Chapter 6 – RISK ANALYSIS AND MITIGATION

Cost Overrun
Due to the large initiatives undertaken by the Government in order to give a boost to this
particular sector, hence, in that case chances of cost overrun is actually not expected and the
industry is expecting to manage its overall project in the given budget frame. However, in
case there is any further increase, the same will need to be borne by the promoters. Lenders
will need to take note of that and include an appropriate clause in this regards in the sanction
letter.

Demand Risk
Basically the Billet Steel Industry’s demand to remain muted during FY 2019-2021 due to
weak macroeconomic factors. The demand for longs is expected to increase by 19 million ton
(MT) at a CAGR of 9 percent and for flats by 16 MT at a CAGR of 8 percent between
FY2019 and FY2021. This is due to relatively weaker growth prospects of flats end-user
industries (such as automotive and consumer durables) than those for longs.

2015 2016 2017 2018 2019 2020 2021

Yellow – LONG
Orange- SHORT
Competition Risk
The Billet Steel Industry is highly concentrated, with the top five players accounting for more
than 70 per cent of the market share. These top 5 players include: Tata Steel Ltd, SAIL, JSW
Steel Ltd, Jindal Steel and Power Ltd and Ispat Industries Ltd. The industry is largely
competitor driven and thus backward integration and economies of scale are the common
strategies adopted and hence it is increasingly difficult for smaller players to sustain the
competition, which may hit the performance of the company. These companies usually
compete on the basis of production capacity, economies of scale, access to raw material, etc.

Pricing Risk
Basically the selling price of Billet Steel Industries is highly competitor driven and as a result
of which, cutting down on operating cost is mandatory. The working capital management has
become increasingly difficult and banks find it highly risky to give financial aid to such
industries. To mitigate the risk, the company will have to make use of economies of scale to
bring down the cost of manufacturing.

Time Overrun
The time duration required to complete the project is 20 months, as such previously when the
plan was made, there was no expectation of delay in the completion of the project but due to
the crisis situation(COVID-19) faced by the country now, there can be delay in the
completion of project. Thus the company may face a time overrun risk.
 Chapter 7 – SWOT ANALYSIS
STRENGTHS:
 Skilled labor force and reduced cost
 Advanced production base
 Strong Managerial Capability
 High scale of global competitiveness due to the maintenance of High International
Quality Standard
 Highly untapped rural market demand
 Abundance of iron ore and other minerals
 Incentives of government and better regulatory policies

WEAKNESS:
 High cost in infrastructural projects
 Large cost of energy consumption
 Large dependency on imports for steel manufacturing equipment and technology
 Abiding by the strict labor laws
 Weaker distribution channel

OPPORTUNITIES:
 Government initiatives to expand this sector globally
 International Tie-up for enhancement and penetration of new export avenues
 Foreign metal producers focusing on this industry for Strategic alliances and Joint
Ventures
 Rapid growth areas in the untapped rural market

THREATS:
 High market fluctuations
 Global Economic Slowdown
 High barriers in terms of heavy charges in certain aspects faced by this industry .
 High capital requirement and scaling capacities
 Lacking or slowdown of integration projects
Chapter 7 – CONCLUSION