dpr swastic repaired)

Swastik Ores & Power Pvt. Ltd.

Sponge Iron Project

Metfin Corporate Advisors Pvt. Ltd.

Metfin

Corporate Advisors Pvt. Ltd. (www.metfinadvisors.com)

263513 MCD BMC 1 C

/tt/file_convert/54683ad1b4af9fb86f8b4c9e/document.docx

01 October 2009

Swastik Ores & Power Pvt. Ltd.

80 TPD Sponge Iron Project

November, 2009

Hargarh Industrial Area,

Tahsil : Sihorah,

Dist: Jabalpur,

Madhya Pradesh.

Chapter Title

Page

Executive Summary i

1. Introduction 1

1.1 Study Background_____________________________________________________________________1

1.2 Group Background____________________________________________________________________1

1.3 Promoters___________________________________________________________________________2

1.3.1.1 Pankaj Tekriwal_______________________________________________________________________2

1.3.1.2 Ashok Kumar Maskara_________________________________________Error! Bookmark not defined.

1.3.1.3 Rohit Maskara________________________________________________Error! Bookmark not defined.

1.4 Mott MacDonald in India________________________________________Error! Bookmark not defined.

1.5 Scope of Work________________________________________________________________________5

1.5.1.1 Market analysis and marketing concept____________________________________________________5

1.5.1.2 Technical Assessment_________________________________________________________________5

1.5.1.3 Organization and Overhead Costs________________________________________________________5

1.5.1.4 Human Resources_____________________________________________________________________5

1.5.1.5 Implementation scheduling______________________________________________________________6

1.5.1.6 Financial Analysis and investments_______________________________________________________6

1.6 Approach____________________________________________________________________________6

1.7 Caveats_____________________________________________________Error! Bookmark not defined.

2. Market Assessment 11

2.1 Introduction_________________________________________________________________________11

2.2 Steel Value Chain____________________________________________________________________11

2.3 Industry Structure____________________________________________________________________12

2.3.1 Based on Manufacturing Process________________________________________________________14

2.3.1.1 Integrated (Primary Route) Producers____________________________________________________14

2.3.1.2 Secondary Producers_________________________________________________________________14

2.3.2 Based on Finished Products____________________________________________________________15

2.3.3 Indian Scenario______________________________________________________________________15

2.3.3.1 Consumption of Total Finished Steel_____________________________________________________15

2.3.3.2 Per Capita Consumption of Finished Steel_________________________________________________16

2.3.3.3 Crude Steel Production________________________________________________________________17

2.3.3.4 Process Route Production_____________________________________________________________17

2.4 Structural Steel_______________________________________________Error! Bookmark not defined.

2.4.1 Product Description___________________________________________________________________17

2.4.2 Product Application___________________________________________________________________18

2.4.3 Existing Demand Supply Scenario_______________________________________________________20

2.4.3.1 Demand____________________________________________________________________________20

2.4.3.2 Supply_____________________________________________________________________________21

2.4.3.3 Demand Supply Gap Scenario__________________________________________________________22

2.4.3.4 Prices_____________________________________________________________________________22

2.4.4 Projected Demand Supply Scenario______________________________________________________24

2.4.4.1 Demand____________________________________________________________________________24

2.4.4.2 Supply_____________________________________________________________________________24

2.4.4.3 Demand Supply Gap__________________________________________________________________25

2.4.4.4 Future Pricing_______________________________________________________________________26

2.5 Conclusions_________________________________________________________________________26

3. Marketing Plan 28

3.1 Competition Analysis__________________________________________________________________28

3.2 SOPPL SCOT Analysis________________________________________________________________28

3.2.1.1 Strengths___________________________________________________________________________28

3.2.1.2 Concerns___________________________________________________________________________28

Swastik Ores and Power Pvt. Ltd., Sponge Iron Project No.10152, Nov,2009

ContentSwastik Ores & Power Pvt. Ltd. MetFin Corporate

3.2.1.3 Opportunities________________________________________________________________________29

3.2.1.4 Threats____________________________________________________________________________29

3.3 Marketing Plan______________________________________________________________________29

3.3.1.1 Product Mix_________________________________________________________________________29

3.3.1.2 Pricing_____________________________________________________________________________29

3.3.1.3 Target Market_______________________________________________________________________29

4. Technical Assessment 30

4.1 Project Configuration__________________________________________________________________30

4.2 Manufacturing Process________________________________________________________________30

4.2.1 Steel Melting Shop___________________________________________________________________30

4.2.1.1 Manufacturing Process________________________________________________________________30

4.2.1.2 Process Description__________________________________________________________________31

4.2.1.3 Technology/ Plant and Machinery Suppliers________________________________________________34

4.2.2 Rolling Mill___________________________________________________Error! Bookmark not defined.

4.2.2.1 Process Flow________________________________________________________________________38

4.2.2.2 Assessment_________________________________________________________________________39

4.2.3 Captive Power Plant___________________________________________Error! Bookmark not defined.

4.2.3.1 Manufacturing Process_________________________________________Error! Bookmark not defined.

4.2.3.2 Process Description___________________________________________Error! Bookmark not defined.

4.2.3.3 Clean Development Mechanism (CDM) Opportunity__________________Error! Bookmark not defined.

4.2.3.4 Technology/ Plant and Machinery Supplier__________________________Error! Bookmark not defined.

4.2.4 Laboratory and Research Development___________________________________________________39

4.3 Location Analysis____________________________________________________________________40

4.4 Environment Management Plan and Statutory Clearances____________________________________41

4.4.1 Sources of Environmental Pollution______________________________________________________41

4.4.1.1 Thermal Pollution____________________________________________________________________41

4.4.1.2 Noise Pollution______________________________________________________________________41

4.4.1.3 Water Pollution______________________________________________________________________41

4.4.1.4 Air Pollution_________________________________________________________________________41

4.4.1.5 Solid Waste_________________________________________________________________________41

4.4.2 Statutory Clearances__________________________________________________________________42

4.5 Raw Material________________________________________________________________________42

4.5.1.1 Iron Ore____________________________________________________________________________42

4.5.1.2 DRI or Sponge Iron____________________________________________Error! Bookmark not defined.

4.5.1.3 Coal_______________________________________________________________________________44

4.5.1.4 Scrap_______________________________________________________Error! Bookmark not defined.

4.6 Utilities_____________________________________________________________________________49

4.6.1.1 Power_____________________________________________________________________________49

4.6.1.2 Water______________________________________________________________________________49

4.7 Manpower Details____________________________________________________________________49

4.8 Project Cost_________________________________________________________________________50

4.8.1.1 Land and Land Development___________________________________________________________50

4.8.1.2 Building and Civil Works_______________________________________________________________51

4.8.1.3 Plant and Machinery Cost______________________________________________________________52

4.8.1.4 Miscellaneous Fixed Assets____________________________________________________________53

4.8.1.5 Preliminary and Pre-operative Expenses__________________________________________________53


Swastik Ores & Power Pvt. Ltd. MetFin Corporate

4.8.1.6 Interest During Construction (IDC) Period_________________________________________________54

