Interim Report

A Study on Cost Competitiveness of

Indian Steel Industries

By-
Pragati Saxena
20021141073
Tata Steels
 Prashikshan - 2021
SHAVAK NANAVATI TECHNICAL INSTITUTE
An ISO 9001:2015 Organization
CERTIFICATE
Pragati Saxena (Reg. No. VT20211095 )
This is to certify that______________________________________________________,
Student of_______________________________________________________________________,
SYMBIOSIS INSTITUTE OF BUSINESS MANAGEMENT, HYDERABAD
has undergone Vocational Training Program at Tata Steel Ltd., Jamshedpur from
______________
03-May ,2021 to ______________.
28-June ,2021 The details of the programme are as under:

Department Covered BUSINESS ANALYSIS GROUP

Project Title COST COMPETITIVENESS OF INDIAN STEEL INDUSTRIES

He/She has successfully completed the Programme

Place : Jamshedpur Coordinator

Date : 10-07-2021 Vocational Training
Ref No : Tata Steel Ltd
---------------------------------------------------
VT20211095

SHAVAK NANAVATI TECHNICAL INSTITUTE, TATA STEEL LTD, N-ROAD, BISTUPUR, JAMSHEDPUR – 831001,
Telephone: 91-657-2320243, Fax: 91-657-2320243, E-mail- snit.office@tatasteel.com

INDIA
10
SYMBIOSIS INSTITUTE OF BUSINESS MANAGEMENT, HYDERABAD
Symbiosis International (Deemed University)
(Established under Section 3 of the UGC Act 1956)
Re-Accredited by NAAC with “A” Grade (3.58/4) | Awarded Category – I by UGC
Founder: Dr. S. B. Mujumdar, M. Sc. Ph.D. (Awarded Padma Bhushan and Padma Shri by President of India)

Certificate of authentication by In-house faculty

TO WHOMSOEVER IT MAY CONCERN

This is to certify that Pragati Saxena, PRN 20021141073, a student of SIBM

Hyderabad, has undergone 8 weeks of Internship in Tata Steels from May 03, 2021
to June 26, 2021 under my guidance. During the period of internship his performance
was ___________________________________________________
____________________________________________________________________.

A copy of the report has been submitted to the company.

Dr Shyamsunder Chitta
Deputy Director, SIBM Hyderabad

Name of the In-House Faculty

Place:

Date:
-------------------------------------------------------------------------------------------------------

Undertaking

I, Pragati Saxena, PRN 20021141073, have read the contents of the SIP Guidelines
and have understood the implications and accept the terms and conditions mentioned
in the SIP Guideline.

Place: Kanpur Pragati Saxena

Date: 14-07-2021

Survey No. 292, off Bangalore Highway, Mamidpalli (V), Nandigama (M), Ranga Reddy (Dist.), Telangana State, Pin Code:- 509 217
Email ID: ao@sibmhyd.edu.in, Website: www.sibmhyd.edu.in, Tel:- 040 2723 2100, 2723 2300 / 01
 Annexure - V
Under taking from the PG student while submitting his/her final dissertation/SIP
report to his/her respective institute
Ref. No. - -----------------------
I Pragati Saxena ,20021141073 the student of Symbiosis Institute of Business
Management, Hyderabad hereby given an undertaking that the SIP report entitled Cost
Competitiveness of Indian Steel Industry has been checked for its Similarity Index/
Plagiarism through Turnitin software tool; and that the document has been prepared by me
and it is my original work and free of any plagiarism.

1 The Similarity Index (SI) was: 10%

(Note: SI range: 0 to 10%; if SI is >10%, then student
cannot
communicate ms: attachment of SI report is
mandatory)
2 The ethical clearance for research work conducted Tata Steels
obtained
from:
(Note: Name the consent obtaining body: 1f'’not
applicable'
then write so)
3 The source of funding for research was: NA
(Note: Name the funding agency; or write 'self’' if no
funding source is involved)
4 Conflict of interest: NO
(Note: Tick √whichever is applicable)
5 The material (adopted text, tables, figures, graphs, YES
etc.) as has
been obtained from other sources, has been duly
acknowledged in the manuscript:
(Note: Tick √ whichever is applicable)

In case if any of the above-furnished information is found false at any point in time, then the
University/SIBM-H authorities can take action as deemed fit against all of me/us.
Full Name & Signature of the student(s) Name &Signature of SIU Guide /Mentor
Pragati Saxena

Date: 14-07-2021
Place: Kanpur, Uttar Pradesh Endorsement by Academic Integrity Committee (AIC)
Similarity Index
 CONTENTS

