Subject- Consumers Firms & Markets

Faculty- Dr Gajavelli V S

CFM PROJECT

Submitted By- Group No- 4

Section-D

Abhishek Gupta 2017142006

Amit Kumar Jha 2017142019
Bhaarat Kurda 2017142036
Nilesh Pandey 2017143175
Hitesh Sharma 2017143058

STEEL AUTHORITY OF INDIA LIMITED

(Company Economic Analysis)
Background & Industry Profile:
Steel Authority of India Limited is one of the major market player in Indian Steel industry. The
Company is engaged in the manufacturing of flat products, such as hot rolled (HR) coils, HR plates, cold
rolled (CR) coils, pipes and electric sheets, and long products, such as thermo mechanically treated
(TMT) bars and wire rods. It also offers rails, structural, merchant products, electric resistance welded
pipes, spiral welded pipes, and silicon steel sheets. It operates and owns over five integrated steel plants
at Bhilai, Durgapur, Bokaro, Rourkela and Burnpu.
Vision & Mission:
To be a esteemed world class corporation and the leader in Indian steel business in quality, productivity,
profitability and customer satisfaction.

Industry/Sector Information & Background:

Steel is the backbone of all industrial and commercial activities.Steel is a highly capital intensive
industry and cyclical in nature. Its growth is intertwined with the growth of the economy at large. Steel,
given its backward and forward linkages, has a large multiplier effect. With capital investments of over
Rs 100,000crores, the Indian steel industry currently provides direct/indirect employment to over 2
million people.
International Forecasters say, India emerging as a big player in global steel market

Industry Structure , Developments & Its Impact On Economy:

 World Economic Environment- Global economic output grew by 3.1% in 2016, as per IMF in its
April , 2017, World Economic Outlook update. Global economic activity is picking up with a long-
awaited cyclical recovery in investment, manufacturing, and trade. The economic activity is projected to
pick up pace globally in 2017 (3.5%) and 2018 (3.6%), especially due to the emerging markets and
developing economies. These emerging economies now account for more than 75% of global growth in
output and consumption, almost double the share of two decades ago.
Activity is expected to pick up markedly in emerging market and developing economies because
conditions in commodity exporters experiencing macroeconomic strains are gradually expected to
improve, supported by the partial recovery in commodity prices, while growth is projected to remain
strong in China and many other commodity importers. In advanced economies, the pickup is primarily
driven by higher projected growth in the United States, where activity was held back in 2016 by
inventory adjustment and weak investment. Growth in emerging market and developing economies is
projected to increase marginally to around 4.5% in 2017, with India expected to grow by 7.2% while
growth in China is expected to grow at 6.6%. On the other hand, growth in advanced economies in 2017
is expected to remain at 2.0%.
It is expected that consumption per capita would increase supported by rapid growth in the industrial
sector, and rising infra expenditure projects in railways, roads & highways, etc.
According to the data released by Department of Industrial Policy and Promotion (DIPP), the Indian
metallurgical industries attracted Foreign Direct Investments (FDI) to the tune of US$ 10.33 billion in
the period April 2000March 2017.

Changing dynamics of global steel market

Economic growth triggered shifting of steel demand from developed world to the developing world
High globalization and competition leading to high consolidation in the global steel market
Steel: Five-force analysis
Backed by strong volumes as well as realisations, steel Industry has registered a phenomenal growth
across the world over the past few years. The condition 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. Below we have analyzed the domestic steel
sector through Michael Porter's five force model so as to understand the competitiveness of the sector.

Barriers to entry: We believe that the barriers to entry are medium. Following are the factors that
support our view.

1. Capital Requirement: Steel industry is a capital-emphasis business. It is estimated that to have 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.

2. Economies of scale: As far as the sector forces are concerned 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. We can deduce that those steel companies, which
are combined, own mines for key raw materials such as iron ore and coal and this protects them
for the probable threat for new entrants to a significant extent.

3. Government Policy: The government has a favourable policy for steel manufacturers. However,
there are certain differences 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.

4. 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. There are some companies which still enjoy a premium for their products because of
their quality and 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 limit or put a ceiling on prices if it feels the need to do so. The steel companies
either sell the steel directly to the user industries or through their own distribution networks. Some
companies also do exports.

