Analysis of Indian Iron and Steel Industry

Analysis of Indian Iron and
Steel Industry
Presented by:
(Group 8)
Arpita Bahadur
Gaurav Kumar
Manish Gupta
Pavan Ghargi
Ranjini Ballal
Vani Vyas
Acknowledgement
We are extremely thankful to our faculty Dr. R. Venkatamuni Reddy and Dr.
Gervasio S. F. L. Mendes, Alliance Business School, who have guided us
throughout the project on analyzing the Indian Iron and Steel Industry and
helped us in all possible ways to successfully complete it.
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Table of Contents
1 Introduction........................................................................................................................4
1.1 Varieties of Steel..............................................................................................................6
1.2 Production Technology....................................................................................................6
1.3 Components of the cost of production...........................................................................7
2 The Global Steel Industry....................................................................................................9
3 The Structure of Indian Steel Industry..............................................................................10
3.1 Factors that attribute to the Revival of the Indian Steel Industry.................................11
3.2 Consumption of Steel in India.......................................................................................15
3.2.1 Top Five Companies...................................................................................................16
3.2.2 Bottom Five Companies............................................................................................22
4 Quantitative Analysis........................................................................................................27
4.1 Ratio Analysis................................................................................................................27
5 Qualitative Analysis...........................................................................................................40
5.1 Understanding the Steel industry using Michael Porter’s Five Forces Model..............40
5.2 The SWOT Analysis........................................................................................................43
5.3 Strategic Restructuring — A Comparative Analysis.......................................................48
5.3.1 Impediments to expansion........................................................................................48
6 Current Global Scenario....................................................................................................52
6.1 Current crisis in Iron and Steel Industry........................................................................52
7 Suggestions.......................................................................................................................54
8 Future Outlook..................................................................................................................55
9 Business Innovation: Steel Retailing.................................................................................57
9.1 Vision ‘steel junction’....................................................................................................58
9.2 Lessons from Nucor Steel..............................................................................................58
10 Identifying Key Success Factors.....................................................................................60
11 Conclusion.....................................................................................................................61
12 References.....................................................................................................................61
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1 Introduction
Iron is one of the oldest inventions in the world with its first usage reportedly dating back to
4000 BC. Steel is crucial to the development of any modern economy and is considered to be
the backbone of the human civilization. Today Steel (the carbon alloy of Iron) finds
application in every imaginable facet of our life. The global steel industry has been
witnessing many interesting events that have influenced market dynamics in the last ten
years.
Steel is an alloy consisting mostly of iron, with a carbon content between 0.2% and 2.14% by
weight, depending on grade. Carbon is the most cost-effective alloying material for iron, but
various other alloying elements are used such as manganese, chromium, vanadium, and
tungsten. Carbon and other elements act as a hardening agent, preventing dislocations in
the iron atom crystal lattice from sliding past one another. Varying the amount of alloying
elements and form of their presence in the steel (solute elements, precipitated phase)
controls qualities such as the hardness, ductility, and tensile strength of the resulting steel.
Steel with increased carbon content can be made harder and stronger than iron, but is also
more brittle. The maximum solubility of carbon in iron (as austenite) is 2.14% by weight,
occurring at 1149 °C; higher concentrations of carbon or lower temperatures will produce
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cementite. Alloys with higher carbon content than this are known as cast iron because of
their lower melting point and castability. Steel is also to be distinguished from wrought iron
containing only a very small amount of other elements, but containing 1–3% by weight of
slag in the form of particles elongated in one direction, giving the iron a characteristic grain.
It is more rust-resistant than steel and welds more easily. It is common today to talk about
'the iron and steel industry' as if it were a single entity, but historically they were separate
products.
Though steel had been produced by various inefficient methods long before the
Renaissance, its use became more common after more efficient production methods were
devised in the 17th century. With the invention of the Bessemer process in the mid-19th
century, steel became a relatively inexpensive mass-produced good. Further refinements in
the process, such as basic oxygen steelmaking, further lowered the cost of production while
increasing the quality of the metal. Today, steel is one of the most common materials in the
world and is a major component in buildings, infrastructure, tools, ships, automobiles,
machines, and appliances. Modern steel is generally identified by various grades of steel
defined by various standards organizations.
1.1 Varieties of Steel
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There are more than 3500 grades of steel available today; with about 75% of these
developed in the last twenty years. Finished steel products can be broadly classified into
flats and longs. Longs are used in construction, infrastructure and heavy engineering. Flats
are mainly used in making automobiles, commercial vehicles and consumer durables. Hot
rolled (HR) steel and Bar & Rods are the most popular varieties of steel produced in India. HR
coil and sheets are used in making cold rolled products, pipes and tubes, automobile
components, electronic equipment like fridges and for construction purposes. Currently HR
Coils and Sheets account for about 26% of the total domestic production and its share has
been gradually rising over time. Bars and rods are typically used more extensively in the
construction and engineering sectors.
1.2 Production Technology

Some of the technological options for converting iron ore to steel products is schematically shown
below. Hot metal and crude steel process are also interlinked among themselves as represented by
arrows.
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Source: www.sail.com
Below mentioned are few methods of producing steel:
• Blast Furnace (BF)/ Blast Oxygen Furnace (BOF) route is the most popular way of
producing steel, accounting for nearly 57% of total production. The BF/BOF route is good
for volume production, but involves huge capital costs.
• The Electric Air Furnace (EAF) is rapidly gaining popularity globally and uses sponge
iron/scrap and coke to produce steel. EAF route is flexible to produce different grades of
steel. However, EAF growth is constrained by power and scrap supply constraints in India.
• COREX, a new modern smelting technology has been recently introduced in India. It
does not require coke in producing steel and therefore could become popular with
Indian steel majors in time to come.
1.3 Components of the cost of production

Any sustained rise in input prices usually lead to an increase in product prices through the
cascading effect. The major components of the costs of production of finished steel are:
Raw materials - Raw material costs forms roughly about 62% of the total cost of
production. This only emphasizes on how important sharp movements in raw material
prices mean for the steel industry. The basic raw materials that are used in producing
steel are iron ore, coal and limestone. India is fortunate to be endowed with one of the
largest iron ore deposits in the world. Limestone is also available in sufficient quantities
and as such do not pose much of a problem. India also possesses one of the biggest coal
deposits (approximately 197 bn tonnes) in the world. However, Indian coal is mostly unfit
for coke production because of its high ash content of 25-40%. Coal fit for coke
production comprises less than 15% of total reserves. As such, Indian steel giants have to
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resort to importing coking coal from foreign countries. .
Power costs - The steel industry is an energy intensive industry with power and fuel
contributing as much as 10.1% of total production costs. It has been estimated that the
global steel industry account for nearly 4% of the total energy consumption in the world.
Most steel majors like SAIL, TSL and JSW have captive power plants but smaller players
have to depend on outside supply. As such, erratic supply forms a major obstacle for
growth of these producers.
Interest payments - Steel is a capital-intensive industry and as such many companies

resort to outside borrowings, mostly in form of long-term loans. Interest payments
always used to form on average between 7 – 9% of the total costs but have recently
come down to as low as 3.2%. Interest coverage ratio has also shot up to nearly 10 after
hovering above the zero levels for a number of years. Also, it is important to note that
the recent good turn in the sector has enabled many companies to pay off their long-
term debts early and, in general interest payments have come down industry-wide.
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Taxes and duties - Excise duties, sales tax, other direct and indirect taxes further push up
costs in the steel sector. Total taxes contribute more than 16% of total costs. Here, the
government can play an active role and provide structured concessions for new and old
capacities.
Other expenses - Wage bills, depreciation costs and distribution expenses are among the
other major cost components
2 The Global Steel Industry

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

India is 5th largest producer of steel with total production of 53.08 MT in 2007. The Indian
steel industry can be divided into two distinct producer groups; Integrated steel producers
(ISP) with over 1 MT of capacity and smaller stand-alone steel plants that include producers
and processors of steel. The ISP’s include the like of SAIL, Tata Steel, JSW Steel, and Ispat
Industries. They account for most of the mild steel production in the country and produce
most of the flat steel products including Hot Rolled, Cold Rolled and Galvanised steel. The
smaller stand-alone steel plants account for a majority of long products being produced in
the country.
The potential demand for steel in India is vast with the per capita steel consumption. The
level of per capita consumption of steel is treated as one of the important indicators of
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socio-economic development and living standard of the people in any country. It is a product
of large and technologically complex industry having strong forward and backward linkages
in terms of material flow and income generation. All major industrial economies are
characterized by the existence of a strong steel industry and the growth of many of these
economies has been largely shaped by the strength of their steel industries in their initial
stages of development. This offers a huge potential to steel manufacturers, both domestic
and global.
In line with the global trend, the Indian steel industry has been passing through tough
conditions. The prices are trailing at rock-bottom levels due to over capacity. The report
gives a comprehensive analysis of the Indian steel industry. It extensively covers structure of
Indian steel industry, with details on production, consumption, imports and exports. The
report deals with reasons for the over capacity situation prevailing in India and the
demand/price trends for various steel products in India. The report gives a crisp analysis on
the strategies and latest financial performance of the leading players in India.
3.1 Factors that attribute to the Revival of the Indian Steel

Industry
The factors for revival of Indian steel industry are buoyant global steel consumption, buoyant
local steel consumption, lower cost of production and adequate rise in price against hike in
input costs. Apart from this, backward integration, consolidation and branded product sales,
marketing alliances, etc., have led to the revival of the Indian steel industry.
Backward Integration
Coking coal, iron ore and scrap shortage are responsible for the increased cost of
production, coupled with low average prices of Rs.17,000-Rs.18,000 TPA in the past.
Integrated players with their own captive mines for iron ore and coal will find it an
advantage as they will be shielded from the fluctuating prices of raw materials.
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De-integration of Process/Consolidation
Consolidation within the industry is the need of the hour as it might generate benefits of
economies of scale and improve labor productivity. Also, a set-up of semi-finished capacities
near the place of availability of raw materials and capacities for finished products near the
place of consumption will act as a major booster for the players within the industry due to
the savings in freight cost.
Branded Products
Increased focus on branded products could allow the producers to charge a premium for
their products and improve their average per tonne realizations.
Also, increased focus on value-added products will help improve revenues for companies as
cold rolled coils, galvanized steel and color coated steel enjoy better per tonne realizations
than HR coils.
Long Contracts/Marketing Alliance
Players within the industry enter into long contracts for their finished products with
automobile original equipment manufacturers. This will mitigate demand risks, ensure high
product off-take and better capacity utilization.
Government Initiatives
Increased infrastructure spending by the Government of India and development of roads

could generate significant savings in freight and transportation cost, making Indian steel
companies and other industries globally competitive.
Impact of Liberalization
The economic reforms initiated by the government in 1991 have added new dimensions to
the industrial growth in general, and steel industry in particular. Some of the important
features due to liberalization are:
 Licensing requirement for capacity creation has been abolished.

