Iron And Steel 2009 - Industry Analytics

Analysis of Indian Iron and Steel Industry

Presented by: (Group 8) Arpita Bahadur Gaurav Kumar Manish Gupta Pavan Ghargi Ranjini Ballal Vani Vyas

Acknowledgement

We are extremely thankful to our faculty Dr. R. Venkatamuni Reddy and Dr. Gervasio S. F. L. Mendes, Alliance Business School, who have guided us throughout the project on analyzing the Indian Iron and Steel Industry and helped us in all possible ways to successfully complete it.

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Table of Contents 1Introduction.......................................................................................................... 3 1.1Varieties of Steel................................................................................ ...............5 1.2Production Technology .....................................................................................6 1.3Components of the cost of production..............................................................7 2The Global Steel Industry.....................................................................................9 3The Structure of Indian Steel Industry...............................................................10 3.1Factors that attribute to the Revival of the Indian Steel Industry....................11 3.2Consumption of Steel in India.........................................................................16 3.2.1Top Five Companies.....................................................................................16 3.2.2Bottom Five Companies..............................................................................25 4Quantitative Analysis.........................................................................................32 4.1Ratio Analysis................................................................................................. .32 5Qualitative Analysis...........................................................................................47 5.1Understanding the Steel industry using Michael Porter’s Five Forces Model...47 5.2The SWOT Analysis.........................................................................................51 5.3Strategic Restructuring — A Comparative Analysis.........................................57 5.3.1Impediments to expansion...........................................................................57 6Current Global Scenario.....................................................................................63 6.1Current crisis in Iron and Steel Industry..........................................................63 7Suggestions.......................................................................................................66 8Future Outlook...................................................................................................67 9Business Innovation: Steel Retailing..................................................................70 9.1Vision ‘steel junction’......................................................................................71 9.2Lessons from Nucor Steel............................................................................... .71 10Identifying Key Success Factors.......................................................................73 11Conclusion.......................................................................................................74 12References................................................................................... ....................75

1

Introduction

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Iron is one of the oldest inventions in the world with its first usage reportedly dating back to 4000 BC. Steel is crucial to the development of any modern economy and is considered to be the backbone of the human civilization.

Today Steel (the carbon alloy of Iron) finds application in

every imaginable facet of our life. The global steel industry has been witnessing many interesting events that have influenced market dynamics in the last ten years.

Steel is an alloy consisting mostly of iron, with a carbon content between 0.2% and 2.14% by weight, depending on grade. Carbon is the most costeffective alloying material for iron, but various other alloying elements are used such as manganese, chromium, vanadium, and tungsten. Carbon and other elements act as a hardening agent, preventing dislocations in the iron atom crystal lattice from sliding past one another. Varying the amount of alloying elements and form of their presence in the steel (solute elements, precipitated phase) controls qualities such as the hardness, ductility, and tensile strength of the resulting steel. Steel with increased carbon content can be made harder and stronger than iron, but is also more brittle. The maximum solubility of carbon in iron (as austenite) is 2.14% by weight, occurring at 1149 °C; higher concentrations of carbon or lower temperatures will produce cementite. Alloys with higher carbon content than this are known as cast iron because of their lower melting point and castability. Steel is also to be distinguished from wrought iron containing only a very small amount of other elements, but containing 1–3% by weight of slag in the form of particles elongated in

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one direction, giving the iron a characteristic grain. It is more rustresistant than steel and welds more easily. It is common today to talk about 'the iron and steel industry' as if it were a single entity, but historically they were separate products. Though steel had been produced by various inefficient methods long before the Renaissance, its use became more common after more efficient production methods were devised in the 17th century. With the invention of the Bessemer process in the mid-19th century, steel became a relatively inexpensive mass-produced good. Further refinements in the process, such as basic oxygen steelmaking, further lowered the cost of production while increasing the quality of the metal. Today, steel is one of the most common materials in the world and is a major component in buildings,

infrastructure,

tools,

ships,

automobiles,

machines,

and

appliances. Modern steel is generally identified by various grades of steel defined by various standards organizations.

1.1 Varieties of Steel

There are more than 3500 grades of steel available today; with about 75% of these developed in the last twenty years. Finished steel products can be

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broadly classified into flats and longs. Longs are used in construction, infrastructure and heavy engineering. Flats are mainly used in making automobiles, commercial vehicles and consumer durables. Hot rolled (HR) steel and Bar & Rods are the most popular varieties of steel produced in India. HR coil and sheets are used in making cold rolled products, pipes and tubes, automobile components, electronic equipment like fridges and for construction purposes. Currently HR Coils and Sheets account for about 26% of the total domestic production and its share has been gradually rising over time. Bars and rods are typically used more extensively in the construction and engineering sectors.

1.2 Production Technology Some of the technological options for converting iron ore to steel products is schematically shown below. Hot metal and crude steel process are also interlinked among themselves as represented by arrows.

Source: www.sail.com

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Below mentioned are few methods of producing steel: •

Blast Furnace (BF)/ Blast Oxygen Furnace (BOF) route is the most

popular way of producing steel, accounting for nearly 57% of total production. The BF/BOF route is good for volume production, but involves huge capital costs. •

The Electric Air Furnace (EAF) is rapidly gaining popularity

globally and uses sponge iron/scrap and coke to produce steel. EAF route is flexible to produce different grades of steel. However, EAF growth is constrained by power and scrap supply constraints in India. •

COREX, a new modern smelting technology has been recently

introduced in India. It does not require coke in producing steel and therefore could become popular with Indian steel majors in time to come.

1.3 Components of the cost of production Any sustained rise in input prices usually lead to an increase in product prices through the cascading effect. The major components of the costs of production of finished steel are: •

Raw materials - Raw material costs forms roughly about 62% of the total cost of production. This only emphasizes on how important sharp movements in raw material prices mean for the steel industry. The basic raw materials that are used in producing steel are iron ore, coal and limestone. India is fortunate to be endowed with one of the largest iron ore deposits in the world. Limestone is also available in sufficient quantities and as such do not pose much of a problem. India also possesses one of the biggest coal deposits (approximately 197 bn tonnes) in the world. However, Indian coal is mostly unfit for coke production because of its high ash content of 25-40%. Coal fit for coke production comprises less than 15% of total reserves. As such, Indian steel giants have to resort to importing coking coal from foreign

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countries.

•

.

Power costs - The steel industry is an energy intensive industry with power and fuel contributing as much as 10.1% of total production costs. It has been estimated that the global steel industry account for nearly 4% of the total energy consumption in the world. Most steel majors like SAIL, TSL and JSW have captive power plants but smaller players have to depend on outside supply. As such, erratic supply forms a major obstacle for growth of these producers.

•

Interest payments - Steel is a capital-intensive industry and as such many companies resort to outside borrowings, mostly in form of longterm loans. Interest payments always used to form on average between 7 – 9% of the total costs but have recently come down to as low as 3.2%. Interest coverage ratio has also shot up to nearly 10 after hovering above the zero levels for a number of years. Also, it is important to note that the recent good turn in the sector has enabled many companies to pay off their long-term debts early and, in general interest payments have come down industry-wide.

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•

Taxes and duties - Excise duties, sales tax, other direct and indirect taxes further push up costs in the steel sector. Total taxes contribute more than 16% of total costs. Here, the government can play an active role and provide structured concessions for new and old capacities.

•

Other expenses - Wage bills, depreciation costs and distribution expenses are among the other major cost components

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The Global Steel Industry

Following the collapse of Soviet Union, the low cost steel makers in the region have been targeting the global steel market pie, creating a price imbalances as the cost of production of steel varies drastically across countries The 90’s were crucial for Indian steel industry too. The ‘controlled’ environment has changed drastically, in the post-liberalization scenario. The sector was opened up to the entry of private players, while quantitative restrictions on foreign trade have been removed. The last ten years has also seen inefficient steel mills with outdated technology perishing, while new capacities that possess latest technology expertise have come up.

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Source: International iron & steel institute

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The Structure of Indian Steel Industry

India is 5th largest producer of steel with total production of 53.08 MT in 2007. The Indian steel industry can be divided into two distinct producer groups; Integrated steel producers (ISP) with over 1 MT of capacity and smaller stand-alone steel plants that include producers and processors of steel. The ISP’s include the like of SAIL, Tata Steel, JSW Steel, and Ispat Industries. They account for most of the mild steel production in the country and produce most of the flat steel products including Hot Rolled, Cold Rolled and Galvanised steel. The smaller stand-alone steel plants account for a majority of long products being produced in the country. The potential demand for steel in India is vast with the per capita steel consumption. The level of per capita consumption of steel is treated as one of the important indicators of socio-economic development and living

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standard of the people in any country. It is a product of large and technologically complex industry having strong forward and backward linkages in terms of material flow and income generation. All major industrial economies are characterized by the existence of a strong steel industry and the growth of many of these economies has been largely shaped by the strength of their steel industries in their initial stages of development. This offers a huge potential to steel manufacturers, both domestic and global. In line with the global trend, the Indian steel industry has been passing through tough conditions. The prices are trailing at rock-bottom levels due to over capacity. The report gives a comprehensive analysis of the Indian steel industry. It extensively covers structure of Indian steel industry, with details on production, consumption, imports and exports. The report deals with reasons for the over capacity situation prevailing in India and the demand/price trends for various steel products in India. The report gives a crisp analysis on the strategies and latest financial performance of the leading players in India.

3.1 Factors that attribute to the Revival of the Indian Steel Industry The factors for revival of Indian steel industry are buoyant global steel consumption, buoyant local steel consumption, lower cost of production and adequate rise in price against hike in input costs. Apart from this, backward integration, consolidation and branded product sales, marketing alliances, etc., have led to the revival of the Indian steel industry. Backward Integration Coking coal, iron ore and scrap shortage are responsible for the increased cost of production, coupled with low average prices of Rs.17,000Rs.18,000 TPA in the past. Integrated players with their own captive mines

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for iron ore and coal will find it an advantage as they will be shielded from the fluctuating prices of raw materials. De-integration of Process/Consolidation Consolidation within the industry is the need of the hour as it might generate benefits of economies of scale and improve labor productivity. Also, a set-up of semi-finished capacities near the place of availability of raw materials and capacities for finished products near the place of consumption will act as a major booster for the players within the industry due to the savings in freight cost. Branded Products Increased focus on branded products could allow the producers to charge a premium for their products and improve their average per tonne realizations. Also, increased focus on value-added products will help improve revenues for companies as cold rolled coils, galvanized steel and color coated steel enjoy better per tonne realizations than HR coils. Long Contracts/Marketing Alliance Players within the industry enter into long contracts for their finished products with automobile original equipment manufacturers. This will mitigate demand risks, ensure high product off-take and better capacity utilization. Government Initiatives Increased infrastructure spending by the Government of India and development of roads could generate significant savings in freight and transportation cost, making Indian steel companies and other industries globally competitive. Impact of Liberalization

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The economic reforms initiated by the government in 1991 have added new dimensions to the industrial growth in general, and steel industry in particular. Some of the important features due to liberalization are:  Licensing requirement for capacity creation has been abolished.  Steel industry has been removed from the list of industries reserved for the state sector.  Automatic approval granted for foreign equity investment in steel has been increased up to 74% [Government of India 1999].  Price and distribution controls were removed from January 1992 [Report to the Ministry of Industry, Science and Tourism 1997].  Restrictions on external trade, both in import and export, have been removed.  Import tariff reduced from 105% in 1992/93, to 30% in 1996-97.

