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A. Overview

The objective of this report is to convey the Managements perspective on the external environment and steel industry, as well as strategy, operating and financial performance, material developments in human resources and industrial relations, risks and opportunities and internal control systems and their adequacy in the Company, during FY 2022-23. This should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in this Integrated Report and Annual Accounts 2022-23. 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.

B. External Environment, Industry Structure and Developments

1. Global Economy

Global GDP growth rate in 2022 was 3.4% underthe challenging geo-political environment caused in the wake of the Russia-Ukraine war. The central banks hiking ratesto control inflation continues to have an adverse impact on the economic activities. Growth rate in 2022 was dampened due to rapid spread ofCOVID-19 variants in China and the ongoing Russia-Ukraine war. The concerted sanctions on Russia, which supplies around 10%of the worlds energy, led to dampening growth and further straining of supply chain. The war worsened the persistent inflation across developed economies and the growth rate is projected to fall from 3.4% in 2022 to 2.8% in 2023.

Growth rate in 2023 in USA is expected to be 1.6%, while the Eurozone is expected to remain strained at 0.8%. The energy shock, a result of the war in Ukraine, continues to impact the economic activity in Europe. Chinas economy is set to rebound to 5.2% as mobility and industrial activities pick up after lifting of pandemic restrictions; long-term headwinds to growth include a shrinking population and slowing productivity growth.

The factors that drove inflation in 2022 are already reversing. These include increase in commodity prices, expansive fiscal and monetary policy, and supply chain disruptions. Global inflation is expected to fall from 8.7% in 2022 to 7% in 2023 on the back of lower commodity prices. Inflation has already peaked in the US and Europe in early 2023. It is also declining in other major economies including Japan, China and India.

In the US, economic growth is expected to be slower in 2023 given the tightening monetary and fiscal policy. Contrary to late 2022 estimates, US will avoid a recession due to declining energy prices, strong employment growth, and easing of supply chain stress. Threat of recession continues to loom over Europe as wages and consumer spending have fallen significantly. Elevated natural gas prices are fuelling inflation and driving down purchasing power. The tightening of monetary policy by ECB and Bank of England along with energy shock resulting from the Russia-Ukraine war will play a key impact on the growth potential.

2. Indian Economy

GDP growth rate in FY 2022-23 was 7.2% which was better than what was estimated earlier. Despite the challenging external environment, India will remain the fastest growing major economy. Brent oil prices are expected to remain rangebound in 2023, given the continuing Russia-Ukraine war and sanctions imposed in response by the USA and European Union. India meets nearly 80% of its oil needs through imports; high oil prices will also have a trickledown effect on prices. Persistent inflation resulted in RBI to increase the repo rate by 250 basis points throughout FY 2022-23. Further rate hikes are expected in the coming year. Capital investment of close to 3.3% of GDP is expected to crowd-in private investment, strengthen job creation and demand, and raise Indias overall growth potential. Focus is expected in the energy sector, with significant capital investments towards energy transition and green hydrogen mission. Overall, the key steel consuming sectors are expected to perform well in FY 2023-24 supported by a rise in infrastructure spend by the Government and gradually improving semiconductor supply. High CAPEX allocation in key steel consuming sectors is expected to drive steel consumption.

3. Global Steel Industry and Developments

The year witnessed very high volatility in raw material, especially coking coal on account of the on-going geopolitical concerns and supply chain bottlenecks impacting steel price across geographies.

The recovery momentum of global economy after the pandemic has been affected by persisting inflation, US monetary tightening, Chinas economic deceleration and continued supply disruptions due to Russia-Ukraine war. High energy prices, rising interest rates, and falling confidence have limited recovery of the steel demand after a dip in 2022. Flowever, positive factors like Chinas re-opening, Europes resilience during the energy crisis and preliminary easing in supply chain bottleneck is expected to help global steel demand grow by 1.7% reaching 1,854 MnT. Demand in the USA is expected to grow moderately by ~1% in 2023 while demand in Europe is expected to see a 5.6% rebound in 2024. The Chinese steel demand is expected to grow by ~2% in 2023 after a 3.5% decline in 2022.

4. Indian Steel Industry and Developments

India remains in a very optimistic position in the global steel demand. After growth of 8.2% in 2022, demand is expected to grow at 7.3% in 2023 backed by consumption-led levers. Having managed inflation well, the Indian economy is on a healthy growth trajectory, with a rising share of investment in GDP, appropriate budget allocations and expenditure by the Government in the infrastructure segment.