 Steel industry has been removed from the list of industries reserved for the state sector.
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 Automatic approval granted for foreign equity investment in steel has been increased up
to 74% [Government of India 1999].
 Price and distribution controls were removed from January 1992 [Report to the Ministry
of Industry, Science and Tourism 1997].
 Restrictions on external trade, both in import and export, have been removed.
 Import tariff reduced from 105% in 1992/93, to 30% in 1996-97. [Report to the Ministry
of Industry, Science and Tourism 1997]
 Other policy measures like convertibility of rupee on trade account, permission to
mobilize resources from overseas financial markets, and rationalization of existing tax
structure.
There was expansion of the steel sector after the economic reforms. The new entrants as
well as the existing manufacturers went for technical tie-ups with leading steel producers of
the world [Nakra 1996]
Cost Competitiveness of Indian Steel Industry
The cost competitiveness of Indian steel industry can be seen in Table 5. The cost of major
raw materials like iron ore, coking coal, and other raw materials is less in India among the
countries mentioned. The labor cost is low, but it is neutralized by its low level of
productivity.
The financial cost and the cost of power, oil and some other materials are high. Energy
accounts for about 35 - 40% of the cost of steel production in India, whereas it is about 28%
in the developed countries. All these make the pre-tax cost of steelmaking in India higher
than that of South Korea, Australia, Mexico, and CIS countries. Considering the low wage
rate and other economic factors, the labor cost in India makes up around 15% of the cost of
the steel as compared to around 30% in developed countries like Japan and United States. In
spite of these advantages, Indian firms could not become cost-effective.
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Source: Iron and Steel Review (1998)
Current Investments
A host of steel companies forecasted expanding consumer market and likelihood of receiving
huge domestic and foreign investments. Therefore they invested as follows:
 Bhushan Steel plans to invest US$ 5.72 billion for building 12 million tonne-capacity
in the states of West Bengal, Jharkhand and Orissa.
 Non-ferrous metals giant, Vedanta Resources, plans to invest around US$ 4.79 billion
in a 5 million tonne steel plant in Keonjhar district of Orissa and envisages its
commissioning by 2012–13.
 Tata Steel is also planning to build a 5 million tonne plant in Chhattisgarh with an
investment of around US$ 3.59 billion. The steel major is setting up greenfield
projects in Jharkhand, Orissa and Chhatisgarh. While in Jharkhand it is likely to invest
about US$ 8.38 billion for a 12 million tonne integrated steel plant, in Orissa it plans
to pour in almost US$ 4.39 billion for a six million tonne capacity plant.
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 Mesco Steel plans to invest US$ 2.20 billion for expansion of two of its steel plants in
Orissa.
 Reliance Infrastructure, (part of the Reliance Anil Dhirubhai Ambani Group) plans to
build a 12-million tonne steel plant in Jharkhand, which is likely to be completed by
2012.
 Indian Railways plans to invest around US$ 437.25 million per annum to raise its
consumption of stainless steel for adding new alloy-made wagons and coaches to its
portfolio.
 Welspun Gujarat Stahl Rohren, (one of the largest steel pipe makers in India), plans
to increase the capacity of its pipe plant by 75 per cent to 1.75 million tonnes with an
investment of US$ 222.52 million.
 The JSW group plans an outlay of US$ 40 billion for steel and power projects. These
projects will be completed by 2020.
 Visa Steel has lined up a US$ 1.51 billion – US$ 2.02 billion integrated steel project in
Chhattisgarh.
 Sarralle India, a subsidiary of Sarralle Equipos of Spain and one of the largest
designers of steel plant equipment, has decided to set up a manufacturing base in
Uluberia in West Bengal.
 Interarch Building Products Private, (the largest player in pre-engineered steel

buildings space) plans to set up its greenfield manufacturing facility in Gujarat by
2009–10.
Furthermore, the Confederation of Indian Industry (CII) plans to start six new small and
medium enterprises clusters for steel companies in Visakhapatnam. It will also set up a steel
task force to propel growth in the steel clusters.
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3.2 Consumption of Steel in India
The companies covered in the report include
TOP FIVE COMPANIES 5. Ispat Industries Ltd
1. Steel Authority of India BOTTOM FIVE COMPANIES

Ltd
2. Tata Iron and Steel 1. Sunflag Iron and Steel
Company Ltd Industry

3. Jindal Iron and Steel 2. Shah Alloys Ltd
3. MUSCO
Company Ltd 4. Surya Roshni
4. Essar steel 5. Usha Martin
3.2.1 Top Five Companies
1. Steel Authority of India Ltd
The Ministry of Steel and Mines drafted a policy statement to

evolve a new model for managing industry. The policy statement was
presented to the Parliament on December 2, 1972. On this basis the
concept of creating a holding company to manage inputs and outputs
under one umbrella was mooted. This led to the formation of Steel
Authority of India Ltd. The Company, incorporated on January 24, 1973,
was made responsible for managing five integrated steel plants at Bhilai,
Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel Plant and the
Salem Steel Plant.
Steel Authority of India Limited (SAIL) is the leading steel-making

company in India. SAIL is a fully integrated iron and steel maker,
producing both basic and special steels for domestic construction,
engineering, power, railway, automotive and defence industries and for
sale in export markets. The company's plants are divided as Integrated
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Steel Plants and Special Steel Plants. The Integrated Steel Plants
comprised Bhilai Steel Plant (BSP) in Chhattisgarh, Durgapur Steel Plant
(DSP) in West Bengal, Rourkela Steel Plant (RSP) in Orissa, Bokaro Steel
Plant (BSL) in Jharkhand and IISCO Steel Plant (ISP) in West Bengal. The
Special Steel Plants includes Alloy Steels Plants (ASP) in West Bengal,
Salem Steel Plant (SSP) in Tamil Nadu and Visvesvaraya Iron and Steel
Plant (VISL) in Karnataka, totally 8 plants. SAIL, by virtue of its Navratna'
status, enjoys significant operational and financial autonomy.
SAIL International Ltd was incorporated to coordinate the export

and import business the year 1974. In 1976, Durgapur Mishra Ispat Ltd.,
Bhilai Ispat Ltd., and Rourkela Ispat Ltd., were formed as fully owned
subsidiaries of SAIL for taking over the running business of Alloy Steels
Plants, Bhilai steel Plant and Rourkela Steel Plant on transfer from HSL.
Two major schemes viz. new sinter plant III and expansion of oxygen
plant II were taken up for implementation. C.O. Battery No. 10 was
commissioned during the year 1994.
The Company bagged, 'Business world-FICCI-SEDF Corporate

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

2004 for 4 integrated steel plants for increase in Hot Metal production to
20 Mt by 2012. After merger of in IISCO Feb 06, the Hot Metal
production Plan was revised to 22.5 Mt by 2012. Expansion of Special
Steel Plants was also included. Hon'ble Minister of Steel reviewed the
Corporate Plan 2012 in Jul'2006, wherein it was decided to take up the
Expansion of Integrated Steel Plants and Special Steel Plant in one go
based on Composite Project Feasibility Report (CPFR).
2. Tata Steel Ltd
Tata Steel is the world's 6th largest steel company. It is a Asia's

1st and as well as India's largest integrated steel company in private
sector with operations in 24 countries and commercial presence in over
50 countries. The company's history is a century old, the origins and
ascent of Tata Steel, which has culminated into the century long history
of an industrial empire, emerge from the illustrious efforts of India's
original iron man and the remarkable people who thereafter, have kept
the fire burning. Tata Steel was founded by Jamsetji Nusserwanji Tata in
the year 1907 as Tata Iron and Steel Company (TISCO) and later its
renamed to Tata Steel Limited. It is an ISO-14001 and also SA 8000
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certified company, is this reflected in company's pro-active measures to
ensure optimum utilization of natural resources and work conditions.
Golden Jubilee of the company was celebrated in the year 1958

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

in 1994-95. The company also received the Prime Minister's Trophy for
the Best Integrated Steel Plant for the year 1994-95. This award was
subsequently conferred again in 1998-99, 1999-2000, 2000-01 and 2001-
02. The World Steel Dynamics recognised Tata Steel as India's only
'world-class steel makers' thrice in a row.
As on January 2008, Tata Steel Limited and the members of the

Al Bahja Group, a leading business house of Oman have entered into a
Joint Venture Agreement for the development of the Uyun Limestone
deposits at Salalah in the Sultanate of Oman .
3. JSW Steel Ltd
India's second largest private sector steel maker JSW Steel

Limited (JSWSL) was originally incorporated as Jindal Vijayanagar Steel
Limited on March 15, 1994. Product portfolio of the company includes
Hot Rolled Product, Cold Rolled Product, Galvanised Product, Pre-
painted Galvanised Product and Jindal Vishwas. JSWSL consists of the
most modern, eco-friendly steel plants with the latest technologies for
both upstream & downstream processes. The Company's four plants are
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situated in Vijayanagar, Vasind, Tarapur and Salem. JSW Steel Ltd. has
received all the three certificates of ISO: 9001 for Quality Management
System, ISO: 14001 for Environment Management System and OHSAS:
18001 for Occupational Health & Safety Management System.
During the incorporated year itself, the MOU was made with
KSIIDC to be provided with grid support, approvals for construction of
railway siding etc and also the company entered into a technical
arrangement with Voest Alpine Industrieanlagenbau (VAI), for technical
details with respect to productivity, iron ore technical details etc.
CII-EXIM Bank Award was handed over to the company,

