T. A.

PAI MANAGEMENT INSTITUTE

MANIPAL

FINANCIAL ACCOUNTING – ACT-5001

JSW STEEL

Section 3
FAS Group R2
Akshay Chourasia 18F305
Amy Elz George 18F308
Anik Dutta 18F309
Pranshul Agarwal 18F342
Yogi Nityanand Naik 18F361
 JSW STEEL

1. Company Background
JSW Steel is an Indian steel company owned by the JSW Group headquartered in Mumbai.
JSW Steel, after merger from ISPAT steel became India's second largest private sector steel
company. The current installed capacity is 18 MTPA. Jindal Group with strong footprints
across core economic sectors, namely, Steel, Energy, Infrastructure, Cement, Ventures and
Sports
The Group set up its first steel plant in 1982 at Vasind near Mumbai. Soon after, it acquired
Piramal Steel Ltd., which operated a mini steel mill at Tarapur in Maharashtra which was later
renamed as Jindal Iron and Steel Co. Ltd. (JISCO). Jindal Vijayanagar Steel Ltd. (JVSL) was
set up in 1994, with its plant located at Toranagallu in the Bellary-Hospet area of Karnataka
and External Areas of Andhra Pradesh, the heart of the high-grade iron ore belt and spread over
3,700 acres (15 km2) of land. It is just 340 kilometers (210 mi) from Bangalore and is well
connected with both the Goa and Chennai Port. In 2005, JISCO and JVSL merged to form JSW
Steel Ltd.
The company operates in steel sector and is a large player in steel market. JSW Steel exports
to over 100 countries across 5 continents. Its current operations in India comprises 12.50
MTPA (Around 70% of the capacity) of flat products and 5.50 MTPA (around 30% of the
capacity) of long products. The company is also one of India’s largest producers and exporters
of coated flat steel products.

1.1. Geography wise facilities, operations and products

Capacity
Facilities Products
(in MTPA)
Tarapur 0.76 Galvanized, Galvalume and Color coated products
Kalmeshwar 0.58 Galvanized, Galvalume and Color coated products
Vasind 0.42 Galvanized, Galvalume and Color coated products
ARCL 4.44 Coke, Pellet
Dolvi 5.00 Hot rolled coils and Bar rods
Salav 0.9 Direct reduced iron and Hot Briquetted Iron
Cold rolled closed annealed (CRCA), Hot rolled pickled oil,
Galvanized Annealed, Galvanized Iron, Non-Grained Oriented
SPCL 0.65 Finished Products (NGOPP)
Industrial Gaseous Oxygen, Gaseous Nitrogen, Liquid Oxygen, Liquid
Gases 2.02 Nitrogen, Argon
Slabs, Billets, HR Coils and Sheets, Cold Rolled Closed Annealed
coils and sheets, Galvanized products, Non-grain oriented
Vijayanagar 12.00 electrical steel, Wire rods, Bar rods and Angles
Salem 1.00 Special Steel long Product
 1.2. Segment wise revenue distribution
In Millions of INR FY 2016 FY 2017 FY 2018
12 Months Ending 3/31/2016 3/31/2017 3/31/2018
Revenue 408,575.40 100.00% 546,280.00 100.00% 688,130.00 100.00%
Steel 429,723.20 90.10% 605,360.00 100.00% 715,030.00 100.00%
Reconciliation -10,213.40 -59,080.00 -26,900.00
Unallocated — — —
Inter Segment Revenue -58,228.60 — —
Other (Mining) 2,771.60 0.60% — —
Power 44,522.60 9.30% — —
Source: Bloomberg
From the above table it can be inferred that the revenue generated in 2016 consisted of 90.10%
steel and 9.30% from power segment but after 2016 the company had stopped power operations
and their revenue is now entirely dependent on Steel. Steel uses 95.30% of the total assets of
the company these assets are utilized to produce various products like Hot rolled and Cold
rolled steel, Electrical steel, TMT Bars, Wire rods etc.

1.3. Geography wise revenue distribution

In Millions of INR FY 2016 FY 2017 FY 2018
12 Months Ending 3/31/2016 3/31/2017 3/31/2018
Revenue 408,575.40 100.00% 546,280.00 100.00% 688,130.00 100.00%
India 393,128.00 85.50% 448,960.00 74.20% 540,340.00 75.60%
Outside India 66,639.30 14.50% 156,400.00 25.80% 174,690.00 24.40%
Reconciliation -51,191.90 -59,080.00 -26,900.00

Due to the significant growth in construction industry, automobile industry, consumer durables
and capital goods the demand for steel in India has increased over the period which can be
inferred from the data in the above table. JSW Steel make 85.5% of its revenue from India and
the remaining 14.5% revenue is generated through exports to various regions like Europe,
Middle East, Africa, North America and Asia. The company exports to more than 100 nations
and 5 continents across the world.

1.4. JSW Steel Market Share and Main Competitors

JSW steel has 14% market share in India. Some of the major competitors of JSW Steel are as
follows: -
1. Steel Authority of India Limited (SAIL)
2. TATA Steel
3. Jindal Steel and Power
 JSW Steel Market Share

15% 14% Steel Authority of India

JSW Steel

13% TATA Steel

Jindal Steel and Power

35% Rashtriya Ispat Nigam

10%
Others
Distressed Assets
7%
6%

There are some steel companies in India which are facing major financial difficulties due to
excessive debt. These companies have been classified under Distressed assets in above pie
chart.
Some of these companies like Bhushan Steel and Essar steel were recently in news for the
bidding of acquisitions.

