TATA STEEL: SITUATION ANALYSIS

FROM STRATEGIC POINT OF VIEW

Group 6: Section B
Abhishek Singh Parihar (G15063)
Anupam Kalita (G15071)
Manoj Kumar Mohapatra (G15089)
Rajdeep Basu (G15102)

AGENDA

Overview of Tata Steel

Overview of Corus

Analysis of Steel Industry

Acquisition

Post Acquisition

TATA STEEL: A BIT OF HISTORY

Established in 1907 by Dorabji Tata

Vision To be worlds benchmark in Steel
Industry through excellence of its people &
innovation.
Tata Group is known for its Integrity, Excellence,
Unity, Respect for Individual and Responsibility
towards nation building.
High focus on Quality management

TATA STEEL: PERFORMANCE

BEFORE 2006

Some Good Facts:

Second largest Steel producer in India after SAIL (no

-1 in private sector)
Efficient productions low cost labors and access to
iron mines EBITDA margin of 40%
Was ranked Worlds best steel maker for the third
time by World Steel Dynamics in its annual listing in
February, 2006

Some Drawbacks:

Limited presence in global market.

Narrow Product mix only a few products.

CORUS: A BIT OF HISTORY

Was formed on October 6, 1999 following a merger of

Dutch steel industry, Koninklijke Hoogovens and
British Steel.
Operations in UK, Netherlands, Germany, France,
Norway and Belgium.

Ninth Largest producer in the world.

Market:

Europe : >50%
UK : 30%

CORUS: PERFORMANCE BEFORE

2006

Some Good Facts:

Product mix Strip steel, long products, distribution

and building system and Aluminum.
Stronghold in construction and packaging industry in
Europe.
Leading R&D many patents.

Some Drawbacks:

Low Profit Margin - $1.9 billion from 18.2 million

tones production ( Tata steel was earning $1.5 billion
from 8.7 million tones of capacity!) Why ?
Union Issues.
Overburdened with more than $13 billion pension
liabilities.
Huge debt 1.6 bn GBP

STEEL INDUSTRY PORTERS 5

FORCES ANALYSIS TIMELINE 2006
Threat
of Entrants
Threat
of new
New
Low
Entrants
Capital Intensive
Distribution Channel
Non-friendly regulations

Buyers Power
Moderate
Increasing
Demand
Many perceived
this to be
commoditized
product
Low switching
cost
Large buyers
have full info
about the market

Competitive Rivalry
Very High

Consolidation in the industry

Foreign players after LPG

Threat of Substitutes
Low

Though there exists some

alternatives to steel, its
still irreplaceable

Suppliers
Power High

High Raw material

price
Transportation
issue

TATA STEEL GROWTH STRATEGY

Acquisitions
NatSteel in 2004
Singapore based wholly owned
subsidiary of NatSteel Asia Pvt Ltd
Capacity 2MTPA at the time of
acquisition
Millennium Steel in 2005
Majority stake ( 40% ) Thailand
based
Largest Steel Company in Thailand
with Capacity 1.7MTPA at the time
of acquisition
2 Rolling Mill Companies in
2007
Acquisition through NatSteel Asia
Pvt Ltd
Structure Steel Engg Pvt Ltd

Subsidiaries, Associates &

Joint Ventures

23 Subsidiaries

Joint Ventures of:

Tata Steel Ltd

Tata Steel Holding Pvt Ltd

Associate of :

Kalamati Investment Pvt Ltd

Natsteel Asia Pvt Ltd

Tata Incorporated

Tata Steel Ltd

Tata Steel Holding Pvt Ltd

Indian Steel & Wire Products

Ltd

WHY ACQUISITION?
To tap the European Market.
Acquisition cost is lower than setting up a green
field plant.
Technology benefit.
Corus holds number of patents and R&D
facilities.
Corus produced high valued stripped products.

SYNERGIES EXPECTED FROM

ACQUISITION
Economies of Scale
Increase in Profitability
Backward integration for Corus and Forward
Integration for Tata Steel.
Technology Transfer and cross transfer of R&D
capabilities.
Tata was one of the lowest cost steel producers and
Corus was fighting to keep its production costs low.
Tata had a strong retail and distribution channel
in India and SE Asia. There would be a powerful
combination of high quality developed and high
growth markets.

