Tata Steel Long Products Ltd Management Discussions.

I. Overview

This report is an integral part of the Boards Report and covers management perspective on external environment, strategic focus, business performance, significant operational initiatives, risk & opportunities, internal control, and statutory compliances of the Company during the Financial Year 2020-21. This should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in the Integrated Report. The Companys financial statements have been prepared in accordance with Indian Accounting Standards (‘Ind AS) complying with the requirements of the Companies Act, 2013, as amended and regulations issued by the Securities and Exchange Board of India (‘SEBI) from time to time.

II. External environment

1. Macroeconomic condition

The year 2020 witnessed an extraordinary and unprecedented turn of events that negatively impacted the global economy. Spread of COVID-19 sparked lockdowns across the world resulted in 3.3 % (IMF report) de-growth of global GDP in 2020 as against a growth of 2.8% in 2019, as all the leading economies went in to contraction, barring China, which registered a growth of 2.3%. The pandemic turned year 2020 into a historic year for the global economy, beset by a recession, the likes of which the world hasnt seen since the Great Depression in the year 1929-1939. COVID-19 led lockdowns crippled small businesses, supply chains and put millions out of work, to worsening inequality, however, at the same time, the pandemic has also tested the ability of Countries / Organisations to respond innovatively and mitigate the catastrophic impact in a best possible manner. Despite this slowdown, due to considerable fiscal and monetary stimulus in many key regions, the global recovery began in the third quarter of 2020. This recovery is expected to continue through 2021 but will very much depend on the near-term path of the COVID-19 pandemic. In 2021, global economy is set to grow by 5.5% with a base assumption that by the beginning of 2H21, the pandemic will largely be contained with most of the population vaccinated by then. In its 14th Five Year Plan, China has announced a 6% GDP target for 2021 with emphasis on reforms, innovation and high-quality development.

2. Economic Outlook

The accelerating rollout of COVID-19 vaccines in many advanced economies has set the stage for rapid recovery in the second half of this year and into 2022. Advanced economies will remain less affected by the virus this year and beyond, with low-income countries and emerging markets su_ering more which is a contrast to 2009. While, the global economy is expected to recover to its pre-pandemic level of output in 2022, the emerging-market and developing economies are expected to take until 2023 to recover to the pre-pandemic level. Policy rates in the United States, Eurozone, United Kingdom, and Japan will remain near zero, well beyond 2021. Emerging market and developing economies may take until 2023 to recover to the pre-pandemic level. Intermittent resurge in COVID cases with different variants and pace of vaccination would drive the divergent recovery paths and are likely to create wider gaps in living standards across countries compared to pre-pandemic expectations.

3. Indian Economy

Indias economy had grown at 4.2% in 2019-20 but entered a recessionary phase with two successive quarters of sharp contraction triggered by the COVID-19 induced national lockdowns beginning March 2020. Following a 24.4% collapse between April to June 2020 period, the GDP contained the further fall to 7.5% in the second quarter – leading to a real GDP contraction of 15.8% in the first half of 2020-21. Just two sectors are estimated to record growth in GVA for FY 2020-21, with Agriculture continuing its strong run through the first half of year to the second half (3.4%) and Electricity, Gas, Water Supply & Other Utility services (2.7%). The second half of the year has shown signs of good recovery and has surfaced to record above zero growth ~0.6%. The continuous quarter-on-quarter growth endorses the strength of economic fundamentals of the country to sustain a post lockdown V-shaped recovery. On the demand side, real GDP in 2020-21 has been supported by an estimated increase in Government Consumption Expenditure by 5.8%. The Global rating agency Moodys has said that Indias economy would shrink by 7 per cent in FY 2020-21. As per finance ministry, the Indian economy is likely to do better than the projection with the economic activity gaining momentum post relaxation in Covid 19 induced lockdowns and the ongoing rollout of anti-virus vaccines. This recovery is going to continue in coming FY 2021-22 with an estimated GDP growth of 11%, however, the downside risk prevails on account of significant resurge of Covid 19 cases in the initial part of FY22 in a rapid manner.

III. Steel Industry

1. Global Steel Industry

According to World Steel Association (WSA), global crude steel production reached about 1864 million tons in 2020, down by 0.9% compared to the level in 2019. Asia produced 1,374.9 Mt of crude steel in 2020, an increase of 1.5% compared to 2019s level. Chinas crude steel production in 2020 reached 1,053.0 Mt, up by 5.2% on 2019s level. Chinas share of global crude steel production increased from 53.3% in 2019 to 56.5% in 2020.

