JSW Holdings Management Discussions

1. Background

Your Company is a Core Investment Company ("CIO") with an asset size of above Rs 100 crore but not accessing public funds and are accordingly not required to be registered under Section 45IA of the Reserve Bank of India, 1934 and is termed as Unregistered CICs in terms of the Core Investments Companies (Reserve Bank) Directions, 2016 ("Directions"). Your Company continues to carry on the business permitted to Unregistered CIC in terms of the said Directions and as a pre-requisite continues to hold 90% of its investments, loans, advances, etc. in Group Companies inter-alia holding significant investment in equity shares of JSW Steel Limited.

As of March 31, 2023, your Company holds 7.50% equity shares of JSW Steel Limited, the market value of which stands close to Rs 13,000 crores. The Company also holds other strategic investment in Group Companies, the details of which are provided elsewhere in this Annual Report.

2. Overview of Financial and Operational Performance

Your Company has recorded very good performance during the F.Y. 2022-23 on standalone as well as consolidated basis. This Report should be read in conjunction with the Companys financial statements and other information included elsewhere in this Annual Report. The quantitative overview of the financial and operational performance of your Company during F.Y. 2022-23 is as follows:

A. Standalone Performance:

For the financial year under review, your company earned a total revenue on Standalone basis of Rs 40,676.48 Lakhs, comprising of income by way of dividend of Rs 31,547.01 Lakhs, interest of Rs 7,870.55 Lakhs, pledge fees of Rs 979.87 Lakhs and gain on fair value changes of Rs 279.05 Lakhs. The Profit before interest, depreciation and tax is Rs 40,086.53 Lakhs and after providing for depreciation of Rs 0.47 Lakhs and Tax of Rs 10,125.17 Lakhs, the Net Profit for the year is Rs 29,960.89 Lakhs as against Rs 13,460.28 Lakhs in the previous year, indicating an increase of around 122.59%.

B. Consolidated Performance

During the year under review, your company earned the total Consolidated Revenue of Rs 40,676.48 Lakhs, comprising of income by way of dividend of Rs 31,547.01 lakhs, interest of Rs 7,870.55 lakhs, pledge fees of Rs 979.87 lakhs and gain on fair value changes of Rs 279.05 lakhs. Your Company has two Associate Companies and after considering the share of profit from associates of Rs 3,182.62 lakhs, the consolidated profit after tax for the year is Rs 33,149.51 lakhs as against Rs 15,161.61 lakhs in the previous year, indicating an increase of around 118.64%.

C. Significant changes in Key Financial Ratios

As compared to the figures of previous year, there was significant change in following ratios:

1) Return on Net-worth for the year has increased from 0.84 to 1.55 by 85% owing to significant increase in profit after tax due to increase in dividend income for the year.

2) There was an increase in debtors turnover ratio from 12.19% to 28.69% by 135% due to substantial increase in turnover.

3) The Return on Capital Employed has also increase from 0.80 to 1.85 by 131% due to substantial increase in earnings before interest and tax.

Except for this, there is no significant change (i.e. change of more than 25%) in any other key financial ratios during the current financial year as compared to immediately preceding financial year.

3. Outlook & Future Prospects

A. Economy Overview

A series of severe shocks struck the world economy in 2022. With the impacts of the COVID19 pandemic still reverberating worldwide, the war in Ukraine ignited a new crisis, disrupting food & energy markets, leading to a worldwide surge in inflation causing an erosion of real incomes and economics hardships. Persistently high inflation, prompted a synchronized aggressive monetary tightening across economies. Rising interest rates and diminishing purchasing power have weakened consumer confidence and investor sentiments, further clouding near-term growth prospects for the world economy. Growth momentum has weakened in the United States, the European Union and other developed economies with many European countries projected to experience a mild recession in 2023. Due to elevated energy costs, high inflation and tighter financial conditions, the world output growth is projected to decelerate from an estimated 3 percent in 2022 to only 1.9 percent in 2023, marking one of the lowest growth rates in recent decades.

