B E A C O N A Newsletter by SIMCON– SIMSREE Consulting Club

Volume : 2

Issue : 12 October 2014

Inside this issue:

Industry Analysis: Metal

Company Analysis: Tata Steel

Concept of the Month

Quiz

Did You Know?

Volume: 2 BEACON : Page 1

Issue : 12 Oct. 2014

INTRODUCTION The metal sector is one of the main pillars of the global

economy for it acts as the initial supplier to a wide range of

industries. In addition, the sector also provides financial in-

vestors with attractive investment opportunities since its prod-

ucts are traded commodities. Many of the most significant

mines are in the hands of very large, often publicly-listed cor-

porations with strong government connections. The reason

why small-scale companies do not play an important role in

this sector is the high amount of initial capital costs required

to operate mines. The top ten largest mining companies and

their last twelve months (LTM) revenues are listed below. All

of them are publicly traded; together they currently generate

around USD 525 billion in annual revenues. Several of these

companies – including Rio Tinto Ltd, BHP Billiton, and An-

glo American among the top ten - are headquartered in Lon-

don, the UK.

Despite the sector‘s several attractions described above, it is

important to note that the industry is highly sensitive to glob-

al hit by the global crisis which arose in 2008 and triggered

rapid contraction in industrial production. As the demand

from industrial organizations for mining products declined

due to the recession, the prices of these products also fell.

Copper and aluminium were among the commodities most

drastically affected, their values dropping around 60-70 per

cent during the period July 2008-June 2009.

Consequently, the recession caused – as it did for many oth-

er industries – the mining sector to experience substantial

financial distress. However, as the global economy has

been recovering from the recession, the mining industry also

started to rebound.

MAJOR COMMODITIES

Metal industry forms an indispensable part of the economy

and it is considered to be the backbone of the industrial devel-

opment of any country. Metal is the crucial sector for any

economy as it meets the requirements of various other sectors.

http://www.ibef.org/download/Metals-and-Mining-March-

220313.pdf

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INDUSTRY ANALYSIS:

Metal

Global Main Players

Company

Name

Head-

quarters

LTM Rev-

enue

(billion

USD)

LTM

Date

Glencore

Xtrata

Switzer-

land

245.90 Mar-31

-2014

BHP Bil-

liton Ltd.

United

Kingdom,

Australia

54.50 Dec-31

-2013

Rio Tinto

Ltd.

United

Kingdom ,

Australia

54.10 Dec-31

-2013

Shenhua

Group

Co. Ltd.

China 46.90 Mar-31

-2014

Vale S.A. Brazil 43.00 Mar-31

-2014

Anglo

American

PLC

United

Kingdom

31.00 Dec-31

-2013

Freeport-

McMo-

Ran Cop-

per &

Gold Inc.

United

States

18.30 Mar-31

-2014

Barric

Gold

Canada 12.50 Dec-31

-2013

Coal In-

dia Ltd.

India 11.00 Mar-31

-2014

Fortescue

Metals

Group

Australia 10.69 Dec-31

-2013

Volume: 2 BEACON : Page 2

Issue : 12 Oct. 2014

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INDUSTRY ANALYSIS:

Metal Iron & Steel

The iron & steel segment is more than a century old, with Tata

Iron & Steel Co as the very first integrated steel plant to be set

up in India in 1907. India is currently the 4th largest producer of

steel and is slated to be the 2nd largest by 2015. The production

for sale of total finished steel (alloy + non alloy) in 2013-14 was

87.67 MT while the production for sale of Pig Iron in 2013-14

was 7.95 MT. India is the largest producer of sponge iron in the

world and of the total sponge iron production in the country,

88% is accounted by the coal based route.

Aluminium

Aluminium is the most abundant metallic element on earth, mak-

ing up approximately 8% of the planet‘s crust. However, alumin-

ium itself does not exist in nature as a metal. It is found in the

form of bauxite, the term for the ore carrying large amounts of

aluminium oxide or alumina. Although bauxite ore is relatively

easy to mine, the aluminium production process is much more

complex, with the current process discovered and patented by

Martin Hall and Pall Heroult (the Hall-Heroult process) in 1886.

This process remains the primary method used to produce alu-

minium. Some of the many uses of aluminium include transpor-

tation, packaging, construction, consumer durables, electrical

transmission lines, and machinery.

Copper

Copper, from the Greek word kyprios, is one of the oldest metals

known to civilization. In fact, the earliest recorded existence of

known copper is around 9000 BC. However, the glorious period

for copper began in the Bronze Age (possibly as early as 3900

BC), when copper was mixed with tin to create bronze, which

then became heavily used in applications from construction to

the production of weapons, tools, and castings. Since then, the

use of copper has increased significantly and is found in a vast

range of applications ranging from brass musical instruments to

electrical wiring, electric dynamos, and solar cells.

