14537439 iron and steel 2009 industry analytics

7/28/2019 14537439 Iron and Steel 2009 Industry Analytics

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Presented by:

(Group 8)Arpita Bahadur

Gaurav Kumar

Manish Gupta

Pavan Ghargi

Ranjini Ballal

Vani Vyas

Analysis of Indian Iron andSteel Industry

Analysis of Indian Iron andSteel Industry


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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

Table of Contents...................................................................................................3

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 Porters 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 withincreased 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 ofother elements, but containing 13% by weight of slag in the form of

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particles elongated in 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

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be 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 inIndia. 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

Below mentioned are few methods of producing steel:

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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 alsopossesses 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 productioncosts. 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 90s 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 ofsteel. The ISPs 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 asone 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 steelindustry 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% ofthe 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 201213.

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.

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Interarch Building Products Private, (the largest player in pre-

engineered steel buildings space) plans to set up its greenfield

manufacturing facility in Gujarat by 200910.

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 IndiaThe companies covered in the report include

TOP FIVE COMPANIES

1. Steel Authority of

India Ltd

2. Tata Iron and Steel

Company Ltd

3. Jindal Iron and Steel

Company Ltd

4. Essar steel

5. Ispat Industries Ltd

BOTTOM FIVE

COMPANIES

1. Sunflag Iron and

Steel Industry

2. Shah Alloys Ltd

3. MUSCO

4. Surya Roshni

5. Usha Martin

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

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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

Authority of India Ltd. The Company, incorporated onJanuary 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

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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.

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 forincrease in Hot Metal production to 20 Mt by 2012. After

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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

reviewed the Corporate Plan 2012 in Jul'2006, wherein itwas 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 fivehundred under the first phase of modernisation.

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The company received the Award for Best-

Integrated Steel Plant in 1994-95. The company also

received the Prime Minister's Trophy for the Best

Integrated Steel Plant for the year 1994-95. This awardwas 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 wasmade with KSIIDC to be provided with grid support,

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approvals for construction of railway siding etc and also

the company entered into a technical arrangement with

Voest Alpine Industrieanlagenbau (VAI), for technical

details with respect to productivity, iron ore technicaldetails 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 witha UK-based company to produce rebars, the project will

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see an investment of $42 million by way of equity and

debt, where 49 per cent of equity will be held by JSW

while the balance will be held by Geo Steel LLC of the UK.

Both companies will invest $7 million towards directequity 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 intosponge 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.

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The company has become the country's first

integrated steel plant to receive both ISO 9002 and TUV

certifications. During 1998-99, Essar Minerals Ltd

presently Hy-Grade Pellets Ltd (HGPL) has become whollyowned 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 inthe 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 hotrolled coils, through its two state-of-the art integrated

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steel plants, located at Dolvi and Kalmeshwar in the state

of Maharashtra.

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

24


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innovation, strident emphasis on quality products and its

constant initiatives aimed at ensuring customer

satisfaction.

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. TheSunflag 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

25


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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

furnace, quick roll-changing facilities, a 65 metres longwalk 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 bestperformance in the stainless steel industry.

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During 1998-99, the Company implemented the

project of captive power plant having capacity of 20 MW.

The project was financed through term loans and internal

cash accruals. In 2000-01 the company has successfullycommissioned 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 FinanceCorporation, 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

27


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automobile and general engineering industries for

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 hastwo divisions -- the steel division and the lighting division.

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The steel division, which commenced operations in 1974,

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

29


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Incorporated in 1986, Usha Beltron was jointly

promoted by Usha Martin Industries and the Bihar State

Electronic Development Corporation. The company

manufactures jelly-filled cables in technical collaborationwith 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,

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a division of Carclo Plc of the UK in an all cash deal for

around Rs 8.50 cr.

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.

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4 Quantitative Analysis

4.1 Ratio Analysis

Definitions

Asset turnover ratio-This is a measure of firms

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 companys 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 firms 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 companys 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 companys ability

to pay its debts in the short term.

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RATIO ANALYSIS (Top five)

Company / YearAggreg

ate

EssarSteel

200803

IspatInds.

200803

JSW

Steel

20080

3

S A I

L

2008

03

TataSteel

200803

Key Ratios

Debt-Equity Ratio 1.02 1.47 4.50 0.88 0.18 0.67

Long Term Debt-

Equity Ratio0.88 1.17 4.20 0.85 0.15 0.66

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 steels 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 companysaverage. In 2008 all companies are performing very well.