[Report to the Ministry of Industry, Science and Tourism 1997]  Other policy measures like convertibility of rupee on trade account, permission to mobilize resources from overseas financial markets, and rationalization of existing tax structure. There was expansion of the steel sector after the economic reforms. The new entrants as well as the existing manufacturers went for technical tieups with leading steel producers of the world [Nakra 1996] Cost Competitiveness of Indian Steel Industry The cost competitiveness of Indian steel industry can be seen in Table 5. The cost of major raw materials like iron ore, coking coal, and other raw materials is less in India among the countries mentioned. The labor cost is low, but it is neutralized by its low level of productivity. The financial cost and the cost of power, oil and some other materials are high. Energy accounts for about 35 - 40% of the cost of steel production in

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India, whereas it is about 28% in the developed countries. All these make the pre-tax cost of steelmaking in India higher than that of South Korea, Australia, Mexico, and CIS countries. Considering the low wage rate and other economic factors, the labor cost in India makes up around 15% of the cost of the steel as compared to around 30% in developed countries like Japan and United States. In spite of these advantages, Indian firms could not become cost-effective.

Source: Iron and Steel Review (1998) Current Investments A host of steel companies forecasted expanding consumer market and likelihood of receiving huge domestic and foreign investments. Therefore they invested as follows: •

Bhushan Steel plans to invest US$ 5.72 billion for building 12 million tonne-capacity in the states of West Bengal, Jharkhand and Orissa.

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•

Non-ferrous metals giant, Vedanta Resources, plans to invest around US$ 4.79 billion in a 5 million tonne steel plant in Keonjhar district of Orissa and envisages its commissioning by 2012–13.

•

Tata Steel is also planning to build a 5 million tonne plant in Chhattisgarh with an investment of around US$ 3.59 billion. The steel major is setting up greenfield projects in Jharkhand, Orissa and Chhatisgarh. While in Jharkhand it is likely to invest about US$ 8.38 billion for a 12 million tonne integrated steel plant, in Orissa it plans to pour in almost US$ 4.39 billion for a six million tonne capacity plant.

•

Mesco Steel plans to invest US$ 2.20 billion for expansion of two of its steel plants in Orissa.

•

Reliance Infrastructure, (part of the Reliance Anil Dhirubhai Ambani Group) plans to build a 12-million tonne steel plant in Jharkhand, which is likely to be completed by 2012.

•

Indian Railways plans to invest around US$ 437.25 million per annum to raise its consumption of stainless steel for adding new alloy-made wagons and coaches to its portfolio.

•

Welspun Gujarat Stahl Rohren, (one of the largest steel pipe makers in India), plans to increase the capacity of its pipe plant by 75 per cent to 1.75 million tonnes with an investment of US$ 222.52 million.

•

The JSW group plans an outlay of US$ 40 billion for steel and power projects. These projects will be completed by 2020.

•

Visa Steel has lined up a US$ 1.51 billion – US$ 2.02 billion integrated steel project in Chhattisgarh.

•

Sarralle India, a subsidiary of Sarralle Equipos of Spain and one of the largest designers of steel plant equipment, has decided to set up a manufacturing base in Uluberia in West Bengal.

•

Interarch Building Products Private, (the largest player in preengineered steel buildings space) plans to set up its greenfield manufacturing facility in Gujarat by 2009–10.

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Furthermore, the Confederation of Indian Industry (CII) plans to start six new small and medium enterprises clusters for steel companies in Visakhapatnam. It will also set up a steel task force to propel growth in the steel clusters.

3.2 Consumption of Steel in India The companies covered in the report include TOP FIVE COMPANIES

BOTTOM FIVE COMPANIES

1. Steel Authority of India Ltd

1. Sunflag Iron and

Steel Industry

2. Tata Iron and Steel Company Ltd

2. Shah Alloys Ltd

3. Jindal Iron and Steel

3. MUSCO

Company Ltd

4. Surya Roshni

4. Essar steel

5. Usha Martin

5. Ispat Industries Ltd

3.2.1 Top Five Companies 1. Steel Authority of India Ltd The Ministry of Steel and Mines drafted a policy statement to evolve a new model for managing industry. The policy statement was presented to the Parliament on December 2, 1972. On this basis the concept of creating a holding company to manage inputs and outputs under one umbrella was mooted. This led to the formation of Steel

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Authority of India Ltd. The Company, incorporated on January 24, 1973, was made responsible for managing five integrated steel plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel Plant and the Salem Steel Plant. Steel Authority of India Limited (SAIL) is the leading steel-making company in India. SAIL is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. The company's plants are divided as Integrated Steel Plants and Special Steel Plants. The Integrated Steel Plants comprised Bhilai Steel Plant (BSP) in Chhattisgarh, Durgapur Steel Plant (DSP) in West Bengal, Rourkela Steel Plant (RSP) in Orissa, Bokaro Steel Plant (BSL) in Jharkhand and IISCO Steel Plant (ISP) in West Bengal. The Special Steel Plants includes Alloy Steels Plants (ASP) in West Bengal, Salem Steel Plant (SSP) in Tamil Nadu and Visvesvaraya Iron and Steel Plant (VISL) in Karnataka, totally 8 plants. SAIL, by virtue of its Navratna' status,

enjoys

significant

operational

and

financial

autonomy. SAIL

International

Ltd

was

incorporated

to

coordinate the export and import business the year 1974. In 1976, Durgapur Mishra Ispat Ltd., Bhilai Ispat Ltd., and Rourkela

Ispat

Ltd.,

were

formed

as

fully

owned

subsidiaries of SAIL for taking over the running business of Alloy Steels Plants, Bhilai steel Plant and Rourkela Steel Plant on transfer from HSL. Two major schemes viz. new sinter plant III and expansion of oxygen plant II were taken up

for

implementation.

C.O.

Battery

commissioned during the year 1994.

17

No.

10

was

The Company bagged, 'Business world-FICCI-SEDF Corporate Social Responsibility Award - 2006'. SAIL has undertaken a massive modernisation and expansion plan during the year of 2006-07 with an indicative cost of over Rs. 40,000 crore to expand capacity of hot metal to over 25 million tonnes from current level of 14.6 million tonnes. The company introduced several new products in the domestic market during the year 2006-07: HCR-EQR TMT for earthquake resistant construction, rock bolt TMT for tunnel construction, EN series HR coils for LPG cylinders, MC 12 HR coils for chains etc. In addition, Bhilai Steel Plant developed high strength vanadium rails; Durgapur Steel Plant produced S-profile loco wheels for high-speed locos and Rourkela Steel Plant rolled special plates, which were used, in the indigenously built rocket PSLV C-7. As on January 2008, India's two biggest steel makers, public sector Steel Authority of India Ltd (SAIL) and private sector Tata Steel Ltd, have formed a joint venture company (JVC) to mine coal blocks for securing assured coking coal supply to meet their increasing production needs. As on June 2008, SAIL made a joint venture with Shipping Corporation of India may own a few bulk carriers to have continuous availability of vessels. The Company is setting up three steel processing units (SPU) in Madhya Pradesh for manufacturing various types of steel items used by the construction industry. The company's Corporate Plan, 2012 (CP12) was formulated in 2004 for 4 integrated steel plants for increase in Hot Metal production to 20 Mt by 2012. After merger of in IISCO Feb 06, the Hot Metal production Plan was revised to 22.5 Mt by 2012. Expansion of Special Steel Plants was also included. Hon'ble Minister of Steel

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reviewed the Corporate Plan 2012 in Jul'2006, wherein it was decided to take up the Expansion of Integrated Steel Plants and Special Steel Plant in one go based on Composite Project Feasibility Report (CPFR). 2. Tata Steel Ltd Tata Steel is the world's 6th largest steel company. It is a Asia's 1st and as well as India's largest integrated steel company in private sector with operations in 24 countries and commercial presence in over 50 countries. The company's history is a century old, the origins and ascent of Tata Steel, which has culminated into the century long history of an industrial empire, emerge from the illustrious efforts of India's original iron man and the remarkable people who thereafter, have kept the fire burning. Tata Steel was founded by Jamsetji Nusserwanji Tata in the year 1907 as Tata Iron and Steel Company (TISCO) and later its renamed to Tata Steel Limited. It is an ISO-14001 and also SA 8000 certified company, is this reflected in company's pro-active measures to ensure optimum

utilization

of

natural

resources

and

work

conditions. Golden Jubilee of the company was celebrated in the year 1958 and Jubilee Park was given as a gift to the citizens of Jamshedpur. For symbol of self-reliance, Tata Steel Growth Shop which was introduced in 1968. Tata Steel introduced BOF steelmaking during the year 1984, which could produce liquid steel in forty five minutes when it took the old open hearth furnaces, close to five hundred under the first phase of modernisation. The

company

received

the

Award

for

Best-

Integrated Steel Plant in 1994-95. The company also

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received

the

Prime

Minister's

Trophy

for

the

Best

Integrated Steel Plant for the year 1994-95. This award was subsequently conferred again in 1998-99, 1999-2000, 2000-01

and

2001-02.

The

World

Steel

Dynamics

recognised Tata Steel as India's only 'world-class steel makers' thrice in a row. As on January 2008, Tata Steel Limited and the members of the Al Bahja Group, a leading business house of Oman have entered into a Joint Venture Agreement for the development of the Uyun Limestone deposits at Salalah in the Sultanate of Oman .

