SM-2 GROUP PORJECT 07/27/2021

Strategic Management – 2
Group Project
Conglomerate: ‘Essar Group’

Group 7:
Aditya Rajendra Lokhande 20PGP105
Meghna Singh 20PGP115

Dikshant Dahiya 20PGP127

Neil Majumder 20PGP131
Stanzen Chosdan 20PGP252

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Origin and history of Essar Group

Essar House, Essar Group Headquarters, Mumbai, India

One of the most prominent names in the construction industry,
Essar Group is an Indian multinational conglomerate
which was founded in the year 1969 by Shashi and Ravi Ruia.
Its foundation was laid when Shashi Ruia bagged a big
contract worth INR 2.3 Cr to construct an outer breakwater
for Chennai port.
Now let us talk about its journey. Essar paid $2 million for
India's first private tanker in 1976. Offshore and Energy
divisions were established in 1986 to handle specialist
offshore and drilling activities. The first HBI (Hot Briquetted
Iron) module of Essar Steel's Hazira plant began production in 1988. As India's first independent power
producer, Essar built a 515 MW combined cycle power plant at Hazira in 1991. (IPP). The first phase of a 2
million tonne steel factory was completed in 1995. Essar Telecom was granted licences to conduct phone
services in Delhi, Uttar Pradesh (East), Haryana, Rajasthan, and Punjab in 1997. By completing the
acquisition of Hy-Grade Pellets Limited and Steel Corporation of Gujarat Limited from Stemcor, UK in
2005, Essar became an integrated steel player. Essar Steel expands to 4.6 million tonnes in 2006, becoming
it India's largest flat steel manufacturer. Minnesota Steel LLC, a US-based steel firm with estimated iron ore
reserves of about 1.4 billion tonnes, was acquired by Essar Global in 2007. Vodafone and Essar form a
partnership in 2007 to become Vodafone-Essar. Global Vantedge, a Bermuda-based BPO firm, was bought
by Essar in 2007.
The MobileStore, India's first countrywide chain of multi-brand and multi-service retail locations dealing in
mobile telephony, was founded by Essar in 2007. Commercial production at the Vadinar refinery began in
2008, with a capacity of 10.5 million tonnes. Aegis made its debut in Jammu and Kashmir in 2009, when it
opened two BPO centres. Essar bought Aries coal mines in Indonesia and AGC Networks in 2010. Essar Oil
was awarded four coalbed methane blocks in 2010. Essar sold its Vodafone-Essar shareholding to Vodafone
in 2011. Essar Energy paid US$ 350 million for Royal Dutch Shell's Stanlow Refinery in 2011. Essar Steel
finished expanding its capacity to 10 million tonnes in 2011. The expansion of Vadinar Refinery's capacity
to 20 million tonnes was completed in 2012. In 2014, Essar completed the sale of Teleperformance's Aegis
USA Inc. to Essar. Essar Energy and Oil Bidco sold Essar Oil India to the Rosneft-Trafigura-UCP
partnership for US$ 12.9 billion in 2017. Essar signed a deal with GAIL in 2018 to off-take the full
production from its Raniganj East CBM block. At Vizag port, Essar developed India's largest iron ore
handling plant, with a capacity of 24 MTPA. AGC Networks purchased Blackbox Corporation in 2018.
Deleveraging activities of Essar Group reduced debt by about Rs. 1.3 lakh crores in 2019.

 Early Strategy
To evaluate the overall environment within the oil sector, we shall do PESTEL analysis.

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Political OPEC controls 76% of global oil reserves

Country policies, government changes, and boundary conflicts affect prices.
Risks: Nationalisation, instability, terrorism, conflict, sanctions, treaties.
Treaties

Economic Price uncertainty of crude oil

Economic growth rate and development
Costs of exploration , refinement, and distribution. as well as investments
Weakening of the rupee

Social Industrial Demand fluctuations

Lowering of per capita consumption movements
Labour and skill availability
Opinion leaders

Technological Advances in extraction, refinement, distribution, and recycling

Renewable exergy development
Technological development
Efficient consumption

Environmental Environmental sanctions

Climate change regulations
One of most polluting industries

Legal Carbon footprint reduction laws

Kyoto Protocol
Import/ export restrictions

Corporate Strategy decisions

 Diversification of Essar Group
Global Footprint of Essar Group
The presence of the Essar group is around the globe form the USA, Cyprus, Qatar, India, Singapore,
Middle-East and parts of Asia as well.

