Comparative analysis of Private and Public sector companies

TATA Steel and SAIL

CONTENTS
1. TITLE 2. INTRODUCTION a. b. c.

World Steel Industry : An Overview Indian steel Industry What is Private limited and Public limited

3. REVIEW

OF LITERATURE

4. OBJECTIVES 5. RESEARCH a. b. 6. DATA

METHODOLOGY

Research design Data collection method ANALYSIS

Comparison between TATA Steel and Steel Authority of India
a. b. c. d. e. f. g.

Production Financials Research and Development Environment Workforce and Welfare of Society Technology Safety measures

Measures taken by Indian government to improve the industry. National Steel Policy, 2005.
7. FINDINGS 8. BIBLIOGRAPHY

INTRODUCTION

An overview of World Steel industry

Steel is one of the top products in the manufacturing sector of the world. The Asian countries have their respective dominance in the production of the steel all over the world. India being one among the fastest growing economies of the world has been considered as one of the potential global steel hub. Over the years, particularly after the adoption of the liberalization policies all over the world, the World steel industry is growing very fast. The most significant growth that can be seen in the Steel Industry can be observed during the period 1960 to 1974 when the consumption of steel around the whole world doubled. Between these years, the rate at which the Steel Industry grew was around 5.5 %. This soaring market saw a phase of deceleration from the year 1975 which continued till 1982. After this period, the fall slowed down and again started going up from the early 1990s. The main demand creators for Steel Industry are Automobile industry, Construction Industry, Infrastructure Industry, Oil and Gas Industry, and Container Industry. In the year 2004, the global steel production has made a record level by crossing the 1000 million tones. Among the top producers in the steel production, China ranked 1 in the world.

Indian Steel Industry
Iron and steel, is vital to the Indian economy for economic growth and economic well-being as no practical substitutes exist on a large scale for iron and steel. Worldwide, there are broadly two major categories of steel players Integrated steel producers (ISPs) and mini-mills/secondary producers. The iron and steel industry not only directly accounts for about 2% of GDP, it also has a bearing on how the consumer goods and downstream infrastructure sectors develop. Further, with a share of approximately 10%, the sector is amongst the largest contributors to the central excise. India accounted for 3.4% of the estimated world steel production of 1,129 million tonnes (mt) during 2005. At present, India is the 7th largest crude steel producing country in the world.

Size of Industry● ● ● ●

India is among the top 10 global suppliers of steel in the world. More than 35 million tonnes of steel is produced in India per annum. India is also the largest producer of sponge iron in the world. This sector represents around Rs. 1 trillion of capital investments, and directly provides employment to around 0.5 million, with the integrated steel plants accounting for a 40% share.

The iron and steel sector also contributes around 6.2% of India’s manufactured goods exports and 4.6% of total exports by value.

Structural Characteristics of Indian Steel Industry●

The industry is dominated by large integrated players like SAIL and Tata Steel .

The Public sector has a significant presence in this industry, Steel Authority of India Ltd. (SAIL) has 32% of India’s installed capacity of crude steel.

Tata Steel and Essar Steel are the major private players in the industry.

The industry’s fortunes depend on general global economic conditions but it is particularly sensitive to the performance of the automotive, construction, durable equipment, and other industrial products industries.

The global (and Indian) steel industry also suffers from cycles of over capacity and shortages. This too leads to cyclically falling/rising prices and industry losses/profits.

Integrated

steel

producers

(ISPs)—Tata

Steel

and

SAIL—face

high fixed costs, and thus in a downturn,The downturn phases have witnessed depressed prices at the firm level and widespread operating losses.

What is Private Limited and Public Limited?
The term “Private Company” refers to ownership of a business company in two different ways— Either referring to ownership by nongovernmental organizations; or, referring to ownership of the company's stock by a relatively small number of holders who do not trade the stock publicly on the stock market. Most small businesses are privately held and not publicly traded.

The

term

"Public

Company"

thus

refers

to

government-owned

corporations and the ownership of assets and interest is shared by people. Normally, the shares of a public company are owned by many investors. However, a company with many shareholders is not necessarily a public company. The shares of a public company are often traded on a stock exchange.

