Steel Industry Analysis

Group-9
Abhijit Kande 1811405
Neha Koli 1811409
Anjali A Kumar 1811412
Gunjesh Kumar 1811413
Sandesh S Naik 1811422
K V Aditya 1811428
Industry overview
The Indian Steel Industry includes three categories - the major producers, other major
producers and secondary producers that produce steel in different forms (Liquid, crude &
finished), different composition (alloy and non-alloy) and also based on the end use
(automotive, construction, rail, etc.) [1]
Industry Performance Key Metrics

• 2% of India’s GDP[1] Data for FY18[3]

2
Industry timeline 5 6 Indian Bankruptcy
Code : Accelerated
National Steel Policy (2017) : Target to consolidation in steel
boost capacity to 300 MTPA on supply industry. Bhushan
side & induce consumption of 160 kg by steel acquired for $5.4
2030 on demand side [8] 2017 2018 bn by Tata Steel.
Production – 102
4 Anti-Dumping duty for 5
years,100% FDI allowed [6][7]
2016 MTPA [9][10]
National Steel Policy (2005) : 3
1
Increased investments in R&D and
State control infrastructure; reduce procedural
established. Only 3 2005 and policy bottlenecks [5]
private players
producing industrial 1947 1992 2
output of 1 MTPA . Tata Surge in private sector and foreign
Iron and Steel Company investments following liberalization.
was one of them[4] Pricing and distribution were
deregulated. [4]
Bargaining Power of Buyers
Major Buyers
<Short term contracts> <Long term contracts>
Infrastructure industry , SME Automotive industry, Ship building,
Aeroplanes, Large Scale industries
Low Switching costs
Undifferentiated and standardized
products. [11]
High Volume Customers
Majority of demand comes from from two concentrated
industries – Automobiles and Construction . [12]

Government protectionism
Duties on imports leading to reduced
options for imports on buyers side.[13]
( )
The Bargaining power of Buyers for steel is HIGH
Threat of new entrants
Capital-intensive business
Cost of setting up integrated steel plants
requires large capital[14]
Economies of Scale
Existing large players incur lower Cost of raw material
procurement and lower R&D expenditures[14]
Government policy
Century old reputed company, First mover
advantage[15]
Product differentiation
Steel, being a commodity cannot be branded and
differentiated[16]
100% FDI
Foreign players can directly invest in the steel
industry[17] ( )
The threat of new entrants for steel industry is LOW
Bargaining power of Suppliers
Main Suppliers: Ore Suppliers, Coal Suppliers,
Electricity Suppliers, Labor
Supply Chain
Most manufacturers have efficient backward integration – Iron
ore supply control[18]

Raw Materials
Easy switching between suppliers- availability of cheap iron
ore globally[19]

Other inputs:
Coking Coal & Power have few manufacturers and hence are
charge a premium[20]
( )
The Bargaining power of Suppliers for steel is MEDIUM
Threat of Substitutes

Aluminium:
Usage of Aluminum is increasing at 5% per annum. Cars made
in USA (such as Ford) would be using as high as 249.5 kg by
2025 from 148.3 kg in 2009[21]
Plastic:
Used in major industries: Automobiles, Piping and Packaging.
Almost 95% cars now use plastic fuel tank[21]
Magnesium Alloy:
The automakers are thinking of using 40-100Kg of Mg alloys in
a car and its usage is going to increase by 300% in near
future[22] ( )
Aluminum is a potential threat but other two are not a threat in near future, threat of
substitution for steel is LOW
Existing Rivalry
Existing Competitors
Few Large Competitor present such as Tata Steel, JSW, SAIL[23]

Other Dimensions of Competition

Growth Rate
Capacity is projected to double by 2030. Indicative of Industry Growth[25]

Variety of products
Limited (Finished steel is either of flat or non flat form)[26]

Government Policies
Positive impact of Govt. protection from global price pressures[27].
( )
Industry Rivalry among major players is MEDIUM
 PEST Analysis
• National steel policy 2017[30] • Expected GDP growth of 7.5% &9% YOY
• Insolvency & Bankruptcy code[31] growth in steel consumption.[32]
• Hike in import duty by 25% twice last year[29] • Infrastructure steel consumption is
• Announcement of Pradhan Mantri Awas predicted to reach 11% of total by 2026.[28]
Yojana, Make in India, 100 smart cities mission, • The automotive industry is expected to
UIDSSMT, HRIDAY[28] grow to $260-300 bn by 2026. [28]
( )
P E ( )

