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Steel Price
• Steel Price : +40 % in 1 year
• Reason:
1. Chinese Demand: $550
billion stimulus > appetite
for steel > when steel
exporting nations (Japan and
South Korea) curtailed
production
2. Supply Deficit in Key Raw
Material
What is Happening in STEEL?
Reducing Iron Ore Supply
Steel Demand (MMT)
1870
1673
CY2014 CY2020
• Major miners in Brazil and Australia, due to declining iron ore prices in the past few years have not
sufficiently invested in expanding their capacities leading to a shortfall in global iron ore mining output
Low new Iron Mine addition
Steel Price dynamics
Raw Material : Iron Ore Price
China Energy Basket
Steel is also the largest industrial source of
pollutants.
As China commits to a carbon-neutral future by
2060, the country's steel industry will play an
important role in reducing emissions by
upgrading facilities, increasing the usage of
steel scrap in steelmaking and adopting
hydrogen-based technology
Tata Steel
Market Analysis
Tata Steel
1. Decarbonization
TATA has enhanced its focus on sustainability and reducing its carbon footprint. Average tCO2
emissions/ton of steel have declined to 2.52 tCO2/ton of steel in FY2021 from 3.12 tCO2/ton of steel
in FY2005. It aims to reduce its carbon emission intensity to <2 tCO2/tcs by 2025 and <1.8 tCO2/tcs
by 2030.
Export
In 1964 the Company was converted into a Public Limited Company, and was listed
on BSE in 1966 to establish Ferroalloy operations
From Miner to Integrated Steel manufacturer
Why China Losing ground? Is it structural ?
China Human Rights Violation
• SMIOL produces iron ore with Fe content of around 58-63%, with lump to fine production ratio of 1:2.
• ICRA also takes comfort from the low-cost iron ore mining operations of Rs.
400 per MT, which supports the profitability of the mining division.
• The profitability of Iron Ore business will be boosted if exports are permitted
from Karnataka as international prices of Iron Ore continues to remain buoyant.
• While the company has signed a memorandum of understanding (MoU) with a
pig iron manufacturer in Karnataka to sell about 50% of its coke output on
conversion basis, its ability to offload the agreed quantity and sell the balance
production to other steel plants would remain critical to mitigate offtake related
risks
In May 2021, JSW Steel announced the steel-making expansion
at its Vijayanagar plant by 5 MT every year to 17 MT every
year by the financial year ending March 2024
Why China Losing ground? Is it structural ?
Proxy on Steel Sector
• In line with its plan to set up a 1.0 Mtpa Steel Plant, a project approved
by the Government and Environment Clearance obtained, the
Company has to soon commence work on the next stage of Iron-
making Project, which is estimated to cost about `800 crore
• The products of the Company namely Iron ore, Mn ore,
Silicomanganese and Coke are dependent on the health of the steel
market. The prospects of Steel Industry are expected to be good due
to thrust given by the Government to boost steel production in the
country to meet the requirement for infrastructure building and
housing
Corporate Governance: Board of Director
Healthy Mix:
• Technocrats from
competitors
• CA,CS
Assets & Revenue Contribution
Rise of
The World Steel Association defines steel as an iron alloy that contains less than
2% carbon and 1% manganese and has silicon, phosphorus, sulphur and oxygen
in small amounts.
According to the World Steel Association, the global demand for finished steel
is likely to rebound to 1,795.1 million tonnes in 2021 as compared to
1,725.1million tonnes in 2020—a rise of 4.1% on a Y-o-Y basis. With this, the
global demand is likely to surpass even 2019 levels. Although China is expected
to report a flat volume growth, the rest of the world excluding China may
witness a 9.4% volume growth.
In other words, experts may differ with one another on the price trend but
there seems to be a consensus that steel demand may grow in 2021.
Coke
1. The integrated steel plants within a radius of 50 kms
from the Company’s plant purchase about 5.5 lakh
tonnes of met coke every year, a major part of which is
imported. Thus, the demand for Company’s met coke is
significantly dependent on the production level of these
steel plants
Financial Analysis
Business Model
Asset Light
Asset light model with processing, cutting etc. retained in-house ICIL outsources most of back-ended activities like
spinning and weaving on a job work basis (~10-15% weaving done in-house), thus reducing the capex
requirements. This enables prudent capital allocation to value-added processes (processing, cutting and product
design). This strategic decision is based on certain checks and balances and, results in certain key financial and
strategic advantages
Fixed Asset Turn Over
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
-
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
ICIL Welspun
Fixed Asset Turnover
Indo Count Vs Welspun
4.56
4.42
4.24 4.27
4.04
3.62
3.42 3.37
3.30
2.14 2.14
1.91 2.00 2.00 1.97 1.92
1.77 1.80 1.75 1.71
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
ICIL Welspun
Business Model
Textile Manufacturing Process
Outsourced
Business Model
Textile Manufacturing Process
Salient Features of a Good Textile Stock
• High ROCE
• High Asset Turn Over Ratio
• Capex Cycle ending/ brownfield expansion
• Asset Light
• Low Debt: Equity
Revenue Breakup
Market wise Revenue Breakup
Europe
15%
USA 75%
Revenue Contribution
Business Performance
Business Outlook
ICIL Welspun
ROCE & Leverage
USA Cotton Sheet Import
India Winning Against China in USA
10% of sales in FY21
About 95% of the world’s production of Manganese Ore is used directly or indirectly in steel making. Hence the
demand of manganese ore is directly related to the production of steel.
The average grade of manganese ore produced in India is low (Mn 32-33%). This necessitates imports of high
grade manganese ore to blend with domestic quality of manganese ore for producing ferro/silico manganese
required for steel industry. Besides above, India is also the highest exporter of silico manganese in the world.
The production of Manganese (Mn) ore in India during 2019-20 was 2.5 Mt and imports were to the tune of
2.74 Mt. As supply continues to be lower than the demand and import of Mn ore is expected to continue in the
coming years as well.
32 MW Thermal Power Plant> Used the Turbine & Generator to Waste Heat Recovery Plant, saved capex in
previous cycle
2 furnace are operating in Ferro Alloy (48000 TPA)3rd (24,000 TPA) is idle due to lack of power, will take time to
ramp up . Will require additional 16 crs only + variable cost of power .i.e. coal.
0.4 MTPA coke oven capacity is the entire requirement for 1 million tonne integrated steel plant
sort of ban on the export of iron ore from Karnataka, pellet have no such export ban,
15% royalty per tonne we pay on the iron ore
Q4 FY21 Conference Call Extracts
Key Catalyst
1. Home Is new ‘Center’ of Life
2. China Plus 1: Well-placed to benefit from China substitution
3. Asset Light Business Model : Low debt in books, Low working capital cycle
4. Operating Leverage to kick start from brownfield expansion
5. Management Quality: experienced management team with Good capital
allocation Innovative Products
6. Valuation is reasonable