Tata Steel Ltd

BSE: 500470 | NSE: TATASTEEL | ISIN: INE081A01012 Market Cap: [Rs.Cr.] 41,393 | Face Value: [Rs.] 10

Industry: Steel - Large

TATA STEEL

INTRODUCTION

Tata Steel Limited  (formerly TISCO and Tata Iron and Steel Company Limited) is a multinational steel company headquartered inMumbai, India and subsidiary of Tata Group. It is the tenth-largest steel producing company in the world, with an annual crude steel capacity of 23.5 million tonnes, and the largest private-sector steel company in India measured by domestic production. Tata Steel is also India's second largest and second-most profitable private-sector company, with consolidated revenues of $26 billion and net profit of over $1.9 billion in the year ended March 31, 2011. Tata Steel is the eighth most-valuable Indian brand according to an annual survey conducted by Brand Finance and The Economic Times in 2010. It is currently ranked 410th in the Fortune Global 500.

Tata Steel's largest plant is located in Jamshedpur, Jharkhand, with its recent acquisitions, the company has become a multinational with operations in various countries. The registered office of Tata Steel is in Mumbai. The company was also recognized as the world's best steel producer by World Steel Dynamics in 2005. The company is listed on Bombay Stock Exchange and National Stock Exchange of India, and employs about 80,000 people.In August 2007 Tata Steel won the bid to acquire the UK-based steel maker Corus in what was, to date, the largest international acquisition by an Indian company. It made the Tata Group the world's fifth largest steel maker, and catapulted them to the global league.

Tata Steel has always believed that the principle of mutual benefit - between countries,

corporations, customers, employees and communities - is the most effective route to

profitable and sustainable growth.

Established in 1907, Tata Steel is among the top ten global steel companies with an annual crude steel capacity of over 28 million tonnes per annum (mtpa). It is now one of the world's most geographically-diversified steel producers, with operations in 26 countries and a commercial presence in over 50 countries. The Tata Steel Group, with a turnover of US$ 22.8 billion in FY '10, has over 80,000 employees across five continents and is a Fortune 500 company. Tata Steel’s vision is to be the world’s steel industry benchmark through the excellence of its people, its innovative approach and overall conduct. Underpinning this vision is a

performance culture committed to aspiration targets, safety and social responsibility, continuous improvement, openness and transparency. Tata Steel’s larger production facilities include those in India, the UK, the Netherlands, Thailand, Singapore, China and Australia.  Operating companies within the Group include Tata Steel Limited (India), Tata Steel Europe Limited (formerly Corus), NatSteel, and Tata Steel Thailand (formerly Millennium Steel).

HISTORY

The Tata Group of Companies has always believed strongly in the concept of collaborative growth, and this vision has seen it emerge as one of India's and the world's most respected and successful business conglomerates. The Tata Group has traced a route of growth that spans through six continents and embraces diverse cultures. The total revenue of Tata companies, taken together, was 67.4 billion USD (around Rs319,534 crore) in 2009-10, with 57 per cent of this coming from business outside India. In the face of trying economic challenges in recent times, the Tata Group has steered India’s ascent in the global map through its unwavering focus on sustainable development. Over 395,000 people worldwide are currently employed in the seven business sectors in which the Tata Group Companies operate. It is the largest employer in India in the Private Sector and continues to lead with the same commitment towards social and community responsibilities that it has shown in the past. The Tata Group of Companies has business operations (114 companies and subsidiaries) in seven defined sectors – Materials, Engineering, Information Technology and Communications, Energy, Services, Consumer Products and Chemicals. Tata Steel with its acquisition of Corus has secured a place among the top ten steel manufacturers in the world and it is the Tata Group’s flagship Company. Other Group Companies in the different sectors are – Tata Motors, Tata Consultancy Services (TCS), Tata Communications, Tata Power, Indian Hotels, Tata Global Beverages and Tata Chemicals. Tata Motors is India’s largest automobile company by revenue and is among the top five commercial vehicle manufacturers in the world. Jaguar and Landrover are now part of Tata Motor’s portfolio. Tata Consultancy Services (TCS) is an integrated software solutions provider with delivery centres in more than 18 countries. It ranked fifth overall, and topped the list for IT services, in Bloomberg Businessweek's 12th annual 'Tech 100', a ranking of the world's best performing tech companies. Tata Power has pioneered hydro-power generation in India and is the largest power generator (production capacity of 2300 MW) in India in the private sector. 