Distressed Assets

13% 7% Bhushan Steel and Power

27%
Electrosteel Steel
7% Monnet Ispat
Essar Steel
Bhushan Steel
46%

1.5. JSW Steel new Developments

Tarapur Complex – Tin Plate Mill: -
JSW Steel Coated Products Limited is setting up a tin plate mill and related facilities at its
Tarapur works to cater to the increasing demand for the tin plate. The estimated project cost is
INR 650 crore and is expected to be commissioned in a period of 2-3 Years.
 2. Company Management
2.1. Board size, composition and number of meetings
As on 31st March 2018 the size of the board is 12 of which 6 are independent directors. The
size of the board has followed a decreasing trend over a period from 15 members in 2009 to 13
members in 2014 and now 12 members in 2018.
There are only two women on the board which signifies that the board is not very diversified
in terms of gender diversity. The board is also not diversified in terms of age as well the average
age of board members is 65 years and the board members fall under the age range of 59-75
years.
In FY 2018 as on 31st March 2018 there were 8 Board meetings held in which Board meeting
attendance was 80.21%.
FY FY FY FY FY
2014 2015 2016 2017 2018
Board Meetings 6 6 6 5 8
Board meeting attendance
(in %) 87.17 78.08 82.6 81.5 80.21

2.2.Board of Directors
S. Education
Name Designation Gender
No. Qualification
Chairman and Managing B. Tech (Mechanical
1 Sajjan Jindal Director, Executive Director M Engineering)
Deputy managing director, MBA, PhD Inventory
2 Dr. Vinod Nowal Executive Director M Management
Director- Marketing and B. Tech (Chemical
Commercial, Executive Engineering), Master's
3 Mr. Jayant Acharya Director M Physics
JT. Managing Director and
Mr. Seshagiri Rao Group CFO Executive Diploma Business
4 M.V.S. Director M Finance
5 Mr. Malay Mukherjee Independent Director M Master's Mining
B. Tech (Chemical
6 Dr. Punita Kumar Sinha Independent Director F Engineering), MBA
Mr. Kannan
7 Vijayaragavan Independent Director M Chartered Accountant
B. Tech (Chemical
8 Mr. Haigreve Khaitan Independent Director M Engineering)
9 Mrs. P Hemalatha Nominee Director KSIIDC F Economics (Hons)
M.S. (University of
10 Dr. Vijay Kelkar Independent Director M Minnesota)
Nominee Director, JFE Steel B. Tech (Mechanical
11 Mr. Hiroyuki Ogawa Corporation Japan M Engineering)
 Mr. Seturaman
12 Mahalingam Independent Director M Chartered Accountant

2.3. Board members holding Director positions in other companies

Board member Name Directorship of other companies
Dr. Punita Kumar Sinha 1. Independent Director
Mahindra Intertrade Limited
2. 2012-Present
Independent Non-Executive Director
JSW Steel Limited
3. 2013-Present
Non-Executive & Independent Director
Srei Infrastructure Finance Limited
4. 2014-Present
Independent Non-Executive Director
Rallis India Limited
5. 2014-Present
Non-Executive Independent Director
Sobha Limited
6. 2014-Present
Non-Executive Independent Director
Metahelix Life Sciences Limited
7. 2015-Present
Independent Director
Bharat Financial Inclusion Limited
8. 2016-Present
Independent Director
Infosys Limited
Mr. Haigreve Khaitan 1. 2007-Present
Non-Executive Independent Director
INOX Leisure Limited
2. 2011-Present
Additional Director
JSW ISPAT Steel Limited
3. 2012-Present
Non-Executive Independent Director
Ambuja Cements Limited
4. 2012-Present
Independent Non-Executive Director
Torrent Pharmaceuticals Limited
5. 2015-Present
Independent Non-Executive Director
JSW Steel Limited
6. 2015-Present
Independent Director
Aditya Birla Sun Life Insurance Company
Limited
 1.6.Regulations with respect to Independent Directors and Women Directors

JSW steel follows all the rules and regulations laid down by the government of India under
section 149(1). Some of the basic rules with respect to independent Directors and Women
Directors are as follows:
1) Every company shall have a Board of Directors consisting of individuals as directors
and shall have—
 A minimum number of three directors in the case of a public company, two directors
in the case of a private company, and one director in the case of a one Person
Company.
 A maximum of fifteen directors provided that a company may appoint more than
fifteen directors after passing a special resolution provided further that
such class or classes of companies as may be prescribed, shall have at least one,
woman director.
2) Every listed public company shall have at least one-third of the total number of directors
as independent directors and the Central Government may prescribe the minimum
number of independent directors in case of any class or classes of public companies.

