Indian Steel

INDUSTRY INSIGHT

April 2005

INDIAN STEEL

Disclaimer: All information contained in this report has been obtained from sources believed to be accurate by Cygnus Business Consulting and Research (Cygnus). While reasonable care has been taken in its preparation, Cygnus makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. The information contained herein may be changed without notice. All information should be considered solely as statements of opinion and Cygnus will not be liable for any loss incurred by users from any use of the publication or contents

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Industry Insight – Indian Steel Industry

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TABLE OF CONTENT

1. EXECUTIVE SUMMARY .............................................................................. 4

2. HIGHLIGHTS ............................................................................................... 5

3. INDUSTRY STRUCTURE ............................................................................... 6

3.1 Ore miners................................................................................................................6

3.2. Type of Producers..................................................................................................7 3.2.2 Other producers (Secondary) ....................................................................9

4.1Exports .....................................................................................................................11 a) Exports Decline ................................................................................................11 b) Demand surpassing capacity ....................................................................11 c) Expanding Capacity ......................................................................................11 d) Export destinations..........................................................................................12

4.2 Imports....................................................................................................................13 a) Imports on the surge.......................................................................................13 b) Import destination...........................................................................................13

5. REGULATIONS.......................................................................................... 14

5.1. Issues regarding investments .............................................................................14

5.2. Issues regarding setting up industries ...............................................................14

5.3 Pricing & regulations ............................................................................................14 a. Budget impact.................................................................................................14 b. National steel policy .......................................................................................15 c. Value added tax (vat): Unlikely to influence prices ..................................16 d. Foreign direct investment ..............................................................................17

5.4) Employment regarding laws .............................................................................18

5.5) Regulatory body..................................................................................................18

6. MAJOR PLAYERS ..................................................................................... 20

6.1 Steel Authority of India.........................................................................................20

6.2 Rashtriya Ispat Nigam ..........................................................................................25

6.3 Tata Iron & Steel....................................................................................................29

6.4 Ispat Industries .......................................................................................................33

6.5 Jindal Iron & Steel Company Ltd .......................................................................37


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6.6 Essar Steel...............................................................................................................41

7. STEEL SERVICES........................................................................................ 45

8. GROWTH DRIVERS .................................................................................. 48

9. OUTLOOK................................................................................................. 49

ANNEXURE - I ............................................................................................... 51

a) Regulatory acts ......................................................................................................51 i) Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 ......51 ii) Employees’ State Insurance Act, 1948 .........................................................51 iii) Workmen’s Compensation Act, 1923 ..........................................................51 iv) Maternity Benefit Act, 1961 ...........................................................................51 v) Payment of Gratuity Act, 1972......................................................................51 vi) Factories Act, 1948 .........................................................................................51 vii) Mines Act, 1972 ..............................................................................................51 viii) Minimum wages Act.....................................................................................52 ix) Payment of Bonus Act 1965 ..........................................................................52 x) Contract Labour [R & A] Act 1970 ................................................................52 xi) Payment of Wages Act, 1936 .......................................................................52

ANNEXURE - II .............................................................................................. 53

b) List of industy associations ....................................................................................53


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1. EXECUTIVE SUMMARY Indian steel industry has shown a tremendous performance in terms of production, capacity utilization, exports and consumption which has made India to become major competitor in the world. The good performance was helped by deregulation and decentra-lization of the industry, rise in prices, exports and consumption.

Currently, Indian steel industry is eighth largest steel producer in world with production projected to rise to 36.15 million tons a 7.4per cent rise compared to previous year 2003-04. Indian steel industry is segregated into primary, secondary and stand alone producer. Integrated steel producer account for 67per cent of the total production and secondary steel producers accounts for the balance of India’s steel production. India is one of the largest producers of sponge iron in the world with an installed capacity of 9 million tonnes. The industry contributes 1.3per cent to Indian GDP and accounts for 10per cent in excise duty collections. Tata Iron & Steel company (TISCO), Indian company is one of cheapest producer of steel in world.

India’s per capita steel consumption is 20 kgs when compared to 80 kg in China, 405 kg in Malaysia and 925 kg in South Korea. Some of the challenges the industry is faced with are supply of steel scrap, availability and price of imported coke, high export demand for iron ore, substitutes for steel gaining strong foot hold in the metal market. Apart from market forces Indian steel industry has adopted technology which is out dated in developed nations. The country doesn’t have adequate infrastructure facilities to export steel in terms of ports, finance, and availability of continuous power. The relationship between iron ore producer and integrated producers is missing. With steel policy in force from October 2004 and building up of infrastructure facilities, all issues are expected to be addressed to soon. During the quarter ended December 2004, government owned Steel Authority Of India (SAIL) has witnessed highest sales with a turnover of US$1,990 millions but Jindal Iron and Steel Company ltd (JISCO) has highest growth of 114 per cent due to merger of JISCO and with Jindal VIjaynagar Steel limited (JVSL). Coming to operating profit Tata Iron & Steel Company ltd (TISCO) has highest operating profit of US $ 360 millions with highest margin of 42 per cent. And SAIL has highest net profit of US $ 347 millions. The interest cost of industry was on higher side but TISCO and ESSAR managed to find low cost funds. The companies have also performed well in the stock market ISPAT has given highest return of 42 per cent compared to economy return 14 per cent. Despite all the problem steel companies have performed well in recent past two years and are expected to perform well in coming years. But industry needs to solve some issues like new steel capacity expansion, conditions of raw material markets, potentially large shifts in steel trade flows, Water Management, Power, Logistics & Waste disposal. The outlook for 2005 remains good as world steel demand should continue to grow by some 5 per cent, driven by the continuing strong growth in demand in China where steel consumption is expected to increase by another 10.7 per cent. Trade in steel is expected to start declining as from 2005 as a result of important additions of new capacity, particularly in China, India and other Asian economies. Global crude steelmaking capacity is expected to increase from 1184 million tonnes per year in 2004 (when the average capacity utilisation rate was above 88 per cent) to over 1305 million tonnes per year in 2006. It was noted that a crisis in steel could well arise in several years time, should capacity expansion exceed market needs by a significant amount.


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2. HIGHLIGHTS → Indian steel industry is world’s 8th largest steel industry in world with installed capacity of 36.12 million

tonnes contributing 1/3rd of global output.

→ The sector directly accounts for 1.3 per cent for Indian GDP and accounts for 10 per cent in excise duty collections

→ Indian industry has good potential for steel industry with low per capita consumption of 22 Kgs compared to 80 kg in China, 405 kg in Malaysia and 925 kg in South Korea

→ TISCO, an Indian company is cheapest producers of steel in the world due to its vast own ore and coking coal reserves.

→ The industry provides employment to 0.4 millions directly and 0.6 million indirectly

→ India’s steel producers are segregated into three categories - Primary, Secondary, and stand alone producers, with primary producers accounting for 67 per cent of total steel production

→ India’s steel production for the period ended 10 months ended Jan 05 has risen by 4 per cent to 31.61 million tonnes.

→ India is net exporter of steel and exports for 10 months ended Jan 05 declined by 20 per cent to 2.6 million tonnes from 3.6 million tonnes on YoY basis.

→ India has steel import estimated at 1.6 million tonnes 19 per cent rise compared to the 1.4 million tonnes on YoY basis.

→ Steel prices are on the rise due to non-availability of raw materials and demand pull.

→ Steel companies are in the mode of capacity expansion in anticipation of rise in demand

→ India has approved 100 per cent FDI steel sector from sector reserved for government

→ Industry is facing bottlenecks with regard to technology, infrastructure facilities, emergence of substitutes, supply and availability of steel scrap, installed capacity and decrease in import duty

→ The budget 2005-06, impact was neutral. Customs duty on coking coal was reduced to 5 per cent from 10 per cent, excise duty hiked to 16 per cent and emphasis on infrastructure development will increase consumption of steel.

→ India’s national steel policy draft envisages production level to touch 100 million tonnes by end of 2020.


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3. INDUSTRY STRUCTURE

Indian steel industry can be broadly divided on the basis of the stage of production one is ore miners and the other are producers. In India, steel manufacturers are segmented into producers and ore miners. Ore miners are engaged in mining activities. Producers are further classified into main producer and other producers. The main producers are further segregated on the basis of method of production used for making steel. They are Blast furnace method, Electric Arc furnace (EAF) and Corex method. In the other producers category are re - rollers and stand alone producers. The stand alone producer can be further segmented into pig iron and sponge iron. Each segment in the structure has been discussed below

3.1 Ore miners The category of manufacturers includes companies which are engaged in mining iron ore for steel manufacturers like National Mineral Development Corporation (NMDC), Kudremukh Iron Ore Co (KIOCL) Essel Mining & Industries Ltd, and Sesa Goa (Sesa). Some of the integrated steel companies like Steel Authority of India and Tata Iron and Steel Companies (TISCO) have their own captive mines. Recently Indian steel manufacturing companies have invested in steel and coal mines especially in Australia. The foreign mining companies import ores and coal from Australia as ore is of high quality and low ash content. India accounts for 6 per cent of the total iron ore production. Iron ore mines are mostly located in Jharkhand, Orissa, West Bengal and Chattisgarh.

Indian Steel Industry

Ore Miners Producers

Main Producers(Integrated Producers)

Others Producers

BF / BOF(SAIL, TISCO & RINL)

EAF(Essar & ISPAT)

Corex(Jindal)

StandAloneRe-rollers

Pig Iron Sponge Iron

Long & flat products




Others Producers


EAF(Essar & ISPAT)

Corex(Jindal)


Pig Iron Sponge Iron




Others Producers


EAF(Essar & ISPAT)

Corex(Jindal)


Pig Iron Sponge Iron Pig Iron Sponge Iron

Long & flat products Long & flat products

Source Cygnus Research

Trend of Iron ore Production, Consumption and Exports

Exports on the rise

0%20%40%60%80%

100%

2000 2001 2002 2003 2004

In %

708090100110120

Mill

ion

tonn

es

Consumption (LHS) Export (LHS)Production (RHS)



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3.2. Type of Producers In India steel producers are divided into – main and secondary and manufacturers. 3.2.1 Main producers a) Based on production process In India steel industry is classified depending upon the production process manufacturers adopt for producing steel. They are: i) BF / BOF Route These producers convert iron ore into steel through coke oven or BF-BOF route. Integrated producer accounts for 67 per cent of total crude steel production in India. This sector consist of steel manufacturers with capacities over 1 million tonnes. There are 3 major integrated steel producers, out of which government owned are Steel Authority of India ltd (SAIL) and RINL, and only private owned is TISCO. During nine months ended Dec 2004, steel production of integrated producers has gone up by 2.8 per cent to 11.4 million tonnes when compared to same period in the previous year. ii) EAF Route The major players who have capacities of more than 1 million tonnes are ISPAT, Jindal and Essar steel. The mini-steel segment/secondary producers comprise mainly EAF (Electric Arc Furnace) and induction furnace (IF) units apart from other manufacturing units like the independent hot and cold rolling units, re-rolling units, galvanizing, tin plating units, sponge iron producers, pig-iron producers and so on. The EAF and IF units use scrap or sponge iron or a mixture raw material to produce steel. iii) Corex Route Corex process was developed by the Austrian firm who utilizes good quality iron ore with poor quality of coal. In a closed vessel, the reaction takes place and the ore gets reduced. In India, the COREX process plant has been installed by M/s Jindal Vijaynagar Steel Limited in the State of Karnataka. The pig iron produced in the plant is sent to LD converters for production of Steel. The Pig iron has been made by COREX process,


