Brief Introduction about the Industry

Asian nations contribute significantly to the supply of steel on the global market. These countries
are currently leading the world in steel production.Perhaps this is one of the factors contributing
to the phenomenal growth seen throughout the world. India is the country that contributes a
significant amount of steel production in the world market. Other main steel producing nations
are China, Japan, and South Korea. Steel is a main component for infrastructural facilities around
the world. All the major industries use outputs from this sector for their businesses. Now, we will
analyze the Indian Steel Industry using various strategic tools.

Analysis of the External Business Environment

First, we will do a SWOT Analysis of the Steel Industry in India to understand the Industry in a
better way.
● Strengths
○ In India, iron ore and other minerals required of steel production are available in
abundant quantities.
○ Steel Industry requires a lot of labor and fortunately, labor costs in India are very
economical.

● Weaknesses
○ The capital investment in the Steel Industry is very high. Hence, both entry and
exit are difficult.
○ The quality of labor available in India is poor.
○ Basic and essential infrastructure facilities is not available in all regions of the
country.
○ There is less availability of IT infrastructure and IT knowledge.
○ In India, the cost of some resources like coal, power, fuel, etc. is a bit high.

● Opportunities
○ There are high growth opportunities in unexplored foreign markets.
 ○ The Indian Economy is growing at a great pace which generates growth
opportunities for the industry in the domestic market.
○ Increased Infrastructural development in India may lead to increase in demand for
steel products.

● Threats
○ Increase in use of Steel substitutes like Aluminium, Plastic, etc. may hamper the
demand for Steel.
○ Due to recession in foreign markets, the players in this industry will have to pull
down prices.
○ The overall growth of Steel Industry in India has been low.

Now, we will use Porter's Five Forces Analysis for Steel Industry in India to understand the
competitive environment in this industry.

● Bargaining Power of Buyers - The bargaining power of buyers is high in this Industry.
This is because the switching costs from one supplier to another are low. Also in some
cases, the suppliers need to make the products as per the needs of the customers.

● Bargaining Power of Suppliers - Contrary to the previous force, the bargaining power
of suppliers is moderate. The two reasons for this are: (a) switching costs for customers
are low, and (b) there are only a few players in the market.

● Threat of Substitutes - The threat of substitutes is also moderate for the steel industry.
The two main reasons for this are: (a) New substitutes for steel are emerging in the
market like aluminum, plastic, etc., and (b) There are some areas where use of steel
cannot be substituted.

● Threat of New Entrants - The Threat of New Entrants is low in the steel industry. This
is because the amount of capital investment in this industry is very high. As a result, entry
into the market is very difficult.
 ● Competitive Rivalry - The competitive rivalry in the steel industry is very high. The
main reasons for this are: (a) The product differentiation is very low or negligible, (b)
There are high exit barriers due to high investment in specialized assets, and (c) the
competition from international players is also increasing day by day.

Lastly, we will use PESTEL Analysis for Steel Industry to know deep insights about the
industry.

● Political Analysis - For the Steel Industry, the government of India has a special policy
framed - National Steel Policy. This policy was introduced to shorten the gap between
demand and supply of steel. The policy also aimed at maximizing the production of steel
in India. Under this policy, the tax rate on Steel sales was raised from 15% to 20%.
Another important clause of this policy was that FDI upto 75% is allowed in this
industry.

● Economical Analysis - The overall Indian economy has been growing at a good pace.
But, the steel industry has seen a slow growth only. To pace up this growth the
government has introduced certain policies like reduction of import and export duties for
steel and related products.

● Social Analysis - Steel Industry has mixed impacts on society. On one hand, it provides
employment to a lot of people in the country and helps them earn their daily bread. On
the other hand, the working conditions in the plants are very poor, which eventually
affects the health of the employees. In addition, Steel Industry also leads to a variety of
pollutants in the environment.

● Technical Analysis - The technology used in most of the steel plants in India use poor
technology and methods. However, in recent times, modern technology and
improvements are being implemented by various companies. Use of IT and Data
 Analytics has seen a rise in the Steel Industry. With this, we can see technological
improvement in the steel industry in India.

