PIONEER

Diligence & Excellence

Since 1996

A
SWOT Analysis Report
on

“ESSAR STEEL LTD.”

Guided By : Submitted by :
Prof. Nhit Jaiswal Sushil Kumar Tiwari
MBA III Sem
Section-R
(Production + Marketing)

PHASE: 1
1. BUSINESS AND COMPANY

ESSAR STEEL

The Essar Group is a multinational conglomerate corporation in the sectors of Steel, Energy,
Power, Communications, Shipping Ports & Logistics as well as Construction headquartered at
Mumbai, India. The Group's annual revenues were over USD 15 billion in FY08-09.Essar began
as a construction company in 1969 and diversified into manufacturing, services and retail. Essar
is managed by Shri. Shashi Ruia, Chairman – Essar Group and Shri. Ravi Ruia, Vice Chairman
Essar Group.

Essar Steel is the largest steel producer in western India with a capacity of 10 MTPA at Hazira,
Gujarat. The Essar Steel complex at Hazira in Gujarat, India has a complete infrastructure setup,
including a captive port, lime plant and oxygen plant. The company is building a 1.5 MTPA plate
mill and a 0.6 MTPA pipe mill in Hazira.

The Indian operations also include an 8 MTPA beneficiation plant at Bailadila, Chhattisgarh, an 8
MTPA pellet complex at Visakhapatnam, a 5.5 MTPA hot briquetted iron plant in Hazira and a
1.4 MTPA cold rolling complex. Additionally, Essar is setting up a 12 MTPA pellet plant in
Paradip, Orissa.

Essar Steel is a global steel company with strong presence in intensive steel consuming markets
in Asia and North America. It is India's largest exporter of flat steel with 14 MTPA (million tons
per annum) of capacity. Essar Steel is fully integrated from mining to retail and has strong
downstream capability with a global retail capacity of over 3 MTPA.

2. PROMOTER

The Essar group was founded by the Ruia family which has been in business and trading since
the 1800s when the family first moved to Bombay from Rajasthan. In 1956, Nand Kishore Ruia,
the group founder, moved south to Madras to begin independent business activities. In 1969,
following the demise of Nand Kishore Ruia, his sons Shashi and Ravi Ruia took over the group.

3. VISSION AND MISSION

VISSION

We will be a respected global entrepreneur, through the power of positive action.

MISSION

We are committed to innovative growth, through our personal passion, reinforced by a

professional mindset, creating value for all those we touch.

4. PRODUCT MIX / LINE

 • Iron Ore Pellet
• Hot Briquette Iron
• Hot Rolled Coil/Sheet Cold Rolled Coil

5. ALLIANCES
• Japan's Kobe Steel

6. MERGERS
• Essar Steel Hazira Ltd,
• Essar Steel Orissa Ltd,
• Hazira Plate Ltd
• Hazira Pipe Mill Ltd

7. JOINT VENTURE
The company, through is Singapore subsidiary Essar Steel Vietnam Holdings Pvt Ltd
(ESVHL), has signed a joint venture agreement with Vietnam Steel Corporation (VSC) and
Vietnam General Rubber Corporation (GERUCO) to set up the plant in Phu My Industrial
Zone in southern Vietnam.

8. TAKEOVER

• Algoma Steel Inc. by Essar Steel Holdings Ltd in $1.85-billion.

• Essar Steel Minnesota USA
• PT Essar Indonesia
• UK's Stemcor-owned Hy-Grade Pellets Ltd (HGPL) and Steel Corporation of Gujarat Ltd
at a cost of Rs 19.50 billion
• .Servosteel (Oakside Solutions Ltd), the largest independent steel processor in the UK.
• Shree Precoated Steels Ltd, a 1.2mt downstream steel rolling and galvanizing plant for
Rs900 crore.
• Vikram Ispat Ltd, the sponge iron unit of Aditya Birla group, for Rs1,030 crore.
• Essar Steel International BV, a subsidiary of Essar Steel Holdings Limited announced
that it has acquired Servosteel (Oakside Solutions Ltd), the largest independent steel
processor in the UK.
9. TOP MANAGEMENT

Board of directors

Mr Shashi Ruia — Chairman

Mr Prashant Ruia — Director
Mr Rewant Ruia — Director
Mr SV Venkatesan — Director
Mr J Mehra — Director
Mr VG Raghavan — Director
Mr Malay Mukherjee — Director
Mr Vikram Amin — Director (Sales and Marketing)
Mr Mahadev Iyer — Director (Finance)
Mr Dilip Oommen — Wholetime Director
Mr KV Krishnamurthy — Director

