2.1 Global Economy

ON TENTERHOOKS AMID EMERGING NEW REALITIES

(Source: World Economic Outlook, International Monetary Fund, June 2020; World Trade Organisation)

The world economy grew by 2.9% in CY 2019, at its slowest pace since the global financial crisis in 2008-09 and much below 3.6% expansion in CY 2018. The first half remained sluggish, as the sentiments prevalent in Q4 CY 2018 spilled over, which was aggravated by higher tariffs and uncertain trade environment. This led to a broad-based slowdown in manufacturing and global trade, aided by disruptions in the automobile industry from new emission standards in the Euro area and a slowing economic growth in China. Consequently, global merchandise trade also weakened, largely due to protectionist trade policies. The fourth quarter witnessed a bottoming out of growth, which fuelled expectations of a recovery on the backdrop of a softening US-China trade tensions.

Advanced Market Economies (AMEs)

Growth in AMEs slowed down to 1.7% in CY 2019 from 2.2% in CY 2018. Lower business spending and the prolonged trade dispute, combined with rising geopolitical tensions, led to a moderation in US growth to 2.3% from 2.9%. Euro area growth weakened further to 1.2% from 1.9%, due to weakness in manufacturing and trade. A sluggish German economy further dampened business sentiment, even as financial conditions eased with increased liquidity.

Emerging Market and Developing Economies (EMDEs)

Growth in EMDEs moderated to 3.7% in CY 2019 from 4.5% in CY 2018, as growing trade restrictions impaired business confidence and delayed investment plans. China, reeling under the trade war with the US and persistently high inflation, recorded growth at 6.1% in CY 2019. Growth was largely muted in rest of the EMDEs due to domestic factors.

OUTLOOK

Just as CY 2020 started on a good note with the US and China reaching phase-1 agreement and uncertainty around Brexit waning, the world was hit hard by the COVID-19 pandemic. The virus spread rapidly across the world, compelling governments to impose national lockdowns to break the chain of transmission, which brought economic activities to a near halt.

The International Monetary Fund (IMF) has warned that the coronavirus-induced downturn could snowball into a global recession, which could see the world economy record its steepest decline since the Great Depression of the 1930s. The impact is expected to be more pronounced in low-income households, threatening to roll back the progress made in poverty alleviation in the past few decades. Towards this end, the IMF has called for strong multilateral cooperation on various fronts to help the world navigate through this ‘crisis like no other’. It has also provided blanket guidelines in terms of financial assistance, healthcare support, and economic policy.

The IMF estimates the global economy to contract by 4.9% in CY 2020. The recovery is expected to be gradual, with growth estimated at 5.4% in CY 2021, which reflects the disruptions to economic activity, policy countermeasures and commodity prices.

However, a few bright spots have emerged. Timely actions and significant stimulus measures have somewhat cushioned the blow. Several central banks have also adopted quantitative easing and scaled asset purchases to infuse liquidity. Oil prices have remained stable, and emerging market currencies have strengthened against the dollar, which point to stabilisation.

RISKS

According to the IMF, risks to the above forecasts remain on the downside, and are likely to be influenced by how the pandemic is contained. Health, economic and trade risks remain prevalent. Development of vaccines, norms of social distancing, and productivity gains from the emergence of differentiated models will determine the actual outcomes.

The disruption from the pandemic

CORONAVIRUS (COVID-19) IMPACT

The novel coronavirus (COVID-19) has affected life and livelihood across the globe. By the last week of June 2020, over 9.2 million confirmed cases and over 4,70,000 deaths had been reported on account of COVID-19. The pandemic is estimated to have severely impacted both supply and demand sides of businesses. As production and global trade has been curtailed around the world, many sectors will experience shortage of inputs and a severe consumption slowdown.

Largest synchronised global response

Globally, governments and central banks, especially the G20, have synchronised their fiscal and monetary policy response to the extent of US$ 19 trillion to cope with the crisis. Emergency lifelines provided include higher spending and foregone revenues (US$ 3.3 trillion), public sector loans and equity injections (US$ 1.8 trillion) and guarantees (US$ 2.7 trillion). The IMF’s executive board agreed on a new round of bilateral borrowing to secure its US$ 1 trillion lending capacity. The Catastrophe Containment and Relief Trust (CCRT) is being increased to US$ 1.4 billion to ease debt burdens of low-income member nations.

Unprecedented global efforts to create a vaccination

The race to find a vaccine for the new coronavirus is well underway. Governments and researchers are aiming to provide billions of people with immunity in eighteen months or less. As per the latest report (Draft Landscape of COVID-19 Candidate Vaccines - June 22, 2020) by World Health Organization (WHO), there are 13 candidate vaccines in the clinical evaluation stage and 129 in the preclinical evaluation stage.

2.2 Indian Economy

PROACTIVE INTERVENTIONS, STRONG FUNDAMENTALS TO ENABLE RECOVERY

(Source: Second Advance Estimates of National Income and Expenditures on GDP – February 2020; Second Advance Estimates of Production of Foodgrains, Oilseeds and Other Commercial Crops for 2019-20, Economic Survey 2019-20, Bloomberg)

India’s economic growth moderated in FY 2019-20 to 4.2% from 6.1% a year earlier due to weak domestic consumption, sluggish manufacturing, subdued investments, and extended monsoon, among others. In addition, continued stress in the banking sector, especially non-banking financial companies (NBFCs), weighed heavily on system credit growth. The central government announced a slew of counter-cyclical measures, with the Reserve Bank of India (RBI) staying largely accommodative in its monetary policy stance. The RBI halted the rate cut cycle in December 2019, due to increasing upward pressure on inflation expectations. The central bank also indicated that for further monetary policy actions the growth-inflation dynamics will have to turn favourable.

INDIA GDP GROWTH TREND

(%)

CONCERTED EFFORTS TO REVIVE ECONOMIC GROWTH

Returning to power with an even bigger mandate, the National Democratic Alliance (NDA) government reiterated its commitment to continue structural reforms. This was evidenced by a steep cut in corporate tax rates; continued rationalisation of the GST structure; speeding up of insolvency proceedings; financial restructuring of public sector banks (PSBs); boost to real estate, auto, housing and export industries; and easing funding pressure for NBFCs.

With the target of making India a US$ 5 trillion economy by FY 2024-25, the National Infrastructure Pipeline (NIP) was announced in the Union Budget 2020-21 with a spending commitment of US$ 1.4 trillion. The NIP will create jobs, enhance ease of living, and provide equitable access to infrastructure. Of the total outlay, 42% projects by value are under implementation, 32% are at the conceptualisation stage and the rest are under development. The core sectors to benefit from the NIP are Energy (24% of total spending), Roads (19%), Urban (16%), and Railways (13%), while irrigation, rural infrastructure and others are to receive single-digit allocation.

The Union Budget 2020-21 also announced certain key policy measures for different sectors and stakeholder groups to create large-scale impact over the long term.

Agriculture: Seamless development of cold supply chain for perishables through railway and air connectivity; incentivised 20 lakh solar pumps

Social sector: Funding for hospitals in the Public Private Partnership (PPP) mode and increased allocation towards healthcare and Swachh Bharat

Investor community: Investment Clearance Cell for end-to-end facilitation for new investments; removal of Dividend Distribution Tax

Industry: Boost for manufacturing sector, development of transportation infrastructure and emphasis on clean technologies for power generation

Individuals and small businesses: A simplified, alternate personal income tax structure with options to continue with the existing one; raising audit limits for MSMEs

However, while formulating these policy actions, the government was mindful not to indulge in fiscal indiscipline. Although the budget fiscal deficit overshot the target, the deviation was within the upper limit laid down under the Fiscal Responsibility and Budget Management Act (FRBMA).

In CY 2019, the RBI made a cumulative 135 basis points (bps) cut in policy rates, with inflation staying within its comfort range. In view of the COVID-19 pandemic and following the nationwide lockdown, RBI in its advanced monetary policy cut repo rates by an additional 75 bps in March 2020. Furthermore, the RBI undertook a series of measures to keep rates lower for longer periods of time. ‘Operation Twist’, which involved simultaneous purchase and sale of government securities, was carried out in three tranches. In the first tranche, under Open Market Operations (OMOs), the central bank purchased securities worth ` 10,000 crore and sold securities for ` 6,825 crore. In the second special OMO, the RBI bought ` 10,000 crore of long-term government securities and sold ` 8,501 crore of three short-term bonds. In January 2020, the RBI followed up by purchasing long-term bonds worth ` 10,000 crore and selling short-term debt maturing in FY 2019-20 of the same amount.

This move from the RBI was aimed at lowering longer-term yields, after a review of the prevalent liquidity and market situation and an assessment of the evolving financial conditions. Additionally, it implemented other measures like cash reserve ratio (CRR) exemption, external benchmarking of interest rates and long-term repo operations (LTROs) to infuse liquidity in the system. The liquidity injection was to the tune of 3.2% of GDP between February and March 2020.

India’s position in world rankings

63 from 77

WORLD BANK’S EASE OF DOING BUSINESS RANKING

52 from 108

RESOLVING INSOLVENCY RANKING

52 from 74

GLOBAL INNOVATION RANKING

44 from 55

LOGISTICS PERFORMANCE INDEX

STEMMING DOWNWARD SPIRAL, SETTING STAGE FOR A STRONG REBOUND

The outbreak and spread of the COVID-19 pandemic during the fourth quarter dealt a severe blow to any prospects of an economic recovery. The government was quick to announce a
` 1.7 lakh crore interim relief package (Pradhan Mantri Garib Kalyan Yojana) primarily aimed at the bottom of the economic pyramid and frontline healthcare workers fighting the pandemic. This was followed up with a comprehensive package, in coordination with the RBI, of ` 20 lakh crore (equivalent to 10% of GDP) aimed at softening the blow to the domestic industry and setting the foundation for a self-reliant India movement. Titled ‘Aatma Nirbhar Bharat Abhiyan’, the movement rests on the five pillars of Economy, Infrastructure, System, Vibrant Demography and Demand. The post-COVID revival strategy lays renewed thrust on agriculture and micro, small and medium enterprises (MSMEs), along with preference for domestically manufactured products.

Highlights of ‘Atma Nirbhar Bharat Abhiyan’ package

• Pradhan Mantri Garib Kalyan Yojana offers ` 1.7 lakh crore support for the vulnerable section of the society in the form of direct cash transfer and basic food security
• Monetary measures of rate cuts, liquidity support through OMOs, LTROs and targeted longer-term refinancing operations (TLTROs)
• Substantial liquidity injection and favorable business environment for the MSMEs
  • ` 3 lakh crore collateral-free automatic loans for business, including MSMEs
  • Favourable business environment for MSMEs as global tender of up to ` 200 crore disallowed
  • ` 30,000 crore liquidity facility for NBFCs/ Housing Finance Companies (HFCs)/micro finance institutions (MFIs)
  • ` 45,000 crore Partial Credit Guarantee Scheme 2.0 for NBFCs
  • ` 90,000 crore liquidity injection for power distribution companies (DISCOMs)
• Impetus on the rural economy as measures are directly focused on increasing income and consumption
• Structural reforms in the mining and manufacturing sector

The ` 20 lakh crore and monetary stimulus package with a clarion call for making India self-reliant is a step in the right direction. The increased focus on strengthening the MSMEs, considered to be the economic backbone, assumes paramount importance. This sets the foundation for a self-reliant India and the structural benefits of these reforms should be visible in the coming months, with the recovery in the domestic economy.

