John Cockerill India Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS Global Steel Industry

The global steel industry demonstrated a mixed performance marked by a complex interplay of factors. Economic recovery from the COVID-19 pandemic continued to fuel demand for steel in various sectors, including construction, automotive, and infrastructure. However, the industry encountered challenges such as supply chain disruptions, fluctuating raw material prices, and geopolitical tensions, impacting overall growth.

Developed economies witnessed a resurgence in construction projects and infrastructure development, bolstering steel demand. The automotive sector also contributed positively, driven by the increasing adoption of electric vehicles and the necessity for lightweight materials. Nevertheless, emerging markets faced hurdles like inflationary pressures, affecting their construction activities and subsequently impacting steel consumption.

On the supply side, the industry grappled with logistical bottlenecks, scarcity of key raw materials, and intermittent disruptions in production due to unforeseen events such as natural disasters and labour strikes. These challenges influenced global steel prices, which experienced volatility throughout the year.

In summary, while the global steel industry benefited from economic rebounds and robust demand in certain sectors, it grappled with multifaceted challenges that tempered overall performance in 2023. The industrys resilience in navigating these complexities underscores its adaptability and highlighted the ongoing need for strategic planning, in a dynamic global economic landscape.

Industry players have invested heavily in adopting advanced technologies to improve production efficiency, reduce carbon emissions, and meet sustainability goals. The integration of Industry 4.0 principles, artificial intelligence, and automation became increasingly prevalent, fostering innovation in steel manufacturing processes.

Environmental sustainability gained prominence as steelmakers intensified efforts to reduce their carbon footprint. Adoption of green technologies, such as hydrogen-based steel production and carbon capture, aimed at making the industry more environmentally friendly. Governments and industry stakeholders collaborated to develop and implement sustainability standards and certifications.

Geopolitical factors influenced trade dynamics in the steel industry. Trade tensions, tariffs, and supply chain disruptions impacted the flow of steel across borders, prompting some countries to reassess their trade policies and adopt protectionist measures to safeguard domestic steel producers.

In 2023, the steel industry experienced transformative changes driven by consolidation, technological advancements, and sustainability initiatives. These developments reflected a concerted effort by the industry to adapt to changing global conditions and position itself for a more sustainable and resilient future.

The global steel market was valued at USD 927.66 billion in 2022 and is anticipated to grow at a compound annual growth rate (CAGR) of 2.8% from 2023 to 2030. The growing popularity of pre-engineered metal buildings and lightweight building materials to foster energy savings have been a key driver of the industry.

As of the first 11 months of 2023, global steel output stood at nearly 1.72 billion tonnes, up 0.5% from the same period in 2022. China accounted for the vast bulk of that tonnage (952.1 million tonnes, up 1.5% YoY), followed by India (128.2 million tonnes, up 12.1% YoY), and Japan (80 million tonns, down 2.8% YoY).

Indian steel producers such as Tata Steel, Jindal Steel and Power, JSW Steel, and Steel Authority of India have seen their share prices rise

between 9-28% year to date during 2023. These gains have been led by strong steel demand in the country, even though steel prices and raw material prices saw regular volatility.

According to Fitch Ratings, steel demand growth will continue in most regions in 2024, with global consumption rising by 20-30 million tonnes (mt) compared to 2023. Demand growth will be driven by buoyant Southeast Asian markets, a strong recovery in Turkey, and moderate growth in Europe, the US, and Brazil. Chinese demand is expected to decline slightly.

Demand in China, the worlds largest steel consumer and producer, is shifting away from the struggling property sector towards manufacturing and renewables. Although this means a small decline in volumes produced in China to just below 1 billion tonnes, product optimization and lower raw material prices will help achieve higher average prices and margins for steelmakers.

India will remain a major growth market, and we expect finished steel consumption in India to increase by 9% in the financial year ending March 2025 (FY25), reaching 146 mt, following a 12% rise in FY24. Production capacity additions should be absorbed by this demand growth, maintaining robust margins. Although imports have increased, we do not expect import volumes to be a threat to domestic producers. If domestic prices and margins drop sharply due to an import surge, we may expect the government to introduce tariff-related measures, as it did in early 2016.

