PIONEER

Diligence & Excellence Since 1996

A SWOT Analysis Report on

“ESSAR STEEL LTD.”

Guided By : Prof. Nhit Jaiswal

Submitted by : Sushil Kumar Tiwari MBA III Sem Section-R (Production + Marketing)

PHASE: 1

3. Essar is setting up a 12 MTPA pellet plant in Paradip. Shashi Ruia. Essar Steel is the largest steel producer in western India with a capacity of 10 MTPA at Hazira. The Group's annual revenues were over USD 15 billion in FY08-09. India. Chhattisgarh. Chairman – Essar Group and Shri. Additionally. through the power of positive action. Vice Chairman Essar Group.6 MTPA pipe mill in Hazira. BUSINESS AND COMPANY ESSAR STEEL The Essar Group is a multinational conglomerate corporation in the sectors of Steel.4 MTPA cold rolling complex. MISSION We are committed to innovative growth. 2. Communications. following the demise of Nand Kishore Ruia. the group founder.5 MTPA hot briquetted iron plant in Hazira and a 1. Energy. an 8 MTPA pellet complex at Visakhapatnam. Nand Kishore Ruia. PROMOTER The Essar group was founded by the Ruia family which has been in business and trading since the 1800s when the family first moved to Bombay from Rajasthan. PRODUCT MIX / LINE . moved south to Madras to begin independent business activities. lime plant and oxygen plant.5 MTPA plate mill and a 0. Ravi Ruia. Gujarat. India has a complete infrastructure setup. Shipping Ports & Logistics as well as Construction headquartered at Mumbai. Power. a 5. Orissa. In 1969. VISSION AND MISSION VISSION We will be a respected global entrepreneur. Essar Steel is a global steel company with strong presence in intensive steel consuming markets in Asia and North America. The Essar Steel complex at Hazira in Gujarat. services and retail. reinforced by a professional mindset. through our personal passion. It is India's largest exporter of flat steel with 14 MTPA (million tons per annum) of capacity. 4. including a captive port. The Indian operations also include an 8 MTPA beneficiation plant at Bailadila. Essar Steel is fully integrated from mining to retail and has strong downstream capability with a global retail capacity of over 3 MTPA. In 1956.1. creating value for all those we touch. Essar is managed by Shri.Essar began as a construction company in 1969 and diversified into manufacturing. his sons Shashi and Ravi Ruia took over the group. The company is building a 1.

MERGERS • Essar Steel Hazira Ltd. has signed a joint venture agreement with Vietnam Steel Corporation (VSC) and Vietnam General Rubber Corporation (GERUCO) to set up the plant in Phu My Industrial Zone in southern Vietnam.Servosteel (Oakside Solutions Ltd). a subsidiary of Essar Steel Holdings Limited announced that it has acquired Servosteel (Oakside Solutions Ltd). a 1. • Essar Steel Orissa Ltd. Shree Precoated Steels Ltd.2mt downstream steel rolling and galvanizing plant for Rs900 crore. JOINT VENTURE The company. Vikram Ispat Ltd. the sponge iron unit of Aditya Birla group.85-billion. the largest independent steel processor in the UK.• Iron Ore Pellet • Hot Briquette Iron • Hot Rolled Coil/Sheet Cold Rolled Coil 5. 8.030 crore. ALLIANCES • Japan's Kobe Steel 6. by Essar Steel Holdings Ltd in $1.50 billion . Essar Steel International BV. for Rs1. TAKEOVER • • • • • • • • Algoma Steel Inc. . the largest independent steel processor in the UK. Essar Steel Minnesota USA PT Essar Indonesia UK's Stemcor-owned Hy-Grade Pellets Ltd (HGPL) and Steel Corporation of Gujarat Ltd at a cost of Rs 19. • Hazira Plate Ltd • Hazira Pipe Mill Ltd 7. through is Singapore subsidiary Essar Steel Vietnam Holdings Pvt Ltd (ESVHL).

