TATA STEEL – POSSIBLE ACQUISITION OPPORTUNITIES SIP Project Report submitted in partial fulfilment of the requirements for the PGDM Programme By Shreya Keshri 2017242109 Supervisors

TATA STEEL – POSSIBLE ACQUISITION OPPORTUNITIES

SIP Project Report submitted in partial fulfilment of the requirements for the PGDM Programme
By Shreya Keshri
2017242109
Supervisors: 1. Shrey Singh
2. Shashank Deoras 3. Veena PailwarInstitute of Management Technology, Nagpur
2017-19
ACKNOWLEDGEMENT
I take this opportunity to extend my sincere thanks to Nomura Services India Pvt Ltd. for providing me with a platform to earn exposure and garner knowledge in the field of
I wish to extend my sincere and heartful gratitude to my mentors Mr. Shrey Singh and Mr. Shreyank Deoras, Analysts who guided, supported and encouraged me during the entire tenure of my internship.

I would extend my gratitude towards the people of the department for their co-operation and valuable advice throughout the course of my internship and provided constant support in accomplishing the objectives of the project.
I have immensely benefited from the summer internship with Nomura Services India Pvt Ltd.
Regards,
Shreya Keshri
PGDM (FINANCE)
Batch 2017-19
IMT, Nagpur
CONTENTS
TOPIC PAGE NUMBER
Introduction & Objective of the Study 4-17
Company Analysis 18-24
Conclusions 25-26
Tabulation & Finding 27-28
Recommendations 29
Limitations of the Study 30
Scope for Future Improvements 31
Bibliography 32
INTRODUCTION AND OBJECTIVE OF THE STUDY
What is acquisition?
An acquisition is a situation where one company purchases another company’s shares in order to take control. An acquisition happens when a buying company obtains more than 50% ownership in a target company. As part of the exchange, the acquiring company ususally purchases the target company’s stock and other assets, which allows the acquiring company to make decisions regarding the newly acquired assets without the approval of the target company’s shareholders. 
Why Make an Acquisition?
Companies perform acquisitions for various different reasons. They may seek to achieve economies of scale, greater market share, increased synergy, cost reductions etc. They want to expand their operations to another country, buying an existing company seems to be the only viable way to enter a foreign market, or at least the easiest way. The purchased business will already have its own employees, a brand name, and other intangible assets, which helps to ensure that the acquiring company will start off with a solid customer base.

Acquisitions is a part of a company’s growth strategy when it is more beneficial to acquire an existing firm’s operations than it is to expand on its own. Whether because the company is becoming too bureaucratic or it runs into physical or logistical resource constraints, eventually its marginal productivity peaks. To obtain higher growth and new profits, the firm may look for promising young companies to acquire and increase revenue stream.

When an industry attracts too many competitor firms or when the supply from existing firms ramps up too much, companies may look to acquisitions to reduce excess capacity, eliminate the competition, or focus business rather fighting for its own products.

If a new technology emerges that could increase productivity, a company may decide that it is more cost-efficient to purchase a company that has successfully implemented the technology rather than spending on internal research and development, which can often be too costly and time-consuming.

ABOUT STEEL INDUSTRY
The history of the modern steel industry began in the late 1850s, since then, steel has been basic to the world’s industrial economy. The history of steel industry was enhanced and modernized by the introduction of Open-Hearth process of steel production which made the industries to produce steel out of domestic iron ores. This process was newly adopted by the steel industries situated in USA in the year 1888. This time saw rapid innovations in the process of steel production which got its energy from the increased demand for steel from various industries namely, railway industry, automobile industry, industry involved in construction of bridges, etc. During this time, the increased demand as well as supply of steel pushed the ranking of USA to the first position, in terms of the steel production. The utilization of the new system of steel production continued approximately from the year 1910 to the year 1960. After this, a new process Basic Oxygen Process came into picture which produces steel in a more quick and efficient manner.
If someone goes through the history of the steel industry then he or she would find out that from the early 1960s a new process was incepted by the steel industry for the production of steel known as the Process of Electric Arc Furnace. This process helps these industries in production of stainless steels and also in recycling of scrap steel items.
In the history of the steel industry it can be observed that the with the passage of time, the quantity of production by USA has decreased with relation to total world production of steel. After the 1980s, China came strongly enough and became the largest producer of steel. India is also showing good performance in this sector in the recent times.
Steel Industry is a booming industry in the whole world. The increasing demand for it was mainly generated by the development projects that has been going on along the world, especially the infrastructural works and real estate projects that has been on the boom around the developing countries. Steel Industry was till recently dominated by the United States of America but this scenario is changing with a rapid pace with the Indian steel companies on an acquisition spree. It has been observed that steel industry has grown tremendously in the last one and a half decade with a strong financial condition. The increasing needs of steel by the developing countries for its infrastructural projects has pushed the companies in this industry near their operative capacity.
The most significant growth that can be seen in the steel industry has been observed during the period 1960 to 1974 when the consumption of steel around the whole world doubled. Between these years, the rate at which the Steel Industry grew has been recorded to be 5.5 %. This roaring market saw a phase of deceleration from the year 1975 which continued till 1982. After this period, the continuous fall slowed down and again started its upward movement from the early 1990s.

