Analysis of Macros and Micros

1) Give a brief description of your given Industry. Who are the served
customers, and what value do the firm deliver
Steel industry results in the overall economic growth in the long term of the country. Also, steel
demand, being derived from other sectors like automobiles, consumer durables and
infrastructure, its fortune is dependent on the growth of these user industries. The Indian steel
sector enjoys advantages of domestic availability of raw materials and cheap labour. Raw
materials i.e. Iron ore also available in abundant quantities. This provides major cost advantage
to the domestic steel industry.
The Indian steel industry is largely iron-based through the blast furnace (BF) or the direct
reduced iron (DRI) route. Indian steel industry is highly consolidated. About 60% of the crude
steel capacity is resident with integrated steel producers (ISP). But the changing ratio of hot
metal to crude steel production indicates the increasing presence of secondary steel producers
(non-integrated steel producers) manufacturing steel through scrap route, enhancing their
dependence on imported raw material.

India's steel production is estimated to be around 100 million tonnes (MT) in 2013 and the
production is expected to reach 275 MT by 2020. The per capita steel consumption increased
from 34 kilograms (kg) in 2004-05 to 59 kg in 2011-12. The World Steel Association has
estimated steel consumption in India to grow at five per cent in 2013. Steel producers may see a
spurt in demand in the medium term if the Indian Government implements its US$ 1 trillion
infrastructure investment plan. India's steel-making capacity is slated to cross 100 MT in 2013
which will require about 160-170 MT of iron ore.

Following are the major customers of Steel Industry

2) Industry characteristics
a. Size
Presently, steel contributes to nearly two per cent of the gross domestic product (GDP) and employs
over 500,000 people. The total market value of the Indian steel sector stood at US$ 57.8 billion in
2011 and is expected to touch US$ 95.3 billion by 2016. India's per capita steel consumption stood at
57.8 kilograms in 2013, according to a World Steel Association report and is expected to rise with
increased industrialisation throughout the country.
In the year 2012-13 the Steel rolling Industry had combined sales of 11217.17 crore.

* India's iron and steel industry contributes about 2% of gross domestic product, or about USD 20
billion to the country's USD 1 trillion economy.
* India is now the fifth-largest producer of steel in the world, behind China, Japan, Russia and the
United States. It produced 55.1 million tonnes of the alloy in 2009, but is still only a tenth the size of
China, the No.1 steel producing country.
* State-run Steel Authority of India is the largest producer, with capacity of 13.8 million tonnes. Tata
Steel, the world's No. 8 steelmaker, has capacity in India of 7 million tonnes, while JSW Steel is third
with annual capacity of about 6.9 million tonnes. About half of India's steel industry comprises a large
number of makers of higher-end re-rolled steel with less than one million tonnes of capacity each.
* India's steel producing capacity is likely to touch 120.62 million tonnes by 2011/12, according to the
federal steel ministry. Based on planned projects, capacity could go up to 293 million tonnes by 2020.

Regional governments have signed 222 memorandums of understanding for planned capacity of 276
million tonnes.
* India has immense scope for increasing consumption of steel. Current per capita consumption is
around 40 kg, compared with 100 kg in Brazil, 250 kg in China and a global average of 198 kg. Steel
demand is expected to rise 5-6 percent annually until 2019-20.

b. Porters 5 Forces

Porters 5 forces are applicable to Steel Industry as mentioned in the above diagram.
1. Threat of new Entry
As Steel industry is a high investment sector new entrants are difficult but as government has
become lenient more and more foreign players can enter in Indian Market in future
2. Competitive Rivalry
As the customers of Steel industry are growing in number the bargaining power of steel
industry may go down because of competition. But as there is a large scope of development
in Indian infrastructure rivalry is supposed to be increased.
3. Threat of substitution
Aluminium is seen a bigger threat to steel industry
4. Supplier Power
Suppliers possess less power than Steel industry as they are mostly fragmented and the ease
of substitution is pretty high.
5. Buyers power

The Steel Industry is very few in India and thus has got an upper hand. The steel Industry is
always backed by Government regulations. Steel Industry forms the backbone of a country's
infrastructure and other industries like automobile and has a booming market. It is extremely
price sensitive. Has a higher power of substituting raw materials and suppliers
Low cost of substituting.