TATA Steel:
Tata Steel is India's largest integrated private sector steel company. Established in 1907, The Company is backward integrated with owned iron ore mines and collieries. Tata Steel has an integrated steel plant, with an annual crude steel making capacity of 5 million tonne, located at Jamshedpur, Jharkhand. The factory covers 800 hectares of land. West Bokaro sub division in Hazaribagh district overs 2000 hectares of land in which mining and coal beneficiation activities are performed. Jharia Division occupies 2500 hectares of land for its industrial, mining and domestic activities in the district of Dhanbad both in the state of Jharkhand. The iron ore and dolomite mines are located at Noamundi in the state of Jharkhand and at Joda, Kalamati, Khondbond and Gomardih in the state of Orissa. Over the years, Tata Steel has emerged as a thriving, nimble steel enterprise due to its ability to transform itself rapidly to meet the challenges of a highly competitive global economy and commitment to become a supplier of choice. Constant modernization and introduction of state-of-the-art technology at Tata Steel has enabled it to stay ahead in the industry. Recently Tata Steel acquired the Anglo-Dutch steel maker Corus, thus emerging as the fifth largest steel producer in the world. Areas of business Apart from the main steel division, Tata Steel's operations are grouped under strategic profit centres like tubes, growth shop (for its steel plant and material handling equipment), bearings, ferro alloys and minerals,

rings, agrico and wires. Tata Steel's products include hot and cold rolled coils and sheets, tubes, wire rods, construction bars, structurals, forging quality steel, rings and bearings. In an attempt to 'decommoditise' steel, the company has recently introduced brands like Tata Steelium (India's first branded cold rolled steel), Tata Shaktee (galvanised corrugated sheets), Tata Tiscon (re-rolled bars), Tata pipes, Tata bearings, Tata Wiron (galvanised wire products) and Tata Agrico (hand tools and implements). Tata Steel is also exploring opportunities in the ferro-chrome and titanium businesses. Joint ventures, associates and subsidiaries Tata Steel has numerous joint ventures and subsidiaries. Among them are:
● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

Tinplate Company of India Tayo Rolls Tata Ryerson Tata Refactories Tata Sponge Iron Tata Metaliks Tata Pigments Jamshedpur Injection Powder (Jamipol) TM International Logistics mjunction services TRF Jamshedpur Utility and Service Company (JUSCO) The Indian Steel and Wire Products(ISWP) Lanka Special Steel Sila Eastern Company

Steel Authority of India Limited (SAIL)
Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However, SAIL, by virtue of its ‘Navratna’ status, enjoys significant operational and financial autonomy. Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being India’s largest producer of iron ore and of having the country’s second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making. SAIL's wide range of steel products is much in demand in the domestic as well as the international market. This vital responsibility is carried out by SAIL's own Central Marketing Organisation (CMO) and the International Trade Division. CMO encompasses a wide network of 34 branch offices and 54 stockyards located in major cities and towns throughout India. SAIL has a well-equipped Research and Development Centre for Iron

and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Integrated Steel Plants
● ● ● ● ●

Bhilai Steel Plant (BSP) in Chhattisgarh Durgapur Steel Plant (DSP) in West Bengal Rourkela Steel Plant (RSP) in Orissa Bokaro Steel Plant (BSL) in Jharkhand IISCO Steel Plant (ISP) in West Bengal

Subsidiary Maharashtra Elektrosmelt Limited (MEL) in Maharashtra Joint Ventures SAIL has promoted joint ventures in different areas ranging from power plants to e-commerce.
● ● ● ● ●

NTPC SAIL Power Company Pvt. Ltd Bokaro Power Supply Company Pvt. Limited Mjunction Services Limited SAIL-Bansal Service Centre Ltd. Bhilai JP Cement Ltd

OBJECTIVE

To identify the nature and trend of managerial economics of a public and a private sector undertaking in the same area on the basis of data relating to economic parameters: Production, price, wage, productivity, employment, investment, Profit/Loss etc.

DATA ANALYSIS

Comparison between TATA Steel and Steel Authority of India
For comparing both the companies i.e. Tata Steel and SAIL lets analyse both the companies on following parameters:

Production

Price wage employment investment profit loss
TATA Steel :
The company had a Production target for the year 2007-08 was 5 million tonnes (mT) but it could produce only 4.93 (mT). For the first 3 quarters of the years company set a target of 3.744 (mT) but could produce 3.709. However for the same period in last year company produced 3.738 (mT) steel a capacity utilisation of 100% as compared to 99% this year.

Steel Authority of India :
The company had a aggregate production target of 13.739 (mT) for the year 2007-08 but it could produce only 12.6 (mT) a growth of 4% over the previous year. However for the first 3 quarters of the years company set a target of 10.265 (mT) and produced 10.380 as compared to around 10

(mT) for the same period last year. SAIL had a capacity utilisation of 103% this year as compared to 101% last year.

