STM Assignment WorkbookFaculty: Prof. Anshuman TripathyContents

41Executive Summary

52Industry Overview

52.1Nature and Size of the Industry

62.2Key Growth drivers for the industry

62.3Identification of Critical Success Factors (CSF)

72.4Market Analysis based on CSFs

72.5Industry Benchmarks

122.6PESTEL Analysis

132.7Porters Five Forces Analysis

132.8Strategic Group Mapping

132.9Competitive Landscape

142.10Market Segmentation

142.11Buying Criteria Analysis of the Industry

152.12Key trends and future developments

163Company Overview

163.1Company background

163.2Timeline with key milestones and their strategic impact

163.3Vision, Mission, Goals, and Strategic Themes

163.4Key Product and Service Portfolio

163.5Core Competencies of the firm

163.6Business Model of the organization

193.73rd Generation Balanced Scorecard (Amalgamation of 1st Generation BSC and Activity System Map)

193.8SWOT Analysis

193.9Competitor Analysis (identify competitors)

193.9.1Based on Critical Success factors

193.9.2Based on Financial indicators

204Future Growth Strategy for the organization

204.1Portfolio Analysis

204.1.1Based on BCG Matrix

204.2Companys Strategic Roadmap for future

214.3Product Market Investment Strategy

214.4Re-imagining the Organization with the transformed business model or Use-case based on SMAC and IOE

1 Executive Summary

GuidelinesThe executive summary should provide a brief overview of the organization and the industry in which it operates. It should also illustrate the results of the analysis made in the report. It should provide the future growth prospects in the industry for the organization. It should also highlight on the strategy for any organization to gain competitive advantage in this industry.

2 Industry Overview

2.1 Nature and Size of the Industry Guidelines Brief Description of the industry segment or sub segment History and Evolution of the Industry Position of Industry depending on Industry Life Cycle (Introduction, Growth, maturity, decline) Size (% of National GDP) of the industry

History and Evolution of the industryMining development in India dates back as far as 6000 years. Though mining activities started with the start of civilization, impetus to mining development was imparted by the Indian government only after gaining political independence in 1947. The importance of minerals as a resource in the process of nation building was realised and as a result Industrial Policy Resolution was promulgated in 1956 by the Central government. This project facilitated development of industries which required huge quantities of minerals as input. The Indian mining sector was opened up to Foreign Direct Investment in 1993 when the New Mineral Policy was declared. As of now, the Indian government along with private players is working towards taking the mining industry to greater levels.

Key Consumers of this industry and their changing needsPower Sector CoalChanging need With increasing population and high industry growth, demand for power is increasing. Indian power sectors dependence on thermal power drives the need for coal. Shortage in supply of coal is driving the power sector to switch to other renewable sources like nuclear, solar, hydro and wind.Steel Sector Input Coking coal, Ferrous ore. Changing needs Per capita steel consumption is increasing in India. Steel production is highly dependent on coking coal availability and its production within the country. However, due to increasing depletion of mines, India is facing ad deficiency of coking coal. Its limited reserved account for only 15% of the total coal reserves of the country.Cement Sector Coal, Limestone

Changing needs Cement industry has been subjected to pressure to reduce the coal consumption and switch their processes more green. This can directly affect the coal industry.

Stage in the Industry Life cycleMining and Mineral industry is still growing and many more mineral and mining fields and quarries are still being discovered. Thus, the industry is still in the growth phase of the lifecycle.

Total Available Market Size (National and Global)Indian $305.5 BillionGlobal $1645 Billion

Total Serviceable Market Size (National and Global)N/A

2.2 Key Growth drivers for the IndustryKey Growth driversRationale

Economic Growth

Indian economy is growing at an increasing rate and the on-going government reforms like Make in India has and will continue to have major impact on the economy. Expected to grow by approximately 7% in the years to come, Indian economy presents a conducive environment for future developments in the mining sector.

Industrial ThrustEffective economic growth has given a major thrust to different industries like infrastructure, power, automobile and other such industries which are heavily dependent on mineral resources. These industries provide lucrative business opportunities for mining and mineral industry. Also growing industrialization has been attracting major chunk of foreign direct investment which is a key driver for growth of mining industry.

