4. Page | 4
INDUSTRY OVERVIEW
Indian steel industry had witnessed a sharp decline in demand since the second half of 2008, a period
that saw most steel companies facing difficulties such as low capacity utilizations, falling realizations and
inventory related losses. But the demand started gathering pace post April 2009 and steel consumption
grew by 8% in the first nine months of the fiscal ending March’10. India’s top steelmakers posted
double-digit growth in sales, backed by robust demand from automobile, construction & infrastructure
sectors. The rise in volume growth for the metal was also attributed to the low base effect as companies
registered lesser production previous year due to low demand. Rise in demand has started reflecting in
increase in metal prices. Most steel companies increased product prices by up to Rs 2,000/ton to Rs
33,000- 35,000/ton in the domestic market in January this year. Steel demand in India will continue to
rise going forward especially because a lot of emphasis has been laid on infrastructure development in
the budget wherein investments to the tune of Rs 1,73,000 crore are proposed to be made in 2010-11,
which will increase demand for metals and commodities like steel and cement. Further, the direction of
the steel prices is also expected to be indexed to the price trends of the raw materials which are
expected to firm up in line with the global trends. Further the credit metrics of individual companies
within the sector shall however, also be determined on their individual capital expenditure plans and its
ensuing impact on the financial profile. Amidst the rising cost environment, integrated steel companies
in India would benefit more due to captive raw material supply, presence in high end steel products, and
the ability to pass thru the rising costs. Steel industry has a major role to play in the economic growth of
India. With new global acquisitions by Indian steel giants, setting up of new state-of-the-art steel mills,
modernization of existing plants, improving energy efficiency and backward integration into global raw
material sources, India is now on the centre of the global steel map. Consumption of steel in the
construction sector, industrial applications, and transport sector has been on the rise and special steel
usage in engineering industries such as power generation, petrochemicals and fertilizer industry is also
growing.
India has retained its position as the 5th largest producer in 2010 and recorded a growth of 11.3 per cent
as compared to 2009. India has also emerged as the largest sponge iron/direct reduced iron (DRI)
5. producing country in the world in 2010, a rank it has held on since 2002. Sponge iron production grew at
a CAGR of 11 per cent to reach a level of 20.74 million tons (MT) in 2009-10 as compared to 14.83 MT in
2005-06. India is expected to become the second largest producer of steel in the world by 2015-16, on
account of growing steel demand, rich resources base of iron ore, skilled manpower and vast experience
Page | 5
of steel making and the huge capacity expansion planned and being executed in the steel sector.
With the expanding consumer market, Indian steel industry is likely to receive huge domestic and
foreign investments. Nearly 222 memorandums of understandings (MoUs) for planned capacity of
around 276 MT have been signed between the investors and various State Governments, mostly in
Orissa, Jharkhand, Chhattisgarh and West Bengal.
India has recorded a growth of over 8.6 per cent, producing 6.35 MT of steel in March 2011 as against
5.85 MT in the corresponding month in 2010, according to World Steel Association (WSA).
Steel exports has increased by 17.3 per cent as it reached an estimated 2.46 MT, while steel imports
were at an estimated 5.36 MT, a growth of 2.8 per cent in 2010.
ECONOMIC ENVIRONMENT
The global steel production and consumption in 2009 declined by 8% and 6.7%, respectively, inspite of
rebound in the second half of calendar year2009. The impact of economic crisis in Advanced Countries
continued to depress the steel demand. China and India showed resilience due to strong domestic
demand cushioning the slow recovery in Advanced Economies. India, posted a growth of 8.1% and 4.2%
in steel consumption and production, respectively in FY 2009-10. As the demand outpaced the
production, the import of steel products grew by 23%. India is expected to continue to be the net
importer of steel considering the strong demand from infrastructure, construction, real estate,
Automobiles and white goods industry and tardy progress in creating new capacities
The revised estimate for 2009-10, has projected a GDP growth of 7.4% compared to 6.7% for the
previous year. The impact of bad monsoon is visible on performance of agriculture sector which has
declined by 0.2%, however, strong growth of 9.3% for industry and 8.5% for services have led to the
recovery of overall GDP. The index of industrial production has grown at 10.4% for April to March 2009-
10 compared to 2.8% in 2008-09. The growth of core infrastructure industries during this period was
5.5% against a growth of 3% in the previous year. Manufacturing sector with a growth of 10.8% and
6. mining at 10.6% have been the growth contributors for industry. On the demand side, capital goods and
consumer durables have led the recovery at 19.2% and 26% respectively. Exports which registered a
negative growth of 4.7% during 2009-10 started showing a recovery in the later part of the year while
the imports declined by 8.2%. Inflation continues to be a worry with the point to point measure for
Page | 6
March 2010 at 9.9%. There is however a degree of optimism regarding the performance of Indian
economy. IMF has projected a growth of 9.4% for 2010 and 8.4% for 2011 World output growth for 2010
projected at 4.6%, signals a recovery compared to recessionary trend in 2009 when the global output
shrank by 0.6%. The recovery is attributable to strong performance by the emerging economies,
recovery in the developed world, restocking of inventories and rebound in global trade which had
shrunk by 11.3% in 2009. During 2010 and 2011, the world trade volume of goods and services is
expected to increase by more than 9% in 2010. While the emerging and developing economies are
performing strongly, in the developed world recovery in US is better than Europe and Japan. The
advanced economies as a group are expected to grow at 2.6% in 2010 and 2.4% in 2011 against a
negative growth of 3.2% during 2009. Emerging and developing nations registered a growth of 2.5%
during 2009 which is expected to increase to 6.8% and 6.4% respectively for 2010 & 2011. The
challenges for growth are in terms of a pressing need in the advanced economies for medium term fiscal
consolidation and a clear cut time frame to bring down gross debt to GDP ratio. With a fiscal deficit
hovering at 9% of GDP for the advanced nations, based on current policies, the debt to GDP ratios of
these economies are expected to exceed 100% of GDP by 2014. There is hence a need for withdrawal of
Government stimulus for overall fiscal consolidation.
The pace of the withdrawal however, has to be managed in a manner that it does not impair growth.
The near term risk is in the form of sovereign liquidity and solvency in Greece which could potentially
become a full blown contagious sovereign debt risk. For the emerging economies, public debt ratio
ranges between 30- 40% of GDP and is likely to fall given the high GDP growth. The challenge to the
emerging economies is mainly management of inflation.
India registered a strong come-back in 2009-10 displaying its ability to withstand extreme external
adversities, which destabilized major economies. India recorded a GDP growth of 7.2% in 2009-10
against 6.7% in 2008-09. This was largely due to the timely economic stimulus fueling investment and
consumption. The key drivers to India’s economic growth during the year 2009-10 were:
• Strong IIP Growth: 10.4%
• Core Infrastructure Industry Growth: 5.5%
• Automobile Production: 26%
7. Capitalizing on the high degree of domestic dependency, low credit leverage and debt exposure and the
Government’s thrust on infrastructure creation are expected to accelerate the Indian economy in 2010-
11 and beyond. Preliminary guidance by the Central Government for the economic growth in 2010-11 is
estimated at 8.2% and 9% in 2011-12.
Page | 7
DEMAND ANALYSIS OF STEEL IN
INDIA
Consumption Share Of Finished Steel Sectorwise
5% 3%
Construction
8% Others
11% Capital Goods
Auto
12% 61%
Packaging
Consumer durable
Source: Crisil
8. Consumption share of Finished steel Productwise
steel-
3%
Page | 8
11% BAR & ROD
35% HR COIL
19%
CR COIL
GP/GC
HR SHEETS
32%
SOURCE- JPC
Domestic Finished Steel consumption registered a CAGR growth of 10.1 percent to stand at 58.8 ml ton
mln
during 2005~2010
Demand from key consumption sectors infrastructure, automobile and housing remained strong
during the current decade
Majority of the steel consumption sector wise in India is from Construction & Infrastructure (61
Construction
percent) followed by Manufacturing (12 percent) and Automobile (8 percent)
Product wise, Bar & Rod consist of 35 percent of c
consumption followed by HR Coil – 32 percent, CR Coil
– 19 percent and GP/GC Sheet – 11 percent
Amid rapid urbanization and spending on Infrastructure the current per capita consumption of steel
(44~46 kg) make India a hot bed for steel consumption in the near future with construction and
transportation sector contributing the most
INFRASTRUCTURE
The basic facilities, services, and installations - of a country or community - such as transportation
network, communications systems, water, power lines, Roads & Buildings and Other public institutions
twork,
is considered essential for enabling productivity of any economy and require huge initial investments
During early 80’s infrastructure was defined primarily with respect to the nation’s public works and now
the scope has widened and it depends heavily upon the context.