Acknowledgement

1. 1.Introduction

1.1 Background of project

1.2 Objectives

1.3 Methodology

1.4 Scope

1.5 Limitations

2. Industry Introduction

3. Company Introduction

4. Industry Analysis

4.1. Market Size

4.2. Mergers and Acquisition

4.3. Government Initiatives

4.4. Key Trends

4.5. Future Targets

5. Company Analysis

5.1. Market Size

 5.2. Mergers and Acquisition

5.3. Performance Highlights

5.4. Key Highlights

5.5. Future Plans

6. Cost Component

7. Costing Model

8. Cost Comparison

9. Data Analysis

10. Conclusion

11. Recommendations

12. Learnings

13. Reference
 ACKNOWLEDGEMENT

I would like to express my special thanks to Miss Neha Chhapolia, my

company mentor for her constant support and guidance in the completion of

this project.

I would also like to show my sincere gratitude towards TATA STEELS for

giving me this opportunity which enhanced my knowledge in the respective

sector.

Also, I like to thank my faculty mentor Dr. Shaymsunder Chitta sir for his

supervision and continual assistance by conducting frequent meetings to

clarify the working of the project. Also, I would like to show gratitude towards

the Director Sir and Deputy Director Sir for providing this opportunity and all

the facility that was required.

This project will not only help me in gaining the marks but also increase my

knowledge in the particular segment.

1. Introduction

1.1Background of Project
One of the most important industries in India is iron and steel. India
surpassed Japan as the world's second-largest steel producer in January 2019.
The Indian Ministry of Steel is in command of the sector's policy, which
includes organizing and making plans for the survival and improvement of the
iron and steel industry in both the government and corporate sectors
formulating policies for production, pricing structure, distribution, foreign
trade of iron and steel, castor metals, and propellants, and developing input
manufacturing companies among some other things, for iron ore, manganese
ore, chrome ore, and abrasives, which are largely used for the steel
production.

The Steel Authority of India (SAIL) is responsible for marketing the steel
generated by Nation's public sector firms.

In this project our focus will be on the Cost structure of Indian Steel
industries, how it works, what are its components etc.

1.2 Objective
• To analyze the costing of steel industries of India.
• Check how efficient different steel manufacturing companies in
managing its cost in comparison to their competitors.
• To find how Tata Steels is dealing with their allocation of costs.

1.3 Methodology
Secondary data from the internet, such as several research papers
on steel industry costs, annual reports from various steel producers, historical
data from corporations, and so on, was used to complete this study. Usage of
quantitative as well as qualitative data has been made.
1.4 Scope
This study will assist us in comprehending the cost structure of the Indian
steel sector as well as providing an overview of their cost management
efficiency. It will also assist us in determining which company is the most
efficient in terms of cost and production when compared to its competitors.

1.5 Limitations
• We were not provided with internal details about the company's cost
structure due to the work from home scenario caused by the Covid-19
outbreak, as a result of which we lacked accurate data.
• As only secondary data from the internet was used, the outcomes may
differ in actual.
• Although we were working from home, we missed out on the key source
of data since we couldn't connect to the company's personnel to get
even more specific information.

2. Industry Introduction
India is the second largest producer of steels. Steel industry is one of the
major contributor to the India’s manufacturing output. Indian Steel Industries
is divided into 3 categories: Major Producer, Main Producer and Secondary
Producer. India’s finished steel consumption grew at a compound annual
growth rate of 5.2%.

India's steel and iron sector is grouped into three types: Primary producers,
Secondary producers, and Other key producers.
SAIL, TISCO, and RINL, India's largest steel makers, had a combined capacity
of about 50% of the country's total steel production capacity and production
in 2004-05.
ESSAR, ISPAT, and JVSL, the other major steel makers, contribute for roughly
20% of total steel production capacity.
Talking about the Global Steel scenario, thus Total Market size is of $900
Billion, having total production of 1691 Million Tonne in which India
contributes about 5.9% in 2019-20 i.e. 99.769 Million Tonne (approx.). In
2020 around 8.23 Million Tonne steel was exported to different countries
from India.
Consumption Level:
In 2019-20, South Korea is the highest consumer of steel, consuming 1132kg
of steel per annum. India consumes around 74kg of steels in a year.

Major steel players in India are:

a) Tata Steels, whose production was around 19.6 Million Tonnes in the
year 2020-21.
b) JSW Steels, whose production was around 18 Million Tonnes.
c) SAIL who produced 16.3 Million Tonnes in the same financial year.

3. Company Introduction

The Tata Iron and Steel Company (TISCO) was formed on August 26, 1907, by
Jamshedji Tata and Dorabji Tata. In 2005, the firm renamed from TISCO to
Tata Steels.

