MANAGEMENT DISCUSSION AND ANALYSIS 1. ECONOMIC GROWTH 1.1 Global economic outlook Global recovery is grappling with multiple challenges, and is progressing at a fragile pace. The picture that is emerging across geographies is one of uncertainty and financial turbulence. Among advanced economies the US demonstrated resilience in FY 2015; and growth in the country is projected to continue at a moderate pace. The recovery in the Euro Area during the year was modest in 2015-16; and is projected to continue in the backdrop of low energy prices, a modest fiscal expansion and supportive financial conditions. However, potential growth is expected to remain weak, as a result of high private and public debt, low investment, and eroding skills due to high long-term unemployment and an ageing population. The scenario for emerging markets and developing economies is not uniform. The commodity exports of Brazil and Russia were severely impacted by a decline in prices and owing to China's rebalancing act, which is having a spill-over effect on the overall global trade. The economic performance of many African countries was also discouraging. Resource-intensive countries in Africa suffered a two-fold blow. First owing to a decline in the prices of commodities; and second because their frontier markets were adversely affected by tighter global financing conditions. 1.2 Indian economy India's GDP grew by 7.6% in FY 2015-16, making it one of the world's fastest growing major economies. Interestingly, the GDP grew at 7.9% in the fourth quarter, a stellar performance. According to the data released by the Central Statistics Office, the growth in manufacturing and farm sectors during the fourth quarter accelerated to 9.3% and 2.3%, respectively. The policy initiatives of the government, low interest rates, declining fiscal deficit and moderating inflation have helped the Indian economy stay on a sustainable growth path. The growth rate is expected to touch 8% in FY 2016-17 on the back of a favourable monsoon. The government's Make in India campaign is helping India emerge as a hub for global manufacturing giants. Wholesale Price Index (WPI) WPI has remained firmly rooted in the negative territory in FY 2016 (till March). The wholesale inflation has been in a negative territory since November of 2014. The continued decline in crude oil prices has largely contributed to India's moderating inflation trend, as it constitutes one of the major components of India's import basket 1.3 Outlook India's long-term growth potential continues to be strong with focus on faster infrastructure creation, improving manufacturing and farm output, expanding services sector, increasing urbanisation; and stronger regulatory framework for banking and financial services. In addition, the Government of India's 'Make in India' initiative has encouraged domestic entrebrneurship and attracted more FDI into the country. FDI into the country has increased by 37% after the launch of 'Make in India' programme in the 17-month period from October 2014 to February 2016 (Source: Government of India Report). The concept of Make in India is also expected to boost employment through skill enhancement; with this, India has now become a vibrant market for manufacturers. The economy has recently crossed the $2 trillion-dollar mark to hit its highest ever value; and with supportive policy initiatives, it has the potential to grow by 8-10%, going forward (Source: CSO). 2. STEEL INDUSTRY 2.1 Global steel industry Global crude steel production reached 1,622.8 million tonnes (Mt) for the year 2015, down by 2.8% compared to that of 2014. Crude steel production declined in all regions except Oceania in 2015. The global steel industry is going through tough times. Steel demand in 2016 is likely to decline owing to slower pace of economic growth across geographies. As a result, steelmakers are struggling to sustain margins with excess capacity worldwide and historically low prices. Exports from China continue to penetrate markets all over the world, exerting downward brssure on the price of hot-rolled band (HRB), which is pushing down prices to levels not seen since 2002 to 2004. In this scenario, steel companies are likely to reduce debt, manage costs and implement operational improvements to counter the turbulence ahead. However, steel will never lose its relevance; and will remain the cornerstone for industrial and infrastructure growth. 2.2 Outlook The outlook for the global economy is mostly positive with growth picking up in the US, India and Southeast Asia, while several emerging markets are experiencing a deceleration in growth. However, the structural shift in the transitioning Chinese economy could cap this momentum. Although, global steel demand is expected to decline by 0.8% to 1,488 Mt in 2016, following a contraction of 3.0% in 2015, it is expected to return to growth in 2017, the world steel demand is likely to return to a growth of 0.4% and reach 1,494 Mt. Developed economies Steel demand in developed economies will grow by 1.7% in 2016 and 1.1% in 2017 owing to economic volatilities. Steel demand in the US is dampened by the fall in oil prices and a strong dollar, but an improving job market and a robust housing sector will support steel demand. Steel demand in the US is expected to grow by 3.2% in 2016 and 2.7% in 2017. The EU saw a mild recovery in steel demand with generally improving economic sentiments and investment conditions. However, uncertainties in the political landscape related to the refugee crisis and Brexit raises risks to the improving economic condition. Steel demand in the EU is forecasted to grow by 1.4% in 2016 and a further 1.7% in 2017. Emerging economies Weak exports, low commodity prices, capital outflows and China's rebalancing have worsened the macro scenario for these economies. Steel demand for Brazil and Russia are expected to contract strongly, going forward. India's prospects are brightening due to low oil prices, the reform momentum and policies to strengthen infrastructure and manufacturing output. The country's steel demand will increase by 5.4% in both 2016 and 2017, reaching 88.3 Mt in 2017. In Turkey, steel demand is expected to grow by 3.3% in 2016 and 3.2% in 2017, supported by the government's focus on pro- growth economic policies and low oil prices. Steel demand in the ASEAN 5 (Thailand, Malaysia, Vietnam, Indonesia and the Philippines) is also expected to sustain a growth rate of around 6% (despite their exposure to China's rebalancing) due to their infrastructure building activities; and will reach 74.6 Mt in 2017. Steel demand in the emerging and developing economies excluding China is forecasted to grow by 1.8% and 4.8% in 2016 and 2017, respectively. Steel demand in these economies will touch 457.1 Mt in 2017, about 30% of world steel demand. 