The current global economic slowdown cuts across both developed and developing countries. The Indian Economy which has undergone transformative new age reforms in recent years absorbed the economic shocks with resilience.

However, the economic performance in 2022 started on a very slow note recovering from the aftermath of global economic shocks and the growth rate moderated at 6.4%. The efforts of Government of India including health and safety measures, financial incentives and a sustained increase in the capital expenditure and incentivized boost to infrastructure development projects underpinned by private players, have placed the country on the path of fast paced recovery, ahead of many nations. The industry showed robust growth, particularly in the second-half of 2022-23, with Index of Industrial Production (IIP) accelerated to 5.6 percent year-on-year in February 2023.

Despite of war in Ukraine and the staggering inflation, the Indian equity market had a comparatively stellar year. The governments focus on infrastructure development with initiatives like the National Infrastructure Pipeline and Atmanirbhar Bharat Abhiyan are expected to create opportunities and the GDP is expected to remain around 6.7% in 2023-24. However, the effects of geo-political tension rising around the world pose a threat to the economic growth of the Country and clouds of uncertainty are still hovering around World economic growth.

B. Future Prospects

India, being the second largest producer of crude steel in the world, the prospects of Indian Steel Industry looks promising and the Indian Steel industry will play a pivotal role in steering India towards its goal of becoming a US $ 5 Trillion Economy. The domestic steel demand was spurred by the revival of numerous infrastructure and construction projects which got stalled due to the pandemic. In FY 2022, the production of crude steel and finished steel stood at 133.60 Million Tonne (MT) and 120.01 MT respectively. With an emphasis on the new age technological and industrial revolution the steel industry would be increasingly inter-alia using Artificial Intelligence, Industrial Internet of Things, Augmented Reality/Virtual Reality, and machine learning for smart manufacturing. As per the NITI Aayog report, by 2030 India will become the worlds production centre for green steel and pave the way for the worldwide adoption of green steel. The government initiatives and policies like Public Private Partnership model and National Steel Policy, will help the country increase its crude steel production capacity. The Governments push for infrastructure led economic growth has continued to boost the domestic steel consumption. The Government has laid out a plan of investment to the tune of Rs 75,000 crores for 100+ critical transportation infrastructure projects that will connect ports, coal, steel, fertiliser and food grain sectors across the first and last mile delivery network. This is expected to improve connectivity and transportation services across major points, in turn leading to a rise in demand for steel. The governments initiative to redevelop existing railway stations and the plan to provide a capital of Rs 2.4 lakh crores to Railways is likely to further scale the demand for steel. The Governments focus on infrastructure development with a proposed fund of Rs 10,000 crores will likely boost the domestic demand for steel in construction sector. The central governments call for Aatmanirbhar Bharat has given a whole new dimension to the nation. Under the PLI scheme (Production Linked Incentive) the Ministry of Steel signed 57 Memorandum of Understandings for specialty steel and has approved a sum of Rs 6,322 crores for steel sector growth. The government has introduced several initiatives to boost steel production in India with an aim to reach 300 MT in production by 2030. The World Steel Association whose members produce 85% of the global steel, forecasted the world steel demand to witness a growth of 1.7% in the Financial Year 2024 and a healthy growth rate of 6.2% in the domestic demand of steel in India.

4. Opportunities, Threats and Developments

India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships. Despite the slowdown in global manufacturing trade growth, COVID-19 Pandemic, followed by lockdown and social distancing norms and further followed by geopolitical tensions due to the Russia-Ukraine War, the economic growth of India was ensured by the government through various financial stimulus packages, announced by the Government of India and the focus on infrastructural development and implementation of new age technology in manufacturing and production sector to make India self-reliant. Also, Indias cabinet approved the Production Linked Incentives (PLI) scheme to provide Rs 2 trillion over five years to create jobs and boost production in the country. The financial stimulus measures and reforms initiated by the Government of India and liquidity measures by the RBI are expected to support industrial activity and demand. The movement of various high frequency indicators in recent months, points towards broad based resurgence of economic activity.