Tata Steels has become one of India's largest steel producers. The firm is a
multi-national steel manufacturer with significant businesses in India ,Europe,
and Southeast Asia. The company employs people in 26 nationalities and
delivers its goods in even more than 50 countries. With a yearly raw steel
output of around 12.1 million tonnes, It became Europe's second-largest steel
manufacturer

Steel products are manufactured and sold by the parent and its affiliates in
India and across the world. In the business year ended March 31, 2020, the
business (excluding SEA activities) had a consolidated turnover of US$19.7
billion. With an annual throughput of 13 million tonnes, it is India 's second
strongest steel company (defined by domestic manufacturing) behind SAIL.

Tata Steel engages around 80,500 people across 26 countries, with the
majority of its operations in India, the Netherlands, and the United Kingdom.
The company 's biggest facility is located in Jamshedpur, Jharkhand (10 MTPA
capacity). Corus, a steel firm established in the United Kingdom, was
purchased by Tata Steel in 2007. It was ranked 486th on the Fortune Global
500 list of the world's largest companies in 2014. It is one of the few steel
companies in the world which is completely implemented from extraction to
final production and distribution. Exploration, location, and extraction of iron
ore, coal, ferro alloys, and other minerals, as well as constructing and
manufacturing industrial equipment and components for the metal, oil, and
natural gas energy and power mining, railways, ports, aviation, and space
industries, as well as farm tools, are all part of the company's operations.

4. Industry Analysis
4.1 Market Size
• Finished steel usage in India gone up significantly at a CAGR of 5.2
percent from FY16 to FY20, reaching 100 MT. In FY20P, India produced
108.5 MT of crude steel and 101.03 MT of finished steel.
• India produced 85.60 million tonnes of finished steel between April
2020 and February 2021.
• India's crude steel output totaled 92.78 MT between April 2020 and
February 2021.
• In FY20P, completed steel exports and imports totaled 8.24 and 6.69
million tonnes, respectively.
• Between April 2020 and February 2021, the total amount of finished
steel exported and imported was 9.49 MT and 4.25 MT, respectively.

Total Crude Steel Production

(in million tonnes)
115
110.9
110 108.5

105 103.1

100

95 92.8

90

85

80
1

Consumption of Steel
(in million tonnes)
105
100
100 97.5

95
90.7
90
85.6
85

80

75
1
4.2 Major investments and acquisitions
In recent years, the steel industry, as well as its allied mining and
metallurgical industries, have seen significant investments and innovations.

As per statistics given by the Department for Promotion of Industry and

Internal Trade (DPIIT), Indian metallurgical businesses garnered US$ 14.24
billion in Foreign Direct Investment (FDI) from April 2000 to September
2020.

Arcelor Mittal Steel struck a Rs 50,000 crore agreement with the Odisha
administration in March 2021 to build a steel mill in the province.

Tata Steel BSL partnered with Far Eye, a software logistics startup, in
February 2021 to boost its digital transformation operations

Indian steel industries have begun increasing steel production capacity in

order to become more self-sufficient. To that purpose, SAIL stated in
September 2020 that the capacity of five of its steel facilities would be
doubled.

GFG Alliance entered the Indian steel business in February 2020 when it
purchased Adhunik Metaliks and its subsidiary Zion Steel for Rs. 425 crore
(US$ 60.81 million).

JSW Steel had set targets of 1.5 lakh tonnes of TMT Rebars for metro rail
developments across the nation in FY20.

JSW Steel has set aside US$ 4.14 billion in capital expenditures to boost its
entire steel production capacity from 18 million to 23 million tonnes by 2020.

Through faster expansion of the sector, the Ministry of Steel expects to

contribute US$ 70 million in the nation's eastern province.

With a total expenditure of US$ 24.88 billion, SAIL's manufacturing capability

is planned to rise from 13 MTPA to 50 MTPA by 2025.
Tata Steel has planned to invest US$ 3.64 billion to boost the production of its
Kalinganagar integrated steel manufacturing plant from 3 million tonnes to 8
million tonnes.

5 Major Acquisitions happened in Indian Steel Industries:

a) JSW Steels
-Acquired Monnet with capacity of 1.5Million Tonnes in
Rs. 2,892 Crore.
-Acquired Bhushan Power and Steels with capacity of 2.3 Million
Tonnes in Rs. 19,700 Crore.
b) Tata Steels
- Acquired Usha Martin with capacity of 1Million Tonnes in Rs. 4,600
Crore.
- Acquired Bhushan Steel Plant with capacity of 5.6 Million Tonnes in
Rs. 35,200 Crore.
c) Essar steels was acquired by Arcelor Mittal with capacity of 10 Million
Tonnes in Rs. 42,000 Crore.