● Environmental Analysis - The Steel Industry, just like any manufacturing industry, has
various harmful effects on the environment. The level of carbon emission from Steel
Plants is very high. At the same time, biodiversity is also adversely impacted. Apart from
this, the plants also release harmful substances in the water bodies. Hence, the overall
environment is negatively impacted by Steel Plants.

● Legal Analysis - The government has introduced various rules and regulations for this
industry. The rules are mainly related to betterment of employees' working conditions.
The government keeps on introducing new health incentives for the workers from time to
time.

Tata Steel Ltd

Basics of Company's Business

1. What is the company’s business?
Tata Steel is an Indian steel-making company. It is a part of Tata Group of Industries and
is one of the top steel-making companies in the world. The company operates in around
26 countries with its headquarters in Mumbai, Maharashtra.

The company is ranked at number 486 in the Fortune Global 500 ranking of biggest
corporations in the world. The biggest plant of the company is located in Jamshedpur,
Jharkhand.

The key people at the company include Natarajan Chandrasekaran (Chairman), Noel Tata
(Vice Chairman), and T. V. Narendran (CEO and MD). The company takes up expansion
and growth plans from time to time.
 2. What are its main products and services? Name some of the company’s brands.
The product range of Tata Steel is very wide. The company offers a variety of Steel and
related products. The products are designed to cater both the domestic as well as global
needs of customers. The main products of the company are as follows:
a. Steel
b. Long Steel Products
c. Structural Steel
d. Wire Products
e. Steel casing pipes
f. Household Goods

Some major brands of the company are:

a. Tata Steel Long Products
b. Tata Metaliks
c. The Tinplate Company of India
d. Tata Robins Fraser Ltd.
e. Indian Steel & Wire Products
f. Tata Steel Mining
g. S&T Mining
h. Tata Rolls
i. Jamshedpur FC
It should be noted that seven of these brands are proposed to be merged into Tata Steel as per a
recent report. This news is discussed in detail in a further section.

3. Does the company export its products OR render services to offshore clients? To
which
countries?
The company exports its products to around 26 countries. However, its key business
operations are in India, the Netherlands, and the United Kingdom. Other countries where
the company operates and exports its products are Malaysia, France, Canada, UAE,
Thailand, Vietnam, Australia, South Africa, etc.
 4. Highlight the difference, if any between the businesses of the three companies.
The net income of Tata Steel for the year ended March 2022 was INR 41,100 crore,
whereas that of JSW Steel was INR 20,021 crores, and that of SAIL was INR 12,250
crores. These figures clearly show that the degree of operations is higher for Tata Steel
Ltd. when compared to the other two companies.

At the same time, there are some differences in the product range offered by the
companies as well. The key products offered by Tata Steel are mentioned above. JSW
Steel offers Steel, Long Steel Products, Flat Steel Products, Wire Products, and Plates.
The Steel Authority of India offers Steel, Wheel and Axle for Indian Railways Long Steel
Products, Flat Steel Products, Wire Products, and Plates.

Management Discussion and Analysis (MDA)

The Management Discussion and Analysis (MDA) section of the company's annual report
provides a lot of important information and gives deep insights about the company. Among a
variety of details and information provided in this section, the three items which seemed to me
the most significant are:

Strategy - By large, Tata Steel's strategy for the financial year 2021-22 was gaining operational
and marketing excellence. In the first quarter of the year, when the country was battling against
the COVID-19 pandemic in the second wave, the company kept its employees and the society as
a whole at core. This section also highlights how the company helped in strengthening medical
infrastructure in the states of Jharkhand and Odisha. Apart from this, the company focused on
strengthening the balance sheet, enhancing growth prospects in India, and simplifying the
portfolio of the company.

Apart from this, this section also highlights the company's long term goals which it aims to
achieve by 2030. They are:
 ● Becoming the market leader by bringing in innovations in products and services, catering
to existing and emerging needs of the customers, and enhancing the overall customer
experience.
● Becoming the cost leader in the global market by reducing fixed costs, improving
logistics and customer network, and augmenting the raw material portfolio.
● Attaining market leadership in the adjacent businesses like Services & Solutions, New
Materials Business, and Commercial mining.
● Attaining leadership in sustainability by reducing carbon emission, water consumption,
dust consumption, etc.