33
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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 othercompanies 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.

Company / Year

Aggreg

ate

Essar

Steel200703

Ispat

Inds.200703

JSW

Steel

200703

S A I

L

200703

Tata

Steel200703

Key Ratios


Long Term Debt-

Equity Ratio0.79 1.45 4.53 0.80 0.24 0.50

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 steels 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

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companies .All companies are above average and JSW

steel has highest turnover among all these companies.

Debtor turnover ratio -In 2007 average Debtor turnover

ratio of industry is 1.97 that is lesser than all companys

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

borrowed more from creditors than shareholders. All other

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.


ate

Essar

Steel

200603

Ispat

Inds.

200603

JSW

Steel

20060

3

S A I

L

2006

03

Tata

Steel

200603

Key Ratios


Long Term Debt-

Equity Ratio0.85 1.89 3.76 1.01 0.40 0.30

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

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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 its 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 allthese companies .This ratio shows the number of times a

companys inventory is turned into sales.


ratio of industry is 12.87that is lesser than all companys

average except ISPAT.TATA steel has highest turnover

ratios which shows that debtors are being converted

rapidly into cash and the quality of companys 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

ate

Essar

Steel

Ispat

Inds.

JSW

Steel

S A I

L

Tata

Steel

36


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200503 20050320050

3

2005

03200503

Key Ratios


Long Term Debt-

Equity Ratio1.31 3.89 4.26 1.81 0.83 0.51

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.



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.


ratio of industry is 13.56that is lesser than all companys

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

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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.


ate

Essar

Steel

200403

Ispat

Inds.

200403

JSW

Steel

20040

3

S A I

L

2004

03

Tata

Steel

200403

Key Ratios


Long Term Debt-

Equity Ratio2.48 9.76 6.43 4.84 2.28 0.95

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


Asset turnover ratio -In 2004 aggregate fixed turnoveris 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


steel and SAIL. All other companies are above average

38


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and JSW steel has highest turnover among all these

companies.



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)


ate

M U S C

O

200803

Shah

Alloys

20080

3

Sunflag

Iron

200803

Surya

Roshni

200803

Usha

Martin

200803

Key Ratios


Long Term Debt-

Equity Ratio0.88 0.92 2.24 0.87 1.30 0.84

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

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Debtors 12.49 5.95 18.32 17.26 10.83 7.60

Interest Cover

Ratio4.83 2.54 -2.06 3.59 1.47 3.32


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 alloysand 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


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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


ate

M U S

C O

200703

Shah

Alloys

200703

Sunflag

Iron

200703

Surya

Roshni

200703

Usha

Martin

200703

Key Ratios


Long Term Debt-

Equity Ratio0.79 0.61 1.36 0.78 1.31 0.96

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


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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 takeloan 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.


ate

M U S

C O

200603

Shah

Alloys

200603

Sunflag

Iron

200603

Surya

Roshni

200603

Usha

Martin

200603

Key Ratios


Long Term Debt-

Equity Ratio0.85 0.40 1.16 0.64 1.35 1.26

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


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average and Surya roshini has highest turnover among all

these companies. This ratio shows the number of times a

companys 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 companys 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.


ate

M U S

C O

200503

Shah

Alloys

200503

Sunflag

Iron

200503

Surya

Roshni

200503

Usha

Martin

200503

Key Ratios


Long Term Debt-

Equity Ratio1.31 0.61 0.91 0.56 1.44 1.58

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
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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 companys

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.


ate

M U S C

O

200403

Shah

Alloys

200403

Sunflag

Iron

200403

Surya

Roshni

200403

Usha

Martin

200403

Key Ratios

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Debt-Equity

Ratio2.92 1.64 1.77 0.80 2.57 2.03

Long Term

Debt-Equity

Ratio

2.48 0.69 1.10 0.64 1.58 1.70

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 CoverRatio

3.01 1.43 2.86 1.45 1.54 1.18


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

companys 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


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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


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5 Qualitative Analysis

5.1 Understanding the Steel industry using

Michael Porters 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

Porters five force model so as to understand the

competitiveness of the sector.

Entry barriers: High

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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 thelocation 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 probl

14537439 iron and steel 2009 industry analytics

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