The global steel industry has been impacted due to lockdowns, disrupted supply chains as well as decline in consumption activity across the globe. Financial market volatility and depressed oil prices have further undermined investment. However, the steel market is expected to recover in 2021 provided the pandemic is contained by major economies.

2. Outlook for the Steel Industry

The domestic steel sector has witnessed a strong revival in third quarter of FY 2020-21 regaining the pre COVID19 level because of a combination of factors such as strong retail demand emanating from a thriving rural economy, and green shoots of recovery in white goods and the automobile sector, especially from tractors, passenger vehicles and two-wheelers.

This spree of high demand is likely to continue in FY22 backed by an uptick in the overall consumption; governments efforts to improve infrastructure, coupled with the ‘Atmanirbhar Bharat policy and the Production Linked Incentive (PLI) initiative. Government route for investment on infrastructure and projects such as affordable housing, railway line, metro rail, shipbuilding, oil & gas distribution pipeline projects, etc., should boost steel consumption. Additionally, the governments focus on rural infrastructure projects will also give an impetus to the steel demand. The auto component sector has seen a recovery in the last two quarters on the back of the increased a_nity for personal mobility amid the pandemic, and the demand outlook for the next fiscal year remains upbeat after two years of prolonged slowdown. Steel prices are likely to stay firm as China is not expected to export large volumes owing to a better balance in their domestic market, and there being no other significant exporter in the world market. The margin of large integrated players could further improve on self-sufficiency of iron ore, lower coking coal costs and better fixed cost absorption due to near-normal utilisation rates.

3. Indian Steel Industry:

India could end up producing 93-94 million tonne (MnT) of finished steel in FY 2021, a 10% decline compared to last years production. In the current fiscal, the domestic steel demand is expected to contract by 9-11 per cent on account of the nationwide lockdowns through April-May 2020 and slower-than-desirable ramp-up in manufacturing activities post that. The demand for steel plunged 55% in the first quarter as the pan-India lockdown brought construction and manufacturing to a near standstill. However, it has recovered sharply since then, with the demand decline limited to only 17 per cent in the first 9 months of FY 2020-21. The governments support to rural income, festive season, has helped in substantial demand recovery for consumption-driven manufacturing goods in the second half. With gradual relaxations in the lockdown measures and pent-up demand from auto & construction sector, mills ramped up capacity utilisation to over 90-95% towards year end from the level of 30-40% in April 2020. While economic activity and hence steel demand has picked up from the third quarter, the huge blow su_ered in the first two quarters is likely to weigh heavy on the full years data. Steel demand was already under stress as the pandemic marched in, causing stress across downstream segments.

Post fiscal 2020-21, steel demand will drive its growth trajectory to 15 per cent, led by numerous government-led initiatives on infrastructure and housing, as well as the automotive sector.

4. Indian Sponge/Direct Reduced Iron (DRI) Industry:

India is the worlds largest producer of Sponge Iron (or DRI) and has over 400 manufacturing units. Sponge iron is produced from Iron ore and used in steel making primarily through the secondary route. Based on Joint Plant Committee report, India has produced ~32 MnT of Sponge iron in FY 2020-21 as against 37 MnT in FY 2019-20 and witnessed a de-growth of 14%. Of the total DRI production in India, large portion is used for captive consumption by the major producers.

As far as merchant DRI demand is concerned, market was weak in Q1 and Q2 FY 2020-21 due to pandemic imposing lockdown and supply chain disruptions across many parts of country. Q3 and Q4 have been period of good recovery for DRI industry on account of increased consumption by steel units.

DRI market in FY22 is likely to bounce back on the strong Government push towards construction & infrastructure.

IV. Operational Performance

Financial Year 2020-21 has been the year of a successful turnaround for the Company. During Q1FY 2020-21, the Company remained resilient and adapted working with new scenario. The Company adopted a step by step approach to focus upon its priorities & strategies. As the things moved towards easing out, it has started leveraging the playground laid down in FY 2019-20 and quickly been able to emerge as a winner in the marketplace.