Indian Hotels Company (Taj Hotels, resorts and palaces) happens to be the leading chain of hotels in India and one of the largest hospitality groups in Asia. It has a presence in 12 countries in 5 continents. Tata Global Beverages (formerly Tata Tea), with its major acquisitions like Tetley and Good Earth is at present the second largest global branded tea operation. When Jamsetji Tata gave shape to his vision of nation building by forming what was to become the Tata Group in 1868, he had envisaged India as an independent strength – politically, economically and socially. In order to become a force that the world has to reckon with, the Tata Group has always ventured into path breaking territory and pioneered developments in industries of national importance. 

As a policy, the Tata Group Companies promote and encourage economic, social and educational development in the community, returning wealth to the society they serve. Two-thirds of the equity of Tata Sons is held in philanthropic trusts that take care of endowments towards improvement programmes in these spheres. Through the years, the Tata Group has been amongst the most prestigious corporate presences in the world governed by its principles of business ethics. Its foray into international business has been recognised by various bodies and institutions. Brand Finance, a UK based consultancy firm after a recent valuation of the Tata brand at $11.22 billion has ranked it 65th among the world's top 100 brands. In Business Week magazine's list of the 25 most innovative companies the Tata name appears 13th and The Reputation Institute, USA has evaluated the Tata Group as the 11th in a global study of the most reputed companies. In the road ahead, the Tata Group is focusing on integration of new technologies in its operations and breaking new grounds in product development. The Eka supercomputer had been ranked the world’s fourth fastest in 2008 and the launch of the Nano has been a benchmark for the auto industry specifically and the economy in general. With a holistic approach in all its business operations, a loyal and dedicated workforce and its rooted belief in value creation and corporate citizenship, the Tata Group is always ready to realise its vision and objectives. The challenges of the future will only help to enhance the Group’s performance and transform newer dreams to reality.  

TATA STEEL LIMITED

Founded by Jamsetji Nusserwanji Tata in the year 1907 as Tata Steel Iron and Steel Company (TISCO) and later renamed to Tata Steel Limited.

Promoter- Tata Sons Limited Tata Steel is the world's 6th largest steel company. It is Asia's 1st as well as India's

largest integrated steel company in private sector with operations in 24countries and commercial presence in over 50 countries.

The company also received the Prime Minister's Trophy for the Best Integrated Steel Plant for the year 1994-95. This award was subsequently conferred again in 1998-99, 1999-2000,2000-01 and 2001-02. 

The World Steel Dynamics recognised Tata Steel as India's only 'world-class steelmakers' thrice in a row.

It has received the following awards :FIMI Award for Sustainable Mining, 2009/10 (Noamundi Mine, Tata Steel India)World Steel Association Excellence Recognition in Safety and Health Award 2010 (Tata Steel India)CSR Excellence Award 2010 CII Eastern Region SHE Award 2011 (Tata Steel India)

SHARE HOLDING PATTERN

Holder’s Name % Share Holding

Promoters 30.72%

Financial Institutions 24.58%

General Public 21.89%

Foreign Institutions 12.89%

N Banks Mutual Funds 4.14%

Other Companies 3.57%

Foreign Others 0.06%

Central Government 0.01%

Foreign OCB 0.0

It is seen that the promoters are holding the maximum amount of shares of Tata Steel Limited. This gives the investors an assurance that the company is sound since the promoters have the maximum investment in the company.

RAW MATERIALS

With a century of experience in sourcing raw material through scientific research & development and sustainable mining, Tata Steel’s three main areas of raw material operations are iron-ore, chromite and coal. The Company’s long-term strategy has been designed to have greater control over raw material resources and achieve its security across global operations.

A pioneer in prospecting, discovering and mining iron ore, coal and other minerals, Tata Steel has nearly a century of experience in scientific and sustainable mining, mine planning, development and research. Company-owned and operated mines and collieries have since its inception, met most of the raw material needs of the Company’s Steel Works. The Raw Materials Division of Tata Steel raises over 14 million tonnes of ores from its captive collieries, iron ore mines and quarries spread over the states of Jharkhand and Orissa. The Company’s Raw Materials operations in India are mainly spread in three broad areas – iron-ore, chromite and coal. The chromite and manganese mines and their operations have been amalgamated under the 'Ferro Alloys & Minerals Division' that acts as a separate profit centre. Iron-ore and coal being the two key raw materials for steel making, efficient and scientific mining operations give the Company a competitive edge in steel production.

