JSW Steel Annual Report 2019

Strategy and enablers

Strong strategic performance. Stronger outlook.

The strategic planning activity at JSW Steel encompasses the identification of stakeholder expectations and concerns as well as the short-term and long-term objectives of the Company. Adopting an integrated approach to strategy development, the Company believes in building on its internal synergies while closely analysing the external environment that it operates in. A strategy meet of the Board of Directors is held once every financial year to formulate, evaluate and approve the Company’s business strategy. The meeting focuses on strategic goals, financial management policies, management assurances and control aspects, and the growth plan of the Company.

“At JSW Steel, we constantly strive to improve our overall performance to drive sustainable value creation. In the last year, we leveraged our strengths through a host of cost efficiency and process improvement initiatives and best-in-class environmental and safety attributes. Our value-driven strategy has enabled the Company to be one of the best performers when it comes to conversion cost, capacity addition cost, return on capital employed and financial leverage. It is our goal to be the mostpreferred partner in India’s progress and at the same time achieve multi-fold growth for our stakeholders.”

Mr. Seshagiri Rao M.V.S

Joint Managing Director and Group CFO

S1	Strategic growth	CAPITALS INVOLVED

Action Plan	Maintain leadership through value–accretive organic and inorganic opportunities Undertake brownfield expansion at relatively low investment cost
FY 2018-19 Progress	5 MTPA brownfield expansion at Dolvi progressing as per schedule (expected commissioning by March 2020) Acquired Acero Junction Inc. (USA) (steelmaking Capacity of 1.5 MTPA) and Aferpi S.p.A (Italy) (downstream capacity of 1.32 MTPA) Joint controlling stake in MIEL (steelmaking capacity of 1.5 MTPA)
FY 2019-20 Focus	Complete the 5 MTPA expansion at Dolvi by March 2020 BF-3 capacity upgradation from 3.0 MTPA to 4.5 MTPA, along with the associated auxiliary units at Vijayanagar
Outlook	Continue to evaluate organic/inorganic growth opportunities to achieve 45 MTPA capacity in India and global capacity foot-print of 10 MnT by FY 2030-31

S2	Diversification of product profile and customer base	CAPITALS INVOLVED

Action Plan	Increase proportion of high-margin value-added products Enhance customer base, both within India and in international markets Continue to focus on fast-growing rural markets in India
FY 2018-19 Progress	11% y-o-y increase in domestic sales compared to the 7.5% y-o-y increase in Indian steel demand 20% rise in high margin auto sector sale vs automotive production growth of 6% ~53% in overall sales contributed by VASP 50 bps increase in domestic market share to 13.6% 52 new grades developed/customised, of which 3 grades are first-to-market 9,500+ retail outlets covering 575 districts pan-India 0.25 MTPA tinplate capacity commissioned at Tarapur
FY 2019-20 Focus	Focus on completion of 3.95 MTPA additional downstream capacity and commission between FY 2019-20 and FY 2020-21. Projects include: CRM-1 complex expansion at Vijayanagar from 0.85 MTPA to 1.8 MTPA Modernisation and capacity enhancement at Vasind and Tarapur by 1.5 MTPA by setting up PLTCM Set up 0.3 MTPA colour coated line at Vijayanagar and 0.25 MTPA colour coated line at Rajpura Additional 0.25 MTPA tinplate line at Tarapur Set up 0.5 MTPA Continuous Annealing Line (CAL) at Vasind Two new lines of 0.45 MTPA for construction-grade galvanised products at Vijayanagar Enhance capacity by 0.22 MTPA of Pre-Painted Galvalume Line (PPGL) at Kalmeshwar
Outlook	Continued focus on increasing the share of VASP to 60% of the portfolio, to enhance margins Company to leverage reach through international acquisitions