The Performance summary of the Company is enlisted below:

a. Embracing the new normal: The nation-wide lockdown, which was imposed from March 25, 2020 due to Covid-19 pandemic adversely impacted economic activities across the country. In this situation, the first and the foremost priority for the Company was health & safety of its employees and communities while managing impact on its customers & suppliers. The Company has rolled out several employee friendly policies, morale building platforms and put in place stringent mechanism on sanitisation and social distancing norms. A cross-company coronavirus steering committee, comprising relevant internal experts, resulted in a well- coordinated agile response across Tata Steel Group. Tata Steel Long Products has also been successful in deploying "POD", one of its kind initiatives pioneered by one of the group companies i.e. Tata Steel BSL limited to restrict COVID 19 spread in its Plants. The POD concept helped the Company achieve Nil operational disruption through- out the year. The Company made very good use of ‘Scenario planning as part of its business planning process which helped chose the optimal scenario while quickly considering the current realities of the external factors.

b. Quick ramp-up of exports amid weak domestic market: Key steel consuming segments viz. automotive, infrastructure, capital goods, consumer durables witnessed significant reduction in first two quarters. Muted demand from the consuming sectors coupled with shortage of manpower, liquidity constraints and logistics issues resulted in sharp reduction of steel production and demand in the beginning of the fiscal. Being part of the essential services and process industries, the Companys steel and mining operations were exempt from lockdown measures, but it was very critical for the Company to be flexible in its sales to continue uninterrupted operations. While initially the Company had to curtail its operations, it chose to quickly ramp-up the capacities with a tactical decision of rapidly ramp-up in export volumes and was the first amongst peers to restore the full crude steel production.

c. Working capital management: In response to the COVID-19, the Company was focused on managing liquidity and conserving cash. The Company quickly ramped up exports driven collections to increase inflows while minimising outflows by curbing non-essential spends, seeking cooperation from supplying partners in terms of higher credit period, rolling out factoring programme for customers and reprioritising companys capital expenditure. In addition, the Company also availed relaxations provided by the RBI. All these efforts helped the Company manage its liquidity and stay afloat during the Q1FY 2020-21.

d. Strategic focus – "The Turnaround": After acquiring the steel business assets in early April 2019 and the mining assets in July 2019, TSLP has been heading continuously on a pathway to transform its business operations and firmly establish its presence in the market place. Strategic focus has always been to lay down strong foundation for creating a sustainable organisation. To drive the transformation and turnaround, the Company embarked on a phased journey since FY 2019-20-Stabilisation to Sustenance of increased sales.

Following have been the major phases in FY 2020-21: Ramp up and diversification: There were increased opportunity in the market in Q2FY 2020-21 post-COVID lockdown relaxations and company could take full advantage of this opportunity by increasing its production and achieving best quarterly sales of Steel and DRI post acquisition. Agriculture segment was going at a great rate owing to good monsoon and the Company achieved a 3X Y-O-Y market share growth in this segment.

Embarking on a sustainable path: The industry has shown a V-shaped recovery in terms of demands, across all segments, and it has made possible for TSLP to continue to diverse its product portfolio to more value-added products while also scaling up. Despite the initial set back due to the pandemic induced situation, the Company has been able to increase its steel production and sales by 11% and 25% respectively as against industry de-growth@ 14%.

In summary, all the initiatives taken by the Company during the last two years (Transformation, Synergy / group strategic procurement, etc.) have resulted in building the strong fundamentals for the Company.

FY 2020-21 EBITDA registered 6X growth with a positive PBT of 615 crore. The Company, through its strong liquidity management, has successfully deleveraged its balance sheet by 50% during the year by prepaying 12 instalments much ahead of schedule.

e. Business Performance

TSLPs current product portfolio is unique in nature. It primarily deals in two ends of the value chain viz. Special Steel and Sponge Iron/ DRI (Direct Reduced Iron). Special steel is used for high-end and critical applications such as forging, bearings, fasteners, spring etc. which are used primarily by the Automotive sector but also in other areas such as construction, capital goods, etc. On the other hand, DRI is highly commoditised in nature and used as a raw material (substitute to the steel scrap) in the electric arc furnaces or induction furnaces.

Steel Business: FY 2020-21 was challenging year for everyone and so for TSLP, too. Since it was second year after the acquisition, it was very important for TSLP to ramp up its production and diversify its product portfolio. But pandemic brought a stalemate in domestic demand in the first two quarters of the year. However, TSLP was able to continue its production by routing its sales to export. Thereafter, over the quarters, TSLP took several initiatives at the marketplace and consistently improved its presence through increase in share of business with the existing customers and acquisition of 12 new customers. TSLP could increase its crude steel production by 11% Y-O-Y with best BF productivity of 3.15/MT/M3/Day across India (for similar size of furnace). The overall market share in special steel business has improved from 13% in FY 2019-20 to ~15% in FY 2020-21. The Company has also developed total 50 new products during the year with increase of 47% (Y-O-Y). TSLP was also able to receive 12 prestigious approvals from reputed OEMs. To ensure customer delight, TSLP has taken many steps to make its quality control process robust and was able to achieve lowest ever customer complaint of 244 PPM as against 866 PPM in FY 2019-20.