Financials
TATA Steel :
The year 2006-07 has seen the highest turnover and profits, continuing the trend of the past four years. The Company achieved the best ever sales turnover and profitability during the year under review. A robust Indian economy, firm steel prices, higher volumes and several improvement initiatives contributed to the record performance. Finished steel sales were higher by 11.33% at 4.51 million tonnes over the previous year. Export turnover was lower by about 5% due to lower volumes. Average price realisation improved mainly due to higher prices of hot rolled coils/sheets. Operating profit was higher by over Rs. 1,000 crores at Rs. 6,973 crores (2005-06: Rs. 5,938 crores), an increase of 17% over the previous year. Net interest charges were higher at Rs. 174 crores (2005-06: Rs. 125 crores), due to additional borrowings for the Company’s domestic expansion programs and funding Company’s contribution for financing the acquisition of Corus Group plc. After providing for Rs. 819 crores for depreciation (2005-06: Rs. 775 crores) and Rs. 152 crores towards employee separation scheme (2005-06: Rs. 53 crores), the profit before tax rose by 20% to Rs. 6,262 crores (2005-06: Rs. 5,240 crores). Net Profit after taxes was higher at Rs. 4,222 crores (2005-06: Rs. 3,506 crores), an increase of 20% compared to the previous year. The record financial results would not have been possible without a matching performance by the operating departments including the raw materials division. The year witnessed the best ever crude steel production by the Company at 5.05 million tonnes, an increase of 6.7% over the

previous year. Jamshedpur Plant became the first plant in India to produce more than 5 million tonnes of crude steel in a year. The upgraded “G” Blast Furnace produced over 2 million tonnes of hot metal, as against its rated capacity of 1.8 million tonnes. Among the Finishing Mills, the output at the Cold Rolling Mill and the Hot Strip Mill exceeded their rated capacities. The all-round increase in production was backed by improvements in operating practices and productivity resulting in a reduction in consumption of raw materials, energy, refractories etc.

Steel Authority of India:
Financial Year 2006-07 has been eventful year for the company with further momentum in improving operational efficiencies, laying strong foundation and building road map for modernisation and expansion of SAIL Plants, with several new initiatives undertaken, with its human resource at the core. During the year, the company got the distinction of first metal company in the country to reach a market capitalization of Rs. 50,000 crore. There have been improvements in all financial parameters which are shown in the table given below-

SAIL set new record in achieving the turnover of Rs.39,189 crore and profit before tax of Rs.9423 crore, registering growth of 21% & 65% respectively over previous year. The company recorded net profit after tax (PAT) of Rs.6202 crore, an increase of 55%.

Workforce and Welfare of Society

TATA steel

Tata Steel has not lost focus of this philosophy and has adapted it in a broader and modern context in its Vision 2007: A lot is dependent on the individual spirit and enthusiasm of the employees to realise our vision. TATA Steel accelerates efforts to provide a work environment that will ensure a sense of purpose and personal growth for each individual. The wish of the company is to see the smile on every face everyday. A pioneer in employee welfare, Tata Steel has invested in the power of its people and enriched, empowered and enhanced their lives. Even in its nascent years, social scientists Sidney and Beatrice Webb were brought in to work on welfare schemes. In fact, some of the initiatives introduced by Tata Steel were the first of their kind in India and some even in the western countries at that time! Tata Steel’s Human Resource policy recognises its people as the primary source of its competitiveness. It focuses on constantly updating and challenging intellectual capabilities to enable them to excel in performance. Special efforts are made for enhancing strategic thinking skills and analytical abilities of its managers and workers. As a true ‘Learning Organisation’, Tata Steel has tapped the knowledge available with its people through Knowledge Management and sharing of best practices. In the year 2003, Tata Steel celebrated 75 years of industrial harmony and mutual co-operation, coordination and understanding between

the Management and the Union. It has twice emerged as “Asia’s Most Admired Knowledge Enterprise” among many other prestigious awards and recognition. Tata Steel aims at ensuring transparency, fairness and equity in all its interactions with its employees to create an enthused and happy workforce.

In 1916, Social Welfare Scheme was formed by Tata Steel to provide assistance in the fields of education, vocational training, selfemployment and family welfare

Tata Steel has hosted the Lifeline Express, the world’s fi rst hospital

on a train, 12 times. This facility provides on-the-spot diagnostic, medical and advanced surgical treatment for preventive and curative interventions to people in inaccessible rural areas.

Sir Dorab Tata personally financed four athletes and two wrestlers from India for the 1920 Antwerp Olympics!

The JRD Sports Complex, an international stadium with an 8-lane polyurethane track, was inaugurated in 1991. The complex also houses facilities for handball, tennis, volleyball, hockey, basketball, boxing, table tennis and a modern gymnasium.

The Tata Steel Family Initiatives Foundation is engaged in off ering health services for the betterment of the people in and around Jamshedpur.

