Tata Steel Report-AFM

Accounts For Managers –Term Paper

MBA-General(2012-14)

Amity Business School, Noida

Financial Report Of Tata Steel

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CERTIFICATE

This is to certify that the term paper entitled “Financial Report of Tata Steel” is being submitted by

Priya Shandilya(B5)

Vikram Singh(B27)

Akshay Kaushal(B35)

Anil Yaswanth (B40)

Makrand Agrawal(B43)

Mitali Chopra(B49)

Of MBA-General, 2012-14, Amity Business School, Amity University, Noida. They have completed their Accounts For Managers –Term Paper under my

guidance and supervision. The result embodied in this term paper report has not been submitted to any other university for the award of any degree. I hereby certify

that this project confirms to the guidelines issued by the Amity Business School.

Mrs Bhavana Ranjan

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ACKNOWLEDGEMENT

We take immense pleasure in expressing our heartfelt gratitude towards ourAFM

teacher Mrs Bhavana Ranjan for giving us the opportunity to work on the project.

It was truly knowledgeable and enriching experience. Thank you once again

ma’am for entrusting us with the project and for all the help and support

throughout the project.

We would also like to thank Amity Business School, Amity University,Noida for

giving us this platform to showcase our talent and express our views through this

term paper.

Words are inadequate in offering our heart-full gratitude to all the people who are

behind our success. We have taken efforts in this project. However, it would not

have been possible without the kind support and help of our Professor. We would

like to extend our sincere thanks to her. The satisfaction of completion of the

project is incomplete without the mention of the people behind the screen.

In this context, we would like thank all the other staff members, both teaching and

non-teaching, who have extended their timely help and eased our task.

Priya Shandilya (B6) Vikram Singh(B27)

Akshay Kaushal(B33) Anil Yaswanth( B40)

Makrand Agrawal(B43) Mitali Chopra(B49)

Table of Content

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Sr.n

o

Company Analysis Page no

1. Introduction 5

2. Vision and Mission of Company 5

3. Advisors 6

4. Joint Ventures 6

5. Subsidiaries 8

6. Product Line 10

7. SWOT analysis 10

Steel Industry Analysis

1. Past , Present and Future 16

2. Domestic Scenario and Production 17

3. Steel Industry Reforms 18

4. Imports and Exports 19

5. Industry Structure 20

6. Profile Of Other Major Player 21

Financial Statements

1. Profit and Loss Statement 22

2. Balance Sheet 23

3. Cash Flow Statement 24

4. Comparative Statement 25

5. Common Size Statement 27

Company Analysis

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1.Introduction

Tata Steel has in its lineage in some of the world’s most pioneering and respected entities – the Tata Group itself, British Steel, and Natsteel. What binds together every member of the global Tata Steel family is a shared corporate culture, shaped by value-based guiding principles that underpin every business decision.

Tata Steel Today

The Tata Steel Group has always believed that mutual benefit of countries, corporations and communities is the most effective route to growth. Tata Steel has not limited its operations and businesses within India but has built an imposing presence around the globe as well. With the acquisition of Corus (now Tata Steel Europe) in 2007 leading to commencement of Tata Steel's European operations, the Company today is one of the largest steel producers in the world with employee strength of above 81,000 across five continents. During the financial year 2011-2012, the Group recorded deliveries of 24.22 million tonnes, which was marginally less than the previous year. The Group recorded a turnover of Rs.1, 32, 900 Crores in 2011 - 2012. The Company has always had significant impact on the economic development in India and now example of responsibility and trust. Tata Steel’s overseas ventures and investments in global companies have helped the Company create a manufacturing and marketing network in Europe, South East Asia and the Pacific-rim countries. The Group’s South East Asian operations comprise Tata Steel Thailand, in which it has 67.1% equity and Nat Steel Holdings, which is one of the largest steel producers in the Asia Pacific with presence across seven countries.

2.Vision And Mission of the Company

Vision

“In a free enterprise, the community is not just another stakeholder, but is, in fact, the very purpose of its existence.” It is these words of Jamsetji Tata, Founder of Tata Steel that have shaped the Company’s culture of social responsibility. At Tata Steel, the benefits of wealth creation extend beyond the business, flowing into the communities in which the Company operates. Tata Steel’s approach to business has evolved from the concept that the wealth created must be continuously returned to society.

Mission

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Tata Steel by 2014,would have a global steel capacity of 33.5 million tonnes, and will add a further 3 million tonnes on the full implementation of the Odisha project.