Steel production in India is projected to grow to over 120 Million tonnes by the year 2015. To cater to the raw materials requirement of increasing steel demand and other mineral based industries, Tata Steel has entered into an agreement with MMTC Limited, a Central Government undertaking to establish a joint venture company for acquiring, developing and operating mines and processing of minerals and metals. The Company has also signed a Memorandum of Understanding (MoU) with NMDC for exploring possibilities of entering into joint ventures for the purpose of acquisition, exploration and development of mines, extraction and processing of minerals, setting up integrated steel plants etc.

Iron Ore and Coal

Ever since the discovery of the mineral in 1903, Iron ore mining has become an integral part of steel making at Tata Steel. The iron ore units are located in Noamundi, Joda and Katamati in the states of Jharkhand and Orissa. Tata Steel Limited also has manganese mines and dolomite quarries in Orissa, located around 150 kms from Jamshedpur, home to the Steel Company's manufacturing facility. The Steel Company's iron ore units produce various grades of high quality iron ore including rich blue dust ore. Operations at the mines, including services are managed by Integrated Management Systems. Ferro Alloys and Minerals

Tata Steel’s Ferro Alloys & Minerals Division (FAMD) is the market leader of chrome in India and is among the top six chrome alloy producers in the world, with operations spanning two continents. It is also the leading manganese alloy producer in India and is a leading

supplier of dolomite and pyroxenite. FAMD has leveraged the core strengths of Tata Steel to grow successfully into a strategic business unit and separate profit centre within the Company. FAMD produces and supplies charge chrome, high carbon ferro chrome, high carbon silico manganese, high carbon manganese, chrome concentrate, pyroxenite and dolomite. 

RISKS ASSCOSCIATED WITH TATA STEEL

The steel industry is affected by global economic conditions. A slower than expected recovery of the global economy or a renewed global recession could have a material adverse effect on the steel industry and the Company.

Europe is the Company’s largest market, and its current business and future growth could be materially and adversely affected if economic conditions in Europe deteriorate.

The Company relies on leased mines and if it is unable to renew these leases, obtain new leases or is required to pay more royalties under these leases, it may be forced to purchase such minerals for higher prices in the open market, which may negatively impact its results of operations and financial condition.

The Company has incurred a substantial amount of indebtedness, which may adversely affect its cash flow and its ability to operate its business.

Competition from other materials, or changes in the products or manufacturing processes of customers that use the Company’s steel products, could reduce market prices and demand for steel products and thereby reduce the Company’s cash flow and profitability.

The Company has outstanding securities that are convertible into Equity Shares of the Company and it may issue additional securities of the Company. Upon the issuance of additional Equity Shares of the Company or upon the exchange, exercise or conversion of securities exchangeable for, exercisable for or convertible into Equity Shares of the Company, your shareholdings may be diluted.

PORTER FIVE FORCES MODEL

We have analysed Tata Steel on the basis of Porters Five forces model :-

Entry barriers: High

Capital Requirement: Steel industry is a capital intensive business. It is estimated that to set up 1 mtpa capacity of integrated steel plant, it requires between Rs 25 bn to Rs 30 bn depending upon the location of the plant and technology used.Tata Steel has already made sufficient efforts to safeguard itself in this regard. It has a lineup of Greenfield projects which it plans to establish not only in domestic markets( Jharkhand, Orissa &Chhattisgarh but also internationally( Bangladesh , Iran & Vietnam). Besides, it has already completed its expansion capacity of its existing plant from 5 mtpa to 6.8 mtpa at Jamshedpur with an investment of Rs5,000 crore,

while it is in the process of expanding the capacity from 6.8 mtpa to 10 mtpa with an estimated investment of Rs 15,000 crore. The company has invested Rs 8,000 crore out it and it expects to achieve10 mtpa capacity by 2011-12. It would prove to be very difficult for any new entrant to come up with such huge investment outlays.

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. Tata Steel being an integrated steel company has its 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. Tata Steel owns raw material assets such as coal and limestone mines through joint ventures or completely, with the assets spread across countries such as Australia, Oman and Mozambique.

Government Policy: The government has a favourable policy for steel manufacturers. However, there are certain discrepancies involved in allocation of iron ore mines and land acquisitions. Furthermore, the regulatory clearances and other issues are some of the major problems for the new entrants.Tata Steel being a century old company under the flagship Tata Sons which is known for its Corporate Social Responsibility already enjoys a respectable position in front of the Indian Government. The Jharkhand government on May,24th 2009, has granted a prospecting licence (PL) to Tata Steel for the Ankua iron ore mines. A senior company official said that Tata Steel has been allocated 1,800 hectares for prospecting in the Ankua area. Another 10,000 acres of land will be allocated to them for their project in Ranchi.

