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DIRECTOR'S REPORT

Essar Shipping Ltd.

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Market Cap. (₹) 147.99 Cr. P/BV -0.08 Book Value (₹) -92.26
52 Week High/Low (₹) 16/6 FV/ML 10/1 P/E(X) 0.00
Bookclosure 23/12/2019 EPS (₹) 0.00 Div Yield (%) 0.00
Year End :2018-03 

The Directors are pleased to present the Eighth Annual Report and Audited Financial Statements of the Company for the financial year ended March 31, 2018.

FINANCIAL RESULTS:

The Company’s financial performance, for the year ended March 31, 2018 is summarized below:.

Rs. in Crore

Particulars

Consolidated

Standalone

For the year ended 31-032018

For the Year ended 31-032017

For the year ended 31-032018

For the Year ended 31-032017

Total Income

1,287.23

2,125.38

703.55

790.66

Total Expenditure

961.66

1814.73

488.69

438.86

EBITDA

325.57

310.65

214.86

351.80

Less: Interest & Finance charges

386.80

466.98

265.24

352.63

Less: Provision for Depreciation

304.12

390.50

125.04

137.14

Profit 1 (Loss) before Tax

(365.35)

(546.83)

(175.42)

(137.97)

Less: Provision for Tax

(3.24)

(37.85)

(3.24)

(2.65)

Profit 1 (Loss) for the year before share of profit of associate

(368.59)

(584.68)

(178.66)

(140.62)

Add: Exceptional item

(1,280.50)

-

224.31

-

Add: Share of profit of associate

(35.77)

1.24

-

-

Add: Other Comprehensive Income/loss

0.88

(0.38)

0.75

(0.38)

Profit 1 (Loss) for the year

(1,683.98)

(583.82)

46.40

(141.00)

DIVIDEND

Due to inadequate operating profit, the Board of Directors has not recommended any dividend for the year under review.

MANAGEMENT DISCUSSION AND ANALYSIS

Overview of the World Economy & Shipping Industry

With over 80 per cent of global trade by volume and more than 70 per cent of its value being carried on board ships and handled by seaports worldwide, the importance of maritime transport for trade and development cannot be overemphasized. Thus, making ocean shipping the most important mode of transport for international merchandise trade. Seaborne trade continues to expand, bringing benefits for consumers across the world through low and decreasing freight costs. Thanks to the growing efficiency of shipping as a mode of transport and increased economic liberalization, the prospects for the industry's further growth continues to be strong.

The International Monetary Fund (IMF) has published its World Economic Outlook for January 2018 and has subsequently revised its original forecast for global growth in 2018 and 2019 - up by 0.2 to 3.9% for both years. The development in global growth is driven by a higher growth from advanced economies than first anticipated. The IMF now expects the GDP for advanced economies to grow by 2.3% in 2018 and 2.2% in 2019, which is an upward revision of 0.3 percentage points for 2018 and 0.4 for 2019. This is the highest upward cumulative revision for advanced economies since January 2010, when we saw a false dawn for an improvement in the global economy. If this growth materializes, it will be highly beneficial for the shipping industry, as growth in advanced economies generates the highest trade-to-GDP multiplier.

To support this momentum , Ministries of transport and planning, and maritime and port authorities worldwide need to understand the determinants of maritime transport connectivity, as well as the associated opportunities and risks, to ensure informed policy and decision-making processes and adequate investment plans in shipping, ports and their hinterland connections.

Developments in International Seaborne Trade

In 2016, the maritime transport sector continued to face the prolonged effects of the economic downturn of 2009. Seaborne trade remained under pressure owing to continued weak global demand and heightened uncertainty stemming from factors such as trade policy and low commodity and oil prices. World seaborne trade expanded by 2.6 per cent, up from 1.8 per cent in 2015, which is below the historical average of 3 per cent recorded over the past four decades. Reflecting the state of the world economy, demand for shipping services increased moderately in 2016. World seaborne trade volumes expanded by 2.6 per cent, up from 1.8 per cent in 2015 reaching 10.3 billion tons, reflecting the addition of over 260 million tons of cargo, about half of which was attributed to tanker trade.

