Tata Steel Long Products Ltd Management Discussions.


In 2018, the global economy grew at a rate of 3.6%. The year was marked by various political uncertainties such as future trade disputes between USA and China, upcoming Brexit negotiations, budgetary policy of Italy, among many others. These global tensions are expected to affect the global growth in 2019 as well. The global economy is expected to grow at a rate of 3.3% in 2019 and 3.6% in 2020. Negative effects of tari increase in US and China and slow growth momentum in Europe in the second half of 2018 have led to the drop in growth estimates.

Region wise growth estimates (%)
Region 2018 2019 (P) 2020 (P)
World output 3.6 3.3 3.6
Advanced economies 2.2 1.8 1.9
Emerging markets and developing economies 4.8 4.5 4.4

(Source: IMF)


Factors such as continued domestic consumption and investment trends have positioned India as the sixth largest economy and one of the fastest growing countries in the world. The growth in the domestic consumption demand is catalysed and strengthened by factors such as harmonised of Goods and Services Tax (GST) and recapitalised bank. Indian economy grew by 6.8% in 2018-19 as compared to that of 6.7% in 2017-18. Agriculture and manufacturing are the two key industry sectors that are expected to contribute to this growth graph. Few factors shaping the nations economic growth are:

• Increased ease of doing business through changed processes such as a uniform Goods and Services Tax across India since mid-2017 and relaxed norms of opening, obtaining licences and investing in new businesses

• Domestic consumption driven economy: Nearly 60% of Indias GDP is driven by domestic private consumption as compared to that of 40% in China. Hence, the economy is protected to a great extent from external shocks and cycles of low or high public investment

• Policy reforms such as increased FDI limits in most sectors, including retail, manufacturing and telecom are driving increased participation of foreign investors and improved investment norms for non-resident Indians

• Large-scale infrastructure development projects such as smart cities, industrial corridors, road, rail and shipping hubs, and power projects.



The demand for steel generated by numerous development projects across the world, especially in infrastructure and real estate projects in the emerging markets and developing economies has made it an important sector globally. In 2018, the US steel sector grew at a steady pace. The newly introduced tax reforms along with the import and exports tari s implemented by the US government protected margins. Growth across the rest of the world was slow due to atypical circumstances. Chinas steel demand increased in the early half of 2018 due to boost in the real estate and positive impact of strong global economy. However, latter half of 2018 witnessed slow growth, tough environmental regulations and economic rebalance. For 2019, demand in the US is expected to be modest due to slow auto manufacturing and construction activity. The manufacturing sector is expected to perform well due to the strength of the machinery and equipment sector.

Both upside and downside risks exist for China. The downside risks are mainly due to the ongoing trade friction with the US coupled with a decelerating economy. But in case China decides to use measures to contain the slowdown its economy, steel demand could boost in 2019.

Indias steel demand is expected to improve as the nation recovers from the twin shocks of demonetisation and GST. Increasing investments and infrastructure programs are also expected to enhance steel demand.

Global steel output and growth rate

Year Steel output (million tonnes) Growth rate (%)
2010 1433 -
2011 1538 7.3
2012 1560 1.4
2013 1642 5.2
2014 1670 1.7
2015 1620 -3.0
2016 1606 -0.8
2017 1691 5.3
2018 1699 0.5
2019F 1692 -0.4

(Source: Deloitte)

Global capacity utilisation rate, 2018

Month Rate (%)
January 70
February 72
March 72
April 75
May 72
June 74
July 73
August 73
September 74
October 73
November 71
December 69

(Source: Deloitte)

Global steel consumption and rate

Year Steel output (million tonnes) Growth rate (%)
2010 1401 -
2011 1492 6.5
2012 1552 4.0
2013 1613 3.9
2014 1627 0.9
2015 1580 -2.9
2016 1600 1.3
2017 1657 3.6
2018 1679 1.3
2019F 1715 2.2

(Source: Deloitte)


From its position as the third largest steel producer in 2017 to the second largest producer of crude steel in 2018, India has definitely seen a positive slope.

The nations investment in the infrastructure sector is the biggest contributor to its steel sector growth. The overall steel consumption in India in 2017-18 stood at a healthy 7.8%. According to a report by the World Steel Association, India produced 79.6 million tonnes of crude steel in the first nine months of 2018, reflecting a growth of 6.1% as compared with that of previous year.

The governments policy guidelines addresses the need to create a conducive environment to improve the efficiency and productivity of the steel sector.

Post 2017 National Steel Policy, the sector embarked upon a capacity expansion spree. By 2030, the capacity is expected to reach 300 mntpa. This will drive the per capita steel consumption from approximately 61 kg to 160 kg.

