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. TISCO offered a wide range of products (See Exhibit I) and services including Hot rolled/Cold rolled (HR/CR) coils2 and sheets, tubes, construction bars, forging quality steel, rods, structurals, strips and bearings. It also manufactured material handling equipment, ferro alloys and other minerals, software for process controls, and offered cargo-handling services. In the early 1980s, TISCO initiated a modernization program of its steel plant (See Exhibit II). Explaining the need of modernization, J J Irani, the then managing director of TISCO said, "We would have been finished otherwise.... you cannot fight a modern-day war with weapons of the Mahabharata. We would have been annihilated had we not modernized. We realized this and embarked on the four phases of modernization. We addressed our drawbacks like the steel making process, our weakest link." By mid-1990s, TISCO had become India's most cost-effective steel plant. It also became Asia's first and India's largest, integrated steel producer (ISP)3 in the private sector. By 2000, eight divisions of Tata Steel were ISO-140014 certified, including Noamundi Iron Operations, West Bokaro Collieries, Ferro Alloy Plant, Joda, Sukinda Chromite Mines, Joda East Iron Mines, Tubes Division, and Growth Shop & Steel Works. By early 2000, TISCO had completed four phases of the modernization programme with an investment of about Rs 60 billion5. The company had invested Rs 4 billion on consultancy fees during 1990 to 2000. The fifth phase of the program had commenced in April 2000 Company Ranking Score TISCO 1 131 Usinor (Russia) 2 129 Posco (Korea) 3 127 CSN (Brazil) 4 123 Baosteel (China) 5 121 China Steel (China) 6 119 Gerdau (Brazil) 7 118 Nucor (US) 8 116 Car-Tech 9 112 Nippon Steel (Japan) 10 111 Severstal (Russia) 10 111 Dofasco (US) 11 109 The 'Top' Program In the early 1990s, TISCO appointed McKinsey and Booz-Allen & Hamilton to study its operations and suggest ways to cut costs. Irani explained the rationale, "Cost-cutting measures are more important in the present situation where one can no longer control steel prices which are dictated by international markets." The consultants suggested TISCO to focus on various components affecting the cost of steel, which included cost of raw materials, cost of conversion, fuel rate in the blast furnace and mining of coal. TISCO was advised to use the most modern technologies to cut costs further. In the second half of 1998, in association with McKinsey, TISCO implemented TOP program at its G blast furnace8. TOP was widely regarded, as a program, which would have a maximum positive impact to the bottomline, with minimum investment, required in minimum time (See Exhibit IV). It
Moreover. the G blast furnace also implemented 185 ideas. In the process. The company aimed to further reduce the time to one week. The Phase IV of the Wave started with the implementation of these ideas. The Phase I of a Wave was two weeks long. Around eight units were addressed simultaneously during the 12 weeks. In the Phase II of the Wave.000 employees was not an easy job and the company was able to do it with a lot of communication with employees. coke and coal were the largest cost elements.aimed achieving large improvements in throughput. At the G blast furnace. Implementing Best Practices In 1999-2001. TISCO set up a potential savings target for its G blast furnace at about Rs 300 million per annum. the G blast furnace achieved a savings of Rs 87 million against the targeted savings of Rs 40 million. the team was expected to identify and understand how each cost element could be reduced. accounting for more than 10% of its profits in the fiscal 1999. TISCO stopped using manganese. The team had to establish relationships between key performance indicators and the elements that had an impact on them. A unit team was formed comprising a unit leader and two facilitators. They accounted for about 50% of the total costs. Between 1996 and 2000. TOP was in Phase V of the Wave (See Exhibit VI). which could be reduced were highlighted and the reduction targets were set. For example. TISCO took measures to reduce costs further by adopting innovative strategies and other cost-cutting exercises.000 to 40. The team worked full time on the TOP program for a period of 12 weeks. The ideas were then grouped based on the capital expenditure required for implementing each idea. Each team was asked to set itself a target based on the TOP norms. TOP was expected to enable the TISCO to achieve high rates of performance improvement (See Exhibit V). Simultaneously.000 employees. which did not require any capital investment. The unit leader was responsible for the performance of that particular unit. develop ideas to improve from the present level of performance to the target level. The company made efforts to reduce its product delivery time from 3-4 weeks in 1998 to 2 weeks in 2000.' The entire Wave was divided into five phases (See Exhibit VI). ideas were explored to reach the set targets. n 2000. an expensive metal used to increase the strength and flexibility of steel. 36 ideas were short-listed. and implement those ideas. the whole organization was divided into manageable 'units' to facilitate the implementation of TOP. throughput10 and fuel costs were identified as the key performance indicators in the Phase II. Individual components of the larger cost elements were identified by drawing cost trees9. quality and cost in the short term. The unit team's objective was to explore ideas to reduce the cost or delays made by the unit by about 40%. The TOP program had helped TISCO to shift its focus from just producing volumes to costs and quality. During this phase. In the Phase III of the Wave. similar Waves were also adopted in TISCO's shop floors. TOP enabled TISCO to improve customer satisfaction and loyalty. The cost elements. . Considering the techno-economic feasibility. and this was also known as 'Wave. Among the different individual components of fuel costs. By late 1999. A reduction target was set to bring costs down to 570 kgs per thm11 from 610 kgs per thm. Since TISCO's scale of operations was quite large. In the long run. the cost base was examined and the items that had a maximum impact on the bottomline were identified. By March 1999. TISCO reduced its workforce from 78. McKinsey provided the facilitators. Analysts opined that cutting its workforce by 38. ideas were generated to achieve the target output of 3800 tons per day. TISCO also took steps to reduce its manpower costs. Initially.
