MANAGEMENT DISCUSSIONS AND ANALYSIS REPORT Company's Overview We are a leading global manufacturer and supplier of Iron & Steel pipe products, fittings and accessories with manufacturing facilities in India, USA, Europe and UAE [MENA], Our customers include world's leading oil and gas companies, engineering companies and authorities dealing in irrigation and water resources engaged in construction of oil and gas exploration, transportation, power generation, supply of water for drinking and irrigation purposes and other industrial applications, Our mission is to match the expectation of our customers through product development, quality manufacturing and supply chain management, We have robust systems developed for overall excellence and management to support our customers globally, We have a unique business model well diversified in terms of strategic locations, markets, products, industries and customers, This business model is built to hedge the organization against various risks which allows us to operate and perform well in difficult economic and geopolitical circumstances, Our domestic and exports markets are well balanced and our businesses operate through four strategic business divisions including SAW Pipes, DI Pipes & Fittings, Seamless Pipes & tubes and Mining & Pellets, Strategic Business Divisions Welded Line Pipes (SAW Pipes): Submerged Arc Welded [SAW] Pipes are primarily used for transportation of Oil & Gas, Water and Slurry, We are one of the largest manufacturers of SAW Pipes in the world, SAW Pipes product range includes Long Seam and Spiral Seam Submerged Arc welded Pipes, Anti Corrosion and weight Coating, Induction Bends and Connector Casings, We are capable to produce SAW pipes up to 128" diameters with manufacturing brsence across India and United States with aggregate installed capacity of approx, 2,20 million MTPA, Besides, we would be operating Spiral Pipe facilities with aggregate installed capacity of approx, 1,4 Million MTPA in India for which an Operation, Maintenance & Management Agreement [OMMA] has been executed by our subsidiary with PSL Ltd,, India, Ductile Iron Pipes & Fittings (DI Pipes): Ductile Iron Pipes is commonly used for transportation of potable water & Waste-water, We are the 3rd largest manufacturer of DI Pipe in the world with aggregate installed capacity of approx, 0,90 Million MTPA, having manufacturing & finishing facilities in India, UAE and Europe, We are capable to produce pipes up to 2200 mm Diameter with external and internal coatings, DI pipes product range includes Ductile Iron Pipe with Socket & Spigot, Flange Joints, We also have one of the largest foundries producing high grade coated fittings to match our DI Pipe range, Seamless Tubes & Pipes (Seamless Pipes): Seamless Pipes & Tubes product range includes OCTG pipes, Cold finish Pipes, tool joints & helical anchor, OCTG products are used in the drilling and extraction of on-shore and off-shore oil and gas, OCTG consists of drilling pipes, casing pipes, tubing pipes, and other line pipes confirming to the API standards used in the production and transportation of oil from wells to refineries, With a rolling capacity of approx, 0,25 million MTPA to produce pipes at manufacturing locations in India and United States we are capable to produce pipes up to 7" Diameter with anti-corrosion coating, Mining and Pellet: Pursuant to allocation of low grade iron ore mines in Bhilwara in the State of Rajasthan with Mining lease area sbrad over 1989 hectares, a beneficiation plant along with a 10 MLD sewage treatment plant was commissioned in year 2012, In 2013, North India' first pellet plant with installed capacity of 1,20 Million MTPA was commissioned which is co-located with the beneficiation plant, It is the 1st Beneficiation plant in the country located at the Mine head to beneficiate low grade magnetite iron ore to high grade concentrate up to 65% Fe content, The facilities are operating at their rated capacities, Economic Scenario Global Economic scenario As per World Bank Group, global growth is expected to be 2,8 percent in 2015, Growth is expected to pick up to 3,2 percent in 2016-17, broadly in line with brvious forecasts, Developing economies are facing two transitions, First, the widely expected tightening of monetary conditions in the United States, along with monetary expansion by other major central banks, has contributed to broad-based apbrciation in the U,S, dollar and is exerting downward brssure on capital flows to developing countries, Second, despite some pickup in the first quarter of 2015, lower oil prices are having an increasingly pronounced impact, In oil-importing countries, the benefits to activity have so far been limited, although they are helping to reduce vulnerabilities, In oil-exporting countries, lower prices are reducing activity and increasing fiscal, exchange rate, or inflationary brssures, Risks remain tilted to the downside, with some br-existing risks receding but new ones emerging, However on a longer term prospective, the global economy is projected to double