4.8.1.7 Margin Money for Working Capital_______________________________________________________54

4.8.1.8 Contingency________________________________________________________________________54

4.9 Implementation Schedule______________________________________________________________54

4.10 Conclusions_________________________________________________________________________55

5. Financial Assessment 56

5.1 Introduction_________________________________________________________________________56

5.2 Capacity Utilisation___________________________________________________________________56

5.3 Revenue Stream_____________________________________________________________________57

5.4 Cost Stream________________________________________________________________________59

5.4.1 Variable Cost________________________________________________________________________59

5.4.1.1 Raw Material________________________________________________________________________59

5.4.1.2 Utilities_____________________________________________________________________________59

5.4.1.3 Spares and Consumables______________________________________________________________60

5.4.1.4 Material Handling and Transportation_____________________________________________________60

5.4.1.5 Repairs and Maintenance______________________________________________________________60

5.4.2 Fixed Costs_________________________________________________________________________61

5.4.2.1 Manpower Cost______________________________________________________________________61

5.4.2.2 Administration Expenses and Misc. Expenses______________________________________________61

5.4.2.3 Selling and Distribution Expenses________________________________________________________61

5.4.2.4 Miscellaneous Expenses_______________________________________________________________61

5.5 Operating Profits_____________________________________________________________________62

5.6 Working Capital______________________________________________________________________62

5.7 Means of Finance____________________________________________________________________63

5.8 Project Evaluation____________________________________________________________________64

5.9 Project Risk Assessment_______________________________________________________________65

5.9.1.1 5% increase in Raw Material Prices______________________________________________________65

5.9.1.2 5% decrease in Selling Prices___________________________________________________________65

5.9.1.3 10% increase in Project Cost___________________________________________________________66

5.9.1.4 10% decrease in Capacity Utilisation_____________________________________________________66

5.10 Conclusions_________________________________________________________________________67

Appendices 68Appendix A. Financial Model – Base Case___________________________________________________________69

Tables

Table 1.1: Annual Licensed Capacities_____________________________________________________________1

Table 2.1: Industry Structure____________________________________________________________________14

Table 2.2: Consumption of Total Finished Steel in India_______________________________________________16

Table 2.3: Domestic Crude Steel Production________________________________________________________17

Table 2.4: Process Route Production_____________________________________________________________17

Table 2.5: Projected Demand Supply Gap__________________________________________________________26

Table 3.1: Competition Analysis__________________________________________________________________28

Table 4.1: Manpower Requirement_______________________________________________________________49



Table 4.2: SuMetFinary of Capital Investment_______________________________________________________50

Table 4.3: Building and Civil Works Cost___________________________________________________________51

Table 4.4: Induction Furnace - Plant and Machinery Cost______________________________________________52

Table 4.5: Power Plant -EPC Contract Value_______________________________________________________52

Table 4.6: Miscellaneous Fixed Assets____________________________________________________________53

Table 4.7: Preliminary and Pre-operative Expenses__________________________________________________54

Table 5.1: Capacity and Capacity Utilisation________________________________________________________56

Table 5.2: Revenue Stream_____________________________________________________________________58

Table 5.3: Utilities - Consumption Norm and Unit Rates_______________________________________________59

Table 5.4: Utilities - Consumption Norm and Unit Rates_______________________________________________60

Table 5.5: Operating Profit______________________________________________________________________62

Table 5.6: Working Capital Requirement___________________________________________________________63

Table 5.7: Project Phasing______________________________________________________________________64

Table 5.8: Means of Finance____________________________________________________________________64

Table 5.9: Financial Evaluation - Base Case________________________________________________________64

Table 5.10: Financial Evalution - 5% increase in Raw Material Prices_____________________________________65

Table 5.11: Financial Evaluation - 5% decrease in Selling Prices_________________________________________65

Table 5.12: Financial Evalution - 10% increase in Project Cost___________________________________________66

Table 5.13: Financial Evaluation - 10% decrease in Capacity Utilisation___________________________________66

Figures

Figure 2.1: Steel Value Chain____________________________________________________________________12

Figure 2.2: Industry Structure____________________________________________________________________13

Figure 2.3: Productwise Consumption_____________________________________________________________15

Figure 2.4: Per Capita Consumption of Steel in India__________________________________________________16

Figure 2.5: Demand of Structural Steel Products_____________________________________________________20

Figure 2.6: Supply of Structural Steel_______________________________________Error! Bookmark not defined.

Figure 2.7: Domestic Structural Steel Prices (Rs./Ton)_________________________Error! Bookmark not defined.

Figure 4.1: Project Configuration__________________________________________________________________30

Figure 4.2: Steel Melting Shop - Process Flow Diagram_________________________Error! Bookmark not defined.

Figure 4.3: Rolling Mill - Process Flow Diagram______________________________________________________39

Figure 4.4: Waste Heat Recovery Boiler Based Power Plant - Process Diagram______Error! Bookmark not defined.

Figure 4.5: Coal Based Power Plant - Process Diagram________________________Error! Bookmark not defined.

Figure 4.6: Implementation Schedule______________________________________________________________55



Swastik Ores and Power Pvt. Ltd. (SOPPL) registered under Companies Act, 1956, is a private limited company incorporated on 13th October 2009. SOPPL is incorporated for setting up a sponge iron plant.

SOPPL is considering installing 80 metric tonne per day (TPD) of DRI Sponge Iron Plant. The Company has approached the Lending Institutions for the purpose of raising debt for undertaking the Project. The Lending Institutions as a part of their appraisal have asked the Management of SOPPL to get a Techno-Economic Feasibility Study of the Project carried out by an Independent Consultants.

In this regards, the Company has approached and appointed MetFin Corporate Advisors Pvt. Ltd. (MetFin or Consultants) for undertaking the Techno-Economic Feasibility Study of the Project.

Project Configuration

The expansion will come-up at Hargarh Industrial Area, Tahsil: Sihora, District Jabalpur, in the state of Madhya Pradesh.

80 TPD Sponge Iron Kiln

The Project Configuration offers the following advantages –

A project with better flexibility in operations.

An ideal capacity leading to better absorption of fixed and semi-fixed costs.

Near to raw material availability offering better bargaining power.

Adequate flexibility for setting up value added product lines in future.

1 Swastik Ores and Power Pvt. Ltd., Sponge Iron Project No.10152, Nov,2009

Executive Summary


Figure S.1: Project Configuration

Source: SOPPL and METFIN Assessment

Project FinancialsThe summary of the Project Cost is indicated in Table S.1 below.

Table S.1: Summary of Capital Investment

Description Unit 2009-10 Total

Land and Land Development Rs. Lakh 75.00 75.00

Building and Civil Works Rs. Lakh 940.00 940.00

Plant and Machinery Rs. Lakh 1903.00 1903.00

Miscellaneous Fixed Assets Rs. Lakh 15.00 15.00

Preliminary and Pre-operative Expenses Rs. Lakh 25.00 25.00

Margin Money Rs. Lakh 231.00 231.00

IDC Rs. Lakh 125.00 125.00

Total 3314.00 3314.00Source: MetFin Estimates


Sized Iron Ore(Raw Material)

DRI Sponge Iron (80TPD,24000TPA)

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr0

102030405060708090

East

West

North

Sponge IronTo Market

1. Introduction


1.1 Study Background

Swastik Ores and Power Pvt. Ltd. (SOPPL) registered under Companies Act, 1956, is a private limited company incorporated on 13th October 2009. SOPPL is incorporated for setting up a sponge iron plant.

