Tata Steel
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Business Policy and Strategic Management Interim Report Company:-TATA STEEL
Submitted To: Prof.Govinda Sharma
Submitted By:Saurav Chakladar Deepansh Agarwal Diptikanta Sathpathy Jain Amit Manraj Jithin V. Kapil Kapoor
08044 08073 08074 08077 08079 08081
Contents Tata Steel ........................................................................................................................................ 4 Tata Sons......................................................................................................................................... 4 Areas Of Business ........................................................................................................................... 4 Industry Overview .......................................................................................................................... 5 Global Steel Industry ...................................................................................................................... 5 Indian Steel Industry-An Overview ................................................................................................. 8 Company Profile - Tata Steel....................................................................................................... 12 Background ................................................................................................................................... 12 Heritage ........................................................................................................................................ 14 The Founder .................................................................................................................................. 14 Jamshedji Nusserwanji Tata (1839-1904) .................................................................................... 14 Ratan Tata (1937) ......................................................................................................................... 14 Mission Statement ......................................................................................................................... 14 Global Points Of Presence Of Tata Steel ..................................................................................... 16 Strategic Business Units ............................................................................................................... 16 Tata Steel Vision And Mission Statement ................................................................................... 17 Vision ............................................................................................................................................ 17 Mission Statement ......................................................................................................................... 18 Three Phases Of Tata Steel ........................................................................................................... 18 First Phase .................................................................................................................................... 18 Second Phase ................................................................................................................................ 19 Tata Steel’s Key Strategic Challenges .......................................................................................... 19 Tata Steel’s Strategy..................................................................................................................... 19 Tata Steel Swot Analysis .............................................................................................................. 20 Strengths ....................................................................................................................................... 20 Weakness ....................................................................................................................................... 22 Opportunities ................................................................................................................................ 23 Threats .......................................................................................................................................... 24 Financial Analysis ....................................................................................................................... 25 Return On Equity .......................................................................................................................... 25 BPSM Group 9 Section A
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Asset Turnover Ratio..................................................................................................................... 26 Current Ratio ................................................................................................................................ 26 Net Profit Margin Ratio ................................................................................................................ 27 Debt Service Ratio ........................................................................................................................ 28 World Steel Production ................................................................................................................. 28
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TATA STEEL Backed by 100 glorious years of experience in steel making, Tata Steel is the world‘s 6th largest steel company with an existing annual crude steel production capacity of 30 Million Tonnes Per Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia and is now the world`s second most geographically diversified steel producer and a Fortune 500 Company. Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing units in 26 countries.
TATA SONS Tata Sons is the promoter of all key Tata companies and holds the bulk of shareholding in these companies. The chairman of Tata Sons has traditionally been the chairman of the Tata group. About 66 per cent of the equity capital of Tata Sons is held by philanthropic trusts endowed by members of the Tata family. The biggest of these trusts are the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust, which were created by the families of the sons of Jamsetji Tata.
Areas of business Tata Sons is the owner of the Tata name and the Tata trademark, which are registered in India and several other countries. Various Tata companies in relation to their products and services use these. The terms of use of the group mark and logo by Tata companies are governed by the Brand Equity and Business Promotion Agreement, which is signed by Tata Sons and individual group companies. Apart from this, the company's activities are: To maintain shareholding in main operating companies To invest in operating companies to facilitate growth To promote the group's entry into new businesses Tata Sons has two divisions:
Tata Quality Management Services: Helps Tata companies achieve business excellence
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through the Tata Business Excellence Model Tata Financial Services: In-house financial consultancy which carries out long- and shortterm financial planning for Tata companies
INDUSTRY OVERVIEW Global Steel industry The current global steel industry is in its best position in comparison to last decades. The price has been rising continuously. The demand expectations for steel products are rapidly growing for coming years. The shares of steel industries are also in a high pace. The steel industry is enjoying its 6th consecutive years of growth in supply and demand. And there is many more merger and acquisitions which overall buoyed the industry and showed some good results.
The subprime crisis has lead to the recession in economy of different countries, which may lead to have a negative effect on whole steel industry in coming years. However steel production and consumption will be supported by continuous economic growth.
The countries like China, Japan, India and South Korea are in the top of the above in steel production in Asian countries. China accounts for one third of total production i.e. 419m ton, Japan accounts for 9% i.e. 118m ton, India accounts for 53m ton and South Korea is accounted for 49m ton, which all totally becomes more than 50% of global production. Apart from this USA, BRAZIL, UK accounts for the major chunk of the whole growth
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Figure 2.1.Global Steel Production
The world steel industry outlook is promising with production seen rising to 1.5 billion tonnes in 2009, up from 1.4 billion tones, in 2008. The future outlook for the worldwide steel industry is very good. Demand is also seen growing with apparent steel use expected to total 1.282 billion tonnes this year, up 6.7 percent from 2007, according to data from the International Iron and Steel Institute (IISI).
Brazil, Russia, India and China (BRIC) were leading growth with an expected increase of 11.1 per cent for 2008 and 10.3 percent for 2009. China's apparent steel use is expected to grow by over 10 percent in 2008 and by 10 percent in 2009. China accounted for 35 percent of the world total this year.
In the European Union a total of 210 million tonnes of steel were produced in 2007, up 1.6 percent from the previous year. World steel production capacity is seen increasing by nearly 19 percent between 2007 and 2010. The steel industry has undergone a few structural changes in the past 3-4 years. So, the outlook for the next few years is likely to be driven by the kind of consolidation that has taken place in the past few years. The other factor that is likely to affect outlook is the extent of demand emerging from BRIC countries.
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In addition to these two major factors, a cost-push is coming from raw material suppliers. Hence, steel manufacturers have to contend with strong demand on one hand, and cost-push on the other. The outlook for the domestic industry looks bright, since India has good iron ore deposits, skilled manpower and growing demand for steel. There is an apprehension that if China slows down, it may dump its surplus steel into India. An analysis of global data shows that even if an economy slows down, steel consumption does not fall dramatically.
In the case of China, a slowdown can mean that the growth rate may fall from 19-20% to a lower level. But that doesn‘t means growth will not take place. China produced around 470 million tonnes (mt) of steel last year, out of which, 66 mt was exported and the rest was consumed within the country. The measures undertaken by the Chinese government recently will reduce exports significantly in the current year. There is also a change in the consumption pattern. For instance, if construction activity slows down, the consumption of white goods will pick up and demand for flat steel products will go up.
The new capacities coming up in China are on the flat products side and not on the long products side. Overall, the impact on the supply side will be less. Similarly, the cost of production is very high — it costs around $500 per ton to produce more than 100 mt of steel in China. Since the cost of production is very high and exports are not allowed, many of these plants will be closed down by ‘09-10.This will reduce the supply of steel. There‘s a feeling that India doesn‘t have much iron ore, considering the recent capacity expansion plans of domestic and foreign steel companies in India.
There is a possibility that if we continue exporting iron ore, we may run out of reserves. Currently, we export 90100 mt every year and this is steadily increasing. Ideally, we should increase our steel production capacity — we are a net importer of steel — so that rather than exporting iron ore, we can add value to it. India should also look at investing in exploring new mines. BPSM Group 9 Section A
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Indian Steel Industry-An Overview India has traditionally been one of the major producers of steel in the world. Till the 1990s the steel industry of India was regulated and controlled by government policies. After the economic reforms of the early 1990s, the Indian steel industry has evolved significantly to conform to global standards.