S3	Backward integration	CAPITALS INVOLVED

Action Plan	Achieving sustainable and secure supply of key raw material by evaluating assets in India and abroad Targeting strategic tie-ups and investment
FY 2018-19 Progress	3 captive iron mines operationalised 1.5 MTPA Phase-1 DCPL coke oven commissioned and Phase-2 to be commissioned by H1 FY 2019-20 1.5 MTPA Electric Arc Furnace (EAF) at Ohio commenced
FY 2019-20 Focus	Operationalise the remaining three captive iron ore mines in Karnataka Moitra coal block with reserves of ~30 MnT to be operational by FY 2020-21 Revamp existing mill in Texas and set up melt and manufacture steelmaking facility in phases, as part of expansion and modernisation at JSW Steel (USA) Evaluate setting up another EAF and additional equipment at Ohio facility to make it a 3 MTPA fully integrated unit Set up of 8 MTPA pellet plant and 1.5 MTPA coke oven plant at Vijayanagar to reduce costs
Outlook	To participate in Government’s iron ore and coal auctions to improve backward integration Evaluate opportunities to increasingly use domestic coal Target to source upto 50% of iron ore requirement captively

S4	Focus on resource optimisation	CAPITALS INVOLVED

Action Plan	Enhance operational efficiency Adoption of digital technologies in operations Focus on cost reduction
FY 2018-19 Progress	Commissioning of 1.5 MTPA coke oven battery at Dolvi by DCPL to eliminate procurement of coke 93% plant capacity utilisation vs 91% in the previous year Reducing logistics cost by port optimisation and usage of Cape vessels 60+ digital initiatives implemented and cost savings of ~`180 crore achieved, over the last two years Pipe conveyor system near to completion, for transport of raw material from the mines to Vijayanagar plant Tailing beneficiation plant has improved iron content in feed to pellet and sinter plant at Vijayanagar Additional coke injection system and relining of stove of BF-3 at Vijayanagar has reduced fuel consumption Commissioning of coke oven battery at Dolvi to eliminate procurement of coke
FY 2019-20 Focus	Setting up of Phase-2 coke oven plant of 1.5 MTPA at Dolvi along with Coke Dry Quenching (CDQ) facilities Set up 175 MW Waste Heat Recovery Boilers (WHRB) and 60 MW captive power plant to harness flue gases and steam from CDQs at Dolvi Diversifying the coal procurement basket and optimising cost through dynamic coal blends Increase Pulverized Coal Injection (PCI) to reduce fuel consumption To implement the identified "Deep Drive Projects" with savings of over ~`1,000 crore Utilise digital increasingly, with a target to generate additional cost savings of over `300 crore Turnaround JSW Ohio (Acero), JSW Piombino (Aferpi) and MIEL operations
Outlook	Target to achieve and sustain 1^st quartile conversion cost Continue to focus on improving resource efficiency of processes and manpower productivity

S5	Prudent financial management	CAPITALS INVOLVED

Action Plan	Continuously seek to improve financial profile Manage capacity expansion and debt profile to capture market opportunities without excessive risk
FY 2018-19 Progress	Highest-ever annual performance `76,727 crore revenue from operations, up 13% y-o-y EBITDA of `18,952 crore, up 28% y-o-y `8,259 crore PAT, up 79% y-o-y 2.43x net debt to EBITDA improved from 2.57x 1.34x net debt to equity improved from 1.38x US$500 million bond offering in April 2019 US$700 million raised through Advance Payment and Supply Agreement (APSA) at interest rate of LIBOR +200 bps
FY 2019-20 Focus	Rating upgrade across domestic and international agencies Acquiring asset via IBC, with minimal impact on balance sheet
Outlook	Projects to be funded by debt and internal accruals with net debt to EBITDA and net debt to equity within levels of 3.75x and 1.75x, respectively Diversify sourcing of funding with a right mix of rupee and foreign currency debt Be among the top five steel companies globally in terms of ROCE

