The Indian steel industry is dominated by the private sector, which accounts for an 80 per cent share of the total market in terms of production. In terms of capacity too, while the steel capacity owned by the public sector has remained almost stagnant, the private sector has added significant capacity through both organic and inorganic routes. For instance, the acquisition of Bhushan Steel Limited by Tata Steel Limited in 2018 increased the latter’s capacity by 43 per cent. However, on the financial front, most companies are facing tough times, reflected in high debt levels and net losses. Going forward, consolidation is expected to gather momentum and capacity will be concentrated with larger players.
An overview of six steel majors with respect to capacity and production…
Steel Authority of India Limited (SAIL)
One of the seven Maharatna’s among the country’s central public sector enterprises, SAIL is the largest public steel making company in India, with a capacity of 17.52 million tonnes (mt) as of December 2018. SAIL’s production capacity remained constant from 2015-16 to 2018-19. During the period 2013-14 to 2017-18, its crude steel production increased at a compound annual growth rate (CAGR) of 2.55 per cent. For the year 2018-19 (till December 2018), production stood at 11.93 mt.
On the financial front, SAIL suffered losses for three consecutive years from 2015-16 to 2017-18. The losses were attributed to a number of reasons including increases in prices of imported coal from 2016-17 onwards, lower net sales realisation of steel products, adverse
impact of levy for contribution to the District Mineral Foundation and the National Mineral Exploration Trust, higher usage of imported coal in the blend, increase in salaries and wages, higher interest charges, etc. In 2018-19, SAIL turned profitable, reporting a net profit of Rs 17.1 billion for the April-December 2018 period. As of December 31, 2018, SAIL’s debt-equity ratio stood at 1.25 (1.22 as of September 2018).
SAIL is undertaking a modernisation and expansion plan at an investment of around Rs 721 billion. This comprises expansion of existing capacity; value addition/product mix improvement; technological upgradation/modernisation; augmentation of raw material facilities; etc. The plan includes expansion of six steel plants at Bhilai (Chhattisgarh), Bokaro (Jharkhand), Rourkela (Odisha), Durgapur (West Bengal) and Burnpur (West Bengal) and the special steel plant at Salem (Tamil Nadu). After the plan is completed, the company’s crude steel and saleable steel capacity is expected to increase to 21.4 million tonnes per annum (mtpa) and to 20.2 mtpa respectively. As of January 2019, the modernisation and expansion works at the Rourkela, Burnpur, Durgapur, Bokaro and Salem steel plants have been completed. Further, all major facilities have been completed at the Bhilai steel plant.
During 2011-12 to 2017-18, capital expenditure of Rs 535 billion was incurred. Against the planned capital expenditure of Rs 40 billion for 2018-19, the actual expenditure incurred till December 2018 was Rs 31.38 billion.
JSW Steel Limited
JSW Steel Limited is one of the biggest private steel players in the country, with a production capacity of 18 mtpa. It is an integrated steel manufacturer with facilities ranging from raw material processing plants to value-added product capacities. The company is geographically diversified with manufacturing facilities in south and west India along with a strategic overseas presence in the US, Italy and Mozambique.
In the past five years (2013-14 to 2017-18), JSW Steel’s crude steel production increased at a CAGR of 7.76 per cent.
On the financial front, the company’s net profit increased at a CAGR of 98.89 per cent from 2013-14 to 2017-18. As of December 31, 2018, the company had a net debt of Rs 460.3 billion and net debt-equity ratio of 1.4. In April 2019, the company raised $500 million via an international bond issue. The five-year bonds attracted bids to the tune of $1.75 billion. The coupon rate on the bonds was 5.95 per cent. Reportedly, the company is planning to raise up to $1 billion via the issuance of non-convertible foreign currency/rupee-denominated senior unsecured fixed rate bonds.
In 2018-19, JSW Steel Limited acquired stakes in assets in the domestic and overseas market. Domestically, the company acquired 23 per cent of Monnet Ispat and Energy (1.5 mtpa capacity), while internationally, it acquired assets in Italy (Aferpi) and the US (Acero Junction).
The company is targeting a capacity of 24.7 mtpa by 2020 from its current capacity of 18 mtpa, primarily through the expansion of its Dolvi and Vijayanagar facilities.
Tata Steel Limited
Tata Steel Limited, after the acquisition of Bhushan Steel Limited (now renamed Tata Steel BSL Limited) in 2018, has become the biggest player in the steel industry, with a consolidated domestic crude steel production capacity of 18.6 mtpa from the earlier 13 mtpa (stand-alone). Over the five-year period 2014-15 to 2018-19, the company’s total steel production increased at a CAGR of 15.86 per cent.
On the financial front, after incurring losses for three consecutive years (from 2014-15 to 2016-17), the company turned profitable in 2017-18. From incurring a loss (after tax) of Rs 41.69 billion in 2016-17, it incurred a profit of Rs 177.63 billion in 2017-18 and Rs 90.98 billion in 2018-19. The company’s debt stands at over Rs 1 trillion.
