Company profile case - Steel authority of India(SAIL)

Introduction

Steel Authority of India Limited is one of the largest state-owned steel makers in India and one of the top steel makers in World. With a turnover of 48,681 crore, the company is among the top five highest profit earning corporate of the country. It is a public sector undertaking which trades publicly in the market is largely owned by Government of India and acts like an operating company. Incorporated on January 24, 1973, SAIL has more than 1 lakh employees.  With an annual production of 13.5 million metric tons, SAIL is the 14th largest steel producer in the world. In this paper, we will try to trace out the life of SAIL since its inception to its performance in recent years.

History and strategy

History

The Indian steel industry was the third fastest growing steel industry in the world next only to China. The demand for Indian steel was growing at 8-9 % as against a global average of 5-6 %. By the end of 2006, the Indian Steel Industry was the 8th largest producer of steel in the world. With capital investments of over Rs. 100,000 crores, the Indian steel industry provided direct/indirect employment to over 2 million people. 

Over the years, India produced international quality steel of almost all grades/varieties and had also been a net exporter of steel. On November 4 2005, the Indian Government gave its approval for the National Steel Policy (NSP), which aimed at hiking production to over 100 Million Tonnes Per Annum (MTA) to make the Indian steel industry globally competitive in terms of cost, quality and product mix. The NSP anticipated achieving 100 MTA by 2019-20 from 38 MTA in 2004-05. The core of this vision was Steel Authority of India Ltd.

SAIL traces its origin to the Hindustan Steel Limited (HSL) which was set up on January 19, 1954. HSL was initially designed to manage only one plant that was coming up at Rourkela. But later, with the completion of the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT at Durgapur, the total crude steel production capacity of HSL was raised to 3.7 MT in 1968-69 and subsequently to 4MT in 1972-73.

Strategy

On the demand side, the strategy was to create additional demand for steel through promotional efforts, awareness creation and strengthening the delivery chain, especially in rural areas. On the supply side, the strategy was to create additional capacity, remove procedural and policy bottlenecks in the availability of inputs such as iron ore and coal, make higher investments in R & D and human resource development and improvise infrastructure such as roads, railways and ports.

Organizational structure

SAIL operates through a network of integrated steel plants namely:

1.  Rourkela Steel Plant (RSP) in Orissa set up with German collaboration (The first integrated steel plant in the Public Sector in India, 1959)

2.   Bhilai Steel Plant (BSP) in Chhattisgarh set up with Soviet collaboration (1959)

3.  Durgapur Steel Plant (DSP) at Durgapur, West Bengal set up with British collaboration (1965)

4.  Bokaro Steel Plant (BSL) in Jharkhand (1965) set up with Soviet collaboration (The Plant is hailed as the country’s first Swadeshi steel plant, built with maximum indigenous content in terms of equipment, material and know-how)

5.   IISCO Steel Plant (ISP) at Burnpur, West Bengal

Special Steel Plants

1.       Steel Authority of India Limited (SAIL), Kanpur, Uttar Pradesh

2.       Alloy Steels Plants (ASP), Durgapur, West Bengal

3.       Salem Steel Plant (SSP), Tamil Nadu

4.       Visvesvaraya Iron and Steel Limited (VISL), at Bhadravathi, Karnataka 

Subsidiaries

1.       Maharashtra Elektro-smelt Limited (MEL) in Maharashtra

Central Units

1.       Centre for Engineering and Technology

2.       Research and development centre for iron and steel

3.       Management Training Institute

4.       SAIL safety organization

5.       Raw materials division

6.       Central Marketing Organization

7.       SAIL consultancy organization

Joint Ventures

1.       NTPC SAIL Power Company Limited (NSPCL)

2.       Bokaro Power Supply Company Pvt. Limited (BPSCL)

3.       mjunction services limited

4.       SAIL-Bansal Service Center Ltd

5.       Bhilai JP Cement Ltd

6.       Bokaro JP Cement Ltd

7.       SAIL&MOIL Ferro Alloys (Pvt.) Limited

8.       S&T Mining Company Pvt. Ltd

9.       International Coal Ventures Private Limited

Financial Performance for FY2011

Steel Authority of India (SAIL or the company) is engaged in the business of manufacturing and marketing steel and its allied products. It is a fully integrated iron and steel maker, producing both basic and special steel products for construction, engineering, power, railway, automotive, and defense industries. 

