Tata steel is one of the largest steel producers in the world with an annual crude steel capacity of approximately 35 MnT including both India and Overseas operations.
Tata Iron and steel company (TISCO) was founded by Jamshedji Nusserwanji Tata and established by Sir Dorabji Tata on 26 August 1907. The first pig iron production was rolled out in 1911 in Jamshedpur. Steel production was begun in 1912 as a branch of Jamshedji’s Tata Group.
Tata steel India capacity stands at 21.6 MnTPA (Million Tonnes per annum) capacity with operations at Jamsedpur and Gamharia in Jharkhand and kalinganagar and Meramandali in Odisha.
In India, Tata Steel operates an end-to-end value chain that extends from mining to finished steel goods, catering to an array of market segment such as automotive, construction, general engineering etc.
All products are sold under different brand names: MagiZinc, Ymagine, Ympress, Contiflo, Hybox, Strongbox, SAB Profil, Fischer.
As mentioned earlier, Tata steel India capacity stands at 21.6 MnTPA. Let us now break down the capacities of the plant.
| Steel plant | Capacity |
| Jamshedpur | 11 MnTPA |
| Meramandali | 5.6 MnTPA |
| kalinganagar | 3 MnTPA |
| Gamharia | 1 MnTPA |
| kalinganagar (NINL) | 1 MnTPA |
The above data shows about the Domestic steel plants of Tata steel.
| International plants | Capacity |
| EUROPE (Port talbot, Wales) | 5 MnTPA |
| IJMUIDEN, Netherlands | 7 MnTPA |
| Thailand | 1.7 MnTPA |
Summing up all the capacities of the plant both in India and overseas, the overall capacity of Tata steel plants is 35 MnTPA.
How steel is prepared?
To keep it simple, the steel is made by mixing carbon and iron at very high temperatures above 2600-degree F.
The raw materials of steel making are mined and then transformed into steel using two different processes.
- The blast furnace route: In the blast furnace route (BF) pig iron is extracted from iron ore using coke. Slag and blast furnace gas are formed in the blast furnace. The iron from the blast furnace is then refined and converted to steel in the basic oxygen furnace. In this method 20-30% of scrap is added to this process to regulate the temperature.
- The electric arc furnace route: In this type of method, 100% scrap is used. The steel is remelted without primary raw materials. Oxygen and lime are added to bind any impurities. Galvanized steel scrap can also be processed in the electric arc furnace.
The company sources most of the required raw material from its captive mines in India, providing raw material security and the competitive advantage of being a low-cost steel producer.
The raw material division of Tata Steel supplies almost 100% of iron ore and nearly 21% of clean coal requirements for steel manufacturing facilities in India. The remaining requirements are being fulfilled through imports.
Tata steel has captive coal mines at Jharia & West Bokaro, in the state of Jharkhand, located. The iron ore units are located in Noamundi, Joda, Khondbond, Katamati, Koira and Vijaya.
The Ferro Alloys and Minerals Division (FAMD) with an annual production of 360,000MT, is the largest non-steel business unit of Tata steel. This operates the chrome and manganese ore reserves in Odisha.
Interesting fact about Tata Steel: There have been two attempts to Nationalise Tata Steel. The First attempt was done in the year 1971, when Indira Gandhi was prime minister. That government tried to nationalise the Tata Steel, but it didn’t happen. Again, in the year 1979, then the prime minister Moraji Desai wanted to Nationalise Tata Steel, but it also failed.
Steel Industry
India remains a bright spot in the global steel industry and the steel demand in the country is expected to show a healthy growth of 7.7% in 2024 compared to a global growth of 1.9% according to the Short-Range Outlook of the World Steel Association. The global manufacturing sector showed signs of stabilization at the start of 2024.
The Indian economy is on a healthy growth track, with a rising share of investment in GDP, appropriate budget allocations and expenditure by the Government in the infrastructure segment. India also faced supply disruptions due to raw material constraints and volatility of prices.
According to the World Steel Association, World crude steel production in 2023 decreased by 0.1% compared to 2022 to 1.850 billion tons.
China remained the leader in world crude steel production with an output of 1019.08 mt in 2023, registering no change in output compared with 2022. The country accounted for 55.1% of world crude steel production during the year under review.