the team decided to use SAP R/3. and after the restructuring. Muthuraman explained the benefits of PEP. Through PEP.82 billion during 1998-99 (Refer Exhibit VII). which was expected to foster growth businesses.53 billion in 2000-2001. This exercise was expected to cut the management staff from 4000 to 3000. the company formed a small cross-functional in-house team consisting of consultants from Arthur D Little and IBM Global Services. rather than following the convention of seniority. and also offer development opportunities for each employee.22 billion in 1999-2000 compared to Rs 2. It would identify and reward strong performers. (SAIL) adopted a similar program with an investment of Rs 70 billion. TISCO was to get power at a tariff of 1. TISCO planned to enter new areas including setting up of a 0. the program was not successful. In 1999. TISCO was also planning to enter titanium mining through alliances with major global companies. the average age of the managers has fallen by 10 years. After considering several packages. The introduction of SAP also decreased manpower cost from more than US $ 200 per ton in 1998 to about US $ 140 per ton in 2000.8 cents for about 15 years that is about one-fifth of the tariffs in India. TISCO wanted to make performance appraisals transparent and fair and reward the good performers. and reduced costs. To develop this business. PEP had two core elements. introduce more decision-making flexibility. clear accountability. Secondly. under which. TISCO planned to enter the call center business in Jamshedpur. it planned to promote hardworking young people to higher positions depending on their performance. PEP proposed to introduce a Performance Management System (PMS). By introducing PMS.1 million-ton ferro chrome export oriented project. The Future Analysts felt that TISCO's modernization program was very successful. TISCO also reduced the hierarchical levels from 13 to 5. The Steel Authority of India Ltd. it proposed a new organizational structure. The project was planned in Australia because of the lower power costs. in spite of the depressed market and lower margins. The company also planned to introduce a new compensation package based on performance from November 2001. TISCO entered into a . In contrast. the decrease in the production costs enabled TISCO to achieve a profit after tax of Rs 5. the business processes became more efficient.also known as ASSET (Achieve Success through SAP Enabled Transformation) . It also improved customer service and productivity. There was a significant reduction in inventory the carrying cost. thereby reducing the costs. The program began with a study on cost-competitiveness. TISCO wanted the team . However. There were also significant cost savings through efficient management of resources. TISCO used IT as a strategic tool. Power accounted for 60% of the cost of ferro chrome manufacturing. PMS would also ensure that every employee's job profile was clearly defined." In a bid to reduce costs further. After SAP solutions were introduced in TISCO.to integrate SAP into the existing information system and make it compatible with future SAP implementations. Firstly. and Rs 4. and encourage teamwork among the managers and the workforce. The aim of the program was to enhance customer focus enabling better credit control and reduction of stocks.TISCO had adopted Performance Ethic Programme (PEP). from Rs 190 per ton in 1999 to Rs 155 per ton by 2000. To provide employment to the employees opting for VRS at over-manned units.order generation and fulfillment and marketing development. The team was responsible for re-designing two core business processes . "Youngsters are getting higher salary than some of the seniors.