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In order to gain market share and diversify its presence across the globe it has collaborated with
numerous firms across countries to have its presence with the local established groups to forge
alliances and positive synergies between the parent company and the subsidiaries.
Forging alliances with its subsidiaries has made the group to develop and enhance its functional
capabilities in whole, with cross cultural changes of technology and expertise in the various
subsidiaries that it has developed over the year.
Overview

The group operates in this domain through Essar Steel Limited.

It is an integrated steel manufacturer with an annual production capacity of
Steel 4.6 million tonnes.

Essar Oil Limited is an oil company involved in exploration, production,

refining and retailing of petroleum products.
Oil & Gas

The Essar group operates in the Power sector through Essar Power Limited.
It is a power generation company with a capacity of approximately 1000
MW.
Power

Essar Shipping and Logistics Limited is among the leading sea logistics
solution providers in the world.
Shipping and Logistics It has four different companies to support its operations - Vadinar Oil
Terminal Limited, Essar Logistics Limited, Essar Shipping Limited, and Essar
Oilfields Services Limited.

The group operates in this domain through Hutchison, which is a joint

venture with leading cellular service provider, Hutchison Whampoa, Hong
Telecommunication Kong.
and Technology It also provides BPO services to its various clients through Aegis
Communications.

Essar Global Limited is among the leading engineering, procurement and

construction specialists in India.
Construction

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Vertical integration: Forward and Backward Integration

Essar Oil Limited
Essar Oil Limited, a subsidiary of the Essar Group, is a vertically integrated oil business (EOL) whose
primary upstream activities include gas and oil exploration, refining, production, and sale, as well as global
petroleum product marketing.

Through the merging of its enormous oil-field discoveries and refinery ability, as well as its vast petroleum
product production, Essar Energy engages in both backward and forward integration. Essar can "capture" a
high degree of profit in a value network thanks to the high cooperation gained through this form of
diversification. The Essar vertical integration plan is depicted in the diagram below.
The provision of refinery mix components, intermediate streams, chemicals, and specialized goods is
covered by the Essar Oil limited product line. A successful debut into the UK petroleum retail market with a
network of 72 retails, Essar is increasing its downstream integration.

Essar Steel
Fig.Limited
Illustration of the vertical integration of Essar Oil Limited strategic unit (EOL)

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Essar's acquisitions, whether organic or inorganic, were linked to its primary vertical integration strategy. It
began with iron and steel production before becoming vertically integrated with Essar Hypersmart (where
final products of Essar Steel are sold directly to customers). It has a variety of product line as well as also
has a large no of ore and initial stage production plants. It mostly covers both backward and forward
integration.

Fig. End to End Vertical Integration

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Fig. Product Line of Essar Steel Limited

 Domestic and Global Diversification

Essar group diversified in various segments both in the domestic as well as global markets.
Steel: Essar Steel with the current capacity of around 10 MTPA (Million Tonnes Per Annum) is an
Indian carbon-based steel manufacturing company which has expanded their product segment from
iron ores to completely ready-to-market products. Mentioned below are the various steel plants under
Essar:
 Essar Steel India Ltd. Based in Hazira (Surat, Gujarat) with a capacity of manufacturing steel of
around 10 MTPA
 Essar Steel Minnesota LLC, which was declared as bankrupt and hence was sold in June ‘17
 Vietnam based Greenfield projects
 Indonesia based steel plant
 An integrated plant for manufacturing steel products based in Trinidad and Tobago with a current
capacity of 10 MTPA and a plan to increase this capacity to 20 MTPA by the end of 2028.

