Management Discussion and Analysis

1. Tata Steel India

The saleable steel production and sales trend over the years is as follows:

Production and sales of Steel Division

During Financial Year 2017-18, the saleable steel production stood at 12.24 MnT which is ~8% increase over previous year. The hot metal production for the Financial Year was at 13.86 MnT which is 6% higher over previous year. The improvement in performance is due to stabilisation of operations at Kalinganagar which commissioned in June 2016 and various on-going initiatives undertaken for stable performance. Accordingly, Tata Steel Jamshedpur (‘TSJ’) has achieved the Indian bench mark in specific consumption of energy, refractory, pulverised coal injection and coke rate.

Tata Steel Kalinganagar (‘TSK’) strives to maintain a world-class environment in the premises by following environmental management systems in accordance with rules and regulations framed by the government and have comprehensive processes in place for ensuring health and safety of people, plant and equipment. The plant is designed to have minimal water footprint, by-product gas based power generation leading to reduction in carbon footprints, Coke Dry Quenching technology, zero-effluent discharge and significant reduction of noise and dust pollution.

During Financial Year 2017-18, capacity utilisation at TSK reached higher levels over the previous year in all the major facilities marking extremely improved performance. There was a significant quality ramp-up in steel making and successful development of 108 new products as against the plan of 101 new products. The acceptance of the products was good by customers. The product mix comprised of low carbon, medium & high carbon and peritectic grades, which served different market segments such as LPG, tube making, tin plating, construction & projects, lifting & excavation, automotive, heavy engineering, amongst others. The plant has also produced higher automotive grades and is poised to produce Advanced High Strength Steel grades.

After successful ramp-up, TSK has embarked upon second phase of expansion which will take its production capacity to 8 MnTPA.

During Financial Year 2017-18, our Steel Business Unit (‘SBU’) has achieved a growth in sales of ~11% over previous year, outperforming the market growth.

The break-up of sales in our various segments and the break-up of domestic sales to exports are as follows:

Following are the Key Business Initiatives and achievements of Financial Year 2017-18:

Automotive and Special Products: Achieved best ever annual sales in Automotive sector thereby registering a growth of 23% year-on-year as against industry growth of 14% (mainly driven by 2 & 3 wheelers) leading to an increase in market share to 45%. This was achieved due to initiation of commercial supplies of hot rolled products from TSK, ramp-up of cold rolled volumes from Jamshedpur Continuous Annealing & Processing Company Private Limited. (‘JCAPCPL’), high share received in new models through development of advanced hi-end products and various non-product services such as Value Analysis & Value Engineering (‘VAVE’) work shops, collaborative improvement as part of Customer Service Team’s initiatives. As a recognition of the various initiatives, the Company received accolades from its key customers and automotive leaders, the ‘Best Supplier Award’, ‘Business Alignment Gold’ award and ‘Technology/ Innovation’ award.

c) Ferro Alloys and Minerals Division

Our Ferro Alloy and Minerals Division (‘FAMD’) is amongst the top six chrome alloy producers in the world with operations spanning across two continents. In India, it is the largest producer of ferro chrome and one of the leading manganese alloy producer.

During the year, there was softening of Ferro Chrome prices in the international market. As market inclination is towards alloys business, the Company has shifted its business model from sale of minerals to Value Addition (to alloys) through Ferro Processing Centres.

FAMD achieved a production of 1,270 kilo tonnes as against 1,320 kilo tonnes in the previous year.

The Company started the first ever Gas Cleaning Plant (Slurry Processing) in the industry to recover Manganese rich sludge and water re-circulation at Ferro Alloys Plant, Joda. Further, the Company launched first of its kind Global Positioning System (‘GPS’) based Ferro Alloy consignment tracking along with mobile app: FASTRACK.

d) Tubes Division:

Our Tubes Strategic Business Unit is a leading manufacturer of pipes and tubes in India having its manufacturing facility situated at Jamshedpur with an annual production capacity of ~500 kilo tonnes. The three main lines of businesses are conveyance tubes (Tata Pipes), structural tubes (Tata Structura), precision tubes for auto and boiler segments.