Projects (Orissa) Mr Mahadev Iyer — Chief Financial Officer Mr Kalyan Ghosh — Sr Vice President & Head. Sales & Marketing Mr Alain Davezac — EVP. Essar Steel Algoma Mr V Madhusudan — President & CEO. Procurement Mr Suresh Tanwar — Vice President & Head. Supply Chain Management Mr Anil Agarwal — Sr Vice President & Head. Health Safety & Environment Mr Suneel Aradhye — Chief Information Officer 7. Pellet Projects (India) Mr HS Sethi — Director. LOCATION OF MANUFACTURING UNITS . TOP MANAGEMENT Board of directors Mr Shashi Ruia — Chairman Mr Prashant Ruia — Director Mr Rewant Ruia — Director Mr SV Venkatesan — Director Mr J Mehra — Director Mr VG Raghavan — Director Mr Malay Mukherjee — Director Mr Vikram Amin — Director (Sales and Marketing) Mr Mahadev Iyer — Director (Finance) Mr Dilip Oommen — Wholetime Director Mr KV Krishnamurthy — Director Management team Mr Malay Mukherjee — Chief Executive Officer. Steel Business Group Mr Vikram Amin — Director. Project Development Mr MK Sampath — Chief Executive Officer.9. Essar Steel (India) Mr Armando Plastino — Chief Executive Officer. Strategy & Business Development Mr Dilip Oommen — Chief Executive Officer. PT Essar Indonesia Mr RK Zaroo — Director. Essar Steel Minnesota Mr KB Trivedi — President Director & CEO.

Orissa.48% 6.66% 3. Indonesia.II Stakeholders Holder's Name Promoters Foreign Promoter General Public Other Companies Foreign Institutions Financial Institutions Foreign NRI Banks Mutual Funds No of Shares 325969383 666600784 75967074 35254527 23759291 8160033 2426201 1673595 % Share Holding 28. Minnesota Steel. Hazira. Trinidad & Tobago.72% 0. Visakhapatnam.60% 58.21% 0. Paradip. Algoma Steel.08% 0. Canada.• • • • • • • • Bailadila. Phase . Gujarat. USA.15% Goals . Chhattisgarh.09% 2.

087.763.66 24.512.168.96 10.44 (Rs in crores) Mar’10 1.80 10.This means sales of the company is decreasing year by year and cost is not under control.360.93 Mar ' 09 2. Objectives • Energy savings at Steel Melt Shop.490. A high or increasing operating margin is preferred because if the operating margin is increasing. the company is earning more per rupees of sales.07 Comment: Operating margin is used to measure company's pricing strategy and operating efficiency. Financial Aspect of Company: 1. • Increase the operational efficiency and quality of products.24 14.23 Mar ' 07 2.495. coils.35 21. • Development of Neural Network Model for Property Prediction of HP.03 6.002. 2.19 8.• Improvement in physical property and chemistry in the quality of pellets at the pelletisation plant.40 21. This will help in reducing grade extra cost without affecting chemistry/physical properties of the product. Gross profit margin (%) Gross Profit Margin = Gross profit / Net sales (Rs in crores) .591.717.75 Mar ' 08 2. Operating margin (%) Operating Margin = operating profit / sales Mar ' 06 Operating Profit Sales OPM(%) 1.65 11. • Cost reduction. As Essar steel have the lowest operating margin on year 2010.48 24.