9. According to Dr. C. Rangarajan Commission, Infrastructure in India include,
Railways (Tracks, Signalling systems, Stations etc)
Roads & Bridges
Page | 9 Airports, Runways and Other facilities
Electricity (T&D)
Telecommunications network
Pipelines (water, energy and other)
Port facilities
Irrigation (Canal networks)
A snap shot of transportation in India
Transportation In India
Length of Roads 33,20,410(Km.)
Length of Rail Track 1,08,805(km.)
Number of Ports +200
Major 11
Minor +190
Airports +92
International 12
Domestic +80
Source: IBEF
Extensive road network that carry about 61 percent of the freight and 85 percent of the passenger
traffic
Urbanization and industrialization put greater strain on the Railways ushering PPP mode for
investments
Greater role of international trade and limited capacity let 100 percent FDI allowance to Port sector
Rapid increase in both Passenger and Cargo traffic let the Airport Sector also open for PPP and FDI
Opening up Telecom Sector for Private and FDI ushered for greater services and revenue generation
Generation and Distribution is still held with public sector but it is opening up swiftly to private and FDI
10. However, when compared with developed/developing world, India stand far behind in
creation/execution of infrastructure for the economy to notch higher growth. As a result of which, the
current five year plan coupled with various other initiatives stress the need for speedy creation of world
Page | 10
class infrastructure with greater emphasis on PPP mode
India- Investment into Infrastructure
140
120
100
80
ACTUAL OUTLAY(USD)bin
60
PROJECTED OUTLAY(USD)bin
40
20
0
2003-04 2005-06 2007-08 2009-10 2011-12
Source-Planning commission
India- private sector contribution to infrastructure
Private Sector Contribution to Infrastructure (as a % of GDP)
3.5
3
2.5
2
1.5
1
0.5
0
2003-04 2005-06 2007-08 2009-10 2011-12
Source:Planning commission
11. Total planned outlay for infrastructure for 11th FYP jumped by 138.9 percent to USD 514 bln fromUSD
218 bln during the 10th FYP
However, hurdled by various policy issues in identifying, granting and allocating finances, the
Page | 11 expenditure is expected to be lower than the projected/assumed outlay
Increased participation from private sector, tax free infrastructure bond and FDI is expected to push the
overall spending on infrastructure from current 7 percent of GDP to +8.5 percent of GDP by 2012
Despite all the above, India still need to spend more than USD 1 trillion on infrastructure by 2020 with
increased emphasis on Roads, Power and Railways due to rapid urbanization
Power generation and Distribution continue to draw lion’s share in planned investment followed by
Roads & Telecom
However, under the 11th FYP Sea Ports & Airways increased the share of investments with slight decline
in the Road and Rail
PPP mode of operations and increased allocation in the planned investments augur well for
infrastructure growth
As infrastructure inadequacies would constitute a significant constraint in realizing the potential growth
of the economy an ambitious programme of infrastructure investment has been developed for the 11th
FYP
Some of the Flagship Programmes Under 11th FYP to create infrastructure
RGGVY – Rajiv Gandhi Grameen Vidyutikaran Yojana – Electricity Distribution
APDRP – Accelerated Power Development and Reforms programme – Power Generation
JNNURM – Jawaharlal Nehru National Urban Renewal Mission – Urban Infrastructure
AIBP – Accelerated Irrigation Benefit Programme – Irrigation and Canal Development
NHDP – National Highways Development Programme – Roads
NMDP – National maritime Development Programme – Ports
MRTS – Mass Rapid Transport Systems – Urban Transport
INDIAN STEEL DEMAND: AUTOMOBILE
12. INDIAN AUTOMOBILE SECTOR
5% 4%
Page | 12
Two Wheeler's
16%
Passenger Vehicle
Three Wheeler's
Commercial Vehicle
75%
Investment into auto sector: India
14
12
10
8 FDI(USD)bln
6
DOMESTIC INVESTMENT INTO
AUTO COMPONENT(USD) bln
4
2
0
2007-08 2008-09 2009-10 2010-11
Source: DIPP, ACMA
Indian automobile industry ranks 2nd in global two-wheeler market, 3rd largest PV market in Asia and
4th largest global CV market
Indian automobile market dominated by 2 wheeler (+75 percent), however PV’s register strong CAGR
growth of 17.8 percent during 2002-10
Total automobile sector witnessed cumulative FDI worth USD 4.4 billion during 2000~2010 accounting
for 4 per cent of the total FDI
On the other end, automotive components industry too witnessed strong investment growth, USD 9.0
bln during 2009-10 as leading carmakers such as Honda, Volkswagen, Mercedes and Ford are shifting
their manufacturing plants/ units to India
In line with the young consumer’s growing disposable incomes, varied product and improvement in
road infrastructure support the Indian automobile growth
13. Indian steel: final deemand- sector wise
2009-10 2012-13F CAGR Growth
Automobile 6.5 10.3 16.7
Page | 13
Construction 23.5 33.2 12.2
Household Appliances 2.4 3.3 11.4
Railway 7.1 9.1 8.8
Manufacturing 3.2 3.9 6.0
Other Manufacturing 3.9 4.6 5.3
Others 12.2 14.8 6.7
Sources: MoS ,W2W Res. In mln tones finished steel )
Automobile & auto components, Construction, Household Appliances (white goods) and Manufacturing
to drive the domestic finished steel consumption during 2010-13
Assuming Indian GDP to register an average GDP growth of +8.32 percent during 2010-13, domestic
finished steel consumption estimated to grow at a CAGR of +9 percent to reach +79 mln tons
However, steady consumer at matured economies and any unforeseen spillover of risks can limit the
above estimated growth
The same is expected to register a higher CAGR growth of +9.2 percent to reach +82 mln tons if the
external and internal economy remain robust and intensity of consumption increase with growth
PRODUCTION & CONSUMPTION OF
STEEL IN INDIA
2008-09 2009-10 2010-11E 2011-12F 2012-13F
FINISHED STEEL PRODUCTION 57 60 66 73 86
IMPORTS 5.8 7.2 7.7 5.7 6.2
14. TOTAL SUPPLY 63 67 74 78 92
DOMESTIC FS CONSUMPTION 53 59 65 72 79
EXPORTS 4.0 3.2 4.0 4.7 5.5
TOTAL DEMAND 58 62 69 76 85
S&D BALANCE 5.1 4.1 4.6 1.8 7.0
Page | 14 (Source: MoS , W2W Research in mln tons)
)
Demand is estimated to remain robust & above production, resulting domestic S/D to remain balanced
in the short run
However as demand would outpace during Q4-10 CY to Q2-11 CY Indian S/D would turn tight, pushing
up the prices
As new capacities comes up with execution risk amid high dependency on key raw materials, the
average steel prices are set to move steadily higher during 2010-12
Average domestic Mild Steel Ingots ( Mandi Gobindgarh) prices are likely to move higher by13.5~16.8
percent in FY 10 & 15~18 percent in FY 11
15. PERFORMANCE OF INDIAN STEEL
Page | 15
INDUSTRY
STEEL AUTHORITY OF INDIA LIMITED
The Steel Authority of India Limited (SAIL) is a company registered under the Indian Companies Act,
1956 and is an enterprise of the Government of India. It has five integrated steel plants at Bhilai
(Chhattisgarh), Rourkela (Orissa), Durgapur (West Bengal), Bokaro (Jharkhand) and Burnpur (West
Bengal). SAIL has three special and alloy steels plants viz. Alloy Steels Plant at Durgapur (West Bengal),
Salem Steel Plant at Salem (Tamil Nadu) and Visveswaraya Iron and
Steel Plant at Bhadravati (Karnataka). In addition to these, a Ferro Alloy producing plant at Chandrapur
is owned by Maharashtra Elektrosmelt Limited which is a subsidiary of SAIL. SAIL has eleven units viz.