Strong import demand in China in 2016 continued to support world maritime seaborne trade, although overall growth was offset by limited expansion in the import demand of other developing regions.

In 2017 & 2018, the outlook for the world economy and merchandise trade is expected to improve somewhat. However, uncertainty and other factors, both positive and negative, continue to shape this outlook. In this context, it is estimated that seaborne trade will increase by 2.8 per cent, with total volumes reaching 10.6 billion tons. Volumes are set to expand across all segments, with containerized trade and major dry bulk commodities trade recording the fastest growth.

Seaborne dry cargo shipments totalled 7.23 billion tons in 2016, reflecting an increase of 2 per cent over the previous year .The share of the major bulk commodities (coal, iron ore, grain and bauxite/ alumina/phosphate rock) amounted to about 43.9 per cent of total dry cargo volumes, followed by containerized trade (23.8 per cent) and minor bulks (23.7 per cent)

In 2016, developing economies grew by 3.7 percent. However, there were considerable regional variations.

In 2017, the world fleet reached 1.9 billion dwt, twice the size as it had 12 years ago. Today, bulk carriers account for 43 percent of the fleet, followed by oil tankers (29 per cent) and container ships (13 per cent). The top five ship owners at the end of 2016 were Greece, Japan, China, Germany and Singapore; together they had a market share of 50 per cent in dead-weight tons. Only three economies, the Republic of Korea, China, and Japan, constructed 92 per cent of world tonnage in 2016. Four economies, India, Bangladesh, Pakistan and China, together accounted for 95 per cent of ship scrapping in 2016.

For the fifth year in a row, world fleet growth has been decelerating. The commercial shipping fleet grew by 3.15 per cent in 2016, compared with 3.5 per cent in 2015. Despite this further decline, the supply still increased faster than demand, leading to a continued situation of global overcapacity and downward pressure on freight rates. In the beginning of 2017, the average age of the commercial fleet was 20.6 years, representing a slight increase over the previous year. Fewer newbuildings than at the beginning of the decade, combined with similar scrapping levels, have led to an aging fleet.

In 2016, shipbuilding activity contracted by 1.7 per cent, while ship scrapping went up by 25.7 per cent. The higher growth of demolition led to a slowdown in world fleet growth.

Overview of the Indian Economy

India is the sixteenth largest maritime country in the world. The Indian government has initiated National Maritime Development Programme (NMDP), an initiative to develop the maritime sector; with a planned investment outlay of US$ 11.8 billion.

A consequence of strong GDP growth has been rising energy demand; the country currently meets about 75% of total crude oil demand by imports. India's crude imports touched 214.9 MMT in FY17, implying a CAGR of 6.7% over FY07-17. Private ports have been especially good at attracting crude import traffic. - Petroleum, Oil, and Lubricants (POL) have been the major contributors to total traffic at ports.

The Central Government is planning to setup logistic hubs near seaports with the help of private sector players, to augment exports from the country. Cargo traffic is expected to witness growth and is said to reach 2,493.1 MMT by 2017. This is against 1,806.8 MMT recorded in 2015. The increase in India’s refining capacity will benefit the offshore shipping lines as demand for their services picks up. As a result of the commissioning of large domestic refining capacities, the imports are expected to jump in the future. This would benefit shipping majors operating in India. The dry bulk business segment in the shipping industry has been impacted by the global commodity slump. While China's slowdown has led to a sharp moderation of imports like Iron ore, on the other hand, emphasis on the environment has led to the lower usage of coal. This has impacted coal imports. Further, India's domestic coal production has also improved over the years leading to fewer coal imports. All these factors have led to decline in demand for commodities, thereby reducing commodity moments. The trend is quite visible from the Baltic Dry Index or BDI. If the slowdown in China widens and the movement of coal remain as it is now, the future prospects in this space seem unfavorable.

The shipping industry is impacted by numerous short term and regional factors such as political fallouts, weather changes, etc. This could result in great amount of volatility in the freight market.

