Rs. in Crores Rs. in Crores Rs. in Crores
Income
Income from Operations 9,000.46 6,850.45
Less : Excise Duty 806.11 667.87
Net Sales 8,194.35 6,182.58
Other Income 14 19.22 208.14
8,213.57 6,390.72
Expenditure
Materials Consumed 15 5,747.74 3,725.28
Decrease/(Increase) in Stocks 16 (872.66) (89.74)
Personnel Expenses 17 152.80 99.75
Manufacturing and Asset Maintenance 18 746.04 601.33
Administrative Expenses 19 146.14 130.66
Selling and Distribution Expenses 20 338.26 234.33
6,258.32 4,701.61
Profit before Finance Costs (net), Depreciation,
Prior Period Items and Taxation 1,955.25 1,689.11
Finance Costs (net) 21 617.94 422.67
Profit before Depreciation,
Prior Period Items and Taxation 1,337.31 1,266.44
Depreciation 631.04 482.10
Profit before Prior Period Items and Taxation 706.27 784.34
Prior period Items 22 22.81 88.36
Profit before Taxation 683.46 695.98
Tax Expenses
Current Tax (MAT Payable) 55.01 11.74
Reversal of Excess Tax Provision of earlier years (1.22) (3.39)
Deferred Tax 187.52 152.35
Fringe Benefit Tax 5.66 5.10
Profit after Taxation transferred to Balance Sheet 436.49 530.18

Earning per share (in Rupees) before prior period item

(Refer Note 9 of schedule 23)
Basic (Nominal value of Shares Rs. 10 each) 4.53 12.33
Diluted (Nominal value of Shares Rs. 10 each) 4.53 7.08
Earning per share (in Rupees) after prior period item
(Refer Note 9 of schedule 23)
Basic (Nominal value of Shares Rs. 10 each) 4.38 10.75
Diluted (Nominal value of Shares Rs. 10 each) 4.38 6.38

Notes to Accounts 23

Schedules 14 to 23 referred to above form an integral part of the Profit and Loss Account.

For and on behalf of the Board of Directors of Essar Steel Limited

As per our report of even date
S.R. BATLIBOI & CO. P. S. Ruia Robin Banerjee
Chartered Accountants Director Director Finance

per Hemal Shah V.G.Raghavan Vikram Amin

Partner Director Director Marketing
Membership No. 42650
Mumbai, July 06, 2007 Narottam B Vyas
Mumbai, June 29 , 2007 Company Secretary

21
Essar Steel Limited

Schedules forming part of Balance Sheet as at 31st March, 2007

As at As at
31st March, 2007 31st March, 2006
Rs. in Crores Rs. in Crores Rs. in Crores Rs. in Crores
Schedule 1
Share Capital
Authorised
352,00,00,000 Equity Shares of Rs. 10 each 3,520.00 3,520.00
6,00,00,000 0.01% Cumulative Convertible Preference Shares of Rs.90 each 540.00 540.00
6,00,00,000 1% Cumulative Redeemable Preference Shares of Rs.90 each 540.00 540.00
10,00,00,000 10% Cumulative Redeemable Preference Shares of Rs. 10 each 100.00 100.00
30,00,00,000 0.01% Cumulative Redeemable Preference Shares of Rs. 10 each 300.00 300.00
6,50,00,000 7% Compulsory Convertible Preference Shares of Rs. 350 each 2,275.00 2,275.00
7,275.00 7,275.00
Issued, Subscribed and Paid-up
113,98,10,888 (Previous Year 50,73,12,080) Equity Shares of Rs. 10 each
(Refer Note 25(b) of Schedule 23) 1,139.81 507.31
Add:Nil ( Previous Year 27,61,10,000) Equity Shares of
Rs. 10 each issued during the year - 276.11
Less: Nil (Previous Year 20,29,24,832) Reduction and conversion into 0.01%
Cumulative Redeemable Preference shares (CRPS) (Refer Note 26 of Schedule 23) - (202.92)
Add : 45,20,703 share Forfeited 0.67 0.67
1,140.48 581.17
20,29,24,832 0.01% Cumulative Redeemable Preference shares
(CRPS) of Rs.10 each. (Refer Note 25(a) of Schedule 23) 202.92 202.92
Nil (Previous Year 5,59,31,364) 7% Compulsory Convertible Preference
Shares (CCPS) of Rs.350 each. (Refer Note 25(b) of Schedule 23) - 1,957.60
4,35,98,951 10% Cumulative Redeemable Preference Shares
(CRPS) of Rs.10 each. (Refer Note 25(c) of Schedule 23) 43.60 43.60

1,387.00 2,785.29

Of the above:

(a) 39,87,538 Equity Shares of Rs. 10 each were allotted as fully paid up Bonus Shares by capitalisation of General Reserve.

(b) 1,50,000 Equity Shares of Rs. 10 each were allotted as fully paid up for consideration other than cash.

(c) 58,46,41,861 Equity shares of Rs. 10 each are held by Essar Steel Holding Ltd, Mauritius, the holding Company.

(d) 100 Equity Shares of Rs. 10 each are held by Essar Global Ltd, Cayman the ultimate holding company.

(e) 100 Equity Shares of Rs. 10 each are held by ETHL Global Capital Ltd, subsidiary of ultimate holding company.

(f) 25,50,00,000 Equity Shares of Rs. 10 each are held by Essar Power Ltd, subsidiary of ultimate holding company.

(g) 7,06,65,726 Equity Shares of Rs. 10 each are held by Teletech Investments (India) Ltd, subsidiary of ultimate holding company.

(h) 100 Equity Shares of Rs. 10 each are held by Essar Power holdings Ltd, subsidiary of ultimate holding company.

22
Schedules forming part of Balance Sheet as at 31st March, 2007

As at As at
31st March, 2007 31st March, 2006
Rs. in Crores Rs. in Crores Rs. in Crores Rs. in Crores
Schedule 2
Reserves and Surplus
Capital Reserve
Balance as per last Balance Sheet 12.73 12.73
Asset Revaluation Reserve
Balance as per last Balance Sheet - 0.07
Less: Amounts written back on sale of assets and as depreciation - (0.07)
- -
Securities Premium Account
Balance as per last Balance Sheet 91.77 1,418.61
Add: Additions during the year 1,398.28 220.89
Less: Deferred power charges (Refer Note 30 of Schedule 23) - (87.26)
Less: Recompense finance cost (Refer Note 30 of Schedule 23) - (104.17)
Less : Transfer to Profit and Loss Account (Refer Note below) - (1,356.30)
1,490.05 91.77
Debenture Redemption Reserve
Balance as per last Balance Sheet 15.00 340.64
Less: Transferred to Profit and Loss account (7.25) (340.64)
Add: Transferred from Profit and Loss Account 7.75 15.00
15.50 15.00
General Reserve
Balance as per last Balance Sheet 118.38 118.38
Profit and Loss Account
Balance brought forward from Previous Year 1,008.30 (1,203.82)
Add : Transfer from Securities Premium Account (Refer Note below) - 1,356.30
1,008.30 152.48
Add: Profit for the year transferred from Profit & Loss Account 436.49 530.18
Less: Transferred to Debenture Redemption Reserves (7.75) (15.00)
Add: Transferred from Debenture Redemption Reserves 7.25 340.64
1,444.29 1,008.30
3,080.95 1,246.18

Note :The company had as at 31.03.2005, in terms of a special resolution passed on 07.08.2004 and by virtue of the sanction granted
by the High Court of Gujarat on 01.02.2005, reduced the Share Capital by utilising a sum of Rs.1,356.30 Crores out of Rs.1,438.00
Crores standing to the credit of securities premium account towards “Profit and Loss account”, representing accumulated losses incurred
by the company till 01.04.2004. However, the impact of above court order was given as at 31.03.2005 through a contra entry adjustment
only in the financial statements and the final adjustment entry thereof was passed in the books of accounts as on 31.03.2006.

Schedule 3
Secured Loans
Non-convertible Debentures 155.00 300.00
Term Loans
From Banks
Foreign Currency Loans 1,260.48 698.06
Rupee Loans 3,190.94 3,653.66
4,451.42 4,351.72
From Financial Institutions & others
Foreign Currency Loans 476.07 718.40
Rupee Loans 190.02 360.57
666.09 1,078.97
Working Capital Loans from Banks 1,081.89 448.31
Buyers’ credit for Operational use 97.09 108.36
Buyers’ credit for Capital Expenditure 81.83 122.55
6,533.32 6,409.91

23
Essar Steel Limited

Schedules forming part of Balance Sheet as at 31st March, 2007

Notes:
1. Non-convertible Debentures are secured by the movable and immovable fixed assets of the company to the extent of Rs. 155 Crores (Previous
Year Rs.300 Crores) consist of the following:
As at As at
31st March, 31st March,
Redemption 2007 2006
From First Rs. in Crores Rs. in Crores
Particulars of Debentures Terms Installments Calendar year Installment
Nil (Previous Year 160 14% Debentures of Rs.100
each *( Rs.16,000)) - *
1,550 (Previous Year 3,000) 8.92%
(Previous Year 8 %) Secured Redeemable Non
Convertible Debenture of Rs. 10,00,000 each** At par Five 2007 2nd Year 155.00 300.00
155.00 300.00
** As part of the debentures have been prepaid during the year the next installment falls
due in the calendar year 2009

2. Details of securities for Term Loans are as under:

From Banks
Foreign Currency Loans
Secured by pari passu first charge on movable fixed assets, mortgage of immovable 854.97 398.34
properties and second charge on current assets of the Company.
Secured by mortgage of immovable property and first charge on all the other assets 93.18 108.95
of the Company except book debts.
Secured by pari passu first charge on movable fixed assets and mortgage of immovable 153.20 -
properties of the Company.
Priority debts, secured by pari passu first charge on movable fixed assets, mortgage of 29.65 34.73
immovable properties and second charge on current assets of the Company.
Priority debts, secured by pari passu first charge on movable fixed assets and mortgage 129.48 156.04
of immovable properties of the Company.
1,260.48 698.06
Rupee Loans
Priority debts, secured by pari passu first charge on movable fixed assets and mortgage 39.01 120.22
of immovable properties of the Company.
Secured by pari passu first charge on the fixed assets and second charge on current assets of - 17.75
the company and pledge of 15,00,00,000 Equity Shares of Rs. 10 each of Essar Power Limited
Secured by pari passu first charge on movable fixed assets, mortgage of immovable 2,360.12 2,461.76
properties and second charge on current assets of the Company.
Secured by mortgage of immovable property and first charge on all the other assets of the 748.24 1,035.93
Company except book debts.
Secured by mortgage of immovable property and first charge on all the other assets 43.57 -
relating to Service Centers at Bahadurgarh, Pune and Chennai.
Secured by pari passu first charge on the fixed assets and pledge of 2,65,517 - 18.00
equity shares of Rs.10 each and 1,77,012 0.01% cumulative redeemable preference
shares of Rs. 10 each of Essar Steel Ltd and 1,13,04,503 equity shares of 10 each of
Essar Shipping Ltd. held by Essar Investments Ltd.
3,190.94 3,653.66
From Financial Institutions & others
Foreign Currency Loans
Secured by pari passu first charge on movable fixed assets, mortgage of immovable 336.55 565.88
properties and second charge on current assets of the Company.
Secured by mortgage of immovable property and first charge on all the other assets 139.52 152.52
of the Company except book debts.
476.07 718.40
Rupee Loans
Secured by mortgage of immovable property and first charge on all the other assets 90.02 310.57
of the Company except book debts.
Secured by first and exclusive charge on immovable properties pertaining to Township 100.00 50.00
of the Company at Hazira Village, Surat District, Gujarat.
190.02 360.57
3. Working Capital Loans are secured by a first charge on the current assets and second charge on fixed assets of the company.
4. Buyer’s credit- operational use amounting to Rs. 97.09 Crores (Previous Year Rs.108.36 Crores) have been classified under the head Secured
Loans as relevant facilities are secured by first charge on the current assets and second charge on fixed assets of the Company.
5. Buyer’s credit - Capital Expenditure for capital project amounting to Rs. 81.83 Crores (Previous Year Rs. 122.55 Crores) have been classified
under the head Secured Loans as relevant facilities have a specific charge on the assets purchased under the said buyer’s credit.
6. Buyer’s credit shown in note no.4 & 5 above are also secured by Term/Margin deposits of Rs.114.58 Crores (Previous Year Rs. 94.83 Crores)
pledged with the banks.

24
Schedules forming part of Balance Sheet as at 31st March, 2007

As at As at
31st March, 31st March,
2007 2006
Schedule 4 Rs. in Crores Rs. in Crores
Unsecured Loans
Dollar / Rupee Notes (Due within one year Rs.4.29 Crores) * 298.61 307.35
Foreign Currency Loans from Foreign Banks - 8.97
Term Loan from a company - 34.28
Inter Corporate Deposit - Essar Investment Ltd (Due within one year Rs.50.00 Crores) 100.00 -
Bridge Loan from SBI - 275.00
Term Loan from Housing Development Finance Corporation Limited (Due within one year Rs.0.32 Crores) 0.82 1.10
Finance Lease obligation (Due within one year Rs.2.16 Crores) 10.49 10.55
Interest accrued and due - 13.21
409.92 650.46
Note:
* Rupee Notes aggregating to Rs.160.39 Crores (Previous Year Rs.164.68 Crores) is repayable up to March 31, 2018 carrying interest
@ 8% pa payable semi-annually. Dollar Notes aggregating to Rs.138.22 Crores (Previous Year Rs.141.67 Crores) is repayable on
March 31, 2018 carrying interest @ 0.25% pa payable semi-annually and balance amount of Rs. NIL (Previous Year Rs. 1 Crore) is
to be settled.
Schedule 5
Fixed Assets Rs. in Crores
Gross Block Depreciation Net Block
Description As at As at As at For the On As at As at As at
01.04.2006 Additions Deletions 31.03.2007 01.04.2006 Year deletions 31.03.2007 31.03.2007 31.3.2006
Freehold Land 57.11 29.70 - 86.81 - - - - 86.81 57.11
Buildings 898.10 275.49 0.30 1,173.29 311.48 64.12 0.13 375.47 797.82 586.62
Plant and Machinery 9,354.26 2,799.55 - 12,153.81 3,657.40 554.30 - 4,211.70 7,942.11 5,696.86
Furniture and Fixtures 24.13 3.07 - 27.20 17.25 1.82 - 19.07 8.13 6.88
Office Equipment 55.32 7.09 15.15 47.26 39.36 5.23 15.07 29.52 17.74 15.96
Vehicles 7.48 1.08 0.55 8.01 5.21 0.70 0.33 5.58 2.43 2.27
Ships and Vessels 0.46 6.67 - 7.13 0.29 0.34 - 0.63 6.50 0.17
Railway Sidings
and Wagons 30.69 - - 30.69 16.80 1.50 - 18.30 12.39 13.89
Aircraft 19.99 - - 19.99 1.30 3.03 - 4.33 15.66 18.69
10,447.54 3,122.65 16.00 13,554.19 4,049.09 631.04 15.53 4,664.60 8,889.59 6,398.45
Previous year * 6,940.24 3,731.01 223.71 10,447.54 3,691.34 500.93 143.18 4,049.09 6,398.45
* Addition in Previous year includes Rs.1,200.39 Crores of assets taken over on amalgamation.
Notes:
1. Additions to fixed assets / capital work-in-progress include adjustments on account of foreign exchange gain of Rs.0.80 Crore
(Previous year loss of Rs. 23.29 Crores ).
2. Land and Buildings includes certain properties under possession of the Company in respect of which the registration formalities are
being completed.
3. Plant and Machinery include the Company’s share in the cost of Singanpur Weir and 220 KV Power Line amounting to Rs. 23.44
Crores, which was amortised over a period of five years (Current WDV Rs.Nil, Previous Year WDV Rs.Nil).
4. Railway Sidings and Wagons include railway wagons (at cost) of Rs. 17.92 Crores given on lease to Railway Authorities under ‘Own
your Wagon’ scheme.(Current WDV Rs.6.64 Crores, Previous Year WDV Rs 7.49 Crores).
5. Plant and Machinery include Jetty of Rs. 108.35 Crores (at Cost), Net book value Rs. 17.07 Crores (Previous Year Rs 25.91 Crores)
the ownership of which has been claimed by Gujarat Maritime Board (GMB). The Company has disputed such claims.
6. Plant and Machinery include equipments at Retail outlet of Rs. 2.14 Crores given on lease and its accumulated depreciation is
Rs.0.24 Crore (Previous Year Rs.0.11 Crore). Depreciation on this has been debited to Profit & loss account Rs. 0.13 Crore (Previous
Year Rs.0.09 Crore).
7. Aircraft includes B200 Aircraft Beech Super King Air taken on finance lease :
(Refer note 7 of Schedule 23)
Gross Book Value Rs. 10.91 Crores (Previous Year : Rs. 10.91 Crores).
Net Book Value Rs. 8.16 Crores (Previous Year : Rs. 9.73 Crores).
8. Details of Depreciation are as follows :
Rs. In Crores
Particulars 31.03.07 31.03.06
Depreciation for the year as above 631.04 500.93
Less : Trial run depreciation capitalised - (18.76)
Less : Transferred from Asset Revaluation Reserve - (0.07)
Depreciation as per Profit and Loss Account 631.04 482.10

25
Essar Steel Limited

Schedules forming part of Balance Sheet as at 31st March, 2007

As at As at
31st March, 2007 31st March, 2006
Rs. in Crores Rs. in Crores Rs. in Crores Rs. in Crores
Schedule 6
Investments
Long Term Investments (at cost)
Trade - Quoted
1,64,000 fully paid Equity Shares of Rs.10 each
of Remi Metal Gujarat Limited 0.16 0.16
0.16 0.16
Trade - Unquoted
2,50,000 fully paid Equity Shares of Rs.10 each of
Frontline Roll Forms Private Limited 0.25 0.25
21,70,00,000 (Previous Year 15,56,10,000) fully paid
Equity Shares of Rs.10 each of Essar Power Limited
(Refer note 27 of schedule 23) 217.00 155.61
9,65,00,000 (Previous Year Nil ) fully paid Equity Shares
of Rs.10 each of Bhander Power Limited 100.19 -
9,81,80,500 fully paid Equity Shares of
Rs.10 each of Essar Steel (Hazira) Limited 98.18 -
415.62 155.86
Other than Trade - Quoted
2,11,000 (Previous Year 32,63,000) fully paid
Equity Shares of Rs.10 each of Essar Oil Limited
(Refer note 12 of schedule 23) 0.90 13.97
0.90 13.97
Other than Trade - Unquoted
12,26,300 fully paid 14% Secured Redeemable Non
Convertible Debentures of Rs. 105 each of Essar Oil Limited 12.88 12.88
2,600 (Previous Year NIL) Equity Shares of Essar Telecom
Infrastructure Pvt. Ltd.of Rs.10 Each(@ Rs.26,000) @ -
20 fully paid Equity Shares of Rs. 10 each of
Essar Commvision Limited (# Rs.200) # #
12.88 12.88
Current Investments
Unquoted
643 fully paid Units of US 1964 Scheme of Rs. 10 each of
Unit Trust of India (* Rs. 8,314) * *
- -
Investment in Subsidiary Companies
49,940 fully paid Equity Shares of Rs. 10 each of Essar Steel
Jharkhand Limited. 0.05 0.05
Nil (Previous Year 49,940) fully paid Equity Shares of
Rs. 10 each of Essar Steel (Chattisgarh) Limited. - 0.05
49,940 (Previous Year NIL) fully paid
Equity Shares of Rs. 10 each of Essar Steel Orissa Limited. 0.05 -
1 (Previous Year NIL) fully paid Equity Shares of
AED 3 million of Essar Steel Trading FZE Dubai. 3.77 -
3.87 0.10
433.43 182.97
Aggregate amount of Quoted Investments (Aggregate Market
Value Rs.1.18 Crores - Previous Year Rs. 13.40 Crores) 1.06 14.13
Aggregate amount of Unquoted Investments 432.37 168.84
433.43 182.97

Note:- The following units were purchased and sold during the year.
Name of Mutual Fund Purchase Dividend Redemption Closing Balance
Qty Rs.in Crores Qty Rs.in Crores Qty Rs.in Crores Qty Rs.in Crores
LIC MF Liquid Fund -
Dividend Plan 227,861,045 250.00 78,615 0.10 227,939,660 250.10 - -
DSP Merrill Lynch
Liquidity Fund 499,900 50.00 - 0.02 499,900 50.02 - -
(There was no opening balance of units as at 1st April 2006)

26
Schedules forming part of Balance Sheet as at 31st March, 2007

As at As at
31st March, 2007 31st March, 2006
Rs. in Crores Rs. in Crores Rs. in Crores Rs. in Crores
Schedule 7
Deferred Tax Assets (Net)
(Refer note 5 of schedule 23)
Deferred Tax Assets
Unabsorbed depreciation and carry forward losses 1,061.95 1,215.74
Provision for doubtful debts 1.23 8.52
Provision for doubtful advances 4.07 5.15
Deferred power charges 40.24 44.28
Other timing differences (disallowances under section 43 B 87.76 82.58
of the Income tax Act, 1961)
1,195.25 1,356.27
Less: Deferred Tax Liabilities
Fixed Assets (excess of net book value over written down value
as per the provisions of the Income tax Act, 1961) 931.21 867.86
Pre-Operative expenses included in capital work in progress 10.03 45.82
Prepaid lease rentals 15.78 16.84
957.02 930.52
Deferred Tax Assets (Net) 238.23 425.75

Schedule 8
Inventories (at lower of cost or net realisable value)
Raw Materials [including stock in transit Rs. 84.02 Crores
(Previous Year Rs. 57.87 Crores)] 528.84 651.87
Production Consumables, Stores and Spares [including stock in
transit Rs. 67.45 Crores (Previous Year Rs. 66.85 Crores)] 594.97 501.31
Work-in-Progress * 677.72 93.47
Finished Goods 527.10 238.69
Traded Goods 0.14 -
2,328.77 1,485.34
* Includes Iron Ore Pellets & Iron Ore Concentrate 11,09,955 MT valued at Rs.432.03 Crores and Coils 56,405 MT valued at Rs.128.48
Crores in the current year which were classified as Raw Material & Finished goods respectively before amalgamation of Hy-Grade Pellet
Limited and Steel Corporation of Gujarat Limited.

Schedule 9
Sundry Debtors
(Unsecured)
Trade (Refer note 29 (i) of schedule 23)
Debts outstanding for a period exceeding six months
Considered Good 44.71 93.47
Considered Doubtful 3.13 24.93
Less: Provision for Doubtful Debts 3.13 24.93
44.71 93.47
Other debts - Considered Good 294.52 174.06
339.23 267.53
Others
Debts outstanding for a period exceeding six months
Considered Good 187.56 9.64
Considered Doubtful 0.54 0.52
Less: Provision for Doubtful Debts 0.54 0.52
187.56 9.64
Other debts - Considered Good 20.06 262.99
207.62 272.63
546.85 540.16
Schedule 10
Cash and Bank Balances
Cash and Cheques on Hand 0.07 0.05
Balances with Scheduled Banks (Refer Note 31 of Schedule 23)
on Current Accounts 42.35 13.42
on Margin Deposit Accounts 9.37 19.53
on Term Deposit Accounts 380.26 691.25
431.98 724.20
Balances with other than Scheduled Banks -
RZB Austria Singapore - Maximum amount oustanding is
Rs.3.69 Crores (Previous year Rs.3.72 Crores) 0.81 1.54
432.86 725.79

27
Essar Steel Limited

Schedules forming part of Balance Sheet as at 31st March, 2007

As at As at
31st March, 2007 31st March, 2006
Rs. in Crores Rs. in Crores Rs. in Crores Rs. in Crores
Schedule 11
Loans and Advances
(Unsecured, Considered Good unless otherwise stated)
Loans & Advances to Subsidiaries & Associates
(Refer note 29 (iii) of schedule 23) 46.17 -
Advances recoverable in cash or in kind or for value to be received
(Refer note 13 and 29 (ii) of schedule 23)
Considered Good 571.45 555.59
Considered Doubtful 12.08 15.97
583.53 571.56
Less: Provision for Doubtful Advances 12.08 15.97
571.45 555.59
Export Incentive Receivable 245.96 244.22
Balances with excise and customs 71.56 132.23
Deposit others
Considered Good 149.28 152.23
Considered Doubtful 0.08 0.08
220.92 284.54
Less: Provision for Doubtful Deposits 0.08 0.08
220.84 284.46
Income Tax paid / deducted at source (net of provision of
Rs. 13.80 Crores in Previous Year) - 33.44
1,084.42 1,117.71

Schedule 12
Liabilities
Acceptances
for Capital Expenditure 359.21 373.51
for Goods and Expenses 777.06 660.44
1,136.27 1,033.95
Sundry Creditors (Refer Note 11 & 28 of Schedule 23)
Small Scale Industrial Undertakings
for Capital Expenditure 0.67 1.05
for Goods and Expenses 3.22 2.27
3.89 3.32
Others (Refer Note 28 of Schedule 23)
for Capital Expenditure 92.36 200.82
for Goods and Expenses 1,470.28 867.85
1,562.64 1,068.67
1,566.53 1,071.99
Other Liabilities 334.73 152.68
Advance from Customers 395.82 209.95
Interest accrued but not due 19.92 19.12
3,453.27 2,487.69
Schedule 13
Provisions
Provision for leave encashment 7.83 5.22
Provision for Gratuity 6.81 3.52
Provision for Income Tax (Net of Tax paid /
deducted at source Rs. 67.62 Crores) 1.19 -
Provision for Fringe Benefit Tax [Net of Payment
Rs.5.93 Crores(Previous Year Rs.4.77 Crores)] - 0.33
Provision for Indirect Tax Matter (Refer Note 32 of Schedule 23)* 19.73 -
35.56 9.07
*Amount provided during the year.

28
Schedules forming part of the Profit and Loss Account for the Year Ended 31st March, 2007

Year Ended Year Ended

31st March, 2007 31st March, 2006
Rs. in Crores Rs. in Crores Rs. in Crores Rs. in Crores
Schedule 14
Other Income
Dividend on Current Investments 0.12 0.78
Rent 4.07 0.35
Profit on sale of Fixed Assets (net) 0.05 178.39
Profit on sale of Current Investments - 0.08
Profit on sale of Long Term Investments 4.07 16.58
Liabilities/Provision no longer required written back (Net) 7.56 0.05
Miscellaneous Income 3.35 11.91
19.22 208.14

Schedule 15
Materials Consumed
Opening stock 651.87 341.78
Add: Purchase 2,430.71 1,911.56
Less: Closing stock 528.84 651.87
Raw Material consumed 2,553.74 1,601.47
Production Consumables, Stores and Spares 1,040.94 737.97
Petroleum Products - Fuel 2,046.19 1,371.92
Excise Duty* 106.87 13.92
5,747.74 3,725.28

* Represents differential excise duty in respect of closing stock & opening stock, excise duty on captive consumption etc.