Research and Development Centre for Iron and Steel (RDCIS), Centre for Engineering and Technology
(CET) and Management Training Institute (MTI), all located at Ranchi, Central Coal Supply Organisation
(CCSO) located at Dhanbad, and Raw Materials Division (RMD), Environment Management Division
(EMD), Growth Division (GD) and SAIL Safety Organisation (SSO) all located at Kolkata.
SAIL Ranked amongst the top ten public sector companies in India in terms of turnover, Steel Authority of
India Limited (SAIL) 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.
KEY INVESTMENT RATIONALE:
Capacity Expansion will ensure volume growth: SAIL is all set to bank on the domestic consumption of
steel primarily driven by the ongoing infrastructure development in the country with its ambitious
expansion plans which will increase its crude steel capacity to 23.2mt from 14mt currently.
Value-added Segment:
16. SAIL is banking on the robust demand witnessed for finished and premium steel segment by expanding
its value added steelmaking capacity. The value added or premium segment commands 20-25%
premium over semi-finished or crude steel.
Page | 16
Strong demand led by domestic consumption:
India’s finished steel demand is expected to grow at 12% CAGR over FY 10-13, led by strong demand
from Automobiles, consumer durables and Engineering sector. India will remain a net steel importer
over FY11-13, as demand is likely to outpace supply.
Valuation:
At the current price of 188, the stock is trading at just 11.96x and 10.84x times of our estimated FY11E &
FY12E earnings. We thus recommend a ‘Accumulate’ with a Price target of Rs 214.
PARTICULARS FY10 FY11E* FY12E*
Net Sales (Rs cr) 40520.24 44572.26 47692.32
% Change in Sales - 10% 7.00%
Expenditure (Rs cr) 30310.54 35212.09 37672.94
PBIDT(Rs cr) 11871.28 11648.97 12584.88
Profit After Tax (Rs cr) 6754.37 6492.90 7160.51
%Change in PAT - -4% 10%
EPS (Rs) 16.35 15.72 17.34
PE Ratio 11.50 11.96 10.84
OPM% 22.33 21.00 21.00
NPM% 16.67 14.57 15.01
INVESTMENT ARGUMENT
Venturing into premium segment:
SAIL is currently selling both raw steel and semi finished, whereas the contribution from value-added
segment is low. Going forward company plans to eliminate this segment completely and add different
value added products, which commands premium over raw steel. It plans to introduce products like
auto grade CR products, galvanized coils, sheets, plates, pipes to meet up to API 100 grade specification.
It also plans the production of rails and wheels to meet the increasing demand requirements of the
Indian railways, Universal beams/ Heavy beams in the size up to 1100mm to support increasing
17. infrastructure requirements. The value added or premium segment commands 20-25% premium over
semi-finished or crude steel.
Capacity expansion will ensure volume growth:
Page | 17 Company has planned capex of over Rs 50000cr to increase its crude steel capacity to 23.2mt from 14mt
currently. The company has also planned capex for technological up gradation/ modernization, value
addition, production mix improvement. Technological up gradation/ modernization will reduce SAIL’s
operating cost/ton by around 15-20% over the next three years. The massive capacity addition should
help the company to strengthen its leadership position in Indian Steel Industry. SAIL is setting up a Finex
plant at the existing Bokaro plant through a JV with Posco in ratio of 49:51, for which DPR is yet to be
completed. The iron will be supplied through the FINEX process (0.5mt) and end product capacity is
envisaged at ~1.5mt, of which 0.5mt is CRGO steel. The incremental 1mt steel will be supplied through
the Bokaro plant as cold rolling mill ordered has a capacity of 1mt, whereas SMS-3 will have a capacity of
1.8mt.
Captive mines to provide hedge against raw material price volatility:
The raw material accounts for over 64% of the total expenditure. The company is in process to secure
major raw material from its captive sources. SAIL is fully integrated with respect to iron ore, which is
sufficient enough to back its expansion plans. Currently company uses captive mines for iron ore and it
has been allotted Chhiria mines which have proven reserve of 2bt of iron ore.
SAIL has started production of 10000 tpa coal at Tasra collieries, the expected capacity to produce is 4mt
in the near future, which will reduce their raw material cost and improve operating margin. In addition
to this the company has formed JV with Tata Steel to explore Coking Coal. The main advantage of having
a captive mine is that it insulates the company from volatility in raw material prices and protects its
margin.
Domestic focus;
SAIL’s entire steelmaking maneuvers are based in India. It is focused on the s domestic market and
exports little. Ahead, it expects exports to comprise around 15% of the expanded volume. A favorable
product mix (60% longs, 40% flats) could make it one of the best beneficiaries of India’s infrastructure
growth story. The company is one of the key suppliers to the infrastructure sector, with around 60% of
its sales going to this sector. Around 32% of its sales goes to the government sector.
18. The company is well positioned to be benefitted the infrastructure story of India. Large proportion of its
product mix will find its application in arge construction and engineering.
Page | 18
Strong balance sheet with good dividend track record:
Company enjoys healthy balance sheet with a low debt-equity ratio in the debt range of 0.18 to 0.39 in
last four years, which ensures that SAIL undertake capex without overstretching its balance sheet.
Attractive Dividend Pay-out:
SAIL has been rewarding its shareholder by offering regular dividend since lder 2005. The average
dividend yield of the company stood at 2.73%. With huge cash on the book and being one of the most
profitable maharathna in government entities, we believe the management of SAIL would continue to
reward its shareholders with higher dividend pay-out. out.
Key strategic alliance to further boost profitability:
Company has signed MOU with Kobe Steel, Japan for exploring feasibility of ITmk3 technology for use of
lean iron ore fines & non coking coal. Company is in 50-50 JV with NTPC for 250 MW power generation.
Due to this JV, company’s power cost will reduce. There is a possibility of joint collaboration with
Nippon Steel in the iron and steel area. Company has also proposed owing a port/joint ownership in a
port venture in Orissa. This wnership will further reduce logistics cost for the company.
Economies of Scale:
SAIL has been enjoying the benefit of improved productivity per employee with its workforce came
down by ~58% (annualized rate of 5.4%) during the past ten years from 208765 in FY2000 to 114160 at
the end of FY10. The company’s employee’s remuneration as a % of net sales saw an improvement, its
net employee cost stood at 13.37% for FY10, as against 19.82% in FY09 and 19.91% during FY08. The
labour productivity has improved to 228tons of crude steel per labour employed during the H1 of FY11
against 214tons of crude steel produced per labour during FY08.
KEY CONCERNS
19. Rise in input cost:
The backward integration (Coal) of the SAIL would be completed by next 2- 3 years, any adverse
moment in coking coal prices could have its bearing on earning visibility of the company.
Page | 19
Fall in prices:
Any negative movement in product prices can have its effect on the realization of the company, thereby
affecting the profit earning capabilities of the company.
TATA STEEL LIMITED
TATA Steel has an integrated steel plant, with an annual crude steel making capacity of 6.8 million
tonne, located at Jamshedpur, Jharkhand. The crude steel production of TATA Steel during the period
April-December 2010-11 is 5.81 million tonne. As part of the Brownfield expansion project, TATA Steel
has commissioned H Blast Furnace in May 2008, as part of 1.8 million tonne growth plan to reach
capacity of 6.8 million tonne. TATA Steel is continuing with its programme of expansion of hot metal and
steel making capacity by 3 million tonne to reach 10 million tonne. Crude steel capacity as on March 31,
2009 was 6.8 million tonne (Jamshedpur works). Tata Steel has also envisaged massive expansion of its
capacities through various greenfield projects at Saraikela (Jharkhand), Kalinganagar (Orissa) and Bastar
(Chhattisgarh).
TATA Steel, the flagship company of Tata group, is among the top ten global steel companies with an
annual crude steel capacity of over 28MTPA. It is now the world’s second-most geographically-diversified
steel producer with operation in 26 countries and a commercial presence in over 50 countries.
KEY INVESTMENT RATIONALE
Highly Integration levels for TATA Steel to boost Earnings:
20. Tata Steel is in the process of developing a coking coal mine in Mozambique and an iron ore mine in
Canada to enhance integration level of TSE. The project is expected to be commissioned by 1QFY12. We
expect this backward integration project at Mozambique and Canada to boost Tata Steel’s earnings
substantially.