SOPPL’s selected manufacturing location (Plant) at Hargarh Industrial Area, Tahsil: Sihora, District Jabalpur, in the state of Madhya Pradesh.

SOPPL is considering installing 80 metric tonne per day (TPD) of DRI Sponge Iron Plant. The Company has approached the Lending Institutions for the purpose of raising debt for undertaking the Project. The Lending Institutions as a part of their appraisal have asked the Management of SOPPL to get a Techno-Economic Feasibility Study of the Project carried out by an Independent Consultants.

In this regards, the Company has approached and appointed MetFin Corporate Advisors Pvt. Ltd. (MetFin or Consultants) for undertaking the Techno-Economic Feasibility Study of the Project.

1.2 Group Background

The company is promoted by Mr. Pankaj Tekriwal, Mr. Vivek Agarwal and Mr. Ramesh Chandra Verma. The company is incorporated for the purpose of setting an 80 TPD Sponge Iron Plant.

Table 1.2: Annual Licensed Capacities

Particulars Annual Licensed Capacities (TPA)

Current Installed Capacities

Capacity Basis Capacity (TPA)

Sponge Iron 210,000 80 TPD x 300 days 24,000

Source: SOPPL


SOPPL is considering installing 80 TPD of DRI Sponge Iron Plant.

The proposed manufacturing facility of SOPPL in Hargarh industrial area (MPAKVN) Tahsil Sihora, Dist:Jabalpur in the state of Madhya Pradesh.


Considering a favourable market scenario and demand of sponge iron in developing

economies like India, SOPPL now proposes for setting up a plant. In this regard, SOPPL has applied to Madhya Pradesh Audyogik Kendra Vikash Nigam (MPAKVN) for land which has been allotted at Hargarh Industrial Area, Tahsil: Sihora, District: Jabalpur, in the state of Madhya Pradesh.

The area of Jabalpur/Sihora has a large number of Iron Ore Mines. SOPPL has carried out internal geological survey. However, based on the results from the limited survey carried out by SOPPL, the Consultants estimate that an average 60 – 62 % Fe Iron ore will be available from the area. Further, there may be adequate reserves to meet the requirement of SOPPL for operations.

1.3 Promoters

SOPPL is promoted by Mr. Pankaj Tekriwal, Mr. Vivek Agarwal and Mr. Ramesh Chandra Verma. The subsequent sections provide a brief account of the promoters.

1.3.1.1 Mr. Pankaj Tekriwal

Mr. Tekriwal is one of the Promoters / Founders of SOPPL. He is an Engineer and also has a vast experience of over 10 years in domestic steel industry. He is a member of many social and business organisations. He is the driving force in the Organisation for implementing technology in the Indian environment

Mr. Tekriwal is the director of the company known as High Tech Abrasives Ltd. He is the main person on the technology side and master of marketing of steel products. He is very good at procuring in a short spell of time and arranging the raw materials of steel units. This is very critical to any steel manufacturing unit. He is very good in stream-lining the supply chain and has the ability

of cost control to achieve highest level of production. He is in the course of patenting the technology for making steel

shots and grits. Earlier the surface cleaning in the Engineering side was done by Sand Blast but now the process has been banned by the WHO. This technology is to his credit.

He may be the first person who is thinking to change the hot Sponge Iron into Induction furnace and down stream the product so that the valuable energy can be saved and which is going to be cost


The Proposed site is near to the iron ore mines area.SOPPL is promoted by

Mr. Pankaj Tekriwal, Mr. Vivek Agarwal and Mr. Ramesh Chandra Verma.


effective and will be good for the national interest. Because energy is National Wealth which should be preserved and cautiously used.

He is helping many technocrats to put their thoughts in reality and developing new technology which can be adopted in India.

A hard-working and painstaking and very friendly with his labourers and staff Mr Tekriwal is very passionate with his work and dedicated to long hours of working.

1.3.1.2 Mr. Vivek Agarwal

Mr. Vivek Agarwal received his Bachelor’s in Civil Engineering degree from NIT Raipur in 1991, and a postgraduate diploma in Computer Applications in 1992. He also has a diploma in ISO 9000 series and quality Assurance 1994. He is currently competing thesis for doctorate in Industrial Management from NIM, Mumbai. He is also awaiting Chartered Engineer’s registration.

Mr. Vivek Agarwal manages and implements quality assurance aspects in steel manufacturing industries since 7 years. He is also responsible for the complete implementation of integrated steel manufacturing and processing units.

He also implements ISO 9001 quality systems with a team of managers and a total work force of 25. Since 1991, he worked as a project consultant on various industrial and commercial projects.

Some of the prestigious steel projects that he has handled include:

Surya Wires, Vandana Industries, Swastic Wires, Sarti Ispat Loha Udyog, Radhakrishna Rolling Mill Ltd., Prakash Steels Ltd.

In addition to several steel projects, he was involved in establishing quality control aspects in the food processing, plastics, sewerage, software making and environmental controls in industries.

1.3.1.3 Mr. Ramesh Chandra Verma

Mr. Ramesh Chandra Verma is a science graduate and has about 41 years of experience in various industries.

During 1965-76, he worked with M/s Heatly & Gresham (India) Ltd., looking after marketing of heavy civil engineering machines, oil burning equipments etc. In 1976, he joined M/s Incorporated Engineers Pvt. Ltd., Calcutta, looking after oil handling turnkey projects. During 1981-85, he worked as Works Manager in M/s Ether (India) Ltd. From 1985-



89, he worked with M/s Macloid Steel (Pvt.) Ltd. and looking after marketing of steel shots and grits.

In 1989, he became a partner in M/s Steel Abrasive Industries, Raipur and continued till 1991. During 1991-93, he was the founder and director of M/s Hi-Tech Abrasives Ltd., a company engaged in the manufacture of steel shots, grits and ingots. He was also the director of M/s Raipur Abrasives Ltd., a company engaged in manufacture of ingots during 1993-95. Thereafter, he was a director in M/s Southern Ispat Ltd. wherein C.I. Ingots, moulds, M.S. Ingots and CTD bars were manufactured.

Subsequently, after completion of the above assignments, he took up the responsibility of project formulation and implementation in M/s Global Hi-Tech Industries Ltd. to set up a sponge iron plant, melting shop, concast and re-rolling facilities.

1.4 MetFin Corporate Advisors Pvt. Ltd.

MetFin Corporate Advisors Pvt. Ltd. is a corporate advisory firm incorporated in Kolkata and having corporate Office in Mumbai. It provides comprehensive range of corporate advisory Services including Corporate & Financial Management, structuring / restructuring, Technical management, Investment Banking

MetFin is an established and multi faceted organization dedicated to the provision of a wide range of professional services. Our experience ranging from Finance to Business Solutions and markets, combined with a versatile group of professionals and an integrated multi-disciplinary approach broadens its capabilities and enhances ability to identify, confront and resolve a variety of issues and concerns for clients across the world.