S6	Mainstreaming sustainability in business imperatives	CAPITALS INVOLVED

Action Plan	Maintain highest standard of safety and wellbeing of the employees Minimise energy consumption and focus on 100% waste recyclability Tangible difference in the lives of the people in the areas surrounding our operations
FY 2018-19 Progress	Vijayanagar Works received the prestigious Deming Prize for excellence in Total Quality Management 18 patents filed 4.5 MnT material recycled 0.35 LTIFR Implemented ISO 50001, to promote energy management best practices International consultant "DuPont" engaged for rolling out international safety standards Continued "Million Trees Plantation Mission" at Dolvi and Karav 2 MOUs signed with Bombay Natural History Society (BNHS), Mumbai and People for Environment (PFE), New Delhi for biodiversity assessment in JSW Steel Complex
FY 2019-20 Focus	Adopting technologies to ensure least consumption of water Enhanced focus on the safety standards to reduce untoward incidents To prepare for Deming Prize for Salem unit
Outlook	Make conscious efforts to improve gender parity in employment Continue focus on quality management and improve HSE metrics Continued focus on conservation initiatives and incorporation of new technologies to reduce environmental footprint

Enablers

1 ONE OF THE LEADING DOMESTIC STEEL PLAYERS AND WELL PLACED TO BENEFIT THROUGH THE CYCLE

Well placed to benefit from strong economic fundamentals
Lower cost from commencement of captive iron ore mines and improved availability
Stable margins through the cycle

2 STRONG BUSINESS PROFILE DIVERSIFIED BY REGIONS, MARKETS AND PRODUCTS

Extensive geographical presence in India with sales setup to shift sales judiciously between domestic market and exports
One of the largest exporters of steel products from India with export presence in over 100 countries
Ability to re-align sales efforts as per market conditions:

Diversified portfolio to address growing demand for value-added steel
Commissioned new facilities to further enrich product mix

3 STRONG FOCUS ON OPERATIONAL EFFICIENCY WITH BEST-IN-CLASS CONVERSION COSTS

BF upgradation
Setting up pipe conveyor system
Capacity modernisation and expansion
Installation of captive power plant
Setting up pellet plant and coke oven

#1 ranked Indian player^b
#3 ranked Asian player^b
#8 ranked global player^b

Source: World Steel Dynamics (World-Class Steelmaker Rankings as of June 2018)

a All quoted numbers are scores assigned out of 10 on World Steel Dynamics' World-Class Steelmaker Rankings as on June 2018
b On the basis of weighted average score out of 10 across 23 different parameters from World Steel Dynamics' World-Class Steelmaker Rankings as of June 2018

4 ROBUST FINANCIAL PROFILE WITH STABLE CASH FLOWS

Strong track record of volume growth
Positive momentum in operating revenues – US$8,939 million at 20% y-o-y growth
EBITDA margin improvement of 850 bps from FY 2015-16 to FY 2018-19
Improvement in cash flow from operations

5 PRUDENT LEVERAGE MANAGEMENT

Diversify funding sources
Improve debt maturity profile
Strong y-o-y profitability improvement leading to reduction in net leverage

6 PROVEN TRACK RECORD OF GROWTH THROUGH ORGANIC AND INORGANIC EXPANSIONS

Continuously evaluating opportunities to deliver value- enhancing growth
Able to leverage an acquisition to maximum value accretion through application of knowledge and experience
Focus on return metrics instead of pure capacity addition
Well-planned, spread out capex into phases with run rate value addition at the end of each phase
Funding for capex well thought out with a significant percentage being funded through internal accruals
Track record of successful project execution on time and within budget

7 EXPERIENCED MANAGEMENT WITH STRONG PARENTAGE

JSW Steel is governed by an illustrious Board and Management, who guide the key strategy and decisions made at the organisational level. They ensure that the highest levels of corporate governance is practised through the organisation. The Company’s Board comprises:

Chairperson Emeritus
Promoter Director
Three Executive Directors
Six Independent Directors
Two Nominee Directors