The Company, being a CIC, holds significant investments in equity shares of JSW Steel Limited, besides certain other investments in other Group Companies, as a result of which it remains less affected by the overall environment in the NBFC Sector. The Company recognizes that there is a significant potential for increase in steel demand in India. JSW Steel Limited, one of the major investments of your Company, is in the capacity expansion mode, which would be achieved in the next fiscal year. It has also made various domestic as well as cross-border acquisitions in order to reap benefits in the long term. All these factors point towards a high growth potential for Indian steel industry within India and a bright prospect for Indian Steel Manufacturers. As a result of which, the Company is looking forward for a sustainable growth in its investee Companies in the coming years which would enhance the shareholders value. The Company expects to enhance its entrenched value for the benefit of the shareholders at large.

5. Government Initiatives

The Government of India to boost the fast growing industrial development of the country revised its policy for providing preference to domestically manufactured iron & steel products in government procurement. Steel, along with its alloys, is one of the most common metals used across the world in the construction sector, accounting for more than 40% of world steel demand. The Government of India gave an impetus to industrial growth by introducing various initiatives to promote the development of domestic steel industry by infusing finance in infrastructure projects, including rail transport network, dedicated freight corridors, highspeed railway tracks, affordable housing projects and low-cost power transmission. The increased budget allocation and financial focus of the government on Ministry of Transport and Highways and Railway ministry will provide a positive impetus to the steel demand of the country.

The strong recovery of the steel demand was mainly due to governments focus on infrastructure development including roads, railways, defence etc. The PLI scheme for specialty steel introduced by the Government helped incentivizing investments in value added steel giving impetus to domestic production as well as exports. The Government has also implemented Domestically Manufactured Iron and Steel Products Policy, Quality Control Order covering carbon steel, alloy steel, tin plate, tin free steel and stainless steel and a Research & Development scheme namely "Promotion of R&D in Iron & Steel Sector" to address the technological issues faced by the sector with an aim to strengthen the industry and to ensure that increase in production of steel is achieved in a sustainable manner. The initiatives under Aatmanirbhar Bharat including introduction of various PLI schemes designed to attract investments in sectors of core competency and cutting edge technology, Make-in-India initiatives boosting domestic manufacturing capacity, reduction of corporate tax rate, etc. have helped the industrial sector to recover and achieve Pre-COVID levels.

6. Industry Structure

With a size of around 15% of Scheduled Commercial Banks combined balance sheet, the NBFC sector has been growing robustly in recent years, providing an alternative source of funds to the commercial sector in the face of slowing bank credit. NBFC-ND- SI (Systematically Important Non-Deposit accepting NBFCs) comprise 85.4% and NBFC-D (Deposit accepting NBFCs) comprise 14.6% of the total balance sheet size of the NBFC sector. Although in the FY 2022-23, the concerns surrounding the sector due to debt defaults amidst temporary asset liability mismatch arose, the inherent strength of the sector, coupled with the Reserve Banks continuing vigil on the regulatory and supervisory front, ensured that the growth of the sector is sustained and liquidity fears are allayed and the introduction of Scaled Based Regulations have elevated the private NBFC sector at par with public NBFCs.

The steel demand is derived from other sectors like automobiles, consumer durables and infrastructure. The Indian steel sector enjoys advantages of domestic availability of raw materials, cheap labour and Iron ore and provides major cost advantage to the domestic steel industry. The competition in Indian Steel Sector is very high owing to a presence of a large number of players in the unorganized sector, imports from China, Russia and FTA (Free Trade Agreement) Countries such as Japan and South Korea.

7. Risks & Concerns

The geo-political war in Ukraine, a slowing global economy, tightening fiscal policy mired with badly managed/failure of few major players in banking and finance sectors around the world suggest a possible moderation in business confidence and investment. Uncertainty over the global trade environment and volatility in the financial markets have softened the global trade and protracted war in Ukraine poses further downside risks to this forecast. The short-term economic outlook for many European countries has deteriorated sharply giving headwinds for mild recession.