Indias capital goods sector is also expected to benefit from the momentum in infrastructure and investment in renewable energy. Automotive and consumer durables are expected to maintain healthy growth driven by sustained growth in private consumption. Integrated Steel Players will continue to add capacity in FY 2023-24, and utilisation levels are expected to remain healthy at -80%. Net export position is expected to strengthen with removal of export duty

5. Product Segments

The Pig Iron (PI) demand throughout the year remained subdued with downward corrections in prices. Overall buying sentiments were weak on the face of price volatility of raw materials, with foundries operating at a maximum 50-60% capacity levels. PI exports saw upsurge in Q1 FY 2022-23 and reached an estimated 190 kt compared to 88 kt in Q4 FY 2021-22. However, price corrections and imposition of export duty on PI depressed exports significantly from June 2022. Prices dropped by ~$140/t on FoB east coast India basis. Exports were negligible till Q3 FY 2022-23. Even after removal of Export duty in mid-November, the export market remained dull resulting in over-supply in the domestic market. Only in the last quarter of FY 2022-23, bulk PI booking for export commenced, though it is yet to reach the pre-export duty imposition levels. On the price front, domestic foundry grade PI prices kept correcting itself downwards throughout the year.

The Dl Pipe (DIP) segment, after peaking in Q4 FY 2021-22 at -580 kt, the industry witnessed a drop in dispatches by -30% in Q1 FY 2022-23 due to planned maintenance shutdowns and slower release of orders and clearances. By end of HI FY 2022- 23, situation improved and by the last quarter of FY 2022-23, dispatches witnessed improvement by -11% over Q3. This was due to year-end target fulfilment for all the departments and contractors and Government pressure to utilise the available funds with the respective authorities within the financial year. Export bookings in the first quarter remained healthy in April and May but slowed down in June till end of HI because customers anticipated drop in DIP prices. Export bookings remained healthy thereafter till the end of the year. On the price front, after witnessing an upward movement of -50% in Q4 FY 2021-22 over Q3 prices, it started to soften throughout HI FY 2022-23. It started to strengthen in Q3 FY 2022-23 and by the last quarter, the market witnessed an upswing in price of -50-55%.

C. Opportunities and Threats

India remains the second largest castings producer in the world. Its castings industry is driven by robust demand in the Engineering Sectorthrough Make-in-lndia Scheme (Atmanirbhar Bharat), Auto & Auto-Components, Railways, Defence and Sanitary Castings. Therefore, the Company continues to leverage its strengths and competitive advantage of the opportunities in foundry grade PI business by offering differentiated products & services, such as consistency in chemistry, customised application-based PI offerings, lower energy consumption by use of Companys PI brand, Tata eFee, customer-centric distribution channel, and improved technical services.

D. Operational and Financial Performance

Hot Metal production stood at 5.62 lakh tonnes (Lt) (FY 2021- 22:5.65Lt). Pig Iron production dipped to 270 Kilo Tonnes (kt) (FY 2021-22:344 kt), on account of higher hot metal off-take for Dl Pipe production. DIP production improved to 300 kt compared to 235 kt in FY 2021-22 on account of production from new DIP-2 plant. Deliveries of PI and DIP in FY 2022-23 were 262 kt and 296 kt respectively as against 341 kt and 237 kt respectively in FY 2021-22.

FY 2022-23 was a year of many highs due to the increased availability of the production facilities and improved operational efficiencies. Blast Furnace (BF) recorded its best- evernet productivity of 2.94 t/m3/d which was aided by the highest yearly power generation of 24 MW and highest yearly Coke production of 236 kt.The Sinter Plant also recorded its best ever gross sinter production of 659 kt and best ever net productivity of 2.01 t/m3/d. DIP also clocked its highest ever dispatch of 296 kt.

