(WITH REFERENCE TO SAIL, TATA STEEL & ESSAR STEEL COMPANIES.

A PROJECT REPORT ON FUNDAMENTAL ANALYSIS OF STEEL INDUSTRY

BACHELOR OF BUSINESS ADMINISTRATION [B.B.A] SEMESTER-VI (FINANCE) SUBMITTED BY

MEPAL M. VANANI T.Y.B.B.A ROLL NO: [71]

SUPERVISING TEACHER

Mr. RAJESH DESAI

AMBABA COMMERCE COLLEGE, MANIBA INSTITUTE OF BUSINESS MANAGEMENT & B.C.A COLLEGE SABARGAM [2011-2012]

Research Methodology
Problem Definition:
I have selected study on steel industry. But I am not capable to study of whole steel company of steel industry. So, I selected SAIL, TATA Steel, and ESSAR Steel Company. My project report time duration is 05/12/2011 to 05/03/2012. So I have limited time for finish my project.

Research design:
Exploratory Research: It is focus on the discover of new ideas. It is study of unfamiliar problem and the preliminary investigation. Descriptive Research: When the researcher is interested in knowing the characteristic of certain groups such as age, sex, educational level, occupation and income etc. Causal Research: As the name implies a causal design investigates the cause and effect relationship between two or more variable. At initial stage, the research design is exploratory because the research statement was developed on the basis of the review of literature that was available on internet, in books and journals.

Data collection:
PRIMARY DATA: -

AMBABA COMMERCE COLLEGE, MIBM & B.C.A COLLEGE, SABARGAM.

Primary data means data which are a fresh or they are collected for the first time and thus happen to be original in character and considered as first hand data and data collected specifically for the study currently undertaken is called as primary data. SECONDARY DATA: Secondary data means data which are collected by any one for a particular research purpose and which are used by others for different purpose. Primary data collected by one person may become secondary data for another. The sources of secondary data collection are the literature review as the books and industrial magazine that were referred. Internet was also one of the main sources of secondary data collection.

Data Analysis:
Data Analysis will be done using SPSS software (Stastical Package for Social Science). This will be used because it gives us accurate and fast result. Also multiple features of SPSS will help in applying various tests to reach to accurate conclusions.

Objective of Study:
To get proper way of study. To carry the different aspects and method of data collection. To know the Current economy, Industrial growth cycle and Company analysis. To study the financial scenario of the Steel Sector in India. To find out suitable investment opportunity in Steel company in India. Analyze the information collected on sales, profit, earning per share, market price, ratio analysis for the selected, etc. To make valuation of selected companies and to give suggestion and advice to the investors to invest or not

AMBABA COMMERCE COLLEGE, MIBM & B.C.A COLLEGE, SABARGAM.

Scope of the study:

If we study on actual result or statement of the companies, we can get the better results and scope for further research in future.

INRODUCTION OF INDUSTRY
Scenario of Steel industry in the world Perspective
History of the Steel Industry dates back to the ancient times in Armenia which is approximately around three thousand and five hundred Before Christ. Steel is nothing but the alloy of iron and carbon. But the History of the Steel Industry in the modern times was initiated during the medium half of nineteenth century (during 1850s to be precise). The initiator of it was a person named Mr. Henry Bessemer of England. At the same time, another person named Mr. William Kelly, a resident of United States, has also started the production of steel and was completely an independent approach from Mr. Bessemer This helped the steel industries to produce steel in large quantities and also at comparatively low costs. History of the Steel Industry was enriched and modernized through the introduction of Open-Hearth process of steel production which made the industries to produce steel out of domestic iron ores. This process was first adopted by the steel industries situated in United States of America in the year 1888. This time saw rapid innovations in the processes of steel production which got its impetus from the increased want for steel from various industries namely, railway industry, automobile industry, industry involved in construction of bridges, etc. During this time period, the enhanced demand as well as supply of steel pushed the ranking of USA to the first position, in terms of the steel production.

