Contact Us  
Home  |  About Us   |  Investor Services   
Equity
   Equity Analysis
  News Analysis
  Corporate Action
  Other Market
  Company Profile
Derivatives
IPO
BSE Director's Report
Shipping Corporation Of India Ltd.
BSE Code 523598
ISIN Demat INE109A01011
Book Value (Rs) 149.50
NSE Code SCI
Dividend Yield % 0.22
Market Cap(Rs Mn) 107552.99
TTM PE(x) 17.57
TTM EPS(Rs) 13.14
Face Value (Rs) 10  
March 2015

Directors Report

To the Members,

Your Directors have pleasure in presenting the 65th Annual Report on the working of your Company for the financial year ended 31st March, 2015.

Accounting Year

The year under report covers a period of 12 months ended on 31st March, 2015.

Appropriations:

The working results for your company for the year 2014-15 after considering prior period adjustments show a profit of Rs. 200.93 crores.

An amount of Rs. 0.5 crores has been transferred to Tonnage Tax Reserve u/s 115VT of the Income Tax Act, 1961. Further an amount of Rs. 5.68 crores has been debited on account of depreciation adjustment (Refer Note 38)

Your Directors propose to make appropriations of Rs. 1.01 Crores for FY 2014-15 under Staff Welfare Fund.

After adjusting an opening debit balance of Rs. 228.46 crores (being balance profit and loss account brought forward from previous year), there is a debit balance in Profit & Loss A/c of Rs. 34.72 crores.

Brief Analysis of Financial Performance:

SCI has reported a profit of Rs. 200.93 crores for the financial year 2014-15 after incurring losses for three consecutive financial years. All the segments (Liner, Bulk & Technical and Offshore) have reported profit before Tax & Interest. The tanker market has shown some improvement which has partly offset the losses of the bulk carrier. The judicious cancellation of contracts and control of costs especially the Cargo Handling Expenses and Repairs & Maintenance expenses coupled with lower bunker prices have positively impacted the results.

Fleet Position during the Year:

During the year under report, five vessels aggregating to 278,565 DWT were phased out from the SCI fleet whereas one (1) new building Very Large Crude Oil Carrier (VLCC) of 316,634 DWT was delivered to SCI. Thus, in terms of tonnage, the overall fleet which was 5.85 million DWT at the beginning of the year, increased to 5.89 million DWT at the end of the year, even though the number of ships have reduced from 73 to 69 by the end of the year, as shown in the following table.

VESSELS ON ORDER AT THE END OF THE YEAR

At the end of the year 2014-15, the Company had no vessels on order. Your company is in the process of further expanding Offshore fleet through acquisitions.

Particulars of Loans, Guarantees and Investments

Details of Loans, Guarantees and Investments are given in the notes to financial statements.

Extract of Annual Return

In accordance with Section 134(3)(a) and Section 92(3) of the companies Act, 2013 read with relevant rules, an extract of annual return in form MGT-9 as on 31st March, 2015 is appended to the Directors' Report.

Subsidiaries and Associates

Your company has no subsidiary Company and has six Associate Companies and Joint Ventures. Pursuant to Section 129(3) of the Companies Act, 2013, a statement containing salient features of our associates companies in form AOC-1 is appended to the Director's Report.

In accordance to Section 136 of the Companies Act, 2013 the audited financial statements, of the company are available on our website www.shipindia.com .

Particulars of contracts/arrangements with related parties

Particulars of contracts or arrangements with related parties referred to in Section 188(1) of the Companies Act, 2013, in the prescribed form AOC-2, is appended to the Director's Report. The details are also available in Note 31 under 'Notes on Financial Statement'.

Particulars of Employees

In accordance with Ministry of Corporate Affairs notification no. GSR 463(E) dated 5th June, 2015, Government Companies are exempt from Section 197 of the Companies Act, 2013 and its rules thereof.

Risk Management

In accordance with the Section 134(3)(n) of the Companies Act, 2013 the Risk Management is forming a part of the Corporate Governance Report.

Conservation of Energy, Technology Absorption

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

Foreign Exchange Earnings and outgo

The foreign exchange earnings and outgo during the year under report were as under

Expenses on Entertainment, Foreign tours etc. - FY 2014-15

During the year under report your Company spent Rs. 24 lakhs on entertainment, Rs. 161 lakhs on publicity & advertisements and Rs. 293 lakhs on foreign tours of Company's executives.

Policy To Prevent Sexual Harassment In Workplace.

SCI endeavours to promote gender equality and has been taking proactive measures to prevent any Sexual Harassment in workplace.

A committee has been constituted comprising senior women executives of SCI and a lady representative from the NGO Pratham to prevent any Sexual Harassment in the workplace.

Your directors are happy to state that no cases of sexual harassment have been reported during the year ended 31st March, 2015.

MANAGEMENT DISCUSSION AND ANALYSIS

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

A. INDUSTRY STRUCTURE AND DEVELOPMENTS

i] WORLD SCENARIO

The world GDP grew by an average of 3.3% in 2014, with growth estimates for 2015 and 2016 at 3.5% and 3.8% respectively. The year 2014 witnessed uneven global recovery on the back of falling oil and commodity prices, and strengthening of the US Dollar in particular while geopolitical tensions weighed heavily on the downside risk limiting upside prospects. The US in particular gained from lower commodity prices and currency gains while Europe and Japan continued to struggle with deflationary pressures. China fared well in the process of managing the slowdown, while unable to settle on an equilibrium growth rate commensurate with central planning and private investment. The prospects for the year 2015, rests largely on the developing Asian economies, mainly China and India. The growth pattern in Europe is expected to be volatile.

Global GDP

According to IMF, Global GDP growth has been 3.3% in 2014 and expected to be around 3.5% in 2015. The decline in commodity prices especially crude oil is expected to boost world GDP by shifting 'real income' from producing to consuming nations such as the US, China and India. The US economy is riding on the advantages of a strong currency and lower commodity prices, where growth is expected to exceed 3% in 2015-16.

Amongst the emerging economies the growth is projected to be broadly stable at 4.5% - 4.7%, although China continues to face hurdles in stimulating domestic demand with lagging export opportunities and is expected to grow at 6.8%. On the other hand India is expected to surpass China with a growth rate of 7.5% driven mainly by a stable and pro reform Government and radical policy changes.

IMF's World Economic Outlook states that global output will expand by 3.5% in 2015 and increase further to 3.8% in 2016, as against 3.4% in 2014.The economy of developed nations is expected to improve by 2.4% in 2015 and 2016. The report forecasts global trade to grow from 3.4% in 2014 to 3.7% and 4.7% in 2015 and 2016 respectively, on the back of increasing demand from developing economies for commodities and demand stability from developed economies, although growth is expected to be moderate and uneven in distribution amongst individual countries.

The global GDP growth directly affects the international trade (export and imports) and in turn affects the shipping industry as about 80% of the international trade by volume is carried out by shipping.

Seaborne Trade, Fleet & Market

Globally, the oil trade (i.e 'Crude Oil' and 'Products' segments) growth rose marginally by 0.7% compared to 1.4% growth in 2013. In the 'oil' trade segment, the global 'Crude oil' imports was almost stagnant at 2.10 billion tons, whereas global 'Products' imports were 0.92 billion tons, increasing by 4.4%. The tanker fleet expanded by 1.4% in 2014 as compared to 2.5% during the previous year. Overall for most crude tanker owners, 2014 was an optimistic year with earnings across segments at levels above operating costs for most of the year.

The dry bulk trade increased by more than 8% in volume over the course of the year but oversupply of tonnage continued to plague the markets and earnings. Although time charter rates improved on the backdrop of falling commodity prices leading to long hauls, the spot and trip charter rates remained low and volatile due to local over supply of tonnage. The deceleration in fleet growth continued to about 5.3% from 5.6% in 2013 but the fleet growth is expected to clock an average 5% annually for the next couple of years limiting the prospects for a reversal in the supply demand gap. Most of the gains in demand during 2014 came from the iron ore, and coal trades. China followed by developing nations such as India was the key driver of the increase in demand.

The container trade in 2014 was around 159 million TEUs registering an improvement in growth at 4.9% over 2013 as compared to 4.2% in year 2013 and 2.5% in 2012. The improvement was mainly attributed to resurgence of European import growth and a strong expansion in US imports propelled by a fast expanding economy and retail demand. The Chinese containers exports to Europe and US posted strongest gains since 2010 though the overall export growth stagnated near 6% mark. Fleet growth remained steady in 2014 despite rising new building volumes, due to moderation of delivery slippages and disposals having remained high, keeping fleet expansion under control.

ii] INDIAN SCENARIO

As per Central Statistical Organization (CSO), Indian economy grew by a robust 7.3% in 2014-15, compared to 6.9% growth in 2013-14 on the backdrop of improvement in both services and manufacturing sector marked by confidence in the markets owing to the newly elected stable Government. India is expected to overtake China in GDP growth this year. The farm sector grew at annual 0.2% compared with a 3.7% expansion in the earlier period. The power and utility sectors also posted a growth rising an annual 7.9% in 2014-15 compared with a 4.8% growth in 2013-14. The manufacturing sector reversed the declining trend and clocked 7.1% growth as against 5.3% during the previous year. The mining sector fell to 2.4% year-on-year in 2014-15 compared with 5.4% in the year earlier period.

According to sources from Ministry of Commerce, India's exports in value terms fell by 1.23% to US$ 310.53 billion in 2014-15, while imports fell by 0.59% to US$ 447.54 billion. As per Indian Port Association (IPA), the quantum of Cargo Traffic at India's 12 major ports rose by 4.65% in 2014-15 i.e. from around 555 million tons in 2013-14 to 581 million tons in 2014-15. The largest commodity group in the total traffic was POL with around 32% share, followed by Container traffic and 'Other cargo' (21% each), Coal (20%), Iron ore and Fertilizers - Finished & Raw (3% each). On the other hand, the existing non-major ports, especially private ports, continue to grow due to factors such as a diversified cargo portfolio, superior operating efficiency and infrastructure, and the presence of captive cargo streams.

iii] STRENGTHS

Years of experience in Shipping together with diversified fleet across all major segments give SCI a unique ability to exploit demand growth in any given segment with a quick-mover advantage on the peak of learning curve.

New acquisitions have brought down average age from 18 years in 2007 to about 9 years presently.

