Group7 Section a Steel 07092011

8/4/2019 Group7 Section a Steel 07092011

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AN INDUSTRY ANALYSIS REPORT

| AMBADIPUDI ALOKRAJ [PGP2011534] | KAPOL SARKAR [PGP2011680] || NIKHIL SHINDE [PGP2011750] |

| MUPPALA BINDHU MADHURI [PGP2011733] | RAJEEV KUMAR [PGP2011813] || SRIRAM R [PGP2011896] |

GROUP VII

SECTION A


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AGENDA

1. A Brief Overview2. International Scenario3. Major International Players4. International Production Trend5. Steel in the Indian Scenario6. Indian Production Scenario7. Performance in Q4 2010-118. Classification of Steel9. Major domestic Players10. Government Regulation, Policies

11. Restrictions for Trade of Raw Material and Steel12. Financial Performance13. Key Growth Drivers, Budget 2011 and Steel Industry14. M&A Activities in the industry15. Analysis Porters and SWOT16. Future of Steel in India


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One of the most common materials in the world with an annual production ofclose to 1.3 billion ton

An alloy consisting mostly of iron and has carbon content between 0.2% and 2.1%by weight, depending on the grade

Majorly used in buildings, infrastructure, tools, ships, automobiles, machines,appliances, and weapons

Growth of many of these economies has been largely shaped by the strength oftheir steel industries in their initial stages of development

Steel consumption increases when economies are growing, as governmentsinvest in infrastructure and transport, and build new factories and houses

A BRIEF OVERVIEW


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INTERNATIONAL SCENARIO

44.33%

7.75%5.70%4.74%

4.73%

32.75% China

Japan

USA

RussiaIndia

Others (40+ countries)

China is the worlds largest producer ofsteel

India ranks 5th with an annual crude steel production of close to 67 MT

The share of India in global crude steel production has increased from 3% in 1998 to

4.7% in 2010


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MAJOR INTERNATIONAL PLAYERS

Name (HQ) Founded Production Products Revenue Key people

ArcelorMittal

(Luxembourg)2006

(merger of

Arcelor and

Mittal Steel)

98.2 million

tonnes; serve

worldwide

Flat Steel product,

Long Steel product,

Wire, PlatesUS$78.03

billionLakshmi Mittal

(Chairman & CEO),

Aditya Mittal (CFO)

Baosteel

(China)1978 37.0 million

tonnes; serve

worldwideLong steel product,

Ordinary hot rolled

plate, Cold rolled strip

& slab, Seamless steel

tube

US$21.7

billionXu Lejiang

(Chairman)

Pohang Iron &

Steel

Company

[POSCO]

(South Korea)

1968 35.4 milliontonnes; serve

worldwideHot Rolled Steel, Steel

Plate, Wire Rod, Cold

Rolled Steel, Electrical

Steel, Stainless Steel

US$31.6

billionPark Tae-Joon

(Founder, Honorary

Chairman),

Chung Joon-Yang

(CEO)


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Ranking

(2010) Company2010

(in MT)2009

(in MT)1 ArcelorMittal 98.2 77.5

2

Baosteel Group

37.0

31.3

3 POSCO 35.4 31.14 Nippon Steel 35.0 26.55 JFE 31.1 25.86 Jiangsu Shagang 23.2 20.57 Tata Steel 23.2 20.5

INTERNATIONAL PRODUCTION TREND
http://en.wikipedia.org/wiki/ArcelorMittalhttp://en.wikipedia.org/wiki/Baosteel_Grouphttp://en.wikipedia.org/wiki/POSCOhttp://en.wikipedia.org/wiki/Nippon_Steelhttp://en.wikipedia.org/wiki/JFE_Holdingshttp://en.wikipedia.org/wiki/Shagang_Grouphttp://en.wikipedia.org/wiki/Tata_Steelhttp://en.wikipedia.org/wiki/Tata_Steelhttp://en.wikipedia.org/wiki/Shagang_Grouphttp://en.wikipedia.org/wiki/Shagang_Grouphttp://en.wikipedia.org/wiki/JFE_Holdingshttp://en.wikipedia.org/wiki/Nippon_Steelhttp://en.wikipedia.org/wiki/POSCOhttp://en.wikipedia.org/wiki/Baosteel_Grouphttp://en.wikipedia.org/wiki/Baosteel_Grouphttp://en.wikipedia.org/wiki/Baosteel_Grouphttp://en.wikipedia.org/wiki/ArcelorMittal