2.3 Key challenges Transition in China While rebalancing continues, the Chinese economy is decelerating. The severe debrssion in construction activities is contributing to a slowdown in manufacturing sectors. A recovery for the construction sector is not likely in the near future. Low commodity prices Falling oil and gas related investments and the squeeze on government spending have affected steel demand in economies relying on oil based revenue. Slowing growth in global trade With deep integration of China in the global manufacturing supply chain, this sector has slowed as a consequence of weak growth in global trade. Manufacturing exports in emerging economies, in particular in Asia, declined owing to sluggish Chinese demand. The same is true for developed countries, experiencing a reduction in the exports of consumer goods and machinery. 2.4 Indian steel industry During 2015-16, India emerged as the world's third-largest producer of crude steel, up from eighth position in 2003. The industry growth is driven by an availability of raw materials such as iron ore and cost-effective labour. India produced 89.6 MT crude steel in FY 2015-16, a increase of 7.7% since last year. In FY 2015-16, the country consumed 109.9 million tonnes (MT) of crude steel. The country witnessed an unbrcedented inflow of cheap imports, which saw a significant increase in the last fiscal. The steel sector in India contributes nearly two per cent of the country's gross domestic product (GDP) and employs over 600,000 people. The per capita consumption of total finished steel in the country rose from from 51 kg in 2009-10 to about 59 kg in 2014-15. India's steel consumption for FY 2015-16 is estimated to increase by 7%, higher than 2% growth last year, due to improving economic activity. Steel demand in India is showing signs of a rebound, after the slowdown of the last two years. Cyclicality might be at work, but key demand trends are looking encouraging: • Automotive sales growth has rebounded strongly in 2015-16 • Inflation has moderated, leading to more interest rate cuts • Industrial production is improving and GDP growth rate is among the best in the world Government Initiatives The Government of India is aiming to scale up steel production in the country to 300 MT by 2025 from current levels. Some recent initiatives in this sector comprise the following: • The Ministry of Steel is facilitating the setting up of an industry driven Steel Research and Technology Mission of India (SRTMI); in association with the public and private sector steel companies to spearhead research and development activities in the iron and steel industry at an initial corpus of Rs. 200 crore (US$ 31.67 million) • The Government of India plans to auction eight coal blocks with reserves of 1,143 million tonnes to steel and cement firms in January 2016 • The Government has planned Special Purpose Vehicles (SPVs) with four iron ore rich states i.e., Karnataka, Jharkhand, Orissa and Chhattisgarh to set up plants having capacity between 3 and 6 MTPA • A Project Monitoring Group (PMG) has been constituted under the Cabinet Secretariat to fast-track various clearances/resolution of issues, related to investments of Rs. 1,000 crore (US$ 152 million) or more • To increase domestic value addition and improve iron ore availability for domestic steel industry, duty on export of iron ore has been increased to 30% • In the Union Budget 2016-17, the Government of India has proposed to spend Rs. 2,18,000 crore on roads and railways, enhancing the demand for steel and construction materials 2.5 Demand drivers Infrastructure Infrastructure creation is critical for a country's economic growth. The Government of India allocates funds to sectors and encourages private participation through the PPP route to push for infrastructure development. It has announced a National Investment and Infrastructure Fund (NIIF) with an expected initial corpus of USD 6.2 billion to help bridge the investment gap (Source: KPMG). Railways The Government of India is aiming to target higher investments by prioritising the decongestion of heavy haul routes and speeding up trains. The Railway Ministry has earmarked an investment of USD 133.5 billion towards the development of railways sector over the next five years ending 2019 (Source: KPMG). Defence The Government of India is encouraging self-reliance in the defence sector; and is also encouraging Indian private sector players to manufacture defence equipment. The country currently imports significant quantity of steel annually to meet its defence requirements, reflecting high demand and huge potential for the Indian steel industry. Roads The Government of India is developing new road infrastructure, with a special focus on concrete roads and modernising the existing road network; in addition to developing interstate highways/exbrssways. The impetus on concrete roads provide a significant business opportunity to JSPL. The Government has earmarked an investment of USD 32.4 billion during the 12th Five-Year Plan (in 2012-17) for the development of roads (Source: KPMG). Manufacturing The Make in India initiative aims at enhancing manufacturing through investment, innovation, and by building best-in-class manufacturing infrastructure. The initiative is expected to revive the manufacturing sector and make it self-reliant. The sector grew at an annual average rate of 5.77% for 2011-15; and the Make in India initiative is likely to enhance the growth rate of manufacturing to 12 to 14% over the next 3 to 5 years (Source: KPMG). Construction Construction activities contribute over 10% of India's GDP. The sector is expected to grow to USD 186.2 billion by 2017. An investment worth USD 1,000 billion is projected for the sector until 2017, 40% of which would be funded by the private sector. At brsent, India has an urban housing shortage of 18.8 million units. The shortage in rural India is estimated at about 48 million. The Government of India launched the Housing for All by 2022 scheme in June 2015 for the rehabilitation of slum-dwellers and promotion of affordable housing for the urban poor. The target is to provide nearly 20 million houses over seven years (Source: KPMG). Currently, there is an emergence of bespoke building materials which is helping expedite project turnaround and also ensuring construction quality. For example, products like structural steel provides economical solution and also reduces project