JSW Holdings Ltd Management Discussions

1. Background

Your Company is a Core Investment Company ("CIO") with an asset size of above Rs 100 crores. As the Company is not accessing public funds, it is not required to be registered under Section 45IA of the Reserve Bank of India, 1934 and is termed as Unregistered CIC 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, 2024, your Company holds 7.42% equity shares of JSW Steel Limited, the market value of which stands close to Rs 15,000 crores. The Company also holds other strategic investment in Group Companies, the details of which are provided in this Annual Report.

2. Overview of Financial and Operational Performance

Your Company has recorded good performance during the F.Y. 2023-24 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. 2023-24 is as follows:

A. Standalone Performance

For the financial year under review, your Company earned a total revenue on Standalone basis of Rs 16,956.08 lakhs, comprising of income by way of dividend of Rs 6288.97 lakhs, interest of Rs 9,275.55 lakhs, pledge fees of Rs 735.69 lakhs, management advisory services of Rs 450.00 lakhs and gain on fair value changes of Rs 205.87 lakhs. The Profit before interest, depreciation and tax was Rs 15,749.25 lakhs and after providing for depreciation of Rs 0.27 lakhs and Tax of Rs 3,884.17 lakhs and the Net Profit for the year was Rs 11,864.81 lakhs.

B. Consolidated Performance

During the year under review, your Company earned the total Consolidated Revenue of Rs 16,956.08 lakhs, comprising of income by way of dividend of Rs 6,288.97 lakhs, interest of Rs 9,275.55 lakhs, pledge fees of Rs 735.69 lakhs, management advisory services of Rs 450.00 lakhs and gain on fair value changes of Rs 205.87 lakhs. Your Company has two Associate Companies and after considering the share of profit from associates of Rs 3,691.08 lakhs and the consolidated profit after tax for the year was Rs 15,555.89 lakhs.

C. Significant changes in Key Financial Ratios

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

i. Return on Net-worth for the year has (decreased) from 1.55% to 0.55% by 64.77% owing to significant decrease in profit after tax due to decrease in dividend income for the year.

ii. There was a decrease in debtors turnover ratio from 28.69% to 9.08% by 68% due to substantial decrease in turnover.

iii. The Return on Capital Employed has also decreased from 1.85% to 0.56% by 69.97% due to substantial decrease in earnings before interest and tax.

iv. There was a decrease in current ratio from 11.05% to 7.42% by 32.84% due to increase in current liabilities.

v. There was a decrease in net Capital turnover ratio from 1579.69% to 463.36% by 70.67% due to decrease 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. Economic Overview & Future Prospects

A. Economic Overview

The global economy has shown strong resilience amidst multiple headwinds such as the ongoing Russia-Ukraine war, geopolitical tensions in the Middle East, and the cost-of-living crisis in several economies. The recession was avoided by the resilient banking system and several major emerging markets economies performed better than expected. The manufacturing activity, however, has remained subdued, but services have exhibited strength.

According to International Monetary Funds World Economic Outlook, global economy is expected to grow at the rate of 3.2% in 2024 and 2025. Global Inflation is expected to decline steadily from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025 with advanced economies returning to their inflation targets sooner than developing economies. Falling inflation should allow interest rate cuts in the near term which will further support economic recovery.

Indias economic growth momentum continues to remain strong, driven by the industrial sector and robust capital formation. Strong government

spends on infrastructure and anticipated private capex recovery are contributing to the momentum. The outlook for housing, auto and renewables remain robust. An expected rural recovery aided by above- normal monsoons forecasted for 2024, will provide further tailwinds to economic growth. Indias overall macro-economic profile remains strong, buoyed by healthy forex reserves and a positive outlook on capital inflows, despite escalating geopolitical risks.

In India, healthy steel demand growth continues, aided by ongoing infrastructure spends by the government and tailwinds from major steel consuming sectors and increase in demand from crucial sectors such as construction, infrastructure, automobile, engineering and defence.

B. Future Prospects

In the US, economic growth is holding up reasonably well with resilient labour markets and consumption. In China, GDP was driven by strong growth in industrial production and infrastructure investments. Excess industrial capacity in China remains a concern and likely to push up trade tensions. In the Eurozone, while there is weakness in consumption and manufacturing, overall economic growth appears to be bottoming out.

India remained the fastest growing major economy in the world in FY23-24. The Indian economy remains on a transformative growth path, demonstrating its inherent strength and resilience. Building on the strong foundations, India appears to be well on track to become the third largest economy over the next three years. The focus on infrastructure development continues, with central government increasing capex to Rs. 11.11 lakh crores in its interim budget for FY 2024-25, constituting 3.4% of the GDP in line with its infrastructure development-led push to drive sustained economic growth, which is likely to continue having a multiplier effect. The Government also plan to build 2 crore more houses under the PM Awas Yojna (PMAY).

Most multilateral agencies, including the IMF and World Bank, have upgraded Indias growth forecasts for 2024 and 2025, amidst caution surrounding geopolitical tensions. Elevated consumer confidence coupled with easing inflation will support consumption growth. Indias outperformance is expected to continue with positive trends across key sectors and a resilient macroeconomic profile.