Schedule 16
Decrease/(Increase) in Stocks
Opening Stock
Finished Goods 238.69 194.28
Add : Taken over on amalgamation - 7.81
Work-in-Progress 93.47 40.33
332.16 242.42
Closing Stock
Finished Goods 527.10 238.69
Work-in-Progress 677.72 93.47
1,204.82 332.16
(872.66) (89.74)

Schedule 17
Personnel Expenses
Salaries, Wages and Bonus [including operating lease rent of
Rs.3.02 Crores (Previous Year Rs. 3.89 Crores)] 122.03 80.05
Contribution to Provident Fund and Other Funds 11.51 5.93
Staff Welfare Expenses 16.88 12.89
Director’s Remuneration (Refer Note 18 of Schedule 23) 2.38 0.88
152.80 99.75
Schedule 18
Manufacturing and Asset Maintenance
Power and Water Charges 503.22 424.98
Repairs and Maintenance
Plant and Machinery 78.54 66.36
Buildings 25.78 28.19
Others 4.88 4.14
109.20 98.69
Plant and Equipment Hire Charges 27.18 12.45
Labour and Sub Contract Charges 93.70 54.78
Insurance 12.74 10.43
746.04 601.33

29
Essar Steel Limited

Schedules forming part of the Profit and Loss Account for the Year Ended 31st March, 2007

Year Ended Year Ended

31st March, 2007 31st March, 2006
Rs. in Crores Rs. in Crores Rs. in Crores Rs. in Crores
Schedule 19
Administrative Expenses
Traveling and Conveyance Expenses 34.38 29.40
Postage, Telephone and Fax 7.14 6.19
Printing and Stationery 1.93 1.49
Professional Fees 34.80 41.72
Operating Lease Rent 7.87 0.59
Rent, Rates and Taxes [includes wealth tax provision 2.85 5.80
Rs. 0.14 Crore (Previous Year Rs. 0.14 Crore)]
Auditors’ Remuneration (Refer note 19 of schedule 23) 1.23 1.75
Directors’ Sitting Fees 0.03 0.04
Vehicle Hire and Maintenance Charges 16.38 14.19
Service charges 1.10 2.55
Provision for doubtful advances - 0.56
Write off for doubtful investment - 0.50
Loss/Reversal of profit on sale of long term investments (Refer note 27 of schedule 23) 14.73 0.88
Miscellaneous Expenses 23.70 25.00
146.14 130.66

Schedule 20
Selling and Distribution Expenses
Commission 197.05 150.59
Freight Outward 137.32 79.45
Discount 0.65 1.83
Other Selling Expenses 2.11 3.03
Bad Debts written off 22.91 51.57
Provision for Doubtful Debts (net) (21.78) 1.13 (52.14) (0.57)
338.26 234.33
Schedule 21
Finance Cost (net)
Plant and Equipment Lease Rentals 13.81 14.02
Guarantee and Other Bank Charges 96.93 76.35
Exchange Variation (net) (50.38) 21.22
Interest
on Term Loans 373.86 274.80
on Debentures 18.41 58.89
to Banks and Others 242.62 112.79
634.89 446.48
695.25 558.07
Less:
Interest on advances, deposits, customers’ balances,
income-tax refund, etc. [Tax deducted at source Rs. 9.00 Crores
- Previous Year Rs.2.70 Crores)] 52.29 25.52
Gain on settlement of debts - 98.46
Gain on cancellation of Forward Exchange
Contracts (Net of Premium paid / Amortised) 25.02 77.31 11.42 135.40
617.94 422.67

Schedule 22
Prior Period Items
Finance Cost 3.59 20.24
Sales tax and interest thereon on sale & lease back transaction - 29.50
Raw Materials (Freight) 19.22 35.35
Others - 3.27
22.81 88.36

30
Schedules forming part of Balance Sheet as at 31st March, 2007
Schedule 23
Notes to Accounts
1. Nature of Operations
The Company has an integrated steel manufacturing unit of
flat rolled products. The Company’s plant at Hazira produces
high quality steel, that gives it an Internationally competitive
edge. Being a port based fully integrated plant, the Company
enjoys advantages in raw material intake and finished goods
despatch. Company has benefication plant at Kirandul and
pelletisation plant at Vizag.
2. Statement of Significant Accounting Policies
(a) Basis of preparation
The financial statements have been prepared to comply
in all material aspect with the mandatory Accounting
Standards issued by the Institute of Chartered
Accountants of India and the relevant provisions of the
Companies Act, 1956. The financial statements have been
prepared under the historical cost convention on an
accrual basis. The accounting policies have been
consistently applied by the Company and are consistent
with those used in the previous year.
(b) Use of Estimates
The preparation of financial statements in conformity with
Generally Accepted Accounting Principles requires
management to make estimates & assumptions that effect
the reported amounts of Assets & Liabilities and disclosure
of contingent liabilities at the date of financial statements
& result of operations during the reported year.
(c) Fixed Assets
Fixed assets are stated at cost (or revalued amounts, as
the case may be), less accumulated depreciation and
impairment losses if any. Cost comprises the purchase
price and any attributable cost of bringing the asset to its
working condition for its intended use. Borrowing costs
relating to acquisition of fixed assets which takes
substantial period of time to get ready for its intended use
are also included to the extent they relate to the period till
such assets are ready to be put to use.
(d) Capital Work-in-Progress
All expenditure, including advances given and interest
cost during the project construction period, are
accumulated and disclosed as capital work-in-progress
until the assets are ready for commercial use. Assets
under construction are not depreciated. Income earned
from investments of surplus borrowed funds during the
construction/trial run period is reduced from capital work-
in-progress. Expenditure/income arising during trial run is
added to/reduced from capital work-in-progress.
(e) Expenditure on substantial expansion
All direct capital expenditure on expansion are capitalised.
As regards indirect expenditure on expansion, only that
portion is capitalised which represents the marginal
increase in such expenditure involved as a result of capital
expansion. Both direct and indirect expenditure are
capitalised only if they increase the value of the asset
beyond its original standard of performance.
(f) Depreciation
Fixed assets are depreciated at the rates and in the
manner specified in Schedule XIV of the Companies Act,
1956 on written down value method, except for plant and
machinery and railway sidings which are depreciated on
a straight line basis. Depreciation in respect of revalued
assets is recouped from revaluation reserve. Depreciation
on additions to / deletions from fixed assets is provided
on pro-rata basis from / up to the date of such addition /
31
deletion as the case may be. Depreciation on additions to
assets due to exchange variation, forward cover premium
charges, etc. is provided over the remaining useful life of
the assets.
(g) Impairment of Assets
(i) The carrying amounts of assets are reviewed at each
balance sheet date if there is any indication of
impairment based on internal/external factors. An
impairment loss is recognized wherever the carrying
amount of an asset exceed its recoverable amount.
The recoverable amount is the greater of the assets
net selling price and value in use. In assessing value
in use, the estimated future cash flows are discounted
to their present value at the weighted average cost
of capital.
(ii) After impairment, depreciation is provided on the
revised carrying amount of the assets over its
remaining useful life.
(h) Revenue Recognition
Revenue is recognised to the extent that it is probable
that the economic benefits will flow to the company and
the revenue can be reliably measured.
Sale of Goods
Revenue is recognised when the significant risks and
rewards of ownership of the goods have passed to the
buyer. Sales is disclosed net of quality claims and rebates.
Excise Duty deducted from turnover (gross) is the amount
of excise duty that is included in the amount of turnover
(gross).
Export Benefits
Export benefits under duty entitlement passbook scheme,
target plus and duty free replenishment scheme is accrued
wherever ascertainable.
Interest
Revenue is recognised on a time proportion basis taking
into account the amount outstanding and the rate
applicable.
Dividends
Revenue is recognised when the shareholders’ right to
receive payment is established by the balance sheet date.
Dividend from subsidiaries is recognised even if same are
recognised after the balance sheet date but pertains to
period on or before the date of balance sheet as per the
requirement of schedule VI of the Companies Act, 1956.
(i) Taxes on Income
Tax expense comprises of current, deferred and fringe
benefit tax. Current income tax and fringe benefit tax is
measured at the amount expected to be paid to the tax
authorities in accordance with the Indian Income Tax Act.
Deferred income taxes reflects the impact of current year
timing differences between taxable income and
accounting income for the year and reversal of timing
differences of earlier years.
Deferred tax is measured based on the tax rates and the
tax laws enacted or substantively enacted at the balance
sheet date. Deferred tax assets are recognised only to
the extent that there is reasonable certainty that sufficient
future taxable income will be available against which such
deferred tax assets can be realised. If the company has
carry forward of unabsorbed depreciation and tax losses,
deferred tax assets are recognised only if there is
reasonable certainty that such deferred tax assets can
be realised against future taxable profits. Unrecognised
deferred tax assets of earlier years are re-assessed and
recognised to the extent that it has become reasonably
Essar Steel Limited
certain that future taxable income will be available against
which such deferred tax assets can be realised.
(j) Inventories
Raw Materials, Production Consumables, Stores and
Spares is valued at lower of cost and net realizable value.
However, materials other than items held for use in the
production of inventories are not written down below cost
if the finished products in which they will be incorporated
are expected to be sold above cost. Cost is determined
on a First in first out (FIFO) basis.Work -in-progress and
finished goods is valued at lower of cost and net realisable
value. Cost includes direct material and labour and a
proportion of manufacturing overheads based on normal
capacity. Finished goods also include excise duty. Net
realizable value is the estimated selling price in the ordinary
course of business less estimated cost of completion and
to make the sale.
(k) Investments
Investments that are readily realisable and intended to
be held for not more than a year are classified as current
investments. All other investments are classified as long-
term investments. Current investments are carried at lower
of cost and fair value determined on an individual
investment basis. Long-term investments are carried at
cost. However, provision for diminution in value is made to
recognise a decline other than temporary in the value of
the investments.
(l) Foreign Currency Transactions
Initial Recognition
Foreign currency transactions are recorded in the
reporting currency, by applying to the foreign currency
amount the exchange rate between the reporting currency
and the foreign currency at the date of the transaction.
Conversion
Foreign currency monetary items are reported using the
closing rate. Non-monetary items which are carried in terms
of historical cost denominated in a foreign currency are
reported using the exchange rate at the date of the
transaction; and non-monetary items which are carried at
fair value or other similar valuation denominated in a foreign
currency are reported using the exchange rates that
existed when the values were determined.
Exchange Difference
Exchange differences arising on the settlement of
monetary items at rates different from those at which they
were initially recorded during the year, or reported in
previous financial statements, are recognised as income
or as expenses in the year in which they arise. Exchange
differences arising in respect of fixed assets acquired
from outside India are capitalized as a part of fixed asset.
Exchange differences on liability relating to fixed assets
acquired within India arising out of transactions entered
on or before March 31, 2004 are added to the cost of
such assets in line with Old Accounting Standard 11 (1994).
Forward Exchange Contracts not intended for trading or
speculation purposes
The premium or discount arising at the inception of forward
exchange contracts is amortised as expense or income
over the life of the contract. Exchange differences on
such contracts are recognised in the statement of profit
and loss account in the year in which the exchange rates
change. Any profit or loss arising on cancellation or renewal
of forward exchange contract is recognised as income or
as expense for the year.
(m) Earnings Per Share
Basic earnings per share are calculated by dividing the
net profit or loss for the period attributable to equity
shareholders (after deducting preference dividends and
attributable taxes) by the weighted average number of
32
equity shares outstanding during the period. Partly paid
equity shares are treated as a fraction of an equity share
to the extent that they were entitled to participate in
dividends relative to a fully paid equity share during the
reporting period. The weighted average number of equity
shares outstanding during the period are adjusted for
events of bonus issue; bonus element in a rights issue to
existing shareholders; share split; and reverse share split
(consolidation of shares).
For the purpose of calculating diluted earnings per share,
the net profit or loss for the period attributable to equity
shareholders and the weighted average number of shares
outstanding during the period are adjusted for the effects
of all dilutive potential equity shares.
(n) Provisions
A provision is recognised when an enterprise has a present
obligation as a result of past event; it is probable that an
outflow of resources will be required to settle the obligation,
in respect of which a reliable estimate can be made.
Provisions are not discounted to its present value and
are determined based on best estimate required to settle
the obligation at the balance sheet date. These are
reviewed at each balance sheet date and adjusted to
reflect the current best estimates.
(o) Cash and Cash equivalents
Cash and cash equivalents in the balance sheet comprise
cash in hand and at bank in current account. Margin
deposit and term deposit are considered as cash
equivalent.
(p) Derivative Instruments
The Company uses derivative financial instruments such
as forward exchange contracts and interest rate swaps to
hedge its risks associated with foreign currency
fluctuations and interest rate. Accounting policy for forward
exchange contracts is given in note (l).
(q) Retirement and other employee benefits
Retirement benefits in the form of Provident Fund and
Superannuation Schemes are charged to the Profit and
Loss Account of the year when the contributions to the
respective funds are due. There are no other obligations
other than the contribution payable to the respective trusts.
Superannuation is funded by payments to Life Insurance
Corporation of India (LIC).
Gratuity liability under the Payment of Gratuity Act and
provision for leave encashment is accrued and provided
for on the basis of an actuarial valuation made at the end
of each financial year. Gratuity is funded by payments to
Life Insurance Corporation of India (LIC).
(r) Central Value Added Tax (CENVAT)
CENVAT claimed on capital goods is reduced from the
cost of plant and machinery/capital work-in-progress.
CENVAT claimed on purchases of raw material and other
materials is reduced from the cost of such materials.
(s) Leases
(i) Where the Company is the Lessee
Lease rentals in respect of finance lease
arrangements entered up to 31st March, 2001 are
segregated into cost of the asset and interest
components by applying an implicit internal rate of
return. The cost component is amortised over the
useful life of the asset and the interest component is
recognised in the Profit and Loss Account. Lease
payments in excess of the charge for the year are
treated as prepaid lease rentals wherever agreement
is existing and in other cases it has been added to
the carrying cost of the fixed assets.
Finance leases entered on or after 1st April, 2001,
which effectively transfer to the Company substantially
 all the risks and benefits incidental to ownership of Leases where the lessor effectively retains
the leased item, are capitalized at the lower of the fair substantially all the risks and benefits of ownership
value and present value of the minimum lease of the leased term, are classified as operating leases.
payments at the inception of the lease term and Operating lease payments are recognized as an
disclosed as leased assets. Lease payments are expense in the Profit and Loss account on a straight-
apportioned between the finance charges and line basis over the lease term.
reduction of the lease liability based on the implicit (ii) Where the Company is the Lessor
rate of return. Finance charges are charged directly
Assets subject to operating Lease are included in
against income. Lease management fees, legal
fixed assets. Lease Income is recognised in the Profit
charges and other initial direct costs are capitalised.
and Loss account on a straight line basis over the
If there is no reasonable certainty that the Company long term. Costs including depreciation are recognised
will obtain the ownership by the end of the lease as an expense in the Profit and Loss account. Initial
term, capitalized leased assets are depreciated over direct costs such as legal costs, brokerage costs, etc
the shorter of the estimated useful life of the asset or are recognised immediately in the Profit and Loss
the lease term. account.
As at As at
31st March, 2007 31st March, 2006
(Rs. Crores) (Rs. Crores)
3. Contingent Liabilities not provided for
(i) (a) Bills discounted 48.69 135.69
(b) Claims against the company not acknowledged as debts [including amount
already paid Rs. 14.67 Crores (Previous year Rs. 158.24 Crores) of which
Rs.14.67 Crores (Previous year Rs. 120.40 Crores) has been disclosed
under Loans and Advances after adjusting the credit balances of Rs. NIL
(Previous year Rs.37.84 Crores)] 653.10 646.08
(c) Disputed Sales tax matters
Claims against the company not acknowledged as debts [including
amount already paid Rs 217.48 Crores (Previous year Rs. 89.62 Crores) 664.72 1,420.32
(d) Guarantees given to various banks, financial institutions, finance
companies, etc. on behalf of others [Balance outstanding as on 31.03.07
is Rs. 1212.62 Crores (previous year Rs. 957.46 Crores)] 1,340.68 1,136.65
(ii) Proposed dividend liability on Cumulative Preference Shares 10.24 129.90
4. (a) Estimated amount of contracts remaining to be executed on capital
account and not provided 457.35 996.68
(b) Custom duty on pending export obligation under EPCG scheme 337.07 351.84
5. The Company is of the view that Net Deferred Tax Assets of Rs.238.23 Crores (Previous Year Rs. 425.75 Crores) will be fully utilised
in the years to come and it has recognised the same based on all relevant facts such as uptrend in global and domestic steel
industry, increased production capacity, backward and forward integration by acquisition and past results exceeding the projections
made, improved margins, consistent profits made in the last five years.
6 Segment Information
Primary Business Segment
The Company is primarily engaged in a single business segment of manufacture and sale of steel, and accordingly, this is the only
primary reportable segment.
Geographical Segments
Secondary segmental reporting is based on the geographical location of customers. The geographical segments have been
disclosed based on revenues within India (sales to Customers within India) and revenues outside India (sales to customers located
outside India). Secondary segment assets and liabilities are based on the location of such asset/liability.
Information about Secondary Geographical Segments
Rs. Crores
Segment information Year Ended 31st March, 2007 Year Ended 31st March, 2006
India Outside Total India Outside Total
India India
Revenue (Income from operation) 6,012.38 2,988.08 9,000.46 4,921.77 1,928.68 6,850.45
Carrying amount of segment assets 14,889.92 176.52 15,066.44 13,590.84 177.20 13,768.04
Carrying amount of segment liabilities 8,003.53 2,594.96 10,598.49 9,033.49 703.08 9,736.57
Additions to fixed assets (including assets taken
over on amalgamation during the previous year) 3,122.65 - 3,122.65 3,731.01 - 3,731.01
7. Leases
Finance lease
Aircraft is obtained on finance lease. The lease term is for 5 years and renewable for further period after which the legal title is passed
to the lessee. There is no escalation clause in the lease agreement. There are no restrictions imposed by lease arrangements. There
are no subleases.
Operating lease
Residential Houses for staff accomodation are obtained on operating lease. Lease rent is payable as per the lease term. The lease
rent term is generally for 11 months and renewable for a further period at the option of the Company. There is no escalation clause
in the lease agreement. There are no restrictions imposed by lease arrangements. There are no subleases.

33
Essar Steel Limited

Year Ended Year Ended

31st March, 2007 31st March, 2006
(Rs. Crores) (Rs. Crores)
Finance Operating Finance Operating
lease lease lease lease

(i) Assets taken on finance lease on or after 01.04.2001

Total minimum lease payments at the year end 9.54 - 12.41 -
Less : amount representing finance charges 1.43 - 2.33 -
Present value of minimum lease payments (Rate of interest : 9.50% p.a.) 8.11 - 10.08 -
Lease payments for the year 2.86 11.99 1.43 4.48
Contingent rent recognised in Profit and Loss Account - - - -
Minimum Lease Payments :
Not later than one year [For finance lease:Present value Rs.2.16 Crores
as on 31.03.07] 2.86 - 2.87 -
Later than one year but not later than five years [For finance
lease:Present value Rs.5.95 Crores as on 31.03.07] 6.68 - 9.54 -
Later than five years [For finance lease : Present
value Rs. NIL as on 31.03.2007] - - - -
(ii) Future lease obligation for Assets taken on finance
leases prior to 01.04.2001 8.51 - 13.46 -
8. Disclosure of related party transactions as required by Accounting Standard - 18 Related Party Disclosures:
(a) Holding Company
1 Essar Steel Holdings Limited, Mauritius
2 Essar Global Limited, Cayman – Holding Company of Essar Steel Holdings Limited
(b) Subsidiary
1 Essar Steel (Jharkhand) Limited (ESJL)
2 Essar Steel (Orissa) Limited (ESOL)
3 Essar Steel Trading (FZE), Dubai
(c) Fellow Subsidiary
1 Essar Steel (Chattisgarh) Limited (ESCL)
2 Hazira Plate Limited (HPLT)
3 Essar Oil Limited (EOL)
4 Essar Logistics Limited (ELL)
5 Essar Shipping Limited (ESL)
6 Essar Construction Limited (ECL)
7 ETHL Global Capital Limited(ETHL)
8 Essar SEZ Hazira Limited (Essar SEZ)
(d) Associates
1 Essar Power Limited. (EPOL)
2 Bhander Power Limited. (BPOL)
3 Essar Telecom Infrastructure Pvt Limited
4 Essar Steel (Hazira) Limited (ESHL)
(e) Key Management Personnel
1 Mr. Prashant S Ruia, Managing Director*
2 Mr. Vikram Amin, Director (Marketing) (VA)
3 Mr. V.G.Raghavan, Director (Finance) (VGR)**
4 Mr Robin Banerjee, Director (Finance) (RB)***
* Ceased to be Managing Director w.e.f 29th October, 2006
** Ceased to be Director Finance w.e.f 31st January, 2007
*** Appointed as Director Finance w.e.f 1st February, 2007
(f) Individuals owning, directly or indirectly, an interest in the voting power that gives them control or significant influence
1 Mr. Shashi Ruia, Chairman
2 Mr. Ravi Ruia, Vice Chairman
3 Mr. Prashant S Ruia, Director
4 Mr. Anshuman S. Ruia
5 Mr. Rewant Ruia, Director
(g) Enterprises commonly controlled or influenced by major shareholders/directors/Key management personnels of the company
1 Click For Steel Services Limited (CFS) 10 Aegis BPO Service Limited (AEGIS)
2 Essar Agrotech Limited (EAL) 11 PT Essar Indonesia (PTEI)
3 Essar House Limited (EHL) 12 S.G. Chemicals & Dyes Trading Limited
4 Essar Information Technology Limited (EITL) 13 Imperial Consultants Pvt Limited (ICPL)
5 Essar Investment Limited (EIL) 14 Essar House Services Limited (EHSL)
6 Essar Projects Limited (EPL) formerly known as Essar World Trade Limited
7 Essar Properties Limited (EPRL) 15 Asia Motor Works(AMW)
8 Futura Travels Limited (FTL) 16 Essar USA
9 India Securities Limited (ISL) 17 Teletech Investments (India) Limited

34
During the period, following transactions were carried out with some of the related parties in the ordinary course of business:
(excluding reimbursement)

Individuals owning,
directly or indirectly,
Enterprises commonly an interest in
Controlled or the voting power
influenced by major that gives them
shareholders Key control or
Fellow /directors of Management significant
Holding Subsidiary Subsidiary Associates the company Personel influenced
Rs.Crores Rs. Crores Rs.Crores Rs. Crores Rs. Crores Rs. Crores Rs. Crores
(a) Sale of Goods - - 121.82 2.80 387.15 - -
- - (182.65) (0.29) (533.82) - -
(b) Income-Lease Rentals/Rent building (Essar SEZ) - - 2.28 - - - -
(EOL & BPOL) - - (0.06) (0.14) - - -
(c) Interest Income-Others - - 9.11 - - - -
- - (2.36) - (1.63) - -
(d) Miscellaneous Income - - 2.61 - - - -
- - - - (5.71) - -
(e) Profit on sale of Invesment/fixed assets - - - - - - -
- - - - (0.02) - -
(f) Conversion charges/ Raw Materials (inc resale) - - 97.45 - 1.87 - -
- - (333.01) - (3.67) - -
(g) Purchases of Stores and Spares - - 25.79 47.23 - - -
- - (0.74) - (2.58) - -
(h) Purchases of Petroleum Products - Fuel/Gas - - - - - - -
(EOL) - - (1.98) - - - -
(i) Power Processing Charges - - - 309.51 - - -
- - - (242.80) - - -
(j) Water Charges (EPOL) - - - -3.05 - - -
- - - (-2.70) - - -
(k) Repairs and Maintenance - - 0.42 2.02 18.00 - -
- - (0.22) - (7.59) - -
(l) Plant and Equipment Hire Charges - - 16.95 - 0.86 - -
- - (6.73) - (0.04) - -
(m) Labour Sub Contract Charges - - 34.46 - - - -
- - (22.64) - (2.02) - -
(n) Travelling and Conveyance - - 0.29 - 23.02 - -
- - - - (22.19) - -
(o) Professional Fees - - 1.77 - 16.24 - -
- - - - (8.55) - -
(p) Sales Commission - - 0.26 - 0.94 - -
- - - - (2.48) - -
(q) Freight Outwards (Net) - - 855.82 - - - -
- - (125.39) - - - -
(r) Interest on Rupee Term Loan (EIL) - - - - - - -
- - - - (0.12) - -
(s) Interest to Banks & Others - - 30.14 0.37 0.25 - -
- - (5.55) (0.04) (0.36) - -
(t) Lease Rentals - Plant and Equipments - - 2.87 - 7.36 - -
- - - - (9.07) - -
(u) Miscellaneous Expenses( EHL) - - - - 0.83 - -
- - - - (0.05) - -
(v) Staff recuritment & Joining expenses - - - - - - -
- - - - (0.01) - -
(w) Directors Remuneration incl.perquisites - - - - - 2.52 -
- - - - - (0.96) -

35
Essar Steel Limited

During the period, following transactions were carried out with some of the related parties in the ordinary course of business:
(excluding reimbursement)
Individuals owning,
directly or indirectly,
Enterprises commonly an interest in
Controlled or the voting power
influenced by major that gives them
shareholders Key control or
Fellow /directors of Management significant
Holding Subsidiary Subsidiary Associates the company Personel influenced
Rs.Crores Rs. Crores Rs.Crores Rs. Crores Rs. Crores Rs. Crores Rs. Crores
(x) Directors Sitting Fees * Rs. 52,500 - - - - - - *
** Rs.30,000 - - - - - - (**)
(y) Capital Contract (ECL) - - 355.06 - 0.64 - -
- - (603.21) - - - -
(z) Purchase of Investment - 3.77 76.12 122.25 0.05 - -
- (0.10) - - - - -
(aa) Sale of Investment 0.05 - - - 17.14 - -
- - (76.12) - - - -
(ab) Sale of Investment reversal (ETHL) - - 76.12 - - - -
- - - - - - -
(ac) Purchase of Fixed assets - - 2.58 - - - -
- - - (0.01) (9.83) - -
(ad) Sales of Fixed assets (ELL) - - - - - - -
- - (260.30) - - - -
(ae) Issue of Share capital (ESHL) - - - - - - -
- - - - (1,957.60) - -
(af) Loans given (EIL) - - - - - - -
- - - - (341.60) - -
(ag) Loans repaid (ESHL) - - - 50.00 - - -
- - - - (348.60) - -
(ah) Loan Taken(ESHL & EIL) - - - 50.00 158.35 - -
- - - - - - -
(ai) Security Deposit given(EPRL) - - - - 0.27 - -
- - - - - - -
(aj) Security Deposit Received(EOL) - - 2.00 - - - -
- - - - - - -
(ak) Deposit Refund(FTL) - - - - 9.00 - -
- - - - - - -
(al) Office Rent(EHL) - - - - 4.82 - -
- - - - - - -
(am) Sale of Stores and spares (Essar SEZ & EPOL) - - 8.64 28.10 - - -
- - - - - - -
Long Term Investments - 3.87 13.78 415.37 - - -
- - (26.85) (155.61) - - -
Sundry Debtors - - 217.69 2.64 40.97 - -
- - (200.53) - (101.89) - -
Loan & Advances
Deposit - - 1.86 - 80.92 - -
- - (2.21) - (92.90) - -
Other Advance *** Rs. 50,000 - 20.41 53.89 25.76 20.65 *** -
**** Rs. 91,467 - - (7.56) - (34.61) **** -
Capital Advances (Capital Work in Progress) - - 153.11 - 10.00 - -
- - (171.81) (0.25) (4.39) - -
Sundry Creditors (Including Acceptances) - - -202.53 -78.05 -9.30 - -
- - (-142.59) (-97.55) (-18.40) - -
Advance from Customers - -112.94 -4.36 - - - -
- (-0.01) - (-0.08) (-66.03) - -
Interest accrued on Investment and ICD - - 4.49 - - - -
- - (4.49) - - - -
Guarantees Given to various bank, financial institutions,
finance companies, etc. on behalf of others [Facilities out-
standing Rs.1212.62 Crores (Previous year Rs.957.46
Crores)] - 382.55 958.13 - - - -
- - (382.55) (754.10) - - -