Management team

Mr Malay Mukherjee — Chief Executive Officer, Steel Business Group

Mr Vikram Amin — Director, Sales & Marketing
Mr Alain Davezac — EVP, Strategy & Business Development
Mr Dilip Oommen — Chief Executive Officer, Essar Steel (India)
Mr Armando Plastino — Chief Executive Officer, Essar Steel Algoma
Mr V Madhusudan — President & CEO, Essar Steel Minnesota
Mr KB Trivedi — President Director & CEO, PT Essar Indonesia
Mr RK Zaroo — Director, Project Development
Mr MK Sampath — Chief Executive Officer, Pellet Projects (India)
Mr HS Sethi — Director, Projects (Orissa)
Mr Mahadev Iyer — Chief Financial Officer
Mr Kalyan Ghosh — Sr Vice President & Head, Supply Chain Management
Mr Anil Agarwal — Sr Vice President & Head, Procurement
Mr Suresh Tanwar — Vice President & Head, Health Safety & Environment
Mr Suneel Aradhye — Chief Information Officer

7. LOCATION OF MANUFACTURING UNITS

 • Bailadila, Chhattisgarh.
• Visakhapatnam.
• Paradip, Orissa.
• Hazira, Gujarat.
• Algoma Steel, Canada.
• Minnesota Steel, USA.
• Indonesia.
• Trinidad & Tobago.

Phase - II

Stakeholders
Holder's Name No of Shares % Share Holding
Promoters 325969383 28.60%
Foreign Promoter 666600784 58.48%
General Public 75967074 6.66%
Other Companies 35254527 3.09%
Foreign Institutions 23759291 2.08%
Financial Institutions 8160033 0.72%
Foreign NRI 2426201 0.21%
Banks Mutual Funds 1673595 0.15%

Goals
 • Improvement in physical property and chemistry in the quality of pellets at the
pelletisation plant.
• Cost reduction.
• Increase the operational efficiency and quality of products.

Objectives
• Energy savings at Steel Melt Shop.
• Development of Neural Network Model for Property Prediction of HP, coils. This will help in
reducing grade extra cost without affecting chemistry/physical properties of the product.

Financial Aspect of Company:

1. Operating margin (%)
Operating Margin = operating profit / sales
(Rs in crores)
Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
Operating
1,495.03 2,002.19 2,360.80 2,512.65
Profit 1,490.96
Sales 6,168.66 8,087.48 10,763.35 11,717.40 10,591.24
OPM(%) 24.23 24.75 21.93 21.44 14.07

Comment:
Operating margin is used to measure company's pricing strategy and operating efficiency. A
high or increasing operating margin is preferred because if the operating margin is increasing,
the company is earning more per rupees of sales. As Essar steel have the lowest operating
margin on year 2010.This means sales of the company is decreasing year by year and cost is
not under control.

2. Gross profit margin (%)

Gross Profit Margin = Gross profit / Net sales
(Rs in crores)
 Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
Gross Profit 1,600.44 1,955.25
Sales 6,168.66 8,087.48 10,763.35 11,717.40 10,591.24
GPM(%) 25.94 24.17

Comment:

3. Net profit margin (%)

Net Profit Margin = (Net Income+Minority Interest + Tax-Adjusted Interest)/ sales

(Rs in
crores)
Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
Net Profit /
530.18 436.49 428.62 185.20 22.45
Loss
Sales 6,168.66 8,087.48 10,763.35 11,717.40 10,591.24
NPM(%) 8.54 5.35 3.96 1.58 0.2

Comment :
Net Profit Margin compares the net income of a firm with total sales achieved. As the Essar
steel have a decreased Net profit margin year by year it tells us that the
marketing/administration costs of company is huge! However, this also tells us that operating
costs and cost of goods sold of company is relatively high.

4. EPS (Rs)
EPS = Profit After Tax / no. of shares
(Rs in crores)
Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
PAT 530.18 436.49 428.62 185.20 22.45
no. of
580700986 1139660574 1171092896 1143209877 3741666667
shares
EPS (in Rs.) 9.13 3.83 3.66 1.62 0.06

Comment:
 Earnings per share serve as an indicator of a company's profitability.
In order to make earnings comparisons more useful across companies, As Essar steel ltd.’s
EPS is reducing it means the earning available to equity share holders is reducing.

5. Return on net worth (%)

Return on Net worth = Net Profit / Average Shareholder Equity for Period

(Rs in crores)
Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10

Net Profit / Loss 530.18 436.49 428.62 185.20 22.45

Average Shareholder Equity for
Period

Return On Net Worth (%)

Comment:

6. Dividend payout ratio (net profit)

Dividend Payout Ratio= Yearly Dividend per share/ EPS
(Rs in crores)
Mar ' Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
06
Dividend Per 0.00 0.00 0.00 0.00 0.00
Share
EPS (Rs.) 9.13 3.83 3.66 1.62 0.06
Dividend payout 0.00 0.00 0.00 0.00 0.00
Ratio (Net Profit)

Comment:
The dividend payout ratio shows what percentage of a company's earnings it is paying out to
investors in the form of dividends. In each year the Essar steel didn’t paid of its earnings in
dividends.