Located in many cities in India -Mumbai, Delhi, Kolkata, Bangalore, Indore, Bhubaneswar and Baroda and also have international offices in Singapore, Hong Kong and Kazakhstan.

To be the preferred Corporate Service provider & consistently delivering value through innovation and commitment.


MetFin provides business planning and advisory services for a wide spectrum of clients in industry, infrastructure and social development.


Our values serve as a compass for our actions and describe how we behave in the world.

Our vision guides every aspect of our business by describing what we need to accomplish in order to continue achieving sustainable growth.

Nurturing a winning network of Advisory group and network companies, together we create mutual, enduring value.

1.5 Scope of Work

The Scope of Work as envisaged by the Consultants includes –

1.5.1.1 Market analysis and marketing conceptDefinition of the basic idea of the project, objectives and strategy

Demand and market Structure and characteristics of the market The estimated existing size and capacities of the industry

(specifying market leaders), its past growth, estimated future growth (specifying major programmes of development), local dispersal of industry, major problems and prospects, general quality of goods

Approximate present size of demand, its past growth, major determinants and indicators

Marketing concept, sales forecast and marketing budget Description of the marketing concept, selected targets and

strategies Anticipated competition from existing and potential local & foreign

producers and supplies Localization of markets and product target group Sales programme Estimated annual sales revenues from products, pricing of the

product. Estimated annual costs of sales promotion and marketing

1.5.1.2 Technical Assessment Comments on the technology of the equipment proposed to be

acquired for the project Assess the technical feasibility

1.5.1.3 Organization and Overhead Costs Organizational layout

General Management Production



Sales Administration

Estimated overhead costs Factory Administrative Financial

1.5.1.4 Human Resources Estimated human resources requirements, broken down into labour

and staff and into major categories of skills. Estimated annual human resources costs, classified as above,

including overheads on wages and salaries

1.5.1.5 Implementation scheduling Proposed approximate implementation time schedule Estimated implementation costs

1.5.1.6 Financial Analysis and investments Total investment costs

Rough estimate of working capital requirements Estimated fixed assets

Project Financing Proposed capital structure and proposed financing Cost of finance

Production cost (significantly large cost items to be classified by materials, personnel and overhead costs, as well as by fixed and variable costs)

Financial evaluation based on the above-mentioned estimated values

1.6 Approach

The Consultants adopted a consultative approach during the course of the study. Most of the information required to successfully complete the assignment was collected from the Client and in-house information available with the Consultants. The Consultants also collected secondary information as required for successful completion of the assignment. The secondary sources included published information from Government of India, Annual reports of different end-users / competitors, Sector reports etc.

Based on the information collected the Consultants determined – Current demand /supply scenario. Projected demand /supply scenario during 2009-17. Projected demand /supply Gap analysis during 2009-17.


The Consultants adopted a consultative approach during the course of the study.


Technology requirement and cost of equipments. Project configuration. Operating costs covering raw material, power, labour and spares. Working capital requirement covering spares, raw material, work-in-

progress. Financial and technical feasibility of the project.

1.6.1.1 Caveats There was a recessionary trend in the global market till March, 2009,

which has affected fresh investments in the core sectors like iron and steel industry. It is very difficult to actually predict the investments due to recessionary trend faced by the market.

The mismatch between demand and supply also leads to price volatility witnessed during recent times. Stagnation in steel prices for long periods followed by sudden spurt also affects the end-users.

Financial crisis in the global markets could be leading to a slowdown in the global economy which could translate into sluggish demand for steel products.

1.7 Key Personnel

Chairman- Mr R. S. RathodMr. Rathod is an eminent personality in Finance world. He is retired IRS Officer and Ex-Chairman of CBDT with wide range of experience in formation of various fiscal and monetary policies. He has also served as special Secretary to Ministry of Finance, Govt. of India. He has also been Ex-Chairman of Bank of Rajasthan. He is known for his expertise in taxation and Banking

Vice-Chairman- Dr. M. K. Sinha

Dr. M K Sinha, 72 years, brings with him four decades of rich experience in Banking Industry in senior positions including Chairman cum Managing Director of State Bank of India (now retired). He has held a variety of operational, organizational and administrative assignments in seven Associate Banks of SBI as DMD. He is a M.A. & Ph.D. in Mathematics and has served as a Consultant in Banking with the World Bank

Managing Director- Dr. S. K. Choudhary

A Science Graduate, Fellow Chartered Accountant and a Doctorate in Financial Management having a vast experience in metal and power



industry. He has been awarded with ‘Bharat Gaurav’ award for his contribution in industrial and financial management. He is having 35 year’s rich experience as Senior Executive to Managing Director, also he is Special Advisor to many large Corporate

Director- Mr. C. S. Jalan

Mr. Jalan is a MBA (Finance) from IIM, serves as advisors to many Corporate in Financial matters and is member of various advisory committees of World Bank

Director- Mr. A. C. Patel

Mr. Patel is B.Sc. and B.E. (Metallurgy). He has served Gujarat Industrial & Investment Corporation Limited (A Govt. of Gujarat Enterprise), as Technical Advisor (Metallurgy) to Deputy General Manager. He has vast experience in Project evaluation, Finance & Appraisal

Director- Mr. Bhupendra K. Parekh

Mr. Bhupendra Parikh, M.Com. LLB, CAIIB, is a Former Director of Gujarat State Fertilizers & Chemicals Ltd appointed by Government of Gujarat. He is a president of several social and corporate organizations. He has worked with Bank of Baroda in various positions, having very good background of Industrial Finance. He has travelled various countries in world for financial consultancy related work

Director- Mr. D. Kantha

Mr. D. Kantha, a Chartered Engineer turned a management consultant, established his core competence in cross-cultural attributes, keeping his main focus in Technology, products, projects, HRD, services, Manufacturing, Corporate, Policy and Strategy, while elevating himself in various levels of operation both in general and corporate management .He has worked with MNC like Martin Burn, Guest keen Williams, Bird- Heilgers group and Andrew Yule group

Dr. Narendra Mohan PhD (Metallurgy, USSR)

Dr. Mohan’s research work on the Development of Technology of Stainless Steel making in Oxygen converters led to the award of Soviet Patent. He has developed Ferrous and Non-ferrous Foundry and established good test center for the development of Rural Industries at



Srinagar. He is currently Chairman cum Managing Director of Chemet Consultant Pvt. Ltd. and Chemet Engineers India Pvt. Ltd

Mr. S. K. Khandelwal , Chartered AccountantMr Khandelwal has 25 years of experience as practicing Chartered Accountant rendering services in the field of audit, taxation and management consultancy, expert knowledge of GAAP, finance and business planning. Good experience of long term and short-term finance modeling

Mr. Deepak Bubna, Chartered AccountantMr. Bubna is a Commerce graduate and FCA with expertise in Taxation and accounts. He advises a number of corporate in Taxation related matters

Mr. Pradeep K Tiwari, LawyerMr. Tiwari has vast experience in cases related to Bank disputes, Company affairs and all other movable and immovable disputes