Longstanding COA relationships with major Indian Oil Refineries offer cargo security.

iv] OUTLOOK

As the prospects for global economy point to improved growth at about 3.5%-3.8% in 2015-16, oil trade demand (both crude and product) will gain support from low oil prices and changing trade patterns are expected to absorb the modest growth in fleet lending support to positive earnings. This would allow the tanker market to remain buoyant over the coming year with rates and prices for both crude and product tankers moving up, on average compared to 2014. Most indicators are likely to stabilize in 2015 and from 2016-18, crude tanker indicators would hold steady over this period, while product tanker rates and prices may come under some pressure due to excessive fleet growth. In the dry bulk segment freight rates are expected to undergo severe volatility over the course of next five years. More specifically, freight rates for Cape, Panamax, and small bulkers are projected to increase in 2015 before coming down in 2016-18 due to surge in the fleet growth.

In the container segment, freight rates in the east-west, north-south and intra-area markets averaged 1% lower in 2014 than 2013 levels, and despite losing some ground towards the year-end, freight rates remained at or slightly below earlier levels. This was a positive development considering that the fuel prices averaged much lower than prices prevailing a year before, allowing for a significant cushion. Improving market sentiments based on the forecast of an improving economy in Europe and robust trade growth to US would help in strengthening the resolve of liner companies to push for rate restoration in 2015. Cementing of the operating positions and services of the four major alliances in the east-west trades early 2015 is expected to lead to market discipline returning in the premier markets with fewer incidents of rate undercutting and a more orderly approach towards rate restoration. Charter market fundamentals are also expected to improve steadily in 2015 with a further upgrade predicted in 2016.

v] OPPORTUNITIES

The global GDP is expected to grow at 3.5% in 2015. This, however, is dependent on the two largest economies, US and China followed by emerging economies such as India. Overall US is expected to grow by 3.1% in 2015, up from just 2.2% for 2014 as a whole. The outlook for Chinese economy in 2015 is mixed, with some slowdown relative to the previous year. The Chinese GDP growth is expected to remain at 6.8% in 2015, down from 7.5% growth in 2014 mainly on the backdrop of declining industry output and falling demand. The country is losing the edge in exports due to the strong Yuan. The developing Asia region is also expected to perform better in 2015 as compared to 2014 with India poised to surpass China for the first time. The low oil prices are expected to improve the economic situations of most of the developing Asian nations supporting the basis for a prosperous economic outlook. The Asia region is expected to grow by 6.6 % in 2015, up from 6.5% growth in 2014 with India poised to grow at 7.5%. The European economy is expected to show modest growth of 1.5% in 2015 with growth coming in primarily from those European countries, outside the Euro zone. The Japanese economy is expected to grow at a modest rate of about 1% in 2015.

vi] RISKS & CONCERNS

Geopolitical tensions, the US monetary policy tightening, declining industry output and falling demand in China remain the major macro risks. Also the low crude oil prices have hit the economies of oil exporting countries both Middle East and Russia who in turn may be forced to cut subsidies and consequently hurt demand. The falling Russian economy is seen as an example of an economy hit directly by falling oil prices in general. The decision of the Chinese Government to increase the percentage of non-fossil fuels in its total energy mix could curtail future oil demand from the country. The crude tankers rates are also expected to remain flat during 2015-18.

Similarly in the dry bulk segment, the rising interest rates in emerging economies could lead to slowing import demand. Additionally, relatively flat steel production in the developing Asia region due to weaker Indian economy remains a matter of concern.

The global containerized trade growth, in the likely event of the economy not recovering, would be limited to 3.9% in 2015 managing only a 5% expansion in 2016. Lower economic growth and global demand may while pushing oil and bunker prices lower help induce further speed gains in the charter fleet and the resulting productivity gains would lead to reduction of further 1% charter fleet utilization in 2015 and 1.5% in 2016.

B. SEGMENT-WISE FLEET & MARKET STUDY

1. BULK CARRIER & TANKER

a) Crude Oil & Product Tankers

The global consumption of Crude Oil registered a marginal increase of 0.7% to 93.60 million barrel per day over the previous year. It is forecasted that the demand growth is expected to come from developing countries of Asia and Latin America while the slowdown in China is likely to offset this growth. US domestic output has increased by 1.6% over the year which has stabilized imports at 4.3 million barrel per day a decline of 4% over the previous year. US imports of West African and Latin American crude oil have declined and this oil is now moving to Asia, helping to boost ton-mile demand. However, after recent plunge in crude oil prices it is reported that many oil rigs and shale fields have stopped production due to low investment returns. If the production of shale oil declines further it could result in US imports leading to increase in demand for tanker tonnage. There were deliveries of 9.11 million dwt and 1.695 million dwt of new built crude oil tanker and product tankers respectively in 2014. For Crude oil tankers, the deliveries expected are 9.11 million dwt and 17.74 million dwt in 2015 and 2016 respectively. For Product tankers, the respective figures are 5.11 million dwt and 5.4 million dwt each. New building prices for tankers continued to build on the gains seen in late 2014, rising by about 5% in 2014 and stabilized during the early part of 2015. In ton-mile terms, it is estimated that crude trade increased by 1.4% compared to the previous year.

The trade is likely to remain robust on import gains in Asia Pacific and an expected re-start of US imports. The average spot rate of TD3 route of AG/East for VLCC was US$ 25,025/day in 2014. The future market in this segment seems to be in the range of US$ 30,000-40,000/day. One Year TC rate for VLCC was about US$ 28,115/day in 2014, with some fixtures done at higher levels during the latter part of the year. The Suezmax rate on Black Sea/Med route was in the range of US$ 26,250/day in 2014 which is expected to improve at about 10% per year over the next 2 years. For Aframax, the spot rate on AG/Singapore route was US$ 16,348/day which has touched higher levels during the end of the year and is expected to turn volatile owing to fuel oil arbitrage trades. For Product tankers, LR1 Spot rates on AG/East was US$ 14,147/day in 2014 and expected to remain at similar level in 2015. One year TC rate for LR1 was US$ 15,880/day. In MR tankers on Caribs/US route the spot rate was US$ 19,568/day in 2014. One Year TC rate for MR was US$ 14,630/day in 2014 and expected to be around US$ 16,500/day for the next year.

Your company had four VLCCs and the fifth VLCC was delivered to us on 28.03.2015 from China. They were mainly employed on Voyage Charter during FY 2014-15 and had been performing spot voyages, except MT Desh Vaibhav which was on time charter with Hanjin for about 4 months of the financial year. Your Suezmax tankers were mainly deployed with the Indian oil industry and performed COA voyages, except occasionally performing spot voyages for Indian and foreign charterers. MT Desh Shakti and MT Desh Shanti were on time charter with M/s. India Steamship for 9 months and 3 months respectively during the period. The COA earnings are based on AFRA which has been low. The time charter rates compares well with market benchmarks.

LR-I tanker MT Jawaharlal Nehru being single hull and non-coiled tanker suitable only for coastal crude oil movement and has been disposed of during financial year.

Your product tankers in the Swarajya Series & Tagore Series were all well employed with Indian charterers and their earnings compare well with the market averages.

The three MR product tankers in the Swarna series were gainfully employed with Indian charterers and their earnings compare well with the market. MT Swarna Kalash was deployed with foreign charterers for short periods during the financial year.

The two LR-II tankers MT Swarna Jayanti and MT Swarna Kamal gave stable returns on time charter with foreign charterers.

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

Out of your six LR-I tankers, five tankers performed coastal movements for transportation of crude oil. One LR-I tanker is deployed under clean trade. The average earnings have been higher on y-o-y basis, and also were higher compared to the market average.

Opportunities

Global Oil demand is expected to rise steadily owing to overall improvement in macro economic factors and lower oil prices. Also the global oil trade pattern has changed contours with increased refinery capacity in Asia, decline in European capacity and a surge in oil production in North America.

The excess oil from Latin America, Mexico and West Africa is now being sourced by Asian refineries where demand has increased briskly, backed by low oil prices. Oil prices are expected to remain at the current low levels as the current prices may further be influenced negatively as and when Iranian crude oil enters the market.

The above structural supply factors are expected to lead to increased tonne-miles as refiners find it economical to float and ship low cost oil over longer miles. This is expected to increase demand for crude oil tankers majorly in the West Asia Gulf/Latin America/West Africa to Asia trades where your tankers mainly operate and are well positioned to exploit the trade opportunities.

On the product segment the exports of clean distillates from Asia to Europe, Africa and Japan on the back of low price crude oil is expected to ensure firm clean tanker markets and your clean tankers will stand to get gainful trades.

Risks and Concerns

Although the Asian demand has spurred tonnage utilization, a sustained improvement can only come about by revival in US imports, on the back of declining European refining capacity. However even at below US$ 60, the US shale oil production has not halted and US imports continue to stagnate at about 4.2 mbpd down from 6.1 mbpd in 2012. Also the price of crude oil is linked to the international monetary exchange rates and investment flows whose impact is hard to predict and track.

The weak Chinese economy is another major issue with respect to tanker demand. In addition, the 13th five-year plan is expected to increase the percentage of non-fossil fuel from 15%, over the period 2016-20 which could lead to excess Chinese tonnage particularly in the VLCC segment.

The pace of tanker fleet growth is expected to surge from 2016 onwards which could lead to pressure on rates and long term rebalancing of the supply-demand gap in favour of charterers and hurting freight markets.

b) Dry Bulk

The benchmark, the Baltic Dry Index (BDI) fell to an average of 916 in 2014-15 from 1356 in 2013-14 registering a 68% decrease, reaching its lowest level ever by touching 509 points on 18.02.2015 and is now hovering around 1100.

The global imports of dry bulk stood at 4459 million tons and grew by 3.6% over previous year. When compared to 2014, dry bulk trade fell in 2015, with ton-mile demand down by an estimated 3.6%. The dry bulk global trade is expected to grow on an average of 3% for next 3 years.

The dry bulk segment continues to suffer from over supply of tonnage and a longer wait for recovery is expected with dry bulk fleet growth projected at 2% in 2015 and 3% over the next 5 years. High demolitions and low deliveries supported by a growth in demand is the need for this segment to balance the supply and demand which is not expected till 2017. The dry bulk segment continues to be bogged down by low profitability due to low earnings causing depressed asset prices caught in a downward spiral.

Subdued cargo demand has added to the existing woes of the dry bulk market. Some of the dry bulk vessels being converted into tankers show desperate attempts by owners to bid adieu to low earnings and to switch to worthier options.

India's iron ore exports slipped to just 5.5 mmt in 2014-15 compared to 16 mmt exported in 2013-14.With regard to Thermal Coal, India is set to see a considerable increase in its imports, rising from 180 million tons in 2014 up to a forecast of around 200 million tons for 2015.

