Iron and Steel 2009 - Industry Analytics

Analysis of Indian Iron and
Steel Industry
Presented by:
(Group 8)
Arpita Bahadur
Gaurav Kumar
Manish Gupta
Pavan Ghargi
Ranjini Ballal
Vani Vyas
Acknowledgement
We are extremely thankful to our faculty Dr. R. Venkatamuni

Reddy and Dr. Gervasio S. F. L. Mendes, Alliance Business
School, who have guided us throughout the project on
analyzing the Indian Iron and Steel Industry and helped us
in all possible ways to successfully complete it.
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Table of Contents
1Introduction.......................................................................................................... 3
1.1Varieties of Steel................................................................................ ...............5
1.2Production Technology .....................................................................................6
1.3Components of the cost of production..............................................................7
2The Global Steel Industry.....................................................................................9
3The Structure of Indian Steel Industry...............................................................10
3.1Factors that attribute to the Revival of the Indian Steel Industry....................11
3.2Consumption of Steel in India.........................................................................16
3.2.1Top Five Companies.....................................................................................16
3.2.2Bottom Five Companies..............................................................................25
4Quantitative Analysis.........................................................................................32
4.1Ratio Analysis................................................................................................. .32
5Qualitative Analysis...........................................................................................47
5.1Understanding the Steel industry using Michael Porter’s Five Forces Model...47
5.2The SWOT Analysis.........................................................................................51
5.3Strategic Restructuring — A Comparative Analysis.........................................57
5.3.1Impediments to expansion...........................................................................57
6Current Global Scenario.....................................................................................63
6.1Current crisis in Iron and Steel Industry..........................................................63
7Suggestions.......................................................................................................66
8Future Outlook...................................................................................................67
9Business Innovation: Steel Retailing..................................................................70
9.1Vision ‘steel junction’......................................................................................71
9.2Lessons from Nucor Steel............................................................................... .71
10Identifying Key Success Factors.......................................................................73
11Conclusion.......................................................................................................74
12References................................................................................... ....................75
1 Introduction
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Iron is one of the oldest inventions in the world with its first usage
reportedly dating back to 4000 BC. Steel is crucial to the development of
any modern economy and is considered to be the backbone of the human
civilization. Today Steel (the carbon alloy of Iron) finds application in
every imaginable facet of our life. The global steel industry has been
witnessing many interesting events that have influenced market dynamics
in the last ten years.
Steel is an alloy consisting mostly of iron, with a carbon content between

0.2% and 2.14% by weight, depending on grade. Carbon is the most cost-
effective alloying material for iron, but various other alloying elements are
used such as manganese, chromium, vanadium, and tungsten. Carbon
and other elements act as a hardening agent, preventing dislocations in
the iron atom crystal lattice from sliding past one another. Varying the
amount of alloying elements and form of their presence in the steel
(solute elements, precipitated phase) controls qualities such as the
hardness, ductility, and tensile strength of the resulting steel. Steel with
increased carbon content can be made harder and stronger than iron, but
is also more brittle. The maximum solubility of carbon in iron (as
austenite) is 2.14% by weight, occurring at 1149 °C; higher concentrations
of carbon or lower temperatures will produce cementite. Alloys with higher
carbon content than this are known as cast iron because of their lower
melting point and castability. Steel is also to be distinguished from
wrought iron containing only a very small amount of other elements, but
containing 1–3% by weight of slag in the form of particles elongated in
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one direction, giving the iron a characteristic grain. It is more rust-
resistant than steel and welds more easily. It is common today to talk
about 'the iron and steel industry' as if it were a single entity, but
historically they were separate products.
Though steel had been produced by various inefficient methods long

before the Renaissance, its use became more common after more efficient
production methods were devised in the 17th century. With the invention
of the Bessemer process in the mid-19th century, steel became a
relatively inexpensive mass-produced good. Further refinements in the
process, such as basic oxygen steelmaking, further lowered the cost of
production while increasing the quality of the metal. Today, steel is one of
the most common materials in the world and is a major component in
buildings, infrastructure, tools, ships, automobiles, machines, and
appliances. Modern steel is generally identified by various grades of steel
defined by various standards organizations.
1.1 Varieties of Steel
There are more than 3500 grades of steel available today; with about 75%
of these developed in the last twenty years. Finished steel products can be
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broadly classified into flats and longs. Longs are used in construction,
infrastructure and heavy engineering. Flats are mainly used in making
automobiles, commercial vehicles and consumer durables. Hot rolled (HR)
steel and Bar & Rods are the most popular varieties of steel produced in
India. HR coil and sheets are used in making cold rolled products, pipes
and tubes, automobile components, electronic equipment like fridges and
for construction purposes. Currently HR Coils and Sheets account for
about 26% of the total domestic production and its share has been
gradually rising over time. Bars and rods are typically used more
extensively in the construction and engineering sectors.
1.2 Production Technology

Some of the technological options for converting iron ore to steel products
is schematically shown below. Hot metal and crude steel process are also
interlinked among themselves as represented by arrows.
Source: www.sail.com
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Below mentioned are few methods of producing steel:
• Blast Furnace (BF)/ Blast Oxygen Furnace (BOF) route is the most
popular way of producing steel, accounting for nearly 57% of total
production. The BF/BOF route is good for volume production, but
involves huge capital costs.
• The Electric Air Furnace (EAF) is rapidly gaining popularity

globally and uses sponge iron/scrap and coke to produce steel. EAF
route is flexible to produce different grades of steel. However, EAF
growth is constrained by power and scrap supply constraints in India.
• COREX, a new modern smelting technology has been recently

introduced in India. It does not require coke in producing steel and
therefore could become popular with Indian steel majors in time to
come.
1.3 Components of the cost of production

Any sustained rise in input prices usually lead to an increase in product
prices through the cascading effect. The major components of the costs of
production of finished steel are:
• Raw materials - Raw material costs forms roughly about 62% of the
total cost of production. This only emphasizes on how important sharp
movements in raw material prices mean for the steel industry. The
basic raw materials that are used in producing steel are iron ore, coal
and limestone. India is fortunate to be endowed with one of the largest
iron ore deposits in the world. Limestone is also available in sufficient
quantities and as such do not pose much of a problem. India also
possesses one of the biggest coal deposits (approximately 197 bn
tonnes) in the world. However, Indian coal is mostly unfit for coke
production because of its high ash content of 25-40%. Coal fit for coke
production comprises less than 15% of total reserves. As such, Indian
steel giants have to resort to importing coking coal from foreign
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countries. .
• Power costs - The steel industry is an energy intensive industry with

power and fuel contributing as much as 10.1% of total production
costs. It has been estimated that the global steel industry account for
nearly 4% of the total energy consumption in the world. Most steel
majors like SAIL, TSL and JSW have captive power plants but smaller
players have to depend on outside supply. As such, erratic supply forms
a major obstacle for growth of these producers.
• Interest payments - Steel is a capital-intensive industry and as such

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

expenses are among the other major cost components
2 The Global Steel Industry

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

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

Indian Steel Industry
The factors for revival of Indian steel industry are buoyant global steel
consumption, buoyant local steel consumption, lower cost of production
and adequate rise in price against hike in input costs. Apart from this,
backward integration, consolidation and branded product sales, marketing
alliances, etc., have led to the revival of the Indian steel industry.
Backward Integration
Coking coal, iron ore and scrap shortage are responsible for the increased
cost of production, coupled with low average prices of Rs.17,000-
Rs.18,000 TPA in the past. Integrated players with their own captive mines
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for iron ore and coal will find it an advantage as they will be shielded from
the fluctuating prices of raw materials.
De-integration of Process/Consolidation
Consolidation within the industry is the need of the hour as it might

generate benefits of economies of scale and improve labor productivity.
Also, a set-up of semi-finished capacities near the place of availability of
raw materials and capacities for finished products near the place of
consumption will act as a major booster for the players within the industry
due to the savings in freight cost.
Branded Products
Increased focus on branded products could allow the producers to charge

a premium for their products and improve their average per tonne
realizations.
Also, increased focus on value-added products will help improve revenues

for companies as cold rolled coils, galvanized steel and color coated steel
enjoy better per tonne realizations than HR coils.
Long Contracts/Marketing Alliance
Players within the industry enter into long contracts for their finished
products with automobile original equipment manufacturers. This will
mitigate demand risks, ensure high product off-take and better capacity
utilization.
Government Initiatives
Increased infrastructure spending by the Government of India and

development of roads could generate significant savings in freight and
transportation cost, making Indian steel companies and other industries
globally competitive.
Impact of Liberalization
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The economic reforms initiated by the government in 1991 have added
new dimensions to the industrial growth in general, and steel industry in
particular. Some of the important features due to liberalization are:
 Licensing requirement for capacity creation has been abolished.
 Steel industry has been removed from the list of industries reserved for
the state sector.
 Automatic approval granted for foreign equity investment in steel has

been increased up to 74% [Government of India 1999].
 Price and distribution controls were removed from January 1992 [Report
to the Ministry of Industry, Science and Tourism 1997].
 Restrictions on external trade, both in import and export, have been

removed.
 Import tariff reduced from 105% in 1992/93, to 30% in 1996-97.

