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Analysis of Tata Steel* By 1. Kaushtav Das [Roll:07/ChE/08] 2. Prashant Kumar Jha [Roll:07/ChE/18] 3.

Nilesh Halder [Roll:07/ChE/27

Strengths of TATA STEEL: 1. Mineral Reserves Tata Steel has two collieries i n West Bokaro and Jharia, inthe state of Jharkhand. The iron ore units are located in Noamundi, Joda andKatamandi in the states of Jharkhand and Orissa. Tata Steel Limited also has amanganese mines and dolomite quarries in Orissa. These mines are located at anapproximate distance of 150 kms from Jamshedpur, home to the steel company'smanufacturing facility. The Steel Company's iron ore units produce 9 million tons perannum of various grades of high quality iron ore including rich blue dust ore. Thecompany in India is having mines of 281 million tones reserves in its mines inJharkhand and thus having minerals to cater its needs for more than 20 years. Thecompany has also been acquiring stake overseas in Canada, Mozambique, Australiaetc. 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 hasdisplayed their skills in expanding the company through inorganic route. Thecompany has successfully acquired Nat Steel of Indonesia, Millennium Steel of Thailand and more importantly Corus. The companys virtuosos of finance have beenable to find innovative ways to tackle the companys bulgeoning debt and keep thebottom 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 ensurethe employee's health and productivity through ergonomically designed work stationsand by protecting them from occupational hazards. All its mines are ISO-14001 -Environmental Management System Certified. Tata Steel's collieries use 'Surpac', astate-of-the-art mine planning software that estimates the volume of coal in everyseam. This software is coupled with qualitative detailing that focuses on outputconsistency. To

maximize productivity and utilization, a voice and data equippedGlobal Positioning System is used, which helps to supervise mining activity formachine movement and engine status. 4. Innovativeness of TATA Steel with respect to its competitors - TataSteel has the lowest operating cost for steel manufacture in the world

Further it has displayed effective means in adopting an eco-friendly andsustainable approach towards the manufacture of steel thus proactivemeasures are undertaken to ensure the employee's health and productivity throughergonomically designed work stations and by protecting them from occupationalhazards. 5. Adaptability of the company in the fast change of the environment - Tata Steel has displayed immense agility in the recent past during the globalfinancial tsunami. Its virtuosos of various fields have adopted variousmethods like lowering of production and even shutting down of steel plantsowing to the lack of demand, managing the balance sheet efficiently etc. Thecompany has 70% of its procurement of raw materials for its operations inAsia through long term contracts and so its margins can be shielded from thenuances of the volatility of the financial markets.6. Brand value - The TATA brand owing to its highly ethical and a socialisticapproach to business have made its name synonymous to trust. After theacquisition of Corus another powerful brand, the brand value of the companyhas enhanced further.7. Corporate governance - Tata Steel has had an impeccable record forcorporate governance. It has set the benchmark in global corporategovernance principles of transparency, accountability and equity for others tofollow. Tata Steel has been consistently receiving prestigious awards at boththe national and the international arena. Recently it bagged the BestGoverned Company Award for corporate practices presented by Asian Centrefor Corporate Governance.8. Excellent integration with Corus Corus has a great reserve of around2000 metallurgists and technology which could be exploited by Tata Steel onseveral fronts.9. Excellent procurement philosophy - Tata Steel has around 70% of itssupplies through long term contracts. Thus it can be shielded from thevolatility of the financial markets.10. Spawning upon opportunities - Tata Steel has been amongst the earliestto spot the escalation in the demand for steel in the forthcoming years. It hashence invested heavily in the expansion of its existing facility at Jamshedpurand is setting up other green field projects at Orissa, Jharkhand etc.

Weaknesses of TATA Steel-

1. Huge debt burden - Tata Steel is having a total debt of 10.2 billion USD inits books. It has a debt equity ratio 0f 1.6 which means that the assets of thecompany is largely financed through debt. With the inflation on a rise thecentral banks of most all the countries are intending to tighten in the liquidityin the money markets. As a result of which the interest rates are on a rise. InIndia the banks are mulling the option of a rate hike and most analysts feelthat the RBI is going to increase the repo rate by almost 100 bps further aftera CRR hike of 75 bps in late February this year. Thus it would add to theinterest burden of the company which would further increase the liabilities of the company and thus degrade the quality of its balance sheet further.2. High attrition rate - Tata Steel has traditionally faced the brunt of highattrition 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 theteam is ever changing.3. Products in the portfolio lacking demandThe company has certainproducts in its portfolio like aerospace steel which lacked demand in therecent past. Primarily due to the slow down of the aviation sector which led todelay 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 thecompany had to close down its Tee Side plant.4. Degradation in brand value owing to job lossesTATA group has madeits name synonymous to job security of it employees. But the shutdown of itsplants 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.5. Low cost recovery There are specific products like the aerospace steeland cast products which has received feeble response in the past. Thecompany has failed to recover costs in this business front.6. Laggard in technological front - Companies like SAIL has efficientlyintroduced the XRF (X-Ray Fluorescence) in its plants at Durgapur and Bokaroover 12 months back which the Tata Steel has failed to do.