2.3 Identification of Critical Success Factors (CSF)Critical Success Factor identifiedRationale

Low Cost Production with minimization of work and labourOverall equipment effectiveness by utilizing tools to identify opportunities to improve efficiency in machine times.

Layout and flow improvements to eliminate bottlenecks and machine runtimeImproved and optimized warehouse layout and flow of product through production line ensuring safe operations.

Stock optimization to improve delivery schedulesSince the mining industry is mainly involved in B2B, effective delivery practices are employed to minimize transportation losses and provide fast delivery of resources to other major industries.

Ensuring that the vendor has access to a broad base of experienced and skilled personnelMining industry work involves high skill as well as high risk in terms of safety of working personnel. Policies have been evolving and are being implemented across the industry which ensure better working environment.

2.4 Market Analysis based on CSFs RegionCSF 1CSF 2CSF 3CSF 4

Global

IndiaNorth

South

East

West

North-East

Central

Note: Use data for the year 2013-142.5 Industry Benchmarks

Size of industry:CategoryIndicatorIndustry Average of Top 5 Firms or players serving 75-80% of the marketMarket Leader

2011-122012-132013-142014-15 (till Q3)2011-122012-132013-142014-15 (till Q3)

Industry Level (National)Market Size126076.38129679.16127847.3336048.5374584.3183155.6584035.6521351

Size as % of GDP2.3%2.3%2.5%2.5%1.2%1.1%1.2%1.2%

Activity RatiosInventory turnover13,697.4013,095.1715,514.9618,993.9318.5115.6639.87

Receivables turnover13,712.4717,670.0614,989.8119,331.040.011.4815.11

Payables turnover59,623.6857,849.7771,755.9185,400.596,580.055,967.204,190.96

Asset turnover158,712.45167,193.17148,359.89173,237.690.020.020.020.02

Liquidity RatiosCurrent ratio1.921.951.611.612.682.282.58

Quick ratio1.751.791.441.442.732.322.65

Cash ratio1.911.941.901.910.0460.1310.042

Solvency RatiosDebt-to-assets ratio0.330.340.330.360.0440.0330

Debt-to-capital ratio0.240.260.270.270.2150.1790

Debt-to-equity ratio0.270.330.220.240.070.060

Interest coverage ratio23.7128.5260.64

Profitability RatiosGross profit margin29.2%26.9%28.8%-29.69-106.26

-130.73

Operating profit margin-28.02-104.86

-128.69

Net profit margin25.728.729.4

Return on assets (ROA)14.8314.2812.9518.1927.6330.25

Return on equity (ROE)31.8430.7727.8326.9343.1550.39

Valuation Ratios or Price RatiosPrice to Earnings (P/E) .073.042.031.073.042.031

PEG Ratio = (P/E Ratio) / Projected Annual Growth in Earnings per Share

Price to Cash Flow16.06667

-23.0833

15.96333

.731.12.4

Price to Book (P/B)5.003333

4.18

4.853333

11.08

9.52

11.06

Price to Sales158.5467

160.08

164.95

.76.75.74

Dividend Yield2.586667

3.226667

5.966667

10%7.85%7.84%

Dividend Pay-out Ratio60.4

74.78333

98.84333

78.32

90.29

122.05

Enterprise value (EV is market capitalisation plus debt minus cash)/ EBITDA

Competitive Ratios

Staff Turnover or Industry Attrition Rate

Staff Cost/ Salary as percentage of Sales28.77%

36.95%

49.31%

36.95%

49.31%

80.78%100.38%141.82%

Operating Expenses as percentage of Sales18.58%

26.36%

17.98%

20.01%28.73%37.67%

Depreciation as percentage of Sales1.28%

2.93%

2.75%

1.50%1.19%1.72%

Fixed Assets to Sales Revenue42.77%

71.26%

77.85%

85.51%95.42%107.94%

Advertising as percentage of Sales0.46%

0.59%

0.80%

1.32%1.72%2.31%

In case you come across other benchmark ratios used in particular Industry, then please include them as well.