BUSINESS PERFORMANCE, OPPORTUNITIES AND OUTLOOK

Freight rates and Maritime trade by Cargo type

(a) Tanker trade

In 2017, world seaborne tanker trade - crude oil, refined petroleum products and gas - continued to grow amid a surplus in oil market supply and low oil prices. Total volumes reached 1.8 billion tons, reflecting an increase of 4.2 per cent over the previous year. These positive trends were underpinned by strong demand for crude oil imports in China, India and the United States and a high level of exported petroleum products from China and India. However, overcapacity, political concerns in the Middle East , increase in production , sanctions by the US government led to a fall in rates

Market conditions were altered with the arrival of new vessels and a slowdown in oil demand growth. This led to steep declines in freight rates. These imbalances in markets fundamentals had a repercussion on earnings which came under further pressure, particularly in the last six months of the year. Overall, tanker earnings averaged about $17,917 per day in 2017-18, a 42 per cent decline, compared with 2016. This decline was affected by the rise in crude oil prices, which also had an impact on bunker (ship fuel) costs.

The outlook appears challenging in the short term, given expectations for continued strong supply growth and numerous risks to the demand side. However, one important regulatory development may reduce fleet supply and support freight rates in the future. New IMO ballast water management standards, which became effective in September 2017, require ships using ballast water in international trade to be retrofitted with a ballast water treatment system. This would come at an estimated cost ranging between $1 million and $5 million (Barry Rogliano Salles, 2017) that may push shipowners to increase scrapping of their old tonnage with low earnings potential, instead of incurring the additional cost. This may also lead to better balanced market fundamentals as supply may contract considerably, in particular in the very large oil carrier segment, which constitutes a big fraction of today's older tonnage.

In the tanker business, companies are wary of a dent to oil demand as crude prices rise. Brent prices have more than doubled since the low of January 2016, with a proposed cut in supplies by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC countries likely to keep prices elevated in the near term. Also, as prices rise, demand for offshore tankers will decline, as will the drive to increase strategic reserves.

(b) Dry cargo trade: Major and minor dry bulk commodities and other dry cargo

Overall, weak global investment and industrial activity have weighed down on the dry bulk trade segment,4 which continues to be heavily dependent on developments in China. In 2017, world demand for dry bulk commodities grew at a modest rate of 1.3 per cent, taking total shipments to 4.9 billion tons. China remained the primary source of growth, owing to the positive impact of the stimulus measures introduced during the year. Policy-driven support measures helped increase infrastructure and housing market investment and in turn, the demand for commodities and steel.

Within the dry bulk segment, trade in the major bulk commodities increased by 1.6 per cent. Iron ore trade showed the strongest growth with volumes expanding by 3.4 per cent, reaching 1.4 billion tons in 2016-17.

Imports into China increased by over 7 per cent, reflecting the country's steel output growth, falling domestic iron ore production, growing stockpiling activity and access to affordable, high-quality iron ore from Australia and Brazil.

Coal trade diminished in 2017, owing to flat demand for coal. Total volumes were estimated at 1.14 billion tons. Declining imports of thermal coal into India, Japan, the Republic of Korea and Europe were offset by a 4 per cent increase in other Asian countries imports, notably China, where import volumes surged by over 28 per cent.

2017 was another difficult year for the dry bulk sector, which continued to face overcapacity and weak growth in demand. The industry continued taking steps to limit fleet supply growth through increased scrapping and postponing or reducing deliveries of new vessels during 2017.

As previously noted, the fleet capacity of bulk carriers grew by 2.22 per cent, one of its lowest rates of growth since 1999 (Clarksons Research, 2017).

(d) Opportunities

It has been quite some time since macro-economic development has looked this positive and as supportive of shipping. Political events can undermine the development, but 2018 appears to bring fewer economic growth “derailing” events compared to 2017. The most important factors to potentially derail growth are likely to be the US midterm elections in November, the renegotiation of the NAFTA and the negotiation of the Brexit deal. Notwithstanding, the sustainability of the all-important Chinese economy.

For sustained economic growth, the political deals resulting from these events need to decrease the number of trade barriers and ensure regulatory alignment. This will help to encourage potential growth as restrictive trade measures can discourage trade flows and have negative knock-on effects on economic growth and job creation.

