Tata Steel Long Products Ltd Management Discussions.

Financial year 2019-20 has been a historic year for the Company. During the year, the Company transformed from a mere Sponge Iron (or Direct Reduced Iron) producer to a high-end long products specialty steel player. During the year, it also repositioned itself as a long product steel player in the marketplace and aligned closer to its parent Company. This was enabled with completion of acquisition process of the steel business of Usha Martin Limited (UML) on April 09, 2019. The Company has become an integrated player of special steel by establishing both backward and forward linkages with the existing line of DRI business.

The following review is intended to convey the Managements perspective on external business environment and financial & operating performance of the Company during the Financial Year 2019-20. This report should be read in conjunction with the Companys standalone/consolidated financial statements, the schedules, notes thereto and other information included elsewhere in the integrated report. Aspects on Strategy, Risk & Opportunities, Governance mechanism, Human Resource and Industrial Relations have also been separately covered as part of the integrated report. The Companys financial statements have been prepared in accordance with the 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. This report is an integral part of the Boards Report and covers aspects on external environment, strategic focus, business performance, significant operational initiatives, risk & opportunities, internal control and statutory compliances.

External environment

Economy overview

Global Economy: 2019 was a difficult year for the global economy during which the world output grew at 2.9%, at its slowest pace post the Global Financial crisis. This was a synchronized slowdown, resulting from weakening trade & manufacturing growth and has impacted almost 90% of the economies world over. While the global growth was projected to rise to 3.3% in CY20, supported by positive sentiments arising out of easing US-China trade tension and consumption led recovery, this has been severely impacted by the spread of COVID-19. This Pandemic has brought an unprecedented global health and livelihood crisis and has led to a severe negative impact on global economic activities. As a result, the global economy is now projected to see a sharp contraction by -4.9% in 2020, surpassing the decline seen during 2008-09 financial crisis.

Indian Economy: Indian economy has been on a downward spiral since Q1 FY20. During the year, the GDP fell to a 27-quarter low of 4.7% by Q3 FY20 due to significant fall in manufacturing and agriculture output; however, service sector growth remained stable. On expenditure side, investments were very weak, registering a de-growth in H1 FY20, while the consumption was mainly supported by urban India. Some improvement in consumption was witnessed in Q3 FY20, mainly due to festivals and back to back rate cuts by Reserve Bank of India. Just when the fundamentals started to look up in January-February 2020, the COVID-19 outbreak adversely impacted the growth; imposition of a complete Nationwide lockdown since March 25, 2020 brought the economic activity to a standstill, especially in manufacturing & services sector. Except for the essential services, all other business activities were suspended. As a result, Q4 FY20 GDP grew at 3.1% and FY20 GDP grew at 4.2% as against 6.1 % in FY19. With the phased removal of the lockdown, economic activities have started to pick up and are expected to improve going forward. However, the environment is _uid and uncertain making it difficult to predict the likely path of economic activity.

Industry overview and outlook

Global Steel Industry: According to World Steel Association (WSA), global crude steel production reached about 1870 million tons in 2019, up by 3.4% compared to 2018, mainly driven by Asia, USA and Middle East. Chinas share of global crude steel production increased from 50.9% in 2018 to 53.3% in 2019. The global steel industry has been impacted due to shutdowns, disrupted supply chains as well as decline in consumption activity. Financial market volatility and depressed oil prices have further undermined investment. After slower than expected growth in 2019, a further decline in global steel demand is expected in 2020.

Indian Steel Industry: With the production of 111.2 million tonnes (up by 1.8% over 2018), India was 2nd largest crude steel producer in 2019. Indias Apparent Steel Usage (ASU) growth for FY20 was estimated to be 5% but the weak demand from large consuming segments coupled with negative impact on business activities on account of COVID-19 led to a growth of only 1%. Steel ASU is estimated at 100.1 mt and India again became a net exporter of steel in FY20. The domestic Automotive industry production has been facing a series of challenges on account of regulatory changes (Bharat Stage Emission Standards - BSVI, Corporate Average Fuel Efficiency - CAFE norms, Crash standards, revised axle norms etc.), Societal trends (ride sharing, tra_c congestion, cost of ownership etc.), technological upheavals (electric vehicle) and liquidity crunch. The COVID-19 pandemic further exacerbated the situation as the supply chain got disrupted and there was suspension in production. As a result, production in the automotive sector declined by 15% in FY20 to 26.3 million vehicles, shrinking back to FY17 level. Two Wheelers and Passenger vehicles witnessed a drop of 14-15% whereas Commercial vehicle was the worst hit. Demand and production of commercial vehicles shrank by 29% and 32% respectively in FY20 owing to poor fleet utilisation, revised axle norms and inventory liquidation.