Year on Year growth ( last 5 years)

Indias 33 per cent growth in steel production in the last five years was second
only to China among the top-five producing nations. In the last five years,
domestic crude steel production grew at a compound annual growth rate of 7.9
%. Such an increase in production was driven by 9.8 % growth in crude steel
capacity, high utilisation rates and a 7 % growth in domestic steel consumption,
Indias production grew constantly in the last five years from 57.8 MT in 2008 to
63.5 MT in 2009, 69 MT in 2010, 73.6 MT in 2011 and 76.7 MT in 2012.
India is projected to grab the second slot in the world of steel production within
a year or two on new capacity expansions, mainly through the brown field route.
The capacity utilisation during 2013-14 stood at 82 %. However, steel
consumption during the year grew by just 0.6 %, the survey said.
c.

Construction sector accounts for around 60 % of the country's total steel demand
while the automobile industry consumes 15 %. Both the sectors were plagued by
a slowdown in the economy.
The consumption of steel depends on the growth of the economy. A sound
economy ensures higher consumption. User industries such as construction and
consumer durables had a bad run last fiscal resulting in a dip in demand.
The government expects the countries installed steel production capacity to go
up to 200 MT by 2020 from around 90 MT now.
d.
How many competitors?
Following are the name of the Competing firms in Steel-Rolling Industry

e. Market shares of the competitors

Following is the market share on the basis of Market Capitalization

Market share on the basis of Net Sales are as follows

f.

Who is most profitable?

From the below table we can see that in the year 2013-14 Kalyani Steels has
been the most profitable

g.
Who has ( impression will do) the lowest cost structure
The following table shows the cost structure of the top 5 players

Hence we see that the cost structure of Kalyani Steel is the least as compared to
other firms.
h. Supplier industry characteristics and power
The following Industries are the suppliers for steel rolling Industry
Pig Iron/wrought Iron
Coal Industry
i. Buyer power
1. The Steel Industry are very few in India and thus has got an upper hand
2. The steel Industry is always backed by Government regulations.
3. Steel Industry forms the backbone of a country's infrastructure and other
industries like automobile and has a booming market.
4. Extremely price sensitive
5. Has an higher power of substituting raw materials and suppliers
6. Low cost of substituting
j.
What can substitute your product
Material substitution has been one of the toughest challenges facing the steel
industry. Plastic, aluminium, wood and bamboo have been replacing steel in
various application areas. For the last one-and-a-half decade, the automobile
sector, which holds a 23-25% market share in global steel consumption, has

been toying with the idea of increasing aluminium use to lighten weights, boost
fuel efficiency and cut down emissions. Studies reveal that aluminium is
increasingly finding its way into hoods, doors, fenders, deck lids, lifts, tail gates
and body structures in cars and trucks. Its use is increasing at 5% per annum.
3) What are the macros that affect your industry?
a. Political?-How?
Ministry of Steel, Government of India, is considering setting up a strong
research and development (R&D) mission/centre, virtual or otherwise, to step up
innovative research and technology development in the country's steel industry.
The Centre's Steel Development Fund (SDF) and Plan Scheme presently provide
financial assistance for R&D in the sector. Under the SDF scheme, 82 R&D
projects have been approved with total project cost of Rs 677 crore (US$ 112.61
million) where in SDF assistance is Rs 370 crore (US$ 61.54 million). Under the
Plan Scheme, eight projects have been approved with a total cost of Rs 123.27
crore (US$ 20.51 million) where in government assistance is Rs 87.28 crore (US$
14.51 million).
In order to increase industrial activity, the Government of India, through the
Ministry of Steel, has signed Memorandums of Understanding (MoUs) with all the
major steel producing Public Sector Undertaking (PSU) companies such as SAIL
and Rashtriya Ispat Nigam Ltd (RINL). These will help to direct the companies to
achieve targets and benefit the sector as a whole.
Role of the Ministry:1. Providing linkage for raw materials, rail movement clearance
etc. for new plants and expansion of existing ones.
2. Facilitating movement of raw materials other than coal through
finalization of wagon requirements and ensure an un-interrupted
supply of raw materials to the producers.
3. Interaction with All India Financial Institutions to expedite
clearance of projects.
4. Regular interactions with entrepreneurs proposing to set up
new ventures, to review the progress of implementation and
assess problems faced.
5. Identification of infrastructural and related facilities required by
steel industry.
6. Promoting, developing and propagating the proper and
effective use of steel and increasing intensity of steel usage
particularly in the construction sector in rural and semi urban
areas, through the setting up of Institute for Steel Development
and Growth (INSDAG) in Kolkata.
7. Encouraging research & development activities in the steel
sector. There is an institutional mechanism through which