Product wise Sales performance (All figures in kT)

Particulars FY 2020-21
Straight Length (Bar & Blooms) 239
Wire Rod 291
Billet 108
Total Steel Sales 639

Sponge/DRI: Despite of Covid challenges, when the domestic demand was completely muted during the start of Q1, the Company proved its credibility by promptly shifting to exports. With the Domestic market rebounding in later quarters, the production level was ramped up to the normal levels. The Company eventually achieved an overall production of 797 kT with an increase of 4% w.r.t FY 2019-20 despite the setback in the first quarter.

FY 2020-21 witnessed scarcity of Iron ore & decline in coal prices. While the Company could achieve almost same level of sales of FY 2019-20 (511 kT), its margin improved riding on better market realisations and operational efficiencies.

f. Operational Excellence: Shikhar is a single integrated transformation program for Tata Steel Long Products to drive the culture of continuous improvement across the Organisation. This was launched on May 27, 2019 post acquisition of UML business. Since its launch, the program is continuously yielding the results.

Shikhar Program works across the entire steel & DRI value chain to improve operational efficiency, lower costs, optimise product mix and supply chain, reduce and recycle waste and improve energy efficiency through its nine Impact Centers covering the entire value chain. The program is focused on EBITDA improvement by immediate execution of identified ideas, along with harder-to-attain goals. Unique methodology & tools such as Best Demonstrated Performance (BDP), peer benchmarking, zero based budgeting, optimisers, value in use lens, cross functional collaborations are adopted to hunt for value-creation opportunities & pursue change-related goals. Shikhar program has now sustained momentum for greater than 2 years at TSLP with transformation supported by improved rigor & robust review cadence (weekly at mentors level & monthly at MDs level). It has created a culture of performance and excitement geared towards improvement via structured reward & recognition for the change drivers. In the current Financial Year impacted by COVID-19, Shikhar took the challenge and worked on various aspects of fixed cost to ensure reduced expenditure & maintain healthy cashflow. Demonstrating the zeal to pursue operational excellence, 70+ new trials were conducted across the plant to establish new operating paradigm (reduced Prime Hard Coking Coal percentage in coal blend for coke, use of char & middlings in thermal coal blend for Captive Power Plant, reduced fuel consumption in mills by usage of alternate fuels, etc.). In supply chain area, the Company has been able to increase its rake handling capacity up to 150% by improving the siding efficiency. With estimated improvement savings of 400+ crore in the current Financial Year, Shikhar program has contributed to improvement of EBITDA & has been pivotal in staging the Turnaround of TSLP.

V. Financial Performance:

During FY 2020-21, the Company recorded a stellar financial performance across parameters with a strong focus on cash flow and deleveraging. The blended realisation grew quarter on quarter supported by sales ramp up and mix enrichment as the economy started opening-up with a good rebound in the market sentiments post Q1FY 21. This has resulted in the revenue growth of 36% (Y-O-Y). In addition, the Companys continued focus on operational improvement through Shikhar initiatives and curbing all non-essential spend has resulted in multifold growth of EBITDA along with crossing the landmark of 1,000 crore. The Company posted an EBITDA margin of 24% at 1,154 crore in FY 2020-21 as against 184 crore in FY 2019-20. During the year the Company has focused aggressively in managing liquidity and maximising cash. During Q1 FY 21 when the domestic markets were closed, exports volume have been ramped up to increase cash flows coupled with managing the line items wise receivable, payables and raw material orders through Daily War room meetings. Credit sales have been converted to cash sales by increasing Letter of Credits, financing and factoring arrangement. In totality, 589 crore of cash has been released from the working capital reducing the Gross working capital cycle by more than a month. The release of fund from working capital coupled with healthy EBITDA level helped the Company to deleverage the Balance sheet in a big way. Gross debt has been prepaid to the tune of 1,325 crore thereby clearing all the long-term loan installments dues upto March 2027. This has also resulted in the savings of Finance & interest cost by ~20%. The Company has registered a +ve PBT of 615 crore in FY 2020-21 as against loss of 369 crore in FY 2019-20. Earnings per share has reached to 127 with a price earning ratio of 6 times. The share prices have continuously been trending upwards from the beginning of the year and grown by 285% as compared to Sensex increase of 68% from March 2020 to March 2021 level.