[Report to the Ministry of Industry, Science and Tourism 1997]
 Other policy measures like convertibility of rupee on trade account,

permission to mobilize resources from overseas financial markets, and
rationalization of existing tax structure.
There was expansion of the steel sector after the economic reforms. The
new entrants as well as the existing manufacturers went for technical tie-
ups with leading steel producers of the world [Nakra 1996]
Cost Competitiveness of Indian Steel Industry
The cost competitiveness of Indian steel industry can be seen in Table 5.

The cost of major raw materials like iron ore, coking coal, and other raw
materials is less in India among the countries mentioned. The labor cost is
low, but it is neutralized by its low level of productivity.
The financial cost and the cost of power, oil and some other materials are
high. Energy accounts for about 35 - 40% of the cost of steel production in
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India, whereas it is about 28% in the developed countries. All these make
the pre-tax cost of steelmaking in India higher than that of South Korea,
Australia, Mexico, and CIS countries. Considering the low wage rate and
other economic factors, the labor cost in India makes up around 15% of
the cost of the steel as compared to around 30% in developed countries
like Japan and United States. In spite of these advantages, Indian firms
could not become cost-effective.
Source: Iron and Steel Review (1998)
Current Investments
A host of steel companies forecasted expanding consumer market and

likelihood of receiving huge domestic and foreign investments. Therefore
they invested as follows:
• Bhushan Steel plans to invest US$ 5.72 billion for building 12 million
tonne-capacity in the states of West Bengal, Jharkhand and Orissa.
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• Non-ferrous metals giant, Vedanta Resources, plans to invest around
US$ 4.79 billion in a 5 million tonne steel plant in Keonjhar district of
Orissa and envisages its commissioning by 2012–13.
• Tata Steel is also planning to build a 5 million tonne plant in
Chhattisgarh with an investment of around US$ 3.59 billion. The
steel major is setting up greenfield projects in Jharkhand, Orissa and
Chhatisgarh. While in Jharkhand it is likely to invest about US$ 8.38
billion for a 12 million tonne integrated steel plant, in Orissa it plans
to pour in almost US$ 4.39 billion for a six million tonne capacity
plant.
• Mesco Steel plans to invest US$ 2.20 billion for expansion of two of
its steel plants in Orissa.
• Reliance Infrastructure, (part of the Reliance Anil Dhirubhai Ambani
Group) plans to build a 12-million tonne steel plant in Jharkhand,
which is likely to be completed by 2012.
• Indian Railways plans to invest around US$ 437.25 million per
annum to raise its consumption of stainless steel for adding new
alloy-made wagons and coaches to its portfolio.
• Welspun Gujarat Stahl Rohren, (one of the largest steel pipe makers
in India), plans to increase the capacity of its pipe plant by 75 per
cent to 1.75 million tonnes with an investment of US$ 222.52
million.
• The JSW group plans an outlay of US$ 40 billion for steel and power
projects. These projects will be completed by 2020.
• Visa Steel has lined up a US$ 1.51 billion – US$ 2.02 billion
integrated steel project in Chhattisgarh.
• Sarralle India, a subsidiary of Sarralle Equipos of Spain and one of
the largest designers of steel plant equipment, has decided to set
up a manufacturing base in Uluberia in West Bengal.
• Interarch Building Products Private, (the largest player in pre-
engineered steel buildings space) plans to set up its greenfield
manufacturing facility in Gujarat by 2009–10.
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Furthermore, the Confederation of Indian Industry (CII) plans to start six
new small and medium enterprises clusters for steel companies in
Visakhapatnam. It will also set up a steel task force to propel growth in the
steel clusters.
3.2 Consumption of Steel in India

The companies covered in the report include
TOP FIVE COMPANIES BOTTOM FIVE

COMPANIES
1. Steel Authority of
India Ltd 1. Sunflag Iron and
Steel Industry
2. Tata Iron and Steel
Company Ltd 2. Shah Alloys Ltd
3. Jindal Iron and Steel 3. MUSCO

Company Ltd
4. Surya Roshni
4. Essar steel
5. Usha Martin
5. Ispat Industries Ltd
3.2.1 Top Five Companies
1. Steel Authority of India Ltd
The Ministry of Steel and Mines drafted a policy

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

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

coordinate the export and import business the year 1974.
In 1976, Durgapur Mishra Ispat Ltd., Bhilai Ispat Ltd., and
Rourkela Ispat Ltd., were formed as fully owned
subsidiaries of SAIL for taking over the running business of
Alloy Steels Plants, Bhilai steel Plant and Rourkela Steel
Plant on transfer from HSL. Two major schemes viz. new
sinter plant III and expansion of oxygen plant II were taken
up for implementation. C.O. Battery No. 10 was
commissioned during the year 1994.
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The Company bagged, 'Business world-FICCI-SEDF
Corporate Social Responsibility Award - 2006'. SAIL has
undertaken a massive modernisation and expansion plan
during the year of 2006-07 with an indicative cost of over
Rs. 40,000 crore to expand capacity of hot metal to over
25 million tonnes from current level of 14.6 million tonnes.
The company introduced several new products in the
domestic market during the year 2006-07: HCR-EQR TMT
for earthquake resistant construction, rock bolt TMT for
tunnel construction, EN series HR coils for LPG cylinders,
MC 12 HR coils for chains etc. In addition, Bhilai Steel
Plant developed high strength vanadium rails; Durgapur
Steel Plant produced S-profile loco wheels for high-speed
locos and Rourkela Steel Plant rolled special plates, which
were used, in the indigenously built rocket PSLV C-7.
As on January 2008, India's two biggest steel

makers, public sector Steel Authority of India Ltd (SAIL)
and private sector Tata Steel Ltd, have formed a joint
venture company (JVC) to mine coal blocks for securing
assured coking coal supply to meet their increasing
production needs. As on June 2008, SAIL made a joint
venture with Shipping Corporation of India may own a few
bulk carriers to have continuous availability of vessels.
The Company is setting up three steel processing units
(SPU) in Madhya Pradesh for manufacturing various types
of steel items used by the construction industry.
The company's Corporate Plan, 2012 (CP12) was

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

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

year 1958 and Jubilee Park was given as a gift to the
citizens of Jamshedpur. For symbol of self-reliance, Tata
Steel Growth Shop which was introduced in 1968. Tata
Steel introduced BOF steelmaking during the year 1984,
which could produce liquid steel in forty five minutes when
it took the old open hearth furnaces, close to five hundred
under the first phase of modernisation.
The company received the Award for Best-

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

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

JSW Steel Limited (JSWSL) was originally incorporated as
Jindal Vijayanagar Steel Limited on March 15, 1994.
Product portfolio of the company includes Hot Rolled
Product, Cold Rolled Product, Galvanised Product, Pre-
painted Galvanised Product and Jindal Vishwas. JSWSL
consists of the most modern, eco-friendly steel plants with
the latest technologies for both upstream & downstream
processes. The Company's four plants are situated in
Vijayanagar, Vasind, Tarapur and Salem. JSW Steel Ltd.
has received all the three certificates of ISO: 9001 for
Quality Management System, ISO: 14001 for Environment
Management System and OHSAS: 18001 for Occupational
Health & Safety Management System.
During the incorporated year itself, the MOU was

made with KSIIDC to be provided with grid support,
approvals for construction of railway siding etc and also
the company entered into a technical arrangement with
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Voest Alpine Industrieanlagenbau (VAI), for technical
details with respect to productivity, iron ore technical
details etc.
CII-EXIM Bank Award was handed over to the

