COST MANAGEMENT REPORT

JSW STEELS

Group – 2
Angel Mary (18029)
Anna S Lal (18032)
Athira A (18047)
Jithin Jayakumar (18080)
Prachi Singh (18116)
Ranjana L Narayanan (18128)
Sree Lakshmi P (18149)
 ABOUT THE COMPANY

Amongst the leading conglomerates in India, JSW Group is a $13 billion

company. It is an integral part of the O. P. Jindal Group, and has been a part of

major projects that have played a key role in India’s growth.

Ranked among India's top business houses, JSW's innovative and sustainable

ideas cater to the core sectors of Steel, Energy, Cement and Infrastructure. The

Group continues to strive for excellence with its strength, differentiated product

mix, state-of-the-art technology, excellence in execution and focus on

sustainability.

From its humble beginnings in steel, the JSW Group has expanded its presence

across India, South America, South Africa & Europe. Through its CSR projects,

it also continues to participate in and initiate activities that assist in improving

those areas of our country that lack resources. JSW is known to be the “strategic

first mover” to venture away from status quo, have the conviction to make

fundamental changes and drive operational excellence on its quest to become

better every day.

 HISTORY

The story of JSW is one of passion, grit and an insurmountable determination to

work hard and win against all odds. It is, in many ways, the story of India itself.

What began as one man’s dream has evolved into one of India`s leading business

houses, with a workforce of over 40,000. Over the years, JSW has grown beyond

steel, foraying into cement, infrastructure, energy and the like, helping build a

new nation.

JSW has, and always will be, known as the “strategic first mover” to venture away

from status quo, thanks to its conviction to make fundamental changes and drive

operational excellence.

Today, JSW is more than just a billion-dollar conglomerate. It has become a

partner in India’s progress, and a firm believer in giving back to the society and

the people that have been instrumental in making it grow.

JSW is a mark of trust and quality that millions of customers around the world

depend on.
 VISION

TO BRING POSITIVE TRANSFORMATION TO EVERY LIFE WE

TOUCH

JSW is about building, transforming and giving back. Every act of ours is centred

about building something new or bettering something that already exists.

We think beyond just business or our customers. We strive to positively impact

the lives of our business associates, our customers, our employees, the

communities that we serve and the nations that we operate in.

PURPOSE

ACCELERATE THE GROWTH AND PROSPERITY OF THE

COMMUNITIES WE LIVE IN BY

 Building World-class Infrastructure

 Creating Inventive Solutions

 Nurturing Our Communities

 Deploying World-class Capabilities

 Empowering Our People

 MISSION

JSW Steel Limited (“JSW”) believes in creating sustainable growth while

balancing utilization of natural resources and social development in its business

decisions.

It also believes in pursuing its business objectives ethically, transparently and

with accountability to its stakeholders across the value chain.

JSW is committed to promote integrated responsible behaviour and value for

social and environmental well-being.

JSW’s commitment to do business responsibly is built into the core values of the

Company to conduct every aspect of business responsibly and sustainably.

It relies on:

• A dynamic leadership

• Adherences to core values

• A well-articulated Enterprise Risk Management framework.

• Practices that seek to sustain and enhance the long term competitive advantage

of JSW with care for the society and environment.

 CSR AT JSW STEELS

Community and Social Development

JSW Steel’s commitment to nation-building is also reflected in its CSR policy

which is led by the philosophy of working closely with communities living

contiguous to the Company’s operations and beyond. All the activities in the

seven priority areas are carried out by the JSW Foundation on behalf of JSW

Steel, and have benefitted over 650,000 persons. The financial year registered the

best-ever performance for the Company, and the expenditure for CSR was `61

crore.

Health and Nutrition

 Real-time growth tracking of children aged below six years

 Administration of spirulina

 Institutional child-births

 Mobile phone based updates for pre-and postnatal care

 Focus sites: Vijayanagar, Vasind and Tarapur

 Cases of malnutrition down by 35% in Vijayanagar and by 22% in Tarapur

 Rural health camps, such as eye care

 Upgradation of primary health care infrastructure across sites.