2.6 PESTEL AnalysisCategoryDescriptionKey factors for analysisRationale

PoliticalGovt support for manufacturing industryWith the manufacturing sector booming, there is a strong support from Govt to the industry to boost their production by providing leniency in several regulations

EconomicInfrastructure and Power SectorWith the economy growing at the rate of around 6-6.5%, the boom in infrastructure and power sector(primary customer) have opened huge potential for mining and minerals sector growth.

SocialIssues related to Tribal AreasAlmost all the mines being in hilly areas, the threat to the tribal of that area is going to be a big social issue and they are to be handled judiciously

TechnologicalNew technology and better method inventionsAdopting new technology in mining not only increases the output and lowers down the cost, it also aids and abets the manufacturing industry

EnvironmentalDeforestation and Water Pollution issuesEnvironmental issues such as water and air pollution, deforestation and significant rise in ambient temperature of the surrounding area are some of the major issues that are going to show up

LegalNew policy in placeNew policies and Deregulations in mining act and labour laws are going to help the sector grow by providing less legal implications and faster processing of complaints, in case of breach

2.7 Porters Five Forces Analysis Porters Five ForcesDescriptionKey factors for analysisRationale

Buyer Power

Medium to High PowerBuyers level of negotiation.

Switching cost for buyer is extremely high once two parties sign a contract.Buyers are mostly power generation industry or metal industry which produces steel, aluminium or other metals.

Supplier Power

High PowerSwitching cost is high due to high cost of equipment.Concentration level of suppliers is lower than the mining industry.Usually Suppliers are mining equipment companies.Suppliers technical support in maintaining and upgrading the equipment after purchasing them.

Existing Competition

High Total No of firms (Listed as well as Unlisted)- 47 (25 listed) No of large firms - 7

Threat to new entrants

Very HighForced change in business practices, stronger implementation of laws.Entry cost is high as high amount is needed to invest.Already around 50 local and national players are there in the industry which are situated firmly in the industry thus acting as strong resistance to new entrants.

Threat to substitutes

Medium to HighSubstitutes: Shale gas for coal, aluminium for steel, plastics and fibre optics for copperCompanies are responding to such changes by diversifying, improving business intelligence and matching risk management with investment time.

Effect of ComplementorsMediumGold, copper, iron minerals are affected by the complementors

2.8 Strategic Group Mapping2.9 Competitive Landscape Value propositions ( Low Cost, Differentiation, Niche)

Financial Incentives Greater profits in the industry is transferred to the investors.

High production potential To cater the increasing needs of the buyer. Competitive pricing Due to high switching cost, industry offers competitive price to lower the buyers risk.

Competitive Strength Assessment (Normal and Weighted)

2.10 Market SegmentationKey Products and/or ServicesRegions

Iron OreBauxite

Limestone

Coal Cooper Ore

30-40% of total production is exported, mainly found in Orissa, Jharkhand and Chattisgarh

20-30% of total production is exported, mainly found in Orissa and Jharkhand 2% of cement is exported, it is mainly found in Tamil nadu, Karnataka and TelanganaMainly found in Jharkhand, Chattisgarh, Orissa and West Bengal, Coking coal is the main export

Copper metal or concentrate is exported, this ore is mainly found in Jharkhand and Rajasthan

2.11 Buying Criteria Analysis of the IndustryParameterDetailsEnd-user SegmentsSignificance Attached (Low, Medium, High)

Location and Labour Availability

Mining Industry is highly labour intensive and availability of cheap labour is a prime factorCorporate

High

Environmental clearances

Environmental issues are one of the biggest hindrance in acquisition of a mineCorporateHigh

Impact of buying criteria on consumer choices

Listing of key buying criteria for different consumer segments

The impact of the buying criteria is graded on the basis of the intensity and duration of their impact on the current market landscape. The magnitude of the impact has been categorized as described below:

Low - Negligible or no impact on the market landscape

Medium - Medium-level impact on the market

High - Very high impact with radical influence on the growth of the market

Company Overview

2.12 Company backgroundCoal India: It is an Indian coal mining company headquartered in Kolkata, West Bengal. It is controlled by the State government. Its contribution towards the production of coal in India is around 81% and is supposedly the largest coal producing company of the world. Government of India is the largest shareholder and the company is the 5th most valuable company as per market value. It has over 4,50,000 employees. One of the largest companies in India, it is listed both in the Bombay Stock Exchange as well as the New York Stock Exchange.

