Steel Authority of India Limited

A Management of Technology Presentation

Presented by Shamshul Kamar 1292780947 Sibi N. Thomas 129278083 Alankar Tripathi 129278076 Krittivas 129278096 Vipin Viswam 129278043
Shailesh J. Mehta School of Management IIT Bombay

Starter
Report of the working group on steel industry for the 12th five year plan (2012-17), Published by Ministry of Steel, November 2011

Shailesh J. Mehta School of Management IIT Bombay

MOTIVATION

Indian is 4th largest producer of steel Per capita consumption is just 51.2 kg against the world average of 202 Kg The expenditure in infrastructure in India is pacing SAIL is the largest producer of steel in India
Shailesh J. Mehta School of Management IIT Bombay

Projected Infrastructure Investment

Shailesh J. Mehta School of Management IIT Bombay

OBJECTIVES AND SCOPE OF PROJECT

To study various technologies available in SAIL and the practice of MOT in general Competitive analysis of global steel industry Competitive analysis of SAIL with respect to global industry Benchmarking of SAILs operation on relevant parameters with respect to Indian Standards and International standards Identification of technology gaps and impact of the technology gaps on the operations of SAIL To find out the reasons of low operating profit of SAIL compared to its peers

METHODOLOGY
Secondary data analysis, Interaction with executives of SAIL
Shailesh J. Mehta School of Management IIT Bombay

BACKGROUND OF COMPANY
One of the 5 Maharatnas of public sector organizations. Largest steel producer of India, with an installed capacity of around 14 MT per annum Employee strength over 1 lakh

Financial performance of SAIL over the last few years (Source: Annual reports of SAIL)
Shailesh J. Mehta School of Management IIT Bombay

Diversified product mix Multilocational production units Nationwide distribution network Largest captive iron ore operations in India, which makes it self sufficient in iron ore Skilled manpower base Continuous employee skill development Captive power plants fullfill 70% power need One of the largest in house R&D centres in Ranchi, which is a source of regular product and process innovation

Strengths

SWOT Analysis

A part of operations are from energy inefficient obsolete processes, which will be eliminated after the current expansion program. Still 20% of the production is in form of semifinished steel, resulting in lower value addition No major strategy for outsourcing the noncritical jobs. Inventory management and procurement system is not fully centralized, which causes incremental cost over its competitors. Low manpower productivity

Weaknesses

Indias medium term demand prospects continue to be strong allowing for capacity expansion of domestic players. Growing demand of steel from non metro and rural areas. SAIL is in perfect position of tapping that demand because of its nationwise dealers presence. Overseas expansion opportunity is also there.

High volatility in steel making inputs, which is continuously putting pressure on operating margins Capacity addition of many competitors is pending in 2013-14 in flat products which may lead to production surplus over domestic demand. Stagnation of economy of China and there has been a constant threat of China dumping its low cost steel in India. Threat of new entrants: POSCO, Arcelor Mittal Lowering of import tariffs.

Opportunities

Threats

 High initial capex requirement Economies of scale would be difficult to achieve High operating cost

Threat Of New Entrants (Low to moderate)

P O R T E R S

Installed capacity is higher than total demand Long term contracts are awarded after a lot of bargaining.

Buyer Power (Moderate to High)

Competitors

Product differentiation not possible Commoditized product Global Industry Dumping practices

Threat

Supplier Power (High)

Tata Steel has own coal mines SAIL imports Coal Other steel plants in India source the coal from giants like BHP Billiton

5 F O R C E s

Threat of Substitution (Low)

Few available substitute Substitutes are not available in bulk Technology is still emerging

EBITDA margins vs raw material Self sufficiency

Shailesh J. Mehta School of Management IIT Bombay

Competing for Growth Framework

Shailesh J. Mehta School of Management IIT Bombay

Technology Curves

Source: Dynamics of energy technologies and global change, Arnulf Grbler, Neboja Nakienovi, David G VictorShailesh J. Mehta School of Management
IIT Bombay

SAIL Financial Benchmarking

2007 TATA Operating Profit PAT as % of total income Debt to equity ratio (times) Net working capital cycle Total income / total assets R&D / Sales SAIL Operating Profit PAT as % of total income Debt to equity ratio (times) Net working capital cycle Total income / total assets R&D / Sales Jindal Operating Profit PAT as % of total income 36.1 20.8 0.694 63.6 0.798 0.0016 27.1 15.2 0.243 103.1 1.237 0.0019 37.1 17.7 2008 38.8 20.2 1.084 70.7 0.533 0.0018 27.4 15.9 0.132 100.8 1.224 0.0021 38.5 19.8 2009 35.7 18.9 1.318 43.2 0.443 0.0015 22.1 12 0.269 91.4 1.05 0.0025 33.1 17.7 2010 36.3 18 0.683 27.8 0.391 0.0016 24.8 14 0.496 95.4 0.772 0.0022 34.4 18.2 2011 38 20.6 0.584 27 0.404 0.0024 18.7 9.9 0.523 79.5 0.671 0.0027 37 19.1 2012 34.5 16.9 0.477 27.7 0.41 0.0014 15.5 6.7 0.41 100.2 0.686 0.0025 31.9 13.9

Debt to equity ratio (times)