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

company in the year 2006, Second Prize amongst the
Integrated Steel Plants Category by Indian Institute of
Metals. During January 2007, JSW Steel has executed a
Development Agreement with The Government of West
Bengal, West Bengal Industrial Development Corporation
Limited (WBIDC) West Bengal Mineral Development and
Trading Corporation Limited (WBMDTC) for setting up a 10
MTPA steel plant in suitable phases. JSW steel has
inaugurated two exclusive JSW Shoppe in Hubli, Karnataka
on December 4, 2007, At JSW Shoppe, end consumer will
also know about different application of different steel
products being manufactured by M/s JSW Steel through
actual components and pictures from Automobile, White
Goods Sectors, and Construction. During the period of
2007-08, JSWSL received Gold Award in Metal and Mining
Sector for Outstanding Achievement in Safety
Management by Greentech Foundation.
As on June 2008, JSW Steel stated that, it will set up

a green field plant in Georgia (Europe) in partnership with
a UK-based company to produce rebars, the project will
see an investment of $42 million by way of equity and
debt, where 49 per cent of equity will be held by JSW while
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the balance will be held by Geo Steel LLC of the UK. Both
companies will invest $7 million towards direct equity
while the remaining amount will be raised by way of debt.
JSWSL inaugurated JSW Shoppe, an exclusive steel retail
outlet in Ahmedabad IN June 2008 and planed to setup
200 exclusive JSW Shoppes across the length and breadth
of the country by 2010. Also it will invest around Rs 550
crore in its Chilean mining concessions to ensure 50 per
cent iron ore security by June 2009, up from 30 per cent
now. The Company plans to emerge as 32 million tonnes
per year capacity steel major by 2020.
4. Essar Steel Ltd
Promoted by the Bombay-based Essar group

controlled by the Ruias, Essar Steel initially commenced
operations of specialised construction in Jun.'76 as Essar
Constructions. Its name was changed to Essar Offshore &
Explorations in May '87 and later to Essar Gujarat in
Aug.'87. It became Essar Steel in 1995. The company is a
integrated producer with end-to-end control of all
operations related to steel making.
Its energy division was operating the largest fleet of

rigs in the private sector. In 1987-88, it diversified into
sponge iron and set up a 8,80,000 tpa gas-based plant at
Hazira, Gujarat. The plant incorporating technology
innovated by Midrex Corporation, US, commenced
production in Aug.'90 with two 4,40,000 tpa modules. The
plant commenced production in Sep.'95. Later the
company transferred its energy and offshore divisions to
Essar Oil.
The company has become the country's first

integrated steel plant to receive both ISO 9002 and TUV
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certifications. During 1998-99, Essar Minerals Ltd
presently Hy-Grade Pellets Ltd (HGPL) has become wholly
owned subsidiary of the company.
The Company has planned to increase the capacity to

4.6 Million MTPA in next 2 years. The company has
planned to increase the pellet making capacity at
Visakhapatnam from 4 to 8 Million tonnes in the current
year. The company has initiated production and sales of
HR Pickled and Oiled, Cold Rolled and Galvanised
Products. Further the company has launched shot blasted
and primer coated plates for shipbuilding and general
engineering applications.
The company has increased its installed capacity of

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

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

leadership in the national specialty steel market by
capitalising on the proximity of its manufacturing facilities
to major consumers of flat steel products in Maharashtra,
while increasing its presence in international markets by
using its convenient port location. In the short span of
time since its inception, Ispat Industries has steadily
raised the bar - in terms of its relentless pursuit of
technological advancement, unwavering focus on
innovation, strident emphasis on quality products and its
constant initiatives aimed at ensuring customer
satisfaction.
24
3.2.2 Bottom Five Companies
1. Sunflag Iron & Steel Company Ltd
Sunflag Iron and Steel Company ltd is a prestigious

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

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

Direct Reduction Plant, to produce sponge iron for captive
consumption in the Steel Melting Shop. This shop
comprises a 50/60 tonnes ultra high power Electric Are
Furnace with Eccentric bottom arrangement; a Ladle auto
mould level controller and electromagnetic stirrer. The
billets produced at the steel melting shop are rolled at the
Mannesmann Demag Designed ultra modern 18 stand
Continous mill.This mill has a walking hearth reheating
25
furnace, quick roll-changing facilities, a 65 metres long
walk and wait type modern cooling bed and above all
computerised process control linking and controlling the
various stages.
The company came out with a rights issue in Feb 92

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

1992. It was promoted by Rajendrabhai V Shah and
Rajiniben R Shah. The company is engaged in the
manufacture of mild steel, stainless steel, C T D bars, S S
flats and pattas, and cold-rolled sheets.
The company came out with a public issue in

Dec.'92 to part-finance an expansion scheme, and to meet
long-term working capital requirements. The company has
embarked on a Rs 6.53-cr project to manufacture stainless
steel and other alloy products, financed by GIIC. It has put
up a hot plate rolling mill at a cost of Rs 36.75 cr. The
company received the Dhatu Nayak Award for best
performance in the stainless steel industry.
During 1998-99, the Company implemented the

project of captive power plant having capacity of 20 MW.
26
The project was financed through term loans and internal
cash accruals. In 2000-01 the company has successfully
commissioned India's first 1800mm width Stainless Steel
Slab Caster. The project of H R /S S Sheet /Coil was
commissioned as per schedule. This project was financed
through internal accruals and also by term loans from
financial institutions/bankers. The company's going on
diversification project of manufacturing of HR/SS
Sheet/Coil was successfully implemented during 2001-02.
During 2001-02 Shah Steel & Industrial Gases

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

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

steels. It has modernised and expanded its capacity to
1,05,000 tpa. The products of the company are either in
rolled, forged, or pealed condition; and supplied as
blooms, slabs, RCS, rounds, squares, hexagonals,
octagonals or flats. Its products are used mainly by the
automobile and general engineering industries for
27
crankshafts, axles, connecting rods, gears, ball and roller
bearings, shells, valves, turbine blades, etc.
The company came out with a convertible

debenture offer in Jun.'92 to meet working capital
requirements. Console Estate & Investment Ltd, Mahindra
Infrastructural Projects Ltd, Corbel Estate & Investment
Pvt Ltd are the subsidiary of MUSCO.
It has set up a new press shop at Nasik. The plant is

presently set up in a different company Pranay Shares &
Securities Ltd which will become Musco's 99% subsidiary
in Mar. 2000 on conversion of FCDs held by Musco. This
plant has capacity of 4,500 tpa in the the first phase which
will be expanded to 10,000 tpa eventually, in line with
M&M's requirements. A new special steel grade for Crank-
Shaft application was developed and marketed by the
company.
The company issued 4,00,000-12% Cumulative

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

two divisions -- the steel division and the lighting division.
The steel division, which commenced operations in 1974,
28
manufactures electrical resistance welded (ERW) steel
pipes and tubes, and cold-rolled formed sections and
profiles, and cold-rolled (CR) strips. The lighting division,
operating since 1983, manufactures fluorescent tube
lamps (FTL), general lighting systems (GLS), glass shells
for GLS lamps, tubular glass shells, FTL filaments, GLS
filaments, and sodium and mercury vapour lamps. The
lamps are sold under the Surya brand. A backward
intergration to manufacture lead glass tubings and an
expansion of capacities of the lighting division were
undertaken in 1993.
The company recently completed a project to

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

Osram, under the name Osram Surya Pvt Ltd to
manufacture compact fluorescent lamps.
5. Usha Martin Ltd
Incorporated in 1986, Usha Beltron was jointly

promoted by Usha Martin Industries and the Bihar State
29
Electronic Development Corporation. The company
manufactures jelly-filled cables in technical collaboration
with AEG Kabel, Germany. The company has developed
PCM system cables used to transmit digital signals. It has
developed foam-skin type cables for the first time in India.
The company also provides software application services.
Later in May 2001 the two subsidiaries viz Usha Martin
Telecom Holding and UBL Industries were merged with the
company. Subsequent to this merger, the company name
was changed to Usha Martin Ltd in May,2003.
The manufacturing operation of the company cover

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

promoters of Usha Beltron are Usha Telekom - a cellular
service company in collaboration with Telekom Malaysia.
Usha Breco - designs, manufacturer and operates
ropeways & Summit Usha Martin Finance - Joint Venture
with Sumitomo Corporation of Japan. During the year
2000, Usha Beltron demerged its software division into a
separate company - Usha Martin Infotech. The company
also acquired the wire rope business of Brunton Shaw, UK,
a division of Carclo Plc of the UK in an all cash deal for
around Rs 8.50 cr.
30
The company entered into financial tie-up with
IFC,Washington and DEG,Germany for funding of new
projects at Jamdshedpur and Ranchi which are under
implementation stage. IFC has awarded loan of USD 21 Mn
and also has acquired 5264727 equity shares at a
premium of Rs.28 per share,and DEG-Deutsche
Investitions-und Entwicklungsgesellschaft mbH-
Germany,is funding the project by way of loan Euro 10 Mn
and in addition it has also invested Rs.17.64 crores
consisting 5345455 equity shares at a premium of Rs.28
per share.
31
4 Quantitative Analysis
4.1 Ratio Analysis

Definitions
Asset turnover ratio-This is a measure of firm’s

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

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

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

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

liabilities. It is widely used indicator of a company’s ability
to pay its debts in the short term.
32
RATIO ANALYSIS (Top five)
JSW SAI
Essar Ispat Tata
Aggreg Steel L
Company / Year Steel Inds. Steel
ate 20080 2008
200803 200803 200803
3 03
Key Ratios
Debt-Equity Ratio 1.02 1.47 4.50 0.88 0.18 0.67
Long Term Debt-