Other big acquisitions happened in Indian steel industry:

• 90% stake of Electrosteel was acquired by Vedanta group, under the

Insolvency and Bankruptcy code.
• • In March 2020, Arcelor Mittal Nippon Steel India (AM/NS) purchased
the Bhander Power Plant in Hazira, Gujarat, from Edelweiss Asset
Reconstruction Company.
• Sail has established a joint venture with Arcelor Mittal with the goal of
producing 1.5 million tonnes of high-end automotive steel per year.
4.3 Initiatives by Government
The government made an allotment of Rs. 39.25 crore (US$ 5.4 million) to the
Ministry of Steel in the Union Budget 2020-21.

The Ministry of Steel of the Government of India and the Ministry of Economy,
Trade and Industry of the Government of Japan entered into a memorandum
of Cooperation (MoC) in January 2021 to strengthen the steel sector through
Mr. Dharmendra Pradhan, Minister of Petroleum and Natural Gas and Steel,
recently urged to the research fraternity to Innovate for India (I4I) and build
comparative edge in order to make India ‘Aatmanirbhar' in December 2020.

The Ministry of Steel published a proposed framework strategy for the

establishment of steel clusters in the nation in September 2020.

Steel makers in the country can get duty drawback advantages on steel
shipped through their store locations, wholesalers, merchants, and
warehouses according to the Directorate General of Foreign Trade (DGFT).

To limit imports, the government implemented a Steel Scrap Recycling Policy,

initiatives under the India–Japan Steel Colloquium.

To assure supplies to the domestic steel sector, a 30% exporting levy on iron
ore (chunks and particles) has been imposed.

Steel demand is being aided by the ministry of India's emphasis on

infrastructure and the resuming of road construction. Furthermore, a
probable escalation in the backwoods infrastructure and economy is expected
to contribute to an increase in steel demand. The National Steel Policy (NSP)
2017 was approved by the Indian Union Cabinet with the intent of creating
India an internationally competitive steel manufacturer. The NSP estimates
that steel production capacity will reach 300 million tonnes (MT) by 2030-31,
with per capita steel consumption of 160 kg (kg).

Having an project baseline of Rs. 200 crore (US$ 30 million), the Ministry of
Steel is aiding in the formation of an industry-led Steel Research and
Technology Mission of India (SRTMI) in collaborative efforts with public
sector and non-governmental steelmakers to supervise statistical analysis and
advancement in the iron and steel industry.

The Indian government raised import taxes on most of these steel items twice,
every instance by 2.5 percent, as well as imposing anti-dumping and
safeguard charges on iron and steel items

4.4 Key Trends

• Steel consumption per capita has been steadily growing over the last
four years. During FY 2016, it was 64.0 kg, and in FY 2019, this became
74.1 kg.
• The export of finished steels surged from 4.1 million tonnes in FY2016
to 9.6 million tonnes in FY2018, but then declined for the next three
years eventually stabilizing at 9.5 million tonnes in FY 2021.

Per capita consumption

(In kg)
76
74
72
70
68
66 74.1
64
68.9
62 65.3
64
60
58
FY 16 FY 17 FY 18 FY 19
 Finished Steel Export
(in million tonnes)
12

10

0
FY 16 FY 17 FY 18 FY 19 FY 20 FY 21

4.5 Future Targets

• By FY 2030-31, India's processed steel generation is expected to reach
300 million tonnes every year.
• Steel consumption would grow leading to excessive demand from
industries such as construction petroleum & gas, and automobiles. From
90.68 million tonnes in 2017-18, India's total finished usage is expected
to rise to 230 million tonnes by 2030-31.
• The industry is seeing competitive fragmentation, which has attracted
investment buyers from other industries. Multinational corporations
have an opportunity to join the Indian market as a result of the
increasing consolidation.
• New Kalinagar facility expansion plan of 5 Million tonnes per annum.
• There's also a chance that several steel facilities that have been shut
down could be revived.
5. Company Analysis
5.1 Market Size
The Company has grown out of originator Jamshedji N Tata's vision and has
become one of the world largest geographically diverse steel producers,
having manufacturing and business all over the globe. With over 65,000
employees, the Tata Steel group is located across 5 continents.

The Company aspires to be the worldwide steel industry model for value
generation and social responsibility as well as the most respected brand in the
metals and minerals area, by coming up with innovative ideas, Technologies,
Sustainable environment and Persons.

Tata Steel's consolidated Indian crude steel producing capability is currently

19.6 MnTPA, with processing plants in Jharkhand, Odisha's Kalinganagar and
Dhenkanal, Uttar Pradesh's Sahibabad, and Maharashtra's Khopoli. It recently
started second phase of its Kalinganagar steel factory extension, which would
increase production to more 8 MnTPA.