OUTLOOK

The IMF estimates Indian GDP to contract by 4.5% in FY 2020-21. However, the economy is likely to rebound by 6.0% in FY 2021-22, supported by the synchronised fiscal and monetary policy stimulus.

Case study

Post-COVID world: India’s influence could increase in global supply chain

The COVID-induced near halt in economic activities is expected to result in demand-side issues for all the major sectors, including the steel industry which can lead to pressure on steel spreads.

That said, the government, along with the RBI, has been bold, proactive and decisive in combating the crisis. It stepped in to ease compliance burden on companies and boost domestic production and consumption with a clarion call for being ‘vocal for local’.

Notwithstanding the ensuing risks to the economy, India has the capacity and scale to expand its share in the global supply chain, which has been disrupted by COVID-19. Industry leaders see significant opportunities for Indian manufacturers to corner a fair share in the world trade, as global corporations look for alternative sourcing destinations to lower their dependence on China.

JSW Steel’s view

From an organisational standpoint, JSW Steel views FY 2019-20 as an eventful and somewhat challenging year. On one hand, the COVID-19 situation added on to the prevailing roadblocks in the form of liquidity crunch, extended monsoons and overall conservatism. On the other, the re-emergence of the country’s incumbent leadership, post the general elections, ensures policy continuity and concerted action for the nation’s development. The rollout of multiple interventions through the year by the government to infuse liquidity and support the economy has been commendable.

As an organisation, JSW Steel is looking forward to the implementation of the National Infrastructure Pipeline, which will go a long way in spurring demand. In the Company’s view, front-loading of infrastructure projects will give a much-needed boost to the economy and will ensure adequate employment.

JSW Steel stands in solidarity with India and the world in the wake of the COVID-19 outbreak and is actively contributing to relief efforts. While the disruptions in the economy and supply chains have temporarily dented the Company’s performance, the Management has engaged a Business Continuity Plan that guides operations and ensures productivity, across the organisation.

While the world is foreseeing significant de-growth in most economies, India is expected to be relatively resilient, even as the pandemic makes its impact on the country’s economy. Timely interventions by the central and state governments, together with the efforts of medical and other professionals, have helped slow down the spread of the pandemic, when viewed in relation with India’s population size. On the economic front, the ` 20 lakh crore package announced by the central government will go a long way in shoring up and sustaining domestic demand. India continues to reap the benefits of favourable demographics and vibrant demand driven by aspirations of a growing population. The steep fall in oil prices is a big advantage to the Indian Government to source its energy requirements at relatively lower prices and simultaneously augment tax revenues with additional taxes on petro fuels. However to sustain growth momentum, India must modernise and expand its infrastructure in a meaningful way, as industrialisation, urbanisation and access to technology remain the key pillars of economic growth.

3.1 Global steel industry

The global steel industry faced a challenging CY 2019, as demand growth in a few markets was largely offset by declines in the rest of the world. An uncertain economic environment, coupled with continued trade tensions, slowdown in global manufacturing notably auto sector and intensifying geopolitical issues, weighed on investment and trade. Similarly, production growth was only visible in Asia and the Middle East and to some extent in the US, while the rest of the world witnessed a contraction.

(Source: worldsteel, OECD)

CRUDE STEEL DEMAND

Global demand for finished steel products grew by 2.2% y-o-y in CY 2019 to 1,766.5 MnT.

(Source: Worldsteel SRO – June 2020)
f – forecast
ASEAN (5): Indonesia, Malaysia, Philippines, Thailand, Vietnam
*Note:
The statistical issues reported by worldsteel in previous SROs relating to the closure of induction furnaces and the consequent under-reporting of demand in official figures will have now largely played through the system. However, it is believed that some degree of underreporting from 2018 could still affect the 2019 growth rate. Taking this effect into account, worldsteel estimates real growth in China in 2019 to be 4.0%. This led to global growth of 1.3% in 2019.

CRUDE STEEL PRODUCTION

Global crude steel output in CY 2019 grew by 3.4% y-o-y to 1,869.9 MnT.

REGION-WISE STEEL OUTPUT BREAKUP (IN MnT)

Note:
The world and regional production figures in this table includes estimates of other countries that only report annually.

The global steel industry faced pricing pressure for most parts of CY 2019, in the wake of a protective market environment in key economies, including the imposition of Section 232 in the US. This was further aggravated due to country-specific demand slowdown, that fuelled market imbalances.

In line with a conservative trade sentiment, consumer industries of steel undertook active destocking. This led to stunted capacity utilisation and resulted in net excess capacity globally. This was further complemented by addition of new capacities and resulted in downward pressure on steel prices.

TOP 10 STEEL-PRODUCING COUNTRIES

(e) annual figure estimated using partial data or non-worldsteel sources.
(1) 2018 and 2019 data have not been collected on the same basis, so % change is not directly comparable.

UPDATE ON KEY MARKETS

China: Leading the steel industry

Chinese demand and production levels constitute more than half the global steel industry, making world steel trade significantly reliant on demand-supply drivers of the country’s economy. In CY 2019, China produced 996.3 MnT of crude steel, up 8.3% y-o-y; demand for finished steel products was estimated at 907.5 MnT, up 8.6% y-o-y. Steel demand for real estate remained buoyant, due to strong growth in Tier-II, Tier-III and Tier-IV markets, led by relaxed controls. However, the growth was partially offset by muted auto sector performance.

EU28: Muted trade but outlook positive

The Eurozone was hit hard in CY 2019 by trade uncertainties due to a sharp slowdown in German manufacturing led by lower exports. Demand for finished steel products fell 5.6% y-o-y, due to the weakness in the automotive sector, which was partially offset by a resilient construction sector. Crude steel production declined 4.9% y-o-y to 159.4 MnT from 167.7 MnT.

US: Flattish growth

Demand for finished steel products in the US grew by 1.0% y-o-y to 100.8 MnT from 99.8 MnT.

Japan: Sluggish demand amid signs of gradual recovery

Notwithstanding the new sales tax regime, the Japanese economy is expected to recover gradually, supported by easing monetary policy and public investments, which is likely to support steel consumption growth in the short term. Further, Japan being an export-driven economy stands to benefit from the resolution of trade disputes. However, overall demand for steel is expected to contract slightly, on account of a weak global macroeconomic environment. Demand for finished steel products in Japan fell by 1.4% y-o-y to 64.5 MnT in CY 2019 from 65.4 MnT.

OUTLOOK

The World Steel Association (worldsteel) forecasts steel demand to decline by 6.4% y-o-y to 1,654 MnT in CY 2020, due to the COVID-19 impact. However, it has asserted that the global steel demand could rebound to 1,717 MnT in CY 2021 and witness a 3.8% rise on a y-o-y basis. Chinese demand is likely to recover faster than in the rest of the world. The forecast assumes that lockdown measures will be eased by June and July, with social distancing continuing and major steelmaking countries not witnessing a second wave of the pandemic.

Steel demand is expected to decline sharply across most countries, especially in the second quarter of CY 2020, with a likely gradual recovery from the third quarter. However, risks to the forecast remain on the downside as economies make a graded exit from the lockdowns, without any particular cure or vaccine for COVID-19.

Chinese steel demand is expected to grow by 1% y-o-y in CY 2020, with improved outlook for CY 2021, given that it was the first country to lift the lockdown (February 2020). By April, its construction sector had achieved 100% capacity utilisation.

Developed economies

Steel demand in developed economies are expected to decline 17.1% y-o-y in CY 2020, due to the COVID-19 impact with businesses struggling to stay afloat and high unemployment levels. Thus, recovery in CY 2021 is expected to be muted at 7.8% y-o-y. Steel demand recovery in the EU markets is likely to get delayed beyond CY 2020. The US market is also likely to witness a slight recovery in CY 2021. Meanwhile, Japanese and Korean steel demand will witness double-digit declines in CY 2020, with Japan being impacted by reduced exports and halted investments in automobiles and machinery sectors, and Korea being impacted by lower exports and weak domestic industry.

Developing economies (excluding China)

Steel demand in developing countries excluding China is expected to decline by 11.6% in CY 2020, followed by a 9.2% recovery in CY 2021.

3.2 Indian steel sector

(Source: IBEF, Worldsteel, Joint plant committee, Ministry of Coal)

The steel industry has been one of the primary beneficiaries of India’s rapid economic growth over the past couple of decades. However, steel demand remained subdued in CY 2019, largely due to lower consumption from construction, auto, infrastructure, real estate, and manufacturing industries. Further, the slowdown in the government’s infrastructure investments and credit tightness impacted demand and consequently weighed on pricing.

DEMAND

India became the second-largest consumer of finished steel products in the world, surpassing the US in CY 2019. While the government’s thrust on infrastructure development provided a boost, it was largely offset by the continued weakness in the auto and real estate sectors. Finished steel consumption grew by 1.4% to 100.01 MnT during FY 2019-20, non-alloy steel accounting for 94% (94.06 MnT) and the rest being alloy steel (5.95 MnT). Within the non-alloy, non-flat segment, bars and rods consumption was up 9.6% y-o-y to 39.72 MnT, while the non-alloy flats were led by hot rolled coils (HRCs) which was 40.63 MnT, down by 2.7% during FY 2019-20.

India’s per capita steel consumption, which has a direct correlation with economic growth, grew at a CAGR of 4.12% to 68.9 kg between FY 2007-08 and FY 2017-18, driven by rapid growth in the industrial sector and robust infrastructure development (railways, roads and highways). However, compared with the global average of 208 kg, there exists a significant growth potential. Keeping this in mind, the National Steel Policy (NSP) was introduced in CY 2017 to increase per capita steel consumption to 160 kg by FY 2030-31. The NSP also set a target of achieving 300 MnT of production capacity, which translates into additional investments of ` 10 lakh crore (~US$ 156.08 billion).

PRODUCTION

According to the Joint Plant Committee, crude steel production declined by 1.5% y-o-y to 109.22 MnT in FY 2019-20, with a sharp contraction of 20% in March 2020 due to COVID-19 containment measures. Finished steel production grew 0.8% y-o-y to 102.06 MnT; non-alloy steel accounted for 96% (up from 93%), or 97.66 MnT, while alloy steel contributed the balance 4.4 MnT. In the non-alloy, non-flat finished steel segment, bars and rods grew by 3.6% y-o-y to 40.48 MnT, whereas in non-alloy flats, HRC grew by 2.6% y-o-y to 43.29 MnT.