execution time significantly. The Government passed the Real Estate Bill to regulate the real estate sector that aims to bring in more transparency and address the challenges faced by project delays. The bill is expected to lift homebuyer and investor confidence and revive the sector plagued with high unsold inventory, low demand, delayed delivery and high prices. Consumer durable India is expected to become the fifth largest consumer durables market in the world by 2025. The consumer electronics market is expected to increase to US$ 400 billion by 2020. The production is expected to reach US$ 104 billion by 2016. Urban markets account for the major share (65%) of total revenues in the consumer durables sector in the country. Demand in urban markets is expected to increase for non-essential products such as LED TVs, laptops, split ACs and, beauty and wellness products. In rural markets, durables like refrigerators as well as consumer electronic goods are likely to witness growing demand in the coming years as the government plans to invest significantly in rural electrification. (Source: IBEF) 2.6 Outlook India is expected to become the world's second largest producer of crude steel in the next few years, moving up from the third position. The country's steel industry has a significant scope for growth. The consumption of steel per capita in India is around 65 kg per year, much lower compared to the global average (235 kg), leaving significant headroom for growth. Growing investments for infrastructure, rapid growth in the industrial sector, increase in urban population, and strengthening of rural steel market can raise the country's per capita steel consumption considerably. Domestic During FY 2015-16, iron ore availability increased by 20%; and is estimated to touch 155 million tonnes. More than 62 million tonnes of additional iron ore mining capacity came up in FY 2015-16. Domestic iron ore prices started to decline from the second half of FY 2015-16. 3.2 Thermal coal The availability of coal (from Coal India Limited and Singareni Collieries Company Limited) increased by 9% (50 Million tonnes) to 597 Mt in FY 2015-16. India imported 182 million tonnes in 2015-16, down by 16% from 216 million tonnes in the brvious year, saving Rs. 28,000 crore in foreign exchange. The Government has facilitated a process of special forward e-auction of coal for power sector. A new policy might be formulated by the Ministry of Coal and Government of India to allocate coal linkages to states and DISCOMS; and they could invite tariff based bidding on the allocated linkage The Government has increased the Clean Environment Cess on coal, lignite and peat to '400 per tonne, to help clean the energy narrow the gap with conventional power. This has raised the cost of power firms. 3.3 Coking coal International coking coal prices increased by 5% since April 2015. 4. POWER SECTOR Power is critical for economic progress. India's power sector is one of the most diversified in the world. Demand for power in the country has increased rapidly; and is expected to rise exponentially, going forward. In order to meet the increasing demand for electricity in the country, massive addition to the installed generating capacity is required. India has the fifth largest power generation capacity in the world. The country's installed capacity stood at 298.05 gigawatts (GW) in FY 2016. With a signifying planned generation capacity addition in the 12th plan and improved generation with fuel issues getting sorted out for existing capacity, a corresponding increase in transmission capacity is needed to ensure that power generated reaches the end consumer. Clearly, successful PPP in transmission would be vital to meet the huge investment and capacity enhancement target in transmission. India per capita consumption at 1010 kilowatt-hour (kWh) in 2014-15 is among the lowest in the world, which is indicative of propensity for growth in the sector. China has a per capita consumption of 4,000 kWh, with developed nations averaging around 15,000 kWh per capita. Power companies are facing low Plant load factors (PLFs) owing to financially weak distribution companies who have brferred load shedding rather than supplying power, as they are incurring losses on every unit of power supplied. The power ministry is pushing states to sign power purchase agreements (PPAs) to give relief to generators (public and private). The Government launched project Ujwal DISCOM Assurance Yojana (UDAY) to drive the financial turnaround for the state-owned power distribution companies (DISCOMs). The programme helps DISCOMS to reduce outstanding debt of USD 64.8 billion, as on March 2015. The Government of India announced a massive renewable power production target of 175 GW by 2022, this comprises generation of 5 GW from small hydro power projects. The Government has resolved the issues regarding the transfer of mining leases and grant of forest clearances to the winning bidders of coal blocks. It expects operations to commence in about 10 more mines in the near future, easing coal availability to the projects attached to these mines. According to the Government of India, the Indian power sector has an investment potential of Rs. 15 trillion (US$ 237 billion) in the next 4-5 years, thereby providing immense opportunities in power generation, distribution, transmission and equipment (Source: IBEF). 5. CONSTRUCTION MATERIALS & SOLUTIONS India is the second-largest cement producing country in the world after China. Though the cement industry has faced challenging times due to muted demand, excess capacity, and declining prices, it is expected to see better growth in the coming years. The government of India is driving various infrastructure, housing and road projects that will boost cement demand sustainably. Moreover, projected growth of several segments like hospitality, retail, entertainment, education, IT among others, will boosted the construction of high-rise buildings and industry parks. Currently, construction methods have become more organised with introduction of newer technologies and machinery; many new building materials have been introduced in the market targeting interior and exterior applications. Going forward, high impetus and investments in infrastructure and construction sector has led to a positive domino effect on the cement and construction material industries. 