financial assistance is provided from Steel Development Fund for

this purpose. Efforts are being made to further augment R&D
activities in the country.
8. Interacting with State Governments to provide power at
reduced/ concessional tariffs especially to mini steel plants all
over the country. Similarly, the freight rates adopted by the
Railways have been rationalized after interaction with the Railway
Board and freight cost on raw material transportation for steel
producers is reduced.
9. Rationalizing the classification of coking coal in consultation
with the Coal Ministry so as to reduce the impact of royalty
payable on this basic raw material. Import duties on several raw
materials, such as, scrap, ships for breaking, coke, non-coking
coal etc. used by the steel industry has been reduced steadily
over the past 4-5 years.
Import Policy Induced Distortions in the Competition in the Market
The governments fiscal policy has been somewhat supportive to the domestic
steel industry and against the interest of the consumer industries; these could be
considered to be anticompetitive.
Take for instance the import duty on steel, which remained at very high levels for
a long time, at 25 percent till January 2004. It is only now that anti-inflationary
action has led to import duty being waived.
Also, the industry benefited from the floor prices imposed on prime steel
products, not only when the global prices dropped to abysmal levels, but also
when they started rising to reasonable positions. Though these have finally been
abolished, the protracted protection unduly supported the steel makers at the
cost of the consumers.
The industry also gained from certain procedure related non-tariff barriers like
mandatory certification requirement for quality of imported products by the
Bureau of Indian Standards (BIS). This involved lengthy and cumbersome
procedures involving high transactions costs for the importers.
The government also designated specific ports for imports of certain categories
of steel with a clear (though not formally stated) intention to curb their imports.
The imposition of an anti-dumping duty on non-alloy steel a few years ago on an
absolutely flimsy ground was also questioned widely by the consumer industry.
Further, a prohibitive import duty on seconds and defectives also went against
genuine consumer forcing them to buy prime materials against their wishes and
requirement. Given the fact that there is a large number of diverse industries
dependent on low priced defective materials and there are no specific reasons
why such consumers should be forced to buy high cost raw materials for their
low value products, the governments persistent stand against imports of
seconds and defectives violate the spirit of competition with openly doled out
favours to the major steel makers. The steel industry often raised health issues