Bargaining power of suppliers: The negotiating power of suppliers is low for completely 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.

Competition: 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.
Threat of substitutes: It is medium to low. Although usage of aluminum has been rising continuously
in the automobile and consumer durables sectors, it still does not pose any significant threat to steel as
the latter cannot be changed completely and the cost disparity is also very high.

World Steel Scenario

In 2016, Global Crude Steel production stood at 1,628.5 million tonnes(MT), a growth of 0.8%
compared to 2015, as per World Steel Association.Crude Steel production increased in the CIS, the
Middle East, Asia and Oceania.
Annual production in Asia was 1,125.1 MT of Crude Steel in 2016, an increase of 1.6% compared to
2015. China's Crude Steel production in 2016 reached 808.4 MT, up by 1.2% on 2015. China's share of
World Crude Steel production increased from 49.4% in 2015 to 49.6% in 2016. Japan produced 104.8
MT in 2016, down by 0.3% compared to 2015. India's Crude Steel production in 2016 was 95.6 MT, up
by 7.4% on 2015. South Korea produced 68.6 MT of Crude Steel in 2016, a decrease of 1.6% compared
to 2015. The average capacity utilisation in 2016 was 69.3% compared to 69.7% in 2015.
World Steel Association has forecast that global steel demand will increase by 1.3% to 1,535.2 MT in
2017, following growth of 1.0% in 2016. In 2018, it is forecast that global steel demand will grow by
0.9% and will reach 1,548.5 MT. Steel demand in the emerging and developing economies excluding
China, which accounts for 30% of world total, is expected to grow by 4.0% in 2017 and then 4.9% in
2018.

Indian Economic Environment

The Indian economy registered a growth of 7.1% in 2016-17, according to Provisional Estimates
published by the Central Statistics Office.
India's growth trajectory is expected to benefit from the Government's commitment to reforms. IMF, in
its latest outlook in Apr, 2017, has estimated India's economic growth as 7.2% and 7.7% for 2017 &
2018 respectively. For the Financial Year 2017-18, the GDP has been forecast in the range 6.75% -
7.5%

Producer wise crude steel capacity in India by 2015-16 this is likely to increase further by 2019-20
Indian Steel Scenario
During April-March 2016-17, Crude Steel production was reported at 97.4 million tonnes, growth of
about 8.5% over last year. The finished steel production also registered a handsome growth of 11.3%
during April-March 2016-17. Import of total finished steel was at 7.5 million tonnes in the Financial
Year 2016-17 and saw a significant decline of 36.6 % compared to same period of last year. India saw a
growth of 102.1% in exports during 2016-17 (8.244 million tonnes) over the last year and India emerged
as a net exporter of total finished steel.
India's consumption of total finished steel saw a growth of 3% in April-March 2016-17 (83.93 MT)
over same period of last year.
Further, with the Government's focus on manufacturing and industry coupled with spending on
infrastructure (roads, rail and ports etc.), the demand for steel is going to increase in the coming years.
SWOT FOR SAIL
Strengths
SAIL continues to be among the leading steel producers of the Nation.
Multi located production units give us an edge over other domestic steel players.
Reasonably modernised units after completion of the on-going modernisation and expansion.
Well established nationwide marketing and distribution network helps in enhancing the reach
for SAIL products all over the nation.
Most diverse product range offered by any domestic steel company.
Availability of land bank at existing plant/unit locations for future brownfield expansion.
Input security - 100 per cent integration in iron-ore.
Highly skilled professionals with practice in steel making.

Weaknesses
Dependence on external sources for key input - coking coal leads to exposure of the Company to the
market risk.
Recently commissioned large volume blast furnaces are highly in demand with respect to raw material
quality and consistency..
High manpower cost and relatively low manpower productivity.
Currently, around 25% of the products are in the form of semi-finished steel, resulting in lower value
addition to the product portfolio. The share of semis is being targeted to be brought down by increasing
the output from new rolling mills.
Opportunities:
With an augmented push from the policies projected by the Government regarding steel intensive
segments such as infrastructure, capital goods and construction, India is all set to become the 2nd largest
steel consumer in the World in the future years.
High export potential to markets of Middle East and South East Asia.
Scope for improving product quality and optimizing cost through operational efficiency and utilization
of the modernized units.
Threats
Dumping of steel from abroad and increased competition from domestic and international steel
companies located in India.
Low-priced sourcing of steel from countries with whom India has Free Trade Agreement(FTA).