Digital Transformation - The MDA section also discusses digital transformation at Tata Steel
plants. The major step which the company has taken towards digital transformation is shifting
approximately 85% of its servers to cloud over the last four years. The company has also
implemented work from home practices for employees by "bringing work to talent, instead of
talent to work."

The company is making use of Data and Artificial Intelligence as their building blocks. The
manufacturing and mining departments now have virtual command centers, business simulation
techniques are used in mills, training employees about new technologies like block chain, and
making use of data for decision making are some of the ways the company is implementing
digital transformation in its business. With all these steps, the company aims to keep up with the
4th Industrial Revolution.

Risks and Mitigation Strategies - Tata Steel Ltd. has implemented an Enterprise Risk
Management process in its business to be prepared for any possible risk to its operations. For
effective implementation of this process, the company has also constituted an Apex Risk
Committee (ARC) to take decisions in this direction. This has eventually helped the organization
to make better and informed decisions. The management has successfully identified various
types of risks to business and have designed strategies to face such risks. The various types of
risks discussed in the MDA section are financial risks, regulatory risks, market risks, operational
risks, safety risks, community risks, commodity risks and information security risks. In addition,
the section also discusses mitigation strategies for all these risks.

Auditors' Report Analysis

1. Who are the company’s auditors?
Price Waterhouse & Co Chartered Accountants LLP (Registration No.
304026E/E300009), Chartered Accountants, have been appointed as the Company's
statutory auditors for a period of five years beginning after the conclusion of the 110th
Annual General Meeting on August 8, 2017, and ending after the 115th AGM of the
Company, which will be held in the year 2022. This appointment was approved by
members of the Company at the AGM held on August 8, 2017.

2. List the main items on which the auditors’ report. Give details of three items that
significantly affect the financial statements.
The three significant items mentioned in the Auditors' Report are:

Opinion - The consolidated financial statements provided in the annual reports, in their
opinion and to the best of their knowledge and understanding, and in accordance with the
explanations provided to them, provide the information required by the Companies Act,
2013 in the manner so required and provide a true and fair view in accordance with the
generally accepted accounting principles in India of the consolidated state of affairs of
the Group, its associate companies, and jointly controlled entities as of March 31, 2022.

Limitations - The auditors' report also mentions some limitations of the consolidated
financial statements. Material misstatements resulting from fraud or error may occur and
go undetected because of the inherent limits of internal financial controls with regard to
consolidated financial statements, including the potential for collusion or improper
management override of controls. The risk that the internal financial control with
reference to consolidated financial statements may become insufficient due to changes in
circumstances or that the level of compliance with the policies or procedures may decline
 is also present when extrapolating any evaluation of the internal financial controls with
reference to consolidated financial statements to future periods.

Responsibility - The auditors' duty is to provide an assessment of the Holding

Company's internal financial controls in relation to the consolidated financial statements.
To the extent applicable to an audit of internal financial controls, they have conducted
their audit in accordance with the Guidance Note published by the ICAI and the
Standards on Auditing presumed to be prescribed under Section 143(10) of the
Companies Act, 2013. The auditors are required by those Standards and the Guidance
Note to uphold ethical standards, plan and carry out the audit to obtain reasonable
assurance regarding the establishment and maintenance of adequate internal financial
controls with respect to consolidated financial statements, as well as the operation of
those controls

3. How much was the auditor’s remuneration? Give the detailed breakup of the same.
The remuneration of auditors for the year 2021-22 was Rs 10.31 crore. The detailed
break-up of this remuneration is provided in the below table:

Sr. No. Particulars Amount

1 Auditors remuneration and out-of-pocket expenses

● Statutory audit fees 9.24

● Tax audit fees 0.60

● For other services 0.27

2 Cost audit fees [including out of pocket expenses ₹12,000 0.20

(2020-21: Nil)]

Total 10.31
 4. Highlight the concerns raised by the auditors in their report. Give details of such
items. Is the auditor getting any fees other than audit work?
The auditors' report does not mention any specific concerns relating to the financial
statements, except for those mentioned under limitations. The auditors are not paid any
special fees other than the audit work.

Significant Accounting Policies

The annual report of the company also highlights various significant accounting policies used by
the company for preparing the financial statements. The report provides details about each and
every policy used in the process. In this section, we have discussed some of the important
accounting policies mentioned in the annual reports of the last five years.