3. JSW Steel Ltd India's second largest private sector steel maker JSW Steel Limited (JSWSL) was originally incorporated as Jindal Vijayanagar Steel Limited on March 15, 1994. Product portfolio of the company includes Hot Rolled Product, Cold Rolled Product, Galvanised Product, Prepainted Galvanised Product and Jindal Vishwas. JSWSL consists of the most modern, eco-friendly steel plants with the latest technologies for both upstream & downstream processes. The Company's four plants are situated in Vijayanagar, Vasind, Tarapur and Salem. JSW Steel Ltd. has received all the three certificates of ISO: 9001 for Quality Management System, ISO: 14001 for Environment Management System and OHSAS: 18001 for Occupational Health & Safety Management System. During the incorporated year itself, the MOU was made with KSIIDC to be provided with grid support, approvals for construction of railway siding etc and also the company entered into a technical arrangement with

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Voest Alpine Industrieanlagenbau (VAI), for technical details with respect to productivity, iron ore technical details etc. CII-EXIM Bank Award was handed over to the company,

'Commendation

Certificate

for

Significant

Achievement' towards Business Excellence during the year 2005 and in the same year the Prime Minister National Award also bagged by the company for Excellence in Urban Planning & Design for Township. National Sustainability Award was conferred to the company in the year 2006, Second Prize amongst the Integrated Steel Plants Category by Indian Institute of Metals. During January 2007, JSW Steel has executed a Development Agreement with The Government of West Bengal, West Bengal Industrial Development Corporation Limited (WBIDC) West Bengal Mineral Development and Trading Corporation Limited (WBMDTC) for setting up a 10 MTPA steel plant in suitable phases. JSW steel has inaugurated two exclusive JSW Shoppe in Hubli, Karnataka on December 4, 2007, At JSW Shoppe, end consumer will also know about different application of different steel products being manufactured by M/s JSW Steel through actual components and pictures from Automobile, White Goods Sectors, and Construction. During the period of 2007-08, JSWSL received Gold Award in Metal and Mining Sector

for

Outstanding

Achievement

in

Safety

Management by Greentech Foundation. As on June 2008, JSW Steel stated that, it will set up a green field plant in Georgia (Europe) in partnership with a UK-based company to produce rebars, the project will see an investment of $42 million by way of equity and debt, where 49 per cent of equity will be held by JSW while

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the balance will be held by Geo Steel LLC of the UK. Both companies will invest $7 million towards direct equity while the remaining amount will be raised by way of debt. JSWSL inaugurated JSW Shoppe, an exclusive steel retail outlet in Ahmedabad IN June 2008 and planed to setup 200 exclusive JSW Shoppes across the length and breadth of the country by 2010. Also it will invest around Rs 550 crore in its Chilean mining concessions to ensure 50 per cent iron ore security by June 2009, up from 30 per cent now. The Company plans to emerge as 32 million tonnes per year capacity steel major by 2020. 4. Essar Steel Ltd Promoted

by

the

Bombay-based

Essar

group

controlled by the Ruias, Essar Steel initially commenced operations of specialised construction in Jun.'76 as Essar Constructions. Its name was changed to Essar Offshore & Explorations in May '87 and later to Essar Gujarat in Aug.'87. It became Essar Steel in 1995. The company is a integrated

producer

with

end-to-end

control

of

all

operations related to steel making. Its energy division was operating the largest fleet of rigs in the private sector. In 1987-88, it diversified into sponge iron and set up a 8,80,000 tpa gas-based plant at Hazira,

Gujarat.

innovated

by

The

Midrex

plant

incorporating

Corporation,

US,

technology commenced

production in Aug.'90 with two 4,40,000 tpa modules. The plant

commenced

production

in

Sep.'95.

Later

the

company transferred its energy and offshore divisions to Essar Oil. The

company

has

become

the

country's

first

integrated steel plant to receive both ISO 9002 and TUV

22

certifications.

During

1998-99,

Essar

Minerals

Ltd

presently Hy-Grade Pellets Ltd (HGPL) has become wholly owned subsidiary of the company. The Company has planned to increase the capacity to 4.6 Million MTPA in next 2 years. The company has planned to increase the pellet making capacity

at

Visakhapatnam from 4 to 8 Million tonnes in the current year. The company has initiated production and sales of HR

Pickled

and

Oiled,

Cold

Rolled

and

Galvanised

Products. Further the company has launched shot blasted and primer coated plates for shipbuilding and general engineering applications. The company has increased its installed capacity of Hot Briquette Iron Plant by 1400000 MT during 2004-05 and with this expansion the total installed capacity of Hot Briquette Iron Plant has increased to 3400000 MT.

5. Ispat Industries Ltd

Ispat Industries Limited (IIL) is one of the leading integrated steel makers and the largest private sector producer of hot rolled coils in India. It was incorporated in the year 1984 by founding chairman M. L. Mittal, a corporate powerhouse with operations in iron, steel, mining, energy and infrastructure. The company's core competency is the production of high quality steel, for which it employs cutting edge technologies and stringent quality standards. It produces world-class sponge iron, galvanised sheets and cold rolled coils, in addition to hot rolled coils, through its two state-of-the art integrated steel plants, located at Dolvi and Kalmeshwar in the state of Maharashtra.

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To better provide steel solutions to an increasingly sophisticated marketplace, IIL had sets up a highly advanced cold rolling reversing mill during the year 1988, in collaboration with Hitachi of Japan, to manufacture a wide range of cold rolled carbon steel strips. In the same year, the company installed a colour coating line, the first of its kind in India for the manufacture of pre-painted colour steel sheets. During the year 1994, Business interests within the Ispat Group are demarcated. The eldest son, Mr. L N Mittal continues to manage the international operations while Mr. Pramod Mittal and Mr. Vinod Mittal, the younger brothers focused on steel and other businesses in India. In the identical year 1994, it commissioned the world's largest gas-based single mega module plant for manufacturing direct reduced iron (sponge iron), at its Maharashtra-based Dolvi plant. Within three months, the plant exceeds its capacity of 1 million tonnes per annum (MTPA) of high quality DRI. The company came out with a Euro-issue of 125-mln fully convertible bonds in 1994 to part-finance the expansion of its hot strip mill (HSM) capacity to 2.50 lac TPA. The

Company

aims

to

consolidate

its

market

leadership in the national specialty steel market by capitalising on the proximity of its manufacturing facilities to major consumers of flat steel products in Maharashtra, while increasing its presence in international markets by using its convenient port location. In the short span of time since its inception, Ispat Industries has steadily raised the bar - in terms of its relentless pursuit of technological

advancement,

unwavering

focus

on

innovation, strident emphasis on quality products and its constant

initiatives

aimed

satisfaction.

24

at

ensuring

customer

3.2.2 Bottom Five Companies 1. Sunflag Iron & Steel Company Ltd Sunflag Iron and Steel Company ltd is a prestigious unit of Sunflag group was promoted by Sunflag UK. The Sunflag Group was founded by Satyadev Bhardwaj in Kenya in 1937. The Company incorporated in 1984 is engaged in the manufacture of Steel products like Rolled products, Billets, Sponge Iron etc., with a present capacity of 150000 MT of Direct reduced Iron, 200000 MT of Mild & Alloy Steel Rolled Products and with captive power plant capacity of 108 million Kwh. The company has set up a state of art integrated plant at Bhandara, India to produce 200000 tonnes per annum of high quality steel using ironore and non-coking coal as basic inputs. The products are spring steel rounds flats, carbon steel and alloy steel. They are used by automobile leaf spring manufacturers, engineering goods manufacturers and the forgings industry Spring steel forms 70% of the total production. The plant comprises a 1,50,000 tonnes per annum Direct Reduction Plant, to produce sponge iron for captive consumption

in

the

Steel

Melting

Shop.

This

shop

comprises a 50/60 tonnes ultra high power Electric Are Furnace with Eccentric bottom arrangement; a Ladle auto mould level controller and electromagnetic stirrer. The billets produced at the steel melting shop are rolled at the Mannesmann Demag Designed ultra modern 18 stand Continous mill.This mill has a walking hearth reheating

25

furnace, quick roll-changing facilities, a 65 metres long walk and wait type modern cooling bed and above all computerised process control linking and controlling the various stages. The company came out with a rights issue in Feb 92 to part-finance the capital cost of a 15.5-MW wast heat recovery project to gain full use of waste gases and coal ash/fires generated in the process of making Sponge Iron. Installation of a new Captive Power Plant of 10 MW is under

progress.

manufacturing

The

high

company

value

has

stainless

also

steel

for

started which

tremendous growth of domestic and international market is expected.

2. Shah Alloys Ltd Incorporated in Nov.'90, Shah Alloys went public in 1992. It was promoted by Rajendrabhai V Shah and Rajiniben R Shah. The company is engaged in the manufacture of mild steel, stainless steel, C T D bars, S S flats and pattas, and cold-rolled sheets. The company came out with a public issue in Dec.'92 to part-finance an expansion scheme, and to meet long-term working capital requirements. The company has embarked on a Rs 6.53-cr project to manufacture stainless steel and other alloy products, financed by GIIC. It has put up a hot plate rolling mill at a cost of Rs 36.75 cr. The company received the Dhatu Nayak Award for best performance in the stainless steel industry. During 1998-99, the Company implemented the project of captive power plant having capacity of 20 MW.

26

The project was financed through term loans and internal cash accruals. In 2000-01 the company has successfully commissioned India's first 1800mm width Stainless Steel Slab Caster. The project of H R /S S Sheet /Coil was commissioned as per schedule. This project was financed through internal accruals and also by term loans from financial institutions/bankers. The company's going on diversification

project

of

manufacturing

of

HR/SS

Sheet/Coil was successfully implemented during 2001-02. During 2001-02 Shah Steel & Industrial Gases Limited

was

amalgamated

with

the

company

and

accordingly 20 equity shares of Shah alloys were issued and allotted to Shah Steel & Industrial Gases Ltd pursuant to the scheme which provided for the company to issue shares in the ratio of one Equity Shares of the company for every 35 equity shares of Shah Steel & Industrial Gases Ltd. 3. Mahindra Ugine Steel Company Ltd Incorporated (MUSCO)

in

commenced

Dec.'62, business

Mahindra in

May

Ugine '63.