a. Revenue from operations

Standalone

Consolidated

FY 21 FY 20 Change % FY 21 FY 20 Change %
Sale of products 4,359 3,321 31% 4,359 3,321 31%
Sale of power 51 60 -14% 51 60 -14%
Income from services 195 47 310% 195 47 310%
Other operating revenue 145 62 133% 145 62 133%
Total revenue from operations 4,750 3,490 36% 4,750 3,490 36%

During the year under review, sale of products was higher as compared to that of the previous year, primarily due to increase in volumes and higher realisations. The Company recorded sales of 639 kT which is 25% higher than previous year. Continued focus towards mix enrichment resulted in 20% growth in Rolled product sales coupled with 38% increase in Alloy wire Rod (highest ever) sales for FY 2020-21 on Y-O-Y basis. Income from services primarily includes revenue from conversion of iron ore into pellet, the activity started in Q4 FY 20 and hence numbers are not comparable on Y-O-Y basis.

b. Cost of materials consumed

Standalone

Consolidated

FY 21 FY 20 Change % FY 21 FY 20 Change %
Cost of Materials consumed 2,182 2,392 -9% 2,182 2,392 -9%

During the year under review, cost of materials consumed decreased primarily due to lower cost of imported coal, higher captive ore availability negated partially by increase in bought out iron ore prices.

c. Employee benefits expense

Standalone

Consolidated

FY 21 FY 20 Change % FY 21 FY 20 Change %
Employee benefit expenses 215 192 12% 215 192 12%

During the year under review, employee benefit expenses have increased due to provision for expected shortfall in interest between guarantee rate on PF and expected rate of return on investments.

d. Depreciation and amortisation expense

Consolidated

Standalone Change

Change
FY 21 FY 20 FY 21 FY 20
% %
Depreciation and amortisation expenses 327 311 5% 327 311 5%

During the year under review, Depreciation and amortisation expenses has increased due to increase in amortisation expenses.

e. Other expenses

Standalone

Consolidated

Change Change
FY 21 FY 20 FY 21 FY 20
% %
Other Expenses 1,198 962 25% 1,198 962 25%

f. Other Expenses represents the following expenditure:

Particulars Standalone Consolidated
FY 21 FY 20 Change % FY 21 FY 20 Change %
Consumption of stores and spare parts 275 276 0% 275 276 0%
Fuel oil consumed 94 85 10% 94 85 10%
Purchase of power 55 51 9% 55 51 9%
Rent 5 4 31% 5 4 31%
Repairs to buildings 11 9 24% 11 9 24%
Repairs to machinery 122 103 18% 122 103 18%
Insurance 11 7 56% 11 7 56%
Rates and taxes 29 14 103% 29 14 103%
Freight and handling charges 332 236 40% 332 236 40%
Commission, discounts and rebates 2 1 90% 2 1 90%
Packing and forwarding 8 8 3% 8 8 3%
Royalty 152 75 n/a 152 75 n/a
Legal and professional costs 11 17 (36)% 11 17 (36)%
Advertisement, promotion and selling expenses 0 0 (45)% 0 0 (45)%
Travelling expenses 4 8 (53)% 4 8 (53)%
Net Loss on foreign currency transactions 3 16 (82)% 3 16 (82)%
Corporate social responsibility expenses 1 3 (83)% 1 3 (83)%
Provision for doubtful advances 0 3 n/a 0 3 n/a
Loss on disposal of property plant and equipment 10 2 363% 10 2 363%
Other general expenses 62 42 466% 62 42 466%
Net loss on fair value changes of financial assets / liabilities carried at FVTPL 13 0 n/a 13 0 n/a
Total Other expenses 1,198 962 25% 1,198 962 25%

Other expenses were higher as compared to those of the previous Financial Year primarily on account of higher freight and handling charges mainly due to increased volumes, increase in royalty expense due to higher rates & increased volumes.

g. Finance costs and net finance costs

Standalone

Consolidated

FY 21 FY 20 Change % FY 21 FY 20 Change %
Finance cost 235 293 (20)% 235 293 (20)%
Net finance cost 212 242 (12)% 212 242 (12)%

During the year under review, finance costs decreased mainly on account of prepayment of term loan installments of 1,325 crore along with lower interest rate.

h. Exceptional items

Standalone

Consolidated

FY FY Change FY FY Change
21 20 % 21 20 %
Acquisition related expenditures 0 27 n/a 0 27 n/a
Provision for coal block performance obligation 0 134 n/a 0 134 n/a

i. Property, plant & equipment (PPE) including intangibles

Standalone

Consolidated

FY 21 FY 20 Change % FY 21 FY 20 Change %
Property, Plant and Equipment 3,823 4,071 (6)% 3,823 4,071 (6)%
Capital work- in-progress 24 37 (35)% 24 37 (35)%
Goodwill 6 6 0% 6 6 0%
Right-of-use assets 224 240 (7)% 224 240 (7)%
Other 289 298 (3)% 289 298 (3)%
Intangible assets
Total property, plant & equipment (PPE) including intangibles 4,365 4,652 (6)% 4,365 4,652 (6)%