Policy 2021-22 2020-21 2019-20 2018-19 2017-18

Revenue Revenue is recognised when the There is There is There is There is

Recognition control of the products is transferred,
no no no no
i.e., when they are delivered to the specific specific specific specific
consumer. change change change change
in this in this in this in this
Other terms for revenue recognition policy. policy. policy. policy.
are : (a) when the products have
been shipped or delivered to the
designated location, (b) the risk of
loss has been transferred, and (c)
either the customer has accepted the
products in accordance with the
sales contract or the Group has
concrete proof that all acceptance
requirements have been met.

In case the goods are sold at

discount, the amount specified in the
contract is recognised as the amount
of revenue.

For contracts with duration less than

one year, the company does not use
time value of money while
recognising revenue.

Inventory The lower of cost and net realizable There is There is There is There is
Valuation value is used to value inventories. no no no no
Cost is calculated using a weighted specific specific specific specific
average method. change change change change
in this in this in this in this
Costs include the direct labor costs, policy. policy. policy. policy.
direct material costs, and overhead
expenses incurred to bring the
inventory to their current position
and condition.

The price at which inventories are

recorded is at which they can be sold
during regular business operations
after deducting the cost of
converting them from their current
state to a finished form and the cost
of marketing, selling, and
distribution.

Depreciatio Depreciation on tangible assets is There is There is There is There is

n provided using the straight-line no no no no
method over the economic useful specific specific specific specific
life of the asset. change change change change
in this in this in this in this
For assets under construction, policy. policy. policy. policy.
depreciation is charged only after
they are ready to use.

The depreciation method, salvage

value of assets and economic useful
life of asset is reviewed every year.

R&D Research and Development There is There is There is There is

Expenditure expenditure is recorded as an no no no no
expense in the year in which it is specific specific specific specific
incurred. change change change change
in this in this in this in this
However, Development expenditure policy. policy. policy. policy.
on individual projects are recognised
as intangible assets when a few
predefined conditions are met. When
any development expense does not
meet these conditions, it is recorded
as an expense and passes through the
income statement of the year in
which it is incurred.
Tangible The company recognises property, There is There is There is There is
Fixed Assets plant and equipment as assets only no no no no
when its economic benefits are specific specific specific specific
certain in future and its costs are change change change change
reliably measurable. In the same in this in this in this in this
line, the company records all policy. policy. policy. policy.
replacement costs and service costs
as assets which are required for the
asset to deliver value. General
repairs and maintenance are
recorded in the P&L statement.

The gain or loss on sale of these

assets passes through the income
statement of the year of sale.

Intangible Intangible assets like patents, There is There is There is There is

Assets and trademarks and software costs are no no no no
Amortizatio recorded under intangible assets specific specific specific specific
n only when the economic benefits of change change change change
them are probable to flow to the in this in this in this in this
company in future. policy. policy. policy. policy.

They are measured at purchase costs

and amortized using straight-line
method over the useful life of these
assets.

All the other costs related to

intangible assets are passed through
the income statement.

Impairment The Group evaluates the carrying There is There is There is There is
of Assets value of its tangible and intangible no no no no
assets at each balance sheet date to specific specific specific specific
see if there are any signs that the change change change change
carrying value of those assets could in this in this in this in this
not be recoverable via continued policy. policy. policy. policy.
usage.

If such a sign is present, the

recoverable value of the asset is
examined to ascertain the size of any
potential impairment loss.

The Group determines the

 recoverable amount of the cash
generating unit to which the asset
belongs when it does not produce
cash flows that are separate from
those of other assets.

News Analysis
Tata Steel hits over 3-month high in a weak market; stock up 6% in 4 days
Business Standard | December 2, 2022

The article discusses how Tata Steel's stock price has risen by 6% even in a weak market (when
the market index was down). The global steel demand has seen a huge downfall since May 2022.
This, eventually, put high pressure on steel manufacturers to reduce their margins as much as
possible to sustain in the market.

In such a scenario, the government of India came in to aid the steel manufacturers of the country
by removing the 15% export duty. In addition, the government has also revoked the export duty
on iron ore with 58% or less Fe content and reduced the export duty to 30% for those above
58%. Also, import duties on PCI coal, coking coal, coke, semi-coke, and related products are
removed. All these changes came into effect from November, 2022.