During Financial Year 2017-18, the Tubes Strategic Business Unit achieved 6% growth in sales over previous year mainly contributed by 17% growth in precision tubes in line with the growth of automotive industry and 9% growth in Tata Structura due to improved demand in the construction segment (Telecom, Metro railway projects). The division has developed new products like Colour coated tubes - Primer, Graphene, multilayer coated & Thin Organic Coating (‘TOC’). The division has also started new facilities of Hollow section Universal Mill and Precision Tube Mill at Jamshedpur along with large diameter Tube Mill at TSK.

The division won ‘The Best Company of the Year’ for its contribution to the Construction Industry at the Construction Times Awards 2017.

Production and Sales of (FAMD)

Production and Sales of Tubes Division

e) Industrial By-products and Management Division

Our Industrial By-products and Management Division (‘IBMD’) handles variety of by-products in the entire value chain. The business operates on the principle of 3Rs (Reduce, Reuse, Recycle), thereby ensuring contribution towards the green journey of the Company. The product portfolio comprises of steel by-products such as metallic scrap, slag, coal tar, flat product scrap and coal by-products like middlings tailings and rejects. Product branding has been done to create recognition among peers and customers’ brands.

During year, the division launched India’s first ever branded LD Slag products Tata Aggreto and Tata Nirman. Further, first ever Blast Furnace Slag was exported to Bangladesh and Tata Ferroshots to Indonesia.

During the Financial Year 2017-18, by-product utilisation at the Plant increased substantially and sales increased by 8% over the previous year.

Harnessing ‘Value from waste and by-products’ has been the objective of the division. It is committed to becoming a knowledge driven business unit leveraging digital and innovation days as key pillars. The division has also delved into downstream value enhancement of by-products which serve as quality benchmarks in the industry. The division is in the process of developing steel recycling business comprising pan-India steel collection and processing centres. These centres would feed the processed scrap to captive electric arc furnace for steel making and downstream rolling which would further contribute towards developing a sustainable ecosystem in the long run.

The division has been awarded with Green-Pro Certification for Ground Granulated Blast Furnace Slag (‘GGBS’) by CII-GBC council. Tata Steel is one of the first companies, in India, to get the green product certification for GGBS.

f) Wires Division

Our Global Wires India Business Unit is the largest manufacturer of steel wires in India. The plants are located at Tarapur, Mumbai, Pithampur, Indore and at Jamshedpur, having an annual capacity of 375 kilo tonnes. The products offered are Tyre Bead wire for the tyre industry, spring and spoke wires for the auto industry, Prestressed Concrete (‘PC’) Strands and PC wires for the construction industry, Galvanised wires for fencing and Binding wires for the rural markets.

During Financial Year 2017-18, the division achieved 14% growth in sales over previous year mainly contributed by 20% growth in infrastructure segment, 13% growth in automotive segment (in line with the growth of automotive industry) and 11% growth in the retail segment. The Pithampur plant has undertaken major expansion. The annual capacity increased to ~88 kilo tonnes from ~53 kilo tonnes.

The division has won the following accolades:

• The Brand Excellence Award in Iron & Steel Industry’ and Tata Wiron was awarded ‘Emerging Brand Award’ at the brand excellence award hosted by the World Marketing Congress.
• SPANDAN – a farmer connect initiative has been awarded ‘Best Integrated Rural Marketing Campaign’ by National awards for Excellence in Rural Marketing.

Scrap Utilisation at Plant and Sales of IBM Division

Production and Sales of Wires Division

g) Bearings Division

Our Bearings Division is one of the India’s largest quality bearing manufacturers, having its manufacturing facility situated at Kharagpur, West Bengal with an annual production capacity of 40 million bearing numbers. The Company is foremost in the manufacturing of a wide variety of bearings and auto assemblies and product range includes Ball Bearings, Taper Roller Bearings, Hub Unit Bearings, Clutch Release Bearings, Double Row Angular Contact Bearings, Centre Bearings and Magneto Bearings. It is the only bearings manufacturer in India to win the TPM Award (2004) from Japan Institute of Plant Maintenance, Tokyo.