India has set a vision to be an economically developed nation by 2020. The steel industry is expected to play a major role in India's economic development in the coming years. The steel industry of India has a very high growth potential and is expected to register significant growth in the coming decades. India is expected to emerge as a strong force in the global steel market in coming years.
The two major aspects that are expected to play a significant role in the growth of the steel industry in India are Abundant availability of iron ore in the country The country as well established facilities for steel production. Steel production in India has grown from 17 MT in 1990 to 36 MT in 2003. It is expected that by 2011, the steel production in India will grow to 66 MT. The major sectors where consumption of steel is expected to grow in the coming years are Construction Housing Ground transportation Hi-tech engineering industries such as power generation, petrochemicals, fertilizers The current scenario of the Indian steel industry indicates that there is huge growth potential in this industry. The per capita-consumption of steel in India, according to latest available estimates, is only 29 kg. This is much less compared to the global average of 140kg. The per capita consumption level of developed nations like the United States of America is 400kg. In this respect, one of the major initiatives that need to be taken is to focus on increasing the BPSM Group 9 Section A
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consumption of steel in the rural areas of India. The potential for the growth of consumption of steel in the rural areas of India for purposes like rural housing, rural infrastructure, etc is high which needs to be tapped efficiently. In order to realize the growth potential in the steel industry of India, it is essential to ensure that the industry can remain competitive. One of the major aspects in this regard is the availability of inputs. Shortage of inputs like coke has led to increase in costs earlier. Moreover proper infrastructure facilities like transport infrastructure, power etc are of prime importance in maintaining the competitiveness of the industry. Most developed countries have regulations that are aimed to protect the domestic steel industry. The Indian steel industry has comparatively much lesser protection through regulations. Proper regulatory measures should be adopted by the government to protect the domestic steel industry. The performance of the Indian steel industry has been quite satisfactory over the last decade. Aided by the cutting-edge technology, the steel industry in Asia has made advancements in all areas of operation. There has been a substantial increase in demand for Indian steel products in the global market in the recent times. This has helped in the growth of Indian steel industry. The industry recorded the highest growth rate in the period from 2004-2005, when the growth rate of the steel sector was 4%. The increased consumption of the finished steel products in the domestic market acted as a positive catalyst in the growth process of the Indian steel industry. The favorable market condition has helped the companies operating in Indian steel industry to expand their operations and earn huge profit.
Figure 2.4. Steel Production in India
India continually posts phenomenal growth records in steel production. In 1992, India produced 14.33 million tones of finished carbon steels and 1.59 million tones of pig iron. Furthermore, BPSM Group 9 Section A
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the steel production capacity of the country has increased rapidly since 1991 – in 2008, India produced nearly 46.575 million tones of finished steels and 4.393 million tones of pig iron.
Both primary and secondary producers contributed their share to this phenomenal development, while these increases have pushed up the demand for finished steel at a very stable rate.
In 1991, a substantial number of economic reforms were introduced by the Indian government. These reforms boosted the development process of a number of industries – the steel industry in India in particular – which has subsequently developed quite rapidly. In 1992, the total consumption of finished steel was 14.84 million tones. In 2008, the total amount of domestic steel consumption was 43.925 million tones. With the increased demand in the national market, a huge part of the international market is also served by this industry. Today, India is in seventh position among all the crude steel producing countries. The top companies of the Indian steel sector mostly operate in four different forms like producers of pig iron, producers of stainless steel, producers of finished steel products, and producers of semi-finished steel. The companies functional in the steel industry of India are both public sector companies and private sector companies. Some of the leading companies in Indian steel industry are as follows: Bokaro Steel Plant: Steel manufacturer. Essar Steel: Producer of sponge iron, steel and iron ore pellets. Jindal Iron & Steel: Producer of galvanized steel products. Jindal Steel & Power: Manufacturer of mild steel slabs and sponge iron. Steel Authority of India: Manufacturer of steel and iron. Tata Steel: Producer and supplier of wire rods, bars, and steel flats. Vizag Steel: Producer of pig iron and steel.
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The rate of production of steel in India has been going up at a steady rate in the last few years. In the recent times Orissa and Jharkhand have been identified as the potential steel destinations of India - the ones that would provide the Indian steel industry with its necessary raw material.
There are also a number of steel companies in India like Tata and Arcelor-Mittal that are either coming up or have established themselves as prominent forces in the world steel scenario.
In the recent times a lot of foreign direct investment is being made in the Indian steel industry. In fact the rate of investment has increased in the last few years and, to a certain extent, this increase has been contributed to by the growth potential of the steel industry of India that is thought of as being impressive in the international steel circle. In the recent years a number of major steel corporations of the world have come flocking to India to avail the benefits of the flourishing steel industry of India. The number of steel projects in India has increased as well and this implies that the number of companies lining up to participate in these projects would be increasing too.
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Company Profile - TATA STEEL
Background Tata Steel, formerly known as TISCO and Tata Iron and Steel Company limited, is the world‘s sixth largest steel company, with an annual crude steel capacity of 30 Million Tonnes Per Annum (MTPA). It is the second largest private sector steel company in India in terms of domestic production. Ranked 315th on Fortune Global 500, it is based in Jamshedpur, Jharkhand, India. It is part of Tata Group of companies in private sector with consolidated revenues of Rs.1,32,110 crore and the net profit of over Rs.12,350 crore, during the year ended March 31st, 2008. Its main plant is located in Jamshedpur, Jharkhand, with its recent acquisition; the company has become a multinational with operations in various countries. The registered office of Tata Steel is in Mumbai. The company was also recognized as the world‘s best steel producer by the World Steel Dynamics in 2005. The company is listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), and employs about 36000 people (as of 2007). It was the vision of the founder; Jamsetji Nusserwanji Tata., that on 27th February, 1908, the first stake was driven into the soil of Sakchi. His vision helped Tata Steel overcome several periods of adversity and strive to improve against all odds. Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA which is slated to increase to 10 MTPA by 2010. The Company also has proposed three Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with additional capacity of 23 MTPA and a Greenfield project in Vietnam. BPSM Group 9 Section A
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Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings, Singapore, Tata Steel has created a manufacturing and marketing network in Europe, South East Asia and the pacific-rim countries. Corus, which manufactured over 20 MTPA of steel in 2008, has operations in the UK, the Netherlands, Germany, France, Norway and Belgium. Tata Steel Thailand is the largest producer of long steel products in Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has proposed a 0.5 MTPA mini blast furnace project in Thailand. NatSteel Holdings produces about 2 MTPA of steel products across its regional operations in seven countries. Tata Steel has lined up a series of Greenfield projects in India and outside which includes: a) 6 million tonne plant in Orissa (India). b) 12 million tonne plant in Jharkhand (India). c) 5 million tonne plant in Chhattisgarh (India). d) 3 million tonne plant in Iran. e) 5
million
tonne
capacity
expansion
at
Jamshedpur (India). f) 4.5 million Plant in Vietnam (feasibility study underway).
The iron ore mines and collieries in India give the Company a distinct advantage in raw material sourcing. Tata Steel is also striving towards raw materials security through joint ventures in Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata Steel has signed an agreement with Steel Authority of India Limited to establish a 50:50 joint venture company for coal mining in India. Also, Tata Steel has bought 19.9% stake in New Millennium Capital Corporation, Canada for iron ore mining.