The turnover during FY 2022-23 at Rs.3,260 crore, was higher by Rs.514 crore over previous year primarily due to higher prices of PI and DIP along with higher deliveries of DIP. The profit after tax during FY 2022-23 at Rs.81 crore, was lower by Rs.157 crore over previous year due to lower operating profits attributable to higher input costs primarily coal along with higher finance cost and depreciation charge.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations are provided hereunder:

SI. No. Key Financial Ratios with significantchange Y-O-Y Change % Reason
1 EBITDA Margin (58) The change is primarily attributable to lower profit margins due to rise in raw material costs
2 Net profit Margin (71)
3 Net-Debt Equity Ratio 52 Change is primarily due to increase in finance costs
4 Interest Coverage Ratio (73) Decreased primarily on account of decline in operating profits
5 Return on Net Worth (69)
6 Debtors Turnover 8
7 Inventory Turnover 1
8 Debt Equity Ratio (11)
9 Current Ratio (11)

E. Outlook

Outlook of both PI and Dl Pipe businesses remain optimistic. While PI business may face challenges in price, the DIP business, backed by a strong thrust by the Government on Infrastructure, particularly in the Water & Sanitation sector, remains an attractive business proposition. It is expected that PI demand in FY 2023-24 may increase in line with the GDP growth of the country as the Engineering Industry gets a fair boost with full recovery of the economy. The Dl pipe demand could be significantly higher in FY 2023-24 due to increased outlay by the Government in the water sector. Further, the outlook of DIP demand for next 5-10 years is encouraging with the Governments robust investment through its flagship Scheme of Jal Jeevan Mission both, for Rural and Urban areas. The Company is well positioned, both, with higher DIP capacity, resulting from the completed and on-going expansion programs, and a wider product portfolio, in terms of size as well as new products, to serve its customers better.

F. Risk and Concerns

In the journey towards Risk Intelligence, a robust governance structure has been developed across the organisation. The Board of Directors and the Risk Management Committee periodically reviews the risk portfolio to assess action plans to navigate the risk-based thinking culture. During the year, we further aligned our Enterprise Risk Management (ERM) process with our holding Companys ERM framework which is based on international standards like Committee of Sponsoring Organization of the Treadway Commission (COSO) and ISO 31000. The Company follows a coordinated risk assurance and the ERM process integrated with Finance, Audit, Strategy & Business Planning, Marketing and Sales, Operations and Compliance functions. The ERM process involves periodic identification of risks which is likely to affect the business adversely, rating the risks on their impact and likelihood, preparation of risk heat map, identification of early warning indicators, estimation of risk velocity, implementation of risk mitigation plans by the risk owners and continuous monitoring of the mitigation plans by the Risk Management Committee of the Board and the Management. Risks are being identified in the areas including sales, supply chain, finance, regulatory approvals, environment, climate change, operations, safety, projects, industrial relations, etc. Mitigation strategies and plans have been accordingly developed to manage and mitigate the likelihood and impact of such risks.

Pig Iron is more vulnerable to market volatilities of raw material prices and steel prices. Therefore, the Company works on these risks and mitigates them to the extent possible by optimizing the raw material procurement cost, controlling the blast furnace operational parameters and differentiating its products through customization, technical services and other brand promises.

The DIP demand has been growing at 9 to 12% over the last few years. Going forward, the growth in demand is expected to be even higher with the Governments priority and renewed thrust on Water.

Hence, the long-term risks of Dl Pipe demand going down is quite low. However, liquidity issues could be a matter of concern in some States.

Foreign currency exposure from import of coking coal/ capital equipment is managed by taking appropriate actions such as forward cover etc. to mitigate the risks as per foreign exchange policy of the Company and the applicable regulatory framework. For more details, please refer the notes to the financial statements.

G. Internal Control Systems and their Adequacy

The Companys internal control systems and policies remain commensurate with the Companys size and nature of operations to provide assurance that all assets are safeguarded, transactions are authorised, recorded and reported properly following all applicable statutes, Generally Accepted Accounting Principles, Tata Code of Conduct and other corporate policies.

The Board of Directors and the Audit Committee are responsible for ensuring that these controls are adequate and operating effectively. The Audit Committee comprises of members, majority of whom, including the Chairperson are Independent Directors.The Company has laid down Standard Operating Procedures and policies to guide the operations of the business. The Systems Assurance Department, headed by the Internal Auditor, conducts regular audits in various functional areas as per an audit plan approved by the Audit Committee. Audit planning and executions are oriented towards assessing the state of internal controls, making them stronger and addressing the risks in various functional areas. The internal auditor reports to the Audit Committee its findings and observations, and rating of internal controls status for each area reviewed. Audit Committee meets periodically to review audit issues and follow up on implementation of corrective actions.

