Company Analysis: Tata Steel

Industry: Steel
Industry Analysis:
Global Perspective:
China has become major producer and consumer lately. European steel industry is going
under consolidation. Steel production has been increasing enormously throughout 20th
century and approaching to 800 million tonnes a year. Towards the end of the last century,
growth of steel production was in the developing nations such as China, Brazil and India, as
well as newly developed South Korea. Steel production and consumption grew steadily in
China in the initial years but later it picked up speed and it is about to surpass all other
countries.
Indian Perspective:
India is gaining reputation in steel industry and Indian steel co.s are catching up at high
speed with its global competitors and are luring steel majors from the world. India was
ranked at 5th place in Asias largest crude steel producers. Countrys steel industry has great
future. The Tata Corus deal is being considered as revolution in Indian steel industry.
Sail and Tata Steel have traditionally been the major steel producers of India. In 1992, Indias
economy was liberalized which led to the opening up of the steel industry.
India has now emerged as the eighth largest producer of steel in the world with a production
capacity of 35MT. almost all varieties of steel is now produced in India. India has also
emerged as a net exporter of steel which shows that Indian steel is being increasingly
accepted in the global market.
Recent happenings / changes

Decrease in requirement of workforce

Steel is no more the labour-intensive industry it used to be. Earlier, it required huge work
force. A modern steel plant employs very few people. During the period 1974 to 1999, the
steel industry had drastically reduced workforce all around the world. Ex. in USA, it was
down from 521,000 to 153,000.

FDI in Indian steel industry

The foreign direct investment in India in the steel industry of India has been picking up in the
recent years as a result of the immense growth potential of the country's steel industry. In
Asia, India is second only to China in terms of growth potential. The gross domestic product
of India has increased in the recent times.
The Indian national government also has been pretty liberal with FDI in steel industry in the
country. The Indian government has also relaxed the various foreign investment laws. This
has led to more international steel giants coming to India.

PEST Analysis: Steel Industry

Political

Allowing private ownership and FDI

Improving the IP rights and laws

Customs policy

SEZs

The 1991 reforms allowed for no licenses to be required for capacity creation. Also,
once Indias steel industry was moved from the listing of the industries that were
reserved exclusively for the public sector, huge foreign investments were made in this
industry.

In 1992, when every type of control over the pricing and distribution system was
removed, making the modern Indian Steel Industry extremely efficient, as well as
competitive.

Economic

Provide a single-window clearance for large projects

Prepare and implement plans for technological and productivity improvements to

make them to global standards.

Monitor the implementation of the National Steel Policy.

Conduct reviews to remove infrastructural, procedural and institutional hurdles

Achieve policy coordination among central and State Governments.

Social

Labour unions form a very important factor in social forces to be confronted.

NGOs, political parties, Citizen Forums

Labour laws, safety and health

Life / health insurance of labours add to expenses on employee benefits

Need to comply with environmental clearances and other rules and regulations

Technological

Since overall growth potential in future is tremendous, investments in R& D towards

technological advancement is key

Global trend shows that actual workforce requirement in steel industry is coming
down in spite of huge growth in the production. More and more work is being carried
out used hi tech machinery and automation.

SWOT Analysis: Steel Industry

Strengths:
1. The government offers a wide range of concessions to investors in India, engaged in steel
industry. The main concessions include tax concessions, 100 % depreciation on energy
saving and pollution control appliances. Tax exemption, excise duty exemption on export
profits made on by-products.
2. World's largest producer of mica; third largest producer of coal and lignite &barites; ranks
among the top producers of iron ore, bauxite, manganese ore and aluminium.
3. Labours easily available
4. Low labour and conversion costs.
5. Large quantity of high quality reserves.
6. Exports iron-ore to China and Japan on a large scale
7. Proximity to the developed European markets and fast-developing Asian markets for
export of Steel, Aluminium

Weakness:
1. Poor employee productivity. The output per miner per annum in India varies from 150 to
2,650 tonnes compared to an average of around 12,000 tonnes in the U.S. and Australia
2. Historically, opencast steel has been favoured over underground steel. This has led to land
degradation, environmental pollution and reduced quality of coal as it tends to get mixed with
other matter;
3. India has still not been able to develop a comprehensive solution to deal with the fly ash
generated at coal power stations through use of Indian coal. Clean coal technologies are
available, but these are expensive and need modification to suit Indian coal specifications.
4. Poor infrastructure facilities
5. Steel technology is outdated
6. Labour force is highly un-skilled and inexperienced
7. Lack of R&D programs and training and development
8. Most of the Indian steel companies do not have access to Indian capital market
9. There is limited access to capital, and mines are increasingly more costly to find, acquire,
develop and produce
10. The Indian steel industry suffers from an out-dated, unattractive approach to steel
education that is partly to blame for insufficient human resources.
Opportunities
1. India has an estimated 85 billion tonnes of mineral reserves remaining to be exploited.
Expenditure out lay on steel is a very less sum when compared to other competing steel
markets and the investment gap is most likely to be covered by the private sector. India
welcomes joint ventures between foreign and domestic partners to get finances and
technology and secure access to global markets.
2. The main opportunities in the steel sector (excluding coal and industrial minerals) are in
the development and production of surplus commodities
3. Considerable potential exists for setting up manufacturing units for value added products.

