Management Discussion and Analysis

BUSINESS REVIEW The strong Chinese demand as well as the regional

imbalances arising from import restrictions provided
The Company’s performance during the year
an impetus for the strong run-up in international
ended 31st March, 2003 and the Management’s
steel prices, despite increased global production.
views on future outlook are discussed below.
The prices of commercial quality, commonly traded,
I. Steel Business Unit
hot rolled coils rose by about 40% in Europe, from
The calendar year 2002 was characterised by a the low levels at the end of the previous financial
recovery in steel demand in the international year. The steel cycles are becoming increasingly
markets, par ticularly with the increased sharp and unpredictable. While, last year, a better
consumption in China and the rest of Asia. year for the industry had been projected, the
Consequently, there was a significant increase in dramatic turnaround in steel prices that was actually
steel prices. At the same time, quantitative witnessed surpassed the expectations of the entire
restrictions and/or additional tariffs on steel industry.
imports were introduced by the U.S. and a few
China is expected to continue to dominate the
other countries, in an effort to protect their
global steel trade. It has emerged as the single
domestic steel industries. The world steel
most important market, and its ability to sustain
community is now engaged in discussions to bring
its rapid growth will have a fundamental impact
about a better balance between demand and
on the global supply of steel and prices. The
supply, by eliminating inefficient capacities around
International Iron & Steel Institute (IISI) is
the world.
cautiously optimistic that the world consumption
The steel market had a marked turnaround during
of steel will grow by 4.6% in 2003. The international
the year. World crude steel production of 65
community will also watch with keen interest the
countries, constituting about 98% of the global
ongoing efforts to shut down inefficient capacities
steel production, showed an increase of over 6%
in various countries.
at 887 mil. tonnes in Calendar Year 2002,
compared to 834 mil. tonnes in 2001. Amongst India, last year, had one of its worst droughts of

the major steel producing nations, China outpaced the past two decades, as the monsoon failed after

the rest with an increase of 20%. Steel several years. However, to the credit of the

consumption is estimated to have risen from 780 economy, it showed great resilience in

mil. tonnes in 2001 to 829 mil. tonnes in 2002. withstanding this shock and did not permit this
21
 Ninety sixth annual report 2002-03

natural calamity to adversely affect the other equilibrium and resulted in the peculiar
sectors of the economy. Had it not been for the phenomenon of their domestic prices being
shrinkage in agricultural output, the economy substantially higher than the international prices.
would have seen one of its best performances in Indian steel exports are estimated to have risen
recent years. The GDP is estimated to have grown by 35% over the previous year, with the U.S. and
at about 5.1%, as compared to 5.6% in the China being the primary markets. Exports of hot
previous year, pulled down by a sharp contraction rolled coils from India to the U.S. were adversely
in the Agriculture sector, which registered a affected by continuing anti-dumping duties.
negative growth of 1% as compared to a healthy However, shipments of CR galvanised, which were
growth rate of 5.7% in the previous year. The outside the purview of punitive actions, surged as
Manufacturing and Services sectors recovered the exporters found a ready and lucrative market
smartly from last year’s recession. Industrial in the U.S.
production grew by 5.7% compared to 2.7% in
With most of the end user segments showing
the previous year.
improved growth, demand for steel picked up
The Indian steel industry was driven by a during the year. Domestic production was higher
significant pick-up in most user segments. The by 8% at 28.9 mil. tonnes (2001-02: 26.7 mil.
capital goods segment, which had actually tonnes). Apparent domestic consumption rose by
contracted in the previous year, grew significantly. 6% during the year at 26.8 mil. tonnes (2001-02:
The automobile industry too displayed strength,
25.3 mil. tonnes). Flat and Long products are
doubling its growth rate. Consumer durables were,
estimated to have grown by 6.5% and 5.6%
however, adversely impacted due to a fall in rural
respectively.
disposable incomes. While Manufacturing and
Several factors have reinforced the Company’s
Services did well, the exception was Agriculture,
belief that the domestic steel industry holds
which tends to have a knock-on effect on the
promise, in the near to mid term. The Reserve
industrial sector. The recovery of global markets
Bank of India has projected a growth in GDP of
rubbed off on domestic demand and prices firmed
6% during the current year. The recent budget
up, particularly for flats. The increase in prices
was sustained right through the year, albeit from proposals of the Government of India to include