Steel Industry is becoming more and more competitive with every passing day. During the period 1960s to late 1980s, the steel market used to be dominated by OECD (Organization for Economic Cooperation and Development) countries. But with the fast emergence of developing countries like China, India and South Korea in this sector has led to slipping market share of OECD countries. The balance of trade line is also tilting towards these countries.
The main demand creators for steel industry are automobile industry, construction industry, infrastructure industry, oil and gas industry, and container industry.
New innovations are also taking place in Steel Industry for cost minimization and at the same time production maximization. Some of the cutting-edge technologies that are being implemented in this industry are thin-slab casting, making of steel through the use of electric furnace, vacuum degassing, etc.
The Steel Industry has enough potential to grow at a much-accelerated pace in the coming future due to the continuity of the developmental projects around the world. This industry is at present working near its productive capacity which needs to be increased with increasing demand.
WORLD STEEL INDUSTRY AND CRUDE STEEL PRODUCTION

Graph:1 World Crude Steel Production from 1950 to 2016 Source: worldsteel.org
IMPACT OF STEEL
Essential in all sectors of the economy: New modern steel products are lighter and stronger than before, helping other industries to reduce their environmental footprint.

Taking action to fulfil responsibility: Abiding by environmental regulations is a prerequisite for acceptance by society.

Innovation is crucial: New and innovation steel are continually developed. In 2016, the steel industry invested 13% of revenue in capital investment projects and process improvements.
Contributing to the society: In 2016, steel industry distributed an estimated 1029billion USD, 98.8%of its revenue to society directly or indirectly.

Safety first, nothing is more important: Steel industry is working towards zero incidents. In 2016, the industry’s Lost Time Injury Frequency Rate was 1.0, an improvement of 78% since 2006.
Human Capital is a key asset: Worldwide 6 million people work for the steel industry. In 2016, steel companies provided each employee with 7.0 training days on average.

A systematic approach brings effective results: In 2016, about 97.1% of steel industry employees and contractors worked in Environmental Management Systems registered production facilities.

Biggest challenges of the industry: In 2016, on average 1.9tonnes of CO2 were emitted for every tonne of steel produced, Breakthrough technologies are being developed worldwide to address the challenge.

Significant improvement in energy consumption: In the last 50years the steel industry has reduced its energy intensity per tonne of steel produced by 60%. The average in 2016 was 20.3GJ/tonne.

Responsible management of natural resources: Very little waste is produced. In 2016, 97.6% of the raw materials used for steelmaking were converted to steel products and by-products.

Optimal resource ef?ciency, nothing to waste: Nearly 100% of our industry by-products can be used. Steelmaking by-products are used in e.g. concrete, fertilisers, plastics, paints and cosmetics.

Informed decisions on material choice: We provide life cycle inventory data for 16 key steel products. This helps customers to select the most sustainable materials for their products.

Steel is one of the world’s most essential materials. It is fundamental to every aspect of our lives, from infrastructure and transport to the tinplated steel can that preserves food. It is one of the most important products of the modern world and is of strategic importance to any industrial nation. From construction, industrial machinery and transportation to consumer products, steel finds a wide variety of applications. It is also an industry with diverse technologies based on the nature and extent of use of raw materials.

Since the introduction of Bessemer converter in 1856, an invention that ushered in the large-scale production of steel, the steel industry has come a long way in terms of technology, input material, quality of end product, diversity in application of end product, and level of automation.

Global steel sector has seen significant growth after the turn of present century. The steel demand and the capacity has grown almost threefold over the last two decades. This rate of growth is unprecedented in the human history. Though it has started faltering with steel demand in China moderating, there are some bright spots in the World which raises possibility of revival of growth in the medium to long run. One of the key determinants of future growth will be the economic growth of India and related infrastructure spend. Similarly, Africa with its vast majority of population still devoid of access to basic infrastructure, is another potential growth driver. It may be said that any growth will be preceded by political and economic reforms. Another potential driver could be the revival of infrastructure spend in developed countries. This may be driven by increased urbanization/ migration of population, change in need due to demographics (e.g. ageing population), replacement etc. While it may not drive the global demand significantly, it may have the potential to arrest the decline in demand in these countries.

However, it will also be unfair to suggest that the sector does not face challenges going forward. Some of the key issues are, demand destruction due to increase in consumption efficiencies and substitution (by other commodities), impact on climate and its mitigation, skill availability (lack of), etc.