3.Advisors

Lead Bankers :

State Bank of India

Legal Advisors

AZB&Partners, Amarchand & Mangaldas& Suresh. A. Shroff &Co., Mulla& Mulla and Craigie Blunt & Caroe, Herbert Smith LLP, Cleary Gottlieb Steen & Hamilton LLP, Linklaters LLP, Allen &Gladhill LLP

Auditors

Messrs Deloitte Haskins & Sells

Share Registrars

TSR Darashaw Limited (Formerly: Tata Share Registry Limited), 6-10, Haji MoosaPatrawala Industrial Estate, 20, Dr. E. Moses Road, Mahalaxmi, Mumbai 400 011.Tel : (022) 6656 8484 Fax : (022) 6656 8494 / 6656 8496 E-mail : [email protected] Website: http://www.tsrdarashaw.com

4.Joint Ventures

Tata Steel is a global player with a balanced presence in developed European and fast growing Asian markets. The Company has set itself the objective of expanding its capacities and becoming globally competitive in its businesses.

Dhamra Port Company Ltd.

A JV between Larsen & Toubro Ltd. and Tata Steel Ltd., the Company has built a deep draft (18 metres) all weather port on the east coast of India. The port will handle 80 million tonnes per annum of cargo. The bulk cargo berths are being designed to accommodate up to 180,000 DWT vessels. A 62.7 km (route distance) rail link connecting the Port to the nearest railway station at Bhadrak on Chennai-Howrah line is included in the project scope.

Mjunction services limited

Mjunction, operating at the cutting edge of Information Technology, is a 50:50 venture of SAIL and TataSteel. It is India's largest eCommerce company and the world's largest e-marketplace for

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steel. mjunction offers a wide range of selling, sourcing and knowledge services that empower businesses with greater process efficiencies.

Tata BlueScope Steel Limited

The 50:50 Joint Venture agreement with BlueScope Steel Limited to form Tata BlueScope Steel Limited became effective from May 30, 2006. It offers a comprehensive range of branded steel products for building and construction applications. The Building Solutions facilities at Pune, Bhiwadi and Chennai have been operational since 2006-07. The Company's state-of-the-art metallic coating and painting facility is operational at Jamshedpur.

TM International Logistics Limited (TMILL)

TMILL provides material handling and port operation services at Haldia and Paradip Ports in addition to providing freight forwarding and chartering services.

Tata NYK

This is a joint venture between Tata Steel and Nippon Yusen Kabushiki Kaisha (NYK Line) for setting up a shipping company to cater to dry bulk and break-bulk cargo. Tata Steel and NYK will each hold 50% stake in the joint venture company. The Company has commenced shipping activities for Tata Group companies and other clients with five ships. Tata NYK handled around 2.4 million tonnes of dry cargo and projects, to service more than 20 million tonnes per year within five years through a fleet of owned and chartered ships.

S&T Mining Company Pvt Ltd

Tata Steel imports about half of its coal requirements from overseas. As the country’s steel consumption enters a high and sustainable growth phase, the company is undertaking massive expansion plans. It has become imperative to ensure raw material security for the company. With this in mind, the company entered into a strategic alliance with the largest steel making company of India, SAIL. Accordingly, a new JV company, S&T Mining Co Private Limited was incorporated in September 2008 with its registered office in Kolkata. The Chairman of S&T Mining is Mr. S. N. Singh (Managing Director, Rourkela Steel Plant) while the MD of the company is Mr. SandeepKumar from Tata Steel.

Vietnam Steel Project

Tata Steel signed a Joint Venture Agreement on August 13, 2008 with Vietnam Steel Corporation (Vietnam’s largest steel company) and Vietnam Cement Industries Corporation (Vicem) for a 4.5 million tonne per year steel complex to be set up in Ha Tinh Province. The first phase of the complex will be a Cold Rolling Mill. Tata Steel will have a stake of 65% in the Steel project.

JV with SODEMI in Ivory Coast

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Tata Steel and SODEMI entered into an agreement in December 2007 for the development of Mount Nimba iron ore deposits.

JV with Riversdale Mining Limited

Tata Steel entered into a Joint Venture (JV) with Riversdale Mining Limited, Australia in 2007 for a 35% stake in two coal tenements in Mozambique at Benga and Tete. The agreement gives the Company off-take rights to 40% of the coking coal produced from these mines.

JV with Al Bahja Group

In January 2008 a joint venture was agreed with members of the Al Bahja Group for mining limestone in Salalah province of Oman.

JV with Vale

This is a joint project with Vale and other partners, for expanding a coking coal mine (Carborough Downs) in Central Queensland.

5.Subsidiaries

Tata Steel's position has been strengthened over the years through meaningful acquisitions of enterprises across the globe. These enterprises have individually emerged as leaders in their respective industry segments leading to judicious investments, therefore facilitating growth.

Jamshedpur Injection Powder Limited (Jamipol)

JAMIPOL manufactures carbide de-sulphurising compounds which are used for de-sulphurising hot metal for the production of low-sulphur, high-quality steel.

Jamshedpur Utility and Services Company Limited (JUSCO)

Re-engineered out of Tata Steel's town services, JUSCO is a wholly owned subsidiary of Tata Steel and is the country's first enterprise that provides municipal and civic services for townships. JUSCO is the only EMS 14001 civic services provider in the country.