India was the 2nd largest producer of crude steel with an output of 140.17 mt in 2023, showing a yoy growth of 11.8%. The country accounted for 7.6% of world crude steel production during the year.
Where do we use steel?
Steel applications can be divided into seven primary market sectors.
According to the World Steel Association, the data provided shows how steel is used.
- Buildings & Infrastructure – 51%
- Mechanical Equipment – 15%
- Automotive – 12%
- Metal products – 11%
- Other transport – 5%
- Domestic appliances – 3%
- Electrical equipment – 3%
Strengths of Tata steel:
- Integrated Steel Company: Tata steel is largest Integrated Steel manufacturer in India. From mining raw materials to manufacturing finished products. The major benefit of being an integrated company is cost efficiency.
- Cost Efficiency: By controlling the entire production processes, Tata steel minimizes the dependence on external suppliers for raw materials, reducing costs and avoiding price fluctuations in the market.
- It also allows tata steel to optimize production processes, benefit from spread fixed costs over a larger volume of production, leading to lower per-unit costs.
- Amalgamations: The company has successfully amalgamated five of these businesses after duly completing the regulatory processes and the integration is underway. These company includes:
- Tata steel Mining Limited with an annual turnover of Rs 5,000 crore in FY23, it was merged effective Sept 1, 2023.
- Tata steel Long Products Limited with an annual turnover of Rs 7464 crore in FY23. It was merged effective November 15, 2023.
- S&T Mining company limited merged effectively December 1, 2023.
- The Tinplate company of India limited with an annual turnover of Rs 3893 crore in FY23. It was merged effectively on January 15, 2024.
- Tata Metaliks Limited with an annual turnover of Rs 3,260 crore in FY23, merged effective February 1, 2024
The amalgamation is value-addition and will also drive synergies through raw material security, centralised procurement, optimization of inventories, reduced logistics costs and better facility utilisations.
- Acquisitions: Tata steel has done many acquisitions in the past years of its journey. That includes
- NatSteel in 2004,
- Millennium Steel in 2005
- Corus in 2006
- Tayo Rolls in 2008
- Steel Engineering and Vinausteel in 2007
- Bhushan steel in 2018
- Usha Martin in 2019
- Nilachal Ispat Nigam Ltd in 2022.
Tata steel’s strategic acquisitions have played a crucial role in its growth and expansion.
- The acquisitions helped in the geographical expansion of its business.
- Its production capacity has increased.
- The company will also enhance its product segments.
- Trust of TATA: Tata is one of the most trusted and respected brands not only in India but all over the world. The association of the name provides immense brand equity to the company.
- Sustainable steel business initiatives: The New material business (NMB) was set up with the vision to create a knowledge intensive business in materials of future. It was set up in 2018 and the business has grown at CAGR of approximately 200%.
NMB has different verticals namely, Composites, Graphene, Medical Materials.
Fibre Reinforced Polymer (FRP) Composites: Tata steel composites business is amongst the top 3 Indian composite players. The business has continuously enriched its portfolio by developing its products. The products are Silicon Carbide lined pipes for fuel Gas De-sulphurisers.
Graphene: Tata steel’s Graphene business has collaborated with Central Government and established First Graphene Centre in India at Kochi. The Graphene business has developed 6 technology platforms.
- Steel Recycling Business: Tata steel has started Steel Recycling Business (SRB). The SRB plant at Rothak acheived 280 KT dispatch with a revenue of nearly Rs. 1225 crore in FY23. This plant has acheived almost 100% capacity utilization in Q4 fy23.
Steel Scrap Recycling Policy
The government introduced the Steel Scrap Recycling Policy in November 2019. This policy provides a framework to facilitate and promote establishment of metal scarpping centes in India for scientific processing and recycling of ferrous scrap generated from various sources.
The main objective of the policy is to promote a circular economy in the Steel sector.
- To process and recycle products in an organized, safe and environmentally friendly manner.
- To decongest the Indian cities from ELVs (End-of-life vehicles) and reuse of ferrous scrap.
Currently, the domestic unorganized scrap industry supplies 25 million tonnes (MT) of scrap, with an additional 7 MT imported. There is potential to source this imported 7 MT of scrap from within the country by setting up the necessary infrastructure. This would involve creating enough collection and dismantling centers, to supply scrap processing centers.
