2. Risk Factors

The Company recognizes Risk Management as an integrated, forward
looking, process oriented approach for managing all key business risks
and opportunities, and has put in place an enterprise risk management
(‘ERM’) framework, commensurate with the nature of its business. The key
objectives of the Company through ERM are:

-   To enshrine the process of Risk Management as a usual Business
    Process and integrate into all decision making and planning
    processes at the Entity level ;

-   To ensure all levels of Management identify and monitor risks
    through a properly defined framework ;

-   To provide periodic information and updates to the Board and the
    Audit Committee of the Board on the significant risks and the ways
    of mitigating the same.

The Company creates a “Risk Dash Board” for periodic reporting and
review by the Management as a decision support mechanism in developing
control measures in risk mitigation. Some of the key risks the Company
has been monitoring, reviewing and managing are:

1. Risk of Market Competition

The company is subjected to Dumping risks from intensified import
activities arising out of tariff reduction on account of AFTA agreement
in the wire-rod segment, aggravated further by a fragmented re-bar
market comprising of unorganized re-rollers, coupled with delay in
implementation of projects under Thai Kem Kheng. The Company is
addressing the risk of market competition through a variety of marketing
initiatives including

-   providing ‘Service Solution’ to customers comprising of VMI (Vendor
    Managed Inventory) thereby extending value and supply security to
    customers,

-   RVM (Retail Value Management) program resulting in extended
    retention attributes to Dealers and enhancing awareness of “Standard
    Vs Sub-standard” re-bars,

-   leveraging the Mini Blast Furnace hot metal supply to developing new
    and superior products like HCWR 82B, Tyre Bead, Auto Spring, and

-   simultaneous with a continuous focus on exports to ASEAN, Australia
    and India

2. Risk of Raw Material Supply Chain Logistics

The company faces raw material supply risks as a result of sporadic
availability of scrap, extended lead time for sourcing of MBF raw
materials, and a price gap risk in maintaining a “metallic input to NR
spread” to enable an adequate margin. The company addresses the scrap
availability risk by building relationship with Suppliers and
‘Competitors’ through structured monthly meetings which assists in
gaining market intelligence on a continuous basis, and anticipating
possible supply shortfalls in advance, thus enabling bridging through
imports. The extended lead time for MBF raw material is mitigated by
detailed inventory (inclusive of depletion and replenishment) planning
on an annual rolling-plan basis, and sourcing assisted by Tata Steel’s
global procurement function through the “Lead Buyer” mechanism. By
maintenance of a “Safety Stock” to ensure fulfillment of month’s
production targets, along with continuous joint discussion between
Procurement, Sales and Production Scheduling departments for sharing of
market trends and ruling prices, the targeted Spread between metallic
inputs and NR (viz. the price gap risk) is protected.

3. Risk of integration of Mini Blast Furnace (MBF) operation

The company faces a risk of gaps in operational integration of the MBF
operation with arc furnace steel production, which may limit MBF
reaching its rated capacity (and restrict attainment of project
economics). Through simultaneous commissioning of all related and
ancillary facilities, including the Hot Metal Charging System, all
Performance Guarantee Tests progressively and comprehensively being
concluded, hot metal in Electric Arc Furnace (EAF) charge mix already
attaining project KPI’s, continuous supervision and guidance of MBF
operation by Tata Steel Limited (TSL) team at the shop-floor level to
ensure knowledge transfer, as well as regular monitoring of KPI’s, both
in-house and by TSL for bottle-neck identification and its effective
eradication, the ramp-up to rated capacity and attainment of all
operational parameters, is assured.

4. Human Resource Risks

The company has latent risks in acquisition of personnel with adequate
knowledge of MBF operation, and manning critical positions with
technically skilled personnel with relevant competencies. Through an
elaborate on-the-job training and ‘hand-holding’ exercise by TSL team,
an extensive blast furnace knowledge transfer is being effected, while
various initiatives to gain employee intimacy thereby ensure employee
retention, (including, but not limited to, Employee Satisfaction Survey,
Performance Management System, Talent Review for identification of High
Potential employee, 2-way communication, Exit interviews, etc.) have
been put in place. An exercise to identify high impact positions along
with its requisite competencies – termed “Critical Positions”, supported
by a structured Training & Development program to overcome identified
gaps, as a composite element of an Individual Development Plan (IDP), is
in initial stage of roll-out.

5. Environmental Risks of operation

Safety risks arising out of hazardous nature of production process is
being addressed through compliance of Loss Time Injury Frequency (LTIF)
target in the VISION statement, cascaded through various initiatives
including formation of Safety, Health and Environment (SHE) Committee,
LTIF Committee, recording & analysis of ‘unsafe conditions’ and ‘near
misses’, safety briefing before each site visitation, compulsory
observation of PPE, etc. As an integral core value of CSR (Corporate
Social Responsibility) and under an umbrella of Quality Systems of ISO,
OHSAS, TPM methodology, pollution and emissions (of CO2) is monitored
and controlled on continuous basis. A legal compliance structure in
tandem with ISO requirements is in place, inclusive of close monitoring
of new regulations and statutes brought into force and their respective
compliance requirements.

6. Risk of production stoppages for want of essential spares

With increased production targets and consequential higher asset
utilisation, the company is faced with a widening risk of production
stoppages and delays for lack of essential spares. This risk is being
addressed through multiple channels, including continuous monitoring and
analysis of ‘Run Factor’, delay report analysis, productivity
benchmarking (with NatSteel and others), information exchange at South
East Asia (SEA) Integration meeting, along with initiatives for on-time
spares supply by Unique Material Code (UMC) project, Gap analysis, etc.

7. Risk of Foreign Exchange volatility

The risk arising out of Foreign Exchange volatility, originating
primarily from substantial raw material imports, is mitigated through
the formation of Treasury Committee for the supervision of treasury
operation. A detailed Hedging Strategy is included in an elaborate Board
adopted Treasury Policy, which specifies the Hedging objective, Hedging
instruments for use, Hedging bands and permissible limits for un-hedged
amounts, Delegation of Authority, and Treasury performance review
mechanism.