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In the History of the Steel Industry it can be observed that the with the passage of time, the quantity of production by USA has decreased with relation to total world production of steel. After the 1980s, China came strongly enough and became the largest producer of steel. India is also showing good performance in this sector in the recent times.

Point of View
Investments:China Steel Corporation (CSC), one of the largest integrated steel makers in Taiwan, together with its co-investors, will invest US$ 178 million in a new plant to produce electrical steels in Bharuch district of Gujarat, according to Francis KuoHsin Liang, Vice-Minister, Ministry of Economic Affairs, Taiwan. Global Scenario:

In 2007 the World Crude Steel output reached 1343.5 million metric tons and showed a growth of 7.5% over the previous year. It is the fifth consecutive year that world crude steel production grew by more than 7%. (Source: IISI)

China remained the worlds largest Crude Steel producer in 2007 also (489.00 million metric tons) followed by Japan (112.47 million metric tons) and USA (97.20 million metric tons). India occupied the 5th position (53.10 million metric tons) for the second consecutive year. (Source: IISI)

The International Iron & Steel Institute (IISI) in its forecast for 2008 has predicted that 2008 will be another strong year for the steel industry with apparent steel use rising from 1,202 million metric tonnes in 2007 to 1,282 million metric tonnes in 2008 i.e. by 6.7%. Further, the BRIC ( Brazil, Russia, India and China) countries will continue to lead the growth with an expected increase in production by over 11% compared to 2007.

The Growth Profile:At present, total (crude) steel making capacity is over 34 million tonnes and India, the 8th largest producer of steel in the world, has to its credit, the capability to
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produce a variety of grades and that too, of international quality standards. As per the ratings of the prestigious World Steel Dynamics", Indian HR Products are classified in the Tier II category quality products a major reason behind their acceptance in the world market. EU, Japan have qualified for the top slot, while countries like South Korea, USA share the same class as India.

Financial position: World crude steel production declined 8% from 1,329 m tonnes in 2008 to 1,223 m tonnes for the year of 2009. Steel production declined in nearly all the major steel producing countries and regions including the EU, North America, South America and the CIS in 2009. However, Asia, in particular China and India, and the Middle East showed positive growth in 2009. Asia produced 799 m tonnes of crude steel in 2009, 2009, an increase of 3.6% compared to 2008; its share of world steel production increased to 65% in 2009 from 58% in 2008. The global economic and financial crisis impacted steel consumption. Consumption declined 6.7% from 1,202 m tonnes in 2008 to 1,121 m tonnes in 2009. Of the consumption, 50% was flats (largely consumption led demand) and 50% was long products (largely infrastructure driven demand). World consumption of finished steel excluding BRIC countries registered a decline of 26.8% in 2009. Steel consumption of BRIC countries grew 18% largely due to the massive consumption of steel from China to satiate stimulated domestic demand.

Prospects:Going forward, we remain apprehensive about the continuation of the strong performance by steel companies. We believe that volume growth would be visible in the years to come, largely due to the continuation of infrastructure spending (including housing), strong demand from the auto sector, which could help in driving demand for value added steel products like CR (cold roll) steel and exports. We expect realisations to remain under pressure on account of excessive supplies. However, a recovery in steel prices could be sooner if steel producers across the globe take continuous efforts at curtailing production.
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Scenario of Steel industry in India Perspective

The Indian steel industry plays an important role in the country's economic growth. The country has also gained an important position on the global steel map due to its giant steel mills, acquisition of global scale capacities by players, continuous modernization & up gradation of old plants, improving energy efficiency, and backward integration into global raw material sources. Global steel giants from across the globe have shown keen interest in the steel industry due to its phenomenal performance. A lot of new steel plants have been set up in the country due to huge foreign investments and state-of-the-art technology. Tata steel was the first steel plant established in the year 1907 in India. Some of the other steel plants in the country include Bhilai Steel Plant at Chattisgarh, Rourkela Steel Plant at Orissa, Durgapur Steel Plant at West Bengal to name a few. In 2010 India was ranked as the fourth largest producer of steel by the World Steel Association. India is the world's fourth largest producer of iron ore. It has about 25 billion tonnes of good quality iron ore reservesthe sixth-highest in the worldwith a reserves base of 9.8 million. Although lower than Brazil and Australia, this is considered abundant and is one of the important advantages of India's domestic steel industry.