Page | 20
Brownfield expansion on track:
Tata Steel’s 3mt brownfield expansion programme is on track and expected to be commissioned by
2HFY2012. Till September 2010, the company has incurred capex of Rs. 5732cr and plans to incur Rs.
2963cr in 2HFY2011. The product mix constitutes 2.5mt of HRC and 0.3mt of slabs.
Escalation prospective from domestic operations:
To raise RoE, the company has aggressively expanded domestic capacity even during the downturn
witnessed in steel industry during 2008-09. It is on track to add 3mt by Jun ’11, taking domestic capacity
to 10mt.
Valuation
At the current price of Rs. 660, the stock is trading at just 29.74x and 18.34x times of our estimated
FY11E & FY12E earnings. We thus recommend an “Hold” with a target price of Rs. 708.
PARTICULARS FY10 FY11E* FY12E*
Net Sales (Rs cr) 102305.83 110490.30
120986.87
% Change in Sales - 7.80 9.50%
Expenditure (Rs cr) 95330.77 98190.69 102118.32
PBIDT(Rs cr) 8017.03 14493.71 20006.00
Profit After Tax (Rs cr) -2120.84 1967.65 3226.82
EPS (Rs) 16.35 22.19 36.33
PE Ratio - 29.74 18.34
OPM% 8.00 8.00 13.00
NPM% - 2.00 3.00
TATA Steel merger with Corus:
Corus joined the TATA Steel family in April 2007 in a transaction that created one of the world largest
steelmakers, with a major presence in Europe as well as in Asia. Corus is Europe second largest steel
producer. Corus supplies steel and related services to the construction, automotive, packaging,
21. mechanical, engineering, and other market worldwide. The combined enterprise has an aggregate crude
steel capacity of more than 28mt and approximately 80000 employees across four continents.
Robust performance:
Page | 21 In FY 2009-10, the steel division of the Indian operations registered an increase of 20% in their saleable
steel from 5.37mt to 6.44mt. The production from the larger furnaces were maximized with better
productivity and lower coke consumption while increased vessel life in the steel melting area enhanced
the production level. There were several best ever performances recorded by many units in the Steel
Works of the Company:
* The Ferro Alloys and Minerals division registered an increase of 22% in their saleable production
(1302K tonnes during 2009-10 over 1064K tones in 2009-09)
** Chrome Alloys export and Manganese Alloys sales also scaled new peaks during 2009-10
** Sales in the bearing division registered a growth of 23%, while its production increased by 8%.
Expansion project:
Tata Steel India is executing its plan to increase its crude steel capacity from 6.8mt per annum to 9.7mt
per annum at its Jamshedpur Works by 2011-12. The company has entered into a Memorandum of
Understanding with Nippon Steel Corporation (NSC), Japan for setting up a Continuous Annealing and
Processing Line at Jamshedpur, India with 0.6mtpa capacity.
TATA Steel Europe’s coking coal venture is significant:
TATA Steel Europe plans to source coking coal from the Banga Project, joint venture between TATA steel
and Riversdal, located in the Tele Province of Mozambique. TATA Steel expects to produce 5.3MT of
coal by 2011. The Banga coal has reserves of 502mt and the company is planning to augment production
from the Banga project to 20mtpa gradually. The total capex remaining for the Mozambique project Rs
700-800cr.
Captive iron ore project:
TATA Steel has planned to protect raw material supply for its European operation by taking a stake in
New Millennium’s Direct Shipping Ore (DSO) projects. Tata Steel owns 27.4% share in New Millennium
mining company. Project has probable mineral reserve of 64.1mt for the DSO project and the production
is expected to commence in 2011. The company would have 100% off-take rights to the produce of the
22. mine of a specified quality. The iron ore from the project will be supplied to Tata steel group’s facilities
located in Europe. This project will involve capex of CAD 350mn. It is expected that the European
operations would secure 20-25% backward integration by the end of FY12.
Page | 22
Value Creation Strategy:
The element of its value creation strategy is selective growth in emerging markets where the group has
a competitive advantage. The Group therefore continues of selectively invest for the future with an aim
to strengthen its position in emerging markets like India and increase the level of raw material
integration and energy self- sufficiency across the Group. The company has also increased its focus on
finished or premium steel segment; its currently enjoys 40% of the autograde steel and is setting up a
continuous annealing line in a joint venture with its long standing technical partner Nippon Steel of
Japan.
Steel demand expected to grow in near future:
India’s finished steel demand is expected to grow at 12% CAGR over FY 10-13, led by strong growth
from Automobiles, consumer durables and Engineering sector. India will remain a net steel importer
over FY11-13, as demand likely to outpace supply. Emerging market like India, China, Thailand, Korea
will likely to remain robust in future.
ISSUES AND CONCERN
Global price volatility:
Global price of the steel is not constant. It is highly volatile and varies on the basis of the raw material
cost. Steel prices also depend on the global economic scenario. Steel prices depend on the demand
growth from Automobiles, Consumer Durable and Engineering sector. Another important concern
regarding coal and iron ore is the rising price of coal and Iron ore in the past few years and the
expectation is that the cost of acquisition of coal for the steel industry will continue to increase.
23. Supply bottlenecks to lift iron ore/coking coal prices:
Steel industry has to face the supply side bottleneck of the raw material like iron ore and coal. Shortage
of supply can push up the prices of raw material upside. Coal is one of the most significant aspects of
Steel industry and limited availability of coal will always be a key concern and issue for Tata Steel.
Page | 23
Another important concern regarding coal is the rising price of coal in the past few years and the
expectation is that the cost of acquisition of coal for thermal power projects will continue to increase
Cyclical Industries:
Steel industry is cyclical in nature. It is highly affected by the world economic condition. At time of the
economic downturn, the demand of the steel reduces significantly.
Government regulation:
Steel industry is the regulated industry and regulated by steel ministry. Steel companies have to take
approval from the environmental and mining ministry to develop a plant and also affected by the EXIM
policy.
JSW STEEL LTD.
JSW Steel is today an integrated steel manufacturer and is the largest private sector steel manufacturer
in terms of installed capacity. In 1994, in order to achieve the vision of moving up the value chain and
building a strong, resilient company, Jindal Vijayanagar Steel Ltd. (JVSL) was setup, with its plant located
at Toranagallu in the Bellary-Hospet area of Karnataka, the heart of the high-grade iron ore belt and
spread over 3,700 acres of land. It is just 340 kms from Bangalore, and is well connected with both the
Goa and Chennai ports. JSW Steel is one of the lowest cost steel producers in the world. It has
established a strong presence in the global value added steel segment with the acquisition of steel mill
in US and a service center in UK. JSW Steel has also formed a joint venture for setting up a steel plant in
Georgia. The Company has also tied up with JFE Steel Corp, Japan for manufacturing the high grade
24. automotive steel. JSW Steel has recently acquired a controlling stake in Ispat Industries Ltd. The
Company has also acquired mining assets in Chile, USA and Mozambique. JSW Steel offers the entire
gamut of steel products - Hot Rolled, Cold Rolled, Galvanized, Galvalume, Pre-painted Galvanised, Pre-
painted Galvalume, TMT Rebars, Wire Rods & Special Steel Bars, Rounds & Blooms. JSW Steel has
Page | 24
manufacturing facilities at Toranagallu in Karnataka, Vasind & Tarapur in Maharashtra and Salem in
Tamil Nadu.
JSW Steel Limited (JSWSL) is the second largest private sector steel maker in India. The company
provides for a broad range of products which include Hot Rolled Product, Cold Rolled Product,
Galvanized Product and Pre-painted Galvanized Product. The company consists of the most modern,
eco-friendly steel plants with the latest technologies for both upstream & downstream processes.
KEY INVESTMENT RATIONALE:
Leading Player in Steel Manufacturing:
JSW Steel, the flagship company of the JSW Group, is the largest integrated private steel manufacturer
in India in terms of installed capacity. It is the leading manufacturer of cold rolled, galvanized and colour
coated steel with manufacturing facilities at Vasind & Tarapur in Maharashtra. JSW Steel is the largest
manufacturer and exporter of galvanized steel in India with its products export to more than 100
countries.
Strong growth expected in Steel Industry:
The industry is expected to grow at a pace of 9.1% till FY15 considering the scenario that Indian
Infrastructure and other Industries are going to absorb the supply and also considering international
demand to increase mainly due to increase in prices in China.