Sesa Sterlite: It is a company acquired by Vedanta Group and has been operating for the last 5 decades. The company was found in 1954 as Scambi Economici SA Goa. It is one among the major low cost iron ore producers of the world. It is a global diversified organisation. It was a private limited company under the Indian Companies Act. However it became a public company in 1981with 42,000 Indian shareholders. It is headquartered in Goa and Odisha and is headed by Anil Agarwal. Its major products include Zinc-Lead-Silver, Oil and Gas, Iron ore, Copper, Aluminium, Power, Metallurgical Coke and Pig iron.

National Mineral Development Corporation: It is a State governed mineral company which is under the jurisdiction of the Government of India. It is under the administration of the Ministry of Steel. In India, it is the largest producer as well as exporter of iron ore, with a production of 30 million tons of iron ore. Other major products include copper, phosphates, diamond, tin, tungsten etc. It has 3 fully mechanised mines in Chhattisgarh and Karnataka. It is headquartered at Hyderabad. Narendra Kothari is the CMD and consists of around 6000 employees.

2.13 Timeline with key milestones and their strategic impact

Coal India:

1973-74: Incorporation of Coal Mines Authority Ltd.

1975-76: Change of name to Coal India Ltd.

1985-86: Construction of NCL and SECL as Subsidiaries

1987-88: Blasting Gallery Method introduced

1995-96: Approval of financial restructuring by the Govt. Of India.

1996-97: Rating of A+ by CRISIL

2003-04: Overall production crosses 300 million tonnes

2005-06: Rating of AAA

2007-08: Award of Mini-Ratna

2008-09: Award of Navratna

2009-10: Award of the Scope Excellence Award

2011-12: Joins Sensex, Maharatna Status, Most Valued Company in the country.

Sesa Sterlite:

2001-Sterlite Transmission set up

2004-Name changed to Vedanta Alumina

2007-Renamed to Sesa Sterlite

2008-1st phase of aluminium plant commissioned

2009-Certificates awarded for attaining global standards

2.14 Vision, Mission, Goals, and Strategic ThemesCoal IndiaVision-To emerge as a global player in the primary energy sector, committed to provide energy security to the country by attaining environmentally and socially sustainable growth through best practices from mine to market

Mission-To produce and market the planned quantity of coal and coal products efficiently and economically in an eco friendly manner with due regard to safety, conservation and quality.

Sesa SterliteVision-We will be the worlds most admired that consistently defines the leading standards in our businesses, making our stake holders proud to be associated with us.

NMDCTo be a global leader in eco-friendly mining.

2.15 Key Product and Service PortfolioCoal IndiaCoking Coal, Semi Coking Coal, Non Coking Coal, Washed Coal, CIL Coal, Coal Fines, Tar, Oil etc.

Sesa SterliteAluminium products. Ceramics, glass, billets, ingots, bars

NMDCIron ore, Copper, Magnesite, Diamond, tin, tungsten, graphite.

2.16 Core Competencies of the firmCILMining expertise

CIL has core competence in the entire coal business value chain comprising exploration, planning & design, operations, beneficiation and marketing

NMDCNMDC has in-house expertise in exploring, developing, commissioning and operating iron ore mines

SESA SterliteIt has a portfolio of world class, low cost, scalable assets generating strong and consistent profitability and free cash flows

Industry-leading production growth driven by substantially invested projects

2.17 Business Model of the organization

Key Partners Coal India: IOCL-IBP, Mitsui, CMPDIL, RITES, BEML Ltd, Damodar Valley Corporation, NTPC, SAIL,RINL,NMDC, GAIL, RCF

Sesa Sterlite: Siemens, ABB, ECL, McNally, Qutotec, B&P, ErichSETARAM, Ingersoll Rand, SEPCO etc.

NMDC: IOCL, RITES, NINL, NTPC, Nalco etc.Motivations for partnerships

Reduced risk

Share resources

Ease of operations

Most distinguished suppliers of the world

Wide spectrum of technology

Government sector unit, hence less risk to be taken up by collaborating with other government sector units.