1.7. Compensation to Directors

The details of Remuneration paid to the whole time Directors for the Financial Year 2016-17
and 2015-16 are as given below: -
1. For 2016-17: -
Salary
Including Profit Linked
Name of the Provident Perks Commission (in
Director Designation Fund (in Cr.) Cr.) Total

Mr. Sajjan Chairman and

Jindal Managing Director 9.76 1.08 8.67 19.51
Joint Managing
Mr. Seshagiri Director and Group
Rao MVS CFO 4.57 0.21 N/A 4.78
Dr. Vinod Dy. Managing
Nowal Director 3.29 0.15 N/A 3.44
Director
Mr. Jayant (Commercial and
Acharya Marketing) 2.88 0.14 N/A 3.02
 2. For 2015-16: -
Salary
Including Perks
Name of the Provident (in Profit Linked
Director Designation Fund Cr.) Commission (in Cr.) Total

Mr. Sajjan Chairman and

Jindal Managing Director 9.28 1.07 1.73 12.08
Joint Managing
Mr. Seshagiri Director and
Rao MVS Group CFO 4.55 0.21 N/A 4.76
Dr. Vinod Dy. Managing
Nowal Director 3.29 0.15 N/A 3.44
Director
Mr. Jayant (Commercial and
Acharya Marketing) 2.88 0.14 N/A 3.02

The Non-Executive Directors are paid Remuneration by way of commission and sitting fees.
The commission payable to the Non-Executive Directors is based on the number of meetings
of the board attended by them, their chairmanship/membership of Audit committee during the
year subject to an overall ceiling of 1% of the net profits approved by the members. The
company pays the sitting fees at the rate of INR 20,000 for each meeting of the board and sub-
committees attended by them.

3. Shareholders:

Capital Structure (JSW Steel)

Period Instrument Authorized Issued Capital - P A I D U P -

Capital
From To (Rs. cr) (Rs. cr) Shares (nos.) Face Value Capital
2016 2017 Equity Share 6015 240.3 2402984690 1 240.3
2015 2016 Equity Share 6015 241.72 241722044 10 241.72
2014 2015 Equity Share 6015 241.72 241722044 10 241.72
2013 2014 Equity Share 6015 241.72 241722044 10 241.72

2012 2013 Equity Share 2000 223.12 223117200 10 223.12

2011 2012 Equity Share 2000 223.12 223117200 10 223.12
 As is clear from the above table, the company has not issued or bought back any shares during
the fiscal years 2014-15 and 2015-16. However, in FY 2016-17 issued capital changed to 240.3
crores and the subsequent increase in number of shares was also seen during the same period.
In the quarter ending March 31, 2018, the directors of JSW Steel pledged 12.68% of the
company’s shares i.e. equal to 1,842,120 shares.

The shareholding pattern is as follows:

Cate Category of No. Of Total no. Total no. Of Total Total
gory shareholder share- Of shares shares held in shareholding as shareholding
holders dematerialize % of total no. Of as % of total
d shares no. Of shares
form
As A % of As A % of
(A+B) (A+B+C)
Promoter and
A) promoter group
Indian
40 959,156,510 959,156,510 39.87 39.67
1. Foreign
5 50,021,540 50,021,540 2.08 2.07
2. Total
45 1,009,178,050 1,009,178,050 41.95 41.75
3.
Public
B)
Institutions 617 924,983,197 924,703,757 38.45 38.27
1.
Non- Institutions 589,390 471,270,333 471,270,333 19.59 19.50
2.
Total
590,007 1,396,253,530 1,368,033,300 58.05 57.76
3.
Custodians and
C) against which 1 11,788,860 11,788,860 0.49 0.49
Depository
Receipts have
been issued-m
(A+ Total 590,053 2,417,220,440 2,389,000,210 100 100
B+C
)
The stocks of JSW Steel are listed on both BSE and NSE. The highest and lowest price at which
the company’s shares traded in the last fiscal are INR 320.45 and INR 184.10 respectively. The
book value as on 16th September is INR 115.20 while the face value is INR 1 and current
market price is INR 407.00 in BSE and INR 408.10 in NSE.
There is not much difference in the stocks of NSE and BSE apart from the fact that the volume
traded at NSE is 6622300 while that at BSE is only 410122.
For the year ending March 2018, JSW Steel has declared an equity dividend of 320.00%
amounting to Rs 3.2 per share. At the current share price of Rs 408.10 this results in a dividend
yield of 0.78%.
The company has a good dividend track report and has consistently declared dividends for the
last 5 years.
AGM
The last AGM of JSW Steel was held on July 24, 2018 at Y.B. Chavan Auditorium, Nariman
Point, Mumbai. The book closure was from July 10, 2018 to July 12, 2018.

The agenda for the meeting was to receive, consider and adopt the Audited Financial
Statements of the Company for the financial year ended March 31,2018 and the reports of the
Board of Directors and Auditors thereon. They declared dividend on the 10% Cumulative
Redeemable Preference Shares of the company for the fiscal year 2017-18. Dividend on the
Equity shares of the company were also declared for the same fiscal year.
Other agendas included to appoint a Director in place of Mr. Sheshagiri Rao who retires by
rotation and was still eligible for re-appointment.

4. Auditors
Statutory Auditors
At the Company’s 23rd AGM held on 29 June 2017, M/s SRBC & Co. LLP
(324982E/E300003), Chartered Accountants, has been appointed as the Statutory Auditor of
the Company for a term of 5 years to hold office from the conclusion of the 23rd Annual
General Meeting until the conclusion of the 28th Annual General Meeting of the Company.
Auditors Opinion: The Auditors’ Report does not contain any qualification, reservation,
adverse remark or disclaimer. No fraud has been reported by the Auditors under Section
143(12) of the Companies Act, 2013 requiring disclosure in the Board’s Report.