Mr. Manish Agarwal, Chartered Financial AnalystMr. Agarwal, has significant experience in Fund raising / Investment management in Indian and international markets, having raised significant amounts of funding for Indian Companies. He has extensive involvement in corporate projects, Real estate and infrastructure financing and has undertaken restructuring and reengineering of various businesses in India. He also advises a number of listed companies on funding aspects. He has founded Leverage capital, a Fund Management & Investment Banking Company

Mr. Naresh Agarwal M.Tech, DSED (Metallurgy& Mining) Mr. Agarwal is expert in mining execution and development. He is also acknowledged name in ferro-alloy industry

Mr. R. P. Sinha M.Tech (Mechanical) (IIT Kharagpur) Mr. Sinha has more than 40 years of experience in design, erection, testing, commissioning and O&M of Power Plant. He is Director of a Technical & Project Management Consultancy Company M/S ShaktiPunj Engineers (P) Ltd, Raipur. He is consultant to many Power Companies



Mr. G. S. Garecha BE (Mining) Mr. Garecha is B.E. (Mining) with years of experience in Public sector Steel industry. He is consultant and advisor to many upcoming steel companies

Mr. J. P. Tapuriah B.Tech (Mechanical Engineering) He is B.Tech in Mechanical Engineering with 40 years techno commercial experience in steel, steel casting, alloy steel, sponge iron, power plant etc. both in project implementation and plant operations

Mr. Sunil Sharma B.Com (Mumbai University) Mr. Sharma is a Commerce Graduate from Mumbai University with vast experience in Investment management. He has successfully handled private placement in the country. He is in international fund raising

Ms. Rajeshri R. Mittal M.A. (Sociology)Proprietor of Mittal Business partners (MBP), a Global M & A Advisory firm having a very good networking with international M&A advisors in more than 50 countries including Singapore, Hong Kong, Switzerland, US, UK, Canada etc. She is working hard to become a global leader in M & A activities with partnering with international firms

Tax AdvisorsS. Jaykishen, Kolkata

Corporate MattersAdv. Pradeep Tiwari, ( L.P Tiwari & Co.) , Kolkata

Merchant BankersMicrosec Ltd., KolkataSaffron Capital Advisors Pvt. Ltd., MumbaiLeverage Capital, Kolkata

Technical ConsultantsChemet Engineers India Pvt. Ltd, NewDelhiMott Mc Donald, MumbaiDSCL Energy Services Co. Ltd, New DelhiShaktiPunj Engineers (P)Ltd, Raipur

Research HouseARC Financial Services Pvt. Ltd., New Delhi



1.8 Introduction

Steel, is considered as a crucial growth driver for the modern economy. The level of socio-economic development and living standard of people in a country is measured by the per capita consumption of steel.

Steel has played a significant role being the driver of many developing economies. The industry is currently seen as the sunrise industry for developing nations. The leading steel producers like United States, Russia and Japan face stiff competition from fast developing nations like China and India. Liberalisation in 1991, played a decisive role in assisting the Indian companies move up the value chain with better quality and increased domestic production of value added products.

1.9 Steel Value Chain

Steel finds extensive usage in our day-to-day life. Practically the sustainability of all industries to a greater extent is dependent on steel. In order to meet specific requirements of key industries the steel industry gradually has undergone major technological advancements to produce the right quality metal which in turn made significant contribution to overall growth of the industry.

The major raw material for manufacturing steel is iron ore. Iron ore can be converted to steel using the following methods - Classical / Primary route of blast furnace and basic oxygen furnace Modern / Secondary route of electric arc / induction furnace Mix of Primary and Secondary route

The Figure 2.2 represents steel industry value chain. From Figure 2.2 and information collected from secondary sources, the Consultants note the following – There are a large number of intermediate products in the entire

value chain. These intermediate products have a market of their own and are traded in both domestic as well as global market


2. Market Assessment

There are a large number of products in the entire value chain. These products have a market of their own and are traded in both domestic as well as global market.


HRC &

Scrap

CRC &

Scrap

Iron ore / Pellet & Coal

Blast furnace

Basic oxygen furnace

Pig Iron

Iron Ore / Pellet & Coal

Sponge iron kiln

EAF / Induction furnace

DRI

Ingots / Continuous Caster / VOD /AODBillets /

Blooms / Ingots

Hot rolling

Cold rolling Pipe mill

Scrap

Rolling mills

Bars / angles /

channels / Scrap /

Wire rods

Ferro alloys

Tube mills

Seamless tubes / scrap

Casting

Casts

ERW / SAW

pipes / Scrap

Coating

Coated sheets

HRC &

Scrap

CRC &

Scrap


Blast furnace


Pig Iron


Sponge iron kiln


DRI

Ingots / Continuous Caster / VOD /AODBillets / Blooms / Ingots

Hot rolling


Scrap

Rolling mills

Bars / angles /

channels / Scrap /

Wire rods

Ferro alloys

Tube mills


Casting

Casts

ERW / SAW pipes / Scrap

Coating

Coated sheets


Blast furnace


Pig Iron


Sponge iron kiln


DRI

Ingots / Continuous Caster / VOD /AODBillets / Blooms / Ingots

Hot rolling


Scrap

Rolling mills

Bars / angles /

channels / Scrap /

Wire rods

Ferro alloys

Tube mills


Casting

Casts

ERW / SAW pipes / Scrap

Coating

Coated sheets

The demand – supply scenario of each intermediate product has an impact on the prices of finished steel, both in domestic as well as international markets

Investment needed varies across the value chain and hence the structure of industry varies across the value chain

Economies of scale, market proximity, raw material nearness, land and utility requirements and pollution generated varies across the value chain and hence different players adopt different plant configurations depending on internal strengths and market realities.

Figure 2.2: Steel Value Chain

Source: METFIN Database

1.10 Industry Structure



The steel industry of India has capital investments of more than

Rs.100, 000 crores. The total employment in the industry

is more than two million (including direct and indirect employment).

The size of India's steel industry has increased considerably in recent years. According to latest available estimates, India ranks fifth among the top steel producers of the world with a production capacity of 64.40 million Tons. The Indian steel industry has come a long way since its humble beginnings. The takeover of the British steel giant Corus steel by Tata Steel and the acquisition of Arcelor by Mittal Steel, has herald a new beginning for the Indian steel industry. These events signify that the Indian steel industry has acquired a global identity and is today extremely competitive globally. It has to be said that the global recession has affected the Indian

steel industry especially stainless steel, but the steel industry is trying to offset the negative effect of the recession by focusing on transportation and construction projects which are usually funded by the government.

India is the only country globally to record a positive overall growth in crude steel production at 1.01 per cent for the period January -March 2009.

It is estimated that India's steel consumption will grow at nearly 16% annually till 2012.

The National Steel Policy has forecasted the demand for steel would reach 110 million tons by 2019-2020.

India is the fifth largest producer of steel in the world. Indian steel production stood at about of 54.52 million Tons during 2008-09, of which domestic consumption was to the tune of about 52.16 million Tons. The steel industry can broadly be divided into two major categories - based on the type of finished products or on the basis of the manufacturing process. Figure 2.3 illustrates the Indian steel industry structure.