Lanka Special Steel Limited

The only unit in Sri Lanka manufacturing galvanised wires.

Rawmet Ferrous Industries

Tata Steel acquired 100% equity stake in Rawmet Ferrous Industries on January 15, 2007. Currently, the Company is based out of Kolkata and operates as a subsidiary of Tata Steel. Rawmet has a Ferro Alloy Plant near Cuttack, with a capacity of 50,000 tonnes production per annum of High Carbon Ferro Chrome.

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Sila Eastern Company Limited

Established to develop limestone mines in Thailand, mainly for the captive use of Tata Steel.

Tata Steel KZN

TSKZN is a South Africa based subsidiary of Tata Steel, in the business of producing Ferro Chrome and Charge Chrome. It has moved on from the project phase and become operational since 3rd April 2008 with the switching on of Furnace .

Tata Metaliks Limited

Tata Metaliks is recognised as India’s number one pig iron manufacturing and selling company. Promoted by Tata Steel Limited and assisted by The West Bengal Industrial Development Corporation, the pig iron produced by the Company is rated as the best in the country for years now.

Tata Pigments Limited

TPL's range of products includes oxides of iron, dry cement paint, exterior emulsion paint and distemper. Its products are used in paints, emulsion, cement floors, plastic etc.

TRL Krosaki Refractories Limited

It produces High Alumina, Basic, Dolomite, Silica and Monolithic Refractories and offers design, procurement and re-lining applications services. It is one of the few companies worldwide to produce silica refractories for coke ovens and the glass industry. The Company has a basic bricks manufacturing unit in China.

Tata Steel Processing and Distribution Limited (TSPDL)

Tata Steel Processing and Distribution Limited is wholly owned subsidiary of Tata Steel. With 8 large processing units, 17 sales locations and a host of partners like external processing agencies, suppliers, retailers and other stakeholders, today TSPDL is India’s largest steel service organisation.

Tata Sponge Iron Limited (TSIL)

TSIL is the first Indian sponge iron plant based on Tata Steel's Direct Reduction Technology. Its major product lines are sponge iron lumps and fines.

Tayo Rolls Limited

India's leading roll manufacturer and supplier, the company produces rolls which find application in integrated steel plants, power plants, the paper, textile and food processing sectors, and the government mint.

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Tinplate Company of India Limited (TCIL)

With a market share of over 35%, it is the industry leader in India. It has the capability to supply all tinning line products including electrolytic tinplate / tin-free steel and cold-rolled products.

TRF Limited

TRF, one of India's leading companies in the business of design, manufacture, supply, installation and commissioning of engineered-to-order equipment and systems in the areas of bulk material handling, processing, reclaiming and blending. TRF has also made its mark in the fields of coke oven equipment, coal dust injection systems for blast furnaces and coal beneficiation systems.

The Indian Steel and Wire Products Limited (ISWP)

ISWP has two units - a wire unit comprising wire drawing mills, wire rod mills and a fastener division and a steel roll manufacturing unit named Jamshedpur Engineering and Machining Company - JEMCO.

6.Product Line

Different varieties of steel are produced in all the plants of the Tata Steel . These can however be classified into two broad categories -

• Flat Products - Flat products include plates and hot rolled sheets such as coils and sheets. Flat products are derived from slabs. One of the major uses of steel plates is in ship building.

• Long Products - Long products include bars, rods, wires, ropes and piers. These are called long products due to their shapes. Long products are made from billets and blooms. Long products are mostly used in housing and construction and also in rail tracks.

7. SWOT Analysis Of Tata Steel

Strengths of TATA STEEL:

1. Mineral Reserves

Tata Steel has two collieries in West Bokaro and Jharia, inthe 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 tones 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

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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 burgeoning 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

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

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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.

Weakness of TATA STEEL:

Huge debt burden

Tata Steel is having a total debt of 10.2 billion USD in its 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.

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 the team is ever changing.

Products in the portfolio lacking demand

The company has certainproducts in its portfolio like aerospace steel which lacked demand in therecent past. Primarily due to the slowdown 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.

Degradation in brand value owing to job losses-

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TATA group has made its 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.

Low cost recovery

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

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.

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 volatilityassociated with pricing, one of the key elements in determining profitability of a commoditycompany.

Opportunities for Tata Steel:

Competitive position of the company

Tata Steel is the second largestproducer of steel in India and the sixth largest producer in the world.

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

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(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 field

India 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. Thecountry’s iron ore exports during April-October 2009 period grew 20 per centover the year ago period to 53 million tons.

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.

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.

Threats faced by Tata Steel:

1. Resources to cushion the from business environmental change

Tata Steel is a company floated by Tata Sons whose assets are valued ataround 108 billion USD and thus the company has enough reserves tocushion itself from market fluctuations.