The movement in total PPE including intangible assets is lower primarily on account of depreciation charge for the year, partly offset by additions made during the year j. Investments

Standalone

Consolidated

FY 21 FY 20 Change % FY 21 FY 20 Change %
Investment in 21 17 18% 20 16 20%
Subsidiary, JVs and Associates
Investments- Non-current 0 0 Na 0 0 Na
Investments – Current 0 0 Na 1 1 0
Total 21 17 18% 21 17 18%
Investments

The increase in investment in Subsidiary, JVs and associates represents fair valuation gain.

k. Inventories

Standalone

Consolidated

FY 21 FY 20 Change % FY 21 FY 20 Change %
Raw materials 551 470 17% 551 470 17%
Finished and semi-finished goods 203 259 (22)% 203 259 (22)%
Stores and spares 60 67 (12)% 60 67 (12)%
Total 813 797 2% 813 797 2%
Inventories

Raw material inventories increased over that of previous year mainly due to increase in coal and iron ore inventory owing to higher rates and quantities. Finished and semi-finished inventory decreased as compared to that of the previous year mainly due to decrease in quantities, partly offset by higher rates.

l. Trade receivables

Standalone

Consolidated

FY 21 FY 20 Change % FY 21 FY 20 Change %
Gross trade receivables 98 182 (46)% 98 182 (46)%
Less: allowance for credit losses (23) (26) 11% (23) (26) 11%
Net trade receivables 75 156 (52)% 75 156 (52)%

Decrease in trade receivables as compared to that of previous year is primarily due to aggressive collection measures.

m. Gross debt and net debt

Standalone

Consolidated

FY 21 FY 20 Change % FY 21 FY 20 Change %
Gross debt* 1,424 2,755 48% 1,424 2,755 48%
Less: Cash and Bank balances (incl. 283 162 74% 283 162 74%
Non-current balances)
Less: Current investments 0 0 n/a 1 1 n/a
Net debt 1,142 2,593 56% 1,140 2,591 56%

*Gross debt reduced due to prepayment of Term loan installment of Rs.1,325 crore n. Cash Flows

Standalone Consolidated
FY 21 FY 20 Change % FY 21 FY 20 Change %
Net cash generated /(used)from operating activities 1,690 (336) (603)% 1,690 (336) (603)%
Net cash (used) in investing Activities 91 (3,574) (103)% 91 (3,574) (103)%
Net cash generated/(used) from financing activities (1,559) 3,805 (141)% (1,559) 3,805 (141)%
Net (decrease)/increase in cash and cash equivalents 221 (105) (310)% 221 (105) (310)%

a) Net cash generated from operating activities – The cash inflow from operating profit before working capital changes and direct taxes during the current year was 1,107 crore as against 155 crore during previous year reflecting higher operating profits. Cash inflow from working capital changes was 589 cores as against cash outflow of 483 crore during the previous year, mainly on account of decrease in inventories & increase in liabilities. The payment of income taxes during the current year was 6 crore as against 7 crore during previous year.

b) Net cash used in investing activities – During the current year, the net cash inflow from investing activities was 91 crore as against 3,574 crore outflow during the previous year. The outflow in FY 2019-20 broadly represents payment for acquisition of steel business amounting to 3,906 crore.

c) Net cash generated from financing activities – During the current year, the net cash outflow from financing activities was 1,559 crore against cash inflow of 3,805 crore during the previous year. Cash outflow during the current year included prepayment of term loan of 1,325 crore. Previous year inflow includes proceeds from borrowings and rights issue (net of issue expenses) of 4,123 crore in FY 2019-20 broadly represents payment for acquisition of steel business amounting to 3,906 crore.

o. Changes in key financial ratio

FY 21 FY 20 Change %
Debtors turnover ratio1 41.12 29.79 38%
Inventory turnover ratio 5.90 7.65 (23)%
Interest coverage ratio 3.90 (0.79) (593)%
Current ratio2 0.79 0.93 (15)%
Net debt to equity ratio 0.50 1.67 (70)%
Operating profit margin 23.13 4.39 427%
(%)3
Net Profit margin (%)4 11.85 (14.46) 182%
Return on average net worth (%)4 24.81 (33.31) 174%

1. Debtors turnover ratio has improved primarily on account of higher bill discounting during the year.

2. Current ratio has primarily decreased due to increase in trade payable balances at year end.

3. Operating profit margin has primarily increased on account of higher sales margins during the year.

4. Net profit margin and return on average net worth has increased due to increase in operating profit margin, lower finance costs during the year.

