Comparative analysis of Private

and

Public sector companies

TATA Steel and SAIL

CONTENTS

1.TITLE 2.INTRODUCTION

a. World Steel Industry : An Overviewb. Indian steel Industryc. What is Private limited and Public limited

3.REVIEW OF LITERATURE 4.OBJECTIVES

5.RESEARCH METHODOLOGY

a. Research designb. Data collection method

6.DATA ANALYSIS

Comparison between TATA Steel and Steel Authority of

Indiaa. Productionb. Financialsc. Research and Developmentd. Environmente. Workforce and Welfare of Societyf. Technologyg. 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 non-

governmental 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

SubsidiaryMaharashtra Elektrosmelt Limited (MEL) in Maharashtra Joint VenturesSAIL 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, self-

employment 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 ORG-

MARG, 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 to deserving SC/ST

undergraduate engineering students in various disciplines to

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 self-

employment 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 1997-

2001 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).