Risks and Concerns

The Indian Metals and Mining Sector has been impacted by the ongoing crisis and is facing a
multitude of challenges like tightened liquidity position, leveraged balance sheets, surge in imports and
declining sales realization. SAIL's profits have been impacted due to lower NSR of products and
depressed domestic demand.
Internally, there have been deficiencies in the form of delays in ramping up of production from the
new Units due to initial stabilization factors. Further, higher capital related charges on account of
incremental Depreciation and Interest of new facilities have also increased expenses.

** Now let us analyse the market trend and futuristic outlook for the company through charts and
deduce some important facts with the help of these graphs.

Futuristic Outlook To The Company

SAIL may have deficits in iron ore by 2029-30 unless it acquires new mines or, enters into long-term
contracts with mining companies for acquisition of mines in India & abroad.
Forecasts on finished steel demand in India

Demand projections were made using econometric modelling technique. Separate demand functions
were fitted to historical data for all major categories of steel products

The Demand Side Pattern of finished steel consumption in India 1980-81 to 2009-10
From the above graph we can see a decline in 1993-94 and significant up-turn since 2002-03 in the
Pattern of steel consumption in India.
Enhanced Productivity with Rationalized Manpower
SAIL manpower strength was 82,964 nos. as on 31.3.2017 with manpower rationalization of 5,691
achieved during the year. To give further thrust for enhancing productivity and manpower
rationalization, SAIL has recently introduced Voluntary Retirement Scheme-2017 w.e.f. 15th June,
2017. Trend of enhanced productivity and manpower rationalization since 2007-08 onwards is depicted
below:
The enhanced productivity with rationalized manpower could be achieved as a result of judicious
recruitments, building competencies and infusing a sense of commitment and passion among employees
to go beyond and excel.
Steps taken by government to revive SAIL

Govt sets up panel to revive loss-making SAIL

India has set up a panel to turn around loss-making Steel Authority of India Ltd (SAIL) and help the
state-owned company increase production.

It is done to revive SAIL after a government review found the company to be far less efficient than its
rivals despite spending more than $10 billion in the past eight years.
Performance of SAIL in stock market & steps taken to enhance its performance.

Steps taken towards expansion initiative.

SBI arranges external commercial borrowing of $350 million for SAIL
State Bank of India (SBI) has arranged an external commercial borrowing (ECB) of USD 350 million
for Steel Authority of India Ltd (SAIL). The loan will have a tenure of around seven years. The ECB,
which was arranged by SBI from its Hong Kong Branch, would be utilized by SAIL towards meeting its
expenditure on capital schemes including modernization and expansion.

The company added it is in its final leg of completing its balance modernization projects which is aimed
at diversifying its product basket by adding more value-added products and ready-to-use products
customized to market demand.
SAIL has tied the ECB at the lowest possible spread and the overall cost, on a fully hedged basis. This
would work out cheaper than that applicable coupon on Term Loans and Bonds for similar period.

OUTLOOK
We can expect above normal monsoon and higher GDP growth. The slow pace of public and private
sector projects is expected to improve with the Government of India's thrust on infrastructure projects.
Further, 'Make in India' initiative has got a boost by a slew of measures aimed at improving the ease of
doing business in the Country. Small and medium industry- a major employment generator for the
economy- has been liberated to participate in the Nation's development in accordance with its potential.
Bold measures by the Government such as improved targeting of subsidy, broadening of the tax base
and expected buoyancy in tax revenue are all aimed at achieving the fiscal consolidation which had been
an area of concern in the recent past.
References:
SAIL annual report 2016-17
HSBC market analysis report.
Antique Stock Broking Report
Dr Subir Bhattacharyas report on SURGE IN INDIAN STEEL INDUSTRY.
https://sail.co.in/
https://en.wikipedia.org/wiki/Steel_Authority_of_India
Money Control, Rediff Money for stock market analysis.