in certain cases which are nothing but administrative and law enforcement
matters having no relation either to the policy or the market.
These measures were against the interests of a certain segments of the steel
industry itself (for example, the merchant CRC and GP/GC producers), and served
the major steel producers when it came to competition with the user industry.
b. Economic?-Please describe how and how dramatically
STEEL industry is concerned to be a very booming industry. Opening up with the
various economies the foreign direct investment happened in this sector. Under
the various economies schemes there is permission in advance licensing scheme
which allows the duty free imports of raw material. But, although with the boom
in the industry GDP is rising at very slow rate. The steel industry is also facing
the problem of the subprime crisis that occurred in the United States 15 months
ago. Because of the subprime crisis there is ill effect in the automobile industry,
infrastructure and other business which are related with the steel industry. This
caused a huge gap between the demand and the supply of the steel in the
society.
The steel industry is highly cyclical and is affected by general economic
conditions and other factors like worldwide production capacity, fluctuations in
steel imports/exports and tariffs. Steel prices are sensitive to many supply and
demand factors. Steel markets recently have been experiencing larger and more
pronounced cyclical fluctuations. These trends, combined with the upward
pressure on costs of key inputs, mainly metallic and energy, presents an
increasing challenge for steel producers. The key drivers for maintaining a
competitive position and good financial performance in this challenging
environment are product differentiation, customer service, cost reduction and
cash management.

The dependence of certain operating subsidiaries of the steel companies on

either export or domestic markets may limit its flexibility in managing its
business.
Some of the steel companies are primarily export oriented, as domestic markets
are not adequate to support operations, and some of the companies are
dependent on the domestic markets of their countries of operation. Any rise in
trade barriers in main export markets, or any fall in demand in the
export/domestic markets due to weak economic conditions or other reasons,
might adversely affect the operations of these companies and may limit their
flexibility in managing its business.
Steel production requires substantial amounts of raw materials and energy,
including iron ore fine, iron ore pellet, scraps, electricity, natural gas, coal and
coke. Any prolonged interruption in the supply of raw material or energy, or
substantial increases in their cost, could adversely affect the business, financial
condition, results of operations or prospects of steel companies.
c.
Social factors
The social factor is one of the important aspects in the analysis of the industry. It
describes the impact of the particular industry on the society. Likewise the steel

industry also gives encouragement to the permanent employment to the people

but on the other hand it divides the area in to the rural and urban sector because
the industry is only in the particular area which leads to the particular
development of that area only and not overall the development. Because of the
working conditions the people which are employed in the steel industry faced
many health problems which are incurable in the nature and many industries are
not paying the attention on the health of the employees. Any kind of the
allowances are not given to the employees. Steel industry is also responsible for
the development in the rural sector which leads to the rise in the standard of the
living of the people.
d. Legal framework
Government is introducing the various rules and regulations of this particular
industry. The government is about to paying the more attention in the health
policies of the employees which are working with the steel industry. Special
health incentives and rules are introduced in the steel industry.
The Factories Act, 1948 - is the umbrella legislation enacted to regulate the
working conditions in factories. The Act is administered by the Ministry of Labour
and Employment through its Directorate General Factory Advice Service &
Labour Institutes (DGFASLI) and by the State Governments through their factory
inspectorates. DGFASLI serves as a technical arm to assist the Ministry in
formulating national policies on occupational safety and health in factories and
docks.
The Plantation Labour Act, 1951 - provides for the welfare of plantation labour
and regulates the conditions of work in plantations. The Act is administered by
the Ministry of Labour through its Industrial Relations Division.
The Mines Act, 1952 - contains provisions for measures relating to the health,
safety and welfare of workers in the coal, metalliferous and oil mines.
The Contract Labour (Regulation & Abolition) Act, 1970 - was enacted to regulate
employment of contract labour so as to place it at par with labour employed
directly, with regard to the working conditions and certain other benefits.
e. Environments ( green issues)
The steel industry's main social and ethical issues Center on environmental
impacts and carbon footprints.

There is still plenty of room for improvement to bring this down to levels near
zero, but it is not extremely high.
Interestingly, steel does not have that high of an impact on global warming as
many people focus on.
Looking at the chart above comparing extremely common materials, steel has
about an average environmental impact.
Steel is also 100% recyclable thereby greatly reducing the carbon footprint and
environmental impact. Also because of its high strength capabilities, the amount
of steel used for a given project is less than that needed for lighter composite
materials.
In the past year, over 76 million tons of steel was recycled.