49 1139660574 3.62 1171092896 3.62 10.2 Comment : Net Profit Margin compares the net income of a firm with total sales achieved. EPS (Rs) EPS = Profit After Tax / no.717.48 24.45 3741666667 0.18 6.44 6.94 Mar ' 07 1.45 10.24 Comment: 3.06 Comment: .17 Mar ' 08 Mar ' 09 Mar’10 10.13 Mar ' 06 530.35 Mar ' 08 428.66 Mar ' 09 185.24 0.40 10.83 Mar ' 08 428.763. Net profit margin (%) Net Profit Margin = (Net Income+Minority Interest + Tax-Adjusted Interest)/ sales (Rs in crores) Mar ' 06 Net Profit / Loss Sales NPM(%) 530.40 1.49 8.600.) 9. this also tells us that operating costs and cost of goods sold of company is relatively high.Mar ' 06 Gross Profit Sales GPM(%) 1.66 25.087. of 580700986 shares EPS (in Rs.58 Mar’10 22. As the Essar steel have a decreased Net profit margin year by year it tells us that the marketing/administration costs of company is huge! However. 4.20 11.25 8.955.48 5.35 3.54 Mar ' 07 436.168.18 Mar ' 07 436.591. of shares (Rs in crores) PAT no.66 8.591.62 Mar’10 22.35 11.20 1143209877 1.087.717.96 Mar ' 09 185.168.763.

763.00 Dividend Per Share EPS (Rs.20 22.00 (Rs in crores) Mar’10 0.Earnings per share serve as an indicator of a company's profitability.) Dividend payout Ratio (Net Profit) Comment: The dividend payout ratio shows what percentage of a company's earnings it is paying out to investors in the form of dividends.00 0.706. Return on net worth (%) Return on Net worth = Net Profit / Average Shareholder Equity for Period Mar ' 06 Net Profit / Loss Average Shareholder Equity for Period Return On Net Worth (%) 530. 7.06 0. PBDIT PBDIT = Total Sales – Expenses (excluding depreciation.24 2.18 Mar ' 07 436.48 5985.24 8817.00 Mar ' 08 0.35 8277. 5.00 Mar ' 07 0.83 0.54 Mar ' 07 8.11 Mar ' 09 11.591.00 3.12 (Rs in crores) Mar’10 10.’s EPS is reducing it means the earning available to equity share holders is reducing. In order to make earnings comparisons more useful across companies.087.101.66 4462.69 2. In each year the Essar steel didn’t paid of its earnings in dividends.930.62 (Rs in crores) Mar ' 09 Mar’10 185. As Essar steel ltd.00 Mar ' 09 0. interest and tax) Sales expenses PBDIT Mar ' 06 6.00 3.13 0.773.717. Dividend payout ratio (net profit) Dividend Payout Ratio= Yearly Dividend per share/ EPS Mar ' 06 0.96 1.12 1.40 9787.79 Mar ' 08 10.28 Comment: .28 1.62 0.49 Mar ' 08 428.00 9.45 Comment: 6.486.66 0.00 1.168.

52 Mar ' 09 828.101. has purchased assets during the year 06-07.04 1470. . It is showing.01 1266.11 890.486.40 864. Mar ' 06 1. Essar steel ltd. 8.43 10.63 1068.10 1224.54 440.04 1329. & 08-09 but in the year 09-10 company didn’t purchase any asset.59 Mar ' 09 1.706.49 Mar’10 1.79 772.79 631. or obsolescence.12 861.01 1596.773. PBT PBT = PBIT – Interest (Rs in crores) Mar ' 06 1. It also shows that company is frequently buying the new assets.12 828.52 1719.75 Mar ' 08 2. age.01 (Rs in crores) Mar’10 1.11 766.54 482. PBIT PBIT = PBDIT – Depreciation PBDIT Depreciation PBIT Comment: The PBIT increased till the year Mar’08 this is because interest is increasing during that period but it get reduced for the year Mar’09 & Mar’10 because of the decrease in the secured loans and taxes.44 Mar ' 07 2.1 Mar ' 09 1.11 1102. this shows the decrease in the total sales of the Essar steel.11 (Rs in crores) Mar’10 792.930.773. The frequently increase in depreciation shows the reduction in the value of the assets. 07-08.930. Depreciation Mar ' 06 Mar ' 07 631.04 Mar ' 08 766.101.706.85 Depreciatio n Comment: 482.53 Mar ' 07 2.The PBDIT is decreasing fro 2008 to 2010.486.75 Mar ' 08 2.28 908.28 792. 9.85 980.10 A non cash expense that reduces the value of an asset as a result of wear and tear.88 PBDIT interest PBT Comment: The PBT increased till the year Mar’08 this is because taxes is increasing during that period but it get reduced for the year Mar’09 & Mar’10 because of the decrease in taxes paid.