'Commendation Certificate for Significant Achievement' towards
Business Excellence during the year 2005 and in the same year the Prime
Minister National Award also bagged by the company for Excellence in
Urban Planning & Design for Township.
National Sustainability Award was conferred to the company in

the year 2006, Second Prize amongst the Integrated Steel Plants
Category by Indian Institute of Metals. During January 2007, JSW Steel
has executed a Development Agreement with The Government of West
Bengal, West Bengal Industrial Development Corporation Limited
(WBIDC) West Bengal Mineral Development and Trading Corporation
Limited (WBMDTC) for setting up a 10 MTPA steel plant in suitable
phases. JSW steel has inaugurated two exclusive JSW Shoppe in Hubli,
Karnataka on December 4, 2007, At JSW Shoppe, end consumer will also
know about different application of different steel products being
manufactured by M/s JSW Steel through actual components and
pictures from Automobile, White Goods Sectors, and Construction.
During the period of 2007-08, JSWSL received Gold Award in Metal and
Mining Sector for Outstanding Achievement in Safety Management by
Greentech Foundation.
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As on June 2008, JSW Steel stated that, it will set up a green field
plant in Georgia (Europe) in partnership with a UK-based company to
produce rebars, the project will see an investment of $42 million by way
of equity and debt, where 49 per cent of equity will be held by JSW
while the balance will be held by Geo Steel LLC of the UK. Both
companies will invest $7 million towards direct equity while the
remaining amount will be raised by way of debt. JSWSL inaugurated JSW
Shoppe, an exclusive steel retail outlet in Ahmedabad IN June 2008 and
planed to setup 200 exclusive JSW Shoppes across the length and
breadth of the country by 2010. Also it will invest around Rs 550 crore in
its Chilean mining concessions to ensure 50 per cent iron ore security by
June 2009, up from 30 per cent now. The Company plans to emerge as
32 million tonnes per year capacity steel major by 2020.
4. Essar Steel Ltd
Promoted by the Bombay-based Essar group controlled by the

Ruias, Essar Steel initially commenced operations of specialised
construction in Jun.'76 as Essar Constructions. Its name was changed to
Essar Offshore & Explorations in May '87 and later to Essar Gujarat in
Aug.'87. It became Essar Steel in 1995. The company is a integrated
producer with end-to-end control of all operations related to steel
making.
Its energy division was operating the largest fleet of rigs in the
private sector. In 1987-88, it diversified into sponge iron and set up a
8,80,000 tpa gas-based plant at Hazira, Gujarat. The plant incorporating
technology innovated by Midrex Corporation, US, commenced
production in Aug.'90 with two 4,40,000 tpa modules. The plant
commenced production in Sep.'95. Later the company transferred its
energy and offshore divisions to Essar Oil.
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The company has become the country's first integrated steel
plant to receive both ISO 9002 and TUV certifications. During 1998-99,
Essar Minerals Ltd presently Hy-Grade Pellets Ltd (HGPL) has become
wholly owned subsidiary of the company.
The Company has planned to increase the capacity to 4.6 Million MTPA
in next 2 years. The company has planned to increase the pellet making
capacity at Visakhapatnam from 4 to 8 Million tonnes in the current
year. The company has initiated production and sales of HR Pickled and
Oiled, Cold Rolled and Galvanised Products. Further the company has
launched shot blasted and primer coated plates for shipbuilding and
general engineering applications.
The company has increased its installed capacity of Hot Briquette

Iron Plant by 1400000 MT during 2004-05 and with this expansion the
total installed capacity of Hot Briquette Iron Plant has increased to
3400000 MT.
5. Ispat Industries Ltd
Ispat Industries Limited (IIL) is one of the leading integrated steel

makers and the largest private sector producer of hot rolled coils in
India. It was incorporated in the year 1984 by founding chairman M. L.
Mittal, a corporate powerhouse with operations in iron, steel, mining,
energy and infrastructure. The company's core competency is the
production of high quality steel, for which it employs cutting edge
technologies and stringent quality standards. It produces world-class
sponge iron, galvanised sheets and cold rolled coils, in addition to hot
rolled coils, through its two state-of-the art integrated steel plants,
located at Dolvi and Kalmeshwar in the state of Maharashtra.
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To better provide steel solutions to an increasingly sophisticated
marketplace, IIL had sets up a highly advanced cold rolling reversing mill
during the year 1988, in collaboration with Hitachi of Japan, to
manufacture a wide range of cold rolled carbon steel strips. In the same
year, the company installed a colour coating line, the first of its kind in
India for the manufacture of pre-painted colour steel sheets. During the
year 1994, Business interests within the Ispat Group are demarcated.
The eldest son, Mr. L N Mittal continues to manage the international
operations while Mr. Pramod Mittal and Mr. Vinod Mittal, the younger
brothers focused on steel and other businesses in India. In the identical
year 1994, it commissioned the world's largest gas-based single mega
module plant for manufacturing direct reduced iron (sponge iron), at its
Maharashtra-based Dolvi plant. Within three months, the plant exceeds
its capacity of 1 million tonnes per annum (MTPA) of high quality DRI.
The company came out with a Euro-issue of 125-mln fully convertible
bonds in 1994 to part-finance the expansion of its hot strip mill (HSM)
capacity to 2.50 lac TPA.
The Company aims to consolidate its market leadership in the

national specialty steel market by capitalising on the proximity of its
manufacturing facilities to major consumers of flat steel products in
Maharashtra, while increasing its presence in international markets by
using its convenient port location. In the short span of time since its
inception, Ispat Industries has steadily raised the bar - in terms of its
relentless pursuit of technological advancement, unwavering focus on
innovation, strident emphasis on quality products and its constant
initiatives aimed at ensuring customer satisfaction.
3.2.2 Bottom Five Companies
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1. Sunflag Iron & Steel Company Ltd
Sunflag Iron and Steel Company ltd is a prestigious unit of Sunflag

group was promoted by Sunflag UK. The Sunflag Group was founded by
Satyadev Bhardwaj in Kenya in 1937. The Company incorporated in 1984
is engaged in the manufacture of Steel products like Rolled products,
Billets, Sponge Iron etc., with a present capacity of 150000 MT of Direct
reduced Iron, 200000 MT of Mild & Alloy Steel Rolled Products and with
captive power plant capacity of 108 million Kwh.
The company has set up a state of art integrated plant at

Bhandara, India to produce 200000 tonnes per annum of high quality
steel using ironore and non-coking coal as basic inputs. The products are
spring steel rounds flats, carbon steel and alloy steel. They are used by
automobile leaf spring manufacturers, engineering goods manufacturers
and the forgings industry Spring steel forms 70% of the total production.
The plant comprises a 1,50,000 tonnes per annum Direct

Reduction Plant, to produce sponge iron for captive consumption in the
Steel Melting Shop. This shop comprises a 50/60 tonnes ultra high
power Electric Are Furnace with Eccentric bottom arrangement; a Ladle
auto mould level controller and electromagnetic stirrer. The billets
produced at the steel melting shop are rolled at the Mannesmann
Demag Designed ultra modern 18 stand Continous mill.This mill has a
walking hearth reheating furnace, quick roll-changing facilities, a 65
metres long walk and wait type modern cooling bed and above all
computerised process control linking and controlling the various stages.
The company came out with a rights issue in Feb 92 to part-

finance the capital cost of a 15.5-MW wast heat recovery project to gain
full use of waste gases and coal ash/fires generated in the process of
making Sponge Iron. Installation of a new Captive Power Plant of 10 MW
is under progress. The company has also started manufacturing high
24
value stainless steel for which tremendous growth of domestic and
international market is expected.
2. Shah Alloys Ltd
Incorporated in Nov.'90, Shah Alloys went public in 1992. It was

promoted by Rajendrabhai V Shah and Rajiniben R Shah. The company is
engaged in the manufacture of mild steel, stainless steel, C T D bars, S S
flats and pattas, and cold-rolled sheets.
The company came out with a public issue in Dec.'92 to part-

finance an expansion scheme, and to meet long-term working capital
requirements. The company has embarked on a Rs 6.53-cr project to
manufacture stainless steel and other alloy products, financed by GIIC. It
has put up a hot plate rolling mill at a cost of Rs 36.75 cr. The company
received the Dhatu Nayak Award for best performance in the stainless
steel industry.
During 1998-99, the Company implemented the project of

captive power plant having capacity of 20 MW. The project was financed
through term loans and internal cash accruals. In 2000-01 the company
has successfully commissioned India's first 1800mm width Stainless Steel
Slab Caster. The project of H R /S S Sheet /Coil was commissioned as per
schedule. This project was financed through internal accruals and also by
term loans from financial institutions/bankers. The company's going on
diversification project of manufacturing of HR/SS Sheet/Coil was
successfully implemented during 2001-02.
During 2001-02 Shah Steel & Industrial Gases Limited was

amalgamated with the company and accordingly 20 equity shares of
Shah alloys were issued and allotted to Shah Steel & Industrial Gases Ltd
pursuant to the scheme which provided for the company to issue shares
25
in the ratio of one Equity Shares of the company for every 35 equity
shares of Shah Steel & Industrial Gases Ltd.
3. Mahindra Ugine Steel Company Ltd
Incorporated in Dec.'62, Mahindra Ugine Steel (MUSCO)

commenced business in May '63. It was promoted by Mahindra &
Mahindra with 49% stake, along with Ugine Aciers, France; and
International Finance Corporation, Washington.
The company manufactures tool, alloy and special steels. It has

modernised and expanded its capacity to 1,05,000 tpa. The products of
the company are either in rolled, forged, or pealed condition; and
supplied as blooms, slabs, RCS, rounds, squares, hexagonals, octagonals
or flats. Its products are used mainly by the automobile and general
engineering industries for crankshafts, axles, connecting rods, gears, ball
and roller bearings, shells, valves, turbine blades, etc.
The company came out with a convertible debenture offer in

Jun.'92 to meet working capital requirements. Console Estate &
Investment Ltd, Mahindra Infrastructural Projects Ltd, Corbel Estate &
Investment Pvt Ltd are the subsidiary of MUSCO.
It has set up a new press shop at Nasik. The plant is presently set
up in a different company Pranay Shares & Securities Ltd which will
become Musco's 99% subsidiary in Mar. 2000 on conversion of FCDs held
by Musco. This plant has capacity of 4,500 tpa in the the first phase
which will be expanded to 10,000 tpa eventually, in line with M&M's
requirements. A new special steel grade for Crank-Shaft application was
developed and marketed by the company.
The company issued 4,00,000-12% Cumulative Redeemable