India's urea imports rose by 23% to 87.49 lakh tons last fiscal on higher demand. The country, which is among the world's top three consumers of urea, produces about 22 million tons urea as against the annual domestic demand of 30 MT. India imported 8.75 million mt of urea in fiscal 2014-2015, of this, 5.4 million mt came from China and 1.4 million mt from Oman.

Urea movement into India, which is a key cargo for dry bulk vessels and is part of minor dry bulk commodities, has for the last few years been a "supporting trade" for bulkers ranging from Handysize to Panamax.

The slowdown in Chinese iron ore import demand which began in the second half of 2014, has resulted into fall in Chinese dry bulk imports with ton-mile demand falling by an estimated 8% compared to Q4 of 2014. Chinese coal imports including steam coal, met coal, anthracite, and lignite which plummeted in 2015, totaled just 32 million tons in the first two months of 2015, compared to 59 million tons in the simliar period in previous year.

Global steel production declined marginally in the Q1 of 2015 with reduced demand from Europe and Asia, whereas Chinese steel production slumped to rock-bottom with steel prices in the global market compelling companies to curtail production.

So far, this year, 226 dry bulk ships are sold for demolition as against 293 dry bulkers for the whole of the last year. So far already 71 Cape size bulkers have been sold for scrapping in 2015 as compared to 24 in the whole of 2014. Additionally, number of ships, are out of play and possibly heading for hot or cold lay-ups.

The vessel supply is expected to be moderate as high demolitions and low deliveries characterize the dry bulk market. Growth in the dry bulk fleet was low even in the Q1 of 2015, as it increased by a mere 1% from the year-end fleet and stood at 761 million dwt.

It is estimated that demolitions will increase by approximately 54% in 2015 from last year because of the weak freight market.

Your Company owns two older Handymax bulk carriers (average age 16 years) of around 45,000 dwt, eight modern Supramax bulk carriers of around 57,000 dwt and seven modern Panamax / Kamsarmax dry carriers of around 80-82,000 dwt as on 31st March, 2015.The bulk carriers fleet is very young with an average age of 5 years in average age. The dry bulk charter market witnessed depressed earnings levels thus undermining the earning ability of our fleet. In order to maintain a healthy cash flow your company preferred fixing the bulk carriers on trip time charter and short term time charters.

Opportunities

Poor freight markets and resultant depressed ordering and conversion of dry bulk carriers to tankers is expected to significantly slowdown deliveries and fleet growth over the 2016-2019. The fleet growth is expected to be at an average of just 3.5% per year over this period as against the average expected trade growth of 4.2% in terms of volume and 4.7% in ton mile terms over the period of 2016-2019.

India is going to be an interesting destination for the dry bulk market. The requirement of coking coal via imports to meet the countries increase in steel demand derived from focus on investment and infrastructure and projected import of thermal coal by 250 MMT would boost shipping activity.

India is expected to see a capacity addition in power sector of 80,000 MW in the 12th Five-Year Plan (2012-17). It requires around 4.5 million tons (M.T.) of coal to generate 1 MW of thermal power. This means there will be high investments in power sector and the coal requirement to run these power plants will contribute to increased demand for shipping.

By the end of 12th five year plan the country's coal requirement will reach 1,000 million tons of which approximately 200 million tons of coal will be required to be imported. Indian companies are making huge investments to secure raw materials like coal for their power plants with acquisitions in East Asia, Africa and even the USA. With these imports in pipeline, the shipping sector will stand to benefit from increased import cargoes.

Risks & Concerns

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

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

The global grain trade is likely to be a drag on the dry bulk market through 2015. After growing at a striking 9% pace in 2014, it is expected to dip by 3%, based on the latest forecast from the International Grains Council.

European and Japanese imports are likely to continue to grow at a relatively slow pace, averaging 2% per year and 1% per year, respectively. The Panamax market is likely to remain relatively depressed through 2015.

SCI with critical mass in panamaxes is catering to transportation of three major commodities such as Iron ore, coal and grain, view slowdown in these major trades globally the earnings of panamaxes may continue to suffer.

The macro economic factors such as interest rate volatility, subsidies on petroleum products, volatile rupee value vis-a-vis the dollar and inflation continue to plague the national demand. Shipping being a derived demand will be negatively affected by these factors.

c) LNG Transportation

The scope for growth of LNG transportation is very high considering that LNG annually accounts for 8% of the total energy mix and is projected to grow up to 20% by 2030. India was the 5th largest importer of LNG in 2013 accounting for 5.5% of the total global trade. Domestic natural gas supply is expected to grow at 5.6% over FY 13-15 while gas demand is expected to grow at 18% thereby causing a demand-supply mismatch.

India has already embarked upon building strategic storage reserves for LNG in select on shore locations. The LNG terminal at Kochi became the 4th operational terminal in India, while new terminals are planned at Mangalore, Kochi, Mundra, Pipapav, Ennore and Haldia and capacity additions at Hazira and Dahej.

Pursuant to the MOU signed with GAIL, SCI is working closely with GAIL for the tender to in-charter 9 LNG tankers on a long-term basis. It is expected that three LNG tankers would be built in Indian Shipyards in line with the "Make in India" campaign while the other six tankers would be built in foreign shipyards. SCI will take up a stake in all the LNG tankers for the project.

Your Company has built-up a pool of trained and experienced officers to operate LNG tankers. This expertise along with the experience of independent technical operation of LNG tankers has provided the leverage to your company to expand its LNG Ship Management expertise and provide such service to international LNG Ship owners.

RGPPL Terminal Management

SCI team successfully completed berthing and un-berthing operations of 25 LNG tankers and one SPM operation at RGPPL Dabhol during the period of three years under the Port and Marine Services Contract. Thus under this contract a total of about 3.22 million metric tons of LNG was imported at the Dabhol LNG receiving terminal. The process for further renewal of contract is underway with RGPPL.

d) LPG Carriers

Your LPG carriers were pre-dominantly deployed under time charter to IOCL at prevailing market rates. The process for replacement of these tankers which are over 25 years has been initiated.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial performance of the tanker segment has been largely influenced by earnings on the VLCC, Suezmax and Aframax segments where SCI has had a mix of cross trade charters, Contract of Affreightments and Time charter businesses to effectively hedge employment and earnings risks. One the smaller segment product carriers and LR I dirty carriers; the employment was mainly to meet the domestic product and indigenous crude movements on long term contracts and time charter business. The mix of employment types and geographical concentration in niche coastal business segments has ensured returns in line with market trends.

The dry bulk segment was subject to severe tonnage over capacity worldwide and loss of key cargoes such as Iron ore from India resulting in non profitable ballast voyage legs thereby reducing earnings. Very few profitable trades emerged during the year under consideration and the situation is expected to remain depressed with earnings remaining under pressure.

2. LINER & PASSENGER SERVICES

LINER SERVICES

a) World Scenario

The liner industry presented a mixed bag of operating results for the calendar year 2014 with the operating earnings weakening towards the year end due to softening of freight rates and volumes in the last quarter of the year 2014. The sharp decline in bunker prices and a strong dollar helped support the liner shipping lines. For the year as a whole, however, improvement in operating performance took place averaging 1% below year-earlier levels which was the first positive annual performance since 2010. This was attributed mainly to increasing cost savings as a result of lower unit costs as the industry continued to optimize its trading networks and upsize its fleet to larger, fuel-efficient vessels.

The vessel utilization in both Asia-Europe West Bound (WB) and in the Transpacific East Bound (EB) arterial lanes, moved higher as compared to the previous year as robust trade growth exceeded capacity gains. Cascading of smaller vessels to other routes alleviated the burden of new building additions and slow-steaming helped to accommodate the extra capacity. Rates in the North-South lanes however slid as capacity gains overtook demand growth though the intra-Asia rates remained at par with 2013 averages. Fleet growth remained steady in 2014 and despite rising new building volumes, container-capable fleet growth remained at 5.3% similar to 5.2% pace in 2013 with disposal at 2013-high levels which kept fleet expansion under control.

b) Indian Scenario

The volume of export and import containers handled at major ports in India rose by 6.71 percent in 2014-15 from the year ago levels and total cargo tonnage inched up 4.65 percent, according to the tentative estimates of Indian Ports Association. Cumulative yearly traffic totaled nearly 8 million TEUs in April 2014 through March 2015 period, up from 7.46 million TEUs in the previous year. Jawaharlal Nehru port, India's busiest container gateway located near Mumbai, handled 4.47 million TEUs and 63.80 million tons of cargo in the year 2014-15 as compared to 4.16 million TEUs and 62.33 million tons in 2013 registering a 7.5 percent increase in TEUs handled even as congestion continued to trouble the port.

OPPORTUNITIES & THREATS

The liner market is poised to see significant improvement in operating profitability in future despite the continuous influx of mega-ship new buildings going by the market sentiments of a reviving global economy and upbeat economic forecasts. New operating alliances are expected to contribute by allowing global carriers to further exploit network efficiencies and vessel deployment optimization bringing about higher savings. Low bunker prices are also expected to help the liner operators to save on fuel and improve their books. Improving economic conditions in the US and Europe is expected to boost market fundamentals and support carriers in their effort to restore freight rates. Several factors also point to the increased likelihood of a recovery in charter market in 2015 as the charter vessel idle tonnage had fallen sharply from 5% in 2014 to 2.8% at the start of 2015, the lowest level in three years. An improvement in liner operating profitability is also expected to act as a catalyst for higher charter vessel demand and higher charter rates. Despite improving market fundamentals, the industry has to overcome challenges in the year ahead due to increase in deliveries of mega size ships before the capacity growth moderates in 2016. The impact of the sharp decline in the oil prices by almost 50% from last year on the global economy would have also to be factored in, as its effect on different countries would vary depending to a large extent on whether they are net importers or exporters of oil, though the net effect on the global economy is expected to be positive.

The break bulk sector continues to have good potential in respect of ocean freight arrangements of General cargoes, Over-Dimensional Cargoes (ODC), Project cargoes, Heavy Lift cargoes etc. on account of the Government departments / PSUs and other commercial organizations.

PERFORMANCE OF LINER SEGMENT

Your Company owns liner fleet having 5 fully cellular container vessels (202,413 dwt) having total container carrying capacity of 14,407 TEU. Average age of these five vessels is approx. 16 years [Three vessels aged 21-22 years and two, 7 years]

As on 31.03.2015, three in-chartered container vessels having total dwt. of 1,37,940 and 11,172 TEUs were operated by your Company. In addition to the above owned and in-chartered vessels, your Company also has cargo loading rights on 21 vessels of its partners in various consortia arrangements that your Company has with leading shipping lines such as Mediterranean Shipping Company (MSC), PIL of Singapore, K-Line and Wan Hai of Taiwan. Your Company continued to deploy its owned / operated Container vessels in the following sectors.