Tata

THE DEAL

Steel offered 455 pence per share ( market price 390

pence)
Counter offer from Brazilian Steel group CSN.
Intense bidding process Tata won the battle for 608
pence per share (total $12.9 billion) was it overpriced?
Tata Steel UK acquired Corus for $12.9 billion
Funds:
1) Equity Capital from Tata Steel: $4.10 billion
2) Long term debt from Consortium Banks : $6.14 billion
3) Quasi equity funding from Tata steel Asia
Singapore : $1.25 billion
4) Long term Capital funding at Tata Steel Asia
Singapore : $1.41 billion

DEAL STRUCTURE
Tata Steel Ltd. (India)

Tata Steel Asia Holdings Pre

Limited Singapore

Tulip UK Holdings UK

Tata Steel UK Limited

UK

Corus Group Plc

FINANCIAL ANALYSIS HOW THEY

WERE BEFORE ACQUISITION

Source: MoneyControl

FINANCIAL ANALYSIS POST

ACQUISITION
Key Financial Ratios

Mar '10

Mar '09

Mar '08

Mar '07

Net Operating Profit Per Share

(Rs)

1153.99

2018.91

1801.52

433.21

Profit Before Interest And Tax

Margin(%)

3.63

9.38

10.63

25.51

Net Profit Margin(%)

-1.95

3.34

9.35

16.28

Current Ratio

1.33

1.59

1.58

1.73

Debt Equity Ratio

2.31

3.00

2.06

1.72

Total Assets Turnover Ratio

1.64

2.08

1.90

0.63

FINANCIAL ANALYSIS
Many financial analyst believed that Tata Steel
overpaid for Corus.
Tata Steel stock price fell by 10.7% to Rs 463.95
Huge debt -> adverse effect on financial risk
profile
Moodys Rating Baa2 (investment grade) to
Ba1(speculative grade)

MARKETING ANALYSIS
Before Acquisition of Corus

Market Development Strategy

Limited access to Global Markets
( only in South East Asia Thailand
& Singapore)
Low Cost Steel with Indian
Automobile companies as major
Customers
Steel Distribution through Direct
Supply, Stock Yards, External
Processing Agents and also online
Channel MJunction in 2002
Brand Building with brands like
Tata Shaktee to differentiate
products and to charge premium
price

After Acquisition of Corus

Market Penetration Strategy

Access to European Markets
Tata Steel became Worlds sixth largest
Steel Producing Company
New Product Development Strategy with
new products like BH180/220
Sale Volumes increased with significant
increase of 30% in Automobile segment
Sales of Branded Product increased by
13%
Global Supplier approval by Honda Engg
Services

OPERATIONAL ANALYSIS
Before Acquisition of
Corus

Easy access of Raw Materials

i.e. Iron Ore

After Acquisition of Corus

Low Cost of Production due

Cheap Labour and
Economies of Scale with high
Volumes of Production

Cost leadership Strategy

High Logistics Cost

Synergy through access to Sales

and Distribution Network
Highest ever annual production
at HSM (3.24 million tonnes)
and CRM (1.5 million tonnes)
Improved efficiency with lower
consumption of power
Cost leadership Strategy with
Differentiated products
Logistics cost reduced with
improved Volumes

HR & ANALYSIS

According to rules, the Tata-Corus deal would

have to garner a support from 50% of the
shareholders and 75% of shares at the EGM
(Extraordinary General Meeting).
CSNs Corus bid faced EU anti-trust probe.
The labor union of Corus was in support of the
TATA acquisition
TATA Steel was clear with the union on the
future pension benefits

CULTURAL FIT

Long-standing relationship
between Tata Steel and Corus
Tata Steel engaged Ijmuiden
operations of Corus in 1992 to
help it in coke making and blast
furnace facilities improvement
Strategic commercial relationship
Management at both Tata Steel
and Corus focused on improving
operating efficiency and
productivity
Merger and Acquisition experts
recommended a light-handed
integration between Tata Steel
and Corus instead of an
organizational overhaul

Tata Steel Core Values

Trusteeship
Integrity
Respect for the Individual
Credibility
Excellence

Corus Core Values

Creating Value in Steel

Integrity
Respect for the Individual
Selective Growth
Respect for our People

THANK YOU