It

Steel was

promoted by Mahindra & Mahindra with 49% stake, along with Ugine Aciers, France; and International Finance Corporation, Washington. The company manufactures tool, alloy and special steels. It has modernised and expanded its capacity to 1,05,000 tpa. The products of the company are either in rolled, forged, or pealed condition; and supplied as blooms,

slabs,

RCS,

rounds,

squares,

hexagonals,

octagonals or flats. Its products are used mainly by the automobile

and

general

engineering

27

industries

for

crankshafts, axles, connecting rods, gears, ball and roller bearings, shells, valves, turbine blades, etc. The

company

came

out

with

a

convertible

debenture offer in Jun.'92 to meet working capital requirements. Console Estate & Investment Ltd, Mahindra Infrastructural Projects Ltd, Corbel Estate & Investment Pvt Ltd are the subsidiary of MUSCO. It has set up a new press shop at Nasik. The plant is presently set up in a different company Pranay Shares & Securities Ltd which will become Musco's 99% subsidiary in Mar. 2000 on conversion of FCDs held by Musco. This plant has capacity of 4,500 tpa in the the first phase which will be expanded to 10,000 tpa eventually, in line with M&M's requirements. A new special steel grade for CrankShaft application was developed and marketed by the company. The

company

issued

4,00,000-12%

Cumulative

Redeemable Preference Shares of 100/-each on private placement basis in 2000-01.The company has redeemed 4,00,000 preference shares of Rs.100/- each out of the above proceeds. It is planning to develop Ball Bearing grade steel for Global approval by controlling inclusions, oxygen, titanium and calcium at extreme low levels. During 2002-03 Mahindra & Mahindra Ltd transferred its entire shareholding consisting of 1,52,41,885 equity share representing 49.28% to its wholly owned subsidiary viz Mahindra Holdings & Finance Ltd. 4. Surya Roshni Ltd Formerly known as Prakash Tubes, Surya Roshni has two divisions -- the steel division and the lighting division. The steel division, which commenced operations in 1974,

28

manufactures electrical resistance welded (ERW) steel pipes and tubes, and cold-rolled formed sections and profiles, and cold-rolled (CR) strips. The lighting division, operating since 1983, manufactures fluorescent tube lamps (FTL), general lighting systems (GLS), glass shells for GLS lamps, tubular glass shells, FTL filaments, GLS filaments, and sodium and mercury vapour lamps. The lamps are sold under the Surya brand. A backward intergration to manufacture lead glass tubings and an expansion of capacities of the lighting division were undertaken in 1993. The company recently completed a project to manufacture halogen lamps and decorative lamps. Its backward integration project to manufacture ribbon glass shells,

FTL

filaments,

tube GLS

drawing caps

lines,

and

GLS

GLS

filaments,

chains,

is

FTL

under

implementation, out of which two GLS lamp groups, GLS lamp filament and automatic FTL packing machine were completed in 1995-96. The technologies for the above projects are from GB Glass, UK, and Falma, Switzerland. The projects for GLS lamps, GLS filaments, lamp caps and electrostatic coating were also completed in 1995-96, while those for ribbon glass shells and tube drawing projects, will get over in 1998. All the products except ribbon shells are totally for captive consumption. Surya Roshni has also set up a joint venture with Osram,

under

the

name

Osram

Surya

Pvt

Ltd

to

manufacture compact fluorescent lamps. 5. Usha Martin Ltd Incorporated in 1986, Usha Beltron was jointly promoted by Usha Martin Industries and the Bihar State

29

Electronic

Development

Corporation.

The

company

manufactures jelly-filled cables in technical collaboration with AEG Kabel, Germany. The company has developed PCM system cables used to transmit digital signals. It has developed foam-skin type cables for the first time in India. The company also provides software application services. Later in May 2001 the two subsidiaries viz Usha Martin Telecom Holding and UBL Industries were merged with the company. Subsequent to this merger, the company name was changed to Usha Martin Ltd in May,2003. The manufacturing operation of the company cover Ranchi, Jamshedpur, Agra & Bangalore, also distribution centre are spread across India, Europe, Africa & USA. The company

is

among

the

largest

telecom

cables

manufacturer in India, with an annual capacity of 55 LCKM - rising to 64 LCKM recently. The company's other operation

includes

a

specialised

machinery

division

catering to the wire, ropes and cable industry & also has a rolling mill in Agra & division to make mechanical splicing equipment and fitting for wire ropes in Ranchi. Among the other industrial interest managed by the promoters of Usha Beltron are Usha Telekom - a cellular service company in collaboration with Telekom Malaysia. Usha

Breco

-

designs,

manufacturer

and

operates

ropeways & Summit Usha Martin Finance - Joint Venture with Sumitomo Corporation of Japan. During the year 2000, Usha Beltron demerged its software division into a separate company - Usha Martin Infotech. The company also acquired the wire rope business of Brunton Shaw, UK, a division of Carclo Plc of the UK in an all cash deal for around Rs 8.50 cr.

30

The company entered into financial tie-up with IFC,Washington and DEG,Germany for funding of new projects at Jamdshedpur and Ranchi which are under implementation stage. IFC has awarded loan of USD 21 Mn and also has acquired 5264727 equity shares at a premium

of

Investitions-und

Rs.28

per

share,and

DEG-Deutsche

Entwicklungsgesellschaft

mbH-

Germany,is funding the project by way of loan Euro 10 Mn and in addition it has also invested Rs.17.64 crores consisting 5345455 equity shares at a premium of Rs.28 per share.

31

4

Quantitative Analysis 4.1 Ratio Analysis

Definitions Asset

turnover

ratio-This is a measure of firm’s

efficiency in utilizing its assets. It indicates how many times the assets were turnover in a period and thereby generated sales. If assets turnover is high, the company is managing its assets efficiently. Inventory turnover ratio-This ratio shows the number of times a company’s inventory is turned into sales. High inventory

turnover

is

a

sign

of

efficient

inventory

management. Debtor

turnover

ratio-The

debtor

turnover

ratio

measures the efficacy of a firm’s credit and collection policy and shows the number of times each year the debtors and turn into cash. Higher turnover ratios shoes that that debtors are being converted rapidly into cash and the quality of company’s portfolio of debtor is good. Debt – equity ratio-The debt to equity ratio measures the relationship of the capital provided by creditors to the amount provided by shareholders. A high debt to equity ratio indicates aggressive use of leverage and a highly leveraged company is more risky for creditors. A low ratio, on the other hand, suggests that company is making little use of leverage and is too conservative. Current ratio-This is the ratio of current assets to current liabilities. It is widely used indicator of a company’s ability to pay its debts in the short term.

32

RATIO ANALYSIS (Top five) JSW Essar Ispat Aggreg Steel Steel Inds. ate 20080 200803 200803 3

SAI Tata L Steel 2008 200803 03

Debt-Equity Ratio

1.02

1.47

4.50

0.88

0.18

0.67

Long Term Equity Ratio

0.88

1.17

4.20

0.85

0.15

0.66

1.21

0.91

1.11

0.62

1.60

2.86

Fixed Assets

1.28

0.83

0.79

1.03

1.51

1.37

Inventory

6.59

5.31

7.79

9.86

6.65

8.99

Debtors

12.49

25.97

15.41

43.36

17.15 37.77

1.96

1.10

6.02

46.70 8.61

Company / Year

Key Ratios

Current Ratio

Debt-

Turnover Ratios

Interest Cover Ratio 4.83

Asset turnover ratio -In 2008 aggregate fixed turnover is 1.28 which is higher than ESSAR, ISPST &JSW steel. But SIAL &TATA steel’s ratio is much higher than overall industry. It means these companies utilizing their assets efficiently. Inventory turnover ratio- In 2008 average inventory ratio of industry is 6.59that is greater than only Essar steel. All other companies are above average and JSW steel has highest turnover among all these companies. Debtor turnover ratio- In 2008 average Debtor turnover ratio of industry is 12.49that is lesser than all company’s average. In 2008 all companies are performing very well.

33

Debt – equity ratio -Average ratio of industry is 1.02 .Ispat company is showing higher ratio i.e. 4.88 which shows that company is having higher risk and has borrowed more from creditors than shareholders. All other companies are performing average. Current ratio- All companies are performing well except Jsw steel and Tata is having excess current assets it should utilize its assets in other Manufacturing activities. JSW Essar Ispat Aggreg Steel Steel Inds. ate 20070 200703 200703 3

SAI Tata L Steel 2007 200703 03

Debt-Equity Ratio

0.90

1.69

4.84

0.83

0.28

0.51

Long Term Equity Ratio

0.79

1.45

4.53

0.80

0.24

0.50

1.22

1.09

1.11

0.78

1.36

1.26

Fixed Assets

0.16

0.74

0.73

0.98

1.33

1.26

Inventory

0.87

4.68

8.19

9.61

5.99

8.77

Debtors

1.97

16.43

13.50

38.23

18.82 33.75

1.92

1.02

5.71

29.37 25.92

Company / Year

Key Ratios

Current Ratio

Debt-

Turnover Ratios

Interest Cover Ratio 5.71

Asset turnover ratio -In 2007 aggregate fixed turnover is 0.16 which is lower than all steel companies. But SAIL &TATA steel’s ratio is much higher than overall industry; it means these companies utilizing their assets efficiently. Inventory turnover ratio -In 2007 average inventory ratio of industry is 0.89 that is much lower than other

34

companies .All companies are above average and JSW steel has highest turnover among all these companies. Debtor turnover ratio -In 2007 average Debtor turnover ratio of industry is 1.97 that is lesser than all company’s average. In 2007 all companies are performing very well and JSW steel has highest turnover among all these companies. Debt – equity ratio -Average ratio of industry is 0.90 .Ispat Company is showing higher ratio i.e. 4.84 which shoes that company is having higher risk and has borrowed more from creditors than shareholders. All other companies are performing well. SAIL is having ratio of 0.28 that is lowest among all these and still it can take loan from creditors without any hazard. Current ratio -All companies are performing well except Jsw steel because they are above average level i.e.1. JSW Essar Ispat Aggreg Steel Steel Inds. ate 20060 200603 200603 3

SAI Tata L Steel 2006 200603 03

Debt-Equity Ratio

0.97

2.10

3.91

1.06

0.44

0.31

Long Term Equity Ratio

0.85

1.89

3.76

1.01

0.40

0.30

1.24

1.38

1.17

0.87

1.18

0.71

Fixed Assets

1.21

0.79

0.60

0.86

1.14

1.20

Inventory

6.35

5.66

7.00

8.16

6.17

8.47

Debtors

12.87

13.55

6.80

26.79

17.25 30.57

Company / Year

Key Ratios

Current Ratio

Debt-

Turnover Ratios

35

Interest Cover Ratio 5.01

2.06

-0.19

3.53

13.20 31.03

Asset turnover ratio -In 2006 aggregate fixed turnover is 1.21 which is higher than all other companies. But ISPAT is having lowest ratio it means it’s not utilizing assets properly. Inventory turnover ratio -In 2006 average inventory ratio of industry is 6.35that is greater than only Essar and SAIL steel company. All other companies are above average and JSW steel has highest turnover among all these companies .This ratio shows the number of times a company’s inventory is turned into sales. Debtor turnover ratio- In 2006 average Debtor turnover ratio of industry is 12.87that is lesser than all company’s average except ISPAT.TATA steel has highest turnover ratios which shows that debtors are being converted rapidly into cash and the quality of company’s portfolio of debtor is good. Debt – equity ratio -Average ratio of industry is 0.97.Ispat and Essar Company is showing higher ratio i.e. 2.10 and 3.91which shows that company is having higher risk

and

has

borrowed

more

from

creditors

than

shareholders. All other companies are having lesser ratio which means they have taken lesser loan from creditors than shareholders. Current ratio -All companies are performing well except Jsw steel and Tata. All other companies have enough liquid assets to meet current liabilities. Company / Year

Aggreg Essar ate Steel

36

Ispat Inds.