Furthermore, the business has production plants for Cables, Pipes, Tires,
Farming Devices, and Industrial By-Products, among other secondary product
extensions. It also has a Ferro-alloys and Minerals branch, as well as Tata
Growth Shop, a heavy-duty engineering and fabrication plant.

Tata Steel Ltd. is a Large Cap business in the Metals - Ferrous sector with a
market capitalization of Rs 131,526.79 crore. Steel & Steel Components,
Energy, as Well as other Operating Revenue are among Tata Steel Ltd.'s
primary product lines divisions for the fiscal year ending March 31, 2020.

The business announced a Consolidated Total Income of Rs 50,249.58 Crore

for the quarter ended 31-03-2021, up 26.23 percent from the previous
quarter's Total Income of Rs 39,809.05 Crore and up 43.22 percent from the
same quarter last year's Total Income of Rs 35,085.86 Crore. In the most
recent quarter, the company generated a net profit after tax of Rs 7,011.50
crore.

TOTAL CONSOLIDATED INCOME

60000
50249.58
50000
39809.05
40000 35085.86

30000

20000

10000

5.2 Major Acquisitions and mergers

Tata Steel planned to buy the steel manufacturing business of Singapore-
based NatSteel for $486.4 million in real money in August 2004.

Tata Steel paid $130 million in 2005 for a controlling interest in Millennium
Steel, a steel company situated in Thailand. It compensated Siam Cement
US$73 million for a 40% ownership and offered 1.13 baht per share for the
remaining 25% of shares held by existing stockholders.

Tata Steel inked a contract with Corus, an Anglo-Dutch firm, on October 20,
2006, to buy a 100% shareholding in the company for £4.3 billion ($8.1
billion) at 455 pence per share. Following that, Companhia Siderrgica
Nacional (CSN), a Brazilian steel firm, announced a competing bid for Corus at
475 pence per share. Tata responded by increasing its proposal to 500 pence
per share. CSN raised the deal to 515 pence per share in several hrs.

Tata Steel managed to win their acquisition for Corus on January 31, 2007,
after giving 608 pence per share, valuing the company at £6.7 billion ($12
billion).

In respect of yearly steelmaking, Corus was 4 times greater than Tata Steel at
the time of its acquisition. Corus was indeed the ninth biggest steel
manufacturer in the globe while Tata Steel was 56th. Tata Steel became the
world 's fifth greatest steel manufacturer as a result of the takeover.

Tata Steel purchased a controlling position in both rolling mill firms in

Vietnam, Structure Steel Engineering Pte Ltd (100 percent stake) and Vinau
steel Ltd, through its fully controlled Singapore subsidiary, NatSteel Asia Pte
Ltd. (70 percent stake).

When the prior business filed for bankruptcy on July 26, 2017, under the
Insolvency and Bankruptcy Code, Tata Steel purchased the entire organization
in 2017–18. As a result, Tata Steel triumphed as the largest bidder and the
business changed its name Tata Steel BSL.

5.3 Performance Highlights

• An increase in domestic deliveries of 4% even after declining domestic
demand in 2019-20.
• There is a net growth of 8% in domestic deliveries of Branded products
and retail segment in year 2019-20.
• The production of crude steel production grew about 8% after the
acquisition of Usha Martin’s steel business in the FY 2019-20.
• Tata steels had more than 35% of share in 5 out of 10 cars launched in
FY 2019-20.
• In FY 2019-20,Tata through its Corporate Social Responsibility reached
about 1.4 Million lives.
• The current operational capacity is of 20.6 Million Tonnes per annum,
the distribution of which is mentioned below.

Production(in million tonnes per annum)

27%
Jamshedpur Plant
Kalinganagar Plant
58% Dhenkanal Plant
15%

o Jamshedpur Plant is having total output of 12 Million Tonnes per

annum.
o Kalinganagar plant is producing 3 Million Tonnes per annum.
o Dhenkanal plant which is equipped with steel making and
finishing facility is having total production of 5.6 Million Tonnes
per annum.
o Downstream operations are also performed in
-Sahibabad (Uttar Pradesh)
-Khopoli (Maharashtra)
-Hosur (Tamil Nadu)
5.4 Key Highlights
i. Financial Capital
• Tata steels recorded total Turnover of Rs. 60,436 Crore in
FY 2019-20.
• Earnings after Interest Tax Depreciation and Amortization stood at
Rs. 15,096 Crore in the same Financial Year.
• H
• H

ii. Intellectual Capital

• This focuses on innovation and research for operational efficiencies
and resource optimization.
• This also give importance in incorporating client’s expectations into
their product optimization.
• Tata Steels financed around Rs. 259 Crore into the research and
development activities.
• Total of 155 new products have been launched by the company in the
past few years.
• The company granted overall 58 patent rights.

iii. Human Capital

• Tata believes engaging in employee well being and satisfaction to
achieve performance excellence and desired results.
• The company prioritize workplace wellness, health and skill
development.
• The company is having around 6.9% of women workforce in action.
 • The company follows affirmative strategy which aims to encourage
equality in the industry and education, and around 17.5% of
community is active in affirmative policy.

iv. Other
• Natural Capital: The company is having 100% utilization of solid
waste.
• Social and responsibility Capital: The company is having total of
83.1 points out of 100 in customer satisfaction index.

