Sajjan Jindal, Chairman & Managing Director

Dear Shareholders,

The ‘Will to Win' is a relentless pursuit of excellence and of doing better each day. At JSW Steel, we have built our business on this principle, which enables us to overcome any challenges or constraints that come our way, just like we did in 2016-17.

I am delighted to share with you that JSW Steel delivered strong operational performance in FY 2016-17 and recorded its highest ever production, sales, consolidated EBITDA and profit after tax.

An all-time high performance

2016-17 saw JSW Steel achieve many benchmarks and report our best-ever results. At 15.8 million tonnes our crude steel production was the highest ever, and so were the total sales of 14.7 million tonnes. This included value-added steel sales of 5.06 million tonnes, that represents an increase of 17%.

Our production volume grew by 26%, vis- a-vis the domestic industry growth of 8.5% and global growth of 0.8%. Similarly our sales grew by 20% vis- a-vis the domestic industry consumption growth of 2.6% and global consumption growth of 1.0%.

We reported our best ever EBITDA at Rs. 12,174 crores which is almost double of the previous year's figure. Standalone EBITDA Margin at Rs. 7800 per tonne reflects our healthy operational performance. Our Profit After Tax was also the highest ever, at Rs. 3,467 crores, a testimony to our efficient operations and robust cost management. As a result, our Board proposed a dividend of 225%, the highest ever payout.

A robust Balance Sheet

Our performance also helped us strengthen our balance sheet with significant improvement in our key ratios. Net debt to EBITDA improved to 3.41 times, from 6.39 times, and net debt to equity improved to 1.85 times from 2.18 times.

One of the key reasons for our strong balance sheet is our ability to set up capacities, both greenfield and brownfield, or make acquisitions at globally competitive investment costs of around $550 per tonne. This has resulted in lesser interest & depreciation to service and provide adequate cash accrual to sustain our growth plans, without diluting financial policies of the Company to maintain net debt to EBITDA at 3.75 & net debt to Equity at 1.75 times. That explains why, at 14.8% our Return on Capital Employed (ROCE) is one among the top 5 steel companies globally.

A promising future

Our numbers for 2016-17 set the stage for an even better performance in the current year. We have provided a crude steel volume guidance 16.5 million tonnes, at a 4% growth, while the growth in sales volume is guided 5% higher, at 15.5 million tonnes. We will continue to focus on increasing the share of the value-added products basket in our overall top line. JSW Steel will also scout for organic and inorganic growth opportunities to expand its footprint.

Integrating backward. Innovating forward.

The Government has put in place a transparent mechanism for allocation of mineral resources through auction. We participated in auctions of iron ore mines in Karnataka and won 5 mines in October, 2016, which have estimated reserves of ~111mn tonnes, which meets approximately 20% of the total requirement at Vijayanagar. The Company also secured one coking coal mine in auction in the State of Jharkhand. We are striving to commence mining at the earliest, while we continue to bid for more mines, both iron ore & coal.

We continue our efforts to preserve our investments in Plate & Pipe Mill in USA, Coal Mines in USA & Mozambique and Iron ore Mines in Chile.

We are investing in people and sustainable practices to remain among the world's best run steel companies. To make ourselves future proof, we have recently embarked on a digitisation journey, to do a full digital makeover plan and improve efficiency in the manufacturing processes and reduce costs.

Global Steel Industry

Global economy is projected to grow by 3.5% in CY17. The overall macro-economic situation looks far better than previous year. While Global steel industry continue to grapple with over capacity, weak demand growth, dumping of steel at predatory prices by some countries & volatile input prices; improving growth momentum in advanced & key emerging markets & broad-basing of trade remedial measures will provide stability to steel industry.

Aligned to India's aspirations

India with its stable government, strong reforms, rising infrastructure spend & robust consumption demand will provide a platform to reach per capita steel consumption of 160 kg & total steel capacity of 300 Million tonnes by 2030 as envisaged by National Steel Policy 2017. Also trade remedial measures taken by the Government of India will provide level playing field to this strategic industry to revive investment cycle & create employment opportunities.

The budgetary allocation of Rs. 4 trillion for infrastructure, water and gas pipelines, renewable energy and road sector should fuel enhanced economic activity, and as a result, steel demand. Together with this, a normal monsoon will also augur well for the economy. Therefore, we expect the steel industry to grow at 5-6% over the medium term.

At JSW Steel, we will play a key role in supporting the above policy initiatives including the Make in India' initiative. We have already outlined a capex programme of ~ Rs. 26,800 crores to expand overall steelmaking capacity to 23 MTPA by Mar 2020, increase our downstream flat steel capacity ~7MTPA by Sep 2019, along with a few other strategic projects. These key projects will be set-up at a very competitive capital cost and will improve our return ratios. We have embarked on these expansion plans considering the growth in domestic demand and the likely steel deficit in the domestic market as no major investments in steel sector is contemplated. These capital expenditure plans have been outlined to achieve backward and forward integration, capacity expansion and cost reduction. We remain committed to maintain our net debt to EBITDA of 3.75 and net debt to equity of 1.75 while these capex programmes are executed over the next three years.

In Conclusion

Our Will to Win has sustained across cycles, and I am confident that it will serve us well at this time of great optimism. I am grateful to our team for their sustained efforts in making JSW Steel a leading steel company in the world. I would also like to thank all our stakeholders, Board, Bankers and the Government for the support and assistance provided throughout our journey.

I solicit your continued cooperation.

Sincerely,

Sajjan Jindal