JSW Steel

S A I Tata L Steel

200503 200503

20050 2005 200503 3 03

Key Ratios Debt-Equity Ratio

1.50

4.41

4.35

1.85

0.94

0.53

Long Term Equity Ratio

1.31

3.89

4.26

1.81

0.83

0.51

1.10

1.41

1.37

1.06

0.99

0.65

Fixed Assets

1.34

0.95

0.82

0.98

1.15

1.24

Inventory

8.39

8.03

11.32

13.02

8.80

10.17

Debtors

13.56

15.11

8.33

19.94

18.52 25.74

2.65

1.77

4.10

15.36 24.15

Current Ratio

Debt-

Turnover Ratios

Interest Cover Ratio 6.96

Asset turnover ratio- In 2005 aggregate fixed turnover is 1.34 which is higher than all other companies. It means these companies utilizing their assets efficiently. Inventory turnover ratio -In 2005 average inventory ratio of industry is 8.39that is greater than only Essar steel. All other companies are above average and JSW steel has highest turnover among all these companies. It means that it is converting its inventory into sales very frequently. Debtor turnover ratio- In 2005 average Debtor turnover ratio of industry is 13.56that is lesser than all company’s average except ISPAT. In 2005 TATA steel has highest turnover ratio which means it is realizing cash frequently from its debtors and company has good collection policy. Debt – equity ratio - Average ratio of industry is 1.50. Ispat and Essar Company is showing higher ratio i.e. 4.35

37

and 4.41 which shows those companies are having higher risk

and

has

borrowed

more

from

creditors

than

shareholders. Current ratio -All companies are performing well except SAIL and Tata they are having lesser current assets to meet current obligation. JSW Essar Ispat Aggreg Steel Steel Inds. ate 20040 200403 200403 3

SAI Tata L Steel 2004 200403 03

Debt-Equity Ratio

2.92

10.80

6.62

4.90

2.86

0.99

Long Term Equity Ratio

2.48

9.76

6.43

4.84

2.28

0.95

0.93

1.35

1.40

1.29

0.75

0.67

Fixed Assets

0.98

0.60

0.71

0.57

0.87

0.97

Inventory

7.35

6.31

10.07

12.83

7.10

9.93

Debtors

10.36

11.86

9.05

10.36

15.04 14.81

1.13

1.17

1.73

3.75

Company / Year

Key Ratios

Current Ratio

Debt-

Turnover Ratios

Interest Cover Ratio 3.01

Asset turnover ratio -In 2004 aggregate fixed turnover is 0.98 which is higher than all other companies. It means these companies utilizing their assets efficiently. But Essar has lowest ratio it means it is not utilizing its assts fullest. Inventory turnover ratio - In 2004 average inventory ratio of industry is 7.35that is greater than only Essar steel and SAIL. All other companies are above average and JSW steel has highest turnover among all these companies.

38

12.74

Debtor turnover ratio -In 2004 average Debtor turnover ratio of industry is 10.36 that is lesser than all company’s average except ISPATsteel. In 2004 all companies are performing very well and realizing money at faster rate. Debt – equity ratio -Average ratio of industry is 2.92 .Essar Company is showing higher ratio i.e. 10.80 which shows that company is having higher risk and has borrowed more from creditors than shareholders. All other companies are performing average .here. TATA steel has lowest ratio which shows company has more shareholders money than creditor. Current ratio -All companies are performing average here Tata has lowest ratio; it means it does not have sufficient current assets to meet current obligation. RATIO ANALYSIS (Bottom five)

Company / Year

Shah MUSC Sunflag Surya Usha Aggreg Alloys O Iron Roshni Martin ate 20080 200803 200803 200803 200803 3

Key Ratios Debt-Equity Ratio 1.02

1.47

2.72

0.94

2.28

1.07

Long Term Debt0.88 Equity Ratio

0.92

2.24

0.87

1.30

0.84

Current Ratio

1.21

1.26

1.47

1.75

1.30

1.02

Fixed Assets

1.28

3.02

2.36

1.57

2.30

1.13

Inventory

6.59

8.20

5.52

5.52

7.98

4.22

Debtors

12.49

5.95

18.32 17.26

10.83

7.60

Turnover Ratios

39

Interest Ratio

Cover

4.83

2.54

-2.06

3.59

1.47

Asset turnover ratio -In 2008 aggregate fixed turnover is 1.28 which is lower than Usha martin. It means these companies utilizing their assets efficiently and MUSCO has highest turnover ratio. Inventory turnover ratio -In 2008 average inventory ratio of industry is 6.59that is greater than Shah alloys and Usha martin. All other companies are above average and MUSCO steel has highest turnover among all these companies. Debtor turnover ratio -In 2008 average Debtor turnover ratio of industry is 12.49that is lesser than SHAH ALLOYS and SUNFLAG iron. In 2008 all companies are performing very well and getting money at good rate. Debt – equity ratio -Average ratio of industry is 1.02. Shah alloys Company is showing higher ratio i.e. 2.72 which shoes that company is having higher risk and has borrowed more from creditors than shareholders. All other companies are performing average. Current ratio -All companies are performing well and all have higher ratio than the average i.e.1.

40

3.32

M U S Shah Sunflag Surya Aggreg CO Alloys Iron Roshni ate 200703 200703 200703 200703

Usha Martin 200703

Debt-Equity Ratio

0.90

0.96

1.75

0.83

2.27

1.11

Long Term Equity Ratio

0.79

0.61

1.36

0.78

1.31

0.96

1.22

1.33

1.30

1.56

1.26

1.13

Fixed Assets

0.16

2.93

3.77

1.48

2.06

1.02

Inventory

0.87

7.66

6.96

6.04

7.71

5.20

Debtors

1.97

5.55

15.83

15.94

10.49

7.36

Interest Cover Ratio 5.71

6.76

2.16

5.09

1.73

2.79

Company / Year Key Ratios

Debt-

Current Ratio

Turnover Ratios

Asset turnover ratio -In 2007aggregate fixed turnover is 0.16 which is lower than all the above mentioned companies and Shah alloys has highest turnover. Inventory turnover ratio -In 2007 average inventory ratio of industry is 0.87that is lesser than all the companies. All other companies are above average and Shah alloys

has highest turnover among all these

companies. Debtor turnover ratio -In 2007 average Debtor turnover ratio of industry is 1.97 that is lesser than all company’s average. In 2007 all companies are performing very well and Shah alloys has highest turnover among all these companies. Debt – equity ratio -Average ratio of industry is 0.90 .Surya roshini is showing higher ratio i.e. 2.27 which shoes

41

that company is having higher risk and has borrowed more

from

creditors

than

shareholders.

All

other

companies are performing well. Sun flag is having ratio of0.83 that is lowest among all these and still it can take loan from creditors without any hazard. Current ratio -All companies are performing well because they are above average level i.e.1 and have enough cash to meet all current liabilities. M U S Shah Sunflag Surya Aggreg CO Alloys Iron Roshni ate 200603 200603 200603 200603

Usha Martin 200603

Debt-Equity Ratio

0.97

0.68

1.67

0.73

2.27

1.46

Long Term Equity Ratio

0.85

0.40

1.16

0.64

1.35

1.26

1.24

1.40

1.25

1.72

1.27

1.14

Fixed Assets

1.21

3.15

3.35

1.71

2.07

0.93

Inventory

6.35

7.47

5.67

6.98

7.28

4.89

Debtors

12.87

5.95

13.67

16.34

11.55

5.95

9.55

2.60

5.65

2.04

2.22

Company / Year Key Ratios

Current Ratio

Debt-

Turnover Ratios

Interest Cover Ratio 5.01

Asset turnover ratio -In 2006 aggregate fixed turnover is 1.21 which is lower than all other companies except Usha martin. But Shah alloys is having highest ratio it means its utilizing assets properly. Inventory turnover ratio -In 2006 average inventory ratio of industry is 6.35that is greater than only Shah alloys and Usha martin. All other companies are above

42

average and Surya roshini has highest turnover among all these companies. This ratio shows the number of times a company’s inventory is turned into sales. Debtor turnover ratio- In 2006 average Debtor turnover ratio of industry is 12.87that is lesser than Shah alloys and Sun flag iron . Sun flag iron has highest turnover ratio which shows that debtors are being converted rapidly into cash and the quality of company’s portfolio of debtor is good. Debt – equity ratio -Average ratio of industry is 0.97.Surya roshini is showing highest ratio i.e. 2.27.which shows that company is having higher risk and has borrowed more from creditors than shareholders. Current ratio -All companies are performing well. All companies have enough liquid assets to meet current liabilities.

M U SShah Sunflag Surya Aggreg C OAlloys Iron Roshni ate 200503 200503 200503 200503

Usha Martin 200503

Debt-Equity Ratio

1.50

1.06

1.47

0.69

2.40

1.94

Long Term Equity Ratio

1.31

0.61

0.91

0.56

1.44

1.58

1.10

1.28

1.24

1.87

1.23

1.13

Fixed Assets

1.34

2.93

5.99

1.70

2.10

0.95

Inventory

8.39

6.92

9.44

8.27

7.41

4.89

Debtors

13.56

6.45

18.16

18.07

11.83

5.83

6.75

2.67

3.27

1.71

1.69

Company / Year Key Ratios

Current Ratio

Debt-

Turnover Ratios

Interest Cover Ratio 6.96

43

Asset turnover ratio- In 2005 aggregate fixed turnover is 1.34 which is lesser than all other companies. It means these companies utilizing their assets efficiently. Shah alloys has highest turnover ratio. Inventory turnover ratio -In 2005 average inventory ratio of industry is 8.39 that is lesser than only Shah alloys. All other companies are below average and Shah alloys has highest turnover among all these companies. It means that it is converting its inventory into sales very frequently. Debtor turnover ratio -In 2005 average Debtor turnover ratio of industry is 13.56that is greater than all company’s average except Shah alloy Sun flag iron s. In 2005 Shah alloys steel has highest turnover ratio which means it is realizing cash frequently from its debtors and company has good collection policy. Debt – equity ratio -Average ratio of industry is 1.50. Surya Roshini is showing higher ratio i.e. 2.40 and which shows this company is having higher risk and has borrowed more from creditors than shareholders. Sun flag iron has lowest ratio that is good for company. Current ratio – Average ratio of the industry is 1.20. All companies are performing well and have sufficient current assets to meet current obligation.