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Seeing the growth potential of the steel industry in India, many global steel players have been planning to enter the market or have announced their expansion plans for their Indian businesses. Arcelor Mittal and POSCO have planned mega Greenfield projects at various locations in India. Some other global players have aslo also entered strategic partnerships or joint ventures (JV) with Indian steel giants to capitalize on their existing client base in the region.

Point of View
Investments:Tata Steel is planning to set up a six million tonne (MT) steel plant The proposed six million tonne (MT) steel plant which Tata Steel is setting up at Kalinga Nagar, Orissa, will concentrate entirely on flat steel products, catering to the needs of the automotive industry and white goods. The first phase of this plant is expected to be operational by February 2014 and will see a total investment of up to Rs 25,000 crore (US$ 5.02 billion) of which the steel maker has already invested over Rs 10,000 crore (US$ 2 billion). RINL, the corporate entity that runs the Vizag steel plant, has inaugurated a series of auxiliary units to expand its plant's capacity to 6.3 MT The project has been executed by Instrumentation Ltd, Kota and involved a cost of around Rs 10 crore (US$ 2.25 million). Varia Engineering Works Pvt Ltd, Ahmedabad-based rolling mills manufacturing company, is setting up India's first 6-stand continuous cold rolling mill for stainless steel. Domestic Scenario:

The Indian steel industry have entered into a new development stage from 200506, riding high on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India becoming the 5th largest producer of steel.

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 It has been estimated by certain major investment houses, such as Credit Suisse that, Indias steel consumption will continue to grow at nearly 16% rate annually, till 2012, fuelled by demand for construction projects worth US$ 1 trillion. The scope for raising the total consumption of steel is huge, given that per capita steel consumption is only 40 kg compared to 150 kg across the world and 250 kg in China. The National Steel Policy has envisaged steel production to reach 110 million tonnes by 2019-20. However, based on the assessment of the current ongoing projects, both in greenfield and brownfield, Ministry of Steel has projected that the steel capacity in the county is likely to be 124.06 million tonnes by 2011-12. The Growth Profile:The liberalization of industrial policy and other initiatives taken by the Government have given a definite impetus for entry, participation and growth of the private sector in the steel industry. While the existing units are being modernized/expanded, a large number of new/greenfield steel plants have also come up in different parts of the country based on modern, cost effective, state of-the-art technologies. Financial position:Steel being at the core of economic activity witnessed an unprecedented downturn in 2009. Advanced economies buckled under pressure of large inventories coupled with standstill demand; the rest of the world (excluding China and India) suffocated under low domestic demand; their high degree of export dependency on the advanced world added to their woes. Prospects: Steel prices are expected to move northward in 2010 due to increased demand and higher input prices. Economic recovery across the globe is expected to generate real demand pull. There would also be a demand pull led by inventory restocking. While the former is expected to be generated from investment in infrastructure and private consumption, the latter is expected to emanate from creating inventories which were used up by the economies across the globe in 2009. Dollar dynamics
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which regulate the steel trade and price intensity are expected to work in favour of global steel trade. The depreciating dollar is expected to fuel capital investment and consumption expenditure pulling up steel demand. Coking coal spot prices have skyrocketed to US$ 300 per tonne. The same trend is noticed in Iron ore prices too. More importantly, the decade-long practice of longterm agreements for coal and iron procurement has now been altered to quarterly contracts bringing more uncertainty and volatility. The Indian steel sector may face threat from cheap imports, now that the import duties on steel in India are amongst the lowest in the world. Import pressures could consequently lead to pressure on margins of the domestic companies on account of lower steel realisations. However, if the Indian government increases the import duty on steel products, domestic steel industry could get protection to an extent. But since India has already agreed to the WTO norms, it might become difficult for the government to increase duties substantially. The government over the last couple of years has continued to lay emphasis on continuation of infrastructure activities in the country. Increased spending on infrastructure will be a key positive for the steel sector as the demand for steel will get a boost. The continuance of tax sops to the housing sector is another positive for steel demand. Government Initiatives:

The industrial policy that was announced in July 1991, removed iron and steel from the list of industries reserved for the public sector and was also exempted from the provisions of compulsory licensing under the Industries (Development and Regulation) Act, 1951

From May 24, 1992 the iron and steel industry was included in the list of high priority' industries for automatic approval for foreign equity investment up to 51 per cent and this limit has since been raised to 100 per cent.

Pricing and distribution of steel were deregulated from January, 1992. Additionally, it was ensured that priority continued to be accorded for meeting the requirements of small-scale industries, exporters of engineering goods and North Eastern region, in addition to strategic sectors such as Defence and Railways.

The import regime for iron and steel has undergone major liberalisation. This has

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been made possible by total freeing of iron and steel imports from licensing, canalization and lowering of import duty levels. Export of iron and steel items has also been freely allowed.

Duties on raw materials for steel production were reduced. These measures reduced the capital costs and production costs of steel plants. Freight equalization Scheme was withdrawn in January, 1992 - with the coming up of new steel plants in different parts of the country, iron and steel products are freely available in the domestic market.

Currently, the import duty on steel items is 5 per cent. The import duty on raw materials like melting scrap, coking coal, metcoke is NIL and for other raw materials such as Zinc, Iron Ore and Ferro Alloys it ranges from 2 per cent to 5 per cent. There is no export duty on any steel items. However, Government has imposed ad-volorem export duty of 15 per cent on iron ore lumps and 5 per cent ad-volorem export duty on iron ore fines in order to conserve the mineral for long term requirements of the domestic steel industry.

Excise duty for steel is currently 10 per cent. To ensure sufficient domestic availability and curb the rising price of hot-rolled coils in the domestic market, its imports have been freed by the government.

Road Ahead:According to the latest report by RNCOS titled "Indian Steel Industry Outlook to 2012", the Indian crude steel production will grow at a compound annual growth rate (CAGR) of around 10 per cent during 2010-2013. Moreover, the Government is proactively providing incentives to boost economic growth by injecting funds in various industries, such as construction, infrastructure, automobile, and power will drive the steel industry in future. The report also shows that, steel consumption in India is expected to grow considerably in coming years as per capita finished steel consumption is far less than its regional counterparts. Production of Steel:Last Ten years Finished (Carbon) Steel Production is given below:PRODUCTION OF FINISHED CARBON STEEL (In million tonnes)
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Year 2001-2002 2002-2003 2003-2004 2004-2005 2005-06 (Prov.) 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Main Producers 13.05 14.39 15.19 15.61 16.236 17.390 17.765 17.216 18.038 18.280

Secondary Producers 17.58 19.28 21.00 24.44 26.400 37.756 40.565 46.229 51.093 57.461

Grand Total 30.63 33.67 36.19 40.05 42.636 55.146 58.233 63.445 69.131 75.741

% of share of Secondary Producers 57.40 % 57.27 % 58.03 % 61.02 % 61.92 % 68.46 % 69.54 % 72.86% 73.9 % 75.86%

AMBABA COMMERCE COLLEGE, MIBM & B.C.A COLLEGE, SABARGAM.

AMBABA COMMERCE COLLEGE, MIBM & B.C.A COLLEGE, SABARGAM.