Production and Sales of Bearings Division

The division achieved 3% growth in sales over previous year mainly due to increased off-take by auto two-wheeler and engineering segments. The division has also improved plant availability by de-bottlenecking and leveraging its existing resources for sustainable operations.

The division has been conferred with DOL (Direct on Line) certification from Rockman Industries (Auto components Manufacturer in India).

h) Shikhar 25 (Operational Improvement programmes)

Shikhar 25 programme is a multi-divisional, multi-location, cross functional programme that intends to drive breakthrough improvement projects with best of rigor and simplified governance, without compromising on safety, environment and people standards and works in collaboration with internal/external stakeholders to achieve best in class in operational performance.

The continuous learning and improvement journey has been one of the foundation pillars for driving a benchmark performance across the value chain. The programme was rolled out in steel value chain with structured collaboration from Raw Material division to Marketing & Sales division as an umbrella initiative.

During the year, the Shikhar 25 programme was extended to tap potentials for Cross cutting themes across divisions and the new facility at TSK. Further, 5 new Impact Centres were established namely Value in Use, Jharia, Shared Services, GST and export logistics and TSK. All the Impact Centres focused on new technology adaptation in collaboration with suppliers and integrating digital initiatives to explore new horizons of improvements. Key levers for improvement were improvement in fuel rate in Blast Furnaces and throughput, sale of enriched products, increase in throughput at West Bokaro collieries, cost reduction at Mines and Collieries, solid waste utilisation at Sinter Plants, Hot Metal and Scrap yield, Lime consumption, Ferro Alloys cost reduction at LDs, reduction in the spend base of Inbound/Outbound Logistics, packaging cost, energy efficiency, cost optimisation for other procured goods and services amongst others.

Total improvement savings achieved in Financial Year 2017-18 is ₹2,594 crore.

The turnover and profit/loss figures of TSE (continuing operations) are given below:

The production and sales performance of TSE (continuing operations) is given below:

TSE’s revenue of ₹59,985 crore for Financial Year 2017-18 increased by ₹7,900 crore (15%) owing to increase in average revenue per tonne due to improved market conditions and marginal increase in deliveries.

The principal activities in Financial Year 2017-18 comprised manufacture and sale of steel products throughout the world. TSE’s continuing operations produced carbon steel by the basic oxygen steelmaking method at its integrated steelworks in the Netherlands at IJmuiden and in the UK at Port Talbot. During Financial Year 2017-18 these plants produced 10.7 MnT of liquid steel.

Strip Products Mainland Europe – During Financial Year 2017-18, the liquid steel production at IJmuiden Steel Works, Netherlands was at 7.1 MnT which was 0.1 MnT higher than the previous year. Record annual outputs of 1.4 MnT were achieved at the Direct Sheet Plant and 0.6 MnT at third galvanising line. The plant has undertaken improvement initiatives on cost reduction, business specific improvement plans and securing access to cost effective raw materials. It is undergoing a ‘Sustainable Profit’ programme which is targeting improvements to delivery and yield performance and reduce operating costs and unplanned downtime and a ‘Strategic Asset Roadmap’ (‘STAR’) capital investment programme to support the strategic growth of differentiated, high value products in the automotive, lifting & excavating, energy and power market sectors. During Financial Year 2017-18, further progress was achieved towards the installation of a new caster to allow enhanced casting capabilities for advanced products and the commissioning of a heavy-duty coiler at the hot strip mill.

The turnover and profit/loss figures of NatSteel Holdings (‘NSH’) for Financial Year 2017-18 are as follows:

During the year, the Singapore economy grew by 3.5%, highest in 3 years, supported by strong manufacturing and service sectors. Construction continues to be lagging behind. The demand for steel to remain stagnated due to contraction in construction spend. Steel demand in Malaysia grew by 5%, driven by infrastructure and construction demand and the steel demand in Vietnam is expected to grow at a slower rate than previous years.