 Salem: eye care for students in government schools

 Vasind: cataract in tribal population (Shahapur taluka, Thane district).

 Vasind: Free physiotherapy for senior citizens by experts from the Neurology

Foundation of Bombay Hospital

 Vijayanagar, Dolvi and Salem: Continued awareness campaigns, check-up,

counselling and referral on HIV-AIDS for truck drivers.

 Over 2,00,000 beneficiaries

Education and Learning

 Continued emphasis on upgrading infrastructure of government-run

“anganwadis” (day-care centres) and schools across sites

 Computer-aided learning, digital classrooms and remedial classes for rural

students

 Bellary and Palghar: Continued funding mid-day meals in rural schools

 Bellary: Shifting of Tamanna School for children with special needs to a new

building with a capacity to house over 100 children

 Vasind and Salav: Mini science labs in government schools

 Over 230,000 beneficiaries

 Agriculture

 Vijayanagar: 923 hectares of farmland under soil improvement and moisture-

retention projects led to doubling of profit for 1,063 farmers and empowered over

500 women

 Palghar: over 3,500 farmers benefitted through the watershed initiatives to

irrigate farms and scientific inputs from ICRISAT

 Palghar: training in bee-keeping to over 40 farmers

 Palghar: Facilitated signing of farm-to-market agreements for over 100 farmers

Water and Environment

 Retain rainwater by constructing water-holding structures, restoring moisture in

the soil and increasing the ground water level

 Vijayanagar and Salem: water conservation efforts have led to increase of ground

water level, resulting in water availability in peak summer

 Palghar: efforts to strengthen watershed in order to arrest migration of farmers

 Expect to increase over 10 million m3 of additional water storage capacity

 KEY PERSONS OF THE COMPANY

Mr. Sajjan Jindal

Chairman, JSW Group

An accomplished Business Leader and a

second-generation entrepreneur, Mr. Sajjan

Jindal had the foresight to lead the Steel

industry and JSW in particular on a

transformational journey, contributing significantly to India’s growth philosophy.

A mechanical engineer, Mr. Jindal led the JSW Group through some of its most

exciting phases, including JSW Steel and JSW Energy going public in 1995 and

2009-10, respectively. Today, the Group takes pride in expanding the business

landscape across Infrastructure, Sports and Cement, with the Group’s revenues

over USD 13 billion for the year ended March 31, 2018.
 Mrs. Sangita Jindal

Chairperson, JSW Foundation

Mrs. Sangita Jindal is the Chairperson of

the JSW Foundation that is responsible for

social development projects of the JSW Group.

In the twenty years that she has spearheaded operations, the Foundation has

enlarged its scope of activities in the areas of education, health, livelihood

creation, local sports development and conservation of our arts and cultural

heritage. The Golden Peacock Award for CSR awarded to the JSW Foundation in

2009 and again in 2019 is testimony to her vision and leadership.

She is a member of the Board of Directors of Asia Society India Centre and

National Culture Fund, Trustee on the Board of the World Monument Fund,

Advisor to Ted X Gateway and a member of the IMC Ladies’ Wing Art, Culture

and Film Committee. She is a recipient of the Marico Ricci-Metro Society Young

Achievers Award in 2004, the Best Citizen Award conferred by the I Love

Mumbai committee in 2002 and the FICCI Ladies Organization Woman

Philanthropist Award in 2011.

 Mr. Seshagiri Rao MVS

JMD & Group CFO, JSW Steel

Mr Rao is the Joint Managing Director of JSW

Steel and the Chief Financial Officer of JSW

Group. Having joined JSW Group in 1997, he

has played a strong role in the growth

strategies of the company. He has risen through the levels and now holds the dual

positions of JMD of JSW Steel and CFO of the JSW Group.

In his present capacities, Mr Rao is responsible for the overall operations of the

Group, including strategic formulations related to business development,

expansion of existing businesses, joint ventures, mergers, acquisitions and cost

management.