Recently, this sector has also seen major consolidations. This has made it easy for global players to enter the domestic markets. According to the Department of Industrial Policy and Promotion (DIPP), the Indian metallurgical industries attracted FDI to the tune of USD 10.84 billion in the period between April 2000 and June 2018. According to a report by the World Steel Association, the demand for steel in India is expected to grow by 7.3% in 2019. Indian total finished steel production (in million tonnes):

Indian total finished steel production (in million tonnes):

Year 2013-14 2014-15 2015-16 2016-17 2017-18 April- January
Production 99.38 104.58 106.60 120.14 126.85 109.11
(Source: JPC) *Provisional

Indian sponge iron industry

The use of sponge iron in India began in the early 1950s as a supplementary material for feeding blast furnaces in gas-based sponge iron plants. Today, the nations sponge iron sector is booming and showing signs of robust growth in the coming years. This sector directly derives its demand from the performance of the steel sector. Environmental clearances and costs needed to set up integrated steel manufacturing plants are substantially high. To lower costs, coal-based sponge iron technology is emerging as a new method to manufacture steel. India is the worlds largest producer of sponge iron and has over 400 sponge iron units. Approximately 35% of the nations steel producers use sponge iron to produce steel. With time, the coal-based route emerged as a key contributor and now accounts for 79% of total sponge iron production in the country. The nations sponge iron manufacturing capacity stood at 49.6 metric tonnes in 2017-18. The National Steel Policy 2017 lays out an ambitious growth path for the sponge iron sector. The production capacity is expected to reach 80 million tonnes by 2030-31.

Indian sponge iron production (in million tonnes):

Year 2013-14 2014-15 2015-16 2016-17 2017-18 April- January 2018-19*
Production 22.87 24.24 22.43 28.76 30.51 27.57
(Source: JPC) *Provisional

Sectoral opportunities for the steel and sponge iron sector

The sponge iron sector is linked to the nations steel sector in such a way that a rise in demand for steel would increase the demand for sponge iron. The various sectors that are expected to contribute to the growing demand are:

Automotive: India is the fourth largest automobiles market globally. Increased capacity additions in the automotive industry are expected to create robust demand for steel.

Capital goods: This sector accounts for a major chunk of steel consumption and hence is a major driver for this sector.

Infrastructure: The infrastructure sector accounts for 9% of the total steel consumption, which is expected to increase to 11% by 2026 after additional support from government in the sector.

Airports: In coming years, the government plans major investments in the aviation sector, which is a huge demand driver for the steel sector. Development of airports in Tier II cities is expected to drive the consumption demand.

Railways: Expansion of the Dedicated Rail Freight Corridor (DRFC) network, setting up of new railway lines, railway electrification and gauge conversion are all expected to add to increased consumption of steel and in turn, that of sponge iron.

Power: Under the 13th Five Year Plan (2017-2022), the Indian government targets a capacity addition in the power sector of about 100 GW. This requires enhancing the power generation and transmission capacities that in turn will increase the demand for steel.

Rural India: The rural India per capita consumption of finished steel is expected to rise due to various government initiatives such as Food for Work Programme (FWP), Indira Awaas Yojana, Pradhan Mantri Gram Sadak Yojana, among many others.

Segment wise performance

The Company has two separate business segments -- manufacturing of sponge iron, and generation of power. These are reportable segments in accordance with the Accounting Standard 17 issued by the Companies (Accounting Standards), Rules, 2006. During the year (FY19) the kilns made a record production of 4,36,045 MT (at 112 % of designed capacity) which is higher by 5% as compared to 4,17,094 MT of DRI production during the previous year

(FY18). During the year, all three kilns could surpass their previous records and achieve the best ever performance level. The daily average production rate during the year was 1,323 MT/day. The sale of sponge iron was 4,37,331 MT which is higher by 5.76 % as against the sale of 4,13,506 MT during previous year. The product dispatch through containerised rakes improved further to meet the customer requirement and contain cost.

During the year, the total generation of power was 199.78 MKWH as compared to 199.24 MKWH during the previous year which is an increase of 0.27 % and export was 143.47 MKWH as compared to 143.63 MKWH during FY18 which has decreased by 0.11 %.


The renewed importance given by Government on a ordable housing, roads, sagarmala projects and other infrastructure projects are expected to create steel demand, this will augur well for sponge iron industry also.

As per the National steel policy crafted during FY 2017-18, the crude steel production target for India is set at 300 MT by 2030. Share of sponge iron in steel making will be 80 MT, which will create huge opportunity for sponge iron industry.


Presently there are no visible threats in the short and medium term in the sponge iron industry. Availability of scrap and its import will be an issue for sponge iron consumption and will affect the demand. Iron ore and coal prices will also play a key role in profitability as its availability will be an issue if there are closure of mines.


Post elections and stable Government, it is expected that thrust on infrastructure projects will renew. Also liquidity infusion and project finance will become easier and spurt growth in housing and infrastructure sectors. This will lead to remunerative prices and business sustainability.

Strategic Framework

For medium and long term strategic framework, kindly refer page no. 18, 46 and 47 of the report.

Operational and financial highlights

The operational and financial performance of the Company (standalone) during FY19, has been summarised in the table below followed by explanatory remarks for significant changes in FY19, compared to previous year.