We expect European steel demand to recover in 2024 following weak performance in 2023. Utilization rates have been below 60% in 2023, according to Commodities Research Unit (CRU), after high-interest rates took their toll on the construction sector, while geopolitical conflicts and high energy prices have resulted in weak economic growth. Improving demand will be supported by automotive, industrial production, and infrastructure spending amid an easing of inflation and energy costs. Margins will also improve in 2024 from that of 2023 as cost pressures subside and production increases.

We expect North American steel demand to increase slightly in 2024, and new supply coming online to meet demand growth will continue to displace imports, as the US is a large net importer. US steel producers continue to pursue investments focused on expanding higher value- added production, which should improve profitability on a per-tonne basis. Although US prices will soften from previous years peaks, we expect them to remain above average levels.

Economic Environment

Anticipating the delayed impact of the tightening monetary policy, we foresee a gradual recovery in steel demand in advanced economies in 2024. Emerging economies are poised for faster growth compared to developed counterparts, yet the performance among emerging economies varies, with emerging Asia demonstrating resilience.

The outlook for China in 2024 remains uncertain, contingent on policy measures to address prevailing economic challenges. It is noteworthy that the Chinese economy is undergoing a structural transition phase, introducing elements of volatility and uncertainty. Additional uncertainties stem from regional conflicts and unrest, as seen in Russia and Ukraine, Israel and Palestine, among other areas. These factors may contribute to an increase in oil prices and further geo-economic fragmentation, posing downside risks.

Despite a decline in construction activities due to elevated interest rates, infrastructure investment exhibits positive momentum across various regions, including advanced economies. This reflects the impact of decarbonization efforts.

The Indian economy remains stable amidst the challenges of a high- interest rate environment, and the demand for steel in India is expected to sustain its robust growth trajectory. The growth in Indias construction

sector is propelled by government expenditure on infrastructure and a recovery in private investment. Infrastructure investment will also bolster growth in the capital goods sector. The automotive sector will continue to experience healthy growth momentum. The consumer durables sector, however, lags due to higher inflation / interest rates constraining discretionary spending. Nonetheless, improvement is anticipated in 2024, driven by festive season spending and advancements in the Production Linked Investment (PLI) Schemes.

Steel Scenario and Outlook

According to a report released by S&P Global, the countrys GDP is projected to increase from 6.4% in 2023 to 7% in 2026. India is expected to become the third-largest economy by 2030.

With India emerging as the fastest-growing economy in the first quarter of 2023, boasting a GDP growth of 6.1%, the steel demand is anticipated to remain robust until 2030, necessitating significant supply volumes.

In the global context, the steel industry is witnessing the presence of large players facing pressure from advanced technologies and newer market entrants. Diversified product portfolios and extensive R&D activities are driving competition, with a notable focus on digitalization to address challenges. Analysts from Jefferies India Pvt. Ltd. report that despite challenges faced in 2023, Indian steel demand remains strong, with positive trends expected for 2024, driven by government spending on infrastructure.

Review of Operations

During the period under review, the Company received a new order from The Tinplate Company of India Limited (TCIL) for value of 280 crores.

The execution of the existing orders in hand is progressing as planned with AMNS project reaching approximately 80% completion. For the projects from Jindal Steel Odisha Limited, we have started the dispatch of equipment to the project site. Two export projects from Salzgitter and Galvasid have been closed during the period under review and we have received acceptance certificates for 2 projects from Tata Steel & Santander.

Opportunities and Threats

Despite the challenges posed by a high-interest rate environment, the Indian economy maintains stability, and the demand for steel is expected to sustain its strong growth momentum.

A prominent trend in the industry is the increasing utilization of advanced high-strength steel (AHSS), which is favored for its exceptional strength-to-weight ratio. This type of steel provides significant strength while remaining relatively lightweight, making it highly desirable for applications in automotive, construction, and manufacturing.

Manufacturers adopting AHSS can achieve improved structural integrity and performance in their products, leading to enhanced efficiency and cost-effectiveness.

In 2023, steel producers are prioritizing eco-friendly processes for steel production and enhancing scrap steel recycling rates to reduce the carbon footprint and minimize the use of natural resources in steel manufacturing.

Efforts are underway to develop more sustainable and environmentally conscious processes, including the adoption of cleaner technologies, improved energy efficiency, and the implementation of waste management strategies to mitigate the environmental impact associated with steel manufacturing.