M U S CShah Sunflag Surya Usha Aggreg Company / Year O Alloys Iron Roshni Martin ate 200403 200403 200403 200403 200403 Key Ratios

44

Debt-Equity Ratio

2.92

1.64

1.77

0.80

2.57

2.03

Long Term Debt-Equity Ratio

2.48

0.69

1.10

0.64

1.58

1.70

Current Ratio

0.93

1.05

1.28

1.62

1.19

1.19

Fixed Assets

0.98

2.05

5.18

1.00

1.70

0.67

Inventory

7.35

7.02

9.99

6.92

6.22

4.15

Debtors

10.36

6.26

11.00

9.15

9.85

4.80

3.01

1.43

2.86

1.45

1.54

1.18

Turnover Ratios

Interest Ratio

Cover

Asset turnover ratio -In 2004 aggregate fixed turnover is 0.98 which is lower than all other companies. It means these companies utilizing their assets efficiently. But Shah alloys has highest ratio it means it is utilizing its assts fullest. Inventory turnover ratio -In 2004 average inventory ratio of industry is 7.35that is lesser than only Shah alloys. All other companies are below average and it means shah alloys converting goods into sales at faster rate. Debtor turnover ratio -In 2004 average Debtor turnover ratio of industry is 10.36 that is greater than all company’s average except Shah alloys. In 2004 all companies are performing very well and realizing money at faster rate. Debt – equity ratio -Average ratio of industry is 2.92 .that itself shows that industry is under huge pressure of debts in this scenario only Sunflag was doing better

45

because it is having ratio of 0.80 which shows company has more shareholders money than creditor. Current ratio -Average ratio of industry is 0.93.All companies are performing well here and have sufficient current assets to meet current obligation.

46

5

Qualitative Analysis

5.1 Understanding the Steel industry using Michael Porter’s Five Forces Model Backed by robust volumes as well as realizations, steel Industry has registered a phenomenal growth across the world over the past few years. The situation in the domestic industry was no exception. In fact, it enjoyed a double digit growth rate backed by a robust growing economy. However, the current liquidity crisis seems to have created medium term hiccups. In this article, we

have analyzed the domestic steel sector through Michael Porter’s five force model so as to understand the competitiveness of the sector.

Entry barriers: High

47

 Capital Requirement: Steel industry is a capital

intensive business. It is estimated that to set up 1 mtpa capacity of integrated steel plant, it requires between Rs 25 bn to Rs 30 bn depending upon the location of the plant and technology used.  Economies of scale: As far as the sector forces go,

scale of operation does matter. Benefits of economies of scale are derived in the form of lower costs, R& D expenses and better bargaining power while sourcing raw materials. It may be noted that those steel companies, which are integrated, have their own mines for key raw materials such as iron ore and coal and this protects them for the potential threat for new entrants to a significant extent.  Government Policy: The government has a

favorable policy for steel manufacturers. However, there are certain discrepancies involved in allocation of iron ore mines and land acquisitions. Furthermore, the regulatory clearances and other issues are some of the major problems for the new entrants.  Product differentiation: Steel has very low

barriers in terms of product differentiation as it doesn’t fall into the luxury or specialty goods and thus does not have any substantial price difference. However, certain companies like Tata Steel still enjoy a premium for their products because of its quality and its brand value created more than 100 years back. Bargaining power of buyers: Unlike the FMCG or retail sectors, the buyers have a low bargaining power. However, the government may curb or put a ceiling on prices if it feels the need to do so. The steel companies either sell the steel directly to the

48

user industries or through their own distribution networks. Some companies also do exports.

Competition: High  The steel industry is truly global in terms of competition with large producing countries like China significantly influencing global prices through aggressive exports.  Steel, being a commodity it is, branding is not common and there is little differentiation between competing products.  It is medium in the domestic steel industry as demand still exceeds the supply. India is a net importer of steel. However, a threat from dumping of cheaper products does exist.

Bargaining power of suppliers: High  The bargaining power of suppliers is low for the fully integrated steel plants as they have their own mines of key raw material like iron ore coal for example Tata Steel. However, those who are non-integrated or semi integrated has to depend on suppliers. An example could be SAIL, which imports coking coal.  Globally, the Top three mining giants BHP Billiton, CVRD and Rio Tinto supply nearly two-thirds of the processed iron ore to steel mills and command very high bargaining power. In India too, NMDC is a major

49

supplier to standalone and non–integrated steel mills.

Threat of substitutes: Low  Plastics and composites pose a threat to Indian steel in

one of its biggest markets — automotive manufacture. For the automobile industry, the other material at present

with

the

potential

to

upstage

steel

is

aluminium. However, at present the high cost of electricity for extraction and purification of aluminium in India weighs against viable use of aluminium for the automobile industry. Steel has already been replaced in some large volume applications: railway sleepers (RCC sleepers), large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes), and domestic water tanks (PVC tanks). The substitution is more prevalent in the

manufacture

of

automobiles

and

consumer

durables.

Bargaining power of Consumers: Mixed Some of

the

major

steel

consumption

sectors

like

automobiles, oil & gas, shipping, consumer durables and power generation enjoy high bargaining power and get favorable deals. However, small and retail consumers who are scattered and consume a significant part do not enjoy these benefits.

50

5.2 The SWOT Analysis Strengths

Weakness

 Availability of iron ore

 Endemic Deficiencies

 Availability of labor at low

 Systemic Deficiencies

wage rates

 High Cost of Capital  Low Labor Productivity  High Cost of Basic Inputs and Services Threats

Opportunities  Unexplored rural market

 Slow Industry Growth

 Other sectors

 Technological Change

 Export penetration

 Price Sensitivity and Demand Volatility

Strengths Availability of iron ore India has rich mineral resources. It has abundance of iron ore, coal and many other raw materials required for iron and steel making. It has the fourth largest iron ore reserves (10.3 billion tonnes) after Russia, Brazil, and Australia. Therefore, many raw materials are available at comparatively lower costs. Availability of labor at low wage rates India has the third largest pool of technical manpower, next to United States and the erstwhile USSR, capable of understanding

and

assimilating

new

technologies.

Considering quality of workforce, Indian steel industry has low unit labor cost, commensurate with skill. This gets

51

reflected in the lower production cost of steel in India compared

to

many

advanced

countries.

With

such

strength of resources, along with vast domestic untapped market, Indian steel industry has the potential to face challenges successfully.

Weaknesses Endemic Deficiencies These are inherent in the quality and availability of some of the essential raw materials available in India, e.g., high ash content of indigenous coking coal adversely affecting the productive efficiency of iron-making and is generally imported. Advantages of high Fe content of indigenous ore are often neutralized by high basicity index. Besides, certain key ingredients of steel making, e.g., nickel, ferromolybdenum is also unavailable indigenously. Systemic Deficiencies However, most of the weaknesses of the Indian steel industry can be classified as systemic deficiencies. Some of these are described here. High Cost of Capital Steel is a capital intensive industry; steel companies in India are charged an interest rate of around 14% on capital as compared to 2.4% in Japan and 6.4% in USA. Low Labor Productivity In India the advantage of low cost labor gets offset by low labor productivity; e.g., at comparable capacities labor productivity of SAIL and TISCO is 75 t/man year and 100

52

t/man year, for POSCO, Korea and NIPPON, Japan the values are 1345 t/man year and 980 t/man year. High Cost of Basic Inputs and Services High administered price of essential inputs like electricity puts Indian steel industry at a disadvantage; about 45% of the input costs can be attributed to the administered costs of coal, fuel and electricity, e.g., cost of electricity is 3 cents in the USA as compared to 10 cents in India; and freight cost from Jamshedpur to Mumbai is $50/tonne compared to only $34 from Rotterdam to Mumbai. Added to this are poor quality and ever increasing prices of coking and non-coking coal. Other systemic deficiencies include: •

Poor quality of basic infrastructure like road, port etc.

•

Lack of expenditure in research and development.

•

Delay in absorption in technology by existing units.

•

Low quality of steel and steel products.

•

Lack of facilities to produce various shapes and qualities of finished steel on-demand such as steel for automobile sector, parallel flange light weight beams, coated sheets etc.

•

Limited access of domestic producers to good quality iron ores which are normally earmarked for exports, and High level taxation.

Besides

these,

international

Indian

steel

competitiveness

makers on

also

lack

determinants

in like

product quality, product design, on-time delivery, post sales service, Performance index (1997-2001): Movement

53

of

share

initiatives,

prices, research

distribution and

network,

managerial

development,

information

technology and labor productivity etc. The weaknesses gets reflected in India’s poor standing in the global competitiveness as measured in terms of indicated parameters.

Opportunities The biggest opportunity before Indian steel sector is that there is enormous scope for increasing consumption of steel in almost all sectors in India. There is untapped potential of increasing steel consumption in India; eg, even to reach the comparable developing and lately developed economies like China and European nations, a quantum jump in steel consumption will be required. •

Unexplored Rural Market

The Indian rural sector remains fairly unexposed to the multi-faceted use of steel. The rural market was identified as a potential area of significant steel consumption way back in the year 1976 itself. However, forceful steps were not

taken

to

penetrate

this

segment.

Enhancing

applications in rural areas assumes a much greater significance now for increasing per capital consumption of steel. The usage of steel in cost effective manner is possible in the area of housing, fencing, structures and other possible applications where steel can substitute other

materials

which

not

only

could

bring

about

advantages to users but is also desirable for conservation of forest resources. •

Other Sectors

54

Excellent potential exists for enhancing steel consumption in

other

sectors

such

as

automobiles,

packaging,

engineering industries, irrigation and water supply in India.

New

performance

steel

products

simplify

developed

to

improve

manufacturing/installation

and

reliability is needed to enhance steel consumption in these

sectors.

improvement

of

Main

objective

quality

for

here

value

have

addition

to in

be use,

requirement of less material by reducing the weight and thickness and finally reduction in overall cost for the end user. Latest technology must be adopted by Indian steel manufacturers for production of superior quality of steel for these applications. For example, pre-coated sheets can be used in manufacture of appliances, furnishings, electric goods and public transport vehicles. Production and supply of superior grades of steel in desired shapes and sizes will definitely increase the steel consumption as this will reduce fabrication need; thereby reduce cost of using steel. •

Export Market Penetration

It is estimated that world steel consumption will double in next 25 years. This poses as a huge opportunity to the steel industry.