Container Services

Indian Subcontinent Europe Service (ISES)

The UK-C Cellular Container Service had been commenced in 1994 with SCI as a single operator operating three vessels with 1800 TEU capacity which was later upgraded to a fixed day weekly service with three partners operating seven vessels of same capacity. The service, from May 2009, is being operated in consortia comprising of two partners with eight vessels of which two vessels have been contributed by SCI. The service is operated on a round voyage of 56 days.

IPak Service

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

India / Far East Cellular Service (INDFEX 1)

This service commenced in June, 2001 with 5 vessels (1 vessel each by three partners viz. K line, PIL and SCI; and two vessels by the fourth partner Wan Hai, WHG) and was upgraded in September 2012 by replacing a 3500 TEU vessel by a 4400 TEU vessel. The service is presently operated as a weekly direct service from India's West Coast to Central China, Hong Kong, Singapore and Malaysia on a round voyage schedule of 42 days. The service also links North Chinese ports through feeder services via Shanghai.

SCI Middle East India Liner Express (SMILE) Service

SCI flagged off its stand alone direct independent service called the SMILE SERVICE from JNPT on Sunday the 16th March, 2008. The service is being operated with the three PM series vessels m.v. Indira Gandhi, m.v Rajiv Gandhi & m.v Lal Bahadur Shastri having 1869 TEU capacity each. This is a dedicated SCI Service catering to the trade requirement from Indian sub continent to Gulf region and links with SCI's long haul services to Far East, UK & UK Continent. Besides the Gulf ports, the SMILE service also acts as a feeder service between Cochin/Tuticorin/Colombo/Mundra. In addition, the service caters to the coastal cargo along the Western Coast of India from Mundra, Hazira, Pipavav to Cochin & Tuticorin.

India Myanmar Service (IMS Service)

The Shipping Corporation of India Ltd launched IMS service (India-Myanmar Service) which links South and East India to Myanmar on 3rd October, 2014 with m.v. "SCI Kamal", a 1200 TEU capacity vessel. The new service is scheduled to call at Chennai every fortnight. The service was commenced at the direction of the Government of India to promote its Look East Policy and the Ministry of External Affairs granted a subsidy of Rs.14.22 crore for an initial period of 6 months which is expected to cover about 11 months. The trade is gradually picking up and it is expected that the service would reap benefits over a period of time once the service stabilizes.

Feeder Operations

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

Slot Swap Arrangements

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

Break-Bulk Services

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

Coastal Operations

Domestic Passenger-Cum-Cargo Service

In addition to International operations, SCI with its one owned Passenger-cum-Cargo vessel and ten managed vessels operates domestic passenger and cargo transportation services between the Mainland and the Andaman & Nicobar (A&N) group of islands and inter-island, on behalf of the Government of India.

Other Coastal Services

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

Manned and Managed Vessels

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

• One (1) vessel for fore shore Sector run (A&N Islands).

Marketing

SCI's marketing team continues to make regular customer calls through its own offices and also through agents appointed at various ports in India and abroad in order to market its container and break-bulk services. Meetings with the agents are held periodically, and SCI representatives also participate in various trades meet at important locations in India. SCI had organized a Trade Meet for the shippers and freight forwarders in Ahmedabad for promoting the coastal trade and SCI services. Trade Meets was also organized in Myanmar and Kolkata before commencement of the India-Myanmar in October 2014 to create awareness among the trading and business organisations about the service. Besides, SCI has also participated in the trade fairs/meets organised by the Ports for promotion of trade activities.

OUTLOOK

An improving global economy and accelerating trade growth especially in the North American and European markets is expected to lead to better fleet utilization, liner profitability and charter rates in 2015. The freight rate restoration would depend upon the market discipline observed by the shipping lines by avoiding undercutting and the temptation of speeding up the fleet regardless of the low fuel prices which could aggravate the capacity surplus, coupled with an orderly introduction of new tonnage. Continued strong growth in containerized trade is expected for Asia-Europe West Bound and Transpacific East Bound trade routes though the North-South markets may remain suppressed this year. Intra-Asia markets are expected to continue to accelerate in 2015-16. Liner fleet utilization is likely to level off in 2015 but is expected to grow strong in 2016-17 as market fundamentals are set to improve.

RISKS & CONCERNS

Geopolitical and economic risks associated with the likelihood of Europe falling back into a recession due to either an escalation in conflict between Russia and the West or a financial turmoil created from the exit of Greece from the Euro zone, remain a matter of concern having the potential of derailing the global economic growth and in turn prolonging the situation afflicting the liner industry from 2010. Chinese economy has slowed down faster than desired which is likely to impact China's trade partners, especially in South East Asia. The container capable fleet growth is expected to accelerate in 2015 at 7.2% and as the pace of deliveries slacken, ease to 6.3% in 2016 and 6.1% in 2017, followed subsequently however by an acceleration again averaging about 7% in 2018-19.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Your company's liner segment registered a profit of Rs. 31.83 crores in FY 2014-15. The Operating income reduced in the current year as compared to the previous year but lower operating profits were offset by reduced direct operating expenses. Your company adopted cost - saving measures to mitigate losses accruing to the liner services viz. saving considerably on feeder and transshipment cost by not carrying the cargo to non-base ports, saving on leasing and incidental cost by off-hiring containers, blanking off voyages on the INDFEX route resulting in less inland movement, changing rotation pattern of ISE service leading to less haulage. Cargo handling expenses, a component of the direct operating expenses, were lower due to lesser number of containers carried. Containers carried to inland locations in Europe were mainly on merchant haulage. Slots were also sold to MSC which enabled your Company to earn freight without incurring cargo expenses.

3] TECHNICAL & OFFSHORE SERVICES

1. World scenario

The offshore support vessels industry is dependent on utilization of rigs, oil fields and other crude oil E&P activity, which in turn depends upon strategic decisions of energy security by oil and gas producers, shifts in Government policies and long term crude oil price trends. The world's primary energy consumption is projected to grow at an average of 1.4% p.a. with major part of the growth is in non-OECD countries, with Asian countries like China and India accounting for nearly half the growth. During FY 2014-15, Brent crude price touched a low of US$45/barrel in March 2015, after a fall in price from US$ 105/bbl in FY 13-14. It can be observed from the rig data that out of the total available rigs worldwide only about 70% were operational during FY 14-15. In line with the same, the worldwide AHTS utilization declined from 75% at the start of FY14-15 to 67% during end of FY 14-15 and PSV utilization declined from 85% at the start of FY14-15 to 75% during end of FY 14-15.

As on July 2015, only about 65% of total available rigs worldwide are operational. In absence of rigs in operation and due to oversupply of offshore vessels in world market the freight / charter hire market for offshore vessels has also been under pressure.

2. Indian scenario

Historically, India's domestic production of oil and gas has fallen short of its burgeoning energy requirements, compelling our country to rely on imports. India's crude oil imports bill forms one-third of the total value of imports, thereby widening India's current account deficit. The declining international Brent Curde Oil price during 2014-15, has reduced the burden of importing crude oil by over 35% in terms of value in our country.

The global decline in prices of crude oil has however not significantly impacted the performance of Indian E&P industry, and the activities of this sector during 2014-15 have been more or less similar to that of the previous year. In order to ensure energy security and attract investments in E&PRs. the Indian Government had initiated New Exploration Licensing Policy (NELP). In the first nine rounds of NELP (NELP-I to NELP-IX), the Government awarded 254 E&P blocks, of which 140 were offshore/deep water blocks. In the tenth round of NELP, 46 blocks shall be offered, of which 29 are offshore blocks.

It may be noted that the average utilization of the OSVs in India during 2014-15 was in range of 85%~95%. Further, 89% Indian offshore fleet has been active during the financial year 2014-15.

3. Strengths and Opportunities

Your company has always focused on employing its vessels on long term basis with ONGC, which is the biggest E & P Company in India. Your company has been successful in the above objective as its entire fleet of offshore vessels has been profitably deployed with ONGC on long term charter of 3 years. Prior FY 2014-15, 6 out of 9 offshore vessels of your campany were employed with ONGC. The remaining 3 new-building offshore vessels were deployed on time chater basis with reputed private sector companies in India and abroad. During FY 2014-15, your company participated in ONGC tender and has been successful in employing the remaining 3 vessels with ONGC for a period of 3 years.

4. Weaknesses and Threats

Long term charters of few offshore vessels of SCI with ONGC would be expiring in 2016. Although your company is confident to deploy its vessels on long term basis to ONGC, any time lags between award of tenders may require the vessels to be deployed on spot basis.

Offshore Activities

SCI owned Offshore vessels

At the start of the year, your company owned 11 Offshore vessels out of which 2 vessels viz m.v. "C.P Srivastava" and m.v. "SCI-03" were operating in the Spot market till 15.10.2014 and 15.09.2014 respectively. Thereafter both the vessels were disposed off and handed over to their respective buyers on 02.12.2014 and 28.10.2014 respectively. Thus the total number of offshore vessels in SCI fleet presently stands at nine (9) vessels with a corresponding DWT of 20,150. Out of the nine new built offshore vessels in SCI fleet, six vessels were already on long term charter with ONGC at the start of FY2014-15. The remaining three vessels have also successfully bagged 3 years long term charters with ONGC during the year 2014-15.

All offshore vessels were employed on long term charter with ONGC during the current year. The existing contract for m.v. "SCI Kundan" with ONGC expired on 08.08.2015 after three years of charter. Thereafter SCI Kundan has once again been offered to ONGC in the tender floated for requirement of AHTSVs. SCI has bagged the contract for a term of five years. SCI Kundan is expected to be on-hire under the contract during the last week of August 2015.

Your Company had entered into the offshore segment in 1984-85 with 10 Offshore Support Vessels (OSVs). Thereafter after disposal of all these 10 old vessels and addition of new vessels, the present offshore fleet of your company stands at 9 vessels. Although the new vessels added to the fleet, are of higher capacity and sophisticated technology (80T AHTSVs, 120T AHTSVs and PSVs), the total number of vessels has reduced. Due to inordinate delay in delivery of vessels by Indian shipyards, SCI had to rescind contracts for a total of 7 vessels on order. Out of these 7 vessels, during the year 2014-15, your company had to rescind contract for 3 vessels on order with M/s ABG Shipyard Ltd. due to delay from shipyard, while the remaining 4 were cancelled in the previous year.