During Financial Year 2017-18, the deliveries were 1,293 kilo tonnes as against 1,349 kilo tonnes of previous year. The decline in volumes were due to lower demand because of slowdown of the construction activities and lower exports. An increase in turnover was reported due to increased realisation offset by lower volumes.

During the year, NSH received the national bizSAFE partner award and Singapore Health Award.

The turnover and profit/loss figures of Tata Steel Thailand (‘TSTH’) for Financial Year 2017-18 are as follows:

During 2017, the Thailand economy grew by 3.9%, above its 10-year average, improving from 3.2% in 2016. Private consumption continually expanded by 3.2%, which was supported by government stimulus measures. Private consumption growth was encouraged by an increase in minimum wage and more deductions for personal income tax. Public spending growth slowed down due to delay in investments in mega projects and disbursement of the government’s annual budget.

The steel consumption declined by 14% Y-o-Y, the worse impact being on long products which declined 26% Y-o-Y. Construction sector declined by 5.5% Y-o-Y mainly due to slowdown in public investments because of slow budget disbursements. The price of finished products increased in line with strong global metallic price trend, high prices of ferro alloys and electrodes.

The turnover and profit/loss figures of Tata Metaliks Limited (‘TML’) for Financial Year 2017-18 are as follows:

TML has its manufacturing plant at Kharagpur, West Bengal, India which produces annually 300 kilo tonnes of pig iron and 200 kilo tonnes of ductile iron pipes. Pig iron is marketed under the brand name ‘Tata eFee’ (world’s first brand) and ductile iron pipe is marketed in the brand name ‘Tata Ductura’.

During Financial Year 2017-18, the sale of pig iron was at 291 kilo tonnes as against 195 kilo tonnes of previous year and sale of Ductile Iron pipes was at 209 kilo tonnes as against 182 kilo tonnes of previous year due to increased demands. The annual profits of current year are higher as compared to previous year primarily due to higher volumes of pig iron and ductile iron pipes.

The turnover and profit/loss figures of The Tinplate Company of India Limited (‘TCIL’) for Financial Year 2017-18 are as follows:

TCIL is the largest indigenous producer of tin coated and tin free steel used for metal packaging. It has also been ‘value-adding’ its products by way of providing printing and lacquering facility to reach closer to food processors/fillers. TCIL has two Cold Rolling Mills and two electrolytic tinning lines with an installed annual production capacity of around 379 kilo tonnes of tinplate and tin-free steel.

During the year, TCIL achieved sales of 361 kilo tonnes as against 317 kilo tonnes of previous year. The annual production of tinning is at 356 kilo tonnes which is 11% higher than previous year at 321 kilo tonnes. Turnover is higher over the previous year due to shift in business model from conversion to buy and sale model along with higher deliveries and improvement in realisations. The annual profits improved over previous year in line with higher turnover, partly offset by increase in input steel cost.

The turnover and profit/loss figures of Tata Steel Processing and Distribution Limited (‘TSPDL’) for Financial Year 2017-18 are as follows:

TSPDL has extended its footprint with a new distribution centre at Sanand, Gujarat in the year 2017. It has commissioned a Wide Cut To Length (‘WCTL’) line having an annual capacity of 410 kilo tonnes to process thick Hot Rolled materials (8-25mm) at the Company’s Kalinganagar facility in June 2017. An inspection and parting line with annual capacity of 120 kilo tonnes was commissioned at CRM Bara Complex of the Company in August 2017. These have enabled to increase the total capacity to 3.3 MnT as compared to the installed capacity of 2.8 MnT in the previous year. However, during the year, the capacity utilisation has been 2.13 MnT compared to 1.9 MnT achieved in the previous year. As a constant endeavour to improve the quality of products to customers, TSPDL developed a scale brushing system which has been commissioned at Narrow Cut To Length (‘NCTL’) in Chennai and WCTL line at Kalinganagar. TSPDL undertook an EBITDA improvement initiative ‘Lakshya 25’.