Graph 2: Crude Steel Production in 2007 Source: worldsteel report
Graph 3: Crude Steel Production in 2017 Source: worldsteel report

Graph 4: Apparent Steel use in 2007 Source: worldsteel report
Graph 5: Apparent Steel use in 2017 Source: worldsteel report
KEY PLAYERS IN THE WORLD
Arcelormittal: They are a world-leading steel producer with annual achievable production capacity of approximately 113 million tonnes of crude steel in 2016. The steel shipments in 2016 totalled 83.9 million tonnes. A world-class mining business, it has a global portfolio of 14 operating units with mines in operation and development and is one of the largest iron ore producers in the world. In 2016, mines and strategic contracts produced 62.9 million tonnes of iron ore and met 55% of the company’s iron ore requirements. They also produced 6.9 million tonnes of coking coal and PCI, meeting 15% of the company’s PCI and coal requirements. It has grown through the acquisition of numerous steelmaking and other assets, which constitute our major operating subsidiaries.
Nippon Steel & Sumitomo Metal Corporation: It was established in October 2012 by the merger of Nippon Steel Corporation and Sumitomo Metal Industries, Ltd., Nippon Steel & Sumitomo Metal Corporation (NSSMC) is the world-leading integrated steel producer. NSSMC’s management team is led by Shoji Muneoka, Representative Director and Chairman, and Kosei Shindo, Representative Director and President. It makes a wide range of value-added steel products, in more than 15 countries as well as at 13 steelworks in Japan. It emphasizes three business fields as key strategic areas: i) high-grade steel products for automobiles, ii) resources and energy, and iii) civil engineering, construction, and railways. It conducts research and development at three major research centres, and seven laboratories at steelworks, all in Japan.
POSCO: It is a South Korean steel-making company headquartered in Pohang, South Korea. It had an output of 42 million tonnes of crude steel in 2015. In June 2005, POSCO signed a memorandum of understanding with the State of Odisha in India. Under the agreement, it planned to invest US$12 billion to construct a plant with four blast furnaces, an electricity plant, housing, and an annual production capacity of 12 million tons of steel, which is slated to start production in 2010. The project, which started with a 3 million tonne capacity initially, fetched revenue for the government to the tune of Rs 700 crore to Rs 800 crore (Rs 7-8 billion) annually. It also provide direct employment to 13,000 people and ensure indirect employment for another 35,000. The Odisha state government also promised to provide a total of 600 million tons of iron sources, and allowed POSCO to use iron ore from these sources over the next 30 years.
Thyssenkrupp AG: It is a German multinational conglomerate with focus on industrial engineering and steel production. The company is based in Duisburg and Essen and divided into 670 subsidiaries worldwide. The company is the result of the 1999 merger of Thyssen AG and Krupp, and now has its operational headquarters in Essen. The largest shareholder is the  HYPERLINK “https://en.wikipedia.org/wiki/Alfried_Krupp_von_Bohlen_und_Halbach_Foundation” o “Alfried Krupp von Bohlen und Halbach Foundation” Alfried Krupp von Bohlen und Halbach Foundation, a major German philanthropic foundation, created by and named in honour of  HYPERLINK “https://en.wikipedia.org/wiki/Alfried_Krupp_von_Bohlen_und_Halbach” o “Alfried Krupp von Bohlen und Halbach” Alfried Krupp von Bohlen und Halbach, former owner and head of the Krupp company, once the largest company in Europe. In addition to steel production, thyssenkrupp’s products range from machines and industrial services to high-speed trains, elevators and shipbuilding. The subsidiary  HYPERLINK “https://en.wikipedia.org/wiki/ThyssenKrupp_Marine_Systems” o “ThyssenKrupp Marine Systems” thyssenkrupp Marine Systems manufactures frigates, corvettes and submarines for German and foreign navies. Construction of the corporate headquarters began in 2007. The first buildings were complete in 2010; the second phase of building was completed in June 2015. Situated in the west of Essen, the corporate campus was designed by Chaix & Morel et associeés (Paris) and JSWD Architekten (Cologne). Their design was selected for construction in an architectural design competition in 2006. Thyssenkrupp Access, the global manufacturer of home elevators, wheelchair lifts and stair lifts, has tied up with Chennai-based Elite Elevators to launch high-end elevators in India.
CURRENT SCENARIO – CAPACITY OVERHANG CLOUDING THE GLOBAL INDUSTRY
The demand for steel has grown over time with increasing industrialization, from 200 MT in 1976 to more than 1000 MT in 2015. However, it was only after the turn of the century that the global steel demand has increased rapidly. As evident from below, global steel demand increased at an accelerated rate of 9% CAGR during the period 2000 – 2008, effectively doubling in the short period.