5.5 Future Plans

• The business proposed a 5-Million Tonne per annum extension project
for Kalinga Nagar, which is scheduled to be finalized by FY 2024.
• Tata Steel wants to increase its annual production to 30 Million Tonnes
by 2025, up from 20.6 Million Tonnes.
• By 2021 or early 2022, the next stage of the Kalinga Nagar project,
which would increase capacity from 3 to 8 mt, will be finished.
• Besides deleveraging by minimum $1 billion, the corporation will invest
Rs 7,500 crore in Kalinga Nagar development.

6.Cost Components of steel industry

The cost of manufacturing is divided into two parts:

• Variable cost
• Fixed cost.
Variable costs are those that fluctuate based on the amount of output. As
levels go up, these costs go up, and as levels drop, they decline. Fixed costs, on
the other hand, stay constant irrespective of industrial productivity.

In steel industry the major components of variable cost are:

• Cost of raw materials

• Cost of energy used like fuel and power
• Cost of appliances like industrial gases, water, compressed air
• Maintenance cost such as spares, lubricating oils, grease
• Abrasives Cost
• Operational Cost like rolls, guides, sheer blades

The components of fixed cost comprise of:

• Depreciation on fixed assets

• Interest on capital
• Organizational Overheads

The specified variable cost is determined by the effectiveness of performance

outcomes and does not rely on manufacturing quantity Specific fixed cost is,
on either side, highly reliant on production capacity. That is, the lesser the
fixed cost portion of the cost of production, the larger the manufacturing
output.

7. Costing Model of steel plant & Control Measures:

The following sections go through the key factors that influence a steel plant's
project cost.