7. PBDIT
PBDIT = Total Sales – Expenses (excluding depreciation, interest and tax)
(Rs in crores)
Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
Sales 6,168.66 8,087.48 10,763.35 11,717.40 10,591.24
expenses 4462.12 5985.69 8277.24 9787.28 8817.96
PBDIT 1,706.54 2,101.79 2,486.11 1,930.12 1,773.28
Comment:
The PBDIT is decreasing fro 2008 to 2010, this shows the decrease in the total sales of the Essar
steel.

8. Depreciation
(Rs in crores)
Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
Depreciatio
482.10 631.04 766.52 828.11 792.85
n

Comment:
A non cash expense that reduces the value of an asset as a result of wear and tear, age, or
obsolescence. The frequently increase in depreciation shows the reduction in the value of the
assets. It also shows that company is frequently buying the new assets. It is showing, Essar steel
ltd. has purchased assets during the year 06-07, 07-08, & 08-09 but in the year 09-10 company
didn’t purchase any asset.

9. PBIT
PBIT = PBDIT – Depreciation
(Rs in crores)
Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
PBDIT 1,706.54 2,101.79 2,486.11 1,930.12 1,773.28
Depreciation 482.10 631.04 766.52 828.11 792.85
PBIT 1224.44 1470.75 1719.59 1102.01 980.43

Comment:
The PBIT increased till the year Mar’08 this is because interest is increasing during that period
but it get reduced for the year Mar’09 & Mar’10 because of the decrease in the secured loans and
taxes.

10. PBT
PBT = PBIT – Interest
(Rs in crores)
Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
PBDIT 1,706.54 2,101.79 2,486.11 1,930.12 1,773.28
interest 440.01 772.04 890.01 861.63 908.40
PBT 1266.53 1329.75 1596.1 1068.49 864.88

Comment:
The PBT increased till the year Mar’08 this is because taxes is increasing during that period
but it get reduced for the year Mar’09 & Mar’10 because of the decrease in taxes paid.
11. PAT
PAT = PBT – Tax
(Rs in crores)
Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
PBT 1266.53 1329.75 1596.1 1068.49 864.88
Taxation 165.94 248.19 383.07 110.32 49.00
PAT 1100.59 1081.56 1243.03 958.17 815.88

Comment:
It is the net profit earned by the company after deducting all expenses like interest,
depreciation and tax. It can be fully retained by a company to be used in the business.

12. Net profit

Net Profit= Gross Profit- Indirect Expenses

(R
s in crores)
Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
Gross Profit 1,600.44 1,955.25
Indirect Exp. 1070.26 1518.76
Net Profit /
530.18 436.49 428.62 185.20 22.45
Loss

Comment :

Net profit is the money left over after paying all the expenses of an endeavor.

FINANCIAL Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09 Mar’10
ASPECTS
Operating 31.96 24.23 24.75 21.93 21.44
margin (%)
Gross profit
25.94 24.17
margin (%)
Net profit
margin (%) 8.54 5.35 3.96 1.58 0.2

EPS (Rs) 9.13 3.83 3.66 1.62 0.06

 Return on net
worth (%)
Dividend 0.00 0.00 0.00 0.00 0.00
payout ratio
PBDIT 1,706.54 2,101.79 2,486.11 1,930.12 1,773.28
Depreciation 482.10 631.04 766.52 828.11 792.85
PBIT 1224.44 1470.75 1719.59 1102.01 980.43
PBT 1266.53 1329.75 1596.1 1068.49 864.88
PAT 1100.59 1081.56 1243.03 958.17 815.88
Net profit 530.18 436.49 428.62 185.20 22.45

Phase - III

SWOT ANALYSIS
STRENGTH
Marketing
 • Excellent brand equity and quality
It create brand image by offering 24 carat quality steel. Essar is the 1st steel company in
the country to brand steel products.
• Essar is producing the most customized products this is the sign of value for money.
• They have their sheet metal work engineer mostly near to small industrial cities
distributing few tonnes of their required products.
• Essar Hypermart are assured of material from an ISO 9002 and 14001 certified mill.
Moreover these materials are available with a quality test certificate.
• To be awarded ISO 9002 for its entire operations and was also the first to received the
prestigious ISO 14001 certificate for its complete environmental management from Det
Norske Veritas.

Operations

• Hazira steel complex is World's largest gas-based HBI plant.