25 1518.00 815.54 9.45 Comment : Net profit is the money left over after paying all the expenses of an endeavor. Net profit Net Profit= Gross Profit.53 165.88 49.94 8.35 3.56 Mar ' 08 1596.94 1100. FINANCIAL ASPECTS Mar ' 06 31.32 958.26 530.11.1 383.96 25. PAT PAT = PBT – Tax (Rs in crores) Mar ' 06 1266.44 1070.03 Mar ' 09 1068.49 110. 12.2 .96 3.19 1081.44 Operating margin (%) Gross profit margin (%) Net profit margin (%) EPS (Rs) 3.18 Mar ' 07 1.66 1.17 Mar’10 864.75 Mar ' 09 21.88 PBT Taxation PAT Comment: It is the net profit earned by the company after deducting all expenses like interest.62 0.13 Mar ' 07 24.75 248.59 Mar ' 07 1329.62 185.06 0. depreciation and tax.600.93 Mar’10 21.20 22.23 24. Net Profit / Loss Mar ' 06 1.76 436.58 1.83 Mar ' 08 24.07 1243.49 Mar ' 08 Mar ' 09 Mar’10 428.Indirect Expenses (R s in crores) Gross Profit Indirect Exp.17 5.955. It can be fully retained by a company to be used in the business.

28 792.11 1102.00 1.III SWOT ANALYSIS STRENGTH Marketing .10 1224.88 22.85 980.706.49 958.75 1081.04 1470.53 1100.18 0.44 1266.20 0.773.101.01 1068.11 766.59 1596.930.45 Phase .00 1.75 1329.00 2.88 815.43 864.00 1.486.79 631.56 436.12 828.49 0.Return on net worth (%) Dividend payout ratio PBDIT Depreciation PBIT PBT PAT Net profit 0.17 185.52 1719.03 428.62 0.00 2.1 1243.59 530.54 482.

yielding significant competitive advantage. Operations • • • • • • • • • • • • • Hazira steel complex is World's largest gas-based HBI plant. To be awarded ISO 9002 for its entire operations and was also the first to received the prestigious ISO 14001 certificate for its complete environmental management from Det Norske Veritas.4 bn (RS 20000cr) in service and manufacturing. Essar is the 1st steel company in the country to brand steel products. Hazira steel complex is consistently operating at high capacity.• Excellent brand equity and quality • • • • It create brand image by offering 24 carat quality steel. with a capacity of 10 MTPA at Hazira. Essar steel is among the 25 percentile of lowest cost producers worldwide and has acquired extensive quality accreditations. Essar operates the widest Hot Strip Mill (HSM) in India (2000mm). HR • Well educated and trained work force. Hazira steel complex is Established customer base in both domestic and export markets. It is India's largest exporter of flat steel with 14 MTPA (million tons per annum) of capacity Essar Steel is the largest steel producer in western India. Assets of &4. Cold Rolling Mill is strategically located adjacent to the Hot Strip Mill. Gujarat. Moreover these materials are available with a quality test certificate. Essar Hypermart are assured of material from an ISO 9002 and 14001 certified mill. The only mill in India offering skin passes material for high end steel applications. Essar is producing the most customized products this is the sign of value for money. Automated systems and processes helps in real time tracking. . • Integrated production The broader Essar group has business interests spanning from power to shipping to oil & gas and all business are synergistically interwoven helps in lowering the cost of production and avoid production variances. Essar Steel produces customized products catering to a variety of product segments and is India's largest exporter of flat products to the US and European markets. They have their sheet metal work engineer mostly near to small industrial cities distributing few tonnes of their required products. Hazira steel complex has amongst the lowest per-tonne operating costs.