(i) Productivity: It refers to the rate at which something is produced. It's

usually expressed as a percentage of the furnace's capacity, surface, or
duration. The lesser the cost of manufacturing, the higher the
productivity of a steel plant's units. Greater productivity means more
efficient use of plant and equipment.
 (ii) Production: The real yield of a unit is referred to as production. Each
unit of the steel factory must be run at full capacity in order to
maintain effective cost management. Whenever a department's output
is less than its potential, the particular levels of consumption rise.
(iii) Raw Materials: Raw materials account for a large portion of today's
manufacturing costs. As a result, the input materials usage must be
limited to what is required by the framework's technical specifications.
Raw material waste and degradation while warehousing must be
prevented at all costs. Furthermore, the quantity and quality materials
plays a crucial role in cost management. Lower-quality raw materials,
despite being less expensive per tonne, result in higher use of both its
own and other raw resources. It also raises the furnace's heat demand,
resulting in higher gasoline and energy usage. This has a significant
impact on the price of a certain product.
(iv) Fuel: In a steel mill all metallurgical operations occur at elevated heat,
which means they use a lot of energy. Furthermore, the fuel cost is
constantly rising. As a result, precise fuel consumption must be
managed within the limits imposed by the technologies in use. It is vital
for executives to prioritize technological advancements in this area in
order to lower the specific fuel consumption. The repayment period for
such upgrades are often short, justifying the capital outlay for such
upgrades. As a result, things must be carried out without reluctance.
(v) Energy: In addition to fuel, a steel plant uses a variety of additional
energy sources. Electrical power contributes significantly to the
expense of manufacturing among them. The value of electricity
generation (power factor) is critical since it has a significant impact on
resource usage and, as a result, cost. The optimum motor ratings are
required to minimize power usage. The motors' idle running must also
be managed. Further improvements are required to switch to
hydraulic gears and variable voltage motors when possible in order to
reduce specific energy usage.
(vi) Utilities: Industrial gases (such as oxygen, nitrogen, and argon gas),
acetylene gas, compressed air, steam, and water are all included in the
utilities group. This is an area where cost-cutting measures can be
 quite beneficial. Pipeline leaks of utility compounds in the atmosphere,
which are commonly overlooked, must be prevented through periodic
monitoring and repair since they contribute significantly to the cost of
manufacturing.
(vii) Unit Costing: This method is common for steel manufacturing
industries where costs are determined grade wise, as production is
made in different grades. Per unit cost is calculated on the basis of units
produced.
(viii) Maintenance: Planned preventative repair of the system and machinery
ensures that the plant and machinery are available for production at all
times. When maintenance is not performed on a timely and proper basis,
equipment malfunctions are more likely. As a result, unanticipated
process disruptions occur. Process disruption can result in poorer output,
product quality variations, or both. This has significant financial
repercussions. As a result, saving money on servicing is always
detrimental and should never be done if the goal is to save money in the
end.
(ix) Inventory: When it comes to cost, stock is a dual weapon. Huge
inventories indicate that working capital is constrained, and return on
that capital raises the cost. When, on the other hand, an operation is
halted owing to a shortage of a raw resources, intermediate product,
utility, commodity, or spares, there is a process disruption in addition to
a reduction in production. This has an effect on the price, which usually
rises. As a result, inventory should be held at the optimum level based on
actual use in past years in order to minimize cost implications in either
direction.
(x) Technology: Other area that requires special consideration if
manufacturing costs are to be reduced significantly is technologies. Even
though they have a greater capital cost, all innovations that reduce the
consumption of natural resources, fuel, power, and services while
improving product quality should be adopted. The rise in capital costs is
usually repaid quickly, but the benefits achieved from reduced emissions
and greater quality control are usually retained for the lifespan of the
unit.
(xi) Waste recycling: A steel factory's majority of operations produce a
significant volume of solid (particle, muck, magnitude, trash, and ash, for
example) or sewage water. These leftovers, if recycled, minimize raw
material, energy, and water use. The investment is expected to recycle
such waste products pay off quickly. As a result, these expenditure must
be prioritized in order to achieve efficient cost containment.
(xii) Recovery of waste energy: Waste power recycling makes a significant
addition to cost minimization The waste gases produced by the
operations are usually very hot and include a large amount of heat
energy. Chemical energy can also be used to create this energy. Tossing
these trash gases into the air is like to tossing treasures into a river.
Reclamation of these unwanted resources leads to a reduction fuel burn,
which leads to a reduction power consumption as well as fewer carbon
dioxide concentrations which is a greenhouse gas.
(xiii) Pollution control measures: Several steel factory executives believe
pollution control technology is a cost burden because it requires not just
capital but also power and consumables to run. This kind of thinking, on
the other hand, is not founded on actual facts. Pollution prevention
technology retrieves a significant proportion of dust, muck, and grime,
among other things, which, when recovered, saves a significant amount of
raw resources. Without pollution management measures, not only will
these resources be gone forever, but the ecosystem will be severely
polluted.

8. Cost Comparison with competitors

For comparing the cost structure of Tata steels with its competitors, here we
have taken below the data from profit and loss statement for past 5 financial
years, starting from 2016-17 to 2020-21.
Looking at various cost components like raw material, power and fuel cost,
employee cost , indirect expenses etc., from the P&L account we can derive
whether Tata Steels is capable in managing its cost or not in comparison to its
competitors.

We can also compare the performance of Tata steels with its competitors , by
evaluating certain ratios like:

• Gross profit margin

• Direct material cost to sales
• Direct labor cost to sales

Direct material cost to sales ratio:

It is calculated by dividing the direct material cost, i.e Raw materials and
power and fuel cost with the net sales occurred in that period. This helps in
deriving what part of net sales we are using in our direct costs. Lowe the ratio,
better the performance.

2016-17 2017-18 2018-19 2019-20 2020-21

Tata Steels 0.396114 0.398486 0.406762 0.441634 0.337381

JSW Steels 0.684758 0.68434 0.643956 0.655504 0.482871

Hindalco 0.753026 0.734634 0.752338 0.742334 0.798342

NMDC 0.055307 0.043818 0.036708 0.032448 0.033706

SAIL 0.644798 0.606243 0.617028 0.634587 0.334773

Direct Labor cost to sales ratio

It is calculated by dividing the direct labor cost, i.e employee cost with the net
sales occurred in that period. This helps in deriving what part of net sales we
are using as our expense on labors and employees. Lower the ratio, better the
performance.

2016-17 2017-18 2018-19 2019-20 2020-21

Tata Steels 0.095954 0.080998 0.072667 0.083338 0.080143

JSW Steels 0.022337 0.019392 0.018591 0.02328 0.021222

Hindalco 0.047436 0.044258 0.043317 0.047761 0.043184

NMDC 0.137176 0.118532 0.08926 0.08614 0.089479

SAIL 0.20129 0.153758 0.13186 0.142414 0.151149

Gross Profit Margin:

Gross profit is calculated by dividing the gross profit (i.e. financial gains made
by company after deducting the manufacturing and distribution costs) with
the sales generated by company. This helps in deriving what part of revenue
company is able to save after such production and distribution expenses.