Mr Rao is a man of considerable experience in industrial finance. Prior to joining

the company, he worked with several reputed organisations in varied capacities.

He possesses a strong foundation in the finance sector with three decades of

experience in the areas of corporate finance and banking.

 Dr. Vinod Nowal

Deputy Managing Director, JSW Steel

Dr Vinod Nowal is the Deputy Managing

Director of JSW Steel. Dr Nowal has shared

an association with JSW that spans almost

three decades. He joined Jindal Iron and Steel

Co (JISCO) as the Works Manager in 1984 in Tarapur. He also handled

Operations and the Commercial department of both Vasind and Tarapur plants.

In an inspiring story of growth through dedication, he worked his way to the post

of Executive Director in JISCO. He was appointed Director-Commercial of JSW

Steel in 2004 and took charge as Director and CEO of JSW Steel in 2009. Dr

Nowal spearheaded the Company’s meteoric expansion from 4MTPA to 10

MTPA in a short time.

PLANT LOCATIONS IN INDIA
 PRODUCT PORTFOLIO

JSW Steel is a globally recognised as high end, value added steel.

THE METHOD OF ACCOUNTING
FOLLOWED IN THE INDUSTRY &
COMPANY

Complete Standalone Balance Sheet, Standalone Statement of Profit and Loss,

Standalone Statement of Changes in Equity, Standalone Statement of Cash Flows

and other statements and notes thereto prepared as per requirements of Division

II to the Schedule III to the Act are available at the Company’s website

www.jsw.in. Copy of financial statement is also available for inspection at the

registered office of the company during working hours for a period of 21 days

before the date of AGM.

1. Basis of preparation

These abridged standalone financial statements have been prepared on the basis

of complete set of the standalone financial statements for the year ended 31 March

2018, in accordance with the proviso to sub-section (1) of section 136 of the

Companies Act, 2013 ("the Act") and Rule 10 of the Companies (Accounts)

Rules, 2014.
 2. Summary of significant accounting policies

The significant accounting policies used in preparing the annual standalone

financial statements in accordance with the Indian Accounting Standards ("IND

AS") prescribed under section 133 of the Act read with rule 3 of the Companies

(Indian Accounting Standards) Rules, 2015 and the Companies (Accounting

Standards) Amendment Rules, 2016 are set out in Note 2 to the annual standalone

financial statements.

3. Key sources of estimation uncertainty and critical accounting

judgments

The Company is required to make judgments, estimates and assumptions about

the carrying amount of assets and liabilities that are not readily apparent from

other sources. The estimates and associated assumptions are based on historical

experience and other factors that are considered to be relevant. Actual results may

differ from these estimates. The estimates and underlying assumptions are

reviewed on an on-going basis. Revisions to accounting estimates are recognized

in the year in which the estimate is revised if the revision affects only that year,
or in the year of the revision and future year, if the revision affects current and

future year.
 THE COST STRUCTURE OF THE MAJOR

PRODUCTS SOLD BY THE COMPANY

The products are largely classified into three categories namely Rolled products

– Flat, Rolled products – Long, and Semis.

As per the annual report 2017-18, the major revenue is through the sales of

rolled steel products - flat.

The press release on February 6, 2019 gives the details of production and

sales volumes of their various products.

Due to the unavailability of data on the cost structure of various products of

JSW steel, the report analyses the overall cost structure adopted by the

company. As per the FY 2017-18 annual report, the JSW steel cost structure

could be broken down into the following:

a)Fixed costs (All numbers are in crores)

Particulars For the year ended 31 March 2017

Employee benefits expense 1,167.58

Finance costs 3,642.79

Depreciation and amortization 3,024.61

expense

Total tax 1,554.74

Total fixed costs for JSW steel is 9,389.72 Crores.

b)Variable costs (All numbers are in crores)

Particulars For the year ended 31 March 2017

Cost of materials consumed 28,399.88

Excise duty expense 4,623.14

Purchases of stock-in-trade 944.66

Total variable cost is 33,967.68 Crores.

c) Semi-variable costs

Other expenses which was a total of 11,624.35 Crores accounted to the semi

variable cost of the company during the FY 2017-18.