India ranks fifth among the top steel producers of the world with a production capacity of 64.40 million Tons

Indian steel production stood at about of 54.52 million Tons during 2008-09, of which domestic consumption was to the tune of about 52.16 million Tons


Figure 2.3: Industry Structure

STEEL INDUSTRY

STRUCTURE

Based on Finished Products Based on Manufacturing Process

Long Products

Flat Products

Primary Producers

Secondary Producers

STEEL INDUSTRY

STRUCTURE

Based on Finished Products Based on Manufacturing Process

Long Products

Flat Products

Primary Producers

Secondary Producers


A.1. Based on Manufacturing Process

1.10.1.1 Integrated (Primary Route) Producers

The manufacturers whose value chain extends from iron ore to finished steel at a single location are known as Integrated Producers like, Steel Authority of India Limited (SAIL), Tata Steel Limited (Tata Steel or TSL) and Rashtriya Ispat Nigam Limited (RINL). These players mostly adopt the primary route for manufacturing steel.

1.10.1.2 Secondary Producers

The manufacturers whose value chain extends from iron ore to finished steel at various locations are known as Secondary Producers. This segment is a distinctly heterogeneous one, not only in its composition but also spread, capacity level, capacity utilization and production/ items of production. It is comprised mainly of Mini Blast Furnace units, Sponge Iron producers, Induction Furnace (IF) and Electric Arc Furnace (EAF) units, Re-rolling (RR) units, Hot Rolled (HR) units, Cold Rolled (CR) units, Galvanised/Colour coated units, Tin Plate units and Wire-Drawing units The input in the secondary route is either steel scrap or molten iron, which is a recent development. The players like Essar



Steel, Ispat Industries produce steel by using scrap steel. This method utilises electric arc furnace or induction furnace to produce steel.

Based on product categories (and major producers), the industry can be divided as indicated in Table 2.3.

Table 2.3: Industry Structure

Products Players

Iron Ore NMDC, Kudremukh Iron Ore Company, Sesa Goa, SAIL, Tata Steel

Pig Iron RINL, Sesa, Usha Ispat, Malvika Steel, Kalinga Steel, Kirloskar, SAIL

Sponge Iron Essar, Ispat, Vikram Ispat, Topsworth Group

Hot Rolled Coils/Sheets / Plates SAIL, Tata, Essar, Ispat, JSW

Cold Rolled Coils/ Sheets SAIL, Tata, Ispat, Essar, JSW, Lollyds, Bhushan, Uttam

Galvanized Sheets SAIL, Tata, Ispat, Essar, JSW, Bhushan, Uttam, Lloyds

Bars / Rods / Wire Rods SAIL, Tata, RINL , Mukand, Usha Martin,

Alloy Steel Products Mukund, MUSCO, Kalyani, Usha Martin, Facor, Sunflag, Viraj

Source: Research Reports

A.2. Based on Finished Products

Finished products are either flat products or long products. Flat products include hot rolled or cold rolled sheets and coils, galvanised sheets/coils, whereas long products include bars and rods, structurals and railway materials. The application of flat and long products are different, based on the end use. The demand for flat products and long products is almost balanced indicating a trend typical in developing countries as seen in Figure 2.4.

Figure 2.4: Productwise Consumption

Flat Products48%

Long Products

52%

Source: Sector Reports

As discussed, steel is a complex industry with a large number of intermediate products. The Project being planned by the Company does not include all the intermediate products discussed in the value chain. Further, a large number of intermediate products will be



consumed in-house to manufacture value-added products. In the subsequent

sections, the Consultants have focused on products being planned by the

Company under the Project.

A.3. Indian Scenario

1.10.1.3 Consumption of Total Finished Steel

Table 2.4 below shows the consumption of total finished steel during the period 2005-09.

Table 2.4: Consumption of Total Finished Steel in India

Consumption of Total Finished Steel

All figures in Million Tons

2005-06 2006-07 2007-08 2008-09

Long 23.45 26.11 28.49 27.01

Flat 17.98 20.67 23.31 25.15

Total Consumption 41.43 46.78 51.80 52.16

Share of Long (%) 57 56 55 52

Share of Flat (%) 43 44 45 48

Source: JPC

The Consultants note the following from the Table 2.4 above – During the period 2005-09, the consumption of long products has

grown at a CAGR of 4.8%. The consumption for flat products has grown at a CAGR of 11.8%

during the period 2005-09.

The Consultants believe that the phenomenal growth rate in consumption of both long and flat products in India has been on account of increased demand of these products from the infrastructure industry.

1.10.1.4 Per Capita Consumption of Finished Steel

The per capita consumption of finished steel in India stood at about 30.6 Kg during the year 2003. Since then the per capita consumption of steel has grown at a CAGR 10.4% during the period 2003-08 to reach an estimated 50.2 Kg during the year 2008. The Figure 2.5 below indicates the per capita consumption of steel in India during the period 2003-08.


The per capita consumption of steel has grown at a CAGR 10.4% during the period 2003-08 to reach an estimated 50.2 Kg during the year 2008


Figure 2.5: Per Capita Consumption of Steel in India

0

10

20

30

40

50

60

2003 2004 2005 2006 2007 2008

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Per Capita Consumption (in Kgs) Y-o-Y Growth

Source: JPC

The Consultants note that the per capita consumption of steel in India has grown over the years; still it is lower than the developed nation’s average of about 150 Kg.

1.10.1.5 Crude Steel Production

Table 2.5 below indicates the crude steel production in India during the period 2005-09. As indicated in the Table 2.5 below, last three years have seen steady growth trends in crude steel production.

Table 2.5: Domestic Crude Steel Production

(All figures are in million Tons)

Crude Steel 2005-06 2006-07 2007-08 2008-09 CAGR

Production 46.46 50.82 53.90 54.52 5.48%

Capacity 51.17 56.84 59.00 64.40 7.97%

Capacity Utilisation 91.00 89.00 91.00 85.00

Source: JPC

1.10.1.6 Process Route Production

Table 2.6 below shows the process route production during the years 2005 to 2009. The production has been contributed largely by strong trends in growth of the electric route, particularly the Induction Furnace route.



Table 2.6: Process Route Production

(All figures are in million Tons)

Process Route Production

2005-06 2006-07 2007-08 2008-09 CAGR

Oxygen 24.34 25.39 22.1 25.63 1.73%

EAF 8.57 10.03 13.99 10.90 8.36%

IF 13.49 15.39 17.81 17.99 10.07%

Source: JPC

1.11 Sponge Iron

A.3.1.1. Product DescriptionSteel has had a major influence on our day to day lives. To meet today`s demand for high quality steel, the steel industry has developed new technologies and has strived hard to make the world`s strongest and most

versatile material even better. There are two main routes for steel making. One is the “classical route”, also called as primary route” based on blast furnace (BF) and basic oxygen furnace (BOF) and the second is “modern route” also called as “secondary route”, based on induction furnace (IF) or electric arc furnace (EAF), using steel scrap or sponge iron i.e. Direct Reduced Iron (DRI) as basic raw materials.