in size by 2032 and nearly double again by 2050, China is expected to outstrip the US by 2017 [measured in terms of purchasing power parity], And India is likely to become the third 'global economic giant', a long way ahead of Brazil, which is expected to move up to fourth place, ahead of Japan, These long-term growth trends brsent many opportunities and challenges, China, India, Brazil and other emerging economies will become large consumer markets, not just low-cost production centres, And, with annual growth projected to be only 2% in the advanced economies, companies will need to look increasingly to other markets, Growth in the South Asia region increased to 6,9 percent in 2014 and is expected to continue firming over the forecast period, led by a cyclical recovery in India and supported by a gradual strengthening of demand in high-income countries, The decline in global oil prices has been a major benefit for the region, driving improvements in fiscal and current accounts, enabling subsidy reforms in some countries, and facilitating the easing of monetary policy, Macroeconomic adjustments in India since 2013 have reduced potential vulnerability to headwinds from the tightening of monetary policy in the U,S, Risks to the outlook are balanced, and depend on the implementation of structural reforms, including those that help to delink fiscal balance sheets from global energy prices, Political uncertainty, stressed bank balance sheets, and the ability to maintain fiscal discipline are some of the other key risks to the region, Indian Economic Scenario As per the Annual Economic Survey [AES] brsented by the Government of India in 2015 [AES] - a stock-take of the economy - projects growth in 2014-15 to be 7,4% and 8,1%-8,5% in 2015-16, which will make India the fastest growing large economy in the world, The growth rate projections, based on the revised GDP series, depend on the success of the government's supply-side reforms, Meanwhile, the Indian Union budget 2015 continues to emphasize the government's 'Make in India' programme, infrastructure development, ease of doing business and continued focus on social priorities and overall development are specific needs of the country, Some of the key measures proposed include a reduction in corporate tax rates, increased public spending on infrastructure and social security, and steps to make starting a business easier, In 2013-14, inflation was over 6%, but since then, it has declined to 5,1% driven by low oil prices and deceleration in agricultural prices and wages, To keep inflation in check in the future, a Monetary Policy Framework Agreement has been concluded with the Reserve Bank of India which clearly states the objective of keeping inflation below 6%, and provides for the creation of a Monetary Policy Committee, Industry Scenario and business outlook Global Scenario Oil & Gas Industry Increasing oil and natural gas consumption in Asia-Pacific has made a significant contribution to the need for increased pipeline construction investment worldwide, The region is expected to surpass Europe to become a major growth gas market in next few years, Developing economies in the Asia-Pacific region, such as India and China, have been importing substantial quantities of crude oil and natural gas for domestic consumption and industrial use, The Middle East, China and India are also improving the domestic production of petroleum products by introducing new refineries and increasing the capacity of existing ones, Developments of this kind have necessitated the establishment of new pipeline transmission infrastructure in next few years, The development of shale gas in the U,S, has been stimulating pipeline expansion in North America, The shale gas production in North America is expected to require the transportation of natural gas to different regions, which will support the North American pipeline industry, The surplus supply of gas from these shale has provided the U,S, with energy security, which has opened up new opportunities for the export of natural gas to lucrative markets like Mexico, Asia-Pacific and European region, The advancement of offshore technologies, which has resulted in lower unit costs, has made deep water projects a viable option in the global scenario, The installation of offshore pipelines in such projects has also been driving the global pipeline industry market, It may be noted that new pipe-laying technologies are expected to make the laying of offshore pipelines at water depths of around 3,500 meter a possibility, As per Pipeline & Gas Journal [July 2015 edition], Active crude oil pipelines, petroleum product pipelines, and natural gas pipelines have total global lengths of 183,190 miles, 155,290 miles, and 677,560 miles, respectively, operating both onshore and offshore, There are 3,500 active pipeline/pipeline systems worldwide, and around 172 planned projects, In terms of a geographic analysis of pipelines worldwide, North America has the longest length of natural gas pipeline, accounting for a 43,9% share of the total natural