Preference Shares of 100/-each on private placement basis in 2000-
01.The company has redeemed 4,00,000 preference shares of Rs.100/-
26
each out of the above proceeds. It is planning to develop Ball Bearing
grade steel for Global approval by controlling inclusions, oxygen,
titanium and calcium at extreme low levels. During 2002-03 Mahindra &
Mahindra Ltd transferred its entire shareholding consisting of
1,52,41,885 equity share representing 49.28% to its wholly owned
subsidiary viz Mahindra Holdings & Finance Ltd.
4. Surya Roshni Ltd
Formerly known as Prakash Tubes, Surya Roshni has two divisions

-- the steel division and the lighting division. The steel division, which
commenced operations in 1974, manufactures electrical resistance
welded (ERW) steel pipes and tubes, and cold-rolled formed sections
and profiles, and cold-rolled (CR) strips. The lighting division, operating
since 1983, manufactures fluorescent tube lamps (FTL), general lighting
systems (GLS), glass shells for GLS lamps, tubular glass shells, FTL
filaments, GLS filaments, and sodium and mercury vapour lamps. The
lamps are sold under the Surya brand. A backward intergration to
manufacture lead glass tubings and an expansion of capacities of the
lighting division were undertaken in 1993.
The company recently completed a project to manufacture

halogen lamps and decorative lamps. Its backward integration project to
manufacture ribbon glass shells, FTL tube drawing lines, GLS filaments,
FTL filaments, GLS caps and GLS chains, is under implementation, out of
which two GLS lamp groups, GLS lamp filament and automatic FTL
packing machine were completed in 1995-96. The technologies for the
above projects are from GB Glass, UK, and Falma, Switzerland. The
projects for GLS lamps, GLS filaments, lamp caps and electrostatic
coating were also completed in 1995-96, while those for ribbon glass
shells and tube drawing projects, will get over in 1998. All the products
except ribbon shells are totally for captive consumption.
27
Surya Roshni has also set up a joint venture with Osram, under
the name Osram Surya Pvt Ltd to manufacture compact fluorescent
lamps.
5. Usha Martin Ltd
Incorporated in 1986, Usha Beltron was jointly promoted by Usha

Martin Industries and the Bihar State Electronic Development
Corporation. The company manufactures jelly-filled cables in technical
collaboration with AEG Kabel, Germany. The company has developed
PCM system cables used to transmit digital signals. It has developed
foam-skin type cables for the first time in India. The company also
provides software application services. Later in May 2001 the two
subsidiaries viz Usha Martin Telecom Holding and UBL Industries were
merged with the company. Subsequent to this merger, the company
name was changed to Usha Martin Ltd in May,2003.
The manufacturing operation of the company cover Ranchi,

Jamshedpur, Agra & Bangalore, also distribution centre are spread across
India, Europe, Africa & USA. The company is among the largest telecom
cables manufacturer in India, with an annual capacity of 55 LCKM - rising
to 64 LCKM recently. The company's other operation includes a
specialised machinery division catering to the wire, ropes and cable
industry & also has a rolling mill in Agra & division to make mechanical
splicing equipment and fitting for wire ropes in Ranchi.
Among the other industrial interest managed by the promoters

of Usha Beltron are Usha Telekom - a cellular service company in
collaboration with Telekom Malaysia. Usha Breco - designs,
manufacturer and operates ropeways & Summit Usha Martin Finance -
Joint Venture with Sumitomo Corporation of Japan. During the year
2000, Usha Beltron demerged its software division into a separate
company - Usha Martin Infotech. The company also acquired the wire
28
rope business of Brunton Shaw, UK, a division of Carclo Plc of the UK in
an all cash deal for around Rs 8.50 cr.
The company entered into financial tie-up with IFC,Washington

and DEG,Germany for funding of new projects at Jamdshedpur and
Ranchi which are under implementation stage. IFC has awarded loan of
USD 21 Mn and also has acquired 5264727 equity shares at a premium
of Rs.28 per share,and DEG-Deutsche Investitions-und
Entwicklungsgesellschaft mbH-Germany,is funding the project by way of
loan Euro 10 Mn and in addition it has also invested Rs.17.64 crores
consisting 5345455 equity shares at a premium of Rs.28 per share.
29
4 Quantitative Analysis
4.1 Ratio Analysis

Definitions
Asset turnover ratio-This is a measure of firm’s efficiency in utilizing its

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

company’s inventory is turned into sales. High inventory turnover is a
sign of efficient inventory management.
Debtor turnover ratio-The debtor turnover ratio measures the efficacy

of a firm’s credit and collection policy and shows the number of times
each year the debtors and turn into cash. Higher turnover ratios shoes
that that debtors are being converted rapidly into cash and the quality of
company’s portfolio of debtor is good.
Debt – equity ratio-The debt to equity ratio measures the relationship of

the capital provided by creditors to the amount provided by
shareholders. A high debt to equity ratio indicates aggressive use of
leverage and a highly leveraged company is more risky for creditors. A
low ratio, on the other hand, suggests that company is making little use
of leverage and is too conservative.
Current ratio-This is the ratio of current assets to current liabilities. It is

widely used indicator of a company’s ability to pay its debts in the short
term.
RATIO ANALYSIS (Top five)
30
Essar Steel Ispat Inds. JSW Steel S A I L Tata Steel
Company / Year Aggregate
200803 200803 200803 200803 200803
Key Ratios
Debt-Equity Ratio 1.02 1.47 4.50 0.88 0.18 0.67
Long Term Debt-Equity Ratio 0.88 1.17 4.20 0.85 0.15 0.66
Current Ratio 1.21 0.91 1.11 0.62 1.60 2.86
Turnover Ratios
Fixed Assets 1.28 0.83 0.79 1.03 1.51 1.37
Inventory 6.59 5.31 7.79 9.86 6.65 8.99
Debtors 12.49 25.97 15.41 43.36 17.15 37.77
Interest Cover Ratio 4.83 1.96 1.10 6.02 46.70 8.61
Asset turnover ratio -In 2008 aggregate fixed turnover is 1.28 which is
higher than ESSAR, ISPST &JSW steel. But SIAL &TATA steel’s ratio is
much higher than overall industry. It means these companies utilizing
their assets efficiently.
Inventory turnover ratio- In 2008 average inventory ratio of industry is

6.59that is greater than only Essar steel. All other companies are above
average and JSW steel has highest turnover among all these companies.
Debtor turnover ratio- In 2008 average Debtor turnover ratio of industry

is 12.49that is lesser than all company’s average. In 2008 all companies
are performing very well.
Debt – equity ratio -Average ratio of industry is 1.02 .Ispat company is

showing higher ratio i.e. 4.88 which shows that company is having higher
risk and has borrowed more from creditors than shareholders. All other
companies are performing average.
31
Current ratio- All companies are performing well except Jsw steel and Tata is
having excess current assets it should utilize its assets in other Manufacturing
activities.
Essar SteelIspat Inds.JSW SteelS A I L Tata Steel

200703 200703 200703 200703 200703
Key Ratios
Current Ratio 1.22 1.09 1.11 0.78 1.36 1.26
Turnover Ratios
Fixed Assets 0.16 0.74 0.73 0.98 1.33 1.26
Inventory 0.87 4.68 8.19 9.61 5.99 8.77
Debtors 1.97 16.43 13.50 38.23 18.82 33.75
lower than all steel companies. But SAIL &TATA steel’s ratio is much
higher than overall industry; it means these companies utilizing their
assets efficiently.
Inventory turnover ratio -In 2007 average inventory ratio of industry is

0.89 that is much lower than other companies .All companies are above
Debtor turnover ratio -In 2007 average Debtor turnover ratio of industry
is 1.97 that is lesser than all company’s average. In 2007 all companies
are performing very well and JSW steel has highest turnover among all
these companies.
32
Debt – equity ratio -Average ratio of industry is 0.90 .Ispat Company is
showing higher ratio i.e. 4.84 which shoes that company is having higher
companies are performing well. SAIL is having ratio of 0.28 that is lowest
among all these and still it can take loan from creditors without any
hazard.
Current ratio -All companies are performing well except Jsw steel because
they are above average level i.e.1.

200603 200603 200603 200603 200603
Key Ratios
Current Ratio 1.24 1.38 1.17 0.87 1.18 0.71
Turnover Ratios
Fixed Assets 1.21 0.79 0.60 0.86 1.14 1.20
Inventory 6.35 5.66 7.00 8.16 6.17 8.47
Debtors 12.87 13.55 6.80 26.79 17.25 30.57
Interest Cover Ratio 5.01 2.06 -0.19 3.53 13.20 31.03
higher than all other companies. But ISPAT is having lowest ratio it
means it’s not utilizing assets properly.

6.35that is greater than only Essar and SAIL steel company. All other
companies are above average and JSW steel has highest turnover among
33
all these companies .This ratio shows the number of times a company’s
inventory is turned into sales.

is 12.87that is lesser than all company’s average except ISPAT.TATA steel
has highest turnover ratios which shows that debtors are being
converted rapidly into cash and the quality of company’s portfolio of
debtor is good.
Debt – equity ratio -Average ratio of industry is 0.97.Ispat and Essar

Company is showing higher ratio i.e. 2.10 and 3.91which shows that
company is having higher risk and has borrowed more from creditors
than shareholders. All other companies are having lesser ratio which
means they have taken lesser loan from creditors than shareholders.
Current ratio -All companies are performing well except Jsw steel and Tata. All
other companies have enough liquid assets to meet current liabilities.

200503 200503 200503 200503 200503
Key Ratios
Current Ratio 1.10 1.41 1.37 1.06 0.99 0.65
Turnover Ratios
Fixed Assets 1.34 0.95 0.82 0.98 1.15 1.24
Inventory 8.39 8.03 11.32 13.02 8.80 10.17
Debtors 13.56 15.11 8.33 19.94 18.52 25.74
34
Asset turnover ratio- In 2005 aggregate fixed turnover is 1.34 which is
higher than all other companies. It means these companies utilizing their
assets efficiently.