Expansion to facilitate growth:
JSW steel has entered into a joint venture with UK’s Severfield and has launched a new plant which will
have an annual capacity of 35,000 tonnes of fabricated steel. The company has also recently sought a
new coking coal mine in Jharkhand for its new steel plant which would be set up in the same state and
would have an annual capacity of 10mt.
25. Valuation:
At the current price of Rs. 1165, the stock is trading at just 15.14x and 9.91x times of our estimated
FY11E & FY12E earning. We thus recommend an “Accumulate” with a target price of Rs. 1293.
Page | 25
PARTICULARS FY10 FY11E* FY12E*
Net Sales (Rs cr) 18957.17 23127.75 29372.24.
% Change in Sales - 22% 27%
Expenditure (Rs cr) 14869 17988.76 22616.62
PBIDT(Rs cr) 4613.07 5138.987 6755.62
Profit After Tax (Rs cr) 6754.37 6492.90 7160.51
%Change in PAT - 22.9% 52.8%
EPS (Rs) 59.04 76.94 117.53
PE Ratio 19.73 15.14 9.91
OPM% 24.3 22.2 23.00
NPM% 8.19 8.25 9.93
INVESTMENT ARGUMENT
Industry growth prospects:
The steel industry is slated to add 729,000 tonnes of fresh production capacity at a cost of Rs 240,000cr
by March 2013. The largest contributor is expected to be Jindal Steel and Power. It has plans to
commission 128,000 tonnes of manufacturing capacity by March 2013. JSW Steel will increase its
capacity by 8,560,000 tonnes, SAIL by 7,260,000 tonnes, Tata Steel by 3,300,000 tonnes and Bhushan
Steel and Essar Steel by 2,720,000 tonnes each. We expect the Indian Steel industry to grow 10-12% in
coming 2-3 years.
Additional capacity to improve growth prospects:
The company has successfully commissioned the Phase I (3.5 Mtpa) of one of the largest new Hot Strip
Mill at Vijaynagar. The mill has initiated commercial production on April 10, and it would enable the
company to convert all slabs into value added HR Coils on its stabilization. On completion of Phase II, the
capacity of mill will go up to 5Mtpa. The expansion project execution work is progressing in full swing to
expand the crude steel capacity to 10Mtpa by 2020. JSW Steel plans to set up a 300MW power plant at
26. Vijaynagar. The procedure for which is expected to be commissioned in FY 2011. The company also
expects initial production of 1mt in first year (2010-11) which can be ramped up to 3mt by 3rd year. The
first year of production has already started in Oct 2010. Additional apex is expected to be Rs 500cr for
ramping up. Thus JSW Steel is expected to generate huge revenues once the mining starts initial
Page | 26
production.
Reduction in Debt to improve overall growth:
JSW Steel has tied-up with JFE Corporation of Japan and will be setting up an autosteel line at its
Vijayanagar steel plant. After selling a portion of its equity to Japanese steel maker JFE, JSW’s balance
sheet has improved significantly mainly because of the repayment of debt which has resulted in the
reduction of debt of the company considerably. The company has repaid Rs 2600cr of debt in the
September quarter, which reduced its debt-equity ratio to 0.8 from 1.6 in the previous quarter.Interest
cost was down 13% in the quarter and is expected to remain lower as the company has repaid a
significant amount of its high-cost debt.
Value-added segment to improved Realization:
The future growth of JSW will largely be fuelled by the current capacity expansion plans. Its 3.2mt
expansion project at Vijaynagar is on the verge of completion, which will increase the company’s steel
production capacity to 11MTPA by March 2011. JSW Steel’s board approved implementation of the
West Bengal Project comprising 4.5mtpa Steel plant, 660MW power plant and development of coal and
coking coal mines with a project cost of Rs16000cr. This project is planned to be . completed by FY14.
This would result in company’s growth not only in steel production but also in power and coal mines.
The company is slowly ramping up its value–added steel production in the H1 of FY11. The company sold
20% more of its flat-rolled steel and fla posted 52% jump in sales for its long rolled steel, both part of the
finished steel category.
Cost reduction through acquisition of coal mines:
The company has recently acquired coking coal assets in USA in West Virginia along with Railway Load
out and barge facility and has finalized the acquisition of the mine, where the likely resources is around
123mt. One of the mine is operational and others to be operational over 24 months. The total coking
coal requirement of the company is estimated at 5mt per compan annum at current capacity. The
proposed coking coal from US will give he integration to the extent of 20% in the first year and goes
27. further at enhanced capacity of 11mt to 35%. We expect with 20-25% interaction of coking coal would
improved its 25% EBIDTA margins by 125-150bps, thereby resulting in improved earning 150bps,
visibility in near future.
Page | 27
JSW-Severfield have joined hands for India’s first fabricated steel Severfield
plant
Considering the huge potential in the infrastructure growth in India especially in the structural steel
space JSW Steel and UK’s top steel Severfield have launched a new plant which will have investments of
almost Rs 1000cr in two years. The annual capacity of the 50-50 JV is 50 expected to be 35,000mtpa. The
JSW- Severfield project would be financed in the 2:1 debt-equity ratio and is expected to generate an
equity annual revenue of around Rs 400cr. The target market will initially be commercial structures and
simple highway bridges.bridges
KEY CONCERNS
Availability of Coal:
Coal is one of the most significant aspect of Steel production and limited availability of coal will always
be a key concern and issue for the company. Another important concern regarding coal is the rising
price of coal in the past few years and the expectation is that the cost of acquisition of coal by steel
manufacturers will continue to increase.
New Mining Policy a Concern:
Recently, it has been proposed in the draft Mines and Minerals (Development and Regulation) Bill, 2010
that the mining companies should share 26% of profits with local inhabitants and persons displaced by
the mining activity. In the event of acceptance of this proposal by the government and implementation
of the same, the company may witness a substantial negative impact on its financial position considering
that the company is looking for mining fields in Jharkhand and has mines in Toranagallu (Bellary).
Volatility in prices and global scenario:
28. Global factors such as world steel demand and pricing scenario plays a crucial role in Steel industry. The
increasing price of iron ore is also having a negative effect on the pricing policy and profit margins of the
company. Further the decline in China’s export, the largest exporter of steel is also affecting the price
volatility in the industry.
Page | 28
Production at US Subsidiary a major issue;
US plate and pipe mill operated at 13% and 7%, respectively during the quarter with production at
37699 tonnes and 9495 tonnes, respectively. It reported revenue of around Rs 162Cr and EBITDA of Rs
4.05Cr. On a net level, it reported loss of Rs 58.5Cr. Management expects operations to remain under
pressure, given the lack of orders and intense competition.
JINDAL STEEL & POWER LTD.
Jindal Steel & Power Limited is one of the fast growing major steel units in the country. Raigarh plant of
JSPL has a present capacity of 1.37 MTPA sponge iron plant, 2.40 MTPA Steel Melting Shop (SMS), 1.0
MTPA Plant Mill, 2.30 sinter plant, 0.8 MTPA coke oven and a 330 MW captive power plant.
Capacity addition plan at Raigarh
Enhancement of the present steel capacity from 2.4 million tonne to 6.0 MT in a phased manner by
2011 will incorporate:
2.0 MT gas based Direct Reduced Iron (DRI) producing gas by coal gasification
4000 cubic meter blast furnace
3 MT steel melting shop with electric arc furnace route and thin slab caster.
Hot strip mill (compact strip product technology.
Cement plant to consume the blast furnace slag.
4X135 MW power plant increasing the capacity to 840 Mega Watt (MW).
Jindal Steel and Power Ltd. has plans for expansion of its Raigarh plant to a capacity of 6.0 MTPA. It also
has plans for two Greenfield projects in Orissa and Jharkhand with proposed capacity of 6.0 MTPA each,
in the first phase.
29. JSPL expanding horizons:
Jindal Steel & Power Limited is setting up a 10 MTPA Pellet Plant at Barbil, Orissa based on huge stocks
of iron ore fines lying with various Iron Ore Mines in Orissa. The first module of 5 MTPA is undergoing
Page | 29 trial runs since January, 2010. This project aims to conserve precious iron ore reserves of the country by
converting unused fines into pellets for usage in DRI production.The Pellet Plant would be using
producer gas derived from coal for its energy requirement to keep its production cost contained and
free from fluctuations of petroleum based fuels. The Company has also commenced hot trials of its 0.6
MTPA Wire Rod Mill at Patratu, Jharkhand. Also the Company is setting up a 6 MTPA Steel Plant at
Patratu.