gas pipelines in the world, followed by Europe and Asia-Pacific with respective 35,7% and 11,7% shares, North America leads in terms of petroleum product pipeline, accounting for a 49,8% share of the global pipeline length, followed by Europe and the Asia-Pacific with respective 16,1% and 14,7% shares, The North American region also has the longest crude oil pipeline network in the world, accounting for a 36,8% share, followed by Europe and the Middle East with respective 27,9% and 16,6% shares, Such extensive pipeline networks also lead to generating secondary demand for pipes for replacement, repair and maintenance of the pipelines, As per International Energy Agency [IEA] report, in the short to medium term, lower prices will feed a pick-up in global natural gas demand over the next five years following a marked slowdown in 2013 and 2014, however, the growth in demand will fall short of brvious forecasts, IEA sees global demand rising by 2% per year by the end of the forecast period, compared with 2,3% projected in last year's outlook, A significant reason for the downward revision is weaker gas demand in Asia, where persistently high gas prices until very recently caused consumers to switch to other options, As per the report, lower oil prices will have a major impact on gas upstream and infrastructure investment, Companies are cutting capital expenditures and refocusing on core assets with fast returns, which will unavoidably lead to slower production growth over the medium term, Due to their capital-intensive nature and long lead times, liquefied natural gas [LNG] projects are soft targets for investment reductions and several of them are likely to be delayed, Water Industry On a Global basis, 70% of water is used for agriculture irrigation, 22% is used for industries and 8% is used by households, The Global demand for water pipe is forecasted to increase 6,8% per year, At the current rates of growth, demand for water may exceed supplies by 40%, and by 2030, around 47% of the world's population would be living in areas of high water stress [as per world bank sponsored 2030 water resources group report and OECD Environmental outlook to 2030], Shift of population from Rural to urban leads to complete overhaul of potable water and sanitation requirements creating demand for Iron & Steel Pipes, Urbanization in emerging economies and rebound in construction spending in developed nations will increase the demand for Iron & Steel Pipes, US Environment protection agency [EPA] survey shows $384 billion investment are needed for the nations drinking water infrastructure through 2030 for systems to continue providing safe drinking water to Americans, Huge infrastructure investment for distribution of potable water & sanitation needs in the Middle East would continue to create higher demand for Iron & Steel Pipes, North African countries are huge demand drivers for DI Pipe, Emerging economies such as Mexico and Latin America countries like Brazil and Peru have huge investment plans in the field of potable water transportation, Indian Scenario The Indian pipes business has been growing rapidly since the past several years mainly due to increasing demand for pipes in the irrigation sector, crude oil, real estate industry and growth in Gross domestic product [GDP] of the country, The demand for Iron & Steel pipes is expected to increase as the need for water, oil and gas transportation in India is growing, Nationwide infrastructural development, urbanization, irrigation to drive agricultural growth has been identified as major factors facilitating the growth of the pipes industry in the country, The Union Budget 2015 has announced several measures in the oil & gas, water and sanitation space which is likely to drive domestic pipe demand, Most significantly, the Finance Minister proposed to create additional 15,000 KM of pipelines using PPP [public-private partnership] model to complete the gas grid across the country and increase the usage of domestic as well as imported gas, This proposed pipeline infrastructure is likely to increase demand for steel pipes in India, Apart from this, investment linked deduction allowed to slurry pipelines for the transportation of iron ore is likely to boost investment in this sector and in turn demand for SAW pipes, Demand for SAW pipes would also get boost following allocation of Rs. 1,000 crore for irrigation via 'Pradhan Mantri Krishi Sinchayee Yojana' scheme, and also from the National Rural Drinking Water Programme, which has been allotted Rs. 3,600 crore to provide safe drinking water in approximately 20,000 habitations affected with arsenic, These schemes will also push demand for DI [ductile iron] and plastic pipes required for laying pipeline infrastructure for water supply to farms and houses, The government also announced plans to cover every household with total sanitation by year 2019, As per census 2011 data, out of 25 crore households in India around 46% have sanitation facility within their brmises, Indian government has also laid a lot of emphasis on linking