Do you think the low costs would help the company in the long run? Justify your answer. in the minimum time. would deliver returns higher than the cost of capital in India. with minimum investment. what are the other steps taken by TISCO for reducing costs? 3. Critics felt that TISCO might face problems due to the decrease in demand for steel in the global and local markets and increasing competition from cheap imports. the trading arm of Tata Group. TOP was described as "maximum impact to the bottomline. They felt that it was doubtful whether steel. Questions for Discussion 1. Apart from TOP. despite a depressed market and low margins. The lowered production costs enabled TISCO to record a profit during 1999-2000. . even at the lowest cost.marketing alliance with Tata International. Iraq and the Southeast Asian countries might reduce dependence on the US markets thus helping the company. and anti-dumping duties imposed on the domestic steel manufacturers by the US. They said that its entry into value-added products was expected to safeguard the company from the fluctuations in the steel prices. 2. TISCO also planned to exit from some of its non-core activities. What was the rationale behind the implementation of TOP? Briefly analyze the process and explain the advantages of TOP. TISCO's strategy to export to Jordan. some analysts remarked that in the long run. However. The cost-cutting measures seemed to have helped TISCO to a large extent.
24 Homi Mody Street Fort. 1939: By now. profitability provides the main spark for economic activity. 1955: The MEP is upgraded to the Two Million Ton Project (TMP). 1924: On the brink of disaster. 1998: TISCO records a 61 percent decline in net income due to a downturn in the steel industry. 331221 Rolled Steel Shape Manufacturing Company Perspectives: Consistent with the vision and values of founder Jamsetji Tata.000 people at Jamshedpur and 20. Mumbai 400 001 India Telephone: (91) 033-2882727 Fax: (91) 033-2889881 http://www. 1951: A Modernization and Expansion Program (MEP) is launched.com Statistics: Public Company Incorporated: 1907 Employees: 48.000 workers in neighboring coal mines. 1996: The company begins a joint venture with Inland International to build a steelworks facility in India. 1990: TISCO begins expanding and establishes subsidiary Tata Inc.41 million)(2000) Stock Exchanges: Bombay Ticker Symbol: TISCO NAIC: 33111 Iron and Steel Mills. consistent with modern management practices. 2000: TISCO completes a ten-year. (TISCO) is the iron and steel production company associated with the Tata group of some 80 different industrial and other business enterprises in India. Sir Dorabji Tata pledges his personal fortune to secure bank loans to keep the company afloat. in New York. The means envisaged to achieve this are high technology and productivity. Key Dates: 1907: Tata Steel is established by Jamsetji Tata. TISCO operates as India's largest integrated steel works in the private .Address: Bombay House.4 billion ($141. 1989: The Tata Group doubles its stake in TISCO to thwart takeover attempts. Tata Steel recognizes that while honesty and integrity are the essential ingredients of a strong and stable enterprise. $1. Company History: Tata Iron & Steel Company Ltd.5 billion modernization program. TISCO operates as the largest steel plant in the British Empire. Tata Steel strives to strengthen India's industrial base through the effective utilization of staff and materials.821 Sales: Rs 66. 1970: TISCO employs 40. 1978: The Indian government forces TISCO into modernization efforts. founded by members of the Tata family.tatasteel.
There. Tata's father was a successful merchant with interests in the cotton trade to Britain. England. such as Bihar and Orissa in the northeast of the subcontinent.sector with a market share of nearly 13 percent and is the second largest steel company in the entire industry. Tata joined the family business after an education at Elphinstone College in Bombay and was sent to Lancashire. Shapurji Saklatvala. In England in 1900. Cotton was only a start. software for process controls. he discussed his plans with the secretary of state for India. From his travels in other industrialized nations he had come to identify three essential elements for a modern industrial economy: steel production. Jamsetji Nusserwanji Tata was born into a well-to-do family of Bombay Parsees in 1839. he joined his uncle's London office. forging quality steel. had carved a niche for themselves in business. whose health suffered so much that he was sent to London to recuperate. With Julian Kennedy's help. Tata's Early Beginnings in the 1800s The story of TISCO is the story of one family or. which had been established some years earlier to represent the interests of the family cotton business. American specialists were brought in and began surveying in 1903. construction bars. North America. Its products and services include hot and cold rolled coils and sheets. At the same time. Development of Tata Iron & Steel Company: Late 1800s-1980s From the mid-1880s. His early ventures showed promise and in 1874 he founded his first company. wires. After a series of disappointments. Through its subsidiaries. Although he did not live to see any of his schemes in these areas come to fruition. Weaving and Manufacturing Company. to locate iron ore within easy reach of coal deposits and water. Also involved in the surveying was Tata's nephew. hydroelectric power. to study the coking process in action. rods. Indian nationalism also was beginning to find a focus for its aspirations through the Indian National Congress. steel plant and material handling equipment. and then later generations of his family. Lord George Hamilton. TISCO also offers tinplate. structurals. which was dominated by British interests and was being developed as a client imperial economy. strips and bearings. Three years later. were able to build to realize his ambitions. Julian Kennedy. in 1864 to represent the firm there. he opened the Empress mill in Nagpur. in this case in the economy of Victorian India. more accurately. This was to be the first of many travels in Europe. thereby putting them in a strong position to undercut their Lancashire competitors. and went to Birmingham. rich iron ore deposits were identified in the dense jungle in Bihar at the confluence of two