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Energy: Essar Energy Plc is another subsidiary in the oil and gas and energy industry which produces
refined petroleum products and electricity. This subsidiary has its headquarters in Port Louis,
Mauritius. This subsidiary was acquired by a shareholder in 2014. It has a strong presence and
operates in various places across Asia and Africa such as Vadinar (Gujarat, India), Stanlow in UK,
Mombasa in Kenya.

Power: Essar Energy has been estimated to generate power up to a capacity of 3910 Megawatt across
six different plants namely:
 Essar Hazira Power Plant, a thermal power plant in Gujarat generating 515 MW
 Essar Vadinar Power Plant again in Gujarat generating 1010 MW thermal power
 Essar Bhander Power Plant also in Gujarat generating 500 MW gas based thermal power
 Essar Salaya Power Plant also in Gujarat generating 1200 MW worth of coal based thermal
power
 Essar Algoma Power Plant in Ontario, Canada generating 85 MW thermal power
 Essar Mahan Power Plant generating 1200 MW coal based thermal power in Singrauli, Madhya
Pradesh

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Telecom: As soon as privatisation was done in the mobile telephony sector in India, Essar became
the first group to offer GSM operations and collaborated with Swiss PTT (joint-venture). When in
1999 new telecom policies were rolled out and Swiss PTT was planning its exit, Essar joined hands
with Hutchison as Hutchison Essar Limitied. In 2006, when Hutchison prepared to exit, Vodafone
bought its stake in a fierce round of bids worth 11.5 billion USD.

The Essar conglomerate acquired the Essar Goup company named AGC networks in the year 2010 to
provide communication services, security services (Cyber-i), Network and data centre and Enterprise
services across nine different nations namely India, Sri Lanka, Saudi Arabia, South Africa,
Argentina, Peru, Malaysia, UK and Australia, headed by a network of offices in India. The operation
of Aegis Communications was sold over to Capital Suare Partners (CSP) valued at 300 USD, hence
announcing Essar’s exit from BPO industry.

Essar Services: Essar Shipping aided by two subsidiaries namely Essar Oilfield Services Ltd (EOSL)
and EOSIL (India), provides services of drilling and other related services both onshore and offshore.

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Essar Infrastructure: Essar Ports worth capacity of 95 million tonnes per annum develops and
facilitates the operation of ports and terminals to handle dry and break bulk as well as cargo. It is
present in several locations such as:
 Essar Bulk terminal in Salaya (Gujarat) for Capesize vessels
 Essar Bulk Terminal at Hazira in Gujarat with a capacity of 30 MTPA for dry and break-bulk
cargo which is to be expanded to 50 MTPA
 Essar Bulk Terminal at Paradip in Odisha with a capacity of 16 MTPA
 Essar Vizag Terminals Ltd situated in Bay of Bengal, Vizag with a capacity of 24 MTPA

Essar Projects: Essar Groups also has an expertise in handling big projects such as refiner, fertilizer
plants, petrochemical, oil and gas, slurry, subsea, steel plants, sinter feed, material handling etc.

 Mergers & Acquisitions and Joint Ventures

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Rosneft Oil Company acquires Essar Oil

Essar Oil's refinery, petrol pumps, and ports are all owned by Rosneft with 49% stake. The deal
involves a $10.9 billion purchase of Essar Oil's Vadinar refinery and a $2 billion port facility that
serves as a feed for the refinery. This agreement is a significant accomplishment for Rosneft, as it
allows them to enter the Indian market. With this agreement, Rosneft became the third largest player
in India's petroleum retailing industry after Shell and Royal Dutch.

Essar Oil UK acquires 11.5% stake in UKOP, 45% stake in Kingsbury Terminal and 100% stake in
Northampton Terminal
Essar will receive an equity investment in the United Kingdom Oil Pipeline (UKOP), a 45 percent
stake of the contractual joint venture (with Shell) that operates the Kingsbury Terminal, and a 100
percent stake in the Northampton Terminal under the terms of the agreement. This transaction is
expected to be worth roughly $150 million.
Since buying the Stanlow Manufacturing Complex from Shell in July 2011, Essar has committed
approximately $1 billion in developing a profitable and sustainable UK business.
Essar Oil now supply over 16% of the UK road transport fuel needs and after this aggrement, they
will be even more competitive in the market.