ISPAT INDUSTRIES LTD
Ispat Industries Ltd. (IIL) has set up one of the largest integrated steel plants in the private sector in India
at Dolvi in Raigad district, Maharashtra, with a capacity to manufacture 3 million tones per annum of
Hot Rolled Steel Coils (HRC).The Dolvi complex also boasts of an ultra modern blast furnace (set up by a
group company Ispat Metallics India Limited) capable of producing 2 million tones per annum of hot
metal/pig iron, 2 million tonne capacity sinter plant (newly commissioned) and a DRI plant with a
capacity of 1.6 MTPA. The integrated steel plant uses the Converter cum Electric Arc Furnace Route
(CONARC process) for producing steel. In this project, IIL have uniquely combined the usage of hot metal
and DRI (sponge iron) in the electric arc furnace for production of liquid steel for the first time in India.
For casting and rolling of liquid steel, IIL has the state-of-the art technology called compact strip
production (CSP) process, which has been installed for the first time in India and produces high quality
and specifically very thin gauges of Hot Rolled Coil.
30. RESEARCH&DEVELOPMENT IN IRON
Page | 30 AND STEEL COMPANIES :
Steel Authority of India Ltd. (SAIL)
Research & Development Centre for Iron & Steel (RDCIS) has undertaken 110 R&D projects in the
current year 2010- 2011, out of which 71 projects are scheduled for completion by March 2011. These
projects provide technological inputs to SAIL plants / units with thrust on cost reduction, value addition,
quality improvement and development of new products.The Centre has filed 16 patents and 16
copyrights during April to November, 2010. As many as 58 technical papers were published and 63
papers were presented. In addition, RDCIS undertook contract research work and provided significant
consultancy services and know-how to organisations outside SAIL, yielding external earning of ` 99.18
lakhs.
R&D EFFORTS AND ACHIEVEMENTS
Significant achievements of some of the completed projects, in different technology areas, are
summarised below:
(I) COST COMPETITIVENESS / QUALITY IMPROVEMENT
Development of Magnetic Plate Sinter Mix Charging System at Sinter Plant (SP)
#2 at DSP
A novel system of the magnet based sinter mix charging has been designed and installed in SP#2
resulting in improvement of sinter strength, yield and also bed permeability. An increase in specific
productivity of sinter machine from 1.24 to 1.38 t/m2/hr has been achieved. In addition, coke breeze
consumption came down from 68 to 65 kg/t and reduction of -5mm fraction in sinter has also been
observed.
31. Improvement in Deoxidation and Ladle Refining Practice for Reduction in
Consumption of Deoxidisers at SMS-I at RSP
To reduce the consumption of ferro-alloys, existing on-line purging system was modified and improved
deoxidation practice was introduced. In all, 40 nos. of trials were carried out, which brought down the
Page | 31 Al and Si- Mn consumption by 14% and 23% respectively for direct heats i.e. by-passing vacuum
degassing units (Al: from 2.36 to 2.02 kg/t and Si-Mn: from 13.57 to 10.33 kg/t). The modified practice
has now been implemented for regular production.
Development of Auto Slow-down Function for Improvement in Productivity at
Pickling Line-1, CRM at BSL
A LASER-based measurement and auto slow-down control system has been introduced at Pickling Line-
1, Cold Rolling Mill, BSL. With introduction of new system the line speed of entry section has increased
from 4.8 m/s to 6.2m/s and the idle time has also reduced. This has resulted in increasing in processing
of coils from 4.47 to 5 coils/Hr.
Performance Improvement of One Wagon Tippler and Auto-Operation of Pump
House 55 at RMHP at BSL
A Variable Frequency Drive (VFD) based control system comprising of drives, VFD grade motors,
encoders etc.has been commissioned in Wagon Tippler of Raw Material Handling Plant. Continuous
jerkless tippling operation with accurate zero positioning of the wagon tippling platform has been
established with braking almost at 5% of nominal speed. This has resulted smooth tippler movement
and no electrical and mechanical breakdown.
(II) ENERGY CONSERVATION
Introduction of Energy Efficient Ignition System in Machine # 2, SP-1 at DSP
The existing ignition system was replaced resulting in remarkable reduction in the specific heat
consumption to the tune of 46% and the production rate also increased from 95.6 to 96.9 t/hr.
Additionally, CO2 emission has reduced by about 2,450 TPA.
Improving Thermal Efficiency of Ladle Heating System of BF at BSL
An efficient heating system has been developed to achieve ladle temperature of about 10000C in 10 hrs
as against 600-6500C in 20 hrs with existing system. All three ladle heating stands have been modified
32. with high velocity burner, air nozzle and compressed air ejector. Ladle covers and ladle burners have
been insulated with ceramic fibre to protect it from over-heating.
Page | 32 Selection and Design of Combustion System for New In-House Built Normalizing
Furnace of Plate Mill at BSP
A new normalizing furnace was constructed by in-house expertise resulting in heat loss and increase in
production of Normalised plates by about 25% i.e., from 18,000 t/month (average) to 23,000 t/month
(average). In-house approach has led to a huge cost savings as the total cost is of the order of ` 32 crore
as against the estimated valueof ` 90 crore.
(III) NEW PRODUCTS
RDCIS plays a lead role in the product development activities of SAIL. The criteria for selection of
products for development are significant demand, ready market, good contribution margin and plant
capability .RDCIS, in close association with the SAIL plants, developed the following products:
Thin gauge high strength (YS: 350 MPa min.) HR coils (thickness: <2.4mm) at BSL
Boiler quality plates (ASTM A 387 Gr.12 Cl.II) at BSP
Corrosion resistant TMT rebars at ISP
High Strength Fine Grained HR Coil (YS: 500 / 550 MPa min.) for PEBM & Automobile Sectors at BSL
High Strength Steel (EN 10028 P 355N) for Propane Gas Cylindersand EN 10149 S460 MC for Tubes at
BSL
High Strength formable Quality Steel (Ti Strengthened / IS 10748 Gr. V with Nb) at RSP
Si-Al killed SAIL Tower Gr. 6 CC Blooms at DSP
Al Killed SAIL Tower Gr. 6 CC Blooms at DSP
Special Quality Roll Threaded Bolts at ISP
SAILMA / High Tensile (Fe 410) Structurals at ISP
High Tensile Plates with Improved Z-Ductility (includes Boiler / Structural Quality at BSP
Corrosion Resistant (Zn-Mg) Galvanized Sheets at RSP
DMR 249 Gr. B (t : 30 mm and higher) at RSP
Si-Al Killed SWR 14 / SWR 10 CC Blooms at DSP
Al Killed SWR 14 / SWR 10 CC Blooms at DSP
Significant achievement on few products is enumerated as follows:
33. Development of Special Steel Products (IS 10748 Gr. IV & V with Nb/ SAE 1541/ Ti Bearing High Strength
Formable Quality) at RSP New grades of special steel products, developed by RSP in association with
RDCIS and CMO depending on market opportunity for various end-applications are listed below
Page | 33
PRODUCTS APPLICATIONS
IS 10748 Gr. V Electric Poles, Tubes and Pipes
IS 5986 Fe 510 High Mast Lighting Poles, Wind Poles, Camera Poles etc.
grade
SAE 1541 grade High Strength Straps for Jute Industry and Fork for Two Wheelers
MC 60 grade Circlips, Spring Washers, Band Saw Blades for Wood Cutting, Circular Saws,
Cross
Cut Saws etc.
All the above difficult-to-cast grades have been developed successfully by optimizing the casting and hot
rolling parameters. Customer's requirement has been assessed and the grades have been developed
considering the plant's capability.
In all, 4865 tonnes of all these developed grades were dispatched as against a target of 4000 tonnes,
facilitating an extra revenue generation in terms of 'Quality Extra'.