The global steel demand has been fuelled by different countries at different points in time. While steel demand in 20th century was dominated by Western Europe and USA, the turn of the century saw the shifting of demand to Asian countries namely Japan and South Korea, and lately, China.

Typically, as the countries have entered into the industrialization phase, the steel demand has consequently increased.
Steel consumption also shows strong link with the economic growth. It is understandable since the economic growth will drive the infrastructure spend and housing. With respect to retail consumers, economic growth will drive the consumption leading to increased spending on automobiles, white goods, etc. All drivers of steel demand. However, over the long run, growth in steel consumption will also depend on the structure of economy and not just growth. For instance, countries with significant proportion of service industry will see steel demand plateauing (e.g. US) whereas manufacturing focused economies will see steel demand growing with economic growth (e.g. South Korea, China).

Fig 1: Steel Demand Growth v/s GDP Growth Source: Ficci report
DEMAND SIDE OUTLOOK
In near term, limited upside to the global demand is estimated. One of the key reasons is continued underperformance of China, particularly in comparison to historical context. Other geographies are unlikely to fill in the space created by China’s receding demand. Demand outlook for key geographies is discussed herein below,
China: China’s economy is slowing due to lower investment and exports. IMF has forecasted the Chinese economy to grow at only 6.5% and 6.0% in 2017 and 2018 respectively. China’s internal estimate also seems to be in line with the global figures. As per the 13th Five Year Plan for its steel industry released by the Chinese government, by 2020, the government expects apparent demand in China to decline to 650-700 MT vs production of 750-800 MT. This suggests the government expects steel exports to remain flat at current levels of about 100 MTPA.

The outlook for the construction and industrial sectors, two major contributors to steel demand in the country, remain subdued. Though the government’s stimulus measures in early 2016 have helped to bring valuable investment into the infrastructure sector and led to increment in domestic demand of steel, effects of such measures are expected to wane in future as the current level of investment growth is unsustainable. A shift in policy aimed at reining in debt accumulation is expected to curtail investment in infrastructure sector (including construction) and industrial production growth. A reduction in tax break for new vehicle sales in 2017 will mean substantially slower growth for automobile sector and, in turn, weaker demand for steel.

Japan and South Korea: Demand in Japan and SouthKorea is expected to remain stable in the near future with limited upside by FY 2020 (+5% from the current levels).

US: In US, proposals are in pipeline to boost infrastructure spend which will help boost construction related steel demand. In the automotive sector, monetary policy tightening, rising oil prices, and substitution by aluminium is expected to subdue the steel demand.

EU: In the EU steel-consuming sectors are still benefiting from the unconventional monetary policy measures of the European Central Bank (ECB), which have eased credit conditions and, by reducing upward pressure on the currency, are helping producers to maintain competitiveness. These factors will persist into 2017-18, as the ECB is set to continue its asset-purchase programme until December 2017 and beyond if necessary.

SUPPLY SIDE OUTLOOK
In the near term, it is estimated that correction in supply side will lag behind the fall in demand leading to sustained oversupply and hence, potentially, stress on steel prices.

China: In the 13th Five Year Plan, the Chinese government has outlined its target to reduce the steel capacity in the country from 1130 MTPA in 2015 to <1000 MT by
2020 i.e. a cut of 100-150 MT at CAGR of 1.8 – 2.8%. Correspondingly, the Chinese government expects the industry’s capacity utilization rate to increase from 70% in 2015 to 80% in 2020.
In fact, capacity cuts are already under way. In 2016, China exceeded its capacity cut target by ~100%. The country decommissioned 87 MT of steel capacity as against the original target of 45 MT. However, so far capacity eliminations have been obtained by focusing on easier targets, such as previously idled facilities. Rather than government mandated closures, the shutdowns have been the result of unilateral decisions by steel companies to close down unprofitable mills. Now, a strong focus is on capacity elimination in the induction furnace sector.

Japan and South Korea: Steel output in Japan andSouth Korea fell in 2016. Output is expected to further decline in near future as China’s slowdown weighs on regional production.
US: Though US steel output in 2016 was down by 0.3% year on year, higher steel prices are expected to restart some of the idled capacities leading to increment in output.

EU: As for EU, low prices, high costs and competition from cheap imports are taking toll on their steel sector. Production declined by 2.3% in 2016. However, as the European Commission has started pursuing cheap dumping of steel products more aggressively, EU steel production may increase in near future.

INDIAN SCENARIO
Steel is a product of a large and technologically complex industry having strong forward and backward linkages and all major industrial economies have been largely shaped by the strength of their steel industries.
India’s economic growth is dependent on the growth of the Indian steel industry. Steel continues to have a stronghold in traditional sectors such as construction, housing and roads, special steels are increasingly being used in engineering industries such as power generation, petrochemicals and fertilizers. India occupies a central position on the global steel map, with state-of-the-art steel mills, acquisition of global scale capacities by players, continuous modernization and up gradation of older plants, improving energy efficiency and backward integration with global raw material sources.

