REVIEW BY JMD & GROUP CFO
Being game changers
Dear Shareholders,
I’m pleased to report that JSW Steel broadly delivered on its strategy and guidance, even in an unfavourable external environment, with strong performance in ESG aspects.
A challenging year for the world
The world economy was going through a turbulent phase much before COVID-19 brought it to a standstill. Lacklustre demand and increased trade protectionism weighed heavily on global growth. This prompted central banks around the world to adopt an accommodative monetary policy stance to revive the economy. As some green shoots of recovery started to become visible towards the end of the year, the world was hit by the COVID-19 pandemic, derailing any hopes of revival and creating the baseline for a new normal.
The steel industry too faced its fair share of challenges with significant pricing pressure and firm input costs in a weak demand environment. In response to the twin troubles of cost and pricing, steel manufacturers scoured for markets to liquidate their inventory and focused on stringent cost controls to shore up margins.
JSW Steel delivered on these objectives through its tested market strategy and best-in-class operating efficiency.
Seshagiri Rao M.V.S
Joint Managing Director & Group CFO
Delivering on our commitments
FY 2019-20 indeed tested the fundamental strength of our
business model. However, we managed to achieve 97% of
our stated production guidance and remained profitable at
both operating and net levels. For a detailed understanding
of our financial and operating performance trends, I would
encourage you to go through the management discussion
and analysis section of
this report.
JSW Steel made remarkable progress towards securing its long-term raw material supply. We acquired the licence to operate new mines in Karnataka and Odisha, which would translate to lower operating costs and consistent iron ore quality going forward. You can find a comprehensive coverage of our backward integration programme in this report.
WE ARE WORKING TOWARDS REDUCING OUR FIXED COST BASE BY 10-15% AND FURTHER CONTROL OUR CONVERSION COST, WHICH IS ALREADY ONE OF THE LOWEST IN THE INDUSTRY.
We continued to deliver on all our strategic focus areas, with significant achievements in terms of project execution, customer focus, digitalisation, resource utilisation and fundraises. Our sustainability initiatives, which are a part of our corporate strategy, have been further formalised under a framework with dedicated key result areas.
In line with the global movement to battle climate change, we have also set out long-term targets for reducing our carbon emissions and intensity. Our efforts are being recognised in this regard and the Carbon Disclosure Project (CDP) has scored us a level of 'B', which is higher than the Asia regional average and the metal smelting, refining and forming sector average. We see this as a validation of our commitment to making this world a truly better place to live in.
What the future holds
The International Monetary Fund (IMF) estimates the pandemic to have a US$ 12.5 trillion impact on global GDP. At the same time, synchronised fiscal and monetary policy responses to stabilise the economy and boost demand have been quite substantial, and could play a significant role in softening the blow. It’s also heartening to see the concerted and accelerated efforts globally to find a vaccine for the novel coronavirus.
WE ACQUIRED THE LICENCE TO OPERATE NEW MINES IN KARNATAKA AND ODISHA, WHICH WOULD TRANSLATE TO LOWER OPERATING COSTS AND CONSISTENT IRON ORE QUALITY GOING FORWARD.
For the steel industry, the COVID-19 situation has resulted in a moderation of demand and curtailing of capacity globally. However, demand in China has rebounded sharply, and along with countries like Japan and Korea, export tonnage has reduced for the time being. This bodes well for the Indian steel industry, as the country’s steel mills can fill the demand. JSW Steel is well-positioned to tap this opportunity.
We saw a significant uptick in capacity utilisation from April, in line with our strategy of focusing on exports to mitigate the impact of weak subdued domestic demand. Meanwhile, we are working towards reducing our fixed cost base by 10-15% and further control our conversion cost, which is already one of the lowest in the industry. We are closely monitoring our balance sheet and are calibrating our capex to frontload immediately value-accretive projects.
Although our balance sheet may appear to be highly leveraged, it is important to note that a third of our net debt (of ~` 53,000 crore) is attributed to the ongoing projects that are nearing completion. These projects will have a significant contribution to EBITDA as soon as they come on stream.
As India makes a graded exit from the lockdown and we gradually return to pre-COVID levels of operations, our immediate priorities will be to ensure the safety and well-being of our people and achieve our guidance in terms of production and sales. However, challenges remain, especially with respect to labour, logistics and liquidity in the system. We are continuously evaluating and responding to the dynamic environment in the best interests of our stakeholders.
We remain bullish on the India growth story, and sincerely subscribe to the nation’s vision of becoming truly self-reliant. We are geared to play an important role in this exciting journey, aligning our resources, efforts and energies.
Best regards,
Sincerely,
Seshagiri Rao M.V.S
Joint Managing Director & Group CFO