of rivers and water bodies for equitable distribution of water in water scarce areas, These projects are in the formative stage and are likely to mature in next few years, This would give rise to huge demands in large diameter pipe segment, Business - Strategy, Strength & Risk We are a multiproduct and multi-locational company, Today, besides India we have manufacturing facilities in USA, Europe and UAE, We have our direct brsence for marketing and services in the major markets of the world, Our business model provides natural hedge for our products in diversified markets and widesbrad customers reducing the associated risks and helping in achieving superior returns for the shareholders, Our business strategy has a twin approach to continue to expand and consolidate our leadership position by building on our operations globally at the same time have appropriate strategies to deal with non performing businesses, The dual strategy would lead to superior value creation over a period of time, Our business strategy primarily includes; - Continue expanding our operations worldwide and further consolidate our position as one of the leading global supplier of high-quality products to the energy, water and other industries by pursuing strategic investment opportunities to expand our reach worldwide, - Expanding our combrhensive range of products and developing new high-value niche products designed to meet the needs of customers operating in increasingly challenging environments - Optimizing and reducing the manufacturing costs of our products; - Optimise the use of available resources including the Iron ore mines etc,, by way of further value addition which can provide superior returns as well as diversify the revenue graph, Pursuing strategic investment opportunities During FY 2014-15, we worked on few opportunities of strategic investments and acquisitions as a means to expand our operations and brsence in selected markets, enhance our global competitive position and capitalize on potential operational synergies, One of such opportunity includes acquisition of assets of PSL NA in August 2014 approved by the United States Bankruptcy Court, We have also signed an Agreement with PSL Limited, India to operate, maintain and manage their Indian facilities, As per this arrangement we would not be liable for the existing debt of PSL Limited, These acquisitions have been structured with minimal cash flow strain on the brsent operations and parental support, Our Competitive Strengths Our main competitive strengths include: a] diversified business model catering to oil & gas, water and other industrial application b] global pipe production, finishing and distribution network with experience of over three decades; c] beneficiation and pellet production facility at iron ore mine head in the State of Rajasthan; d] diversified customer base and historic relationships with major international companies around the world with proximity to customers; e] Uniform operating environment across the organization; f] our human resources with their diverse knowledge and skills; g] low-cost operations and; h] Strong financial condition, Principal Risks Factors We work in an environment where risks to the business and operations are evaluated regularly and suitable necessary steps are initiated by the Management, to mitigate and alleviate such risks to the best possible, We have set up a Risk Management Committee [a committee of Directors] with an objective to identify, evaluate, prioritise and respond to risks and opportunities affecting our business objectives, We believe the key risks to our business and operations are: - Industry and Macroeconomic Risks: Our operations in India and other parts of the world are impacted by the level of investments in infrastructure sector, which generally closely follows the economic trends, Consequently, our earnings are highly sensitive to national, regional and local economic conditions, Any deterioration in the global economic environment and the financial market conditions could have a material adverse effect on the Company sales, earnings, cash flow and outlook, - Financial Market Risks: In a crisis environment, the Company may face challenges to raise the necessary long term and short term finance to cover its funds requirements in the credit market or the capital market, or obtain financing or refinancing on acceptable terms, - Foreign Exchange Risks: We deal with significant amount of foreign exchange denominated transactions for imports, exports and various other payments, These transactions expose us to a variety of risks related to currency exchange, interest rates etc, In order to reduce the impact related to these exposures, management evaluates exposures on a consolidated basis to take advantage of natural hedge, We do hedging of net exposure position primarily by entering into various transactions through forward contracts, - Risks to Direct costs: The Company is exposed to changes in the raw material prices, energy prices and other direct costs, Raw material prices continue to have