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HERITAGE THE FOUNDER
Jamshedji Nusserwanji Tata (1839-1904) At the age of 43, Jamshedji Nusserwanji Tata read a report by a German geologist, Ritter Von Schwartz on the, availability of iron ore in Chanda district in the central Provinces, which gave him the idea of giving India a steel plant. Jamshedji Nusserwanji Tata formed the Tata Iron and Steel Company Limited in 1907 at Mumbai.
Ratan Tata (1937) He is the present chairman of TATA STEEL. With his efficient leadership TATA is soaring new heights. Tata Steel is India's largest integrated private sector steel company. Established in 1907, its steel plant at Jamshedpur produces four million tonnes of hot and cold rolled flat and long products. The company has backward integrated with owned iron ore mines and collieries. With its competitive advantage in raw materials, efficient operations and the benefits of a recently-completed $2.3 billion programme of modernization, Tata Steel is among the lowest cost steel producers in the world.
Mission Statement: Consistent with the vision and the vision of the founder Jamshedji Tata, Tata Steel strives to strengthen India‘s industrial base through the utilization of men material. The means envisaged to achieve this are high technology and productivity, consistent with modern management. Tata Steel recognizes that, while honesty and integrity is essential BPSM Group 9 Section A
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ingredient of a strong and stable enterprise, provides the main spark for economic activity. Overall, the company seeks to scale heights of excellence in all that it does in an atmosphere free from fear and one which encourages innovativeness and creativity.
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Global Points of Presence of TATA STEEL
Courtesy: www.tatasteel.com
Strategic Business Units Apart from the main steel division, Tata Steel's operations are grouped under the following strategic business units.
Bearings Divisions: Manufactures ball bearings, double row self-aligning bearings, clutch release bearings and tapped roller bearing for two wheelers, fans, water pumps, etc.
Ferro Alloys and Minerals Division: Operates chrome mines and has unit for making ferro chrome and ferro manganese. Its one of the largest players in the Rings and Agrico Division global ferro chrome market.
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1.
Tata Agrico is the first organized manufacturer in India of hand tools and implements for application in agriculture.
2.
Tata Growth Shop (TGS): Has designed, developed, manufactured, erected and commissioned thousands of tonnes of equipments ranging from overhead cranes to high precision components, including a
rocket launch pad for the Indian Space and Research Organization.
Wire Division: A pioneer in the manufacture of steel wires in India, it produces coated and uncoated wires, branded as Tata Wiron. The division also operates a wholly owned subsidiary SriLanka.
Tubes Division: The biggest steel tube manufacturer with the largest market share in the country, it aspires to strengthen its market presence by expanding and modernizing its commercial and precision tube manufacturing capacity
TATA STEEL VISION AND MISSION STATEMENT Vision ―We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship‖ We make the difference through:
Our people, by fostering team work, nurturing talent, enhancing leadership capability and acting with pace, pride and passion.
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Our offer, by becoming the supplier of choice, delivering premium products and services, and creating value with our customers.
Our innovative approach, by developing leading edge solutions in technology, processes and products.
Our conduct, by providing a safe working place, respecting the environment, caring for our communities and demonstrating high ethical standards.
Mission statement
Achieve sustainable, profitable growth in steel and related businesses.
Create differential value for our customers through innovative offerings.
Continuous improvement of business processes and technologies.
Foster partnership with key stake holders.
Enhance employees' competencies to create a high performing and innovative organization. Be a responsible corporate citizen and enhance the quality of life of employees and key community.
Three phases of Tata Steel There are three phases in Tata Steel's history. Tata Steel is 97 years old, having being founded on 26 August 1907.
First phase The first phase is the years up to 1991. Tata Steel was the first steel company; there were price controls - an administered control of the economy. Tata Steel was not greatly innovative, not greatly business-minded - Tata Steel was a good citizen of the country. There were no challenges of business. Instead, there were challenges of starting a company in British India. Consultants used to say that Tata Steel was a dead company. Technology-wise, Tata Steel was a dead company by 1991. BPSM Group 9 Section A
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Second Phase The ten years from 1991 to 2001 was about laying business foundations. Tata Steel threw out the old furnaces and scrapped capacity. Tata Steel spent Rs. 10,000 crores doing all this. Tata Steel re-engineered its business processes. Towards the end of 2001, Tata Steel became one of the lowest-cost producers and one of the most modern companies in the world.
Third Phase Very recently, in 2001, Tata Steel started thinking of growth and globalization. To start with, Tata Steel concentrated on growth, and in the last 3-4 years, Tata Steel has been trying to concentrate on globalization. That is the third phase.
Tata Steel’s Key Strategic Challenges Tata Steel‗s strategic challenges include1. Raising production 2. Ensuring availability of raw material at lowest cost 3. Finding ways to grow in key strategic locations 4. Unlocking maximum value out of its value chain 5. Containing costs 6. Positioning itself as a solution provider in the global steel arena.
Tata Steel’s Strategy Like any manufacturing industry, steel has its own value chain. For the sake of simplicity, let us divide it into two - primary steel-making and finishing. Tata Steel's strategy is based on breaking up this value chain and putting each part where it is the most cost-effective. So primary steel will be produced in India, where there are large deposits of iron ore. But the other Asian markets like
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Thailand, Vietnam, Shanghai, etc., are now a key focus for Tata Steel and will be better addressed by taking the semi-finished steel to these countries for finishing and then selling there.
For the last few years, Tata Steel has been doing some thinking on the central strategy of growth. A long value chain is there in any business and each part of this value chain has a cost incidence. Not all countries have iron ore and coal. Only five or six countries have these resources. Not all countries have natural gas. Not all countries demonstrate the same extent of growth potential. Demand in countries like the US, Japan and South Korea has flattened and growth will take place only at 1.5 per cent to 2 per cent - for replenishment of consumption. Certain other countries like China and India will show robust growth. So the customers are going to be in the developing world. There is iron making, steel making, rolling, finishing, the customer and demand - all these things are not at the same place. In China, there is no iron ore but there is steel consumption. In South-east Asia, there is no iron ore but consumption is growing. Tata Steel believes globalization is a method by which you put the right part of the value chain in its right place in the world and link it up properly - finishing facilities in places where customers exist, and primary manufacturing facilities in places where manufacturing is competitive.
TATA STEEL SWOT ANALYSIS STRENGTHS 1. Tata Steel‘s Indian operations are self-sufficient in the case of its major raw material iron ore through its captive mines. 2. Very advanced Research and Development wing which is carrying out researches and experiments in the areas of raw materials, blast furnace productivity, steel making, product development, process improvement etc. 3. Tata had a strong retail and distribution network in India and SE Asia. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. BPSM Group 9 Section A
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4. The Company is on its way to reach a crude steel capacity of 10 million tonnes per annum by FY 2011. The first phase of reaching the crude steel capacity of 6.8 million tonnes per annum, Brown field projects, is nearing completion 5. The Company has in place adequate internal control systems and procedures commensurate with the size and nature of its business. The effectiveness of the internal controls is continuously monitored by the Corporate Audit Division of the Company. Corporate Audit‘s main objective is to provide to the Audit Committee and the Board of Directors, an independent, objective and reasonable assurance of the adequacy and effectiveness of the organisation‘s risk management, control and governance processes. Corporate Audit also assesses opportunities for improvement in business processes, systems & controls and may provide recommendations, designed to add-value to the organisation. It also follows up on the implementation of corrective actions and improvements in business processes after review by the Audit Committee and Senior Management 6. Tata Steel has been on a path of accelerated growth with foray into several geographies and markets through aggressive mergers and acquisitions.