7. Bad raw material procurement philosophy of its subsidiariesThelargest 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 volatilityassociated with pricing, one of the key elements in determining profitability of a commoditycompany. Opportunities 1. Competitive position of the companyTata Steel is the second largestproducer of steel in India and the sixth largest producer in the world.2. Newer technologies i)

The Corex process combines an iron melter/coal gasifier vessel witha pre-reduction shaft to produce a liquid product that is very similar toblast furnace hot metal. Coal, oxygen, and pre-reduced iron are fedinto the melter/gasifier to melt the iron and produce a highly reducingoff-gas.ii) The HIsmelt process Iron reduction and coal gasification take placein a liquid metal bath. The fundamental processes of HIsmelt beganwith early experiments in Germany with bottom-blown oxygensteelmaking converters (LD, LD-AC, KMS, among others) to allow forcoal, lime, and/or iron ore injection through the bottom nozzles.iii) Direct Iron Ore Smelting (DIOS) process in Japan and the AISI directsteelmaking process in North America produced two similar routes tohot metal production. Both processes utilize a smelting reactor wherethe primary reactions occur in a deep slag bath as opposed to in themetal phase.3. Opportunities in the fieldIndia has geared up for rapid expansion in thefield of infrastructure. The Government of India (GoI) has earmarked Rs.1, 70,000 crore forinfrastructural spending for the fiscal year 2010- 2011 and the trend is set toescalate up to the fiscal year 2025 when India is slated to become the thirdlargest economy in the world. Further many private players eitherindependently or by undergoing public private partnerships (PPP) has alsocome into the fray. The consumption of steel has been steadily increasingwith the rapid investment in the infrastructure and real estate projects. Theannual steel production of India has touched 200MT and according togovernments steel policy is expected to touch around 250 MT by 2013-2014. The demand for Indian made steel is escalating overseas out of the 200 MT of steel currently produced in India around 50% of it is exported. In the first sixmonths of the fiscal year 2009-2010 the Indian steel export almost doubledto 9.3MT from 4.4MT in the same period the previous fiscal year. Thecountrys iron ore exports during April-October 2009 period grew 20 per centover the year ago period to 53 million tons. 4. Acquisition opportunities In the aftermath of the financial tsunamivarious mineral assets are available globally at a price which is just a shadeof their prime valuations. The government of various countries has beenputting 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, Africaetc. which is essential for its security of raw materials.5. Opportunities for demand of higher prices - The demand for steel is on arise both domestically and internationally as a result of the enhanced focus uponinfrastructural development. Secondly with other steel projects of internationalgiants POSCO, ARCELOR MITTAL stalled due to land acquisition problems the pricesof steel are slated to soar. In the month of April 2010 the steel prices wereincreased by Rs.2500/ton and this is just the brink of the U-Shaped economicrecovery and the prices are slated to rise further in the near future.6. The movement of Tata Steel in the value chain frontIndia is the onlycountry in the world where steel can be made cheaper and there is consumption. Then there are other countries like Ukraine, Iran, Brazil, Australia and Bangladeshwhere steel can be made cheap because of the availability of iron ore and coal. TataSteel has been to Iran, Ukraine, Bangladesh - all in the last year and is looking atChina for

finishing capabilities Ukraine is like India, where the factors of productionare 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, thelabor is cheap in India and so is the cost of energy . Hence, Tata Steel's strategy isbased on breaking up this value chain and putting each part where it's the mostcost-effective. So primary steel will be produced in India, where there are largedeposits of iron ore. But the Asian markets, now a key focus for Tata Steel, will bebetter addressed by taking the semi-finished steel to these countries for finishingand then selling there. For now, Jamshedpur will provide the semi-finished steel forthe NatSteel bases. Tomorrow, it could well come from Iran or Ukraine; thesecountries have abundant iron ore and are therefore ideal for primary steel making. 7. Improvement in the quality of operations, products, i n v e n t o r y management 7.1 Strategic Sourcing Approach Tata Steels approach is based on the principle that strategic procurement isan exercise beyond cost reduction. Commodities used for steel-makingprocesses and their allied services are being selected and prioritized forstudy using strategic sourcing tools, before their annual procurement,depending upon their annual purchase value and criticality of application.After the selection of the commodities, a Commodity Competence Team(CCT) is formed which is a cross-functional team wherein people fromdifferent departments such as User/Operation, Research and Development,Quality Control, MRO, Supply Management and Finance come together toformulate sourcing strategies for a commodity purely on a techno-commercial basis. After the formation of the CCT, the commodity studies arecarried out based on different technical and commercial parameters as

