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It is with great pride and pleasure that I report to you at the end of a verysuccessful financial year that saw us report market-leading numbers. Moreover the Companyalso triggered off multiple strategic initiatives during the year aimed at realising ourlong-term vision.
During the year we launched our revamped Group brand identity. Elucidated through thetagline Better Everyday' our new brand positioning is all about being a boldand unwavering transformer'. It demonstrates our drive to make better' every life wetouch; be it our employees our business associates our customers the communities aroundour plants and facilities or the industry fraternity at large. And we do so by followingthe principle of bettering ourselves time and again continuously with dynamicenthusiasm. Further to establish this culture and create a consistent brand experienceboth for our internal and external stakeholders we are adopting a personality that isoptimistic empathetic nationalistic and bold.
Thus our credo borrows from the actions and outcomes we have demonstrated. In JSWSteel too we find resonance of Better Everyday' in the manner that we haveperformed and in the strategic focus we have outlined. We can only get better if wepursue excellence across all facets of our business on a daily basis. This annual reporthighlights some of the ways in which we are aiming for excellence.
This is also our first integrated report. Creating value for all stakeholders andproviders of diverse capitals is inbuilt into our strategy including the way we measureour performance. Our report now reflects the outcomes of our actions as relevant todifferent stakeholders and also the impact of our strategy and integrated thinking. It isalso in line with our commitment to the highest standards of governance and transparency.
AN ENCOURAGING ENVIRONMENT
FY 2017-18 was characterised by a broad-based improvement in global growth risingindustrial production progress on the supply side reforms in China and an uptick inglobal steel pricing environment.
The Indian economy too saw a strong rebound in demand especially in the second halfdemonstrating a healthy resilience to disruptions and structural changes. India's macrofundamentals such as fiscal deficit and credit rating are improving and broad-basedfinancial reforms are being undertaken through initiatives such as relaxation of FDIrules enactment of the IBC and growth stemming from government spending.
For the first time in many years elasticity of steel demand to GDP growth exceeded 1x.Infrastructure received a big boost in the form of budgetary allocation and consumersentiment too is on the rise. We also crossed the GDP threshold of US$2.5 trillion andwith a likely thrust on infrastructure development the medium to long-term outlook forsteel demand growth is very positive.
In addition the introduction of GST is a seminal reform which will help formalise theeconomy introduce transparency and go a long way in creating a level-playing fieldbesides weeding out a lot of tertiary inefficiencies. We view this very positively.
Of particular importance are the initiatives around stressed assets resolution underthe new Insolvency and Bankruptcy Code. JSW Steel is participating in strategicopportunities under this process and is hopeful that quality efficiency and governancewill converge to make better utilisation of some of the capacities that are financiallydistressed.
SETTING NEW MILESTOENS
JSW Steel achieved a record performance in the year. With an all-time high crude steelproduction our shipments remained buoyant. Revival in domestic demand in the second halfof the year was a key catalyst of our performance and was driven by improving prospects ofthe auto construction and capital goods sectors. Rising share of value-added and specialproducts in the overall business was another highlight of the year. These productsaccounted for 58% of our shipments in FY 2017-18 and were instrumental in boosting ourrealisations as well as profitability.
Our domestic sales volume growth at 9% surpassed the domestic steel consumption growthduring the year. Thus we continued to further consolidate our leadership position in themarket.
Our relentless efforts to enhance operational efficiencies are yielding rich dividendsas reflected in our robust Return on Capital Employed (ROCE) ratio of 16% placingus among the top 5 steel companies globally.
Deleveraging was a key theme that played out during the year. Stronger profitabilityand improved leverage ratios led to improved credit rating. The cash flows freed up fromthe deleveraging initiatives will be prudently deployed for capacity expansion and otherreturns accretive projects going forward.
AN EXCITING FUTURE
We are very positive about the long-term growth potential for steel consumption in thedomestic market. Even if one assumes a rate of growth of around 7% p.a. for the overallsteel demand India will need to create over 150 million tonnes of new steel capacity inthe next 10 years. As one of the most competitive and efficient players JSW Steel will belooking to capitalise on this opportunity and invest in capacity expansion and growing themarket share.