These changes brought in by the government of India will surely help steel manufacturers in
India to pace up their exports. At the same time, it will help them to boost domestic demand to
some extent. This article helps us to know that Tata Steel may witness some great opportunities
to expand in the near future due to reduction in overall costs.

SC rejects Tata Steel plea to set it free from Bhushan steel liabilities
The Economic Times | December 6, 2022
This article talks about how the Supreme Court of India had rejected the plea of Tata Steel Ltd.
to relieve it from all liabilities which rose as a result of its acquisition of Bhushan Steel. In 2018,
under National Company Law Tribunal, Tata Steel had acquired Bhushan Steel Ltd for Rs
35,200 crore. However with this acquisition, came in liabilities worth Rs 346 crores of taxes
towards the UP government.

Previously, the Allahabad High Court had passed the judgment that Tata Steel Ltd wasn't liable
to pay any such amount. However this judgment was questioned as an unjust enrichment by
senior counsel KV Vishwanathan and the matter was brought to the Supreme Court.

In its judgment, the Supreme Court dismissed the Special Leave Petition of Tata Steel to be
relieved of all liabilities of Bhushan Steel. The main reason for this judgment was that the
Allahabad High Court had left the question of unjust enrichment open. However, it gave Tata
Steel to defend the judgment if it wanted. This article helps us to understand that through the
mode of acquisitions, Tata Steel has not only expanded its operations but also has brought in
huge amounts of liabilities.

Mega Merger: 7 metal companies of Tata Group to be merged with Tata Steel
The Economic Times | September 23, 2022

In this article, we get to know about a huge announcement made by the Tata Group. The news is
about the merger of 7 metal companies of Tata Steel into Tata Steel. According to Tata Steel,
this decision will benefit the organization in a variety of ways like optimum utilization of
facilities and resources of each company, better and enhanced marketing/communications
network, simplification of holding structure, bringing more agility and flexibility to business,
common decision-making, and many more similar benefits.

The overall impact of these benefits will be that the company will save on a lot of costs like
those related to administration, marketing, and operations. Most importantly, the company
claims that this step will help in creating shareholders' equity and raise the share value
significantly. The seven companies which are a part of this merger are - Tata Steel Long
Products, Tata Metaliks, The Tinplate Company of India, TRF, Indian Steel & Wire Products,
Tata Steel Mining and S&T Mining.

It should be noted that this mega merger plan is subject to approval from shareholders of
merging companies, regulatory bodies, and the stock exchanges. This announcement had mixed
reactions of stocks of the concerned seven companies.

Tata Steel signs MoU with start-up for drone-based mining solutions
Business Standard | July 28, 2022

The next article talks about Tata Steel's partnership with a Bengaluru-based start-up Aarav
Unmanned Systems (AUS), which specializes in providing end-to-end drone solutions. Tata
Steel aims at using this technology in its mining operations.

The signing of this Memorandum of Understanding with the start-up is in line with Tata Steel's
digital transformation goals. The drone technology will ensure better supervision, increased
safety, enhanced efficiency and will help in increasing overall productivity of the plants. In all,
the drone technology will provide deeper insights and knowledge and will help in better
decision-making when aided with analytics.

The partnership will bring in new technologies like mine analytics, geo-technical mapping, and
overall better management of mines. With this article we get to know that Tata Steel is moving
towards digitalisation with which we can expect growth and expansion of the company in the
long-run.

Tata Steel signs MoU with Punjab govt to set up a plant in Ludhiana
Livemint | August 28, 2022

In this article, we get to know that Tata Steel is going to set up a new plant in Ludhiana, and for
this it has signed a Memorandum of Understanding with the Government of Punjab. At this new
plant, the company is committed to making steel with minimal or no carbon emission.
This deal is in line with the company's goals towards continuous investment in the circular
economy and making Tata Steel a Zero Carbon emitting company by 2045. This plant will
produce construction grade steel rebar under the company's retail brand 'Tata Tiscon'. The plant
will specialize in making sustainable steel using recycled routes.

In addition to production of sustainable and recycled steel, this will fulfill the company's
expansion plans and place it in new markets. The article highlights the that Tata Steel is on the
road to expansion and growth crossing all hurdles and will soon reach a new position in the
global market.