O&M of ONGC owned vessels

Samudrika series OSVs:

Your company has continued to Operate, Man & Manage ONGC owned Samudrika series OSVs on nomination basis under 'cost plus' arrangement. At the start of the year, 11 nos. Samudrika series vessels were under O&M contract with SCI. Thereafter during the year 2014-15, 3 vessels have been disposed of by ONGC. The O&M contract of remaining 8 vessels is valid till their respective dates of disposal.

Specialized vessels:

Your Company has continued the Operation & Maintenance management (O&M) of ONGC's 2 Multi Support Vessels (MSVs) ("Samudra Sevak" & "Samudra Prabha") and one Geotechnical Vessel (GTV) ("Samudra Sarvekshak") on nomination basis under 'Cost plus' arrangement. The existing contracts for MSVs were valid upto 23.03.2015, which has now been extended upto 31.12.2015. The existing contract for GTV is valid upto 31.03.2016.

Your Company has also continued the Operation & Maintenance management (O&M) of ONGC owned Well Stimulation Vessel (WSV) "Samudra Nidhi" on 'cost plus basis' since the vessels delivery in year 1986. The present contract is expiring on 30.09.2015 and a provision for extension of 18 months is provided in the O&M contract.

ONGC's newly acquired offshore vessels:

Your company has successfully included five ONGC owned vessels under its fleet of managed vessels, delivered from M/s. Pipavav Defence and Offshore Engineering Company Ltd. Out of these five vessels one vessel has been delivered during the year 2014-15. Your company had signed contract with ONGC for Operation & Maintenance management (O&M) of 6 of ONGC's new built vessels from M/s Pipavav Defence and Offshore Engineering Co. Ltd. The last vessel of the series ("m.v. PIT. Venugopal") was delivered to ONGC on 06.05.2015 and SCI has taken over O&M contract for this vessel.

Emergency Towing Vessel (ETV) 2014:

On request of Directorate General of Shipping (DGS), this year also your company provided two ETVs, for providing emergency services during the monsoon period on the East Coast and West Coast of India for about 106 days. Two of our good vessels, viz, "m.v. SCI-03" on the West Coast (w.e.f. 02.06.2014 till 15.09.2014) and "m.v. C.P Srivastava" on the East Coast (w.e.f. 06.06.2014 till 15.09.2014) were deployed for the emergency services.

Assistance to vessel "Caravel Pride"

The ETV "m.v.SCI-03" was deployed for assistance to stranded vessel "Caravel Pride" at Mormugao-Goa during the monsoon of 2014. The weather during the operation was very rough with heavy swell, poor visibility and heavy showers. In such severe weather condition ETV "SCI 03" did a job of holding and maintaining position close to "m.v. Caravel Pride" for nearly 4 hours and subsequently the vessel was towed inside safely. The D.G. Shipping appreciated ETV SCI 03, with regards to the commendable job done and courage displayed by master and crew of the vessel.

DRDO Project:

The Defence Research & Development Organization (DRDO), Government of India (GOI), Ministry of Defence (MOD) had requested your company for hiring of three support vessels as a platform for ship-borne tracking stations for flight trials over the Bay of Bengal and Indian Ocean. Your company had in-chartered two suitable vessels for a period of one year w.e.f. 27.03.2012 and 05.04.2012. The existing contract for these vessels is valid till 16.09.2015 and 25.09.2015.

Discussion on financial performance with respect to operational performance

The Offshore segment recorded revenue of Rs. 348.93 crores in 2014-15 as against Rs. 375.07 crores in 2013-14. The profit before tax stood at Rs. 111.28 crores in 2014-15 as against Rs. 146.76 crores in 2013-14.

Awards / Accolades

ONGC has congratulated all members of GTV Samudra Sarvekshak for completing the "Offshore Campaign 2014-15 in West Coast", which involved soil investigations of all initial as well as subsequent locations, well in advance.

On 24.03.2015, one Dornier aircraft of the Indian Navy, which took off from the naval ship in Goa, crashed 25 nautical miles off Goa and 28 nautical miles from Karwar with three officers on board. On request from Naval HQ and based on instructions from ONGC, MSV Samudra Sevak successfully recovered wreckage of the ill fated air craft which was at a depth of 60 meters. ONGC conveyed their appreciation to the ship staff for completing the job in a short period.

ONGC has conveyed their appreciation to the entire team for achieving zero breakdowns and maintaining 100% availability of ONGC OSVs operated and managed by SCI.

The D. G. Shipping appreciated master and crew of the vessel ETV SCI 03, with regards to the commendable job done and courage displayed by providing assistance to the stranded vessel "Caravel Pride" at Mormugoa-Goa during the monsoon of 2014.

Technical Service

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

Tonnage Acquisition Programme

The year under report is the third year of the country's Twelfth Five Year Plan. SCI had indicated an outlay availability of Rs. 5,686 crores during the Twelfth Five Year Plan period, which has been approved by the Government. During the year under report, your company had not proposed any new acquisitions due to the prevailing downturn in the shipping markets.

The global shipping markets are still reeling under recessionary pressures due to overcapacity in the market and it is thus felt prudent to go slow on acquisitions for the time being. Nevertheless, your Company would be continuously monitoring / reviewing the market so as to capitalize on any opportunities thrown by the market. SCI is presently evaluating opportunities for investments in the growing offshore services segment which would offer stable revenue streams to the company.

Eco-Friendly and Conservation of Energy

As a policy, the Company remained committed to environmental protection as per International Convention for the Prevention of Pollution from Ships. All engines being fitted lately on board are meeting requirement of NOx compliance. Necessary steps have been taken to minimize air pollution from ships. New designs of critical ship's systems have been adopted which further minimize/eliminate risk of oil pollution. The Company took various steps to conserve energy loss at sea through the exhaust of Marine Diesel Engines/ Boilers in addition to other forms of conservation e.g. use of Fresh Water Generator, application of tin-free self-polishing paints, etc. Ballast Water Treatment plants and Silt Water Management are being introduced for the recently ordered ships. Also use of eco-friendly refrigerant namely RA07C which is a hydroflurocarbon that does not contribute to Ozone depletion and suitable air conditioning/refrigeration compressors have been recommended to the shipyards for new construction vessels. Vessels antifouling coating has already been changed to TBT free paints. A ship recycling plan indicating details of all potentially hazardous material on board used during construction is provided to all new ships which will greatly contribute towards on board occupational health and safety and also environmental friendly re-cycling at the end of its life.

Your company has incorporated the concept of efficient ship design in the new vessels which were ordered. The energy efficiency of ships is measured by determining the Energy Efficiency Design Index which is essentially a measure of the energy used per unit weight mile of cargo moved. Efficient ship design will result in the new vessels being more cost efficient. They will burn less fuel, resulting in lower greenhouse gas emissions and validating SCI's commitment to sustainable growth.

For the existing vessels, your company has developed a Ship Specific energy efficiency management plan to further improve and monitor energy efficiency in ship operations.

As reported in under Austerity Measures of Q3 FY14-15 One of our liner vessels, "SCI Chennai" which is plying in INDFEX service has been tested for operation of its main engine below 50% MCR by cutting-off one turbocharger. It has resulted in substantial saving of about 15 metric tons/day of fuel.

Under its Research & Development initiative, SCI facilitated experimentation of combustion catalyst to improve fuel efficiency on board "SCI Mumbai". This resulted in saving of about 8% in fuel consumption. To start with the process, same Combustion Catalyst for improvement of fuel efficiency will be initially used on our Container Vessels.

Technology Absorption, Adoption and Innovation

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

Your company has taken the lead in ordering vessels with electronically controlled main propulsion engines and fitted with ballast water treatment plants.

The main engines and auxiliaries on board existing vessels in the fleet are being modified and equipped to handle low sulphur distillate fuels in order to comply with regulatory fuel sulphur limits in IMO emission control areas, ports in the European Union and ports in the State of California.

Your company has taken steps to acquire ships with efficient designs and fitting of energy saving devices to minimize fuel consumption and reduction in air pollution in some of the recently delivered vessels since 2013 (m.t. "Desh Vibhor": efficient design/ m.t. "Vishwa Chetna" & m.t. "Vishwa Uday": Energy saving device).

Risks and Concerns - Situation in Coastal Operation and Off-Shore areas

The international crude oil prices softened during the period under review and have remained steady thereafter for most part of the year. As a result, the international offshore services sector is witnessing a softening of rates, particularly the North Sea region.

In contrast to the above, the E&P activities on Indian coast have been progressing well. However, the downturn in foreign offshore markets is expected to result in many foreign flag vessels eyeing for Indian business. With these additional vessels vying for gainful opportunities in India, the charter hire rates for offshore vessels are expected to remain stable to soft during the next 2-3 years.

In the ONGC's ongoing tender for in-chartering offshore vessels of various categories, substantial number of foreign flag vessels has shown interest. While the competition is high during the current tender, with expectation of improved global outlook and stable supply and demand scenario of oil and gas in the next few years, the offshore services market is likely to be stable. To sustain the competition and capitalize on the offshore scenario in the Indian region, your good company is planning to place orders for additional assets which will be delivered in 2-3 years time to strengthen the offshore vessels fleet.

Measures taken to improve services and operations

Most of the offshore vessels of your good company have utilized their compensable downtime in such an effective manner, so as to have minimum chargeable off-hire during most of the months of FY 2014-15. The experience gained in dealing with numerous new customers/E&P operators is giving us the confidence to expand further in the challenging offshore sector beyond the Indian coast.

Long term charter hire contract with ONGC, helps your good company, not only to schedule routine activities of vessels but also to avoid idling / off-hire of vessel in between two charter hire contracts. Further with a single operator and a familiar modus operandi, improved and enhanced efficiency in operations are achieved.

5. Outlook

World Outlook

The world energy consumption is expected to continue to increase over the coming decades. The crude oil prices are showing downward trend and are expected to remain under pressure during FY 2015-16. The excessive oil supplies from Saudi Arabia have impacted the crude oil prices. Further, as per industry reports, Iran is expected to start their oil production by November 2015 which may create pressure on global crude oil prices.

Considering the sluggish demand and the present over supply of crude oil, the exploration activities are not expected to be pickup during next one to two years. As a consequence demand for rigs is projected to decline which may directly affect the requirements of offshore vessels to some extent. Accordingly the international freight / charter hire market for offshore vessels is expected to be under pressure for at least next 1-2 years.

Indian Outlook

As stated earlier, India's domestic production of hydrocarbon products falls far short of meeting the ever-rising energy demand and thus India would continue to import crude oil to bridge the demand and supply gap. Although the reduction of global crude oil prices would have positive impact on growing Indian economy, self reliance on crude oil production is necessary to insulate India against unforeseen market volatility as well as from energy security point of view.