4953001441451247140325120CAGR of 6.63%
0CAGR of 6.63%

Graph 6: Total Crude Steel Production (MT) Source: IBEF report

Graph 7: Consumption of Finished Steel (MT) Source: IBEF report
GROWTH TRENDS IN INDIAN STEEL INDUSTRY
Growing investments:
Most of the companies in the industry are undertaking modernisation and expansion of plants to be more cost efficient. E.g. SAIL has undertaken modernisation and expansion for its 6 plants
An Inter-Ministerial Group (IMG) functioning under the Ministry of Steel, is monitoring and coordinating major steel investments across the country
The production capacity of SAIL is expected to increase from 13 MTPA to 50 MTPA in 2025 with the total investment of US$ 24.88 Billion
Strategic alliances:
SAIL and Arcelor Mittal are going to form a joint venture to set up a 1.5 million tonne per annum steel plant.
The consortium of SAIL and National Fertiliser Ltd. (NFL) has been nominated for revival of Sindri Unit of the Fertiliser Corporation of India Ltd
RINL, Vishakhapatnam Steel Plant and the Power Grid Corporation of India Ltd (POWERGRID) signed an MoU to set up a JV company to manufacture transmission line towers and tower parts including R;D of new high-end products
Entry of international companies:
Attracted by the growth potential of the Indian steel industry, several global steel players have been planning to enter the market
Liberty House Group, a UK based business, is aiming to acquire Bhushan Power and Steel which will help the conglomerate to enter the Indian market.

Increased emphasis on technological innovations:
Indian steel companies have now started benchmarking their facilities and processes against global standards, to enhance productivity
These steps are expected to help Indian companies improve raw material and energy consumption as well as improve compliance with environmental and pollution yardsticks
Companies are attempting coal gasification and gas-based Direct-Reduced Iron (DRI) production. Other alternative technologies such as Hismelt, Finex and ITmk3 being adopted to produce hot metal
Ministry of Steel has issued necessary direction to the steel companies to frame a strategy for taking up more R;D projects by spending at least 1 per cent of their sales turnover on R;D to facilitate technological innovations in the steel sector.
Ministry has established a task force to identify the need for technology development and R;D
Ministry has adopted energy efficiency improvement projects for mills operating with obsolete technologies

Table 1: Strong Demand and Policy Support Driving Investments Source: IBEF report
ADVANTAGES FOR INDIA
Robust demand:
Demand would be supported by growth in the domestic market
Infrastructure, oil and gas and automotives would drive the growth of the industry
Lower per capita consumption compared to international average
Steel production in India is forecasted to double by 2031
Increasing Investment:
To achieve steel capacity build-up of 300 million tonnes per annum (MTPA) by 2030, India would need to invest US$ 156.08 billion by 2030-31.
The industry is witnessing consolidation of players which has led to investments by entities from other sectors. The ongoing consolidation also presents an opportunity to global players to enter the Indian market.

Competitive Advantage:
As of 2017, India is the world’s 3rd largest producer of crude steel (up from 8th in 2003). India’s steel production in 2017 stood at 101.4 MT.

As of 2017, India is the world’s 3rd largest producer of crude steel (up from 8th in 2003). India’s steel production in 2017 stood at 101.4 MT.

Policy Support:
100 per cent FDI through the automatic route is allowed. Large infrastructure projects in the PPP mode are being formed
National Steel Policy (NSP) implemented to encourage the industry to reach global benchmarks
Policy clarity and stability expected in respect of mining leases and forest clearances
20 per cent safeguard duty on steel imports
COMPANY ANALYSIS
ABOUT TATA STEEL
Tata Steel Limited (formerly Tata Iron and Steel Company Limited (TISCO)) is an Indian multinational steel-making company headquartered in Mumbai, Maharashtra, India, and a subsidiary of the Tata Group.