VI. Human Resources management and Industrial Relations

As on March 31, 2021, the Company had 2,395 employees. The Company strongly believes in the policy of hiring the right talent for the right position in right time, with a focus to improve employee productivity. To abide by this policy, TSLP has a two-pronged approach for filling its talent pipeline, internally and then externally. TSLP is committed to nourish and develop internal talent and therefore Internal Job Postings, promotions and cross location-based job rotations were done as part of the process. With a challenge to attract the best minds of the country during the lockdown period and Covid 19 restriction, our team conducted the entire process using online platforms, including the campus selections. To retain the talent, the team thoughtfully created and launched 41 people centric policies, leading to an Employee Engagement score of 80%, a healthy score at overall level and in top quartile zone in comparison with benchmark.

The Company, has successfully maintained cordial and productive relationships with its workforce through effective Industrial Relations management. This is largely attributed to the Managements concern for its employees and the proactive yet cooperative attitude of the employee trade union. In Jamshedji Tatas own words, "We do not claim to be more unsel_sh, more philanthropic than other people. But we believe in sound and generous business principles and regard the health and the welfare of our employees as a sure foundation of our prosperity". TSLP has formulated and implemented Policies/Programmes/ Schemes/Projects for providing Social Security and Welfare, regulating Conditions of Work, Occupational Health and Safety of Workers, promoting Harmonious Industrial Relations.

VII. Digital Transformation

TSLP aspires to become a benchmark in coal-based sponge iron operation by adopting best practices, innovating and exploring new opportunities in the process, contribute to community development and nation building. To achieve the same, some major digital initiatives are being taken. One such initiative is implementing Digital Twin for DRI plant for both Joda and Gamharia. A Central Virtual Command Centre is being established to enable Remote Manufacturing & Operations. This will help to improve Productivity, Quality and Cost Reduction through process optimisation by adopting Industry 4.0 approach. Another major digital transformation is bringing in different versions of SAP of TSLP into single and latest platform of SAP S/4HANA. This will ensure Uniform IT Landscape, Latest updates in a single-go for all group companies, Scalability – Ease of on-boarding new organisation unit (plug and play), Bringing all organisation data to central platform for group level view to Senior Management. IT is an enabler for many Shikhar initiatives of the organisation. In human resources front, an IT enabled reward and recognition platform is created to build a culture of recognition and appreciation at workplace, to increase employee engagement, to inculcate the sense of pride & belongingness towards the organisation. Not only this, with the sudden hit of pandemic, work from home became the new normal for working. Agility in IT and Digital front became the need of the hour. From the day of 1st announcement of nation-wide lockdown (March 23, 2021) on an average 600 persons are working from home seamlessly connecting to the secured company network. With the laptops getting obsolete and vulnerable a need was felt to replace all the such laptops and providing laptop to all eligible employees. In order to achieve this, an asset refreshment drive is initiated where in phase-1 around 450 laptops were refreshed and in phase -2 another 850 laptops will be refreshed.

VIII.Effect of COVID-19 Pandemic on the Company

Vulnerable communities across the country had to face several challenges during the times of COVID-19; and it was no different in our close surroundings. specially for the section with deeply entrenched poverty, village children who were neither prepared nor could a_ord virtual tutoring, migrant workers who had to return with a bleak future, local labourers falling prey to the economic impact of ongoing crisis, petty shopkeepers whose only source of daily income came to a standstill and there may be other effected communities. Even seemingly simple measures to keep the spread of COVID-19 at bay, such as maintaining social distance, use of proper mask & sanitisers, washing hands with water and soap, were mere luxuries to many. While there were no exigent pressure or representations, as a responsible corporate citizen, the Company genuinely felt concerned about the wellbeing of these hapless people.

The management came to the rescue to every section of the community, through its customised approach. There were instant arrangements for long supply of dry ration and cooked food, to prevent any casualty out of hunger. This also included constant coordination and persuasion with the local administration to normalise supply of basic amenities. Free masks & sanitisers were distributed to those who could not a_ord. Special arrangements were made to build virtual set up for village children through tailored programs so that they did not miss out on regular classes. Direct & indirect job opportunities were created for the migrant workers – many of them subsequently decided not to return to their earlier jobs. Soft loans and arrangements were made for the petty shopkeepers to reinstate their business. As a policy, company arranged to disburse full payment of the wages to every such contract worker who could not come to the plant due to lockdown restrictions, for the entire period of his/her absence. Company has now also organised administration of free vaccines for all those labourers working in our plants. Besides, the Company also extended able support to the local administration and public health centres in equipping them to effectively continue their treatments. And the impact has been all pervasive as the normalcy was restored in quick time.