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Steel industry is of great significance to the economic growth of the country

TISCO (TATA Iron & Steel Company) established in 1907, marked the beginning ofthe steel industry in India

Around 1947, annual production close to 1 million ton

Post-independence, Public Sector Units established; dominated the market till1990s

Post liberalization in 1991, which led to increased investments in the steelindustry, many producers emerged increasing the capacity

Abundant availability of iron ore in the country with states such as Orissa,Jharkhand and Chhattisgarh are rich in iron ore reserves.

STEEL IN THE INDIAN SCENARIO


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STEEL IN THE INDIAN SCENARIO


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INDIAN PRODUCTION SCENARIO


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PERFORMANCE IN Q4 2010-11

30.1% in Expenses over Q3 asopposed to 5.25% in Q4 2009-10

50% in RM expenses

47.9% in PAT Profit Margin went up to 12.3% from

5.9% in Q3. In Q4 2009-10, ProfitMargin was to the tune of 10.8%

25.3% in Net Sales over Q3 asopposed to 10.5% in Q4 2009-10


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CLASSIFICATION OF STEEL

FLAT PRODUCTS Derived from slabs Plates, Rolled sheets Majorly used in ship building

VARIETIES OF STEEL

LONG PRODUCTS Derived from billets and blooms Bars, rods, wires, ropes Majorly used in housing,

construction


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CLASSIFICATION OF STEEL

INTEGRATED STEEL PLANTS Convert iron ore to steel

through coke oven BF/BOF

route SAIL, TATA Steel, RINL Produce Flat Steel Products

TYPE OF PRODUCT

MAJOR SECONDARY PRODUCTS Make steel by melting scrap

and/or HBI/DRI in EAF/IFBars,

rods, wires, ropes ESSAR Steel Ltd., JSW Steel

Ltd. Produce Long Steel Products


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ISP : STEEL AUTHORITY OF INDIA LIMITED (SAIL)

India's largest integrated producer of Iron and Steel contributing over 20% of itstotal crude steel output

18th largest steel producer in the world; serves worldwide

Has a production of 13.6 mtpa and a revenue of US$9.6 billion

Founded in 1954 as Hindustan Steel limited (HSL)

Current chairman Mr. Chandra Shekhar Verma

Headquartered in New Delhi it is a Public Sector Undertaking

Major plants owned by SAIL are located at Bhilai, Bokaro, Durgapur, Rourkela,Burnpur (near Asansol) and Salem and operated by Government of India

MAJOR DOMESTIC PLAYERS


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ISP : TATA Steel (formerly TISCO)

Founded in 1907 by Dorabji Tata; Currently headed by Ratan Tata (Chairman) andB Muthuraman (Vice-Chairman)

World's 7th largest steel company; annual crude steel capacity of 23.2 milliontonnes (close to 10% of the countrys production); revenue of US$22.4 billion

Largest private sector steel company in India in terms of domestic production;

Steel products include HR coils, tubes, bars, rods, structures, strips, sheets and

bearings.

India's largest ever foreign takeover (US$7.6 billion) TATA-Corus deal; Currentlyrenamed to Tata Steel Europe; contributes 14.9 MT of TATAs production

Tata Steel is planning a 50-50 balance between greenfield facilities and

acquisitions in achieving a target of 100 million tonnes by 2015



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ISP : Rashtriya Ispat Nigam Limited (Vizag Steel)

Founded in 1982, it is owned by the Government of India and is headed by PradipKumar Bishnoi, Chairman & MD

The state-of-the-art achieved at every level is a synergy that has helped RINL setrecords very few steel companies in the world can match. A steel complex thatcomprises the tallest of Coke Oven Batteries; the largest of Blast Furnaces; themost efficient of Converter Shops; and the most trouble free, high speed mills

In the area of pollution control equipment and measures, VSP is in the forefront of

the Indian Industry. Use of extensive technology that reduces toxic solids toharmless compounds and by-products with commercial value

Awarded the Navaratna status, with accompanying autonomy of operations, dueto its strong financial performance

3 MT capacity steel plant in Visakhapatnam; revenue of US$2.37 billion;



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MSP : ESSAR Steel

One of the leaders in the country and abroad in the steel sector

Current capacity of 8.6 million tonnes and revenue of US$7.81billion

Headed by Ravi Ruia (Chairman) and Naresh Nayyar (CEO)


MSP : JSW Steel Ltd.