Cost Auditors
The Board, at its meeting held on 16 May 2018, has on the recommendation of the Audit
Committee, re-appointed M/s. Shome & Banerjee, Cost Accountants to conduct the audit of
the cost accounting records of the Company for FY 2018- 19 on a remuneration of ₹15 lacs
plus taxes as applicable and reimbursement of actual travel and out of pocket expenses.
There has been no change in the Cost Auditors from last year.
Secretarial Auditors
The Company had appointed M/s. S. Srinivasan & Co., a firm of Company Secretaries in
Practice to undertake the Secretarial Audit of the Company. The Board at its meeting held on
16 May 2018, has re-appointed M/s. Srinivasan & Co., Practicing Company Secretaries, as
Secretarial Auditor, for conducting Secretarial Audit of the Company for FY 2018-19.
There has been no change in the Secretarial Auditors from last year.
Auditors Opinion: The Auditors’ Report does not contain any observation or qualification
requiring explanation or comments from the Board under Section 143(3) of the Companies
Act, 2013. During the period under review, the Company has complied with the applicable
Secretarial Standards notified by the Institute of Company Secretaries of India.

5. Fixed Assets:
The total investment in fixed assets as a percent of total assets is 73.70% as on 31st March
2018. The investments can be further sub-divided into tangible and intangible assets. The
tangible assets of the company consist of property, plant and equipment, certain mining assets,
inventory. The intangible assets of the company consist of goodwill, computer software and
licenses, exploration and evaluation assets (mining assets), intangible assets under
development. The tangible assets and intangible assets make up 98.79% and 1.21%
respectively.
In FY 2017-18, JSW Steel Ltd. acquired fixed assets worth of ₹47,360 million. The cost of
acquiring these assets amount to 6.88% of total revenue, 74.45% of net adjusted profit and
52.66% of operating cash flows generated in FY 2017-18. The firm gained ₹600 million by
selling assets worth of ₹1790 million.
Depreciation is recognized to write off the cost of assets (other than freehold land and
properties under construction) less their residual values over their useful lives, using straight-
line method as per the useful life prescribed in Schedule II of the Companies Act, 2013 except
in respect of following assets located in India: Plant and Machinery is depreciated for 8-40
years and work-rolls are depreciated for 1-5 years. Depreciation on property, plant and
equipment of the company’s foreign subsidiaries and jointly controlled entities has been
provide on straight line method as per estimated useful life of such assets as follows:

Class of Assets Years

Buildings 15 to 50 years
Plant and Machinery 3 to 30 years
Furniture and fixtures 3 to 10 years
Vehicles and aircrafts 4 to 5 years
Office equipment 3 to 10 years

The group reviews the residual value, useful lives and depreciation method annually and, if
expectations differ from previous estimates, the change is accounted for as a change in
accounting estimate on a prospective basis. Accumulated depreciation makes up 15.83% of
total revenue.
The company has revalued its certain assets by recognizing impairment on those assets. The
company applies the expected credit loss model for recognizing impairment loss on financial
assets measured at amortized cost, debt instruments at FVTOCI, lease receivables, trade
receivables, other contractual rights to receive cash or other financial asset and financial
guarantees not designed as at FVTPL. During the year, the Group has surrendered one of its
iron ore mines in Chile and after assessing the recoverability of carrying amounts recognized
an impairment provision of ₹2640 million which has been disclosed as an exceptional item. A
provision for impairment of investments was created for ₹ 360 million and the impairment
value for property, plant and equipment is ₹760 million. For the year ended 31 March 2018,
the Company has not recorded any impairment of receivables relating to amounts owed by
related parties.
The Fixed Asset Turnover Ratio, i.e. for every rupee invested in fixed assets, the assets generate
₹1.01 revenue for the Company. The return on total assets and return on fixed assets is equal
to 6.90% and 9.38% respectively. The additional fixed assets acquired were 8.67%, 131.33%
and 106.74% of FY 2017’s total revenue, net profits and net operating cash flow respectively.
Note: For calculation of ratios involving fixed assets, average value of fixed assets has
been considered.

6. Revenues & Income:

During FY18, JSW Steel’s revenues increased by 16% from INR 56,913 crores to INR 66,234
crore. An increase in realizations and sales volumes were the primary drivers of this
performance.
Revenue Analysis:
2017-18 2016-17 Change Change %
Domestic Turnover 53,380 45,322 8,058 18
Export Turnover 11,666 10,922 744 7
Total Turnover 65,046 56,244 8,802 16
Other 1,188 669 519 78
Operating Revenues
Total 66,234 56,913 9,321 16
Product Wise Revenue Analysis:
Particulars 2017-18 2017-18 2016-17 2016-17
(Tonnes) (INR (Tonnes) (INR
crores) crores)
MS Slabs 360,187 1,133 212,350 621
Hot Rolled coils/sheets 8,549,548 33,336 8,450,648 29,903
Galvanized coils/sheets 473,098 2,361 474,109 2,054
Cold rolled 2,145,068 9.588 2,048,189 8,232
coils/sheets