4. Current economic steel practices are generally limited to depths of 300 meters and 25 per
cent of the reserves of the country are beyond this depth
5. Strengthening of logistics in coal distribution In India, the logistics infrastructure such as ports and railways are costly and act as hurdles in
development of free market. Privatization of ports may bring the needed efficiencies and
capacities. On the Indian rail network, freight trains get a lower priority than passenger trains,
a problem that promotes delays and inefficiency. Special freight corridors would raise speeds,
cut costs, and increase the system's reliability.
6. Focusing on technology for future India's numerous technology research institutes are working on energy related R&D. The
Government may concentrate on few important technology areas. To start with focus maybe
applied for tighter emission standards and development of inexpensive clean-coal
technologies.
Threats:
1. Foreign Investment in the Steel Sector
During 1999, the Government had cleared 7 more proposals of leading international steel
companies for prospecting and exploration in the mineral sector to the tune of US$ 62.5
million. Prospecting licenses have been granted in favour of Indian subsidiaries of wellknown steel companies...
2. Steel companies and equipment suppliers are under the constant threat of being taken over
by foreign companies.
3. A heavy tax burden discourages further investment.

Company Analysis: TATA Steel

Introduction
Established in 1907.
Tata Steel is among the top ten global steel companies.

Annual crude steel capacity of over 28 million tonnes

One of the world's most geographically-diversified steel producers.
Operations in 26 countries and a commercial presence in over 50 countries.
Turnover of US$ 22.8 billion in FY '10.
Over 80,000 employees across five continents
Fortune 500 company.
General information about the company
Operating companies
Tata Steel Limited (India),
Tata Steel Europe Limited (formerly Corus),
NatSteel
Tata Steel Thailand (formerly Millennium Steel).

Key market Sectors:

Automotive, construction, consumer goods, engineering, packaging, lifting and excavating,
energy and power, aerospace, shipbuilding, rail, defence and security

Countries where Tata steel operates: (along with locations )

Asia:
India Jharkhand, Chhattisgarh, Odisha, West Bengal, Tamil Nadu
Singapore Tata NYK Shipping Pte Limited
Thailand Tata Steel Thailand
Vietnam NatSteel operations
Oman Uyun region in the Salalah province

Africa:
Ivory Coast Nimba Iron ore deposits in Ivory Coast
Mozambique Riversdale
South Africa Richards Bay
Australia Queensland
North America:
Canada : Northern Quebec, Labrador and Newfoundland provinces
Europe:
UK, Port Talbot and Scunthorpe Rotherham
Netherlands The IJmuiden Steel Works
BOARD OF DIRECTORS
Mr. Ratan Tata
Chairman - Not Independent, Non-Executive Director
Mr. B. Muthuraman
Vice Chairman - Not Independent, Non-Executive Director
Mr. Nusli Neville Wadia
Independent, Non-Executive Director
Mr. S. M. Palia
Independent, Non - Executive Director
Mr. Ishaat Hussain
Not Independent, Non - Executive Director
Mr. Jacobus Schraven
Independent, Non - Executive Director
Mr. Andrew Robb
Independent, Non - Executive Director
Mr. Cyrus P Mistry
Not Independent, Non-Executive Director
Ms. Mallika Srinivasan
Independent, Non-Executive Director

Mr. H.M. Nerurkar

Managing Director - Not Independent
Dr. Karl-Ulrich Khler
Not Independent, Non-Executive Director
KEY MANAGEMENT PERSONNEL
TATA STEEL LIMITED
Mr. H. M. Nerurkar
Managing Director
Mr. A. Anjeneyan
Company Secretary
Mr. Sandip Biswas
Group Director (Corporate Finance and M&A)
Mr. Koushik Chatterjee
Group CFO
Mr. Bimlendra Jha
Vice President, Long Products
Mr. Hridayeshwar Jha
Vice President, Odisha Project
Mr. Varun K. Jha
Vice President, Engineering and Chhattisgarh Project
Mr. T. V. Narendran
Vice President, Safety and Flat Products
Mr. Sanjiv Paul
Vice President, Corporate Services
Mr. Anand Sen
Vice President, TQM and Shared Services
Mr. Partha Sengupta
Vice President, Raw Materials
Mr. P. Senthil Kumar
Chief Human Resource Officer
TATA STEEL EUROPE LIMITED
Dr Henrik Adam
Chief Commercial Officer