Product differentiation: Steel has very low barriers in terms of product differentiation as it doesn’t fall into the luxury or specialty goods and thus does not have any substantial price difference. However, Tata Steel still enjoy a premium for their products because of its quality and its brand value created more than 100years back. Tata Steel has introduced brands like Tata Steelium (the world's first branded Cold Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata Bearings, Tata Agrico(hand tools and implements), Tata Wiron (galvanized wire products), Tata Pipes (pipes for construction)and Tata Structura (contemporary construction material).Apart from these product brands, the company also has in its folds a service brand called “steel junction”.

Competition:   High

The steel industry is truly global in terms of competition with large producing countries like China significantly influencing global prices through aggressive exports. Steel, being a commodity it is, branding is not common and there is little differentiation between competing product.

 The 4 major domestic rivals are SAIL, JSW, ISPAT & ESSAR STEEL. Rest are all smallish mills which together accounts for 30 % of the total market share. The market shares of the 5 major players in the IndianSteel Industry are :

COMPETITION ANALYSIS

Concentration Ratio:In Economics the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. This may also assist in determining the market form of the industry. One commonly used concentration ratio is the four-firm concentration

ratio, which consists of the market share, as a percentage, of the four largest firms in the industry. In general, the N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry. The 4 firm concentration ratio of the Iron and Steel Industry is 71%.This implies that there is oligopoly in the industry as it is dominated my few major players. Major percentage of market output is generated by the 4 Largest firms in the industry.

All the major domestic competitors like SAIL, ESSAR, JSW, JSPL have announced massive expansion plans recently:

SAIL has announced that it will achieve production capacity of 40 Million Tons by 2020.JSW plans to expand its production to 32 Million Tons by 2020.Other players such as JSPL, ESSAR have similar production expansion plans which will contribute in overall achievement of 200 Million Tons steel production by the year 2020.

Bargaining power of suppliers: High

The bargaining power of suppliers is low for the fully integrated steel plants as they have their own mines of key raw material like iron ore coal for example Tata Steel. However, those who are non-integrated or semi integrated has to depend on suppliers. An example could be SAIL, which imports coking coal.

Since domestic raw material sources are insufficient to supply the Indian steel industry, a considerable amount of raw materials has to be imported. For example, iron ore deposits are finite and there are problems in mining sufficient amounts of it. India’s hard coal deposits are of low quality. For this reason hard coal imports have increased in the last five years by a total of 40% to nearly 30 million tons. Almost half of this is coking coal (the remainder is power station coal). India is the world’s sixth biggest coal importer. The rising output of electric steel is also leading to a sharp increase in demand for steel scrap. Some 3.5 million tons of scrap have already been imported in 2006, compared with just 1 million tons in2000. In the coming years imports are likely to continue to increase thanks to capacity increases.

Globally, the Top three mining giants BHP Billiton, CVRD and Rio Tinto supply nearly two-thirds of the processed iron ore to steel mills and command very high bargaining power. In India too, NMDC is a major supplier to standalone and non–integrated steel mills.

In order to safeguard itself from the high bargaining power of the buyers, Tata Steel has forayed much earlier into the strategy of ‘Backward Integration’.

“Ownership of raw materials and a continuous improvement in production have been the key to Tata Steel’s profitability. In fact we’ve believed in owning raw materials for the past 100 years,” said managing director B Muthuraman while elaborating on the century-old company’s performance.

Tata Steel and state-owned SAIL have largely been able to withstand raw material price fluctuations due to captive iron ore mines. Tata Steel is also one of the least cost markers of steel in the world. Other private steel companies, hit by steep iron ore and coal prices, have passed on the hikes to the customers, prompting the government to clamp down on price increases to control inflation.

The company is dependent on imports for a major portion of its raw material — iron ore and coking coal —requirements. Tata Steel is self-sufficient to the extent of 25 per cent for iron ore needs. With supplies coming in from its mines at New Millennium Corporation in Canada and potentially from the Ivory Coast over a longer term, its iron ore security would gradually increase to around 62 per cent by 2015. Overall, raw material security would reach 50 per cent by 2015 and go up to about 60 per cent by 2018.

