Chairman and Managing Director’s Message

Dear Stakeholders,

It is with great pride and pleasure that I report to you at the end of a very successful financial year that saw us report market-leading numbers, together with the triggering off of multiple strategic initiatives aimed at realising our long-term vision.

During the year, we launched our revamped Group brand identity. Elucidated through the tagline, ‘Better Everyday’, our new brand positioning is all about being ‘a bold and unwavering transformer’. It demonstrates our drive to make ‘better’ every life we touch; be it our employees, our business associates, our customers, the communities around our plants and facilities, or the industry fraternity at large. And we do so by following the principle of bettering ourselves, time and again, continuously, with dynamic enthusiasm. Further, to establish this culture and create a consistent brand experience, both for our internal and external stakeholders, we are adopting a personality that is optimistic, empathetic, nationalistic and bold.

Thus, our credo borrows from the actions and outcomes we have demonstrated. In JSW Steel too, we find resonance of ‘Better Everyday’, in the manner that we have performed, and in the strategic focus we have outlined. We can only get better if we pursue excellence across all facets of our business on a daily basis, and therefore, this annual report highlights some of the ways in which we are aiming for excellence.

This is our first Integrated Report. Creating value for all stakeholders and providers of diverse capitals is inbuilt into our strategy, and the way we measure our performance. Our report now reflects the outcomes of our actions, as relevant to different stakeholders, and the impact of our strategy and integrated thinking. It is also in-line with our commitment to the highest standards of governance and transparency.

  An Encouraging Environment

FY18 was characterised by broad-based improvement in global growth, rising industrial production, kick-starting of the supply side reforms in China and uptick in global steel pricing environment.

In 2017, global economy grew at 3.8% which is the fastest since 2011. This growth was an outcome of a combination of factors namely higher investments, favourable monetary policies and buoyant global trade. The International Monetary Fund (IMF) expects this momentum to continue and has forecasted that global economy could grow by 3.9% in 2018 as well as 2019.

The Indian economy too saw a strong rebound in demand, especially in the second half, demonstrating a healthy resilience to disruptions and structural changes. India’s macro fundamentals, such as fiscal deficit and credit rating are improving, and broad-based financial reforms are being undertaken through initiatives such as relaxation of FDI rules, enactment of the IBC and growth stemming from government spending. Although the GDP growth at 6.7 per cent was a tad lower than the 7.1 per cent achieved in the previous fiscal, it is a remarkable achievement given the context of reform. Growth is expected to rebound to 7.4% in fiscal 19, driven by multiple internal and external factors.

THIS IS OUR FIRST INTEGRATED REPORT. CREATING VALUE FOR ALL STAKEHOLDERS AND PROVIDERS OF DIVERSE CAPITALS IS INBUILT INTO OUR STRATEGY, AND THE WAY WE MEASURE OUR PERFORMANCE.

DURING THE YEAR, OUR CONSOLIDATED REVENUES GREW 18.1% — SUBSTANTIALLY OUTPACING THE DOMESTIC INDUSTRY STEEL CONSUMPTION GROWTH OF 8.1% AND GLOBAL CONSUMPTION GROWTH OF 4.7%.

For the first time in many years, elasticity of steel demand to GDP growth exceeded 1x. Infrastructure received a big boost in the form of budgetary allocation, and consumer sentiment, too, is on the rise. We also crossed the GDP threshold of $2.5 trillion, there is likely to be a huge thrust on infrastructure development, which is very positive for steel demand growth.

In addition, the introduction of GST, is a seminal reform, which will help formalise the economy, introduce transparency and go a long way in creating a level-playing field, besides weeding out a lot of tertiary inefficiencies. We view this very positively.

Of particular importance are the initiatives around stressed assets resolution, under the new Insolvency and Bankruptcy code. JSW Steel is participating in strategic opportunities under this process, and is hopeful that quality, efficiency and governance will converge to make better utilisation of some of the capacities that are financially encumbered.

  Setting New Milestones

JSW Steel achieved a record performance in the year. With an all-time high crude steel production of 16.27 million tonnes, our shipments remained buoyant. Revival in domestic demand in the second half of the year was a key catalyst of our performance and was driven by improving prospects of the auto, construction and capital goods sectors. Rising share of value added products in the overall business was another highlight of the year. These products contributed 58% to our revenues as compared to 34% in FY17 and were instrumental in boosting our realisations as well as profitability.

During the year, our Consolidated revenues grew 18.1% - substantially outpacing the domestic industry steel consumption growth of 8.1% and global consumption growth of 4.7%. Thus, we continued to further consolidate our leadership position in the market.

Our consolidated EBITDA stood at `14,794 crore - an increase of 21.5% over the previous year. Shift in product mix towards high-margin value added products was a key enabler for this growth.