the very low base of the previous year. Trade 48 new road projects with a total length of over

actions by several countries distorted the market 10,000 kms under the National Highway
22
Development Project (NHDP), the development production of hot metal, crude steel, as well as at
of JNPT and Cochin ports as well as the Delhi the mines and collieries.
and Mumbai Airports to international standards,
The Company’s total steel sales rose by 10.5%
the development of a railway network for the
to 3.905 mil. tonnes (2001-02: 3.533 mil. tonnes).
Golden Quadrilateral, and the grant of
Due to an 83% increase in export volumes,
infrastructure status to mass housing projects,
domestic sales were higher by only 2% at 3.251
augur well for demand for steel in the next 4-5
mil. tonnes (2001-2002: 3.175 mil. tonnes) .
years. Alongside a steep decline in the cost of
Increased market shares were achieved in the
capital, the better demand environment is
Automobiles sector (OEMs at 33%, and
expected to provide a favourable backdrop for
Ancillaries at 29%) and Appliances sector (13%)
higher levels of investment.
as well as in products such as GC Sheets (18%),
In the course of achieving its best ever financial
Tiscon rebars (5%), High Carbon Wire Rods
results, new records were set by the Company in
(45%), and Low Carbon Wire Rods (33%). Sales
several areas. Iron production was higher by 10%
of branded steel (long and flat products), where
at 4.44 mil. tonnes and crude steel output crossed
the Company realises a premium over the
4 mil. tonnes for the first time in the history of the
market price, increased by about 33% over the
Company. Gross production of saleable steel was
previous year. In addition to Tata Tiscon and Tata
higher by 8% at 3.94 mil. tonnes over the previous
Shaktee, the Company introduced a new
year’s 3.64 mil. tonnes. All the Finishing Mills, viz.
branded product for CR steel styled as ‘Tata
Wire Rod Mill, Merchant Mill, Hot Strip Mill and
Steelium’ in the month of February 2003. Market
the Cold Rolling Mill substantially improved their
share of CRCA coils and CR Galvanised have
performances. In particular, CRM production was
increased to 34% (2001-02: 21%) and 21%
higher by 52% at 1.11 mil. tonnes (2001-02: 0.73
(2001-02: 12%) respectively. With substantial
mil. tonnes). The Unit reached its rated capacity
step up of Hot rolled coils, value-added CR and
in Sept. 2002 and since then has been producing
Coated products, exports turnover more than
in excess of its capacity. The Hot Strip Mill, which
doubled to an all time record of Rs.1313 crores
has been operating at higher than its rated
capacity for some time now, increased production (2001-02: Rs. 581 crores). In equivalent US$,

by 12% at 2.71 mil. tonnes (2001-02: 2.43 mil. exports were higher by 125% at US$ 272 mil.

tonnes) . Records were established in the (2001-02: US$ 121 mil.).

23
 Ninety sixth annual report 2002-03

The Company closed its 45-year old Bar Mill, with The industry was able to increase prices following
effect from 31st March, 2003. The Mill was the steep increase in HR/CR steel prices.
manufacturing light and medium steel structurals However, the entire increase in input costs could
and forging quality steels, using the ingot casting not be passed on to customers due to intense
route, which has now become obsolete and competition and the continuing excess capacity
uncompetitive. With the closure of this Mill, the in the industry. Emphasis was, therefore, given to
Company will change over to 100% continuous the development of new products and markets.
casting from the current year.
Sales of the Company’s Tubes products (included
II. Non-Steel Business Units in the total steel sales) were 0.186 mil. tonnes
(2001-02: 0.181 mil. tonnes). Exports at 1,078
Production at all major non-steel business units
tonnes (2001-02: 218 tonnes), continued at a
improved over the previous year. The Tubes
token level, to maintain a presence in the
Division’s output increased by 3% to 0.179
international market. Sales of new products and
mil.tonnes (2001-02: 0.174 mil.tonnes) . The
to new markets contributed 5% and 13%
Bearings Division’s production was better by 14%
respectively of the revenues of Commercial and
at 20.1 mil. nos. (2001-02: 17.6 mil. nos.). After a
Precision tubes. The Tubes business also earned
rather lacklustre previous year, ferro-chrome
12% of its revenues through sustained campaigns
output increased substantially by 46% to 95,129
in the rural markets, which are seen as a growth
tonnes (2001-02: 64,976 tonnes). Production of
area for the future. The industry is hopeful of a
chrome ore/concentrate and pyroxenite almost
modest 3% growth in the Commercial tubes
doubled to 1,917,001 tonnes (2001-02: 990,130
business in the current year, while the Precision
tonnes). Conversion of chrome ore to ferro chrome
tubes business is expected to grow at about 9%.
was more than doubled to take advantage of the
rising domestic market. Bearings

