Rating Rationale

Brickwork Ratings Reaffirms ‘BWR A-(SO)’ rating to Dolvi Minerals & Metals Pvt.
Ltd.’s long term Non-Convertible Debentures (NCD) issue of ` 700 Cr having tenor
up to 5 Years and 15 Days

Brickwork Ratings (BWR) has reaffirmed the Rating1 of ‘BWR A-(SO) (Pronounced BWR A
Minus (Structured Obligation)’ with Stable Outlook for Dolvi Minerals & Metals Pvt. Ltd.’s
(DMML) structured NCD issue of ` 700 Cr having a tenor of 5 years and 15 days.
Instruments with BWR A-(SO) rating are considered to have adequate degree of safety
regarding timely servicing of financial obligations. Such instruments carry low credit risk.

The rating primarily factors the support of JSW group and especially that of its flagship
Company JSW Steel Ltd. to the issue by DMML, letter of comfort provided by JSW Investments
Ltd., Put Option structure incorporated in the transaction through another group Company JSW
Projects Ltd. However, the rating is constrained by high dependence on the continued support
from JSW Steel Ltd. in terms of purchase of entire coke from Dolvi Coke Projects Ltd. (DCPL)
which is owned by DMML, weak financials of the other group Companies connected with the
issue and the tail risk embedded in the issue.
BWR has essentially relied upon the terms of issue shared with us, financial results of JSW Steel
Ltd. for H1 FY16, FY15 and JSW Projects Ltd. for FY15 and information and clarifications
provided by DMML.

Dolvi Minerals & Metals Pvt Ltd (DMML), earlier promoted by Vinamra Consultancy Pvt. Ltd.
was incorporated on August 22, 2014 with a paid up capital of Rs One Lac. Its share Capital
increased to ` 100 Crs in FY15, of which JSW Steel had invested ` 40 Crs. At present JSW Steel
Ltd. holds ~40%, and rest is with private investors. At present Mr. Anunay Kumar and Mrs.
Saswati Goswami are the Directors of the Company. DMML is engaged in the business of acting
as traders, whole-sellers and retailers in all forms of metallic and non-metallic minerals, which
includes coal and lignite, coal products and iron and steel products etc. Incorporated in August
2014, DMML showed a revenue of ` 59.92 Crs and a loss of ` 19.21 Crs in FY15. It expects to
generate a substantial portion of revenue from the dividend income from its investment in Dolvi
Coke Projects Ltd. and from trading activities.

DMML raised ` 700 Crores by issue of NCDs with a tenor of 5 years and 15 days in two tranches
of ` 350 Crs each. The NCDs would be secured by pledge 40% equity shares of DMML held by
JSW Steel Ltd. The terms of issue require the issuer to fund the Debt Service Account 15 days
before the due date and also provide that if the issuer fails to provide required funds
accordingly, the investors, through the debenture trustee can exercise the put option on JSW
Projects Ltd. (JPL).

1
Please refer to www.brickworkratings.com for definition of the Ratings

www.brickworkratings.com 1 21 Jan 2016

In addition, another group company JSW Investments Pvt. Ltd. also provided a Letter of
Comfort for the NCD issue by DMML. The entire proceeds from the issue had been used by
Dolvi Minerals and Metals Pvt. Ltd to purchase 100% stake in Dolvi Coke Projects Ltd., which is
setting up a 3 MTPA recovery Coke oven plant at located at Dolvi, District Raigad, Maharashtra.

Dolvi Coke Projects Ltd. (DCPL)

DCPL is setting up a 3 MTPA recovery type coke oven plant at located at Dolvi, District Raigad,
Maharashtra, consisting of 4 coke oven batteries of capacity of 0.75 MTPA each. The plant will
have Coal and Coke handling facilities for the production of metallurgical coke along with the
by-products viz. Coke Oven Gas, Tar, Sulphur & Benzol. The Company also proposes to install 2
x 190 tph CDQ for quenching of hot coke which will generate steam to be used to generate
power. Under an exclusive arrangement, the coke manufactured by DCPL will be entirely sold to
the Dolvi unit of JSW Steel Ltd. The cost of the project is ~` 3000 crores, which would be
funded in the debt to equity ratio of 73:27. DCPL was incorporated on March 15, 2014 and at
present has a paid up capital of Rs 321.13 Crs in FY15. It is crucial for the Company to ensure
commencement of the operation of Coke oven plant as scheduled in the year 2017-18. The
Board of JSW Steel Ltd. has already approved execution of take or pay agreement with DCPL.
Till Nov’15, the Company has incurred about Rs. 540 crores (~18% of the total cost) towards the
work relating to Piling, concreting and supply of steel structure of the project.

JSW Steel Ltd. (JSWSL):

JSW Group is one of the large growing business conglomerates with a strong presence in the
core economic sector led by Mr. Sajjan Jindal. A US $ 11.0 billion Conglomerate, the JSW Group
is a part of the O. P. Jindal Group, JSW Group has diversified interests in Steel, Energy,
Minerals and Mining, Infrastructure and Logistic, Cement and Information Technology. JSWSL
is the largest private steel maker in India with a capacity of 14.3 MTPA and consists of modern,
eco-friendly steel plants with the latest technologies for both upstream & downstream processes.