7. Tata Steel now is in the process of implementing a structured approach in risk management called Enterprise Risk Management (ERM). The key objectives of the Company through ERM are :
To enshrine the process of ERM as a usual Business Process and integrate into all decision making and planning processes.
To ensure that all levels of Management identify and monitor risks through a properly defined framework.
To provide periodic information and updates to the Board and the Shareholders on the significant risks and the ways of mitigating the same.
8. Tata Steel addresses the risk of cyclicality of the Steel industry by maintaining rich product mix and higher value added products whose volatility is lower. Moreover, the BPSM Group 9 Section A
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industry
itself
has
been
undergoing
some
structural
changes
with
Consolidations. These changes are expected to bring in greater stability to prices. 9. Corus acquisition brings Tata Steel 19 million tonne of capacity at once and at a cost, which is roughly little more than half the cost of the Greenfield site. 10. It gives the steel major access to very matured and developed markets in Europe where it can go downstream much more than in a developing country like India and even to some extent China. 11. Tata Steel with its modernization plans has ensured that it deploys the best technologies to ensure quality, cost-efficiency and environment-friendly processes. Through acquisition of Corus and with new Greenfield ventures, Tata Steel has ensured that it has diversified the concentration risk in single technology of Iron & Steel making.
WEAKNESS 1. Endemic Deficiencies These are inherent in the quality and availability of some of the essential raw materials available in India, ex., high ash content of indigenous coking coal adversely affects the productive efficiency of iron-making and is generally imported. Advantages of high Fe content in indigenous ore are often neutralized by high basicity index. Besides, certain key ingredients of steel making, ex., nickel, Ferro-molybdenum are also unavailable indigenously. 2. India is deficient in raw materials required by the steel industry. Iron ore deposits are finite and there are problems in mining sufficient amounts of it. India's hard coal deposits are of low quality and the prices of coking and non-coking coal are ever increasing 3. Raw materials for steel production are rapidly depleting and are non renewable, company has to come up with sustainable methods in steel production. 4. Steel production in India is also hampered by power shortages. 5. Insufficient freight capacity and transport infrastructure impediments too hamper the growth of Indian steel industry. 6. Low Labour Productivity BPSM Group 9 Section A
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In India the advantages of cheap labour get offset by low labour productivity; ex., at comparable capacities labour productivity of SAIL and TISCO are 75 t/manyear and 100 t/manyear, for POSCO, Korea and NIPPON, Japan the values are 1345 t/man year and 980 t/manyear. 7. 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, eg, 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.
OPPORTUNITIES 1. The biggest opportunity before Indian steel sector is that there is enormous scope for increasing consumption of steel in almost all sectors in India. 2. Unexplored Rural Market The Indian rural sector remains fairly unexposed to their 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. 3. Excellent potential exist for enhancing steel consumption in other sectors such as automobiles, packaging, engineering industries, irrigation and water supply in India. New steel products developed to improve performance simplify manufacturing/installation and reliability is needed to enhance steel consumption in these sectors
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4. It is estimated that world steel consumption will double in next 25 years. Quality improvement of Indian steel combined with its low cost advantages will definitely help in substantial gain in export market. 5. The Tata Steel Group is leveraging the Group‘s collective Research and Development experience in the Group‘s various geographies to further enhance the Group‘s performance and also the integration process. 6. Corus acquisition brings in a tremendous technological advantage by access to best practices in global steel industry. 7. Global M&A brought in following synergies
Greater productivity leading to increased output and market size.
Greater economies of scale leading to cost reduction through combined buying
Cross fertilization of Research and Development capabilities and operational best practices, leading to greater innovation and operational efficiencies.
8. Booming infrastructure has opened up high demand for steel worldwide
THREATS 1. In the developed world, industries have been facing rising environmental costs due to the increased concerns on Global Warming. It is, therefore, a challenge and responsibility for the Steel industry to be the trustee in conservation of nature for future generations 2. It is recognised that the steel and aluminium industries are significant contributors to man-made greenhouse gas emissions as the manufacture of steel produces carbon dioxide (CO2), and the manufacture of primary aluminium generates both CO2 and perfluorocarbons (PFCs). 3. High raw material input cost and scarcity of non renewable raw materials are a threat to the industry.( eg: Coal, limestone etc) 4. Threat of Substitutes 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 BPSM Group 9 Section A
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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 large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes).
FINANCIAL ANALYSIS Return on equity
Return on equity is been arrived at by dividing net profit with total share holder‘s fund. This ratio tells that how much profit is been earned by each share of a company. If we look at the graph of ROE we will find that the return for the year 1999, 2000, 2001 has been showing a steady increase but in the year 2002 we see a small dip and this is because the expenditure has increased by around 5%. Then in the year 2003 we see a big jump. This jump is because the revenue has increased by around 30%. Then we can see that there is a sudden dip in the year 2006. This is because there was a bumper profits in the year 2005 and that was used for purchasing gross block which has resulted into increasing the reserves and in turn increasing the shareholders fund hence the dip.
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Asset turnover ratio
Asset turnover ratio tells that how much is the profit earned on every 1 rupee spent on asset. It is been arrived at by dividing the total profit with the total asset. If we take a closer look at the ratio we will find that the ratio starts with .61. it shows a steady increase. It goes more than 1 then it again dips back. This dip is happening because the company has purchased a lot of fixed assets recently and the profits on the other hand has not increased proportionately. The ideal asset turnover ratio is 1:1.
Current ratio
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This ratio is arrived at by dividing current assets with current liabilities. The ideal current ratio is 2:1. If we look at the current ratio graph closely we will find that in the year 1999 and 2000 the ratio was more than 1 and it keeps on dipping and in the year 03 it goes below 1 which is certainly not a sign of a sound company. This ratio of less 1 continues till 2006 and it improves in the year 2007 and 2008. The improvement is substantial as it is around 4.75 in the year 2008.
Net profit margin ratio
This is one of the most important ratios as it tells us what percentage of the total revenue is net profit. Generally we only look at the total revenue but it may be misleading as most of the revenues may be absorbed by the expenditure. If we look at the ratio since 1999 we can see the ratio is improving almost every year.
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Debt service ratio
Debt service ratio or interest coverage ratio is a ratio which tells us that how many times is my total net profit of my total interest. The ratio has to be more than 1. In the case of TATA steel they have always been more than 1 with an exception of the year 1999 and 2002. If we look at the graph we‘ll find that in the year 2008 the ratio has dipped to around 5%. This has happened because they have increased their debt by around 100% which has resulted into increase in the total interest payment and hence the ratio has dipped.
World steel production
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Looking at the bar chart we can say that the global world production has been increasing every year with an exception of 2008. The growth in the year 2006 and 2007 has happened because of the Olympics 2008 been conducted by China. So the demand of steel increased a lot in these two years. In the year 2008 the production remained almost at the same level because of the global recession. Looking at the pie chart we can conclude that Asia contributes the most to the total world production followed by the European Union.