Further, Internal Financial Control (IFC) requirements have been implemented as per Act. It has been designed to provide reasonable assurance with respect to recording and providing reliable financial and operational information, complying with applicable laws, safeguarding assets from unauthorized use, executing transactions with proper authorization, and ensuring compliance with corporate policies. The controls, based on prevailing business conditions and processes, have been tested during the year and there was no reportable material weakness in the design or effectiveness. The IFC framework has been reviewed by internal and independent external auditors. The Audit Committee reviews the reports submitted by Internal Auditor at its meetings. The Audit Committee, whenever it deems fit, engages in independent discussions with the external auditor and the Management to discuss the adequacy and effectiveness of IFC.

Audit Committee also seeks views of the statutory auditors on the adequacy of internal control systems. In compliance with Section 143(3)(i) of the Act, the Statutory Auditors have issued an unmodified report on the IFC over Financial Reporting which forms a part of the Independent Auditors Report also forming part of this Report.

H. Human Resources and Industrial Relations

The FIR function has set for itselftwo major objectives - First/to be the Employer of Choice, and Second,to develop processes which sustain a competent, engaged and socially sensitive workforce. With a firm belief that People Practices can yield sustainable competitive advantage to an organisation, the Companys FIR strategy is built along four pillars of (a) Talent Management and Capability Development, (b) Employee Productivity Improvement, (c) Enhance Workforce Engagement and Satisfaction, and (d) Leverage Digitalisation across FIR Processes to improve Employee Experience.

Companys constant endeavour is to foster a work culture that promotes collaboration, innovation, high performance, and agility. This has led to a path of a new world of possibilities, requiring to work on a new set of challenges fora future-ready workforce. Emphasis of the Companys FIR in attracting and managing talent is reflected in initiatives such as identification of FHi-Pot (Fligh Potential) employees through Development Centres, participation of FHi-Pot Talent in Action Learning Projects, Cross-Functional Teams & Task Forces to handle key Organisational challenges, regular check-in conversations of Senior Leaders with Target Employee Segment to name a few. The Company continued to deepen the talent base and prepare the leadership pipeline through campus recruitments and pre-placement offers to candidates from premier institutes, identifying high potential talent within and outside the organization, while mapping the succession planning for critical positions. As an equal opportunity employer and with a focus on diversity and inclusion, the Company reinforces the Tata philosophy by recruiting from socially disadvantageous sections demonstrating the Companys commitment towards Affirmative Action and Diversity.

In the fiscal year 2022-23, the Company successfully onboarded new employees for DIP expansion project and for other vacancies. In line with the sustained efforts towards Diversity, Equity, and Inclusion, transgenders were also inducted in Companys workforce.

The Company recognizes that its people are the primary source of its competitive advantage and takes pride in being certified as Great Place to Work second time in succession, while improving its Engagement Scores. Various HR interventions have helped deliver the results on Organizational engagement. Engagement Score has improved from 4.08to 4.15, and the engagement ratio has increased from 7:1 to 9.50:1 where the Gallup India Manufacturing mean stands at 5.0:1.

Other engagement activities such as Virtual Games, Reward & Recognition, Kudos, etc. continued with a digital tinge. Learning & Development interventions were aimed to upgrade the capabilities of the workforce. To support the efforts of business on Digital, an initiative on "Culture & Capability building" was launched along with an external partner with the thrust on digital mindset activation, competency building of the workforce. Further, to develop technical capability of the employees, e-modules, short term training at the shopfloor, knowledge sharing at the departmental level, class-room sessions by subject matter experts were imparted.

Total number of permanent employee as on March 31, 2023 was 1,638.

The Company has enjoyed cordial relations with its employees and the unions at its factory and received support in implementation of various improvement initiatives that impact safety, quality, cost efficiency, productivity and sustainability.

I. Statutory Compliance

The Managing Director, after obtaining confirmation from all the departments of the Company, makes a periodic declaration regarding the compliance with the provisions of various statutes, applicable to the Company. An enterprise-wide digital compliance management tool helps monitor compliance on a real-time basis across the organization. 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.

Sources: Reports of RBI, World Steel Association (WSA/ World steel) and India Brand Equity Foundation (IBEF) and Team analysis.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the objectives, projections, estimates and expectations of the Company, may be forward-looking statements within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among others, economic conditions affecting demand/supply, price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.