MESSAGE FROM THE CHAIRMAN AND MANAGING DIRECTOR

Dear Shareholders,

The year 2015-16 was eventful for the country as a whole and for us at JSW Steel. We faced significant headwinds, but acted with resilience. We stayed strong and grew stronger, just as India did.

Against a backdrop of global turbulence and sluggish growth, India stands out as a haven of stability and an outpost of opportunity. During FY 2015-16, the country became the world’s fastest growing major economy, despite contraction in exports and two consecutive years of inadequate rainfall. That’s a remarkable achievement by any measure; and even by conservative estimates the economy has the potential to grow at around 8%, going forward.

The Government of India has unveiled a series of policy initiatives to enhance public investments in the infrastructure sector, especially roads, railways and ports. In this context, it would be pertinent to mention the advantages of the Government’s Make in India initiative. It is now acquiring the stature of a national movement to promote manufacturing expertise in India, in line with global quality benchmarks. Besides, the Government has also enhanced the ease of doing business in India, attracting more foreign capital, technology and human expertise. The focus on Smart Cities with best-in-class amenities and drive to strengthen rural income also deserve to be mentioned. These trajectories are acting as a force multiplier for the economy as a whole, and the steel sector in particular.

During the year, India was the only major steel consuming market globally, which saw a demand escalation. However, the country suffered from an unprecedented, unbridled and unfair inflow of steel imports from China, Japan, South Korea and Russia. These countries continued to sell their surplus steel production at predatory prices. South Korea and Japan benefited due to the free trade agreement with India. The result was that the domestic industry was forced to take a series of price cuts, leading to a severe margin squeeze for domestic steel companies.

With eroding profitability and worsening leverage ratios, the Government of India stepped in and undertook necessary corrective trade remedial measures. The objective was to provide a level playing field to the domestic steel industry. The Government enhanced customs duty, and introduced the minimum import price (MIP) mechanism to curb imports at prices below marginal cost of exporting nations. If not for this timely intervention, the steel industry would have been reeling under a lot more pressure than currently. Among other measures, the Government also introduced BIS standards for steel to check sales of inferior quality steel into India.

In such a challenging operating environment, I am happy to share that team JSW Steel rose to the occasion; and was able to achieve a positive consolidated operating EBITDA of ₹ 6,073 crores. We shifted our focus to the domestic market, widening our footprint to the markets in the South; we also concentrated on developing new markets in the East and North East of India. Additionally, we enriched our product mix through the development of new and cutting-edge steel grades, enhanced our quality benchmarks and rationalised our cost structure to minimise erosion of margins.

In such a challenging operating environment, I am happy to share that team JSW Steel rose to the occasion; and was able to achieve a positive consolidated operating EBITDA of ₹ 6,073 crores. We shifted our focus to the domestic market, widening our footprint to the markets in the South; we also concentrated on developing new markets in the East and North East of India. Additionally, we enriched our product mix through the development of new and cutting-edge steel grades, enhanced our quality benchmarks and rationalised our cost structure to minimise erosion of margins.

The year 2015-16 was the sixth year of our strategic and technical collaboration with JFE Steel Corporation. Our focus was on customer approvals and commercialisation of the auto grade steel (advanced CRCA and galvanized) produced in the state-of-the-art CRM #2 complex, set-up at Vijayanagar Works. With JFE's experience in value-added product market, the Company has received certification from several major auto producers for supply of auto grade steel with the Company’s own substrates. Under the collaboration, we also set a 0.2 MTPA state-of-the-art Annealing and Coating Line (ACL) for production of fully processed Non Grain Oriented electrical steel grades. The major focus this year was to stabilise and sustain international standards in electrical steel products. The Company aims to increase sales of these value-added products in the year 2016-17.

Our joint venture with Vallabh Tinplate has performed extremely well during the year. The Company’s subsidiary, JSW Steel Coated Products Limited is setting up a 0.2 MTPA Tin Plate Mill and related facilities at its Tarapur Works to cater to the increasing demand for tinplate.

JSW Steel currently does not enjoy access to captive raw material resources. However, the new MMDR Act has called for a level playing field for industry players with a transparent allocation process of raw materials through competitive bidding. The Company will focus on this opportunity to enhance raw material security, going forward. The Company also intends to participate in the forthcoming auctions of C-category iron ore mines in Karnataka.

We initiated an array of cost-saving projects in areas like logistics, repairs and maintenance, stores and spares, improving yields, process efficiencies and so on. We have set-up a ‘Logistics Centre of Excellence’ to optimise and reduce overall logistics cost for both inward and outward freight movement.

At the same time, we completed a few very low-cost and returnsaccretive capacity expansion projects at Vijayanagar, Dolvi and Salem in FY 2015-16. With a 25% enhancement in capacity, at 18 MTPA, JSW Steel is now India’s leading steel producer by installed capacity. This expansion has also enabled us to enhance the proportion of long products in our portfolio, well in time to capitalise on the upswing in infrastructure creation and construction activity.

Following the ramp up of new facilities, we will be well positioned to deliver around 25% growth in volumes in the coming year; with a target of crude steel production of 15.75 MTPA and saleable steel sales of 15 MTPA in FY 2017. We are also confident of reducing our cost of production even further, with economies of scale and consistent focus on efficiency improvement.

Despite temporary challenges, India’s long-term outlook for the steel sector continues to be bright. The Government of India is aiming to scale up the country’s steel production to 300 MT by 2025. It is taking relevant steps to bolster the growth of the sector. Some of the initiatives comprise setting up of the Steel Research and Technology Mission of India to spearhead research and development activities; and establishing Special Purpose Vehicles (SPVs) with four iron ore rich states to set-up plants having capacity between 3 and 6 MTPA.

In the Union Budget 2016-17, the Government of India has proposed to spend ` 2,18,000 crores on roads and railways. In addition, India's automobile industry witnessed a rebound in demand among emerging economies. Such a scenario augurs well for the domestic steel sector. Other initiatives of the Government such as Housing for All by 2022, Power for All by 2019, 100 Smart Cities by 2022 and Atal Mission for Rejuvenation & Urban Transformation (AMRUT) are likely to drive steel demand significantly.

From the fledgling one MT industry at the time of Independence, India’s steel sector has now risen to be the third largest producer of crude steel in the world. This is a proud moment for all of us. At JSW Steel, we are committed to partner the nation’s journey from strength to strength. Our vision at JSW Steel is to touch 40 MTPA capacity in the next decade. However, our growth trajectory shall be calibrated in such a manner, so that we can continue to maintain financial prudence and a strong balance sheet sustainably. We are committed to retaining our leadership position as an efficient allocator of capital and industry-leading return ratios, despite industry cycles, in both the quantum as well as timing of future growth projects – both organic as well as inorganic.

As we look forward to a period of higher volumes and improving margins, we are confident of improving profitability and strengthening cash flows in the coming years.

I am thankful to the team for working hard and for helping make JSW Steel one of the leading steel companies in India and the world. We will also continue to support JSW Foundation in its mission to empower communities with sustainable livelihoods. Besides, our interventions in conserving the environment and reducing the carbon footprint continue to be a priority for us.

I look forward to your continued support in our collective journey to build a sustainable and value-creating enterprise.

Best Wishes,
Sajjan Jindal
Chairman & Managing Director