Steel made from steel scrap is called electric steel. The single largest element

of cost in electric steel making is steel scrap. Rapid increase in steel production

through this route is causing a shortage of good quality scarp (scrap with

minimum contamination). At the same time, steel scrap of high purity is

becoming scarce and it is becoming difficult for IF/EAF operators to procure the

right quality input.

Electric steel production is growing at an annual rate of about 6% to 10% due to

its application in the construction, automobile and engineering sectors. In

United States and Europe, electric steel accounts for nearly 50% of the steel

production. In India, electric steel accounts for about 64% of the total steel

production.

Fortunately, the technology of sponge iron has provided electric steel makers

with an alternative raw material to scrap. This product, known as DRI or sponge

iron, is better in quality than scrap and is also cheaper than scrap.

DRI or sponge iron as it is often referred to, is the substitute for melting scrap

(scrap steel) in the steel making process. DRI is the process of converting iron

ores, to metallic iron without the smelting process. The process of sponge iron

making aims to remove oxygen from iron ore. When that occurs, the departing

oxygen causes micro pores in the ore body making it porous. The final product,



when observed under a microscope, resembles a honeycomb structure looking

spongy in texture, hence the name sponge iron.

Sponge iron is a high ferrous content charge material for iron and steel making.

Sponge iron is produced in lump or pellet form, sized typically at 4 by 20mm.

Sponge iron also comes in compacted and briquette form known as Hot

Briquetted Iron (HBI), which is made by hot compacting sponge iron at

temperatures over 650 degree centigrade into a pillow shaped briquette

measuring 110 X50X30 millimetres.

A.3.1.2. Properties and Applications

Sponge Iron is a substitute of steel scrap for steel making through secondary route i.e. EAF/IF route. The rapid growth of electric steel making has created

the need to develop alternative source(s) of iron bearing materials (feed material). The high price of steel scrap, coupled with difficult foreign exchange resources made sponge iron the most viable alternative for domestic steel manufacturers adopting EAF/IF route. Further, merits of using sponge iron vis-a-vis scrap with respect to residual elements in shredded scrap show that the former is superior as a charge material. The following table shows the comparison between scrap and sponge iron properties.

Typical Composition of Shredded scraps & sponge iron (all figures in percentage)

Description Shredded Scrap Sponge Iron

Carbon 0.25 1-1.15

Copper 0.22 0-0.01

Chromium 0.18 0.001-0.01

Nickel 0.11 0.001-0.01

Molybdenum 0.02 0.001-0.002

Tin 0.02 0.001-0.002

Manganese 0.40 0.002-0.02

Sulphur 0.04 0.002-0.02

Phosphorus 0.025 0.02-0.10

Source: Sponge Iron Manufacturers Association (SIMA)



The advantages of sponge iron against scrap are indicated below:

Cost of sponge iron is lower than scrap.

Homogeneity of composition is favourable when compared with scrap.

It replaces ferrous scrap as a coolant in LD converter.

Free from tramp elements like copper, zinc, tin, chromium, tungsten, and molybdenum that are usually present in scrap.

Ability to use low grade fuels and fuels that are unacceptable for conventional iron making.

More suited for some special metallurgical processes than conventional iron & steel products like precipitation of copper form leaching solution during copper extraction, production of metal objects of powder compaction.

Low sulphur content.

Environmental friendly.



A.4. Existing Demand Supply Scenario

1.11.1.1 Demand

The total domestic demand for sponge iron is estimated at about 19.72 million MT during 2007-08. The major end user of the sponge iron is the steel sector which is growing at an

annual rate of about 13% driven by construction, automobiles and the

engineering sector. The growth in demand for sponge iron is linked

to the growth observed in the domestic steel industry. Analysis from the past performances indicates that the sponge iron industry grew at CAGR of about 25% during 2003-08. The figure 2.5 indicates the trend in

demand for sponge iron in the domestic market during 2003-08. From the figure 2.5 it is noted that demand for sponge iron in India grew at a CAGR of about 20% during 2006-08.


The rise of the ‘middle class’ in the last decade has also boosted the economy


The domestic demand for sponge iron stood at about 19.72 million Tons during 2007-08.

Figure 2.6: Sponge iron demand in domestic market


102030405060708090

East West North

z


20

40

60

80

100

EastWestNorth

Source: CMIE

1.11.1.2 Supply

India is the world’s largest sponge iron producer. The installed capacity

of sponge iron in the country stood at 26.39 million MT during 2007-08 with a capacity utilisation of 75%. There are 324 sponge iron units in the country. Out of these, there are 321 coal-based units with a total capacity of 18.40 million MTPA and 3 gas based units with a total capacity of 7.99 million MTPA. Out of 321 coal-based many of them are from unorganised sector. Majority of the total operating units are based on coal as the reducing agent, the largest being Jindal Steel & Power Ltd. at Raigarh, Chattisgarh with an installed capacity of 0.65 million MT. The three units that operate based on gas as the reducing agent include Essar Steel Ltd. with a capacity of 0.9 million MT at Salav in Alibagh, Maharashtra and Ispat Industries with a capacity of 1.1 million MT at Dolvi, Maharashtra.

Figure 2.7: Sponge Iron supply in domestic market

Source:CMIE


The installed capacity for sponge iron in India is estimated at 26.39 million Tons during 2007-08 with the industry witnessing 75% capacity utilisation


The figure 2.6 indicates the trend in supply of sponge iron in domestic market during 2003-08. From the figure 2.6, it can be noted that majority of the production of sponge iron is consumed within the domestic market.

Source: Ministry of Steel

1.11.1.3 Demand Supply Scenario

The domestic demand for sponge iron stood at about 19.72 million MT during 2007-08. This demand was met through with an installed capacity of 26.39 million MT indicating utilisation over 75%. At present the demand-supply scenario is balanced. However, the consultant believe that new capacities would be needed in future as the industry can achieve the maximum output of 21.77 million MT with a capacity utilisation of 82.5%. The factors that restrict capacity utilisation include:

Many players are small (100 MTPD Kilns) and find it difficult to manage operation and marketing the product.

Many small players have problem with sourcing of iron ore as they fail to have long term contract.

1.11.1.4 PricesSponge iron prices are directly related to scrap prices. Scrap prices have doubled in recent times and are currently ruling in the range of Rs.27,800 per MT, increasing from around Rs.14,500 per MT during March 2006. From the figure 2.7 it can be noted that spongie iron prices have shot up in the range of Rs.26,000 per MT, increasing from Rs.17,650 per MT during December 2007. The spurt in the sponge iron prices is due to rise in coke, iron ore, power & fuel prices and increase in wage cost backed by rising steel demand. Figure 2.7 indicates trend of domestic sponge iron prices and melting scrap prices.1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

0102030405060708090

East

West

North


102030405060708090

East

West

North


Any further increase in the domestic demand will put pressure on the production, as the capacity utilisation has already reached its peak


Mar'06

Jun'06

Sep'06

Dec'06

Mar'07

Jun'07

Sep'07

Dec'07

Mar'08

Jun'08

Sep'08

Dec'08

Mar'09

0

5000

10000

15000

20000

25000

30000

Sponge Iron

Scrap


102030405060708090

100

East

West

North


102030405060708090

East

West

North

Sponge Iron & Scrape Prices in domestic market

From the figure2.7, it can be noted that due to unavailability of scrap on account of declining ship-breaking activities the scrap prices have moved upwards. But rising steel demand and unavailability of scrap has led to an increase in demand of alternative raw material, which is sponge iron. The price of sponge iron also increased during


Globalisation has linked the domestic and international market. The prices of domestic market are governed by the international market prices of steel products


the period. Further the gap between sponge iron prices and scrap prices are expected to narrow down in future due to the increase in demand of sponge iron as an alternative raw material for electric steel. During March 2006 to December 2007, the prices of DRI increased at a CAGR of 15%.