Steel exports and imports in FY 2019-20

India remained a net exporter of finished steel during FY 2019-20, with exports of 8.36 MnT, up 31.4% y-o-y. Non-alloy HRC was the most exported product at 4.82 MnT, while bars and rods led the non-alloy, non-flat segment exports with 0.51 MnT.

Meanwhile, India imported 6.77 MnT of finished steel, down 13.6% y-o-y, with non-alloy HRC accounting for 34% of the total imports. Imports from Korea accounted for 40% of the total imports.

GOVERNMENT INITIATIVES FOR STEEL INDUSTRY

(Source: IBEF)

One of the designated core industries, steel is key to the government’s focus on driving growth in the infrastructure segment. Towards this end, the following initiatives have been rolled out in support of the steel industry:

• Implemented Steel Import Monitoring System (SIMS), which aids in monitoring real-time import data on quantity, quality and value; the system helps detect misclassification and mis-declaration regarding over/ under-invoicing, preventing import of defective steel
• Imposed anti-dumping duty on galvalume products, ranging from US$ 28-200/tonne; imports from China, South Korea and Vietnam are subject to duties.
• To ensure iron ore availability for domestic manufacturing, it introduced a 30% export duty on export of high grade iron ore (lumps and fines).
• Other measures are underway like the proposed steel scrap policy, safety codes, proposal to reduce royalty to 5% on low grade iron ore fines; Remission of Duties or Taxes on Export Products (RoDTEP) to replace existing Merchandise Export from India Scheme (MEIS); and engagement with international agencies to promote steel-intensive design for roads, bridges and commercial and residential housing.

National Infrastructure Pipeline (NIP)

The National Infrastructure Pipeline (NIP) is a noteworthy government initiative, which holds tremendous promises for the steel sector’s growth. The NIP announced an investment of ` 102 lakh crore by
FY 2024-25, of which roads, energy and urbanisation will contribute 60% of the total infrastructure build. For FY 2020-21, infrastructure spending is estimated at ` 19.5 lakh crore, up 43% from ` 13.5 lakh crore for
FY 2019-20.

Coal

India is world's

2^nd largest

COAL CONSUMER

3^rd largest

ENERGY CONSUMER

India is the second largest consumer of coal and the third largest consumer of energy in the world. Steel industry depends on coking coal for iron making and thermal coal for captive power generation. While thermal coal is produced in India, coking coal is mostly imported, as the domestically available coal has high ash content with low calorific value. According to Steel Mint, India imported 57.1 MnT of coking coal till March 2020. In FY 2019-20, India produced 729.10 MnT of coal in
FY 2019-20, as per the Ministry of Coal (coal.nic.in/ content/production-and-supplies).

OUTLOOK

The World Steel Association (worldsteel) expects Indian steel demand to contract by 18% in CY 2020 on the back of pandemic induced abrupt halt of economic activities. CY 2021 demand is expected to sharply recover and expand by 15%.

While the domestic steel industry is likely to witness a decline in demand in the near term as the economy heads towards near normalcy level in the coming months. But a gradual recovery, especially in the second half of FY 2020- 2021 is expected, mainly led by the government’s thrust on infrastructure and construction related projects with improving consumer sentiment in other sectors.

India is looking to modernise, expand and accommodate the aspirations of a growing population where industrialisation, urbanisation, and access to technology are the key pillars of economic growth. Thus, steel consumption growth is expected to rise on account of government expenditures on infrastructure and fiscal stimulus to manufacturing industries in the long run.

Key focus areas for JSW Steel in a post-COVID world

LEVERAGING DIGITALISATION TO ENSURE BUSINESS CONTINUITY

Even as the government announced a nationwide lockdown on 24 March 2020, and the impact on day-to-day operations became imminent, JSW Steel focused on calibrating its IT infrastructure to ensure continuity of business. The Company’s digital journey that began in 2017 has helped build a strong base to initiate projects as a response to the evolving dynamics of the new normal. In FY 2020-21, JSW Steel will continue to focus on digital initiatives and use digital tools to access markets and various digital platforms to ensure consistent operational excellence.

RAZOR SHARP FOCUS ON REDUCING COST BASE

The ongoing crisis also presented an opportunity to relook at our cost base. The Company has embarked upon a cost reduction drive across its operations, including procurement, logistics and further optimising fixed overheads. The operational efforts complemented with the ongoing cost-saving initiatives aim to reduce fixed cost by at least 10% over the base of FY 2019-20. A cross-functional and large team is directly responsible and working with the Management to drive these programmes across the Company. Technology, analytics and innovation continue to be the key levers to further optimise cost and drive operational efficiencies.

SUPPLY CHAIN REORGANISATION

Supply chain management is an important function for steel manufacturing companies. Owing to the temporary pause in movement of goods and materials due to COVID-19, JSW Steel foresees several risks to its supply chain network, which includes uncertainty around movement of global shipments and fluctuations in commodity costs. The Company will continue to study and analyse newer opportunities in terms of identifying sectors with increased steel consumption and focus on capitalising export opportunities in newer markets with minimal risks.

SUSTAINABILITY IS MORE CRITICAL THAN EVER

JSW Steel continues to deliver on its environmental, social and governance (ESG) parameters to create sustainable value for all its stakeholders. The global pandemic has ensured that sustainability has now become more relevant than ever.

The Company outlined a comprehensive sustainability framework comprising 17 core focus areas, where it creates a significant impact. Going forward, JSW Steel’s ESG performance will be gauged under these focus areas, with respect to progress made under their respective components.

JSW Steel remains committed in its efforts to reduce carbon footprints, as it is implementing plans to ensure zero usage of thermal coal, and thereby replacing coal with renewable source of energy for generating power in the steel operations. Further a lot of initiatives and ongoing research and development activities are underway to reduce the intensity of metallurgical coal usage in the Company’s blast furnaces.

The safety and wellbeing of JSW Steel’s people is of paramount importance. The Company’s vision is to achieve ‘Zero Harm’. To help the Company reach this vision, it has fully integrated Health & Safety (H&S) as one of its core Group values and is continuing to implement initiatives under the ‘VISION 000’ motto.

ROBUST BALANCE SHEET AND LIQUIDITY MANAGEMENT

JSW Steel continues to focus on diversified sources of funding. While the Company has recalibrated its capacity expansion spends, it will focus on cost-saving initiatives and operational efficiency measures to ensure adequate liquidity buffer and to help strengthen the balance sheet. JSW Steel will continue to focus on maintaining 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 and its Board is determined to monitor working capital and has incorporated a stringent cash-flow management mechanism.

Resilient performance amid a slowdown

GLOBAL SCENARIO

FY 2019-20 has been challenging for the world. During the year, global economic activities were down due to inward looking policies and further heightened by US-China trade actions, resulting in falling global trade and investments. GDP grew by 2.9% in CY 2019 as against initial forecast of 3.5% (Source: IMF WEO, Jan 2020) and from 3.6% in CY 2018.

Global trade for merchandise and services together is estimated to have come down to a growth of 0.9% in CY 2019 as against a growth of 3.6% in CY 2018. Global FDI reduced by 1% in CY 2019 to US$ 1.39 trillion along with cross border M&A, down by almost 40%, as reported by United Nations Conference on Trade and Development (UNCTAD). Global trade tensions continue to remain a major concern with trade embargos being increased by the US on imports from China at different times during FY 2019-20. As a response to the trade actions, many other countries implemented their own trade measures with a view to protect their domestic industry from diverted trade flows.

THE INDIA STORY

The Indian economy slowed down from Q3 FY 2018-19 due to the slump in the automotive sector coupled with the slowing down of GFCF (gross fixed capital formation). Investments also reduced, compounded by a standstill during the general elections in May 2019. Economic activity, which was expected to pick up after the elections, did not materialise and slowed down further and worsened with the liquidity crunch caused by the continuing the NBFC crisis.

Weak economic activity, sharp fall in investments, drop in manufacturing, capital goods, consumer durables, automotive and construction & infrastructure sectors adversely impacted the steel demand, down from a growth of 8.2% in FY 2018-19 to 1.4% in FY 2019-20 as per the JPC .

The year FY 2019-20 was a very challenging year for JSW Steel. The business scenario in India was volatile and tough in the first half of FY 2019-20 due to a conservative economic environment and a resultant narrowing spread. The auto sector faced a severe downtrend with poor buyer sentiment leading to depressed steel demand, coupled with a slow momentum in the overall manufacturing, infrastructure investments and trade. To tide over this situation, the Company pursued a strong export-led strategy in the first half of the year.

Amidst this weak economic scenario, the Company’s crude steel production stood at 16.06 MnT, down 4% y-o-y. Domestic sales dropped 10.7% y-o-y, mainly due to a contraction in demand for flat steel in India. Sectors like construction & infrastructure as well as industrial and general engineering showed reduced trend due to lower government spend and tight liquidity. The pipes and tube segment sales also slowed down and were further accentuated with the import of pipes. The rerollers segment saw lower offtake due to lower sales to project customers. The automotive sector, which was experiencing a downtrend since H2 FY 2019-20, witnessed declining sales mainly due to contraction in sales of commercial vehicles, where JSW is exposed to a large extent in the HR and alloy longs category. Despite the challenges faced in the domestic market, the Company’s domestic market share stood at 11.8%. JSW Steel’s primary focus continued to be on the southern and western markets, which accounted for 82% of the total business. The share of high-margin VASP declined to around 50% of sales volume (to 7.2 MnT in FY 2019-20) from 53% a year earlier, attributed mainly to the slowdown in the auto sector and the liquidity impact in the second quarter.

The first half of FY 2019-20 was predominantly driven by exports amid muted domestic demand. A revival in domestic sentiment could be seen only in the third quarter. At the year-end, domestic markets accounted for 79% of JSW Steel’s sales, compared with 86% in FY 2018-19. The first half domestic to exports ratio was 76:24 whereas the second half was better with domestic sales improving and the ratio changing to 82:18. JSW Steel’s market share improved from 10.9% in H1 to 12.7% in H2 FY 2019-20. Apart from the automotive sector, which continued its downward trend in the second half, all other sectors such as pipe & tube, construction & infrastructure, consumer durables and retail showed improvements.

The prices started to bottom out towards the beginning of the second half of the year with an uptick in domestic demand. Taking the cue from this, JSW Steel re-focused on the domestic market with an enhanced presence in retail and in securing government project orders. However, some of the positive gains were offset by the outbreak of the COVID-19 pandemic, which resulted in a lockdown across the country, which subsequently led to a temporary pause in production and distribution of products.

DOMESTIC AND EXPORT SALES BREAKUP

(%)

4.1 Product performance

JSW Steel’s best-in-class technology and sustained R&D initiatives help deliver specialised and innovative offerings for its customers. The Company remained strategically focused on enriching its product mix by increasing the volume and share of high-margin VASP in its portfolio.