It is one of the top steel producing companies globally with annual crude steel deliveries of 27.5 million tonnes (in FY17), and the second largest steel company in India (measured by domestic production) with an annual capacity of 13 million tonnes after SAIL.
Tata Steel has manufacturing operations in 26 countries, including Australia, China, India, the Netherlands, Singapore, Thailand and the United Kingdom, and employs around 80,500 people.  Its largest plant located in Jamshedpur, Jharkhand. In 2007 Tata Steel acquired the UK-based steel maker Corus. It was ranked 486th in the 2014 Fortune Global 500 ranking of the world’s biggest corporations. It was the seventh most valuable Indian brand of 2013 as per Brand Finance.
Previous Acquisitions by Tata Steel
NatSteel in 2004: In August 2004, Tata Steel agreed to acquire the steel making operations of the Singapore-based NatSteel for $486.4 million in cash. NatSteel had ended 2003 with turnover of $1.4 billion and a profit before tax of $47 million. The steel businesses of NatSteel would be run by the company through a wholly owned subsidiary called Natsteel Asia Pte Ltd. The acquisition was completed in February 2005. At the time of acquisition, NatSteel had a capacity of about 2 million tonnes per annum of finished steel.
Millennium Steel in 2005: Tata Steel acquired a majority stake in the Thailand-based steelmaker Millennium Steel for a total cost of $130 million. It paid US$73 million to Siam Cement for a 40% stake and offered to pay 1.13 baht per share for another 25% of the shares of other shareholders. For the year 2004, Millennium Steel had revenues of US$406 million and a profit after tax of US$29 million. At the time of acquisition, Millennium Steel was the largest steel company in Thailand with a capacity of 1.7 million metric tonnes per annum, producing long products for construction and engineering steel for auto industries. Millennium Steel has now been renamed to Tata Steel Thailand and is headquartered in Bangkok. On 31 March 2013, it held approx. 68% shares in the acquired company.
Corus in 2007: On 20 October 2006, Tata Steel signed a deal with Anglo-Dutch company, Corus to buy 100% stake at £4.3 billion ($8.1 billion) at 455 pence per share. On 19 November 2006, the Brazilian steel company  HYPERLINK “https://en.wikipedia.org/wiki/Companhia_Sider%C3%BArgica_Nacional” o “Companhia Siderúrgica Nacional” Companhia Siderúrgica Nacional (CSN) launched a counter offer for Corus at 475 pence per share, valuing it at £4.5 billion. On 11 December 2006, Tata pre-emptively upped its offer to 500 pence per share, which was within hours trumped by CSN’s offer of 515 pence per share, valuing the deal at £4.9 billion. The Corus board promptly recommended both the revised offers to its shareholders. On 31 January 2007, Tata Steel won their bid for Corus after offering 608 pence per share, valuing Corus at £6.7 billion ($12 billion).In 2005, Corus employed around 47,300 people worldwide, including 24,000 in the UK. At the time of acquisition, Corus was four times larger than Tata Steel, in terms of annual steel production. Corus was the world’s 9th largest producer of Steel, whereas Tata Steel was at 56th position. The acquisition made Tata Steel world’s 5th largest producer of Steel.
ACQUISITION OPPORTUNITIES FOR TATA STEEL
Company Business Overview Likely Opportunity

Headquartered in Mumbai, India
It was founded in 1982
The chairman for JSW Steel is Mr. Sajjan Jindal It is one of India’s leading integrated steel manufacturers with a capacity of 18MTPA
It is one of the fastest growing companies in India with a footprint in over 140 countries.

Products offered: Steel, flat steel products, long steel products, wire products, plates etc 75%

Headquartered in Kolkata, India
It was founded in 2003
The chairman & CEO for Visa Steel is Mr. Vishambhar Saran It is a mineral and metal company
It is a leading player in the Indian Special Steel Industry
It integrates backwards to the mining of iron ore, chrome ore and coal
Products offered: steel bars, wire rods, ferro chrome etc 50%

Headquartered in Lipetsk, Russia
It was founded in 1992
The CEO & president for NLMK is Mr. Oleg BagrinOne of the four largest steel companies in Russia
NLMK’s share of domestic crude steel production is about 21%
It produces specialty coated steels, plus high-ductility and micro-alloyed steels 50%

Headquartered in London, UK
It was founded in 1992
The CEO for EVRAZ is Mr. Aleksandr FrolovIt is a multinational vertically integrated steel making and mining company
It is among the top steel producers in the world based on crude steel production of 14MT in 2017
The market leader in construction steel products
The leading global supplier of rails 50%
Headquartered in Camp Hill, Pennsylvania
It was founded in 191853
The CEO ; president for Harsco is Mr. F. Nicholas GrasbergerRail: Leadership and worldwide experience in virtually all major aspects of railway track maintenance
Metal ; Mineral: premiere provider of material processing and environmental services to the global steel and metal industries
Industrial: Provides tailor made solution to the customer 50%

Headquartered in Butler County, Ohio
It was founded in 1899
The CEO for AK Steel is Mr. Roger K. Newport Offers a variety of steel products: rolled steel, galvanised products, stainless products, electromagnetic machines, mechanical steel tubes etc 25%
Table 2: Acquisition Opportunities for Tata Steel. Source: Company Website
ABOUT JINDAL STEEL AND POWER LIMITED
With its timeless business idea JSPL is primed to not merely survive but win in a marketplace marked by frenetic change. Indeed, the company’s scorching success story has been scripted essentially by its resolve to innovate, set new standards, enhance capabilities, enrich lives and to ensure that it stays true to its haloed value system. Not surprisingly, the company is very much a future corporation, poised to become the most preferred steel manufacturer in the country.