Steel billets & blooms 542,900 1,779 527,085 1,489

 Long Rolled Products 3,551,250 13,623 3,061,745 10,709
Others 3,266 3,236
Total 65,046 56,244

JSW Steel’s performance was relatively strong with the improvement in absolute volumes in
the domestic market. The Company has also focused on and increased VASP (Value Added
and Special Products) sales. The total sales volume stood at 15.62 mnt, up by 6% vis-à-vis the
previous year. JSW Steel also explored opportunities in the export market in addition to
developing existing markets. The revenues were higher by 16% vis-à-vis the previous year
because of 6 % volume growth and ~18% increase in sales realizations.
The other operating revenue was higher by 519 crores compared to the previous year. The
growth in other operating revenue was primarily due to higher incentive benefits recognized
attributed to upward revision in incentive rates and increase in regional sales and realizations.

Other Income:
(INR in crores) 2017-18 2016-17 Change Change %
Other Income 213 255 (42) -16

Other income for the year was lower primarily due to non-recognition of interest income on
loans provided to certain subsidiaries due to uncertainty involved in its collectability because
of losses incurred by these subsidiaries.

Revenue Recognition:
1. Sale of Products – Revenue is measured at the fair value of the consideration received
or receivable. JSW steel recognizes revenues on sale of products, net of discounts, sales
incentives, rebates granted, returns, sales taxes/GST and duties when the products are
delivered to the customer or when delivered to a carrier for export sale. Export
incentives are recognized as income as per the terms of the scheme in respect of the
exports made and included as part of export turnover.
2. Dividend and interest income – Dividend income from investments is recognized
when the shareholder’s right to receive payment has been established. Interest income
from a financial asset is recognized when it is probable that the economic benefits will
flow to the Company and the amount of income can be measured reliably.

7. Inventories:
The company holds inventories such as raw materials, Work-in-progress, Semi-
Finished/finished goods, stores, spares and consumables.
(INR in Crores)
Inventories (At lower cost of 2017-18 2016-17 Change Change %
net realizable value)
I. Raw materials 4,918 3,590 1,328 37
II. Work-in-progress 690 747 (57) -8
III. Semi- 2,826 3,702 876 -24
Finished/Finished
Goods
IV. Production 1,648 1,231 417 34
Consumable and
Stores & Spares
Total 10,082 9,270 812 9

The average inventory holding in terms of number of days as on 31 March 2018 for finished
goods was 20 days vis-à-vis 33 days as on 31 March 2017. However overall inventory holding
has come down to 72 days for FY18 vis-à-vis 83 days for FY17. The value of inventories
increased by 9% predominantly due to higher cost of raw materials like coal and iron ore and
spares as against the previous year. However, steel products inventory (SFG/FG) reduced by
1.47 lakh tons during FY18.
Inventories are stated at the lower of cost and net realizable value. Costs of inventories are
determined on weighted average basis.Net releasable value represents the estimated selling
price for inventories less all estimated costs of completion and costs necessary to make the sale.
Inventory Turnover ratio and Investments Turnover ratio was 6.57 for FY18 while it was 6.14
for FY17.

8. Long Term Borrowings:

JSW Steel Ltd. has borrowings in the form of unsecured bonds, secured debentures,
long term loans (secured and unsecured), deferred government loans, finance lease obligations
and unsecured preference shares in FY 2018. The composition of these borrowing has not
changed as compared to FY 2017. The total debt has reduced from ₹324,160 million in FY
2017 to ₹317,230 in FY 2018.
The Group’s functional currency is Indian Rupees (INR), but the group also undertakes
transactions denominated in foreign currencies. 63% of the debt is in INR and the remaining
37% is foreign currency debt. The Company had allotted 2,500, 4.75% Fixed Rate Senior
Unsecured Notes of US $2 lakh each in FY 2014-15. In April 2017, it further allotted 2,500,
5.25% Fixed rate Senior Unsecured Notes of US $2 lakh each.
The following assets are offered as security against long term borrowings:
i. First pari passu charge on 3.8 mtpa, 3.2 mtpa and 2.8 mtpa property, plant and
equipment located at Vijayanagar Works, Karnataka and a flat situated at Vasind,
Maharashtra.
 ii. First ranking charge on all movable and immovable property, plant and equipment
of pellet project situated at Village JuiBapuji, Taluka Alibaug, District Raigad,
Maharashtra.
iii. Pledged 40 million equity shares of a subsidiary held by JSW Steel Limited.
iv. Pari passu first charge on land situated in the State of Gujrat and property, plant
and equipment of the new 5 mtpa Hot Strip Mill at Vijayanagar Works, Karnataka.
v. First charge on property, plant and equipment situated at Dolvi works, Maharashtra.
vi. Secured by way of equitable mortgage by deposit of title deeds of project assets and
by way of mortgage of Phase III of JSW township at Basapur village site, extension
of mortgage of Phase I & II of housing colony at Toranagallu, assignment of
receivables from the property financed and comfort letter from the parent for loan
repayment.
vii. First charge of legal mortgage of 2400 sq. feet land at Toranagallu village,
Karnataka and entire property, plant and equipment of the Company situated at
Vasind, Tarapur and Kalmeshwar.
viii. Secured through an unconditional and irrevocable standby letter of credit to the
bank based on the guarantee by JSW Steel Limited, India.