8.39that is greater than only Essar steel. All other companies are above
It means that it is converting its inventory into sales very frequently.

is 13.56that is lesser than all company’s average except ISPAT. In 2005
TATA steel has highest turnover ratio which means it is realizing cash
frequently from its debtors and company has good collection policy.
Debt – equity ratio - Average ratio of industry is 1.50. Ispat and Essar
Company is showing higher ratio i.e. 4.35 and 4.41 which shows those
companies are having higher risk and has borrowed more from creditors
than shareholders.
Current ratio -All companies are performing well except SAIL and Tata they are
having lesser current assets to meet current obligation.

200403 200403 200403 200403 200403
Key Ratios
Current Ratio 0.93 1.35 1.40 1.29 0.75 0.67
Turnover Ratios
Fixed Assets 0.98 0.60 0.71 0.57 0.87 0.97
Inventory 7.35 6.31 10.07 12.83 7.10 9.93
35
Debtors 10.36 11.86 9.05 10.36 15.04 14.81
higher than all other companies. It means these companies utilizing their
assets efficiently. But Essar has lowest ratio it means it is not utilizing its
assts fullest.
Inventory turnover ratio - In 2004 average inventory ratio of industry is

7.35that is greater than only Essar steel and SAIL. All other companies
are above average and JSW steel has highest turnover among all these
companies.
is 10.36 that is lesser than all company’s average except ISPATsteel. In
2004 all companies are performing very well and realizing money at
faster rate.
Debt – equity ratio -Average ratio of industry is 2.92 .Essar Company is

showing higher ratio i.e. 10.80 which shows that company is having
higher risk and has borrowed more from creditors than shareholders. All
other companies are performing average .here. TATA steel has lowest
ratio which shows company has more shareholders money than creditor.
Current ratio -All companies are performing average here Tata has
lowest ratio; it means it does not have sufficient current assets to meet
current obligation.
RATIO ANALYSIS (Bottom five)
Shah Sunflag Surya Usha

MUSCO
Company / Year Aggregate Alloys Iron Roshni Martin
200803
200803 200803 200803 200803
36
Key Ratios
Long Term Debt-Equity

0.88 0.92 2.24 0.87 1.30 0.84
Ratio
Current Ratio 1.21 1.26 1.47 1.75 1.30 1.02
Turnover Ratios
Fixed Assets 1.28 3.02 2.36 1.57 2.30 1.13
Inventory 6.59 8.20 5.52 5.52 7.98 4.22
Debtors 12.49 5.95 18.32 17.26 10.83 7.60
Interest Cover Ratio 4.83 2.54 -2.06 3.59 1.47 3.32
lower than Usha martin. It means these companies utilizing their assets
efficiently and MUSCO has highest turnover ratio.

6.59that is greater than Shah alloys and Usha martin. All other
companies are above average and MUSCO steel has highest turnover
among all these companies.
is 12.49that is lesser than SHAH ALLOYS and SUNFLAG iron. In 2008 all
companies are performing very well and getting money at good rate.
Debt – equity ratio -Average ratio of industry is 1.02. Shah alloys

Company is showing higher ratio i.e. 2.72 which shoes that company is
having higher risk and has borrowed more from creditors than
shareholders. All other companies are performing average.
37
Current ratio -All companies are performing well and all have higher
ratio than the average i.e.1.
38
M U S C O Shah Alloys Sunflag Iron Surya Roshni Usha M
200703 200703 200703 200703 200703
Key Ratios
Current Ratio 1.22 1.33 1.30 1.56 1.26 1.13
Turnover Ratios
Fixed Assets 0.16 2.93 3.77 1.48 2.06 1.02
Inventory 0.87 7.66 6.96 6.04 7.71 5.20
Debtors 1.97 5.55 15.83 15.94 10.49 7.36
Debt – equity ratio -Average ratio of industry is 0.90 .Surya roshini is

showing higher ratio i.e. 2.27 which shoes that company is having higher
companies are performing well. Sun flag is having ratio of0.83 that is
lowest among all these and still it can take loan from creditors without
any hazard.
Current ratio -All companies are performing well because they are above
average level i.e.1 and have enough cash to meet all current liabilities.
M U S C O Shah Alloys Sunflag Iron Surya Roshni Usha Martin

200603 200603 200603 200603 200603
Key Ratios
Current Ratio 1.24 1.40 1.25 1.72 1.27 1.14
39
Turnover Ratios
Fixed Assets 1.21 3.15 3.35 1.71 2.07 0.93
Inventory 6.35 7.47 5.67 6.98 7.28 4.89
Debtors 12.87 5.95 13.67 16.34 11.55 5.95
lower than all other companies except Usha martin. But Shah alloys is
having highest ratio it means its utilizing assets properly.

6.35that is greater than only Shah alloys and Usha martin. All other
companies are above average and Surya roshini has highest turnover
among all these companies. This ratio shows the number of times a
company’s inventory is turned into sales.

is 12.87that is lesser than Shah alloys and Sun flag iron . Sun flag iron has
highest turnover ratio which shows that debtors are being converted
rapidly into cash and the quality of company’s portfolio of debtor is
good.
Debt – equity ratio -Average ratio of industry is 0.97.Surya roshini is

showing highest ratio i.e. 2.27.which shows that company is having
higher risk and has borrowed more from creditors than shareholders.
Current ratio -All companies are performing well. All companies have enough
liquid assets to meet current liabilities.
Company / Year Aggregate M U S C OShah AlloysSunflag IronSurya RoshniUsha M
40
200503 200503 200503 200503 200503
Key Ratios
Current Ratio 1.10 1.28 1.24 1.87 1.23 1.13
Turnover Ratios
Fixed Assets 1.34 2.93 5.99 1.70 2.10 0.95
Inventory 8.39 6.92 9.44 8.27 7.41 4.89
Debtors 13.56 6.45 18.16 18.07 11.83 5.83
Asset turnover ratio- In 2005 aggregate fixed turnover is 1.34 which is

lesser than all other companies. It means these companies utilizing their
assets efficiently. Shah alloys has highest turnover ratio.

8.39 that is lesser than only Shah alloys. All other companies are below
average and Shah alloys has highest turnover among all these
companies. It means that it is converting its inventory into sales very
frequently.
is 13.56that is greater than all company’s average except Shah alloy Sun
flag iron s. In 2005 Shah alloys steel has highest turnover ratio which
means it is realizing cash frequently from its debtors and company has
good collection policy.
Debt – equity ratio -Average ratio of industry is 1.50. Surya Roshini is

showing higher ratio i.e. 2.40 and which shows this company is having
41
higher risk and has borrowed more from creditors than shareholders.
Sun flag iron has lowest ratio that is good for company.
Current ratio – Average ratio of the industry is 1.20. All companies are
performing well and have sufficient current assets to meet current
obligation.
Shah Sunflag Surya Usha

MUSCO
Company / Year Aggregate Alloys Iron Roshni Martin
200403
200403 200403 200403 200403
Key Ratios
Long Term Debt-

2.48 0.69 1.10 0.64 1.58 1.70
Equity Ratio
Current Ratio 0.93 1.05 1.28 1.62 1.19 1.19
Turnover Ratios
Fixed Assets 0.98 2.05 5.18 1.00 1.70 0.67
Inventory 7.35 7.02 9.99 6.92 6.22 4.15
Debtors 10.36 6.26 11.00 9.15 9.85 4.80
lower than all other companies. It means these companies utilizing their
assets efficiently. But Shah alloys has highest ratio it means it is utilizing
its assts fullest.

7.35that is lesser than only Shah alloys. All other companies are below
average and it means shah alloys converting goods into sales at faster
rate.
42
is 10.36 that is greater than all company’s average except Shah alloys. In
2004 all companies are performing very well and realizing money at
faster rate.
Debt – equity ratio -Average ratio of industry is 2.92 .that itself shows
that industry is under huge pressure of debts in this scenario only
Sunflag was doing better because it is having ratio of 0.80 which shows
company has more shareholders money than creditor.
Current ratio -Average ratio of industry is 0.93.All companies are

performing well here and have sufficient current assets to meet current
obligation.
43
5 Qualitative Analysis
5.1 Understanding the Steel industry using Michael
Porter’s Five Forces Model
Backed by robust volumes as well as realizations, steel Industry has
registered a phenomenal growth across the world over the past few
years. The situation in the domestic industry was no exception. In fact, it
enjoyed a double digit growth rate backed by a robust growing economy.
However, the current liquidity crisis seems to have created medium term
hiccups. In this article, we have analyzed the domestic steel sector
through Michael Porter’s five force model so as to understand the
competitiveness of the sector.
Entry barriers: High
44
 Capital Requirement: Steel industry is a capital intensive business.
It is estimated that to set up 1 mtpa capacity of integrated steel
plant, it requires between Rs 25 bn to Rs 30 bn depending upon
the location of the plant and technology used.
 Economies of scale: As far as the sector forces go, scale of
operation does matter. Benefits of economies of scale are derived
in the form of lower costs, R& D expenses and better bargaining
power while sourcing raw materials. It may be noted that those
steel companies, which are integrated, have their own mines for
key raw materials such as iron ore and coal and this protects them
for the potential threat for new entrants to a significant extent.
 Government Policy: The government has a favorable policy for
steel manufacturers. However, there are certain discrepancies
involved in allocation of iron ore mines and land acquisitions.
Furthermore, the regulatory clearances and other issues are some
of the major problems for the new entrants.
 Product differentiation: Steel has very low barriers in terms of
product differentiation as it doesn’t fall into the luxury or specialty
goods and thus does not have any substantial price difference.
However, certain companies like Tata Steel still enjoy a premium
for their products because of its quality and its brand value
created more than 100 years back. Bargaining power of buyers:
Unlike the FMCG or retail sectors, the buyers have a low
bargaining power. However, the government may curb or put a
ceiling on prices if it feels the need to do so. The steel companies
either sell the steel directly to the user industries or through their
own distribution networks. Some companies also do exports.
Competition: High
45
 The steel industry is truly global in terms of competition with
large producing countries like China significantly influencing global
prices through aggressive exports.
 Steel, being a commodity it is, branding is not common and there
is little differentiation between competing products.
 It is medium in the domestic steel industry as demand still
exceeds the supply. India is a net importer of steel. However, a
threat from dumping of cheaper products does exist.
Bargaining power of suppliers: High
 The bargaining power of suppliers is low for the fully integrated