IX. Risks & Opportunities

COVID-19 has changed the way organisations conduct businesses. As organisations have been forced to enact preparedness and business continuity plans, Enterprise Risk Management (ERM) is more important than ever before. TSLP had proactively embraced Enterprise Risk Management as a business process which aims to develop a risk intelligent culture in the organisation to support its decision- making process and thereby improving performance. It also ensures compliance with risk management related regulatory frameworks such as the ones prescribed by the SEBI Listing Regulations and Companies Act, 2013.

In its journey towards risk intelligence, a robust risk governance is developed across the organisation and is driven by the Risk Management Committee of the Board. The Company also has an Apex committee who is responsible for the successful implementation of the ERM process across the Company.

The Company has rolled out a 5 step ERM process (establish context, risk identification, risk assessment & evaluation, mitigation & monitoring and review & report) for holistic risk identification across the organisation. The Company through the ERM framework has identified several strategic, macroeconomic, financial, operational, regulatory, and other risks. Post the identification of these risks, the Company has also assessed these risks and developed short term and long-term plans to mitigate or reduce these risks. The Company is also focusing upon the capability building of the employees to make every manager as a Risk manager.

Some of the key learnings from FY 2020-21 which have a large bearing on the Risk & opportunity management are as follows:

a) the Companys likely inability to keep pace with the changing customer and competitive landscape that could lead to inferior product mix/loss of market share in chosen markets;

b) normalisation of spread level on account of rebalancing of demand & supply or regulatory interventions will lead to lower profitability;

c) the likely volatility in coal prices on account of supply chain disruptions or geo-political issues that could lead to higher cost of production;

d) Health disruptions can be more severe than the world war crisis- the interdependencies across the value chain to be understood better;

e) Liquidity remains the core of the business and the organisations ability to recalibrate its priorities and agile decision making helps to build resilience;

f) Digital journey is getting fast paced with an equal importance to the digital mindset.

Some of the opportunities which TSLP is trying to ride upon are listed below:

• Capitalise on growth potential posed by rising India and self- reliant initiatives of Government viz. strengthening the domestic manufacturing through production linked incentive etc.

• Fast paced technological and digital changes provide opportunity to grow in new segment and transform the business models.

• Increasing thrust of the government on climate change provides an opportunity to take leadership role in sustainability by generating value through circular economy.

• As steel industry is going through the consolidation phase, it offers opportunity for TSLP to grow at a faster pace through in-organic route.

A detailed overview on the risk landscape and mitigation strategies is provided in the "Enterprise Risk Management" section forming part of the integrated report.

X. Internal control system and their adequacy

The Board of Directors of the Company is responsible for ensuring that Internal Financial Controls have been laid down in the Company and that such controls are adequate and operating effectively. The foundation of Internal Financial Controls (‘IFC) lies in the Tata Code of Conduct (‘TCoC), policies and procedures adopted by the Management, corporate strategies, annual business planning process, management reviews, management system certifications and the risk management framework. The Company has an adequate internal control system to effectively and efficiently manage the business operations. The internal audit department closely monitors the compliance of all operations with prescribed business standards. The audit team supervises all internal processes and recommends necessary changes to ensure quick remediation of deviations, if any. Any variance from the budget is _agged off to the senior management which advises modification to ensure strict adherence to compliances. Periodic monitoring and effective implementation of recommendations ensure high business compliance with adequate adherence to rules and regulations that govern the Company. The controls also ascertain the reliability of financial controls and strict adherence to compliance as per applicable laws and regulations. The internal control system ascertains optimal utilisation of all resources and proper documentation of financial transactions.

XI. Statutory Compliances

The Managing Director, after obtaining confirmation from each of the departments, makes a quarterly reporting to the Board regarding the compliance with the provisions of various statutes, applicable to the Company.

An enterprise-wide digital compliance management tool has been implemented across all locations of the Company to help monitor compliance real-time across the organisation. Due systems and processes are in place to ensure effectiveness of this tool.

The Company Secretary, being the Compliance Officer, ensures compliance with the relevant provisions of the Companies Act, 2013 and SEBI Listing Regulations.