rivers near Sakchi three years after Jamsetji Tata's death in 1904. Tata was present at its inaugural meeting and his devotion to the cause of an independent India was undoubtedly a motivating factor in his own drive for success in business. He visited the United States to seek the advice of the world's foremost metallurgical consultant. ferro alloys and other minerals. one man whose vision and determination to give India a modern industrial economy helped provide a platform for the country's independence half a century after his death. a religious minority group. the Central India Spinning. Tata commissioned a series of surveys in India's coal-producing areas. both essential elements in steel production. he helped create what was by 1970 India's biggest nonpublic enterprise. refractories. As Tata was taking his first steps toward establishing a viable cotton spinning business. The Parsees. In India. rolls. He believed that mills could function successfully in India in close proximity to the cotton-producing areas in the west of the country. Alabama. the way had been opened for private enterprise with the introduction of a more liberalized mineral concession policy in 1899. he laid the foundations on which his sons. on the same day that Queen Victoria was declared empress of India. His . and technical education. and the Far and Middle East during which he formulated his ideas on the best strategy to realize his own ambitions for success in business and to contribute to the economic development of India. tubes. Tata's own background was in cotton production. and cargo handling services. He obtained air conditioning equipment from suppliers in the United States and the latest cotton spinning machinery installed to provide the optimum climatic conditions for spinning. and project management services.
once production began. He showed a paternalistic concern for the well-being of his employees. as India's only private sector steel producer. by seeking out Indian investors. however. This was achieved in 1958 but further expansion was put on hold during the 1960s while the country passed through a period of devaluation and recession. which set the tone for future company policy. upgraded four years later to the Two Million Ton Project (TMP) to give TISCO the capacity to produce two million tons of crude steel. hampered Tata's freedom to develop in the postwar period. TISCO remained India's largest nonpublic company. A conscious decision was made to retain control within India of the new enterprise. it became imperative in the late 1940s to begin replacement of the plant. it was believed. pioneers of social reform Sydney and Beatrice Webb.000 people at Jamshedpur. as the biggest steel plant in the British Empire.500 miles of steel rails to Mesopotamia. and in the following decade began to benefit from a relaxation of government control as a more pragmatic attitude to the importance of private sector industry emerged. In association with Kaiser Engineering of the United States capacity was expanded and a Modernization and Expansion Program (MEP) was launched in 1951. to plough money into modernization. by now TISCO's biggest customer. which were used extensively by the British Army in the North African desert. the Tata Iron and Steel Company. The Tatas retained 11 percent of the stock for themselves. were invited out to India from England to advise the Tatas on the best form of social. TISCO employed 40. however. The British proponents.000 Indian investors came forward and the whole share issue was taken up. By 1970. to retain an efficient private sector yardstick against which the performance of public sector companies could be judged. Government attempts to nationalize TISCO in 1971 and 1979 were defeated. transport and labor difficulties. World War II brought a resurgence in demand for Tata products and the company specialized in the manufacture of armored cars. and he became Communist member of Parliament for Battersea North in 1922. By 1990. In 1978. however. Following six years of almost continuous production to serve the war effort. announcing a 30 percent increase in profits against a backdrop of general depression in the Indian economy as a whole. and cooperative services for the newly established Jamshedpur and as a . in part.energies were soon channeled away from business matters and into politics. Expansion was restricted by a government committed to helping nationalized industry. A factory and township were carved from the jungle and named Jamshedpur. and a major earthquake in Japan. power. By 1916. TISCO emerged from the 1930s.000 in the neighboring coal mines. Rapid expansion to support the Allied war effort was followed by Depression during the 1920s with escalating prices. In the face of warnings that India could not afford a flotation of this size. Within eight weeks some 8. production was meeting expectations and during World War I the company exported 1. TISCO soldiered on. with a further 20. Further difficulties were created in the late 1970s by chronic shortages of coal. An estimated Rs 45 crores of salable steel was lost during 1979-80 because of these shortages. in ensuring that the coal was of a uniform quality. The company had to suspend its dividend for 12 out of 13 years in this period and was on the brink of closing in 1924 when Sir Dorabji Tata had to pledge his personal fortune to secure the necessary bank loans to keep the business afloat. medical. however. known as Tatanagars. Growth of the Tata Empire Over the Course of the 20th Century The growth of Jamshedpur and the involvement of the firm in every aspect of its industrial and municipal life was the subject of several studies.2 million in shares. Four years after Tata's death. An ever-increasing range of government legislation to bring private sector businesses into line with national economic planning on the Soviet model. In 1989. the Tata group increased its stake in the steel firm to ward off any attempts by outside shareholders to gain control of the company. his sons Dorabji and Ratanji began development of the Bihar site. the government restricted TISCO's dividend to 12 percent to force it. There were enormous initial problems in clearing the Sakchi site and. Jamsetji Tata was both a nationalist and a philanthropist. however. and rail transport. the Tata brothers set out to raise Rs 23.
