By Ruhan Tamboli Ajinkya Nagare Steel Sector Analysis

What is Steel? Steel is an alloy of iron and carbon containing less than 2% carbon and 1% manganese and small amounts of silicon, phosphorus, sulphur and oxygen. Steel is not a single product. more than 3,500 different grades of steel with many different physical, chemical, and environmental properties. Approximately 75% of modern steels have been developed in the past 20 years. If the Eiffel Tower were to be rebuilt today, the engineers would only need one-third of the steel that was originally used. Steel is completely recyclable

Applications of Steel 1. Infrastructure 2. Engineering and fabrication 3. Transportation 4. Packaging 5. Energy Sector 6. Automobile Sector 7. Agricultural Related Machineries 8. Military Equipment

Evolution of Indian Steel Sector

Raw Material Required for Steel Coking Coal – from Jharia, Raniganj, Bokaro, Giridih and Korba ( Used as a Fuel) Manganese – Import from U.S.A, Australia, China (Used for Hardening of Steel & Removing impurities) Galvanizing Iron with chromium, nickel and tungsten – ( make them rust free)

Global Steel Production

Global Steel Production Country-wise Source: World Steel Association

Top 10 steel producing countries

Of the top 10 countries, only China and India showed growth in 2009.

World Capacity of Production

Steel use in Global Construction Sector (million tons)

Indian Steel Industry

Share in Production SAIL and TATA lead the way

Consumption Vs Production

Sector-wise consumption of steel in India

Strong demand and policy support inviting investment

Factors Propelling Indian steel industry growth Steel Demand Drivers Growing economy Large population Low per capita steel consumption Manufacturing & construction activity Untapped rural market Industrial activity growth Government Policies Funding developments Stressing on R&D Offering incentives Policies favouring domestic industry & regulating dumping Judicious Import- export taxes/duties Faster approvals Capacity Addition in Steel Making SAIL, Tata Steel, JSW, ISPAT, RINL, ISPAT etc. along with global multinationals like POSCO, Arcelor Mittal, Nippon Steel, Kobe Steel, Severstal and others have large scale expansion plans for steel making in India Planned projects by Indian and global companies is likely to increase India’s steel producing capacity to 150 MT by 2017

Capacity Addition in Steel Industry

SWOT Analysis StrengthsWeakness Low manpower cost Abundance of raw materials Policies for long term linkages for raw material supply Option of getting project linked captive iron ore, coal mines Large economy and population driving steel demand Overall production efficiency is low Inadequate infrastructure support Lacking in coking coal reserve and most of iron ore reserves consists of iron ore fines Latest technological input and research and development activity is low

SWOT Analysis continued… OpportunityThreat Growing & untapped rural market. Infrastructure & manufacturing activity growth to drive steel demand. Per capita steel demand to grow, which at present is one fourth of the global average. Low present export volume: so potential for growth in exports is considerable. Option for investment and stake acquisition. Delays in approvals and regulatory clearances Land acquisition and rehabilitation issues Competition from large number of small steel producers Threat from cheap import and dumping Issues of capital for projects and high interest on loans

Porter’s 5 Force Model 1. Threat Of New Entrants High capital costs, technology, economies of scale, government policy. 2. Bargaining Power of Supplier Low for fully integrated players who have their own mines for raw materials. High, for non integrated players who have to depend on outside suppliers for sourcing raw materials.

3. Bargaining power of Customers - High, presence of a large number of suppliers and access to global markets. High, presence of a large number of players in the unorganized sector. 4. Threat of Substitutes – Very less due to steel cant be substitute by any other product

5. Rivalry Among Competitors – Rivalry between foreign companies specially Chinese Companies.

Annual results in brief

Liquidity ratio

Profitability Ratio

Turnover ratios

Annual Results in Brief

Year on year Increase Mar '13Mar '12Mar '11Mar '10 Net Sales-3.71%6.87%-4.41%-10.15% Operating Profit %-13.20%-24.42%3.06% Interest 10.32%42.79%18.06%58.75% PAT %-27.77%-27.38%9.39%

Liquidity Ratio

Profitability Ratio

Turn Over Ratio

Next Five Year Projection

We will project the growth of steel sector by considering the growth of other sectors which directly influence the demand for Steel. SectorsProjected CAGR*(till 2017) In % Weightage Infrastructure Engg & Fabrication Automobile Packaging Others TOTAL9.665 Our Projection of growth of Steel sector is at a CAGR of 9.665% between *Source : IBEF, Industry report, April 2013

The scope for raising the total consumption of steel is huge, given that per capita steel consumption is only 35kg, compared to 150kg across the world and 250kg in China. The National Steel Policy has envisaged steel production to reach 110 million tons by Steel players like JSW steel, essar steel focuses on steel retail outlets in India. Expects to sell.

GOI plans to invest over US$ 350 billion in next 2 years in infrastructure and agriculture which directly boost up Steel Sector Massive investment in Rail and port infrastructure rises demand in Steel. US$ 1.304billion increase in budgetary support to Railways which will further promote Steel Industry. Various fiscal policies like exempting pig iron, non alloy steel and steel making inputs like zinc, ferro-alloy and metcoke Government Initiative