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Submitted To: Prof.Govinda Sharma
Submitted By:Saurav Chakladar Deepansh Agarwal Diptikanta Sathpathy Jain Amit Manraj Jithin V. Kapil Kapoor
08044 08073 08074 08077 08079 08081
Contents Tata Steel ........................................................................................................................................ 4 Tata Sons......................................................................................................................................... 4 Areas Of Business ........................................................................................................................... 4 Industry Overview .......................................................................................................................... 5 Global Steel Industry ...................................................................................................................... 5 Indian Steel Industry-An Overview ................................................................................................. 8 Company Profile - Tata Steel....................................................................................................... 12 Background ................................................................................................................................... 12 Heritage ........................................................................................................................................ 14 The Founder .................................................................................................................................. 14 Jamshedji Nusserwanji Tata (1839-1904) .................................................................................... 14 Ratan Tata (1937) ......................................................................................................................... 14 Mission Statement ......................................................................................................................... 14 Global Points Of Presence Of Tata Steel ..................................................................................... 16 Strategic Business Units ............................................................................................................... 16 Tata Steel Vision And Mission Statement ................................................................................... 17 Vision ............................................................................................................................................ 17 Mission Statement ......................................................................................................................... 18 Three Phases Of Tata Steel ........................................................................................................... 18 First Phase .................................................................................................................................... 18 Second Phase ................................................................................................................................ 19 Tata Steel’s Key Strategic Challenges .......................................................................................... 19 Tata Steel’s Strategy..................................................................................................................... 19 Tata Steel Swot Analysis .............................................................................................................. 20 Strengths ....................................................................................................................................... 20 Weakness ....................................................................................................................................... 22 Opportunities ................................................................................................................................ 23 Threats .......................................................................................................................................... 24 Financial Analysis ....................................................................................................................... 25 Return On Equity .......................................................................................................................... 25 BPSM Group 9 Section A
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Asset Turnover Ratio..................................................................................................................... 26 Current Ratio ................................................................................................................................ 26 Net Profit Margin Ratio ................................................................................................................ 27 Debt Service Ratio ........................................................................................................................ 28 World Steel Production ................................................................................................................. 28
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TATA STEEL Backed by 100 glorious years of experience in steel making, Tata Steel is the world‘s 6th largest steel company with an existing annual crude steel production capacity of 30 Million Tonnes Per Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia and is now the world`s second most geographically diversified steel producer and a Fortune 500 Company. Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing units in 26 countries.
TATA SONS Tata Sons is the promoter of all key Tata companies and holds the bulk of shareholding in these companies. The chairman of Tata Sons has traditionally been the chairman of the Tata group. About 66 per cent of the equity capital of Tata Sons is held by philanthropic trusts endowed by members of the Tata family. The biggest of these trusts are the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust, which were created by the families of the sons of Jamsetji Tata.
Areas of business Tata Sons is the owner of the Tata name and the Tata trademark, which are registered in India and several other countries. Various Tata companies in relation to their products and services use these. The terms of use of the group mark and logo by Tata companies are governed by the Brand Equity and Business Promotion Agreement, which is signed by Tata Sons and individual group companies. Apart from this, the company's activities are: To maintain shareholding in main operating companies To invest in operating companies to facilitate growth To promote the group's entry into new businesses Tata Sons has two divisions:
Tata Quality Management Services: Helps Tata companies achieve business excellence
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through the Tata Business Excellence Model Tata Financial Services: In-house financial consultancy which carries out long- and shortterm financial planning for Tata companies
INDUSTRY OVERVIEW Global Steel industry The current global steel industry is in its best position in comparison to last decades. The price has been rising continuously. The demand expectations for steel products are rapidly growing for coming years. The shares of steel industries are also in a high pace. The steel industry is enjoying its 6th consecutive years of growth in supply and demand. And there is many more merger and acquisitions which overall buoyed the industry and showed some good results.
The subprime crisis has lead to the recession in economy of different countries, which may lead to have a negative effect on whole steel industry in coming years. However steel production and consumption will be supported by continuous economic growth.
The countries like China, Japan, India and South Korea are in the top of the above in steel production in Asian countries. China accounts for one third of total production i.e. 419m ton, Japan accounts for 9% i.e. 118m ton, India accounts for 53m ton and South Korea is accounted for 49m ton, which all totally becomes more than 50% of global production. Apart from this USA, BRAZIL, UK accounts for the major chunk of the whole growth
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Figure 2.1.Global Steel Production
The world steel industry outlook is promising with production seen rising to 1.5 billion tonnes in 2009, up from 1.4 billion tones, in 2008. The future outlook for the worldwide steel industry is very good. Demand is also seen growing with apparent steel use expected to total 1.282 billion tonnes this year, up 6.7 percent from 2007, according to data from the International Iron and Steel Institute (IISI).
Brazil, Russia, India and China (BRIC) were leading growth with an expected increase of 11.1 per cent for 2008 and 10.3 percent for 2009. China's apparent steel use is expected to grow by over 10 percent in 2008 and by 10 percent in 2009. China accounted for 35 percent of the world total this year.
In the European Union a total of 210 million tonnes of steel were produced in 2007, up 1.6 percent from the previous year. World steel production capacity is seen increasing by nearly 19 percent between 2007 and 2010. The steel industry has undergone a few structural changes in the past 3-4 years. So, the outlook for the next few years is likely to be driven by the kind of consolidation that has taken place in the past few years. The other factor that is likely to affect outlook is the extent of demand emerging from BRIC countries.
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In addition to these two major factors, a cost-push is coming from raw material suppliers. Hence, steel manufacturers have to contend with strong demand on one hand, and cost-push on the other. The outlook for the domestic industry looks bright, since India has good iron ore deposits, skilled manpower and growing demand for steel. There is an apprehension that if China slows down, it may dump its surplus steel into India. An analysis of global data shows that even if an economy slows down, steel consumption does not fall dramatically.
In the case of China, a slowdown can mean that the growth rate may fall from 19-20% to a lower level. But that doesn‘t means growth will not take place. China produced around 470 million tonnes (mt) of steel last year, out of which, 66 mt was exported and the rest was consumed within the country. The measures undertaken by the Chinese government recently will reduce exports significantly in the current year. There is also a change in the consumption pattern. For instance, if construction activity slows down, the consumption of white goods will pick up and demand for flat steel products will go up.
The new capacities coming up in China are on the flat products side and not on the long products side. Overall, the impact on the supply side will be less. Similarly, the cost of production is very high — it costs around $500 per ton to produce more than 100 mt of steel in China. Since the cost of production is very high and exports are not allowed, many of these plants will be closed down by ‘09-10.This will reduce the supply of steel. There‘s a feeling that India doesn‘t have much iron ore, considering the recent capacity expansion plans of domestic and foreign steel companies in India.
There is a possibility that if we continue exporting iron ore, we may run out of reserves. Currently, we export 90100 mt every year and this is steadily increasing. Ideally, we should increase our steel production capacity — we are a net importer of steel — so that rather than exporting iron ore, we can add value to it. India should also look at investing in exploring new mines. BPSM Group 9 Section A
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Indian Steel Industry-An Overview India has traditionally been one of the major producers of steel in the world. Till the 1990s the steel industry of India was regulated and controlled by government policies. After the economic reforms of the early 1990s, the Indian steel industry has evolved significantly to conform to global standards.