• Hazira steel complex has amongst the lowest per-tonne operating costs.
• Hazira steel complex is consistently operating at high capacity.
• Hazira steel complex is Established customer base in both domestic and export markets.
• Assets of &4.4 bn (RS 20000cr) in service and manufacturing.
• It is India's largest exporter of flat steel with 14 MTPA (million tons per annum) of
capacity
• Essar Steel is the largest steel producer in western India, with a capacity of 10 MTPA at
Hazira, Gujarat.
• Essar operates the widest Hot Strip Mill (HSM) in India (2000mm).
• The only mill in India offering skin passes material for high end steel applications.
• Cold Rolling Mill is strategically located adjacent to the Hot Strip Mill, yielding
significant competitive advantage.
• Essar Steel produces customized products catering to a variety of product segments and is
India's largest exporter of flat products to the US and European markets.
• Automated systems and processes helps in real time tracking.
• Essar steel is among the 25 percentile of lowest cost producers worldwide and has
acquired extensive quality accreditations.

• Integrated production
The broader Essar group has business interests spanning from power to shipping to oil &
gas and all business are synergistically interwoven helps in lowering the cost of
production and avoid production variances.

HR

• Well educated and trained work force.

 • Learning & development
Essar focuses on building careers. Essar has a high emphasis on performance, and link
both career growth and rewards directly to merit and achievement.
• Coaching & mentoring
As Essar expands globally, they work towards making every manager a leader, and
mentoring is their primary means of displaying leadership.
• Talent management
Essar runs various talent management and engagement programmes to harness employee
morale and skills
• Essar academy
Through the academy, Essar aims to build a learning organization for the employee's
career advancement.

Distribution

• It has a global network of retail steel outlets, called Steel Hyper marts, and offers services,
like cutting, slitting and blanking of steel sheets, through specialized Steel Service
Centers worldwide.
• First steel company to set up an end user distribution chain for steel products under the
brand name Essar Hypermart.
• It has a strong network of over 474 steel retail outlets.
• Essar steel distribution channel is consist of the “0” level & “1” level.
I. “0” level: They directly place order to Essar steel only without involving any other
intermediaries.
II. “1” level: Manufacturer will supply material to company’s retail outlet and it will
provide material to industrial customer. It’s basically regional viz distribution
covering the major industrial sectors of every state of India.

Technological leadership

• It has mastered the steel production process.

• It has also adopted and further developed DRI (Direct Reduction Iron) technology which
is the future of steel making.
• It is the only Indian steel Company to have mastered both DRI and Corex method of steel
production.
• Its production is automated to an extent that it employs only 440 persons/mt of steel
produced as against 6250/mt employed by Tata and around 8000/mt employed by SAIL.
• Essar is one of the few manufactures globally who can make API grade steel with low
sulphur.

Strong international business

 • Essar steel is the largest exporter of flat products selling one third of the production to the
US and European market and to the growing market of south East Asia and Middle East.
Thus Essar steel has a stronger international reputation then its Indian counterparts.
• In 2007, Essar Steel acquired Algoma Steel in Canada, which has a current capacity of 4
MTPA, and Minnesota Steel, which has iron ore reserves of over 1.4 billion tons.

WEAKNESS
Marketing
HR
Operations

• Lack of captive iron ore mines

Cost of raw material is high since Essar don’t have its own mines. So getting raw material
market is costly affair.

• Lack of strong domestic business

Strong domestic business can potentially safeguard against international downturns.

Compared to the global average per capita consumption of steel a mere 39 kg per head.

• 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.

OPPORTUNITY
• Maximum utilization of cash flow

This is done through new business & avenues like online sales, steel retail outlets like
Essar Hypermart which is the first and largest retail chain for steel products in India and
through service centers.

• Export market penetration

 It is estimated that world steel consumption will double in next 25 years. Quality
improvement of Indian steel combination with its low cost advantages will definitely help
in substantial gain in export market.

• Unexplored rural market

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, financing, structures and other possible applications where steel can
substitute other materials.

• To acquire Kandil Steel, a mid-sized steel firm in Egypt.

THREATS
• Technological change: For developing country like India, where capital itself is costly,
technological obsolescence is a major threat.
• Ever decreasing import duty on steel i.e. high quality of product from developed countries
available for import at very competitive price.
• 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 cost can be attributed to the administered cost of
coal, fuel and electricity, eg cost of electricity is 3 cents in the USA as compared to 10
cents in India.
• Raw material costs continue to put pressure on production costs.
• Unavailability of certain key raw materials (such as, coking coal) poses a challenge.
• Upcoming international players
There always one threat lies from big international players like arcelor mittal. They have
huge capacities of manufacturing and finance availability.
• Fluctuating metal price.
• Intense competition from various players
There are various players like Tata, Sail, Jindal etc which pose a great competition in the
market.
• Government has no control over prices of iron & steel.