Nevertheless the Indian Government has been taking steps to boost the domestic E&P sector as around 56% of India's oil reserves and 66% of natural gas reserves are in offshore blocks. According to industry experts, increasing number of finds coupled with higher acreage being made available for exploration under NELP would drive domestic E&P activities in the long term. According to industry body PHD Chamber of Commerce and Ernst & Young, India's national oil companies are likely to spend about Rs. 1,250 billion on exploration and production during 2015-17. PSU oil companies like ONGC, IOC are planning to invest around Rs. 76,000 crore on the project expansion during 2015-16, up 5 per cent over the previous fiscal year. In the backdrop as above, SCI expects that the domestic demand for offshore vessels would continue to be stable in India.

The competitive market environment has however provided an opportunity to invest into the offshore fleet as the new building/ resale prices of vessels have softened. The situation is also favorable for venturing into specialized segments like well stimulation which command higher charter rates by acquiring/ converting suitable offshore vessels. SCI has been closely monitoring the developments in the offshore segment and plans to take advantage of suitable opportunities for increasing its market share as well as to diversify its activities in this segment.

The market scenario of offshore vessel segment in India has been very competitive in recent years as many foreign flag offshore vessels are entering Indian market. However, the Indian flagged vessels get protection against the foreign flagged vessels in terms of Right of First Refusal, with which most of these vessels are assured of employment in the Indian oil fields. SCI with a fleet of modern and fuel efficient offshore vessels is well equipped to take on the competition in the offshore segment.

C. INTERNATIONAL SAFETY MANAGEMENT CELL

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

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

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

Implementation of ISM Code for Phase-I and Phase-II Vessels

Presently SCI holds separate Document of Compliance Certificates (DOC) for individual ship-types as under:

• Bulk Carriers

• Oil Tankers, Chemical Tankers & Gas Carriers

• Passenger Ships

• Other Cargo Ships

Under Phase I (Bulk Carriers, Oil Tankers, Chemical Tankers, Gas Carriers & Passenger Ships), the DOC was endorsed on 29.01.2015 and is valid till 18.11.2017 subject to periodical verification by the Administration.

Under Phase II (Other Cargo Ships - Liner and Offshore Vessels), the DOC was endorsed on 29.01.2015 and is valid till 14.03.2016.

The LNG Ships DOC issued by BV on 15.05.2014 and is valid till 26.05.2019.

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

The requirement of various amendments to ISM Code and Statutory regulations from IMO/Flag is also being complied with.

Implementation of ISPS Code

The ISPS Code (International Ship & Port Facility Security Code) was adopted by the IMO in December 2002 and became mandatory from 1st July, 2004.

The SCI has successfully implemented the ISPS Code on all vessels on international voyages and the vessels, which interface with the vessels on international voyages, well ahead of the deadline of 1st July, 2004.

Implementing limited compliance of the ISPS Code for coastal ships as required by the Director General of Shipping, Mumbai has been completed by 30th June, 2005.

On an SCI ship, the Chief Officer is the designated Ship Security Officer but all Deck Officers, have been imparted approved Ship Security Officer's training. Additionally, engineer officers, as and when available, are also being put through the above course.

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

• Security of its ships and their crew, passengers and cargo.

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

Compliance with ISO 9001:2008 Quality Standards - Quality Management System (QMS)

The SCI is a certified ISO 9001:2008 Company (for Quality Standards - Quality Management Systems) by the Indian Register of Quality Services. SCI first acquired the then prevailing ISO Quality Standard viz. ISO 9001:2000 in May 2007. The Quality Management System of SCI has been successfully maintained since last 8 years. The annual surveillance audit of ISO 9001: 2008 has been successfully completed in the month of February 2015 and is valid till 7th May, 2016.

Compliance with IMS (ISO 9001:2008 - Quality Management System, ISO 14001:2004 - Environmental Management System and OHSAS 18001:2007- Occupational Health and Safety Management System) Certification.

IMS (Integrated Management System) was earlier implemented only in tankers. Currently it has been implemented across the organization. SCI has now set a target for compliance of IMS (QMS 9001:2008, EMS 14001:2004 & OHSAS 18001:2007) for all ships and establishments by way of IMS Certification audit before 25th February, 2016. IMS Awareness Training has been imparted to about 500 officers from SCI HO, MTI, Chennai, Kolkata, Haldia and Port Blair offices towards IMS Implementation in SCI.

D. PERSONNEL & ADMINISTRATION

Industrial Relations

Your company continued to enjoy harmonious industrial relations.

Fleet Personnel

During the year, your Company, like other shipping companies all over the world, has been facing shortage of fleet officers mainly in the senior ranks for manning of our vessels. In order to attract good officers, the company has constantly aligned the salary of seafarers with the market besides taking other welfare measures. As a long term solution, your Company has continued its thrust in training to increase the supply of the officers. Your company has trained over 400 nautical and engineering cadets during the year. The company foresees the supply of senior navigating and engineering officers to be gradually improving in coming years but the situation will continue to remain critical in short term. On ratings side except for mismatch in some isolated cases, there is no shortage.

To promote and encourage the safety culture on your ships, "Fleet Safety Awards" function was organized on 29.05.2015 at MTI, Powai, our training institute, wherein the safest ships for the year 2013 and 2014, from amongst the company's varied fleet of vessels were felicitated.

Maritime Training Institute

Your Company's Training Centre at the Maritime Training Institute at Powai, Mumbai has conducted 387 Courses for 6686 participants and the total man-days trained during this year is 58360. These included 51457 man-days for SCI's personnel and 6903 man-days for personnel from other companies. In addition to this, 209 of SCI's personnel were trained outside MTI and the additional man-days of training are 570. Every endeavour is made to ensure that our training institute is self sustaining.

Regular seminars, professional development programs and skill enhancement programs are being conducted for all ranks of officers, petty officers and ratings to enhance their competence and build a sense of belonging in them towards the company. Your company has also commenced a new course for training of Graduate Marine Engineers (GME) from October 2014 at Powai Campus of its Maritime Training Institute (MTI).

Your Company's Training Centre at the Maritime Training Institute at Powai, Mumbai has been assigned GRADE 1(Outstanding) rating by DNV - GL in accordance with the Comprehensive Inspection Programme of the Director General of Shipping (DGS).

Shore Personnel

The total manpower as on 01.07.2015 is 767 excluding CMD, Five Functional Directors and CVO, out of which 648 are officers and 119 are staff members.

Various training programmes, both in-house and outside, including General Management Training programme have been imparted to employees for development of skill sets and knowledge.

Women Representation

Your company is committed to the principle of equal employment opportunity and strives to provide employees with a work free of discrimination and harassment which is applied in all Personnel activities including but not limited to recruitment, hiring, placement, promotion, transfer, separation, compensation, benefits and training and have ensured equal opportunities for skill enhancement and career progression.

Your company's efforts are reflected in the representation of women across various grades in the hierarchy. At present women constitute around 21% of total workforce at shore establishments of your company. Your company is the only Shipping company in India which has been recruiting women in its fleet. Presently, two Masters, seven Chief Officers and 12 second/third officers are women serving on the fleet of ships of your company which is among the highest in the marine workforce world wide.

Your company encourages active involvement in the activities of the Forum of Women in Public Sector (WIPS) since its inception. WIPS, Western Region, under the aegis of SCOPE has appreciated your company's efforts by conferring the award for "Best WIPS Activity Report".

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

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

Your company has aligned its CSR policy with the Companies Act 2013 and CSR - SD committees constituted as per the act to coordinate and oversee the implementation of CSR and Sustainable development initiatives are working effectively.

In line with the above vision and following the initiatives under Swachh Vidyalaya Abhiyan of Ministry of Human Resource Development, your company has undertaken the construction of toilets as follows:

1. Six Girl's Toilets at "Santoshpur Shikshayatan" School, Kolkata, West Bengal, through Sarva Shiksha Mission, West Bengal.

2. Four toilets two each for boys and girls at Government PU College, Handigund, Belgaum, Chikkodi District, Karnataka.

3. Two girl's toilet at Government Junior College, Ravikamatham, Golugonda, Vishakhapatnam, Andhra Pradesh.

4. Ten toilets each for men and women in Ghansoli ward of Navi Mumbai Municipal Corporation.

Awards & Accolades

Your company is happy to report that its efforts have been recognised at International Level. Your company has been awarded with the prestigious "50 Most Caring Company Awards" in 4th World CSR Congress & Awards on 18.02.2015 for its commitment to community welfare and voluntary initiatives.

The pioneering works of your company in Human Resources have been acknowledged by Asia Pacific HRM Congress Awards 2014 where your company was awarded with "Organization with Innovative HR Practices" award on 11.09.2014. Your company has been recognised as Master Brand in the Master Brand Awards by CMO Council on 14.06.2014.

Remuneration Policy

The remuneration to the senior management and other shore employees of your company is governed by the Presidential Directives and Directives of the Ministry of Shipping issued from time to time, which form the remuneration policy of your company.

E. THE RIGHT TO INFORMATION ACT 2005 (RTI ACT 2005)

A suitable mechanism has been put in place for dealing with the requests and appeals under RTI Act 2005. The RTI manual is posted on the Company's website. Your Company has been complying with the provisions of the Act within the stipulated time limit provided under the Act. As on 31.03.2015, your Company has disposed off most of the applications and appeals received from the parties.

F. JOINT VENTURE COMPANIES Irano-Hind Shipping Company (IHSC)

The Government of India in meeting of cabinet held on 02.04.2013 approved the proposal for Dissolution of IHSC and splitting the assets/ liabilities of IHSC between joint venture partners as per mutually agreed terms. Presently the process of this exit is being finalised, awaiting further necessary approvals.

Joint Venture Company (M/s. SCI Forbes Ltd.):

SCI Forbes Ltd. which owned and operated four chemical tankers of about 13000 dwt was a Joint Venture Company (JVC) between SCI and Forbes & Co. Ltd. / Sterling Investments Pvt. Ltd. The economic downturn in the shipping industry severely impacted the operations of SCI Forbes Ltd. making it unviable for SCI to continue in the JVC and after reviewing various options available with SCI exited this JVC on 02.07.2014 by way of selling its stake to an affiliate of the JV Partners at predetermined valuation as per the MOA entered with the concerned parties. The impairment towards diminution in the value of this investment was already provided for in 2013-14 and your Company received net amount of Rs. 70.44 crs towards investment made in this JVC, during 2014-15.