PRODUCT MIX CHANGE y-o-y

(%)

4.1.1 FLATS

JSW Steel produces flat sheet products that include, hot rolled coils, cold-rolled coils and coated products like galvanised, galvalume, tinplate and colour coated. The share of flat products increased to 72% in the product mix, with domestic sales of ~8.26 MnT.

4.1.1.1 Hot rolled

A wide variety of grades of hot rolled (HR) products are manufactured in Hot Strip Mills (HSMs) of Vijayanagar (Karnataka) and Dolvi (Maharashtra). Vijayanagar Works has an installed capacity of 3.5 MTPA and 5 MTPA for HSM-1 and HSM-2, respectively. The capacity at Dolvi Works stands at 3.5 MTPA, where India’s first CONARC process was implemented for steel manufacturing. In FY 2019-20, Hot Rolled Coils (HRCs) constituted 41% of the Company’s product portfolio.

Key sectors

JSW Steel continues to cater to the construction and infrastructure, industrial and engineering goods, pipes and tubes, automotive, consumer durables, and energy sectors with its HR products.

4.1.1.2 Cold rolled

Cold rolled (CR) steel products are manufactured at Vijayanagar Works. The CR products segment has a 16% share in the total product mix.

Key sectors

Cold rolled products in India are majorly consumed by the automotive, drums and barrels, industrial and engineering sectors.

4.1.1.3 Electrical steel

Electrical steel finds application across sectors such as electric motors, generators, nuclear power stations, power generation plants, domestic appliances, transformers and automotive electricals. Electrical steel sales increased by 6% y-o-y driven by consumer durables, heavy industrial motors and traction motors.

4.1.1.4 Galvanised

India’s largest manufacturer and exporter of galvanised steel, JSW Steel is also the first supplier of products with higher coating (550 gsm) to the solar sector in the country. The Company’s galvanised products are differentiated with high strength, resistance to corrosion, eco-friendly, durable and lighter weight. These products accounted for 8% of sales in
FY 2019-20.

Key sectors

Galvanised products in India are largely consumed by the construction and infrastructure sectors, and consumer durables, appliances, panel and duct manufacturers. In FY 2019-20, sales to the solar sector was close to 58,000 MT.

4.1.1.5 Galvalume

JSW Steel’s Galvalume has played an important role in the development of India’s renewable energy power generation capability. It has been the material of choice for use in solar mounting structures employed in various utility-scale solar projects across the country. In FY 2019-20, JSW Galvalume has been selected for use in prestigious solar project undertakings in India such as:

• 375 MW solar project for SoftBank Solar Energy Ltd. in Andhra Pradesh
• 290 MW solar project for Solaire Direct India LLP in Gujarat
• Ananthapuram (ultra-mega solar park)
• 2 GW Bhadla Project, Bikaner
• 2 GW ISTS at Rajasthan.

4.1.1.6 Colour Coated

Colour coated products comprised 5% of the product portfolio in FY 2019-20, with domestic sales growth of 9% y-o-y.

Key sectors

The overall growth was driven by the construction and rural sectors, aided by the Company’s brand building and consumer education drive to identify original JSW coated sheets.

4.1.2 LONGS

JSW Steel manufactures a variety of long products such as TMT bars, wire rods, and special alloy steel. The product segment comprised 24% of the product portfolio in FY 2019-20, same as last year. During the year, long products’ domestic sales stood at 3.26 MnT.

4.1.2.1 TMT

TMT rebars are manufactured in Vijayanagar Works and Dolvi Works. They comprise 17% of the product portfolio. JSW Neosteel, the TMT brand, increased penetration in semi-urban and rural areas. JSW Neosteel is one of the best-quality TMT bars available in various thickness ranges in India. Manufactured through the blast furnace route in state-of-the-art rolling mills, they are free from impurities and have uniform properties.

Key sectors

JSW Neosteel was used in major projects in the country, ranging from critical atomic/nuclear power plant projects, aerospace, solar parks, major irrigation projects, metro rail, Indian Railways, bridges, mega housing, airports, defence, expressway and highway. JSW Neosteel also catered to prominent educational institutions, hospitals, IT parks and high-rises.

JSW Neosteel advocates the benefits of using Earthquake Resistant Bars viz. Fe 550D and Fe 600D grades over traditional bars/TMT and many projects have started upgrading to these grades. It also recommends the use of corrosion-resistant TMT in coastal areas, for projects that use epoxy coating over TMT. This results in various benefits including durability, where customers are finding utility. This has resulted in the Company receiving huge enquiries for the supply of corrosion resistance grade materials.

4.1.2.2 Wire rods

Wire rods are manufactured at Vijayanagar Works and Salem Works comprising 5% of the product portfolio.

4.1.2.3 Alloy steel

Alloy steel products are manufactured at JSW Salem Works. The Company is the largest domestic producer of spring steels flats, alloy steel rounds and bars and alloy steel wire rods.

4.2 Retail

The Group’s diversified product range is supported by a widespread sales and distribution network throughout India. The Group distributes its products in the domestic market by selling directly to customers, retail traders and company stock yards. In the export markets, the Group uses a combination of direct sales to customers and sales to international trading houses.

JSW Retail facilitates marketing and selling of steel products, including flat products (coated steel products) and long products (TMT). It was created to renew focus on branded products, network expansion and strengthen feet-on-the-street presence. With over 11,000+ exclusive and non-exclusive retail outlets, covering 575 districts across India, JSW Steel operates one of the largest retail steel networks in the country.

The Company has 5,300 influencers and more than 3,000 end consumers. JSW Steel also regularly participates in conferences and exhibitions to display product capabilities.

4.2.1 BRAND BUILDING

JSW Steel has been strategically investing in various brands, so that the market is able to take cognisance of its differentiated and superior product offerings. To engage various channels of customers, the Company has clearly differentiated its strategy for B2B and B2C segments. The B2B initiatives include various customer meets and plant visits, conferences, sponsorships and exhibitions; and product and brand advertisements across 12 major steel/ trade magazines.

During the year, the Company also initiated a digital-first, purpose-driven campaign titled #RooftoDream and reached an audience of 13 million people. It also won the SAMMIE’s Award and Global Digital Marketing Award for the Best Social Media Campaign.

The Company has been undertaking focused brand-building initiatives on JSW Neosteel (TMT Bars), JSW Colouron+ and JSW Pragati (Colour Coated), JSW Vishwas (GC Sheets), JSW Galveco (Lead free GC sheet) and JSW Everglow (Colour Coated).

4.2.2 CUSTOMER CONNECT

JSW Steel has a dedicated B2C channel, to ensure that its brand connects well with the end consumers. To strengthen its bond with the customers, the Company has launched several initiatives for the B2C segment such as Fabricator Loyalty Programme, advertisement hoardings, inflight magazine advertisements, JSW on Wheels and uniform product branding. It also participated in the flagship international exhibition, Made in Steel – Italy. The event helped promote and highlight JSW Steel Italy’s presence and offerings. JSW Steel also participated in the Conference on Railway Excellence, which was attended by senior officials of Indian Railways.

The Company also undertakes regular influencer meets and engages with the customers with festival memorabilia. Its engagement on the digital front has also steadily increased and is maximising the brand’s overall visibility.

The Company also educates its customers on identification of duplicate products and conducts counterfeit raids to protect its brand. Customer Engagement Program through Customer Focus Teams (CFT) is also initiated with select customers. It aims to understand their concerns, discuss on mutual growth plans and understand expectations from JSW Steel.

As a part of influencer engagement, JSW Steel launched a Fabricator Loyalty Program, which recorded over 6,500 enrolments and led to 13,000 MT sales registration. With this, the engagement between the JSW sales team and influencers have increased multifold and improved overall sales through scaled connect with 6,000+ loyal influencers across India. The Company also introduced JSW Eklavya-Skill Academy, which helped train over 1,000 fabricators on fabrication and welding. Through the year, the Company also conducted 55 Contractors’ Meets and an Engineers Loyalty Programme covering 5,000 participants and generating leads.

4.2.2.1. Customer satisfaction

For monitoring customer satisfaction levels and assessing its service levels against industry benchmarks, customer Satisfaction Surveys are conducted through an external agency once in every two years. The results are reviewed at the Director/Plant Head levels, along with HODs, and action plans are formulated and implemented on continual basis.

The CSI survey includes mapping of loyalty segmentation, along with customers’ experience. The latest survey was conducted in 2018. Compared to 2016, JSW Steel has emerged stronger on the three broad parameters of satisfaction, loyalty and experience, and leads on most counts when matched with its peers.

Under Strategic Competitor Benchmarking, customers were asked to rate JSW against specific competitors they deal with.

Attributes of Customer Experience Index

Based on the feedback from the survey, the Company has initiated several improvement measures in order servicing processes and On time in Full (OTIF). For complaint management, Customer Complaint Management System (CCMS) with Delegation of Power (DOP) is being implemented.

4.2.2.2 Awards from OEM customers

JSW Steel has received the following awards from OEMs during FY 2019-20:

1. Samsung (Chennai): Best Support Dec'19 (for coated products)
2. Haier (Pune): Best Delivery Performance Award Jan'20 (for coated products)
3. JSW Steel honoured as 'Best Supplier' by BHEL (for electrical steel)
4. Best Raw material supplier award by Honda Motorcycle and Scooters India (for CR products)
5. Best Raw material supplier by Honda Cars India Ltd (for CR Products)
6. Certificate of Performance Award by Brakes India (for Salem product supplies
7. Selected as Alliance and Strategic Partner by Timken (for Salem product supplies)

5.1. Vijayanagar Works

JSW Vijayanagar Works, located in Karnataka, is the Company’s largest manufacturing unit with an installed capacity of 12 MTPA. The unit plays a key role in contributing to India’s steel sufficiency, and in feeding large-scale raw material requirements of various industries. The plant sets itself apart with its unique and innovative practices, globally recognised cost competitiveness and efficiency in logistics.

Vijayanagar Works is the Company’s flagship plant and uses the Corex process, the first in India to do so as well as the conventional blast furnace route to achieve efficiency in conversion cost. Vijayanagar Works houses India’s largest auto-grade steel facility with a capacity of 2.3 MTPA. It is also the only steel plant in India with pair cross technology and a twin-stand reversible cold rolling mill.

Vijayanagar Works has captive power generation capacity of 854 MW. It has a dedicated port and is well connected to the Goa, Krishnaptnam and Chennai ports to facilitate the import of raw materials and export of finished products. The Company has recently set up a pipe conveyor system with a 20 MTPA capacity (phase-1 with 10 MTPA capacity is operational). This is an environment-friendly system and will reduce transportation costs of iron ore. In addition, Vijayanagar Works has tie-ups for utilities with Linde India Ltd., Bellary Oxygen Company Pvt. Limited and wholly owned subsidiary JSW Industrial Gases Private Limited (previously known as JSW Praxair Oxygen Company Private Limited) and Praxair India Pvt. Ltd.