At times of natural calamities, the company has rushe immediate relief and off ered long-term assistance to tsunami-hit Tamil Nadu, earthquake-torn Gujarat, fl ood ravaged Orissa and other such aff ected areas.

Horse-riding lessons, the Jubilee Amusement park, the zoological park, etc. off er a unique environment for the children of Jamshedpur to grow up in.

In a recent survey conducted on ‘Quality of Life’ by AC Nielsen ORGMARG, Jamshedpur has emerged as the one of the best cities in India.

Steel Authority of India :
The manpower strength as on 31st March, 2006 was 1,38,211 comprising 15,206 executives and 1,23,005 non-executives. The total reduction in manpower achieved during the year stood at 4,864, which included separation of 881 employees through voluntary retirement. The labour productivity improved by around 12% over previous year to 150 tonne crude steel/man/year. Some of the areas of assistance, which are available to the weaker sections, are the following:

The company has provided land for construction of school buildings in some of the steel townships as well as in other places for spreading education among the masses.

The company has constructed roads in remote areas around the steel plants and also where the captive mines are located to improve communication and also increase activities such as organisation of health camps, school facilities, drinking water etc., under the peripheral development schemes.

Bhilai Steel Plant has adopted 36 tribal children of Chattisgarh region and Bokaro Steel Plant has adopted 12 Birhor tribe children. These plants are providing them with education, boarding and lodging facilities.
● Construction

of

bridges,

by-pass

roads,

metal-morum

path,

waterways, levelling/dressing area around township, pre-mixed roads. Installation of hand-pumps, tube wells and wells for villagers.

Construction of school buildings (including for mentally retarded, deaf and dumb children), madarsas, providing school furniture therein and construction of hostels, women’s college building etc.
● Fourteen

scholarships

are

awarded students in

to

deserving

SC/ST to

undergraduate

engineering

various

disciplines

encourage technical education among them

In many cases, tuition fee in company run schools is exempt for SC/ ST students. Steps are taken to provide education to more and more tribal children in company schools.

The unemployed SC/ST youth are given specialized training in various technical trades to develop skill and knowledge. Such training is provided free of cost.

Adult literacy campaign is carried out in most of the steel townships. Every year more and more men and women are being covered in this campaign.

Development of fishery and cottage industry, providing sewing machines to village mahila mandals and promoting other selfemployment generation schemes.

SAIL has established a hockey academy with stadium and hostel facilities at Rourkela to tap and nurture the talent scattered in

surrounding tribal area. The academy was successful in spotting a number of young talented tribal players and grooms them under expertise of ex-Olympian.

FUTURE OF INDIAN STEEL INDUSTRY India is amongst a few countries in the world having the dual advantage of fast growing domestic demand coupled with access to raw materials. Further, the trend that is already discernible is that the axis of global steel production / consumption is shifting towards Asia. With their large populations, China and India already account for 35 % of the total world steel production - more than double of Europe. Asia is expected to outpace other regions of the world to an even greater extent in the coming years. Amongst the Asian nations, China has established a huge,

unbridgeable lead. It is accepted that China will continue to be the leader. However, India is slated to emerge as the second Asian giant in the next eight years. Figuratively speaking, while the "Dragon" has reached maturity; the "Lotus" is about to bloom in resplendent splendour. In 2005 Chinese steel consumption was around 320 million tonnes; i.e China swallowed almost 32% of global steel. It is unlikely that future production and consumption would continue to flourish at growth rates of 8% and 18% respectively as has been the case over the last few years. On the other hand, it is sun-rise time for India where the demand has increased by 7-8% in the last couple of years. In the long run, Indian steel is likely to be more cost-effective since unlike China, India has relatively large

reserves of iron ore (14 billion tonnes), which if strategically exploited, can sustain domestic production of 120-130 million tonnes for at least 25-30 years. However, the position with coal is not so favourable. Though thermal coal reserves of over 92 billion tonnes can fuel industry, large-scale iron making using the traditional blast furnace route would require coking coal. India does not have adequate reserves of coking coal; nor is the meagre amount available of appropriate quality. Thus, the steel industry always had to contend with the dual problems of inadequate availability and poor quality of Indian coking coal. This has been partly addressed by adopting alternative iron making processes that are not dependent on coking coal; it can not be denied that coal is the biggest cause for concern for bulk steel production in India. Because of the shortage of indigenous coal, attempts have been made by steel producers to ensure long-term supplies by tying up with global majors or by acquiring mines in other countries. This is the only long-term solution, but with a global shortage of coal it may not remain cost-effective in the long run. India is the seventh largest producer of steel and may further improve its position going by the current trends. A series of investment decisions by major domestic players and international steel giants such as Steel Authority of India Ltd, Tata Steel, POSCO, the LN Mittal Group etc. clearly establish that such hopes are well founded. The keen interest shown by various prospective investors is not only due to expectations of strong growth in domestic demand but also due to indigenous availability of key resources like iron ore and skilled workforce. After deregulation (from 1991-92 to 2004-05) domestic consumption of finished steel has grown at a CAGR of 6.7 per cent. In absolute terms the consumption of finished steel expanded from 14.8 million tonnes in 1991-92 to 34.4 million tonnes in 2004-05. During the recent upturn (from 2002-03 to 2005-06) the growth in consumption has accelerated to 9.1 per