Among India's largest steel producers; capacity of 7.8 MT; revenue US$5.23 billion

Founded in 1982 by current Chairman Sajjan Jindal

Specialize in manufacture of Hot Rolled and Cold Rolled Product; serve worldwide

ISPAT Industries Ltd. Is a subsidiary of JSW Steel Ltd.


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GOVERNMENT REGULATION, POLICIES

The National Steel Policy 2005 aims at increasing the total steel production of thecountry to 110 MT (in 2019-20) from 38 MT (in 2004-05) at a CAGR of about 7.3%. The

actual CAGR from 2005 to 2010 has been more than 9%. New Greenfield projects

required to maintain this rate

Permitted FDI is 74%

Allowing Private Ownership and Foreign Investment

Deregulation of Pricing and Distribution of Iron and Steel

Improving Intellectual Property Laws

Customs Policy has significantly reduced the duty payable on inputs to steel production

Special Economic Zones (SEZs) introduced with the aim of creating internationally

competitive regions. Special Investment Regions are planned to support further

downstream processing

Freight equalisation scheme removing freight disadvantage to states located near steel

plants in the country


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RESTRICTIONS FOR TRADE OF RAWMATERIALS AND STEEL

Forms of Export Restrictions Export bans Quotas

Export taxes No VAT export rebates Licensing requirements

Effects of Export Restrictions Give domestic producers in the exporting country an unfair competitive

advantage Increase worldwide costs of production Do not match up to the justifications given Place a heavy burden on the steel industry in developing countries that do

not have substantial iron ore reserves or steel scrap supplies


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FINANCIAL PERFORMANCE


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FINANCIAL PERFORMANCE


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PERFORMANCE OF MARKET LEADERS

Name

Sales

Turnover

(Rs. In

crores)

EBIDTA

(Rs. In crores)

PAT

(Rs. In crores)

Crude steelproduction

(million tonne)

Profit Margin

SAIL 47,041 9,155 4,905 13.70 10.94%

Tata Steel 1,18,753 17,103 8,983 24.40 22.81%

JSW 25,131 4,856 2,011 6.427 8.64%

RINL 10,635 1,603 797 3.131 4.53%


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Key GrowthDrivers

Infrastructure

Power

Oil and GasRoads and Highways

Railways

Ports

Water and wastemanagement

Automobiles Capital Goods

KEY GROWTH DRIVERS

Others

23%

Pipes

32%

Oil & Gas

13%

Automobile

s

12%

Capital

Goods10%

Consumer

Durables

10%

0%


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BUDGET 2011 AND STEEL INDUSTRY

Basic customs duty on steel reduced from 10% to 5%

Export duty on iron ore increased to 20%.

Surcharge on domestic companies reduced to 5% from 7.5%

Rate of Minimum Alternative Tax (MAT) proposed to be increased from 18% to18.5% of book profits

An allocation of Rs 2,140 billion for infrastructure sector and total allocationunder Bharat Nirman raised by Rs 100 billion to Rs 580 billion for FY12


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M&A ACTIVITIES IN THE INDUSTRY

Tata acquires NatSteel (Singapore, 2004) An all cash transaction worth $486.4 million (approx Rs 1,313 crore)

Tata acquires Millenium Steel (Thailand, 2005): 40% stake for $130 million (approx 600 crore) Corus is five times bigger than Tata

Tata acquires Corus (Britain, 2007): Deal valued at about 8 billion dollars Corus is five times bigger than Tata Indias biggest multi-billion dollar overseas corporate deal Deal will lift Tata from 65th to 5th global ranking

Rotterdam (Netherlands) based steel company called Mittal Steels boughtthe onetime steel giant Arcelor

This attainment has led to the establishment of the largest steel company ofthe recent times called Arcelor-Mittal Steel Company