The turnover and profit/loss figures of Tata Sponge Iron Limited (‘TSIL’) for Financial Year 2017-18 are as follows:

TSIL is a manufacturer of sponge iron with an annual production capacity of 390 kilo tonnes and generates 26 MW of power through the waste heat recovery route.

During the year, sale of sponge iron was 414 kilo tonnes as against 393 kilo tonnes of previous year. Further, the sale of power during the Financial Year 2017-18 was at 143 MKWH as against 132 MKWH of previous year. These increases are primarily due to increased realisation from sponge iron.

a) Net sales and other operating income

During the year, overall turnover was higher as compared to the previous year, primarily due to increased operations at Tata Steel Kalinganagar (‘TSK’) along with increase in realisations. Ferro Alloys and Mineral Division (‘FAMD’) registered higher revenue owing to higher production of Ferro Chrome along with improved demand in the international market.

b) Purchase of finished, semi-finished steel and other products

During the year, purchase of finished and semi-finished materials decreased as compared to the previous year due to lower purchases of steel wire rods and imported rebars for resale.

c) Raw materials consumed

During the year, the consumption of Raw Material increased primarily due to increased operations at TSK as well as higher cost of imported coal.

d) Employee benefits expense

During the year, the expense increased, primarily on account of salary revisions and its consequential impact on the retirement provisions.

e) Depreciation and amortisation expense

The increase in depreciation is primarily due to full year charge (TSK commenced operations with effect from June 1, 2016), partly offset by lower amortisation charges.

f) Other expenses

Other expenditure represents the following expenditure:

Other expenses were higher as compared to the previous year, primarily on account of higher consumption of stores and spares on account of increased operations at TSK. Further, increase in repairs and maintenance expenses was due to higher contract jobs at mines and collieries and at TSK. There was increase in royalty charges, freight and handling, fuel oil consumed and insurance charges at TSK due to full scale operations of the facilities. This was partly offset by lower expenses under rates and taxes due to implementation of GST.

g) Finance costs and Net Finance costs

During the year, finance costs were higher as previous year included higher interest capitalised in relation to TSK. Net finance charges were lower on account of higher income from mutual funds, partly offset by increase in finance costs.

h) Exceptional items

The exceptional items during the year primarily represents statutory demands and claims, net of liability towards district mineral foundation no longer required, written back, charge on account of Employee Separation Scheme (‘ESS’) under ‘Sunhere Bhavishya ki Yojana’ (‘SBKY’) scheme, provision for advances given for repurchase of equity shares in Tata Teleservices Limited from NTT DoCoMo Inc. and provision for diminution in value of investment held in subsidiaries and joint ventures.

i) Fixed Assets

Capitalisation of Kalinganagar facilities from June 1, 2016.

j) Investments

During the year, the increase in total investments was predominantly on account of higher investments in Mutual Funds as compared to the previous year and fair value adjustments of non-current investments.

k) Inventories

Finished and semi-finished inventory decreased as compared to the previous year mainly due to decrease in flat products inventory at Jamshedpur. The increase in raw material inventories as compared to the previous year is mainly due to increase in inventory of coal at Jamshedpur and Kalinganagar. The increase in stores and spares inventory is due to increase in prices.

l) Sundry Debtors

The decrease in sundry debtors as compared to the previous year is primarily due to better realisation.

m) Gross Debt and Net Debt

The Net debt was lower as compared to the previous year. This is attributable to increase in current investments along with cash and bank balances.

Gross debt was almost at par as there was less drawal of commercial paper (net of payment) which was offset by increase in term loans (net of repayment).

n) Cash Flow

a) Net sales and other operating income

The turnover of the Group was higher as compared to previous year. The increase at Tata Steel India was primarily on account of higher volumes from TSK and higher revenue at FAMD owing to higher production of Ferro Chrome along with increase in realisation of Ferro Manganese. Moreover, revenues from Wires and Tubes division also increased due to higher volumes and increase in realisations.