a key influence on our production costs, The volatility in prices for our major inputs, if not timely monitored, can adversely affect our margins and results of operations, - Legal Risks related to tax structure: We are subject to various tax payments, in particular, tax on profits, sales tax, excise duty, service tax etc, Changes in tax legislation could lead to an increase in tax payments, In addition, our sales in various global markets are subject to changes in anti-dumping laws in various countries, - Environmental law Risks: We meet the requirements of national environmental regulations, Although there are no significant environment matters in the countries we operate in, but there is always a risk of compliance and its associated costs, Major Operating Group Companies JINDAL TUBULAR USA LLC With a vision to step up operations and to expand reach in North America, Jindal SAW Limited through its 100% Step down subsidiary Jindal Tubular USA LLC acquired assets of PSL NA in August 2014 through a section 363 sale approved by the United States Bankruptcy Court for the District of Delaware, This facility is capable to manufacture Spiral Pipes in size range 18" OD to 120"OD, wall thickness upto 1" with an installed capacity of 375,000 MT Per Annum, Located in Mississippi, the facility is equipped to provide External coating like FBE/ ARO/ CTE and Internal Epoxy coating, After the acquisition, Jindal Tubular USA LLC has also set up an External PU coating and Internal CML facility to cater to the water transmission market in addition to the Oil & Gas Sector, JINDAL SAW USA LLC A 100% step down subsidiary of Jindal Saw Limited, Jindal SAW USA LLC is engaged in the Double Jointing and coating of pipes business with facility located at Baytown, Texas, This facility has a size range of 2" OD to 48" OD with installed coating capacity of 7 Million Sq, Mtr, per annum, Drill Pipe Inc,, a 100% subsidiary of Jindal SAW USA LLC, operates a Drill Pipe manufacturing unit in Baytown, TX, As a backward integration to Drill Pipe manufacturing, the forging plant was commissioned in the year 2014 to manufacture tool joints, JINDAL SAW GULF LLC Jindal SAW Gulf LLC commissioned a state of the art DI Pipe manufacturing facility at Abu Dhabi [UAE] in the year 2012, With an installed capacity of 350,000 MT per annum, this is the largest DI Pipe manufacturing facility in the Middle East and is capable of manufacturing DI pipes in size range of DN 200 mm to DN 2200 mm, The plant is equipped with required External & Internal Coating facilities, JINDAL SAW ITALIA SPA Jindal SAW Limited, through its 100% step down subsidiary - Jindal SAW Italia SPA, is operating DI pipe finishing facility in Italy to cater to the demand of brmium markets like Europe, Iraq etc, The size range for this facility is DN 80 mm to DN 1000 mm with installed capacity of 80,000 MT per annum, The plant is equipped with required External & Internal coating facilities, JINDAL FITTINGS LIMITED A subsidiary of Jindal SAW Limited, Jindal Fittings has set up the Largest State of the art integrated plant in India producing Fittings & accessories for all sizes of DI Pipes, The size range for fittings is DN 80 mm to DN 2200 mm with installed capacity of 18,000 MT per annum, The plant is equipped with required External & Internal Coating facilities JINDAL TUBULAR (INDIA) LIMITED In the year 2015, Jindal SAW Limited through its 100% subsidiary Jindal Tubular [India] Limited has entered into an Operation, Maintenance & Management Agreement [OMMA] for Eleven [11] Spiral Mills & Coating facilities in India with PSL Ltd, The combined installed capacity is 1,4 Million MT Per Annum, The facilities are located in Chennai - Tamil Nadu, Vizag - Andhra Pradesh, Varsana - Gujarat, Jaipur - Rajasthan, With these facilities and alongwith the HSAW Facilities owned by Jindal Saw Limited, the Company has a wider footprint within India with proximity to the water and hydrocarbon market, JINDAL ITF LIMITED Jindal ITF Limited [JITF], a wholly owned subsidiary of Jindal SAW Limited, through various subsidiaries and step down subsidiaries operates in the infrastructure, transportation and fabrication business, JITF being a holding and operating company is also developing a waterways transportation project for transportation of imported coal through National Waterways to NTPC's coal based power project at Farakka, West Bengal, Some of these businesses not being the core activity of Jindal SAW Limited, the management and shareholders have decided to reorganize the businesses through court approved schemes, Once completed, the business model would help conserve the value of the company and also provide an opportunity to the different businesses to grow up to its potential, Internal Controls and their adequacy We have built and adopted a robust internal control system which is aligned with regard to efficiency of operations, financial reporting, compliance with applicable laws and regulations, The controls are continuously reviewed and strengthened as per the business need, We have in place