 COSTS FOR THE JOBS

The Job Cost for the JSW Steel at the end of March 2017, can be recorded because

of the following expenses incurred and the amount of revenue they generated

from the available set of assets.

The expenses include

Expenses Value as of 31st March 2017

Cost of materials and services 28,399.90

consumed

Purchases of Stock in Trade 944.66

Change in inventories, cost of WIP (1389.58)

goods, Stock in trade goods

Employee benefit expenses 1,167.58

Finance cost 3,642.79

Depreciation and amortization 3024.61

expense

Excise Duty expense 4623.14

Other expenses 11,624.35

Total Expenses 52,037.43

 BREAK EVEN ANALYSIS

2016 2017 2018

Sales/Revenue 40,354.48 56,244.00 65,046.00

(Less) Variable cost

Operating and Direct 9,385.18 11,623.00 12,504.00

expenses

Tax expense 1580.0 1674.0 1966.2

Cost of materials 152.72 945.00 1,063.00

consumed

Contribution 29237.3 42002.0 49512.8

(Less) Fixed Cost

Depreciation 2,847.24 3,025.00 3,054.00

Expenses
Finance Costs 3,218.73 3,643.00 3,591.00

Employee Expenses 953.29 1,168.00 1,260.00

Total Fixed Expenses 7046.26 7836.00 7905.00

Operating Income 22191.04 34166.0 41607.8

Break even Point= Fixed Expenses

Sales – Variable Expenses

BEP =

In 2016 = 24%

In 2017 = 19%

In 2018 = 16%
 STANDARDS SET FOR THE MAJOR EXPENSES

The major expenses in JSW steel for the years 2017-18 and 2016-17

Expenses FY 2018-17 FY 2017-16

Materials 35,995 28,400
purchase of RM 1,063 945
Inventories 412 -1390
Employee benefits 1,260 1168
Finance cost 3,591 3643
Depreciation 3,054 3025
Exise duty 1,259 4623
Others 12,504 11623

Here it clearly shows that the expenses occurred un the year 2018-17 is
comparatively higher than the previous year 2017-16. Its because of , they
implemented a few number of new projects in different places. And they have a
fixed standards for expenses in different plants.

And expenditure on energy conservation projects are,

In Vijayanagar, capital expenditure of 34.60 cr. The estimated expenditure was

47.50 cr.

In Dolvi, capital expenditure 27.22 cr. And the estimated expenditure was 32.55
cr.

In Salem, capital expenditure of 1.17 cr. And the estimated expenditure was 2.07
cr.

They have clear set of standards for all the major expenses and for the capital
expenditurs also.
 BUDGETING PRACTICES

Budgeting objectives at JSW Steel

 Effective control of capital expenditure in order to achieve long term

financial requirements.

 Selection of possible profitable capital projects.

 Estimation of capital expenditure during the budget period and to see that

the benefits and costs may be measured in terms of cash flow.

 To facilitate co-ordination of inter departmental project funds among the

competing capital projects.

 To ensure maximisation of profit by allocating the available investible.

Factors of Budgeting decisions at JSW steel

 A careful estimation of amount to be invested.

 Creative search for profitable opportunities.

 A careful estimate of revenues to be earned and costs to be incurred in

future in respect of the project under consideration.

 A listing and consideration of non-monetary factors influencing the

decisions.
 Evaluation of various proposals in order of priority having regard to the

amount available for investment.

 Proposals should be controlled in order to avoid costly delays and cost

over-run.

 Evaluation of actual results achieved against those budget.

 Care should be taken to think all the implication of long range capital

investment and working capital requirements.

 It should recognize the fact that bigger benefits are preferable to smaller

ones and early benefits are preferable to latter benefits

Budgeting process at JSW Steel

 Identification of profitable investment proposals.