36
 The Associates,Fellow Subsidiaries and Enterprises Commonly controlled or influenced by major shareholders/directors of the company having the following material related party transactions: Rs. Crores
Nature of Transaction Name of Related Party
CFS EHL ISL EITL EIL FTL ECL ESL EOL ELL ETHL BPOL EPOL PTEI E S P L AEGIS ICPL VA VGR RB EHSL E P L EPRL AMW Essar USA Teletech
(a) Sale of Goods 213.29 - - - - - 120.19 - - - - - - 116.50 - - - - - - - - - - 48.01 -
(317.44) - - - - - (182.65) - - - - - - (190.44) - - - - - - - - - - - -
(c ) Interest Income-Others - - - - - - - - - 9.11 - - - - - - - - - - - - - - - -
- - - - (1.63) - (2.36) - - - - - - - - - - - - - - - - - - -
(d) Miscellaneous Income - - - - - - - - 2.55 - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - (5.56) - - - - - - - - - - -
(f) Conversion charges/ Raw - - - - - - - 24.98 - 72.47 - - - - - - - - - - - - - 1.87 - -
Materials and Freight - - - - - - - (333.01) - - - - - - - - - - - - - - - - - -
(g) Purchases of Stores and - - - - - - 25.56 - - - - - 47.23 - - - - - - - - - - - - -
Spares and Freight (2.32) - - - - - - (0.74) - - - - - - - - - - - - - - - - - -
(i) Power Processing Charges - - - - - - - - - - - 99.75 209.76 - - - - - - - - - - - - -
- - - - - - - - - - - (37.46) (205.34) - - - - - - - - - - - - -
(k) Repairs and Maintenance - - - - - - - - - - - - 2.02 - - - - - - - 18.00 - - - - -
- (7.60) - - - - (0.22) - - - - - - - - - - - - - - - - - - -
(l) Plant and Equipment Hire - - - - - 0.86 16.61 - - - - - - - - - - - - - - - - - - -
Charges - - - - - - (6.05) - - (0.68) - - - - - - - - - - - - - - - -
(m) Labour Sub Contract - - - - - - 31.59 - - - - - - - - - - - - - - - - - - -
Charges - - - - - - (22.64) - - - - - - - - - - - - - - - - - - -
(n) Travelling and Conveyance - - - - - 23.02 - - 0.29 - - - - - - - - - - - - - - - - -
- - - - - (21.92) - - - - - - - - - - - - - - - - - - - -
(o) Professional Fees - - 8.09 - - - 1.77 - - - - - - - - 7.18 - - - - - - - - - -

37
- - - (1.06) - - - - - - - - - - - (6.86) - - - - - - - - - -
(p) Sales Commission 0.94 - - - - - - - 0.26 - - - - - - - - - - - - - - - - -
(1.39) - - - - - - - - - - - - - - - - - - - (1.08) - - - - -
(q) Freight Outwards paid - - - - - - - 439.12 - 416.70 - - - - - - - - - - - - - - - -
- - - - - - - (57.35) - (81.04) - - - - - - - - - - - - - - - -
(s) Interest to bank & others - - - - - - 28.11 - - 2.03 - 0.04 0.33 - - - - - - - - - - 0.25 - -
- - - - - - (3.05) (2.50) - - - - (0.04) - - - - - - - - - - - - -
(t) Lease Rentals-Plant and - - - - - 3.10 - - 2.60 - - - - - - - - - - - - 2.32 1.58 - - -
Equipments - - - - - (0.91) - - - - - - - - - - (6.09) - - - - - - - - -

(w) Directors Remuneration - - - - - - - - - - - - - - - - - 0.91 1.01 0.60 - - - - - -

incl.perquisites - - - - - - - - - - - - - - - - - (0.50) (0.46) - - - - - - -
(y) Capital Contract - - - - - - 355.06 - - - - - - - - 0.64 - - - - - - - - - -
- - - - - - (603.21) - - - - - - - - - - - - - - - - - - -
(z) Purchase of Investment - - - - - - - - - - 76.12 122.25 - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - -
(aa) Sale of Investment - - - - - - - - - - - - - - - - - - - - - - - - - 17.14
- - - - - - - - - - (76.12) - - - - - - - - - - - - - - -
(ac)Purchase of fixed assets - - - - - - 2.58 - - - - - - - - - - - - - - - - - - -
- - - - - (9.08) - - - - - - - - - - - - - - - - - - - -
Note : Previous year‘s figures are mentioned in the brackets below the current years figures
Essar Steel Limited

9. Earnings per share has been calculated as under:

Year Ended Year Ended
31st March, 2007 31st March, 2006
Earning for the purpose of basic and diluted earning per shares Rs.in Crores 436.49 Rs.in Crores 530.18
Earning for the purpose of basic and diluted earning per shares (before Rs.in Crores 451.62 Rs.in Crores 588.79
prior period item net of tax)
Number of shares outstanding at the beginning of the year 580,497,248 507,312,080
Number of shares issued during the Year 559,313,640 276,110,000
Reduction in share capital persuant to court order - (202,924,832)
Number of shares at the end of the Year 1,139,810,888 580,497,248
Weighted average number of shares for the purpose of calculating earning per share 985,041,908 372,215,788
Pending conversion into equity - 459,262,684
Earning per share after prior period item
Basic earning per Equity share of Rs. 10 each (in Rupee) 4.38 10.75
Diluted earning per Equity share of Rs. 10 each (in Rupee) 4.38 6.38
Earning per share before prior period item
Basic earning per Equity share of Rs. 10 each (in Rupee) 4.53 12.33
Diluted earning per Equity share of Rs. 10 each (in Rupee) 4.53 7.08

10. Derivative Instruments and Unhedged Foreign Currency Exposure

(A) Derivative Instruments
SI Type of Transaction Amount Amount Currency Purpose
No 31st March 2007 31st March 2006
1 Coupon Only Swaps (USD / INR) 375,000,000 300,000,000 USD To reduce the interest cost on
Long Term Rupee Term loan
2 Rupee Indexed Interest Rate Swaps 10,000,000,000 5,000,000,000 INR To reduce the interest cost on
(Overnight Index Swap) Long Term Rupee Term loan
3 Cross Currency Swaps (USD / CHF) 20,000,000 31,000,000 USD To reduce the interest cost
on Foreign Currency Loans.
The principal amount is
protected through Options.
4 Cross Currency Swaps (USD / JPY) - 10,000,000 USD To reduce the interest cost
on Foreign Currency Loans.
The principal amount is
protected through Options.
5 Currency Swap (INR / JPY) 1,255,160,551 1,255,160,551 JPY To reduce the interest cost
on Foreign Currency Loans.
The principal amount is
protected through Options.
6 Interest Rate Swap 120,000,000 30,000,000 USD To reduce the interest cost
on Foreign Currency Loans.
7 Currency Options (USD / INR) 20,000,000 - USD To hedge payable and receivable
8 Foreign Currrency Options 49,540,000 - USD To hedge payable and receivable

(B) Unhedged Foreign Currency Exposure

SI No Particulars of Transactions Amount Amount Currency
31st March 2007 31st March 2006
1 Sundry Creditors (24,673) (35,822) CHF
(12,204,566) (6,965,174) EURO
(147,727) (69,233) GBP
(11,523,088) (10,949,000) JPY
(3,406,913) (3,400,000) SEK
(15,967,420) (7,168,436) USD
- (602,500) NOK
- (1,045) SGD
2 Advance from customers (2,427) (32,387) EURO
(39,488,238) (56,016,916) USD
3 Foreign Currency Loans (31,666,873) (21,777,544) EURO
- (2,647,081) GBP
- (6,913) SEK
(388,858,628) (326,633,918) USD
- (217,317,965) JPY
4 Sundry Debtors 10,339,230 35,684,404 USD
960 - AED
7,352,862 1,366,081 EURO

38
11. The names of Small Scale Industrial Undertakings, to whom the company owes a sum which is outstanding for more than 30 days
at the Balance Sheet date, are Insap Engineers Pvt.Ltd., Flow-Chem Industries,Lunar Engineering Private,Metro Steel Industries,
Ferrocare Machines Pvt. Ltd., Gadsing Engineering Works, Lechler (India) Pvt. Ltd.,Parshva Engineering Co., Swati Engineering
Corporation, Spartan Engineering Company,Anmol Safety Products P. Ltd.,Industrial Engineering Co., Indian Pneumatic & Hydraulic,
Flexatherm Expanllow Pvt. Ltd., Ardee Business Services P. Ltd., Paras Engineering Works, India Flex,Insutech Corporation,
Forgings (I) Iron & Steel, Tempsens Instruments (I) . These dues aggregate to Rs 1.24 crores . This information and that given in
Schedule 12 - ‘Liabilities’ regarding Small Scale Industrial Undertakings has been determined to the extent such parties have been
identified on the basis of information available with the company. This has been relied upon by the auditors.
12. Investments (Others - Quoted) include 2,10,400 equity shares of Rs. 10 each of Essar Oil Limited (EOL) amounting to Rs. 0.90 Crore,
pledged with ICICI Bank Limited as collateral to various loans granted by ICICI Bank Limited to EOL.
13. Loans and Advances include due from directors / officers Rs. 50,000 (Previous year Rs. 91,467). Maximum amount due from
directors / officers during the year Rs. 849,779 (Previous year Rs. 2,56,934).
Year Ended Year Ended
Unit 31st March 2007 31st March 2006
14. Capacity and Production Quantity Quantity
(a) Capacity
Licensed Capacity * *
Installed Capacity (as certified by the management) per annum
Iron Ore Pellet Plant MT 8,000,000 4,000,000
Hot Briquette Iron Plant MT 5,000,000 3,400,000
Hot Rolled Coil/Sheet Plant MT 3,600,000 3,000,000
Cold Rolled Coil Plant MT 1,200,000 1,200,000
(b) Production
Iron Ore Pellet MT 4,509,745 3,128,430
Hot Briquette Iron MT 3,590,302 3,153,176
Hot Rolled Coils/Cold Rolled Coils/Sheets MT 2,951,578 2,577,214
(c) Captive Consumption
Iron Ore Pellet MT 3,401,007 3,092,431
Change in WIP Iron Ore Pellet-Increase/(Decrease) MT 934,752 -
Hot Briquette Iron MT 3,483,546 3,030,288
Hot Rolled Coils/Sheets/Cold Rolled Coils MT 64,390 73,843
Change in WIP Coils-Increase MT 22,496 24,366
* Not applicable in terms of Government of India’s Notification No. S.O.477(E) dated 25th July, 1991.
Year Ended Year Ended
Unit 31st March 2007 31st March 2006
Quantity Rs. Crores Quantity Rs. Crores
15. Sales, Opening Stock and Closing Stock
(a) Sales
Iron Ore pellet MT 224,624 86.82 36,370 18.67
Hot Briquette Iron MT 88,842 43.66 105,864 53.30
Coils/Sheets/Cold Rolled Coil # MT 2,802,126 8,589.82 2,479,802 6,734.59
Others 280.16 43.89
9,000.46 6,850.45
# Includes export benefits 72.91 246.20
(b) Opening Stock
Iron Ore pellet (Previous year taken over on amalgamation) MT 50,638 13.04 51,009 7.81
Hot Briquette Iron MT 34,416 23.85 17,392 10.92
Coils/Sheets/Cold Rolled Coil MT 93,200 201.80 93,997 183.36
238.69 202.09
(c) Closing Stock
Iron Ore pellet MT - - 50,638 13.04
Hot Briquette Iron MT 52,330 45.04 34,416 23.85
Coils/Sheets/Cold Rolled Coil MT 178,262 481.00 93,200 201.80
Other MT 6,030 1.06 - -
527.10 238.69

Year Ended Year Ended

Unit 31st March 2007 31st March 2006
Quantity Rs. Crores Quantity Rs. Crores
16 Consumption of Raw Materials
Fines/pellet MT 6,063,128 1,314.67 3,759,082 742.31
Iron Ore MT 1,365,007 560.17 1,341,794 408.43
Cast Slabs MT 118,595 244.61 148,401 317.47
Zinc MT 10,251 192.22 7,715 70.17
Cost of fines sold 89.36 20.88
Others 152.71 42.21
2,553.74 1,601.47

39
Essar Steel Limited

Year Ended Year Ended

31st March 2007 31st March 2006
Rs. Crores % of total Rs. Crores % of total
Imported (including purchased from canalising agency) 445.12 17 500.71 31
Indigenous 2,108.62 83 1,100.76 69
2,553.74 100 1,601.47 100

17. Consumption of Production Consumables, Stores and Spares

Imported 527.01 51 434.66 59
Indigenous 513.93 49 303.31 41
1,040.94 100 737.97 100

Year Ended Year Ended

31st March 2007 31st March 2006
Rs. Crores Rs. Crores
18. Directors’ Remuneration
Salary and Allowances 2.21 0.84
Contribution to Provident Fund 0.17 0.04
Other Perquisites* 0.14 0.08
2.52 0.96
*The perquisites value is calculated based on the provisions of the Income Tax Act, 1961.
Note: As the future liability for gratuity and leave encashment is provided on an acturial
basis for the Company as a whole,the amount pertaining to the directors is not
ascertainable and,therefore, not included above.

19. Auditors’ Remuneration (excluding service tax)

Current Auditors
Audit Fees 1.15 1.05
Other Services 0.02 0.27
Reimbursement of Expenses 0.06 0.02
1.23 1.34
Previous Auditors
Audit Fees - 0.12
Other Services - 0.26
Reimbursement of Expenses - 0.03
- 0.41

20. Value of Imports calculated on CIF basis

(including purchases from canalising agency)
Raw Materials 332.78 496.53
Production Consumables, Stores and Spares 512.77 538.90
Capital Goods 258.30 429.07

21. Expenditure in Foreign Currency (on accrual basis)

Interest 209.63 164.91
Commission 188.41 140.38
Professional Fees 16.20 15.41
Others 41.09 18.97

22. Earnings in Foreign Exchange

(a) FOB Value of Exports
Direct Export 2,915.45 1,682.75
(b) Others
Freight recovered 190.38 91.93
Others 2.60 -

40
 As at As at
31st March 2007 31st March 2006
Rs. Crores Rs. Crores Rs. Crores Rs. Crores
23. Capital Work-in-Progress including expenditure during construction period
(a) Land and Buildings 61.06 70.13
(b) Plant and Machinery including technical know-how, supervision and
other capital expenditure 767.19 2,236.44
(c) Advances to suppliers for capital expenditure 177.01 422.80
(d) Expenditure during construction period *
Personnel Expenses
Salaries, Wages and Bonus 16.61 14.91
Contribution to Provident Fund and Other Funds 2.16 1.16
Staff Welfare Expenses 2.92 3.16
Manufacturing and Asset Maintenance
Power Charges 29.45 2.35
Repair & Maintenance 4.13 7.72
Administrative Expenses
Travelling and Conveyance Expenses 7.18 2.90
Postage, Telephone and Fax 2.49 1.92
Printing and Stationery 0.76 0.32
Professional Fees 21.38 12.72
Operating Lease Rent 0.91 0.15
Rates and Taxes 1.12 2.74
Vehicle Hire and Maintenance Charges 2.53 1.69
Miscellaneous Expenses 4.05 3.11
Service charges 0.01 0.01
Finance Cost
Term Loan Interest 141.75 72.64
Debentures 7.98 -
Capex LC Charges 1.94 6.44
Bank Guarantee and Other Charges 19.29 -
Forward cover cancellation (gain)/loss 17.88 284.54 (0.52) 133.42
Trial run expenses
Consumption of stores & spares - 8.23
Salaries, Wages and Bonus - 6.41
Repair & Maintenance - 1.70
Miscellaneous Expenses - 3.00
Depreciation - 18.76
Term Loan Interest - 25.09
Prior period items - (1.64)
Service & other Income - - (19.08) 42.47

284.54 175.89
Add: Balance brought forward from previous Year 157.99 9.06
442.53 184.95
Less: Allocated/transferred during the Year 340.01 26.96
Balance carried forward to next year 102.52 157.99
Total Capital Work-in-Progress [(a)+(b)+(c)+(d)] 1,107.78 2,887.36
* The expenditure debited to Profit and Loss Account are net of these expenditure during construction period.
24. Long term advances from customer are secured by a guarantee from financial Institutions which in turn has a charge on the
company’s assets.
25. (a) The company has issued 20,29,24,832 0.01% Cumulative redeemable preference shares (CRPS) of Rs. 10 each. Each CRPS
will be redeemable in four quarterly equal installments commencing from October 01, 2017.
(b) The company had issued 5,59,31,364 7% Cumulative convertible preference shares (CCPS), each such CCPS are convertible
at the option of the holder into 10 equity shares of Rs. 10/- each at a premium of Rs. 25 per share on or before December 5, 2006.
These CCPS were issued exclusively to finance acquisition of the Hy-grade Pellets Ltd. and Steel Corporation of Gujarat Ltd.
Accordingly, the company has, upon sanction of, and pursuant to the scheme of amalgamation, alloted 55,93,13,640 equity
shares of Rs. 10 each as fully paid up at a premium of Rs. 25 per share to holders of CCPS.
(c) The company has issued 4,35,98,951 10% CRPS of Rs. 10 each. Each CRPS will be redeemable at par in 12 equal monthly
installments commencing from October 01, 2017 to September 01, 2018. The Company shall have option to redeem the CRPS
at par in one or more tranches from any or all of the existing holders, anytime after the date of allotment together with arrears
of dividend if any and the Board shall give one month’s notice for any such redemption to the registered holders of the CRPS.

41
Essar Steel Limited

26. The Company had made a petition to the Honourable High Court, Gujarat seeking confirmation of special resolution passed by the
members at the 27th Annual General Meeting of the Company held on 19th July, 2003 pursuant to the requirement of Corporate
Debt Restructuring Cell (CDR) formed by Reserve Bank of India for reduction of Equity Share Capital by 40% representing
20,29,24,832 equity shares of Rs. 10 each aggregating Rs. 202.92 Crores and issue of 20,29,24,832 0.01% Cumulative Redeemable
Preference shares of Rs. 10 each in lieu thereof. This was confirmed by the Honourable High Court, Gujarat by its order dated 28th
February, 2005 received by the company on 11th April 2005. During the previous year the Company has implemented the above
Order of Honourable High Court, Gujarat.
27. Administrative expenditure during the current year includes Rs.14.73 Crores towards reversal of profit on sale of long term
investment recorded during the year ended 31st March, 2006. The reversal is on account of non completion of the transaction.
28. Information required to be furnished as per Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006
(MSMED Act) for the year ended 31st March 2007.
This information has been determined to the extent such parties have been identified on the basis of information available with the
company. This has been relied upon by the Auditors.
Sr No Particulars Rs. in Crores
1 The principal amount and the interest due thereon remaining unpaid to any supplier as at 31st March
2007[refer table (a) below]
Principal 4.28
Interest 0.12
2 The amount of interest paid by the buyer in terms of section 18 of MSMED ACT, along with the amounts
of the payment made to the supplier beyond the appointed day during each accounting year Nil
3 The amount of interest due and payable for the period of delay in making payment (which have been
paid but beyond the appointed day during the year) but without adding the interest specified under this
Act [refer table (b) below] Nil
4 The amount of interest accrued and remaining unpaid at the end of each accounting year:
Interest payable on the principal amount outstanding as at the year end [refer table (a) below] 0.12
Interest payable on the delayed principal amount paid during the year [refer table (b) below] 0.03
5 The amount of further interest remaining due and payable even in the succeeding years, until such date
when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance
as a deductible expenditure under section 23 of MSMED Act. Nil

(a) Vendor Outstanding & Interest Due

Amt in Rs. Amt in Rs.
Vendor Name Principal Outstanding Interest Vendor Name Principal Outstanding Interest
Aeroflex Industries Pvt Limited 465,977 20,957 Hydraulics India Services Pvt Ltd. 1,083,171 32,491

Air Power Services 112,351 1,582 Hytech-Engineers 154,423 6,614

Ankur Enterprises 142,407 2,552 Indian Paper M/Cry & Engg.Works Ltd 976,250 969

Balaji Industrial Enterprises 841,468 60,461 Insap Engineers Pvt. Ltd 1,734,541 14,619

Beeta Kone Tools 68,631 2,328 Laxmi Engineering Works 520,446 13,341

Bhagwati Filters Pvt. Ltd. 118,537 767 Manisha Engineering Enterprise 552,449 16,446

Parshva Engineering Co. 280,966 4,056

Chemtech Industrial Valves Pvt. Ltd 2,203,135 53,047
Prabhat Trading Co. 2,892,916 92,279
Cotmac Electronics (Surat) Pvt Ltd 1,838,040 23,336
Rishabhdev Technocables Limited 6,371,578 273,003
Daga Engineering Works 505,908 2,230
Roltra Industries 108,265 3,743
Eclipse Combustion Pvt Ltd 114,600 1,661
Safe Lifters 1,560 9,336
Ferrocare Machines Pvt. Ltd. 541,716 5,450
Sai Traders 1,808,385 84,325
Fibre Foils Limited 60,163 781
Samarth Engineers 409,932 38,555
Fit Tech Industries, 210,751 1,532
Satram Furniture Works 383,760 1,334
Flowezy Hydraulics Pvt. Ltd. 54,704 8,661
Shree Geeta Timbers 3,173,477 145,060
Fluidteq Systems, 105,522 4,141
Shree Shanti Timbers 2,623,206 131,386
Gadsing Engineering Works 688,033 20,199
Six Sigma Gases Pvt Ltd 16,694 693
General Instruments Consortium 208,883 4,281
Sunrise Industries (India) Ltd. 20,100 201
Hindustan Rubbers 7,860 2,404 Tempsens Instruments (I) Pvt. Ltd. 553,486 11,984
Hi-Tech Butterfly Valves 10,583,094 138,220 Viketa Electronics 93,000 6,593
Holyvision P. Ltd. 165,295 6,767 Total 42,795,680 1,248,385

42
(b) Interest payable for payments during the year
Amt.in Rs. Amt.in Rs.
Vendor Name Interest Amount Vendor Name Interest Amount
Afmc Lubrication Pvt.Ltd 3,190 Osna Electronics (Private) Limited 1,954
Akshatha Enterprises 3,340 Osna Electronics Pvt.Ltd. 7,211
Alfa Laval India Ltd 47,415 Plastochem Fabrication (India) Pvt. 13,402
Altop Industries 551 Powerflex Industries, 1,393
Amit Metallurgical Works 13,839 Pritesh Industries 492
Anand Wire Netting Co. 32,792 Radix Sensors Pvt. Limited 1,873
Delson Engineers 144 Rollwell Conveyor Components Pvt. L 665
Eswari Electricals 106 Sadguru Rubber Industries. 71
Fab Tech Engineering Company 2,940 Saishraddha Graphite Equipments 4,613
Fairtech Engineers 1,182 Shah Fabricators & Engineers 850
Fluorolined Equipment Pvt Ltd 4,451
Shree Krishna Agencies. 3,688
Fourwents Engineering Company 3,403
Spareage Seals Limited 8,932
Green Field Industries 2,276
Sun Enterprises 271
Hi-Tech Engineers 8,033
Sunal Inc 4,440
Indian Pneumatic & Hydraulic Co. 330
T P Technical Services 4,310
Insutech Coproration 289
Technocrat Engineers 2,940
Ipa Private Limited 998
Tps Infrastructure Private Limited 690
Jay-Eesh Engineering Company 148
Udey Instruments 698
Jvc Engineers 234
Kalpan Enterprise 103 Universal 824
Krishna Transform Industries 67 Vesuvius India Ltd 64,098
Liftechniques 9,830 Vijay Seals 249
Melfrank Engineers 112 Wikus-Niran Saws 722
Mettler - Toledo India P.Ltd. 1,680 Yokogawa India Ltd. 8,734
Modern Engineering Services (P) Ltd 11,139 Total 281,712

29. (i) Details of Amount due from Sundry Debtors under the same management within the meaning of section 370 (1B):
Rs. in Crores
Sr Parties As on Maximum Amount As on Maximum Amount
No 31st March 07 outstanding during 31st March 06 outstanding during
06-07 05-06
1 Essar Construction Ltd. 12.43 35.60 13.23 35.85
2 Essar Logistics Ltd. 194.36 194.36 187.30 187.30
3 Essar SEZ Hazira Limited 10.90 10.92 - -
Total 217.69 200.53
(ii) Details of loans and advances given to companies under the same management within the meaning of section 370 (1B).
Rs. in Crores
Sr Parties As on Maximum Amount As on Maximum Amount
No 31st March 07 outstanding during 31st March 06 outstanding during
06-07 05-06
1 Hazira Plate Limited 11.34 14.08 2.41 2.60
2 Essar Steel Chhattisgarh Ltd. 0.96 0.96 - -
3 Essar Oil Limited 42.82 42.82 2.00 3.66
4 Essar Shipping Ltd 0.61 12.13 5.97 12.61
5 Essar Logistics Limited 0.02 0.03 - -
Total 55.75 10.38
(iii) Details of loans and advances given to Subsibdiaries and Associates “as required by SEBI circular SMD / policy / circular 2-2003
dated 10th January 2003”.
Rs. in Crores
Sr Parties As on Maximum Amount As on Maximum Amount
No 31st March 07 outstanding during 31st March 06 outstanding during
06-07 05-06
1 Essar Steel Orrisa Ltd. 19.70 21.27 - -
2 Essar Steel Jharkhand Ltd. 0.71 0.71 - -
3 Essar Steel (Hazira) Limited * 25.76 32.02 - -
Total 46.17 -
There is no repayment schedule in respect of these loans and advances.
* The amount outstanding as at 31st March, 2007 represents Advance towards Equity.