0.88 1.17 4.20 0.85 0.15 0.66
Equity Ratio
Current Ratio 1.21 0.91 1.11 0.62 1.60 2.86
Turnover Ratios
Fixed Assets 1.28 0.83 0.79 1.03 1.51 1.37
Inventory 6.59 5.31 7.79 9.86 6.65 8.99
Debtors 12.49 25.97 15.41 43.36 17.15 37.77
Interest Cover Ratio 4.83 1.96 1.10 6.02 46.70 8.61
Asset turnover ratio -In 2008 aggregate fixed turnover

is 1.28 which is higher than ESSAR, ISPST &JSW steel. But
SIAL &TATA steel’s ratio is much higher than overall
industry. It means these companies utilizing their assets
efficiently.
Inventory turnover ratio- In 2008 average inventory

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

ratio of industry is 12.49that is lesser than all company’s
average. In 2008 all companies are performing very well.
33
Debt – equity ratio -Average ratio of industry is 1.02
.Ispat company is showing higher ratio i.e. 4.88 which
shows that company is having higher risk and has
borrowed more from creditors than shareholders. All other
companies are performing average.
Current ratio- All companies are performing well except

Jsw steel and Tata is having excess current assets it should
utilize its assets in other Manufacturing activities.
JSW SAI
Essar Ispat Tata
Aggreg Steel L
ate 20070 2007
200703 200703 200703
3 03
Key Ratios
Long Term Debt-

0.79 1.45 4.53 0.80 0.24 0.50
Equity Ratio
Current Ratio 1.22 1.09 1.11 0.78 1.36 1.26
Turnover Ratios
Fixed Assets 0.16 0.74 0.73 0.98 1.33 1.26
Inventory 0.87 4.68 8.19 9.61 5.99 8.77
Debtors 1.97 16.43 13.50 38.23 18.82 33.75

is 0.16 which is lower than all steel companies. But SAIL
&TATA steel’s ratio is much higher than overall industry; it
means these companies utilizing their assets efficiently.
Inventory turnover ratio -In 2007 average inventory

ratio of industry is 0.89 that is much lower than other
34
companies .All companies are above average and JSW
Debtor turnover ratio -In 2007 average Debtor turnover

ratio of industry is 1.97 that is lesser than all company’s
average. In 2007 all companies are performing very well
and JSW steel has highest turnover among all these
companies.

.Ispat Company is showing higher ratio i.e. 4.84 which
shoes that company is having higher risk and has
companies are performing well. SAIL is having ratio of
0.28 that is lowest among all these and still it can take
loan from creditors without any hazard.
Current ratio -All companies are performing well except

Jsw steel because they are above average level i.e.1.
JSW SAI
Essar Ispat Tata
Aggreg Steel L
ate 20060 2006
200603 200603 200603
3 03
Key Ratios
Long Term Debt-

0.85 1.89 3.76 1.01 0.40 0.30
Equity Ratio
Current Ratio 1.24 1.38 1.17 0.87 1.18 0.71
Turnover Ratios
Fixed Assets 1.21 0.79 0.60 0.86 1.14 1.20
Inventory 6.35 5.66 7.00 8.16 6.17 8.47
Debtors 12.87 13.55 6.80 26.79 17.25 30.57
35
Interest Cover Ratio 5.01 2.06 -0.19 3.53 13.20 31.03

is 1.21 which is higher than all other companies. But ISPAT
is having lowest ratio it means it’s not utilizing assets
properly.

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

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

0.97.Ispat and Essar Company is showing higher ratio i.e.
2.10 and 3.91which shows that company is having higher
risk and has borrowed more from creditors than
shareholders. All other companies are having lesser ratio
which means they have taken lesser loan from creditors
than shareholders.

Jsw steel and Tata. All other companies have enough liquid
assets to meet current liabilities.
Company / Year Aggreg Essar Ispat JSW S A I Tata

ate Steel Inds. Steel L Steel
36
20050 2005
200503 200503 200503
3 03
Key Ratios
Long Term Debt-

1.31 3.89 4.26 1.81 0.83 0.51
Equity Ratio
Current Ratio 1.10 1.41 1.37 1.06 0.99 0.65
Turnover Ratios
Fixed Assets 1.34 0.95 0.82 0.98 1.15 1.24
Inventory 8.39 8.03 11.32 13.02 8.80 10.17
Debtors 13.56 15.11 8.33 19.94 18.52 25.74
Asset turnover ratio- In 2005 aggregate fixed turnover

is 1.34 which is higher than all other companies. It means
these companies utilizing their assets efficiently.

ratio of industry is 8.39that is greater than only Essar
steel. All other companies are above average and JSW
steel has highest turnover among all these companies. It
means that it is converting its inventory into sales very
frequently.

average except ISPAT. In 2005 TATA steel has highest
turnover ratio which means it is realizing cash frequently
from its debtors and company has good collection policy.
Debt – equity ratio - Average ratio of industry is 1.50.

Ispat and Essar Company is showing higher ratio i.e. 4.35
37
and 4.41 which shows those companies are having higher
risk and has borrowed more from creditors than
shareholders.

SAIL and Tata they are having lesser current assets to
meet current obligation.
JSW SAI
Essar Ispat Tata
Aggreg Steel L
ate 20040 2004
200403 200403 200403
3 03
Key Ratios
Long Term Debt-

2.48 9.76 6.43 4.84 2.28 0.95
Equity Ratio
Current Ratio 0.93 1.35 1.40 1.29 0.75 0.67
Turnover Ratios
Fixed Assets 0.98 0.60 0.71 0.57 0.87 0.97
Inventory 7.35 6.31 10.07 12.83 7.10 9.93
Debtors 10.36 11.86 9.05 10.36 15.04 14.81

is 0.98 which is higher than all other companies. It means
these companies utilizing their assets efficiently. But Essar
has lowest ratio it means it is not utilizing its assts fullest.
Inventory turnover ratio - In 2004 average inventory

ratio of industry is 7.35that is greater than only Essar steel
and SAIL. All other companies are above average and JSW
38
average except ISPATsteel. In 2004 all companies are
performing very well and realizing money at faster rate.

.Essar Company is showing higher ratio i.e. 10.80 which
companies are performing average .here. TATA steel has
lowest ratio which shows company has more shareholders
money than creditor.
Current ratio -All companies are performing average

here Tata has lowest ratio; it means it does not have
sufficient current assets to meet current obligation.
RATIO ANALYSIS (Bottom five)
Shah
MUSC Sunflag Surya Usha
Aggreg Alloys
Company / Year O Iron Roshni Martin
ate 20080
200803 200803 200803 200803
3
Key Ratios
Long Term Debt-

0.88 0.92 2.24 0.87 1.30 0.84
Equity Ratio
Current Ratio 1.21 1.26 1.47 1.75 1.30 1.02
Turnover Ratios
Fixed Assets 1.28 3.02 2.36 1.57 2.30 1.13
Inventory 6.59 8.20 5.52 5.52 7.98 4.22
Debtors 12.49 5.95 18.32 17.26 10.83 7.60
39
Interest Cover
4.83 2.54 -2.06 3.59 1.47 3.32
Ratio

is 1.28 which is lower than Usha martin. It means these
companies utilizing their assets efficiently and MUSCO has
highest turnover ratio.

ratio of industry is 6.59that is greater than Shah alloys
and Usha martin. All other companies are above average
and MUSCO steel has highest turnover among all these
companies.

ratio of industry is 12.49that is lesser than SHAH ALLOYS
and SUNFLAG iron. In 2008 all companies are performing
very well and getting money at good rate.
Debt – equity ratio -Average ratio of industry is 1.02.

Shah alloys Company is showing higher ratio i.e. 2.72
which shoes that company is having higher risk and has
companies are performing average.
Current ratio -All companies are performing well and all

have higher ratio than the average i.e.1.
40
M U S Shah Sunflag Surya Usha
Aggreg
Company / Year CO Alloys Iron Roshni Martin
ate
200703 200703 200703 200703 200703
Key Ratios
Long Term Debt-

0.79 0.61 1.36 0.78 1.31 0.96
Equity Ratio
Current Ratio 1.22 1.33 1.30 1.56 1.26 1.13
Turnover Ratios
Fixed Assets 0.16 2.93 3.77 1.48 2.06 1.02
Inventory 0.87 7.66 6.96 6.04 7.71 5.20
Debtors 1.97 5.55 15.83 15.94 10.49 7.36
Asset turnover ratio -In 2007aggregate fixed turnover is

0.16 which is lower than all the above mentioned
companies and Shah alloys has highest turnover.

ratio of industry is 0.87that is lesser than all the
companies. All other companies are above average and
Shah alloys has highest turnover among all these
companies.

average. In 2007 all companies are performing very well
and Shah alloys has highest turnover among all these
companies.