Threats •

Slow Industry Growth

The linkage between the economic growth of a country and the growth of its steel industry is strong. The Indian steel industry is no exception. The growth of the domestic steel industry between 1970 and 1990 was similar to the

55

growth of the economy, which as a whole was sluggish. This sluggish growth in the steel industry has resulted in enhanced rivalry among existing firms. As the industry is not growing the only other way to grow is by increasing one’s market share. Consequently, the Indian steel industry has witnessed spurts of price wars and heavy trade discounts, which has done Indian steel industry no good as a whole. •

Technological Change

Technological changes often force the industry structure to change. For a developing country like India where capital itself is costly, technological obsolescence is a major threat. •

Price Sensitivity and Demand Volatility

The demand for steel is a derived demand and the purchase quantity depends on the end-user requirements. The traders tend to exhibit price sensitivity and buy when there are discounts. This volatility of demand often affects the integrated steel manufacturers because of their inability to tune their production in line with the market demand fluctuations. Some other threats are: •

Ever decreasing import duty on steel.

•

Dumping of steel by developed countries.

•

High quality products from developed countries available for import at very competitive prices.

•

Non-availability of capital from financial institutions for iron and steel sector.

56

5.3 Strategic Restructuring — A Comparative Analysis The effect of globalization on steel industries in different regions or countries has not been uniform. Each region is unique in its own way in terms of raw materials availability,

technology

adopted,

market

conditions,

trading policies, etc. Consequently restructuring of steel industries in different regions have been done in a manner that best suits the needs and situations of the country or region (Table 7). The divergent strategies adopted for restructuring by steel industries in different countries/regions provide the right perspective for building a turnaround strategy for Indian steel industry.

5.3.1

Impediments to expansion

Steel production targets set in the National Steel Policy by the Indian Government recognize that success will depend on addressing a number of impediments. While India ranks 116th of 155 countries in the World Bank’s ease of doing business index, such a rating conceals major

57

differences between individual states within India and the extent of government support at all levels to facilitate investment in the steel sector. Further, many impediments to business present in the wider economy will not be so significant in the special economic zones and special economic

and

investment

regions

where

a

large

proportion of planned new steel capacity will be sited.

Infrastructure The state of infrastructure in India is a significant consideration for investors in the steel sector. A number of studies, including one released by Morgan Stanley in 2005 (Ahya and Sheth 2005), concluded that the low level of spending on infrastructure, compared with other emerging economies, is the major macroeconomic constraint on the Indian economy. Morgan Stanley note that China spent 10.6 per cent of gross domestic product, equal to US$150 billion, on infrastructure in 2003 compared with India’s 3.5 per cent or US$21 billion. Notably, India, in contrast to China, has low rates of domestic savings, which is a factor in limiting capital formation and domestic investment. For new steel projects, infrastructure costs can be significant,

as

in

the

development

in

requires

transport

the

case

Orissa.

of

Posco’s

Infrastructure of

raw

steel

plant

development

materials

for

steel

production. Every tonne of steel produced requires 4 tonnes

of

raw

material

to

be

transported.

Hence,

achieving the goal of 75 million tonnes of additional capacity by 2019-20 will require the movement of an additional 300 million tonnes of raw material. On this basis, the Indian Government estimates that rail and road capacity will need to approximately triple and port

58

capacity double by 2019-20 to meet demand for steel and raw material movements (Government of India 2005). An analysis by McKinsey Quarterly (Bhargava, Gupta and Khan 2005) showed that Australia, Brazil and South Africa can deliver iron ore to China at a lower price than India, with Australia’s fob delivery price less than half of India’s price. A major factor in India’s competitive disadvantage is high

transport

costs

stemming

from

a

lack

of

infrastructure, but mining costs are also high. However, this is somewhat offset by the closeness of India’s raw materials to its ports and steelworks relative to other steel producing countries (De Bassompierre and Arendse 2006) . The major investments required in infrastructure are expected to be a significant driver of steel consumption in the domestic market as infrastructure and construction combined account for 80% of India’s steel consumption (Gokarn, Sen and Vaidya 2004). Additional infrastructure will also provide indirect benefits to other sectors in the economy.

Roads The capacity and quality of Indian roads are also a constraint to economic development, with highways making up 2 per cent of roads but accounting for 40 per cent of freight movement in 2004. In addition, some 50 per cent of India’s 600 000 villages are unconnected by all-weather roads (OECD 2006c; Economist Intelligence Unit 2005a). Freight movements are further delayed by onerous transport regulations, which include restrictions in the hours of the day that heavy vehicles can operate, interstate border crossing closures and lengthy trans-

59

border crossing procedures, frequent tolls and inspections, and road closures at night due to the risk of attacks by insurgents or bandits. In an effort to improve transport efficiency the government has announced a road building program known as the National Highways Development Project (Government of India 2002). Stage one is nearing completion and involves the construction of a highway, called

the

Golden

Quadrilateral,

connecting

Delhi,

Mumbai, Kolkata and Chennai at a cost of US$12 billion. This is part of a wider plan to improve roads nationwide at a cost of over US$30 billion shared between government and the private sector (Puliyenthuruthel 2005).

Rail The government owned and operated rail network is the third largest in the world after the Russian Federation and China and the biggest in the world in terms of passenger kilometres. However, cross subsidisation of passenger transport by freight transport has meant that steel freight and freight in general has moved away from rail to roads: 35 per cent of processed or final steel products were transported by rail in 2001-02, down from 72% in 1991-92 (OECD 2006c; Economist Intelligence Unit 2005a). The government has signalled its intention to improve the freight performance of the railways in its current five year plan, although the passenger cross subsidisation policy — which is aimed at assisting the poor — is likely to remain.

Shipping The efficiency of Indian ports is affected by shallow draught,

low

productivity,

high

60

costs,

long

vessel

turnaround times, poor governance, and lengthy customs delays. Shipping costs are consequently high — a shipment from India to the United States can cost 20 per cent more than from Thailand and 35 per cent more than from China (OECD 2006c; Economist Intelligence Unit 2005a). Expanding India’s steel sector depends on lower port costs for handling key inputs such as coking coal which is predominantly imported, as well as servicing potential steel exports as envisaged under the National Steel Policy. The Indian Government has in place several initiatives to encourage private sector participation in ports, while recognising that modernisation of Indian ports is a long term project. Some steel operations are, however, of sufficient size to overcome these impediments by investing in their own facilities. An example is Posco’s plant in Orissa, which will include a US$200 million new world class port at Jagadhari with berths up to 250 000 tonnes.

Power Generation The electricity supply system is characterised by frequent outages and high voltage fluctuations despite half of all households not being connected to the grid. Average electricity consumption per person is 526 kilowatt hours a year, which compares with 1247 kilowatt hours in China (OECD 2006; Economist Intelligence Unit 2005). The Ministry of Steel estimates that achieving the goals set out in its 2019-20 Steel Policy will require an additional 7000 megawatts of generation capacity. This compares to a nationwide capacity of 131 400 megawatts in 2003-04 and an overall target of an additional 100 000 megawatts

61

of capacity within seven years so that all households can be connected to the grid. However, the government has limited funds for the construction of power capacity and there are a number of risks for potential investors where political considerations have

constrained

reform.

These

include

cross

subsidisation by industry users of some consumer classes whose payments do not meet costs, as well as over 25 per cent of power being stolen or lost in distribution. These factors combine to limit overall electricity tariffs to 75 per cent of supply costs, which are estimated at twice those of the United States, and 60 per cent greater than in the Republic of Korea and Thailand (Economist Intelligence Unit2005b). The mismatch between costs and tariffs has bankrupted many of the government controlled state electricity boards and consequently restricted their ability to add capacity. A case in point is the defaulting on payment by the state electricity board that emerged in the case of the US$2.9 billion Dabhol power plant, which was India’s largest ever foreign direct investment project. While the Indian Government has sought to reform the electricity market for some time and recently offered to guarantee over 5 billion US$ of the state electricity boards’ debts, investor perceptions are that if payment is not assured, these efforts are likely to meet with limited success and capacity will continue to be constrained. However, to the extent that capacity is added, it will be a significant driver of steel demand as machinery and equipment accounts for 13% of total demand for steel in India.

62

6

Current Global Scenario

1. Subprime crisis 2. US slow down 3. US dollar weakening

4. Fed rate cut by 50 basic points

Impact 1. Widening credit spreads 2. Increase in capital cash 3. Liquidity crunch-Central bank intervention 4. Equity market initials retreat

5. Bounce back on FED rate cut-Huge volatility

6.1 Current crisis in Iron and Steel Industry Worsening US economic crisis has led to global steel companies pruning their capacity thereby, lower forecast of iron ore consumption this year. This is evident from the latest data collated by the Federation of Indian Minerals Industries (FIMI) which states that iron ore exports from India till December 15, 2008 declined over 13% despite huge

price

decline

in

steelmaking

63

raw

materials.

According to Labour Department, the US job losses last year were the most since 1945. Additionally, the federal budget deficit is expected to hit $1.18 trillion this year as the government spends billions on industry bailouts and tax cuts. Consequently, the US government has pledged more than $8.5 trillion as of November 25 for the bailout package to companies and help the country recover from an economic recession. The recently elected president Barack Obama has also favoured an additional stimulus package of at least $775 billion.

Low Iron Ore Exports from India The latest FIMI data indicates iron ore exports plunged to 55.8 million tons between April 1 - December 15 of the current fiscal as compared to 64.38 million tons in the corresponding

period

last

year.

Shipment,

however,

witnessed a marginal decline of 3.81% to 5 million tons during the first fortnight of December from 5.2 million tons in the same period last year (2008).

Source: SteelWorld

64

Total shipment from Mormugao port in Goa during the first fortnight of December showed a drastic decline of over 27.18% to 20.84 million tons as against 28.62 million tons in the same period last year. Goan exporters ship mainly Karnataka- and Goa-origin low grade iron ore to Chinese steel mills, said Glenn Kalavampara, Secretary of Goa Mineral

Ore

Exporters'

Association

(GMOEA).

Haresh

Melwani, CEO, H L Nathurmal & Co, one of the leading iron ore miners and exporters from Goa attributed the decline in exports to three major factors namely: frequent changes in exports levy on fines and lumps (the two grades of iron ore below and above 64 percent of iron content respectively), slowdown in Chinese demand and buyers lenience towards Australia and Brazil because of favourable government policy. He also forecast about 25 percent decline of exports of state-origin iron ore from Goa to the tune of 20 million tons this financial year from 26 million tons last year. Similarly, both Karnataka- and Goa-origin iron ore exports may also fall to the level of 30 million tons as compared to 40 million tons last financial year, Melwani added.