6. JINDAL STEEL AND POWER LIMITED Jindal Steel and Power Limited (JSPL) is a US$ 3.14 billion business conglomerate; and one of India's fastest growing and largest integrated steel manufacturers, significantly brsent in steel, power generation and infrastructure segments, catering to a large part of India's domestic energy and infrastructure requirement. Part of the over US$ 18 billion diversified O. P. Jindal Group, JSPL's business operations span Asia, Africa and Australia. The Company has committed investments of over US$ 30 billion in the future; and has several business initiatives running simultaneously across continents 6.1 OPERATIONAL REVIEW JSPL produces economical and efficient steel and power through backward and forward integration. From the widest flat products to a whole range of long products, JSPL today has a product portfolio that caters to markets across the steel value chain. The Company operates the largest coal-based sponge iron plant in the world with an operational capacity of 3.25 MTPA of crude steel. It also has the distinction of producing the world's longest 121 metre rails and large size parallel flange beams, high strength angle irons for transmission towers and high strength earthquake resistant TMT rebars. 6.2 RAW MATERIAL SECURITY At JSPL, we follow a two-pronged strategy and source iron ore from captive mines and through long-term alliance with miners. A significant shift in our logistics roadmap enabled swift inward movement of coal and iron-ore; at the same time speeding up the finished good cargoes to reach the markets and consumers. Likewise, in the absence of captive coal mines, our power business maintained its generation levels, fully aligned with the PPA commitments and merchant market demand through a judicious coal-sourcing mix from our overseas mines, coal linkage and e-auctions. JSPL's leadership put in place a business plan for ensuring its raw material security, ahead of the commencement of the reallocation process of coal blocks. A Coal Management Group was constituted within the Company, whose objective was to procure coal both for steel and power business from the most appropriate and cost-effective external sources of coal. 6.3 ORGANISATIONAL RE-STRUCTURING Progressive organisations constantly evolve and adapt to their external environment in order to sustain, grow and enhance stakeholder value. We have therefore embarked on an aggressive internal organisational restructuring to be future ready. The company re-organised and re-engineered its business into five Business Segments (BS) with 18 Strategic Business Units (SBUs) within them, each accountable for its own performance. The Business Council of each SBU will periodically review the business performance and initiate measures to redress its respective concerns. The new organisational structure with a strengthened Group Executive Committee (GEC) facilitates plurality of governance; and will usher in agility in our operations and functions. With the establishment of SBUs, the role of marketing and sales has also been redefined; the marketing and sales, production, product development, and all delivery related initiatives have been put within the scope of SBUs. 6.4 RESURGENT JSPL JSPL is driving a culture of consistent improvement by undertaking the following strategies: Capacity Utilisation: JSPL has been working towards optimum capacity utilisation and increasing operational efficiencies of processes in the steel business. While reducing production costs, the impetus on value-added products was enhanced for better yields. The Company is continuing to sweat their assets to get higher production because it will help in bringing down fixed cost on a unit basis. Operational Excellence: JSPL continuously strives to attain cost efficiency, enhanced productivity, product excellence through technological innovation and optimum utilisation of all resources. Strengthening of internal processes, work flow and optimum utilisation of manpower by multiskilling are also high on the agenda. Financial Prudence: JSPL is focusing on reducing its working capital (receivables and inventory) requirements and debt burden through strategic divestments, interest cost reduction and augment asset-sweating strategy. Excellence driven technology and innovation New Oxygen Electric Furnace (NOEF) at Raigarh Plant JSPL has successfully converted one of its Electric Arc Furnace (EAF) to a basic oxygen type furnace. This would result in lower thermal coal requirement (as more hot metal produced through blast furnace route will be used), power savings and eliminates the consumption of electrodes. Going forward, this will result in substantial saving in our steel making (liquid steel) cost at Raigarh. The Company would progressively implement this technology in other EAFs at Raigarh and Angul in Odisha. Installed producer gas plant JSPL successfully commissioned the largest rated capacity producer gas plant in India at its Patratu plant (Jharkhand State). It has a designed capacity of 80,000 nm3/hr with 10 gasifiers. The producer gas plant ensures zero effluent discharge, 100% automation and continuous online gas quality and quantity monitoring. It will help significantly cut down the fuel costs, and augment the yield of billets rolled. The plant at Patratu has a Wire Rod Mill of 0.6 MT and Rebar Mill of 1.0 MT capacity. Coal Gasification Plant at Angul The world's First Syn Gas based DRI plant at Angul continues to operate at optimum capacity. The coal to gas plant with an installed capacity of 225,000 nm3 per hr converts raw gas into syn gas, which helps in producing DRI of superior quality with lower nitrogen content. Several by-products like sulphur, phenol, clear tar, among others have a ready market. JSPL has already entered into a long-term sale of contract for these products. This helps reduce gas cost at Angul plant. Logistic backend To optimise cost, bring operational efficiency, and generate additional earnings, the Company has carved out its logistics business into a separate subsidiary called 'Panther Transfreight'. The new subsidiary has been entrusted with the task of achieving operational excellence in JSPL's inbound and outbound logistics. The new Company would aim to bring in IT enabled Integrated Logistics Services and provide best-in-class customer service for steel, cement, infrastructure and bulk commodities industries. New projects - Commissioned two Rebar mills JSPL commissioned two rebar mills of 1.4 MTPA capacity each in Oman & Angul. These augmented capabilities, will help the Company move forward in step with the government's 'Make in India' initiative in the domestic market; while the Oman facility will cater to the Arabian peninsula. 