The past year has been an important one for the company. Besides the acquisition of Bhushan Steel Limited, Tata Sponge Iron Limited (a subsidiary of Tata Steel) recently completed the acquisition of Usha Martin’s steel business for a cash consideration of Rs 40.94 billion. Tata Steel had plans of forming a 50:50 joint venture (JV) with the Thyssenkrupp AG in Europe. This would have led Tata Steel to transfer some of its debt to the JV. However, the deal has recently been called off following objections from antitrust authorities of the European Commission.
In January 2019, Tata Steel signed a pact with China-based HBIS Group for the purpose of divesting majority stake in its Southeast Asia business. As per sources, 70 per cent of stake has been divested for $327 million.
Tata Steel is targeting a capacity of 30 mtpa by 2025. It is looking at expanding its Kalinganagar facility (Phase II expansion) by 5 mtpa and its Jamshedpur facility to 13 mtpa from the current 10 mtpa.
The company is also taking several initiatives to insulate revenues from steel cyclicality. By 2025, it is looking at earning 10 per cent of its revenues from handling of new materials such as grapheme, carbon fibre reinforced polymer, advanced ceramics, etc.
Essar Steel is one of the leading integrated steel producers in the country with a production capability of 10 mtpa and supported by a 20 mtpa pellet-making capacity. Essar Steel’s crude steel production stood at 6.75 mt in 2017-18, an increase of around 25 per cent from 2016-17.
The company was among the leading suppliers of customised high grade heavy plates for the Bogibeel bridge in Assam, the country’s longest rail-road bridge that was operation-alised in December 2018.
The company is in a weak financial position. In 2017-18, it reported a net loss of Rs 137.24 billion, an increase of 145 per cent over 2016-17. Currently, the resolution process of debt-ridden Essar Steel is under way. On May 16, 2019, the lenders of Essar Steel informed the National Company Law Appellate Tribunal that Rs 25 billion out of the Rs 420 billion coming from the resolution plan of ArcelorMittal has been earmarked as the working capital.
Jindal Steel and Power Limited (JSPL)
Part of the $18 billion OP Jindal Group, JSPL has a presence in the steel, power, mining and infrastructure sectors. The company operates a 1 mtpa rail mill at its steel plant in Raigarh, Chhattisgarh.
JSPL’s crude steel production grew at a CAGR of 8.64 per cent from 2013-14 to 2017-18. During 2017-18, JSPL completed and commissioned the 6 mtpa integrated steel plant at Angul, Odisha, increasing its capacity to 8.6 mtpa in 2017-18. Capacity utilisation stood at 47 per cent in 2017-18.
On the financial front, the company has been making losses from 2014-15 to 2017-18. It turned profitable in 2018-19, when its profit after tax stood at Rs 3.02 billion (as of December 2018). As of December 2018, JSPL’s net debt stood at Rs 401 billion.
In March 2019, the company restarted the 1.8 mtpa direct reduced iron plant at its 6 mtpa Angul steel complex. Via the direct reduced iron route, JSPL is targeting production of 1 mt of crude steel during fiscal year 2019-20 with its existing coal linkages. The company aims to procure coal to meet its remaining requirements for optimum capacity utilisation through e-auctions.
In April 2019, JSPL successfully delivered close to 100,000 tonnes of rails to Indian Railways (IR) ahead of schedule. The firm had received an order from IR in July 2018, comprising 20 per cent of IR’s Rs 25 billion global tender issued for procuring about 487,000 tonnes of rails. Further, JSPL has secured an additional order of around 30,000 tonnes of rails. In May 2019, it secured a Rs 6.65 billion from Rail Vikas Nigam Limited to supply 89,042 tonnes of rails for its upcoming projects.
Rashtriya Ispat Nigam Limited (RINL)
RINL, the corporate entity of the Visakhapatnam steel plant, is a Navratna public sector enterprise under the Ministry of Steel, with a capacity of 6.3 mtpa. The production of crude steel by RINL increased at a CAGR of 10.7 per cent from 2013-14 to 2017-18. Its capacity stood at 6.3 mt as of December 2018.
On the financial front, the company has been making losses since 2014-15 and the loss for 2017-18 stood at Rs 16.28 billion.
The Rs 122.91 billion modernisation and expansion of the Vizag steel plant has already been completed. RINL has now taken up further modernisation and expansion of the plant at a cost of Rs 36 billion for increasing capacity from 6.3 mtpa to 7.3 mtpa.
For the current fiscal year (2019-20), RINL is targeting a turnover of Rs 250 billion. Sales in 2018-19 stood at Rs 208.44 billion.
To conclude, though the operational performance of the companies measured in terms of production growth seems satisfactory, the financials remain weak. Going forward, further consolidation in the sector can help improve the financial performance as well as utilisation levels, which currently remain high at over 90 per cent for most of the companies.