Crude Steel Production Down and Domestic Steel Companies Margin under Pressure The margins of steel producers will be under severe pressure in the second half of 2009 due to high cost of coking coal (US$300-350 per ton). Coking coal prices too are likely to correct sharply in 2009 due to sharp drop in steel production. Currently, capacity utilization of Ispat Industries is 30%, JSW Steel and Essar Steel is 60-70% each, and Bhushan Steel is 50 percent. SAIL and Tata steel have not announced production cuts but they have brought forward repairs. Tata Steel's November production

65

of 570,000 tons was the highest ever despite three of its smaller blast furnaces under relining. Though JSW Steel announced production cut of 20%, actual production rates have been worse in November 2008.

7

Suggestions

The following suggestions are given to rejuvenate the Indian steel industry:  Technology policy is to be so designed by the government that it will generate the thrust to update the technology by the steel producers.  Further liberalization towards tariff structure, full convertibility

of

Indian

currency,

more

equity

participation by foreign partners, rationalization of tax structure etc. will be required.  Steel companies must assess their core competency and realign their strategy to cope with the internal and global competition.  R&D

focus

is

to

be

increased

substantially.

Expenditure on R&D by steel plants should be increased. With a strong R&D base, organizations will be able to assimilate the technology faster.  Organizational adjustments must be made while adopting

newer

technologies.

resource

policy

will

adoption.

help

Socio-economic

Effective

speedier aspects

human

technology should

be

dovetailed while selecting a technology.  Training and re-training with updated inputs should be a continuous process in steel plants. Training

66

programmers should be designed for people from different hierarchy including top level management.  As economy is becoming more and more marketdriven, steel sector should also tune to it.  Technology transfer plans are to be worked out more carefully.

Indian

firms

must

select

appropriate

technology with proper scope of adoption.  Firms must do technological forecasting, which is not common in Indian steel industry, to take better decisions on product mix and investment proposals.  Resource utilization must be more effective to improve on the productivity.

8

Future Outlook

The Role of Iron and Steel Industry in India GDP is very important for the development of the country. In India the visionary Shri Jamshedji Tata set up the first Iron and Steel manufacturing unit called Tata Iron and Steel Company, at Jamshedpur in Jharkhand. Iron and steel are among the most important components required for the infrastructure development in the country. The sponge iron has of late come up as a major input material for steel making through electric furnace route – both Electric Arc Furnace and Induction Furnace. Due to long gestation period, huge investments, dependence for coke on foreign suppliers, the steel industry is slowly diverting itself from blast furnace route to electric furnace route and the requirement of Sponge Iron is increasing

67

very fast. Another major reason is the global shortage of scrap. The steel making furnaces in the eastern region use average 70% Sponge Iron in the feed material for steel making. The future for the Sponge Iron is therefore quite bright. The steel is today considered as the backbone of India economy. The growth of economy has a direct relation with the demand of steel. With the present steel intensity index, considering the GDP projection by the Government of India, growth of steel demand will be around 11% annually. As per the National Steel Policy issued by the Ministry of Steel – India will produce 110 million tons of steel by 2020. The requirement of Sponge Iron as metallic will be 30 million tons.

Projection for metallic requirement: Year 2010-11

Route Electric

Melting 14 million

Scrap 18 million

DRI Furnace Route

But availability of scrap is not likely to reach 11 million. •

It is expected that India would become the second biggest producer of steel within the year 2016 and the production per year would be 137 million tonnes

•

Today India produce 13.9 million tons of sponge iron, out of which 4.2 million ton is gas based and remaining 9.7 million ton is coal based.

•

India has a proven reserve of 410 million ton of high grade iron ore, another 440 million ton of high grade

68

iron ore which will be established. India has total 9992 million ton of iron ore reserves (as per IBM report of 1995). •

India has sufficient non-coking coal through of high ash low fixed carbon grade. Coal is used as a reducing for sponge iron making in the furnace.

•

The availability of scrap of required quantum is unlikely and therefore scraps needs to be replaced more and more by DRI.

Projects in near future: •

The Arcelor Mittal, which is the largest steelmaker in the world, has plans of establishing two Greenfield steel projects with capacity of 12 million tonnes annually, in India

•

Acerinox SA, one of the important stainless steel manufacturers in collaboration with Nisshin Steel, Japan is setting up a steel plant in India

•

The

Tata

production

Steel and

ranks the

5th

in the world steel

company

have

plans

of

expanding its capacity by the year 2015 •

SAIL, India's biggest producer of steel has plans of increasing the production to 24.98 million tonnes annually

•

Sinosteel Corp, China are planning to invest US$ 4 billion to set up a 5 million tonnes capacity Greenfield steel plant

•

The acquisition of the Corus, the Anglo-Dutch steel manufacturer by the Tata Steel

•

The Algoma Steel, Canada was acquired by Essar Global for US$ 1.63 billion

69

9

Business Innovation: Steel Retailing

Steel has always been a part of our lives. Be it steel utensils, the razor blade we use every morning while shaving

or

the

Omnipresent,

re-bars

the

that

everyday

support

metal

our

homes.

surfaces

almost

everywhere, lends its hand in almost every activity we do. But buying steel has not been a very pleasant experience for most of us. One must have also skipped, jumped and hopped from one store to another for nuts, hinges and home utensils. Realising this, Tata Steel decided to foray into organised steel

retailing.

This

initiative

is

testimony

to

the

organisation’s undying spirit for experimentation and to break new ground. To catalyse steel consumption in emerging mass markets of India and to build downstream retailing excitement for steel as a category, Tata Steel spearheaded the company’s entry into pure play retailing for steel products with its first pilot store ‘steeljunction’ in Kolkata. This is India’s first organised steel retail store. Tata Steel hopes that ‘steeljunction’ would be a platform that would bring together vendors & manufacturers to

70

understand consumer buying behaviour for steel and innovate and develop newer products & services that add value to the end customer and makes steel buying pleasurable. Innovations in the market place the CVM (Customer Value Management), Retail Value Management, Steel Junction have presented TATA Steel to the customers in a much better manner. And that’s why they continue to pay a very good premium in the retail market for everything that you sell, because of the brands that Tata has established.

9.1 Vision ‘steel junction’ To create a unique retail experience that displays the versatility of steel - from its functionality to its aesthetics. To build a specialty chain of stores that will bring innovation to steel products and make steel buying pleasurable.

9.2 Lessons from Nucor Steel

71

Nucor Steel: “Recycled Steel: An environmental success” Nucor Corp. (NYSE:NUE) is a steel producer that relies on scrap steel for production rather than iron ore; this makes it the largest recycler in the nation. As opposed to traditional large mills, Nucor runs mostly mini-mills that utilize modern steel making techniques and require fewer employees compared to fully-integrated competitors such as US Steel. Still, the company employs nearly 12,000 workers,

all

of

whom

are

independent

of

unions.

Production totalled 22.4 million tons in 2006, a 10% increase from 2005, with production capacity exceeding 25 million. Nucor achieved record sales and net earnings in 2006 for the third consecutive year, and has managed to maintain profitability every quarter of every year since 1966. Hence it is rightly said “Converting Scrap into Steel.”

Advantages: Managing and Minimizing Waste Integrated steel makers use primarily iron ore in the production process, whereas mini-mills use primarily steel scrap. Producing from steel scrap is a simpler and significantly less energy-intensive process than producing from iron ore, but because steel scrap is recycled, there is concern of impurities thus decreasing the accessible market for producers. The primary source for steel scrap is obsolete automobiles, but steel scrap also comes from the recycling of steel cans, appliances, and other construction materials. They also do the Beneficial Reuse of Slag.

Increasing Energy Efficiency

72

The iron and steel industry, which relies heavily on coal and natural gas for fuel, is one of the largest energy consumers in the manufacturing sector. The company reported achieving a 17% reduction in energy intensity per ton of steel shipped since 1990. Because of the close relationship between energy use and GHG emissions, the industry’s aggregate CO2 emissions per ton of steel shipped were reduced by a comparable amount during this same period. As part of their Climate VISION commitment, the industry has committed to increasing its energy efficiency by 10% by 2012 (from 2002 levels).

Reducing Air Emissions To help achieve this goal, the industry is researching alternative means of production at integrated mills that would not generate CO2, seeking to reduce or capture GHG emissions from current production methods, and exploring ways to increase energy efficiency. They employ methods

to

reduce Hazardous

Air

Pollutant Emissions

and

Greenhouse Gas Emissions.

10 Identifying Key Success Factors

73

WHAT DO

HOW DO FIRMS

CUSTOMERS WANT?

SURVIVE

KEY SUCCESS FACTORS

COMPETITION?

(Analysis of demand)

(Analysis of competition)

• •

•

Low price.

•

•

Conventional

products, excess

sources of cost

capacity, high fixed

efficiency include:

costs, excess

large-scale plants,

capacity, exit

low-cost location,

barriers, and

and rapid

substitute

adjustment of

specifications for

competition mean

capacity to output.

special steels.

intense price

Product consistency.

•

Commodity

Reliability of supply. Specific technical

competition and

•

technology, small

cyclical profitability. •

Alternatively, high scale plants can achieve low costs

Cost efficiency and strong financial

through flexibility

resources essential.

and high productivity. •

Differentiation through technical specifications and service quality.

11 Conclusion It is universally accepted that Indian economy is growing at a very high rate presently and the demand for steel is also showing an upward trend. We believe, for the sake of

74

country and growth of economy, growth of sponge iron industry is a must. This is possible only with the active support of the Government. Efforts to make this sector more eco-friendly will meet success only if competent authorities take up the developmental jobs in proper spirit.

12 References 1. Annual Report (2007-2008) Of Ministry Of Steel

2. Analysis from CRISIL 3. Commitment: The Dynamic of Strategy - Pankaj

Ghemawat (New York: Free Press, 1991) 4. Dealing With Trade Distortions In Trade Industry-

Veena Jha, James Nedumpara & Tanuka Endow, MacMillan Inida Ltd 5. Financial Accounting – A Managerial Perspective -

Narayanaswamy 6. Iron and Steel Review (1998) 7. Online magazine – Metal Bulletin 8. World Class Steel – G. Mukherjee, IMI 9. www.Capitaline.com 10. www.MySteel.com 11. www.sail.com 12. www.SteelWorld.com 13. www.steel.nic.in 14. www.worldsteel.org

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