PORTER’S FIVE FORCES ANALYSIS

Threat of new entrants - LOW

Low in the metal sector due to high capital requirements

The gestation period is also high and hence it will deter new

players in the industry.

Bargaining power of customers - MEDIUM

Being a commodity, the bargaining power of customers does

exists as prices are determined by price and supply.

Bargaining power of suppliers – MEDIUM

Most of the domestic players in this sector operate integrated

plants and hence the bargaining power is Medium

Competition – MEDIUM

The competition is primarily on price and quality as

differentiation is difficult, being a commodity.

Threat of substitutes –LOW

All of these metals have unique physical properties which suit

certain applications more than other substitutes.

NEW DEVELOPMENTS

1-In order to promote collaborative programmes in the industry,

the Union Government has decided to set up a research centre

for the steel industry. It will spearhead research in priority areas

such as natural resources conservation, optimum energy conser-

vation, design development, etc. The participating companies

include SAIL, TATA Steel, JSW Steel, etc.

2-Mr Narendra Singh Tomar, Minister for Mines & Steel, re-

cently made an announcement about forming special purpose

vehicles with iron ore rich state for de bottlenecking the clear-

ance procedures for mining projects in order to revive invest-

ment in the steel sector.

3-Due to the shortage of floating stock, aluminium is attracting

premium in the international market. This is benefitting Indian

aluminium producers such as Hindalco Industries and state

owned National Aluminium Company.

4-Asset Reconstruction Company of India Ltd (ARCIL) has

invited bids for Jhagdia Copper Ltd (JCL), the largest secondary

copper smelting unit in the country and located in Gujarat. Ac-

cording to reports, JCL is values at Rs 1000 Crores at current

market prices with an implementation period lasting 2 years.

REFERENCES IBEF—Metals & Findings

STEEL Overview

India Govt. Initiatives

Volume: 2 BEACON : Page 3

Issue : 12 Oct. 2014

Company Overview

Tata Steel Limited is an Indian multinational steel-making com-

pany headquartered in Mumbai, Maharashtra, India, and a sub-

sidiary of the Tata Group. It was established in 1907 as Asia's

first integrated private sector steel company. Tata Steel Group is

among the top-ten global steel companies with an annual crude

steel capacity of over 30 million tonnes per annum.

It is now the world's second-most geographically-diversified

steel producer, with operations in 26 countries and a commer-

cial presence in over 50 countries. The Tata Steel Group, with a

turnover of Rs. 1, 48,614 crores in FY 14, has over 80,000 em-

ployees across five continents and is a Fortune 500 company.

Shareholding Pattern

Management

SWOT Analysis

Financials

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COMPANY ANALYSIS:

Tata Steel Ltd

Strengths

Operations in 26 coun

tries and commercial pres-

ence in over 50 countries

Pioneer of steel business

in India

Brand equity

Advantage of value-

chain efficiency because of

multiple companies under

the same banner

World‘s second-most

geographically diversified

steel producer

Weakness

Increasing Debt/Equity

ratio i.e. Most assets are fi-

nanced by Debt

Largely dependent on

European markets (52% of

its total revenue)

Opportunity

Government‘s thrust on

development of core indus-

tries like housing and infra-

structure should boost steel

demand

Newer technologies that

are adapted by Tata steel

due to its acquisitions is

likely to benefit them

Threats

Clampdown on iron ore

mining and controversy sur-

rounding allocation of coal

blocks could hurt its domes-

tic business

Competition from interna-

tional players like Arcelor

Mittal, Posco is likely to eat

into its market share

Name Designation

Cyrus Mistry Chairman

T V Narendran Managing Director

Andrew Robb Director

NusliWadia Director

Karl-Ulrich Koehler Director

Subodh Bhargava Director

Jacobus Schraven Director

B Muthuraman Vice Chairman

Koushik Chatterjee Executive Director

Mallika Srinivasan Director

D K Mehrotra Director

O P Bhatt Director

Ishaat Hussain Director

Particulars FY 13 Rs Million

FY 14 Rs Million

Growth

Operating Rev-enues

134711.54 148613.55 10.31%

Expenditure 122390.33 132202.54 8.01%

Operating Profit (EBITDA)

12321.21 16411.01 33.19%

PAT after ex-ceptional items

(7362.39) 3663.97 (1.57%)

Volume: 2 BEACON : Page 4

Issue : 12 Oct. 2014

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Ratios

Group Performance Highlights-

Group steel deliveries in FY‘14 increased to 26.56 mil-

lion tonnes from 24.13 million tonnes in FY‘13. Deliver-

ies in Q4 FY‘14 increased to 7.62 million tonnes com-

pared to 6.38 million tonnes in Q3 FY‘14.