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2. International competition

Companies like the Indian Steel magnateLakshmi Mittal’s 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. Financial Crises

Tata 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. Regulatory norms

The 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 picketing

India is plagued withviolent agitation against land acquisition. The land acquisition process of the company’s 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 company’s expansion plans of the future.

7. Decrement in the sales volumes

Some 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. Brand equity of the products

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Tata 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 Steel’s 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.

Steel Industry Analysis

1.Past , Present And Future

India's Steel Industry is more than a century old with Tata Iron & Steel Co (TataSteel) as the first integrated steel plant to be set up in 1907. Before the economic reforms of the early 1990s the Indian steel industry was a predominantly regulated one with the public sector dominating the industry.

Tata Steel was the only major private sector company involved the production of steel in India. Sail and Tata Steel have traditionally been the major steel producers of India. In 1992, the liberalization of the India economy led to the opening up of various industries including the steel industry. This led to the increase in the number of producers, increased investments in the steel industry and increased production capacity. Since 1990, more than Rs 19,000 crores (US$ 4470.58 million) has been invested in the steel industry of India.

India's steel industry went through a rough phase between 1997 and 2001 when the overall global steel was facing a downturn and recovered after 2002. The major factors that led to the revival of the steel industry in India after 2002 was the rise in global demand for steel and the domestic economic growth in India.

India has now emerged as the fifth largest producer of steel in the world. Almost all varieties of steel is now produced in India. India has also emerged as a net exporter of steel which shows that Indian steel is being increasingly accepted in the global market.

The growth of the steel industry in India is also dependant, to a large extent, on the level of consumption of steel in the domestic market. Steel consumption is significant in housing and infrastructure. In recent years the surge in housing industry of India has led to increase in the domestic demand for steel.

2.Domestic Scenario and Production

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Domestic Scenario

The Indian steel industry has entered into a new development stage from 2007-08, riding high on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India becoming the 4th largest producer of crude steel and the largest producer of sponge iron or DRI in the world. As per the report of the Working Group on Steel for the 12 th Plan, there exist many factors which carry the potential of raising the per capita steel consumption in the country, currently estimated at 55 kg (provisional). These include among others, an estimated infrastructure investment of nearly a trillion dollars, a projected growth of manufacturing from current 8% to 11-12%, increase in urban population to 600 million by 2030 from the current level of 400 million, emergence of the rural market for steel currently consuming around 10 kg per annum buoyed by projects like Bharat Nirman, Pradhan Mantri Gram Sadak Yojana, Rajiv Gandhi Awaas Yojana among others. At the time of its release, the National Steel Policy 2005 had 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, the Working Group on Steel for the 12 th Plan has projected that the crude steel steel capacity in the county is likely to be 140 mt by 2016-17 and has the potential to reach 149 mt if all requirements are adequately met. The National Steel Policy 2005 is currently being reviewed keeping in mind the rapid developments in the domestic steel industry (both on the supply and demand sides) as well as the stable growth of the Indian economy since the release of the Policy in 2005.

Production

Steel industry was delicensed and decontrolled in 1991 & 1992 respectively. Today, India is the 4th largest crude steel producer of steel in the world. In 2011-12 (prov), production for sale of total finished steel (alloy + non alloy) was 73.42 mt. Production for sale of Pig Iron in 2011-12 (prov), was 5.78 mt. India is the largest producer of sponge iron in the world with the coal based route accounting for 76% of total sponge iron production in the country (20.37 mt in 2011-12; prov.):

Last five year's production for sale of pig iron, sponge iron and total finished steel (alloy + non-alloy) are given below:

Indian steel industry : Production for Sale (in million tonnes)

Category 2007-08 2008-09 2009-10 2010-11 2011-12*

Pig Iron 5.28 6.21 5.88 5.68 5.78

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Sponge Iron 20.37 21.09 24.33 25.08 20.37

Total Finished Steel (alloy + non alloy)

56.07 57.16 60.62 68.62 73.42

Source: Joint Plant Committee; *provisional

3. Steel Industry Reforms

Steel industry reforms - particularly in 1991 and 1992 - have led to strong and sustainable growth in India’s steel industry .Since its independence, India has experienced steady growth in the steel industry, thanks in part to the successive governments that have supported the industry and pushed for its robust development. Further illustrating this plan is the fact that a number of steel plants were established in India, with technological assistance and investments by foreign countries. In 1991, a substantial number of economic reforms were introduced by the Indian government. These reforms boosted the development process of a number of industries - the steel industry in India in particular - which has subsequently developed quite rapidly. The 1991 reforms allowed for no licenses to be required for capacity creation, except for some locations. Also, once India’s steel industry was moved from the listing of the industries that were reserved exclusively for the public sector, huge foreign investments were made in this industry. Yet another reform for India’s steel industry came in 1992, when every type of control over the pricing and distribution system was removed, making the modern Indian Steel Industry extremely efficient, as well as competitive. Additionally, a number of other government measures have stimulated the growth of the steel industry, coming in the form of an unrestricted external trade, low import duties, and an easy tax structure. India continually posts phenomenal growth records in steel production. In 1992, India produced 14.33 million tonnes of finished carbon steels and 1.59 million tonnes of pig iron. Furthermore, the steel production capacity of the country has increased rapidly since 1991 - in 2008, India produced nearly 46.575 million tonnes of finished steels and 4.393 million tonnes of pig iron.