Production Trend of Electric arc furnance(EAF) based steel plants (Private Sector)

1163 965 1652 1817

1386 1025 875 961

741 689 794 873

455 471 594 653166 174 313 345

2000-01 2001-02 2002-03 2003-04

'000

' ton

nes

Mild High Carbon Steel Alloy Steel Stainless Steel Others



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Romalt and Hysmelt process. Low shaft Blast Furnaces is also being used b. Based on the products i. Long & Flat Products Long products include bars, structural products, wire rods, angles and rounds. They are used in the construction and heavy engineering. RINL, SAIL and Tata Steel are the major producers of long products. The demand for steel is dependent on the overall health of the economy and the infrastructure developmental activities being undertaken. The steel prices in the Indian market primarily depend on the domestic demand and supply conditions, and international prices. Government and different producer and consumer associations regularly monitor steel prices. The duty imposed on import of steel and its fractions also have an impact on steel prices. The price trend in steel in Indian markets has been a function of world's economic activity. Prices of input materials for iron and steel such as power tariff, freight rates and coal prices, also contribute to the rise in the input costs for steel making. Flat products include Hot rolled coils/ sheets (HRC), cold rolled coils/ sheets (CRC) and galvanized sheets. The major producers being SAIL, Tata Steel, Ispat Industries, Jindal group of companies, Uttam Steel and Bhushan Steel. These products are used for automotive sector and white goods, fabrication work like car bodies, ducts, consumer durables and roofing, Engineering and Consumer durables. The prices of steel have risen significantly over the past one year due rise in input cost as well as rise in demand. The market witnessed highest price rise in hot rolled coil (HRC) among flat products by 34 per cent to US $ 748 per tonne in Feb 2005 compared US $ 555 in Jan 04. Cold rolled coil and galvanized plate has witnessed 24 per cent and 19 per cent


Monthly Price Trend of Long products ($ per tonne)

550

600

650

700

750

800

850

Jan-04 Mar-04 May-04 Jul-04 Sep-04 Nov-04 Jan-05Hot Rolled Coil Cold Rolled Coil

Galvanized plate


Production trend of Long & Flat Products (Private Sector)

4703 4937 5031 5276

8808 9239.4 10749 11078

2000-01 2001-02 2002-03 2003-04'0

00' t

onne

s

Long Products Flat products


Trend fo Secondary steel production (Million tonnes)

17.19 17.5819.28

21 22

2000-01 2001-02 2002-03 2003-04 2004-05(E)


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to USD $ 823 per tonne and US $ 833 per tonne respectively.

3.2.2 Other producers (Secondary) Secondary producers consist of suppliers of processed inputs for steel making, the primary steel makers and the independent re-rollers. These producers account for 36 per cent of India’s steel production. To a large extent, the integrated mills and the mini-mills differ only in the technology for making molten steel. After the casting unit, both players use the same steel processing methods. However, this technology difference translates into different product mix, management styles, scale of operations, process economics, cost structure and profitability. Before deregulation, secondary producer’s category consisted small and medium player and post deregulation it witnessed metamorphous in terms of technology, product-mix and scales of operation. During the nine months ended December 2004, production of secondary steel producers witnessed 4.9 per cent rise to 16.9 million tonnes when compared to same period in the previous year. i) Stand alone producers: This category includes small and medium sized HR/CR mills, GP/GC /Tin Plates/Coated Sheets Mills which are operating as SSI units. The major players in the category are Mukand steels, Mahindra Ugine, Kalyani steels and Usha Martin. With India becoming net importer of steel by 2005 it become much competitive for small producers to continue as stand alone steel producers. a) Sponge Iron

India is the largest coal based producer of sponge iron in the world (accounts for 15 per cent of global output) with installed capacity of 9 million tonnes (2003-04). Apart from India, Mexico, Venezuela, and Iran are adding sponge iron producer’s and now together produce 50 per cent of the total production of sponge iron in the world. Jindal Steel & Power Ltd. is the largest producer of coal based sponge iron in Asia and second largest in the world. It has the world’s largest coal-based sponge iron capability at its Raigarh plant with a capacity of 650,000 TPA. The growth in terms of production and installed capacity has been significant in the recent years due to rise in demand for steel scrap and sponge iron.


Trend of Sponge iron production in India

5.596.89 7.67 8 8.25 8.5 9.5

2000-01

2001-02

2002-03

2003-04

2004-05 (E)

2005-06 (E)

2006-07 (E)

Mill

ion

tonn

es



10

India’s sponge iron production has increased to 8 times to 8 million in year ended March 2004 from a mere 0.9 million tonnes during 1991.The industry is experiencing rising cost of raw materials high cost of capital and rising steel scrap imports. However, industry players are able to generate power through waste gases at very low cost proving to be the biggest blessing to the sponge iron industry. The future of sponge iron industry depends upon steel demand coupled with the availability of its substitute i.e. steel scrap. The global supply of sponge iron is expected to reach 55 MTPA in 2010 as against about 40 MTPA at present, liquid hot metal and solid pig iron would also be used to a large extent. b) Pig Iron

The world market for pig iron is pegged at US $ 92 billions of which China accounts for 21 per cent of total market with 1 per cent annual growth. The major importers being USA, South Korea and Japan and major exporter are being Brazil, China and Russia. India is medium level producers of pig iron. India exports pig iron to South Korea, Thailand, Iran & Malaysia. Pig Iron has also seen substantial growth during the past few years. Previously there was only one unit to produce pig iron in the secondary sector. Post liberalization production of pig iron has also increased from 1.6 million tonnes in 1991-92 to 5.28 million tonnes in 2002-03. During the year 2003-04, the production of Pig Iron was 5.221 million tonnes. The share of secondary producers of in total pig iron production has surged to 81 per cent in 2004-05 from 6.3 per cent in 1991-92. KIOCL, Sesa Goa and Usha Ispat are the major producers of pig iron. Integrated steel plants like SAIL and RINL also produce a significant amount of pig iron.


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4. EXPORT & IMPORTS 4.1Exports

a) Exports Decline India’s contribution is less than 1per cent of total global steel exports it was 3.45 million tonnes during 11 months ended Feb 2005. India’s exports have declined by 31per cent during 11 months ended February 2005 to 3.45 million tonnes compared to 5 million tonnes during same period in the previous year. Cooling down of China’s economy, the earlier policy-swings with regard to DEPB rates, the shift in focus on ensuring domestic availability first prior to exports has continued to slow down of steel exports. India exports mainly carbon steel which account for 95per cent of total steel exports. Pig iron accounts for the balance of exports.

b) Demand surpassing capacity

India’s steel demand is projected to rise at a compounded growth rate of 6.5per cent over next 7-8 years. India being one of emerging economies in the world is likely to consume more steel in coming years due to government’s emphasis on housing, infrastructure and rising boom in automobile With installed capacity of only 36 million tonnes, and demand to surpass 40 million tonne mark in next 2-3 years India has to either import steel or expand domestic capacity. Expanding existing steel manufacturing facilities has a gestation period of 1.5-2 years per million tonne and for a green field project it takes 2-3 years per million tonne. So in order to meet the demand India has to import steel from major steel producers like China, Russia and Japan.

c) Expanding Capacity To expand domestic capacity steel manufacturers have stated investing in capacity expansion. India’s’ steel majors Steel Authority of India (SAIL) has envisaged US $ 5 billions expansion plan and Tata Iron & Steel Company (TISCO) has planned US $ 2.3 billions for modernization programme. Government has envisaged national steel policy which has planned to raised


Trend of India's Steel exports breakup

2.7 2.7

4.5 4.83.3

0.2 0.3

0.6 0.5

0.2

2000-01 2001-02 2002-03 2003-04 2004-05(Apr - Feb

05 E)

Mill

ion

tonn

es

Carbon Steel Pig Iron


Capacity expansion plan India's steel manufacturer's

1220

5

153

7

10

13.3

2.4

3.64

2.4

2004 2011

Milli

on to

nnes

SAIL TISCO RINL Jindal ISPAT Essar


12

India’s steel manufacturing capacity to 100 million 2020.

d) Export destinations India’s major steel export destinations are China, USA, UAE, Thailand, Italy and Iran. China’s imports accounts for 24per cent of India’s total steel exports and then followed by USA (8per cent), UAE & Thailand (5per cent), Italy and Iran (4per cent) during year ended 2004. In the coming years, China is transforming it self to net exporter of steel from net importer. With the pace of rising demand of steel in India, it will soon become net importer of steel by year ended 2005. e) Indian Steel Products exports on a rise: During the six months ended September, 2004 exports of steel products have gone up in all the segments namely Flat, Long, Alloy and others. According to industry expectation, exports of steel products for the year ended March 2005 might witness a 113per cent growth to US$1766millions. In particular the exports of flat products are expected to surge by an astonishing 281per cent to US$1150.42millions during year ended March 2005 from US$302.3millions in the previous year of 2004. The other categories of products are also expected to see a similar boost in exports. Long products are expected to grow by 50.8per cent to US$290.76millions; Alloy products are expected to record a growth of 32.31per cent to US$189.04millions. The positive trend of exports is mainly attributed to the favourable steel market. The prices of steel products have gone up slightly to enable higher revenue realization. The demand pull because of the infrastructure expansion in many countries abroad like china have helped the steel exports grow.

India's major steel export destination - 2004 (%)Tiger pumping more steel to dragon

Others50%

Italy4%

Iran 4%

UAE5%Thailand

5%

USA8%

China24%

India's Total steel exports 2004 = US $ 2591 millions

Trend of Steel Product exports

0

500

1000

1500

2000

2000-01 2001-02 2002-03 2003-04 2004-05(E)

US$

Milli

ons

Flat Long Alloy Others

Source: Cygnus Research


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4.2 Imports

a) Imports on the surge India’s steel imports are expected to surge by 2per cent to 1.54 million tonnes during the year ended March 2005. Opening up of the import-trade and strong growth in manufacturing/industrial activities (both non-flat and flat steel) are likely to favor growth of imports in the coming months. India’s has till now has not imported significantly but with rise in demand and new steel policy giving life to steel demand and per capital consumption set to rise to 55 kgs by 2010 from the present 20 kgs it is likely to do so. With demand is all set to surge, India’s imports are projected to surge by 7-8per cent per year for next 5 years.

b) Import destination India’s sources its steel imports from Germany and Russia who accounts for 10per cent of India’s total steel imports and followed by Japan, UK and Korea who account for 9per cent, 8per cent and 6per cent respectively during 2004. In the coming years China’s will be another country from where India will source its steel imports as it will transform it self as net exporter of steel by end of 2005. Increasing production of steel, rising capacity coupled with rise in exports will lead to more availability of steel in the country.