Net working capital cycle Total income / total assets R&D / Sales

1.408
86.5 0.593 0.0007

1.03
64.9 0.718 0.0005

0.917
7.1 0.714 0.0004

1.243
-28.5 0.47 0.0004

1.394
24.4 0.462 0.0011

1.449
54.9 0.504 0.0006

Shailesh J. Mehta School of Management IIT Bombay

SAIL Financial Benchmarking 2

2007 Tata Steel Total income Total expenses Operating expenses PBDITA 203440.9 162044.1 133369.8 73513.4 2008 231646.3 185163.3 144221.2 89912.1 2009 274952.4 225827.7 183311 98282.8 2010 280457.1 228639.4 181005.8 101757.6 2011 333383.5 266508.5 210244.7 126609.2 2012 385034.6 322010.6 256986.6 132705.7

PBT
R & D expenses SAIL Total income Total expenses Operating expenses PBDITA PBT

62626.2
332.5 408220.7 349049.9 309870.3 110557.1 94565.2

70673.1
422 474548.2 403543.2 362121.6 130181.2 114714.3

73166.1
415.9 513746.2 470770.9 434954.4 113562.9 94545.2

72153
438.6 483876.4 404758.2 353202.9 120238.5 102072.6

97735.9
805.7 493661 459330.5 417320.3 92160 72090.8

96857.5
529.8 531828.6 511545.1 465757.9 82237.7 51571.7

R & D expenses
Jindal Total income Total expenses Operating expenses PBDITA PBT R & D expenses

768.5
39810.7 33349.4 25596.7 14781.3 9448.4 26.1

1018.6
62561.9 52221.2 40398.7 24059.4 15025.1 33.6

1266.9
86738.6 72104.8 58765.7 28722.3 20018.8 31.4

1072.6
81482.5 67086.3 53851.9 28004.7 19074.6 32.9

1321.4
107816.2 90811 71556.7 39871.5 27529.4 122.6

1344.5
151724.3 134884.8 107496.9 48441.1 28430.1 89.7

Shailesh J. Mehta School of Management IIT Bombay

Global Vs Indian Benchmarking

Shailesh J. Mehta School of Management IIT Bombay

TECHNOLOGICAL BENCHMARKING
Parameter Fixed Cost as a % of Total Cost Selling OH as a % of Cost of Production Admin OH as a % of Works Cost P/V Ratio BHEL 55.62 2.48 Mazda 51.39 3.46 Siemens 52.68 2.62 GE 50.14 3.45 ToshibaJSW 58.38 3.18

11.14 0.482

14.35 0.518

16.84 0.495

11.74 0.512

14.92 0.526

Manufacturing Cost as a % of Total Cost

45.47

42.28

43.58

42.39

47.79

Shailesh J. Mehta School of Management IIT Bombay

TECHNOLOGICAL GAPS
Inadequate Sintering facility in plants, many blast furnaces run on only iron ore (iron ore fines and other steel plant wastages can be used to prepare sinter) Alternate fuel injection is very poor in SAIL plants (CDI Technology needs to be adopted) Top gas recovery turbine, use of waste heat stove gas for preheating the gas, high efficiency stoves and oxygen enrichment in blast furnace operations Coke dry quenching technology in Coke oven plants On line heating control technology needs to be implemented with level 2 process control Adoption of Continuous casting fully (currently only 60 % steel is produced through CC Technology)
Shailesh J. Mehta School of Management IIT Bombay

TECHNOLOGICAL GAPS
Level 2 automation system for better control and product consistency Use of energy efficient drives and electrical system in place of old inefficient system Till now ERP system available only in Bhilai and Rourkela Steel plant, so it should be installed in other steel plant for better management control. No technology available for centralized control for procurement of spares, which is of high value in capital intensive industry.

Shailesh J. Mehta School of Management IIT Bombay

Key findings from Financial Analysis

0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2009 2010 2011 2012
0.35 0.30 0.25 0.20 0.15 SAIL Coal/Total sales Tata Coal+ Coke /Total Sales

SAIL RWM/Sales TATA RWM/SALES

Raw material consumption/ Sales

Coal Cost/Sales
SAIL imports a lot of high quality coal from Australlia and New Zeland. Opportunity to develop/absorb technology in this area

0.10 0.05 0.00 2009 2010 2011 2012

Shailesh J. Mehta School of Management IIT Bombay

Technology Status
All process plants in ISP 1. Level 2 Autm System 2. Energy efficient processes and equipments 3. Efficient MIS

BASE
1. Level 3 Autm System 2. Use of Plants and mines waste in steel making 3. High speed rolling mills 4. NPD apart from conventional (CRGO, High strength etc. Product)

KEY

PACING

EMERGING

1. Iron making process which does not require coking coal 2. Non coking coal to coking variety

Shailesh J. Mehta School of Management IIT Bombay

RECOMMENDATIONS
Increase R&D Budget for new product developments as they command premium prices Focus on development of mines to increase self sufficiency for raw materials Develop/ Absorb technologies so that non coking coal can be used in steel making Outsourcing of Non Critical and unskilled jobs Development of a centralized procurement system for spares to reduce the cost Training and development of employees to make them competent for new technologies.

Shailesh J. Mehta School of Management IIT Bombay

References

Report of the working group on steel industry for the 12th five year plan (2012-17), Published by Ministry of Steel, November 2011 http://www.sail.co.in/ http://www.jindalsteelpower.com/ http://www.tatasteel.com/ Global Steel 2013, a report by Ernst and Young http://www.ey.com/GL/en/Industries/Mining---Metals/Global-steel-2013-a-new-world-a-newstrategy Strategic technology management in the auto component industry in India , Sahoo, Banwet, Momaya Prowess database Annual reports of various steel companies Www.moneycontrol.com

Shailesh J. Mehta School of Management IIT Bombay