Tubes The organised sector of the domestic bearings

industry is estimated to have grown by 12% during
The combined production of Commercial and
the year under review, while it remained stagnant
Precision tubes improved by 3% over the previous
in the previous year. However, due to lower prices,
year. Capacity utilisation of these units continued
the growth was only about 8% in value terms.
to be above 90%, as compared to an industry
Over-capacity in the industry and cheaper imports
average of 50-55%.
24
of bearings from China and East European Kirloskar Motors Ltd.
Countries continued to exert pressure on prices.
The bearings industry is expected to grow by
The growth was largely driven by the improved
5-6% in 2003-04. Excess capacity and cheaper
performance of the two wheeler industr y,
imports will, however, remain a threat to the
particularly the motorcycle segment. The other
industry.
user segments more or less stagnated at the
Ferro-Alloys
previous year’s levels.
Global production of stainless steel increased by
The Bearings Business Unit caters to the
4.5% to 18.74 million tonnes in the year 2002. This
Automotive, Engineering and Trade segments. The
increase, coupled with a scarcity of stainless steel
focus was on the automotive industry in general
scrap, fuelled an increase in ferro chrome
and two/three wheelers in particular. Production
consumption from 3.7 to 4.1 million tonnes.
of bearings by the Company increased by 14% to
According to industry forecasts, stainless steel
20.0 million nos. (2001-02: 17.6 mil.nos.). While
production and ferro chrome demand are
sales volumes were higher by 12% at 18.9 mil.
expected to increase to 30 million and 7.5 million
nos. (2001-2002: 16.9 mil. nos.), revenues grew
tonnes respectively, by 2010, with South Africa
by only 2% due to reduced realisations on account
remaining the dominant supplier.
of intense competition. The adverse impact of
lower prices was mitigated to some extent, through International prices of ferro chrome dropped to a

improvement initiatives in operations, which historic low in the year under review but recovered
brought down the cost of bearings by about 9% some ground in the last quarter. The low prices
during the year. To improve the market spread, 11 resulted in China starting the import of ferro
new symbols were developed. The range of taper chrome from neighbouring Kazhakhstan for the
roller bearings will be further increased in the first time. Consequently, chrome ore prices
current year. dropped to their lowest ever. However, India

During the year, the Unit obtained ‘Environment managed to maintain its market share of 74% in

Management Certification’ ISO 14001. It was China’s chrome ore/ concentrate market, and the

conferred a ‘Performance Excellence Award’ by Company retained its number one position by

one of its important clients, M/s MICO, Bangalore, increasing its market share to 33% from 27% in

for the years 2001 and 2002. The Unit also the previous year. With increasing acceptance of

received an award for quality from M/s. Toyota the Company’s chrome concentrate in Japan, and
25
 Ninety sixth annual report 2002-03

new market development initiatives in South Africa view of more remunerative prices as compared to
and Europe, expor ts of chrome ore and exports. Total ferro chrome sales were higher by
concentrate touched a record at 552,879 tonnes 20% at 94,156 tonnes (2001-02 : 78,598 tonnes).
(2001-02 : 422,798 tonnes), with the Company’s
Excluding the year ending 31st March, 1996 when
global market share increasing to 13% from 11%
ferro chrome prices exceeded 80 cents/ lb cif, the
in the previous year.
Division achieved its highest ever profits during
On the domestic front, prices of ferro chrome were the year, despite the average ferro chrome prices
more attractive. A record domestic sale of ferro being about 30 cents/ lb. This was possible mainly
chrome of 62,399 tonnes confirmed the on account of substantial cost reduction efforts
Company’s status as the market leader, with a through improvement in operations and higher
market share of 34% (up from 32% in 2001-02). volumes of sales.
Domestic sales of chrome ore also scaled new
INTERNAL CONTROLS & SYSTEMS
heights at 211,228 tonnes. With sustained cost
The Company has adequate internal control
reduction to counter the price downturn and
procedures commensurate with its size and nature
increased volumes, all production units set new
of business. These internal policies ensure efficient
records. The ferro chrome plant at Bamnipal
use and protection of assets and resources,
reached 100% capacity utilisation for the first time,
compliance with policies, statutes, the Tata code
with production reaching 50,606 tonnes (2001-02:
of conduct, and reliability as well as promptness
44,059 tonnes). The Ferro Alloys Plant at Joda
of financial and operational reports.
produced 42,350 tonnes of ferro manganese, an
increase of 33% over the previous year. The The internal control system provides for well
Sukinda chromite mine surpassed the 1 million documented policies, guidelines, authorisa-
tonne mark. tions and approval procedures. The Company