India's Steel imports destination - 2004 (%)

Korea6%

UK8% Japan

9%

Russia10%

Germany10%

Others57%

India's total steel imports = US $ 1774 millions


Trend of India's steel imports

1.201.251.301.351.401.451.501.551.60

2000-01 2001-02 2002-03 2003-04 2004-05 (E)M

illio

n to

nnes



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5. REGULATIONS 5.1. Issues regarding investments With the adoption of new industrial policy by government of India steel sector has opened up for private investment which was earlier reserved for government sector and needs licensing. The government has permitted FDI freely and import technology under automatic rules.

5.2. Issues regarding setting up industries

With Indian market opening up post liberalization, foreign MNC’s have started venturing into Indian territory for setting up operations in order to cater Indian market. There are several ways in which foreign companies can enter Indian markets (a) directly setting up operations in India through a branch office or a representative office or liaison office or project office of the foreign Company (b) Setting up an Indian arm i.e. through a subsidiary company set - up in India under Indian laws like Indian company.

The other methods are joint ventures, partnership, branch office, liaison office etc as depicted in the chart besides.

5.3 Pricing & regulations

a. Budget impact i) Budget lowers prices In Feb 2005, government of India has come out with some initiatives in general budget for steel sector. The duties on various steel products like hot rolled coil (HRC), cold rolled coil (CRC), and galvanized sheets has been brought down to 5per cent from existing 10per cent. This has led fall in prices of steel products to reduce drastically. The prices of Cold Rolled Coil (CRC) has witnessed biggest fall of

Trend of Steel Products Pre & Post Budget (2005-06)Reduction in duties lowers prices

464 444

467 427

398 379

405 387

426 406

325 309

Pre Budget Post Budget

US

$ / T

onne

GP/GC CR coils HR coilsBars and rods Billets/Slabs Pig iron

A ll f i d d t t


Public/ Pvt Company

Sole Proprietorship

Partnership

Joint Ventures

Wholly Owned Subsidiaries

As an Indian Company

Starting Business in India

As a Foreign Company

Branch Office

Project Office

Liaison Office/ Representative Office

Branch Office “Stand lone Basis” (For Special Economic Zones)



15

8per cent to US $ 427 per tonne in the post budget scenario. It is followed by prices of Hot Rolled Coils (HRC), Billets and Pig iron that has witnessed fall of by 5per cent to US $ 379 per tonne, US $ 406 per tonne and US $ 309 per tonne. Other products like galvanized sheets & bars have witnessed 4per cent fall in prices to US $444 per tonne & US $387 per tonne. Even globally industry is exhibiting high degree of cyclicality. It is on an upswing since the last couple of years helping steel prices in firming up of steel prices and hence will improve in the profitability of steel companies. ii) Budget Impact on companies & Industry

Budget Proposals Impact Expectation

2005-06 Industry Companies Reduce import duties on graphite electrodes (above 24” in size) from 15per cent to 10per cent

Import Duty reduced to 10per cent on inputs to steel industry like electrodes, graphite, refractory catalysts

Margins of companies will rise

SAIL ( ), TISCO( ), JINDAL( ), ISPAT( ) & ESSAR( )

Reduce excise duty on steel from the current 12per cent as total taxation (including state levies) works out to 24per cent

Excise duty hiked from 12per cent to 16per cent

Steel price to be hiked Rs 1500 per tonne

SAIL( ), TISCO( ), JINDAL( ), ISPAT ( )& ESSAR( )

Cut in customs duty on inputs (Coal) to 10per cent from 15per cent

Customs duty reduced on coking coal to 5per cent with more than 12per cent ash content

No much impact as firms use coal with less than 12per cent ash content

No Impact on companies

Reduce import duty on stainless steel & Alloy steel from 15per cent to 10per cent

Lower landed cost of HR coils by Rs 6500 - 7500 per tonne

Jindal Stainless Ltd.

Customs duty on primary and secondary metals reduced to 10per cent from 15per cent

Rising global prices to neutralize the impact for companies

Hind Zinc, NALCO, Hindalco( ),

iii) Issues not addressed → Cut import duties on cold rolled/hot rolled steel, alloy steel and die steel for use by the automobile

industry to 5per cent from 15per cent. → Halve import duty on furnace oil to

10per cent and cut it on limestone to 5per cent

→ Extend provision for warehousing without payment of excise to steel manufacturers

b. National steel policy 2020: Giving new life to industry According to the government, Indian steel sector is expected to generate


16

employment for about 10 lakh people by 2020. This is an outcome of the national steel policy announced in October 2004. With a huge investment of Rs 2, 30,000 crores, the policy is set to achieve the target output of 100 million tons by 2020 from the current 33 million tons. The Indian government has envisaged National Steel Policy 2020 to enhance operational efficiency and per capita steel consumption. The government’s vision is to make India the cheapest and largest producer of best quality of steel with least damage to environment. The steel sector, in order to achieve its objective, has to overcome issues like declining duty protection, rising freight costs, cyclical nature of sector and financing expansion. i) Objective of policy

The industry is preparing to meet its objectives but there are certain disadvantages like absence of coking coal, high energy cost, poor labor productivity and quality of infrastructure. These factors hinder the process of meeting the objectives of the policy. These hindrances can be set off with factors like low per capita spending, rising infrastructure facilities, low iron ore cost, low labor cost , low interest rates and increased consumer spending which shall help in achieving the targets of policy. ii) Policy pronouncement

The national steel policy envisages promoting domestic demand for steel, creating a platform for export s by removing marketing blocks to become competitive and assuring minimal damage from unfair import competition, assuring proper supply of inputs, resources and infrastructure, ensuring proper flow of capital, enhancing skills of workforce, active R&D support in optimization of indigenous materials, simplified environmental legislation and implementation of proper management information system enabling to make decision quickly

c. Value added tax (vat): Unlikely to influence prices In the case of larger steel-makers like Steel Authority of India (Sail) and Tata Steel, the VAT regime is unlikely to make a major difference to their tax incidence. This is because the VAT rate for most iron and steel items would be 4per cent, the same as the prevalent sales tax rates in most states. Intermediate goods as well as semi- and finished steel items are to be subjected to 4per cent VAT for every successive value addition with input tax credit. Industrial consumers of steel like the manufacturing and construction industries have no facility to avail of input tax credit. The industrial consumers of steel like automobile manufacturers and white goods makers will have to either pass the onus of tax to the end consumer or take the hit partially. The principal worry of Essar Steel as the state VAT comes in is whether the company would lose sales tax exemption, which it has till 2007, for its plant in Hazira, Gujarat. Unless the sales tax exemption goes, the company does not expect any major change in tax incidence due to VAT.


17

d. Foreign direct investment India is an attractive spot for FDIs and FIIs. It is the 3rd most attractive investment destination and the most preferred BPO destination, according to ‘AT Kerney’. It is one among the three investment ‘hot spots’ listed by UNCTAD for next four years. Goldman Sachs, the investor banker forecasted a continuous expected growth of 5per cent per annum till 2050. According to World Bank studies India is undertaking reforms at a fast phase. It is one among the top 5 ‘Reformers’ in 2003, Government of India’s (GoI) bold efforts are boosting confidence in foreign investors. In India FDI has been approved 100per cent in metallurgical industries since 1991 and has received 407 approvals with a total investment of US $ 4.27 billions. The metallurgical sector accounts for 5.31per cent of total FDI received with an inflow of US $ 0.31 billion. FDI from Japan stands in third position contributing 7.63per cent total FDI inflows during 1991- 2004. The total FDI inflows during the quarter ended March 2004 is expected to be US $ 0.01 billions from US $ 0.09 billions during the same period in the previous year. FDI from Japan has exhibited an uneven and fluctuating trend. In recent years there has been sharp decline in FDI from Japan overall. The chart suggests the downward direction of overall FDI declination. Staring an Industry: A Cake Walk Prior to 1991 investment decisions were subject to Government directives. Since 1991 GoI is carrying a progressive deregulation and decontrol of industrial norms. Industrial license is now required only for three categories. Under compulsory licensing six industries are listed (Steel industry not included). Apart from that some items which are reserved exclusively for Small Scale Industries (SSIs) (List shown in Appendix). Projects to be located around large cities and few ‘strategic’

FDI in Metallurgical industries at a Glance (1991- 2004)

1. No. of FDI Approval - 407 2. FDI Approved - US$4.27 bn 3. Per cent of total FDI approved - 5.31per cent 4. FDI inflows - US$0.31 bn 5. Per cent of total FDI inflows - 1.31 per cent

Source: Economic Survey of India, 2004

Japanese FDI (US$ bn)

0.41

0.230.22

0.090.01

00.050.1

0.150.2

0.250.3

0.350.4

0.45

2000 2001 2002 2003 2004 (Jan-Mar)

FDI

ORISSA: Becoming global steel manufacturing hub → Iron ore reserves 3,567 million tonnes or 26.5 per cent of

India’s total reserves → State accounts for 90 per cent of India’s chrome ore and

nickel reserves, 70 per cent of bauxite reserves and 24 per cent of coal reserves

→ MOU with 8 companies to set up 10 million tonne capacity 15 proposal in pipelines. Total proposed investments till date 205 –worth US$ 26 billions

→ MNC’s Posco, BHP Billiton & Vedanta takes off mining in the state

→ Projects in proximity to the national highways that reduces transportation cost & Long costal belt with easy



18

sectors also need license. Reservation for public sector is limited to Atomic Energy and Railways.

5.4) Employment regarding laws Indian or foreign companies who have set up plants or operations in India have to abide by the rules and regulations laid down in the Indian judicial system. To carry out business in India as a company some acts are applicable: Indian Companies Act, 1956, Indian Factories act, 1948, Mines act 1972, Workers Compensation 1923, Employees’ State Insurance act, 1948, Payment of Gratuity Act, 1972 minimum wages act, Payment of Bonus act 1965, Contract Labour [R & A] act 1970 and Payment of Wages Act, 1936. The summary of all acts have been incorporated in Annexure 1 of the report.

5.5) Regulatory body

In India there is no regularity authority for steel industry but there is Union ministry for steel. The duty of ministry is to

→ Co-ordinate and plan for the growth and development of Iron and Steel Industry in the country (including Re-rolling Mills, Alloy Steel and Ferro Alloy Industries, Refractories) both in the Public and Private Sectors;

→ Formulate policy in respect of production, pricing, distribution, import and export of iron & steel, ferro alloys and refractories; and

→ Develop input industries relating to iron ore, manganese ore, chrome ore and refractories etc. , required mainly by the steel industry

Apart from above ministry of steel is responsible for managing the following public sector units i) Steel Authority of India Limited

ii) Rashtriya Ispat Nigam Limited

iii) National Mineral Development Corporation Limited

PRODUCTION/OPERATIONS:

FACTORIES ACT,1948

MINES ACT,1972

WORKERS COMPENSATION ACT, 1923

ESI ACT. 1948

PAYMENT OF GRATUITY ACT 1972

MINIMUM WAGES ACT

CONTRACT LABOUR ACT 1970

COMPANY ADMINISTRATION:

COMPANIES ACT 1956

ENVIRONMENT:

WATER (PREVENTION & CONTROL OF POLLUTION) ACT,1974

AIR (PREVENTION & CONTROL OF POLLUTION) ACT, 1981

BIO DIVERSITY ACT 2002

FOREIGN EXCHANGE:

SEBI

FEMA

FCRA

ANINDIAN STEEL

COMPANY

LAWS AFFECTING COMPANIES REGISTERED IN INDIA



19

iv) Kudremukh Iron Ore Company Limited

v) Manganese Ore (India) Limited

vi) MSTC Limited

vii) Sponge Iron India Limited

viii) MECON Limited

ix) Hindustan Steel Works Construction Limited

x) Bharat Refractories Limited


20

6. MAJOR PLAYERS 6.1 Steel Authority of India INCORPORATION YEAR: 1973 BUSINESS GROUP: Government FORM: Public

INTRODUCTION Steel Authority of India Ltd (SAILl) is India’s leading fully integrated iron and steel company. At present, the Government of India has 86per cent stake in the company and it is the world’s 13th largest steel producer, producing 12 million tonnes of crude steel per annum. SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structural, railway products, plates, bars & rods, stainless steel and other alloy steels The company manufacturers steels for domestic construction, engineering, power, railway, automotive and defence industries and for exports.

