Impact of Covid-19 crises on JSW Steel

The coronavirus or COVID-19 outbreak has profoundly shaken not only Indian but nearly all

economies around the world. The lockdown caused people to stop going to work, and the

markets were shut down, and factories stopped their production, and a huge part of the

population lost their jobs. This pandemic costs India Rs. 32000 Crore every day, and the

forecast says that 2021 will most probably have the worst economic ballooning as compared

to the last many decades.

Rating agency Moody's has put the corporate family rating "Ba2" of JSW Steel Ltd under

review for downgrade, as the steel sector was significantly affected by the Covid-19

outbreak.  

The worldwide economic outlook going downhill, deteriorating oil prices, and falling asset

prices are creating a severe and widespread credit shock across sectors, regions, and markets.

In these unprecedented operating conditions, the weaknesses in JSW's credit profile, such as

its exposure to weakening steel demand for manufacturing and volatile material costs, have

left it vulnerable to shifts in market sentiment.

In the light of its ESG setting, I find the coronavirus epidemic to be a social risk, despite the

important public health and safety consequences.

Steel is classified as a commodity under the Essential Services Maintenance Act, 1981

(ESMA). However, the company stated that it had taken the decision "to scale down / stop

production in order to support the cause of the containment of the Covid-19 pandemic,

notwithstanding the exception to the continuous operation of manufacturing units and units

producing essential commodities."

JSW Steel, the country's second-largest private steel producer, is seeking ways to raise its

exports at a period when the COVID-19 pandemic and the national lockout has hit domestic
demand. This pandemic has hit both production and demand hard, and the supply of raw

materials has also been affected.

According to Seshagiri Rao, JSW Steel 's joint managing director, and group CFO, steel

demand fell by 91%; 7 lakh tons of steel were consumed in April of this year, compared to

7.5 million tons of steel consumed in April of 2019.

How the Supple Chain has been affected?

The biggest problem confronting the business was the shortage of workers in the

manufacturing sector, plants, logistics, transport, preparation, delivery system, even if the

organization was heavily advanced, but it mostly relied on human intervention for the

operation, so the lockdown rendered it impossible to provide a sufficient staff, which hinders

the supply chain.

JSW Steel faced daunting challenges, including fragmented supply chains, an unexpected

decline in demand, instability in the smooth transport of inbound and outbound products

across containment zones throughout the world, and a shortage of credit flow to the industry.

This shutdown has had an effect on the company’s larger supply chain partners due to the

limited capacity in the major ports of India, both at sea and air freight.

Operation at factories has started under difficult conditions: the demand is still low, labour

supply is restricted and strict protection, and health requirements must be implemented at the

workplace. In addition, some of the JSW plants are still closed in the most restricted red

zones. 

Even in the face of declining demand, JSW Steel is forced to keep its blast furnaces running

while cutting production by 40-50 per cent. They are now struggling with manufacturing

uncertainty and fewer orders for delivery.

Therefore, production cuts and supply disruptions are occurring as the factories are unable to

operate in full swing due to the government 's regulations due to the pandemic. There is also

no transport service for the supply of raw materials and the transfer of finished goods. So

even though the factories continue to manufacture, most of the workers refuse to enter out of

fear of contracting the illness, and the majority of them have gone to their hometown or

villages.

Inventory management and planning

Previously JSW used to schedule its production and procurement of goods on an annual

basis, but now, due to coronavirus conditions, the demand is unstable and thus the business

has switched to a continuous process of monthly preparation to make it easier to handle

inventory effectively.

It is currently taking initiatives to recapture its customer base by cutting prices. As JSW

enjoys its portfolio of strong labels and product types at different price points, it makes its

products competitive and attractive to customers. The new market delivery paradigm of JSW

also aims to reduce uncertainties, optimize the supply chain and reduce prices.

Now, JSW Steel has started to look at steel products that are needed in the manufacturing

industry, be it the consumer goods business, the auto parts industry, to grab an extra

opportunity. They have started to identify the suppliers and manufacturers in India to whom

they can supply steel and improve their export capacity.

Share value of the company

Before this pandemic, the NIFTY50 benchmark index of the National Stock Exchange was

all prepared to invite JSW Steel to the prestigious group of companies with market

capitalization of Rs. 1 trillion. After surpassing eight extremely popular and powerful firms in

India, JSW Steel proudly placed 33rd in the overall market-cap list.

Steelmaker JSW Steel posted a decline of 85.98 per cent year-on-year (YoY) in stand-alone

net income of Rs 242 crore for the March quarter compared to Rs 1.727 crore for the same

period last year.1

The company’s stock aren’t performing well in the market during this pandemic and the stock

price continues to take a hit because of the huge fall in demand.