5.1.1 COMPETITIVE STRENGTHS

• Produces 800-plus tonnes of steel per person per annum, making it the most productive steel plant in India
• Has access to nine captive iron ore mines for raw material security
• Houses India’s widest hot strip mill and one of India’s largest blast furnaces
• Reuses more than 95% of process waste and is recognised for its ‘zero-effluent discharge’ status
• Has a low carbon footprint, with 96% of coke oven gas for power generation being recycled
• Uses mix of Blast Furnace and Corex technology for hot metal production
• Employs a large-scale, low-grade iron ore beneficiation process
• Uses pelletisation based on dry and wet process
• Only plant in India with pair-cross technology and twin-stand reversible cold-rolling mill

5.1.2 YEAR IN REVIEW

• 3.39 MnT of iron ore dispatched through pipe conveyor resulting in substantial reduction in logistics costs
• Optimised operating cost through key initiatives such as:
  • Increase in pulverised coal injection (PCI) in furnaces, thus replacing the need for high priced coke
  • Optimised coke oven blend with the introduction of coke fine
• The plant developed a beneficiation process to maximise the iron recovery and effective utilisation of banded hematite quartzite (BHQ) iron ore through roasting cum magnetic separation.

5.1.3 OPERATIONAL HIGHLIGHTS

5.1.3.1 Key projects under implementation

• Capacity upgradation of blast furnace 3 (BF-3) from 3.0 MTPA to 4.5 MTPA, along with the associated auxiliary units, is under implementation
• Installation of a new 160 T Zero Power Furnace and 1 x 1.4 MTPA Billet Caster, along with associated facilities at SMS-3 to enhance steelmaking capacity
• Installation of a new Wire Rod Mill No.2 of 1.2 MTPA capacity to enhance plant capacity is also on track
• Two new lines of 0.45 MTPA each for construction grade galvanised products are under implementation
• A new 0.3 MTPA line for colour coated products is also underway in and is expected to be commissioned by March 2021
• Setting up of 8 MTPA pellet plant and 1.5 MTPA coke oven plant at Vijayanagar to bridge the current and expected gaps in the coke availability and drive significant cost savings

5.1.3.2 Other key initiatives

• Downhill conveyors from newly acquired mines to the ore yard and remaining segments of the pipe conveyor system to ensure improved connectivity and seamless transport of iron ore to the plant
• De-dusting systems at different areas of the plant to control fugitive emissions
• Replacement of primary gas coolers in Coke Oven-4 to improve process efficiency
• A new Cut to Length (CTL) line to meet the demand of sized steel products
• Revamping and capacity upgradation of HSM-1 to 3.8 MTPA with modification of reheating furnace and the addition of new facilities
• Structural, equipment strengthening and debottlenecking of SMS-1 by replacing girders, some of the equipment and civil foundations

5.1.3.3 R&D highlights

During FY 2019-20, Vijayanagar Works yet again proved its mettle in research and development and continued its focus on cost reduction and quality excellence.

For further information, please refer to Annexure A of the Directors’ Report

5.1.3.4 Health and Safety

During the year, an array of health and safety initiatives and programmes were unveiled at JSW Vijayanagar Works. These are being undertaken with a view to reduce near-misses, occupational hazards, loss time injuries and workplace fatalities. Some key interventions are given below:

• President’s Trophy for Safety launched for recognising best performing contractors
• Inauguration of Fire & Rescue Training Gallery
• Best Trainers from each Divisional Implementation Committee (DIC) were recognised as per ‘Suraksha Shikshak Samman
• Training programme and awareness sessions on ‘on-site traffic’ for truck drivers; defensive driving; forklift safety and mySetu application
• WAH-RE (Work At Height Rescue) training for project contractors' employees introduced

5.1.3.5 Environmental initiatives

As one of the largest steel plants in the world, JSW Vijayanagar Works has assumed a definite commitment to continuously improve its environmental performance and reduce its overall environmental footprint. During FY 2019-20, as a part of its water management initiatives, the plant recovered makeup water through six RO plants (19,000 m³/day) and reused 45,000 m³/day treated blow down water routed through guard ponds for secondary applications, ensuring zero liquid discharge.

JSW Steel has signed two Memoranda of Understanding (MoUs) with Bombay Natural History Society (BNHS), Mumbai and People for Environment (PFE), New Delhi for biodiversity assessment in the JSW Steel complex and respective surroundings and the report has been duly completed.

For further information, please refer to Diversification Of Product Profile And Customer Base

2.73 m³/tcs

SPECIFIC WATER CONSUMPTION AT JSW STEEL VIS-À-VIS
WORLDSTEEL BENCHMARK OF 3.3 m³/TCS

5.1.4 KEY PRIORITIES FOR FY 2020-21

• Complete the announced projects for capacity expansion and cost savings
• Operationalise downhill conveyors from newly acquired mines up to the ore yard to reduce logistics cost
• Continue focusing on energy efficiency and improved waste management initiatives
• Install new Wire Rod Mill 2 of 1.2 MTPA capacity and Pellet Plant 3 of 6.14 MTPA net capacity to support overall plant capacity expansion of 13 MTPA
• Ensure sustained operational performance with focus on health and safety

5.2 Dolvi Works

Located on the west coast of Maharashtra, JSW Dolvi Works is the Company’s second largest plant with a total installed capacity of 5 MTPA. The unit caters to customers in the automotive, industrial and consumer durables sectors. Dolvi Works is the first plant in India to adopt a combination of CONARC technology for steelmaking and compact strip production (CSP) for producing hot rolled coils, providing the unit with flexibility to use a combination of solid charge and liquid hot metal.

The plant is undergoing a large-scale capacity expansion and is expected to double its steelmaking capacity by H2 FY 2020-21. A substantial quantity of HR coils produced in Dolvi is sent to the facilities owned by one of the subsidiaries for value addition.

Dolvi Works has a 67 MW captive power plant and also has a long-term power purchase agreement with JSW Energy Limited, a Group company. It has a dedicated captive jetty as well as railway siding which connects the unit directly with India’s railway network.

5.2.1 COMPETITIVE STRENGTHS

• Advantageous location in the west coast of India, enabling cost-efficient inbound and outbound logistics. The unit is well-connected to a jetty that can handle a cargo of up to 15 MTPA.
• Located ~80 km from Mumbai, the unit is also well connected via rail, road and sea.
• The only primary producer of long products in Western India.
• Caters to a wide array of industries, including automotive, infrastructure, construction, machinery, LPG cylinder-manufacturers cold rollers, oil and gas, and consumer durables.

5.2.2 YEAR IN REVIEW

• Three new and 31 customised products were developed to cater to the customers’ requirements.
• Replacement of Natural Gas (NG) with Coke Oven Gas (COG) to reduce fuel consumption.
• Analytics-driven simulation of inbound logistics and raw material handling system (RMHS) to ensure consistent delivery of raw materials.
• Undertook revamping of Stove-4 in blast furnace and commissioned New Cyclone at BF-1 to improve productivity.
• Real-time monitoring of blast furnace operations to achieve optimum operating metrics.
• Made considerable progress in its total quality management (TQM) processes through implementation of 8,721 Kaizen at individual levels and deployment of 411 Quality Circles; 166 projects have been completed and 1,151 equipment cleared Jishu Hozen Step 3, which prevents deterioration of equipment and achieves cost savings in the production process
• Installation of de-dusting system of 350,000 Nm³/hr capacity, with bag filters in stock house of blast furnace to improve the work zone area air quality.

5.2.3 OPERATIONAL HIGHLIGHTS

5.2.3.1 Key projects under implementation

• Capacity expansion from 5 MTPA to 10 MTPA consisting major facilities like a blast furnace of 4.5 MTPA with a 5 MTPA Steel Melt Shop (SMS), a 5 MTPA HSM, a 5.75 MTPA Sinter Plant,
  4 MTPA pellet plant and 4 kilns of 600 TPD lime calcination plants (LCPs).
• Set up a second line of 1.5 MTPA coke oven plant, along with coke dry quencher (CDQ) facilities to cater to the additional coke requirement for the crude steel capacity expansion to
  10 MTPA at Dolvi
• Set up a 175 MW and 60 MW captive power plants to harness flue gases and steam from CDQ

5.2.3.2 Other key initiatives

• Predictive maintenance with condition monitoring, advanced inspections, and data analytics to predict component or equipment failure in SMS cranes to ensure higher availability.

5.2.3.3 R&D highlights

A research-driven facility, Dolvi is a hub for innovation and process improvements. During FY 2019-20, the plant undertook eight specific studies across various projects, to improve overall value creation.

For further information, please refer to Annexure A of the Directors’ Report.

5.2.3.4 Health and Safety

JSW Steel Dolvi Works has been continuously undertaking measures to improve health and safety of all personnel in its premises. During the year, Safety Performance and Progressive Motivation standards were launched and ~300 yellow cards and 24 red cards have been issued for procedure violations to different departments and projects.

Some of the other initiatives included:

• 71 Leaders’ Audits were conducted cross functionally to bring safety excellence in the respective areas
• Monthly Safety Themes were undertaken to focus on respective areas mass communications, safety skits, training programme, review of incidents, inspections, survey and audits were carried out based on safety theme.
• Felt Leadership Programme was arranged for the senior management by M/s DuPont in March 2020.
• 1,135 Contractor Safety Field Audit (CFSA) is being carried out by trained professionals at every project site.
• Four speed monitoring cameras installed in the plant to monitor any violations.
• Four Defensive Driving Training programmes conducted for pool & truck drivers, with the help of an external agency.

5.2.3.5 Environmental initiatives

JSW Dolvi Works takes full cognisance of the climate change and the imminent need for environmental conservation. Towards this, the unit continuously invests in cutting edge technologies and best-in-class equipment for reducing environmental footprint and increasing conservation. The plant has been accredited with ISO 14001 for its Environment Management System for all units.

For further information, please refer to Diversification Of Product Profile And Customer Base

5.2.4 KEY PRIORITIES FOR FY 2020-21

• Continue progress on capacity expansion projects and cost saving initiatives.
• Install effluent treatment plant (ETP) of 220 m³/hr capacity for wastewater treatment.
• Install Maximum Emission Reduction to Sinter (MEROS) to reduce the dust emission up to 10 mg/Nm³ for Sinter Plant II.
• Installation of de-dusting system of capacity 3,50,000 Nm3/hr, with bag filters in stock house of blast furnace to improve the work zone area air quality

JSW SALEM BAGS THE PRESTIGIOUS DEMING PRIZE

In the last financial year, JSW Steel’s Salem plant won the highly coveted Deming prize, making it one amongst the five plants globally to receive this recognition. It was awarded for outstanding practices in continuous improvements across functions.