.Surya roshini is showing higher ratio i.e. 2.27 which shoes
41
that company is having higher risk and has borrowed
more from creditors than shareholders. All other
companies are performing well. Sun flag is having ratio
of0.83 that is lowest among all these and still it can take
loan from creditors without any hazard.
Current ratio -All companies are performing well because

they are above average level i.e.1 and have enough cash
to meet all current liabilities.
M U S Shah Sunflag Surya Usha

Aggreg
Company / Year CO Alloys Iron Roshni Martin
ate
200603 200603 200603 200603 200603
Key Ratios
Long Term Debt-

0.85 0.40 1.16 0.64 1.35 1.26
Equity Ratio
Current Ratio 1.24 1.40 1.25 1.72 1.27 1.14
Turnover Ratios
Fixed Assets 1.21 3.15 3.35 1.71 2.07 0.93
Inventory 6.35 7.47 5.67 6.98 7.28 4.89
Debtors 12.87 5.95 13.67 16.34 11.55 5.95

is 1.21 which is lower than all other companies except
Usha martin. But Shah alloys is having highest ratio it
means its utilizing assets properly.

ratio of industry is 6.35that is greater than only Shah
alloys and Usha martin. All other companies are above
42
average and Surya roshini has highest turnover among all
these companies. This ratio shows the number of times a
company’s inventory is turned into sales.

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

0.97.Surya roshini is showing highest ratio i.e. 2.27.which
borrowed more from creditors than shareholders.
Current ratio -All companies are performing well. All

companies have enough liquid assets to meet current
liabilities.
M U SShah Sunflag Surya Usha

Aggreg
Company / Year C OAlloys Iron Roshni Martin
ate
200503 200503 200503 200503 200503
Key Ratios
Long Term Debt-

1.31 0.61 0.91 0.56 1.44 1.58
Equity Ratio
Current Ratio 1.10 1.28 1.24 1.87 1.23 1.13
Turnover Ratios
Fixed Assets 1.34 2.93 5.99 1.70 2.10 0.95
Inventory 8.39 6.92 9.44 8.27 7.41 4.89
Debtors 13.56 6.45 18.16 18.07 11.83 5.83
43
Asset turnover ratio- In 2005 aggregate fixed turnover
is 1.34 which is lesser than all other companies. It means
these companies utilizing their assets efficiently. Shah
alloys has highest turnover ratio.

ratio of industry is 8.39 that is lesser than only Shah
alloys. All other companies are below average and Shah
alloys has highest turnover among all these companies. It
means that it is converting its inventory into sales very
frequently.

ratio of industry is 13.56that is greater than all company’s
average except Shah alloy Sun flag iron s. In 2005 Shah
alloys steel has highest turnover ratio which means it is
realizing cash frequently from its debtors and company
has good collection policy.
Debt – equity ratio -Average ratio of industry is 1.50.

Surya Roshini is showing higher ratio i.e. 2.40 and which
shows this company is having higher risk and has
borrowed more from creditors than shareholders. Sun flag
iron has lowest ratio that is good for company.
Current ratio – Average ratio of the industry is 1.20. All

companies are performing well and have sufficient current
assets to meet current obligation.
M U S CShah Sunflag Surya Usha

Aggreg
Company / Year O Alloys Iron Roshni Martin
ate
200403 200403 200403 200403 200403
Key Ratios
44
Debt-Equity
2.92 1.64 1.77 0.80 2.57 2.03
Ratio
Long Term
Debt-Equity 2.48 0.69 1.10 0.64 1.58 1.70
Ratio
Current Ratio 0.93 1.05 1.28 1.62 1.19 1.19
Turnover Ratios
Fixed Assets 0.98 2.05 5.18 1.00 1.70 0.67
Inventory 7.35 7.02 9.99 6.92 6.22 4.15
Debtors 10.36 6.26 11.00 9.15 9.85 4.80
Interest Cover
3.01 1.43 2.86 1.45 1.54 1.18
Ratio

is 0.98 which is lower than all other companies. It means
these companies utilizing their assets efficiently. But Shah
alloys has highest ratio it means it is utilizing its assts
fullest.

ratio of industry is 7.35that is lesser than only Shah alloys.
All other companies are below average and it means shah
alloys converting goods into sales at faster rate.

ratio of industry is 10.36 that is greater than all
company’s average except Shah alloys. In 2004 all
companies are performing very well and realizing money
at faster rate.

.that itself shows that industry is under huge pressure of
debts in this scenario only Sunflag was doing better
45
because it is having ratio of 0.80 which shows company
has more shareholders money than creditor.
Current ratio -Average ratio of industry is 0.93.All

companies are performing well here and have sufficient
current assets to meet current obligation.
46
5 Qualitative Analysis
5.1 Understanding the Steel industry using

Michael Porter’s Five Forces Model
Backed by robust volumes as well as realizations, steel
Industry has registered a phenomenal growth across the
world over the past few years. The situation in the
domestic industry was no exception. In fact, it enjoyed a
double digit growth rate backed by a robust growing
economy. However, the current liquidity crisis seems to
have created medium term hiccups. In this article, we
have analyzed the domestic steel sector through Michael

Porter’s five force model so as to understand the
competitiveness of the sector.
Entry barriers: High
47
 Capital Requirement: Steel industry is a capital
intensive business. It is estimated that to set up 1
mtpa capacity of integrated steel plant, it requires
between Rs 25 bn to Rs 30 bn depending upon the
location of the plant and technology used.
 Economies of scale: As far as the sector forces go,

scale of operation does matter. Benefits of
economies of scale are derived in the form of lower
costs, R& D expenses and better bargaining power
while sourcing raw materials. It may be noted that
those steel companies, which are integrated, have
their own mines for key raw materials such as iron
ore and coal and this protects them for the potential
threat for new entrants to a significant extent.
 Government Policy: The government has a

favorable policy for steel manufacturers. However,
there are certain discrepancies involved in allocation
of iron ore mines and land acquisitions. Furthermore,
the regulatory clearances and other issues are some
of the major problems for the new entrants.
 Product differentiation: Steel has very low

barriers in terms of product differentiation as it
doesn’t fall into the luxury or specialty goods and
thus does not have any substantial price difference.
However, certain companies like Tata Steel still enjoy
a premium for their products because of its quality
and its brand value created more than 100 years
back. Bargaining power of buyers: Unlike the FMCG
or retail sectors, the buyers have a low bargaining
power. However, the government may curb or put a
ceiling on prices if it feels the need to do so. The
steel companies either sell the steel directly to the
48
user industries or through their own distribution
networks. Some companies also do exports.
Competition: High
 The steel industry is truly global in terms of

competition with large producing countries like China
significantly influencing global prices through
aggressive exports.
 Steel, being a commodity it is, branding is not

common and there is little differentiation between
competing products.
 It is medium in the domestic steel industry as

demand still exceeds the supply. India is a net
importer of steel. However, a threat from dumping of
cheaper products does exist.
Bargaining power of suppliers: High
 The bargaining power of suppliers is low for the fully

integrated steel plants as they have their own mines
of key raw material like iron ore coal for example
Tata Steel. However, those who are non-integrated or
semi integrated has to depend on suppliers. An
example could be SAIL, which imports coking coal.
 Globally, the Top three mining giants BHP Billiton,

CVRD and Rio Tinto supply nearly two-thirds of the
processed iron ore to steel mills and command very
high bargaining power. In India too, NMDC is a major
49
supplier to standalone and non–integrated steel
mills.
Threat of substitutes: Low
 Plastics and composites pose a threat to Indian steel in

one of its biggest markets — automotive manufacture.
For the automobile industry, the other material at
present with the potential to upstage steel is
aluminium. However, at present the high cost of
electricity for extraction and purification of aluminium
in India weighs against viable use of aluminium for the
automobile industry. Steel has already been replaced in
some large volume applications: railway sleepers (RCC
sleepers), large diameter water pipes (RCC pipes),
small diameter pipes (PVC pipes), and domestic water
tanks (PVC tanks). The substitution is more prevalent in
the manufacture of automobiles and consumer
durables.
Bargaining power of Consumers: Mixed
Some of the major steel consumption sectors like

automobiles, oil & gas, shipping, consumer durables and
power generation enjoy high bargaining power and get
favorable deals. However, small and retail consumers who
are scattered and consume a significant part do not enjoy
these benefits.
50
5.2 The SWOT Analysis
Strengths Weakness
 Availability of iron ore  Endemic Deficiencies
 Availability of labor at low  Systemic Deficiencies
wage rates  High Cost of Capital
 Low Labor Productivity
 High Cost of Basic Inputs and
Services
Opportunities Threats
 Unexplored rural market  Slow Industry Growth
 Other sectors  Technological Change
 Export penetration  Price Sensitivity and Demand
Volatility
Strengths
Availability of iron ore
India has rich mineral resources. It has abundance of iron

ore, coal and many other raw materials required for iron
and steel making. It has the fourth largest iron ore
reserves (10.3 billion tonnes) after Russia, Brazil, and
Australia. Therefore, many raw materials are available at
comparatively lower costs.
Availability of labor at low wage rates
India has the third largest pool of technical manpower,

next to United States and the erstwhile USSR, capable of
understanding and assimilating new technologies.
Considering quality of workforce, Indian steel industry has
low unit labor cost, commensurate with skill. This gets
51
reflected in the lower production cost of steel in India
compared to many advanced countries. With such
strength of resources, along with vast domestic untapped
market, Indian steel industry has the potential to face
challenges successfully.
Weaknesses
Endemic Deficiencies
These are inherent in the quality and availability of some

of the essential raw materials available in India, e.g., high
ash content of indigenous coking coal adversely affecting
the productive efficiency of iron-making and is generally
imported. Advantages of high Fe content of indigenous
ore are often neutralized by high basicity index. Besides,
certain key ingredients of steel making, e.g., nickel, ferro-
molybdenum is also unavailable indigenously.
Systemic Deficiencies
However, most of the weaknesses of the Indian steel