The company primarily operates in India. SAIL is headquartered in New Delhi, India and employed about 110,800 people as of March 2011. The company recorded revenues  gross sales) of INR472,652 million ($10,365.3 million) in the financial year ended March  2011 (FY2011), an increase of 7.4% over FY2010. The operating profit of the company was INR31,894.2 million ($699.4 million) in FY2011, a decrease of 63% compared with FY2010. The net profit was INR50,172.9 million ($1,100.3 million) in FY2011, a decrease of 26.8% compared with FY2010.

 Achievements

1. Quality Summit New York Gold Trophy 2007 (International Award for Excellence & Business Prestige) and Award of Excellence Maintenance for Sumitomo Heavy Industry & TSUBKIMOTO-KOGIO, Japan won by Alloy Steel Plant, Durgapur.

2.   SAIL was featured in the 2008 list of Forbes Global 2000 companies at position 647.[8]

3.  Golden Peacock Award for Combating Climate Change – 2008 for BSP, Occupational Health and Safety – 2008 for BSL

4. National Safety Award to Bhilai Steel Plant announced by the Ministry of Labour & Employment, Government of India - 2008

5.  Durgapur Steel Plant won the 2nd Prize in the Association of Business Communicators of India Awards - 2008.

6.  Ispat Bhasha Bharati. the Rajbhasha Journal of SAIL has been awarded with the first prize under the All India House Journal Award Scheme - 2008-09

7.    Salem Steel Plant received the prestigious Greentech Gold Award in Metal and Mining Sector - 2008-09.

8.    Golden Peacock Award for Corporate Social Responsibility won by Bhilai Steel Plant (BSP) for the third year in a row - 2009.

9.    Rourkela Steel Plant bagged the prestigious Srishti Good Green Governance (G-Cube) Award - 2009.

10.  Greentech HR Excellence Award bagged by Durgapur Steel Plant - 2009

11. The steel township of Rourkela Steel Plant (RSP) has been ranked 14th in sanitation and cleanliness by Union Urban Development Ministry - 2009-10

12.  Greentech Safety Gold Award was bagged by Bhilai Steel Plant - 2010

13.  The HR Excellence Award by the Greentech Foundation won by Bhilai Steel Plant - 2010

14.  SSP has won the prestigious Greentech Silver Award in Training Category of Greentech HR Excellence Awards - 2010.

15.   Award for financial and operational strength by Indian Institute of Industrial Engineering (IIIE)- 2009-10

16.   Golden Peacock Environment Management Award - 2011

17.  Randstad Award for HR Practices and Employer Branding under 'Manufacturing Industries' category - 2011

18.   Maiden Wockhardt Shining Star CSR Award in the Iron & Steel Sector category - 2011.

19.   Salem Steel Plant (SSP) has won the prestigious National Sustainability Award for the 6th time in succession and 13th time since inception of the award from Indian Institute of Metals (IIM)- 2011.    

Other achievements

• Of the 33 Prime Minister's Shram Awards announced for 2010 by the Ministry of Labour, Government of India, 17 of which went to PSUs, SAIL employees bagged 11 awards.
• Of the total number of 76 awardees for the year, 45 belong to SAIL - a remarkable distinction for any organisation. 
• Maharatna SAIL has received the prestigious Golden Peacock Environment Management Award for the year 2011. The award, in recognition of SAIL's initiatives and achievements in the field of environment management, was presented by Union Minister for Home Affairs Shri P. Chidambaram on 24th June, 2011
• 74 of a total of 128 awardees who have won the prestigious Vishwakarma Rashtriya Puraskar (VRP) are from SAIL. The 15 out of 28 awards won by SAIL went to our 74 employees for the performance year 2008. Bhilai Steel Plant won 7 such awards involving 36 employees, Bokaro Steel Plant won 6 awards involving 29 employees. Durgapur Steel Plant and Salem Steel Plant both won 1 award each involving five and four employees respectively. SAIL employees have bagged 4 out of 5 awards of Class A, which is the highest number of A Class awards won by any PSU in India.
• The India’s union minister of steel, Mr Beni Prasad Verma has said that the Steel Industry in India which contributes over 2% to the GDP is expected to become the 2nd largest producer of crude steel in the world by 2015.

CSR and Green measures

ENVIRONMENT MANAGEMENT

SAIL reaffirms its commitment to contribute towards a clean sustainable environment and continually enhancing its environmental performance as an integral part of its business philosophy and values.