and pipelines had been laid to feed the new turbines. TELCO. central control was not difficult. some of them part of the Tata Group. shares in the 30 or so Tata enterprises were retained by Tata Industries. and Tata Hydro-Electric Power Company were only three parts of the Tata empire that by the late 1970s included 30 separate companies. far more than any single equivalent firm in the United States or United Kingdom. The second element in Jamsetji Tata's plan for India's modernization was the development of a hydroelectric capability. much informal consultation between firms. acted in this capacity for many of the firms in the Tata Group. which together satisfied Bombay's entire domestic and industrial requirement. as much as anything. with TISCO alone providing 0. the natural resources existed to provide this new source of power. Andrews. a recurrence of names in the lists of directors. basically steam-driven cotton spinning industry lay the monsoon-swollen rivers of the western Ghats. If Bombay's captains of industry could be persuaded to invest in the necessary conversion from steam to electricity. whose father had been adopted by Ratanji Tata's widow in 1917. These included the Tata Engineering and Locomotive Company (TELCO). which represented the views of a government hostile to large private enterprises. Whatever the arguments. the Tatas bought up sufficient mills to create the necessary demand before launching Tata Hydro-Electric Power Supply Company in 1910. The continued prosperity of the group during the difficult postwar years for private sector firms was probably also helped by its refusal to take up an overtly political stance in opposition to prevailing . the required dams and reservoirs. He was succeeded in 1981 by Ratan Naval Tata. Following the Monopolies and Restrictive Practices legislation of 1969. An eight-hour working day had been introduced in 1912. and a shared head office in Bombay. In 1970. After this date. By the 1960s. British investments in the subcontinent were managed by firms of agents who charged commission for their services. there was much unrest among the workforce during the 1920s over wages and conditions and it has been claimed that this. The commitment of the Indian Trades Union Congress after independence to the same goals as central government--economic self-sufficiency and prosperity--allowed the Tatas a relatively free hand in dictating their own industrial relations policy. Together the group accounted for 1. the Tata group was self-conscious within India about the size of its operation and great emphasis was placed on publicizing the independent nature of each of its firms.8 percent of India's GNP.4 percent.consequence schools.F. TISCO's success spawned numerous offshoots making use of Tata products. This ripple encouraged other areas of Indian industry to become suppliers of spare parts for new products and by 1970 TELCO had more than 500 Indian ancillary suppliers. In reality. an officially recognized Tata Workers' Union established with Gandhi's associate. a distant relative of the founder of the Tata industrial dynasty. Tata Industries Ltd. C. Within reach of Bombay's thriving. and other amenities were established on site at an early stage. whose chairman from 1938 was Jehangir Ratanji Dadabhoy Tata. it was argued that the Workers' Union operated in fact as a management tool to impose its will on a workforce so heterogeneous by nature that rival unions made little headway. recreational facilities. and until 1970. Two further power stations followed in 1916 and 1919. ducts. contributed to advances. the Tatas had been adept in holding together their empire with a steady growth in the group's assets. the managing agency system that had characterized much of Indian industry since the British period was abolished. and its management illustrated its commitment to the welfare of its employees by commissioning an audit of its "social performance" by a team of eminent public figures. It was pointed out that 75 percent of the firms' shares was owned by trusts established by the Tata family to promote research and welfare projects. To encourage the process. TISCO could claim in 1989 that it had not lost a day's work through industrial action in 50 years. TISCO. Between the wars the family had to sell some 50 percent of its stake in the hydroelectric company to a U.S. and profit-sharing schemes were brought in in 1934. as its first president. syndicate to support other less successful firms within the group. Despite the reputation of the Tata family for concern over workers' rights. By 1915. Against this. Under this system. power stations had been supplemented by four thermal installations. creches.