It is also evaluating several other mineral projects in Brazil and Australia. Progressing towards the goal of achieving logistics control, Tata NYK Shipping Pte Ltd, the Singapore-based joint venture (50:50) between Tata Steel and Nippon Yusen Kabushiki Kaisha (NYK Line), a Japanese shipping major has entered into a long-term charter for eight supramax/panamax vessels and orders have been placed for building two new supramax vessels. The joint venture was floated to handle ocean transportation of bulk cargoes such as coal, iron ore, limestone as well as finished steel, both imports and exports, not only for Tata Steel but also for others including other Tata Group companies.

To achieve coal security by way of imports, the company has formed a joint venture with an Australian company for producing coal in Mozambique, acquired strategic interest of five per cent with 20 per cent off take-rights in the coal mining project in Australia in partnership with several other foreign companies and formed a 50:50 joint venture with Steel Authority of India Ltd (SAIL).

For limestone, Tata Steel has entered into a joint venture with the Al Bahja Group of Oman for a 70 per cent stake. The joint venture will undertake mining of limestone in the Uyun region in Salalah province of Oman. By undertaking such long term strategies to increase its raw material security, Tata Steel is making it difficult for the suppliers of raw material to bargain exorbitant prices .

Threat of   substitutes: Low

Plastics and composites pose a threat to Indian steel in one of its biggest markets — automotive manufacture. For the automobile industry, the other material at present with the potential to upstage steel is aluminium. Perhaps the most attractive alternative to stainless is aluminium. Stainless producers themselves are offering their customers a range of alternatives in an effort to prevent business being lost to non-ferrous or carbon steel materials. Such options include lower-nickel duplex grades

and ferritic types. In the meantime, nickel’s fluctuations will continue to create problems for the stainless industry worldwide.

However, at present in India the high cost of electricity for extraction and purification of aluminum weighs against viable use of aluminium for the automobile industry. Steel has already been replaced in some large volume applications: railway sleepers (RCC sleepers), large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes), and domestic water tanks (PVC tanks). The substitution is more prevalent in the manufacture of automobiles and consumer durables.

Bargaining power of Consumers:   Mixed

Some of the major steel consumption sectors like automobiles, oil & gas, shipping, consumer durables and power generation enjoy high bargaining power and get favourable deals. However, small and retail consumers who are scattered and consume a significant part do not enjoy these benefits.

SWOT ANALYSIS

STRENGTH

1. Mineral Reserves

Tata Steel has two collieries in West Bokaro and Jharia, in the state of Jharkhand. The iron ore units are located in Noamundi, Joda and Katamandi in the states of Jharkhand and Orissa. Tata Steel Limited also has a manganese mines and dolomite quarries in Orissa. These mines are located at an approximate distance of 150 kms from Jamshedpur, home to the steel company's manufacturing facility. The Steel Company's iron ore units produce 9 million tons per annum of various grades of high quality iron ore including rich blue dust ore. The company in India is having mines of 281 million tonnes reserves in its mines in Jharkhand and thus having minerals to cater its needs for more than 20 years. The company has also been acquiring stake overseas in Canada, Mozambique, Australia etc. to boast its reserves for clean coking coal which is rarely available in India.

2. Management Team

Tata Steel has a highly credible management team who has displayed their skills in expanding the company through inorganic route. The company has successfully acquired Nat Steel of Indonesia, Millennium Steel of Thailand and more importantly Corus. The company’s virtuosos of finance have been able to find innovative ways to tackle the company’s bulgeoning debt and keep the bottom line in the green zone despite lowering demand and huge debts accumulated.

3. Information Technology

The entire mining operation of the Company is safeguarded against accident occurrence. Proactive measures are undertaken to ensure the employee's health and productivity through ergonomically designed work stations and by protecting them from occupational hazards. All its mines are ISO-14001 -Environmental Management System Certified. Tata Steel's collieries use 'Surpac', a state-of-the-art mine planning software that estimates the volume of coal in every seam. This software is coupled with qualitative detailing that focuses on output consistency. To maximize productivity and utilization, a voice and data equipped Global Positioning System is used, which helps to supervise mining activity for machine movement and engine status.

4. Innovativeness of TATA Steel with respect to its competitors

Tata Steel has the lowest operating cost for steel manufacture in the world. Further it has displayed effective means in adopting an eco-friendly and sustainable approach towards the manufacture of steel thus proactive measures are undertaken to ensure the employee's health and productivity through ergonomically designed work stations and by protecting them from occupational hazards.

5. Adaptability of the company in the fast change of the environment

Tata Steel has displayed immense agility in the recent past during the global financial tsunami. Its virtuosos of various fields have adopted various methods like lowering of production and even shutting down of steel plants owing to the lack of demand, managing the balance sheet efficiently etc. The company has 70% of its procurement of raw materials for its operations in Asia through long term contracts and so its margins can be shielded from the nuances of the volatility of the financial markets.