 Screening and selection of right proposals.

 Evaluation of measures of investment worth on the basis of profitabilit

y and uncertainty or risk.

 Establishing priorities, i.e., uneconomical or unprofitable proposals

may be rejected.

 Final approval and preparation of capital expenditure budget.

 Implementing proposal, i.e., project execution.

 Review the performance of projects

Types of capital budgeting proposals at JSW Steel

 Independent Proposals:

These proposals are said be to economically independent which are

accepted or rejected on the basis of minimum return on

Independent proposals do not depend upon each other investment required.

Independent proposals do not depend upon each other

 Dependent Proposals or Contingent Proposals:

In this case, when the acceptance of

one proposal is contingent upon the acceptance of other proposals. It is ca

lled as "Dependent or Contingent Proposals." For example,

construction of new building on account of installation of new plant and

machinery

 Mutually Exclusive Proposals:

Mutually Exclusive Proposals refer to the acceptance of one proposal

results in the automatic rejection of the other proposal. Then the two

investments are mutually exclusive. In other words, one can be rejected

and the other can be accepted. It is easier for a firm to take capital budgeting

decisions on such projects

 MANAGEMENT INFORMATION REPORTS

Introduction:

 Flagship Company of JSW group, SW steel is one of India’s leading steel

players with integrated steel manufacturing facilities.

 Product portfolio consists of hot roll coils, HR sheets and plates, cold

rolled coils and sheets, galvanized and galvalume products.

 The company has signed a joint venture agreement with M arubeni-Itochu

steel Inc., Japan to set up contemporary steel processing centers.

Economic Analysis:

 Global economy after 2 years of uninspiring performances, global trade

picked up the pace, and its impact was particularly pronounced in

emerging markets. This happened owing to an improvement in

investment growth.

 In terms of commodities, energy prices indices grew by 24% in CY 17(y-

o-y) while the non-energy indices grew by 6%.The metal price indices

grew by 24%.

 Accelerated global growth lifted the demand for commodities while a

number of commodities faced supply side contractors.

  Oil witnessed a sharp increase from levels of $41 per barrel in 2016 to 4

year high at $54 per barrel in 2017, driven by production cuts

administered by OPEC.

Industry Analysis:

2017 saw an improvement in global steel consumption ,which grew by 4.7% to

1.59 billion tonnes in the year ,after a subdued growth of 1% in 2016 .A low

base effect of 2016,along with improved steel consumption in China and

investment led recovery in advanced economies were the key factors driving

this momentum.

Global crude steel production grew by 5.3% or 63million tonnes in 2017 to

1,691.2 million tonnes, as most economies registered good growth in steel

production.

Annual production grew between 4% and 6% for major economies of china,

India, European Union, USA among others.

Globally, iron and steel witnessed the highest number of trade actions. India has

imposed second largest number of trade actions at 150 with only 14 action on

iron and steel products.

Business Review:
The company focusses on expanding the share of the value added products in its

portfolio to enhance margins, resulting in industry leading profitability.

Continuing the trends from last year ,flat products occupied a significant

proportion of the company’s product portfolio at 71% and registered a y-o-y

sales growth of 2%.Robust demand in the automobile sector increased domestic

flat sales by 11%y-o-y.

The company is proud of being part of India’s growth story through supplying

steel to metro rail projects in various cities .JSW neosteel was also used in

major projects in the country from railway projects ,aerospace ,defence projects

,port and airport projects ,expressways and highways and critical atomic power

projects .JSW steel also caters to prominent educational institutions ,hospitals

,IT park and high rise structures .

KEY PERFORMANCE INDICATORS
A key performance indicator is a measureable value which effectively

demonstrates how effectively a company is achieving its business objectives.

Organizations use KPI at multiple levels to track performance measures.

Financially, a company can have certain key performance indicators which help

the investors and shareholders to invest and buy the shares respectively.

The various performance indicators are spread across various sections in the

financial statements. These sections are Profit & Loss statements, Balance sheet,

Shareholder Matrices, Operational Matrices.