Factors highlighted by the examiners for awarding the Deming Prize:

• Active participation of employees based on the employee empowerment model
• Succeeded in developing new products with collaborative approach with stakeholders
• Proactive formulation of management goals and strategies based on market analysis and creating a strategic roadmap
• Aligning CSR activities from a medium- to long-term perspective

Systems which were appreciated during the Deming Prize assessment:

• Demonstrating leadership and deep insight into business
• Focusing efforts on high value-added products
• Sound results in respect of medium to long-term objectives/ strategies/means through TQM
• Practicing a proactive collaborative approach
• Systematically working to improve cost savings through deep drives

5.3 Salem Works

JSW Steel Salem Works is one of the largest facilities producing special steel in India. The plant is a major supplier to the auto components industry and is a market leader for manufacturing special grade steel used in gears, crank shafts and bearings. Products from this unit have received approvals from major Indian automotive original equipment manufacturers (OEMs).

The strategic location of the Salem plant allows it to cater to the needs of the major auto hubs in southern India. Located ~340 km from Chennai and 180 km from Bengaluru, it is well connected through railways, highways and ports, which facilitates the transportation of raw materials and finished products. The plant has a 90 MW captive power plant and a captive oxygen gas plant.

5.3.1 COMPETITIVE STRENGTHS

• Plant location catering to South and West zones, auto hub
• Large basket and wide range of products
• Market leadership in auto sector
• Market leadership in bearing and forging segments
• Single source supplier for many applications to various auto OEMs
• Only Indian supplier for rail steel to European market

5.3.2 YEAR IN REVIEW

• Addressing small-lot production for customer delight
• Systematic development of skill and competency development and achieve employee involvement, even among contract workers
• The facility improved load efficiency, which helped reduce dead freight in coal movement from Karaikal Port and resulted in overall cost savings
• 30 MW steam turbo generator was installed with air cooled condenser for increasing the captive power generation to reduce the power costs. Air-to-air condenser technology adopted in this CPP to minimise the consumption of water
• Commissioned Bar Annealing with capacity of 18,000 TPA for producing value added products

5.3.3 OPERATIONAL HIGHLIGHTS

5.3.3.1 Key projects under implementation

• Conveyor system for handling raw materials from wagon tippler
• Advanced Magnetic Particle Inspection (MPI) facilities with grinding station at Line 04
• Liquid Oxygen Backup system for emergency supply of oxygen to SMS and oxygen facility for increasing oxygen enrichment in blast furnace
• Pulverised Coal Injection upgradation to increase coal injection in blast furnace
• Additional Cooling Bed and Abrasive saw at Blooming Mill to improve productivity

5.3.3.2 R&D highlights

Salem Works continued to focus on R&D activities, developed several process improvements, and launched new processes and products to meet the ever evolving market dynamics. A total of seven new grades have been developed for various applications in auto/non-auto sectors.

For further information, please refer to Annexure A of the Directors’ Report

5.3.3.3 Health and Safety

Health and safety assumes paramount importance at JSW Salem Works. During the year, multiple initiatives were undertaken towards strengthening the health and safety practices at the plant, as illustrated here:

• Launch of mySetu online portal for Safety Observation and Incident tracking system.
• Introduction of Leaders SHHEE Walk Audit & Interaction at shop floor.
• Safety standards bilingual handbook prepared in English and Tamil and distributed among employees and associates.
• Thickness measurement test was conducted for entire length of the CO gas line (~4.5 km) in the plant premises.
• Road Safety Survey was conducted by an external agency for identifying road safety risks and hazards.
• OSHAS 18001 surveillance and recertification audit conducted and certified.
• Hydra operators training imparted to all operators through OEM experts.
• Personalised Health Cards issued to employees and associates based on the respective annual health check-up reports.
• FAMFEST programme is being conducted on a quarterly basis for associate employees and their family to create awareness and emotively appeal on topics such as health, basic life support, safety, fire safety and environment aspects.
• ISO 45001 awareness training was conducted for internal auditors by external experts.

5.3.3.4 Environmental initiatives

During the year, Salem Works continued to focus on various initiatives to conserve water. The wastewater from Ultrafiltration RO Plant and multi-grade filter was diverted to recycled water treatment plants (RWTP), which was then reused for plant makeup water. An ETP was also installed with a capacity of 125 KLD and a Zero Liquid Discharge (ZLD) system in acid pickling plant to treat the trade effluent.

For further information, please refer to Diversification Of Product Profile And Customer Base

5.3.4 KEY PRIORITIES FOR FY 2020-21

• Consolidate position in the bearing segment, along with seamless tube application and exploring new avenues in non-auto sector to de-risk the dependency on the auto sector
• Enhancement of statistical problem-solving approach and sustenance of TQM initiatives
• Implementation of ISO 45001 system and of Process Safety Management System
• Interlocks and safety vigilance through digitalisation projects
• Development of Ultra High Strength Coil Spring Steel
• Development of Tungsten Containing Tool steel for card clothing application

6.1 Standalone

FY 2019-20 was a year of two halves for the steel industry. The first half witnessed a weakened demand and subdued pricing environment. The second half saw improving business and consumer sentiment with higher demand and pricing, which was deflated by the coronavirus impact towards the end of March 2020.

Amidst the macroeconomic headwinds and operational challenges, the Company reported crude steel production of 16.06 MnT, down 4% y-o-y but achieved 97.3% of its revised production guidance of 16.50 MnT, as average capacity utilisation levels reached 89%.

The overall drop in production was due to severe extended monsoon, which impacted operations, and lower special steel demand due to automotive slowdown and weakened domestic demand. The outbreak of the coronavirus in India in March 2020 and consequent containment measures imposed by the government impacted business activities. The Company scaled down/suspended production across all facilities following the imposition of the first phase of nationwide lockdown on 24 March 2020.

Sales volume stood at 15.08 MnT, down 4% y-o-y but achieved 97.3% of its sales volume guidance of 15.50 MnT for FY 2019-20. The Company exported 2.64 MnT of steel, up 43% y-o-y, and accounted for 18% of total sales volume, as against 12% in FY 2018-19.

Revenue from operations fell 17% y-o-y to ` 64,262 crore due to lower sales volumes as well as a 14% decline in realisations. The impact on margins was partially offset by lower costs of raw materials like iron ore and coal, decrease in fuel and input costs, and source mix efficiencies. The Company also benefited from cost-reduction measures like optimising fuel consumption at blast furnaces, reducing coke moisture and utilisation of pipe conveyor system for transporting iron ore from mines.

However, owing to the disproportionate fall in realisations, which was not offset by lower prices of input costs, operating EBITDA decreased 32% y-o-y to ` 12,517 crore. Consequently, net profit was down to ` 5,291 crore from ` 8,121 crore a year earlier.

The Company’s total net debt gearing was at 1.23x as on 31 March 2020 and net debt-to-EBITDA stood at 3.78x as on 31 March 2020.

REVENUE ANALYSIS

PRODUCT-WISE QUANTITY BREAK-UP (MnT)

Saleable steel volume de-grew 4% y-o-y to 15.08 MnT, due to weak domestic demand.

Domestic steel demand was impacted by general liquidity tightness, a softer investment cycle and weakness in the automotive and consumer durables industries. During H1 FY2020, the Company strategically focused on exports, which contributed substantially to sales volumes.

During the second half, various supportive fiscal and monetary measures helped revive business and consumer sentiment to a large extent, resulting in demand improvements from the infrastructure and construction sectors.

The Company reported a 43% y-o-y increase in exports. Exports as a percentage of total sales increased to 18% from 12% in a year earlier. VASP sales accounted for ~48% of total
sales volumes.

The Company recognised the following as other operating revenue for FY 2019-20.

• Grant income (investment-linked incentive) of ` 552 crore, including ` 466 crore related to previous years based on in-principle approval from the Government of Maharashtra for incentives on its investment for expansion from 3.3 MTPA to 5 MTPA at Dolvi Works
• Consideration received of ` 250 crore from a vendor as fee for assignment of a procurement contract pertaining to supply of industrial gases

However, overall other operating revenue was lower by ` 30 crore as the incentive period expired for the Dolvi Works expansion, which was partially offset by the grant income and assignment fee.

OTHER INCOME

Other income rose due to higher interest income from cash and cash equivalents including bank deposits and increase in interest income on loans to subsidiaries. Cash and bank balances including deposits stood at ` 11,401 crore as on 31 March 2020 as against ` 5,813 crore as on 31 March 2019.

MATERIALS CONSUMPTION

The Company’s expenditure on material consumption declined by 15% to ` 33,466 crore in FY 2019-20 from ` 39,498 crore in FY 2018-19 primarily on account of lower raw material prices, especially iron ore down 15% and coking coal down 17%, as well as a 4% reduction in production volumes. However, this was offset by unfavourable local currency movements - the Indian rupee depreciated by 9% against the US dollar, which increased imported raw material costs.

EMPLOYEE BENEFITS EXPENSES

Employee benefits expenses rose 4% y-o-y to ` 1,496 crore, largely due to salary increments and higher headcount (13,159 as at 31 March 2020 versus 12,599 as at 31 March 2019).

MANUFACTURING AND OTHER EXPENSES

Manufacturing and other expenses fell 5% y-o-y to ` 16,783 crore in FY 2019-20 from ` 17,742 crore in FY 2018-19, primarily due to a reduction in stores and spares consumption as well as lower power and fuel costs. Stores and Spares consumption decreased 14%, largely due to lower prices of electrodes and refractories, and reduced consumption of mechanical and electrical spares. Moreover, planned shutdown at Dolvi and Vijayanagar led to a decline in regular store consumption.

Power and fuel costs decreased 14% primarily due to lower steam coal prices and reduction in power purchases due to efficient operations of the captive power plants.

Freight expenses fell due to overall reduction in domestic sales.

Hedging costs and net loss on foreign currency transactions and translations were higher as the Indian rupee depreciated by 9% against the US dollar.

Royalty and other direct mining costs increased, as the Company mined 4.13 MnT in FY 2019-20, up from 1.33 MnT in FY 2018-19.

FINANCE COST

Finance cost rose 6% y-o-y to ` 4,022 crore, primarily due to increased working capital requirements in light of a rise in inventories and increase in term loans. Overall, a tightened liquidity scenario and blockage of government receivables led to a rise in finance cost.

Total borrowings as on 31 March 2020 stood at ` 58,713 crore, up from ` 48,539 crore, as on 31 March 2019. However, the weighted average interest rate decreased by 56 basis points to 6.41%.

DEPRECIATION AND AMORTISATION

Depreciation and amortisation increased 3% y-o-y to ` 3,522 crore due to depreciation charged on asset capitalisation for projects and sustaining capex, as well as depreciation of assets recognised as Right of Use assets due to the adoption of Ind AS 116: Leases with effect from 1 April 2019.

TAX EXPENSE/CREDIT

The Company received tax credit of ` 999 crore in FY 2019-20 as against tax expense of ` 3,586 crore in FY 2018-19 primarily on account of a reversal of deferred tax liability of ` 2,150 crore due to a change in the corporate tax rate and lower current tax liability due to the decrease in profit during the period under review.