6. Brand value

The TATA brand owing to its highly ethical and a socialistic approach to business have made its name synonymous to trust. After the acquisition of Corus another powerful brand, the brand value of the company has enhanced further.

7. Corporate governance

Tata Steel has had impeccable record for corporate governance. It has set the benchmark in global corporate governance principles of transparency, accountability and equity for others to follow. Tata Steel has been consistently receiving prestigious awards at both the national and the international arena. Recently it bagged the Best Governed Company Award for corporate practices presented by Asian Centre for Corporate Governance.

8. Excellent integration with Corus

Corus has a great reserve of around2000 metallurgists and technology which could be exploited by Tata Steel on several fronts.

9. Spawning upon opportunities

Tata Steel has been amongst the earliest to spot the escalation in the demand for steel in the forthcoming years. It has hence invested heavily in the expansion of its existing facility at Jamshedpur and is setting up other green field projects at Orissa, Jharkhand etc.

WEAKNESS

1. High attrition rate

Tata Steel has traditionally faced the brunt of high attrition rate. In its Jamshedpur plant many engineers constantly change their jobs to SAIL in Bokaro and vice-versa. Thus the formation of a core team of capable individuals across all departments is very difficult as the size of the team is ever changing.

2. Products in the portfolio lacking demand

 The company has certain products in its portfolio like aerospace steel which lacked demand in the recent past. Primarily due to the slowdown of the aviation sector which led to delay in the delivery of aircrafts as a result of cutting of capacity by airlines. The company also had certain Cast products largely marketing in the UK which has been witnessing slowdown in demand since 2001. Hence the company had to close down its Tee Side plant.

3. Degradation in brand value owing to job losses

 TATA group has made its name synonymous to job security of it employees. But the shutdown of its plants in the UK and The Netherlands will dent its image to a certain extent. As a result of which around 1600 employees would lose their daily livelihood.

4. Low cost recovery

There are specific products like the aerospace steel and cast products which has received feeble response in the past. The company has failed to recover costs in this business front.

5. Laggard in technological front

Companies like SAIL has efficiently introduced the XRF (X-Ray Fluorescence) in its plants at Durgapur and Bokaro over 12 months back which the Tata Steel has failed to do.

6. Bad raw material procurement philosophy of its subsidiaries

The largest subsidiary of Tata Steel, Corus has high exposure to spot prices and a higher operational gearing among the larger European steel companies. Hence it has the risk of volatility associated with pricing, one of the key elements in determining profitability of a commodity company.

OPPURTUNITIES

1. Newer technologies

i) The Corex process

Combines an iron melter/coal gasifier vessel with a pre-reduction shaft to produce a liquid product that is very similar toblast furnace hot metal. Coal, oxygen, and pre-reduced iron are fed into the melter/gasifier to melt the iron and produce a highly reducing off-gas.

ii) The HIsmelt process

Iron reduction and coal gasification take place in a liquid metal bath. The fundamental processes of HIsmelt began with early experiments in Germany with bottom-blown oxygen steelmaking converters (LD, LD-AC, KMS, among others) to allow for coal, lime, and/or iron ore injection through the bottom nozzles.

iii) Direct Iron Ore Smelting

(DIOS) process in Japan and the AISI direct steelmaking process in North America produced two similar routes to hot metal production. Both processes utilize a smelting reactor where the primary reactions occur in a deep slag bath as opposed to in the metal phase.

2. Acquisition opportunities

In the aftermath of the financial tsunami in various mineral assets are available globally at a price which is just a shade of their prime valuations. The government of various countries has been putting up coal blocks under the hammer. Tata Steel has been very active in the asset acquisition space and has bagged various coal blocks in Asia, Africa etc. which is essential for its security of raw materials.

3. The movement of Tata Steel in the value chain front

India is the only country in the world where steel can be made cheaper and there is consumption. Then there are other countries like Ukraine, Iran, Brazil, Australia and Bangladesh where steel can be made cheap because of the availability of iron ore and coal. Tata Steel has been to Iran, Ukraine, Bangladesh - all in the last year and is looking at China for finishing capabilities Ukraine is like India, where the factors of production are competitive. The sustainable level of demand in Ukraine is 12 million tons (MT),but one can make much more steel because of the availability of ore. Secondly, the labour is cheap in India and so is the cost of energy. Hence, Tata Steel's strategy is based on breaking up this value chain and putting each part where it's the most cost-effective. So primary steel will be produced in India, where there are large deposits of iron ore. But the Asian markets, now a key focus for Tata Steel, will be better addressed by taking the semi-finished steel to these countries for finishing and then selling there. For now, Jamshedpur will provide the semi-

finished steel for the NatSteel bases. Tomorrow, it cou could well come from Iran or Ukraine; these countries have abundant iron ore and are therefore ideal for primary steel making.