JSPL is an industrial powerhouse with a dominant presence in steel, power, mining and infrastructure sectors. Part of the US $ 18 billion OP Jindal Group this young, agile and responsive company is constantly expanding its capabilities to fuel its fairy tale journey that has seen it grow to a US $ 3.3 billion business conglomerate.

Led by Mr Naveen Jindal, the youngest son of the legendary Shri O.P. Jindal, the company produces economical and efficient steel and power through backward and forward integration.

From the widest flat products to a whole range of long products, JSPL today sports a product portfolio that caters to markets across the steel value chain. The company produces the world’s longest (121-meter) rails and it is the first in the country to manufacture large-size parallel flange beams.

JSPL operates the largest coal-based sponge iron plant in the world and has an installed capacity of 3 MTPA of steel at Raigarh in Chhattisgarh. Also, it has set up a 0.6 MTPA wire rod mill and a 1 MTPA capacity bar mill at Patratu, Jharkhand, a medium and light structural mill at Raigarh, Chhattisgarh and a 2.5 MTPA steel melting shop and a plate mill to produce up to 5.00-meter-wide plates at Angul, Odisha.

An enterprising spirit and the ability to discern future trends have been the driving force behind the company’s remarkable growth story. The organisation is wedded to ideals like innovation and technological leadership and is backed by a highly driven and dedicated workforce of 15000 people.

JSPL has been rated as the second highest value creator in the world by the Boston Consulting Group, the 11th fastest growing company in India by Business World and has figured in the Forbes Asia list of Fab 50 companies.

Graph 8: JSPL production of steel in million ton. Source: Company Website

Graph 9: Revenue by Geography. Source: Bloomberg
Graph 10: Revenue by Segment. Source: Bloomberg
PRODUCTS OFFERED BY JINDAL STEEL AND POWER LTD
Steel Power Mines & Minerals Construction Material & Solution
Description Rails are supplied customised finished lengths ranging from 13meter to 121meter
It has India’s largest blast furnace Sinter plant
World’s fastest billet caster Jindal Steel & Power Ltd has energy spectrum in thermal, hydro and renewable energy
It has world’s largest Coal Gasification Process
It has mining capacity of over 9.41MTPA of coal and iron ore at various locations
This has reduced the dependency on third party thereby resulting in cost and time saving Jindal uses the fly ash which is residue of the thermal plants to produce the cement
It has the world’s largest rebar mill
Key Products Rails
Plates & Coil
Angles & Chemicals
Wire rods Power Iron Ore
Copper
Coal Cement
Rebar
SpeedfloorFabricated Sections
Key Clients NTPC GadarwaraIRCON, Bangladesh
L&T
Indian Navy
Zimmerstall, Belgium
Salzgitter Mannesmann International, Europe Andhra Pradesh
Gujarat
MaharastraTamil Nadu
Delhi
Haryana China
Middle East
Europe
South America Power Grid Transmission Tower
GMR
South Bihar Electricity Board
APGENCO, KrishnapatnamHPCL Bhatinda
Raw Material Iron Ore
Coke
Coal Coal
Oil Not Applicable Fly Ash
Iron Ore
Table 3: Key products offered by JSPL Source: Company Website
TABULATIONS AND FINDINGS
METHODS USED FOR VALUATION
What is a ‘Discounted Cash Flow (DCF)’
Discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity. DCF analyses use future free cash flow projections and discounts them, using a required annual rate, to arrive at present value estimates. A present value estimate is then used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.

What is a ‘Comparable Transaction’
A comparable transaction (comp transaction) is a basis for a method of valuing a company that is being targeted in a mergers and acquisitions (M&A) deal. Acquirers, with their investment bankers, look for comparable transactions – the more recent the better – that have involved companies with a similar business model with the company being valued. Also, the more comp transaction data, the better in order to derive a fair valuation. This method of valuation can help approximate the market-clearing price of the target that shareholders would be willing to accept.