Mr Hans Fischer
Chief Technical Officer
Koushik Chatterjee
Group Chief Financial Officer
Mr. Tor Farquhar
Director Human Resources
Dr. Karl-Ulrich Khler
CEO and Managing Director
Helen Matheson
Director Legal
Mr N K Misra
Executive Director, Finance
Mr. Andrew Robb
Non Executive Independent Director
NATSTEEL
Mr. Vivek Kamra
President and Chief Executive Officer
TATA STEEL THAILAND
Mr. Laptawee Senavonge
President and Member of the Executive Committee
Comparison with competitors
Global steel ranking

Company

Capacity (in million tonnes)

Arcelor - Mittal

110.0

Nippon Steel

32.0

Posco

30.5

JEF Steel

30.0

Tata Steel - Corus

27.7

Bao Steel China

23.0

US Steel

19.0

Nucor

18.5

Riva

17.5

10

Thyssen Krupp

16.5

Financial performance of the company:

The Tata Steel Group recorded a consolidated profit after tax of ` 5,390 crores
(US$1.06 billion) in the Financial Year 2011-12, compared to ` 8,983 crores
(US$1.77 billion) in Financial Year 2010-11.

The Group EBITDA was ` 13,533 crores (US$2.66 billion) for the Financial Year
2011-12, compared to ` 17,116 crores (US$3.36 billion) in the previous year.

The Group's consolidated turnover was` 1,32,900 crores (US$26.13 billion) in

Financial Year 2011-12 compared to the turnover of ` 1,18,753 crores (US$23.34
billion) in Financial Year 2010-11

Figures in rupees (lacs)

Capital Investment

Geographical Distribution of Revenue

1. India 27%

1. India 33%

2. Asia excluding India 13%

2. Asia excluding India 35%

3. UK 26%

3. UK 8%

4. EU excluding UK 29%

4. EU excluding UK 20%

5. Rest of World 5%

5. Rest of World 4%

Total 100%

Total 100%

Detailed financial Performance:

Financial Performance
Performance Indicator
Shipments (kt)

Turnover (US$ m)

EBITDA (US$ m)

Profit After Tax (US$ m)

Basic EPS (US$)

Grouping
Consolidated
> Tata Steel India

FY08
31,678
4,782

FY09
28,542
5,232

FY10
23,607
6,169

FY11
23,540
6,416

> Tata Steel Europe

22,800

19,691

14,422

14,873

> NatSteel

2,493

2,369

1,779

1,803

> Tata Steel Thailand

1,433

1,112

1,198

1,290

29,502
4,417

33,045
5,454

22,966
5,612

26,635
6,593

> Tata Steel Europe

22,478

24,575

14,768

17,044

> NatSteel

1,718

3,021

1,403

1,663

> Tata Steel Thailand

914

889

708

877

4,101
1,852
2,039
51
113
2770
176.81

4,148
2,118
1,997
63
33
1110
66.07

2,095
2,199
-303
56
31
-451
-24.92

4,398
2,742
943
68
12
2015
99.03

Consolidated
> Tata Steel India

Consolidated
> Tata Steel India
> Tata Steel Europe
> NatSteel
> Tata Steel Thailand
Consolidated
Consolidated

The conversion rate used is US$ 1= 44.585 INR

SWOT analysis: Tata Steel

Strengths:
1. Mineral reserves in Orissa, Jharkhand which are near from production site of Jamshedpur.
Also it is taking reserves overseas.
2. Highly skilled and experienced management team
3. Hi tech safety standards and use of IT.
4. Innovativeness: Lowest operating cost in all over the world.
5. Adaptability to global changes
6. Excellent brand value
Weaknesses:
1. Huge debt: Debt worth10.6 billion USD with Debt to Equity ratio of 1.6

2. Lack in demand of some products

3. Bad procurement policy for raw materials
Opportunities
1. Adaption of newer technologies
2. Upcoming expansions of infrastructure in India would be helpful as steel consumption will
increase.
3. Acquisition opportunities for coal blocks
Threats
1. International competition from big players like Arcelor- Mittal. Posco steel has started its
operations in India.
2. FDI is being taken seriously by foreign players.
3. Regulatory norms like environmental impact assessment will postpone plant clearances.
Major financial strategy / alliance in last 2 years: Tata Corus Deal
The Corus acquisition by Tata Steel is a defining moment for the company has made. After
four months of twists and turns, Tata Steel won the race to acquire Corus Group. The bidding
war between Tata Steel and Brazilian company CSN was riveting and ended in a rapid-fire
auction. Initial reactions to the deal were highly diverse and retail investors were completely
puzzled by the market reaction. The stock tanked 10.5 per cent after the deal was announced.
Media reaction to the deal were just the opposite. Almost all the reports were adulatory while
editorials praised the coming of age of Indian industry. Official reaction was no different and
the finance minister even offered all possible help to the Tata Group.

Sources:
www.tatasteel.com
http://www.tatasteel.com/investors/annual-report-2011-12/annual-report-2011-12.pdf
http://www.scribd.com/doc/32131747/Swot-Analysis-of-Tata-Steel