SHARE’S DATA Equity Capital US $ 946 millions (31st March,

05) Shareholders Fund US $ 1,161 millions (31st

March, 04) Face Value (INR) 10 Book Value (INR) 11.3 (31st March, 04) Market Value (INR) 62.95 (31st March 05) Market Capitalization US $ 9 millions (31st March

,05) Latest P/E Ratio 5.3 (31st March 04)

PLANT LOCATIONS Location Address

Bhilai Bhilai Steel Plant, Bhilai, Chattisgarh, India

Bokaro Bokaro Steel City, Bokaro, Jharkhand 1) Durgapur Steel Plant,

Durgapur, West Bengal Durgapur 2) Alloy steel Plant, Durgapur, West Bengal

Rourkela Rourkela steel Plant, Rourkela, Orrisa

Salem Salem steel plant, Salem, Tamil Nadu

Bhadravati Visvesvaraya Iron & Steel plant, Bhadravati, Karnataka

CORPORATE ADDRESS ISPAT Bhavan, Lodhi Road, New Delhi - 110006, Telephones 91-011-24367481 Fax: 91-011-24367015 E –Mail: [email protected] WebSite: www.sail.co.in

Share holding pattern in SAIL (2004)Govt86%

Companies2%

FI's5%

Individuals5%

FII's2%



21

SAIL manages and operates four integrated steel plants at Bhilai, Chhattisgarh; Bokaro, Jharkhand; Durgapur, West Bengal; and Rourkela, Orissa. SAIL operates nine iron ore, five limestone, three dolomite and three coal mines besides generating 700 MW of captive power. SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps produce quality steel and develop new technologies for the steel industry. SAIL also regularly exports Hot Rolled Coils, Plates, Sheets, Semis, etc., to various countries. SAIL maintains an extensive network of branches and stockyard at 44 locations and a number of sales and customer contact offices spread all over the country. Nodal stockyards with mechanized handling systems in selected locations provide gives SAIL with an edge over its competitors in making steel materials, readily available on Just-In-Time basis MILESTONES

1954 Hindustan Steel Private Limited was set up

1961 The 1 MT phases of Bhilai and Rourkela Steel Plants was completed.

1962 The 1 MT phase of Durgapur Steel Plant was completed after commissioning of the Wheel and Axle plant .The crude steel production of HSL went up from 0.158 MT (1959-60) to 1.6 MT.

1964 A new steel company, Bokaro Steel Limited, was incorporated to construct and operate the steel plant at Bokaro.

1967 The second phase of Bhilai Steel Plant was completed after commissioning of Wire Rod Mill.

1973 Formation of Steel Authority of India Ltd. The company, incorporated on 24thJanuary, 1973 with an authorized capital of INR2000 crore.

1978 SAIL was restructured as an operating company.

2000 Government of India approved the Financial and Business-restructuring proposal of SAIL.

2000-01 The total turnover of the company achieved US $ 3, 721millions. 2003 SAIL recorded a net profit of INR 255 crore in Q1 of the current financial year (2002-03).


22

SUBSIDIARIES • Indian Iron & Steel

Company (IISCO) • Maharastra Elektrosmelt

Ltd • Bhilai oxygen limited.

MANAGEMENT TEAM Name Designation

Shri V. S. Jain Chairman Dr. S. K. Bhattacharyya Managing Director Dr. Sanak Mishra Managing Director, Rourkela Steel Plant, Shri V. K. Agarwal Director Shri P. K. Sengupta Director Dr. Amit Mitra Director Shri Ashis Das Director (Personnel) Shri U. P. Singh Managing Director, Bokaro Steel Plant, Shri S. K. Roongta Director (Commercial) Shri R. P. Singh Managing Director, Bhilai Steel Plant, Shri G. C. Daga Director (Finance) Shri K. K. Khanna Director (Technical) Shri Ajoy Kumar Joint Secretary ( Government of India)

Steve Bates Additional Director

Dr. Y.R.K Reddy Director Shri. D.V.Singh Director Shri S.N.Mishra Director Shri. A.H. Jung Director Shri. S.Y. Qurashi Director

Company Annual Report


23

PERFORMANCE ANALYSIS Operational Performance During year ended March 2004, operating profits have doubled to US $ 1,071 millions compared US $ 455 millions in the previous year. During the year company has adopted cost cutting measures in energy consumption that reduced to 7.35 giga calories per tonne in 2004 (Gcal/tcs) from 7.48 in 2003. This brought down selling expenses by 1per cent and fall in cost of raw materials as a per cent of net sales despite rise in prices of coke, coal and petroleum products which have fueled PBDIT margin to rise 98 basis points to 19.6per cent. Financial Performance

Financial year March 2004 was very remarkable period for the company as company had posted net profit after a gap of 5 years to US $ 579 millions. Strong revival of steel demand, rise in international steel price coupled with rise in exports have fetched company higher profits. During the current fiscal FY 2005 company has added products to its portfolio that have fuelled company’s top line growth. Apart from improvement in production through energy efficient continuous casting route, improvement in techno-economic factors has also contributed substantially to the bottom-line growth.

Trend of Sales & PAT (US $ Millions)

0100020003000400050006000

2001 2002 2003 2004

Sale

s

-400-2000200400600800

PAT

Sales PAT


Trend of PBDIT Vs PBDIT Margin

0200400600800

10001200

2001 2002 2003 2004

PBD

IT (U

S $

Mill

ions

)0

5

10

15

20

Mar

gin

(%)

PBDIT PBDIT Margin



24

FINANCIAL HIGHLIGHTS (all figures in US $ millions)

Balance Sheet Items 2003-04 2002-03 2001-02 2000-01

Net Worth 1,074 414 461 889 Capital Employed 3,506 3, 480 3,491 3,899 Fixed Assets (Gross Block + Capital WIP) 3,119 3,029 3,165 3,500 Total Debt 2,002 2,720 2,871 3,042 Net Working Capital 475 527 460 659

P&L Items Sales 4,960 4,053 3,201 3,486 Exports 389 227 110 118 Raw Materials Cost 1,703 1,403 1,246 1,360 Employee Cost 1,096 783 665 767 PBDIT 1,071 455 207 463 Depreciation 259 241 237 244 Interest & Financial Charges 207 281 320 374 PBT 606 -66 -350 -156 PAT 579 -64 -350 -156 EPS* (INR) 1 0 -1 0 Cash Profit 838 177 -113 89

KEY RATIOS 2003-04 2002-03 2001-02 2000-01

Debt-Equity Ratio 1.5 5.02 3.82 2.99 Current Ratio 0.9 0.66 0.7 0.8 Interest Cover Ratio 4 0.67 -0.49 0.42 Inventory Turnover Ratio 7.93 4.95 3.65 3.57 Debtors Turnover Ratio 15.86 12.63 10.16 9.32 Operating Profit Margin (per cent) 19 9.6 Nil Nil Net Profit Margin (per cent) 11.7 -2.33 -15.16 -6.27 Return on Capital Employed (per cent) 28.8 Nil Nil Nil Return on Net Worth (per cent) 53.9 Nil Nil Nil



25

6.2 Rashtriya Ispat Nigam INCORPORATION YEAR: 1972 BUSINESS GROUP: Government FORM: Public

PLANT LOCATIONS

Location Address

Vizag

Rashtriya Ispat Nigam Limited Visakhapatnam Steel Plant Main Administrative Building,Visakhapatnam - 530 031

INTRODUCTION

Visakhapatnam Steel plant, unit of Rahtrya Ispat Nigam Limited is frequently identified as vizagsteel. It is a shore based Integrated Steel Plant located in southern part of India. The turnover for the FY 2003-04 of vizagsteel stood at US$ 1.50 billion with net profit of US$ 350 million and is expected to better in FY 2004-05. Vizagsteel plans to double its capacity from 3.4 mTPA to 7.0 mTPA in a tight schedule of less than 36 months by investing about US$ 2.0 billion

RNIL’s product mix comprises Wire Rods, Bars, Angles, Channels, Beams, Rounds and Billets. The Plant also produces Pig Iron, Granulated Slag and Coal Chemicals. The rolled products find extensive usage in the Construction, Infrastructure, Railways, Power, and Oil, Defense, Transport and Ship Building sectors. Bars and Rods are used mainly for re-inforced concrete work for housing, construction of dams, buildings & factories, manufacture of agricultural implements, fabrication of light engineering components. The Wire Rods are used in Wire Drawing industry for electrodes, transmission lines and weld ability requirements. The structurals find application in engineering, house building, agricultural implements, machinery, transmission towers, etc.

SHARE’S DATA Equity Capital 1, 803.52 (31st March 04) Shareholders Fund 1, 803.52(31st March 04) Face Value (INR) 1000

CORPORATE ADDRESS Rashtriya Ispat Nigam Limited Visakhapatnam Steel Plant Main Administrative Building, Visakhapatnam - 530 031 Andhra Pradesh (India) Tel : 91-(891)- 518226 / 518376 Fax: 91-(891)- 518316 Website: www.vizagsteel.com E-mail : [email protected]

Composition of Sales - 2004

Exports13%

Domestic87%

Shareholding Pattern (%) - 2004

Govt99%

Banks1%



26

SUBSIDIARIES • Ferro Scrap Nigam ltd


BK Panda Chairman & Managing Director K Appa Rao Director(Personnel) Y Siva Sagar Rao Director(Commercial) P K Bishnoi Director(Finance) K K Rao Director(Operations) Dr S N Dash Director P Mohan Rao Co. Secretary BK Panda CH &MD Company Annual Report


27

PERFORMANCE ANALYSIS Operational Performance During year ended 2004, operating profits have doubled to US $ 477 millions compared US $ 242 millions in the previous year. During the year company maximized waste utilization products like LD slag used in Sinter Plant to replace limestone to the extent of 1, 28,126t, Scrap to the extent of 9,846t was reclaimed from maintenance activities and measures in order to achieve reduction in freight, transportation & handling charges for both inward and outward movement of materials including export as well as reduction in interest charges. All these measures enhanced company’s operating margin by 13 basis points to 38% on YoY basis. Financial Performance During the year ended March 2004 net profits of company has witnessed significant rise of 226% in its net profits to US$356 millions compared to year ended March 2003. The revenue generation had been increased by the sales realisation value and the increased sale of value added products. The Company had retained also its share among the producers and increased its share among main producers. The company has proposed an expansion plan by 2012 with an investment of US$1,934 millions In the first phase, capacity enhancement to 5 Mt of hot metal, 5 Mt of liquid steel and 4.48 Mt of saleable steel has been planned. These units will be commissioned by December, 2007. The focus is on minimizing investment by maximizing utilization of facilities up to iron making stage.