2016-17 2017-18 2018-19 2019-20 2020-21

Tata Steels 15.61 17.25 19.53 13.19 20.09
JSW Steels 22.16 21.30 22.60 16.93 25.96
Hindalco 13.93 12.95 12.74 13.11 14.21
NMDC 51.03 54.46 61.82 55.69 59.47
SAIL 1.16 8.77 15.31 18.03 19.67
(data by money control)
9. Data Analysis
Looking at Total expenses in Profit and loss statement we can conclude that
Tata Steels is doing well in terms of costing. Though the least expenses in past
5 years is incurred by NMDC, but total production done by it is way lower than
that of Tata steels. Same is the case with Hindalco, as its Total expenses might
be less but the same is with production.

Tata Steels, JSW Steels and SAIL were somehow similar to each other, but
again when is comes to production TATA Steels is the leading global producer
of steels from India.

Looking at different ratios calculated by us we can say that:

Direct material cost to sales ratio

In 2016-17, NMDC’s ratio is around 0.05 which is the least among its
competitors, which shows its material cost consumes a very low amount of
sales, which is a good sign for company.

In 2017-18, also NMDC performs best in terms of Direct material cost to sales
ratio.

Also, in subsequent years we can see that NMDC is having the lowest ratio,
which proves it is managing its costs well.

Direct Labor Cost to Sales

In 2016-17, JSW’s ratio is around 0.05 which is the least among its
competitors, which shows its labor cost consumes a very less amount of sales,
which is a good sign for company.

In 2017-18, also JSW’s performed best in terms of Direct labor cost to sales
ratio.

Also, in subsequent years we can see that JSW’s labor cost ratio is the lowest,
which proves it is managing its human costs well.
Gross Profit Margin Ratio:

In terms of GP Margin, we can see that NMDC performed the best in the past 5
years, which shows that company is successfully producing profit over and
above its cost.

SAIL also has shown a constant increase in the GP Margin from 1.16 in 2016-
17 to 19.67 in 2020-21, which is a good sign for the success of the company.

12. Conclusion
With this project I can conclude that the steel industry contributes a huge
volume in the total manufacturing output of India. In the past 5 years there
has been a drastic increase in the usage of finished steel in India. There has
been a lot of initiatives has been taken by the government for the upliftment
and development of this sector. Behind the pricing of the products there is a
cost structure comprises of several items which is responsible for the final
product price.

We can judge a company’s ability to control its cost by looking at the several
cost and profitability ratios, but should always keep the total production
volume in consideration.

11. Recommendations to Company:

• In times of economic slowdown, government usually invest in
infrastructure to increase the demand, because of which steel will be in
demand, so company should keep eyes on these situations and grab
opportunity whenever happens.
• Company is having a good production capacity of 33 Million tonnes per
annum, which makes it a global leader in steel production but still it will
keep increasing its production to hold the position in this competitive
environment.
 • Company should focus on the more revenue generating products, and
increase their manufacturing.
• As steel production is harmful for the environment, so the company
should focus on SUSTAINABILITY, and invest R&D to explore more
environment friendly production techniques and Green technology.
• During steel production there is huge emission of carbon dioxide, so
company should focus more on carbon utility, i.e. generating demand for
the carbon dioxide produced to maintain balance.

12. Learnings
With this project I got an opportunity to explore the steel manufacturing
industry and got to know how much it is valuable for the Indian Economy.

Analyzing the cost structure of different companies help me in understanding

the number of different things on which cost is incurred while production
other than raw material and labor.

Though I was not able to gather much data due to the work from home
scenario but still identified few points where the company(TATA Steels) is
lacking and where it is doing the best.

While analyzing the costing parameters of the companies I got to understand

their control measures also.

Complete analysis of Tata steels helped me in getting to know the working

history of the company. How it evolved into a leading manufacturer of steels,
what were the major investing decisions it made and where it went wrong.

While interning I understood the use of theoretical and conceptual knowledge

while working in practical life.
13.References
https://www.moneycontrol.com/financials/tatasteel/ratiosVI/TIS

https://www.tatasteel.com/media/newsroom/press-
releases/india/2020/tata-steel-4qfy20-fy20-key-production-and-sales-
figure-provisional/

https://www.business-standard.com/article/companies/tata-steel-plans-
expansion-eyes-installed-capacity-of-30-mt-by-2025-118110501294_1.html

https://www.tatasteel.com/media/12381/tata-steel-ir.pdf

https://www.ibef.org/industry/steel/showcase

https://en.wikipedia.org/wiki/Tata_Steel