4. Rising Steel prices

Steel prices in India are rising. The strength in the steel prices is due to the decline in domestic steel inventories, increasing raw material prices and firmer import prices accompanied by a lack of export offers from the traditional import sources like the CIS countries. The strengthening steel prices will increase the revenue prospects for the company.

THREATS

Threats faced by Tata Steel-

1. International competition

Companies like the Indian Steel magnate Lakshmi Mittal’s Arcelor Mittal, Posco has landed in the shores of India and have proposed to set up 8 MT and 12 MT respectively. These are amongst the largest steel producers in the world and have a high chance of eating into the market share of Tata Steel. Indian market is also plagued with cheaper Chinese made steel which is ubiquitously available and is significantly munching through the pie of all Indian steel makers including Tata Steel.

2. Adoptability of the company to technological changes

 Tata Steel has shown immense integration abilities in the past. With the acquisition of it has been able to imbibe the high end technological knowledge to its production facilities and hence has been able to produce high quality steel at least prices and significantly bettered its operating margins.

3. Regulatory norms

 The government of India has chalked a strict norm for the clearance of a plant through environmental impact assessment (EIA). To get clearance from the concerned authority demands more than eight months thus leads to delay and project cost escalation. Albeit the governments’ steel policy has been pro industry in order to increase the steel capacity at a brisk pace.

4. Adverse effects of land acquisition picketing

India is plagued with violent agitation against land acquisition. The land acquisition process of the company’s plant in Orissa has been stalled primarily due to the uprising of the land losers in the concerned area. Albeit the company is providing with attractive compensation packages, the uprising is primarily due to the cheap politics of the local leaders to come into the limelight. This will severely dent the company’s expansion plans of the future.

5. Decrement in the sales volumes

Some of the Tata Steel products (like aerospace steel) have witnessed a severe reduction in sales and as a result of which the production facilities of the company in the UK and The Netherlands is facing the brunt of shut down.

6. Competition from China

China is now a net exporter of steel due to the domestic overcapacity in supplies. Chinese companies have started establishing their presence in various international markets. As a result, low cost steel producers from India such as Tata Steel are facing intense competition.

MERGER AND ACQUISITION

Corus:

Europe’s second largest steel maker with operations in the UK and mainland Europe and over 40,000 employees worldwide. It’s long and strip products cater to the construction, automotive, packaging, and engineering and other markets worldwide. Corus’s takeover was the one of the biggest merger in steel industry for which TATA was paying 608 pence per share which is seven times of its original value.

Some of the prominent synergies that arised from the deal were as follows :

Tata is one of the lowest cost steel producers in the world and has self sufficiency in raw material. Corus was fighting to keep its productions costs under control and was on the look out for sources of iron ore.

Tata had a strong retail and distribution network in India and SE Asia. This gave the European manufacturer a in-road into the emerging Asian markets. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. Hence

there would be a powerful combination of high quality developed and low cost high growth markets.

There was technology transfer and cross-fertilization of R&D capabilities between the two companies that specialized in different areas of the value chain.

Some other merger and acquisitions are as follows :

Tayo Rolls Limited: India's leading roll manufacturer and supplier, the company produces rollswhich find application in integrated steel plants.

Tata Ryerson Limited (TRYL): TRYL Is in the business of steel processing and distribution.

Mjunction Services Limited: Mjunction, operating at the cutting edge of information technology, is a 50:50 venture of SAIL and TATA STEEL. It is India’s largest E Commerce company and the world’s largest E Marketplace for steel.

COMPARATIVE ANALYSIS ON RATIOS

1. ASSET TURNOVER RATIO

JSW STEEL SAIL TATA STEEL AVERAGE0.84 1.11 1.29 1.08

The asset turnover ratio of Tata Steel is much higher than the overall industry. It means that the company is utilising its assets efficiently.

2. CURRENT RATIO

JSW STEEL SAIL TATA STEEL AVERAGE0.78 1.21 1.78 1.26

The current ratio of Tata Steel is much higher than the overall industry. This has both negative and positive impacts. The positive impact is that the company has enough liquid assets to meet its current liability. The negative impact is that the company should further utilise its assets in other manufacturing activities.