It started its business operations in the year 1994 in the name of Jindal Vijaynagar Steel Ltd
promoted by Jindal Iron and Steel Co. Ltd and Karnataka State Industrial Investment and
Development Corporation Ltd. through its steel plant with a capacity of 1.25 MTPA of hot rolled
coils at Toranagallu village in Karnataka. JSWSL has its facilities at Vijaynagar (Karnataka),
Dolvi (Maharashtra) and Salem (Tamil Nadu). JSW Steel Ltd. (JSWSL) is a group company of
JSW group headed by Mr. Sajjan Jindal.
JSW Steel Ltd.’s consolidated Operating income has increased from ` 51,220 Crs in FY14 to `
52972 Crs in FY15. PAT (after minority interest and share of associates) has increased from `
452 Crs in FY14 to ` 1797 Crs in FY15, as during FY14 it was low mainly due to exceptional item/
foreign exchange losses of ` 1713 Crs. EBIDTA has increased from ` 9165 Crs in FY14 to ` 9402
Crs in FY15. Crude steel production stood at 12.63 million tonnes in FY15, and Quantity of steel
sold stood at 12.03 million tonnes in FY15.

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In H1 FY16 the Company’s performance has been affected due to dumping of Steel by Steel
surplus Countries and on consolidated level, it showed a lower turnover of ` 24484 Crs (H1FY15:
` 29012 Crs) and a PAT of ` 10.00 Crs (H1 FY15: ` 1405 Crs). The net debt as on Sep 2015
stands at ` 39008 Crs (` 35805 Crs as on March15) with Net debt/Equity at 1.72 times (1.55
times)

JSW Projects Ltd. (JSWPL)

The terms of the NCD issue provide for the investors to exercise the Put Option in the event of
DMML’s inability to fund the designated debt service account by T-15th day and JSW Projects
Ltd. (JSWPL) is required to honour such put option at the end of 5 years and 5 days from the
date of allotment of the NCD, if exercised by the investors. JSWPL is owned by JSW
Investments Pvt. Ltd., which in turn is owned by the promoters of the JSW group. The company
was floated by the JSW group for setting up and operating a 1.2 million tonnes per annum
(mtpa) COREX gas based DRI plant, four Coke Dry Quenching (CDQ) plants with an aggregate
capacity of 3.42 mtpa and a 76 Mega-Watt (MW) CPP based on waste heat recovery from CDQ
process. The project is a part of JSWSL’s integrated steelmaking capacity expansion program to
12.0 mtpa at Vijayanagar works (Karnataka). JSWSL entered into a Build Own Operate Transfer
(BOOT) agreement with JPL, which is valid till March 31, 2023. Beyond this period, JPL will
transfer the assets to JSWSL at 25% of book value.
JPL acts as a conversion company with regard to CDQ process. After processing, dry quenched
coke is returned to JSWSL and in turn, JPL receives fixed conversion charges for the volume
processed. In terms of the arrangement with JSWSL, the entire output of JPL’s DRI plant would
be procured by JSWSL at prevailing market price. In the event of lower off-take by JSWSL, JPL
will be compensated for any shortfall in realization as per applicable DRI charges to the extent
of the deficient quantity. The sales agreement entered between JPL and JSWSL, which
guarantee minimum off-take/processing volumes, is expected to ensure adequate cash flow for
servicing debt obligations of JPL. The DRI plant has been operational since January, 2014. In
FY15, JPL had Rs 635.65 Crs of Net-worth as compared to Rs 510.65 Crs in FY14. Its long term
Borrowings stood at Rs 1704.55 Crs. Its total income stood at ` 543.43 Crs with profit of ` 83.70
Crs during FY15.

JSW Investments Pvt. Ltd. (JSWIPL):

JSW Investments Pvt. Ltd. (JSWIPL) was incorporated on March 31, 2005. It is promoted by
Mrs. Sangita Jindal w/o Mr. Sajjan Jindal, Chairman and Managing Director of JSW Steel Ltd.
Mr. Sundeep Jain has been appointed as a Director of JSWIPL from February 21, 2014 in place
of Mr. Deepak Bhat. JSWIPL is engaged in Investment in Group Companies, Treasury
Management and Portfolio Management Services etc. JSWIPL has provided Letter of Comfort
for the proposed NCD issue. JSWIPL’s total Op. income increased to ` 126.67 Crs in FY15 as
compared to ` 120.92 Crs in FY14 mainly due to dividend income from its long term
investments.

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The Company has posted loss after tax of ` 139.12 Crs in FY15 against loss of ` 3.36 Crs in FY14
mainly due to high finance cost of ` 188.81 Crs and brand promotion cost of ` 59.47 Crs. Market
value of the long term Investments of JSWIPL remain high as compared to book value of `
1862.31 Crs in FY15 as compared to ` 1811.63 Crs in FY14. Its quoted investments market value
stood at ` 4211.06 Crs in FY15 as compared to book value of ` 960.19 Crs in FY15. In H1FY16,
the company reported total income from operations of ₹ 68.90 Crs with a Loss of ₹ 28.53 Crs.

Outlook:
In most of the business areas in which the JSW Group operates, growth prospects are also
dependent on policy decisions at the national level and prevailing Industry trends. The rating
of the NCD issue of Rs 700 Crs by DMML is very significantly influenced by the support
provided by its promoter group Companies and especially by the strategic support of JSWSL
and track record of JSWSL in terms of performance and meeting debt obligations. Based on the
above, the outlook for the rating is assessed to be stable over the next twelve months. The key
rating sensitivities are the continuing support from JSW Steel Ltd. in terms of purchase of entire
coke form DCPL and other group companies to DMML, timely execution of DCPL’s Coke Oven
project, operating and financial performance of DMML, DCPL JSW Steel Ltd. and the ability of
JSWPL to meet the put option of the investors of the proposed NCD issue by DMML.

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analyst@brickworkratings.com425-24 bd@brickworkratings.com
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1-860-425-2742 media@brickworkratings.com

Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources,
which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or
completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty
of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR
should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses
incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any
reasons.

www.brickworkratings.com 4 21 Jan 2016