9. PRODUCT PORTFOLIO Customisation is at the core of JSPL's product development and our global technology excellence ensures best-in-class offerings for valued customers. The reputation and recall of our brand, improving performance and enhanced capabilities demonstrate our drive for excellence. CLASSIFICATION Steel Product Mix 1. TMT Rebar 2. Rails and Head Hardened Rails 3. Parallel Flange Beams and Columns 4. Angles & Channels 5. Plates 6. Coils 7. Wire Rods Construction Solutions 1. Fabricated Steel Section 2. Speedfloor 3. EPS Panel 4. Light Gauge Structures 5. Insulated Dry Wall Panel 6. Jindal Global Road Stabilizers (JGRS) Construction Materials 1. Jindal Panther Cement 2. Fly-Ash Bricks 3. Cut & Bend 4. TMT Welded Mesh 5. Light Weight Aggregate (LWA) 6.5 KEY ACHIEVEMENTS, 2015-16 Steel • Total steel production stood at 4.60 million MT • Total steel sales volumes stood at 4.43 million MT • 1.2 MTPA plate mill in Raigarh upgraded • Production in Wire Rod Mill & Bar Mill at Patratu increased by 20% • Developed a new steel making process New Oxygen Furnace (NOF) to steer cost effectiveness, increase yield and attain higher productivity • India's largest Producer Gas Plant (PGP) was commissioned at Patratu in October • JSPL's structural steel is being used to build Festival City- India's Tallest composite steel structure • JSPL's Raigarh plant flagged off India's longest ever rails measuring 260 metre to the Dedicated Freight Corridor Corporation of India Limited (DFCCIL) • E-commerce portal dedicated to Panther TMT bars was launched Power • Installed power generation capacity stands at 5058 MW • Full 400 MW of long term access under the TNEB PPA has got operational from October 2015 • 59.5 MW MTOA with Tamil Nadu became operational from 1st April 2016 • As a part of its global venture, the company is planning to set up 350 MW (2x175MW) imported coal based power project at Senegal in Africa Mines & Minerals • Barbil recorded highest yearly production of 4.55 million tons • Pellet sales increase moderately Construction Material & Solutions • Cement plant bagging capacity increased to 0.85 MTPA • New category cement bags of 20 kg & 10 Kg introduced • High grade steel (450, 550 MPa) was introduced for steel buildings • Record quantity of brick delivered • Light Weight Aggregate (LWA) plant was commissioned and is in commercial production • Major contracts secured for supply of Structural Steel and Speed Floor's for high rise projects. Global Ventures • Production in Oman increased by 111% to 1.05 MT; and sales increased by 120% to 1.08 MT • Jindal Shadeed commissioned a 1.4 MTPA Rebar Mill and expanded its steel complex at the Sohar Industrial Port • Mozambique colliery made headway into the regional coal markets of Malawi and Zimbabwe 7. BUSINESS SEGMENT WISE REVIEW [Please read the section on business segment review earlier in this report] 8. FINANCIAL PERFORMANCE During 2015-16, JSPL's total revenues touched Rs. 18,412 crore. Operating profits declined owing to a decrease in Net Sales Realisation (NSR), which continued to be under brssure due to steel imports from China, Korea and other countries 9. PRODUCT PORTFOLIO Customisation is at the core of JSPL’s product development and our global technology excellence ensures best-in-class offerings for valued customers. The reputation and recall ofour brand, improving performance and enhanced capabilities demonstrate our drive for excellence. CLASSIFICATION Steel Product Mix 1. TMT Rebar 2. Rails and Head Hardened Rails 3. Parallel Flange Beams and Columns 4. Angles & Channels 5. Plates 6. Coils 7. Wire Rods Construction Solutions 1. Fabricated Steel Section 2. Speedfloor 3. EPS Panel 4. Light Gauge Structures 5. Insulated Dry Wall Panel 6. Jindal Global Road Stabilizers (JGRS) Construction Materials 1. Jindal Panther Cement 2. Fly-Ash Bricks 3. Cut & Bend 4. TMT Welded Mesh 5. Light Weight Aggregate (LWA) 10. STAKEHOLDER VALUE-CREATION MATRIX At JSPL, we know that long-term value-creation requires a commitment to build a sustainable operating eco-system of consistent improvement. As a result, our goals and strategies focus on delivering strong performance to each stakeholder groups. JSPL is participating in India's socio-economic progress by manufacturing high quality steel products and providing affordable power solutions, minimising environmental footprint and enabling the uplift of disadvantaged communities. 11. STRATEGIC DIVESTMENT Divestment of 1000 MW Power Unit As part of monetisation plans already advised, JSPL has been looking to generate cash flows from select divestments to be in much stronger position to meet all its liabilities and emerge financially strong and sustainable in 2016-2017 Subject to customary regulatory approvals and other condition brcedent(s), the Board has approved the divestment of 1000 MW Power unit of Jindal Power Limited, located in Chhattisgarh, into a special purpose vehicle (SPV), for the purposes of transferring the same to JSW Energy Limited through sale of the entire share capital and other securities of the aforesaid entity in terms of the share purchase agreement for an enterprise value of Rs. 6,500 crore plus the value of Net Current Assets as on the Closing Date. The valuation may vary based upon the achievement of PPAs as brscribed in the Agreement subject to minimum of Rs. 4000 crore plus the value of Net Current Assets as on the Closing Date. 12. HUMAN RESOURCE MANAGEMENT "Always treat your employees exactly as you want them to treat your best customers." Stephen R. Covey, educator, author and keynote speaker At JSPL, our key differentiator is our people. We invest in sharpening their capabilities, encourage innovation and lateral thinking and help instil an overarching culture of collaboration and camaraderie. The objective is to empower Jindalites to elevate the Company to the next level of industry leadership. Theory of Constraints JSPL has recently embraced the Theory of Constraints (TOC), a scientific approach to achieving quantum improvements in performance. The approach encourages a major rethink and focuses on a few improvement areas for overall development. JSPL has applied the approach across its steel manufacturing units ranging from steel operations, finishing mills, structural division, and in the sales and marketing department for both the retail and B2B channels. With a sustained approach, the goal of JSPL includes: • Focus on (On-time, in-full) OTIF improvements to exceed 95% • Develop a distinctive competitive advantage across product lines, cutting down order lead times to one-third of current levels • Reduce inventory and accounts receivables across the group by 30-40% • Improve sales and distribution of TMT and improve channel partner ROI by at least four times • Unlock at least 30% additional