The World Trade Organization (WTO) has asked all nations to resist from adopting inward-looking policies and urged its members to show leadership by committing to open and mutually beneficial trade. According to the most recent trade monitoring report this has been embraced. In the period from mid-October 2016 to mid-October 2017, 128 measures were implemented to facilitate trade, compared to 108 trade-restrictive ones.

According to the WTO, world merchandise trade has rebounded strongly as volumes grew by 3.6% in 2017 compared to 1.3% in 2016. It is expected that this will drop moderately to 3.2% in 2018 due to a downside risk arising from trade policy measures and geopolitical tensions.

(e) Outlook

The weak trade economy since the 2008 recession and the overcapacity of the shipping industry have continued to limit growth in shipping. As 2017 dawns, it is apparent that the shipping industry will continue to face headwinds. The global economy is in uncertain territory, with a new administration taking over in the United States, Europe still mired in weak growth, and economic activity in China not showing signs of picking up sharply. To top it all, international trade faces a rise in protectionist rhetoric, with events such as Brexit shaking the foundation of free movement of goods, services, and capital. Also, with Asian growth outpacing other regions, trade growth within Asia will rise, thereby impacting shipping distances.

Rates and demand levels remain low, which is why it is important to effectively manage overcapacity. Well-functioning, efficient, resilient freight transport systems are a prerequisite for successful trade and economic integration. They are also necessary to attract investment, develop business and build productive capacities.

There appears to be a rise in tailwinds of late. Metal prices are firming up: Copper is up more than 23 percent since the end of 2015. Fiscal stimulus focusing on infrastructure and investment in China and Japan is likely to aid demand for metals. This augurs well for freight rates, which have also been moving up in recent months, as is evident from the Baltic indices . Most importantly, the shipping industry can draw comfort from an expected rise in international trade growth in the near term. The advent of the United States as an energy exporter with products destined for Asia—a longer route—will aid sentiment. Also, the flow of US oil into the global market will likely keep a lid on prices, thereby ensuring a ceiling. This will ensure that demand does not falter much despite a recent rise in crude oil prices .With key emerging markets and Japan searching for fuels cleaner than coal, natural gas has seen an upsurge in demand. This is likely to continue, aiding demand for liquefied natural gas tankers.

Oilfields Services Business

Offshore Segment:

Looking into 2018 the outlook for the offshore industry is dramatically improved. Oil prices have recovered, the industry has significantly restructured, and the “obsession” with shale growth is finally waning. At long last an offshore up cycle is poised to begin.

The recovery has unfolded in a predictable manner: The international markets are staring to re-awaken, and now the last frontier - offshore- is showing signs of life. We currently expect global E&P spending to rise in the low double-digits this year compared to declines in 2015 and 2016, and flattish conditions throughout most of 2017.

We continue to have a contrarian view on the offshore markets. We believe rig supply/demand dynamics are better than they appear, especially for floaters and harsh-environment capable assets. On the demand side, fundamentals appear to have deteriorated with the working floater count falling below 100 near the end of 2017; however, the low working rig count ignores ~30 idle units that will commence new contracts imminently - the highest level since March 2012

Roughly 30 projects were approved in 2017; this is more than double the number of projects approved in 2016, and we believe the industry is likely to see another sizeable increase in offshore FIDs in 2018. All of the offshore companies are reporting an increase in “tire kicking,” inquiries, and tendering. With the recent move in Brent to above $60/bbl and another landmark OPEC agreement to limit production through 2018, the animal spirits are returning to offshore operators which have been dormant for several years

Onshore Segment:

Considering the market for onshore drilling services in India, it has been highly skewed towards the customers such as ONGC, Oil India Limited and Indian Oil Corporation Ltd. In the regime of 12th five year plan, the government is expected to focus majorly on E&P activities, including intensive exploration of existing hydrocarbon reserves and geographical focus on the east coast for exploring oil fields. While ONGC and IOC, both upstream companies, are expected to spend Rs 1.75 trillion (US$ 32.9 billion) and Rs 190 billion (US$ 3.6 billion), respectively, primarily in exploration activities, it is essential to capitalise upon key opportunities that are put forth to maximise deployment of land rig assets on longer duration with these companies. Apart from these two, in the private sector, the E&P companies like Cairn Energy & other marginal field operator in India are expected to increase their spending on exploration of wells. This apart, development of the unconventional energy sources such as shale gas & CBM poses larger opportunites for the deployment of land rig business.