S T
( )
• Rural India is expected to reach per ( )
capita consumption of 12.11 to 14 kg
by 2020 owing to faster • Multiple acquisitions of global firms by
urbanization.[28] Indian companies resulting in technology
adaptation.[34]
• Increased focus on quality iron ore owing to
low cost high quality Chinese imports.[33]
Financial Analysis
For 2018 Tata Steel JSW Steel SAIL Jindal Global Steel
(Hisar) Industry Analysis
Market Cap 69,417.51 91,781.86 27,488.65 2,430.13 (Average Figures)
(in cr.) Net Margin (Pretax) 5.90%
Sales 59,160.79 64,975.00 57,558.46 9,258.67 Return on Assets 8.05%
Turnover (ROA)
Net Profit 4,169.55 4,625.00 -481.71 395.70 Return on Equity 20.02%
(ROE)
Total Assets 89,028.67 59,630.00 77,735.15 3,904.72
*Source: csimarket.com (As on Saturday 13th October, 2018)
Total Debt 27,513.83 31,723.00 42,021.48 2648.71
Net Profit 6.99% 7.11% -0.83% 4.27%
Margin Inferences:
ROA 3.33% 5.40% -0.42% 6.39% • Indian Industries perform poorly in
ROE 6.77% 16.57% -1.34% 31.50% ROA, ROE as compared to global
ROCE 12.87% 7.66% -0.68% 11.11% averages.
• High profits for all players
*Source: moneycontrol.com (As on Saturday 13th October, 2018) except for SAIL
• High Total Assets indicate heavy
investments.
Conclusion
Industry trends Post industry analysis, we conclude that
• High bargaining power of buyers
• Low threat of new entrants
Plant upgradation & capacity expansion [29]
• High bargaining of suppliers
Example - SAIL spent Rs 64,562 cr[30], JSW
• Low threat of substitutes
to spend Rs 26,800 cr.[31]
• Medium industry rivalry
Industry consolidation improving more
profitable. PEST analysis shows external political, social,
Example – Debt ridden companies likely to economic and technological factors are
be acquired by profitable firms. (JSW in favorable for future growth.
talks to acquire Ilva)
Thus the steel industry has an overall
International Expansion33 and restructuring low profitability with high growth potential.
of business to reduce costs.
Example – Tata Steel34
References
1. https://www.ibef.org/industry/steel-presentation
2. https://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=107
3. IBEF report steel-sep-2018
4. http://steel.gov.in/sites/default/files/Annual%20Report%20%28English%29_0.pdf
5. http://steel.gov.in/sites/default/files/nspolicy2005.pdf
6. http://theindianlawyer.in/pdf/Investment%20in%20Steel%20Industry.pdf
7. The Hindu Business Line - Anti dumping duties slapped on Steel products
8. http://steel.gov.in/sites/default/files/draft-national-steel-policy-2017.pdf
9. https://timesofindia.indiatimes.com/business/india-business/ibc-process-to-push-
consolidation-in-steel-industry-says-ey/articleshow/64683316.cms
10. https://www.tatasteel.com/investors/integrated-reportannual-report/integrated-
report-annual-accounts-2017-18-111th-year-and-related-documents/
11. http://steel.gov.in/sites/default/files/Annual%20Report%20%28English%29_0.pdf
12. IBEF report sep 2018
13. The Hindu Business Line - Anti dumping duties slapped on Steel products
References
14. https://www.equitymaster.com/detail.asp?date=12/29/2008&story
15. https://www.ukessays.com/essays/economics/tata-steel-and-the-global-steel-industry-
economics-essay.php
16. https://www.equitymaster.com/detail.asp?date=12/29/2008&story
17. The Hindu Business Line - Anti dumping duties slapped on Steel products
18. https://www.ukessays.com/essays/economics/tata-steel-and-the-global-steel-industry-
economics-essay.php
19. Steel Industry Report by Indian Brand Equity Foundation, Sep 2017, Page 10
20. http://criticalrawmaterials.org/coking-coal/
21. Financial Express,Material Substitution is the biggest challenge for steel industry
22. Research Gate – Magnesium & Its Alloys in Automotive applications
23. Indian Brand Equity report on Steel Industry
24. https://www.equitymaster.com/detail.asp?date=12/29/2008&story
25. Live Mint, 11th Oct 2017, “Indian Steel capacity to become 2x”
26. RSBA Indian steel industry analysis
27. https://www.equitymaster.com/detail.asp?date=12/29/2008&story
28. Is 2018 the comeback year for Indian Steel?
References
29. An overview of steel sector
30. National steel policy
31. Tata Steel's Rs 35,200 cr Bhushan Steel deal
32. Tata Steel results presentation
33. China's shift to high-grade iron ore isn't set in stone: Russell
34. Acquisition of insolvent steel assets to increase leverage of buyers
35. Indian Brand Equity report on Steel Industry
36. https://timesofindia.indiatimes.com/business/india-business/sail-spends-rs-64562-cr-on-
modernisation-expansion-of-plants/articleshow/58255126.cms
37. https://www.financialexpress.com/industry/jsw-steels-rs-26899-cr-expansion-plan-to-hit-
repayments-analysts/682782/res
38. http://www.dnaindia.com/business/report-dna-investigation-steel-firms-playing- monopoly-
passing-on-cost-to-consumers-2551927
39. https://www.bbntimes.com/en/global-economy/analysing-the-indian-steel-sector
40. https://economictimes.indiatimes.com/industry/indl-goods/svs/steel/tata-steel-to-
restructure-india-business-to-reduce-costs-and-increase-
productivity/articleshow/51099039.cms