The growth in Asian economies, though stronger than in other regions, with re-opening of Chinas economy, is expected to be bumpy and is likely to remain below the pre-pandemic rate. The prospects for Indian economies are far more challenging, as other economies in the region viz. Bangladesh, Pakistan and Sri Lanka have sought financial assistance from the International Monetary Fund (IMF) in 2022-23.

Worldsteel has forecasted that demand for steel is expected to see a 2.3% rebound to reach 1,822.3 MT in F.Y. 2023 and is forecasted to grow by 1.7% in F.Y. 2024 to reach 1,854.0 MT. Manufacturing is expected to lead the recovery, but persistent inflation and high- interest rates in most economies will limit the recovery of steel demand, despite positive factors like Chinas reopening, Europes resilience and the easing of supply chain bottlenecks. Demand in India is expected to show healthy growth of 7.3% in F.Y. 2023 and 6.2% in F.Y. 2024. The growth in steel consumption is expected to accelerate in most regions, but expected deceleration in China may overshadow the improved environment.

The operations of JSW Steel Limited (JSL) have a major impact on the profitability of the Group and that of your Company. The Company continuously evaluates its investments in group companies to ensure that the same meets the objective of ensuring maximisation of value to all its stakeholders in a prudent manner. The Company expects to make full use of the growth opportunities available to it as a CIC, however, the challenge remains on being able to leverage these initiatives to carve out a space in the competitive industry, within the regulatory and compliance framework.

8. Material Developments in Human Resource/ Industrial Relations Front

There have been no material developments in Human Resource and Industrial Relations front during the F.Y. 2022-23. Given the nature of business your Company is engaged in your Company continues to employ two employees to look after the business and administration of the Company. The Company has also hired a trainee during the year 2022-23.

9. I nternal Controls, Audit and Internal Financial Controls

A. Overview

The Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting within the organization for providing reasonable assurance with respect to recording and providing reliable financial and operational information to the Board of Directors. The Company has robust system of internal controls framework with laid down standard operating procedures and policies embedded at each of its functions / operations, commensurate with the size and nature of its business, forms an integral part of the Companys corporate governance policies.

B. Risk Management

Managing risk is fundamental to financial services industry and it is key to ensure sustained profitability and stability. In a rapidly changing economic, geopolitics, regulatory and financial environment, your Company have continued to leverage on its strong risk management capabilities. Risk management involves a systematic approach to identify, assess, manage and monitor risks that can affect the organisations ability to achieve its objectives and both top-down and bottom-up approaches are taken for assessing risks / opportunities, which is then consolidated / calibrated to get an overview of the entire organisation. While risks are assumed after appropriate considerations, some risks may arise due to unintended consequences of internal actions or external events. The Company views Risk Management as one of its core competencies and tries to ensure that risks are identified, assessed and managed in a timely manner. The Companys Risk Management framework aligns risk and capital management to its business strategies, aimed to protect its financial strength, reputation and ensures support to business activities for adding value to customers while creating sustainable shareholder value. The Risk Management Committee is chaired by Mr. N. K. Jain, Independent Director. The Committee reviews and discusses the risk trends, exposure and potential impact on the operations of the Company.

C. Compliance

The Company is committed to adhere to the highest standards of compliance with respect to regulatory matters as well as its internal norms and guidelines. The Company Secretary, assist the Management in designing the compliance framework, risks and manage these by framing appropriate policies, procedures etc. The Company periodically reviews policies and has in place the required framework for monitoring transactions and testing the implementation of the regulations, ensuring right governance structures and handling the regulatory relationships, including proactively engaging with the Regulators for industry level initiatives. The Whole-time Director, CEO & CFO, places before the Board, at each meeting, a certificate of compliance with all the applicable laws. The Company Secretary also confirms compliance with Company law, SEBI Regulations and other corporate laws applicable to the Company.