0

500

1000

1500

2003 2004

Sale

s

100150200250300350400

PAT

Sales PAT



0100200300400500600

2003 2004

PB

DIT

(US

$ M

illio

ns)

20

25

30

35

40

Mar

gin

(%)

PBDIT PBDIT Margin



28


Balance Sheet Items 2003-04 2002-03 2001-02

Net Worth 1, 117.92 691.35 562.04 Capital Employed 1, 138.86 950.59 978.20 Fixed Assets (Gross Block + Capital WIP) 2, 012.70 3, 869.92 1,821.03 Total Debt 293.20 508.51 657.70 Net Working Capital 361.87 145.29 110.90

P&L Items Sales 1,301 929.32 NA Exports 177.24 126.28 NA Raw Materials Cost 472.45 379.89 NA S&D Expenditure 79.52 71.13 NA Employee Cost 110.86 85.41 NA Stores and spares consumed 79.52 67.91 NA PBDIT 477.58 242.19 NA Depreciation 105.36 92.0 NA Interest & Financial Charges 11.26 39.09 NA PBT 356.49 109.55 NA PAT 356.49 109.55 NA EPS (INR) 316.41 106.48 NA

Cash Profit 462.06 201.55 NA

KEY RATIOS 2003-04 2002-03 2001-02

Debt-Equity Ratio 0.50 .24 0 Current Ratio 2.36 1.59 1.46 Interest Cover Ratio 7.73 5.20 NA Inventory Turnover Ratio 8.76 5.89 NA Debtors Turnover Ratio 72 23.3 NA Operating Profit Margin (%) 37.96 25.77 NA Net Profit Margin (%) 28.32 11.67 NA Return on Capital Employed (%) 9 12 31 Return on Net Worth (%) 8.89 16 32



29

6.3 Tata Iron & Steel INCORPORATION YEAR: 1907 BUSINESS GROUP: Tata group FORM: Public

PLANT LOCATIONS

Location Address Company’s Steel Works Tubes Division

Jamshedpur, (Jharkhand)

Ferro Manganese Plant Joda, (Orissa) Charge Chrome Plant Bamnipal,

(Orissa) CRC (West) Tarapur,

(Maharashtra) Bearing Division Kharagpur, West

Bengal Noamundi Mines Jharkhand Joda & Sukinda Mines Orissa West Bokaro & Jamadoba Jharkhand

Collieries Dodkanya Karnataka

West Bokaro & Jamadoba Jharkhand INTRODUCTION TISCO was incorporated in the year 1907. Over the years, TISCO has diversified to manufacture, welded-steel tubes, cold-rolled strips, seamless tubes, carbon and alloy steel bearing rings, alloy steel ball bearing rings, bearings, ferro manganese, ferro chrome, metallurgical machinery, etc. The company has the distinction of being one of the lowest cost steel producers in the world. Tata Steel's relentless quest for excellence through initiatives like ASPIRE, which combines TPM, Six Sigma, Total Operational Performance, Suggestion Management and Quality Circles, has reaped rich benefits.

SHARE’S DATA Equity Capital US $ 126 millions (31st

March, 05) Shareholders Fund US $ 1,035.71 millions (31st

March, 04) Face Value (INR) 10 Book Value (INR) 118.2 (31st March, 04) Market Value (INR) 400.9 (31st March 05) Market Capitalization US $ 25 millions (31st March

,05) Latest P/E Ratio 7.25(31st March 04)

CORPORATE ADDRESS Bombay House, 24, Homi Mody Street, Fort, Mumbai Maharashtra 400001 Tel: 91-22-56658282 Fax: 91-22-56658113/8 E-mail: [email protected] Web: www.tatasteel.com

Shareholding pattern in % (2004)

Tata Group26%

Individuals29%

Government 19%

Companies6%

FII13%

Others 7%

Composition of Sales (%) 2004

Bearings1%

Rings1%

Others6%

Tubes6%

Exports13%

Domestic73%



30

MILESTONES

1907 Tisco was incorporated as company in India

1911 First pig iron was produced

1912 First steel made, bar mill co0mmences rolling

1915 Ferro-manganese made for the first time India.

1916 Launches Greater Extension Scheme to raise capacity to 450,000 tons and diversity production.

1920 Leave with pay, Workers’ Provident Fund, Workmens’ Accident Compensation Schemes introduced.

1923 The Tinplate Company of India commenced manufacture.

1924 Manufacture of Steel by Duplex Process commenced.

1939 The new 100-Tonne Blast Furnace started operation. 1942 Manufacture of special steels for war purpose developed a Benzol plant and the Wheel Tyre and

Axle Plant the first of its kind in the country went into operation. 1959 New agreement is signed in February with the Tata Workers’ Union Jamshedpur. 1961 An industrial license is obtained by Tata Steel for an Alloy-Steel project in July. 1962 Tata-Robins-Frazer formed in collaboration with Hewitt-Robins Inc., USA and Frazer & Chalmers

Engineering Works of GEC, UK. 1968 Tata Yodogawa Limited, a new company to undertake the manufacture of steel mill rolls was floated.1984 Merger of the Indian tube company with Tata Steel. 1995 Cement plant production crossed 1 million tonnes mark and proposes to start 10 MT plant in Orissa2000 CII EXIM bank award for excellence 2001 Conferred Sap installation award & ISO 14001 EMS Certification Tata steel growth shop 2002 Technical agreement with Nippon steel 2003 Floats Jamshedpur Utility and Services Company Limited (Jusco ) & Signs Agreement with

Consortium Partners for Feasibility Study of Titania 2004 Unveils new 2.4 million tonnes expansion programme

SUBSIDIARIES • Tinplate Company of India Ltd • Tayo Rolls Limited • Tata Ryerson Limited (TRYL) • Tata Refractories Limited (TRL): • Tata Sponge Iron Limited (TSIL) • Tata Metaliks • Tata Pigments Limited • Jamshedpur Injection Powder Ltd • TM International Logistics Ltd: • Jamshedpur Utility and Service

Company Ltd • MetalJunction.com Private Ltd • TRF Limited • The Indian Steel and Wire Products


Mr B Muthuraman Managing Director Dr T Mukherjee Dy. MD (Steel) Mr A N Singh Dy. MD (Corporate Services) Mr R C Nandrajog VP (Finance) Mr H M Nerurkar VP ( Flat Products) Mr D Sengupta VP (Shared Services) Mr A D Baijal VP (RM&IM) Mr N Mahanty VP (HRM) Mr U K Chaturvedi VP (Long Products) Mr R P Singh VP (Eng. Services & Products)Mr J C Bham Company Secretary



31

Ltd • Lanka Special Steel Limited • Sila Easten Company Limited

PERFORMANCE ANALYSIS Operational Performance During the year ended March 2004, operating profit (PBDIT) has almost doubled to US $ 805 millions. The company witnessed significant improvement due to reduction of cost on raw material front, despite rise in cost of iron ore, coke, coal and petroleum products. TISCO was able to manage to reduce the employees cost due to huge investment made earlier on training to enhance technical and non technical skill of employees are giving results Through efficiency measures company could reduce other expenses by 7 basis points as a percentage of net sales. Financial Performance TISCO witnessed its bottom line doubling to US $ 402 millions. Tisco initiative to enrich the product mix of provided excellent results. The supplies to the auto sector products were up by 32 per cent on YoY basis. The sales of branded products Tata Shakti, Tiscon and Tata Steelium also witnessed significant surge of 13per cent, 15per cent and 27per cent respectively. Tata steel is planning to expand its capacity to 15 million tonnes by 2010. The company has acquired Singapore based steel company Nat Steel that gives indication of increasing its presence in international market. The company is set to enhance revenue contribution from value-added and branded products, currently which contribute a third of its total revenues. The company is gradually changing the product-mix towards the higher value-added flat products and is increasingly focusing on branding in order to improve revenue levels and profitability.


0500

10001500200025003000

2001 2002 2003 2004

Sale

s

0100200300400500

PAT

Sales PAT



0100200300400500600700800900

2001 2002 2003 2004

PBD

IT (U

S $

Mill

ions

)

20

22

24

26

28

30

32

34

Mar

gin

(%)

PBDIT PBDIT Margin



32



Net Worth 1,005 671 994 736 Capital Employed 2,336 2,041 1,950 2,037 Net Fixed Assets 1,811 1,587 1,545 1,589 Total Debt 1,077 991 865 720 Net Working Capital 19 202 224 243

P&L Items Sales 2,781 2,072 1,576 1,667 Exports 345 276 119 162 Raw Materials Cost 499 372 289 278 Employee Cost 311 256 225 197 PBDIT 805 485 260 377 Depreciation 144 117 107 105 Interest & Financial Charges 32 72 83 144 PBT 666 266 51 129 PAT 402 213 42 118 EPS* (INR) 11 5 1 3 Cash Profit 546 330 149 223

KEY RATIOS 2003-04 2002-03 2001-02 2000-01

Debt-Equity Ratio 0.77 1.33 1.92 1.18 Current Ratio 1.02 1.36 1.54 1.55 Interest Cover Ratio (%) 22.88 5.14 1.68 2.6 Inventory Turnover Ratio 7.37 7.72 8.95 9.01 Debtors Turnover Ratio 6.75 10.38 15.48 15.56 Operating Profit Margin (per cent) 33.61 26.82 20.23 24.28 Net Profit Margin (per cent) 14 10 3 7 Return on Capital Employed (per cent) 28.12 16.29 6.51 10.33 Return on Net Worth (per cent) 46.28 35.88 6.38 14.38

Company Annual Reports


33

6.4 Ispat Industries INCORPORATION YEAR: 1972 BUSINESS GROUP: Jindal FORM: Public

PLANT LOCATIONS

Location Address

Dolvi

Geetapuram, Taluka Pen, Dist Raigad (Maharashtra), Dolvi 402 107

Kalmeshwar

A-10/1, MIDC Industrial Area, Dist Nagpur (Maharashtra), Kalmeshwar 441 501

INTRODUCTION 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 produces sponge iron, galvanised sheets and cold rolled coils, in addition to hot rolled coils, through two of its state-of-art integrated steel plants, located at Dolvi and Kalmeshwar in the state of Maharashtra. The Dolvi has latest technology the Conarc process for steel making and the compact strip process (CSP) - introduced for the first time in Asia. More over the plant has 2 million blast furnace and mechanized multi-functional jetty that facilitates the automation of raw material handling. The Kalmeshwar complex houses has galvanised plain/ galvanised corrugated (GP/GC) lines and India's first colour coating mill. Ispat is the only steel maker in India and among a few in the world to have total flexibility in choice of steel making route, be it the conventional blast furnace route or the electric arc furnace route. IIL proposes to grow by capacity expansion and expanding its HRC (Hot rolled coil) capacity to 3.6 million tonne and its CRC (Cold Rolled Coil) capacity to 1 million tonnes. It also proposes to complete its vertical integration process, increase the proportion of high-grade and value-added steel products in its product mix and leverage the advantage offered by the modern design and size of the facilities.