With continuing uncertainty in macro-economic conditions and a relatively high level of market volatility, extending drilling and oilfield services, to reach a larger customer base is becoming very imperative to even out business risk, which may be achieved through vertical integration for e.g providing Integrated Project Management services. Considering the existing assets of Oilfields services business and their employability in the current market conditions, maximizing the asset utilization and providing greater efficiencies in the service is very crucial in terms of steady revenue generations without any significant idling ofassets. Moreover, to remain competitive, we have the objective to become more nimble to enhance the performance with the ability to scale resources up and to realize cost savings.

SUBSIDIARIES

As on March 31, 2018, your Company has four direct subsidiaries and four indirect subsidiaries. Essar Oilfields Services Limited, Mauritius; Energy Transportation International Limited, Bermuda; Energy II Limited, Bermuda; and Essar Shipping DMCC are direct subsidiaries of the Company. Essar Oilfield Services India Limited, India, StarBit Oilfields Services India Limited, Essar Oilfield Middle East DMCC, Dubai UAE, and Cosmic Drilling Services Limited are step down subsidiary of the Company.

A report on the performance and financial position of each of the subsidiaries and associates companies as per the Companies Act, 2013 is provided as Annexure to this report and hence not repeated here for the sake of brevity. The Policy for determining material subsidiaries as approved by the Board is available on Company's website www.essar.com.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with the Companies Act, 2013 and Indian Accounting Standard (IND-AS) - 110 on Consolidated Financial Statements read with IND-AS - 28 on Accounting for Investments in Associates, the audited Consolidated Financial Statements are provided in the Annual Report. The audited Consolidated Financial Statements together with Auditors' Report thereon form part of the Annual Report.

HUMAN RESOURCE

Your Company believes that employee competence and motivation are necessary to achieve its business objectives. Your Company has undertaken many training initiatives to enhance technical and managerial competence of the employees and to further leverage their capabilities to enhance their performance. The Company has taken a series of initiatives to enhance emotional and intellectual engagement of employees. During the year under review, the Company held many employees engagement programs at the Company premises and outside. Families of employees were invited and attended these programs.

The Company has policies on conduct, sexual harassment of women at workplace, whistle blower, corporate governance, insider trading etc. guiding the human assets of the Company. For the year under review, there was no instance of the sexual harassment reported pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

DIRECTORS

In accordance with the provisions of the Companies Act, 2013 and the Article of Association of the Company, Mr. P K Srivastava retires by rotation at the ensuing Annual General Meeting and being eligible has offered himself for re-appointment. The Company has received requisite notice in writing from a member proposing Mr. P K Srivastava for appointment as Director.

The brief resume of the Director being re-appointed, the nature of his expertise in specific functional areas, names of companies in which he hold directorships, committee memberships/ chairmanships, their shareholding etc., are provided in the Notes to the Notice of the ensuing Annual General Meeting. Your Directors recommend his reappointment at the ensuing Annual General Meeting.

The Company has received declarations from all the Independent Directors of the Company confirming that they meet with the criteria of independence as prescribed both under sub-section (6) and (7) of Section 149 of the Companies Act, 2013 and under Regulation 16 (b) (iv) of SEBI (LODR) Regulations, 2015.

Pursuant to Sections 134 and 178 of the Act and the Regulations 17 and 19 of the Listing Regulations, Nomination and Remuneration Committee (‘NRC') has set the policy for performance evaluation of Independent Directors, Board, Committees and other individual directors; separate meeting of Independent Directors; familiarization programme for Independent Directors, etc. is provided under Corporate Governance Report annexed with this Report and the relevant policies are also available on the website of the Company www.essar.com.

Based on the criteria set by NRC, the Board has carried out the annual evaluation of its own performance, its committees and individual Directors for FY 2017-18. The questionnaires on performance evaluation were prepared in line with the Guidance Note on Board Evaluation date January 5, 2017, issued by SEBI

The performance of the Board and Individual Directors were evaluated by the Board seeking inputs from all the Directors. The performance of the Committees was evaluated by the Board taking input from all the Committee Members. NRC reviewed the performance of individual Directors, separate meetings of the Independent Directors was also held to review the performance of Non-Independent Directors and performance of the Board as the whole. Thereafter, at the board meeting, performance of the Board, its committees and individual Directors was discussed and deliberated.