Capital goods and consumer durables also remained in the downward trajectory on account of weak manufacturing activity and muted demand in rural India. Construction is the only consuming sector which witnessed a marginal growth in FY20 over FY19. The sector remained weak till Nov 2019 due to sluggish new investments, lower economic activities and continued liquidity crunch but started showing some signs of improvement from Dec19 onwards on account of various stimulus and infrastructure push by the Government. However, halt in outdoor construction during the lockdowns has severely impacted the growth. Indias steel demand is likely to contract by 15-18% in FY21 due to lockdown induced weakness in manufacturing and construction sectors.

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 ~37.1 million tonnes of Sponge iron in FY20 as against 34.7 million tonnes in FY19 and registered a growth of 7%. 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 Q2 and Q3 FY20 due to constrained liquidity, unrest in the National Capital Region and restricted construction activities on account of prolonged monsoon. While a gradual recovery was seen from end of Dec 2019, however, the COVID-19 outbreak has adversely affected the demand.

Impact of COVID-19 Pandemic on the company

The nation-wide lockdown, which was imposed from March 25, 2020 due to COVID-19 pandemic adversely impacted economic activities across the country. At Tata Steel Long Products, the first and foremost priority is the health and safety of the employees and the communities in which the Company operates while managing any impact for its customers and suppliers.

a) Impact on the operations

Key steel consuming segments viz. automotive, infrastructure, capital goods, consumer durables witnessed significant reduction. Muted demand from the consuming sectors coupled with shortage of manpower, liquidity constraints and logistics issues have resulted in sharp reduction of steel production and demand. Being part of the essential services and process industries, the companys steel and mining operations were exempt from lockdown restrictions, The company has followed all the advisories issued by the Central and the State Governments, including the prescribed hygiene, safety standards and social distancing norms. Initially, the company has curtailed its operations due to lack of demand from its customers and supply chain issues. The company worked hard to resolve these issues and ensured quick resumption for movement of raw material & finished goods.

The company has rolled out several employee friendly policies, morale building platforms and put in place the stringent mechanism on sanitization and social distancing norms. All employees in corporate offices and regional sales offices have been advised to work from home. The company has also put in place digital interventions to ensure smooth functioning of essential services. The company has touched lives of ~20,000 people by distributing food items, running community kitchen and organising awareness sessions at various levels. With the phased removal of the lockdown restrictions in India, the company quickly ramp up its steel making operations to 100% level and made a tactical decision to explore international market and rapidly ramped up the exports.

b) Impact on financials

Reduced deliveries on account of COVID-19 pandemic has resulted in sharp decline of earnings and increase in inventories. In response to the COVID-19, the Company is focused on managing liquidity and conserving cash. The Company has quickly ramped up exports and driven collections to increase inflows while minimizing outflows by curbing non-essential spend, renegotiating payment terms with vendors and reducing capital expenditure. All these efforts have helped the Company to maintain adequate liquidity to meet its business and financial commitments.

Strategic focus - Transformation of the organisation

After acquiring the Usha Martin Steel Business assets in early April 2019 and the mining assets in July 2019, the immediate focus has been to lay down strong foundation for creating a sustainable organisation. To drive the transformation, the Company focused on three aspects viz. a) People & culture b) Infrastructure & Operations and c) External Stakeholders.

On the people front, the focus was to strengthen system & processes, build capability to achieve benchmark performance and bring cohesiveness across the organisation. Leadership positions have been reviewed and filled up after due diligence, responsibility matrix of key positions and segregation of duties refined to ensure smooth functioning of the newly acquired business. Several initiatives were rolled out to create safe work environment and nurture the safety culture in the organisation, The practices related to work safety and environment protection have been revamped to bring the related parameters on fore and drive them with greater focus. Key standard operating practices (SOPs) have been reviewed & revised and newer checks & controls have been introduced with the enhanced usage of Information Technology and digital initiatives.