Group consolidated turnover in FY‘14 was Rs.1,48,614

Cr. versus Rs.1,34,712 Cr. in FY‘13.

FY‘14 Group EBITDA was Rs.16,377 Cr. compared to

Rs.12,654 Cr. in FY‘13 which is an increase of 29%.

Group PAT in FY‘14 increased to Rs.3,595Cr.versus the

loss of Rs.7,058 Cr. in FY‘13. FY‘14 results included

exceptional expense of Rs.28 Cr. compared to Rs.7,390

Cr. in FY‘13.

Competitor Analysis

The steel industry is quite crowded consisting of more than 8

players in the large scale sector and many medium size firms.

Thus, competition does exist. But the intensity is far too low due

to very large demand supply gap. The amount of investment that

exists and will exist in the long run is huge and this will serve as

the exit barrier and further increasing rivalry.

In terms of Total revenue, Tata Steel is better but it has lower

net profit margin as compared to SAIL. Since the ROE is higher

for Tata Steel, its profitability is also higher. Return on Assets

for Tata Steel is 4.6% which is higher than the other two com-

panies. It suggests that Tata Steel makes better use of its assets.

SAIL is the least leveraged and it can borrow funds more easily

than Tata Steel and JSW Steel. The interest coverage ratio for

SAIL is better and this suggests that it can pay interest on out-

standing debt more easily than the other two companies.

New Developments

1. Tata Steel has signed a memorandum of understanding

with the Geneva-based Klesch group for the sale of its

products business in Europe and associated distribution

activities. This division accounted for 25 per cent of Tata

Steel‘s European operations.

2. Global steel demand is forecast to grow by 3.1% in

2014. With the sale of its products business in Europe,

Tata Steel would not benefit from this increase in de-

mand.

3. Growth in China has tempered as the country pursues a

‗sustainable‘ model of development. Deviations in the

growth trajectory of China will impact global steel de-

mand-supply because it is the largest producer of steel

globally.

4. Tata Steel is aggressively pursuing completion of the

first phase of the 6 million tonnes per annum project in

Kalinganagar, with stage-wise commissioning expected

to start by end of FY‘15.

References:

TATA Steel Company Profile

TATA Steel on Economic Times

TATA Steel Results

Annual Report

COMPANY ANALYSIS:

Tata Steel Ltd

Ratios FY14 FY13

FY12

Return on capital em-ployed

9.98 7.9 9.96

Current ratio 1.24 0.99 0.71

Quick Ratio 0.65 0.69 0.74

Debt equity ratio 1.74 1.68 1.23

Inventory turnover ratio

5.53 5.59 5.19

Debtors turnover 9.91 9.33 8.95

Asset turnover ratio 1.44 1.42 1.37

Company Revenue

(Rs Cr)

Net

Profit

(Rs

Cr)

Net

Profit

Margin

(%)

Net

Worth

(Rs Cr)

RoE

(%)

Tata Steel 149130.4 3594.9 2.4% 40532 8.9%

SAIL 479017 2651.1 5.6% 43306.7 6.1%

JSW Steel 51305.4 452 0.9% 21173.9 2.1%

Introduction A competitive landscape (also known as "competitive intelligence") provides cohesive, detailed information on what your competi-

tors are doing including:

Who your real competitors are

What their products are

How your customers perceive the competition

What your competitors' business model is

You and your company need this vital information to plan and market profitable products that beat the competition. All companies

engage in some form of competitive analysis or another. It might not be apparent because they are doing it informally e.g. by sub-

scribing to news, going to conferences, buying reports or plain old observational research.

Competitive Landscape Analysis (CLA) is a technique for analysis of the competition in the industry you work in. It helps for a

quick turnaround in the overview of any industry in terms of what the trends and gaps are. It acts as a strong tool to design a stepwise

approach towards knowing the strengths, weaknesses, opportunities and threats (SWOT) of the company by knowing the competi-

tion.

The Benefits The three key benefits of Competitive Landscape Analysis:

Effective Marketing: A CLA will give help identify a clear and fact based product positioning statement enabling your customers to easily relate with your

product, find some important differentiating point to choose your product over the competitor‘s. For example ―A shampoo so rich

you only need to lather once‖.