BOARD MEETINGS

During the year ended on March 31, 2018, Seven (7) meetings of the Board were held on May 26, 2017, July 31, 2017, September 15, 2017, November 14, 2017, January 19, 2018, February 14, 2018 and March 28, 2018.

DIRECTORS' RESPONSIBILITY STATEMENT

Your Directors state that:

(a) in the preparation of the annual accounts for the year ended March 31, 2018, the applicable accounting standards had been followed and there are no material departures from the same;

(b) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2018 and of the loss of the Company for the year ended on that date;

(c) the Directors had 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;

(d) the Directors had prepared the annual accounts on a going concern basis. The auditors have expressed an emphasis of matter on Going Concern in their Consolidated Audit Report relating to a stepdown subsidiary.

(e) the Directors, had laid down internal financial controls followed by the Company and that such internal financial controls are adequate and were operating effectively as endorsed by Statutory Auditor in their separate report annexed to the Annual Report

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

RISK MANAGEMENT

Your Company has a Risk Management Policy that outlines the framework and procedures to assess and mitigate the impact of risks, and to update the Board and the senior management on a periodical basis on the risk assessed, actions taken for mitigation and efficacy of mitigation measures. With efficient Risk Management Framework, your Company is able to manage:

(a) Economic Risks by entering into long term contracts with reputed global majors in each of its divisions thereby ensuring long term profitability of the Company and assured cash flows;

(b) Interest Rate Risk by undertaking suitable hedging strategies to overcome any adverse interest rate risks. It has formulated internal target rates at which any open interest rate risk can be hedged;

(c) Control over the operational matrix of various vessels to reduce cost and reduce downtime of vessels; and

(d) Control over various OPEX cost of the organization.

As per LODR, Regulation 2015, Compliance related with Risk Management Committee is required to be done only by top 100 Companies as per list released by NSE, since our Company doesn't fall in that category hence the Compliance of Risk Management was not needed but our Company do believe in mitigation/minimisation of risk therefore the management had put its best effort to minimise/ mitigate the risk.

INTERNAL CONTROL SYSTEMS AND ITS ADEQUACY

Your Company has a well-established framework of internal operational and financial controls, including suitable monitoring procedures systems which are adequate for the nature of its business and the size of its operations. The detailed report is given in Corporate Governance Report. Based on the performance of the internal financial control, work performed by internal, statutory and external consultants and reviews of Management and the Audit Committee, the board is of the opinion that the company's internal financial controls were effective and adequate during the FY 2017-18 for ensuring the orderly efficient conduct of its business including adherence to the company's policies, safeguarding of its assets, the prevention and detection of fraud and errors, the accuracy and completeness of accounting records an timely preparations of reliable financial disclosures.

CORPORATE GOVERNANCE

The Company has complied with all mandatory provisions of SEBI (LODR) Regulations 2015, relating to Corporate Governance. A separate report on Corporate Governance as stipulated under the SEBI (LODR) Regulations, 2015 forms part of this Report. The requisite certificate from the Auditors of the Company regarding compliance with the conditions of corporate governance is attached to the report on Corporate Governance.

VIGIL MECHANISM

The Company has in compliance with Section 177 of the Companies Act, 2013 and Regulation 18 and 22 of the Listing Regulations established Vigil Mechanism by adopting the ‘Whistle Blower Policy', for Directors and Employees. The Whistle Blower Policy provides for adequate safeguards against victimization of persons who use such mechanism and have provision for direct access to the Chairperson of the Audit Committee in appropriate cases. A copy of the Whistle Blower Policy is available on the website of the Company www.essar. com.

CORPORATE SOCIAL RESPONSIBILITY

The Corporate Social Responsibility Committee comprises Captain B. S. Kumar - Chairman; Mr. Ranjit Singh; and Ms. Neelam Kapoor.

Since the Company has incurred losses in proceeding three financial years hence it is not required to spend on CSR Activities.