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MAJOR EVENTS IN LAST 2 YEARS

Acquisition of Ispat by JSW

A Rs 2157 crore deal that will make JSW the biggest steel producer in India

Tata Steel Nippon Steel Joint Venture

Construction of a 0.6MT plant in Jamshedpur to produce auto grade steel

Proposal of new mining bill suggesting a 26% profit sharing formula

ArcelorMittals plan to build Rs30,000 crore steel plant in Karnataka


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PORTERS 5 FORCESThreat of New Entrants- (Low)

Huge initial capital investment required

(10MT plant costs aprroximately 38000 Cr.) It is a specialized field requiring trained

labor and technical knowledge Government regulation guides the

production (discrepancies involved inallocation of iron ore mines and landacquisitions)

Bargaining power of suppliers (High)

Non-integrated or semi integrated has todepend on suppliers for iron ore and coal

In India too, NMDC is a major supplier tostandalone and nonintegrated steel plants

Threat of Substitute products (Low)

There is no viable substitute to steel inconstruction activities

In Automobile Aluminum has replaced steelin sheet metal form.

Plastic replacing steel pipes by PVC pipes Copper tipped to replace steel in healthcare

equipments

Bargaining Power of Customers (Low)

End retails user has no say Mutual agreements exist between major

suppliers and b2b customers The industry is prone to hedging

Competitive Rivalry within Industry

(High)

High competition in finished goods market Little differentiation between competing

products


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SWOT ANALYSIS

Weaknesses

High cost of capital Low labour productivity High cost of basic inputs and service Endemic deficiencies Systemic Deficiencies

Threats

Major raw material is coal whose mining

often faces social and environmental issues.

Subsidized raw material being offered togovernment owned units

Huge debt burden as the entry barrier is high

Opportunities

Unexplored rural market

Higher scope for export potential Development of light weight alloy steels may

trigger demand from automobiles andconsumer durables sectors

Scope of minimizing melting losses or costs As demand is high there is an opportunity of

leveraging it for higher prices

Strengths

New technologies are invented in steelextraction

Large mineral base especially iron ore Lowest operating cost Availability of labor at low cost


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FUTURE OF STEEL IN INDIA

The NMDC plans to expand its iron ore production capacity from its existingcapacity of 30 MTPA to 50 MTPA by 201415 through the capacity expansion ofcurrent mines as well as by setting up new mines.

ArcelorMittal, plans to establish 2 Greenfield steel projects with capacity of 12 MT

Tata Steel plans to expand its capacity by the year 2015 to over 100 MT annually.

SAIL, plans to increase the production to 24.98 MT annually.

Various states have signed around 222 MoUs, with a projected capacity of about275.7 MT and an investment of more than US$ 229 billion.

The steel production capacity is likely to reach 124 MT by 201112.

India is projected to become the worlds second largest producer by 20152016,with a production volume of 54.5 MT


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FUTURE OF STEEL IN INDIA

Tata Steel plans to set up a steel plant at KalingaNagar, Orissa, which will focusentirely on flat steel products. The first phase is expected to be commissioned byFebruary 2014. The first phase will see an investment of up to Rs 25,000 crore(US$ 5.631 billion), of which the steel maker has already invested over Rs 10,000crore (US$ 2.252 billion)

Recently South-Korean steel company Posco, got permission from the Ministry of

Environment and Forest to set up a steel project worth US$ 12 billion in Orissa. Bhilai Steel Plant (BSP) the sole producer of rails in India has recently received

another order for exporting rails to Sri Lanka. The order is of about 14,000 tonnesfor the UIC-60 grade of rails. Earlier, the company had received an order to supply6,500 tonnes of rails to Sri Lanka.

RINL, the corporate entity that runs the Vizag steel plant, has inaugurated a seriesof auxiliary units to expand the capacity of the plant to 6.3 MT The project hasbeen executed by Instrumentation Ltd, Kota and associates at a cost of around Rs10 crore (US$ 2.25 million)

Varia Engineering Works Pvt Ltd, Ahmedabad-based rolling mills manufacturingcompany, is setting up India's first 6-stand continuous cold rolling mill formanufacturing stainless steel.


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THANKYOU

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Group7 Section a Steel 07092011

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