3. DEBT EQUITY RATIO

JSW STEEL SAIL TATA STEEL AVERAGE0.74 0.54 0.59 0.62

The debt – equity ratio of Tata Steel is lesser than the overall industry. It implies that the company has taken lesser loan from its creditors than its shareholders.

4. INVENTORY TURNOVER RATIO

JSW STEEL SAIL TATA STEEL AVERAGE7.10 4.16 9.85 7.04

The inventory turnover ratio of Tata Steel is higher than the overall industry. Thus , it implies that the company converts its inventory into sales more frequently as compared to the other companies.

5. DEBTORS TURNOVER RATIO

JSW STEEL SAIL TATA STEEL AVERAGE32.95 11.13 67.93 37.33

The debtors turnover ratio of Tata Steel is higher than the overall industry. This implies that the debtors are being rapidly converted into cash as the company’s portfolio of debtors is good.

COMPARATIVE ANALYSIS

Competition

Name Last Price Market Cap.(Rs. cr.)

SalesTurnover

Net Profit Total Assets

Tata Steel 424.95 41,271.76 29,073.50 6,865.69 76,745.77

SAIL 92.50 38,207.36 42,720.19 4,881.25 57,234.96

JSW Steel 706.85 15,771.04 23,368.86 2,010.67 29,176.61

Visa Steel 59.00 649.00 1,332.88 51.38 1,761.41

TATA STEEL is facing stiff competition from other steel companies like SAIL,JSW STEEL & VISA STEEL. In the above table we see a competition between these companies in terms of last traded price, market capital, sales turnover, net profit and total assets. Here we see that Tata Steel has a market capital of Rs. 41,271.76 crore which is way above other compnies. Similarly net profit and total assets are also very good which brings a lot of investment to the company.

We further analyse the Balance Sheet and Profit and Loss Account of the company.

Tata Steel

JSW Steel Visa Steel Steel Exchange

Mar '11 Mar '11 Mar '11 Mar '11

Sources Of Funds

Total Share Capital 959.41 563.18 110.00 43.40

Equity Share Capital 959.41 284.15 110.00 42.85

Share Application Money 178.20 529.38 0.00 38.15

Preference Share Capital 0.00 279.03 0.00 0.55

Reserves 47,307.02 16,132.71 243.29 118.06

Revaluation Reserves 0.00 0.00 0.00 0.00

Networth 48,444.63 17,225.27 353.29 199.61

Secured Loans 2,009.20 7,675.82 1,373.24 333.38

Unsecured Loans 26,291.94 4,275.52 34.88 5.62

Total Debt 28,301.14 11,951.34 1,408.12 339.00

Total Liabilities 76,745.77 29,176.61 1,761.41 538.61

Tata Steel

JSW Steel Visa Steel Steel Exchange

Profit & Loss account

Tata Steel

JSW Steel Visa Steel Steel Exchange

Mar '11 Mar '11 Mar '11 Mar '11

Income

Sales Turnover 31,901.94 25,130.76 1,340.41 1,194.88

Excise Duty 2,594.59 2,031.91 42.43 38.79

Net Sales 29,307.35 23,098.85 1,297.98 1,156.09

Other Income 1,435.80 199.05 35.44 5.64

Stock Adjustments 173.65 747.37 82.49 48.33

Total Income 30,916.80 24,045.27 1,415.91 1,210.06

Expenditure

Raw Materials 9,395.92 15,995.19 1,075.09 1,039.76

Power & Fuel Cost 1,558.49 1,181.52 9.10 42.09

Employee Cost 2,618.27 534.47 42.87 10.51

Other Manufacturing Expenses 2,905.16 476.58 5.27 8.88

Selling and Admin Expenses 501.96 819.68 36.20 18.87

Miscellaneous Expenses 1,529.73 200.40 11.87 2.18

Preoperative Exp Capitalised -198.78 0.00 0.00 0.00

Total Expenses 18,310.75 19,207.84 1,180.40 1,122.29

Here we see Tata Steel is beneficial for the investors in terms of its net worth, share capital, secured loans, unsecured loans etc. when we see the P/L a/c of the company as well as the balance sheet we get a very true picture of the company and its solvency. When we see the secured loans are less and unsecured loans are high it shows that the company has very little liability. In case of any discrepancy the company shall not be liable to pay any amount in terms of unsecured loans.

The assets of the company are also very high. The company has wisely invested its funds and all this show that the company is in a very good position and boosts investment.