Domestic sales of chrome ore were higher by has a full-fledged Internal Audit Division, which

19%, while exports of chrome ore/concentrate carries out audits extensively throughout the

increased by 31%. Total sales of chrome ore/ year. The Corporate Audit Charter released

concentrate were higher at 764,107 tonnes (2001- during the year emphasises the commitment

02: 600,378 tonnes). Domestic Ferro Chrome of the Management to foster an environment

sales were higher by 39%, while exports were of good corporate governance within the

lower by 6%. Domestic sales were maximised in organisation.

26
The Company has an Audit Committee which the Company has strengthened its channel
comprises three non-executive Directors: Mr. P.K. marketing and endeavoured to widen the market
Kaul - Chairman, Mr. S.M. Palia and Mr. Ishaat base through rural marketing programmes. The
Hussain - Members. The Committee regularly share of branded steel products has increased
reviews the significant observations of Internal from 9% in the previous year to 12%. A new brand
Audit. The Committee also meets the Company’s styled as ‘Tata Steelium’ was launched for CR
statutory auditors to ascertain their observations sheets. This is in addition to the existing brands
on Financial Reports and control concerns. The ‘Tata Tiscon’ (rebars) and ‘Tata Shaktee’ (GC
Audit Committee’s observations are acted upon Sheets). The Company believes that there is a vast
by the Management. potential for steel consumption in the rural housing
sector. Accordingly, prototype homes have been
RISK MANAGEMENT
built, which are cheaper than conventional brick
Industry & Market
and mortar houses, and take much less time to
The steel industry witnesses cyclical price build.
movements. The fortunes of the industry move up
Problems of overcapacity continue in the Tubes
and down in line with the market trend of prices.
and Bear ings mar kets. The Company is
This phenomenon has become more uncertain
endeavouring to develop new products and
and unpredictable with increased integration of the
improve on operating costs to remain
domestic and global markets. Further, excess steel
competitive.
capacity available in the country necessitates
increased dependence on exports. Power remains an important element of cost in

While the industry has learnt to cope with the the Ferro Chrome business, accounting for

business cycle, it has also learnt to be less almost half of the production cost. Power costs

dependent on increases in prices for better in India are expected to remain high in the near

profitability. This is particularly evident in the case to medium future. It is in this context that the

of the Company which, despite one of the worst Company has decided to set up a high carbon

price scenarios during the previous year, managed ferro chrome plant in South Africa to take

to be modestly profitable even while much of the advantage of the substantially lower cost of

domestic industry was in the red. Besides cost power and also be in closer proximity to its target
cutting initiatives and enriching the product mix, markets.
27
 Ninety sixth annual report 2002-03

Technology at 1.05:1 as compared to 1.22:1 in the previous

year, and is expected to improve during the current
With the completion of a series of modernisation
year.
programmes and regular replacement of obsolete
equipment, the Company’s Jamshedpur plant is Contingent Liabilities
one of the most modern plants in the World. One
Details of contingent liabilities are given in
area that would need attention is the replacement
Schedule M of the Notes on Balance Sheet and
of the older blast furnaces. Nevertheless, the
Profit and Loss Account.
Management does not perceive technology/
Statutory Compliance
equipment obsolescence as a problem in the near
to medium term. On obtaining confirmation from the various units
of the Company of having complied with all the
Financial
statutory requirements, a declaration regarding
The year under review has turned out to be the
compliance with the provisions of the various
most profitable in the history of the Company. Even
statutes is made by the Managing Director at each
under the most trying circumstances, the
Board Meeting. The Company Secretary, as
Company has demonstrated its resilience to
Compliance Officer, ensures compliance with the
remain profitable, as evident from the previous
SEBI regulations and provisions of the Listing
year’s performance. The results of the year ended
Agreements.
31st March, 2003 have considerably strengthened
ENVIRONMENT MANAGEMENT
the Company’s Balance Sheet.