Essar Steel acquired by ArcelorMittal jointly with Japan’s Nippon Steel

ArcelorMittal being the 3rd largest player when it comes to steel production, and it have been waiting
for very long to enter the Indian Steel Markets which is one of the most sought-after steel markets.
Finally, ArcelorMittal have been able to access it due to downfall of Essar Steel which is one of the
dominant players in steel manufacturing.
It was renamed as ArcelorMittal Nippon Steel India after the acquisition of Essar Steel jointly by
ArcelorMittal and Nippon Steel of Japan. It was a major milestone for both the companies
considering India being the world’s most popular steel market. ArcelorMittal will offer its expertise
to India, notably in automotive steel, which is also a specialty of Nippon Steel. As a result, this
agreement will benefit the Indian steel industry in the long run.

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Essar’s acquisition of Aegis Communication

Since Essar bought Aegis Communication in 2003 and sold it in two tranches in 2014 and 2017, the
company had grown tenfold to become a major player in the outsourcing business.
The company extended its global footprint across 13 countries through a careful combination of
organic development and strategic acquisitions. By 2017, it had completed over 19 acquisitions with
a 100 percent success rate, compared to the BPO industry's 30 percent success rate for M&As.
Essar aided Aegis in its transformation from a loss-making unit situated in the United States with
revenues of only $52 million in 2003 to a leader in the outsourcing market with revenues of over $1
billion.

Essar fully acquire Essar Telecom Infrastructure Pvt. Ltd.

On August 6, 2010, Essar completed an all-cash share acquisition agreement with American Tower
Corp. (ATC) to fully acquire Essar Telecom Infrastructure Pvt. Ltd. (ETIPL).
ETIPL, one of India's largest independent tower firms at the time, was valued at USD 2.77 billion in
the acquisition, which is subject to certain post-closing adjustments. Since beginning operations in
India in the fourth quarter of 2008, this was the third tower acquisition in India by a member of the
American Tower group.
ETIPL had 4,630 wireless communications tower sites in their portfolio, including some that were
still being built. It covered 14 of India's 23 telecom circles and had a 1.9x tenancy ratio, which was
the highest in the sector.
The transaction assisted in the transfer of a thriving tower company that we had established to a
world-class tower infrastructure company like American Tower, which had the ability to take it to
new heights as a key player in the Indian telecom industry's growth. The combined portfolio
improved service to India's wireless telecom consumers and expanded network coverage, allowing
ATC to introduce new technologies such as 3G and WIMAX. On this transaction, Barclays Capital
served as the Essar's Exclusive Financial Advisor.

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ESSAR IN TELECOM INDUSTRY

Essar became the first business to launch GSM operations in Delhi under the brand name Essar
Cellphones in 1995, barely months after mobile telecommunications in India was allowed to private
involvement. Essar partnered with Swiss PTT as a joint venture partner.
Essar has bought telecom circles in Eastern Uttar Pradesh, Rajasthan, Haryana, and Punjab.
The government established a new telecom policy in 1999 that was more growth friendly. While
Essar was eager to take advantage of the new policy's potential, Swiss PTT was considering exiting
its India business as part of a larger pan-Asian plan. In Hutchison, Essar found a new partner to form
a joint venture business that consolidated operations and acquired more telecom circles.
When the government announced the single licencing plan in 2005, the JV began integrating all of
the telecom circles. By 2006, Hutchison Essar Limited had absorbed all of the circles. Essar has a 33
percent share in the combined company. Essar had independently secured licences in seven circles
where Hutchison Essar did not operate, as well as four BPL circles. Essar merged these companies to
form Hutchison Essar, a large telecom conglomerate.
Hutchison, too, decided to leave India in 2006. Essar sought to buy out Hutchison's interest and took
up a US$11 billion line of credit to do so. Vodafone purchased the Hutchison stake for US$11.5
billion after a heated bidding war that included other significant firms.