India is the second-largest producer of crude steel in the world. In FY 23-24, the Indian Steel Sector has demonstrated unprecedented performance, achieving its highest level of production and consumption. The production of crude steel was 144.04 Million Tonnes (MT) and finished steel consumption was 136.25 MT driven by robust domestic demand on the back of the Governments continued spend on infra and housing, the increasing share of manufacturing in GDP and strong demand from automotive sector. However, margins of domestic steelmakers were under pressure due to volatile commodity and energy costs and the surge in low-cost imports putting more pressure on steel prices.

4. Opportunities, Threats and Developments

India has emerged as the fastest growing major economy in the world and is currently the fifth largest economy of the world and is on track to become the third largest economy over the next three years. Despite the geopolitical tensions due to Russia-Ukraine War, Middle East, the economic growth of India was ensured by the government through various financial stimulus packages and the focus on infrastructural development. India is poised to fortify its position as a global hub for innovation and research. Government support for initiatives emphasizes the pivotal role of Research and Development (R&D) such as positioning the nation as a manufacturing stronghold to make India self-reliant.

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 and has domestic as well as overseas operations 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 has implemented a series of strategic measures to propel the growth of the domestic steel industry and bolster industrial development. Central to these efforts is a policy that prioritizes domestically manufactured iron and steel products in government procurement processes. This move not only promotes the utilization of locally produced steel but also provides a significant impetus to the fast-growing industrial landscape of the country. The Government has allocated increased funds towards critical infrastructure projects, including rail transport networks, dedicated freight corridors, high-speed railway tracks, affordable housing initiatives and power transmission networks. These investments are aimed at fostering a robust ecosystem for steel production and consumption, thereby stimulating economic growth and employment opportunities across various sectors.

Furthermore, the introduction of targeted initiatives such as the Production Linked Incentive (PLI) scheme for specialty steel has incentivized investments in value-added steel production and export-oriented manufacturing. This scheme has facilitated the execution of 57 Memorandum of Understanding (MoUs), amounting to an investment of Rs 9,500 crores and creating an additional capacity of 25 million tonnes for producing specialty steel grades. Complementing these efforts are policy frameworks like the National Steel Policy 2017, which lays down key imperatives to ensure the readiness of the Indian steel sector to meet the evolving demands of modern India while promoting sustainable growth. Initiatives like Make in India and PM Gati-Shakti National Master Plan further aim to enhance steel usage, overall demand and investment in the sector, positioning India as a prominent player in the global steel market.

To strengthen the quality and competitiveness of domestically manufactured steel, the government has introduced the Steel Quality Control Order, which has notified 145 Indian Standards to promote Made in India steel for government procurement. Additionally, the establishment of the Project Development Cell underscores the governments commitment to facilitating new investments in the sector by identifying and fast-tracking critical projects. These comprehensive measures reflect Indias proactive approach towards enhancing its steel industrys capabilities, fostering innovation and driving sustainable growth in alignment with the broader national development agenda.

6. Industry Structure

Non-Banking Financial Companies (NBFC) are an integral part of the Indian financial system. NBFC sector in India has undergone remarkable growth and witnessed notable transformations in segments such as housing finance, microfinance and consumer finance providing an alternative source of funds to the commercial sector in the face of slowing bank credit. With the implementation of Scale Based Regulation (SBR) from October 2022, NBFC have been segregated into four layers, namely, a Base Layer, a Middle Layer, an Upper Layer and a Top Layer based on size, activity and the perceived level of riskiness. 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. Despite the concerns surrounding the sector due to debt defaults amidst temporary asset liability mismatch, 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, 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

Global steel prices, influenced by Chinas production, pose a long-term risk to Indias steel demand and imports, compounded by geopolitical conflicts such as the escalating Middle East tension, potentially impacting crucial projects and fiscal stability. Despite these challenges, Indias steel industry is poised to maintain resilience, continuing to play a pivotal role in the countrys growth trajectory.

Government initiatives to boost infrastructure, including increased budget allocations for rail transport networks, dedicated freight corridors and affordable housing projects, provide a strong impetus to domestic steel demand. Additionally, the Production Linked Incentive (PLI) scheme for specialty steel incentivizes investments in value-added production, enhancing both domestic output and export competitiveness.

While Chinas steel demand undergoes a transition towards manufacturing and renewables, India emerges as a primary growth market for steel consumption. This growth outlook is further supported by anticipated recoveries in European and North American steel demand driven by automotive, industrial production, and infrastructure spending. Despite external pressures and geopolitical uncertainties, Indias steel industry is poised to remain resilient, contributing significantly to the nations economic growth and development aspirations.

The operations of JSW Steel Limited (JSL) have a major impact on the profitability 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. Given the nature of business your Company is engaged in, your Company employed three employees and a trainee during the F.Y.

2023-24 to look after the business and administration

of the Company.

9. Internal 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, geo-politics, 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 the that risks are identified, assessed and managed in a timely manner. The Companys Risk Management framework aligns the risk and capital management to its business strategies, aimed to protect its shareholders and other stakeholders interest, keep the organisation in track to achieve its business objectives and sustainable growth. 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 transactions monitoring 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 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 robust 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:

• Well documented authorisation matrix, policies, guidelines, authorities and approval procedures covering all the important functions of the Company.

• Ensuring complete compliance with laws, regulations, standards and internal procedures and 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 and monitors implementation of Audit Committee recommendations.

• 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 Group has an internal audit function that inculcates global best standards and practices of international majors and also conducts Internal Audit for the Company. To maintain its objectivity and independence, the Internal Auditor 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 anti-fraud 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 and noted no significant or material weakness or deficiencies which can impact financial controls.

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 successfully implement 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.