The Company scaled up production by increasing the utilisation of key assets, preparation of Schematic mine development and sustainable mining plan, integration of key processes and systems based on the previous learning from Joda and Tata Steel Limited operations. The Company also changed its key raw materials (e.g., coal) sourcing strategy by using the Tata Steel group procurement channels. This has created significant value by ensuring consistent supply of raw materials, optimizing the quality, better costs and payment terms. Tata Steel principles and values were adopted to engage with our stakeholders. Various customers engagement programs were initiated, and senior leadership engaged extensively in building a deep customer connect. This coupled with new product development and improvement in due date delivery (performance) helped in increasing the share of business with existing customers and acquiring new customers in the chosen segments. The Company also focused on gaining the confidence of the vendors on payment cycle and converted various ferro alloys, refractories and _uxes to domestic sourcing as against imports which has helped in improving costs as well as the working capital cycle. Some CSR initiatives have also been initiated for the newer locations viz. Gamharia and Barajamda, in line with our strong CSR programs already running in Joda and nearby locations. As part of our responsible corporate citizenship, we have achieved zero e_uent discharge and improved solid waste utilisation.

Outcomes of the above transformation initiatives have started to be visible in terms of improvement trends in production and key operating parameters. This has helped the turn-around of the Company in Q4FY20 in terms of becoming Profit Before Tax (excluding the exceptional items) positive despite the loss of sales in the last week of March20 due to COVID-19 pandemic. The Company will carry on with its efforts of transformation bringing in the good practices from the Tata Steel Group and enhance the synergies to drive business value.

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 / in addition to Steel scrap) in the electric arc furnaces or induction furnaces.

Steel Business: FY20 was challenging year for TSLP. The acquisition coincided with a sharp decline in its key segment, i.e., the automotive industry. However, over the quarters we have taken several initiatives at the marketplace and consistently improved our presence through increase in share of business with the existing customers and acquisition of 30 new customers. The overall market share in special steel business has improved from 9% in Q4FY19 (erstwhile UML) to ~13% in FY20. The Company has also developed various new grades and sizes to increase the penetration in non-automotive segments and has been able to receive product approvals from Two-wheeler OEMs (2 nos.) and a Global OEM. In the Wire rod segment, the Company has continued to focus on mix enrichment while ramping up volumes. The Company registered 2X growth in Alloy wire rod sales in Q4FY20 over Q1FY20 while tapping the complementary demand from Tata Steels existing wire rod customers.

Product wise Sales performance (All figures in kt)

Particulars FY20
Straight Length (Bar & Blooms) 173
Wire Rod 269
Billet 69
Total Steel Sales 511

Sponge/DRI: TSLP produces DRI at Joda as well as Gamharia plants. Initially the DRI plant capacity utilisation in Gamharia was quite low, post acquisition, which subsequently improved from Q3 FY20 onwards on higher captive ore availability from Vijay II Mine. This has resulted in an overall production of 765 kt with an increase of 75% w.r.t FY19. Over the years, erstwhile Tata Sponge has established itself as the market leader in DRI space and is considered as the most trusted supplier of consistent quality. This has helped TSLP to quickly stabilise the Gamharia product in the market place. In addition, the Company has also increased its presence in the international market. This has resulted in DRI sales of 626 kt and registered a growth of 43% (y-o-y).

Operational Excellence: The culture of continuous improvement is deeply embedded in the ethos of Tata Steel Group and has anchored long term sustainability and transformation of all its acquisitions. To accelerate and elevate the transformation Tata Steels marquee transformation program called "Shikhar" (Sanskrit word for "peak,") was launched in Tata Steel Long products within the 1st Quarter of its acquisition on May 27, 2019. The Shikhar programme covers the entire steel value chain with structured collaboration from Raw Materials division to Marketing & Sales division as an umbrella initiative and focusses on key structural issues such as improvement of Overall Equipment Effectiveness (OEE), effective utilisation of material, spend reduction, lower carbon rate in iron making, optimised steel making mix, supply chain optimisation and maximising energy and material efficiency. It is a multi-divisional, cross functional improvement initiative that aims to drive breakthrough improvement projects with rigorandsimpli_edgovernanceincollaborationwithinternal/external stakeholders to achieve best in class operational performance, while building institutional capability. Most companies hunt for large value creation opportunities while pursuing change related goals and a result, those smaller ideas that are often proposed by workers or middle managers fail to grab attention or to gain traction. Capturing each of such ideas has been the driving force of this programme and it has, thus, generated steady credence for this large transformational initiative. Over the last 9 months the program has generated more than 1100 ideas and has successfully implemented majority of them, resulting in total savings of around Rs. 300 crore Through focused approach, participation of operating teams and rigorous reviews, we have been able to achieve encouraging improvement in coal rate in blast furnaces (reduced coke rate and enhanced PCI rate), mill yields, coal consumption in DRI, power and electrode consumption, etc. In the area of inbound supply chain, we maximized the rake usage to 95%+ and systems have been put in place to sustain this.