43
Essar Steel Limited

30 The Company had provisionally adjusted as at the previous year end Rs 87.26 Crores ( net of tax of Rs 44.28 Crores )
representing deferred power charges and Rs 104.17 Crores ( net of tax of Rs 52.86 Crores ) representing recompense finance
cost for exiting CDR mechanism with balance in Securities Premium Account. The Company has subsequently obtained the
approval of its shareholders at the annual general meeting held on 30th September, 2006 and approval of honourable high
court of Gujarat required under section 78 and 100 of the Companies Act, 1956 for the said scheme / adjustment given effect
thereof.

31 Margin and term deposits have been pledged with banks as a security for opening Letters of Credit - Rs.182.37 Crores (Previous
year - Rs.523.23 Crores) and Buyers Credit - Rs.114.58 Crores (Previous year - Rs.94.83 Crores).

32 Essar SEZ Hazira Ltd applied for setting up a Special Economic Zone (SEZ) on 3rd December 2005 and the Zone was notified
for setting up in Hazira on 28th September 2006. Subsequently, Essar Steel Limited ( “the Company”) submitted a request
for Letter of Approval (LOA) for setting up a SEZ Unit ( “the Unit” ) to manufacture Hot Briquetted Iron (HBI) and Direct Reduced
Iron (DRI) to the Development Commissioner – Kandla on 3rd October 2006. The said HBI/DRI facility commenced operations
on 27th October 2006. The production was used for captive consumption and the said facility complied with applicable Central
Excise regime. The HBI/DRI Unit was approved on 11th January 2007 subject to fulfillment of certain conditions. Such conditions
were fulfilled on 21st March 2007. Questions have been raised by the Directorate General of Central Excise Intelligence
regarding the status of the Unit between 27th October 2006 and 21st March 2007. The Company has subsequent to 31st
March 2007, made deposits against customs duty (Rs.161.35 crores) on clearance upto 21st March 2007, as if it was a SEZ
Unit, though the matter is under discussion with the appropriate Authorities.

The Company is of the view, based on legal advise, that the entire amount paid as above is refundable and/or cenvatable.
However, the management has as a matter of abundant caution made a provision of Rs 19.73 Crores being non-cenvatable
portion of customs duty paid for the period 11th January 2007 to 20th March 2007.

33 The company has computed Provision for Taxation (Deferred Tax, Minimum Alternate Tax (MAT), Fringe Benefit Tax), for the
current year based on the past tax assessments and appeals, tax returns and expert opinions.

34 Previous year’s figures have been regrouped where necessary to confirm to this year’s classification.

For and on behalf of the Board of Directors of Essar Steel Limited

As per our report of even date
S.R. BATLIBOI & CO. P. S. Ruia Robin Banerjee
Chartered Accountants Director Director Finance

per Hemal Shah V.G.Raghavan Vikram Amin

Partner Director Director Marketing
Membership No. 42650
Mumbai, July 6, 2007 Narottam B Vyas
Mumbai, June 29 , 2007 Company Secretary

44
()

Narottam B Vyas

45
Essar Steel Limited

Cash flow statement for the year 1st April, 2006 to 31st March, 2007
Year Ended Year Ended
31st March, 2007 31st March, 2006
Rs. in Crores Rs. in Crores Rs. in Crores Rs. in Crores
A. Cash flow from operating activities
Net Profit before taxation 683.46 695.98
Adjustments for -
Depreciation 631.04 482.10
Profit on sale of fixed assets (net) (0.05) (178.39)
Profit on change in carrying amount of Current Investment - (0.08)
(Profit)/Loss on sale of long term investment including write-off 10.66 (15.70)
Dividend/Interest income (0.12) (0.78)
Finance Cost (net) 617.94 422.67
Liabilities no longer required written back (7.56) -
Provision & write off for bad & doubtful debts (net) 1.13 (0.57)
Prior Period Items 22.81 88.36
1,275.85 797.61
Operating profit before working capital changes 1,959.31 1,493.59
Movements in working capital:
Decrease/(Increase) in sundry debtors (144.62) 197.73
Decrease/(Increase) in inventories (843.43) (516.22)
Decrease/(Increase) in loans & advances 14.51 (423.44)
(Decrease)/Increase in current liabilities 1,050.66 489.75
77.12 (252.18)
Cash generated from operations 2,036.43 1,241.41
Direct taxes paid (net of refund) (26.34) (25.75)
Net cash from operating activities 2,010.09 1,215.66
B. Cash flow from investing activities
Purchase of fixed assets (1,321.25) (1,372.29)
Assets Taken over on amalgamation - (1,959.02)
Proceeds from sale of fixed assets 0.52 0.52
Sale of investments of Subsidiaries (100% Equity) 0.05 -
Sale of investments 317.26 810.19
Purchase of investments of Subsidiaries (100% Equity) (3.82) (0.10)
Purchase of investments (474.30) (800.11)
Interest and gain (Loss) on cancellation Forward Exchange Contract 58.52 29.87
Dividend/Interest income - (0.02)
Net cash from/(used in) investing activities (1,423.02) (3,290.96)
C. Cash flow from financing activities
Proceeds from issuance of share capital / Application money - 1,957.60
Proceeds from borrowings 2,019.47 4,626.29
Repayment of borrowings (1,988.76) (3,471.13)
Finance cost paid (889.35) (786.63)
Proceeds from Long Term advances from customer - 113.39
Repayment of Long Term advances from customer (13.02) -
Repayment of finance Lease liabilities (8.34) (7.03)
Net cash used in financing activities (880.00) 2,432.49
Net increase/(decrease) in cash and cash equivalents (292.93) 357.19
Cash and cash equivalents at the beginning of the year (see Note 3 below) 725.79 251.29
Add: cash & cash equivalent taken over consequent to amalgamation - 117.31
Cash and cash equivalents at the end of the year (see Note 3 below) 432.86 725.79
Net increase/(decrease) in cash and cash equivalents (292.93) 357.19
Notes:
1 The above cash flow statement has been prepared under the ‘Indirect Method’ as set out in the Accounting Standard – 3 on Cash Flow
Statements, issued by the Institute of Chartered Accountants of India.
2 Previous year’s figures have been regrouped where necessary to conform to this year’s classification.
3 Cash and cash equivalents
Cash and cash equivalents consist of cash on hand & balances with banks. Cash and cash equivalents included in the cash flow statement
comprise the following:
(Rs in crores)
As at As at
31st March, 2007 31st March, 2006
Cash and Cheques on Hand 0.07 0.05
Balances with Banks
on Current Accounts 43.16 14.96
on Margin Deposit Accounts 9.37 19.53
on Term Deposit Accounts 380.26 691.25
432.86 725.79
Margin and term deposits aggregating to Rs. 296.95 Crores (Previous year - 618.06 Crores) have been pledged with banks as a security for
opening Letters of Credit and Buyers Credit.

As per our report of even date For and on behalf of the Board of Directors of Essar Steel Limited
S.R. BATLIBOI & CO. P. S. Ruia Robin Banerjee
Chartered Accountants Director Director Finance
per Hemal Shah V.G.Raghavan Vikram Amin
Partner Director Director Marketing
Membership No. 42650
Mumbai, July 06 , 2007 Narottam B Vyas
Mumbai, June 29 , 2007 Company Secretary

46
Essar Steel Jharkhand Limited
[Formerly known as Essar Steel (Jharkhand) Limited]
DIRECTORS’ REPORT
To
The Members of Essar Steel Jharkhand Limited,
Your Directors have pleasure in presenting the Second Annual Report on
the working of the Company together with the Audited Accounts for the
financial year ended 31st March, 2007.
1. OPERATIONS
During the year under review, the Company has initiated action for
setting up the Steel Plant at Chaibasa in Jharkhand.
2. DIRECTORS
Shri V.G. Raghavan retires by rotation at the ensuing Annual General
Meeting and being offer himself for reappointment. The Board
recommends his reappointment.
3. AUDITORS
M/s. S.R. Batliboi & Co., Chartered Accountants, Auditors of the
Company retires at the conclusion of Annual General Meeting and
being eligible offer themselves for re-appointment.
4. PERSONNEL
There are no employees working on the roll of the Company as
required by the provisions of section 217(2A) of the Companies Act,
1956 read with the Company’s (Particulars of Employees) Rules,
1975.
5. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND
FOREIGN EXCHANGE EARNINGS/OUTGO
As the Company has not undertaken any manufacturing activity
during the year, additional information on conservation of energy,
technology absorption and foreign exchange as required to be disclosed
in terms of Section 217(1)(e) of the Companies Act, 1956, read with
the Companies (Disclosure of Particulars in the report of the Board of
Directors) Rules, 1988 is not applicable.
6. AUDITORS’ REPORT
There are no qualifications/adverse observations in the Auditors’
Report requiring information and explanations u/s 217(3) of the
Companies Act, 1956.
Auditors’ Report to the Members of Essar Steel Jharkhand Limited
[Formerly known as Essar Steel (Jharkhand) Limited]
1. We have audited the attached Balance Sheet of Essar Steel
Jharkhand Limited (‘the Company’) as at March 31, 2007 and also
the Profit and Loss account and the cash flow statement for the
period ended on that date annexed thereto. These financial
statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
2. We conducted our audit in accordance with auditing standards
generally accepted in India. Those Standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
3. As required by the Companies (Auditor’s Report) Order, 2003 (as
amended) (‘the order’) issued by the Central Government of India
in terms of sub-section (4A) of Section 227 of the Companies Act,
1956, we enclose in the Annexure a statement on the matters
specified in paragraphs 4 and 5 of the said Order.
4. Further to our comments in the Annexure referred to above, we
report that:
i. We have obtained all the information and explanations, which
to the best of our knowledge and belief were necessary for
the purposes of our audit;
ii. In our opinion, proper books of account as required by law
have been kept by the Company so far as appears from our
examination of those books;
iii. The balance sheet, profit and loss account and cash flow
47
7. 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;
(i) that in the preparation of the accounts for the financial year
ended 31st March, 2007 the applicable accounting standards
have been followed along with proper explanation relating to
material departures ;
(ii) 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 as at 31st March,
2007 under review;
(iii) 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; and
(iv) that the Directors have prepared the accounts for the financial
year ended 31st March, 2007 on a ‘going concern’ basis.
8. SUBSIDIARY COMPANY
During the year under review your Company became subsidiary of
Essar Steel Limited and continues to be its subsidiary.
9. ACKNOWLEDGEMENT
Your directors wish to place on record their appreciation for the
various departments of Central and State Governments and its bankers
for their cooperation and support.
For and on behalf of the Board of Directors
(V.G. Raghavan) (Narottam.B Vyas)
Director Director
Place Mumbai
Date :August 16, 2007
statement dealt with by this report are in agreement with the
books of account;
iv. In our opinion, the balance sheet, profit and loss account and
cash flow statement dealt with by this report comply with the
accounting standards referred to in sub-section (3C) of section
211 of the Companies Act, 1956.
v. On the basis of the written representations received from the
directors, as on March 31, 2007, and taken on record by the
Board of Directors, we report that none of the directors is
disqualified as on March 31, 2007 from being appointed as
a director in terms of clause (g) of sub-section (1) of section
274 of the Companies Act, 1956.
vi. In our opinion and to the best of our information and according
to the explanations given to us, the said accounts give the
information required by the Companies Act, 1956, in the
manner so required and give a true and fair view in conformity
with the accounting principles generally accepted in India;
a) in the case of the balance sheet, of the state of affairs
of the Company as at March 31, 2007;
b) in the case of the profit and loss account, of the loss
for the year ended on that date; and
c) in the case of cash flow statement, of the cash flows
for the year ended on that date.
S. R. Batliboi & Co.
Chartered Accountants
per Hemal Shah
Place: Mumbai Partner
Date: August 16, 2007 Membership No.: 42650
Essar Steel Jharkhand Limited
[Formerly known as Essar Steel (Jharkhand) Limited]
Annexure referred to in paragraph 3 of our report of even date
Re: Essar Steel Jharkhand Limited (‘the Company’)
(i) The Company does not have any fixed assets, therefore
provision of clause 4(i) is not applicable to the Company.
(ii) The Company does not have any inventories. Therefore the
provisions of clause 4 (ii) of the order are not applicable to the
Company.
(iii) (a) As informed, the Company has not granted any loans,
secured or unsecured to companies, firms or other parties
covered in the register maintained under section 301 of the
Companies Act, 1956.
(b) As informed, the Company has not taken any loans, secured
or unsecured from companies, firms or other parties covered
in the register maintained under section 301 of the
Companies Act, 1956.
(iv) According to the information and explanation given to us, no
activites have been undertaken during the year which pertains
to purchase of fixed assets, inventories and sale of goods or
services, therefore provision of clause 4(iv) is not applicable to
the Comapny.
(v) According to the information and explanations provided by
the management, there are no contracts or arrangements
referred to in section 301 of the Companies Act, 1956 that
need to be entered in the register required to be maintained
under that section.
(vi) The Company has not accepted any deposits from the public.
(vii) The provisions relating to internal audit are not applicable to
the Company.
(viii) According to the information and explanations given to us,
the Company’s project is at start up stage of construction
and the Company has not commenced commercial
production. Hence maintenance of cost records is not
applicable during the year under audit.
(ix) (a) Undisputed statutory dues including income-tax and cess
have not been regularly deposited with the appropriate
authorities and there have been considerable delays in
number of cases in case of payment of tax deducted at
source and cess.
(b) According to the information and explanations given to
us, no undisputed amounts payable in respect of income-
tax and cess and other undisputed statutory dues were
outstanding, at the year end, for a period of more than six
months from the date they became payable.
(c) According to the information and explanation given to us,
there are no dues of income tax and cess which have not
been deposited on account of any dispute.
(x) The Company has been registered for a period of less than
48
five years and hence we are not required to comment on
whether or not the accumulated losses at the end of the
financial year is fifty per cent or more of its net worth and
whether it has incurred cash losses during the financial year
and in the immediately preceding financial year.
(xi) The Company has no outstanding dues in respect of a
financial institution, bank or debenture holders.
(xii) According to the information and explanations given to us
and based on the documents and records produced to us,
the Company has not granted loans and advances on the
basis of security by way of pledge of shares, debentures and
other securities.
(xiii) In our opinion, the Company is not a chit fund or a nidhi /
mutual benefit fund / society. Therefore, the provisions of
clause 4(xiii) of the order are not applicable to the Company.
(xiv) In our opinion, the Company is not dealing in or trading in
shares, securities, debentures and other investments.
Accordingly, the provisions of clause 4(xiv) of the order are
not applicable to the Company.
(xv) According to the information and explanations given to us,
the Company has not given any guarantee for loans taken
by others from bank or financial institutions.
(xvi) The Company did not have any term loans outstanding during
the year.
(xvii) According to the information and explanations given to us
and on an overall examination of the balance sheet of the
Company, we report that no funds raised on short-term basis
have been used for long-term investment.
(xviii)The Company has not made any preferential allotment of
shares to parties or companies covered in the register
maintained under section 301 of the Companies Act, 1956.
(xix) The Company did not have any outstanding debentures
during the year.
(xx) The company has not raised money by way of public issues.
(xxi) Based upon the audit procedures performed for the purpose
of reporting the true and fair view of the financial statements
and as per the information and explanations given by the
management, we report that no fraud on or by the Company
has been noticed or reported during the course of our audit.
S. R. Batliboi & Co.
Chartered Accountants
per Hemal Shah
Place: Mumbai Partner
Date: August 16, 2007 Membership No.: 42650
Balance Sheet as at 31st March, 2007
Schedule As at As at
31st March,07 31st March,06
In Rs. In Rs.
SOURCES OF FUNDS
Shareholders’ Funds
Share Capital 1 500,000 500,000
Share Application Money 3,400,000 -

TOTAL 3,900,000 500,000

APPLICATION OF FUNDS
Expenditure during construction period - pending
allocation (Including Capital Advance) 2 10,515,697 -
Current Assets, Loans and Advances
Cash and bank balances 3 639,466 511,384
Loans and advances 4 36,574 -
Sub-Total (a) 676,040 511,384
Less: Current Liabilities and Provisions
Current liabilities 5 7,606,966 207,380
Sub-Total (b) 7,606,966 207,380
Net Current Assets (a - b) (6,930,926) 304,004
Profit and Loss Account 315,229 195,996
TOTAL 3,900,000 500,000
Notes to Accounts 6
The Schedules referred to above and notes to accounts form an integral part of the Balance Sheet.

As per our report of even date

S.R. Batliboi & Co. For and on behalf of Board of Directors
CharteredAccountants

per Hemal Shah V. G. Raghavan Narottam B Vyas

Partner Director Director
Membership No. 42650
Place :Mumbai Place :Mumbai
Date : August 16, 2007 Date : August 16, 2007

Profit and Loss Account for the year ended 31st March, 2007
Schedule Year Ended Period Ended
31st March,07 31st March,06
In Rs. In Rs.
INCOME

Income - -
TOTAL - -

EXPENDITURE
Bank Charges 4,993 3,550
Audit Fees (Refer note F of Schedule 6) 112,240 5,612
Legal Expenses 2,000 -
Miscellaneous expenses - 66
Preliminary Expenses written-off - 186,768
TOTAL 119,233 195,996

LOSS FOR THE YEAR / PERIOD 119,233 195,996

Balance as per last Balance Sheet brought forward 195,996 -

BALANCE CARRIED FORWARD TO BALANCE SHEET 315,229 195,996

Earnings Per Share (Basic and Diluted ) Nominal Value of Rs. 10/- each (2.38) (3.92)
(Refer Note H of Schedule 6)
Notes to Accounts 6
The Schedule referred to above and notes to accounts form an integral part of the Profit & Loss Account.
As per our report of even date
S.R. Batliboi & Co. For and on behalf of Board of Directors
CharteredAccountants

per Hemal Shah V. G. Raghavan Narottam B Vyas

Partner Director Director
Membership No. 42650
Place :Mumbai Place :Mumbai
Date : August 16, 2007 Date : August 16, 2007

49
Essar Steel Jharkhand Limited
[Formerly known as Essar Steel (Jharkhand) Limited]

Schedules forming part of the Balance Sheet

Schedule As at As at
31st March,07 31st March,06
In Rs. In Rs.
Schedule 1 : Share capital
Authorised
10,00,000 (Previous period : 10,00,000) equity shares of Rs.10/- each 10,000,000 10,000,000
Issued, Subscribed and Paid Up
50,000 (Previous period : 50,000) equity shares of Rs. 10/- each fully paid 500,000 500,000
Entire share capital is held by M/s Essar Steel Limited,
the holding company together with its nominees.

Schedule 2: Expenditure during construction period - pending allocation

Capital Advance for Land Acquisition 2,120,650 -
Pre-Operative Expenditure:
Rent (net) 680,670 -
Power and Fuel 154,952 -
Communication Expenses 103,810 -
Project Promotion Expenses 350,913 -
Travelling and Conveyance 408,747 -
Consultancy Charges 6,088,552 -
Postage and Telegram 7,671 -
Printing and Stationary 68,083 -
Legal and Professional Expenses 1,123 -
Office Expenses 502,048 -
Miscellaneous Expenses 28,478 -
10,515,697 -
Schedule 3: Cash and Bank Balances
Cash on hand 14,508 534
Balances with scheduled banks:
On current accounts 624,958 510,850
639,466 511,384
Schedule 4: Loans and Advances
(Unsecured, considered good unless otherwise stated)
Advance Tax (TDS) 22,889 -
Amount due from Essar Oil Limited [Maximum amount outstanding during
the year of Rs. 51,000 (Previous period Rs.Nil] 13,685 -
36,574 -
Schedule 5: Current Liabilities
Sundry Creditors (Refer Note E of Schedule 6) 7,474,146 207,380
Other Liabilities 132,820 -
7,606,966 207,380

SCHEDULE 6 - NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2007

A. Background and Nature of Operations
The Company was incorporated on June 17, 2005 as Essar Steel
(Jharkhand) Limited. On July 26, 2006 the Company’s name has
been changed to Essar Steel Jharkhand Limited. The Company intends
to set-up a steel plant in the Chaibasa district of Jharkhand.
B. Significant Accounting Policies
a. Basis of preparation
The financial statements have been prepared to comply in all
material respects with the mandatory Accounting Standards
issued by the Institute of Chartered Accountants of India and the
relevant provisions of the Companies Act, 1956. The financial
statements have been prepared under the historical cost
convention on an accrual basis except in case of assets for which
provision for impairment is made and revaluation is carried out.
The accounting policies have been consistently applied by the
Company and are consistent with those used in the previous year.
b. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the results
of operations during the reporting period end. Although these
estimates are based upon management’s best knowledge of
current events and actions, actual results could differ from
these estimates.
c . Expenditure during Construction Period
All costs, including financing costs till commencement of
commercial production and adjustments arising from exchange
rate variations attributable to fixed assets are
capitalized.Expenses incurred relating to project prior to
commencement of commercial production are classified as Pre
operative Expenditure and disclosed under Schedule 2 -
Expenditure during construction period - pending allocation (net
of income earned during project development stage).
d. Operating Lease
Leases where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased term, are classified
as operating leases. Operating lease payments are recognized
on a straight-line basis over the lease term.
e. Earning Per Share
Basic earning per share is calculated by dividing the net profit or
loss for the period attributable to equity shareholders by the
weighted average numbers of equity shares outstanding during
the period. For the purpose of calculating diluted earnings per
share, the net profit or loss for the period attributable to equity
shareholders and the weighted average number of shares
outstanding during the period are adjusted for the effects of all
dilutive potential equity shares.
f. Income taxes
Tax expense comprises of fringe benefit tax. Fringe benefit tax
is measured at the amount expected to be paid to the tax
authorities in accordance with the Indian Income Tax Act.
Deferred tax is measured based on the tax rates and the tax
laws enacted or substantively enacted at the balance sheet
date. Deferred tax assets are recognised only to the extent that
there is reasonable certainty that sufficient future taxable income
will be available against which such deferred tax assets can be
realised. In situations where the Company has unabsorbed
depreciation or carry forward tax losses, all deferred tax assets
are recognised only if there is virtual certainty supported by
convincing evidence that they can be realised against future
taxable profits.

50
 g. Provisions Loss Account.
A provision is recognized when an enterprise has a present D. Disclosure of Related Party Transactions as required by Accounting
obligation as a result of past event; it is probable that an outflow Standard - 18 Related Party Disclosures:
of resources will be required to settle the obligation, in respect a) Related Party where the control exists
of which a reliable estimate can be made. Provisions are not a. Holding Company -
discounted to its present value and are determined based on
Essar Investments Limited (EIL) – Upto March
best estimate required to settle the obligation at the balance 29, 2006
sheet date. These are reviewed at each balance sheet date and
Hy-Grade Pellets Limited (HGPL) – From March
adjusted to reflect the current best estimates. 30, 2006 to June 16, 2006
h. Segment Reporting
Essar Steel Limited (ESTL) – From June 17, 2006
The Company’s activities during the year revolve around setting onwards
up of the project (Refer Note C below). Considering the nature of
Essar Steel Holdings Ltd. Mauritius- Holding
business and operations, there are no reportable segments Company of Essar Steel Limited (ESHL) - From
(business and/or geographical) in accordance with the June 17, 2006 onwards
requirements of Accounting Standard 17 – ‘Segment Reporting’, b. Ultimate Holding Company -
issued by the Institute of Chartered Accountants of India (ICAI).
Essar Global Ltd. - Holding Company of Essar
Other Notes Steel Holdings Ltd. (EGL)
C. The Company is setting up steel plant (project) in the state of b) Fellow Subsidiary -
Jharkhand. The project is at start up stage of construction and the
Essar Steel Orissa Limited (ESOL)·
Company has not commenced revenue operations. The expenditure
Essar Steel Chhatisgarh Limited (ESCL)·
incurred directly or indirectly is classified as Expenditure during
Essar Steel Trading FZE, Dubai (ESTF)·
Construction Period pending capitalization and will be apportioned to
Essar Oil Limited (EOL)
the Assets on the completion of project. Necessary details as per c) Key Management Personnel:·
part II of Schedule VI to the Companies Act, 1956 have been disclosed
Mr. Jatinder Mehra
in Schedule 2.Expenditures which are not directly or indirectly related
Mr. V.G. Raghavan
to the construction of the project have been expensed off to Profit &
Mr. Narottam B. Vyas

During the year following transactions were carried out with the related party in the ordinary course of business:
Nature of Transactions Name of Party Holding Company
Subscription to the Share Capital - -
EIL (499,400)
Recovery of Rent EOL 102,000
- (-)
Advances Received towards supply of materials ESTL 1,950,000
- (-)
Reimbursement made on behalf of the Company ESTL 5,117,601
- (-)
EIL (186,768)
Closing Balance as at
March 31, 2007 – Payable ESTL 70,67,601
– Receivable EOL 13,685
March 31, 2006 – Payable EIL 186,768
Figures in brackets represents for the previous period.
E. As per the information and records available with the Company, there are no dues or principal amount payable to Small Scale Industrial undertakings
or to Micro, Small and Medium enterprises as on the date of Balance Sheet. This information has been relied upon by the Statutory Auditors.