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

India are charged an interest rate of around 14% on
capital as compared to 2.4% in Japan and 6.4% in USA.
Low Labor Productivity
In India the advantage of low cost labor gets offset by low

labor productivity; e.g., at comparable capacities labor
productivity of SAIL and TISCO is 75 t/man year and 100
52
t/man year, for POSCO, Korea and NIPPON, Japan the
values are 1345 t/man year and 980 t/man year.
High Cost of Basic Inputs and Services
High administered price of essential inputs like electricity

puts Indian steel industry at a disadvantage; about 45% of
the input costs can be attributed to the administered costs
of coal, fuel and electricity, e.g., cost of electricity is 3
cents in the USA as compared to 10 cents in India; and
freight cost from Jamshedpur to Mumbai is $50/tonne
compared to only $34 from Rotterdam to Mumbai. Added
to this are poor quality and ever increasing prices of
coking and non-coking coal.
Other systemic deficiencies include:
• Poor quality of basic infrastructure like road, port etc.
• Lack of expenditure in research and development.
• Delay in absorption in technology by existing units.
• Low quality of steel and steel products.
• Lack of facilities to produce various shapes and

qualities of finished steel on-demand such as steel for
automobile sector, parallel flange light weight beams,
coated sheets etc.
• Limited access of domestic producers to good quality

iron ores which are normally earmarked for exports,
and High level taxation.
Besides these, Indian steel makers also lack in

international competitiveness on determinants like
product quality, product design, on-time delivery, post
sales service, Performance index (1997-2001): Movement
53
of share prices, distribution network, managerial
initiatives, research and development, information
technology and labor productivity etc. The weaknesses
gets reflected in India’s poor standing in the global
competitiveness as measured in terms of indicated
parameters.
Opportunities
The biggest opportunity before Indian steel sector is that

there is enormous scope for increasing consumption of
steel in almost all sectors in India. There is untapped
potential of increasing steel consumption in India; eg,
even to reach the comparable developing and lately
developed economies like China and European nations, a
quantum jump in steel consumption will be required.
• Unexplored Rural Market
The Indian rural sector remains fairly unexposed to the

multi-faceted use of steel. The rural market was identified
as a potential area of significant steel consumption way
back in the year 1976 itself. However, forceful steps were
not taken to penetrate this segment. Enhancing
applications in rural areas assumes a much greater
significance now for increasing per capital consumption of
steel. The usage of steel in cost effective manner is
possible in the area of housing, fencing, structures and
other possible applications where steel can substitute
other materials which not only could bring about
advantages to users but is also desirable for conservation
of forest resources.
• Other Sectors
54
Excellent potential exists for enhancing steel consumption
in other sectors such as automobiles, packaging,
engineering industries, irrigation and water supply in
India. New steel products developed to improve
performance simplify manufacturing/installation and
reliability is needed to enhance steel consumption in
these sectors. Main objective here have to be
improvement of quality for value addition in use,
requirement of less material by reducing the weight and
thickness and finally reduction in overall cost for the end
user.
Latest technology must be adopted by Indian steel

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

next 25 years. This poses as a huge opportunity to the
steel industry.
Threats
• Slow Industry Growth
The linkage between the economic growth of a country

and the growth of its steel industry is strong. The Indian
steel industry is no exception. The growth of the domestic
steel industry between 1970 and 1990 was similar to the
55
growth of the economy, which as a whole was sluggish.
This sluggish growth in the steel industry has resulted in
enhanced rivalry among existing firms. As the industry is
not growing the only other way to grow is by increasing
one’s market share.
Consequently, the Indian steel industry has witnessed

spurts of price wars and heavy trade discounts, which has
done Indian steel industry no good as a whole.
• Technological Change
Technological changes often force the industry structure to

change. For a developing country like India where capital
itself is costly, technological obsolescence is a major
threat.
• Price Sensitivity and Demand Volatility
The demand for steel is a derived demand and the

purchase quantity depends on the end-user requirements.
The traders tend to exhibit price sensitivity and buy when
there are discounts. This volatility of demand often affects
the integrated steel manufacturers because of their
inability to tune their production in line with the market
demand fluctuations.
Some other threats are:
• Ever decreasing import duty on steel.
• Dumping of steel by developed countries.
• High quality products from developed countries

available for import at very competitive prices.
• Non-availability of capital from financial institutions

for iron and steel sector.
56
5.3 Strategic Restructuring — A
Comparative Analysis
The effect of globalization on steel industries in different
regions or countries has not been uniform. Each region is
unique in its own way in terms of raw materials
availability, technology adopted, market conditions,
trading policies, etc.
Consequently restructuring of steel industries in different

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

Steel production targets set in the National Steel Policy by
the Indian Government recognize that success will depend
on addressing a number of impediments. While India
ranks 116th of 155 countries in the World Bank’s ease of
doing business index, such a rating conceals major
57
differences between individual states within India and the
extent of government support at all levels to facilitate
investment in the steel sector. Further, many impediments
to business present in the wider economy will not be so
significant in the special economic zones and special
economic and investment regions where a large
proportion of planned new steel capacity will be sited.
Infrastructure
The state of infrastructure in India is a significant
consideration for investors in the steel sector. A number of
studies, including one released by Morgan Stanley in 2005
(Ahya and Sheth 2005), concluded that the low level of
spending on infrastructure, compared with other emerging
economies, is the major macroeconomic constraint on the
Indian economy. Morgan Stanley note that China spent
10.6 per cent of gross domestic product, equal to US$150
billion, on infrastructure in 2003 compared with India’s 3.5
per cent or US$21 billion. Notably, India, in contrast to
China, has low rates of domestic savings, which is a factor
in limiting capital formation and domestic investment.
For new steel projects, infrastructure costs can be
significant, as in the case of Posco’s steel plant
development in Orissa. Infrastructure development
requires the transport of raw materials for steel
production. Every tonne of steel produced requires 4
tonnes of raw material to be transported. Hence,
achieving the goal of 75 million tonnes of additional
capacity by 2019-20 will require the movement of an
additional 300 million tonnes of raw material. On this
basis, the Indian Government estimates that rail and road
capacity will need to approximately triple and port
58
capacity double by 2019-20 to meet demand for steel and
raw material movements (Government of India 2005).
An analysis by McKinsey Quarterly (Bhargava, Gupta and
Khan 2005) showed that Australia, Brazil and South Africa
can deliver iron ore to China at a lower price than India,
with Australia’s fob delivery price less than half of India’s
price. A major factor in India’s competitive disadvantage is
high transport costs stemming from a lack of
infrastructure, but mining costs are also high. However,
this is somewhat offset by the closeness of India’s raw
materials to its ports and steelworks relative to other steel
producing countries (De Bassompierre and Arendse 2006)
.
The major investments required in infrastructure are
expected to be a significant driver of steel consumption in
the domestic market as infrastructure and construction
combined account for 80% of India’s steel consumption
(Gokarn, Sen and Vaidya 2004). Additional infrastructure
will also provide indirect benefits to other sectors in the
economy.
Roads
The capacity and quality of Indian roads are also a
constraint to economic development, with highways
making up 2 per cent of roads but accounting for 40 per
cent of freight movement in 2004. In addition, some 50
per cent of India’s 600 000 villages are unconnected by
all-weather roads (OECD 2006c; Economist Intelligence
Unit 2005a).
Freight movements are further delayed by onerous
transport regulations, which include restrictions in the
hours of the day that heavy vehicles can operate,
interstate border crossing closures and lengthy trans-
59
border crossing procedures, frequent tolls and inspections,
and road closures at night due to the risk of attacks by
insurgents or bandits.
In an effort to improve transport efficiency the
government has announced a road building program
known as the National Highways Development Project
(Government of India 2002). Stage one is nearing
completion and involves the construction of a highway,
called the Golden Quadrilateral, connecting Delhi,
Mumbai, Kolkata and Chennai at a cost of US$12 billion.
This is part of a wider plan to improve roads nationwide at
a cost of over US$30 billion shared between government
and the private sector (Puliyenthuruthel 2005).
Rail
The government owned and operated rail network is
the third largest in the world after the Russian Federation
and China and the biggest in the world in terms of
passenger kilometres. However, cross subsidisation of
passenger transport by freight transport has meant that
steel freight and freight in general has moved away from
rail to roads: 35 per cent of processed or final steel
products were transported by rail in 2001-02, down from
72% in 1991-92 (OECD 2006c; Economist Intelligence Unit
2005a). The government has signalled its intention to
improve the freight performance of the railways in its
current five year plan, although the passenger cross
subsidisation policy — which is aimed at assisting the poor
— is likely to remain.
Shipping
The efficiency of Indian ports is affected by shallow
draught, low productivity, high costs, long vessel
60
turnaround times, poor governance, and lengthy customs
delays. Shipping costs are consequently high — a
shipment from India to the United States can cost 20 per
cent more than from Thailand and 35 per cent more than
from China (OECD 2006c; Economist Intelligence Unit
2005a).
Expanding India’s steel sector depends on lower port costs
for handling key inputs such as coking coal which is
predominantly imported, as well as servicing potential
steel exports as envisaged under the National Steel Policy.
The Indian Government has in place several initiatives to
encourage private sector participation in ports, while
recognising that modernisation of Indian ports is a long
term project.
Some steel operations are, however, of sufficient size to
overcome these impediments by investing in their own
facilities. An example is Posco’s plant in Orissa, which will
include a US$200 million new world class port at Jagadhari
with berths up to 250 000 tonnes.
Power Generation
The electricity supply system is characterised by
frequent outages and high voltage fluctuations despite
half of all households not being connected to the grid.
Average electricity consumption per person is 526 kilowatt
hours a year, which compares with 1247 kilowatt hours in
China (OECD 2006; Economist Intelligence Unit 2005).
The Ministry of Steel estimates that achieving the goals
set out in its 2019-20 Steel Policy will require an additional
7000 megawatts of generation capacity. This compares to
a nationwide capacity of 131 400 megawatts in 2003-04
and an overall target of an additional 100 000 megawatts
61
of capacity within seven years so that all households can
be connected to the grid.
However, the government has limited funds for the
construction of power capacity and there are a number of
risks for potential investors where political considerations
have constrained reform. These include cross
subsidisation by industry users of some consumer classes
whose payments do not meet costs, as well as over 25 per
cent of power being stolen or lost in distribution. These
factors combine to limit overall electricity tariffs to 75 per
cent of supply costs, which are estimated at twice those of
the United States, and 60 per cent greater than in the
Republic of Korea and Thailand (Economist Intelligence
Unit2005b).
The mismatch between costs and tariffs has bankrupted
many of the government controlled state electricity
boards and consequently restricted their ability to add
capacity.
A case in point is the defaulting on payment by the state
electricity board that emerged in the case of the US$2.9
billion Dabhol power plant, which was India’s largest ever
foreign direct investment project.
While the Indian Government has sought to reform the