Financial Performance

The FY20 and FY19 financial performances are not on like to like basis as the financial performance of FY20 includes the performance of the steel business acquired from Usha Martin Limited on April 09, 2019. As discussed in the earlier sections, the year commenced on a downward spiral in the market front, starting from sharp slowdown of the steel consuming sectors, especially Automotive, prices for both Steel & DRI hitting the low range (till middle of November19) and lastly the disruption caused by the COVID-19 pandemic. Being the 1st year of acquisition, the Company had worked upon addressing multiple challenges to scale up the operations and bring smoothness in the entire value chain. In addition to above, several decisive actions had been taken throughout the year to improve the financial flexibility and liquidity of the Company in a progressive manner. During Q1FY20, the primary focus was on setting the basics right, securing and meeting working capital requirements, getting understanding of the market along with on-boarding of customers, integration & stabilisation of various operating units and seeding actions to realise the identified synergies with the parent, Tata Steel Limited In order to achieve seamless integration and operational efficiencies, a transformation program called "Shikhar" was started by utilizing subject matter experts from the parent organization, where such programme has been run successfully for many years and built the expertise over the years. The Company has got the approval to operate its captive mine of Iron ore in Q2FY20 which helped in ramping up the steel making production and start the DRI kilns at Gamharia. However, the iron ore supplies got impacted during the rainy season owing to heavy monsoon. TSLP focused upon widening the customer base within automotive and diversifying to non-auto segments like agriculture, railways and lifting & excavation. This has resulted in an increase of market share across segments, including automotive sector despite the slowing demand. In Q3FY20, both Steel and DRI volume had been ramped up to take advantage of increasing prices in the marketplace. The concerted efforts towards operational efficiencies and mix enrichment enabled TSLP to become EBITDA positive during the quarter. In Q4FY20, the Company could start roduction at pellet plant on conversion basis for Tata Steel and shifted its focus towards further mix enrichment to maximise the realisations. Crude steel production and finished products sales levels were sustained in Q4FY20 despite lockdown in the later part of March20 and severely hit Automotive sector production due to global supply chain disruption from Jan20 onwards. The EBITDA grew by 4X and ended with positive PBT (excluding the exceptional items) for the last quarter of the financial year 2019-20. This was enabled by successful achievement of a cost reduction of Rs. ~12,000 per ton of crude steel (from Q1FY20 to Q4FY20) primarily on account of operational improvement and synergy benefits driven by the Shikhar programme. In order to improve the financial liquidity of the Company, several initiatives were rolled out including the revision in credit policies and introduction of financing mechanisms. These have helped in increasing sales through secured route thereby improving the working capital cycle time by ~25 days. The Company has deleveraged its balance sheet by repaying the short-term borrowing of Rs. 400 crore in H2FY20. a. Revenue from operations

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Sale of products 332,069 92,975 257% 332,069 92,975 257%
Sale of power 5,955 5,332 12% 5,955 5,332 12%
Income from services 4,743 0 n/a 4,743 0 n/a
Other operating revenue 6,232 898 594% 6,232 898 594%
Total revenue from operations 348,999 99,205 252% 348,999 99,205 252%

Revenue from operations consists of Rs. 266,860 lakh of acquired steel business during the current year. However, the overall revenue remains suppressed on account of lower market prices of both Steel and DRI.

b. Cost of materials consumed

(Rs. in lakh)

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Cost of Materials consumed 239,229 70,869 238% 239,229 70,869 238%

Cost of material consumed has increased primarily on account of acquired steel business.

c. Employee benefits expense

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Employee benefit expenses 19,211 4,487 328% 19,211 4,487 328%