steel plants as they have their own mines of key raw material like
iron ore coal for example Tata Steel. However, those who are non-
integrated or semi integrated has to depend on suppliers. An
example could be SAIL, which imports coking coal.
 Globally, the Top three mining giants BHP Billiton, CVRD and Rio
Tinto supply nearly two-thirds of the processed iron ore to steel
mills and command very high bargaining power. In India too,
NMDC is a major supplier to standalone and non–integrated steel
mills.
Threat of substitutes: Low
 Plastics and composites pose a threat to Indian steel in one of its
biggest markets — automotive manufacture. For the automobile

industry, the other material at present with the potential to upstage
steel is aluminium. However, at present the high cost of electricity
for extraction and purification of aluminium in India weighs against
viable use of aluminium for the automobile industry. Steel has
already been replaced in some large volume applications: railway
sleepers (RCC sleepers), large diameter water pipes (RCC pipes),
46
small diameter pipes (PVC pipes), and domestic water tanks (PVC
tanks). The substitution is more prevalent in the manufacture of
automobiles and consumer durables.
Bargaining power of Consumers: Mixed
Some of the major steel consumption sectors like automobiles, oil & gas,
shipping, consumer durables and power generation enjoy high
bargaining power and get favorable deals. However, small and retail
consumers who are scattered and consume a significant part do not
enjoy these benefits.
5.2 The SWOT Analysis
Strengths Weakness
 Availability of iron ore  Endemic Deficiencies
 Availability of labor at low wage rates
 Systemic Deficiencies
 High Cost of Capital
 Low Labor Productivity
 High Cost of Basic Inputs and Services
Opportunities Threats
 Unexplored rural market  Slow Industry Growth
 Other sectors  Technological Change
 Export penetration  Price Sensitivity and Demand
Volatility
Strengths
Availability of iron ore
47
India has rich mineral resources. It has abundance of iron ore, coal and
many other raw materials required for iron and steel making. It has the
fourth largest iron ore reserves (10.3 billion tonnes) after Russia, Brazil,
and Australia. Therefore, many raw materials are available at
comparatively lower costs.
Availability of labor at low wage rates
India has the third largest pool of technical manpower, next to United
States and the erstwhile USSR, capable of understanding and
assimilating new technologies. Considering quality of workforce, Indian
steel industry has low unit labor cost, commensurate with skill. This gets
reflected in the lower production cost of steel in India compared to
many advanced countries. With such strength of resources, along with
vast domestic untapped market, Indian steel industry has the potential
to face challenges successfully.
Weaknesses
Endemic Deficiencies
These are inherent in the quality and availability of some of the essential
raw materials available in India, e.g., high ash content of indigenous
coking coal adversely affecting the productive efficiency of iron-making
and is generally imported. Advantages of high Fe content of indigenous
ore are often neutralized by high basicity index. Besides, certain key
ingredients of steel making, e.g., nickel, ferro-molybdenum is also
unavailable indigenously.
Systemic Deficiencies
However, most of the weaknesses of the Indian steel industry can be

classified as systemic deficiencies. Some of these are described here.
48
High Cost of Capital
Steel is a capital intensive industry; steel companies in India are charged

an interest rate of around 14% on capital as compared to 2.4% in Japan
and 6.4% in USA.
Low Labor Productivity
In India the advantage of low cost labor gets offset by low labor
productivity; e.g., at comparable capacities labor productivity of SAIL
and TISCO is 75 t/man year and 100 t/man year, for POSCO, Korea and
NIPPON, Japan the values are 1345 t/man year and 980 t/man year.
High Cost of Basic Inputs and Services
High administered price of essential inputs like electricity puts Indian

steel industry at a disadvantage; about 45% of the input costs can be
attributed to the administered costs of coal, fuel and electricity, e.g., cost
of electricity is 3 cents in the USA as compared to 10 cents in India; and
freight cost from Jamshedpur to Mumbai is $50/tonne compared to only
$34 from Rotterdam to Mumbai. Added to this are poor quality and ever
increasing prices of coking and non-coking coal.
Other systemic deficiencies include:
 Poor quality of basic infrastructure like road, port etc.

 Lack of expenditure in research and development.
 Delay in absorption in technology by existing units.
 Low quality of steel and steel products.
 Lack of facilities to produce various shapes and qualities of finished
steel on-demand such as steel for automobile sector, parallel flange
light weight beams, coated sheets etc.
 Limited access of domestic producers to good quality iron ores which
are normally earmarked for exports, and High level taxation.
Besides these, Indian steel makers also lack in international
competitiveness on determinants like product quality, product design,
49
on-time delivery, post sales service, Performance index (1997-2001):
Movement of share prices, distribution network, managerial initiatives,
research and development, information technology and labor
productivity etc. The weaknesses gets reflected in India’s poor standing
in the global competitiveness as measured in terms of indicated
parameters.
Opportunities
The biggest opportunity before Indian steel sector is that there is

enormous scope for increasing consumption of steel in almost all sectors
in India. There is untapped potential of increasing steel consumption in
India; eg, even to reach the comparable developing and lately developed
economies like China and European nations, a quantum jump in steel
consumption will be required.
Unexplored Rural Market
The Indian rural sector remains fairly unexposed to the multi-faceted use
of steel. The rural market was identified as a potential area of significant
steel consumption way back in the year 1976 itself. However, forceful
steps were not taken to penetrate this segment. Enhancing applications
in rural areas assumes a much greater significance now for increasing
per capital consumption of steel. The usage of steel in cost effective
manner is possible in the area of housing, fencing, structures and other
possible applications where steel can substitute other materials which
not only could bring about advantages to users but is also desirable for
conservation of forest resources.
Other Sectors
Excellent potential exists for enhancing steel consumption in other

sectors such as automobiles, packaging, engineering industries, irrigation
50
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. Main objective
here have to be improvement of quality for value addition in use,
requirement of less material by reducing the weight and thickness and
finally reduction in overall cost for the end user.
Latest technology must be adopted by Indian steel manufacturers for

production of superior quality of steel for these applications. For
example, pre-coated sheets can be used in manufacture of appliances,
furnishings, electric goods and public transport vehicles. Production and
supply of superior grades of steel in desired shapes and sizes will
definitely increase the steel consumption as this will reduce fabrication
need; thereby reduce cost of using steel.
Export Market Penetration
It is estimated that world steel consumption will double in next 25 years.

This poses as a huge opportunity to the steel industry.
Threats
Slow Industry Growth
The linkage between the economic growth of a country and the growth
of its steel industry is strong. The Indian steel industry is no exception.
The growth of the domestic steel industry between 1970 and 1990 was
similar to the growth of the economy, which as a whole was sluggish.
This sluggish growth in the steel industry has resulted in enhanced
rivalry among existing firms. As the industry is not growing the only
other way to grow is by increasing one’s market share.
51
Consequently, the Indian steel industry has witnessed spurts of price
wars and heavy trade discounts, which has done Indian steel industry no
good as a whole.
Technological Change
Technological changes often force the industry structure to change. For a

developing country like India where capital itself is costly, technological
obsolescence is a major threat.
Price Sensitivity and Demand Volatility
The demand for steel is a derived demand and the purchase quantity
depends on the end-user requirements. The traders tend to exhibit price
sensitivity and buy when there are discounts. This volatility of demand
often affects the integrated steel manufacturers because of their
inability to tune their production in line with the market demand
fluctuations.
Some other threats are:
 Ever decreasing import duty on steel.

 Dumping of steel by developed countries.
 High quality products from developed countries available for
import at very competitive prices.
 Non-availability of capital from financial institutions for iron and
steel sector.
52
5.3 Strategic Restructuring — A Comparative
Analysis
The effect of globalization on steel industries in different regions or
countries has not been uniform. Each region is unique in its own way in
terms of raw materials availability, technology adopted, market
conditions, trading policies, etc.
Consequently restructuring of steel industries in different regions have