Joint Venture Company (M/s. SAIL SCI Shipping Co. Pvt. Ltd.):

SAIL SCI Shipping Pvt. Ltd (SSSPL) is a JVC between SCI and SAIL. The JVC was incorporated with primary objective of providing various shipping related services to SAIL for importing coking coal and other bulk material from various countries to feed its steel plants located in India. The JVC was incorporated on 19th May, 2010. The partners have deliberated on acquiring of Capesize vessels. However the acquisition has since been deferred due to fall in the dry bulk market.

Sethusamudram Corporation Ltd.

The Government of India had constituted Sethusamudram Corporation Limited (SCL) to raise finance and to undertake activities to facilitate operation of a navigable channel from Gulf of Mannar to Bay of Bengal through Palk Bay (Sethusamudram Ship Channel. As per the Government directive, this project is to be funded by way of equity contributions from various PSUs including the SCI. Till 2012-13, SCI had invested Rs. 50 crore in the project. In view of uncertainties in the project implementation, provision has been made in the accounts for diminutions of full amount of the investment. The dredging work was temporarily suspended from 17.9.2009 consequent upon the direction of the Hon'ble Supreme Court of India and the status continues till date.

India LNG Transport Companies

India LNG Transport Companies No.1 & 2 Ltd are two Joint Venture Companies promoted by the Corporation and three Japanese companies Viz. M/S Mitsui O.S.K Lines Ltd (MOL), Nippon Yusen Kabushiki Kaisha Ltd (NYK Lines) and M/S Kawasaki Kisen Kaisha Ltd (K Line) along with M/S Qatar Shipping Company (Q Ship), Qatar. SCI and MOL are the largest shareholders, each holding 29.08% share. The shares held by all the shareholders, including that by the Corporation are held in the two companies are pledged against loans provided by the lenders to these Companies. Each of the two Companies own and operate one LNG tanker named as SS Disha and SS Raahi respectively. SCI is managing the entire operation of the two ships from 2009. Upon completion of the tenure for the first loan, refinance was successfully arranged at competitive financing rates. This loan is for a period of 13 years until the year 2027.

India LNG Transport Company No. 3 Ltd is the 3rd Joint Venture Company which owns and operates one LNG tanker MT Aseem. The Company is promoted by the Corporation and its three Japanese partners viz. MOL, NYK lines, K Line along with Qatar Gas Transport Company (QGTC) and M/s Petronet LNG Limited (PLL) who are the other partners. SCI and MOL are the largest shareholders with 26% share each. The shares held by the Corporation and other partners have been pledged against loans by lenders to these companies. SCI is managing the entire operation of the two ships from April 2013.

India LNG Transport Company No. 4 Pvt. Ltd is a Company incorporated in Singapore in November 2013 and is promoted by the Corporation with its three Japanese Partners viz. MOL, NYK Line and K Line. SCI, MOL and NYK hold 26% share each. The Company is constructing one LNG tanker of 173,000 CBM which it would own and operate under a 19 year Time Charter Agreement with charterers M/s Petronet LNG Ltd. The Tanker is expected to be delivered in September 2016 and is likely to be operated to transport LNG from Barrow island Australia to Kochi & Dahej in India on account of Petronet LNG Ltd. Keel laying of the fourth LNG JV Tanker LNGC "Prachi" was held at Hyundai Heavy Industries, South Korea on 20.07.2015.

Memorandum of Understanding (MOU) with the Ministry of Shipping

Your Company's performance based on audited results under the MOU system has been rated as "V. Good" for the year 2013-14. SCI has signed the MOU for the financial year 2015-16 as per the guidelines issued by the Department of Public Enterprise (DPE) incorporating performance targets in sync with the changing dynamics of the shipping scenario. In addition to Financial Parameters, the MOU continues to accord due emphasis to several other important areas / activities such as Customer Satisfaction and redressal of customer grievances, revenue operating days, R&D, etc. Moreover activities under other parameters viz. 'Human Resource Management' and certain additional parameters as per the DPE requirements have also been incorporated in the MOU for achieving sustained overall growth.

Utilization of FPO Proceeds

During the year 2010-11, your Company had come out with a "Further Public Offer", (FPO), comprising of a 'fresh issue' of 42,345,365 equity shares in your company and an 'offer for sale' of 42,345,365 equity shares by the President of India. The FPO proceeds of Rs. 58245 lakhs were fully utilized in the financial year 2011-12 as per object of the issue for part financing of capital expenditure on nine shipbuilding projects specified for utilization. However, due to delays in the projects resulting in default by the shipyards, during the period January 2014 to May 2014, your Company rescinded contracts for four shipbuilding projects and also, re- negotiated the instalments paid for two projects in order to compress the same against a single project . The investment in the rescinded contracts out of the FPO Proceeds was Rs.330.65 crores. Your Company has till date received back Rs. 315.32 crores of these funds from the shipyards. The shareholders vide the resolution passed through postal ballot process approved the proposal to re-deploy the said Rs. 330.65 crore received/ to be received as refund from Shipyards, towards various shipbuilding projects including offshore assets [including but not limited to anchor handling tug supply vessels (AHTSVs), platform supply vessels (PSVs), rigs, etc] and Liquid Petroleum Gas (LPG) vessels. The Company proposes to invest the proceeds judiciously at the appropriate juncture.

Segment-wise Performance

A report on performance of the various operating segments of the Company (audited) is included at Note No. 34 of Notes on Financial Statements for the year ended 31st March 2015, which is forming part of the Annual Accounts.

Internal Control Systems and their adequacy

Internal Control Systems in your company are being monitored and continuously improved to meet the challenges that arise from time to time with the nature and size of the operations. Annual Audit Plan is approved by Audit Committee of the Board. Internal Audits are carried out by a firm of Chartered Accountants viz., M/s P C. Ghadiali & Co. on concurrent basis. The Internal Audit Reports are submitted on quarterly basis together with comments, recommendations and its compliance, which are being constantly reviewed by a Finance Committee appointed by the Board in the absence of Audit Committee.

SET - IT Project

SCI has gone live with SAP ERP system integrated with shipping applications viz. AFSYS and DANAOS, which have now stabilized. Fleet personal payroll integrated with on board module has gone live recently. SCI has built a Disaster recovery site at Kolkata office to ensure business continuity during any emergency. System audits were carried out on internal controls & cyber security audit also has been carried out. Most of their recommendations are implemented.

Role of Vigilance Division in SCI

Various initiatives have been taken by the Vigilance Division for seamless integration with the SCI mainstream, encouraging a participative role in the organization, building up meaningful rapport between the Government, Company, its Board and sub­Committees and ensuring a paradigm shift towards the stated objective of making your Company corruption-free. Vigilance Division achieved a proper balance between preventive and punitive vigilance and simultaneously ensured good and ethical corporate governance.

Technology has been leveraged for achieving greater transparency viz. promoting online registration of complaints via the Vigilance Webpage contained in the SCI website; providing security to tenderers for sending price bids/quotations by emails; dissemination of important circulars / guidelines on the webpage etc.

Vigilance Division has worked with the IT Division of SCI to develop the "Online APR module" so that the requirement of filing APR on paper is done away with.

Activities of the Vigilance Division carried out in 2014 -15

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

• Preventive vigilance

• Punitive vigilance

• Participative vigilance

• Proactive vigilance

• Predictive vigilance

The important activities that were carried out in 2014-15 by the Vigilance Division were as follows:-

a) Investigation into complaints of corruption / malpractices were conducted

b) Random scrutiny of Annual Property Returns (APRs)

c) Actively monitoring the implementation of Integrity Pact in SCI and it was extended to procurement of goods and services from Foreign vendors and Foreign dry-docks (till now IP was applicable only to Domestic goods and services contracts).

d) After issuance of Banning Guidelines last year, the 'Policy and Guidelines for Removal/Suspension/Banning of Entities' has now become a part of tender documents in SCI .

e) Identification of sensitive posts and employees posted in sensitive areas and have got the Management to rotate them in a phased manner.

f) Conducting surprise and periodic inspections, CTE Type inspections, conducting Systems Studies and recommending systemic improvements

g) Selective scrutiny of Voyage Repair Bills, major works, dry-docking bills, various accounts

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

i) Imparting training to fresh recruits on vigilance issues.

j) Conducting Vigilance Awareness Programme with various programmes in which employees participated in large numbers such as Talent Display, Essay Writing, Quiz competition, Elocution, Slogan, Poster competition.

A quarterly E-journal titled "Satarkta Samvaad" is emailed to all employees. In this E-journal, a specific topic of vigilance interest is taken and discussed. In the recent issue of "Satarkta Samwad" has covered 'Lokpal & Lokayukta Act 2013' and 'Whistle Blower Protection Act 2011'. An annual Newsletter titled "SCI Voyager" is also brought out on the occasion of Vigilance Awareness Week. This is being done with a view to spreading vigilance awareness amongst the employees.

ISO 9001: 2008 Certification for Vigilance Division of SCI

SCI's Vigilance Division is one of the first few Vigilance Divisions in the PSUs and in Shipping Ministry to get ISO 9001:2008 Certification for its processes. All the Vigilance Officers also achieved the unique position of being fully qualified as Internal Auditors for ISO 9001:2008. The Vigilance Division has got its ISO Certification revalidated further till 06.05.2016.

Integrity Pact in the Shipping Corporation of India Ltd.

SCI had signed a Memorandum of Understanding (MoU) with Transparency International India for the adoption of Integrity Pact. By signing the MoU, your Company is committed to have most ethical and corruption free business dealings with the counterparties whether they are bidders, contractors or suppliers. The 'threshold value' for implementation of Integrity Pact in all goods and service contracts is Rs. 1 crore. Thus, any goods / services contract of Rs. 1 crore and above will be having Integrity Pact thereby assuring the concerned parties of the transparent and ethical practices in SCI. During the year under review, the Integrity Pact was monitored by Independent External Monitors (IEMs). Meetings were held periodically with the IEMs viz. Shri S.S. Hussain and Shri A.P. Shrivastava to review the progress of implementation of Integrity Pact in SCI. The Transparency International India has lauded the efforts of the Vigilance Division in the matter. During the financial year 2014-15, two (2) nos of IEM meetings were held on 26-08-2014 and 23-12-2014.

UN Global Compact:

Your company is a signatory to UN Global Compact initiative which signifies our commitment to uphold the principles/UN Charter on protection of human rights, prevention of child labour, protection of environment & anti corruption initiatives.

Human Rights

We, in SCI, believe that company can play a positive role in contributing to safeguard human rights and their promotion. Guided by values, your Company has put in place redressal machinery. During the year, no case of human right violation is reported in the company.