EXCEPTIONAL ITEMS

The Company made impairment provisions of ` 1,309 crore for the following:

1. ` 852 crore towards diminution in value of investments, loans and interests thereon relating to certain overseas subsidiaries; provisions were made based on increased uncertainty over restarting iron ore mining operations at Chile on account of the coronavirus outbreak
2. ` 377 crore towards interest receivables from an overseas subsidiary considered doubtful recovery relating to Baytown operations in the US
3. ` 80 crore towards the retirement of certain fixed assets in India

PROPERTY, PLANT AND EQUIPMENT

Net block of property, plant and equipment increased by ` 12,468 crore primarily due to capital expenditure incurred for capacity expansion from 5 MTPA to 10 MTPA at Dolvi, investments in CRM 1 expansion at Vijayanagar, and other capacity augmentation and cost-saving projects.

Effective 1 April 2019, the Company adopted Ind AS 116 ‘Leases’ and applied the standard to all lease contracts existing on the date of initial application i.e. 1 April 2019. The Company used the modified retrospective approach for transitioning to Ind AS 116 with right-of-use asset recognised at an amount equal to the lease liability adjusted for any prepayments/accruals recognised in balance sheet immediately before the date of initial application. This resulted in the recognition of right-of-use asset of ` 4,102 crore and lease liability (separately disclosed in balance sheet) of ` 3,489 crore as on 31 March 2020. An amount was recognised as finance lease asset of ` 4,122 crore and finance lease obligation of ` 3,990 crore under the erstwhile lease standard as on 31 March 2019.

INVESTMENTS

The increase in investments was primarily due to additional investment of ` 750 crore in JSW Steel Coated Products Limited.

LOANS AND ADVANCES

Loans and advances increased primarily due to loans extended to certain overseas subsidiaries for working capital, capital expenditure and other general corporate purposes.

OTHER FINANCIAL ASSETS

Increase in non-current other financial assets was primarily due to classification of ` 326 crore GST incentive receivable from Dolvi as non-current and advance towards equity of
` 100 crore.

Current other financial assets increased primarily due to non-receipt of GST incentive benefits recognised during the year.

OTHER NON-FINANCIAL ASSETS

Other non-current assets decreased ` 1,097 crore primarily due to lower capital advances and reclassification of non-current advances to suppliers to current. Other current assets decreased primarily due to utilisation of input tax credits during the year under review.

INVENTORIES

Average inventory holding as on 31 March 2020 for finished goods was at 105 days. Overall inventory holding remained stable at 67 days for FY 2019-20 compared to 66 days for
FY 2018-19. Value of inventories decreased by 11% primarily due to reduction prices of raw materials like iron ore, coal and spares.

TRADE RECEIVABLES

Average collection period as on 31 March 2020 was at 19 days, down from 33 days as on 31 March 2019, primarily on account lower domestic sales and fall in steel prices by 14%.

CASH AND BANK BALANCES

To meet short-term cash commitments, the Company parks its surplus funds in short-term and highly liquid instruments which comprise cash and cash equivalents.

Other bank balances include borrowed funds and long-term customer advances funds parked in medium- and long-term deposits to meet capital expenditure and operating cash flow requirements.

BORROWINGS

Long-term borrowings (including current maturity of long-term debt) increased by ` 6,023 crore owing to availing of new loans for capacity expansion projects offset by reclassification of lease liabilities during the year under review.

TRADE PAYABLES

Trade payables increased by 2% primarily due to increase in imported raw material creditors.

OTHER FINANCIAL LIABILITIES

Increase in other non-current financial liabilities was primarily due to higher allowance for financial guarantee.

Other current financial liabilities (excluding current maturities of long-term borrowings and finance lease obligations) increased mainly due higher payables for capital projects including capital acceptances.

DEFERRED TAX LIABILITIES

Consequent to the changes in the corporate tax regime, the Company assessed the outstanding deferred tax liability, and wrote back `2,150 crores to the profit and loss account, assuming that it would migrate to the new tax regime at a future date.

CAPITAL EMPLOYED

Total capital employed decreased by 8% from ` 75,025 crore as on 31 March 2019 to ` 68,762 crore as on 31 March 2020

Return on average capital employed was at 12.5% for FY 2019-20.

OWN FUNDS

Net worth increased from `34,893 crore as on 31 March 2019 to ` 38,362 crore as on 31 March 2020.

The book value per share was `158.70 as on 31 March 2020 as against `144.35 as on 31 March 2019.

OTHER KEY FINANCIAL INDICATORS

6.2 Subsidiaries and JV

6.2.1 INDIAN SUBSIDIARIES

6.2.1.1 JSW STEEL COATED PRODUCTS

During the year, JSW Steel Coated Products registered a production (Galvanising / Galvalume products / Tin Product) of 1.77 MnT, an increase by 1% y-o-y. Its sales volume increased by 4% y-o-y to 1.86 MnT during FY 2019-20. Operating EBITDA for the year stood at ` 550 crores as compared ` 393 crores in FY 2018-19. The net profit after tax stood at ` 296 crores compared to ` 80 crores in previous financial year.

6.2.1.2 AMBA RIVER COKE LIMITED (ARCL)

The Company’s wholly owned subsidiary Amba River Coke Limited (ARCL) produced 1.01 MnT of coke and 3.55 MnT of pellet during FY 2019-20. For the year FY 2019-20, the operating EBITDA was at ` 388 crores compared to ` 434 crores in FY 2018-19. The profit after tax increased to ` 194 crores in FY 2019-20 from ` 176 crores in the previous year.

6.2.2 INTERNATIONAL SUBSIDIARIES

6.2.2.1 US PLATE AND PIPE MILL

The US based plate and pipe mill facility produced 0.28 million net tonnes of plates and 0.07 million net tonnes of pipes, reporting a capacity utilisation of 30% and 12%, respectively, during the year. However, the global slowdown in the steel industry impacted its performance. The facility generated a negative EBITDA of US$ 31.69 million (` 214 crores) as against the previous year’s positive EBITDA of US$ 26.09 million (` 190 crores). Net loss after tax for FY 2019-20 was US$ 117.82 million (`822 crores) compared to Net loss after tax of US$ 53.40 million (`363 crores) in FY 2018-19.

6.2.2.2 ACERO AND JSW STEEL USA OHIO INC (JSWSUO)

The US based HR coil manufacturing company reported a total HRC production of 0.31 MnT during FY 2019-20. JSW Ohio took an inventory write down in the year and generated an EBITDA loss of US$ 113.07 million (` 792 crores) compared to EBITDA loss of US$ 41.62 million (` 294 crores) last financial year*.

Loss after tax for FY 2019-20 was US$ 144 million (` 1,011 crores) compared to loss after tax of US$ 45.74 million (` 323 crores) in FY 2018-19*.

*Performance for FY 2018-19 is calculated from date of acquisition on June 15, 2018.

6.2.2.3 JSW STEEL ITALY PIOMBINO S.P.A. (JSW PIOMBINO) (FORMERLY KNOWN AS AFERPI S.P.A), PIOMBINO LOGISTICS S.P.A. – A JSW ENTERPRISE (FORMERLY KNOWN AS PIOMBINO LOGISTICS S.P.A.) AND GSI LUCCHINI S.P.A)

During FY 2019-20, the Italy based long rolled products manufacturing facility, reported an EBITDA loss of 31.91 million euros (` 236 crores) compared to 17.37 million euros (` 161 crores) last year. Loss after tax for the year amounted to 49.1 million euros (` 364 crores) against 15.3 million euros (` 139 crores) in FY 2018-19*.

*Performance for FY 2018-19 is calculated from date of acquisition on July 24, 2018.

6.2.3 JOINT VENTURE

6.2.3.1 MONNET ISPAT & ENERGY LIMITED (MIEL)

In FY 2018-19, the Company, and AION Investments Private II Limited completed the acquisition of Monnet Ispat & Energy Limited (MIEL) through a jointly controlled entity. MIEL is a primary steel producer that manufacturer and sells sponge iron, steel, ferro alloys along with billets and pellets.

During FY 2019-20, MIEL undertook a major planned shutdown to convert its steel melting shop and rolling mills to enable production of special steels. This was done by strengthening the equipment and providing higher levels of automation. This resulted in addition to product basket with a variety of cast product sizes and an upgraded bar mill that can cater to various sectors like automobile, railways and general engineering.

During the year, MIEL produced around 0.83 MnT of sponge iron and 1.66 MnT of pellets, as compared to 0.72 MnT and 0.54 MnT, respectively in FY 2018-19.

In FY 2019-20, MIEL recorded an EBITDA loss of ` 46 crores crores, compared to EBIDTA loss of ` 15 crores in the previous year. MIEL’s net loss for the year FY 2019-20 was at ` 492 crores crores as against a net loss of ` 282 crores in FY 2018-19*.

* Performance for FY 2018-19 is calculated from the date of acquisition on August 31, 2018.

6.3 Consolidated

The Company reported consolidated revenue from operations, operating EBITDA and net profit after tax of ` 73,326 crore, ` 11,873 crore, and ` 3,919 crore, respectively. Consolidated financial statements include the financial performance of the following subsidiaries and joint ventures.

6.3.1 SUBSIDIARIES

1. JSW Steel (Netherlands) B.V.

2. JSW Steel Italy S.r.L.

3. JSW Steel Italy Piombino S.p.A. (formerly known as Aferpi S.p.A)

4. Piombino Logistics S.p.A. – A JSW Enterprise (formerly known as Piombino Logistics S.p.A.)

5. GSI Lucchini S.p.A

6. JSW Steel (UK) Limited

7. Periama Holdings, LLC

8. JSW Steel (USA), Inc.

9. Purest Energy, LLC

10. Meadow Creek Minerals, LLC

11. Hutchinson Minerals, LLC

12. RC Minerals, LLC

13. Keenan Minerals, LLC

14. Peace Leasing, LLC

15. Prime Coal, LLC

16. Planck Holdings, LLC

17. Rolling S Augering, LLC

18. Periama Handling, LLC

19. Lower Hutchinson Minerals, LLC

20. Caretta Minerals, LLC

21. JSW Panama Holdings Corporation

22. Inversiones Eroush Limitada

23. Santa Fe Mining S.A.

24. Santa Fe Puerto S.A.

25. JSW Natural Resources Limited

26. JSW Natural Resources Mozambique Limitada

27. JSW ADMS Carvão Limitada

28. Acero Junction Holdings, Inc.

29. JSW Steel USA Ohio, Inc.

30. Nippon Ispat Singapore (PTE) Limited

31. Erebus Limited

32. Arima Holdings Limited

33. Lakeland Securities Limited

34. JSW Steel Coated Products Limited

35. Amba River Coke Limited

36. JSW Bengal Steel Limited

37. JSW Natural Resources India Limited

38. JSW Energy (Bengal) Limited

39. JSW Natural Resources Bengal Limited

40. JSW Jharkhand Steel Limited

41. Peddar Realty Private Limited

42. JSW Industrial Gases Private Limited

43. JSW Utkal Steel Limited

44. Hasaud Steel Limited

45. JSW Realty & Infrastructure Private Limited

46. JSW Retail Limited

47. Piombino Steel Limited (w.e.f. 6 June 2019)

48. Makler Private Limited (w.e.f. 6 June 2019)

49. JSW Vijayanagar Metallics Limited (w.e.f. 24 December 2019)

50. Vardhman Industries Limited (w.e.f. 31 December 2019)

51. JSW Vallabh Tin Plate Private Limited (w.e.f 31 December 2019)

6.3.2 JOINTLY CONTROLLED ENTITIES

52. Vijayanagar Minerals Private Limited

53. Rohne Coal Company Private Limited

54. Geosteel LLC (upto 28 January 2020)

55. JSW Severfield Structures Limited

56. JSW Structural Metal Decking Limited

57. Gourangdih Coal Limited

58. JSW MI Steel Service Center Private Limited

59. JSW Vallabh Tin Plate Private Limited
(upto 31 December 2019)

60. Creixent Special Steels Limited

61. Monnet Ispat & Energy Limited

Steel is a highly resource intensive sector and is predominantly dependent on two raw materials – iron ore and coal. Basis this criticality of their availability and quality, JSW Steel maintains a strategic focus on raw material security and input cost optimisation.