Both primary and secondary producers contributed their share to this phenomenal development, while these increases have pushed up the demand for finished steel at a very stable rate. In 1992, the total consumption of finished steel was 14.84 million tones. In 2008, the total amount of domestic steel consumption was 43.925 million tones. With the increased demand in the national market, a huge part of the international market is also served by this industry. Today, India is in seventh position among all the crude steel producing countries.

The following are the premier steel plants operating in India:

1. Salem Steel Plant at Tamil Nadu2. Bhilai Steel Plant at Chattisgarh

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3. Durgapur Steel Plant at West Bengal 4. Alloy Steel Plants at West Bengal5. Visvesvaraya Iron and Steel Plant in Karnataka6. Rourkela Steel Plant at Orissa7. Bokaro Steel Plant at Jharkhand

4.Import and Export

Imports

Iron & steel are freely importable as per the extant policy.

• Last five year’s import of total finished steel (alloy + non alloy) is given below:-

Indian steel industry : Imports (in million tonnes)

Category 2007-08 2008-09 2009-10 2010-11 2011-12*

Total Finished Steel (alloy + non alloy) 7.03 5.84 7.38 6.66 6.83

Source: Joint Plant Committee; *provisional

Exports

Iron & steel are freely exportable.

Advance Licensing Scheme allows duty free import of raw materials for exports. Duty Entitlement Pass Book Scheme (DEPB) was introduced to facilitate exports. Under this scheme exporters on the basis of notified entitlement rates, are granted due credits which would entitle them to import duty free goods. The DEPB benefit on export of various categories of steel items scheme is currently applicable for steel exports.

Last five year’s export of total finished steel (alloy + non alloy) is given below:-

Indian steel industry : Exports (in million tonnes)

Category 2007-08 2008-09 2009-10 2010-11 2011-12*

Total Finished Steel (alloy + non alloy) 5.08 4.44 3.253.64

4.04

Source: Joint Plant Committee; *provisional

5.Industry Structure

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Indian Iron and steel Industry can be divided into two main sectors Public sector and Private sector. Further on the basis of routes of production, the Indian steel industry can be divided into two types of producers.

Integrated producers

Those that convert iron ore into steel. There are three major integrated steel players in India, namely Steel Authority of India Limited (SAIL), Tata Iron and Steel Company Limited(TISCO) and Rashtriya Ispat Nigam Limited (RINL).

Secondary producers

These are the mini steel plants (MSPs), which make steel by melting scrap or sponge iron or a mixture of the two. Essar Steel, Ispat Industries and Lloyds steel are the largest producers of steel through the secondary route.

6. Profile of Other Major Players

Steel Authority of India Limited (SAIL)

Steel Authority of India Limited (SAIL) is a leading Public Sector Undertaking (PSU) in which the Government of India owns about 86 per cent of equity. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. It is ranked amongst the top ten public sector companies in India in terms of turnover. They manufactures and sells a

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broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL have five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being India’s largest producer of iron ore and of having the country’s second largest mines network. This gives them a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making.

Bhushan Power & Steel Ltd

Bhushan Power & Steel Ltd., an ISO 9002 certified company, is a merged entity of Bhushan Industries Ltd., Bhushan Metallics Ltd. and Decor Steel Ltd. Bhushan Steel has a turnover of more than USD 540 Million and is a leading manufacturer of Flat, Round and value added products in Steel. Bhushan have 7 World class and state of art plants at Chandigarh, Derabassi, Kolkata and Orissa in India. A completely integrated plant is commissioned under Phase I in Orissa and Phase II is all set for take off. In Orissa plant, technology and equipments are procured from world-renowned Companies like Luirgi from Germany, ABB Ltd., SMS Demag, Siemens etc. It is selling its Value added range of products in Secondary Steel through a large distribution network in India (comprising more than 25 sales offices) and Abroad.