During the current year, it is proposed to reduce The Town Division of the Company has been

the debt further by prepayment of some of the certified, in October 2002, by IRQS to be

existing loans, a large part being foreign currency conforming to EMS (ISO – 14001:1996) standards.

loans. This is expected to bring down the interest With this, Jamshedpur has become the first and

burden and foreign currency exposure further only town in the country where civic amenities and

during the year. At the same time, exports were town services are provided by a Private Company,

given a big push. If conditions in the international to be certified to this international standard.

markets are favourable, the momentum will be

The Company has been included in the top 100
maintained.
companies worldwide by Sustainability
The debt - equity ratio of the Company was better International, a London based organisation which
28
conducts research on sustainability issues on a of suspended particulate matter, sulphur dioxide
global basis. While the reports of the developing and oxides of nitrogen.
economies do not feature strongly on this list, a
The challenges ahead lie in closer and better
notable exception has been the report of the
integration of financial performance with the
Company, which was shaped heavily by the Global
achievement of the Company’s social objectives
Reporting Initiative (GRI) Guidelines. The other
including better environment management.
entities covered by the GRI are from the developed
INDUSTRIAL RELATIONS & HUMAN
world.
RESOURCE MANAGEMENT
A note on the Company’s efforts to comply with
The continuing right sizing efforts of the Company
the Global Compact principles is included in the
resulted in a reduction in the men on rolls from
Annual Report.
46,234 at the end of the previous year to 43,248
The Company believes in going beyond mere
as on 31st March, 2003. During the year, 2,031
compliance with applicable legislation, to create
employees separated under the employees’
a healthy environment both within and outside the
separation scheme. A new bonus agreement was
Works. The Company’s main Steel Works at
signed covering the Company’s unionised
Jamshedpur, Tubes Division, Bearings Division,
employees, which ascribes a higher weight to
Ferro Alloys Plant, Jamshedpur Town Division,
financial perfor mance. Industrial relations
Noamundi and Joda East Iron Mines, West Bokaro
remained cordial during the year. The
and Jharia Collieries and Sukinda Chromite Mines
Management acknowledges the contribution of
are certified for compliance to the requirements
all employees in achieving the record
of International Standard ISO – 14001.
performance.
Specific measures taken during the year to
RECOGNITION BY WORLD STEEL DYNAMICS
improve the environment and conserve scarce
resources include reductions in greenhouse gas The Management is pleased to announce that

emissions by 2%, specific energy consumption by World Steel Dynamics, in its recent assessment,

3.9%, raw material consumption by 3.5%, water has rated the Company as the third most

consumption by 1.6%, and increased utilisation competitive steel plant in the world for the year
of waste from 72.6% to 79%. In addition, air quality 2002, behind Posco, South Korea and BaoSteel,
underwent further improvement, with lower levels China.
29
 Ninety sixth annual report 2002-03

AWARDS CAUTIONARY STATEMENT

The Company won the Prime Minister’s Trophy Statements in the Management Discussion and
for the Best Integrated Steel Plant for the year Analysis describing the Company’s objectives,
2000-2001. This is the fourth time, and the third projections, estimates, expectations may be
year in succession, that the award has been “forward-looking statements” within the meaning
conferred on the Company. Other important of applicable securities laws and regulations.
awards won by the Company during the year Actual results could differ materially from those
under review include the Golden Peacock Award expressed or implied. Important factors that could
for 2002 for excellence in Cor porate make a difference to the Company’s operations
Gover nance and Cor porate Social include economic conditions affecting demand/
Responsibility in the private sector category; and supply and price conditions in the domestic and
the Best Company Trophy in 15th Workskills overseas markets in which the Company operates,
National Competition organised by CII in changes in the Government regulations, tax laws
December 2002. and other statutes and other incidental factors.

30