India has set a vision to be an economically developed nation by 2020. The steel industry is expected to play a major role in India's economic development in the coming years. The steel industry of India has a very high growth potential and is expected to register significant growth in the coming decades. India is expected to emerge as a strong force in the global steel market in coming years.
The two major aspects that are expected to play a significant role in the growth of the steel industry in India are Abundant availability of iron ore in the country The country as well established facilities for steel production. Steel production in India has grown from 17 MT in 1990 to 36 MT in 2003. It is expected that by 2011, the steel production in India will grow to 66 MT. The major sectors where consumption of steel is expected to grow in the coming years are Construction Housing Ground transportation Hi-tech engineering industries such as power generation, petrochemicals, fertilizers The current scenario of the Indian steel industry indicates that there is huge growth potential in this industry. The per capita-consumption of steel in India, according to latest available estimates, is only 29 kg. This is much less compared to the global average of 140kg. The per capita consumption level of developed nations like the United States of America is 400kg. In this respect, one of the major initiatives that need to be taken is to focus on increasing the BPSM Group 9 Section A
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consumption of steel in the rural areas of India. The potential for the growth of consumption of steel in the rural areas of India for purposes like rural housing, rural infrastructure, etc is high which needs to be tapped efficiently. In order to realize the growth potential in the steel industry of India, it is essential to ensure that the industry can remain competitive. One of the major aspects in this regard is the availability of inputs. Shortage of inputs like coke has led to increase in costs earlier. Moreover proper infrastructure facilities like transport infrastructure, power etc are of prime importance in maintaining the competitiveness of the industry. Most developed countries have regulations that are aimed to protect the domestic steel industry. The Indian steel industry has comparatively much lesser protection through regulations. Proper regulatory measures should be adopted by the government to protect the domestic steel industry. The performance of the Indian steel industry has been quite satisfactory over the last decade. Aided by the cutting-edge technology, the steel industry in Asia has made advancements in all areas of operation. There has been a substantial increase in demand for Indian steel products in the global market in the recent times. This has helped in the growth of Indian steel industry. The industry recorded the highest growth rate in the period from 2004-2005, when the growth rate of the steel sector was 4%. The increased consumption of the finished steel products in the domestic market acted as a positive catalyst in the growth process of the Indian steel industry. The favorable market condition has helped the companies operating in Indian steel industry to expand their operations and earn huge profit.
Figure 2.4. Steel Production in India
India continually posts phenomenal growth records in steel production. In 1992, India produced 14.33 million tones of finished carbon steels and 1.59 million tones of pig iron. Furthermore, BPSM Group 9 Section A
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the steel production capacity of the country has increased rapidly since 1991 – in 2008, India produced nearly 46.575 million tones of finished steels and 4.393 million tones of pig iron.
Both primary and secondary producers contributed their share to this phenomenal development, while these increases have pushed up the demand for finished steel at a very stable rate.
In 1991, a substantial number of economic reforms were introduced by the Indian government. These reforms boosted the development process of a number of industries – the steel industry in India in particular – which has subsequently developed quite rapidly. In 1992, the total consumption of finished steel was 14.84 million tones. In 2008, the total amount of domestic steel consumption was 43.925 million tones. With the increased demand in the national market, a huge part of the international market is also served by this industry. Today, India is in seventh position among all the crude steel producing countries. The top companies of the Indian steel sector mostly operate in four different forms like producers of pig iron, producers of stainless steel, producers of finished steel products, and producers of semi-finished steel. The companies functional in the steel industry of India are both public sector companies and private sector companies. Some of the leading companies in Indian steel industry are as follows: Bokaro Steel Plant: Steel manufacturer. Essar Steel: Producer of sponge iron, steel and iron ore pellets. Jindal Iron & Steel: Producer of galvanized steel products. Jindal Steel & Power: Manufacturer of mild steel slabs and sponge iron. Steel Authority of India: Manufacturer of steel and iron. Tata Steel: Producer and supplier of wire rods, bars, and steel flats. Vizag Steel: Producer of pig iron and steel.
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The rate of production of steel in India has been going up at a steady rate in the last few years. In the recent times Orissa and Jharkhand have been identified as the potential steel destinations of India - the ones that would provide the Indian steel industry with its necessary raw material.
There are also a number of steel companies in India like Tata and Arcelor-Mittal that are either coming up or have established themselves as prominent forces in the world steel scenario.
In the recent times a lot of foreign direct investment is being made in the Indian steel industry. In fact the rate of investment has increased in the last few years and, to a certain extent, this increase has been contributed to by the growth potential of the steel industry of India that is thought of as being impressive in the international steel circle. In the recent years a number of major steel corporations of the world have come flocking to India to avail the benefits of the flourishing steel industry of India. The number of steel projects in India has increased as well and this implies that the number of companies lining up to participate in these projects would be increasing too.
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Company Profile - TATA STEEL
Background Tata Steel, formerly known as TISCO and Tata Iron and Steel Company limited, is the world‘s sixth largest steel company, with an annual crude steel capacity of 30 Million Tonnes Per Annum (MTPA). It is the second largest private sector steel company in India in terms of domestic production. Ranked 315th on Fortune Global 500, it is based in Jamshedpur, Jharkhand, India. It is part of Tata Group of companies in private sector with consolidated revenues of Rs.1,32,110 crore and the net profit of over Rs.12,350 crore, during the year ended March 31st, 2008. Its main plant is located in Jamshedpur, Jharkhand, with its recent acquisition; the company has become a multinational with operations in various countries. The registered office of Tata Steel is in Mumbai. The company was also recognized as the world‘s best steel producer by the World Steel Dynamics in 2005. The company is listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), and employs about 36000 people (as of 2007). It was the vision of the founder; Jamsetji Nusserwanji Tata., that on 27th February, 1908, the first stake was driven into the soil of Sakchi. His vision helped Tata Steel overcome several periods of adversity and strive to improve against all odds. Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA which is slated to increase to 10 MTPA by 2010. The Company also has proposed three Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with additional capacity of 23 MTPA and a Greenfield project in Vietnam. BPSM Group 9 Section A
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Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings, Singapore, Tata Steel has created a manufacturing and marketing network in Europe, South East Asia and the pacific-rim countries. Corus, which manufactured over 20 MTPA of steel in 2008, has operations in the UK, the Netherlands, Germany, France, Norway and Belgium. Tata Steel Thailand is the largest producer of long steel products in Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has proposed a 0.5 MTPA mini blast furnace project in Thailand. NatSteel Holdings produces about 2 MTPA of steel products across its regional operations in seven countries. Tata Steel has lined up a series of Greenfield projects in India and outside which includes: a) 6 million tonne plant in Orissa (India). b) 12 million tonne plant in Jharkhand (India). c) 5 million tonne plant in Chhattisgarh (India). d) 3 million tonne plant in Iran. e) 5
million
tonne
capacity
expansion
at
Jamshedpur (India). f) 4.5 million Plant in Vietnam (feasibility study underway).
The iron ore mines and collieries in India give the Company a distinct advantage in raw material sourcing. Tata Steel is also striving towards raw materials security through joint ventures in Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata Steel has signed an agreement with Steel Authority of India Limited to establish a 50:50 joint venture company for coal mining in India. Also, Tata Steel has bought 19.9% stake in New Millennium Capital Corporation, Canada for iron ore mining.