To generate extra 7 MT of scrap domestically, we need 70 scrap processing centers, each with a capacity of 100,000 tonnes. This setup would not affect the existing dismantling centers. These 70 processing centers would require about 300 collection and dismantling centers, assuming each is supported by 4 such centers.
Looking ahead, as steel production is expected to rise to 300 MT by 2030, according to the National Steel Policy, the demand for scrap will increase to 70-80 MT. To meet this demand, approximately 700 scrap processing centers (shredders) will be needed. These centers will need to be supplied by 2,800-3,000 collection and dismantling centers spread across the country.
Risks:
- Financial Risks: The company has a debt of around Rs. 84,893 crores as of March 31, 2023. The company is planning to double its capacity, which in turn will also increase the debt further.
- If we look at the revenue breakdown, as of FY23 report, the revenue from the operations is Rs. 2,43,353 and out of which Rs. 90,300 was contributed by the Europe business.
- This is considered risky when there is any escalation of wars or conflicts arises.
- Macro-economic and Market risks: The prolonged inflationary pressures and dynamic macro-economic scenario will have an adverse impact on the global steel demand.
- Regulatory Risks: The central government has withdrawn the export duty on iron ores lumps & Fines pig iron. Earlier the central government levied an export duty of 15% on the steel exports. When the regulator does anything like the imposition of export duty it will negatively impact the steel industry.
- Export duties on steel will impact the company financials, reduce the export revenue, disturb the supply chain, impact the domestic industry and make it uncertain for the long-term investments.
- Supply chain risks: Any event that will impact on the logistics sector may impact on the business and daily operations. Supply chain management is crucial for the business.
- Capital- and Labour-intensive industry: The major problems faced by the steel companies are highly capital and labor intensive.
- Demand Prediction: The risk that is involved is demand prediction, because demand for steel depends upon several global factors. Geo-politics play a key role in this demand prediction.
Financials:
| Mar-12 | Mar-13 | Mar-14 | Mar-15 | Mar-16 | Mar-17 | Mar-18 | Mar-19 | Mar-20 | Mar-21 | Mar-22 | Mar-23 | |
| Sales | 132,900 | 134,712 | 148,614 | 139,504 | 101,965 | 112,299 | 123,249 | 157,669 | 139,817 | 156,294 | 243,959 | 243,353 |
| Net Profit | 5,217 | -7,272 | 3,665 | -3,939 | -497 | -4,169 | 17,743 | 9,122 | 1,174 | 8,190 | 41,749 | 8,075 |
| EPS in Rs | 4.78 | -6.26 | 3.19 | -3.48 | -0.34 | -3.76 | 11.93 | 9.07 | 1.38 | 6.26 | 32.88 | 7.17 |
| Dividend Payout % | 22% | -11% | 27% | -20% | -203% | -23% | 9% | 15% | 74% | 40% | 16% | 50% |
The company is having a unstable financials. It depends upon several factors. The EPS also changes extremely.
Shareholding pattern:
| Jun-21 | Sep-21 | Dec-21 | Mar-22 | Jun-22 | Sep-22 | Dec-22 | Mar-23 | Jun-23 | Sep-23 | Dec-23 | Mar-24 | |
| Promoters | 34.41% | 34.41% | 33.92% | 33.92% | 33.92% | 33.92% | 33.90% | 33.90% | 33.90% | 33.90% | 33.70% | 33.19% |
| FIIs | 21.94% | 22.38% | 21.36% | 22.87% | 21.95% | 21.52% | 21.87% | 20.62% | 20.28% | 20.31% | 20.01% | 19.61% |
| DIIs | 19.28% | 18.28% | 18.11% | 20.41% | 19.01% | 18.17% | 19.62% | 20.68% | 20.96% | 22.20% | 23.15% | 23.51% |
| Government | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.16% | 0.16% | 0.16% | 0.16% | 0.16% | 0.16% | 0.16% |
| Public | 24.27% | 24.83% | 26.51% | 22.70% | 25.02% | 26.23% | 24.45% | 24.63% | 24.70% | 23.43% | 22.99% | 23.52% |
| No. of Shareholders | 1,022,482 | 1,230,367 | 1,691,278 | 1,587,315 | 2,047,661 | 3,371,417 | 3,335,265 | 3,644,090 | 3,692,750 | 3,804,728 | 3,992,609 | 4,717,442 |
The promoter participation and the public participation is reducing gradually.