1 https://economictimes.indiatimes.com/markets/stocks/earnings/jsw-steel-q4-results-net-
profit-plummets-86-to-rs-242-crore-misses-street-estimates/articleshow/75891906.cms?
from=mdr#:~:text=Gross%20revenue%20for%20the%20quarter,the%20same%20quarter
%20last%20year.
 Figure 1 Graph shows JSW Steel share price for the last 6 months

Reasons leading to reduced Growth and Production in the COVID ERA

 Lockdown due to Covid-19

Shutting down of factories

Poor Transport Facility Shortage of Manpower
and warehouses

decrease in production of
no supply of raw materials
products

decrease inventory of
decrease in supply of
products with retailers
products
and distributors

Because of Covid-19 or coronavirus, the world's economy has suffered because there was no

production, no service, the operations were not carried out as they were being carried out

earlier. It also influenced big corporations like JSW in several ways. We may assume that its

impacts were both parallel and multi-directional in the company's activities. The pandemic

prompted the government to place the world in a full shutdown to prevent coronavirus spread

. The abrupt shutdown made it impossible to move the raw materials to the factories and to

supply the final goods to manufacturers and distributors. With the closing of the plants,

output was significantly affected, and no new products were made, which contributed to

significant losses for the company and further decreased the inventory ratio due to little

output. In Lockdown 4.0, the government provided some relief to the industries to start

manufacturing, but with new rules to avoid coronavirus spread. Such laws have made the

plants run with a significantly smaller staff than the real ones. Thanks to the dismissal of
some of the workers and factory personnel, including others who have already left for their

homes, production is not full-scale to satisfy the demands of the consumers.

How did the company plan to gain consumer trust?

JSW has stated that it is assessing the situation and is passionate about helping the

government to deal with the coronavirus pandemic in all possible ways. The JSW Group has

pledged Rs 100 crore to the Prime Minister 's Public Assistance and Emergency Situation

Relief Fund (PM-CARES Fund) to tackle the country's novel coronavirus (Covid-19) crisis.

In turn, each employee of the JSW Group has contributed a minimum one-day wage as a

contribution to the PM-CARES Fund. Numerous employees further offered  more than their

one-day salary as a donation. Part of the pledge fund has also been dedicated to purchase and

procurement of ventilators for medical institutions all over the nation and to provide testing

kits and professional safety equipment such as helmets and gloves for the medical staff.

Communities surrounding JSW industries will also be supported with specific food

necessities and supplies. The organization also plans to transform some of its facilities around

JSW Group locations to the Quarantine Centres, reducing burden on public hospitals.

Why such an initiative was needed?

JSW is one of the largest and fastest-growing steel manufacturing firms in India, which has

operated in India for almost 40 years with a view to consistently improving people's

livelihood and quality of life through its brand and product line. JSW has carried out
numerous social support programs or CSR (Corporate Social Responsibility) initiatives for

the benefit of the society and its citizens. JSW is now a very profitable business and

is already spending a massive amount of money on ads and marketing. The organization has

its presence all over India and has a large customer base. The business of this size also tries to

follow social events as its CSR strategy, which allows the brand not just to win customer trust

but also to boost its brand identity in the minds of customers. Such CSR operations will help

the corporation gain visibility and promote it as a reputable organization.

The company's numerous program to counter coronavirus by providing relief funds of Rs 100

crore and supporting the deprived by providing necessary and even providing sanitary items

free of charge to hospitals , health care employees and disadvantaged sections of society. The

company has also launched campaigns and charity activities to disseminate information about

the virus and its precautions. We may assume that the product has a massive impact on

customers because of its brand identity, so customers still have a lot of confidence in the

brand, and people continue to obey those advice. This also brings positive feedback in the

eyes of customers on the reputation of the organisation and, explicitly or implicitly, these

charitable efforts carry the product 's name to the fore and will also serve to improve the

brand name. But the true purpose behind these practices is to give back something to

customers that will help them grow and prosper that can be helpful to the business in the

longer term, because more consumers can hear about the brand.

Conclusion

I would like to conclude by suggesting that the adverse impact of the Coronavirus pandemic

are seen not only on the Indian economy but on all economies across the globe. Businesses,

entities, communities, service providers, in simple terms, everyone's been hit hard by the
pandemic. There was an economic slowdown that had never been seen before. Multinational

companies such as JSW have also suffered from a pandemic as plants have been shut down,

the workforce has been insufficient, logistics have been complicated and profits have been

affected. The JSW supply chain was chaotic at the onset of the pandemic, because there was

not enough time to draw up and execute a contingency strategy to fix this sort of situation. As

a vast number of citizens became conscious, and with the government offering relaxation in

terms of sanctions, businesses are able to continue their activities which needed a revamped

or restructured supply chain network to cope up with decreasing demands before things

returned to normal.

References

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