capacity in operations, with no additional capital expenditures Process based/ multi-skill organisation JSPL is working towards the implementation of Process Based Organization (PBO), which manages and operates all processes to balance and optimise value delivery to the customer. The Company needs to adapt to complexities emerging from the changing dynamics of steel and power industry, where there is loss of sales realisation and therefore structural reforms are a must. PBO seeks to challenge some of the paradigms in work practices that have led us to underutilisation, and excessive deployment of scarce and expensive resources. PBO will help JSPL to align itself with a new world order; and make it more customer-centric, agile, resilient and efficient. PBO will also strengthen the Company's people capability matrix, where professional development and growth of employees will be the core of the Company's processes and practices. Each Jindalite will have an opportunity to master three functions at a pace jointly evolved as per learning profile (150 hours to 600 hours) with three benefits for each one: • Safety and health • Enhanced market value • De-risking career from business cycles/structural changes in the industry The implementation has been planned in a phased manner. Raigarh, Tamnar and Punjipatra units are being covered in the first phase. Further, study and implementation will be conducted at Angul Phase-1A, Patratu and Oman. However, the journey for process improvement is continuous and perpetual. Other initiatives • Towards continued learning and furtherance of technical education, young engineers are encouraged to pursue post-graduate studies in Steel Technology at IIT Bombay. We have taken another step to intensively focus on steelmaking research for these young engineers during their coursework - engaging them with a specific project that will ultimately benefit JSPL. • We have formed a 'Best Practice Technology' group where the incumbents are investing their efforts in Process Improvement, Process Optimisation and Product Development. • As part of augmenting our learnings, we organised technical training for our engineers in steelmaking and rolling (by experts from USA) • An Internal Consultant Group (ICG) has been formed to perform strategic analysis for business growth and process streamlining - currently the team is working on RUBM growth strategy • JPL team conducted the second chapter of MDP (People Management - Grow, Lead and Succeed) from 26th to 29th October 2015. The training programme was conducted to enhance the desire for learning, besides catering to the objectives of developing competencies 13. ENVIRONMENT "The environment and the economy are really both two sides of the same coin. If we cannot sustain the environment, we cannot sustain ourselves." Wangari Maathai, environmental activist and Nobel laureate The Company follows sound Environment Management practices for operating its manufacturing plants. It has put in place eco-friendly technologies; and has adopted environment management plans to eliminate/minimise adverse impact from air emissions, noise and water pollution, and solid waste generation. Integrated Management Systems have been implemented across all units. Several initiatives were undertaken during FY 2015-16: Water Conservation and Management measures • Installed a Tertiary Effluent Treatment Plant of capacity 350 m3/hr at Coal Gasification Plant, Angul to further treat the effluent from the Bio-ETP of CGP to the quality of DM water, reducing the plant's fresh water demand • Installed 50 m3 Water Treatment plant (WTP) for domestic use in housing areas at Barbil to monitor the pH, TSS, COD & BOD parameters of the treated water at the ETPs of DRI, Power Plant and CGP Unit, with continuous online effluent analysis systems at Steel Plant, Angul. These have been connected to State Pollution Control Board for real-time data transmission • Installed a waste water quality analyser at ETP and connected with CPCB at the captive power plant, Dongamahua, Chhattisgarh • Installed a 200 KLD sewage treatment plant at Tensa, Odisha • Provided proper drainage system with check dams at backfilled areas in iron ore mines at Tensa • Installed two bio digesters (DRDO technology) of capacity 3,600 litres per day each at the plant and colony area to treat domestic waste water at Barbil • Built nine rainwater harvesting structure for the catchment area of Jindal Township, which directly contributes towards the ground water recharging, at Angul • Commissioned 150 KLD New Sewage Treatment Plant near JIPT at the power plant, Tamnar • Installed 2000 KLD New Sewage Treatment Plant at Savitri Nagar, Tamnar • Installed Effluent Quality Monitoring System (EQMS) at Tamnar Power Plant; online data transmitted to CPCB Delhi server as well as CECB server Solid Waste Management • Adopted the concept of 'Waste to Wealth' by using 117 ton biodegradable kitchen waste to produce biogas (2290 m3) and supplying it to the main canteen at Barbil Pellet Plant • Disposal of e-waste through an authorised recycler at iron ore mines, Tensa Air Pollution Control and Monitoring • Installed new bag filter at Lime kiln and SMS III at Raigarh Steel Plant • Installed two bag filters at Coal Crusher, Tamnar • Installed Continuous Stack Emission Monitoring Systems at steel plants of Raigarh and Angul; and connectivity with the Central Pollution Control Board and respective State Pollution Control Board servers for the transmission of real-time monitored data Plantation and Awareness Programmes • Planted 87,700 saplings in the vicinity of the Company's operating region in FY 2015-16 • Conducted environment awareness programmes across all locations on the occasions of World Environment Day and the National Pollution Prevention Day, by distributing saplings to nearby villagers and driving them for plantation activities 14. HEALTH AND SAFETY "There is no better policy in a society, than pursuing health and safety of its people." Ralph Nader, author, lecturer and attorney JSPL firmly believes that providing safe workplace to employees, contractors and other stakeholders is not only a legal requirement, but also its moral responsibility. The Company is committed to put every possible effort to ensure the health and safety of its workers. It has aspirations to be one of the safest workplaces in the world through developing world-class safety culture across its operations. A team of highly qualified, experienced and skilled professionals has been deputed to provide the required support to the management on occupational health, safety and fire related matters. The Company