cent. With the likely growth of Indian economy at around 7 per cent per annum, demand for steel is expected to remain strong and is projected to reach a level of 90 million tonnes by 2019-20 as envisaged in the National Steel Policy. This growth in demand is sustainable considering the fact that India's per capita consumption of steel is still very low at 31 kgs per head compared to the world average of 145 kgs. The very low level of per capita consumption of steel in India is highlighted further when compared with the consumption levels of its peer group consisting of countries like China, Brazil, Mexico and Republic of Korea as also with selected developed countries. Though there are realistic constraints in India to achieving as rapid a growth as in China, there seems to be consensus among analysts that India is likely to witness a growth rate in steel consumption higher than the historically observed rate of 6 to 7 percent. If the growth rate (9 per cent) of last three years is maintained then we will achieve the 110 million tonnes landmark even by 2018. Though some analysts are more conservative due to cyclicity of steel business, it may be mentioned that in a country like India cyclicity is more in terms of prices rather than volumes of production.

FINDINGS

The

Indian

steel

industry

responded

enthusiastically

to

the

liberalization and large capacities were created in the private sector. The plants which came up post 1991, like Vizag Steel (RINL) in the public sector and Essar Steels, Ispat Steels, Jindal Vijayanagar etc. in the private sector used the modern state-of-the-art technologies. However, because

of decontrol, removal of duty protection, free import, dumping from China and CIS, and, above all, a global economic melt-down in the latter half of 90s, the industry went through a major crisis. The period from 19972001 marked the worst for the industry with price decline, poor capacity utilization, inventory pile up, dumping through unofficial channels and high interest burden.

Meanwhile, the industry is already into an expansion mode with all steel majors like SAIL, Tata Steels, RINL, Ispat, Jindals and Essar hiking their capacities. States like Orissa and Jharkhand, rich in iron ore, are attracting major investment interest both from domestic and international majors. There is, however, some concern regarding the differential treatment meted out to overseas players to attract investment, mainly in respect of export of iron ore. In the final analysis, the industry scenario is expected to radically alter in the coming years.

However, the public sector is expanding its capacities but, it has more potential lies within to perform more than that.

Utilization of capacities in public sector is more than that of private sector but the performance still has to be improved.

Public sector has increased its profit over the year particularly in 2006-07.

Both the companies are planning to adopt modern technology which is going to help them to compete in world market but they need to be less dependent on state of art technology and coal for long term prospects.

Public sector has undergone retrenchment for the employees and improved has its lobour productivity but it is still lacking behind as compared to private sector.

SAIL has reduced the no. of accidents due to improper handling of machinery still no of accidents are more than that of TATA Steel.

Most of the plans to achieve the significant position in world market will remain on paper unless adequate attention is given to augmentation of infrastructure i.e. roads, ports, railways, power, etc.

These areas are of prime concern and the policy envisages a High Level Monitoring Group which will not only prepare action plans in consultation with the concerned Ministries but also coordinate development of the required facilities. There are tremendous challenges ahead of us but these have to be met comprehensively if we are to take our legitimate place in the world as a developed nation by 2020.

BIBLIOGRAPHY
● ● ●

Annual report (2006-07) published by ministry of steel. Annual report (2006-07) published by TATA Steel. Presentation on ‘performance highlights 2006-07’ and ‘DIRECTORS REPORT’ posted by SAIL on its website.

● ‘Background

Note’

prepared

after

‘ECONOMIC

EDITORS’

CONFERENCE’ held on 07 Nov. 2006.
● ● ● ● ●

Article published in magazine ‘FRONTLINE’ in December 2006 edition. www.steel.nic.in (Official website of ministry of industry). www.tatasteel.com (Official website of TATA Steel). www.sail.co.in (Official website of Steel Authority of India). www.worldsteel.org (official website of International Iron & Steel Institute).

www.jpcindiansteel.nic.in (Website of joint planning committee).

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