Risks are integral to any business, and our risk-management framework over the years has evolved in line with our strategic objectives and changes in our operating environment. It helps us predict and undertake pre-emptive response to manage and mitigate key risks. Our Enterprise Risk Management (ERM) is underpinned by globally recognised ‘COSO’ framework, which analyses the potential upside and downside of all factors, that can materially impact our ability to create and protect value.
Pursuant to the requirement of Regulation 21 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Companies Act, 2013, we have create a robust risk-management framework. We have constituted a sub-committee of Directors to oversee Enterprise Risk Management framework to ensure resilience in the following manner
Intended risks, say growth, are taken prudently to plan for the best and be prepared for the worst
Execution of decided strategies and plan with focus on action
Unintended risks such as performance, incidents, 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, in-built systems controls, MIS, internal audit reviews, and so on.
The steel industry, like most capital-intensive commodity industries, is cyclical in nature. The operating margins are affected by the sales realisation of steel products and fluctuations in demand and supply of steel products.
Further, the following can affect sales and margins:
1. Adverse global and domestic demand-supply dynamics
2. Unfair trade practices resulting into surge in imports
3. Trade barriers imposed by other countries like US, Europe
The worldwide spread of coronavirus has impacted the businesses globally. The pandemic has posed risks to human life, steel production and sales.
We have taken proactive actions to reduce the impact of the coronavirus pandemic.
The primary raw materials that are used in the production of steel are iron ore and coal. In addition, our operations require substantial amounts of other raw materials and utilities, including various types of limestone, alloys, refractories, oxygen, fuel and gas.
The price and availability of raw materials may be adversely affected by a number of factors that are beyond our control, including interruptions in production by suppliers, demand for raw materials, supplier allocation to other purchasers, price and currency fluctuations, policy changes and transport costs, among others.
Our operations are regulated extensively at the central, state and local levels in India as well as in other countries in which we operate. Failure to comply with these laws and regulations may result in the suspension or termination of operations and subject the business to administrative, civil and criminal penalties.
The Indian steel industry is highly competitive. As an integrated steel manufacturer in India, we need to compete to varying degrees with other Indian integrated steel manufacturers.
In the past, competing domestic steel producers have increased their manufacturing capacity which at times intensified domestic competition.
We expect growing competition from international steel producers due to the increasing consolidation in the steel industry worldwide. A number of international competitors may have greater financial and other resources, and some have announced plans to establish manufacturing operations in India.
There has been considerable volatility in foreign exchange rates in recent years. We incur costs in one currency and generate sales in another, thus profit margins may be affected by changes in the exchange rates between the two currencies.
Any increase in the interest rates across key economies across the globe could result in slowdown in foreign currency inflows into the country. This could in turn affect the value of the domestic currency and interest rates, adversely impacting our ability to secure financing on favourable terms.
If credit flow dries up globally it may jeopardise our ability to fund our growth aspirations. Such a scenario may impact our future financial performance and operations.
We have undertaken, and may undertake in the future, strategic acquisitions, which may require the incurrence of material indebtedness, may be difficult to integrate, and may end up being unsuccessful.
There can be no assurance that such acquisitions will be successful, will result in a positive outcome or, in certain instances, will not result in a material adverse effect on our financial position or results of operations.
There is also risk of acquisition at value greater than fair value. This will have impact on Return on Capital Employed (RoCE). It will also have adverse impact on debt and interest serving. There may also be challenges in turnaround and scale up. Delay may drag the profitability.
Further, old litigation may dent the JSW brand and reputation.
Any congestion or disruption in transportation networks, electricity grid, communication systems or any other public facility could disrupt our normal business activity.
An unforeseen deterioration of physical infrastructure could disrupt the transportation of goods and supplies and add to costs. These issues could interrupt operations, which could have an adverse effect on operations, financial condition and cash flows.
We are also in the process of brownfield expansions at the Dolvi and Vijayanagar plants.
Various factors can affect movement of enhanced quantity of inbound raw material & outbound goods such as:
Our facilities are well connected to rail, road and port for logistics support, which provides natural competitive advantages in terms of reliable and cost efficient supply of raw materials and delivery of finished steel products to the market
Over the years, the we have initiated several strategic measures to ensure seamless operations. Some key developments include:
Risk of non-availability of critical spares, project material and consumables that are imported from China such as refractories, ferro alloys rolls, and other items..