ensures latest in-built safety technologies and atomisation in all new projects and expansions to safeguard its operations. State-of-the-art fire brvention and mitigation technologies are in place at all its operations. The Company's operations conform to International Occupational Health & Management Standard OHSAS 18001 and certified by the world renowned external agencies. JSPL has initiated number of proactive measures on occupational health and safety to minimise work-related injuries and diseases. These initiatives include but are not limited to: • Global Safety Standards - The Company has developed world-class global safety standards at the corporate level, which form a common framework for health and safety management systems across the Group. • Safety Training - Over 580 thousand person-hours (>73 thousand man-days) were invested on safety training. Over 98 thousand toolbox talks were delivered to create awareness among shop floor workers. • Employees' Safety Certification - The Company has developed an online e-learning module 'Be A Safety Star' for all employees to ensure adequate awareness on their responsibility and accountability towards health and safety of themselves and others. Successful employees are certified as 'Safety Star' of the Company. • Safety Audits/Inspections - Over 5,300 safety inspections and audits (including internal and external) were carried out. • Rehearsals on Emergency Preparedness - Mock drills totalling 84 were conducted on various emergency scenarios to ensure that emergency teams are brpared to ensure any potential emergency situation. • Recording and Rectification of Unsafe Acts/Conditions - Over 84,000 potential incident observations were reported and rectified, before they could snowball into a major crisis. • Safety Committee Meetings - The Company has constituted a four-tier safety forums, namely board, site, department and contractor levels for reviewing health and safety performance at periodic intervals. A total of 1,339 safety meetings were conducted at periodic intervals to review the Company's health and safety performance. • Medical Health Surveillance - Pre and periodic medical examinations were carried out for employees and contractors to ensure their fitness to work. Over 1,07,000 medical examinations were carried out. The Company has outperformed on its occupational health and safety fronts and achieved high grades on various reactive safety parameters: • Lost time cases were reduced by 50% • First aid cases were reduced by 47.72% • Person-days lost on account of accidents were reduced by 17.96% • Accident frequency rate was reduced by 42.11% • Accident severity rate was reduced by 38.48% • Total Disability Injury Index was reduced by 43.11% The Company aims to be among the world's best on the occupational health & safety fronts in the foreseeable near. 15. AWARDS & RECOGNITIONS JSPL • Received the 'India Risk Management Awards 2015' by CNBC TV 18 and ICICI Lombard General Insurance Company Limited for best-in-class practices in risk mitigation across its plants/offices and use of technology to track various risks on a real-time basis. • Received the Limca Book of Records - World record for the manufacture of the longest single piece rails measuring 121m, at RUBM, Raigarh • Awarded the brstigious Green Tech Safety Award -2015, at Goa to Nalwa Steel and Power Limited • Awarded the 'Global Sustainability Award 2015 - Gold Winner' by Energy and Environment Foundation for outstanding achievements in sustainability management to Etalin Hydro Electric Power Company Limited • Awarded the 'Greentech Environment Award' for 2015 under the category Metal and Mining Sector for the second time in a row to Nalwa Steel and Power Limited • Awarded the Rashtra Vibhushan Award 2015 in Gold category for outstanding contribution in the categories - Best HR Practices, Environment Protection and Water Conversation to Dongamahua Captive Power Plant (4x135MW) • Bestowed with the Odisha INC Green Award - 2015 for sustainable environmental practices, such as adoption of environmental friendly technology, plantation drive, watershed management programme and pollution control initiatives, among others to JSPL, Odisha • Awarded the India CSR 2015 Award for Best CSR Project on skilling rural women for sustainable livelihoods to OP Jindal Community College • Bestowed with the Frost & Sullivan's 'Steel Manufacturing Product Line Strategy Leadership Award' 2016 to Jindal Shadeed • Conferred with the Sultan Qaboos Award for Industrial excellence to Jindal Shadeed, Oman • Awarded the 'Best Water Management in Power Generation' category at the Water Digest Water Award to Dongamahua Captive Power Plant (4x135MW) • Conferred with the '6th Annual Genentech HR Award 2016' in the Gold category for 'Employee Engagement' to Dongamahua Captive Power Plant • Conferred with the 14th Greentech Award as a mark of recognition for its excellent work in the field of safety to Dongamahua Captive Power Plant Raigarh • Won the Greentech Environment Award - 2015 (Gold) in Metal and Mining sector for environmental management practices • Won the 'National Safety Council of India Safety Awards' for 2015 by the NSCI Safety Awards Committee • Awarded Prashansa Patra (Certificate) in Group D under the manufacturing sector category to JSPL (Unit IV), Raigarh • Bagged the brstigious Energy Efficiency Award 2015 (2nd prize in Integrated Steel Plant sectors) by Chhattisgarh State Renewable Energy Development Agency (CREDA) Angul • Won the India CSR award for best CSR practices in 'Water Conservation Activities' • Won the India CSR award for best CSR project in 'Adolescent Girls' Health' • Won the Odisha CSR Forum Award 2015 for successful aligning Government schemes with CSR work • Won the OTV CSR Award 2015 for best CSR practices • Won the Outstanding CSR Award by Odisha Live, 2016 • Awarded 'Best Strategy' in HR in Gold Category by M/s Greentech Foundation Patratu • Received the 'International Safety Award' by the British Safety Council, UK • Received the Genentech Safety Award (Platinum Category) 2015 by Greentech Foundation, New Delhi • Conferred with the Best Technical Exhibitor award at the 2nd International Conference on Rolling and Finishing Technology of Steel Barbil • Received the JIPM TPM Excellence 'Category A' Award by Japan Institute of Plant Maintenance (under the Ministry of Trade & Commerce, Government of Japan), 2016 • Received the Greentech Environment Gold Award for 'Best Practices in Environment' • Received the Global Environment Platinum Award 2015 for 'Pollution Reduction & Environment Management' by Energy & Environment