In FY 2018, the Long-Term Debt to Total Assets Ratio, i.e. 34.47% of total assets are funded
by long-term debt. This ratio has decreased as compared to FY 2017’s 36.80%. The Company
raised additional amount of ₹62,090 million and repaid ₹74,980 million in FY 2018. The
Group’s capital requirement is mainly to fund its capacity expansion and strategy acquisitions.
The additional borrowings are raised for certain property, plant and equipment, inventories,
trade receivables. The finance cost decreased by 1% in FY18 as compared to previous year,
primarily due to lower interest costs because of repayment of borrowings and reduction in
rupee term loans and reduction in benchmark lending rates of various banks.
The weighted average interest cost of debt was lower at 6.98% as on 31 March 2018 vis-a-vis
7.40% as on 31 March 2017. The interest coverage ratio for the Company in FY 2018 is 3.22
times. This is an increase from the previous year’s interest coverage ratio i.e. 2.51 times. The
operating cash flow of the company is ₹89,940 million, whereas the interest & principal
obligations amount to ₹35,110 million. Hence the operating cash flows are enough to meet the
interest & principal obligations.

9. Investments
JSW Steel has made several investments in subsidiaries, associates and joint ventures. They
have also invested in government securities and mutual funds. The income from investments
for the year FY 2017-2018 is ₹121 crores. This is a 23.4% increase from the previous financial
year.
JSW Steel is stepping up investments and expanding capacity across the world betting on
surging demands and the improving economic growth. In June 2018, the Company announced
its plans to invest ₹75 billion to expand the projects being implemented at its steel
manufacturing unit in Karnataka. This decision has come at a time when the steel demand is
increasing. According to The World Steel Association, the global steel demand is to grow 1.8%
this year and 0.7% next year while demand in India is set to grow 5.5% in 2018.
JSW has decided to spend $1 billion to upgrade its existing operations in Texas and buy a steel
manufacturing unit in Ohio. In May 2018, the Company signed a deal to take over Italy's
second-largest steel plant Aferpi to gain access to European market. It is also one of the
contenders for ArcelorMittal's Galati plant in Romania.
Contingent Liabilities
In the normal course of business, contingent liabilities may arise from litigation and other
claims against the Company. Potential liabilities that are possible but not probable of
crystalizing or are very difficult to quantify reliably are treated as contingent liabilities. Such
liabilities are disclosed in the notes but are not recognized.
₹ in crores
Particulars As at As at
31 March 2018 31 March 2017
i. Guarantees 10 927
ii. Disputed claims/ levies (excluding interest, if
any)
Excise duty 432 338
Custom duty 798 582
Income tax 26 176
Sales tax/ Special entry tax 271 262
Service tax 656 513
Miscellaneous 4 11
Levies by local authorities 371 61
Claim by suppliers and other parties 64 378

There are several cases which have been determined as remote by the Group and has not been
and hence not disclosed above.
iii. Claim related to Forest Development Tax/Fee 1799 1300
Amount paid under protest 919 726

In response to a petition filed by the iron ore mine owners and purchasers (including JSW Steel
Limited [the Company] contesting the levy of Forest Development Tax (FDT) on iron ore on
the ground that the State does not have jurisdiction to legislate in the field of major minerals
which is a central subject, the Honorable High Court of Karnataka vide its judgment dated 3
December 2015 directed refund of the entire amount of FDT collected Karnataka State
Government on sale of iron ore by private lease operators and National Mineral Development
Corporation Limited (NMDC). The Karnataka State Government has filed an appeal before the
Supreme Court of India (SCI). SCI has not granted stay on the judgement but stayed the refund
of FDT amounting to ₹1517 crores, the matter is yet to be heard by the SCI. Based on merits
of the case and supported by a legal opinion, the Company had not recognized provision for
FDT of ₹1043 crores and treated it as a contingent liability.
Net cash generated from operating activities (as at 31 March 2018) = ₹12,379 crores.
Total Revenue as at 31 March 2018 = ₹71,670 crores.
Net Contingent Liabilities = ₹2,632 crores. This is 21.26% of the operating cash flows and
about 3.67% of the total revenue.
Current profits have increased to ₹6113 crores from ₹ 3467 crores the previous year. The major
reason for this gain is the significant reduction in the Excise duty expenses for the FY 2017-
18.
Effective Tax Rate
Effective Tax Ratio is the Total Tax Expenses/ Earnings before Taxes. The tax expense
increased to ₹2450 crores in FY 2017-18 from ₹1554 crores in the previous year primarily
because of higher tax provision due to increase in profit before tax during the current year and
higher effective tax rate. The effective tax rate was 34.62% during the current year as compared
to 30.62% primarily due to discontinuance of additional tax incentives for investments in new
plant and machinery and certain other disallowances.
Operations Discontinued
In 2015, JSW Steel shut down its Chile coal mines because of the global iron ore prices. Iron
ore prices, which fell through all of 2014, landed JSW’s Chile operations in a loss of $6.45
million in the quarter ended December.
Mergers and Acquisitions
The net cash outflow for the acquisition of a subsidiary for FY 2017-18 is ₹315 crores which
is significantly greater than the ₹110 crores cash outflow in the previous FY.
As part of its growth strategy, the Company plans to expand its steel capacity to 40MTPA by
2030 by means of Brownfield and Greenfield expansions and through acquisitions and
continues to scan forward and backward integration opportunities including overseas for its
steel making operations in India.
In May 2018, the Company signed a deal to take over Italy's second-largest steel plant Aferpi.
It is also one of the contenders for ArcelorMittal's Galati plant in Romania.
In July 2018, JSW Steel announced that it will merge recently-acquired distressed asset Monnet
Ispat & Energy with the Company. The insolvency tribunal approved the Aion Capital-JSW
Steel resolution plan for the 1.5 million tonne Monnet Ispat and Energy for which the company
has offered around ₹3,875 crores including ₹1,000 crores as equity and working capital.