F. Auditor’s remuneration consists of Statutory Audit fees

Particulars Year Ended March 31, 2007 Period Ended March 31, 2006
(Rupees) (Rupees)
Statutory Audit 112,240 5,612
(inclusive of service tax) 112,240 5,612
G. Lease Rentals:
Operating lease
Office premises are obtained on operating lease. Lease rent is payable as per the lease term. The lease term is generally for sixty months and
renewable for a further period of sixty months at the option of the Company. There is no escalation clause in the lease agreement. There are no
restrictions imposed by lease arrangements. There are no subleases except office premises at Ranchi, which has been sub-leased to Essar Oil
Limited on operating lease basis. This sub-leasing is agreed as per the terms of agreement entered with lessor. The Company has recovered the
portion of the lease rental from Essar Oil Limited.
During the year Company has debited lease rental of Rs.680,670, net of recovery of Rs.102,000 from Essar Oil Limited on sub-lease. This lease
rental is capitalized as expenditure incurred during the construction period.
H. Earnings Per share
Particulars As at March 31, 2007 As at March 31, 2006
Net Loss as per Profit & Loss Account for the Rs. 119,233 195,996
purpose of calculating basic & diluted earnings per share
Number of equity shares outstanding at the Nos. 50,000 -
beginning of the year / period
Number of equity shares issued during the Nos. - 50,000
year / period
Number of Equity shares at the end of the year / period Nos. 50,000 50,000
Weighted Average Number of shares outstanding at the Nos. 50,000 50,000
end of the year / period
Earnings Per Share of Rs. 10 each - Basic & Diluted Rs. (2.38) (3.92)

51
Essar Steel Jharkhand Limited
[Formerly known as Essar Steel (Jharkhand) Limited]

Schedules forming part of the Balance Sheet

I. The previous period’s figures have been audited by the previous firm of auditors.
J. Previous period’s figures have been regrouped where necessary to conform to this year’s classification.
As per our report of even date
S.R. Batliboi & Co. For and on behalf of the Board of Directors
Chartered Accountants

per Hemal Shah V.G. Raghavan Narottam B. Vyas

Partner Director Director
M.No. 42650
Place: Mumbai Place: Mumbai
Date : August 16, 2007 Date : August 16, 2007

Balance Sheet Abstract and Company’s General Business Profile:

I. Registration Details:
Registration No. U 2 7 1 0 0 G J 2 0 0 5 P L C 0 4 6 2 7 2
State Code 0 4
Balance Sheet Date 3 1 . 3 . 2 0 0 7
II. Capital Raised during the Period: (Amount in ‘000 Rs.)
Public Issue -
Right Issue -
Private placement -
Share Application Money 3 4 0 0 . 0 0
III. Position of Mobilization and Deployment of Funds (Amount in ‘000 Rs.)
Total Liabilities 3 9 0 0 . 0 0
Total Assets 3 9 0 0 . 0 0
Sources of Funds:
Paid-up Capital 5 0 0 . 0 0
Share Application Money 3 4 0 0 . 0 0
Reserves & Surplus -
Secured Loans -
Unsecured Loans -
Application of Funds:
Net Fixed Assets -
Investments -
Net Current Assets ( 6 9 3 0 . 9 3 )
Expenditure during construction
period- pending allocation 1 0 5 1 5 . 7 0
Profit and Loss Account 3 1 5 . 2 3
IV. Performance of Company (Amount in ‘000 Rs.)
Turnover N i l
Profit /(Loss) Before Tax ( 1 1 9 . 2 3 )
Profit /(Loss) After Tax ( 1 1 9 . 2 3 )
Earning Per Share (Rs.) ( 2 . 3 8 )
V. Generic Names of Three Principal Products / Services of Company
(As per monetary terms)
Product description Item Code No.
Pellets 3 3 0 1
Slabs 3 3 0 9

For and on behalf of the Board

V.G.Raghavan Narottam B Vyas

Director Director
Place : Mumbai
Dated: August 16, 2007

52
Cash Flow Statement for the year ended 31st March, 2007

Year Ended Period Ended

31st March,2007 31st March,2006
Amount in Rs. Amount in Rs.
A Cash Flow from operating activities
Net Loss before Tax (119,233) (195,996)
Bank Charges 4,993 3,550
Operating Cash Loss before working capital changes (114,240) (192,446)
Increase in Current Liabilities 114,240 207,380
Net Cash Flow from Operating Activities - 14,934

B Cash Flow from Investing Activities

Expenditure during construction period (3,266,925) -

Net Cash Flow from Investing Activities (3,266,925) -

C Cash Flow from Financing Activities

Proceeds from issue of Shares - 500,000
Proceeds from Share Application Money 3,400,000 -
Bank Charges (4,993) (3,550)

Net Cash Flow from Financing Activities 3,395,007 496,450

Net increase in Cash and Cash Equivalents (A+B+C) 128,082 511,384

Cash and Cash Equivalents at the begining of the year 511,384 -

Cash and Cash Equivalents at the closing of the year/period 639,466 511,384

Components of cash and cash equivalents As at 31-Mar-07 As at 31-Mar-06

Cash on Hand 14,508 534
Balances with scheduled banks:
On current accounts 624,958 510,850
639,466 511,384

Notes:
1 The above cash flow statement has been prepared under the ‘Indirect Method’ as set out in the Accouting Standard- 3 on Cash
Flow Statements, issued by the Institute of Chartered Accountants of India.
2 Previous period’s figures have been regrouped / reclassified wherever necessary.

As per our report of even date

S.R. Batliboi & Co. For and on behalf of the Board of Directors
Chartered Accountants

per Hemal Shah V.G. Raghavan Narottam B Vyas

Partner Director Director
M.No. 42650
Place: Mumbai Place: Mumbai
Date : August 16, 2007 Date : August 16, 2007

53
Essar Steel Orissa Limited
DIRECTORS’ REPORT
To
The Members of Essar Steel Orissa Limited,
Your Directors have pleasure in presenting the First Annual Report on the
working of the Company together with the Audited Accounts for the
financial year ended 31st March, 2007.
1. OPERATIONS
During the period (14th June, 2006 to 31st March, 2007) under review,
the Company has initiated action for setting up the Steel Plant in the
Jagatsinghpur District at Paradeep in Orissa.
2. DIRECTORS
Shri Jatinder Mehra, Shri V.G. Raghavan and Shri Manish Kedia are
the first directors of the Company. They retire at the first annual
general meeting of the Company and being eligible offer themselves
for re-appointment.
Shri Prashant Ruia was appointed additional Director of the Company
u/s 260 of the Companies Act, 1956, who hold the office upto the
date of ensuing Annual General Meeting of the Company. He offers
himself for re-appointment as Director of the Company.
3. AUDITORS
M/s. S.R. Batliboi & Co., Chartered Accountants, Auditors of the
Company retires at the conclusion of Annual General Meeting and
being eligible offer themselves for re-appointment.
4. PERSONNEL
As required by the provisions of section 217(2A) of the Companies
Act, 1956 read with the Company’s (Particulars of Employees) Rules,
1975 as amended the names and other particulars of the employees
are set out in the Annexure to the Directors’ Report. However, as per
the provisions of the section 217 (1) (b) (iv) of the Companies Act,
1956 the Report and Accounts are being sent to all shareholders of
the Company excluding the above information. Any shareholder
interested in obtaining a copy of the particulars may write to the
Company at its Registered Office.
5. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND
FOREIGN EXCHANGE EARNINGS/OUTGO
As the Company has not undertaken any manufacturing activity
during the period, additional information on conservation of energy,
technology absorption and foreign exchange as required to be disclosed
in terms of Section 217(1)(e) of the Companies Act, 1956, read with
the Companies (Disclosure of Particulars in the report of the Board of
Directors) Rules, 1988 is not applicable.
AUDITORS' REPORT
To
The Member of Essar Steel Orissa Limited
1. We have audited the attached Balance Sheet of Essar Steel
Orissa Limited (‘the Company’) as at March 31, 2007 and also the
Profit and Loss account and the cash flow statement for the
period ended on that date annexed thereto. These financial
statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
2. We conducted our audit in accordance with auditing standards
generally accepted in India. Those Standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
3. As required by the Companies (Auditor’s Report) Order, 2003 (as
amended) (‘the order’) issued by the Central Government of India
in terms of sub-section (4A) of Section 227 of the Companies Act,
1956, we enclose in the Annexure a statement on the matters
specified in paragraphs 4 and 5 of the said Order.
4. Further to our comments in the Annexure referred to above, we
report that:
i. We have obtained all the information and explanations, which
to the best of our knowledge and belief were necessary for
the purposes of our audit;
ii. In our opinion, proper books of account as required by law
have been kept by the Company so far as appears from our
54
6. AUDITORS’ REPORT
There are no qualifications/adverse observations in the Auditors’
Report requiring information and explanations u/s 217(3) of the
Companies Act, 1956.
7. 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 ;
(i) that in the preparation of the accounts for the financial year
ended 31st March, 2007 the applicable accounting standards
have been followed along with proper explanation relating to
material departures ;
(ii) 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 as at 31st March,
2007 under review;
(iii) 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; and
(iv) that the Directors have prepared the accounts for the financial
year ended 31st March, 2007 on a ‘going concern’ basis.
8. SUBSIDIARY COMPANY
During the year under review your Company became subsidiary of
Essar Steel Limited and continues to be its subsidiary.
9. ACKNOWLEDGEMENT
Your directors wish to place on record their appreciation for the
various departments of Central and State Governments and its bankers
for their cooperation and support.
For and on behalf of the Board of Directors
V.G. Raghavan Manish Kedia
Director Director
Place : Mumbai
Date : August 16, 2007
examination of those books;
iii.The balance sheet, profit and loss account and cash flow
statement dealt with by this report are in agreement with the
books of account;
iv. In our opinion, the balance sheet, profit and loss account and
cash flow statement dealt with by this report comply with the
accounting standards referred to in sub-section (3C) of section
211 of the Companies Act, 1956.
v. On the basis of the written representations received from the
directors, as on March 31, 2007, and taken on record by the
Board of Directors, we report that none of the directors is
disqualified as on March 31, 2007 from being appointed as
a director in terms of clause (g) of sub-section (1) of section
274 of the Companies Act, 1956.
vi. In our opinion and to the best of our information and according
to the explanations given to us, the said accounts give the
information required by the Companies Act, 1956, in the
manner so required and give a true and fair view in conformity
with the accounting principles generally accepted in India;
a) in the case of the balance sheet, of the state of affairs
of the Company as at March 31, 2007;
b) in the case of the profit and loss account, of the loss
for the period ended on that date; and
c) in the case of cash flow statement, of the cash flows
for the period ended on that date.
For S. R. Batliboi & Co.
Chartered Accountants
per Hemal Shah
Place: Mumbai Partner
Date: August 16, 2007 Membership No.: 42650
 Annexure referred to in paragraph 3 of our report of even date
Re: Essar Steel Orissa Limited (‘the Company’)
(i) (a) The Company has maintained proper records showing
full particulars, including quantitative details and situation
of fixed assets.
(b) Fixed assets have been physically verified by the
management during the period and no material
discrepancies were identified on such verification.
(c) There was no substantial disposal of fixed assets during
the period.
(ii) The Company does not have any inventories. Therefore the
provisions of clause 4 (ii) of the order are not applicable to
the Company.
(iii) (a) As informed, the Company has not granted any loans,
secured or unsecured to companies, firms or other parties
covered in the register maintained under section 301 of the
Companies Act, 1956.
(b) As informed, the Company has not taken any loans, secured
or unsecured from companies, firms or other parties covered
in the register maintained under section 301 of the
Companies Act, 1956.
(iv) In our opinion and according to the information and explanations
given to us, there is an adequate internal control system
commensurate with the size of the Company and the nature of
its business, for the purchase of fixed assets. During the course
of our audit, no major weakness has been noticed in the internal
control system in respect of this area. During the period, the
Company did not undertake any activity of purchase of inventory
and sale of goods.
(v) According to the information and explanations provided by
the management, there are no contracts or arrangements
referred to in section 301 of the Companies Act, 1956 that
need to be entered in the register required to be maintained
under that section.
(vi) The Company has not accepted any deposits from the public.
(vii) The provisions relating to internal audit are not applicable to
the Company.
(viii) According to the information and explanations given to us,
the Company’s project is at start up stage of construction
and the Company has not commenced commercial
production. Hence maintenance of cost records is not
applicable during the period under audit.
(ix) (a) Undisputed statutory dues including provident fund,
income-tax, profession-tax and cess have not been
regularly deposited with the appropriate authorities and
there have been considerable delays in large number of
cases in case of payment of tax deducted at source,
provident fund and profession-tax and cess.
(b) According to the information and explanations given to
us, no undisputed amounts payable in respect of provident
fund, income-tax, profession-tax and cess and other
undisputed statutory dues were outstanding, at the period
55
end, for a period of more than six months from the date
they became payable.
(c) According to the information and explanation given to us,
there are no dues of income tax and cess which have not
been deposited on account of any dispute.
(x) The Company has been registered for a period of less than
five years and hence we are not required to comment on
whether or not the accumulated losses at the end of the
financial period is fifty per cent or more of its net worth and
whether it has incurred cash losses during the financial period.
(xi) The Company has no outstanding dues in respect of a
financial institution, bank or debenture holders.
(xii) According to the information and explanations given to us
and based on the documents and records produced to us,
the Company has not granted loans and advances on the
basis of security by way of pledge of shares, debentures and
other securities.
(xiii) In our opinion, the Company is not a chit fund or a nidhi /
mutual benefit fund / society. Therefore, the provisions of
clause 4(xiii) of the order are not applicable to the Company.
(xiv) In our opinion, the Company is not dealing in or trading in
shares, securities, debentures and other investments.
Accordingly, the provisions of clause 4(xiv) of the order are
not applicable to the Company.
(xv) According to the information and explanations given to us,
the Company has not given any guarantee for loans taken
by others from bank or financial institutions.
(xvi) The Company did not have any term loans outstanding during
the period.
(xvii) According to the information and explanations given to us
and on an overall examination of the balance sheet of the
Company, we report that no funds raised on short-term basis
have been used for long-term investment.
(xviii)The Company has not made any preferential allotment of
shares to parties or companies covered in the register
maintained under section 301 of the Companies Act, 1956.
(xix) The Company did not have any outstanding debentures
during the period.
(xx) The company has not raised money by way of public issues.
(xxi) Based upon the audit procedures performed for the purpose
of reporting the true and fair view of the financial statements
and as per the information and explanations given by the
management, we report that no fraud on or by the Company
has been noticed or reported during the course of our audit.
S. R. Batliboi & Co.
Chartered Accountants
per Hemal Shah
Place: Mumbai Partner
Date: August 16, 2007 Membership No.: 42650
Essar Steel Orissa Limited

Balance Sheet as at 31st March, 2007

Schedule 31st March, 20007

In Rs.
SOURCES OF FUNDS
Shareholders’ Funds
Share Capital 1 500,000
Share Application Money 203,410,000
TOTAL 203,910,000
APPLICATION OF FUNDS
Fixed Assets 2
Gross Block 72,449,897
Less : Accumulated Depreciation 134,178
Net Block 72,315,719
Expenditure during construction period (Including Capital Advances) 3 285,254,376
Current Assets, Loans and Advances
Cash and Bank Balances 4 46,155,591
Other Current Assets 5 66,021
Loans and Advances 6 396,338
Sub-Total (a) 46,617,950
Less: Current Liabilities and Provisions
Current Liabilities 7 199,927,507
Provisions 8 642,808
Sub-Total (b) 200,570,315
Net Current Assets (a - b) (153,952,365)
Profit and Loss Account 292,270
TOTAL 203,910,000
Notes to Accounts 9
The Schedules referred to above and notes to accounts form an integral part of the Balance Sheet.

As per our report of even date

S.R. Batliboi & Co. For and on behalf of Board of Directors
Chartered Accountants
per Hemal Shah V.G. Raghavan Manish Kedia
Partner Director Director
Membership No. 42650
Place : Mumbai Place : Mumbai
Date: August 16, 2007 Date: August 16, 2007

Profit and Loss Account for the period ended 31st March, 2007
Schedule 14th June, 2006
to
31st March, 2007
In Rs.
INCOME
Income -
TOTAL -

EXPENDITURE
Audit Fees (Refer Note F of Schedule 9) 112,240
Preliminary Expenses written-off 180,030
TOTAL 292,270

LOSS FOR THE YEAR CARRIED TO BALANCE SHEET 292,270

Earnings Per Share (Basic and Diluted ) Nominal Value of Rs. 10/- each (5.84)
(Refer Note H of Schedule 9)

Notes to Accounts 9
The Schedules referred to above and notes to accounts form an integral part of the Profit & Loss Account.

As per our report of even date

S.R. Batliboi & Co. For and on behalf of Board of Directors
Chartered Accountants

per Hemal Shah V.G. Raghavan Manish Kedia

Partner Director Director
Membership No. 42650
Place : Mumbai Place : Mumbai
Date: August 16, 2007 Date: August 16, 2007

56
Schedules forming part of the Balance Sheet
As at
31st March, 2007
In Rs.
Schedule 1 : Share capital
Authorised
10,00,000 equity shares of Rs.10/- each 10,000,000
Issued, Subscribed and Paid Up
50,000 equity shares of Rs. 10/- each fully paid 500,000
Entire share capital is held by M/s Essar Steel Limited,
the holding company together with its nominees
Schedule 2 : Fixed Assets (In Rs.)

Description Gross Block Depreciation Net Block

Additions made Deletions As at For the On Deletions As at As at
during the period 31st March 2007 period 31st March 2007 31st March 2007
Land Leasehold 29,826,395 - 29,826,395 - - - 29,826,395
Land Freehold 42,134,049 - 42,134,049 - - - 42,134,049
Office Equipments 84,682 - 84,682 14,107 - 14,107 70,575
Furniture & Fixtures 326,515 - 326,515 109,509 - 109,509 217,006
Computers 78,256 - 78,256 10,562 - 10,562 67,694
Total 72,449,897 - 72,449,897 134,178 - 134,178 72,315,719
As at
31st March, 2007
In Rs.
Schedule 3: Expenditure during Construction Period
(including Capital Advances)
Capital Advances
Advance for Land Acquisition 216,098,494
Advance for Office Premises 21,602,264
Advance for Pipeline Work 8,500,000
[A] 246,200,758
Pre-operative Expenditure - Pending allocation
Personnel Expenses:
Salaries, Wages and Bonus 6,592,547
Contribution to provident and other funds 32,976
Gratuity and Leave encashment 243,587
6,869,110
Project Promotion Expenses 1,178,888
Travelling and Conveyance 3,317,049
Testing Expenses 2,380,077
Freight Charges on testing of Iron Ores 6,037,749
Legal, Professional & Consultancy Charges 16,418,631
Power and Fuel 446,901
Commuincation Expenses 444,734
Printing and Stationary 98,912
Financing Charges 98,179
Depreciation 134,178
Rent 394,600
Office Expenses 1,808,898
Miscellaneous Expenses 421,627
40,049,533
Less: Interest received from Scheduled Banks
[Gross, Tax Deducted at Source of Rs. 106,092] 1,501,228
Less : Provision for Current Tax (505,313) (995,915)
[B] 39,053,618

Total Capital Work In Progress [A] + [B] 285,254,376

Schedule 4 : Cash and Bank Balances

Cash on hand 115,337
Balances with scheduled banks:
On current accounts 1,740,254
On deposit accounts 44,300,000
46,155,591
Schedule 5 : Other Current Assets
Interest Accrued on Bank Deposits 66,021
66,021
Schedule 6 : Loans and Advances
(Unsecured, considered good unless otherwise stated)
Advances recoverable in cash or in kind or for value to be received 396,338
396,338
Schedule 7 : Current Liabilities
Sundry Creditors (Refer Note E of Schedule 9) 198,253,438
Other Liabilities 1,674,069
199,927,507
Schedule 8 : Provisions
Provision for Income Tax (Net of Advance Tax - TDS of Rs. 106,092) 399,221
Provision for Gratuity 114,911
Provision for Leave Encashment 128,676
642,808

57
Essar Steel Orissa Limited
SCHEDULE 9 - NOTES FORMING PART OF THE ACCOUNTS FOR THE PERIOD ENDED MARCH 31, 2007
A. Background and Nature of Operations
The Company was incorporated on June 14, 2006 as Essar Steel
Orissa Limited with Registrar of Companies, Mumbai, Maharashtra.
The Company intends to set-up Steel Plant in the state of Orissa.
B. Significant Accounting Policies
a. The financial statements have been prepared to comply in all
material respects with the mandatory Accounting Standards
issued by the Institute of Chartered Accountants of India and
the relevant provisions of the Companies Act, 1956. The financial
statements have been prepared under the historical cost
convention on an accrual basis except in case of assets for
which provision for impairment is made and revaluation is carried
out. The accounting policies have been consistently applied by
the Company throughout the period.
b. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the results
of operations during the reporting period end. Although these
estimates are based upon management’s best knowledge of
current events and actions, actual results could differ from
these estimates.
c. Fixed Assets
Fixed assets are stated at cost less accumulated depreciation
and impairment losses if any. Cost comprises of the purchase
price and any attributable cost of bringing the assets to its
working condition for its intended use. Borrowing costs relating
to acquisition of fixed assets which takes substantial period of
time to get ready for its intended use are also included to the
extent they relate to the period till such assets are ready to be
put to use.
d. Depreciation
Fixed Assets are depreciated at the rates and in the manner
specified in Schedule XIV of the Companies Act, 1956 on written
down value method. Depreciation on additions to / deletions from
fixed assets is provided on prorata basis from / up to the date of
such addition / deletion as the case may be. Fixed Assets
individually costing less than Rs. 5,000 are fully depreciated in
the year of acquisition.
e. Expenditure during Construction Period
All costs of a capital nature, including financing costs till
commencement of commercial production and adjustments arising
from exchange rate variations attributable to fixed assets are
capitalized.Expenses other than those of capital nature incurred
relating to project prior to commencement of commercial
production are classified as Pre operative Expenditure and
disclosed under Schedule 3 – Expenditure during Construction
Period - pending allocation (net of income earned during project
development stage).Expenditure which is not directly or indirectly
related to the construction of the project has been charged to
Profit & Loss Account.
f. Interest on Bank Deposits
Interest Income is recognized on a time proportion basis taking
into account the amount outstanding and the rate applicable.
g. Earning Per Share
Basic earning per shares are calculated by dividing the net profit
or loss for the period attributable to equity shareholders by the
weighted average numbers of equity shares outstanding during
the period. For the purpose of calculating diluted earnings per
share, the net profit or loss for the period attributable to equity
shareholders and the weighted average number of shares
outstanding during the period are adjusted for the effects of all
dilutive potential equity shares.
h. Retirement and other employee benefits.
(i) Retirement benefits in the form of Provident Fund scheme
are defined contribution scheme and the contributions are
recognized when the contributions to the respective funds
58
are due. There are no obligations other than the said
contribution.
(ii) Gratuity liability under the payment of Gratuity Act and
provision of leave encashment are defined benefit
obligations and are provided for on the basis of an actuarial
valuation made at the end of each financial year.
i. Income taxes
Tax expense comprises of current and fringe benefit tax. Current
and Fringe benefit tax is measured at the amount expected to be
paid to the tax authorities in accordance with the Indian Income
Tax Act, 1961. Deferred tax is measured based on the tax rates
and the tax laws enacted or substantively enacted at the balance
sheet date. Deferred tax assets are recognised only to the
extent that there is reasonable certainty that sufficient future
taxable income will be available against which such deferred tax
assets can be realised. In situations where the Company has
unabsorbed depreciation or carry forward tax losses, all deferred
tax assets are recognised only if there is virtual certainty
supported by convincing evidence that they can be realised
against future taxable profits.
j. Provisions
A provision is recognized when an enterprise has a present
obligation as a result of past event; it is probable that an outflow
of resources will be required to settle the obligation, in respect
of which a reliable estimate can be made. Provisions are not
discounted to its present value and are determined based on
best estimate required to settle the obligation at the balance
sheet date. These are reviewed at each balance sheet date and
adjusted to reflect the current best estimates.
k. Segment Reporting
The Company’s activities during the period revolve around setting
up of the project (Refer Note C below). Considering the nature of
business and operations, there are no reportable segments
(business and/or geographical) in accordance with the
requirements of Accounting Standard 17 – ‘Segment Reporting’,
issued by the Institute of Chartered Accountants of India (ICAI).
Other Notes
C. The Company is setting up steel plant (project) at Paradeep in Orissa.
The project is at start up stage of construction and the Company has
not commenced revenue operations. The expenditure incurred directly
or indirectly is classified as Pre-Operative Expenditure pending
capitalization and will be apportioned to the Assets on the completion
of project. Necessary details as per part II of Schedule VI to the
Companies Act, 1956 have been disclosed in Schedule 3.
Expenditure which is not directly or indirectly related to the construction
of the project have been charged to Profit & Loss Account.
D. Disclosure of Related Party Transactions as required by
Accounting Standard – 18:
a) Related Party where the control exists-
a) Holding Company :

Essar Investments Limited (EIL) – Upto July 9, 2006·

Essar Steel Limited (ESTL) – From July 10, 2006·

Essar Steel Holdings Ltd. Mauritius- Holding
Company of Essar Steel Limited (ESHL)
b) Ultimate Holding Company:

Essar Global Ltd. - Holding Company of Essar Steel
Holdings Ltd. (EGL)
b) Fellow Subsidiary

Essar Steel Jharkhand Limited (ESJL)

Essar Steel Chhatisgarh Limited (ESCL)

Essar Steel Trading FZE, Dubai (ESTF)
c) Key Management Personnel

Mr. Prashant Ruia

Mr. Jatinder Mehra

Mr. V.G. Raghavan

Mr. Manish Kedia
During the period following transactions were carried out with some of the H. Earnings Per share
related parties in the ordinary course of business: (In Rs.) Particulars As at
Nature of Transactions Name of Holding 31st March, 2007
Party Companies Net Loss as per Profit & Loss Account Rs. 292,270
Subscription to the Share Capital EIL 499,940 for the purpose of calculating basic
and diluted earnings per share
Advance Received towards supply
Number of equity shares issued during Nos. 50,000
of materials ESTL 3,950,000
the period
Reimbursement made on behalf Number of Equity shares at the end of Nos. 50,000
of the Company ESTL 193,107,754 the period
Balance as at 31st March, 2007 Weighted Average Number of equity Nos. 50,000
Payable ESTL 197,057,754 shares for the purpose of calculating
E. There are no dues payables to small scale industrial undertakings basic and diluted earnings per equity share
and the Micro, Small and Medium Enterprises as on the date of Earnings Per Equity Share of Rs. 10 Rs. (5.84)
Balance Sheet. This is based on the information and records available each - Basic & Diluted
with the Company. This is relied upon by the statutory auditors. I. Supplementary statutory information
F. Auditor’s remuneration consists of Statutory Audit fees Particulars Period Ended 31st March, 2007
(In Rs.)
Particulars Period Ended 31st March, 2007 Expenditure in foreign currency
(In Rs.) Testing Expenses 1,086,690
Statutory Audit 112,240 1,086,690
(inclusive of service tax) 112,240 J. The company was incorporated on 14th June, 2006 and accordingly
the Accounts for the first reporting period are from 14th June, 2006 to
G. Operating lease 31st March, 2007. Hence, there are no corresponding figures for
Office cum Guest Houses and store room are obtained on operating previous year.
lease. Lease rent is payable as per the lease term. The lease term is As per our report of even date
generally for twelve months and renewable for a further period of
twelve months at the option of the Company. There is no escalation S.R. Batliboi & Co. For and on behalf of the Board of Directors
clause in the lease agreement. There are no restrictions imposed by Chartered Accountants
lease arrangements. There are no subleases on operating lease per Hemal Shah V.G. Raghavan Manish Kedia
basis. During the year the Company has debited lease rental of Partner Director Director
Rs.3,94,600/- M.No. 42650
This lease rental is capitalized as expenditure incurred during the Place: Mumbai Place: Mumbai
construction period. Date : August 16, 2007 Date : August 16, 2007

Balance Sheet Abstract and Company’s General Business Profile:

1. Registration Details:
Registration No. U 2 7 1 0 4 M H 2 0 0 6 P T C 1 6 2 6 0 9
State Code 1 1
Balance Sheet Date 3 1 . 3 . 2 0 0 7
II. Capital Raised during the Period: (Amount in ‘000 Rs.)
Public Issue - Private placement 5 0 0 . 0 0
Right Issue - Share Application Money 2 0 3 4 1 0 . 0 0

III. Position of Mobilization and Deployment of Funds (Amount in ‘000 Rs.)

Total Liabilities 2 0 3 9 1 0 . 0 0 Total Assets 2 0 3 9 1 0 . 0 0
Sources of Funds:
Paid-up Capital 5 0 0 . 0 0 Secured Loans -
Advance Share Application 2 0 3 4 1 0 . 0 0 Unsecured Loans -
Reserves & Surplus -
Application of Funds:
Net Fixed Assets 7 2 3 1 5 . 7 2 Expenditure during construction
Investments - period- pending allocation 2 8 5 2 5 4 . 3 8
Net Current Assets ( 1 5 3 9 5 2 . 3 7 ) Profit and Loss Account 2 9 2 . 2 7
IV. Performance of Company (Amount in ‘000 Rs.)
Turnover N i l Profit/(Loss) After Tax ( 2 9 2 . 2 7 )
Profit/(Loss) Before Tax ( 2 9 2 . 2 7 ) Earning Per Share (Rs.) ( 5 . 8 4 )
V. Generic Names of Three Principal Products / Services of Company
(As per monetary terms)
Product description Item Code No. Product description Item Code No.
Pellets 3 3 0 9 Slabs 3 3 0 1

For and on behalf of the Board

V.G.Raghavan Manish Kedia
Director Director
Place : Mumbai
Dated : August 16, 2007

59
Essar Steel Orissa Limited

Cash Flow Statement for the period ended 31st March, 2007

14th June, 2006

to
31st March, 2007
Amount in Rs.