Our Board has approved additional capital expenditure programmes to expand capacitiesat our plants in Vijayanagar and Dolvi and also to modernise and expand capacities of ourdownstream businesses. We have now embarked upon a journey to invest around H45000 croresin these projects over a four-year period from FY 2017-18 to FY 2020-21. These expansionswill further enhance our efficiencies and generate superior returns. The completion ofthese projects will take our overall capacity from 18 MTPA currently to 24.7 MTPA by March2020.
Inorganic growth has always been an integral part of our growth journey and we willcontinue to explore strategic opportunities both in domestic and international markets.
In the domestic market in consortium with a financial partner we have emerged as thepreferred bidder for acquiring Monnet Ispat and Industries Limited a 1.5 MTPA steelmakingfacility in Chhattisgarh. Located in close proximity to the mineral-rich belts ofChhattisgarh and Odisha this acquisition will be crucial in furthering our footprint inthe central and eastern markets of India.
LIMITING THE IMPACT OF RISING PROTECTECTIONISM
Global economies are increasingly stepping up protectionist trade measures to safeguardthe interest of their domestic industries. While this trend could continue in the futureit will not hinder our growth in the international markets. This is because we haveselectively pursued some value-accretive acquisitions in the overseas markets during theyear with the objective of replicating our low capital cost model in a relatively higheroperating cost environment.
During the year we have signed a Memorandum of Co-operation to consider investment ofup to US$500 million (subject to necessary approvals) in phases at the Plate & PipeMill facility in Baytown Texas USA. These investments are directed towards capabilityenhancement of the Baytown facility as well as a backward integration project to set up a1 MTPA hot end facility.
Additionally we have recently acquired an integrated flat steel making facility in theUS Acero Junction Holdings with a potential capacity of 3 MTPA for an enterprise valueof US$182 million. We propose to invest up to US$500 million cumulatively at thislocation in phases to make it a fully integrated 3 MTPA steel making capacity.
This takes our overall investment blueprint for the US market to produce Americanmelted and manufactured steel with a total capacity of 4 MTPA to upto US$1 billion.
Similarly we are in the process of acquiring the rolling facilities of Italiansteelmaker Aferpi (erstwhile Lucchini) with a capacity of 1.3 MTPA for about Euro 55million. Through this acquisition your Company will get a stronger foothold in theEuropean market and can swiftly tap into the emerging opportunities in the continent.
Needless to mention while pursuing all the growth opportunities whether organicor inorganic we will continue to demonstrate prudence and follow conservativefinancial policies.
FAVOURABLE POLICY ENVIRONMENT
Government of India has put in place multiple policy measures to support the domesticsteel industry. Be it long-term measures like the National Steel Policy 2017 which aimsto make India a competitive and self-sufficient steel producing country by 2030; orshorter-term trade remedial measures intended to provide a level playing field fordomestic steel companies. The government has been rather proactive to mitigate the seriousinjury caused to the domestic steel industry due to unfair trade. We believe thesemeasures could lead to healthy growth of over 7% in the domestic steel industry over themedium term.
Against this backdrop your Company will continue to make the requisite investmentsneeded to grow responsibly.
JSW ENRICHING LIVES
The JSW Foundation has pioneered various programmes to enrich the lives of over amillion people with improved education healthcare and sustainable means of livelihood.Continuing on this journey we undertook several key projects from reconstructionand restoration of Kedarnath to enhancing the coverage of our flagship Sports ExcellenceProgram (SEP).
I am confident of achieving higher peaks in the future. I would like to extend aheartfelt gratitude to each and every member of our team for their sustained untiringefforts in making JSW Steel a leading steel company in the world. I would also like tothank all our stakeholders Board Bankers and the Central and various State Governmentsfor the support and assistance provided throughout our journey.
I solicit your continued cooperation.