adequate internal financial controls with reference to financial statements, Extensive use of latest IT technology is the heart of the Internal control and business process, This ensures accurate recording and integrity of financial reporting, Consistency in processes and internal controls, allows optimal use and protection of assets, facilitates accurate and timely compilation of financial statements and management reports and ensures compliance with statutory laws, regulations and company policies, We have an Internal Audit department besides external Audit firm acting as independent internal auditor that reviews internal controls, systems and procedures throughout the year as per the Annual Audit Plan approved by the Audit Committee, The significant observations, good practices and corrective actions suggested by Internal Auditors are reviewed by Management and Audit Committee for appropriate implementation for strengthening the controls, A Legal Compliance monitoring Cell is constituted to ensure that we conduct our businesses with high standards of legal, statutory and regulatory compliances, We have instituted a legal compliance software programme in conformity with the best international standards, supported by a robust online system that covers our all plants and corporate office, The purview of this system includes various statutes, such as industrial and labour laws, taxation laws, corporate and securities laws and health, safety and environment regulations etc, Material Developments in Human Resources/ Industrial Relations We identify the pivotal role played by the Human Resource behind the success and growth of the Organization, We strive continuously to nurture a climate inclusive of accountability, commitment, team work and holistic thinking, We believe in Human resource development wherein employees feel that they are contributing to a worthy cause, We emphasize on investments in people through merit oriented pay revisions and differential pay reviews, Rewards & recognition coupled with retention of contributing and key skills / employees remains the edifice of the Organization philosophy, Besides the Human Resources management, we also strive for Women empowerment by providing them a conducive environment, As a responsible employer, we have constituted a Committee for the brvention of Sexual Harassment of Women at workplace, providing them with a forum for grievance redressal, Towards fostering the efforts and commitment of employees, a transparent and structured "Target Based Performance Management System [TBPMS]" has been formulated, It deals with clearly defining the individual and team KRA's and its periodic assessment as it supports in fair assessment of the employee's and team's performance and further helps in suitably rewarding the employees, This is used as an effective and proficient instrument to identify the "STAR" performers within the organization and also the Under-performers who require counselling to enhance their performance, We believe that change is a constant process and to be effective in this competitive environment, we need to adopt to new interventions and technologies, A SAP enabled environment has been provided throughout Organization for smooth functioning and better inter and intra department coordination, Similar, to this, all the essential measures are undertaken continually for improvisation of processes and systems at Unit level as well including the review of policies / practices with a view to make it more employee friendly and in line with the industry standards, As a responsible employer, we believe in equal opportunities to all, We have best of talents of the industry and are a cosmopolitan workforce, We have been able enough to attract, develop and retain talents in the Organization by focusing on developing talent pool through lateral hiring, increased emphasis on learning & skill up gradation via in-house & external training, job rotations, multi-skilling and inter unit developments & expansions, We have extended best of facilities to the employees and their families like education facilities, medical facilities, recreational, housing facilities, transportation facilities, insurance, mess to ensure their better quality of life and is constantly engaged in its enhancement, CSR development activities continue to be a focus on the belief that benefits percolate to the society in which we habitat and co-exist, Our culture has been cultivated with seeds of open and fair communication, sense of belongingness for both employee and organization, integration of individual and organization's goals and high level of integrity and this can be easily measured with the lower rate of attrition within the Organization, Cautionary Statement The Statements in this Management Discussion and Analysis report, describing the Company's outlook, projections, estimates, expectations or brdictions may be "Forward looking Statements" within the meaning of applicable securities laws or regulations, Actual results could differ materially from those exbrssed or implied, |