A Cash Flow from operating activities

Loss before Tax (292,270)
Operating Cash Loss before working capital changes (292,270)
Increase in Current Liabilities 292,270
Net Cash Flow from Operating Activities -

B Cash Flow from Investing Activities

Purchase of Fixed Assets (72,449,897)
Expenditure during construction period (including Capital Advance) (85,089,159)
Direct Taxes Paid (215,353)
Net Cash Flow from Investing Activities (157,754,409)

C Cash Flow from Financing Activities

Proceeds from Issue of Shares 500,000
Proceeds Share Application Money 203,410,000
Net Cash Flow from Financing Activities 203,910,000

Net increase in Cash and Cash Equivalents (A+B+C) 46,155,591

Cash and Cash Equivalents at the begining of the period -

Cash and Cash Equivalents at the closing of the period 46,155,591

Components of cash and cash equivalents As at

31st March 2007
Cash on Hand 115,337
Balances with scheduled banks:
On current accounts 1,740,254
On deposit accounts 44,300,000
Note: 46,155,591

1 The above cash flow statement has been prepared under the ‘Indirect Method’ as set out in the Accouting Standard- 3 on Cash Flow
Statements, issued by the Institute of Chartered Accountants of India.
2 This being the first reporting period, there are no corresponding previous year’s figures.

As per our report of even date

S.R. Batliboi & Co. For and on behalf of Board of Directors
Chartered Accountants

per Hemal Shah V.G. Raghavan Manish Kedia

Partner Director Director
Membership No. 42650

Place : Mumbai Place : Mumbai

Date: August 16, 2007 Date: August 16, 2007

60
Essar Steel Trading FZE

DIRECTORS’ REPORT

To of affairs and of the profit or loss of the Company. In preparing

The Shareholders of Essar Steel Trading FZE those financial statements, the directors are required to
The Directors present before you the first annual report of the
1. Select suitable accounting policies and then apply them
Company together with the Audited Financial Statements of the
consistently;
Company for the period ended on 31st March, 2007.
INCORPORATION OF THE COMPANY 2. Make judgements and estimates that are reasonable and
prudent;
The Company was incorporated on 14th June, 2006 in the name
of Essar Steel Trading FZE registered under Dubai Airport Free
Zone (DAFZA) vide license no. 1054 3. State whether applicable accounting, standards have been
followed, subject to any material departures disclosed
PARENT COMPANY disclosed and explained in the financial statements, and
Essar Steel Limited a company registered under the laws of
India having its registered office at 27 KM Surat Hazira Road, 4. Prepare the financial statements on the going concern basis
Surat, Gujarat, India is the 100% parent of the Company. unless it is inappropriate to presume that the Company will
continue in business.
PRINCIPAL ACTIVITY
The Directors confirm that they have complied with the above
The Principal activity of the Company is primarily trading in steel requirements in preparing the financial statements.
& construction materials.
The directors are responsible for keeping proper accounting
RESULTS records, which disclose with reasonable accuracy at any time
the financial position of the Company and to enable them to
During the year under review the Company has not yet
ensure that the financial statements comply with the international
commenced its steel trading activity, however the company
Financial Reporting Standards (IFRS). They are also responsible
incurred a net loss of US$ 157, 936 due to finance & interest
for safeguarding the assets of the Company and hence for
cost incurred on financial facilities availed by the Company.
taking reasonable steps for the prevention and detection of
However, the company is of the view that during the current year
fraud other irregularities.
the revenues of the company would improve.
AUDITORS
DIVIDEND
The auditors of the Company Ernst & Young, Dubai has
The Directors do not recommend payment of dividend during
expressed their desire to continue as the auditors of the Company
the period under review.
during the forth coming year.
STATEMENT OF DIRECTORS ‘ RESPONSIBILITIES IN
RESPECT OF THE FINANCIAL STATEMENTS
V G Raghavan
The Directors are required to prepare financial statements for Director
each financial year, which give a true and fair view of the state Date: June 20, 2007

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF ESSAR STEEL TRADING FZE

Report on the Financial Statements
We have audited the accompanying financial statements of Essar Steel
Trading FZE (the “Establishment”), which comprise the balance sheet
as at 31 March 2007 and the income statement, cash flow statement
and statement of changes in equity for the period then ended, and a
summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of
these financial statements in accordance with International Financial
Reporting Standards and the applicable provisions of the Implementing
Rules and Regulations issued pursuant to Law No. (2) of 1996 and its
amendment No. (2) of 2000 concerning the formation of legal
establishments at the Dubai Airport Free Zone. This responsibility
includes: designing, implementing and maintaining internal control
relevant to the preparation and fair presentation of financial statements
that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with
International Standards on Auditing. Those standards require that we
comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The procedures
selected depend on the auditors’ judgement, including the assessment
of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit
procedures that are appropriate for the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Establishment as of 31
March 2007, and its financial performance and its cash flows for the
period then ended in accordance with International Financial Reporting
Standards.
Report on Other Legal and Regulatory Requirements
We also confirm that, in our opinion, the financial statements include in
all material respects, the applicable requirements of the provisions of
Implementing Rules and Regulations issued pursuant to Law No. (2) of
1996 and its amendment No. (2) of 2000 concerning the formation of
legal establishments at the Dubai Airport Free Zone and proper books of
account have been kept by the Establishment. We have obtained all the
information and explanations which we required for the purpose of our
audit and, to the best of our knowledge and belief, no violations of the
Implementing Rules and Regulations have occurred during the year
which would have had a material effect on the business of the
Establishment or on its financial position.
Naushad Anwar
20 June, 2007 Ernst & Young,
Dubai Partner

61
 EssarSteel
Essar SteelOrissa
Trading FZE
Limited

Income Statement Period ended 31 March, 2007

14 June, 2006
to
31 March, 2007
USD
Commission income 450,000
Interest income 284
450,284
Administrative expenses (266,065)
Finance costs (342,155)
LOSS FOR THE PERIOD (157,936)

The attached notes 1 to 9 form part of these financial statements.

Balance Sheet as at 3 1 March, 2007 As at

31 March, 2007
Notes USD
Current assets
Accounts receivables and prepayments 3 25,983,966
Bank balances and cash 4 20,405
Total Assets 26,004,371
Equity and Liablities
Equity
Share capital 5 816,727
Accumulated losses (157,936)
Total Equity 658,791
Non - current liabilities
Term loan 6 20,000,000

Current liabilities
Accrued expenses 345,580
Term loan 6 5,000,000
5,345,580
Total liabilities 25,345,580
Total Equity and Liablities 26,004,371
The attached notes I to 9 form part of these financial statements.
Cash Flow Statement Period ended 31 March 2007
14 June, 2006
to
31 March, 2007
USD
OPERATING ACTIVITIES
Loss for the period (157,936)
Adjustments for:
Interest expense 342,155
Interest income (284)
183,935
Working capital changes
Accounts receivable and prepayments (25,983,966)
Accrued expenses 345,580
Cash used in operations (25,454,451)
Interest paid (342,155)
Net cash used in operating activities (25,796,606)
INVESTING ACTIVITIES
Interest received 284
Net cash from investing activities 284
FINANCING ACTIVITIES
Issue of share capital 816,727
Term loan 25,000,000
Net cash from financing activities 25,816,727
BANK BALANCES AND CASH AT 31 MARCH 20,405

Statement Of Changes In Equity Period ended 31 March, 2007

Share Accumulated
capital losses Total
USD USD USD
Issued during the period 816,727 - 816,727
Loss for the period - (157,936) (157,936)
Balance at 31 March 2007 816,727 (157,936) 658,791

Mr. V. G. Raghavan
Director
June 20, 2007

62
NOTES TO THE FINANCIAL STATEMENTS As At 31 March, 2007

1 ACTIVITIES Foreign currencies

Essar Steel Trading FZE (the “Establishment”) was incorporated as a Transactions in foreign currencies are accounted for at the exchange
Free Zone Establishment with limited liability on 14 June 2006 in the rates prevailing at the date of the transaction.
Dubai Airport Free Zone pursuant to Law No. (2) of 1996 and its Monetary assets and liabilities denominated in foreign currencies are
amendment No. (2) of 2000 issued by Dubai Airport Free Zone Authority. retranslated at the rate of exchange ruling at the balance sheet date.
The business address of the Establishment is PO Box 61078, Dubai, All differences are taken to the income statement.
United Arab Emirates. 3 ACCOUNTS RECEIVABLES AND PREPAYMENTS
The Establishment is engaged in the activity of trading in steel and 2007
construction materials. During the period, the Establishment has USD
made advances to related parties for purchase of steel and the Due from related party (note 7) 25,518,836
delivery of materials is expected during the first quarter of 2008. Prepaid expenses 552
These are the first financial statements of the Establishment. Other receivables 464,578
Accordingly, comparative information is not included in these financial 25,983,966
statements. 4 BANK BALANCES AND CASH
The Establishment is a wholly owned subsidiary of Essar Steel Limited, Included in bank balances and cash are bank deposits amounting to
a company registered in India, which exercises management control USD 10,284 with Commercial banks in UAE. These are denominated
over the operating and financing decisions of the Establishment. in UAE Dirhams, short term in nature, with effective interest rates of
2 SIGNIFICANT ACCOUNTING POLICIES 3.6% to 3.85% p.a.
Basis of preparation 5 SHARE CAPITAL
The financial statements have been prepared in accordance with 2007
International Financial Reporting Standards and applicable USD
requirements of United Arab Emirates law. Issued and paid up:
The financial statements have been prepared in United States Dollars, 1 share of AED 3,000,000 816,727
being the functional currency of the Establishment. 6 TERM LOAN
The financial statements have been prepared under the historical The Establishment has obtained a term loan of USD 25 million from a
cost convention. commercial bank to finance trading requirements which includes any
IASB Standards and Interpretations issued but not adopted advance payments made for the purchase of steel products. The
The Establishment has not adopted the new accounting standards or loan is repayable in six successive semi-annual installments
interpretations that have been issued but are not yet effective. commencing six months after the date of disbursement of the loan.
Forty percent of the loan is repayable in the first four installments @
These standards and interpretations except for IFRS 7 are not likely
10% of the loan per installment and the balance sixty percent is
to have any significant impact on the financial statements of the payable in the last two installments @30% of the loan per installment.
Establishment in the year of their initial application. The application of The loan carries an interest rate of LIBOR plus 1.75% per annum. The
IFRS 7, which will be effective for the year ending 31 March 2008 will term loan is secured by a guarantee from Essar steel Limited.
result in amended and additional disclosures relating to financial The loan installments due within 12 months are shown as current
instruments and associated risks. liability.
Revenue recognition 7 RELATED PARTYTRANSACTIONS
Interest revenue is recognised as the interest accrues using the Related parties represent the shareholder, directors and key
effective interest method, under which the rate used exactly discounts management personnel of the Establishment, and entities controlled,
estimated future cash receipts through the expected life of the jointly controlled or significantly influenced by such parties. Pricing
financial asset to the net carrying amount of the financial asset. policies and terms of these transactions are approved by the
Commission income is accounted for on an accruals basis. Establishment’s management.
Impairments of financial assets There were no significant transactions with the related parties included
in the income statement during the period.
An assessment is made at each balance sheet date to determine
whether there is objective evidence that a specific Balances with related parties included in the balance sheet are as
follows:
financial asset may be impaired. If such evidence exists, any
2007
impairment loss is recognised in the income statement.
Trade Receivables
Impairment is determined as follows:
USD
(a) For assets carried at fair value, impairment is the difference
Essar Steel Limited 25,518,836
between cost and fair value, less any impairment loss previously
recognised in the income statement;
8 RISK MANAGEMENT
(b) For assets carried at cost, impairment is the difference between
Interest rate risk
carrying value and the present value of future cash flows
discounted at the current market rate of return for a similar The Establishment is exposed to interest rate risk on its interest
bearing assets and liabilities (bank deposits and term loan).
financial asset;
Liquidity risk
(c) For assets carried at amortised cost, impairment is the difference
The Establishment limits its liquidity risk by ensuring bank facilities
between carrying amount and the present value of future cash
are available.
flows discounted at the original effective interest rate.
Currency risk
Provisions The Establishment is not exposed to any significant currency risk.
Provisions are recognised when the Establishment has an obligation 9 FAIR VALUES OF FINANCIAL INSTRUMENTS
(legal or constructive) arising from a past event, and the costs to
Financial instruments comprise financial assets and financial liabilities.
settle the obligation are both probable and able to be reliably measured.
Financial assets consist of cash and bank balances and receivables.
Loans Financial liabilities consist of the term loan and payables.
Loans are recognised at the fair value of the proceeds received, net The fair values of financial instruments are not materially different
of transaction costs incurred. Loans are subsequently stated at from their carrying values.
amortised cost using the effective yield method. The difference
between proceeds (net of transaction costs) and the redemption Mr. V. G. Raghavan
value is recognised in the income statement over the period of the Director
loan. June 20, 2007

63
Essar Steel Limited
Auditors' Report to the Board of Directors of Essar Steel Limited
1. We have audited the attached Consolidated Balance Sheet
of Essar Steel Limited (the Company) and its subsidiaries
(collectively called ‘the Essar Group), as at March 31, 2007,
and also the consolidated profit and loss account and the
consolidated cash flow statement for the year ended on that
date annexed thereto. These financial statements are the
responsibility of the Company’s management and have been
prepared by the management on the basis of separate
financial statements and other financial information regarding
components. Our responsibility is to express an opinion on
these financial statements based on our audit.
2. We conducted our audit in accordance with the auditing
standards generally accepted in India. Those Standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
3. We did not audit the financial statements of a subsidiary,
whose financial statements reflect total assets of Rs. 112.25
crores as at March 31, 2007, the total revenue of Rs. 2.03
crores and cash flows amounting to Rs. 0.09 crores for the
year then ended. These financial statements and other
financial information have been audited by other auditor
whose report has been furnished to us, and our opinion, in
so far it relates to amounts included in respect of this
subsidiary, is based solely on the report of other auditor.
4. We report that the consolidated financial statements have
been prepared by the Company’s management in accordance
with the requirements of Accounting Standards (AS) 21,
consolidated financial statements and Accounting Standards
(AS) 23, Accounting for Investments in Associates in
Consolidated Financial Statements issued by the Institute
of Chartered Accountants of India.
64
5. As on March 31, 2006, the Company had net deferred tax
asset of Rs 425.75 crores on unabsorbed losses and
depreciation. As on March 31, 2007 net deferred tax asset
is Rs. 238.23 crores and net deferred tax reversal charge for
the year is Rs 187.52 crore. The Company had recognized
the above deferred tax asset based on the fact that it has
achieved profitability projections made earlier and other
factors as described in Note 8 of schedule 23. Such
recognition is based also on future profitability projections.
Hence , we are unable to comment whether such basis of
recognition complies with the definition of virtual certainty,
as required by Accounting Standard 22 on ‘Taxes on income’,
and on the appropriateness of such recognition along with
deferred tax charge for the year.
6. Based on our audit and on consideration of report of other
auditor on separate financial statements and on the other
financial information of the components, and to the best of
our information and according to the explanations given to
us, subject to the disclaimer in paragraph 5 above whose
impact on the profit for the year cannot be ascertained, we
are of the opinion that the attached consolidated financial
statements give a true and fair view in conformity with the
accounting principles generally accepted in India:
(a) in the case of the consolidated balance sheet, of the
state of affairs of the Essar Group as at March 31,
2007;
(b) in the case of the consolidated profit and loss account,
of the profit of the Essar Group for the year ended on
that date; and
(c) in the case of the consolidated cash flow statement, of
the cash flows of the Essar Group for the year ended on
that date.
S.R. BATLIBOI & CO.
Chartered Accountants
per Hemal Shah
Place: Mumbai Partner
Date: August 20, 2007 Membership No.: 42650
Consolidated Balance Sheet as at 31st March, 2007

As at
Schedules 31st March, 2007
Rs. in crores Rs. in crores
Sources of Funds
Shareholders’ Funds
Share Capital 1 1,387.00
Share Application Money Pending Allotment 20.68
Reserves and Surplus 2 3,270.84
4,678.52
Loan Funds
Secured Loans 3 6,644.24
Unsecured Loans 4 409.92
7,054.16
Long-term advances from customer (Refer note 18 of schedule 23) 166.42
{Amount payable within a year Rs. 8.66 Crore}
Total 11,899.10

Application of Funds
Fixed Assets 5
Gross Block 13,561.43
Less: Accumulated Depreciation 4,664.61
Net Block 8,896.82
Capital Work-in-Progress (including Capital Advances) 1,137.36
(Refer note 17 of schedule 23) 10,034.18

Investments 6 620.42

Deferred Tax Assets (net) 7 238.23

Current Assets, Loans and Advances

Interest accrued on Investment 4.51
Inventories 8 2,328.77
Sundry Debtors 9 548.79
Cash and Bank Balances 10 437.63
Loans and Advances 11 1,064.01
4,383.71
Less: Current Liabilities and Provisions
Liabilities 12 3,341.82
Provisions 13 35.62
Net Current Assets 1,006.27
Total 11,899.10
Notes to Accounts 23

Schedules 1 to 13 and 23 referred to above form an integral part of the Consolidated Balance Sheet.

For and on behalf of the Board of Directors of Essar Steel Limited

As per our report of even date P. S. Ruia Robin Banerjee
S. R. BATLIBOI & Co. Director Director Finance
Chartered Accountants
per Hemal Shah V.G.Raghavan Vikram Amin
Partner Director Director Marketing
Membership No. 42650
Narottam B Vyas
Mumbai, August 20, 2007 Mumbai : August 20,2007 Company Secretary

65
Essar Steel Limited

Consolidated Profit and Loss Account for the Year Ended 31st March, 2007

Year Ended
Schedules 31st March, 2007
Rs. in crores Rs. in crores
Income
Income from Operations 9,002.50
Less : Excise Duty 806.11
Net Sales 8,196.39
Other Income 14 19.22
8,215.61

Expenditure
Materials Consumed 15 5,747.74
Decrease/(Increase) in Stocks 16 (872.66)
Personnel Expenses 17 152.80
Manufacturing and Asset Maintenance 18 746.04
Administrative Expenses 19 146.25
Selling and Distribution Expenses 20 338.26 6,258.43
Profit before Finance Costs (net), Depreciation, prior period items and Taxation 1,957.18
Finance Costs (net) 21 620.83
Profit before Depreciation, Prior Period Items and Taxation 1,336.35
Depreciation 631.05
Profit before prior period items and Taxation 705.30
Prior period Items 22 22.81
Profit before Taxation 682.49
Tax Expense
Current Tax (MAT Payable) 55.01
Reversal of Excess Tax Provision of earlier years (1.22)
Deferred Tax 187.52
Fringe Benefit Tax 5.66
Profit after Taxation but before share in profits of Associates 435.52
Add: share in Profit of Associates 11.71
Profit after Taxation transferred to Balance Sheet 447.23

Earning per share (in Rupees) before prior period item (Refer Note 12 of schedule 23)
Basic (Nominal value of Shares Rs. 10 each) 4.64
Diluted (Nominal value of Shares Rs. 10 each) 4.64

Earning per share (in Rupees) after prior period item (Refer Note 12 of schedule 23)
Basic (Nominal value of Shares Rs. 10 each) 4.49
Diluted (Nominal value of Shares Rs. 10 each) 4.49

Notes to Accounts 23

Schedules 14 to 23 referred to above form an integral part of the Consolidated Profit and Loss Account.

For and on behalf of the Board of Directors of Essar Steel Limited

As per our report of even date P. S. Ruia Robin Banerjee
S. R. BATLIBOI & Co. Director Director Finance
Chartered Accountants
per Hemal Shah V.G.Raghavan Vikram Amin
Partner Director Director Marketing
Membership No. 42650
Narottam B Vyas
Mumbai, August 20, 2007 Mumbai : August 20,2007 Company Secretary

66
Schedules forming part of Consolidated Balance Sheet as at 31st March, 2007

As at
31st March, 2007
Rs. in crores Rs. in crores

Schedule 1
Share Capital

Authorised
352,00,00,000 Equity Shares of Rs. 10 each 3,520.00
6,00,00,000 0.01% Cumulative Convertible Preference Shares of Rs.90 each 540.00
6,00,00,000 1% Cumulative Redeemable Preference Shares of Rs.90 each 540.00
10,00,00,000 10% Cumulative Redeemable Preference Shares of Rs. 10 each 100.00
30,00,00,000 0.01% Cumulative Redeemable Preference Shares of Rs. 10 each 300.00
6,50,00,000 7% Compulsory Convertible Preference Shares of Rs. 350 each 2,275.00
7,275.00
Issued, Subscribed and Paid-up

113,98,10,888 Equity Shares of Rs. 10 each (Refer Note 19(b) of Schedule 23) 1,139.81
Add : 45,20,703 share Forfeited 0.67
1,140.48
20,29,24,832 0.01% Cumulative Redeemable Preference shares (CRPS) of 202.92
Rs.10 each.(Refer Note 19(a) of Schedule 23)
4,35,98,951 10% Cumulative Redeemable Preference Shares (CRPS) of 43.60
Rs.10 each.(Refer Note 19(c) of Schedule 23)
1,387.00

Of the above:
(a) 39,87,538 Equity Shares of Rs. 10 each were allotted as fully paid up Bonus Shares by capitalisation of General Reserve.
(b) 1,50,000 Equity Shares of Rs. 10 each were allotted as fully paid up for consideration other than cash.
(c) 58,46,41,861 Equity shares of Rs. 10 each are held by Essar Steel Holding Ltd, Mauritius, the holding Company.
(d) 100 Equity Shares of Rs. 10 each are held by Essar Global Ltd, Cayman the ultimate holding company.
(e) 100 Equity Shares of Rs. 10 each are held by ETHL Global Capital Ltd, subsidiary of ultimate holding company.
(f) 25,50,00,000 Equity Shares of Rs. 10 each are held by Essar Power Ltd, subsidiary of ultimate holding company.
(g) 7,06,65,726 Equity Shares of Rs. 10 each are held by Teletech Investments (India) Ltd, subsidiary of ultimate holding company.
(h) 100 Equity Shares of Rs. 10 each are held by Essar Power holdings Ltd, subsidiary of ultimate holding company.

Schedule 2
Reserves and Surplus

Capital Reserve
Balance as per last Balance Sheet 12.73

Securities Premium Account

Balance as per last Balance Sheet 91.77
Add: Additions during the year 1,398.28
1,490.05

Debenture Redemption Reserve

Balance as per last Balance Sheet 15.00
Less: Transferred to Profit and Loss account (7.25)
Add: Transferred from Profit and Loss Account 7.75
15.50

General Reserve
Balance as per last Balance Sheet 118.38

Profit and Loss Account

Balance brought forward from previous year 1,008.30
Add : Share of retained earnings in Associates 179.15
Add: Profit for the year transferred from Profit & Loss Account 447.23
Less: Transferred to Debenture Redemption Reserves (7.75)
Add: Transferred from Debenture Redemption Reserves 7.25

1,634.18
3,270.84

67
Essar Steel Limited

Schedules forming part of Consolidated Balance Sheet as at 31st March, 2007

As at
31st March, 2007
Rs. in crores Rs. in crores
Schedule 3
Secured Loans

Non-convertible Debentures 155.00

Term Loans
From Banks
Foreign Currency Loans 1,369.90
Rupee Loans 3,190.94
4,560.84
From Financial Institutions & others
Foreign Currency Loans 476.07
Rupee Loans 190.02

666.09
Interest accrued and due 1.50
Working Capital Loans from Banks 1,081.89
Buyers’ credit for Operational use 97.09
Buyers’ credit for Capital Expenditure 81.83
6,644.24

Notes:
1. Non-convertible Debentures are secured by the movable and immovable fixed assets of the company to the extent of Rs. 155 crores
consist of the following:

As at
Redemption 31st March, 2007
From First Rs. in crores
Particulars of Debentures Terms Installments Calendar year Installment
1,550 8.92% Secured Redeemable
Non Convertible Debenture of
Rs. 10,00,000 each* At par Five 2007 2nd Year 155.00

155.00
* As part of the debentures have been prepaid during the year the next installment falls due in the calendar year 2009

2. Details of securities for Term Loans are as under:

From Banks
Foreign Currency Loans
Secured by pari passu first charge on movable fixed assets, mortgage of immovable
properties and second charge on current assets of the Company. 854.97
Secured by mortgage of immovable property and first charge on all the other assets of the
Company except book debts. 93.18
Secured by pari passu first charge on movable fixed assets and mortgage of immovable
properties of the Company. 153.20
Priority debts, secured by pari passu first charge on movable fixed assets, mortgage of
immovable properties and second charge on current assets of the Company. 29.65
Priority debts, secured by pari passu first charge on movable fixed assets and mortgage of
immovable properties of the Company. 129.48
Loan taken by subsidiary (Essar Steel Trading FZE) against guarantee given by the Company. 109.42
1,369.90
Rupee Loans
Priority debts, secured by pari passu first charge on movable fixed assets and mortgage of
immovable properties of the Company. 39.01
Secured by pari passu first charge on movable fixed assets, mortgage of immovable
properties and second charge on current assets of the Company. 2,360.12
Secured by mortgage of immovable property and first charge on all the other assets of the
Company except book debts. 748.24
Secured by mortgage of immovable property and first charge on all the other assets
relating to Service Centers at Bahadurgarh, Pune and Chennai. 43.57

3,190.94

68
Schedules forming part of Consolidated Balance Sheet as at 31st March, 2007
As at
31st March, 2007
Rs. in crores Rs. in crores

From Financial Institutions & others

Foreign Currency Loans

Secured by pari passu first charge on movable fixed assets, mortgage of
immovable properties and second charge on current assets of the Company. 336.55
Secured by mortgage of immovable property and first charge on all the
other assets of the Company except book debts. 139.52
476.07
Rupee Loans
Secured by mortgage of immovable property and first charge on all the
other assets of the Company except book debts. 90.02
Secured by first and exclusive charge on immovable properties pertaining
to Township of the Company at Hazira Village, Surat District, Gujarat. 100.00
190.02
3. Working Capital Loans are secured by a first charge on the current assets and second charge on fixed assets of the company.
4. Buyer’s credit- operation use amounting to Rs. 97.09 crores have been classified under the head Secured Loans as relevant facilities are
secured by first charge on the Current assets and second charge on Fixed assets of the company.
5. Buyer’s credit - Capital Expenditure for capital project amounting to Rs. 81.83 crores have been classified under the head Secured Loans as
relevant facilities have a specific charge on the assets purchased under the said buyer’s credit .
6. Buyer’s credit shown in note no.4 & 5 above are also secured by Term/Margin deposits of Rs.114.58 crores pledged with the banks.