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In just six years, what began as an investment of US$800 million had grown to a value of US$18.8
billion. Hutchison Essar's subscriber base had risen from 150,000 to 28 million people. As a result,
Essar was able to create one of the world's most valuable telecom firms. Essar decided that the
moment had come to hook up with its new JV partner, Vodafone, to take their business to the next
level.
On February 11, 2007, Vodafone agreed to pay US$11.1 billion for Li Ka Shing Holdings' 67
percent controlling interest in Hutch-Essar, beating out Reliance Communications, Hinduja Group,
and Essar Group, which owns the remaining 33 percent. The corporation was valued at USD 18.8
billion as a whole. On May 8, 2007, the purchase was completed, and the company was renamed
Vodafone Essar.
Vodafone will have operational control of Vodafone Essar under the terms of the partnership, while
Essar will have rights associated with its shareholding, including proportionate board involvement.

Strategic intent
Vodafone lacks a well-coordinated emerging market strategy, particularly in India, the world's
fastest-growing mobile market. Given that India's monthly mobile subscriber additions surpassed
China's in September 2006 and are expected to remain that way for the next few years, Vodafone had
no choice but to make India the centrepiece of its emerging market strategy.
In May 2006, Mr Sarin outlined Vodafone's strategy ambitions, stating that the company would
explore "selected chances to expand footprint" in emerging markets. Following through on this
approach, Vodafone purchased Hutchison Essar, gaining access to the Indian market.
Fourth-largest player: With the acquisition of Hutchison Essar, Vodafone will become India's fourth-
largest mobile provider. Since mobile penetration in India is currently at 13% and is expected to
reach 50% (500 million subscribers) by 2012, the sector is likely to be at the outset of a severe war
for market dominance.
With 24 million subscribers, Hutchison Essar is only 1.5-2 million subscribers behind state-owned
Bharat Sanchar Nigam (BSNL) and 7-9 million behind Bharti Airtel and Reliance Communications.
Given the fourfold increase in market opportunity and the expectation of 6-7 million new subscribers
each month, the competition, which will rely on scale economies and novel value-added services,
will be closely watched.

Strategic Goals
The company's goal is to become the world's leading mobile communication provider. The company
has six strategic aims for this:
1. Providing superior shareholder returns. superior returns to shareholders.
2. Delight its customers.
3. Leveraging economies of scale and scope, especially while delivering 3G services.
4. Expand in market boundaries.
5. Build one of the best team of Vodafone in the world.
6. Being a responsible business and manage its impact on the environment, society, and economy.

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Essar’s Exit from Vodafone Essar Limited

Essar retained a 33 percent ownership in Essar Vodafone Limited from 2005 to 2010 but in 2011, it
opted out and quit the merged company in order to fund a massive $20 billion capital investment
programme across its core sector businesses, such as steel, oil and gas, power, and ports. Vodafone
Essar's subscriber base had risen to over 135 million by this time. The proceeds of the monetisation
provided Essar with $5.46 billion, allowing it to pursue a new path in its expansion.

 Alliances
Essar Ports and Port of Antwerp International
Essar Ports Limited (Essar Ports), one of India's leading private sector port firms, announced the
formation of a long-term strategic collaboration with Port of Antwerp International (PAI), as well as
a Rs 175 crore investment by PAI in Essar Ports.
PAI is the international investing arm of the Antwerp Port Authority, which is the port authority for
the port of Antwerp, Europe's second largest port, with 187 million tonnes of cargo handled in 2011,
and a gateway to several European economies.
The Antwerp Port Authority and Essar Ports will collaborate in the areas of training and consultancy,
port planning, traffic flow, quality, and productivity enhancement, and will continue to develop a
mutually beneficial commercial relationship based on mutual business and investment preferences.
Both Essar Ports and PAI will work together to increase the volume of their respective companies.
PAI has invested about Rs 175 crore in Essar Ports' Global Depository Shares (GDS) at a price of Rs
100 per share equity share underlying the GDS as part of the Strategic Alliance Agreement inked
between the two parties on May 30, 2012. These GDS would account for around 4% of Essar Ports'
diluted equity share capital.
The strategic alliance's key features and benefits include:
 Global Depository Receipts (GDRs) were used to inject about Rs 175 crore of equity at a price of
Rs 100 per share.
 Recognizing the value and potential of Essar Ports' port assets
 Port trade between Antwerp and the Ports of Essar is increasing.
 Access to relationships with port operators and port-based businesses at the Antwerp Port.
 Developing world-class port facilities with focus on quality, productivity and environment