• Essar is one of the few manufactures globally who can make API grade steel with low sulphur. slitting and blanking of steel sheets. • First steel company to set up an end user distribution chain for steel products under the brand name Essar Hypermart. • Coaching & mentoring As Essar expands globally. Distribution • It has a global network of retail steel outlets. Strong international business . • It is the only Indian steel Company to have mastered both DRI and Corex method of steel production. and offers services. Essar has a high emphasis on performance. called Steel Hyper marts. “1” level: Manufacturer will supply material to company’s retail outlet and it will provide material to industrial customer. • It has a strong network of over 474 steel retail outlets. • Its production is automated to an extent that it employs only 440 persons/mt of steel produced as against 6250/mt employed by Tata and around 8000/mt employed by SAIL. and mentoring is their primary means of displaying leadership. Technological leadership • It has mastered the steel production process.• Learning & development Essar focuses on building careers. Essar aims to build a learning organization for the employee's career advancement. through specialized Steel Service Centers worldwide. It’s basically regional viz distribution covering the major industrial sectors of every state of India. • Talent management Essar runs various talent management and engagement programmes to harness employee morale and skills • Essar academy Through the academy. II. “0” level: They directly place order to Essar steel only without involving any other intermediaries. I. • It has also adopted and further developed DRI (Direct Reduction Iron) technology which is the future of steel making. they work towards making every manager a leader. like cutting. • Essar steel distribution channel is consist of the “0” level & “1” level. and link both career growth and rewards directly to merit and achievement.

• Essar steel is the largest exporter of flat products selling one third of the production to the US and European market and to the growing market of south East Asia and Middle East. which has a current capacity of 4 MTPA. Compared to the global average per capita consumption of steel a mere 39 kg per head. • Export market penetration . OPPORTUNITY • Maximum utilization of cash flow This is done through new business & avenues like online sales. • High cost of capital Steel is a capital intensive industry.4% in USA. and Minnesota Steel. So getting raw material market is costly affair. steel companies in India are charged an interest rate of around 14% on capital as compared to 2. • Lack of strong domestic business Strong domestic business can potentially safeguard against international downturns. which has iron ore reserves of over 1.4% in Japan and 6. Thus Essar steel has a stronger international reputation then its Indian counterparts.4 billion tons. WEAKNESS Marketing HR Operations • Lack of captive iron ore mines Cost of raw material is high since Essar don’t have its own mines. steel retail outlets like Essar Hypermart which is the first and largest retail chain for steel products in India and through service centers. Essar Steel acquired Algoma Steel in Canada. • In 2007.

financing.e. High cost of basic inputs and services High administered price of essential inputs like electricity puts Indian steel industry at a disadvantage. Upcoming international players There always one threat lies from big international players like arcelor mittal. fuel and electricity. • • • technological obsolescence is a major threat. The usage of steel in cost effective manner is possible in the area of housing. Raw material costs continue to put pressure on production costs. high quality of product from developed countries available for import at very competitive price. They have huge capacities of manufacturing and finance availability. • Unexplored rural market Enhancing applications in rural areas assumes a much greater significance now for increasing per capital consumption of steel. eg cost of electricity is 3 cents in the USA as compared to 10 cents in India. THREATS • Technological change: For developing country like India. about 45% of the input cost can be attributed to the administered cost of coal. Quality improvement of Indian steel combination with its low cost advantages will definitely help in substantial gain in export market. Sail. coking coal) poses a challenge. Intense competition from various players There are various players like Tata.It is estimated that world steel consumption will double in next 25 years. Jindal etc which pose a great competition in the market. Unavailability of certain key raw materials (such as. structures and other possible applications where steel can substitute other materials. • To acquire Kandil Steel. where capital itself is costly. Fluctuating metal price. Ever decreasing import duty on steel i. • • • • • • . a mid-sized steel firm in Egypt. Government has no control over prices of iron & steel.

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