March, 05) Shareholders Fund US $ 1,161 millions (31st

March, 04) Face Value (INR) 10 Book Value (INR) 11.3 (31st March, 04) Market Value (INR) 62.95 (31st March 05) Market Capitalization US $ 9 millions (31st

March ,05) Latest P/E Ratio 5.3 (31st March 04)

CORPORATE ADDRESS Park Plaza,1st Floor 71, Park Street, Kolkata – 700016 Telephones: 91-33-249 2117/3119/5102 Fax : 91-2494216/2493050/2291956 E-mail: [email protected] Web: www.ispatind.com

Share holding pattern (%) - 2004

Promoters54%

Others6%

Banks & FII's 20%

Corporates3%

Indian Public17%



34

MILESTONES

1952 Mr. M L Mittal, the founder chairman of the Ispat Group, begins his foray into the iron and steel business with the takeover of an ailing rolling mill in Calcutta, India.

1953 Experimented electric arc furnace at a steel plant in Vizag, India and established nine more

1974 Enters international steel arena by setting up PT Ispat Indo in Indonesia.

1980

The Ispat Group takes over the Iron & Steel Company of Trinidad and Tobago, Sidemgical Del Balsar SA, Mexico, and additional units in Canada, Germany and Ireland. In India, the Group sets up the first thin gauge galvanised sheet unit, a specialty mini-mill to make rails and structurals - Ispat Profiles, and a cold rolling complex at Nagpur.

1985

Nippon Denro Ispat Limited, now known as Ispat Industries (IIL), is established and it rapidly emerges as the largest manufacturer of galvanised steel products in the private sector.

1988 IIL sets up a highly advanced cold rolling reversing mill, in collaboration with Hitachi of Japan. IIL instals a colour coating line – the first of its kind in India – for the manufacture of pre-painted colour steel sheets.

1994 IIL commissions the world’s largest gas-based single mega module plant for manufacturing direct reduced iron (sponge iron), at its Maharashtra-based Dolvi plant.

1995 A 1.5 MTPA hot strip mill with Continuous Strip Processing (CSP) technology is installed at Dolvi with automated raw material handling.

1998 A world-class integrated steel plant for the production of hot rolled coils is launched, armed the Conarc Process for steel making and the Compact Strip Process.

2000 The new millennium is witness to the erection and commissioning of a 2 MTPA blast furnace at the Dolvi steel complex in record time.

2003 Blast Furnace commissioned and increased Sponge iron capacity from 1.2 mtpa to 1.4 mtpa

2004 Increased Hot rolled coil steel and Sponge iron production capacity from 1.5 mtpa to 2.4 mtpa and 1.4 mtpa to 1.6 mtpa respectively.


Mr Pramod Mittal Chairman & Managing Director Mr Vinod Mittal Managing Director Mr B K Singh Executive Director-in-charge Mr Vinod Garg Executive Director (Marketing) Mr Anil Sureka Executive Director (Finance) Mr H B Lee Advisor (Business Development) Mr S Bhattacharyya Director (Strategy & Business Excellence) Mr George Thomas Director (Corporate Development) Mr Vilas Jamnis Director (Operations) - Dolvi Plant Dr Umesh Bahadur Director (Supply Chain Management) Mr V R Sharma Director - Kalmeshwar Plant



35

PERFORMANCE ANALYSIS Operational Performance

During year ended March 2004, operating profits have surged by 61per cent to US $ 145 millions compared US $ 90 millions in the previous year. The company could bring down cost on all parameters except that of interest charges and deprecation. The company also needs to focus on the energy front and optimize its captive units in order to reduce the cost of power. The operating margin too has surged by 12 basis points to 22per cent compared to 10per cent in 2001. The company has adopted cost reduction strategies that have helped it to sustain its operations during the period The company plans to give thrust to reduction of cost of operations so as to improve margins and efficiency.

Financial Performance

Financial year March 2004 was very remarkable period for the company with sales jumping 33per cent to US $ 860 millions gap of 5 years to US $ 579 millions. The sales growth was fueled by the rise in exports. But the net profits were down by 40per cent to US $ 9 millions. The company is on planed growth path by expanding its capacity through direct-reduced iron route or through a blast furnace. The company is in the process of reducing $122.16 million Euro convertible bonds (foreign debt) at a 75 per cent discount.

This will reduce Ispat’s outstanding debt of around US $ 1, 375 millions by US $ 105 millions which will reduce the financial cost of the company.


050

100150200

2001 2002 2003 2004PB

DIT

(US

$ M

illio

ns)

0510152025

Mar

gin

(%)

PBDIT PBDIT Margin


0200400600800

1000

2001 2002 2003 2004

Sale

s

-100

-50

0

PAT

Sales PAT




36



Net Worth 251 220 132 251 Capital Employed 2,336 2,041 1,950 2336 Fixed Assets 1,706 1,504 1,467 NA Total Debt 2,176 1,841 1,808 2,176

P&L Items Sales 860 645 427 476 Exports 182 168 41 Raw Materials Cost 243 176 171 1 Employee Cost 16 12 8 10 PBDIT 145 90 52 50 Depreciation 51 44 50 42 Interest & Financial Charges 77 69 75 74 PBT 13 12 -133 -67 PAT 9 15 -91 -67 EPS* (Rs.) 0 0 -1 0 Cash Profit 60 60 -40 -24

KEY RATIOS 2003-04 2002-03 2001-02 2000-01

Debt-Equity Ratio 5 6 8 NA Current Ratio 2 2 1 NA Interest Cover Ratio 2 1 1 NA Inventory Turnover Ratio (Days) 38 48 73 NA Debtors Turnover Ratio (Days) 42 34 40 NA Operating Profit Margin (per cent) 22 21 5 10 Net Profit Margin (per cent) 1 2 NA NA Return on Capital Employed (per cent) 3.5 6 (1.31) NA Return on Net Worth (per cent) 4.1 7.9 NA NA



37

6.5 Jindal Iron & Steel Company Ltd INCORPORATION YEAR: 1972 BUSINESS GROUP: Jindal FORM: Public

PLANT LOCATIONS

Location Address

Vasind

Village Vasind, Taluka Shahapur, Dist. Thane - 421 604. Maharashtra

Tarapur

Tarapur MIDC, Boisar, Dist. Thane - 401 506. Maharashtra

INTRODUCTION JISCO has the largest integrated galvanizing facilities in India accounting for 17per cent of total galvanizing production in the country. It is mainly engaged in Hot Rolling, Cold Rolling and Galvanizing business. Exports account for about 75per cent of the production and the products are exported to over 45 countries which include China, Italy, Spain, Portugal, Germany, UK, France, Netherlands, USA, Canada, Brazil, Greece, Middle East, African Countries etc. JISCO, a part of the US$2 billion Jindal Group, is a leading manufacturer of flat steel products in India. JISCO is the market leader in galvanised steel products with 17per cent market share and accounts for 33.33per cent of India's total exports of galvanised products. The products are sold through a large distribution network both in India and abroad. JISCO has three operating divisions – Hot Rolled Steel, Cold Rolled sheets & coils and galvanized sheet and coils. The merger of both JVSL into JISCO will help in promoting JISCO’s product in south India apart from JISCO own dealers. After merger the newly formed entity has geared up to meet challenges of the future. The company’s revenues will depend on how the management of the company will synergize the strengths of both the entities. The steel prices have touched new highs since June 2001 and expected to rise in coming period with demand speeding ahead of supply. The rising demand for steel in North America will fuel exports, renewed construction activity in infrastructure in Russia, recovery of Japanese economy, enhanced industrial activity in India and strong GDP growth in India will fuel demand for steel and company.


March, 04) Shareholders Fund US $ 251 millions (31st

March, 04) Face Value (INR) 10 Book Value (INR) 155.86 (31st March, 04) Market Value (INR) 360.55 (31st March 05) Market Capitalization US $ 32.18 millions (31st

March ,05) Latest P/E Ratio 5.3 (31st March 04)

CORPORATE ADDRESS Jindal Mansion, 5A, Dr. G. Deshmukh Marg, Mumbai - 400 026 Phone: (022) 2351 3000 FAX: (022) 2352 6400 E –Mail: [email protected] WebSite: www.jisco.com


Promoter owned56%

Public owned15%

Others owned15%

FIIs owned14%



38

MILESTONES 1972 Jindal Iron and Steel Company (JISCO) a part of the Jindal group was originally promoted by the

Piramal group. The company was incorporated as Piramal Steel in 1972 and has changed hands as Jindal’s acquired 40per cent stake in the company.

1983 Subsequently the name was also changed to Jindal Iron and Steel Company in 1983. 1990 In 1990, it merged Navin Alloys, a group company, and subsequently merged two more group

companies, Nasrapar Metals and Nalwa International. 1994 In Nov.'94, the company came out with a rights issue to part-finance the pelletisation plant in

collaboration with Lurgi, Germany, and a cold-rolling and galvanising project at Torangallu, Karnataka, totaling to INR 793.5 crore. However, the company has passed on the pelletisation project to Jindal Vijayanagar Steel (JVSL), as the plant would essentially feed the raw material requirements of JVSL.

1999 In May, 1999, a new galvanising line with state-of-the-art technology and L-shaped non oxy furnace was successfully commissioned.

1999-00 During 1999-2000, it increased the installed capacity of galvanised coils/sheets to 3, 75,000 MT at Tarapur plant.

2000-01 During 2001-02 the company developed ASTM A 653-340 Class 3 grade steel and is studying the process of Cold Rolling Mill at Vasind for gauge accuracy as per Industry norms.

2002-03 During 2002-03 the company focused mainly on debottlenecking, enhancing capabilities for meeting changing requirements of discerning customers, subsequent to this it has commissioned TM-5 Cold Rolling Mill at Tarapur in March 2003,this mill is capable of producing cold rolled material increase in the line speed of CGL I at Vasind from 90 to 100 mpm.

2004 Merger of JVSL & JISCO


Sajjan Jindal Chairman & Managing Director N.K. Jain Executive Vice Chairman Raman Madhok Jt. Managing Director & Chief Executive Officer D.J.Balajirao Director Markand C. Gandhi Director Atul Desai Director Dr. Sanjay Chougule Nominee Director - ICICI Dr. L. K. Singhal Nominee Director - IFCI

Mr. S. Jambunathan Nominee Director - UTI Asset management Company ltd

K.N. Patel Director (Corporate Affairs)



39

PERFORMANCE ANALYSIS Operational Performance During year ended March 2004, operating profits have surged by 71per cent to US $ 110 millions compared US $ 70 millions in the previous year. The company has to focus on raw materials which have surged by one basis point as percentage of sales and contributes 43per cent of net sales After the merger costs except other manufacturing expenses and staff cost have declined. Since the merged entity has absorbed employees of both entities the cost of staff has increased. But in coming years is likely to get reduced. Financial Performance

Financial year March 2004 was very remarkable period for the company as company’s net profit doubled to US $ 56 millions. The company can take of marketing network of JVSL to promote JISCO’s products that will boost the revenues. Now the company has become a full fledged steel entity capable of manufacturing any products made out of steel. The strengths of both the entities will nurture post merged organization for its development in the future.