Government monopoly legislation also restricted diversification into high-profit areas such as fertilizers or pharmaceuticals. and offered to underwrite the project with an endowment derived from his Bombay properties. One Tata initiative that slipped through the net was air travel. For example. however.000 vehicles per year. In the field of electronics. There were no restrictions on overseas investment or new technology. Tata persevered. Tata Airlines went public as Air India Ltd. the Taj Mahal Hotel. Another venture in 1962 involved joining with James Finlay and Company of Scotland to form the Tata-Finlay Company. After Curzon's departure. An air service was inaugurated to carry the mail between Bombay. One of Jamshedji's greatest legacies was a concern for creating better educational opportunities for his countrymen. the company stayed in business. however. His scheme to launch a Science University in India in 1898 was opposed by the viceroy Lord Curzon as overambitious and inappropriate for Indian needs. however. an obvious move for a group such as Tata whose traditional staple was high-cost. India needed firms such as TISCO or TELCO if the country was to maintain a viable industrial capability. one in five of Indian recruits to the Indian civil service had benefited from Tata scholarships. when it backed the short-lived Forum of Free Enterprise against a government committed to assigning a dominant role to public sector industry. Tata joined the Burroughs Corporation of Detroit in 1977 to market the U. when a drought in 1962 threatened to close the plant. which bought Finlay's 53 tea estates and has become the biggest tea producer in the world. and sanction was given to TELCO to increase its output from 24. and other humanitarian projects continues today and is part of the Tata distinctiveness. low-profit industry. which has developed techniques for more efficient power generation. The only exception was in 1956. In 2001. was conceived by Jamsetji Tata and opened in 1913. took part in a Green Millennium Countdown program and planted 1. as the first hotel in the country using electricity.S. in Bombay. Tata Chemicals was launched in 1939. The plant had a checkered history in its early years owing to delays in perfecting the soda ash process. With such an array of experience and expertise. welfare. Tata funds have gone into other projects such as the Bhabha Atomic Research Center in Bombay. even when government controls officially restricted growth. . the Tata Electric Company was given the green light during the 1970s to build privately a new 500-megawatt plant. it also supported the Lifeline Express program that provided healthcare to those living in remote areas. whose centerpiece. The third requirement of Jamsetji Tata for a successful and independent India was a system of technical education. In 1946. and Madras in the 1930s. central. Karachi. ceramic. This commitment to education. for example. By the 1920s. TISCO. and inroads into both these areas were made. and leather production. Bangalore was chosen as the site for an Indian Institute of Science with joint funding from the Tata family. the group entered the consultancy market with the establishment of the Tata Consulting Engineering and Tata Economic Consulting Services. management prevailed upon the local population to ration the domestic consumption of water. He did not live to see the scheme realized. and provincial governments. With the support of the Tata group and the usual Tata resourcefulness in times of crisis. and the company was nationalized in 1953 to form Air India and Indian Airways. Therefore.government policy. firm's computer systems and to begin to develop the manufacture of mainframe computers in India. TISCO is also known for providing relief during natural disasters and was awarded the Outstanding Corporate Citizen Award from the Economic Times. and its Mithpur plant produced mineral extracts required for glass. the government of India showed itself more amenable to the proposal. TISCO developed as one of the independent but interrelated companies within the Tata group.5 million trees. Among the better known of these firms is the Indian Hotels Company.000 to 36. This "lakeless week" was a great success and ensured that sufficient supplies of water remained for the company to continue in production. and in 1911. The institute produced a number of eminent scientists and became a focus for much pioneering research. however.
That year. Under a new director. India also began allowing foreign manufacturers involved in such steeldependent industries as electronics and automobiles to operate in the country. It began operation of a 1. energy. materials.. TISCO pledged to continue cutting costs and focus on new growth areas such as making investments in the telecom industries. Tata Technodyne Ltd. In 1998. and distribution were lifted in India. TISCO and most of the larger firms in the "family" shared the same head office in Bombay.. the Tata group included 80 companies involved in various industries including engineering. the company reported a 61 percent fall in net income. The Tata sense of identity survived a postwar period of almost continuous economic and political adversity. subsidiary. chemicals. TISCO was able to keep its bottom line in the black. TISCO. Many construction projects in the region were put on hold. During fiscal 2000. up from 2. Principal Competitors: Essar Steel Ltd. Jamshed Irani. Tata Inc. Although conditions in the steel industry remained uncertain and the economic climate in India remained unstable. cut its workforce from 78. the firm opened offices in Singapore and Dubai. after 30 years of service. The steelmaker also broadened its geographic reach. a joint venture that would provide industrial materials management services in