The steel industry is embracing digital technologies and automation systems to optimize productivity, reduce manufacturing costs, and enhance product quality. Real-time monitoring and control of various aspects of the manufacturing process are achieved through data

analytics and intelligent algorithms, identifying inefficiencies and anticipating potential issues.

Furthermore, the steel industry is transitioning towards a more flexible and customer-centric approach, offering customized solutions with tailored properties and accommodating small production runs. Manufacturers are exploring innovative ways to produce customized metals by modifying steel composition and properties, incorporating advanced technologies and processes.

While the steel industry faces challenges such as the severe consequences of the war in Ukraine and Israel and a deteriorating overall economic outlook, it continues to grow and innovate. The trends shaping the industry includes adapting to advanced manufacturing technologies, prioritizing sustainability, and catering to specific customer requirements. While the overall evolution of steel demand remained uncertain in 2023, with factors such as ongoing conflicts, energy price uncertainty, high inflation, and economic outlook impacting apparent steel consumption, a conditional recovery is projected in 2024, contingent on more favorable developments in the industrial outlook and increased steel demand.

Risk Management

The Company faces quite a few numbers of risks which, if they occur, could affect its ability to achieve its targeted performance and strategic objectives. The Board is responsible for identifying such risks and ensuring that an appropriate risk mitigation process is in place to manage them effectively. Successful management of existing and emerging risks is essential to the long-term success of the Company. The Company has established a risk management framework, to identify significant risk and determine whether they are being mitigated properly. From the bidding / proposal stage of a project until its closure, the Company identifies both internal and external risks. Similarly, the Company tries to identify the risks in resource availability, supply chain, legal and compliance framework that are relevant to Companys areas of business. During the execution of projects, a well-defined project review mechanism is being followed, which helps us to take timely actions and prudent decisions. Our risk identification and management activities are continuous and ongoing. Each functional area is responsible for assessing, articulating and controlling relevant risks. This includes scanning of the internal and external business environment to identify and review new and emerging risks. Such risks could have a future impact and emerging circumstances of existing risk, affecting the exposure in the short to medium-term. Risk events are assessed in their current state for the likelihood of occurrence, level of impact, and level of controls. Risk identification is done using a bottom-up approach, starting from functional heads in the Company, and progressively escalating selectively to the Risk Management Committee, Audit Committee and the Board. The approach is based on the management control, oversight functions and periodic independent review by the internal auditors. The Managing Director and the Chairman of the Risk Management Committee identify various operational, business, commercial and external risks and implement the processes to address them.

Finance

With new order entry of 332 crores during the period Apr-Dec 2023, the closing order book as on December, 2023 is in excess of 800 crores. The revenue from Operations grew 37.82% from 483.70 crores in FY 2022-23 to 666.63 crores for the nine months period Apr-Dec 2023. The operating profit (PBDIT) has increased 38.65% from 23.26 crores in FY 2022-23 to 32.25 crores for the nine months period Apr-Dec 2023. The Company has continued to remain debt-free, while having sufficient credit lines to cater to the fluctuations in working capital needs while executing its existing projects. It has initiated discussions with banks for enhancement of banking limits in view of future opportunity pipeline.

The key financial ratios for the period ended December 31, 2023 as compared to the previous financial year are as under :

Ratio	December 31, 2023	March 31, 2023	% Variance
Return on Net Worth	10.24%	6.70%	76.79%
Return on Investment	11.96%	6.30%	87.13%
Return on Capital Employed	10.14%	3.63%	225.20%
Current Ratio	1.13	1.18	(19.25%)
Liquid Ratio	1.09	1.14	(19.58%)
Operating Profit Margin	3.00%	(0.09%)	4116.36%
Net Profit Margin	3.26%	2.66%	43.47%

The performance of the current period is not comparable directly to that of the previous year due to change in the duration of the financial year. The current year comprises of nine months period as against the twelve months period of the previous year.

Human Resource Management and Industrial Relations

As of December 31, 2023, the Company employed 449 permanent staff members.

With the rapid adoption of technology, there is an increasing demand for a skilled workforce proficient in operating and maintaining advanced manufacturing technologies. Manufacturers are embracing innovative designs and technologies, prompting steel companies to invest in training programs. These initiatives aim to enhance the skills of employees, ensuring their competitiveness in a technology- driven landscape and addressing the growing need for an effective construction techniques.