Aegis Logistics, Essar Oil ink strategic alliance

 The two firms announced today that Aegis Logistics will install auto liquefied petroleum gas
dispensing stations at Essar Oil's retail outlets, while Essar Oil will install motor spirit and
high-speed diesel dispensing capabilities at Aegis' auto-gas stations.
 This is an exclusive arrangement between the two companies covering Gujarat, Maharashtra,
Karnataka, Madhya Pradesh, Andhra Pradesh, Rajasthan and Tamil Nadu.
 Aegis Logistics currently has a network of 65 auto gas stations in the seven states, and aims
to have 300 auto gas stations by 2010-11
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 Essar Oil too is in talks with other auto LPG providers such as Elf Gas India and SHV Energy
in several states.

Drivers of Internationalization
The ever-increasing demand of steel in different countries and very low production, there was a huge
potential for Essar to take its operations overseas. There was also a need for producing customised products
in different shapes and sizes due to lack of proper infrastructure and facilities, and Essar saw this
opportunity to provide all the desired products at one place. They expanded in all the countries wherever the
gap was present in various sectors and hence expanded internationally.
Corporate Challenges in current scenario
 Countries changing policies from time to time possess challenges in acquiring resources
 Changes in raw material prices and currency weakening
 Increasing demand in the market leading to entry of new competitors and coping up with current
market
 Export and Import restrictions
 Pollution and environmental damage caused by the industry
 Balancing the quality and growth in the industry and giving priority to consultants and advisors
Way Ahead of Essar Group
 Essar should take advantage of its current market position in Australia and continue to export high-
quality, heavy Orinoco-type fuels. This would help the company's brand image and awareness in
Australia's booming market.
 Essar should put a lot of money into the Japanese market with the money it makes from the Cash
Cow units. Essar has a huge chance to extend its existing market share and become one of the major
Japanese supermarkets because of the country's disengagement from nuclear-based power generation
and its recent proposal to increase its energy imports to 42 percent.
 Increasing organic growth by investing in new valve-control technology and innovating on product
development in order to produce a broader range of products.
 (Strategy for product development)
 Hydrodec technology development and maintenance to recycle more old lubricants and transformer
oils.
 Essar's corporate plan calls for it to enter the Eastern European market using its existing European
resources. It should continue to grow its market share in South America and Asia/Pacific. This can
be accomplished through internationalisation and partnership collaborations with supermarkets in the
oil business.
 Consolidation to benefit from economies of scale and to reduce its reliance on some oil-producing
countries with unstable political stability, such as Iran and Iraq.
 Essar requires annual revenue and net margin growth through strategic management, fast
implementation, and strategy creation in order to respond to the effects of its tax deferral and
insurance claim rejection.

References: -
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 https://blog.finology.in/investing/arcelormittal-essar-steel-acquisition
 https://economictimes.indiatimes.com/topic/ArcelorMittal-Essar-Steel-Acquisition
 https://www.essar.com/about/essar-and-vodafone-us5-46-billion-deal/
 https://www.ukessays.com/essays/marketing/case-on-merger-acquisition-of-hutch-and-vodafone-
marketing-essay.php
 https://www.essar.com/about/essar-and-aegis-usd-610-million-deal/
 https://www.essar.com/about/essar-telecom-deal/
 https://www.fuelsandlubes.com/essar-oil-uk-acquires-bps-northampton-terminal-equity-stake-ukop-
pipeline/
 https://economictimes.indiatimes.com/industry/energy/oil-gas/essar-oil-uk-buys-bp-stake-in-stanlow-
assets/articleshow/67877083.cms?from=mdr
 https://www.thehindu.com/business/essar-oil-uk-acquires-bp-assets-for-800-cr/article26196779.ece

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