Schedule 4
Unsecured Loans
Dollar / Rupee Notes (Due within one year Rs.4.29 crores) * 298.61
Inter Corporate Deposit - Essar Investment Ltd (Due within one year Rs.50.00 crores) 100.00
Term Loan from Housing Development Finance Corporation Limited (Due within one year Rs.0.32 crores) 0.82
Finance Lease obligation (Due within one year Rs.2.16 crores) 10.49
409.92
Note:
* Rupee Notes aggregating to Rs.160.39 crores is repayable up to March 31, 2018 carrying interest @ 8% pa payable semi-annually. Dollar
Notes aggregating to Rs.138.22 Crores is repayable on March 31, 2018 carrying interest @ 0.25% pa payable semi-annually.
Schedule 5
Fixed Assets
Rs. in crores
Gross Block Depreciation Net Block
Description As at As at As at For the On As at As at
1.04.2006 Additions Deletions 31.03.07 1.04.2006 Year deletions 31.03.07 31.03.07
Freehold Land 57.11 33.91 - 91.02 - - - - 91.02
Leasehold Land - 2.98 - 2.98 - - - - 2.98
Buildings 898.10 275.49 0.30 1,173.29 311.48 64.12 0.13 375.47 797.82
Plant and Machinery 9,354.26 2,799.55 - 12,153.81 3,657.40 554.30 - 4,211.70 7,942.11
Furniture and Fixtures 24.13 3.10 - 27.23 17.25 1.83 - 19.08 8.15
Office Equipment 55.32 7.11 15.15 47.28 39.36 5.23 15.07 29.52 17.76
Vehicles 7.48 1.08 0.55 8.01 5.21 0.70 0.33 5.58 2.43
Ships and Vessels 0.46 6.67 - 7.13 0.29 0.34 - 0.63 6.50
Railway Sidings and Wagons 30.69 - - 30.69 16.80 1.50 - 18.30 12.39
Aircraft 19.99 - - 19.99 1.30 3.03 - 4.33 15.66
10,447.54 3,129.89 16.00 13,561.43 4,049.09 631.05 15.53 4,664.61 8,896.82
Notes:
1. Additions to fixed assets / capital work-in-progress include adjustments on account of foreign exchange gain of Rs.0.80 crore.
2. Land and Buildings includes certain properties under possession of the Company in respect of which the registration formalities are being completed.
3. Plant and Machinery include the Company’s share in the cost of Singanpur Weir and 220 KV Power Line amounting to Rs. 23.44 crores, which
was amortised over a period of five years (Current WDV Rs.Nil,).
4. Railway Sidings and Wagons include railway wagons (at cost) of Rs. 17.92 crores given on lease to Railway Authorities under ‘Own your Wagon’
scheme.(Current WDV Rs.6.64 crores).
5. Plant and Machinery include Jetty of Rs. 108.35 crores ( at Cost), Net book value Rs. 17.07 crores the ownership of which has been claimed
by Gujarat Maritime Board (GMB). The Company has disputed such claims.
6. Plant and Machinery include equipments at Retail outlet of Rs. 2.14 crores given on lease and its accumulated depreciation is Rs.0.24 crores.
Depreciation on this has been debited to Profit & loss account Rs. 0.13 crores.
7. Aircraft includes B200 Aircraft Beech Super King Air taken on finance lease : (Refer note 10 of Schedule 23)
Gross Book Value Rs. 10.91 crores.
Net Book Value Rs. 8.16 crores.

69
Essar Steel Limited

Schedules forming part of Consolidated Balance Sheet as at 31st March, 2007

As at
31st March, 2007
Rs. in crores Rs. in crores
Schedule 6
Investments
Long Term Investments (at cost)
Trade - Quoted
1,64,000 fully paid Equity Shares of Rs.10 each of Remi Metal Gujarat Limited. 0.16
0.16
Trade - Unquoted
2,50,000 fully paid Equity Shares of Rs. 10 each of Frontline Roll Forms Private Limited. 0.25
21,70,00,000 fully paid Equity Shares of Rs. 10 each of Essar Power Limited
(including Goodwill of Rs. 0.22 crores) (Refer note 20 of schedule 23). 217.00
Add: Share of Accumulated Profits of Associates. 179.15
Add: Share of Profit from Associates for the current year. 11.71 407.86
9,65,00,000 fully paid Equity Shares of Rs.10 each of Bhander Power Limited
(including Goodwill of Rs. 9.71 crores). 100.19
9,81,80,500 fully paid Equity Shares of Rs.10 each of Essar Steel (Hazira) Limited
(including Goodwill of Rs. 0.68 crores). 98.18
606.48
Other than Trade - Quoted
2,11,000 fully paid Equity Shares of Rs.10 each of Essar Oil Limited
(Refer note 14 of schedule 23) 0.90
0.90
Other than Trade - Unquoted
12,26,300 fully paid 14% Secured Redeemable Non Convertible Debentures of
Rs.105 each of Essar Oil Limited 12.88
2,600 Equity Shares of Essar Telecom
Infrastructure Pvt. Ltd.of Rs.10 Each(@ Rs. 26,000) @
20 fully paid Equity Shares of Rs. 10 each of Essar Commvision Limited (# Rs.200). #
12.88
Current Investments
Unquoted
643 fully paid Units of US 1964 Scheme of Rs. 10 each of Unit Trust of India * Rs. 8,314 ) *

620.42
Aggregate amount of Quoted Investments (Aggregate Market Value Rs.1.18 crores) 1.06
Aggregate amount of Unquoted Investments 619.36
620.42
Note:- The following units were purchased and sold during the year.
Purchase Dividend Redemption Closing Balance
Name of Mutual Fund Qty Rs.in Crores Qty Rs.in Crores Qty Rs.in Crores Qty Rs.in Crores
LIC MF Liquid Fund -
Dividend Plan 227,861,045 250.00 78,615 0.10 227,939,660 250.10 - -
DSP Merrill Lynch
Liquidity Fund 499,900 50.00 - 0.02 499,900 50.02 - -
(There was no opening balance of units as at 1st April 2006)
Schedule 7
Deferred Tax Assets (Net)
(Refer note 8 of schedule 23)
Deferred Tax Assets
Unabsorbed depreciation and carry forward losses 1,061.95
Provision for doubtful debts 1.23
Provision for doubtful advance 4.07
Deferred power charges 40.24
Other timing differences (disallowances under section 43 B of the Income tax Act, 1961) 87.76
1,195.25
Less: Deferred Tax Liabilities
Fixed Assets (excess of net book value over written down value as per the provisions of the Income tax Act, 1961) 931.21
Pre-Operative expenses included in capital work in progress 10.03
Prepaid lease rentals 15.78
957.02
Deferred Tax Assets (Net) 238.23

70
Schedules forming part of Consolidated Balance Sheet as at 31st March, 2007
As at
31st March, 2007
Rs. in crores Rs. in crores
Schedule 8
Inventories (at lower of cost or net realisable value)
Raw Materials (including stock in transit Rs. 84.02 crores) 528.84
Production Consumables, Stores and Spares (including stock in transit Rs. 67.45 crores) 594.97
Work-in-Progress 677.72
Finished Goods 527.10
Traded Goods 0.14
2,328.77

Schedule 9
Sundry Debtors
(Unsecured)
Trade
Debts outstanding for a period exceeding six months
Considered Good 46.65
Considered Doubtful 3.13
Less: Provision for Doubtful Debts 3.13
46.65
Other debts - Considered Good 294.52
341.17
Others
Debts outstanding for a period exceeding six months
Considered Good 187.56
Considered Doubtful 0.54
Less: Provision for Doubtful Debts 0.54
187.56
Other debts - Considered Good 20.06
207.62
548.79
Schedule 10
Cash and Bank Balances
Cash and Cheques on Hand 0.08
Balances with Scheduled Banks (Refer Note 21 of Schedule 23)
on Current Accounts 42.63
on Margin Deposit Accounts 9.37
on Term Deposit Accounts 384.74
436.74
Balance with other than Scheduled Banks - RZB Austria Singapore
* Maximum amount outstanding is Rs.3.69 Crores. 0.81
437.63
Schedule 11
Loans and Advances
(Unsecured, Considered Good unless otherwise stated)
Loans & Advances to Associates 25.76
Advances recoverable in cash or in kind or for value to be received
Considered Good 571.39
Considered Doubtful 12.08
583.47
Less: Provision for Doubtful Advances 12.08
571.39
Export Incentive Receivable 245.96
Balances with excise and customs 71.56
Deposit others
Considered Good 149.34
Considered Doubtful 0.08
220.98
Less: Provision for Doubtful Deposits 0.08
220.90
1,064.01

71
Essar Steel Limited

Schedules forming part of Consolidated Balance Sheet as at 31st March, 2007

As at
31st March, 2007
Rs. in crores Rs. in crores
Schedule 12
Liabilities
Acceptances
for Capital Expenditure 359.21
for Goods and Expenses 777.06
1,136.27
Sundry Creditors
Small Scale Industrial Undertakings
for Capital Expenditure 0.67
for Goods and Expenses 3.22
3.89
Others
for Capital Expenditure 112.93
for Goods and Expenses 1,449.89
1,562.82
1,566.71
Other Liabilities 334.91
Advance from Customers 284.01
Interest accrued but not due 19.92
3,341.82
Schedule 13
Provisions
Provision for leave encashment 7.84
Provision for Gratuity 6.82
Provision for Income Tax (Net of Tax paid / deducted at source Rs. 67.63 crores) 1.23
Provision for Indirect Tax Matter (Refer Note 22 of Schedule 23)* 19.73
35.62
*Amount provided during the year

Schedules forming part of Consolidated Profit and Loss Account for the Year Ended 31st March, 2007
Year Ended
31st March, 2007
Rs. in crores Rs. in crores
Schedule 14
Other Income
Dividend on Current Investments 0.12
Rent 4.07
Profit on sale of Fixed Assets (net) 0.05
Profit on sale of Long Term Investments 4.07
Liabilities/Provision no longer required written back (Net) 7.56
Miscellaneous Income 3.35
19.22
Schedule 15
Materials Consumed
Opening stock 651.87
Add: Purchase 2,430.71
Less: Closing stock 528.84
Raw Material consumed 2,553.74
Production Consumables, Stores and Spares 1,040.94
Petroleum Products - Fuel 2,046.19
Excise Duty* 106.87
5,747.74
* Represents differential excise duty in respect of closing stock & opening stock, excise duty on captive consumption etc.
Schedule 16
Decrease/(Increase) in Stocks
Opening Stock
Finished Goods 238.69
Work-in-Progress 93.47
332.16
Closing Stock
Finished Goods 527.10
Work-in-Progress 677.72
1,204.82
(872.66)
(872.66)

72
Schedules forming part of Consolidated Profit and Loss Account for the Year Ended 31st March, 2007

Year Ended
31st March, 2007
Rs. in crores Rs. in crores
Schedule 17
Personnel Expenses
Salaries, Wages and Bonus (including operating lease rent of Rs.3.02 Crores ) 122.03
Contribution to Provident Fund and Other Funds 11.51
Staff Welfare Expenses 16.88
Director’s Remuneration (Refer Note No.15 of Sch 23) 2.38
152.80
Schedule 18
Manufacturing and Asset Maintenance
Power and Water Charges 503.22
Repairs and Maintenance
Plant and Machinery 78.54
Buildings 25.78
Others 4.88
109.20
Plant and Equipment Hire Charges 27.18
Labour and Sub Contract Charges 93.70
Insurance 12.74
746.04
Schedule 19
Administrative Expenses
Traveling and Conveyance Expenses 34.38
Postage, Telephone and Fax 7.14
Printing and Stationery 1.93
Professional Fees 34.81
Operating Lease Rent 7.87
Rent, Rates and Taxes (includes wealth tax provision Rs. 0.14 crore) 2.86
Auditors’ Remuneration (Refer note 16 of schedule 23) 1.26
Directors’ Sitting Fees 0.03
Vehicle Hire and Maintenance Charges 16.38
Service charges 1.10
Loss/Reversal of profit on sale of long term investments (Refer note 20 of schedule 23) 14.73
Miscellaneous Expenses 23.76
146.25
Schedule 20
Selling and Distribution Expenses
Commission 197.05
Freight Outward 137.32
Discount 0.65
Other Selling Expenses 2.11
Bad Debts written off 22.91
Provision for Doubtful Debts (net) (21.78) 1.13
338.26

Schedule 21
Finance Cost (net)
Plant and Equipment Lease Rentals 13.81
Guarantee and Other Bank Charges 98.07
Exchange Variation (net) (50.18)
Interest
on Term Loans 375.41
on Debentures 18.41
to Banks and Others 242.62
636.44
698.14
Less:
Interest on advances, deposits, customers’ balances, income-tax refund, etc.
(Tax deducted at source Rs. 9.00 crores) 52.29
Gain on cancellation of Forward Exchange Contracts (Net of Premium paid / Amortised) 25.02 77.31
620.83
Schedule 22
Prior period Items
Finance Cost 3.59
Raw Materials (Freight) 19.22
22.81

73
Essar Steel Limited
Schedules forming part of the Consolidated Accounts for the Year Ended 31st March, 2007
Schedule 23
Consolidated Notes to the Accounts
1. Nature of Operations
The Company has an integrated steel manufacturing unit of flat rolled
products. The Company’s plant at Hazira produces high quality steel,
that gives it an Internationally competitive edge. Being a port based
fully integrated plant, the Company enjoys advantages in raw material
intake and finished goods despatch. The Company has benefication
plant at Kirandul and pelletisation plant at Vizag.
2. Statement of Significant Accounting Policies
(a) Basis of Preparation/Principles of Consolidation
The financial statements have been prepared to comply in all
material aspect with the mandatory Accounting Standards issued
by the Institute of Chartered Accountants of India and the
relevant provisions of the Companies Act, 1956. The financial
statements have been prepared under the historical cost
convention on an accrual basis.
The consolidated Financial Statements present the consolidated
accounts of Essar Steel Limited and its subsidiaries (collectively
referred to as the Essar group). The consolidated financial
statements have been prepared on the following basis:
- The Financial statements of the group have been
consolidated on a line by line basis by adding together the
book values of like items of assets, liabilities, income &
expenses after fully eliminating intra-group balances, intra-
group transactions and resultant unrealised profits/losses
in accordance with AS 21 issued by ICAI.
- Investments of the group in Associates are accounted as
per the Equity Method under Accounting Standard 23 issued
by ICAI.
- The consolidated financial statements have been prepared
using uniform accounting policies for like transactions and
are presented, to the extent possible, in the same manner
as the Company’s standalone financial statements except
in case of two Associates viz. Essar Power Limited and
Bhander Power Limited wherein depreciation on fixed assets
is provided on straight-line basis at the rates and in the
manner specified in Schedule XIV to the Companies Act,
1956 which is in variation to the method adopted by the
Company as mentioned in Note 2 (f) below.
- The financial statements of an integral foreign subsidiary
are translated as if the transactions of the foreign subsidiary
have been those of the company itself. All resulting exchange
differences are taken to the Profit and Loss Account.
(b) Use of Estimates
The preparation of financial statements is in conformity with
Generally Accepted Accounting Principles which requires
management to make estimates & assumptions that effect the
reported amounts of Assets & Liabilities and disclosure of
contingent liabilities at the date of financial statements & result
of operations during the reported year.
(c) Fixed Assets
Fixed assets are stated at cost (or revalued amounts, as the
case may be), less accumulated depreciation and impairment
losses if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Borrowing costs relating to acquisition of fixed
assets which takes substantial period of time to get ready for its
intended use are also included to the extent they relate to the
period till such assets are ready to be put to use.
(d) Capital Work-in-Progress
All expenditure, including advances given and interest cost
during the project construction period, are accumulated and
disclosed as capital work-in-progress until the assets are ready
for commercial use. Assets under construction are not
depreciated. Income earned from investments of surplus
borrowed funds during the construction/trial run period is reduced
from capital work-in-progress. Expenditure/income arising during
trial run is added to/reduced from capital work-in-progress.
(e) Expenditure on substantial expansion
All direct capital expenditure on expansion are capitalised. As
regards indirect expenditure on expansion, only that portion is
capitalised which represents the marginal increase in such
74
expenditure involved as a result of capital expansion. Both
direct and indirect expenditure are capitalised only if they increase
the value of the asset beyond its original standard of
performance.
(f) Depreciation
Fixed assets are depreciated at the rates and in the manner
specified in Schedule XIV of the Companies Act, 1956 on written
down value method, except for plant and machinery and railway
sidings which are depreciated on a straight line basis.
Depreciation in respect of revalued assets is recouped from
revaluation reserve. Depreciation on additions to / deletions
from fixed assets is provided on pro-rata basis from / up to the
date of such addition / deletion as the case may be. Depreciation
on additions to assets due to exchange variation, forward cover
premium charges, etc. is provided over the remaining useful life
of the assets.
(g) Impairment of Assets
(i) The carrying amounts of assets are reviewed at each
balance sheet date if there is any indication of impairment
based on internal/external factors. An impairment loss is
recognized wherever the carrying amount of an asset exceed
its recoverable amount. The recoverable amount is the
greater of the assets net selling price and value in use. In
assessing value in use, the estimated future cash flows are
discounted to their present value at the weighted average
cost of capital.
(ii) After impairment, depreciation is provided on the revised
carrying amount of the assets over its remaining useful life.
(iii) Goodwill arising on consolidation is not amortised. It is
tested for impairment and provision is made if found impaired.
(h) Revenue Recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the company and the revenue can
be reliably measured.
Sale of Goods
Revenue is recognised when the significant risks and rewards of
ownership of the goods have passed to the buyer. Sales is
disclosed net of quality claims and rebates. Excise Duty deducted
from turnover (gross) is the amount of excise duty that is included
in the amount of turnover (gross).
Export Benefits
Export benefits under duty entitlement passbook scheme, target
plus and duty free replenishment scheme is accrued whenever
ascertainable
Interest
Revenue is recognised on a time proportion basis taking into
account the amount outstanding and the rate applicable.
Dividends
Revenue is recognised when the shareholders’ right to receive
payment is established by the balance sheet date.
(i) Taxes on Income
Tax expense comprises of current, deferred and fringe benefit
tax. Current income tax and fringe benefit tax is measured at the
amount expected to be paid to the tax authorities in accordance
with the Indian Income Tax Act. Deferred income taxes reflects
the impact of current year timing differences between taxable
income and accounting income for the year and reversal of
timing differences of earlier years.
Deferred tax is measured based on the tax rates and the tax
laws enacted or substantively enacted at the balance sheet
date. Deferred tax assets are recognised only to the extent that
there is reasonable certainty that sufficient future taxable income
will be available against which such deferred tax assets can be
realised. If the company has carry forward of unabsorbed
depreciation and tax losses, deferred tax assets are recognised
only if there is reasonable certainty that such deferred tax
assets can be realised against future taxable profits. Unrecognised
deferred tax assets of earlier years are re-assessed and
recognised to the extent that it has become reasonably certain
that future taxable income will be available against which such
deferred tax assets can be realised.
(j) Inventories
Raw Materials, Production Consumables, Stores and Spares is
valued at lower of cost and net realizable value. However,
materials other than items held for use in the production of
inventories are not written down below cost if the finished products
in which they will be incorporated are expected to be sold above
cost. Cost is determined on a First in first out (FIFO) basis.Work
-in-progress and finished goods is valued at lower of cost and
net realisable value. Cost included direct material and labour and
a proportion of manufacturing overheads based on normal
capacity. Finished goods also include excise duty. Net realizable
value is the estimated selling price in the ordinary course of
business less estimated cost of completion and to make the
sale.
(k) Investments
Investments that are readily realisable and intended to be held
for not more than a year are classified as current investments.
All other investments are classified as long-term investments.
Current investments are carried at lower of cost and fair value
determined on an individual investment basis. Long-term
investments are carried at cost. However, provision for diminution
in value is made to recognise a decline other than temporary in
the value of the investments.
(l) Foreign Currency Transactions
Initial Recognition
Foreign currency transactions are recorded in the reporting
currency, by applying to the foreign currency amount the
exchange rate between the reporting currency and the foreign
currency at the date of the transaction.
Conversion
Foreign currency monetary items are reported using the closing
rate. Non-monetary items which are carried in terms of historical
cost denominated in a foreign currency are reported using the
exchange rate at the date of the transaction; and non-monetary
items which are carried at fair value or other similar valuation
denominated in a foreign currency are reported using the exchange
rates that existed when the values were determined.
Exchange Difference
Exchange differences arising on the settlement of monetary
items at rates different from those at which they were initially
recorded during the year, or reported in previous financial
statements, are recognised as income or as expenses in the
year in which they arise. Exchange differences arising in respect
of fixed assets acquired from outside India are capitalized as a
part of fixed asset. Exchange differences on liability relating to
fixed assets acquired within India arising out of transactions
entered on or before March 31, 2004 are added to the cost of
such assets in line with Old Accounting Standard 11 (1994).
Forward Exchange Contracts not intended for trading or
speculation purposes
The premium or discount arising at the inception of forward
exchange contracts is amortised as expense or income over the
life of the contract. Exchange differences on such contracts are
recognised in the statement of profit and loss account in the
year in which the exchange rates change. Any profit or loss
arising on cancellation or renewal of forward exchange contract
is recognised as income or as expense for the year.
(m) Earnings Per Share
Basic earnings per share are calculated by dividing the net profit
or loss for the period attributable to equity shareholders (after
deducting preference dividends and attributable taxes) by the
weighted average number of equity shares outstanding during
the period. Partly paid equity shares are treated as a fraction of
an equity share to the extent that they were entitled to participate
in dividends relative to a fully paid equity share during the
reporting period. The weighted average number of equity shares
outstanding during the period are adjusted for events of bonus
issue; bonus element in a rights issue to existing shareholders;
share split; and reverse share split (consolidation of shares).
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders
and the weighted average number of shares outstanding during
the period are adjusted for the effects of all dilutive potential
equity shares.
75
(n) Provisions
A provision is recognised when an enterprise has a present
obligation as a result of past event; it is probable that an outflow
of resources will be required to settle the obligation, in respect
of which a reliable estimate can be made. Provisions are not
discounted to its present value and are determined based on
best estimate required to settle the obligation at the balance
sheet date. These are reviewed at each balance sheet date and
adjusted to reflect the current best estimates.
(o) Cash and Cash equivalents
Cash and cash equivalents in the balance sheet comprise cash
in hand and at bank in current account. Margin deposit and term
deposit are considered as cash equivalents
(p) Derivative Instruments
The Company uses derivative financial instruments such as
forward exchange contracts and interest rate swaps to hedge
its risks associated with foreign currency fluctuations and interest
rate. Accounting policy for forward exchange contracts is given
in note (l).
(q) Retirement and other employee benefits
Retirement benefits in the form of Provident Fund and
Superannuation Schemes are charged to the Profit and Loss
Account of the year when the contributions to the respective
funds are due. There are no other obligations other than the
contribution payable to the respective trusts. Superannuation is
funded by payments to Life Insurance Corporation of India (LIC).
Gratuity liability under the Payment of Gratuity Act and provision
for leave encashment is accrued and provided for on the basis
of an actuarial valuation made at the end of each financial year.
Gratuity is funded by payments to Life Insurance Corporation of
India (LIC).
(r) Central Value Added Tax (CENVAT)
CENVAT claimed on capital goods is reduced from the cost of
plant and machinery/capital work-in-progress. CENVAT claimed
on purchases of raw and other materials is reduced from the
cost of such materials.
(s) Leases
(i) Where the Company is the Lessee
Lease rentals in respect of finance lease arrangements
entered up to 31st March, 2001 are segregated into cost of
the asset and interest components by applying an implicit
internal rate of return. The cost component is amortised
over the useful life of the asset and the interest component
is recognised in the Profit and Loss Account. Lease
payments in excess of the charge for the year are treated
as prepaid lease rentals wherever agreement is existing
and in other cases it has been added to the carrying cost of
the fixed assets.
Finance leases entered on or after 1st April, 2001, which
effectively transfer to the Company substantially all the
risks and benefits incidental to ownership of the leased
item, are capitalized at the lower of the fair value and
present value of the minimum lease payments at the
inception of the lease term and disclosed as leased assets.
Lease payments are apportioned between the finance
charges and reduction of the lease liability based on the
implicit rate of return. Finance charges are charged directly
against income. Lease management fees, legal charges
and other initial direct costs are capitalised.
If there is no reasonable certainty that the Company will
obtain the ownership by the end of the lease term, capitalized
leased assets are depreciated over the shorter of the
estimated useful life of the asset or the lease term.
Leases where the lessor effectively retains substantially all
the risks and benefits of ownership of the leased term, are
classified as operating leases. Operating lease payments
are recognized as an expense in the Profit and Loss account
on a straight-line basis over the lease term.
(ii) Where the Company is the Lessor
Assets subject to operating Lease are included in fixed
assets. Lease Income is recognised in the Profit and Loss
account on a straight line basis over the long term. Costs
including depreciation are recognised as an expense in the
Profit and Loss account. Initial direct costs such as legal
costs, brokerage costs, etc are recognised immediately in
the Profit and Loss account.
Essar Steel Limited

Schedules forming part of the Consolidated Accounts for the Year Ended 31st March, 2007

3. The company has three subsidiaries considered in this Consolidated financial statements. Essar Steel Limited’s share in voting power of these
companies as at 31st March, 2007 are
S.No. Name of the Company Country of Incorporation Proportion of Ownership Interest (%)
1 Essar steel Jharkhand Limited (ESJL) India 100
2 Essar steel Orissa Limited (ESOL) India 100
3 Essar steel Trading (FZE), Dubai Dubai 100
Note : During the year the Company has disposed of Investment in 100% Subsidiary- Essar Steel (Chattisgarh) Limited. The said subsidiary
has not been considered for consolidation as the Company has acquired temporary control of the said subsidiary exclusively with a view to
subsequently dispose it.