The company’s revenue mix is expected to change as India is set to become net importer of steel by 2005 and company is waiting to capitalize the opportunity coming from southern regions where company has good network.


050

100150

2001 2002 2003 2004PB

DIT

(U

S $

Mill

ions

)

0102030

Mar

gin

(%)

PBDIT PBDIT Margin


0100200300400500600

2001 2002 2003 2004

Sale

s

-40-200204060

PAT

Sales PAT




40



Net Worth 251 185 169 165 Capital Employed 2,336 2,041 1,950 2,037 Fixed Assets 225 213 221 128 Total Debt 107 151 151 160 Net Working Capital 70 46 26 31

P&L Items Sales 507 328 215 298 Exports 395 254 124 100 Raw Materials Cost 252 162 158 1 Employee Cost 7 5 4 5 PBDIT 110 70 21 14 Depreciation 98 80 9 10 Interest & Financial Charges 19 23 24 24 PBT 77 38 -20 -21 PAT 56 25 -14 -21 EPS* (INR) 13 6 -3 -5 Cash Profit 154 105 -5 -11

KEY RATIOS 2003-04 2002-03 2001-02 2000-01

Debt-Equity Ratio 1 2 3 2 Current Ratio 1.5 1.7 1.58 Interest Cover Ratio 6 3 1 1 Inventory Turnover Ratio 12.49 13.44 14.23 15.81 Debtors Turnover Ratio 6.86 11.37 7.94 7.74 Operating Profit Margin (per cent) 22 21 5 5 Net Profit Margin (per cent) 11 8 Nil Nil Return on Capital Employed (per cent) 46.4 37 -23.6 -21.4 Return on Net Worth (per cent) 38.5 27.6 4.9 5.2



41

6.6 Essar Steel INCORPORATION YEAR: 1976 BUSINESS GROUP: Essar FORM: Public


Promoters 57%

Public33%

FI's3% Others

5%

FII's 1%

NRI's1%

INTRODUCTION Essar Steel Ltd is promoted by the Bombay-based Essar group which is into power, shipping, oil & gas, construction and telecom. Its core manufacturing facilities are located at its steel complex in Hazira in Gujarat. The facility includes a 3.4 mtpa HBI plant, a 2.4 mtpa HRC plant and a 1.2 mtpa downstream complex. These facilities are complemented by its joint ventures – a 3.3 mtpa pellet plant in Vizag and a 400,000 tpa cold rolled coils plant in Indonesia. The company aims to raise its HRC capacity from 2.4 mtpa to 3 mtpa, with only a marginal additional investment, lowering per tonne costs and raising profits. Simultaneously, it is focusing on productivity improvement. Through strategic divestments, Essar Steel also proposes to strengthen its balance sheet that will reduce its debt, while still ensuring high-quality raw materials at a reasonable price. It is also restructuring its debt, by lengthening the maturity profile of its loans. This move away from short-term, high-cost debt is expected to lower interest costs. With domestic and international demand for steel continuing to remain firm company has more export opportunities in coming years.


March, 05) Shareholders Fund US $ 581 millions (31st

March, 04) Face Value (INR) 10 Book Value (INR) 11.6 (31st March, 04) Market Value 55 (31st March 05) Market Capitalization US $ 4.08 millions (31st

March ,05) Latest P/E Ratio 14.7 ((31st March, 04)

PLANT LOCATIONS Location Address

Hazira

27th KM, Surat Hazira Road, Hazira - 394 270, District - Surat

Indonesia

Graha Essar, Bekasi Fajar Industrial Estate, Industri 3 , Area Kav # B1 Cibitung, Bekasi 17520 West Java, Indonesia

Vishakapatnam Vishakapatnam

CORPORATE ADDRESS Essar House 11 Keshavrao Khadye Marg, Mahalaxmi, Mumbai - 400 034. Phone: +91-22 - 2495 0606 / 5660 1100 FAX: +91-22 - 5660 1809 E –Mail: [email protected] WebSite: www.essarsteel.com



42

MANAGEMENT TEAM

Name Designation Shashi Ruia Chairman Ravi Ruia Vice-Chairman Prashant Ruia Managing Director V. G. Raghavan Director (Finance) S. V. Venkatesan Director Jitender Balakrishnan Nominee- IDBI G. D. Goswami Nominee-ICICI Bank Ltd. G. A. Nayak Nominee-UTI Jatinder Mehra Director Sanjeev Shriya Director Vikram Amin Executive Director (Sales) N. B. Vyas Company Secretary



43

PERFORMANCE ANALYSIS Operational Performance During year ended March 2004, operating profits have surged by 18per cent to US $ 202 millions compared to US $ 170 millions in the previous year. The rise was fuelled in by rising energy cost that rose by 10 basis points. The company has to focus on other manufacturing expenses which have increased by 6 basis points to 10per cent. The company found cheaper sources of debt funds that reduced financial cost of company by 8 basis points to 17per cent. The company could control operational parameters despite rise in inputs cost. Some costs which were beyond control led to fall in the company’s operating margin by 1 basis point to 24per cent during year ended March 2004. The company plans to hike installed capacity by 50per cent to 1.2 million tonnes per annum. Financial Performance

Financial year March 2004 was very remarkable as company’s net profits jumped 22 times to US $ 22 millions. The company moved up the value chain in its down-stream products by a combination of technology inputs and quality improvements. Essar now offers over 300 customised grades of steel and is on the approved list of companies for supplies to some of the world's most renowned automotive companies and Oil and Gas Pipeline projects. (Source: Cygnus research)


0

100

200

300

2001 2002 2003 2004PB

DIT

(U

S $

Mill

ions

)

0

20

40

60

Mar

gin

(%)

PBDIT PBDIT Margin


0200400600800

1000

2001 2002 2003 2004

Sale

s

-100-50050100150200

PAT

Sales PAT




44



Net Worth 581 369 426 444 Capital Employed 835 1,378 1,340 1,397 Fixed Assets 1,077 803 962 1003 Total Debt 225 1,009 914 953 Net Working Capital 225 164 -16 193

P&L Items Sales 853 685 448 298 Exports 228 199 111 176 Raw Materials Cost 539 418 288 286 Employee Cost 11 10 10 1 PBDIT 202 170 11 129 Depreciation 93 60 98 97 Interest & Financial Charges 92 92 129 137 PBT 92 60 -261 -74 PAT 22 1 164 -74 EPS* (INR) 1.2 NA NA NA Cash Profit 115 61 262 23

KEY RATIOS 2003-04 2002-03 2001-02 2000-01

Debt-Equity Ratio 2 3 2.33 2.14 Current Ratio 2 2 0.95 1.7 Interest Cover Ratio 2 2 0 1 Inventory Turnover Ratio 10. 12 5 3 Debtors Turnover Ratio 5.3 5.6 7.48 3.47 Operating Profit Margin (per cent) 24 25 2 43 Net Profit Margin (per cent) 3 0 37 -25 Return on Capital Employed (per cent) 12 12 1 9 Return on Net Worth (per cent) 4 0 38 -17

.



45

7. STEEL SERVICES Fabrication: Indian steel fabrication industry is highly fragmented, project oriented industry with a turn over of US $ 1,744 millions (2004). Major activities include both fabricated steel structures and transmission towers in many cases the end product is generally a result of fabrication and post fabrication machining Technology of fabrication

Fabrication involves a combination of various mechanical processes including welding, soldering, brazing, forming, pressing, bending and stress removal. Welding is a major process input in most fabrication jobs. A structural steel machine tool base would generally have 75per cent welding

Process advantages

→ Compared to casting, a fabricated piece weighs less. For example, a typical machine tool base when fabricated, weighs 20per cent less than when it is cast (in a foundry)

→ Most ferrous and non-ferrous materials can be fabricated → Fabricated items involve lower investments as against that in a foundry (for cast components) → Fabrications can be done on site → Single piece or multiple batches can be fabricated without recourse to patterns, dies, etc. → Shape & size are not a consideration in a fabrication job

Raw materials used in fabrication

METALS FABRICATED FERROUS

Wrought iron Structural steels Alloy steels Stainless steels Cast iron Cast steels

NON-FERROUS Copper + Alloys Zinc + Alloys Manganese + Alloys Aluminum + Alloys Magnesium + Alloys Nickel + Alloys

• Power projects • Aircraft Hangars • Offices, Schools, Hospitals • Commercial Complexes, Shopping Malls • Factories, Warehouses & Cold Stores • Sugar plant machinery • Cement machinery • Racks Railway wagons / repairs • Pressure vessels

• Boilers & Heat exchangers • Automobiles (All sheet metal parts) • Commercial structurals & domestics • Bridges, civil works etc. • Transmission towers etc. • Nuclear industry • Ship building / repair • Gas Stations, Bus Shelters, Car Parks • Guard Rails


46

Major applications

Industry

• Envelopes all sectors - large, medium, small & tiny • Unorganized sector is itself a major player • 48 large companies actively

engaged only in fabrication • Low level of exports US $

21 million) and imports US $ 17.4 million

Inputs

Raw material is generally available in India - only special steel is imported. However there is a 30per cent price difference between indigenous & imported steel, the local prices being higher. Still, there exists a high labour content in fabrication, when compared to a machining unit - about 20per cent higher labour content

User segments

Around 75per cent of fabrication is for structural applications (eg. cement, sugar etc.). Remaining 25per cent for specialized fabrication (pressure vessels, SS vessels, for nuclear & chemical industry

• Electrical machinery

• Cupboards and vaults

KEY SUCCESS FACTORS • Focusing on specific areas • Building relationships with a few major user industries • Cater to specific industry needs • Cost control could ensure better profitability

DEMAND DRIVERS • Fabrication industry growth depends on the industrial

scenario • Growth also dependent on growth in the engineering

sector, especially capital goods industry • Construction industry will drive the demand for small units

User Industry 2004

Railw ay & Shipping 20%

Machine Building & Construction10%

Others5%

General structural Fabrication65%



47

Business concerns

Project based - core industry sector plays a major role and effects upstream and downstream fabricators. Medium & small scale industries heavily dependent on job work.More power dependant compared to a machining industry

Future

• General structural fabrication will continue to grow (example: cement, two-wheeler frames, etc.) • Housing sector growth will affect performance of small and medium fabricators • Electrical and power projects - major impetus for future success • Fabrication industry poised to grow at 5-6per cent per annum

Major players 1. L&T, 2. Southern Structurals, 3. Bellary Steels, Binny Engg., 4. Triveni Structurals, 5. Burn Standard, 6. Ispat Profiles



48

8. GROWTH DRIVERS The growth drivers of Indian steel industry are mentioned below: → Level of integration and captive facilities: There are primarily two routes to steel making: the primary

(blast furnace-basic oxygen furnace route) and the secondary (electric arc furnace/induction furnace route). While the former is capital intensive, the cost of production is relatively less as compared to the secondary route, where the manufacturer is exposed to the volatility in raw material (scrap/sponge iron) prices, along with high power costs. In both cases, however, it is important to have an integrated operation (with captive coal/iron ore mines), to avoid exposure to the volatility in prices of intermediate products. Integration into downstream value-added steel production also enhances margins and profitability.