Development of High Strength (YS 640 Mpa Min) Roof Bolt Quality TMT Bars at
ISP
With a view to enlarge market share of special steel for ISP and to capture the niche market by value
addition of the existing products, two products viz. rock bolt TMT bar of Fe 600 grade, and HCR TMT
rebar were developed and IS 1786-Fe 500 D grade TMT rebar was commercialised. About 2000t of rock
bolt TMT bar of Fe 600 grade has been dispatched for different underground mines of Coal India Ltd.
(CIL). This rebar can also be used for RCC building and tunnel construction. High strength corrosion
resistant variety (HCR) TMT bar has also been successfully produced with Cu-Cr alloy having enhanced
'corrosion resistance index'. About 200 t of this material has been produced and marketed. As regards,
IS:1786 Fe 500D grade TMT bar, more than 60,000T has been produced and marketed.
Development of Improved Quality Corrosion Resistant Galvanized Sheets at RSP
In order to improve corrosion resistance of the conventional hot dip galvanized sheets, a new type of Zn-
Mg coated galvanized sheet has been developed at Hot Dip Galvanizing Line (HDGL) of RSP. Zn-5%Mg
34. and Zn-10%Mg alloy additions were made in the zinc pot to attain desired Mg-level. It has been found
that the coils galvanized in bath composition of 0.23% Mg, 0.18% Al & 0.18% Pb resulted in the best
combination of properties in terms of corrosion rate: 3.96 mpy (~1/3rd w.r.t conventional GI sheets: ~12
mpy); formability of the composite (Ev: 6.8 mm for sheet thickness of 0.50 mm) at par with substrate
Page | 34
material; and coating adherence as per LFQ standard.
Expenditure on R&D during Last Three Years
(Rs. in crore)
Year SAIL's turnover R&D Expenditure
Capital Revenue Total % of turnover
2008-09 48681 5.72 112.48 118.20 0.24
2009-10 43935 4.32 102.94 107.26 0.24
2010-11 21628 2.33 66.20 68.53 0.32
(Apr-Sept)
TATA STEEL LTD.
Highlights of Research & Development undertaken by the company are given
below:
A new thin organic coating (TOC) and a novel application process for continuous application on
galvanised (GI) tubes has been developed with our Tubes Division, Jamshedpur. The objective was to
further improve the corrosion resistance and sustainability. The plant implementation is currently being
carried out jointly with Tubes Division.
An eco-friendly copper-free coating on electrode wires for the CO2 gas metal arc welding process has
been developed.The process has been successfully implemented in the plant and commercialisation of
this product is actively being pursued.
35. An improved snout atmosphere using wet HNx injection system in the continuous galvanizing line has
been developed. The design and installation of the wet HNx system has shown substantial improvement
in the surface quality of our automotive skin panel material by reducing the surface defects.
Page | 35
In an effort to reduce the Zn consumption during hot dip galvanising of tubes, a CFD study was
developed to simulate the entire process using and heat transfer models in association with surface
wave model. The recommendation on the process parameters from this study has been implemented in
the galvanising plant in Tubes Division and has resulted into a reduction in Zn consumption.
A novel "Self-healing" coating has been developed on CRCA steel sheet for automotive applications. In
addition to its self-healing properties, the coating has also substantially improved the corrosion
resistance. The lab scale development is completed and upscaling of this process to pilot scale level is
being pursued with our pilot coating line.
A new process has been developed and being demonstrated in a pilot plant for recovering pellet grade
concentrates from the ultrafine fraction of iron ore slimes. The project has received the prestigious Tata
Innovista promising innovation award in July 2010.
A new coal pretreatment technology has been developed in the laboratory and up-scaled for pilot-scale
demonstration for producing 8% ash clean coal from high ash Indian coals.
A new binder has been identified for improving the coal cake stability for improving the throughput,
energy consumption and quality of coke from stamp charged coke making process.
Quick Tap Model has been implemented at Steelmaking Shop # 2 (LD2) for prediction of phosphorus.
A team from R&D Jamshedpur & Europe, together with colleagues from G Blast Furnace and RMIMTG
successfully conducted trajectory probe measurements at G BF. The results of measurement will help to
know the exact location of the material trajectory in the stock level of the blast furnace. This will
generate important data to tune the mathematical model for blast furnace burden distribution.
36. The new pellet chemistry for new 6 MTPA pellet plant is optimized for blast furnace applications at
Jamshedpur. The optimization trials are being carried out using facilities at Tata Steel Europe R&D.
Product validation trials were carried out for sponge chrome, a new product developed at R & D for
Page | 36
production of ferrochrome, using Electric Arc Furnace facility at National Metallurgical Laboratory,
Jamshedpur. The results have confirmed that use of sponge chrome in production of ferrochrome can
reduce the specific power and increase the SAF productivity. A work is in progress to prepare and assess
the opportunity of a 10,000 TPA technology demonstration plant at Ferrochrome Plant of Tata Steel at
Bamnipal in Orissa.
New chromite pellets were developed for ferrochrome production in submerged arc furnace. The pellets
will reduce the specific energy consumption and thereby CO2 emission at Ferrochrome plant. .Further
plant trials will be carried out.
New hydrometallurgical process is developed for production of pure MnO2 using GCP sludge of FeMn
plant.
Expenditure on R&D expenditure during last two years:
Year R&D investment (Rs. cr) % of expenditure
2008-09 39.22 0.16
2009-10 48.76 0.21
JINDAL STEEL & POWER LIMITED
R&D carried out (project taken up/completed) & results / achievements
In House Development of break out prediction system in collaboration with M/s Rockwell automation
and IIT Kanpur at one fifth cost of imported technology: System started on full fledged basis, casting
speed increased by 30%.
Water modeling study of Near -net-shape caster for reducing tundish skull and improving steel
cleanliness in collaboration with IIT: Completed. Implemented in one tundish. Tundish skull generation
reduced by 2.5T/ sequence.
37. Study of CSR & CRI of Coke at different carbonization time to increase the no. of pushings per day with
consistent coke quality.
Study of CSR & CRI of Coke obtained.
Page | 37
Measurement of residual stress of UIC-60 rails & IRS 52 rails.
Comparison of steels produced through VD & RH Route with respect to cleanliness & gas content.
Study for development of weathering resistant structural steel.
Evaluation of coking coal from Mozambique & Zimbabwe.
Study of factors affecting fractures toughness of Gr. 880 Rails.
The effect of usage of South African Coal with Australian Coal in BF-II.
Reduction of moisture to less than 5% in coke. BF grade.
Year Total
2008-09 314
2009-10 329
2010-11 (Capital) 361
ISPAT INDUSTRIES LIMITED
Existing fuels used in Hot Strip Mill (HSM) has been replaced by RLNG in the
following areas :-
Tunnel Furnace A and B were converted from Oil (LDO) fired Furnace to Dual fuel (RLNG/LDO) fired
furnace.
RLNG being used as fuel in 10 numbers Ladle Preheaters in Ladle Furnace area in place of LDO.
RLNG being used in Tundish Preheater and SEN heating in place of Propane.
RLNG being used in Co-jet firing system in SMS in place of Propane.
RLNG/LDO/FO being used in Boiler in HSM in place of LDO/FO (Dual fuel system).
Conversion of the same leads to better surface quality and homogenised microstructure.8 nos. impellers
in pumps at HSM utility area has been replaced to reduce power consumption.
38. 2. Blast Furnace :
RLNG conversion projects have been implemented in the following areas of Blast Furnace :-
RLNG is being used in Coal Injection plant as supporting fuel in place of Propane.
Page | 38 RLNG is being used for heating of Cast House Runner in place of Propane.
RLNG is being used along with BF Gas in BF Stoves in place of Propane as pilot fuel.
RLNG and BF Gas are being used in 16 TPH Boiler as fuel in place of FO.
3. Sinter Plant :
RLNG is being used in Ignition Furnace as main fuel in place of Propane for ignition. RLNG is being
charged in the same network which was used for Propane.
4. Lime Calcination Plant:
RLNG being used in LCP-1 in place of 80% LDO + 20% FO. Consumption of LDO/FO was 89.50 litres Per
ton of lime production. On switching to RLNG, specific consumption of RLNG is found to be 80 SCM/ton
of lime production.
b. Cold Rolling Mill, Galvanising and Colour Coating Complex at Kalmeshwar
CGL1 - Installation and commissioning of Digital DC drive for Bridle-1A and Heart Rolls and VFD for Jet
Cooling Device to save power.