Jindal Steel & Power Limited (JSPL)

Jindal Steel and Power (JSPL), part of the US$4 billion Jindal Organisation has business interests in steel production, power generation, mining iron ore, coal and diamond exploration/mining. The current turnover of the company is over Rs. 30 billion and on a path of catalyzing economic development of the country through its contribution to the infrastructure sector. JSPL with its obsession for excellence, is increasing its portfolio of value-added products, bringing the world's best to India and making an international mark. Production Capabilities expanded to serve the infrastructure sector, catalysing economic, development and growth. JSPL has the integrated steel plant (as approved by Joint Plant Committee) at Raigarh in the state of Chhattisgarh, India. The facilities include world's largest coal-based Sponge Iron Plant with a capacity of 1.37 million TPA using ten indigenously developed rotary kilns. A report on Indian Iron and Steel Industry integration with its captive iron & coal mines making it one of the lowest-cost producers of sponge iron The steel making capacity has been expanded from 400,000TPA to 1.15 million TPA. JSPL today is the largest private sector investor in Chhattisgarh with a total investment ofRs.100 billion. JSPL has recently signed an MoU with the State Government of Orissa to set up a 2 million tonne steel plant with an investment of Rs.13.5 billion which would be expanded to 6 million tonne and another MoU has been signed with the State Government of Jharkhand to set up a 5 million steel plant with an investment of Rs.120 billion.

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ESSAR Steel

Essar Steel Limited (the "Company") is the flagship Company of the Essar Group and looks after the Group’s interest in the steel business. The Company was incorporated in June 1976 under the name of Essar Construction Limited and was engaged primarily in core sector activities, including marine construction, pipeline laying, dredging and other port-related activities. In 1984, the Company ventured further into other core sectors mainly the field of exploration and development, drilling onshore and offshore oil and gas wells for Indian Public Sector oil exploration companies. In view of this the Company’s name was then changed to Essar Offshore and Exploration Limited in May 1987. In August 1987, the Company’s name was changed to Essar Gujarat Limited, to reflect its highly diversified business interest. In 1988, the Company made an initial public offer for its shares, which are now listed on Bombay Stock Exchange, National Stock Exchange of India and 2 other Indian Stock Exchanges. The Company diversified into the steel business in late 1980s with the purchase of an HBI manufacturing plant in Emden, Germany, which was dismantled and relocated to Hazira on the west coast of India. The HBI plant with a capacity of 0.88 MPTA was completed in March 1990 and commenced commercial production in August 1990. As part of its business strategy of focusing on the iron and steel sector, the Company hived of its unrelated businesses to a series of different companies (each of which form a part of the Group and operate at arm’s length relationship) - Offshore and energy operations weretransferred to Essar Oil Limited in May 1992, Civil and mechanical construction businesseswere transferred to Essar Projects Limited in March 1993.The Company with a vertical integration program in mind, commenced construction of world-class state-of-the-art technology Hot Rolled (HR) sheets and coil plant in 1992. The plant commenced trial production in April 1995 and commenced commercial production in April 1996. To reflect its business strategy of focusing on steelmaking operations, the name of the Company was changed from Essar Gujarat Limited to Essar Steel Limited in December 1995. A report on Indian Iron and Steel Industry The Company operates the following facilities at Hazira, Gujarat State:

3.4 MMTPA gas based Hot Briquetted Iron (HBI) plant;

2.4 MMTPA Hot Rolled Coils (HRC) plant

Financial Statements

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1. Profit and Loss Statement

Tata Steel

Profit & Loss account ------------------- in Rs. Cr. ------------------- Mar '08 Mar '09 Mar '10 Mar '11 12 mths 12 mths 12 mths 12 mths Income Sales Turnover 22191.43 26843.53 26757.6 31901.94Excise Duty 2537.02 2495.21 1816.95 2594.59Net Sales 19654.41 24348.32 24940.65 29307.35Other Income 586.41 603.07 1241.08 1435.8Stock Adjustments 38.73 289.27 -134.97 173.65Total Income 20279.55 25240.66 26046.76 30916.8Expenditure Raw Materials 6063.53 8568.71 8356.45 9395.92Power & Fuel Cost 1038.77 1222.48 1383.44 1558.49Employee Cost 1589.77 2305.81 2361.48 2618.27Other Manufacturing Expenses 1654.96 2127.48 2419.89 2905.16Selling and Admin Expenses 247.77 400.24 417.9 574.86Miscellaneous Expenses 1029.3 1180.08 1287.04 1456.83Preoperative Exp Capitalised -175.5 -343.65 -326.11 -198.78Total Expenses 11448.6 15461.15 15900.09 18310.75 Mar '08 Mar '09 Mar '10 Mar '11 12 mths 12 mths 12 mths 12 mths Operating Profit 8244.54 9176.44 8905.59 11170.25PBDIT 8830.95 9779.51 10146.67 12606.05Interest 929.03 1489.5 1848.19 1686.27PBDT 7901.92 8290.01 8298.48 10919.78Depreciation 834.61 973.4 1083.18 1146.19Other Written Off 0 0 0 0Profit Before Tax 7067.31 7316.61 7215.3 9773.59Extra-ordinary items 0 0 0 0PBT (Post Extra-ord Items) 7067.31 7316.61 7215.3 9773.59Tax 2380.28 2114.87 2168.5 2912.44Reported Net Profit 4687.03 5201.74 5046.8 6865.69Total Value Addition 5385.07 6892.44 7543.64 8914.83Preference Dividend 22.19 109.45 45.88 0Equity Dividend 1168.93 1168.95 709.77 1151.06Corporate Dividend Tax 202.43 214.1 122.8 156.71Per share data (annualised) Shares in issue (lakhs) 7305.84 7305.92 8872.14 9592.14Earning Per Share (Rs) 63.85 69.7 56.37 71.58Equity Dividend (%) 160 160 80 120Book Value (Rs) 298.78 331.68 418.94 503.19