Manufacture of Sponge Iron
Particulars FY19 (in MT) Capacity Utilisation (%) FY18 (in MT) Capacity Utilisation (%) Change (in MT) Change (%)
Production 4,36,045 112 4,17,094 107 18,951 5
Sale 4,37,331 4,13,506 23,825 6


Electrical Energy
Particulars FY19 FY18 Change (MKWH) Change (%)
Generation (in MKWH) 199.78 199.24 0.54 0.27
Sale (in MKWH) 143.47 143.63 (0.16) (0.11)

Financial Performance

( ? in lakhs)
Particulars FY19 FY18 Change Change % Refer Note
Total Income 1,04,972 85,966 19,006 22 1
Consumption of Raw material 70,869 50,058 20,811 42 2
Employee Cost 4,486 4,180 306 7
Other Expenses 9,366 7,979 1,387 17
Depreciation and amortisation expenses 1,158 1,230 (72) (6)
Finance Cost 302 325 (23) (7)
Profit Before Tax 18,777 21,018 (2,242) (11) 3
Profit after tax 12,433 14,086 (1,652) (12) 3
Earnings per share (? ) 80.73 91.47 (10.74) (12)
Reserves & Surplus 1,06,807 97,103 9,704 10
Current Liabilities 21,070 19,814 1,256 6
Net Fixed Assets 22,771 15,482 7,289 47 4
Current Assets 69,501 71,944 (2,443) (3)


1. Total income increased by 22% mainly due to increase in Net realisation and sales volume of sponge iron.

2. Consumption of raw material increased by 42 % mainly due to increase in the cost of both iron ore, coal and for higher production.

3. Lower Profit before tax and profit after tax mainly due to increase in cost of inputs as compared to net realisation.

4. Net fixed asset increased by 47 % mainly due to purchase of land at Adityapur, Jamshedpur.


The details of significant changes in the key financial ratios during financial year 2018-19 as compared to the immediately previous financial year 2017-18 are given below:

Particulars 2018-19 2017-18 Change in % Remark
Debtors turnover 14.46 16.92 (14.58) The operating profit margin and Net profit margin during the year is lower than the previous year mainly because the cost rise on inputs was not compensated by way of increase in Net Realisation
Inventory turnover 9.95 12.02 (17.19)
Interest coverage ratio - - -
Current ratio 3.30 3.63 (9.16)
Debt equity ratio NIL NIL
Operating profit margin (%) 14.59 22.84 (36.12)
Net profit margin (%) 11.84 16.71 (29.10)
Return on net worth (%) 12.01 15.22 (21.06)


1. Turnover for all purpose taken revenue from operation net of excise duty

2. For debtor turnover, inventory turnover & return on net worth, average debtor, average inventory and average net worth taken.

3. As our interest cost relating to interest provision for statutory liability , it is not considered for interest coverage ratio.

4. As there is no debt, debt equity ratio is Nil.

5. Operating profit margin = Operating profit / Revenue from operations net of excise duty, if any

6. Net profit margin = Net profit after tax / Total income net of excise duty, if any


The Company has a Board-level Risk Management Committee, which reviews the risk assessment and mitigation method. The committee identifies inherent risks in its operations and records residual risks after taking specific risk mitigation measures. The Company has identified and categorised risks in the areas of operations, finance, marketing, regulatory compliances and corporate matter. The Internal Auditor expresses his opinion on the level of residual risks during the audit of a particular area and reports to the Audit Committee. Wherever possible and necessary, appropriate insurance cover is taken for financial risk mitigation. The economic slowdown has adversely affected the demand-supply equation in the sponge iron industry. The price of sponge iron is sensitive to the demand-supply position of steel scrap in the country and the viability of steel manufacturers in the secondary sector. On the financial front, the Company has little exposure to exchange rate fluctuation risks for short periods between finalising import cargo and paying for it on receipt. Credit policy of the company is primarily based on the customer profile. Except for the supply chain disruptions, the Company management does not perceive any significant technological, environmental and/or financial risks for the Company in the near future.


The Company has an Internal Audit Department that conducts audits in various functional areas as per audit programme approved by the

Audit Committee. Audit planning and execution is oriented towards a review of internal controls and risks in the functional areas of the company. The Internal Audit Department reports its findings and observations to the Audit Committee that meets five times a year to review the audit issues and follow up on the corrective actions.


As on 31st March 2019, the company had 385 employees, 161 Officers and 224 Associates. The Human Resources department is committed to recruiting strong candidates and this commitment involves discussing the needs of a department, advising on recruitment strategies, participating in the selection of the right candidate, checking references and making job offers. As part of this process, Human Resources analyzes data such as the number of vacant positions, the number of positions filled and the time it took to fill positions. Tracking this information helps to ensure quality of service and leads to a better understanding of the time required to fill a position. The onboarding and induction was smooth and engaging for all the new recruits. All these recruitments were done internally at a low cost. The retention rate during FY19 was at 99.4%.

The Company has maintained healthy and cordial industrial relations during the year, and the workers union has been an equal partner in the maintenance of industrial harmony in the Company. Regular interactions are held between the management and the union.