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HERITAGE THE FOUNDER
Jamshedji Nusserwanji Tata (1839-1904) At the age of 43, Jamshedji Nusserwanji Tata read a report by a German geologist, Ritter Von Schwartz on the, availability of iron ore in Chanda district in the central Provinces, which gave him the idea of giving India a steel plant. Jamshedji Nusserwanji Tata formed the Tata Iron and Steel Company Limited in 1907 at Mumbai.
Ratan Tata (1937) He is the present chairman of TATA STEEL. With his efficient leadership TATA is soaring new heights. Tata Steel is India's largest integrated private sector steel company. Established in 1907, its steel plant at Jamshedpur produces four million tonnes of hot and cold rolled flat and long products. The company has backward integrated with owned iron ore mines and collieries. With its competitive advantage in raw materials, efficient operations and the benefits of a recently-completed $2.3 billion programme of modernization, Tata Steel is among the lowest cost steel producers in the world.
Mission Statement: Consistent with the vision and the vision of the founder Jamshedji Tata, Tata Steel strives to strengthen India‘s industrial base through the utilization of men material. The means envisaged to achieve this are high technology and productivity, consistent with modern management. Tata Steel recognizes that, while honesty and integrity is essential BPSM Group 9 Section A
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ingredient of a strong and stable enterprise, provides the main spark for economic activity. Overall, the company seeks to scale heights of excellence in all that it does in an atmosphere free from fear and one which encourages innovativeness and creativity.
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Global Points of Presence of TATA STEEL
Courtesy: www.tatasteel.com
Strategic Business Units Apart from the main steel division, Tata Steel's operations are grouped under the following strategic business units.
Bearings Divisions: Manufactures ball bearings, double row self-aligning bearings, clutch release bearings and tapped roller bearing for two wheelers, fans, water pumps, etc.
Ferro Alloys and Minerals Division: Operates chrome mines and has unit for making ferro chrome and ferro manganese. Its one of the largest players in the Rings and Agrico Division global ferro chrome market.
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1.
Tata Agrico is the first organized manufacturer in India of hand tools and implements for application in agriculture.
2.
Tata Growth Shop (TGS): Has designed, developed, manufactured, erected and commissioned thousands of tonnes of equipments ranging from overhead cranes to high precision components, including a
rocket launch pad for the Indian Space and Research Organization.
Wire Division: A pioneer in the manufacture of steel wires in India, it produces coated and uncoated wires, branded as Tata Wiron. The division also operates a wholly owned subsidiary SriLanka.
Tubes Division: The biggest steel tube manufacturer with the largest market share in the country, it aspires to strengthen its market presence by expanding and modernizing its commercial and precision tube manufacturing capacity
TATA STEEL VISION AND MISSION STATEMENT Vision ―We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship‖ We make the difference through:
Our people, by fostering team work, nurturing talent, enhancing leadership capability and acting with pace, pride and passion.
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Our offer, by becoming the supplier of choice, delivering premium products and services, and creating value with our customers.
Our innovative approach, by developing leading edge solutions in technology, processes and products.
Our conduct, by providing a safe working place, respecting the environment, caring for our communities and demonstrating high ethical standards.
Mission statement
Achieve sustainable, profitable growth in steel and related businesses.
Create differential value for our customers through innovative offerings.
Continuous improvement of business processes and technologies.
Foster partnership with key stake holders.
Enhance employees' competencies to create a high performing and innovative organization. Be a responsible corporate citizen and enhance the quality of life of employees and key community.
Three phases of Tata Steel There are three phases in Tata Steel's history. Tata Steel is 97 years old, having being founded on 26 August 1907.
First phase The first phase is the years up to 1991. Tata Steel was the first steel company; there were price controls - an administered control of the economy. Tata Steel was not greatly innovative, not greatly business-minded - Tata Steel was a good citizen of the country. There were no challenges of business. Instead, there were challenges of starting a company in British India. Consultants used to say that Tata Steel was a dead company. Technology-wise, Tata Steel was a dead company by 1991. BPSM Group 9 Section A
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Second Phase The ten years from 1991 to 2001 was about laying business foundations. Tata Steel threw out the old furnaces and scrapped capacity. Tata Steel spent Rs. 10,000 crores doing all this. Tata Steel re-engineered its business processes. Towards the end of 2001, Tata Steel became one of the lowest-cost producers and one of the most modern companies in the world.
Third Phase Very recently, in 2001, Tata Steel started thinking of growth and globalization. To start with, Tata Steel concentrated on growth, and in the last 3-4 years, Tata Steel has been trying to concentrate on globalization. That is the third phase.
Tata Steel’s Key Strategic Challenges Tata Steel‗s strategic challenges include1. Raising production 2. Ensuring availability of raw material at lowest cost 3. Finding ways to grow in key strategic locations 4. Unlocking maximum value out of its value chain 5. Containing costs 6. Positioning itself as a solution provider in the global steel arena.
Tata Steel’s Strategy Like any manufacturing industry, steel has its own value chain. For the sake of simplicity, let us divide it into two - primary steel-making and finishing. Tata Steel's strategy is based on breaking up this value chain and putting each part where it is the most cost-effective. So primary steel will be produced in India, where there are large deposits of iron ore. But the other Asian markets like
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Thailand, Vietnam, Shanghai, etc., are now a key focus for Tata Steel and will be better addressed by taking the semi-finished steel to these countries for finishing and then selling there.
For the last few years, Tata Steel has been doing some thinking on the central strategy of growth. A long value chain is there in any business and each part of this value chain has a cost incidence. Not all countries have iron ore and coal. Only five or six countries have these resources. Not all countries have natural gas. Not all countries demonstrate the same extent of growth potential. Demand in countries like the US, Japan and South Korea has flattened and growth will take place only at 1.5 per cent to 2 per cent - for replenishment of consumption. Certain other countries like China and India will show robust growth. So the customers are going to be in the developing world. There is iron making, steel making, rolling, finishing, the customer and demand - all these things are not at the same place. In China, there is no iron ore but there is steel consumption. In South-east Asia, there is no iron ore but consumption is growing. Tata Steel believes globalization is a method by which you put the right part of the value chain in its right place in the world and link it up properly - finishing facilities in places where customers exist, and primary manufacturing facilities in places where manufacturing is competitive.
TATA STEEL SWOT ANALYSIS STRENGTHS 1. Tata Steel‘s Indian operations are self-sufficient in the case of its major raw material iron ore through its captive mines. 2. Very advanced Research and Development wing which is carrying out researches and experiments in the areas of raw materials, blast furnace productivity, steel making, product development, process improvement etc. 3. Tata had a strong retail and distribution network in India and SE Asia. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. BPSM Group 9 Section A
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4. The Company is on its way to reach a crude steel capacity of 10 million tonnes per annum by FY 2011. The first phase of reaching the crude steel capacity of 6.8 million tonnes per annum, Brown field projects, is nearing completion 5. The Company has in place adequate internal control systems and procedures commensurate with the size and nature of its business. The effectiveness of the internal controls is continuously monitored by the Corporate Audit Division of the Company. Corporate Audit‘s main objective is to provide to the Audit Committee and the Board of Directors, an independent, objective and reasonable assurance of the adequacy and effectiveness of the organisation‘s risk management, control and governance processes. Corporate Audit also assesses opportunities for improvement in business processes, systems & controls and may provide recommendations, designed to add-value to the organisation. It also follows up on the implementation of corrective actions and improvements in business processes after review by the Audit Committee and Senior Management 6. Tata Steel has been on a path of accelerated growth with foray into several geographies and markets through aggressive mergers and acquisitions.