As a responsible corporate citizen, SAIL is fully committed towards Corporate Responsibility of Environment Protection (CREP) target. Plants have taken lot of measures in the field of reducing fugitive emission, specific water consumption, specific energy consumption and enhancing solid waste utilisation. All these actions are continuous in nature so that SAIL strives to go  beyond the targets set, wherever possible.  

Modernisation and ERs.pansion plan of SAIL is taking care of 

(a) 100% production of steel making through Basic ORs.ygen Furnace (BOF) route, 

(b) 100% processing of steel through continuous casting,

(c) auRs.iliary fuel injection system in all Blast Furnaces, 

(d) energy saving schemes and 

(e) adherence to environmental norms. 

In fact, one of the guiding principles of SAIL is to make positive impact on the environment and promote good environmental practices.  Areas of improvement during 2009-10 over 2008-09 are : 

• Air emission reduced to 1.55 kg/tcs, an improvement of more than 3%. 
• Solid waste utilization increased to 80%, an improvement of more than 1%. 
• Specific effluent discharge reduced to 2.53 m3/tfs, an improvement of more than 1%. 
• Energy consumption reduced to 6.72 Gcal/tcs, an improvement of 0.1%. 
• More than 2.1 lakh saplings have been planted during 2009- 10 at plants, mines and townships with accumulative plantation of 175 lakh till date.

 CORPORATE SOCIAL RESPONSIBILITY

For any organization, CSR begins by being aware of the impact of its business on society. The Credo of SAIL specifically highlights the commitment towards society at large which states, inter-alia "Making a meaningful difference in peoples life". SAILs Social Objective is synonymous with Corporate Social Responsibility (CSR). Apart from the business of manufacturing steel, the objective of the company is to conduct business in ways that produce social, environmental and

economic benefits to the communities in which it operates.

• To meet the above objective, specific Corporate Social Responsibility (CSR) Groups have been formed at Corporate Level and at all plants/units in SAIL. As a matter of policy, the Budget allocated for Corporate Social Responsibility [CSR] is 2 % of budgeted distributable surplus (after Dividend and Dividend TaRs). 
• SAIL has established 61 Primary Health Centres, 8 Reproductive and Child Health Centres, 18 Hospitals and 6 Super-Specialty Hospitals for specialized healthcare to almost 26.7 million people since inception.
• 138 schools have been set up in the steel townships for modern education to about 74,000 children.  Assistance has been provided to over 260 schools of villages surrounding its units for free education of more than 55,000 tribal students. SAIL has achieved a Girl:Boy ratio of 1:1 for all levels of education and a survival rate of 95.8% in SAIL Primary Schools and 90% in SAIL Secondary Schools. 
• Since inception, SAIL has provided roads in 435 villages helping around 56 lakh people and has been undertaking their construction and repairs on a regular basis. SAIL has also provided access to water infrastructure to people living in far- flung areas by installing 4714 water sources, thereby providing drinking water access to around 37 lakh people. 
• SAIL has been awarded Annual SCOPE Award-"SCOPE Meritorious Award for Corporate Social Responsibility & Responsiveness for the year 2008-09" by Honble President of India. The Annual FICCI Awards 2008-09 in the category of "The Vision Corporate Triple Impact - Business Performance : Social & Environmental Action and Globalisation Award : 2008-09" by the Honble Finance Minister of India, Shri Pranab Mukherjee.  Bhilai Steel Plant (BSP) -SAIL has been short listed for "Golden Peacock Award for CSR- 2008-09". 
• 79 villages have been adopted for developing them as Model Steel Villages across eight states. The developmental activities being undertaken in these villages include medical & health services, education, roads & connectivity, sanitation, community centers, livelihood generation, sports facilities, etc. By March, 2010, 54 Model Steel villages have been completed. 
• The Company is also working towards preserving culture and heritage. Some of the key activities include assistance to maintenance of monuments in Lodhi Garden, New Delhi.

Future plans

• SAIL, is in the process of modernizing and expanding its production units, raw material resources and other facilities to maintain its dominant position in the Indian steel market. The aim is to increase the production capacity from the base level production of 14.6 MTPA (2006-07) to 26.2 MTPA of Hot Metal.
• On the 25th of May, 2012, Steel Authority of India entered into an Memorandum of Understanding with the West Bengal government and Burn Standard Company Ltd for setting up of a railway Wagon factory of approximately Rs. 2100 crore. This project will create an approximate of 75300 jobs.