4. The Associates considered in the consolidated financial statements with Essar Steel Limited’s shareholding in these companies are :
S.No. Name of the Company Proportion of Ownership Interest (%)
1 Essar Power Limited. (EPOL) 36.26
2 Bhander Power Limited. (BPOL) 26.00
3 Essar Telecom Infrastructure Pvt. Ltd. 26.00
4 Essar Steel (Hazira) Limited (ESHL) 26.01
As at
31st March, 2007
5. Contingent Liabilities not provided for (Rs. Crores)
(i) (a) Bills discounted 48.69
(b) Claims against the company not acknowledged as debts [including amount already paid Rs 14.67 crores
included under Loans and Advances.] 653.10
(c) Disputed Sales tax matters Claims against the company not acknowledged as debts
[including amount already paid Rs 217.48 crores] 664.72
(d) Guarantees given to various banks, financial institutions, finance companies, etc. on behalf of others
[Balance outstanding as on 31.03.07 is Rs. 1,212.62 crores] 1,340.68
(ii) Proposed dividend liability on Cumulative Preference Shares 10.24
(iii) Company's share of contingent liabilities of Assciates 220.26
6. (a) Estimated amount of contracts remaining to be executed on capital account and not provided for 457.35
(b) Company's share of capital commitments of Associates 2,609.27
(c) Custom duty on pending export obligation under EPCG scheme 337.07
7. (i) Incase of company’s associate Essar Power Limited (EPOL) in which the company has an ownership interest of 36.26%, Gujarat Urja Vikas
Nigam Ltd. (GUVNL) has filed a petition with the Gujarat Electricity Regulatory Commission (GERC) raising issues of excess drawl of power by
Essar Steel Ltd (ESTL) over and above the capacity allocated under the Power Purchase Agreement (PPA) and Incentive of Deemed generation
on naphtha, as detailed under:
Allocation of Capacity
GUVNL has contended that the capacity declared to ESTL and GUVNL at all points of time should be aggregated and re-allocated in proportion
of the capacity allocated to GUVNL (300MW) and to ESTL (215MW). Accordingly, whenever ESTL has been supplied power in excess of the
capacity determined as aforesaid, such power supplied by EPOL to ESTL shall be considered as deemed supply of power by GUVNL to ESTL
and GUVNL would be entitled to charge rates applicable to high tension consumers to ESTL and recover the same from EPOL’s invoices.
EPOL has contended that there is no clause in PPA that requires EPOL to declare capacity to GUVNL in the ratio of 300:215. EPOL has further
contended that GUVNL has never requested for more power than the declared capacity and on most occasions has demanded power much less
than the capacity declared by EPOL.
EPOL further contends that the above dispute was settled on full and final terms when GUVNL had agreed to compute Deemed Supply Charges
only on such portion of power which was supplied to ESTL by EPOL in excess of 215 MW. Accordingly GUVNL had claimed and recovered a
sum of Rs.64 crores from EPOL. After having settled the claim, in the opinion of EPOL, the present claim of GUVNL is not sustainable.
Deemed Generation on naphtha
GUVNL has contended that in accordance with GOI notification dated March 30, 1992 (as amended vide notification dated November 6, 1995),
no incentive is payable on Deemed Generation for naphtha based thermal power stations.
EPOL has contended that the above notification itself provides for deviations. GUVNL had under the PPA executed on May 30, 1996 and the
Amendment to Agreement signed on December 18, 2003, had agreed to pay incentive based on Deemed Generation while Naphtha was the
primary fuel, despite the existence of the Notification dated November 6, 1995. GUVNL had also effected payment of incentive in accordance
with the terms of PPA since 1997. Thus in the opinion of EPOL, claim to recover incentives already paid by GUVNL is unjustified and not
sustainable.
(ii) In addition to above, GUVNL has also disputed payment of foreign exchange variation on repayment of ECB/Foreign currency loans, payment
of delayed payment charges and changed the method of computation of depreciation for the purpose of reimbursement to EPOL. In the opinion
of EPOL, the above claims are made in accordance with PPA and cannot be disputed by GUVNL.
(iii) The gross amount involved in the disputes referred in para 7 (i) is Rs.1,583 crores. The amount involved in relation to disputes in para 7 (ii) is
not quantifiable. As per the books of account of EPOL the amount receivable from GUVNL, as on March 31, 2007 is Rs. 403 crores, which has
not been confirmed by GUVNL.

76
Schedules forming part of the Consolidated Accounts for the Year Ended 31st March, 2007

EPOL has contended that it has complied with all the provisions of PPA as well as other arrangements entered in to with GUVNL. Further, EPOL
has also obtained legal opinion from Solicitors, who have opined that the probability of above claims being accepted by the appellate authorities
is remote. EPOL has taken a stand that the disputes have to be resolved as per the PPA and has filed a petition before the Gujarat High Court
(GHC) for appointment of an Arbitrator. The Hon Gujarat High court has passed an order appointing Justice Ahmadi as sole arbitrator for the
disputes. GUVNL has filed a Special Leave Petition (SLP) before the Supreme Court praying for stay on the GHC order appointing the arbitrator
and to direct the GERC to proceed with the case. Supreme Court has while admitting the SLP, has ordered a stay in proceedings both before
the Arbitrator and the GERC until it takes a view in the matter. Accordingly, pending the adjudication of the claim and as per the legal opinion,
EPOL has recognised during the year Rs.21.50 crores (previous year Rs 18.73 crores) towards delayed payment charges which has been
included in the balance receivable from GUVNL. EPOL is confident of realising total amount outstanding as on March 31, 2007and hence no
provision is made against the same.
8 The Company is of the view that Net Deferred Tax Assets of Rs.238.23 crores will be fully utilised in the years to come and it has recognised the
same based on all relevant facts such as uptrend in global and domestic steel industry, increased production capacity, backward and forward
integration by acquisition and past results exceeding the projections made, improved margins, consistent profits made in the last five years.
9 Segment Information
Primary Business Segment
The Company is primarily engaged in a single business segment of manufacture and sale of steel, and accordingly, this is the only primary
reportable segment.

Geographical Segments
Secondary segmental reporting is based on the geographical location of customers. The geographical segments have been disclosed based on
revenues within India (sales to Customers within India) and revenues outside India (sales to customers located outside India). Secondary
segment assets and liabilities are based on the location of such asset/liability.
Information about Secondary Geographical Segments Rs. Crores
Segment information Year Ended 31st March, 2007
India Outside India Total
Revenue (Income from operation) 6,012.38 2,990.12 9,002.50
Carrying amount of segment assets 15,100.70 175.84 15,276.54
Carrying amount of segment liabilities 8,003.95 2,594.07 10,598.02
Additions to fixed assets 3,129.89 - 3,129.89

10 Leases
Finance lease

Aircraft is obtained on finance lease. The lease term is for 5 years and renewable for further period after which the legal title is passed to the
lessee. There is no escalation clause in the lease agreement. There are no restrictions imposed by lease arrangements. There are no
subleases.

Operating lease
Residential Houses for staff accomodation are obtained on operating lease. Lease rent is payable as per the lease term. The lease term is
generally for 11 months to 60 months and renewable for a further period at the option of the Company. There is no escalation clause in the
lease agreement. There are no restrictions imposed by lease arrangements. There are no subleases.
Year Ended
31st March, 2007
Rs. crores
Finance lease Operating lease
(i) Assets taken on finance lease on or after 01.04.2001
Total minimum lease payments at the year end 9.54 -
Less : amount representing finance charges 1.43 -
Present value of minimum lease payments (Rate of interest : 9.50% p.a.) 8.11 -
Lease payments for the year 2.86 12.10
Contingent rent recognised in Profit and Loss Account - -

Minimum Lease Payments :

Not later than one year [For finance lease:Present value Rs.2.16 crores as on 31.03.07] 2.86 -
Later than one year but not later than five years [For finance lease:Present value Rs.5.95
crores as on 31.03.07] 6.68 -
Later than five years [For finance lease : Present value Rs. NIL as on 31.03.2007] - -
(ii) Future lease obligation for Assets taken on finance leases prior to 01.04.2001 8.51 -

77
Essar Steel Limited

Schedules forming part of the Consolidated Accounts for the Year Ended 31st March, 2007

11 Disclosure of related party transactions as required by Accounting Standard - 18 Related Party Disclosures:
(a) Holding Company
1 Essar Steel Holdings Limited, Mauritius
2 Essar Global Limited, Cayman – Holding Company of Essar Steel Holdings Limited
(b) Fellow Subsidiary
1 Essar Steel (Chattisgarh) Limited (ESCL)
2 Hazira Plate Limited (HPLT)
3 Essar Oil Limited (EOL)
4 Essar Logistics Limited (ELL)
5 Essar Shipping Limited (ESL)
6 Essar Construction Limited (ECL)
7 ETHL Global Capital Limited(ETHL)
8 Essar SEZ Hazira Limited (Essar SEZ)
(c) Associates
1 Essar Power Limited. (EPOL)
2 Bhander Power Limited. (BPOL)
3 Essar Telecom Infrastructure Pvt Limited
4 Essar Steel (Hazira) Limited (ESHL)
(d) Key Management Personnel
1 Mr. Prashant S Ruia, Managing Director*
2 Mr.Vikram Amin, Director (Marketing) (VA)
3 Mr.V.G.Raghavan, Director (Finance) (VGR)**
4 Mr Robin Banerjee, Director (Finance) (RB)***
* Ceased to be Managing Director w.e.f 29th October, 2006
** Ceased to be Director Finance w.e.f 31st January, 2007
*** Appointed as Director Finance w.e.f 1st February, 2007
(e) Individuals owning, directly or indirectly, an interest in the voting power that gives them control or significant influence
1 Mr. Shashi Ruia, Chairman
2 Mr. Ravi Ruia, Vice Chairman
3 Mr. Prashant S Ruia, Director
4 Mr. Anshuman S. Ruia
5 Mr Rewant Ruia, Director
(f) Enterprises commonly controlled or influenced by major shareholders/directors/Key management personnels of the company
1 Click For Steel Services Limited (CFS) 10 Aegis BPO Service Limited (AEGIS)
2 Essar Agrotech Limited (EAL) 11 PT Essar Indonesia (PTEI)
3 Essar House Limited (EHL) 12 S.G. Chemicals & Dyes Trading Limited
4 Essar Information Technology Limited (EITL) 13 Imperial Consultants Pvt Limited (ICPL)
5 Essar Investment Limited (EIL) 14 Essar House Services Limited (EHSL) formerly
6 Essar Projects Limited (EPL) known as Essar World Trade Limited
7 Essar Properties Limited (EPRL) 15 Asia Motor Works(AMW)
8 Futura Travels Limited (FTL) 16 Essar USA
9 India Securities Limited (ISL) 17 Teletech Investments (India) Limited

78
Schedules forming part of the Consolidated Accounts for the Year Ended 31st March, 2007

During the period, following transactions were carried out with some of the related parties in the ordinary course of business:
(excluding reimbursement)
Individuals
owning,
directly or
indirectly,
Enterprises an interest
commonly in the
controlled or voting
influenced power that
by major gives them
shareholders Key control or
Fellow /directors of Management significant
Holding Subsidiary Associates the company Personnel influence
Rs. Crores Rs. Crores Rs. Crores Rs. Crores Rs. Crores Rs. Crores

(a) Sale of Goods - 121.82 2.80 387.15 - -

(b) Income-Lease Rentals/Rent building - 2.29 - - - -
(c) Interest Income-Others - 9.11 - - - -
(d) Miscellaneous Income - 2.61 - - - -
(e) Conversion charges/ Raw Materials (inc resale) - 97.45 - 1.87 - -
(f) Purchases of Stores and Spares - 25.79 47.23 - - -
(g) Power Processing Charges - - 309.51 - - -
(h) Water Charges (EPOL) - - -3.05 - - -
(i) Repairs and Maintenance - 0.42 2.02 18.00 - -
(j) Plant and Equipment Hire Charges - 16.95 - 0.86 - -
(k) Labour Sub Contract Charges - 34.46 - - - -
(l) Travelling and Conveyance - 0.29 - 23.02 - -
(m) Professional Fees - 1.77 - 16.24 - -
(n) Sales Commission - 0.26 - 0.94 - -
(o) Freight Outwards (Net) - 855.82 - - - -
(p) Interest to Banks & Others - 30.14 0.37 0.25 - -
(q) Lease Rentals - Plant and Equipments - 2.87 - 7.36 - -
(r) Miscellaneous Expenses( EHL) - - - 0.83 - -
(s) Directors Remuneration incl.perquisites - - - - 2.52 -
(t) Directors Sitting Fees * Rs. 52,500 - - - - - *
(u) Capital Contract (ECL) - 355.06 - 0.64 - -
(v) Purchase of Investment - 76.12 122.25 0.05 - -
(w) Sale of Investment 0.05 - - 17.14 - -
(x) Sale of Investment reversal (ETHL) - 76.12 - - - -
(y) Purchase of Fixed assets - 2.58 - - - -
(z) Loans repaid (ESHL) - - 50.00 - - -
(aa) Loan Taken(ESHL & EIL) - - 50.00 158.35 - -
(ab) Security Deposit given(EPRL) - - - 0.27 - -
(ac) Security Deposit Received(EOL) - 2.00 - - - -
(ad) Deposit Refund(FTL) - - - 9.00 - -
(ae) Office Rent(EHL) - - - 4.82 - -
(af) Sale of Stores and spares (Essar SEZ & EPOL) - 8.64 28.10 - - -

Long Term Investments - 13.78 415.37 - - -

Sundry Debtors - 217.69 2.64 40.97 - -
Loan & Advances
Deposit - 1.86 - 80.92 - -
Other Advance *** Rs. 50,000 - 53.89 25.76 20.65 *** -
Capital Advances (Capital Work in Progress) - 153.11 - 10.00 - -
Sundry Creditors (Including Acceptances) - -202.53 -78.05 -9.30 - -
Advance from Customers - -4.36 - - - -
Interest accrued on Investment and ICD - 4.49 - - - -
Guarantees Given to various bank, financial institutions,
finance companies, etc. on behalf of others
[Facilities outstanding Rs.1,212.62 Crores ] - 382.55 958.13 - - -

79
 The Associates and Enterprises Commonly controlled or influenced by major shareholders/directors of the company having the following material related party transactions:
Essar Steel Limited

80
Schedules forming part of the Consolidated Accounts for the Year Ended 31st March, 2007

12 Earnings per share is calculated as under: Year Ended

31st March, 2007
Earning for the purpose of basic and diluted earning per shares Rs. Crores 447.23
Earning for the purpose of basic and diluted earning per shares (before
prior period item net of tax) Rs. Crores 462.36
Number of shares outstanding at the beginning of the year 580,497,248
Number of shares issued during the Year 559,313,640
Number of shares at the end of the Year 1,139,810,888
Weighted average number of shares for the purpose of calculating earning per share 985,041,908
Earning per share after prior period item
Basic & Diluted earning per Equity share of Rs. 10 each (in Rupee) 4.49
Earning per share before prior period item
Basic & Diluted earning per Equity share of Rs. 10 each (in Rupee) 4.64

13 Derivative Instruments and Unhedged Foreign Currency Exposure

(A) Derivative Instruments

Sr. No Type of Transaction Amount Currency Purpose

31st March 2007
1 Coupon Only Swaps (USD / INR) 375,000,000 USD To reduce the interest cost on Long Term Rupee Term loan
2 Rupee Indexed Interest Rate Swaps
(Overnight Index Swap) 10,000,000,000 INR To reduce the interest cost on Long Term Rupee Term loan
3 Cross Currency Swaps (USD / CHF) 20,000,000 USD To reduce the interest cost on Foreign Currency Loans.
The principal amount is protected through Options.
4 Currency Swap (INR / JPY) 1,255,160,551 JPY To reduce the interest cost on Foreign Currency Loans.
The principal amount is protected through Options.
5 Interest Rate Swap 120,000,000 USD To reduce the interest cost on Foreign Currency Loans.
6 Currency Options (USD / INR) 20,000,000 USD To hedge payable and receivable
7 Foreign Currrency Options 49,540,000 USD To hedge payable and receivable

(B) Unhedged Foreign Currency Exposure

Sr. No Particulars of Transactions Amount Currency
31st March 2007
1 Sundry Creditors (24,673) CHF
(12,204,566) EURO
(147,727) GBP
(11,523,088) JPY
(3,406,913) SEK
(15,967,420) USD
2 Advance from customers (2,427) EURO
(39,488,238) USD
3 Foreign Currency Loans (31,666,873) EURO
(413,858,628) USD
4 Sundry Debtors 10,789,230 USD
7,352,862 EURO

14 Investments (Others - Quoted) include 2,10,400 equity shares of Rs. 10 each of Essar Oil Limited (EOL) amounting to Rs. 0.90 crore,
pledged with ICICI Bank Limited as collateral to various loans granted by ICICI Bank Limited to EOL.
Year Ended
31st March 2007
Rs. Crores
15 Directors’ Remuneration
Salary and Allowances 2.21
Contribution to Provident Fund 0.17
Other Perquisites* 0.14
Total 2.52
* The perquisites value is calculated based on the provisions of the Income Tax Act, 1961
Note: As the future liability for gratuity and leave encashment is provided on an acturial basis for the Company as a whole, the amount
pertianing to the directors is not ascertainable and,therefore, not included above.
Year Ended
31st March 2007
Rs. Crores
16 Auditors’ Remuneration (excluding service tax)
Audit Fees 1.18
Other Services 0.02
Reimbursement of Expenses 0.06
Total 1.26

81
Essar Steel Limited

Schedule forming part of the Consolidated Accounts for the Year Ended 31st March, 2007

As at
31st March 2007
Rs. Crores Rs. Crores
17 Capital Work-in-Progress including expenditure during construction period
(a) Land and Buildings 61.06
(b) Plant and Machinery including technical know-how, supervision and other capital expenditure 767.19
(c) Advances to suppliers for capital expenditure 201.85
(d) Expenditure during construction period *
Personnel Expense
Salaries, Wages and Bonus 17.27
Contribution to Provident Fund and Other Funds 2.19
Staff Welfare Expenses 2.92
Manufacturing and Asset Maintenance
Power Charges 29.51
Repair & Maintenance 4.13
Administrative Expenses
Travelling and Conveyance Expenses 7.55
Postage, Telephone and Fax 2.54
Printing and Stationery 0.78
Professional Fees 23.64
Operating Lease Rent 1.02
Rates and Taxes 1.12
Vehicle Hire and Maintenance Charges 2.53
Miscellaneous Expenses 5.36
Service charges 0.01
Depreciation 0.01
Finance Cost
Term Loan Interest 141.61
Debentures 7.98
Capex LC Charges 1.94
Bank Guarantee and Other Charges 19.29
Forward cover cancellation (gain)/loss 17.88
Add: Balance brought forward from previous Year 289.28
157.99
447.27
Less: Allocated/transferred during the Year 340.01
Balance carried forward to next year 107.26

Total Capital Work-in-Progress [(a)+(b)+(c)+(d)] 1,137.36

* The expenditure debited to Profit and Loss Account are net of these expenditure during construction period.

18 Long term advances from customer are secured by a guarantee from financial Institutions which in turn has a charge on the company’s assets.

19 (a) The company has issued 20,29,24,832 0.01% Cumulative redeemable preference shares (CRPS) of Rs. 10 each. Each CRPS will be redeemable
in four quarterly equal installments commencing from October 01, 2017

(b) The company had issued 5,59,31,364 7% Cumulative convertiable preference shares (CCPS), each such CCPS are convertible at the option
of the holder into 10 equity shares of Rs. 10/- each at a premium of Rs. 25 per share on or before December 5, 2006. These CCPS were
issued exclusively to finance acquisition of the Hy-grade Pellets Ltd. and Steel Corporation of Gujarat Ltd. Accordingly, the company has,
upon sanction of, and pursuant to this scheme, alloted 55,93,13,640 equity shares of Rs. 10 each as fully paid up at a premium of Rs. 25 per
share to holders of CCPS.

82
Schedule forming part of the Consolidated Accounts for the Year ended 31st March, 2007

(c) The company has issued 4,35,98,951 10% CRPS of Rs. 10 each. Each CRPS will be redeemable at par in 12 equal monthly installments
commencing from October 01, 2017 to September 01, 2018. The Company shall have option to redeem the CRPS at par in one or more tranches
from any or all of the existing holders, anytime after the date of allotment together with arrears of dividend if any and the Board shall give
one month’s notice for any such redemption to the registered holders of the CRPS.

20 Administrative expenditure during the current year includes Rs.14.73 crores towards reversal of profit on sale of long term investment recorded
during the year ended 31st March, 2006. The reversal is on account of non completion of the transaction.

21 Margin and term deposits have been pledged with banks as a security for opening Letters of Credit - Rs.182.37 Crores and Buyers Credit - Rs.114.58
crores.

22 Essar SEZ Hazira Ltd applied for setting up a Special Economic Zone (SEZ) on 3rd December 2005 and the Zone was notified for setting up in
Hazira on 28th September 2006. Subsequently, Essar Steel Limited ( “the Company”) submitted a request for Letter of Approval (LOA) for setting
up a SEZ Unit ( “the Unit” ) to manufacture Hot Briquetted Iron (HBI) and Direct Reduced Iron (DRI) to the Development Commissioner – Kandla on
3rd October 2006. The said HBI/DRI facility commenced operations on 27th October 2006. The production was used for captive consumption
and the said facility complied with applicable Central Excise regime. The HBI/DRI Unit was approved on 11th January 2007 subject to fulfillment
of certain conditions. Such conditions were fulfilled on 21st March 2007. Questions have been raised by the Directorate General of Central Excise
Intelligence regarding the status of the Unit between 27th October 2006 and 21st March 2007. The company has subsequent to 31st March 2007,
made deposits against customs duty (Rs.161.35 crores) on clearance upto 21st March 2007, as if it was a SEZ Unit, though the matter is under
discussion with the appropriate Authorities.

The Company is of the view, based on legal advise, that the entire amount paid as above is refundable and/or cenvatable. However, the management
has as a matter of abundant caution made a provision of Rs 19.73 crores being non-cenvatable portion of customs duty paid for the period 11th
January 2007 to 20th March 2007.

23 The company has computed Provision for Taxation (Deferred Tax, Minimum Alternate Tax (MAT), Fringe Benefit Tax), for the current year based
on the past tax assessments and appeals, tax returns and expert opinions.

24 Since the Consolidated Financial Statements are presented for the first time, comparative figures for the previous year are not presented.

For and on behalf of the Board of Directors of Essar Steel Limited

As per our report of even date P. S. Ruia Robin Banerjee
S. R. BATLIBOI & Co. Director Director Finance
Chartered Accountants
per Hemal Shah V.G.Raghavan Vikram Amin
Partner Director Director Marketing
Membership No. 42650
Narottam B Vyas
Mumbai, August 20, 2007 Mumbai : August 20, 2007 Company Secretary

83
Essar Steel Limited

Consolidated Cash flow statement for the Year 1st April, 2006 to 31st March, 2007

Year Ended
31st March, 2007
A. Cash flow from operating activities Rs. in crores Rs. in crores
Net Profit before taxation 682.49
Adjustments for -
Depreciation 631.05
Profit on sale of fixed assets (net) (0.05)
(Profit)/Loss on sale of long term investment including write-off 10.66
Dividend/Interest income (0.12)
Finance Cost (net) 620.83
Liabilities no longer required written back (7.56)
Provision & write off for bad & doubtful debts (net) 1.13
Prior Period Items 22.81
1,278.75
Operating profit before working capital changes 1,961.24
Movements in working capital:
Decrease/(Increase) in sundry debtors (146.56)
Decrease/(Increase) in inventories (843.43)
Decrease/(Increase) in loans & advances 34.92
Increase/(Decrease) in current liabilities 919.24
(35.83)
Cash generated from operations 1,925.41

Direct taxes paid (net of refund) (26.34)

Net cash from operating activities 1,899.07

B. Cash flow from investing activities

Purchase of fixed assets (1,337.99)
Proceeds from sale of fixed assets 0.52
Sale of investments 317.31
Purchase of investments (474.30)
Interest and gain (Loss) on cancellation Forward Exchange Contract 58.52
Net cash from/(used in) investing activities (1,435.94)

C. Cash flow from financing activities

Share Application money received Pending Allotment 20.68
Proceeds from borrowings 2,128.89
Repayment of borrowings (1,988.76)
Finance cost paid (890.74)
Repayment of Long Term advances from customer (13.02)
Repayment of finance Lease liabilities (8.34)
Net cash used in financing activities (751.29)
Net decrease in cash and cash equivalents (288.16)
Cash and cash equivalents at the beginning of the year (see Note 3 below) 725.79
Cash and cash equivalents at the end of the year (see Note 3 below) 437.63
Net decrease in cash and cash equivalents (288.16)

Notes:
1 The above cash flow statement has been prepared under the ‘Indirect Method’ as set out in the Accounting Standard – 3 on Cash Flow
Statements, issued by the Institute of Chartered Accountants of India.
2 Since the Consolidated financial statements are presented for the first time comparative figures for previous year are not presented.
3 Cash and cash equivalents
Cash and cash equivalents consist of cash on hand & balances with banks. Cash and cash equivalents included in the cash flow statement
comprise the following :
As at As at
31st March, 2007 31st March, 2006
Rs. in crores Rs. in crores
Cash and Cheques on Hand 0.08 0.05
Balances with Scheduled Banks
on Current Accounts 43.44 14.96
on Margin Deposit Accounts 9.37 19.53
on Term Deposit Accounts 384.74 691.25
437.63 725.79

Margin and term deposits aggregating to Rs. 296.95 Crores have been pledged with banks as a security for opening Letters of Credit and Buyers Credit.

For and on behalf of the Board of Directors of Essar Steel Limited

As per our report of even date P. S. Ruia Robin Banerjee
S. R. BATLIBOI & Co. Director Director Finance
Chartered Accountants

per Hemal Shah V.G.Raghavan Vikram Amin

Partner Director Director Marketing
Membership No. 42650
Narottam B Vyas
Mumbai, August 20, 2007 Mumbai : August 20, 2007 Company Secretary

84
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