During the year under review employee benefit expenses have increased due to acquired steel business, which constituted Rs. 14,377 lakh. Balance increase is on account of salary revisions, and its consequential impact on the retirement provisions.

d. Depreciation and amortisation expense

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Depreciation and amortisation 31,079 1,158 2584% 31,079 1,158 2584%
expenses

During the year under review, Depreciation and amortisation expenses has increased due to acquired steel business, which constituted Rs. 30,002 lakh. e. Other expenses

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Other Expenses 96,197 9,366 927% 96,198 9,367 927%

Other Expenses represents the following expenditure:

Standalone Consolidated
Particulars
FY 20 FY 19 Change % FY 20 FY 19 Change %
Consumption of stores and spare parts 27,567 1,026 2587% 27,567 1,026 2587%
Fuel oil consumed 8,525 108 7794% 8,525 108 7794%
Purchase of power 5,100 21 24186% 5,100 21 24186%
Rent 392 81 384% 392 81 384%
Repairs to buildings 898 657 37% 898 657 37%
Repairs to machinery 10,347 1,545 570% 10,347 1,545 570%
Insurance 720 81 789% 720 81 789%
Rates and taxes 1,416 898 58% 1,416 898 58%
Freight and handling charges 23,649 1,110 2031% 23,649 1,110 2028%
Commission, discounts and rebates 79 43 84% 79 43 84%
Packing and forwarding 750 508 48% 750 508 48%
Royalty 7,528 0 n/a 7,528 0 n/a
Legal and professional costs 1,682 654 157% 1,683 655 157%
Advertisement, promotion and selling expenses 31 43 (28)% 31 43 (28)%
Travelling expenses 844 186 354% 844 186 354%
Net Loss on foreign currency transactions 1,565 252 521% 1,565 252 521%
Corporate social responsibility expenses 321 236 36% 321 236 36%
Provision for doubtful advances 347 0 n/a 347 0 n/a
Loss on disposal of property plant and equipment 207 0 n/a 207 0 n/a
Other general expenses 4,229 1,916 121% 4,229 1,917 121%
Total Other expenses 96,197 9,366 927% 96,198 9,367 927%

Other expenses have increased primarily on account of acquired steel business.

f. Finance costs and net finance costs

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Finance cost 29,284 302 9597% 29,284 302 9597%
Net finance cost 24,209 (3,614) (770)% 24209 (3,614) (770)%

The Company was debt free till FY19. Interest cost in FY19 was related to interest on statutory dues. During FY20, the Company had taken borrowings to fund the acquisition of steel business, due to which the finance cost has increased.

g. Exceptional items

(Rs. in lakh)

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
(i) Acquisition related expenditures 2,742 0 n/a 2,742 0 n/a
(ii) Provision for coal block performance obligation 13,372 0 n/a 13,372 0 n/a

(i) Represents expenses incurred on stamp duty and registration fees for a portion of land parcels and mines acquired as part of business combination aggregating to Rs. 2,741.85 lakh during the year ended March 31, 2020.

(ii) The Company acquired the Steel business of Usha Martin Limited (UML) at Gamharia, Jamshedpur under a going concern and slump sale basis. The transaction included a greenfield coal block with corresponding performance obligation by way of bank guarantee to the Nominated Authority, Ministry of Coal towards development of the said coal block. Post acquisition, the Company has assessed the social and environmental challenges for the development of the coal block and have come to the view that the performance obligations of developing the coal block look challenging to fulfil. Accordingly, the Company, as a matter of prudence, has taken provision related to the aforesaid bank guarantee.

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

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Property, Plant and Equipment 407,146 21,973 1753% 407,146 21,973 1753%
Capital work-in-progress 3,669 739 396% 3,669 739 396%
Goodwill 566 0 n/a 566 0 n/a
Right-of-use assets 23,952 0 n/a 23,952 0 n/a
Other Intangible assets 29,821 59 50444% 29,821 59 50444%
Total property, plant & equipment (PPE) including intangibles 465,153 22,772 1943% 465,153 22,772 1943%

The increase in the current year balance is mainly due to acquisition of steel business, which constituted increase of Rs. 469,637 lakh in PPE, Right-of-use assets and intangible assets. The increase is partly offset by depreciation of the current year.