India. The management culture of the group as a whole was changing in the new millennium. As demand increased.669 employees in 1993 to 48. During the mid-to-late 1990s. As steel demand and prices fell.2 million earned in the previous year. consumer products. price. Stewarts & Lloyds of India Ltd. TISCO's profits plummeted.7 million tons in 1996. Jindal Iron & Steel Co..1%). IT and communications. Ltd. By 1996. of an often ill-judged concern for the continued existence of every member of the corporate group irrespective of profitability. a U. was established and the following year. In 1990. steel consumption in India had grown by ten percent in each of the last four years. retired. TISCO reported earnings of $90.S. and services. The Tata Pigments Ltd. While most companies involved in the steel industry reported losses.The Tata family was often accused of paternalism toward its workers. .1 million. TISCO was able to complete its $1. Despite the trying economic conditions. In 2001. TISCO Operations During the 1990s During the 1990s. Tata Korf Engineering Services Ltd. TISCO and the various Tata companies operated entirely independently. As such. At the start of the new millennium. however. Tata directors were focused on profitable operations as well as securing leading industry positions for each Tata company. Since the abolition of the managing agency system in 1970. the steel firm began its fourth stage of upgrades and improvements. TISCO's managing director. TISCO expanded further and teamed up with Inland International Inc. Muthuraman at the helm. however. family. leaving B. Kalimati Investment Company Ltd.5 billion modernization program in April 2000. As part of the modernization.2 million metric tons by 1999. It was during 1991 that restrictions on licensing. Principal Subsidiaries: Tata Refractories Ltd (51%). TISCO set plans in motion in 1995 to construct India's largest blast-furnace mill with an eventual annual capacity of ten million metric tons. to create Tata-Ryerson. India's steel industry and economic climate weakened.. and of an over-concentration on traditional high-cost but low-profit industries. (60.821 in March 2001.2 million metric ton cold rolling mill and also became one of the lowest-cost producers of hot-rolled coils. TISCO appeared to be well positioned to handle the problematic environment. TISCO began aggressive cost-cutting measures and drastically cut its workforce.. allowing TISCO to expand its capacity. TISCO planned to increase its annual steelmaking capacity in Jamshedpur to 3. but they retained many personal. and business ties. During the decade. Tata Incorporated. TISCO was faced with trying economic times as it forged ahead with modernization and expansion.D. an increase over $60.
65 billion Rs4 billion commercial paper programme Fixed deposit programme AA+ (Reaffirmed) P1+ (Reaffirmed) FAAA (Reaffirmed) The ratings continue to reflect The Tata Iron And Steel Company Ltd. Tisco has dropped its telecom investment plans and has not yet finalised the brownfield project. an important element of production cost. The current ratings assume that Tisco's gearing would decline going forward as the company has no significant capital expenditure or investment plans. the ratings continue to draw comfort from the fact that there are no significant cash outflows (interest and principal repayments) on the loans drawn by Tisco from the Steel Development Fund (SDF). in the absence of significant capital expenditure in future. Tisco is currently carrying out feasibility studies for a titanium project in Tamil Nadu. Although the company's gearing of about 1 (excluding the impact of deferred tax) as on March 31. Crisil would factor in the impact of any significant investments as and when they are made. assume that Tisco would not make substantial investments in any other non-core business. but an investment decision on this is expected only after a couple of years. however. is among the lowest in . Strong global cost position: Tisco is one of the lowest cost steel producers globally. the company would be in a position to reduce its debt levels. These are positive developments because. At the time of the last rating review in January 2002. is inconsistent with the outstanding rating category. and its increasing sales of value-added products following the stabilisation of its recently commissioned cold-rolling (CR) mill. The ratings continue to factor in the company's modest investments of about Rs0.5 billion in the South African ferrochrome joint venture project. This has enabled the company to effectively negotiate steel price cycles and remain profitable even during severe downturns. which are consistent with its AA+ rating category. however. The company's cost competitiveness arises from its highly integrated operations backed by superior operating efficiency. 2002. The company's cost of coking coal.The Tata Iron and Steel Co Ltd Non-convertible debenture programmes aggregating Rs10. Subsequently. factored in the company's proposed ferrochrome project in South Africa. The ratings. Tisco derives a significant cost advantage from its low-cost captive sources of iron-ore and coal. and a strong global cost position arising out of its highly integrated operations and superior operating efficiency.'s (Tisco) strong business profile characterised by its pre-eminent position in the domestic steel industry. Crisil had assumed that Tisco would not participate in the Tata group's foray into the telecom business. Crisil had.6 billion in its Rs2. The ratings also reflect the financial flexibility that the company enjoys as a flagship of the Tata group. and a brownfield steel capacity expansion at Jamshedpur. which constitute about 30 per cent of its total debt. depending on the quantum invested and the funding mix for the same.