The key objective is to ensure that the organisation is able to respond efficiently to the changing geo-political dynamics
We will continue to explore and build alternative supply chain across geographies to ensure that the business is sufficiently safeguarded against an event of severe geo-political tension.
A stable supply of electricity in large quantities is essential for continuous production processes. The entire production process may get severely impacted if there is insufficient power or a suspension in the power supply.
In the event that there is any disruption to the electricity supply or network bandwidth, due to events beyond our control, such as natural calamities or sabotage, the operations will be affected.
Climate action is growing in recent years across geographies including India. However, any drastic change in carbon emissions regulations may adversely impact our business and operations.
Steel making process involves emission of CO2, dust & other hazardous gases/waste (slag). These emissions pose risk to environment and sustainable growth.
Compliance with new and more stringent environmental obligations relating to greenhouse gas emissions may require additional capital expenditures or modifications in operating practices, as well as dditional reporting obligations.
For planned capacity expansion projects, there is a need to adhere to legal requirements like environmental assessments, environmental impact studies and/or plans of development before commencing production activities. Any expiration or delay of approvals could prevent us from carrying out certain aspects of our operations.
We are complying with the all applicable norms through use of best-in-class technology
We select the right equipment, technology, processes, inputs and tracks emissions. Additional capex allocation for advanced technologies like MEROS in sinter to further reduce dust emissions
Introduction of innovations such as Carbon Capture and Utilisation and Storage (CCUS), to recover carbon and divert to different applications
For our mining operations, we have undertaken comprehensive R&R programmes, in line with government mandates, and ensuring preservation of biodiversity and structural stability, among others
Building waste gas recovery plants
Deploying highly efficient molecular sieves
We regularly track changes in technology and future norms to plan in advance. We are exploring the use of steam box ageing technology to treat BOF slag that would be generated after proposed expansions at Vijayanagar and Dolvi
We disclose information related to carbon emissions under various initiatives such as Carbon Disclosure Programme (CDP) and Dow Jones Sustainability Index (DJSI), along with public disclosures in the annual integrated report
We lay thrust on sustainable products that are safe for consumers. We have developed products that are environment friendly and safe for usage like high strength low carbon steel, low thickness steel used in auto sector that makes the vehicle lighter and helps in reducing the carbon footprint as well as safety of travellers.
Steelmaking operations are subject to various risks associated with the inherently hazardous steel production. Hazards associated with steelmaking operations may include accidents involving moving machinery, on-site transport, forklifts and overhead cranes; explosions and resulting fires, These hazards may cause severe damage to and destruction of property and equipment, environmental damage and personal injury or even fatalities among our personnel, which may result in temporary or lengthy interruptions of operations, damage business reputation and corporate image and the imposition of civil and criminal liabilities.
Human workforce with required skillset and experience is critical for maintaining current level of operations and upcoming expansions at plants.
While we consider our current labour relations to be good, there can be no assurance that we will not experience future disruptions in operations due to disputes or other problems with employees.
Public protests over our operations may cause operations to slow down, damage the reputation and goodwill with the governments or public in the countries and communities in which we operate, or cause damage to our facilities.
We have undertaken extensive digital projects, which may be exposed to a wide array of cyber risks. Digital security is paramount to ensuring seamless operations, as a potential breach could lead to loss of process control and impact day-to-day functions.
During the COVID-19 pandemic, employees Working From Home (WFH) have been accessing Company data remotely posing greater cyber security risk.
Cyber security risk could result in substantial reputation and financial loss arising from;
1. Controls for Work From Home (WFH)
2. Controlling system vulnerability
3. Breach assessment
4. Incorporating cybersecurity and privacy into everyday business decisions and processes
5. In view of growing threats of cyberattacks due to increased online trades and transactions, cyber security awareness programme conducted across all the locations
6. Progress of cyber security roadmap is being tracked periodically
7. Monitor threats and respond, investigate and remediate cyber security related incidents and data breaches
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