i. Investments

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Investment in Subsidiary, JVs and 1,746 1,434 21% 1,640 1,328 23%
Associates
Investments - Non-current 0 10,828 (100)% 0 10,828 (100)%
Investments – Current 0 12,096 (100)% 127 12,217 (99)%
Total Investments 1,746 24,358 (93)% 1,767 24,373 (93)%

The increase in investment in Subsidiary, JVs and associates represents fair valuation gain. Non-current and current investments in mutual funds of FY19 have been liquidated to fund the acquisition of steel business/working capital requirements in FY20.

j. Inventories

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Raw materials 47,046 9,803 380% 47,046 9,803 380%
Finished and semi-finished goods 25,906 678 3721% 25,906 678 3721%
Stores and spares 6,745 1,047 544% 6,745 1,047 544%
Total Inventories 79,697 11,528 591% 79,697 11,528 591%

The increase in the current year balance is mainly due to acquisition of steel business, which constituted increase of Rs. 68,683 lakh in inventory balance.

k. Trade receivables

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Gross trade receivables 18,214 7,845 132% 18,214 7,845 132%
Less: allowance for credit losses (2,626) 0 n/a (2,626) 0 n/a
Net trade receivables 15,588 7,845 99% 15,588 7,845 99%

The increase in the current year balance is mainly due to acquisition of steel business, which constituted increase of Rs. 14,693 lakh (net of provisions). Further, higher collection at the year-end has contributed to overall reduction of trade receivables balances.

l. Gross debt and net debt

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Gross debt 275,495 * n/a 275,495 * n/a
Less: Cash and Bank balances 16,245 * n/a 16,245 * n/a
(incl. Non-current balances)
Less: Current investments 0 * n/a 127 * n/a
Net debt 259,250 0 n/a 259,123 0 n/a

* There was no debt in FY19 m. Cash Flows

Standalone Consolidated
FY 20 FY 19 Change % FY 20 FY 19 Change %
Net cash (used)/generated from operating activities (33,565) 10,026 (435)% (33,566) 10,025 (435)%
Net cash (used) in investing activities (357,441) (1,243) 28649% (357,441) (1,243) 28649%
Net cash generated/(used) from financing activities 380,489 (3,713) (10347)% 380,489 (3,713) (10347)%
Net (decrease)/increase in cash and cash equivalents (10,517) 5,070 (307)% (10,518) 5,069 (307)%

a) Net cash used in operating activities – The cash inflow from operating profit before working capital changes and direct taxes during the current year was Rs. 15,459 lakh as against Rs. 14,626 lakh during previous year reflecting higher operating profits. Cash outflow from working capital changes was Rs. 48,327 lakh against cash inflow of Rs. 2,137 lakh during the previous year, mainly on account of increase in inventory balances. The payment of income taxes during the current year was Rs. 697 lakh as against Rs. 6,736 lakh during previous year.

b) Net cash used in investing activities – During the current year, the net cash outflow from investing activities was Rs. 357,441 lakh as against Rs. 1,243 lakh during the previous year. The outflow in FY20 broadly represents payment for acquisition of steel business amounting to Rs. 390,612 lakh, partly offset against inflow from redemption proceeds of mutual funds and bank deposits amounting to Rs. 31,258 lakh.

c) Net cash generated from financing activities – During the current year, the net cash inflow from financing activities was Rs. 380,489 lakh against cash outflow of Rs. 3,713 lakh during the previous year. Cash inflow during the current year represents proceeds from borrowings and rights issue (net of issue expenses) of Rs. 412,337 lakh partly offset against payment of finance cost of Rs. 27,375 lakh, payment of lease liabilities of Rs. 2,152 lakh, and payment of dividend (including taxes) of Rs. 2,321 lakh.

n. Changes in key financial ratios

1

FY 20 FY 19 Change %
Debtors turnover ratio1 29.79 14.46 106%
Inventory turnover ratio 7.65 9.95 (23)%
Interest coverage ratio (0.79) Nil n/a
Current ratio2 0.93 3.30 (72)%
Net debt to equity ratio 1.67 Nil n/a
Operating profit margin (%)3 4.39 14.59 (70)%
Net Profit margin (%)4 (14.46) 11.84 (222)%
Return on average net worth (%)4 (33.31) 12.01 (377)%

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 and amount held back for purchase consideration.

3. Operating profit margin has primarily reduced on account of lower sales margins during the year due to slowdown in automotive sectors.