D. Internal Control

The Company has a proper and adequate system of internal controls, commensurate with the size and nature of its business to overview the Companys policy and to maintain an adequate check & balance mechanism. Internal control systems are integral to corporate governance. Some significant features of the internal control systems are:

• Adequate documentation of policies, guidelines, authorities and approval procedures covering all the important functions of the Company.

• Ensuring complete compliance with laws, regulations, standards and internal procedures & systems.

• De-risking the Companys assets / resources and protecting them from any loss.

• Ensuring the integrity of the accounting system and a proper and authorised recording and reporting of all transactions.

• Preparation and monitoring of annual budgets.

• Ensuring a reliability of all financial and operational information. Audit Committee, a sub-committee of the Board of Directors, comprising of Independent Directors. The Audit Committee regularly reviews audit plans, significant audit findings, adequacy of internal controls, compliance with Accounting Standards, etc.

• The internal control systems and procedures are designed to assist in the identification and management of risks, the procedure led verification of all compliances as well as an enhanced control consciousness.

E. Internal Audit

The Company has an internal audit function that inculcates global best standards and practices of international majors into the Indian operations. To maintain its objectivity and independence the internal audit function reports to the Audit Committee comprising Independent Directors who are experts in their fields. The scope and authority of the Internal Audit function is defined in the Internal Audit Charter the Company extensively practices delegation of authority across its team, which creates effective checks and balances within the system to arrest all possible gaps. The internal audit team has access to all information in the organization.

The Internal Audit team prepares a risk-based audit plan, which is approved by the Audit Committee. The frequency of the audit is decided by risk ratings of areas / functions. The audit plan is carried out by the internal team and reviewed periodically to include areas that have assumed significant importance in line with the emerging industry trend and the aggressive growth of the Company. In addition, the Audit Committee also places reliance on internal feedback and other external events for inclusion into the audit plan. Based on the report / observations of internal audit function, corrective action(s) are undertaken in respective area(s) to strengthen the controls. Significant audit observations and corrective action(s) thereon are presented to the Audit Committee. The Audit Committee periodically has independent sessions with the statutory auditors and the management to discuss the adequacy and effectiveness of internal financial controls.

F. Internal Financial Controls

As per Section 134(5)(e) of the Companies Act, 2013, the Directors have an overall responsibility for ensuring that the Company has implemented a robust system and framework of internal financial controls. This provides the Directors with reasonable assurance regarding the adequacy and operating effectiveness of controls with regards to reporting, operational and compliance risks. The Company has devised appropriate systems and framework, including proper delegation of authority, policies & procedures, effective IT systems aligned to business requirements, risk- based internal audits, risk management framework and a whistle blower mechanism.

The Company had already developed and implemented a framework for ensuring internal controls over financial reporting. This framework includes entity-level policies, processes and Standard Operating Procedures (SOP). The entity- level policies include antifraud policies (such as code of conduct, confidentiality and whistle blower policy) and other polices (such as organization structure, insider trading policy, HR policy, etc.). The Company has also prepared SOP for each of its processes. During the year, controls were tested and no reportable material weakness in design and effectiveness was observed. The management, statutory auditors and internal auditors have also carried out adequate due diligence of the control environment of the Company through rigorous testing.

10. Cautionary Statement

Statements made in this Management Discussion and Analysis (MDA) describing the Companys objectives, projections, estimates and expectations may be forward looking within the ambit of applicable laws and regulations. Actual results may differ from those expressed or implied owing to successful implementation of our strategies, our growth and expansion, global & Indian economy, political stability, stock performance on stock markets, changes in government regulations, tax regimes, economic developments and other incidental factors. Except as required by law, the Company does not undertake to update any forward-looking statements to reflect future events or circumstances. This MDA should not be considered as a recommendation that any investor should subscribe for or purchase any of the Companys shares. The Company makes no representation or warranty, express or implied, as to and does not accept any responsibility or liability with respect to the fairness, accuracy, completeness or correctness of any information or opinions contained herein. Investors are advised to exercise due care and caution while interpreting these statements.