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2. Balance Sheet

Balance Sheet of Tata Steel------------------- in Rs. Cr. -------------------

Mar '08 Mar '09 Mar '10 Mar '11 12 mths 12 mths 12 mths 12 mths

Sources Of Funds Total Share Capital 6203.3 6203.45 887.41 959.41Equity Share Capital 730.78 730.79 887.41 959.41Share Application Money 0 0 0 178.2Preference Share Capital 5472.52 5472.66 0 0Reserves 21097.43 23501.15 36281.34 47307.02Revaluation Reserves 0 0 0 0Networth 27300.73 29704.6 37168.75 48444.63Secured Loans 3520.58 3913.05 2259.32 2013Unsecured Loans 14501.11 23033.13 22979.88 26288.14Total Debt 18021.69 26946.18 25239.2 28301.14Total Liabilities 45322.42 56650.78 62407.95 76745.77

Mar '08 Mar '09 Mar '10 Mar '11 12 mths 12 mths 12 mths 12 mths

Application Of Funds Gross Block 16479.59 20057.01 22306.07 22846.26Less: Accum. Depreciation 8223.48 9062.47 10143.63 11041.16Net Block 8256.11 10994.54 12162.44 11805.1Capital Work in Progress 4367.45 3487.68 3843.59 6969.38Net Fixed assets 12623.56 14482.22 16006.03 18774.48Investments 4103.19 42371.78 44979.67 46564.94Inventories 2604.98 3480.47 3077.75 3953.76Sundry Debtors 543.48 635.98 434.83 428.03Cash and Bank Balance 465 463.58 500.3 512.76Total Current Assets 3613.46 4580.03 4012.88 4894.55Loans and Advances 34582.84 5884.61 6678.55 16814.04Fixed Deposits 0.04 1127.02 2733.84 3628.78Total CA, Loans & Advances 38196.34 11591.66 13425.27 25337.37Deffered Credit 0 0 0 0Current Liabilities 6842.26 8965.76 8699.34 10383.04Provisions 2913.52 2934.19 3303.68 3547.98Total CL & Provisions 9755.78 11899.95 12003.02 13931.02Net Current Assets 28440.56 -308.29 1422.25 11406.35Miscellaneous Expenses 155.11 105.07 0 0Total Assets 45322.42 56650.78 62407.95 76745.77Contingent Liabilities 9250.08 12188.55 13184.61 12582.24Book Value (Rs) 298.78 331.68 418.94 503.19

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TATA STEEL year ended year ended year ended year ended HUNDRED AND FOURTH ANNUAL REPORT 2009-103/31/2011 3/31/2010 3/31/2009 3/31/2008

crores crores crores croresCash Flow Statement For The Year Ended 31st March,2010

A.9,776.85 7,214.30 7,315.61 7,066.36

Adjustments for:Depreciation 1,146.19 1,083.18 973.40 834.61 (profit/loss on sale of assets/ discarded assets written off0.62 (7.75) 6.43 (28.26) (profit/loss on sale of other investments (648.09) (628.39) (186.46) (9.98) impairment of assets 20.23 5.60 9.98 0.06 (Gain/loss on cancellation of forward covers/swaps/options(50.54) 31.03 (26.62) (124.30) provision for durreinution in value of investments (1,489.50) 0.10 intrest income (50.33) interest and income from current investments (385.78) (339.79) (336.81) income from other investments (92.66) (248.68) (101.62) (170.67) interest charged to profit and loss account 1,686.27 1,848.19 1,489.50 929.03 Amortisation of employee separation compensation 217.53 222.34 226.18 Provision for wealth tax 1.28 1.00 1.00 0.95 contribution for sporits infrestructure written off - 150.00 Exchange (gain/loss on revaluation of foreign (743.60) currency loans (275.05) 11.13 67.91 Amortisation of long term loan expenses 49.43 79.52 32.71 57.99

1,451.90 2,052.57 2,141.88 1,071.68 11,228.75 9,266.87 9,457.49 8,138.04

Adjustments for :Trade and other Receivables (103.01) 438.22 (159.25) (143.44) inventories (876.01) 413.42 (875.49) (272.00) Trade Payables and other liabilites 1,163.27 330.20 1,772.03 806.34

184.25 1,181.84 737.29 390.90 11,413.00 10,448.71 ####### 8,528.94

Direct Taxes paid (2,870.28) 2,079.49 ####### 2,060.20

cash flow begore exceptional ltem 6,468.74

Employee separation compensation paid (214.54) Net cash from operating Activities 8,542.72 8,369.22 7,397.22 6,254.20 B. Cash flow from investing activities:

Purchase of fixed assets (4,321.85) (2,102.04) (2,786.29) (2,458.97) Sale of fixed assets 387.42 78.34 15.18 63.88 Purchase of investments (97,469.30) (189,929.81) (59,903.25) (31,595.17) Purchase of investments in subsidiaries (5,312.05) (5,811.84) (4,439.80) (29,587.40) sale of investments 96,878.80 192,326.96 57,181.61 34,110.46 intercorporate deposites (85.80) inter-corporate deposits/shareholder Loan (net) (3,707.39) (121.68) 90.73 interest received 63.75 interest and income from current investments received 163.58 56.55 312.12 Dividend received 92.66 248.68 101.62 170.67

net cash used in investing Activites (13,288.13) 5,254.84 9,428.08 (29,318.58)

C. Cash flow from financing Activities:Issue of Equity Capital 4,368.01 2,421.50 0.25 4,881.45 issue of share warrants 178.20 - issue of cumulative corvertible preference shares - 0.14 5,472.52 Capital contribution received 0.33 1.76 Proceeds from Hybrid perpetual securities 1,500.00 - Proceeds from borrowings 6,412.04 6,457.36 6,494.43 17,632.70 Repayment of borrowings (4,257.64) (7,047.78) (894.39) (10,386.61) Amount received/paid on cancellation of forward (10.17) 134.41 covers/swaps/options 34.61 (30.82) Long term loan expenses (264.84) (278.79) (32.51) (202.38) Interest paid (1,609.95) (1,678.44) (1,213.96) (746.07) Dividend paid (707.95) (1,317.92) (1,187.37) (937.95)

Net cash from finaacling Activities 5,652.81 1,473.13 3,156.42 15,848.07 Net increase/decrease in cash or cash equivalents(A+B+C) 907.40 1,641.25 1,125.56 (7,216.31) Opening cash and cash equivalents 3,234.14 (V) 1592.89 465.04 (v) 7681.35

closing cash and cash equivalents (iv) 4141.54 (iv) 3234.14 (v) 1590.60 (vi) 465.04

Operating profit before working capital changes

Cash generated from Operations

cash flow form operating activities:Net profit before tax

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4.Comparative Balance Sheet

Comparative Balance Sheets of Tata Steel Ltd.as on 31st march,2010 and 31st march,2011

------------------- in Rs. Cr. -------------------A B C

Particulars Previous Year

Current Year Percentage Increase/

2010 2011

Decrease

A. Fixed Assets: 16,006.03 18,774.48 2768.45 17.30B. Investments: 44,979.67 46,564.94 1585.27 3.52C. Working Capital:

0

Current Assets (i) 13,425.27 25,337.37 11912.1 88.73Less: 0Current Liabilities (ii)

12,003.02 13,931.02 1928 16.06

(i)-(ii)              1,422.25 11,406.35 9984.1 701.99D. Capital Employed: (A+B+C)

62,407.95 76,745.77 14337.82 22.97

E Less: Long-term Debts

25,239.20 28,301.14 3061.94 12.13

F. Share-holders Funds: (D-E)

37,168.75 48,444.63 11275.88 30.34

0Represented by: 0

0Equity share capital & Share Application Money

887.41 1137.61 250.2 28.19

Pref. Share Capital 0 0 0Net Res. & Surplus 36,281.34 47,307.02 11025.68 30.39

0G. Shareholder's Funds

37168.75 48444.63 11275.88 30.34

TRUE TRUE 0

E = D × 100/B

Absolute Increase/ Decrease

D = C-B

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5.Common size Balance Sheet

Common Size Balance Sheet

Of Tata Steel Limited

as at 31st March,2011

------------------- in Rs. Cr. -------------------

Previous Year Current Year Previous Year Current Year

2010 (Rs) 2011(Rs) (%) (%)

Assets:

Fixed Assets 16,006.03 18,774.48 21.5103096 20.7048353

Investments 44,979.67 46,564.94 60.4476329 51.352656

Current Assets 13,425.27 25,337.37 18.0420575 27.9425088

Total Assets 74,410.97 90,676.79 100 100

Liabilities:Equity Share Capital

887.41 1137.61 1.19257953 1.25457683

Pref. Share Capital

0 0 0 0

Reserves and Surplus (Less Misc. Exp.)

36,281.34 47,307.02 48.7580527 52.1710352

Secured Loans 2,259.32 2,013.00 3.03627274 2.21997272Unsecured Loans

22,979.88 26,288.14 30.882382 28.9910351

Current Liabilities

8,699.34 10,383.04 11.6909375 11.4506038

Provisions 3,303.68 3,547.98 4.43977548 3.91277636Capital & Liabilities

74410.97 90676.79 100 100

Datamatched Datamatched

Particulars

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