Key Activities Coal India: Coal Mining, Coking Coal Production

Sesa Sterlite: Refining, Casting, Smelting, Casting

NMDC: Extraction of minerals, refining, conversion to metalsCategories

Coal Reserves and Resources of CIL

Coal Production of various grades

Production wise allocation of manpower

To extract raw Bauxite from the Earth

To refine raw Bauxite into alumina powder

To convert Alumina to liquid Aluminium

To produce various products from Aluminium

Key activities of the company conducted under the vigilance of the government inspectors so as to eliminate any harmful process.

Value Propositions Coal India:

Varieties of coal grades catering to a vast consumer base and meeting their needs promptly.

Coking Coal, Semi Coking Coal, Non Coking Coal, Washed Coal, CIL Coal, Coal Fines, Tar, Oil etc.

Sesa Sterlite:

Sustainable production of Aluminium from Bauxite.

Sustained socio economic & cultural development of the local communities.

NMDC:

High quality production of steel and other mineral based products.

High vigilance of the production process.Characteristics

Grades as set by the Govt of India

Catering to various segments

Customised as per the users requirements

Cheaper rates

Transforms the lives of the people around the plant site through giving the children mid day meals and Anganwadi schemes.

Education, Health, Sanitation programs for the villagers living around the plant.

Government officers inspect the entire process of extracting minerals and conversion of the minerals to the metallic form.

Customer RelationshipsCIL

Customer put emphasis on high quality company products thus relationships built on high quality products.

NMDC

Delivering quality & service at competitive prices.SESA Sterlite

Best Order Receipt to Delivery lead time in the industry best On Time and In full Delivery Performance in the industry To move from customer satisfaction to customer delight through process automationCILIn order to ensure enhanced customer satisfaction, special emphasis

has been given to quality management. Steps were taken to monitor

quality right at the coalface apart from bringing further improvements

in crushing, handling, loading and transport system.

NMDC

Supporting employees as most valuable assets and training them to be customer focused.

Looking to operate a modern and efficient fleet that will be comparable by world standards in quality and efficiency.

Listening and responding to customers needs whenever it is possible.

Submission of progress reports to the client in order to ensure on time delivery of the service

Sesa Sterlite

Helps in capturing customer preferences during each interaction and thus helping us to identify priorities and suit our products and services as per their needs.Give customers a 360 support in terms of technical service, relationship management, ERP based finance and superior post sales service.

Customer SegmentsCustomer segments serviced by CIL are as under

Power( Power utilities including IPPs).

Power(Captive).

Defence.

Railways.

Fertilizer.

Steel including Sponge Iron & Pig iron manufactures and other metallurgical industries who use coal/coke for their own end use.

Cement.

Aluminium Ind.

Paper Ind.

Central PSUs for consumption and use (as distinguished from trading).

Export.

Glass/ Ceramic/ Pottery.

Chemical.

Engineering/ Rolling Mills.

State nominated agency.

Traders, etc..

Customer segments serviced by NMDC

Iron Ore Other minerals segment

Sesa Sterlite

AluminiumCrude Oil

Zinc

Power

Key ResourcesCIL

Distribution Channel

Seasonal Buyers

SESA Sterlite

NMDCCILDistribution channel is mostly in the hands of middlemen.

Exclusive access to natural resourcesSESA Sterlite

Worlds largest Zinc-lead mine

One of the largest high grade copper mine

Efficient assets operation

NMDC

Single largest iron ore producerExploration of resources in different countries and having stake in foreign firms

Channels Website Sales Team SuppliersChannel phases

1. Awareness

2. Evaluation

3. Purchase

4. Delivery

5. After sales

Cost StructureCIL

90 per cent of the costs were raw materials, five per cent were manufacturing costs, and five per cent were others. Fifty per cent of the raw material cost in value terms and 85 per cent in volume terms could be attributed to the base oil. The base oil prices are impacted by the change in demand and supply conditions in the market as well as the change in crude oil prices.

NMDCNMDC's cost of production is in the lowest quartile of the global iron ore cost curve. The reason for such low cost operations has been because of high mechanization at mines, least over burden removal, high grade ore availabilty and most importantly, that all the mines that it opreates are open cast and not underground.