4. Net profit margin and return on average net worth has reduced due to decrease in operating profit margin, higher depreciation and finance costs during the year.

Risks & Opportunities

As VUCA (Volatile, Uncertain, Complex and Ambiguous) trend is increasing multi-fold in todays environment, TSLP has decided to proactivelyembraceEnterpriseRiskManagementasabusinessprocess 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 Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations 2020 and Companies Act 2013. The company has a Board-level Risk Management committee which got reconstituted on 18th July19 to onboard larger group of independent directors with diverse set of expertise. The committee assists the board to oversee the risk management policy, to provide guidelines for implementing the ERM framework and reviews the key risks and mitigation plans.

The company is rolling out a 5 step ERM process (establish context, risk identification, risk assessment & evaluation, mitigation and monitor, review & report) and a systematic two- pronged approach (Top down and Bottom up) for holistic risk identification at strategic and operational level in order to protect and enhance value. While the company has identified top down risks and mitigation plan in FY20, it is currently focusing upon creating awareness and capability building to involve larger set of employees for bottom up risks identification to deeply ingrain this process into DNA of the company. The company has identified the risks under various categories such as macro-economic and market risks, financial risks, regulatory risks, operational risks, safety risks, community risks, supply chain & commodity risks, information security/cyber attack risks and environment risks. The Company has also assessed the severity of these risks along with the likely impact on the Companys performance and developed mitigation strategies to eliminate or minimise the impact of the identified risks.

The COVID-19 outbreak is an unprecedented event and has certainly posed challenges for the Company. The ERM framework has helped in developing and adopting a multi-pronged strategy to effectively respond to the evolving pandemic situation. Operations were aligned with the prevailing market conditions by reducing upstream operations and curtailing downstream operations. Cross functional teams worked to manage supply chain and logistics issues within the constraints imposed by the lockdown to ensure that plant could operate as planned. The Company also focused on cash and liquidity management to avoid any future disruption in business. Alongside identification of risks, the Company has a continuous process of monitoring and leveraging opportunities presented by the external and internal environment. Despite the immediate challenges posed by the COVID-19 pandemic, the company has identified several opportunities for growth & improvement and developed strategies to leverage these opportunities. These opportunities include enhancing its presence in agriculture sector as tractor industry is operating at its best level in last 10 years on good monsoon and various government stimulus packages. Similarly, the company is also increasing its presence in auto component exports market as it is exhibiting a good growth on account of India being preferred as a favoured source due to halted supply chain in European and American markets for Tier 1 OEMs. The company is also planning to foray into defence & aerospace segments considering the government thrust and growth in these segments. The recent decision to curb the import of certain pneumatic tyres and the capacity expansion programme of tyre industries has also thrown opportunities to develop hi end products for the wire rod.

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

Internal control system and their adequacy

The Board of Directors and the Audit Committee 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 managethebusinessoperations.Theinternalauditdepartmentclosely monitors the compliance of all operations with prescribed business standards. The audit team supervises all internal processes and recommends necessary changes to ensure any deviation is promptly corrected. 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. The function also ensures strict adherence to compliance.

Human Resource

As on March 31, 2020, the Company had 2,497 employees. The Company strongly believes in the policy of recruiting the right candidates for the right position. To abide by this policy the HR team follows a systematic procedure of discussing the requirements of a department, advising on recruitment strategies, participating in the selection of the right candidate, making cross references and finally offering jobs. As a part of this process, the team also analyzes data such as the number of vacant positions, the number of positions filled and the time it took to fill the vacant positions. This analysis is done with the objective of ensuring best quality of service besides aiding in understanding the time required to fill a position.

During the financial year 2019-20, onboarding and induction was smooth and engaging for all the new recruits. The organization maintains a healthy cultural and working towards improving the gender diversity.

The Company is committed towards improving employee safety and had been able to achieve 3,000 man-days of safety training and restrict LTIFR at 14 nos.

The Company has maintained healthy and cordial industrial relations during the year, and the workers union has been an equal partner in the maintenance of industrial harmony in the Company. Regular interactions are held between the management and the union for mutual growth and prosperity.

Statutory Compliances

The Managing Director makes a declaration at each Board Meeting regarding compliance with provisions of various statutes after obtaining confirmation from respective units of the Company. In order to review, monitor and report all legal compliances at TSLP, legal compliance systems have been implemented.