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

Steel production targets set in the National Steel Policy by the Indian
Government recognize that success will depend on addressing a number
of impediments. While India ranks 116th of 155 countries in the World
Bank’s ease of doing business index, such a rating conceals major
differences between individual states within India and the extent of
53
government support at all levels to facilitate investment in the steel
sector. Further, many impediments to business present in the wider
economy will not be so significant in the special economic zones and
special economic and investment regions where a large proportion of
planned new steel capacity will be sited.
Infrastructure
The state of infrastructure in India is a significant consideration
for investors in the steel sector. A number of studies, including one
released by Morgan Stanley in 2005 (Ahya and Sheth 2005), concluded
that the low level of spending on infrastructure, compared with other
emerging economies, is the major macroeconomic constraint on the
Indian economy. Morgan Stanley note that China spent 10.6 per cent of
gross domestic product, equal to US$150 billion, on infrastructure in
2003 compared with India’s 3.5 per cent or US$21 billion. Notably, India,
in contrast to China, has low rates of domestic savings, which is a factor
in limiting capital formation and domestic investment.
For new steel projects, infrastructure costs can be significant, as in the
case of Posco’s steel plant development in Orissa. Infrastructure
development requires the transport of raw materials for steel
production. Every tonne of steel produced requires 4 tonnes of raw
material to be transported. Hence, achieving the goal of 75 million
tonnes of additional capacity by 2019-20 will require the movement of
an additional 300 million tonnes of raw material. On this basis, the
Indian Government estimates that rail and road capacity will need to
approximately triple and port capacity double by 2019-20 to meet
demand for steel and raw material movements (Government of India
2005).
An analysis by McKinsey Quarterly (Bhargava, Gupta and Khan 2005)
showed that Australia, Brazil and South Africa can deliver iron ore to
54
China at a lower price than India, with Australia’s fob delivery price less
than half of India’s price. A major factor in India’s competitive
disadvantage is high transport costs stemming from a lack of
infrastructure, but mining costs are also high. However, this is somewhat
offset by the closeness of India’s raw materials to its ports and
steelworks relative to other steel producing countries (De Bassompierre
and Arendse 2006) .
The major investments required in infrastructure are expected to be a
significant driver of steel consumption in the domestic market as
infrastructure and construction combined account for 80% of India’s
steel consumption (Gokarn, Sen and Vaidya 2004). Additional
infrastructure will also provide indirect benefits to other sectors in the
economy.
Roads
The capacity and quality of Indian roads are also a constraint to
economic development, with highways making up 2 per cent of roads
but accounting for 40 per cent of freight movement in 2004. In addition,
some 50 per cent of India’s 600 000 villages are unconnected by all-
weather roads (OECD 2006c; Economist Intelligence Unit 2005a).
Freight movements are further delayed by onerous transport
regulations, which include restrictions in the hours of the day that heavy
vehicles can operate, interstate border crossing closures and lengthy
trans-border crossing procedures, frequent tolls and inspections, and
road closures at night due to the risk of attacks by insurgents or bandits.
In an effort to improve transport efficiency the government has
announced a road building program known as the National Highways
Development Project (Government of India 2002). Stage one is nearing
completion and involves the construction of a highway, called the
Golden Quadrilateral, connecting Delhi, Mumbai, Kolkata and Chennai at
a cost of US$12 billion. This is part of a wider plan to improve roads
55
nationwide at a cost of over US$30 billion shared between government
and the private sector (Puliyenthuruthel 2005).
Rail
The government owned and operated rail network is the third
largest in the world after the Russian Federation and China and the
biggest in the world in terms of passenger kilometres. However, cross
subsidisation of passenger transport by freight transport has meant that
steel freight and freight in general has moved away from rail to roads: 35
per cent of processed or final steel products were transported by rail in
2001-02, down from 72% in 1991-92 (OECD 2006c; Economist
Intelligence Unit 2005a). The government has signalled its intention to
improve the freight performance of the railways in its current five year
plan, although the passenger cross subsidisation policy — which is
aimed at assisting the poor — is likely to remain.
Shipping
The efficiency of Indian ports is affected by shallow draught, low
productivity, high costs, long vessel turnaround times, poor governance,
and lengthy customs delays. Shipping costs are consequently high — a
shipment from India to the United States can cost 20 per cent more than
from Thailand and 35 per cent more than from China (OECD 2006c;
Economist Intelligence Unit 2005a).
Expanding India’s steel sector depends on lower port costs for handling
key inputs such as coking coal which is predominantly imported, as well
as servicing potential steel exports as envisaged under the National Steel
Policy. The Indian Government has in place several initiatives to
encourage private sector participation in ports, while recognising that
modernisation of Indian ports is a long term project.
Some steel operations are, however, of sufficient size to overcome these
impediments by investing in their own facilities. An example is Posco’s
56
plant in Orissa, which will include a US$200 million new world class port
at Jagadhari with berths up to 250 000 tonnes.
Power Generation
The electricity supply system is characterised by frequent
outages and high voltage fluctuations despite half of all households not
being connected to the grid. Average electricity consumption per person
is 526 kilowatt hours a year, which compares with 1247 kilowatt hours in
China (OECD 2006; Economist Intelligence Unit 2005).
The Ministry of Steel estimates that achieving the goals set out in its
2019-20 Steel Policy will require an additional 7000 megawatts of
generation capacity. This compares to a nationwide capacity of 131 400
megawatts in 2003-04 and an overall target of an additional 100 000
megawatts of capacity within seven years so that all households can be
connected to the grid.
However, the government has limited funds for the construction of
power capacity and there are a number of risks for potential investors
where political considerations have constrained reform. These include
cross subsidisation by industry users of some consumer classes whose
payments do not meet costs, as well as over 25 per cent of power being
stolen or lost in distribution. These factors combine to limit overall
electricity tariffs to 75 per cent of supply costs, which are estimated at
twice those of the United States, and 60 per cent greater than in the
Republic of Korea and Thailand (Economist Intelligence Unit2005b).
The mismatch between costs and tariffs has bankrupted many of the
government controlled state electricity boards and consequently
restricted their ability to add capacity.
A case in point is the defaulting on payment by the state electricity
board that emerged in the case of the US$2.9 billion Dabhol power
plant, which was India’s largest ever foreign direct investment project.
57
While the Indian Government has sought to reform the electricity
market for some time and recently offered to guarantee over 5 billion
US$ of the state electricity boards’ debts, investor perceptions are that if
payment is not assured, these efforts are likely to meet with limited
success and capacity will continue to be constrained. However, to the
extent that capacity is added, it will be a significant driver of steel
demand as machinery and equipment accounts for 13% of total demand
for steel in India.
6 Current Global Scenario

1. Subprime crisis
2. US slow down
3. US dollar weakening
4. Fed rate cut by 50 basic points
Impact
1. Widening credit spreads
2. Increase in capital cash
3. Liquidity crunch-Central bank intervention
4. Equity market initials retreat
5. Bounce back on FED rate cut-Huge volatility
6.1 Current crisis in Iron and Steel Industry
Worsening US economic crisis has led to global steel companies pruning

their capacity thereby, lower forecast of iron ore consumption this year.
This is evident from the latest data collated by the Federation of Indian
Minerals Industries (FIMI) which states that iron ore exports from India
58
till December 15, 2008 declined over 13% despite huge price decline in
steelmaking raw materials. According to Labour Department, the US job
losses last year were the most since 1945. Additionally, the federal
budget deficit is expected to hit $1.18 trillion this year as the
government spends billions on industry bailouts and tax cuts.
Consequently, the US government has pledged more than $8.5 trillion as
of November 25 for the bailout package to companies and help the
country recover from an economic recession. The recently elected
president Barack Obama has also favoured an additional stimulus
package of at least $775 billion.
Low Iron Ore Exports from India
The latest FIMI data indicates iron ore exports plunged to 55.8 million
tons between April 1 - December 15 of the current fiscal as compared to
64.38 million tons in the corresponding period last year. Shipment,
however, witnessed a marginal decline of 3.81% to 5 million tons during
the first fortnight of December from 5.2 million tons in the same period
last year (2008).
Source: SteelWorld
59
Total shipment from Mormugao port in Goa during the first fortnight of
December showed a drastic decline of over 27.18% to 20.84 million tons
as against 28.62 million tons in the same period last year. Goan
exporters ship mainly Karnataka- and Goa-origin low grade iron ore to
Chinese steel mills, said Glenn Kalavampara, Secretary of Goa Mineral
Ore Exporters' Association (GMOEA). Haresh Melwani, CEO, H L
Nathurmal & Co, one of the leading iron ore miners and exporters from
Goa attributed the decline in exports to three major factors namely:
frequent changes in exports levy on fines and lumps (the two grades of
iron ore below and above 64 percent of iron content respectively),
slowdown in Chinese demand and buyers lenience towards Australia and
Brazil because of favourable government policy. He also forecast about
25 percent decline of exports of state-origin iron ore from Goa to the
tune of 20 million tons this financial year from 26 million tons last year.
Similarly, both Karnataka- and Goa-origin iron ore exports may also fall
to the level of 30 million tons as compared to 40 million tons last
financial year, Melwani added.
Crude Steel Production Down and Domestic Steel

Companies Margin under Pressure
The margins of steel producers will be under severe pressure in the

second half of 2009 due to high cost of coking coal (US$300-350 per
ton). Coking coal prices too are likely to correct sharply in 2009 due to
sharp drop in steel production. Currently, capacity utilization of Ispat
Industries is 30%, JSW Steel and Essar Steel is 60-70% each, and Bhushan
Steel is 50 percent. SAIL and Tata steel have not announced production
cuts but they have brought forward repairs. Tata Steel's November
production of 570,000 tons was the highest ever despite three of its
smaller blast furnaces under relining. Though JSW Steel announced
production cut of 20%, actual production rates have been worse in
November 2008.
60
7 Suggestions
The following suggestions are given to rejuvenate the Indian steel
industry:
 Technology policy is to be so designed by the government that it

will generate the thrust to update the technology by the steel
producers.
 Further liberalization towards tariff structure, full convertibility of

Indian currency, more equity participation by foreign partners,
rationalization of tax structure etc. will be required.
 Steel companies must assess their core competency and realign

their strategy to cope with the internal and global competition.
 R&D focus is to be increased substantially. Expenditure on R&D

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

technologies. Effective human resource policy will help speedier
technology adoption. Socio-economic aspects should be
dovetailed while selecting a technology.
 Training and re-training with updated inputs should be a

continuous process in steel plants. Training programmers should
be designed for people from different hierarchy including top
level management.
 As economy is becoming more and more market-driven, steel

sector should also tune to it.
61
 Technology transfer plans are to be worked out more carefully.
Indian firms must select appropriate technology with proper
scope of adoption.
 Firms must do technological forecasting, which is not common in

Indian steel industry, to take better decisions on product mix and
investment proposals.
 Resource utilization must be more effective to improve on the

productivity.
8 Future Outlook
The Role of Iron and Steel Industry in India GDP is very important for the
development of the country. In India the visionary Shri Jamshedji Tata
set up the first Iron and Steel manufacturing unit called Tata Iron and
Steel Company, at Jamshedpur in Jharkhand. Iron and steel are among
the most important components required for the infrastructure
development in the country.
The sponge iron has of late come up as a major input material for steel
making through electric furnace route – both Electric Arc Furnace and
Induction Furnace. Due to long gestation period, huge investments,
dependence for coke on foreign suppliers, the steel industry is slowly
diverting itself from blast furnace route to electric furnace route and the
requirement of Sponge Iron is increasing very fast. Another major reason
is the global shortage of scrap. The steel making furnaces in the eastern
region use average 70% Sponge Iron in the feed material for steel
making.
The future for the Sponge Iron is therefore quite bright. The steel is
today considered as the backbone of India economy. The growth of
62
economy has a direct relation with the demand of steel. With the
present steel intensity index, considering the GDP projection by the
Government of India, growth of steel demand will be around 11%
annually.
As per the National Steel Policy issued by the Ministry of Steel – India
will produce 110 million tons of steel by 2020. The requirement of
Sponge Iron as metallic will be 30 million tons.
Projection for metallic requirement:
Year Route Melting Scrap DRI