The human resources of the Company play a pivotal role in securing its future. Providing employees with the necessary training and support for transitioning into new roles within the organization through crossfunctional mobility is a crucial component.

The Company dedicated 4065 man-hours to training its personnel, showcasing a commitment to enhancing workforce skills. John Cockerill India Limited consistently enhances its performance management process.

Throughout the year, all levels of the workforce maintained a positive working relationships. The Directors express their gratitude to all workers and employees for their valuable contributions, ongoing support, and cooperation during the period under review.

Health and Safety

The Company remains committed to a proactive approach to occupational health and safety, seamlessly implementing a "hierarchy of controls," including the elimination / substitution of unsafe conditions, utilization of engineering and administrative controls, and the provision of appropriate personal protective equipment (PPE) for hazardous tasks. As of December 31, 2023, our Taloja and Hedavali plants have achieved 3,813 and 2,096 days without a Lost Time Accident (LTA), respectively. At our project sites, we have accomplished 1,390 days without an LTA.

During the period under review, 2,456 training hours were dedicated to safety meetings, training sessions, toolbox lectures, as well as health- related talks and awareness programs.

Prevention of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

Our organization adheres to a rigorous procedure for addressing any complaints filed, as mandated by the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013 (POSH). We strictly follow POSH provisions, including the establishment of an

Internal Complaints Committee. The Internal Committee (IC) is composed of internal members and an external member with significant expertise.

During the period under review, there were no complaints of sexual harassment in the Company was reported.

Information Technology

This year, we have strengthened the end-user IT Infra for engineering and non-engineering users. We have provided our engineering teams with high-configuration workstations with a 32" wide screen to facilitate adoption of 3D design softwares. For non-engineering staff, we have replaced all the desktops with the latest generation of laptops and enabled the end-users to work from remote locations with secure connection to corporate network. We have also implemented Microsoft O365 platform for all the key users for better collaboration. On the network site, we have implemented a wireless LAN with secure policies. We have also upgraded our SAP to improve data retrieval and security with the latest OS and back-end database.

Internal Control Systems

An effective internal control system is essential for our sustainable growth. Accordingly, the Company is regularly reviewing its internal control systems and take steps where any of the controls need to be strengthened, or any new controls need to be added based upon the changes in the business environment and regulatory framework. The Company believes that a strong internal control framework is an important pillar of Corporate Governance. The existing system of internal financial controls is aligned with the requirements of the Companies Act, 2013 ("the Act") and is also with the globally accepted risk-based framework as issued by the Committee of Sponsoring Organisations (CoSO) of the Treadway Commission. The framework includes entity level policies, processes and Standard Operating Procedures (SOPs). Compliance with these polices and procedure is ingrained into the day- to-day working, management practices and review process. Moreover, the Company regularly reviews them to ensure both the relevance and comprehensiveness of the internal financial controls. The Company periodically assesses the design as well as operational effectiveness of its internal controls across multiple functions and locations through internal audit exercises. Based on the assessment of internal audit function, process owners undertake corrective action in their respective areas, and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board. Based on its evaluation (as provided under Section 177 of the Act and Clause 18 of the the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015), the Audit Committee has concluded that for the period Apr - Dec 2023, and as on December 31, 2023, the Internal Financial Controls were adequate and operating effectively. M/s. S R B C & Co. LLP Statutory Auditors of the Company have audited the financial statements included in this Annual Report and have issued a satisfactory report on the internal controls over financial reporting (as defined in Section 143 of the Act).

Cautionary Statement

The statements made in this report are forward-looking and are made based on certain assumptions and expectations of future events. The Company cannot guarantee that these forward-looking statements will be realized, though they are set out based on anticipated results and management plans. The Companys actual results, performance or achievements are subject to risk, uncertainties, and even inaccurate assumptions, which could thus differ materially from those projected in any such forward-looking statements. The Board of Directors of the Company assumes no responsibility with respect to the forward-looking statements mentioned herein, which may differ in the future on account of subsequent developments, events, or otherwise, and the Company is under no obligation to publicly update any forward-looking statements based on subsequent developments, information, future events, or otherwise.