10.Ratio Analysis:
A comparative analysis of last 5 years shows that the Company has incurred losses only in FY
2015-16. The Company reported a loss of ₹106.81 crore in Q1 of FY16 itself; this was primarily
due to lower global steel prices and cheap imports which affected its operational performance.
The net sales for the period fell 12.9% from ₹13,067.48 crore to ₹11,381.87 crore. In FY16
Q3, the Company again reported a net loss of ₹923 crore. The main reason for this loss was
due to the impairment charge recognized by the company on four of its strategic overseas
investments and a 33% drop in sales as compared to the same period last year.
 Return on equity measures a corporation's profitability by revealing how much profit
a company generates with the money shareholders have invested. Till FY15, the company had
a positive return on equity, then the Company incurred losses in FY16, but in the next year the
Company’s ROE had a massive boost of 17.11% and in FY 2018, the ROE was 24.89% which
is 10% more than the industry average of 14.82%
Return on assets gives an idea as to how efficient a company's management is at using
its assets to generate earnings. The company is consistently increasing its ROA, except the dip
in FY16. The current ROA is 6.90% in FY18 as compared to the industry average of 3.77%.
Return on capital employed (ROCE) is a financial ratio that measures a company's
profitability and the efficiency with which its capital is employed. The current ROCE in FY
2018 is 13.37% which is an increase over 9.01% in FY17. However, the ROCE is till low as
compared to the industry average of 31.57%.
EBITDA margin is an assessment of a firm's operating profitability as a percentage of
its total revenue. It provides a clear view of a company's operating profitability and cash flow.
The EBITDA Margin fell in FY18 to 21.50% from 22.29% in FY17, which shows that the
company’s performance decreased in FY18.
A company’s operating margin, also known as return on sales, is a good indicator of
how well it is being managed and how risky it is. It shows the proportion of revenues that are
available to cover non-operating costs like paying interest — which is why investors and
lenders pay close attention to it. Highly variable operating margins are a prime indicator of
business risk. By the same token, looking at a company’s past operating margins is a good way
to gauge whether a big improvement in earnings is likely to last. The Operating Margin has
increased from 16.01% in FY17 to 16.58% in FY18. This is way above the peer average of
8.81% which shows that the Company is operating at a higher efficiency as compared to its
peers in the industry.
Net Income Margin is the ratio of net profits to revenues for a company or business
segment. Expressed as a percentage, net profit margins show how much of each dollar
collected by a company as revenue translates into profit. Net profitability is an important
distinction since increases in revenue do not necessarily translate into increased profitability.
Due to cheap steel prices and higher operational cost, most firms in the industry are operating
under loss. The industry average of -1.98% is a clear indicator about how the sector is at the
current stage. In such a situation the net profits margin of JSW Steel Ltd. is seeing a
considerable growth in the last 2 years. For FY18, the Net Income Margin is 9.03%, an
increase from last year’s 6.45%

The effective tax rate is the average taxation rate for a corporation. The effective tax
rate for the company is 32.64% and 20.21% in FY17 and FY18 respectively.
The dividend payout ratio is the ratio of the total amount of dividends paid out to
shareholders relative to the net income of the company. It is the percentage of earnings paid to
shareholders in dividends. The amount that is not paid to shareholders is retained by the
company to pay off debt or to reinvest in core operations. The dividend payout ratio provides
an indication of how much money a company is returning to shareholders versus how much it
is keeping on hand to reinvest in growth, pay off debt, or add to cash reserves (retained
earnings). The company reduced the dividends paid in FY18 to 12.39% and converted
remaining amount in reserves and surplus.
Interest Coverage Ratio measures how many times over a company could pay its
current interest payment with its available earnings. In other words, it measures the margin of
safety a company has for paying interest during a given period, which a company needs to
survive future (and perhaps unforeseeable) any financial hardship that may arise. A company’s
ability to meet its interest obligations is an aspect of a company’s solvency, and is thus a very
important factor in the return for shareholders. A higher interest coverage ratio indicates higher
solvency of the firm. The current ICR of the company is 3.39 times.
The debt-to-equity ratio shows the proportion of equity and debt a company is using
to finance its assets and the extent to which shareholder's equity can fulfil obligations
to creditors in the event of a business decline. A low debt-to-equity ratio indicates a lower
amount of financing by debt via lenders versus funding through equity via shareholders.
A higher ratio indicates the company is getting more of their financing from borrowing which
may pose a risk to the company if debt levels are too high. A greater degree to which
operations are funded by borrowed money means a greater risk of bankruptcy if business
declines. The standard debt to equity ratio is 2:1. In FY16, the company had to borrow to
overcome the losses of the year and hence the D/E Ratio is 2.04 in FY16. However, in
subsequent years, the ratio has decreased, and the current D/E ratio is 1.29. But compared to
the industry average of 0.51, the Company’s D/E Ratio is still high.

