Essar Steel Company Analysis Report
Essar Steel
Background
Essar Steel is promoted by the Ruias, who also have a diversified
presence in the power, telecom, oil and gas, and shipping sectors. Essar Steel
— owned by the Essar Group — was incorporated in 1976. It is a fully integrated
steel manufacturer — from iron ore to ready-to-market products. The company's
products cater to a wide variety of applications such as roofing, automobiles,
oil and gas, shipbuilding, fabrication and white goods etc.
Product mix
The company manufactures hot briquetted sponge iron (HBI), hot rolled
products, cold rolled products, galvanised products and iron ore pellets. Its
flat products are sold under the name ‘24-carat steel'. By bringing Hy-Grade Pellets
Ltd (HGPL) and Steel Corporation of Gujarat Ltd on board, the company has
marked its presence in downstream products such as CR and galvanised products,
and now also enjoys the backward-integration facilities of these two
acquisitions (not including iron ore mines).
Table 1: Essar Steel - Production
|
Products (‘000 tonnes)
|
2006-07
|
2005-06
|
|
Hot briquetted sponge iron
|
3,590
|
3,153
|
|
Hot rolled coil / cold rolled coils
|
2,952
|
2,577
|
|
Iron ore pellet
|
4,510
|
3,128
|
|
Total production
|
11,052
|
8,858
|
|
Source: Annual report
|
||
Technology
Essar Steel manufactures steel through the electric arc furnace (EAF)
route and uses sponge iron as the major metallic raw material. It uses natural
gas as a feedstock to produce sponge iron.
Plant location
The company has an integrated steel plant at Hazira (Gujarat ).
Its iron pelletisation plant at Vishakapatnam meets the requirements of its HBI
plant. Essar Steel set up a cold rolling complex at its Hazira plant as well as
in Indonesia
Table 2: Essar Steel - Plant-wise information on
capacity and key products manufactured
|
Location
|
Capacity
|
|
|
|
Products
|
('000 tonnes)
|
|
Hazira (
|
Cold rolled coil
|
1,200
|
|
|
Hot briquetted sponge iron
|
5,000
|
|
|
Hot rolled coil
|
3,600
|
|
|
Iron ore pellet
|
8,000
|
|
Source: CRISIL Research,
Prowess
|
|
|
Financials
Table 3: Essar Steel - Key financial indicators
|
|
|
31-Mar-05
|
31-Mar-06
|
31-Mar-07
|
|
Operating income
|
Rs million
|
60,993
|
61,806
|
80,929
|
|
Operating margins
|
Per cent
|
31.7
|
23.6
|
24.2
|
|
Net profits
|
Rs million
|
5,902
|
3,388
|
4,472
|
|
Net margins
|
Per cent
|
9.7
|
5.5
|
5.5
|
|
RoCE (return on average capital employed)
|
Per cent
|
23.1
|
11.6
|
11.7
|
|
Gearing
|
Times
|
4.6
|
2.3
|
1.7
|
|
Net cash accruals to debt
|
Times
|
0.2
|
0.1
|
0.1
|
|
Interest coverage
|
Times
|
3.1
|
2.8
|
3.0
|
|
Current ratio
|
Times
|
0.9
|
1.0
|
0.9
|
|
Source: CRISIL Research
|
|
|
|
|