Galvalume - Spence Blower installed to save power from 200 KW to 55 KW.
CRS4 - DC motor blower power auto off automation done for power saving.
ARP - PLC up-gradation done due to obsolete technology and V-30 Blower drive installed for energy
saving.
CTL3 - PLC panel assembling, erection, wiring, cabling and termination done in-house to replace old
contactor logic.
ECL - Up-gradation of PLC and drives due to obsolete technology to increase equipment reliability.
Narrow Slitter - New digital ABB Drives commissioning done in-house and line speed increased from 20
MPM to 60 MPM.
Mill Bay Transparent Roofing Sheets provided to avoid switching-on of Bay Light during day time/dim
day light.
Interlock provided for Auto Switching-Off of Pay-Off Reel Drive at 6 Hi Mill.
60 MT Crane not used while running one mill to reduce power consumption with respect to use of 25
MT Mill Bay Crane.
39. c. Proposals for Reduction of Energy Consumption
Installation of variable frequency drive for 1700KW main fan at Sponge Iron Plant to reduce power
consumption.
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nstallation of variable frequency drive for 700 KW ID fan of Coal Injection plant to reduce power
consumption.
Up-gradation of existing Vapor Absorption Machine and further utilization of chilled water in ACs to
reduce power consumption.
Natural gas injection at Blast Furnace to reduce coke consumption as well as cost reduction.
Energy audit being conducted for entire Dolvi complex (HSM, BF, Sinter, LCP, SIP, Oxygen plants etc) to
identify further potential areas of thermal and electrical energy conservation opportunities.
Carbon foot print measurement study being conducted to further Carbon reduction opportunities and
identification of CDM projects and develop carbon reduction strategy and set emission reduction
targets.
Installation of Magna drive/ coupling.
Installation of solar panels in building roof tops
The above steps initiated by the Company have enabled savings in energy consumption as well as
savings in costs. The Company constantly undertakes energy saving measures at its plant locations.
JSW STEEL LIMITED
1.Specific areas in which R & D activities were carried out by the Company:
Research and Development activities were carried out in various technological areas, including
Beneficiation of Iron-Ore, Pelletization and Sintering of Iron-Ore, Coke Making, Iron Making in Corex and
Blast Furnace, Steel Making and Casting, Hot Rolling, Cold Rolling, and Waste utilization, with emphasis
on improvement in quality, productivity, energy conservation, waste utilization, cost reduction, and
environment protection. R & D was also carried out for development of value added products in the
40. form of 33 new slab grades and 23 new billet grades to meet specific requirements of customers,
including
API grades for line pipe steel
Drawing and Deep Drawing Steels
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Medium Carbon and High Tensile Steels
Micro-alloyed structural grade steels
Auto and Tube makers grade
Billet grade steels
2. Benefits derived as a result of R & D efforts:
Optimization of the coking time for varying quality of coal blends improved production at non-recovery
coke ovens by 5%.
Reduced the Coke Moisture in Coke Oven #3 from 8% to less than 5%.
Optimization of Sintering Parameters reduced sinter return fines from 30% to < 20%.
Improvement in Pellet Quality by improving pellet CCS > 220 kg/p
BF-2 productivity increased from 2.1 to 2.4 t/m3/d, through optimization of burden distribution,
material discharge rate, soft blowing philosophy and improvement in tapping practice.
Reduction in Fuel Rate at BF-1 and BF-2 by 10 kg/thm.
Minimizing Inclusions in Ladle Change over Slabs through water modelling to reduce emulsification
during ladle changeover.
Recycling of various SMS Slags in Cement and Pellet Making to estimate the maximum permissible limits
of slag addition in cement and pellet making.
Development of model to predict optimum Finishing and Coiling Temperatures for a typical HR Product
by optimization of Thermal Regime in HSM.
Study of thermal profile and wear pattern of rolls in HSM during rolling and improve the critical factors.
Development of new process to produce DRI from green pellets, thereby reducing CO2 generation.
Development of a novel technique for utilization of steel plant wastes to produce high quality DRI for
steelmaking as a replacement of steel scrap.
Development of Predictive Models:
Hearth Wear Monitoring Model for COREX.
Coal Pyrolysis and Power Generation Model for Non-Recovery Coke Ovens.
41. Voidage evaluation Model for BF.
Top gas prediction Model for BF.
Model to predict direct and indirect reduction along with minimum fuel rate.
Model to predict the Hearth liquid level and Drainage rate.
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Model for predicting defective Segments in caster.
Intellectual Capital of the Company in the form of following Patents and
Copyrights
a)Patent: Following Patent applications have been filed:
Iron Enriched DRI and its Process of Manufacture using Iron rich wastes.
DRI and its process of Manufacture from iron ore fines eliminating induration.
Method for Steel manufacture, involving step of De-phosphorizing the Hot Metal.
Method for Steel manufacture involving Hot Metal Pre-treatment for De-siliconizing of Hot Metal
Connector/Bend Adapted for transporting materials including granular materials and System for using
the same.
b) Copyrights
Hearth wear monitoring Model for Corex
Coal Pyrolysis Kinetics & Power Generation Model for Non-recovery Coke Ovens.
BF Top Gas Analysis Prediction Model
Raft Prediction Model
BF Slag Viscosity Prediction Model
Mass Balance Model for Pelletization
3. Plan of action for FY 2010-11
To set up off-line simulation facilities such as beneficiation lab, agglomeration lab, physical model lab,
product development lab and characterization facilities under R&D. Such facilities will enable
optimization of the existing processes and development of new processes and products. Another thrust
area would be utilization of solid wastes generated within the plant. A pilot scale briquetting facility is
under commissioning for converting waste into wealth.
42. Page | 42 4. Expenditure on R & D for FY 2009-10
Particular Vijayanagar Salem Vasind/Tarapur Total
Capital 7.10 _ 0.31 7.41
(4.53) (0.28) (0.50) (5.31)
Recurring 3.53 1.94 0.77 6.24
(5.68) (0.88) (0.51) (7.07)
Total 10.63 1.94 1.06 13.65
(10.81) (1.16) (1.01) (12.38)
43. CHALLENGES OF INDIAN STEEL
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INDUSTRY
Exports of Iron ore
India is the 4th largest producer which produced 226 million tonnes of iron ore during 2009-10. In terms
of reserves India has 8th largest reserve worldwide. However iron ore industry in India is small as
compared to its global counterpart, although country has 4% of world reserves. Iron ore exports
registered a 6% CAGR over the last five years which constitute 47% of iron ore produced in the country.
Coal Dependency
India prime and medium coking coal constitutes around 12% of the total reserves in the country. The
country produced 33 Mn tonnes coking coal during 2008-09 which was just 7% of total coal produced in
the country. The country is deficient in coking coal and largely depends on import. However some
integrated players like Tata Steel and SAIL have 60% and 30% captive availability of coal. Coking coal
imports into India are growing at a CAGR of around 10% from 2004-05 to 2008-09. Various Indian steel
companies are scouting to acquire mining concessions for raw material security required for their
existing units and for expansion plans.
Logistics
Inadequate infrastructure and logistics have significantly impacted the steel industry. Every ton of steel
produced involves transportation of approximately 5 tonnes of materials. This implies that by 2020
around 1000 million tones of material is required to be transported. This requires a huge investment in
key infrastructure including railways, ports and highways.
Secondary steel units
The large number of secondary steel units with swing capacity can create oversupply particularly in long
products segment especially the TMT bar section as secondary steel segment cater to about 75% of the
domestic demand for TMT bars.
Regulatory issues in land for Greenfield projects
44. The delays in regulatory approvals for raw material linkages and hurdles in land acquisition for
Greenfield units hampered the growth of the Indian Steel Sector. As a result, most of the capacity
expansions in 2009-10 and those are expected to be commissioned over the next 24 months will be
through the Brownfield route.
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Raw Material Prices
The escalating raw material prices during 2009-10 caused immense pressure on cost of production of
integrated steel producers as well as secondary steel producers. The steel producers are heavily
dependent on coking coal import, and the price rise by Iron Ore and coking coal majors has impacted
the margins of the Indian steel producers. The latest Long term Agreement Price for coking coal has
escalated from US$ 129 to US$ 200 with shift to quarterly pricing and for iron ore the hike was from 90%
to 100%.