7. Tata Steel now is in the process of implementing a structured approach in risk management called Enterprise Risk Management (ERM). The key objectives of the Company through ERM are :
To enshrine the process of ERM as a usual Business Process and integrate into all decision making and planning processes.
To ensure that all levels of Management identify and monitor risks through a properly defined framework.
To provide periodic information and updates to the Board and the Shareholders on the significant risks and the ways of mitigating the same.
8. Tata Steel addresses the risk of cyclicality of the Steel industry by maintaining rich product mix and higher value added products whose volatility is lower. Moreover, the BPSM Group 9 Section A
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industry
itself
has
been
undergoing
some
structural
changes
with
Consolidations. These changes are expected to bring in greater stability to prices. 9. Corus acquisition brings Tata Steel 19 million tonne of capacity at once and at a cost, which is roughly little more than half the cost of the Greenfield site. 10. It gives the steel major access to very matured and developed markets in Europe where it can go downstream much more than in a developing country like India and even to some extent China. 11. Tata Steel with its modernization plans has ensured that it deploys the best technologies to ensure quality, cost-efficiency and environment-friendly processes. Through acquisition of Corus and with new Greenfield ventures, Tata Steel has ensured that it has diversified the concentration risk in single technology of Iron & Steel making.
WEAKNESS 1. Endemic Deficiencies These are inherent in the quality and availability of some of the essential raw materials available in India, ex., high ash content of indigenous coking coal adversely affects the productive efficiency of iron-making and is generally imported. Advantages of high Fe content in indigenous ore are often neutralized by high basicity index. Besides, certain key ingredients of steel making, ex., nickel, Ferro-molybdenum are also unavailable indigenously. 2. India is deficient in raw materials required by the steel industry. Iron ore deposits are finite and there are problems in mining sufficient amounts of it. India's hard coal deposits are of low quality and the prices of coking and non-coking coal are ever increasing 3. Raw materials for steel production are rapidly depleting and are non renewable, company has to come up with sustainable methods in steel production. 4. Steel production in India is also hampered by power shortages. 5. Insufficient freight capacity and transport infrastructure impediments too hamper the growth of Indian steel industry. 6. Low Labour Productivity BPSM Group 9 Section A
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In India the advantages of cheap labour get offset by low labour productivity; ex., at comparable capacities labour productivity of SAIL and TISCO are 75 t/manyear and 100 t/manyear, for POSCO, Korea and NIPPON, Japan the values are 1345 t/man year and 980 t/manyear. 7. 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, eg, 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.
OPPORTUNITIES 1. The biggest opportunity before Indian steel sector is that there is enormous scope for increasing consumption of steel in almost all sectors in India. 2. Unexplored Rural Market The Indian rural sector remains fairly unexposed to their 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. 3. Excellent potential exist for enhancing steel consumption in other sectors such as automobiles, packaging, engineering industries, irrigation and water supply in India. New steel products developed to improve performance simplify manufacturing/installation and reliability is needed to enhance steel consumption in these sectors
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4. It is estimated that world steel consumption will double in next 25 years. Quality improvement of Indian steel combined with its low cost advantages will definitely help in substantial gain in export market. 5. The Tata Steel Group is leveraging the Group‘s collective Research and Development experience in the Group‘s various geographies to further enhance the Group‘s performance and also the integration process. 6. Corus acquisition brings in a tremendous technological advantage by access to best practices in global steel industry. 7. Global M&A brought in following synergies
Greater productivity leading to increased output and market size.
Greater economies of scale leading to cost reduction through combined buying
Cross fertilization of Research and Development capabilities and operational best practices, leading to greater innovation and operational efficiencies.
8. Booming infrastructure has opened up high demand for steel worldwide
THREATS 1. In the developed world, industries have been facing rising environmental costs due to the increased concerns on Global Warming. It is, therefore, a challenge and responsibility for the Steel industry to be the trustee in conservation of nature for future generations 2. It is recognised that the steel and aluminium industries are significant contributors to man-made greenhouse gas emissions as the manufacture of steel produces carbon dioxide (CO2), and the manufacture of primary aluminium generates both CO2 and perfluorocarbons (PFCs). 3. High raw material input cost and scarcity of non renewable raw materials are a threat to the industry.( eg: Coal, limestone etc) 4. Threat of Substitutes 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 BPSM Group 9 Section A
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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 large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes).
FINANCIAL ANALYSIS Return on equity
Return on equity is been arrived at by dividing net profit with total share holder‘s fund. This ratio tells that how much profit is been earned by each share of a company. If we look at the graph of ROE we will find that the return for the year 1999, 2000, 2001 has been showing a steady increase but in the year 2002 we see a small dip and this is because the expenditure has increased by around 5%. Then in the year 2003 we see a big jump. This jump is because the revenue has increased by around 30%. Then we can see that there is a sudden dip in the year 2006. This is because there was a bumper profits in the year 2005 and that was used for purchasing gross block which has resulted into increasing the reserves and in turn increasing the shareholders fund hence the dip.
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Asset turnover ratio
Asset turnover ratio tells that how much is the profit earned on every 1 rupee spent on asset. It is been arrived at by dividing the total profit with the total asset. If we take a closer look at the ratio we will find that the ratio starts with .61. it shows a steady increase. It goes more than 1 then it again dips back. This dip is happening because the company has purchased a lot of fixed assets recently and the profits on the other hand has not increased proportionately. The ideal asset turnover ratio is 1:1.
Current ratio
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This ratio is arrived at by dividing current assets with current liabilities. The ideal current ratio is 2:1. If we look at the current ratio graph closely we will find that in the year 1999 and 2000 the ratio was more than 1 and it keeps on dipping and in the year 03 it goes below 1 which is certainly not a sign of a sound company. This ratio of less 1 continues till 2006 and it improves in the year 2007 and 2008. The improvement is substantial as it is around 4.75 in the year 2008.
Net profit margin ratio
This is one of the most important ratios as it tells us what percentage of the total revenue is net profit. Generally we only look at the total revenue but it may be misleading as most of the revenues may be absorbed by the expenditure. If we look at the ratio since 1999 we can see the ratio is improving almost every year.
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Debt service ratio
Debt service ratio or interest coverage ratio is a ratio which tells us that how many times is my total net profit of my total interest. The ratio has to be more than 1. In the case of TATA steel they have always been more than 1 with an exception of the year 1999 and 2002. If we look at the graph we‘ll find that in the year 2008 the ratio has dipped to around 5%. This has happened because they have increased their debt by around 100% which has resulted into increase in the total interest payment and hence the ratio has dipped.
World steel production
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Looking at the bar chart we can say that the global world production has been increasing every year with an exception of 2008. The growth in the year 2006 and 2007 has happened because of the Olympics 2008 been conducted by China. So the demand of steel increased a lot in these two years. In the year 2008 the production remained almost at the same level because of the global recession. Looking at the pie chart we can conclude that Asia contributes the most to the total world production followed by the European Union.
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BPSM Group 9 Section A
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