Financial Capital

UNDERTAKING ONE OF THE LARGEST CAPEX PROGRAMMES IN ITS HISTORY

A ~`40,000 crore capacity expansion drive to achieve manufacturing capability of 24.7 MTPA by FY21

Making cost efficiency better everyday

Interlinked StrategiesS1, S3, S5

JSW Steel has a strong pool of financial capital to sustain its growth

Being in a capital-intensive industry, the Company's objective are to maintain a strong credit rating, healthy capital ratios and establish a capital structure that maximises returns to stakeholders through an optimum mix of debt and equity.

The Company’s capital requirement is mainly to fund capacity expansion, repayment of principal and interest on its borrowings and strategic acquisitions. The principle source of funding for the Company has been, and is expected to continue to be, cash generated from its operations supplemented by funds from bank borrowings and the capital markets.

The Company regularly considers other financing and refinancing opportunities to diversify its debt profile, reduce interest cost and elongate the maturity of its debt portfolio; and closely monitors the judicious allocation of the same amongst competing capital expansion projects and strategic acquisitions to capture market opportunities at minimum risk.

The Company monitors its capital using gearing ratio, which is net debt divided to total equity. Net debt includes interest-bearing loans and borrowings-less cash and cash equivalents, bank balances other than cash and cash equivalents and current investments.

Funds generated are utilised for operations of the business, government levies, dividend and funding growth and strategic investments.

Financial Performance

During FY18, the global business cycle turnaround and structural factors provided fundamental support to steel demand. Supply reforms in China by way of continuing closure of inefficient production facilities and pollution-induced production curtailments, coupled with strong domestic demand in the country, led to lower exports. This discipline along with robust steel demand helped improve global steel demandsupply balance. Steel prices rebounded during the year due to resilient demand and improved steel demand-supply balance. Further, the improved steel spread coupled with higher volumes enabled the steel industry to deliver better results.

The Company delivered its highest-ever production volumes, sales, EBITDA and profit after tax during FY18. The Company also progressed well on several performance improvement initiatives, from diversified sourcing, optimisation of logistics costs, to digitalisation projects, thereby driving improvement in yields and productivity.

A detailed discussion on the financial and operational performance for FY18 is available in the Management Discussion and Analysis section.

Key Outputs and Outcomes
`27,534 crore

Net Worth

21%

EBITDA Margins

  • Robust financial profile and cash flows
    • EBITDA margins: 21.1%, `14,974 crore
    • Operating cash flow: `12,379 crore
    • Capital investment cost: Less than $600/MT
  • A strong balance sheet, indicating robust financial performance, achieved consistently over the years
    • Reduction in Net Debt by `3,529 crore
    • Net Worth of `27,534 crore
    • Net Debt to EBITDA improved to 2.57x from 3.41x
    • Net Debt to Equity down to 1.38x from 1.85x
  • Diversified funding sources
    • INR debt: 63%; Foreign currency debt: 37%
    • Loans: 74%; Debentures and bonds: 26%
  • Earnings per share of `25.85
  • Highest-ever dividend of `3.20 per fully paid-up equity share of I1 each. The dividend pay-out ratio of 15% is based on the consolidated profit of the Company

Export Turnover (` crores)

  • 2017-18
    11,666
  • 2016-17
    10,922
  • 2015-16
    2,764

Domestic Turnover (` crores)

  • 2017-18
    53,380
  • 2016-17
    45,322
  • 2015-16
    37,590

Other Income(` crores)

  • 2017-18
    213
  • 2016-17
    255
  • 2015-16
    815

Economic Value Generated(` crores)

  • 2017-18
    71,670
  • 2016-17
    56,499
  • 2015-16
    41,169
`71,670 crore

Economic Value Generated

`63,193 crore

Economic Value Generated

`8,477 crore

Economic Value Generated

CASE STUDY – Cost Optimisation

Cost Optimisation

IT IS NO SURPRISE THEN THAT THE COMPANY IS CONSTANTLY RANKED AMONG THE TOP LOWEST-COST STEEL PRODUCERS IN THE WORLD. IT IS KNOWN TO UNDERTAKE SIZEABLE CAPACITY EXPANSIONS AT LOWER COST AND ITS CONVERSION COSTS ARE AMONG THE BEST IN THE INDUSTRY

In view of the finite resources at the Company’s disposal, it constantly strives to achieve higher efficiencies across the value chain of its operations. From sourcing of raw materials to delivering products to customers, it is persistently identifying ways to optimise costs and margins. Accordingly, a host of initiatives have been identified to achieve higher efficiencies across the Organisation.

A major step was the backward integration exercise in which iron ore mines were acquired to keep a lid on raw material costs and which will play a crucial role in making JSW Steel self-sufficient. Other measures include modifying the procurement strategy and sourcing raw material at costs better than the competitors, optimising coal blend with semi-hard and utilisation of low fe content iron ore to produce high-quality steel and keeping coke-making costs under check. In the year gone by, the Company did feel the heat from the sudden spike in prices of ferro alloys and electrodes. This is one area where there is scope to curtail costs significantly and the Company believes its efforts and investments on this front will yield results in FY19.

JSW Steel aspires to align with global benchmarks in the areas of energy management and use of environment-friendly inputs and processes, and will continue to set new milestones on these fronts. It is also taking initiatives to bring down logistics costs across the plants to optimise the process of transporting inputs as well as finished products.

It is no surprise then that the Company is constantly ranked among the top lowest-cost steel producers in the world. This is an outcome of relentless efforts to bring down conversion costs. The Company’s endeavours to boost cost optimisation are reflected adequately in its EBITDA margin which is above 20% in the last 2 years a feat achieved by only a handful of companies across the globe.

CASE STUDY - Flexibility and Agility

Flexibility and Agility

THE COMPANY’S FLEXIBILITY TO JUDICIOUSLY SHIFT BETWEEN DOMESTIC AND INTERNATIONAL MARKETS BASED ON MARKET CONDITIONS ALLOWS IT TO REMAIN RESILIENT IN ADVERSITIES

Adversities in the international steel market such as protectionism and demand crunch, or those in the domestic market such as liquidity crisis and import pressure, can limit the sales potential. As one of the largest steel producers in India with an export presence in over 100 countries, such scenarios have the potential to create significant effect on JSW Steel However, the Company’s flexibility to judiciously shift between domestic and international markets based on market conditions allows it to remain resilient in such situations. This is enabled by its extensive geographical presence in India and a nimble sales setup that is quick to realign sales efforts as per market conditions.