In the Profit and Loss statements the various KPIs are Gross Turnover, Operating

EBITDA, Operating EBITDA Margin, Profit after tax, Earnings Per share and

Contribution to government and society.

In the Balance Sheet the important KPIs are Net Fixed Assets and Net Debt-

Equity Ratio.

The KPIs in the shareholder matrices include Dividend per share and Book value

per share. Also for Operational matrices the KPIs are Crude steel production,

Saleable steel sales, Specific water consumption.

All these parameters collectively contribute to understand the overall

performance of the company. We here look into the performance of the company

for two FYs, they are FY 2017-18 and FY 2016-17.

From the diagram above, which depicts the continuous increase in the gross

turnover of the company, except for the FY 15-16. The reason for the decline

being the high competitive pressure and sharp decline in the steel pricing and
margin compression. Though the market was going down, the company did fairly

well by showing increase of 20% domestic value growth.

In the FY 16-17, the gross turnover saw an increase from 18.79% from FY 15-16

to 39.37% in the FY 16-17. Not only that, since then for the next year again, the

gross turnover of the company saw a further 6% increase. This further increase

in Gross turnover can be accounted from the profit n loss statement which depicts

that, there is a considerable decrease in the fixed assets of the company and also

the expenses. Because of which there could have been an increase in the gross

turnover.
The operating EBITDA has seen an increase from 28.21% decline in FY 15-16

to an all time increase of 81.23% in FY 16-17. This increase is due to multiple

performance measurement initiatives taken up during the year to focus on the

yield and productivity. Again, in FY 17-18, there was a 16% increase in the

operating EBITDA.
As there was an increase in the operating EBITDA, the operating EBITDA

margin has also increased from a previous 15.6% to 22.1% in FY 16-17. Similarly

as the operating activities increased in alignment with the goal to increase yield

and productivity, the operating EBITDA margin decreased from 22.1% in FY 16-

17 to 21.1% in FY 17-18. This decrease can be accounted for the increase in

Depreciation and Amortization, as mentioned in the standalone Financial

highlights of FY 17-18.
The PAT has also increased from 3,498 crores to 3577 crores in FY 16-17, this

increase is accounted because of the increase in sales volume growth and also

introduction of various performance improvement initiatives. FY 17-18, there has

been an increase in PAT from 3,577 crores to 4,625 crores. This increase can be

accounted from the financial highlights standalone, as it depicts an increase in

gross turnover as well as net turnover.

Shareholder matrices:
The dividend is issued for Rs 10 per share. After the decline in dividend per share

in FY 15-16, the company saw a rise in the issue price of the dividends as, the

PAT of the company increased, that subsequently resulted in the rise of dividend

per share of the company to the shareholders. Similarly in FY 17-18, there was

an increase in the issue price of dividend from Rs 10 to Rs 13. The reason for the

increase could be the continuous profitability of the company for the consecutive

years.
This is another metric that would measure the performance of the company. The

coming fiscal years saw an increase in the book value per share of the company,

as there has been a significant amount of work done by the company to develop

and bring the best for the company.

 SUGGESTIONS FOR IMPROVEMENTS

Since November last year, steel prices have fallen, led by subdued demand in the

international market, because of increasing supply and global trade tensions.

However, the management now believes that prices are bottoming and is hopeful

of maintaining its FY19 volume guidance. While volumes growth remains

reasonably strong, earnings uptick would depend upon the steel prices

On the operating front, the company witnessed an increase in raw material cost.

Cost of blended iron ore and coking coal increased 6%and 7% year on year,

respectively. While this was added to the overall cost, the impact was marginal

in light of growth in realisations.

The fall in revenue for the company is due to the rise in the input costs of the steel

industry. As they are expected to stabilize in the upcoming quarters, which will

lead to an improvement in prices or realizations and profit margin in the second

half of the current financial year. The company shall look into the fluctuations of

the market rates and forecast adequately for the upcoming quarters to avert the

costs and risk associated with the fluctuations.