VALUATION OF JSPL
In EURm; FYE Mar 2013A 2014A 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E
   
Total Revenue 2,702.2 2,708.0 2,662.7 2,550.4 2,896.5 3,334.1 3,870.7 4,512.5 5,328.0 6,290.1
%growth 0.2% -1.7% -4.2% 13.6% 15.1% 16.1% 16.6% 18.1% 18.1%
   
Cost of Sales -764.6 -769.4 -700.5 -815.8 -880.5 -966.9 -1,122.5 -1,308.6 -1,545.1 -1,824.1
% of revenue 28.3% 28.4% 26.3% 32.0% 30.4% 29.0% 29.0% 29.0% 29.0% 29.0%
                     
Gross Profit 1,937.6 1,938.6 1,962.2 1,734.5 2,016.0 2,367.2 2,748.2 3,203.9 3,782.8 4,466.0
% margin 71.7% 71.6% 73.7% 68.0% 69.6% 71.0% 71.0% 71.0% 71.0% 71.0%
   
EBITDA 1,060.8 994.2 965.4 656.9 891.1 866.9 1,006.4 1,173.3 1,385.3 1,635.4
%margin 39.3% 36.7% 36.3% 25.8% 30.8% 26.0% 26.0% 26.0% 26.0% 26.0%
%growth -6.3% -2.9% 32.0% 35.7% 2.7% 16.1% 16.6% 18.1% 18.1%
   
D&A -191.3 -227.4 -339.7 -350.5 -490.9 -466.8 -541.9 -631.8 -745.9 -880.6
% of revenue 7.1% 8.4% 12.8% 13.7% 16.9% 14.0% 14.0% 14.0% 14.0% 14.0%
                     
EBIT 869.4 766.8 625.7 306.4 400.2 400.1 464.5 541.5 639.4 754.8
%margin 32.3% 28.3% 23.5% 12.0% 13.8% 12.0% 12.0% 12.0% 12.0% 12.0%
%growth -11.8% 18.4% 51.0% 36.0% 0.0% 16.1% 16.6% 16.6% 18.1%
   
Total Organic Capex -347.1 -1,538.9 -1,380.2 14.0 14.0 -53.3 -61.9 -72.2 -85.2 -100.6
% of revenue 12.8% 56.8% 51.8% -0.5% -0.5% 1.6% 1.6% 1.6% 1.6% 1.6%
   
Change in NWC -60.4 344.4 -30.3 271.2 82.2 166.7 -77.7 -92.9 -118.1 -139.3
% of revenue -12.7% 1.1% -10.6% -2.8% -5.0% 2.0% 2.1% 2.2% 2.2%
                     
Op. FCF 653.3 -200.3 -445.1 942.0 987.4 980.2 866.8 1,008.1 1,181.9 1,395.5
Cash Conversion(%) -20.2% -46.1% 143.4% 110.8% 113.1% 86.1% 85.9% 85.3% 85.3%
                     
Table 4: Valuation of JSPL Source: Annual Reports
CONCLUSION
INVESTMENT RATIONALE
Company Factor:
Location Advantage:
Jindal has its own plants for the steel production but Tata has its most of the plants under joint venture or subsidiaries.

JSPL has acquired mines which are able to partially fulfil their requirements.

Rail Tracks – Key Product unlocked:
In India there are only two players that produce rail tracks – JSPL and SAIL, and this gives Tata a chance to dominate this market to increase their revenues.

Future Investment:
JSPL has already raised Rs.12bn through QIP which will help the company to ramp up the volume and increase production.

The plant in Oman was acquired in 2014 and now JSPL plans to list it on the stock exchange raising approx. Rs.15bn.

Mines:
JSPL has acquired mines in Africa for iron ore, coal mines, copper mines which gets exported to various countries.

They have coal fields in Australia & coke fields in Indonesia.

Benefits for Tata
Tata will be able to increase their existing capacity of 27MTPA to 40MTPA.

This acquisition will also help to reduce competition in the market and reduce bidding war on contracts.

Industry Factors
Future Demand:
China has grown 35% in the 10 years in the steel production but analysts are reporting that this year China will have a slowdown.

This situation gives other countries opportunities to push their products in the market to get more revenues through exports.

India’s Increasing GDP:
As our economy is growing which helps to increase the disposable income available with the customers.

This will help the company to provide more raw material for the production of the white goods and automobiles.

Increase in Infrastructure budget by 50% in year 18-19
Indian government has increased the budget in the year 18-19 for the development of infrastructure to Rs.5.97lakh cr. This gives a chance to the steel producing company to increase their production and sell it in the domestic market.

RECOMMENDATIONS
LIMITATIONS OF THE STUDY
SCOPE FOR FUTURE IMPROVEMENTS
BIBLIOGRAPHY
http://www.oecd.org/industry/ind/steel-market-developments-2017Q2.pdfhttps://www.worldsteel.org/en/dam/jcr:f9359dff-9546-4d6b-bed0-996201185b12/World+Steel+in+Figures+2018.pdf.

http://www.economywatch.com/world-industries/steel-industry/https://www.ibef.org/download/Steel-Report-Jun-2018.pdfhttp://www.jindalsteelpower.com/company-profile.htmlhttp://ficci.in/spdocument/20888/Steel-Report-2017.pdfCompany websites
Economic times
Live mint