Iron ore

FY 2019-20 marks a milestone year for JSW Steel with regard to raw material security of iron ore. The Company won four mines in Odisha, as part of the open auctions being conducted for C-category mines in the state. Combined with its existing mining operations in the state of Karnataka, this brings the Company closer to its vision of sourcing at least 50% of iron requirements captively.

In FY 2019-20, the Company was declared a ‘Preferred Bidder’ for four iron ore mines in the state of Odisha, with iron ore reserves linkage of more than 1,100 MnT. The Company has also won three more iron ore mines in the auctions held in Karnataka, with an estimated resource of ~93 MnT.

In Karnataka, the Company has started mining operations on the available six captive mines. At the current production levels, these six mines contribute ~20% to the total iron ore requirement during FY 2019-20 for the Company’s largest steel plant, JSW Vijayanagar Works. The rest of the demand from the plant is serviced from private miners within the state. With the operationalisation of captive mines by various players including JSW Steel, combined with the enhancement of 3-4 other mines in the state, the demand-supply equation in Karnataka is set to change, with a skew towards the latter. This is expected to have a measurable impact on the prices, which will augur well for the Indian steel industry.

The Company’s second largest unit, JSW Dolvi Works, is planning to source high-quality iron ore to the tune of 3.4 MnT from Chhattisgarh for its pellet, DRI and long steel production. The rest of the plant’s requirement, is currently serviced by private miners in Odisha. However, with its acquisition of mines in Odisha, the Company is evaluating captive sourcing of iron ore for the Dolvi plant from FY 2020-21 onwards. With a focus on maintaining cost efficiency, the Company is also planning to explore setting up infrastructure facilities to structurally optimise logistics costs.

Coal

High-quality coking coal continues to be imported by JSW Steel for the major part of its steelmaking requirements. At a broad ratio of 1:1 between coal (including different types of coals for coke making and PCI injection and Corex coal) and steel, the Company imported ~17 MnT of coal in FY 2019-20 from various sources. In recent years, the Company has been mindful of diversifying its coal sourcing mix geographically and reduce dependence on any one exporter country. As of FY 2019-20, the Company has sourced its coal requirements from Australia, Canada, USA, Russia, Mozambique, Indonesia and others.

At JSW Steel, its in-house and state-of-the-art blend management system ensures that the Company’s dependence on coking coal is minimised. The process keeps the Company’s operating parameters at optimum levels and blends other grade coals to be used in coke ovens in place of coking coal.

Apart from the imports, JSW Steel is also developing a coking coal mine in India. This serves the dual purpose of partial raw material security and cost efficiency.

At JSW Steel, finding, retaining and developing the right talent has always been a core strategy to maintaining a high-productivity and value-driven organisational culture. As an imperative the organisation follows policies and regulations that create an unbiased and safe working environment.

In the last financial year, JSW Steel focused on building systems and tolls that help track career paths, provide guidance to develop new skills, educate employees on various topics and recognise and reward top performers.

8.1 Learning & Development

The Company has created a structured framework to help build skills and capabilities of employees.

8.1.1 FUTURE FIT LEADERS

JSW Steel launched the ‘Future Fit Leaders’ programme, to identify potential Future Fit Leaders or FFLs, nurture their talent and make a positive impact on their career progress. The programme involves a comprehensive leadership capability development journey that includes a structured framework to impart training and development.

8.1.2 IIM AHMEDABAD STRATEGIC LEADERSHIP PROGRAMME

JSW IIM Ahmedabad Executive Education programme is intended to develop analytic, strategic and leadership skills. The programme aims to help employees develop important skills that enable quick thinking, better decision-making and effective management. In FY 2019-20, 21 participants underwent training.

8.2 JSW Springboard

As a leading manufacturing company of India, JSW Steel has been consistently putting in efforts to create an empowering and safe working environment for women. The Diversity and Inclusion Policy for JSW Steel was unveiled in FY 2018-19 and has worked to achieve that each and every employee is treated with respect, dignity and fairness, thus creating an environment, which promotes positive working relationships.

8.2.1 IIM BANGALORE WOMEN LEADERSHIP JOURNEY – BATCH OF 2019

JSW Steel’s IIM Bangalore Women Leadership programme saw a batch of 24 high-performing women employees being trained in self-awareness, career management, personal branding and in strategic subjects such as macroeconomics, industry analysis and design thinking.

8.3 JSW Campus Connect initiatives

JSW Group has been playing a key role in shaping the careers of young professionals across India. Its various internship programmes with their structured approach, strong mentorship and meticulous evaluation process act as a career launchpad for aspiring talent.

8.4 E-learning initiatives

To adapt to the dynamic business environment, JSW Steel has curated a wide spectrum of courses ranging from behavioural, interpersonal and functional skills. The employees have the flexibility to hone their skills and take up e-learning courses anytime and anywhere. This has been enabled by the launch of the app Percipio.

8.5 Way forward for FY 2021

Multiple surveys and studies were conducted by internal and external bodies to ascertain from the feedback from employees to consider JSW Steel a Great Place to Work. While the feedback ranking is at par with the industrial average, the scope for being in the Top 100 in India does not elude the organisation. One of the key interventions taken to achieve this is enhanced employee recognition, where employees are rewarded and recognised for their various contributions in various ways.

As the organisation grows, it strives to ensure that it remains an attractive employment proposition for talented people. Towards this end, the organisation would strive to be more inclusive, more responsive and more engaging and ensure sustained employee delight.

At JSW Steel, nurturing a digital culture has become a core focus area of the management, and the Company is striving to mainstream a digital mindset across its length and breadth. This is done with the objective of making the organisation more cost-efficient, nimble-footed, cloud-based and greener. Towards this end, the Company has involved various stakeholder groups such as partners, employees and customers in its digital journey, soliciting their active participation.

JSW Steel commenced its targeted digitalisation journey in 2017, with a wave-wise approach. In the first wave, the organisation created a Digital Centre of Excellence comprising 10 senior leaders who looked at the digital transformation of marketing, manufacturing and supply chain functions of the Company. This went a long way for the Company to establish the power of analytics and automation, while onboarding people to the digital bandwagon. Currently, in the third-wave of digitalisation, the Company is focused on procurement and project implementation.

Being digital for employees

During the past three years, the organisation has rolled out an intranet service, which looks at the end-to-end management of employees, from hiring to career management to retirement. With a digital front, the HR systems have been made more efficient and smarter, with robust employee engagement levels. The intranet is also being used to disseminate any kind of information or announcements that the management would want to communicate with the employees.

Being digital for suppliers and partners

FY 2019-20 saw JSW Steel install the Ariba platform, which is a state-of-the-art spend management and procurement assistance system. Seamlessly integrated with the organisation’s SAP interface, Ariba connects the suppliers with the buyers to ensure transparent transactions with the least turnaround time.

For JSW Steel, the Ariba installation is aimed at achieving cost efficiencies, reducing redundancies and generating insights for effective negotiation and decision-making.

It feeds into the Company’s procurement strategy with directions on supplier ratings and past records, so that an informed call may be taken while availing various services from
various vendors.

Being digital for customers

As much as its employees and suppliers, JSW Steel has envisaged its customers are also onboard with its progress in digitalisation. Towards this end, it has established a state-of-the-art customer relationship management (CRM) system, powered by Salesforce. Through this, the Company gives a single window MIS to the customers, where they can view and manage
their orders.

Information technology and architecture

At an information technology level, the organisation has outsourced its IT infrastructure and management to multiple specialist organisations who are leaders in their respective fields. This ensures that a reliable IT system is maintained 24x7, with immediate support available to troubleshoot any issues.

Outlook

As the Company implements its third wave of digitalisation and moves towards the next level, there is increasing evidence of benefits from its initiatives. For example, in FY 2019-20, the Company has saved ` 450 crore from its various digital interventions, apart from making it smarter and stronger. This gives it rationale and impetus to maximise its digital reach and involve more stakeholders into the digital journey.

JSW Steel’s commitment to nation-building is also reflected in its CSR policy, which is led by the Group’s CSR entity: JSW Foundation.

The core philosophy of the Company’s social intervention programmes is to work closely with communities living near its operations, and beyond. JSW Steel has deployed a strategic inclusive development approach that encompasses preserving and building drinking water resources, constructing better sanitation facilities, conserving environment, providing health and nutrition amenities, providing quality education, creating platforms for skill-building and livelihoods, promoting sports and art, culture and heritage.

JSW Steel follows the globally recognised ‘COSO’ framework of Enterprise Risk Management. ERM brings together the understanding of the potential upside and downside of all those factors which can affect the organisation with an objective to maximise sustainable value to all the activities of the organisation and to its stakeholders.

The Company recognises that the emerging and identified risks need to be managed and mitigated to:

• protect its shareholders and other stakeholders’ interests
• achieve its business objective
• enable sustainable growth

Pursuant to the requirement of Regulation 21 of the Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Clause 49 of the erstwhile Listing Agreement, the Company has constituted a sub-committee of Directors to oversee Enterprise Risk Management framework to ensure resilience such that:

• Intended risks, say growth, are taken prudently so as to plan for the best and be prepared for the worst
• Execution of decided strategies and plan with focus on action
• Unintended risks like performance, incident, process and transaction risks are avoided, mitigated, transferred (like in insurance) or shared (like through sub-contracting). The probability or impact thereof is reduced through tactical and executive management, policies, processes, inbuilt systems controls, MIS, internal audit reviews etc.