The current ratio is mainly used to give an idea of a company's ability to pay back its
liabilities (debt and accounts payable) with its assets (cash, marketable securities,
inventory, accounts receivable). As such, current ratio can be used to make a rough estimate of
a company’s financial health. The current ratio can give a sense of the efficiency of a company's
operating cycle or its ability to turn its product into cash. Companies that have trouble getting
paid on their receivables or that have high inventory turnover can run into liquidity problems
if they are unable to alleviate their obligations. A standard current ratio should be 2:1. The
current ratio of the company is consistent between years and the current ratio for FY18 is 0.80
as compared to the peer average of 2.12.
The quick ratio is an indicator of a company’s short-term liquidity and measures a
company’s ability to meet its short-term obligations with its most liquid assets. Because we're
only concerned with the most liquid assets, the ratio excludes inventories from current assets.
Since quick ratio is more liquid, the standard ratio is 1:1 and in FY17 and FY18 the quick
ratio is 0.20 as compared to the industry average of 1.23. This shows that the short-term
liquidity in JSW Steel Ltd. is low as compared to its peers and may hamper the firm to meet
its short-term obligations.

Due to the high importance of cash in running a business, it is in a company's best

interest to collect on its outstanding account receivables as quickly as possible. While
companies can most often expect with relative certainty that they will in fact receive
outstanding receivables, because of the time value of money principle, money that a company
spends time waiting to receive is money lost. By quickly turning sales into cash, a company
has a chance to put the cash to use again more quickly. On an average, the Company takes 24
days to convert trade receivables into cash in FY 2018.
 Days sales of inventory outstanding (DSI) is one measure of the effectiveness of
inventory management. By calculating the number of days that a company holds onto inventory
before selling, this efficiency ratio measures the average length of time that a company’s cash
is tied up in inventory. The calculation gives further perspective to the overall inventory ratio
by putting the figure into a daily context. In FY18, on average the inventory turnover took 113
days. This figure has decreased as compared to the previous year figures of 121 days which
shows an improvement in inventory management.
Days payable outstanding (DPO) evaluates how long it takes a company to pay its
bills to its creditors, suppliers and vendors by relating the accounts payable to the number of
days bills remain unpaid and the cost of goods sold (COGS). The ratio depicts how well a
company is managing its cash flows given the number of days during an accounting period that
it pays off its account payables. From 1493 days in FY14 to 267 days in FY16 to 134 days in
FY18, the accounts payable turnover days is constantly decreasing which shows a positive
image in the minds of creditors.
The higher the asset turnover ratio, the better the company is performing, since higher
ratios imply that the company is generating more revenue per dollar of assets. The asset
turnover ratio tends to be higher for companies in certain sectors than in others. Retail and
consumer staples, for example, have relatively small asset bases but have high sales volume
and, thus, often yield the highest asset turnover ratio. Conversely, firms in sectors, such as
utilities and telecommunications, which have large asset bases will have lower asset turnover.
Asset Turnover of 0.75 in FY18 as compared to 0.62 and 0.50 in FY17 and FY16 respectively
depict a greater efficiency in the usefulness of Company’s assets.
Cost of Debt is one part of a company's capital structure, which also includes the cost
of equity. Capital structure deals with how a firm finances its overall operations and growth
through different sources of funds, which may include debt such as bonds or loans, among
other types. The cost of debt measure is helpful in understanding the overall rate being paid
by a company to use these types of debt financing. The measure can also give investors an
idea of the company's risk level compared to others because riskier companies generally have
a higher cost of debt. The cost of debt is consistent in the last 5 years with an average cost of
debt of 9.19% for last 5 years.

Research and Development to Sales Ratio is an indicator of what percent of revenue

is being used for R & D Purposes by the Company. In FY18, the ratio is a meagre 0.04%.
The price-earnings ratio indicates the dollar amount an investor can expect to invest
in a company to receive one dollar of that company’s earnings. Therefore, the P/E is sometimes
referred to as the price multiple because it shows how much investors are willing to pay per
dollar of earnings. The average P/E ratio for FY18 is 16.71, whereas the industry P/E ratio is
19.57. The P/E ratio for JSW Steel’s main competitor Tata Steel Ltd. is 5.21. The P/E ratio
may be undervalued or overvalued and hence a higher P/E may not necessarily indicate a
greater trust in the company by the shareholders.
The Price to Book (P/B) ratio reflects the value that market participants attach to a
company's equity relative to its book value of equity. A stock's market value is a forward-
looking metric that reflects a company's future cash flows. The book value of equity is an
accounting measure based on the historic cost principle, and reflects past issuances of equity,
augmented by any profits or losses, and reduced by dividends and share buybacks. A lower
P/B ratio could mean the stock is undervalued. However, it could also mean something is
fundamentally wrong with the company. As with most ratios, this varies by industry. The
company’s average P/B ratio in FY18 is 2.60 whereas Tata Steel’s and SAIL’s P/B ratio is 1.26
and 0.85 respectively.