SWOT analysis

Strengths

• Staffing is a big strength for SAIL as being a Govt.venture it is looked upon for generating and offering employment
• Customer base is another major strength for SAIL as it offers steel at subsidised rates and hence caters to high volume of clients
• Another strength for SAIL is its Market position which is on a very successful level and thus there is no hesitation in its clients
• Financial Resources also acts as a strength as it can use Govt funds for ventures.
• Sales Channels also is a strength as it uses all possible channels for promotion and Sales.
• Another Strength is the (product Steel) is core in nature and related to almost all development and infrastructure activities.
• Profitability is another strength as SAIL records astounding profit figures in spite of providing social benefit and subsidies to its clients

Weaknesses

• Staff also posses as a weakness in a certain way as SAIL being a Govt. venture, targets and workload are not tight and job security leads to staff not being fully productive
• Another weakness is that higher profit margins are possible but not allowed since being a Govt venture.
• Competitive Vulnerability is another weakness as competitors include private players with better quality manpower, strategies and policies.
• Another weakness is production of a single vertical(Steel) and no diversification.
• Also a major Weakness is completely answerable to the Central Govt. and hence exposed to corruption and mismanagement

Opportunities

• However SAIL has certain opportunities as it is affiliated to the Central Govt. of India and hence expansion and growth is possible
• SAIL also can adopt globalization with ease using Govt. support
• Also SAIL being financially sound can undertake merger and acquisition projects with weaker counterparts.
• It can also involve in production of forward integration products and by-products apart from its core product(Steel) with the help of its healthy brand image.

Threats

• Threats would include change in Govt Policies and Economy trend which can have a direct impact on the functioning of SAIL.
• Also emerging and existing private sector competitors who can steal market share.
• Also late implementation of technology and modern machinery as compared to counterparts can pose a potential threat.
• Apart from the above major threats, labor turnover canalso cause problems due to existence of higher paying jobs with better benefits in the sector.

 My take

The Steel Authority of India Ltd. (SAIL) enjoys a good market position and diversity in India and its captive sources of iron ore and power that result in above average profitability. SAIL's good access to funding as a government-related entity is an additional rating strength. The company's deteriorating credit measures and weak operating efficiency partly offset the above weaknesses. A delay in the completion of SAIL's capital intensive expansion plans and a challenging steel industry environment have weakened the company's credit protection measures.

The company is the largest integrated steel manufacturer in the country, though its market share of crude steel has been declining and was about 18% for the fiscal year ended March 31, 2012. SAIL's market position is expected to improve after it has completed its expansion plan, which would add about 7 million tons of steelmaking capacity. The company also has good end-market and customer diversity. It benefits from focus on the Indian market where demand is growing at a faster pace than global steel demand. This has resulted in SAIL's capacity utilization being consistently more than 100%.

SAIL's backward integration supports its above average profitability. The company meets its entire iron ore requirements and 70% of its power needs from captive sources. This helps offset its weaker operating efficiency stemming from a large workforce, above average coking coal consumption, dated technology, limited value-added production, and sales of semi-finished goods. However, SAIL plans to address many of these issues with its current capital expenditure on modernization.

SAIL's operating performance in fiscal+.l 2012 was weaker than expectations due to a challenging operating environment. The company's profitability weakened with EBITDA margins declining to 15.2% from 20.3% in the previous fiscal year. Prices of coking coal, which SAIL imports, were high, while the prices of steel were subdued. In addition, the completion of many of the company's projects was delayed resulting in a lower-than-expected increase in steel production. Nevertheless, we expect SAIL's operating performance to improve in fiscal 2013 and beyond because of improving operating efficiency, capacity expansion, and some improvement in the industry.

SAIL's credit protection measures have deteriorated more than expected because: (1) operating performance was weaker than anticipated; and (2) the company did not issue any equity in fiscal 2012, which we had expected it would. Nevertheless, SAIL's ratio of adjusted debt (adjusted for the company's cash holding of more than Indian rupee (INR) 45 billion) to EBITDA weakened to 2.6x as of March 31, 2012, from 1.5x a year ago. We expect the ratio to further weaken to about 3.0x over the next two years, and then improve. The company's ratio of adjusted debt to capital was also about 32% as of March 31, 2012. We expect the ratio to increase to 38% in fiscal 2013.