electricity market for some time and recently offered to
guarantee over 5 billion US$ of the state electricity
boards’ debts, investor perceptions are that if payment is
not assured, these efforts are likely to meet with limited
success and capacity will continue to be constrained.
However, to the extent that capacity is added, it will be a
significant driver of steel demand as machinery and
equipment accounts for 13% of total demand for steel in
India.
62
6 Current Global Scenario
1. Subprime crisis
2. US slow down
3. US dollar weakening
4. Fed rate cut by 50 basic points
Impact
1. Widening credit spreads
2. Increase in capital cash
3. Liquidity crunch-Central bank intervention
4. Equity market initials retreat
5. Bounce back on FED rate cut-Huge volatility
6.1 Current crisis in Iron and Steel Industry
Worsening US economic crisis has led to global steel

companies pruning their capacity thereby, lower forecast
of iron ore consumption this year. This is evident from the
latest data collated by the Federation of Indian Minerals
Industries (FIMI) which states that iron ore exports from
India till December 15, 2008 declined over 13% despite
huge price decline in steelmaking raw materials.
63
According to Labour Department, the US job losses last
year were the most since 1945. Additionally, the federal
budget deficit is expected to hit $1.18 trillion this year as
the government spends billions on industry bailouts and
tax cuts. Consequently, the US government has pledged
more than $8.5 trillion as of November 25 for the bailout
package to companies and help the country recover from
an economic recession. The recently elected president
Barack Obama has also favoured an additional stimulus
package of at least $775 billion.
Low Iron Ore Exports from India
The latest FIMI data indicates iron ore exports plunged to

55.8 million tons between April 1 - December 15 of the
current fiscal as compared to 64.38 million tons in the
corresponding period last year. Shipment, however,
witnessed a marginal decline of 3.81% to 5 million tons
during the first fortnight of December from 5.2 million tons
in the same period last year (2008).
Source: SteelWorld
64
Total shipment from Mormugao port in Goa during the first
fortnight of December showed a drastic decline of over
27.18% to 20.84 million tons as against 28.62 million tons
in the same period last year. Goan exporters ship mainly
Karnataka- and Goa-origin low grade iron ore to Chinese
steel mills, said Glenn Kalavampara, Secretary of Goa
Mineral Ore Exporters' Association (GMOEA). Haresh
Melwani, CEO, H L Nathurmal & Co, one of the leading iron
ore miners and exporters from Goa attributed the decline
in exports to three major factors namely: frequent
changes in exports levy on fines and lumps (the two
grades of iron ore below and above 64 percent of iron
content respectively), slowdown in Chinese demand and
buyers lenience towards Australia and Brazil because of
favourable government policy. He also forecast about 25
percent decline of exports of state-origin iron ore from
Goa to the tune of 20 million tons this financial year from
26 million tons last year. Similarly, both Karnataka- and
Goa-origin iron ore exports may also fall to the level of 30
million tons as compared to 40 million tons last financial
year, Melwani added.
Crude Steel Production Down and Domestic

Steel Companies Margin under Pressure
The margins of steel producers will be under severe

pressure in the second half of 2009 due to high cost of
coking coal (US$300-350 per ton). Coking coal prices too
are likely to correct sharply in 2009 due to sharp drop in
steel production. Currently, capacity utilization of Ispat
Industries is 30%, JSW Steel and Essar Steel is 60-70%
each, and Bhushan Steel is 50 percent. SAIL and Tata steel
have not announced production cuts but they have
brought forward repairs. Tata Steel's November production
65
of 570,000 tons was the highest ever despite three of its
smaller blast furnaces under relining. Though JSW Steel
announced production cut of 20%, actual production rates
have been worse in November 2008.
7 Suggestions
The following suggestions are given to rejuvenate the
Indian steel industry:
 Technology policy is to be so designed by the

government that it will generate the thrust to
update the technology by the steel producers.
 Further liberalization towards tariff structure, full

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

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

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

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

be a continuous process in steel plants. Training
66
programmers should be designed for people from
different hierarchy including top level management.
 As economy is becoming more and more market-

driven, steel sector should also tune to it.
 Technology transfer plans are to be worked out more

carefully. Indian firms must select appropriate
technology with proper scope of adoption.
 Firms must do technological forecasting, which is

not common in Indian steel industry, to take better
decisions on product mix and investment proposals.
 Resource utilization must be more effective to

improve on the productivity.
8 Future Outlook
The Role of Iron and Steel Industry in India GDP is very

important for the development of the country. In India the
visionary Shri Jamshedji Tata set up the first Iron and Steel
manufacturing unit called Tata Iron and Steel Company, at
Jamshedpur in Jharkhand. Iron and steel are among the
most important components required for the infrastructure
development in the country.
The sponge iron has of late come up as a major input

material for steel making through electric furnace route –
both Electric Arc Furnace and Induction Furnace. Due to
long gestation period, huge investments, dependence for
coke on foreign suppliers, the steel industry is slowly
diverting itself from blast furnace route to electric furnace
route and the requirement of Sponge Iron is increasing
67
very fast. Another major reason is the global shortage of
scrap. The steel making furnaces in the eastern region use
average 70% Sponge Iron in the feed material for steel
making.
The future for the Sponge Iron is therefore quite bright.
The steel is today considered as the backbone of India
economy. The growth of economy has a direct relation
with the demand of steel. With the present steel intensity
index, considering the GDP projection by the Government
of India, growth of steel demand will be around 11%
annually.
As per the National Steel Policy issued by the Ministry of

Steel – India will produce 110 million tons of steel by 2020.
The requirement of Sponge Iron as metallic will be 30
million tons.
Projection for metallic requirement:
Year Route Melting Scrap DRI

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

biggest producer of steel within the year 2016 and the
production per year would be 137 million tonnes
• Today India produce 13.9 million tons of sponge iron,
out of which 4.2 million ton is gas based and remaining
9.7 million ton is coal based.
• India has a proven reserve of 410 million ton of high
grade iron ore, another 440 million ton of high grade
68
iron ore which will be established. India has total 9992
million ton of iron ore reserves (as per IBM report of
1995).
• India has sufficient non-coking coal through of high ash
low fixed carbon grade. Coal is used as a reducing for
sponge iron making in the furnace.
• The availability of scrap of required quantum is unlikely
and therefore scraps needs to be replaced more and
more by DRI.
Projects in near future:

• The Arcelor Mittal, which is the largest steelmaker in
the world, has plans of establishing two Greenfield
steel projects with capacity of 12 million tonnes
annually, in India
• Acerinox SA, one of the important stainless steel
manufacturers in collaboration with Nisshin Steel,
Japan is setting up a steel plant in India
• The Tata Steel ranks 5th in the world steel
production and the company have plans of
expanding its capacity by the year 2015
• SAIL, India's biggest producer of steel has plans of
increasing the production to 24.98 million tonnes
annually
• Sinosteel Corp, China are planning to invest US$ 4
billion to set up a 5 million tonnes capacity
Greenfield steel plant
• The acquisition of the Corus, the Anglo-Dutch steel
manufacturer by the Tata Steel
• The Algoma Steel, Canada was acquired by Essar
Global for US$ 1.63 billion
69
9 Business Innovation: Steel
Retailing
Steel has always been a part of our lives. Be it steel

utensils, the razor blade we use every morning while
shaving or the re-bars that support our homes.
Omnipresent, the everyday metal surfaces almost
everywhere, lends its hand in almost every activity we do.
But buying steel has not been a very pleasant experience
for most of us. One must have also skipped, jumped and
hopped from one store to another for nuts, hinges and
home utensils.
Realising this, Tata Steel decided to foray into organised
steel retailing. This initiative is testimony to the
organisation’s undying spirit for experimentation and to
break new ground. To catalyse steel consumption in
emerging mass markets of India and to build downstream
retailing excitement for steel as a category, Tata Steel
spearheaded the company’s entry into pure play retailing
for steel products with its first pilot store ‘steeljunction’ in
Kolkata. This is India’s first organised steel retail store.
Tata Steel hopes that ‘steeljunction’ would be a platform
that would bring together vendors & manufacturers to
70
understand consumer buying behaviour for steel and
innovate and develop newer products & services that add
value to the end customer and makes steel buying
pleasurable.
Innovations in the market place the CVM (Customer Value

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

versatility of steel - from its functionality to its aesthetics.
To build a specialty chain of stores that will bring

innovation to steel products and make steel buying
pleasurable.
9.2 Lessons from Nucor Steel
71
Nucor Steel: “Recycled Steel: An environmental
success”
Nucor Corp. (NYSE:NUE) is a steel producer that relies on
scrap steel for production rather than iron ore; this makes
it the largest recycler in the nation. As opposed to
traditional large mills, Nucor runs mostly mini-mills that
utilize modern steel making techniques and require fewer
employees compared to fully-integrated competitors such
as US Steel. Still, the company employs nearly 12,000
workers, all of whom are independent of unions.
Production totalled 22.4 million tons in 2006, a 10%
increase from 2005, with production capacity exceeding
25 million. Nucor achieved record sales and net earnings
in 2006 for the third consecutive year, and has managed
to maintain profitability every quarter of every year since
1966. Hence it is rightly said “Converting Scrap into
Steel.”
Advantages:
Managing and Minimizing Waste
Integrated steel makers use primarily iron ore in the

production process, whereas mini-mills use primarily steel
scrap. Producing from steel scrap is a simpler and
significantly less energy-intensive process than producing
from iron ore, but because steel scrap is recycled, there is
concern of impurities thus decreasing the accessible
market for producers. The primary source for steel scrap is
obsolete automobiles, but steel scrap also comes from the
recycling of steel cans, appliances, and other construction
materials. They also do the Beneficial Reuse of Slag.
Increasing Energy Efficiency
72
The iron and steel industry, which relies heavily on coal
and natural gas for fuel, is one of the largest energy
consumers in the manufacturing sector. The company
reported achieving a 17% reduction in energy intensity
per ton of steel shipped since 1990. Because of the close
relationship between energy use and GHG emissions, the
industry’s aggregate CO2 emissions per ton of steel
shipped were reduced by a comparable amount during
this same period. As part of their Climate VISION
commitment, the industry has committed to increasing its
energy efficiency by 10% by 2012 (from 2002 levels).
Reducing Air Emissions
To help achieve this goal, the industry is researching

alternative means of production at integrated mills that
would not generate CO2, seeking to reduce or capture
GHG emissions from current production methods, and
exploring ways to increase energy efficiency. They employ
methods to
reduce
Hazardous Air
Pollutant
Emissions and
Greenhouse Gas Emissions.
10 Identifying Key Success Factors
73
WHAT DO HOW DO FIRMS KEY SUCCESS
CUSTOMERS WANT? SURVIVE
FACTORS
COMPETITION?
(Analysis of
demand) (Analysis of
competition)
• Low price. • Commodity • Conventional

products, excess sources of cost
• Product
capacity, high fixed efficiency include:
consistency.
costs, excess large-scale plants,
• Reliability of supply. capacity, exit low-cost location,

barriers, and and rapid
• Specific technical adjustment of
substitute
specifications for competition mean capacity to output.
special steels. intense price
• Alternatively, high
competition and
technology, small
cyclical profitability.
scale plants can
• Cost efficiency and achieve low costs
strong financial through flexibility
resources essential. and high
productivity.
• Differentiation
through technical
specifications and
service quality.
11 Conclusion
It is universally accepted that Indian economy is growing
at a very high rate presently and the demand for steel is
also showing an upward trend. We believe, for the sake of
74
country and growth of economy, growth of sponge iron
industry is a must. This is possible only with the active
support of the Government. Efforts to make this sector
more eco-friendly will meet success only if competent
authorities take up the developmental jobs in proper spirit.
12 References
1. Annual Report (2007-2008) Of Ministry Of Steel
2. Analysis from CRISIL
3. Commitment: The Dynamic of Strategy - Pankaj

Ghemawat (New York: Free Press, 1991)
4. Dealing With Trade Distortions In Trade Industry-

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

Narayanaswamy
6. Iron and Steel Review (1998)
7. Online magazine – Metal Bulletin
8. World Class Steel – G. Mukherjee, IMI
9. www.Capitaline.com
10. www.MySteel.com
11. www.sail.com
12. www.SteelWorld.com
13. www.steel.nic.in
14. www.worldsteel.org
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Iron and Steel 2009 - Industry Analytics

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Iron and Steel 2009 - Industry Analytics

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Analysis of Indian Iron and

We are extremely thankful to our faculty Dr. R. Venkatamuni

Steel is an alloy consisting mostly of iron, with a carbon content between

Though steel had been produced by various inefficient methods long

1.1 Varieties of Steel

1.2 Production Technology

• The Electric Air Furnace (EAF) is rapidly gaining popularity

• COREX, a new modern smelting technology has been recently

1.3 Components of the cost of production

• Power costs - The steel industry is an energy intensive industry with

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

• Other expenses - Wage bills, depreciation costs and distribution

2 The Global Steel Industry

3 The Structure of Indian Steel Industry

3.1 Factors that attribute to the Revival of the

Consolidation within the industry is the need of the hour as it might

Increased focus on branded products could allow the producers to charge

Also, increased focus on value-added products will help improve revenues

Long Contracts/Marketing Alliance

Increased infrastructure spending by the Government of India and

 Licensing requirement for capacity creation has been abolished.

 Automatic approval granted for foreign equity investment in steel has

 Restrictions on external trade, both in import and export, have been

 Import tariff reduced from 105% in 1992/93, to 30% in 1996-97.

 Other policy measures like convertibility of rupee on trade account,

Cost Competitiveness of Indian Steel Industry

The cost competitiveness of Indian steel industry can be seen in Table 5.

Source: Iron and Steel Review (1998)

A host of steel companies forecasted expanding consumer market and

3.2 Consumption of Steel in India

TOP FIVE COMPANIES BOTTOM FIVE

3. Jindal Iron and Steel 3. MUSCO

3.2.1 Top Five Companies

1. Steel Authority of India Ltd

The Ministry of Steel and Mines drafted a policy

Steel Authority of India Limited (SAIL) is the leading

SAIL International Ltd was incorporated to

As on January 2008, India's two biggest steel

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

2. Tata Steel Ltd

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

Golden Jubilee of the company was celebrated in the

The company received the Award for Best-

As on January 2008, Tata Steel Limited and the

3. JSW Steel Ltd

India's second largest private sector steel maker

During the incorporated year itself, the MOU was

CII-EXIM Bank Award was handed over to the

National Sustainability Award was conferred to the

As on June 2008, JSW Steel stated that, it will set up

4. Essar Steel Ltd

Promoted by the Bombay-based Essar group

Its energy division was operating the largest fleet of

The company has become the country's first

The Company has planned to increase the capacity to

The company has increased its installed capacity of

5. Ispat Industries Ltd

Ispat Industries Limited (IIL) is one of the leading

The Company aims to consolidate its market

1. Sunflag Iron & Steel Company Ltd

Sunflag Iron and Steel Company ltd is a prestigious

The company has set up a state of art integrated

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

The company came out with a rights issue in Feb 92