EMPLOYEE STOCK OPTION SCHEME

The Company has implemented the “Essar Shipping Employees Stock Option Scheme-2011” (“Scheme”) in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (“the SEBI Guidelines”). The Nomination and Remuneration Committee of the Board of Directors of the Company administers and monitors the Scheme. The applicable disclosures as stipulated under the SEBI Guidelines as at March 31, 2018 are provided in the Annexure - B to this Report.

AUDITORS

Your Company's Statutory Auditor, M/s. C N K & Associates LLP, (Registration No. 101961 W/W - 100036) was appointed at 5th AGM of the Company held on September 23, 2015 to hold the office up to the conclusion of 10th AGM of the Company to be held on year 2010. subject to the ratification by the Members at every AGM held thereafter.

Section 139 of the Act has been amended vide the Companies (Amendment) Act, 2017 by the Ministry of Corporate Affairs on May 7, 2018 and has done away with the requirement of seeking the ratification of Members for appointment of auditors at Every AGM.

The Board of Directors of the Company recommend M/s C N K & Associates LLP, Chartered Accountants, Mumbai, (Registration No. 101961 W/W - 100036) for ratification of appointment as Statutory Auditors of the Company by the Members at the ensuing Annual General Meeting for their remaining tenure. The Company has received letter from M/s C N K & Associates, Chartered Accountants, Mumbai to the effect that if their appointment is made , would be within the prescribed limits laid down under Section 141 (3)(g) of the Companies Act, 2013 and they are not disqualified for such appointments/ continue to act as statutory auditors under the provisions of applicable laws.

AUDITORS' REPORT:

Further with regard to the observations made in Annexure A to the Auditors' Report, the management explanation is as under:

a) TDS & Service Tax dues:

The Company is making all efforts to clear outstanding statutory dues at earliest.

b) Regarding the dues to the Bank/FI/Debenture-holders

The Company is continuing its negotiation with lenders to restructure the loan to ensure that earnings from operations matches with debt service commitments.

c) The Company's Current Liabilities exceed its Currents Assets by Rs. 1,506.51 crores as at 31st March 2018. The following steps are be taken to rectify this mismatch:

1) Loan from public financial institution along with interest accrued thereon amounting to Rs.1,087 crores is not payble within one year .

2) Advance from a subsidiary for purchase of vessel amounting to Rs.330 crores is not payable within one year.

3) Loan from Alternate Investment Fund along with interest accrued thereon amounting to Rs.196 crores is not payable within one year

4) Loan from NBFC along with interest accrued thereon amounting to Rs.43 crores will not be repaid out of Company's Currents Assets.

5) Certain loans classified as current owing to covenant defaults are expected to be rescheduled such that they will not be repayable within one year.

SECRETARIAL AUDIT

The Board has appointed M/s. Martinho Ferrao & Associates, Practising Company Secretaries, to conduct Secretarial Audit for the financial year 2017-18. The Secretarial Audit Report for the financial year ended March 31, 2018 is annexed herewith marked as Annexure- C to this Report. The Secretarial Audit Report does not contain any qualification, reservation oradverse remark.

APPOINTMENT AND REMUNERATION POLICY FOR DIRECTORS AND SENIOR MANAGEMENT

The Board of Directors on recommendation of the Nomination & Remuneration Committee has adopted a policy for appointment of Directors, remuneration of Directors, Key Managerial Personnel and other employees. The brief details on the above are provided in Corporate Governance Report and the policy is available on the website of the Company www.essar.com. The details of remuneration as required to be disclosed pursuant to the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are annexed as Annexure - D to this Report.

PARTICULARS OF EMPLOYEES

In terms of the provisions of Section 197(12) of the Companies Act, 2013 read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules together with disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are provided in the Annexure - E to this Report.

CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES

All contracts / arrangements / transactions entered by the Company during the financial year with related parties were in the ordinary course of business and on an arm's length basis. During the year, the Company had entered into one or more contract / arrangement / transaction with Essar Steel India Limited, a Fellow Subsidiary which could be considered material in accordance with the policy of the Company on materiality of related party transactions.