Environmental management:Environmental waste management means "Management" as the Act, manner or

practice of managing, handling or controlling something.
Waste management is a problem susceptible to the application of classical
engineering analysis and solution. Hence by extension of the most fundamental
planning and management techniques, the problem can be solved in a manner
which will protect man and improve his environment.
Management of Air pollution:Steel plant operations are vulnerable to air pollution. This can be visualised by
the huge consumption of coal, iron or, limestone, dolomite, sulphur etc. During
the process large amounts of emission (stack and fugitive) consisting of dust,
gaseous pollutants like SO2, NOx etc. are generated. To have an effective control
over the pollutants first step for environmental management consists of
conducting an emission inventory or pollution survey by visiting the plant at
various locations such

as blast furnace, coke oven, sinter plant, refractory plant, etc. to get a first-hand
information on the process and practices and also to carry out stacks and
ambient air quality monitoring to establish the nature, quality and quantity of
pollutants, emitted by the source, evaluate the performance of pollution control
equipment if any, and also to compare it with emission standards so as to assess
the necessity of controlling the emissions either at source by suitably altering the
process parameters or by improving the efficiency of pollution control measures.
Environment Protection Act, 1986
To co-ordinate the activities of the various regulatory agencies already in
existence.
Creation of an authority or authorities with adequate powers for
environmental protection.
Regulation of discharge of environmental pollutants and handling of
hazardous substance.
Speedy response in the event of accidents threatening environmental and
deterrents punishment to those who endanger human environment, safety
and health.

4) Peer evaluation compare with peer group across

a. Products
Sujana Steels

Sujana spearheads its service with SmartSteel. They also have TMT bars rolled
with world's best proven technology from Thermex, Germany. They have the
largest TMT long-steel products manufacturer with widest range in India. When it
comes to Structural steel they are one of Indias fastest growing players.
Kalyani Steels
Following are the products of Kalyani Steels
Rolled Bars for Automotive Application
Rolled Bar for Engineering Application
Round Cast for Seamless Tube Industry
Machined Bar for Aluminium Smelting Industry
Manaksia Limited
Following are the products of Manaksia Steels
Cold Rolled Coils
Hot Dipped Galvanised Steel
Prepainted Profile Sheets
Sunflag Iron and steel Ltd Following are the products of Sunflag
Flat Bars
Round end bars
Round Cornered Square end bars
Hex end bars
Coils
ISMT Following are the products of ISMT
High collapse casing
Hydraulic line pipes
Tubes for mining
Hollow bars
Auto Components
Hydraulic cylinders
UHS Structural Tubes
Surana Industries
Following are the products of Surana
TMT bars
MS Wire rod coils
Carbon Grade wire rod coils
Plain Rounds
RCS

b. Markets

c.

Growth

d. Financials BS,P &L , Cash flow, Stock price, ROI, Margins , Fixed

cost %, Finance charges ,Export Sales/Total sales, R&D/Sales, Book

Value of stock vs Av MP (TTM)

5) How sustainable is the competitive advantage of the company and why?

Working Capital Ratio - Sujana enjoys a higher ratio of around 2 as

compared to 1 of industry (H)
Quick Ratio - Sujana has a high quick ratio of around 2.5 (H)
CRR - Sujana has higher ratio of 0.035 as compared to 0.01 of competitors
(H)
Net Debt change - The debt has increased but it has increased at a slower
pace than its competitors (H)
Accounts Rec ratio - The ratio is remarkably higher than industry (H)
Accounts Pay Ratio - The ratio is higher than competitor, it enjoys a higher
trust in market (H)
Total asset turnover - It Enjoys higher ratio as compared to competitors (H)
Industry EBIT/Sales - enjoys a higher ratio as compared to competitors (H)
Industry EBITDA/sales - enjoys a higher ratio as compared to competitors
(H)
Market share change - The share has been constantly increasing compared
to its rivals. Significant growth in last 5 years (H)
Close to Vishakhapatnam steel plant hence easy procurement of Raw
materials.
Situated near Hyderabad hence connected to better rail and road
communication