→ Product mix: Higher realisations and margins are associated with flat products (especially cold rolled or

CR products). Accordingly, we are witnessing an increasing share of value-added products in the mix of the leading players.

→ Branding: It has started playing an important role in the steel business. Not only does branding enhance

customer acceptance and loyalty, it also allows steel companies to charge a premium. Accordingly, we are witnessing companies like TISCO increasingly focusing on branding steel. For Tata Steel, branded products accounted for 25per cent share in flat products and 31per cent share in long products, sales during H1 FY2005 (against 21per cent and 30per cent respectively in H1 FY 2004).

→ Location of steel plant: High freight costs associated with product movement make it important for

manufacturing units to be located close to the consumption centers. → Cost competitiveness: Steel is a commodity business, with significant volatility in prices. Also, globally

it is a relatively low margin business. Accordingly, it is important for players to be cost-competitive. That could be had by large size, for economies of scale, high labour productivity, operational and process cost control and sound working capital management.

→ Conservative capital structure: As steel is a relatively low margin, capital intensive business, with severe

cycles, it is important to have a conservative capital structure, to be able to service debt in time. → Marketing alliances: Tie-ups with bulk consumers (such as automobile original equipment

manufacturers) mitigates demand risk and, accordingly, ensures product offtake and high capacity utilisation.


49

9. OUTLOOK According to Cygnus Research, size of Indian steel industry is expected to touch US $37 billions by end of 2011-12 from current level of US$ 23 billions. With per capita consumption of 55-60 kgs from current level of 20 kgs, India will be among the top 5 global steel consumers by 2010. The performance of the Indian economy in 2004-05 so far has exceeded expectations. Buoyed by a rebound in the agriculture and allied sector, and helped by improved performance in industry and services, the economy had registered a growth rate of 8.5 per cent in 2003-04, the highest ever except in 1975-76 and 1988-89. The robust performance of economy was fueled by agriculture, industry & service sector and was accompanied by continued maintenance of relative stability of prices. Indian steel industry will be benefit from growth in domestic industry. The growth will be fuelled by sectors who are major consumers of steel; construction, auto and others. These two sectors thrive due to rise in government’s infrastructure investment and rising demand from automobile sector. In order to meet the domestic demand most of steel manufacturers in India has envisaged huge plans for expansion in short and medium term. The companies that have already announced are SAIL (8 MT), TISCO (10 MT), JISCO (3MT), ISPAT (1.7 MT) and Essar (1.5 MT). Even though industry scenario looks very rosy there are bottlenecks that need to be removed. The bottlenecks are (i) significant new steel capacity expansion, (ii) conditions in raw material markets, and (iii) potentially large shifts in steel trade flows (iv) Water Management (v) Power (vi)Logistics & (vii) Waste disposal. Indian steel industry can be improved further in terms of cost and quality by bringing changing in its policy, build infrastructure and increase per capita consumption of steel. The steel growth is showing some sign of slowing as China has decided to go slow which will impact the steel trade. Chinese steel production is expected to add more than 10 million tonnes every year and reach around 250 million tonnes by the year 2010. This expansion will be driven by good performance in domestic customer industries, notably carmakers, construction and shipbuilding. Industry-wide production in China in the coming years is likely to post double-digit rates of increase. Due to restructuring of state owned enterprises Chinese steel industry will slow down. Though China has big producers it still lacks shortage of cold-rolled and surface-finished products, large quantities of which still have to be imported. The same applies to stainless steel, although substantial capacity expansion is scheduled here in the coming years. The trade in steel is expected to decline with major producer in steel expanding their capacities particularly China, India and Brazil. It was noted that a further crisis in steel could well arise soon, should capacity expansion exceed market needs by a significant amount. The outlook for 2005 remains good as world steel demand should continue to grow by some 5per cent, driven by the continuing strong growth in demand in China where steel consumption is expected to increase by another 10.7per cent. Trade in steel is expected to start declining as from 2005 as a result of additions of new capacity, particularly in China, India and other Asian economies.

Projected steel consumption - India

39

42

45

48

50

54

57

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

Mill

ion

tonn

es



50

BIBLIOGRAPHY & REFERENCES

Ministry of steel

Joint planning committee of steel

Steel World

International institute of steel

Steel Alliance

www.equitymaster.com

www.sail.co.in

www.tatasteel.com

www.ispatind.com

www.jindalsteel.com

www.essarsteel.com

www.indianbudget.nic.in

Department of foreign trade, New Delhi


51

ANNEXURE - I a) Regulatory acts i) Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 This act is administered by the Employees Provident Fund Organisation under the overall supervision and direction of the Central Board of Trustees and Committees. Central Provident Fund Commissioner (CPFC) is the Chief Executive Officer of the Organisation. It is applicable to 180 industries/classes of establishments employing 20 or more workers. About 24.53 million workers are covered under the Act. Benefits available to the workers include the provident fund, employees deposit linked insurance and the pension to the workers and their families. The coverage is provided for those with a wage ceiling of Rs. 6,500 per month.

ii) Employees’ State Insurance Act, 1948 This act is meant to provide for health care and cash benefits in cases of sickness, maternity and employment injury. It is jointly administered by the Central Government and the State Governments. Central Government formulates the Scheme, recovers the contribution from employers of covered establishments with the help of its Recovery Officers, builds the infrastructure (hospitals, dispensaries etc.), provides 7/8th of the total expenses, the State Government contributes 1/8th, posts Medical Officers, specialists and paramedical staff, procures and installs equipments, dispenses medicines and has the overall responsibility for the management of the hospitals/dispensaries. Health and medical care facilities are provided to the workers through a network of 140 hospitals, 43 annexes and 1443 dispensaries located throughout the country. Director General (DG), ESIC is the Chief Executive Officer of the Corporation and functions under the overall Supervision and control of the Board and Committees/Councils formed there under.

iii) Workmen’s Compensation Act, 1923 It provides for compensation to workmen or their survivors in cases of industrial accidents and occupational diseases, resulting in disablement or death. Compensation in case of death ranges from Rs. 50,000 to Rs. 4.56 lakh and in the case of permanent total disablement from Rs. 60,000 to Rs. 5.48 lakh.

iv) Maternity Benefit Act, 1961 Regulates employment of women before and after child birth and provides for 12 weeks maternity leave, medical bonus and certain other benefits. The Act is not applicable to the employees covered under the ESI Act, 1948.

v) Payment of Gratuity Act, 1972 It provides for payment of gratuity at 15 days’ wages to labours for every completed year of service or part thereof, in excess of seven months. Maximum amount of gratuity payable under the Act is Rs. 3.50 lakh (with effect from 24.9.97). There is no wage ceiling for coverage under the Act.

vi) Factories Act, 1948 It Regulates health, safety, welfare and other working conditions of workers in factories. It is enforced by the State Governments through their factory inspectorates. The Directorate General Factory Advice Service & Labour Institutes (DGFASLI) functions as a technical arm of the Ministry for coordinating matters concerning safety, health and welfare of workers in the factories with the State Governments. They conducts training, studies and surveys on various aspects relating to safety and health of workers.

vii) Mines Act, 1972 The act Contains provisions for measures for the health, safety and welfare of workers in the coal, metalliferous and oil mines. Directorate General of Mines Safety conducts inspections and inquiries, issues


52

competency tests for the purpose of appointment to various posts in the mines, organises seminars/conferences on various aspects of safety of workers,the activities of DGMS is to contain the number of accidents in mines. Courts of Inquiry are set up by the Central Government to investigate into the accidents, which result in the death of 10 or above miners

viii) Minimum wages Act Under the Act, Central and State Governments are appropriate Governments to

(a) Notify scheduled employment

(b) fix/revise minimum wages

It contains list of all these employments for which minimum wages are to be fixed by the appropriate Governments. The appropriate Government fixes the minimum wage in respect of only those scheduled employments where the number of employees is 1000 or more. Through the act, government aims at minimum welfare to all employees in the country.

ix) Payment of Bonus Act 1965 According to this act, every employee shall be entitled to be paid by his employer in an accounting year, bonus, provided he has worked in establishment for not less than 30 days. It is applicable to every factory and every other establishment in which twenty or more persons are employed on any day during an accounting year excluding some categories of employees as contained in section 32 of the Act (i.e. employees in Life Insurance – Corporation, seamen, port and dock workers, universities, etc.). Every employer shall be bound to pay to every employee in respect of the accounting year a minimum Bonus which shall be 8.33 per cent of the salary or wages earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year. Where in respect of any accounting year, the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wages earned by the employee during the accounting year subject to a maximum of 20per cent of such salary or wage. The employer whom this Act, applies, need not pay any Bonus for first five accounting year in which the Employer sells the goods produced or manufactured by him or render services, as the case may be, from such establishment, bonus shall be payable only in respect of the accounting year in which the employer derives profit from such establishment and such bonus shall be calculated in accordance with the provisions of the Act in relation to that year.

x) Contract Labour [R & A] Act 1970 Every principle employer who intends to employ contract Labor in his Establishment/Factory shall make an application in specified form to the concerned authority of the area in which the establishment sought to be registered is located.

xi) Payment of Wages Act, 1936 The Act regulates the payment of wages to workers and ensures that they are disbursed by the employers within the stipulated time frame and without any unauthorized deductions. Enforcement of the Payment of Wages Act is primarily the responsibility of the State Governments. The defaulting employers are advised to pay full wages in time. In case of non-adherence to the advice, there are provisions of prosecutions also. The Central Government is responsible to enforce the Act only in mines, railways, oilfields and air transport service by virtue of Section 24 of the Act.


53

ANNEXURE - II

b) List of industy associations

Contacts of various industry associations Name of Association Address Telephone Fax E-mail & URL Ministry of Steel Government of India,

Udyog Bhawan, New Delhi - 110011

Phone – 91-11-23793432

Fax : 91-11-23013236

Website – www.steel.nic.in

Sponge Iron Manufacturers Association

1501, Hemkunt Tower, 98, Nehru Place, New Delhi-110 019

26294492 / 51619204.

Telefax: 26294491

Email: [email protected] Web: www.simaindia.org / www.spongeironindia.org

All India Induction Furnace Association

209, M G House, Community Centre, Wazirpur Industrial Area New Delhi - 110 052

00911127376194 Fax: 00 91 11 27 37 29 61

Web: www.aiifa.org

Steel Furnace Association of India

3-D, Vandhana 11, Tolstoy Marg, New Delhi-110001

0091112656 69 41 Fax: 00 91 11 26 56 70 47

--

Steel Re-Rolling Mills Association

Everest - 10th Floor 46-C, Chowringhee Road Kolkata - 70 071

Ph : 00 91 33 28 85 697

Fax: 00 91 33 28 85 558

--

ALL INDIA STAINLESS STEEL INDUSTRIES ASSOCIATION

302, Arun Chambers, Madan Mohan Malavia Road, Mumbai 400 034

+91 22 4949764

Fax: +91 22 4949764

Country :India E-mail: [email protected] Web Site :aissia.asiansources.com

Cold Rolled Steel Manufacturers’ Association of India

D-15 Panchsheel Enclave, New Delhi-110 017 .

6495730 / 6013775

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Date post:	07-Apr-2015
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Indian Steel

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