which is not suitable for metallurgical operations. Cost savings have primarily accrued from improvements in throughput in different equipment. High debt levels constrain financial risk profile: Tisco's financial risk profile is constrained by the company's high debt levels resulting from the large capital expenditure incurred in the past. Tisco's operating margins. Weak industry fundamentals: Tisco's business risk profile is. the company's profit margins fluctuate widely depending on steel prices. reduced sales of its lowerend hot-rolled (HR) products. despite using a 50:50 blend of captive coal and imported coke. though superior to those of most domestic and international companies. Tisco reported a sharp increase in profitability with a profit after tax of about Rs2. The company also plans to increase finishing capacity in the longs segment by setting up balancing equipment. Profitability improved primarily due to the increase in steel prices. The company has also satisfactorily dealt with its high labour costs through continuous manpower rationalisation.the world. which includes a 0. as can be seen from the company's results for the first half of 2003. it has initiated the concept of branding a commodity like steel with Tata Tiscon (reinforced bars) and Tata Shakti (galvanised sheets) being some of its branded products. which. manpower and administrative costs.9 billion (Rs0. inbound and outbound logistics. modest debt protection ratios (interest cover and cash accruals in relation to debt). Blended coal is used to reduce the high ash level of Indian coal. The company recognises the need to further reduce costs and improve efficiencies. No major investments factored in: The current ratings do not factor in any significant investments .4 million tpa galvanising line. which affect profit margins. The company's product mix is expected to improve further in the future with increasing CR sales and consequently. which would reduce the proportion of semi-finished steel (billets) in the product mix.2 million tonne per annum (tpa) CR mill. Net profit margins. Consistent cost reduction: Tisco has significantly reduced its costs by implementing the Total Operating Performance (TOP) concept across all processes. The company's financial risk profile is characterised by a relatively high gearing and consequently. In the first half of FY2003. Moreover. declined to about 3 per cent in FY2002 from about 8 per cent in FY2001. Going forward. constrained by the steel industry's below-average risk profile.06 billion respectively in the first half of FY2002). The company sold about one million tonnes of CR products in FY2002.7 billion on net sales of Rs35. and processes and reduction in specific raw material consumption. in turn. in two phases in FY2001 and FY2002. and also due to the company's improving product mix. Crisil expects Tisco to sustain this strong financial performance. The industry is also characterised by cyclicality in demand and capital-intensive operations. Tisco's cost structure also benefits from the modernisation programmes and process improvements that it has continuously undertaken. Maruti Suzuki and Mahindra and Mahindra. thereby significantly improving its product mix (see chart below). Besides. however.48 billion and Rs31. The steel industry is bogged by persistent excess production capacity and a high level of fragmentation. affect the financial profile of steel companies. Ford. Tisco has also been accepted as a supplier to leading automobile makers such as Tata Engineering. however. All these initiatives have improved the company's average realisations and hence profitability. Improving product mix: Tisco successfully commissioned a 1. Tisco plans to achieve additional cost savings in the areas of strategic sourcing. declined sharply to about 19 per cent in FY2002 from about 25 per cent in FY2001. which are constrained by high interest costs and depreciation and also by the extra-ordinary expenditure on account of its voluntary retirement schemes. These adverse factors expose companies to severe pricing pressures.
Meanwhile. An improvement in the industry's long-term prospects. While the recent trend towards protectionism is an unwelcome development overall. Key Rating Sensitivities Going forward. especially in China. The project is expected to commence by October 2003 and be completed by the end of FY2005. is essential for prices to firm up and remain stable. as and when precipitated. and some amount of production cuts globally. Prices are also expected to remain at current levels or even weaken marginally in the near future. Given the management's project implementation track record. however. Steel-makers experienced a tough year in FY2002. it has also helped boost prices. A strong global economic recovery. have staged a recovery in 2002 led by improving demand. or goes in for inorganic growth through large debt-funded acquisitions. Accordingly. the project should be commissioned successfully. Industry Outlook The fortunes of the domestic steel industry are linked to economic growth and the level of government spending on infrastructure. which would result in higher steel consumption. The ratings could be adversely impacted if the company makes investments in any unrelated businesses.apart from the company's ferrochrome project in South Africa. due to the continued slowdown in the global economy. The key to the ratings would be the company's ability to improve or maintain its gearing at current levels despite the various investments that it may make. The ratings assume that Tisco will only make negligible investments over the next two years for feasibility studies in its proposed titanium project. Global steel prices. any significant cash outflow on account of the outstanding SDF loans could impact Tisco's ratings. however. domestic prices have also firmed up. seems unlikely unless its core problems such as overcapacity and fragmentation are addressed. . with prices falling to historically low levels amid a worldwide demand downturn. domestic demand growth is expected to be low at 3-4 per cent over the next year. Any investment in noncore areas or any large debt-funded acquisition could result in a revision in the rating.
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