Growth triggers:
- Increased investments in Infrastructure: Increase in infrastructure investments will enhance steel sector demand. Government and private players are aggressively investing in manufacturing space, automobiles, Railways will all lead to the increased demand for the steel sector.
- Government Initiatives: The National Steel Policy 2017 (NSP-2017) aims to bolster the global competitiveness of the steel industry by achieving a steel production capacity of 300 million metric tons per annum (TPA) by 2030, with a substantial 35-40% contribution from Electric Arc Furnace (EAF) and Induction Furnace (IF) routes. While scrap remains the primary raw material for the secondary sector, the primary sector also incorporates scrap into the Basic Oxygen Furnace (BOF) charge mix, typically up to 15%, to enhance efficiency, reduce production costs, and fulfill other process requirements.
- Kalinganagar Steel (NINL): On July 4, 2022, the Company through its listed subsidiary Tata Steel Long Products Limited (‘TSLP’), completed the acquisition of 93.71% stake in Neelachal Ispat Nigam Limited (‘NINL’). The acquisition value was ₹12,100 crore. This Acquistion will increase the production capacity of the TATA STEEL.
Kalinganagar (TATA Steel): This plant which was commissioned in 2016 attained capacity of 3 MnTPA In less than two years. Now it is in process to expand to 8 MnTPA , which will boost the production capacity of the company.
Environmental. Social, Governance (ESG):
Environmental:
Issues:
- Third lawsuit against Tata Steel is being prepared by people living close to the IJmuiden plant in Netherlands and they want the most polluting activities at the site closed immediately.
- This issue has been repeated for two years. Local residents filed charges against Tata Steel. The Dutch Public Prosecution Service started criminal investigations into the steel company.
- According to the Greenpeace.org, Tata steel is the largest emitter of Nitrogen in the Netherlands. This nitrogen causes damage to nature and air pollution over a very large area.
1. The company has set up a short-term goal of achieving material efficiency of 99% at all Indian Steel making sites by 2025.
2. The company is planning to build a 5 MnTPA recycling business in steel and other business in India by 2030.
3. Company has set up a long-term goal of achieving specific freshwater consumption of <1.5 m3 per tonne of crude steel across all sites in India by 2030.
4. It also has another long-term goal to disclose environment performance of 100% of products in India by 2030.
Social:
- Tata steel has set a goal of achieving a 25% diversity in workforce by 2025.
- It is aiming to achieve zero harm for Tata Steel Limited by 2030.
- It is planned to reach >10 million lives per annum through Corporate Social Responsibility initiatives by 2030.
Governance:
- Shikhar 25: The Shikhar25 program is a multi-dimensional, cross-functional initiative aimed at enhancing EBITDA across the entire value chain. Tata Steel Group has established a governance structure with cross-functional teams known as ‘IMPACT Centres’ to meet the objectives of Shikhar25. Currently, there are 50 IMPACT Centres operating throughout the value chain, utilizing various Total Quality Management (TQM) techniques to improve operational efficiency, streamline processes, optimize product mix, reduce and recycle waste, boost energy efficiency, and maximize revenue.
- Supply chain: The company has set a goal for achieving coverage of 100% critical supply chain partners for Environment, Social and Governance risk assessment for Tata steel limited by 2027.
- The long-term goal is to be amongst top 5 in technology in steel industry globally by 2030.
- It also wants to achieve (Certified steel) certification for all sites in India by 2030.
Conclusion:
Tata steel is expanding globally with the debt raised. Their expansion will increase the production capacity with the debts increasing. The profits and margins depend upon several factors. Geo-political factors play a key role in business. The company needs to maintain healthy financials. As it is operating in Labour- and capital-intensive sector, it is hard for the company to maintain constant profits.
Savart is a SEBI registered investment advisor. The purpose of this content is to educate & not advise/recommend any particular security. Please remember that investments are subject to market risks. Please conduct thorough due diligence or seek professional guidance before making any investment. Do not believe in any speculations.