7.2 Strategic Sourcing Levers Strategic sourcing requires the application and interpretation of sophisticatedstrategic sourcing tools and techniques. Tata Steel follows a variety of sourcing strategies, as shown in Figure 5, with multifarious objectives whichare mentioned below: Decrease specific consumption and specific cost of commodities on life-cycle costing basis. Source consistent quality products. Ensure continuous supply of materials. To increase the productivity of blast furnaces or steelMelting shops bydecreasing the down time through the use of improved quality, costeffectivematerials, wherever applicable 7.3 Total Refractory Management Concept To ensure the quality of refractory, proper service and the life of cast houserunners which are directly related to the hot metal production and also todecrease the total cost of ownership on a life-cycle costing basis, a strategicdecision was taken to go for total refractory management. In the totalrefractory management of cast house troughs for high-capacity blastfurnaces, the supplier is responsible for the supply of the entire refractorymaterial for all the locations of cast house troughs, initial installation, regularsupervision, maintenance of troughs through casting till guaranteedthroughput hot metal is achieved and the supply of all kinds of equipmentsrequired for installation and maintenance of cast houses. 7.3.1 Vendor Selection through comparative assessment

A comparative analysis of the suppliers was carried out based on parameters,which includes total throughput commitment of hot metal, throughput of hotmetal committed in between two repairs, total down time of trough runners,a reference list of a suppliers customers, quality of refractory to be used andlife-cycle cost of refractory in terms of Rs/ ton of hot metal (Rs/thm). 7.3.2 Reduction of Life-cycle cost A reduction of the total life-cycle cost. Of refractory, in terms of Rs/thm, hasbeen done by proper selection of material, optimization of its amount toachieve the guaranteed throughput and finally by knowledge-basednegotiation. 7.3.3 Benefit to Tata Steel Reduced down time of the trough runners leading to higher rate of production. Reduced specific consumption of refractory in terms of kg/thm. Reduced overall cost of ownership due to higher campaign life of refractories and also due to higher rate of production, as the productivity of the blast furnace largely depends on the quality of refractories used at thecast house. Different Sourcing Levers Applied for Procurement of High Value and CriticalCommodities 8. Time for diversificationWith the demand for various products of steelsoaring presents us with the right time for upstream diversification. Threats faced by Tata Steel1. Resources to cushion the from business environmental changeTata Steel is a company floated by Tata Sons whose assets are valued at around 108 billion USD and thus the company has enough reserves tocushion itself from market fluctuations. 2. International competitionCompanies like the Indian Steel magnateLakshmi Mittals Arcelor Mittal, Posco has landed in the shores of India andhave proposed to set up 8 MT and 12 MT respectively. These are amongstthe largest steel producers in the world and have a high chance of eatinginto the market share of Tata Steel. Indian market is also plagued withcheaper Chinese made steel which is ubiquitously available and issignificantly munching through the pie of all Indian steel makers including Tata Steel. 3.FinancialCrisesTata Steel is having a huge debt of 10.2 billion USD inits books and hence a huge interest burden. With the volatility of thefinancial markets and the tightening of the liquidity by the central banksthis rate is slated to go up and hence would further increase the interestburden of the company. 4. Adoptability of the company to technological changes Tata Steelhas shown immense integration abilities in the past. With the acquisitionof it has been able to imbibe the high end technological knowledge to itsproduction facilities and hence has been able to produce high quality steelat least prices and significantly bettered its operating margins. 5.RegulatorynormsThe government of India has chalked a strict normfor the clearance of a plant through environmental impact assessment(EIA). To get clearance from the concerned authority demands more thaneight months thus leads to delay and project cost escalation. Albeit thegovernments steel policy has been pro industry in order to increase thesteel capacity at a brisk pace.

6. Adverse effects of land acquisition picketingIndia is plagued withviolent agitation against land acquisition. The land acquisition process of the companys plant in Orissa has been stalled primarily due to theuprising of the land losers in the concerned area. Albeit the company isproviding with attractive compensation packages, the uprising is primarilydue to the cheap politics of the local leaders to come into the limelight. This will severely dent the companys expansion plans of the future. 7.DecrementinthesalesvolumesSome of the Tata Steel products(likeaerospace steel) have witnessed a severe reduction in sales and as aresult of which the production facilities of the company in the UK and TheNetherlands is facing the brunt of shut down. 8.BrandequityoftheproductsTata Steel brand is a very powerful one,can only take a product very far. Beyond that it will be necessary for the product to strike ahead with its own brand. He says, "A villager who goesto buy steel in the marketplace does not know what Tata Steel is bringingto this steel. All he knows is that it is a Tata product." That villager needsto be told about the superiority of Tata Steels product over others. This isthe work of the brand. Branding has begun to yield rich dividends. Lastyear Tata Steel sold about 345,000 tons of branded steel, whichrepresented about 12 per cent of its total steel sales, as against 265,000tons, representing 9 per cent of total steel sales, the previous year. Thisyear the company plans to more than double its volume of branded steel.Although the resultant increase in turnover of branded products will beenormous, there are miles to go before Tata Steel can rest on its laurels