The Policy on materiality of related party transactions and dealing with related party transactions as approved by the Board may be accessed on the Company's website www.essar.com. The information on each of the transactions with the related party as per the Companies Act, 2013 is provided in note 28 of notes forming part of the financial statement and hence not repeated. The disclosure required pursuant to clause (h) of sub-section (3) of Section 134 of the Companies Act, 2013 and Rule 8(2) of the Companies (Accounts) Rules, 2014 in Form AOC-2 is annexed herewith as Annexure - F to this Report.

EXTRACT OF ANNUAL RETURN

The extract of the Annual Return in Form MGT 9 is annexed herewith as Annexure - G to this Report.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Particulars of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the financial statements.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

There are no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Company's operations in future.

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNING AND OUTGO

Conservation of energy and Technology absorption

Your company is committed for continual environmental improvement. The Company has taken several initiatives towards conservation of energy. The Company initiated the process of monitoring carbon emissions as per IMO GHG Guidelines and also explored opportunities to improve energy efficiency onboard the ships. Due to the nature of the business (transportation), fuel and lubricants are necessary to deliver the services.

Following are few steps taken towards conservation of energy and use of alternate source of energy:

Ship Energy Efficient Management Plan (SEEMP): In line with current guidelines that have been established by I MO, this plan has been implemented all across fleet vessels. The capturing and monitoring of the data on regular basis prompts to take appropriate corrective measures on a timely basis. Onboard performance monitoring systems will give a holistic approach to ship operations with the aim of reducing fuel consumption and emissions while achieving optimum vessel performance. The Company have already completed energy efficiency evaluation on our assets and are now in the process of implementing fuel efficiency measures. These include trim, speed reduction and weather routing. These fuel efficiency measures will not only reduce energy consumption but also benefit customers through lower fuel cost, where applicable.

Alternate source of energy: In order to reduce fuel consumption, the Company's vessels utilize shore power during repair lay-up period and thereby reduce carbon foot print. Periodical cleaning of ship's hull and propellers apart from routine dry-docking of floating assets is another step which has been taken towards conservation of energy with insignificant investment or expenses.

Technology Absorption

The Company has successfully implemented SAP in its financial and budget management systems. The Company has also now implemented various methods of automation so as to have greater visibility and control over its assets and further improve the turnaround time thereby increasing asset utilisation and profitability. Planned maintenance and purchase management system of all the vessels are now being integrated with SAP in order to have uniform platform. The Company has implemented a robust Document Management System thus improving the availability of critical information in e-mode thereby reducing the use of paper. Ship-staff payroll system has been developed and implemented successfully.

In-house developed software EIS system has now been upgraded to monitor all the above energy conservation measures and is now available online. Various energy and cargo related data are available in e-mode and helps in close monitoring and control of energy conservation related matters. Due to in-house developed software, your company has not only saved on investment towards purchase of third party software but also reduced dependency on third party service provide.

Foreign Exchange Earnings and Outgo

The details of Foreign Exchange Earnings and Outgo during the year are as follows:

Foreign Exchanged Earned (including loan receipts, sale of ships, freight, charter hire earnings, interest income, etc.) : Rs.184.52 Crore

Foreign Exchanged Used (including cost of acquisition of ships, loan repayments, interest, Operating expenses, etc.) Rs. 482.40 Crore

PUBLIC DEPOSITS

Your Company has not accepted any public deposits under section 73 of the Companies Act, 2013, during the Financial Year under report.

APPRECIATION AND ACKNOWLEDGEMENTS

Your Directors express their appreciation of commendable teamwork of all employees. Your Directors express their thanks to all the offices of the Ministry of Shipping, Directorate General of Shipping, Ministry of Petroleum and Natural Gas, Indian Navy, Indian Coast Guard, Mercantile Marine Department, State Government and Central Government, Classification societies, Oil Companies and Charterers, creditors, Banks and Financial Institutions for the valuable support, help and co-operation extended by them to the Company.

Your Directors also thank its other business associates, including the Members of the Company for their continued co-operation and support extended towards the Company.

For and on behalf of the Board

Ranjit Singh P.K. Srivastava

Executive Director & C.E.O Chairman

(DIN :07021621) (DIN:00843258)

Mumbai May 30, 2018

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