Improved ROI on Sales Effort: It is important to know how customers are making buying decisions. Many companies write sales proposals in a hurry without any

CLA and wonder why their win rate is low. Cost of sales in large deals can be very high with several hundreds of expensive hours

going just into writing proposals. CLA, thus, help reduce the expenditure and improve the ROI.

Pipeline of New Products: With changing times and economic conditions, consumer needs evolve. This automatically creates gaps or new opportunities. The

first one to ferret out an upcoming customer need will have a first mover advantage. Most companies think that they know their

market and dream up new products without a reality check.

How to perform your own CLA?

1. Set up a set of objectives to do your research on:

This is the most important step in the CLA as without knowing the boundaries of your research you may just end up boiling the

whole ocean.

2. Find out the ‘manufacturer goals’ for the industry: These are a set of goals that a manufacturer keeps in mind in terms of growing in that industry. E.g. in an ‗OTC Healthcare Products‘

industry the manufacturer goals can be: Enhanced or Diversified product portfolio, Strong retail network or partnership, Create

strong brand equity and credibility, etc.

3. Identify the consumer needs and preferences for the products and services offered by the industry:

E.g. the consumer preferences in above industry can be: Safety and quality, convenient storage & usage, product life, etc.

4. Create a matrix of ‘manufacturer goals’ vs ‘consumer preferences’:

Taking a combination of each manufacturer goal and consumer preference, a research is conducted on a set of competitors as to

whether it is satisfying the research objective or not. If the competitor satisfies the research objective, it is entered in the matrix.

Likewise this is done for each combination of manufacturer goals and consumer preference. The research objectives keep the re-

search focused on only what is required. These are like a set of questions that we set up to proceed to research for a combination of

goals and preference.

5. Conclude by identifying gaps and best practices:

At the end of research, we get a completed matrix wherein, we have listed the name of the competitors in the cells where they satisfy

the research objective. We also specify the degree- high, medium and low- to which they satisfy that research objective by specifying

their name in Bold and italics. Bold refers to high degree of compliance with the objective while italics show a medium to low de-

gree of compliance. The cells in matrix where there are all or most of the companies are in bold specify the best practices in the in-

dustry as most of them are following that. If our company doesn‘t follow them, then that can be termed as gaps in our company. The

cells where some companies are bold and the rest are in italics or are not present, specify the opportunities for our company. Thus, using this analysis, we can gauge on the competition in the industry as well as find the opportunities and gaps for our compa-

ny. CLA provides a structured approach towards research of the latest industry trends.

Volume: 2 BEACON : Page 5

Issue : 12 Oct. 2014 CONCEPT OF THE MONTH

Competitive Landscape Analysis

QUIZ

1. This company‘s warehouse can hold more than 10,000 Olympic Pools. Name the company.

2. Identify the type of mortgage where a home equity loan is taken by the borrower along with the primary mortgage or re-

finance.

3. This Danish company‘s head of ‗New Business Group‘ agreed to having committed an ‗innovation suicide‘ with their prod-

ucts in early to mid 2000s. Identify the company.

4. X was acquired by an ecommerce giant Y in 2002. In Sept 2014, it was announced that both of these would now be separat-

ed and traded as independent publicly-traded companies. Identify X & Y.

5. This ex-editor of a leading US daily, who died recently, was most famous for his work in challenging the US Government

in 1971 & 1972. Identify this person.

50% of the ownership of Domino‘s Pizza, was traded by James

Monaghan to his brother Tom Monaghan for a used Volkswagen

Beetle.

The first & original google computer storage was created out of

LEGO.

UPS was founded in Seattle, Washington, as ‗American Mes-

senger Company‘ by Claude Ryan & James Casey with a bicycle and

$100 borrowed from a friend.

Volume: 2 BEACON : Page 6

Issue : 12 Oct. 2014

Contributions invited:

To make this feature a successful effort, we seek continued involvement and contribution from our readers,

that is YOU. We invite articles and trivia on themes related to consulting. Be it industry news, consulting

trends, a joke, a cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down

your thoughts and mail your entries to simcon.simsree@gmail.com.

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SIMCON –SIMSREE CONSULTING CLUB Mail To : simcon.simsree@gmail.com

Winner:-

Saurabh Agarwal

SIMSREE

ANSWERS : SEPTEMBER ISSUE

Answer To: simcon.simsree@gmail.com with Subject= SIMCON_Quiz_October_2014

Winner will be recognized.

All Correct Answers will be published in next month’s Edition.

1. Germany

2. Unocoin

3. Kailash Satyarthi

4. X=Sun Pharma Y=Ranbaxy

5. Intel