It is easy to see that NMDC has the lowest staff cost as % of sales Vs other PSU mining or steel companies and infer that it is quite cost efficient. We don't intent to get carried away with that and arrive at such a conclusion. The business models of those PSU's peers are way different and therefore a head on head comparison may not be suitable.

Revenue Streams Offline sales(Mainly bulk) Online sales (Bulk and single)

2.18 3rd Generation Balanced Scorecard (Amalgamation of 1st Generation BSC and Activity System Map)2.19 SWOT AnalysisNMDC

Strength1. Strong assets owns four operating mines in the country

2. State Controlled Buyer confidence is very high because of association with the state

3. Highly mechanized production helps achieve its positioning

4. Strong financial position

Weakness1. Security issues at Chhatisgarh mines

2. Limited operations within the country only

3. Brand associated with alleged illegal dealings because of current happenings

Opportunity1. Diversification into other steel manufacture raw materials

2. Expansion outside India

3. Joint venture with related companies to grow the business

Threats1. Increasing competition by private players

2. Regulatory and safety concerns

CIL

Strength1. CIL owns the world's largest recoverable coal reserves at more than 22bnt2. Tie ups with shipping Corporation of India enables CIL to tap into the expertise of an experienced shipper while avoiding the vagaries of the spot market.3. Strategic overseas venture secures its future position and energy requirements4. Strong employee base with over 350,000 people in the organisation

5. Strong backing by the govt of India

6. The CIL is also recognized as a Maharatna Company in India

7. Excellent advertising and marketing in B2B as well as TVCs, print and online media

Weakness1. State control reduces CIL's flexibility in responding to changes in the market.2. Inefficient production from the company's coal blocks is causing supply problems in India's power sector.3. Bound to supply domestic customers even at subsidized rates

Opportunity1. Major role to play in Indias aspiration regarding being energy sufficient country2. Relatively low cost of production and large labor pool gives the opportunity to expand operations and efficiency

3. Efficiency in management and PPPs can boost company performance

Threats1. Project delays due to environmental and land issues pose threat to companies sustained future supplies2. Policy uncertainty continues to be an issue. There is still a lack of clarity in the 26% profit sharing clause included in the mining bill3. Foreign investment in mining sector

Sesa Sterite

Strength1. A leading diversified and the largest non-ferrous metals and mining company in India

2. High quality assets and resources making us a low-cost producer

3. Their building and managing captive power plants to supply a substantial majority of the power requirements of our operations

4. Our access to relatively large and inexpensive labour and talent pools in india and Zambia

Weakness1. The Vedanta groups attempt to simplify the holding structure of its businesses has baffled investors and analysts alike. The promoter groups stake in its biggest aluminium company (in terms of assets), Vedanta Aluminium Ltd, should rise after the restructuring.

2. Problem of Unionized Workers affecting Company structure

Opportunity1. A young and dynamic organization withsome of the most creative, forward-thinkingemployees in todays business world.

2. Attract talent in mining, metallurgy, geology, smelting and corporate social responsibility for our operations in India, Australia and Zambia

Threats1. Many of the opposition from local people and human activist at launch to new plant in orrisa.

2. Major threat from Balco mineral company

3. And Last affect from the US Recession which has still left with its share prices falling by 11%.

2.20 Competitor Analysis (identify competitors)NMDC

1.Jindal Iron and Steel Company Limited

2.Kudremukh Iron Ore Company Limited

3.Sesa Goa Limited

4.Resurgere Mines & Minerals India Limited

5.Essel Mining & Industries Ltd.

CIL

1. Ashapura Minechem2. 20 Microns Ltd.3. Aurome Coke Ltd.

3 Future Growth Strategy for the organization3.1 Portfolio Analysis

3.1.1 Based on BCG Matrix

a) Capacity Enhancement: CIL is set to provide 1 billion tonnes of coal out of total demand of 1.5 billion tonnes by the year 2020 by identifying mine-wise bottlenecks and eliminating them, thereby improving productivity.

b) Ancillary Services: By working with the Railways, it is developing 50 more rail routes through Joint Ventures. Also, several other SPV (Special Purpose Vehicle) routes are under consideration.

3.2 Companys Strategic Roadmap for future

Near Term (