Foundation, New Delhi • Received the Odisha Environment Congress Award for 'Best Practices in Environment & Sustainability', 2015 • Received the CII-ESH Award 2015 for 'Best Practices in Environment, Safety & Health' Tensa • Won the 2nd prize for Illumination and Work Shop facility, respectively and 3rd prize for Safe handling of explosive at the 53rd Annual Mines Safety Week 2015 under the aegis of DGMS Chaibasa Region, JSPL's Tensa Mines • Won the 'Par Excellence Award at the 29th National Convention on Quality Concepts: NCQC - 2015 JPL • Won the 'ATD: Excellence in Practice & Citation' award at the Change Management category for one of its noble initiative 'Utthaan' The RISE: Transformation in the lives of PAPs (Project Affected People) through Attitudinal Change and Competency Building' by Denver, Colorado, USA • Received the '6th Annual Genentech HR Award 2016' in the Gold category for 'Training Excellence' • Ranked 2nd best in the Energy, Oil & Gas Sectors and 45th among India's 'Best Companies to Work for - 2015' by the 'Great Places to Work Institute - India' and 'The Economic Times' in their 2015 survey • Received the 5th Annual Greentech HR Awards 2015 for outstanding achievement in the following categories: (Company with Training Excellence - Platinum Award, 'Innovation in Employees Retention Strategies' - Gold Award and 'Young HR Professional'- Gold Award) • Received the brstigious AIMA award for 'UTTHAAN' initiative, a practical Case Study, during the 7th Business Responsibility Summit, by All India Management Association (AIMA), 2015 • Received the PMI AWARD 2015 for 'the Best Project of the Year (Large Category)' for the Outstanding Project Management Practices leading to the Synchronisation of Unit III of 4 x 600 MW expansion project at Tamnar in a record time of 16 months 8 days which is a National Record for any large capacity of coal fired unit • Received the Greentech Environment Award - 2015 in Gold Category for outstanding achievement in Environment Management by Greentech Foundation, New Delhi • Received the second position in the power category and conferred the most brstigious Energy Efficient Award 2015 by CREDA • Received the brstigious Asia Pacific HRM Congress Awards 2015 in the categories of 'Organisation with Innovative HR Practice', 'Award for Innovation in Retention Strategy', 'Award for Talent Management' and 'Best Workplace Practices' 16. RISK MANAGEMENT POLICY Risk management at JSPL has enabled the Group to protect and enhance value, and is designed to deliver upon its short-and long-term objectives. A consistent and combrhensive risk management process has helped brpare organisation better for future eventuality. Risk management has ensured a sustainable business growth with a pro-active approach in identifying, evaluating, reporting and resolving risks associated with the business. It has resulted in informed business decision making, considering associated business risks and without exposing the Group to undue peril. It has also enabled compliance with appropriate regulations, wherever applicable, through the adoption of best practices. Risk identification and evaluation at JSPL are performed at strategic functions at the entity level, starting with the Senior Management Committee (SMC) at unit/location level, Core Management Team (CMT), Corporate Functional Heads, Group Executive Committee (GEC), and this exercise is continued until the Top Management and Board Level. 17. INTERNAL CONTROLS The Company has in place a proper system of internal controls to ensure that all assets are safeguarded against loss from unauthorised use or disposition; and that the transactions are authorised, recorded and reported correctly. Additionally, the Internal Financial Control and reporting process ensures robust financial monitoring and ensures compliances. (Refer: Detailed IFCR report in the Statutory Section) The Company also deploys standard policies and procedures, covering relevant business aspects, which are designed to facilitate effective oversight on business operations. A formal Delegation of Financial Powers (DOFP) document, covering the procurement and purchase of goods/ services and authorisation for expenses, among others is followed pan-organisationally. The internal control system is periodically reviewed by the management, and supplemented by an extensive programme of internal and external audits. The system is designed to ensure that financial and other records are reliable for brparing financial information, maintaining accountability of assets and providing reliable management information. 18. INTERNAL AUDIT The Company has an in-house Group Internal Audit (GIA) department, headed by the Vice President-GIA. In line with best governance practices, the Vice President-GIA reports functionally to the Chairman of the Audit Committee, and administratively to the Honourable Chairman of the Board of the Company through the Managing Director & Group CEO. GIA's staff is periodically rotated to ensure independence, and also to refresh skill and expertise. The in-house GIA audit team is composed of various individuals, who are qualified as chartered accountants, cost accountants, engineers, certified internal auditor (CIA). Over the years, GIA has acquired in-depth knowledge about the Company, including its businesses and operations and systems and processes. Its elements have now been institutionalised into a robust annual Risk Based Audit Plan (RBAP), which forms the basis of their activities. Some minor part of the audit activities are occasionally outsourced to external audit firms when needed. GIA's scope includes the Company's locations, such as its plants, project sites, corporate office, marketing offices and stockyards. Internal audit observations are brsented to the Audit Committee at its quarterly meetings, highlighting the high-risk issues, internal control weaknesses, and action taken by the management to mitigate/resolve it. Cautionary Statement This report contains projections, estimates, etc., which are just 'forward-looking statements'. Actual results could differ from those exbrssed or implied in this report. Important factors that may have an impact on the Company's operations include economic conditions affecting demand / supply and price conditions in the domestic and overseas markets, changes in the Government regulations / policies, tax laws and other statutes and other incidental factors. The Company assures no responsibility to publicly modify or revise any forward-looking statements on the basis of any future events or new information. Actual results may differ from those mentioned in the report. |