We reported our highest ever profit after tax at H6,113 crore - a growth of 76.3% over the previous year. Our relentless efforts to enhance operational efficiencies are yielding rich dividends as reflected in our robust return on capital employed (ROCE) ratio of 16% - placing us among the top 5 ROCE steel companies globally. De-leveraging was a key theme that played out during the year. Consequently, our Net Debt to EBITDA fell to 2.59 times as against 3.20 times in the previous year. The cash flows freed up from the de-leveraging initiatives will be deployed for capacity expansion and other capital intensive projects, going forward.

  An Exciting Future

We are very positive about the long-term growth potential for steel consumption in the domestic market. Even if one assumes a nominal rate of growth for the overall steel demand, India will need to create at least 150 million tonnes of new steel capacity in the next ten years. As one of the most competitive and efficient players, naturally, JSW Steel, will be looking to capitalise on this opportunity and invest in capacity expansion and market share.

Our Board has approved additional capital expenditure programmes to expand capacities at our plants in Vijayanagar and Dolvi and also to modernise and expand capacities of our downstream business. These expansions will further enhance our efficiencies and generate superior returns at lower costs.

Inorganic growth has always been an integral part of our growth journey and we will continue to explore strategic opportunities – both in domestic and international markets. In the domestic market, your Company has emerged as the successful resolution applicant for acquiring Monnet Ispat and Industries Limited, a 1.5 MTPA steelmaking facility in Raigarh, Chhattisgarh. Located in close proximity to the mineral rich belts of Chhattisgarh and Odisha, this acquisition will be crucial in furthering our footprint in the central and eastern markets of India.

  Capacity Expansions by March 2020

PARTICULARS EXISTING CAPACITY (MTPA) TARGETED CAPACITY (MTPA)
Total 18 24.7
Vijayanagar 12 13
Dolvi 5 10.7

WE HAVE ACQUIRED AN 83% STAKE IN US-BASED STEEL PLANT ACERO JUNCTION HOLDINGS FOR $80.85 MILLION (~`550 CRORE) RECENTLY. THIS ACQUISITION WILL FURTHER BOLSTER OUR MANUFACTURING PRESENCE IN THE US MARKET.

  Limiting the Impact of Rising Protectionism

Global economies are increasingly stepping up protectionist trade measures to safeguard the interest of their domestic industries. While this trend could continue in the future, it will not hinder our growth in the international markets. This is because we have selectively pursued some value-accretive acquisitions in the overseas markets during the year with the objective of replicating our low capital cost model in a relatively higher operating cost environment.

Accordingly, we have acquired an 83% stake in US-based steel plant Acero Junction Holdings for $80.85 million (~`550 crore) recently. This acquisition will further bolster our manufacturing presence in the US market. Similarly, we are in the process of acquiring the facilities of Italian steel maker Aferpi (erstwhile Lucchini) for `440 crore. Through this acquisition, your Company will get a stronger foothold in the European market and can swiftly tap into the emerging opportunities in the continent.

  Favourable Policy Environment

The Government of India has put in place multiple policies to support the domestic steel industry. Be it long term measures such as the National steel Policy which aims to make India a self-sufficient steel producing country by 2030; or shorter term measures intended to provide a level playing field for importers and domestic companies; the government has been rather pro-active. We believe these measures could lead to healthy growth of 5% in the domestic steel industry over the medium term.

Against this backdrop, your Company will continue to make the requisite investments needed to grow responsibly.

  JSW – Enriching Lives

The JSW Foundation has pioneered various programmes to enrich the lives of over a million people with improved education, healthcare and sustainable means of livelihood. Continuing on this journey, in October 2017 your Company partnered with the Government of Uttarakhand for reconstruction and restoration of Kedarnath which was impacted severely during the flash floods of 2013. JSW group is playing a proactive role in reconstruction and restoration of the Adi Shankaracharya Kutir along with a museum, Ghats on River Saraswati and part reconstruction of the Teerth Purohit (Priests) houses and other infrastructural facilities related to the houses in Kedarpuri.

Through our flagship ‘Sports Excellence Program (SEP)’, we have been very proactive in making India a ‘sporting nation’. This Program supports 39 athletes from of Boxing, Track & Field, Wrestling and Tennis. We own Bengaluru FC – one of the most successful football clubs in India in recent times.

  In Conclusion

I am confident of achieving higher peaks in the future. I would like to extend a heart-felt gratitude to each and every member of our team for their sustained, untiring efforts in making JSW Steel a leading steel company in the world. I would also like to thank all our stakeholders, Board, Bankers and the Government for the support and assistance provided throughout our journey.

I solicit your continued cooperation.

Sincerely,
Sajjan Jindal