The increase in turnover at Tata Steel Europe (‘TSE’) was mainly on account of an increase in average revenue per tonne, partly offset by adverse exchange impact on translation.

The increase in turnover of NSH and TSTH was mainly on account of higher realisations.

b) Purchases of finished, semi-finished steel & other products

Purchases at TSTH and NSH increased owing to increase in production and input metallic price. Indian operations decreased primarily on account of lower purchases of imported rebars due to lower requirement. The decline at TSE was due to change in sales mix after the sale of long products along with favourable exchange impact on translation.

c) Raw materials consumed

The increase at Tata Steel India is due to higher consumption at TSK and cost of imported coal, higher production at FAMD and increase in cost of ore. The increase at TSE is primarily due to increase in price of coke which has doubled from previous year, along with increase in iron ore and coking coal prices, partly offset by favourable exchange impact on translation.

Others primarily reflect activities at Tata Steel Group Procurement in relation to raw material procurement, eliminated on consolidation.

d) Employee benefits expense

Employee Benefit expenses increased in Tata Steel India mainly on account of salary revisions and its consequential impact on the retirement provisions. The wage cost at TSE increased on account of normal increase in wages and contribution to provident and other funds, partly offset by favourable exchange impact on translation.

e) Depreciation and amortisation expense

The increase in depreciation is primarily at Tata Steel India due to due to full year charge (TSK commenced operations with effect from June 1, 2016), partly offset by lower amortisation charges. Expense increased at TSE which was partly offset by favourable exchange impact on translation.

f) Other expenses

Other expenditure represents the following expenditure:

Other expenditures in Tata Steel India were higher mainly on account of increased operations at TSK. Increase at TSE is primarily on account of increase in levels of maintenance activity in Strip Products MLE, higher stores and spares consumed, freight and handling expenses due to increase in transport costs, partly offset by exchange impact on translation. The decrease in others is primarily due to favourable exchange rate movement at Tata Steel Global Holdings, Singapore.

g) Finance costs and Net Finance costs

Higher finance cost at Tata Steel India as compared to previous year included interest capitalised mainly on account of TSK. Increase at TSE is primarily due to addition of subordinate loan over last year along with higher utilisation of working capital facility following an increase in raw material prices, partly offset by exchange impact on translation.

Net finance charges were almost at par as the increase in finance cost was almost offset by increase in finance income at Tata Steel India mainly due to higher income from mutual funds.

h) Exceptional items

Exceptional items during the year primarily represents:

1. Statutory demands and claims, net of liability towards district mineral foundation no longer required written back and provision for advances paid for repurchase of equity shares in Tata Teleservices Ltd. from NTT DoCoMo Inc. at Tata Steel India.
2. Charge on account of Employee Separation Scheme (‘ESS’) under Sunhere Bhavishya Ki Yojana (‘SBKY’) scheme at Tata Steel India and at Jamshedpur Utilities & Services Company Limited.
3. Gains arising out of modification in benefit structure for members of the new pension scheme (‘NBSPS’) vis-à-vis their benefits under Tata Steel Europe’s British Steel Pension Scheme (‘BSPS’), offset by settlement charges for those members who did not join the NBSPS and one-off costs at TSE.
4. Impairment charges in respect of property, plant and equipment (including Capital Work-in-progress) relating to Global mineral entities.

i) Fixed Assets

TSE was impacted on account of increase in closing exchange rate of GBP during the year as compared to previous year.

j) Inventories

Increase was primarily at Tata Steel India on account of increase in raw material inventory mainly increase in quantity of coal, partly offset by decline in inventory of finished and semi-finished goods mainly in flat products at Indian operations. At TSE, the increase was primarily in finished and semi-finished inventory on account of exchange impact on translation and lower deliveries.

Stores and spares stock increased in Tata Steel India mainly due to increase in prices. The increase at TSE was on account of exchange impact on translation.

k) Sundry Debtors

Increase at TSE was mainly on account of exchange impact on translation, partly offset by decrease at Tata Steel India. Increase in NSH and TSTH was in line with increase in turnover due to higher realisations.