2010-11 Electric 14 million 18 million Furnace Route
But availability of scrap is not likely to reach 11 million.
 It is expected that India would become the second biggest producer

of steel within the year 2016 and the production per year would be
137 million tonnes
 Today India produce 13.9 million tons of sponge iron, out of which 4.2
million ton is gas based and remaining 9.7 million ton is coal based.
 India has a proven reserve of 410 million ton of high grade iron ore,
another 440 million ton of high grade iron ore which will be
established. India has total 9992 million ton of iron ore reserves (as
per IBM report of 1995).
 India has sufficient non-coking coal through of high ash low fixed
carbon grade. Coal is used as a reducing for sponge iron making in the
furnace.
 The availability of scrap of required quantum is unlikely and therefore
scraps needs to be replaced more and more by DRI.
63
Projects in near future:
 The Arcelor Mittal, which is the largest steelmaker in the world,
has plans of establishing two Greenfield steel projects with
capacity of 12 million tonnes annually, in India
 Acerinox SA, one of the important stainless steel manufacturers
in collaboration with Nisshin Steel, Japan is setting up a steel
plant in India
 The Tata Steel ranks 5th in the world steel production and the
company have plans of expanding its capacity by the year 2015
 SAIL, India's biggest producer of steel has plans of increasing the
production to 24.98 million tonnes annually
 Sinosteel Corp, China are planning to invest US$ 4 billion to set
up a 5 million tonnes capacity Greenfield steel plant
 The acquisition of the Corus, the Anglo-Dutch steel manufacturer
by the Tata Steel
 The Algoma Steel, Canada was acquired by Essar Global for US$
1.63 billion
9 Business Innovation: Steel Retailing
64
Steel has always been a part of our lives. Be it steel utensils, the
razor blade we use every morning while shaving or the re-bars that
support our homes. Omnipresent, the everyday metal surfaces almost
everywhere, lends its hand in almost every activity we do. But buying
steel has not been a very pleasant experience for most of us. One must
have also skipped, jumped and hopped from one store to another for
nuts, hinges and home utensils.
Realising this, Tata Steel decided to foray into organised steel retailing.
This initiative is testimony to the organisation’s undying spirit for
experimentation and to break new ground. To catalyse steel
consumption in emerging mass markets of India and to build
downstream retailing excitement for steel as a category, Tata Steel
spearheaded the company’s entry into pure play retailing for steel
products with its first pilot store ‘steeljunction’ in Kolkata. This is India’s
first organised steel retail store. Tata Steel hopes that ‘steeljunction’
would be a platform that would bring together vendors & manufacturers
to understand consumer buying behaviour for steel and innovate and
develop newer products & services that add value to the end customer
and makes steel buying pleasurable.
Innovations in the market place the CVM (Customer Value

Management), Retail Value Management, Steel Junction have presented
TATA Steel to the customers in a much better manner. And that’s why
they continue to pay a very good premium in the retail market for
everything that you sell, because of the brands that Tata has established.
9.1 Vision ‘steel junction’
To create a unique retail experience that displays the versatility of steel

- from its functionality to its aesthetics.
65
To build a specialty chain of stores that will bring innovation to steel
products and make steel buying pleasurable.
9.2 Lessons from Nucor Steel
Nucor Steel: “Recycled Steel: An environmental success”

Nucor Corp. (NYSE:NUE) is a steel producer that relies on scrap steel for
production rather than iron ore; this makes it the largest recycler in the
nation. As opposed to traditional large mills, Nucor runs mostly mini-
mills that utilize modern steel making techniques and require fewer
employees compared to fully-integrated competitors such as US Steel.
Still, the company employs nearly 12,000 workers, all of whom are
independent of unions. Production totalled 22.4 million tons in 2006, a
10% increase from 2005, with production capacity exceeding 25 million.
Nucor achieved record sales and net earnings in 2006 for the third
consecutive year, and has managed to maintain profitability every
quarter of every year since 1966. Hence it is rightly said “Converting
Scrap into Steel.”
66
Advantages:
Managing and Minimizing Waste
Integrated steel makers use primarily iron ore in the production process,
whereas mini-mills use primarily steel scrap. Producing from steel scrap
is a simpler and significantly less energy-intensive process than
producing from iron ore, but because steel scrap is recycled, there is
concern of impurities thus decreasing the accessible market for
producers. The primary source for steel scrap is obsolete automobiles,
but steel scrap also comes from the recycling of steel cans, appliances,
and other construction materials. They also do the Beneficial Reuse of
Slag.
Increasing Energy Efficiency
The iron and steel industry, which relies heavily on coal and natural gas
for fuel, is one of the largest energy consumers in the manufacturing
sector. The company reported achieving a 17% reduction in energy
intensity per ton of steel shipped since 1990. Because of the close
relationship between energy use and GHG emissions, the industry’s
aggregate CO2 emissions per ton of steel shipped were reduced by a
comparable amount during this same period. As part of their Climate
VISION commitment, the industry has committed to increasing its energy
efficiency by 10% by 2012 (from 2002 levels).
Reducing Air Emissions
To help achieve this goal, the industry is researching alternative means

of production at integrated mills that would not generate CO 2, seeking to
reduce or capture GHG emissions from current production methods, and
exploring ways to increase energy efficiency. They employ methods to
67
reduce Hazardous Air Pollutant Emissions and Greenhouse Gas
Emissions.
10 Identifying Key Success Factors
WHAT DO CUSTOMERS HOW DO FIRMS SURVIVE KEY SUCCESS

WANT? COMPETITION?
FACTORS
(Analysis of demand) (Analysis of competition)
 Low price.  Commodity products,  Conventional sources of

excess capacity, high cost efficiency include:
 Product consistency.
fixed costs, excess large-scale plants, low-
 Reliability of supply. capacity, exit barriers, cost location, and rapid
and substitute adjustment of capacity
 Specific technical
competition mean to output.
specifications for special
intense price
steels.  Alternatively, high
competition and cyclical
technology, small scale
profitability.
plants can achieve low
 Cost efficiency and costs through flexibility
strong financial and high productivity.
resources essential.
 Differentiation through
technical specifications
and service quality.
68
11 Conclusion
It is universally accepted that Indian economy is growing at a very high
rate presently and the demand for steel is also showing an upward
trend. We believe, for the sake of country and growth of economy,
growth of sponge iron industry is a must. This is possible only with the
active support of the Government. Efforts to make this sector more eco-
friendly will meet success only if competent authorities take up the
developmental jobs in proper spirit.
12 References
1. Annual Report (2007-2008) Of Ministry Of Steel
2. Analysis from CRISIL
3. Commitment: The Dynamic of Strategy - Pankaj Ghemawat (New

York: Free Press, 1991)
4. Dealing With Trade Distortions In Trade Industry- Veena Jha,

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

Narayanaswamy
6. Iron and Steel Review (1998)
7. Online magazine – Metal Bulletin
8. World Class Steel – G. Mukherjee, IMI
9. www.Capitaline.com
10. www.MySteel.com
11. www.sail.com
12. www.SteelWorld.com
69
13. www.steel.nic.in
14. www.worldsteel.org
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Analysis of Indian Iron and

1.1 Varieties of Steel

1.2 Production Technology

Below mentioned are few methods of producing steel:

1.3 Components of the cost of production

Interest payments - Steel is a capital-intensive industry and as such many companies

2 The Global Steel Industry

3 The Structure of Indian Steel Industry

3.1 Factors that attribute to the Revival of the Indian Steel

Long Contracts/Marketing Alliance

Increased infrastructure spending by the Government of India and development of roads

 Licensing requirement for capacity creation has been abolished.

Cost Competitiveness of Indian Steel Industry

 Interarch Building Products Private, (the largest player in pre-engineered steel

TOP FIVE COMPANIES 5. Ispat Industries Ltd

1. Steel Authority of India BOTTOM FIVE COMPANIES

Company Ltd Industry

3.2.1 Top Five Companies

1. Steel Authority of India Ltd

The Ministry of Steel and Mines drafted a policy statement to

Steel Authority of India Limited (SAIL) is the leading steel-making

SAIL International Ltd was incorporated to coordinate the export

The Company bagged, 'Business world-FICCI-SEDF Corporate

The company's Corporate Plan, 2012 (CP12) was formulated in

2. Tata Steel Ltd

Tata Steel is the world's 6th largest steel company. It is a Asia's

Golden Jubilee of the company was celebrated in the year 1958

The company received the Award for Best-Integrated Steel Plant

As on January 2008, Tata Steel Limited and the members of the

3. JSW Steel Ltd

India's second largest private sector steel maker JSW Steel

CII-EXIM Bank Award was handed over to the company,

National Sustainability Award was conferred to the company in

4. Essar Steel Ltd

Promoted by the Bombay-based Essar group controlled by the

The company has increased its installed capacity of Hot Briquette

5. Ispat Industries Ltd

Ispat Industries Limited (IIL) is one of the leading integrated steel

The Company aims to consolidate its market leadership in the

3.2.2 Bottom Five Companies

Sunflag Iron and Steel Company ltd is a prestigious unit of Sunflag

The company has set up a state of art integrated plant at

The plant comprises a 1,50,000 tonnes per annum Direct

The company came out with a rights issue in Feb 92 to part-

2. Shah Alloys Ltd

Incorporated in Nov.'90, Shah Alloys went public in 1992. It was

The company came out with a public issue in Dec.'92 to part-

During 1998-99, the Company implemented the project of

During 2001-02 Shah Steel & Industrial Gases Limited was

3. Mahindra Ugine Steel Company Ltd

Incorporated in Dec.'62, Mahindra Ugine Steel (MUSCO)

The company manufactures tool, alloy and special steels. It has

The company came out with a convertible debenture offer in

The company issued 4,00,000-12% Cumulative Redeemable

4. Surya Roshni Ltd

Formerly known as Prakash Tubes, Surya Roshni has two divisions

The company recently completed a project to manufacture

5. Usha Martin Ltd

Incorporated in 1986, Usha Beltron was jointly promoted by Usha

The manufacturing operation of the company cover Ranchi,

Among the other industrial interest managed by the promoters

The company entered into financial tie-up with IFC,Washington

4.1 Ratio Analysis