Seshagiri Rao MVS
Dear Shareholders,
As I write to you, the world is shaken by rising inflationary pressure and experiencing economic instability. On one hand, the worst of the pandemic seems to be behind us. On the other hand, escalating geopolitical tensions, inflation woes and lingering supply chain issues are an overhang on the global economic growth. Against the backdrop of the Russia-Ukraine conflict, new global alignments are taking shape and old ties are getting recalibrated.
In this environment, India remains a bright spot, with its economy expected to expand at the fastest rate among all major economies. However, inflation concerns have gathered steam of late, which may impact overall demand and consumption and lead to a slight moderation in growth. We believe the government and the central bank are taking the right fiscal and monetary measures to rein in inflation.
India’s structural growth story remains intact, with steel expected to play a much larger role in shaping the nation’s infrastructure development goals to support sustained high growth. The outlook for Indian steel industry remains buoyant with growing domestic demand and prospects for playing a greater role in the global steel trade
JSW Steel is responding to these opportunities by increasing its low emission steel production through usage of renewable energy, recycling scrap and higher beneficiation. We are leveraging digitalisation and adopting Industry 4.0 for higher safety and operational excellence. Our focus continues to remain on maintaining a healthy balance sheet through prudent capital allocation.
The macro perspective
The Indian steel industry has evolved significantly over the past decade. From a net importer of steel between 2008 and 2016, the country turned a net exporter. The industry is now racing to build capacities that meet the increasing domestic demand while also catering to the growing base of exports.
In FY 2021-22, India exported 18 MnT of steel while imports declined to 4.8 MnT, with the overall domestic steel consumption rising to 105.8 MnT. Total domestic steel capacity is expected to touch 150 MTPA by the end of FY 2022-23.
In FY 2021-22, volatile and steadily increasing input prices also drove the steel prices higher. Indian steel prices are a reflection of global steel prices with a strong correlation of 0.97 with import and export parity. Approximately, 15-20% of Indian steel capacity is currently dedicated for exports of steel and steel intensive manufactured goods. Indian domestic steel prices have remained lower than most of the other countries including Europe, US, Turkey, Brazil, Japan – indirectly making the Indian exports of engineering goods also globally competitive.
Delving deeper into top steel importing and exporting countries Japanese and Korean products are not competitive while China is not encouraging exports as it has announced reduction in export tax rebate. Russian steel has been largely banned by major importers like the EU and the US in response to the conflict in Ukraine. Indian steel industry therefore has an opportunity to increase its presence in global trade.
Export duty is a short term headwind
The export duty on steel recently imposed by the Government of India has raised some concerns among the investors, as it contradicts the Government’s PLI scheme for specialty steel. The export duty is expected to rein in domestic inflation and should be rolled back as and when inflation is under control. This, however, does not change JSW Steel’s focus on exports as we want to maintain our long-term relationship with valued customers. Further, the negative impact of export duty will be partly offset by lower prices of iron ore and coking coal.
Expansions on track; acquisitions contribute
We have successfully increased our capacity through a combination of organic and inorganic growth. At Dolvi, the new 5 MTPA expansion became operational during the year. Our ongoing expansion projects at Vijayanagar and BPSL are on track to increase our India capacity to 37 MTPA by FY 2024-25.
We continue to strengthen our downstream offerings and are focusing on import substitution. The capacity enhancements at Vasind and Tarapur have been commissioned, and more such projects are expected to complete in the current year. We are now offering long-term warranties on our coated steel products. To serve the future demand for bearings from electric vehicles, we are steering the focus of our Salem plant, and are building capabilities accordingly. Further, we are setting up Rectangular Hollow Section for API grade steel at Vijayanagar and Dolvi.
We were able to turnaround and improve profitability for all our acquisitions – BPSL, ACCIL, VTPL, and VIL. JSW Ispat (previously Monnet Ispat and Energy Limited) also reported a profit. We have announced merger with JSW Ispat to further simplify our corporate structure.
The best-ever performance
Given this scenario, we delivered a year of record performance, with our highest ever annual crude steel production at 19.51 MnT, up 29% YoY, highest ever annual saleable steel sales at 18.18 MnT, up 21% YoY, highest ever annual revenue from operations at `1,46,371 crore, up 83% YoY, highest ever annual operating EBITDA at `39,007 crore, up 94% YoY and highest ever annual net profit at `20,938 crore, up 166% YoY.
Even as the industry witnessed volatility, we continued to make investments and implement capacity expansion plans. We have managed our capital prudently, with a razor sharp focus on our balance sheet. Thus, despite investing in capex and acquisitions, we not only managed to maintain our debt at comfortable levels but also ensured high capital returns to shareholders, which speak volumes about our robust cash flow generation.
The power of JSW One
We are leveraging the JSW Group’s strengths and building synergies through JSW One, a technology-enabled one-stop platform created to serve the building materials value by bringing together our steel, cement and paints businesses. JSW One is one of the key levers through which we are evolving from a business that sells products to an entity that focuses on providing our customers with end-to-end solutions.
Investments in a sustainable future
We maintain our focus on imbibing sustainability and digitalisation across our operations and have progressed against our key ESG targets. JSW Steel has been declared the ‘Steel sustainability champion’ for the fourth consecutive year by the World Steel Association. We are spending `10,000 crore on carbon transition and targeting to reduce carbon emission by approximately 2.5% year on year over a period till FY2030 a benchmark that is higher than mandated for the industry.
We have obtained EPDs, i.e., Type III eco-labelling for all finished products from three integrated plants. We are also launching India’s first ‘Skill Impact Bond’, a fund to benefit and empower 50,000 youth with a special focus on women.
We have also progressed significantly on our digitalisation drive, where we are progressing on end-to-end digitalisation of plant operations, procurement and project management. We have also extended the digital drive to our sales and marketing functions. Presently, we are entering the final phase of digital immersion, where we envision scaling our interventions to being the best in our class. With these core initiatives, we are building a truly sustainable organisation, which will form a key part of India’s growth story.
Sincerely,
Seshagiri Rao MVS