Labour

Your Company belives in freedom of association and collective bargaining through constructive forums. In accordance with national law, employees are free to join trade union of their choice without fear of intimidation or reprisal. The Company, while recruiting employees, follows the relevant rules and regulations laid down by the Government of India. This ensures that no unfair labour practices are followed. The minimum age for employment in SCI is 18 years. During direct employment in the company, criterion of minimum age is applied. For promoting gender equality, SCI has given employment to approximately 20% women.

Environment

Your company has taken environmental challenges seriously and it is demonstrated through its day-to-day operations. Right at the time of construction of ships, it is ensured that the new ships comply with strict environmental regulations. The company is also committed to safeguard against air and sea pollution by way of exhaust gases, pollution by oil or sewage and pollution by garbage toxic, plastics etc. into sea water. Some of the measures taken by your Company in this direction are:

a. The vessel shall have green passport upon delivery i.e. list of all hazardous materials will be kept onboard which will be of great help during recycling/ handling of hazardous materials during in-service repairs.

b. Paint applied on the underwater portion of the hull is tin free.

c. Fuel oil tanks are protected on the sides to avoid direct contact in case of accident.

d. Vessels engines are being designed to burn very low sulphur fuel to minimize pollution.

e. The refrigerant used by AC plants is environment friendly which if leaked out doesn't contribute to Ozone depletion

Ethical Practices

• Your Company has introduced preventive measures to ensure corruption free business environment.

• The vigilance function in SCI keeps watchful eye on the functioning of the organization by conducting regular checks to ensure that the employees while discharging their duties maintain high integrity and honesty. The Company has adopted Code of Conduct for Board Level Members and Senior Management Personnel.

• SCI has appointed a firm of Internal Auditors for extensive audit of systems and procedures.

• The company has adopted integrity pact of Transparency International India with the primary objective of safe-guarding public procurement from corruption.

• Independent External Monitors (IEMs) are appointed to monitor implementation of Integrity Pact.

• The Company has adopted a whistle blower policy based on the guidelines from Central Vigilance Commission (CVC),the Department of Public Enterprizes (DPE) and the Companies Act, 2013.

• Financial and commercial transactions are fully computerized on network and the working is transparent and least susceptible to fraud.

Cautionary Statement

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

Implementation of Official Language Policy

Reiterating the commitment towards the spread of Official Language Hindi, your Company took all-out efforts persistently during the year. Besides complying the Hindi implementation guidelines and the official Language Policy of the Govt of India, your Company also conducted various competitions in hindi, viz. Noting & Drafting, Sulekhan, Quiz and also the Hindi Unicode workshops so as to encourage employees to work progressively in Hindi in their day-to-day affairs.

As an innovative step to promote Hindi language amongst employees, an exclusive soft version, biannual Hindi e-magazine, titled "E-Jagriti" was introduced and accordingly, two issues and a special edition of same were circulated via email and website during the year. Apart from the above, your company also introduced a quarterly Incentive Scheme for doing Hindi correspondence by email, and awarded cash incentives to eligible officers.

Your Company also organized a Rajbhasha Sammelan on the topic "Role of Hindi in Changing Communication Patterns of 21st Century" on a large scale for the employees of Town Official Language Implementation Committee (TOLIC) member organisations based in Mumbai. On the occasion of "Hindi Day", a Linguistic Harmony Culture Programme was also staged wherein SCI employees took active participation by presenting songs, poems, not only in Hindi but also in other Indian languages. Your company also took active participation in TOLIC meetings held twice during the year under report.

Board of Directors

Shri J. N. Das, Director (L&PS) ceased to be a director on the Board of SCI due to superannuation on 30.04.2014. On 07.07.2014, the Board appointed Capt S. Narula as Director (L&PS). Shri B. K. Mandal, Director (Finance), ceased to be a director on the Board of SCI due to superannuation on 31.05.2014. Capt K. Devadas was appointed as Director (T&OS) and Smt. H. K.Joshi as Director (Finance) w.e.f. 26.09.2014 and 05.02.2015 respectively.

Auditors' Report

The auditors in their audit report for the quarter ended 3st March, 2015 have brought out that:

a. The direct access of overseas foreign agents to fund collected on account of freight and other charges in the absence of matching bank guarantees, any policy on fixation of credit limits based on credit rating & other factors and regular monitoring mechanism is prone to risk of non / short payment, the consequential effect of which on the Statement of Profit and Loss remains unascertainable.

b. Adjustments that may be required in the account on working of the actual amount payable to all eligible employees for self lease for staff and officers from 26-11-2008 to 31.03.2015, the impact of which on the statement of profit and loss and Balance Sheet remains presently unascertainable.

c. The Company has maintained proper records of inventory other than the inventory lying with third parties for which neither records are maintained nor the third party confirmations are available. No material discrepancies have been noticed on physical verification between physical stock and book records.

d. The committee constituted to investigate the matter of one of the foreign agents who manipulated the container movement report from time to time in earlier years and not paid the company its rightful dues as mentioned in the statutory auditors' report of previous year, has submitted the report to the Board on 5-8-2014 stating that the company is exposed to both debtors risk as well as risk of non-payment to vendors and in case of continuing with this agency, the company shall be constantly vulnerable to the above risks. The company still continued with the same agency to recover the outstanding as informed to us who later on defaulted in payment of the rightful dues of the company to the extent of Rs. 27 crs (net). The agency was then terminated with six months notice period during which the agent went for Joint Administrators showing its insolvency and incapability to pay the defaulted amount. Except as mentioned in the forgoing lines, any other material fraud on or by the company has not been noticed or reported during the year nor we have been informed of any such case by the management that causes the financial statements to be materially misstated.

e. 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 with regard to purchase of fixed assets, Inventory and sale of goods and services subject to special emphasis required on the continued failure to correct weakness in internal control systems as applicable to SAP and other sub systems in relation to the accounting of agents working and timely verification by the Company. Emphasis also needs to be given on addressing the deficiencies in the implementation of SAP-ERP system pointed out by office of C&AG of India and also in the system audit report conducted by the external organization. to establish checks on the complete and proper recording of the transaction relating to the expenses and revenue

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

a. SCI has opened bank accounts in its name for collection of freight and other charges directly from customers at all ports except the ports where local laws do not permit opening such accounts by non resident companies. Rating of agents is done bi-annually. Bank guarantee amounts are constantly revised depending on freight collections. Agents' performance, remittances, accounts and outstanding are regularly monitored at various levels. Minimum freight guidelines (MFG) module is already implemented in ERP for all major container ports and agents cannot book freight below the level fixed by SCI management. MFG is revised periodically.

b. Management has offered self lease facility to its employees w.e.f. 26-11-2008 on the terms and conditions approved by the Ministry of Shipping. Applications have been received from some of the employees and they are under scrutiny. The final amount payable is yet to be worked out. However, as a prudent accounting practice, Management has made a provision in the books of account on the basis of number of employees who have applied, estimated amount per employee and period of self lease. We do not expect material impact on profit and loss account.

c. Inventory of stores and spares collected by the SCI's agents lies with them till it is delivered to vessels. Same is recorded in ERP system. Inventories are closely monitored by the respective superintendents

d. After the termination of the agency, the agency house has been placed under Administration by the erstwhile promoters of the Agency. The Administration process is in progress and the final report is expected shortly. While there has been delay / default in settlement of our dues by the erstwhile agencies, we are following up with the Administrator for expeditious completion of the Administration Process. The erstwhile promoters of the Agency House are also seeking to resolve the issue amicably and Management is hopeful of reaching a solution and recovering our dues either through settlement or through legal process. However, as a means of abundant caution, Management has provided for the net receivables in the books of accounts.

e. C&AG Audit team carried out a theme audit on Implementation of SAP - ERP system in SCI and identified certain deficiency in the existing system including system of internal control. Except for two observations, remedial actions have been taken. A comprehensive post implementation System audit of systems implemented in SCI was carried out by M/s. Deloitte to meet multiple needs of management to bridge the gaps among business risks, control and other technical issues. Around 200 observations were given by the auditors and 75% of their observations are already implemented and the remaining items are not considered due to certain business practices.

Secretarial Audit

Pursuant to Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial personnel) Rules, 2014, the Board has appointed Mr. Upendra Shukla, Practicing Company Secretary to conduct the Secretarial Audit for the Company for FY 2014-15. The Secretarial Audit report for the FY 2014-15 is appended to the Director's Report. The secretarial auditor in his report for the year ended 31st March, 2015 has bought out that:

(i) The Corporation has complied with the requirements of Corporate Governance as provided under Clause 49 of the Listing Agreement and DPE Guidelines on Corporate Governance, with the exception of appointment of Independent Directors to the extent of 50% of the total strength of the Board. It is clarified by the Corporation that the matter is being pursued with the Administrative Ministry for appointing required number of Independent Directors on the Board and hence, Audit Committee, Nomination & Remuneration Committee, Stakeholders' Relationship Committee and CSR Committee could not be validly constituted.

(ii) The Board of Directors of the Company is constituted as per the Clause 49 of the Listing Agreement with balance of Executive Director and Non-Executive Directors with the exception of appointment of Independent Directors to the extent of 50% of the total strength of the Board. It is clarified by the Corporation that the matter is being pursued with the Administrative Ministry for appointing required number of Independent Directors on the Board. The changes in the composition of the Board of Directors that took place during the year under review were carried out in compliance with the provisions of the Act.

The management views on the above observation are as follows:

The Shipping Corporation of India Ltd. being a Government Company, the induction of Independent Directors can be made on the basis of nominations received by the Government. We have already taken up the matter of inducting Independent Director on the Board of SCI and no sooner the nominations are received, the requirement will be complied with.

Corporate Governance

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

Directors' Responsibility Statement

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

• That in the preparation of the accounts for the financial year ended 31st March 2015, the applicable accounting standards have been followed along with proper explanation relating to material disclosures;

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

• That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

• That the Directors have prepared the accounts for the financial year ended 31st March 2015 on a "going concern" basis.

• That the Directors, in case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.

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

• That the Directors, had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Acknowledgements

Your Directors extend their gratitude to Shri Rajive Kumar, Secretary to the Government of India, Ministry of Shipping, and look forward to his continued support and guidance. Your Directors also welcome Shri Nitin Gadkari, Minister of Shipping and Shri Pon Radhakrishnan, Minister of State for Shipping and look forward to their support and guidance in managing the affairs of the Company.

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

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

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

For and on behalf of the Board of Directors

A. K. Gupta

Chairman & Managing Director

Place : Mumbai

Date : 12th August, 2015