A.4.1.1. Projected Demand Supply Scenario

1.11.1.5 Demand

India’s per capita steel consumption is, however, abysmally low standing at 46 Kg. It is much lower than other developed countries like USA (426 Kg) and Germany (417 Kg). It is not even one sixth of the world average, which is 150 Kg. The wide gap in relative consumption of steel indicates the potential ahead of India in raising its steel consumption. With this kind of growth in the domestic steel sector the demand of metallic will necessarily be met by sponge iron industry both gas and coal based units.

As per the research conducted by steel consultants, there is likely to be a shortfal of metallic (scrap) in India to the tune of 16.9 million MT by the year 2011-12. This metallic shortfall is to be met either through scrap imports or the creation of additional sponge iron capacity.

Outof these available options, thep robability of increased scrap imports would depend on the availability and relative price structure of the same. As already indicated earlier, availability of good quality scrap is steadily decreasing. Moreover, even under current market conditions, landed price of scrap at end-user sites in India continues to be more than comparable landed price of sponge iron. This would further decrease the demand for scrap and lead to increase in demand for sponge iron.

The long term demand projections of finishexd steel compiled by Ministry of Steel, India is predicted to reach 103 million MT by 2011-12 against estimated production of 53.5 million MT during year 2007-08. It has been assessed that the steel production capacity inthe country by the year 2011-12 will be nearly 124 million tonnes from 56084 million tonnes in 2006-07. The working group on steel industry has projected a total demand of 70.34 million MT for finished steel and total production of 80.23 million MT during 2011-12.

From the above, the annual demand growth for sponge iron for the period 2008-12 is estimated to be 12%.



1.11.1.6 Supply

In the medium term the outlook for the sponge iron industry looks very good with rising demand. The manufacturers in the sponge iron industry are looking to augment capacity. However, these capacities are expected to go on stream only by 2011. The figure gives the capacity addition during 2008-12.

As far as creation of additional sponge iron capacity in India is concerned, it should be mentioned that prospects of installation of new gas-based DRI palnts are very remote; keeping in view the natural gas allocation policy followed by the Government of India (restricts availability). Accordingly, any new sponge iron capacities to be created would necessraily have to be based on coal.

Table 2.5 : Major Capacity Addition

1.11.1.7 Demand

Supply Gap

As discussed above, the tightening of supply situation has forced major players to expand their capacities to cater to the ever-increasing



Company name Capacity (MTPA) Year of Commissioning

Jai Raj Ispat Limited 60,000 2008-09

B D Castings Pvt. Ltd. 1,500,000 2009-10

Adhunik Metals Ltd. 165,000 2009-10

Monnet Ispat & Energy

Ltd.

250,000 2009-10

Basai Steels Pvt. Ltd. 90,000 2009-10

N M D C Ltd. 100,000 2009-10

Parwaz Sponge Iron

Ltd.

60,000 2009-10

Jai Balaji Jyoti Steels

Ltd.

120,000 2010-11

Pawanjay Steel &

Power Ltd.

500,000 2010-11

demand of sponge iron. The demand is expected to grow at an annual rate of about 12% during 2008-12.

Table 2.7: Demand Supply Gap Analysis

Year Demand Supply without capacity additions

Gap Supply with capacity additions

Gap

2007-08 19.72 19.72 0.00 19.72 0.00

2008-09 21.30 21.77 0.31 21.82 0.27

2009-10 23.00 21.77 2.97 23.61 1.13

2010-11 24.84 21.77 5.93 24.12 3.59

2011-12 26.83 21.77 9.26 24.12 6.91

Source: METFIN Estimates

The detailed demand-supply gap analysis during 2008-12 is indicated in the table 2.5. The Consultants note that the demand for sponge iron will surpass supply by 2008-09. From the Table 2.5 it can be noted that there exists a demand-supply gap and new sponge iron plants are required to meet the demand.

1.11.1.8 Future Pricing

Due to growing demand for steel coupled with decreasing availability of good quality scrap, prices of sponge iron is expected to move upwards. Further, it is noted that sponge iron manufacturers will be able to pass on any increase in raw material prices to end-users due to tight demand-supply scenario. The consultants anticipates that the prices of sponge iron to move up by 7% per annum during the next two years. In short, from December 2007; when prices shot up dramatically; till March 2011, the Consultants forecast sponge iron prices to increase at a CAGR of 17%.


If the domestic Sponge Iron industry does not further add any new capacities, this demand supply gap will grow to 6.91 million Tons by the year 2011-12


1.12 Conclusions

The Consultants conclude the following from the discussions in

the chapter –

At present the demand-supply scenario of sponge iron is balanced. The consultants note that the demand for sponge iron will surpass supply by 2008-09. Hence, new sponge iron plants are required to meet the domestic demand in near future.

The Consultants anticipate that the prices of sponge iron to move up by 7% per annum during next two years. The consultants forecast the sponge iron prices to increase at a CAGR of 17% till March 2011 from December 2007.

With the commencement of operation, SOPPL should focus on developing long term relationships with mines to insure quality and timely supply at reasonable rates.

The domestic consumption of steel stood at 52.16 million Tons for the year 2008-09.

India’s per capita steel consumption was estimated at 50.2 Kg during 2008

Indian steel production stood at about 54.52 million Tons during the financial year 2008-09.

Indian steel production has been contributed largely by strong trends in growth of the electric route process.

The demand for sponge iron for the year 2008-09 has been growing at a CAGR of 20%.

The major demand drivers of steel are the construction industry, power, railways and the telecommunication sectors.

The average prices of sponge iron for the year 2009 were Rs.14,000 per Ton.

The prices are expected to increase at the average annual rate of 7%.

In this chapter, the Consultants have carried out competition analysis of SOPPL with other players in the market, Strength, Concerns, Opportunity and Threat (SCOT) analysis and briefly discussed about the Marketing Plan of SOPPL.


The Consultant anticipates that the prices of Sponge Iron to move up by 7% per annum during next two years

3. Marketing Plan


1.13 Competition Analysis

The Consultants have analysed and found that there is no sponge iron plant situated in the state of Madhya Pradesh presently.

The main producer of steel is shown below in Table 3.1.

Table 3.8: Competition Analysis

Particulars TISCO SAIL Jindal Group

Product Range Long & Flat Long & Flat Long & Flat

Market Coverage Across India Across India Across India

Technology Primary Route Primary Route Secondary Route & COREX

Plant Locations Multiple Multiple Multiple

Mine Linkage Available Available Available

Group Activities Iron and Steel Industry Iron and Steel Industry Diversified

Corporate Brand Image Strong Strong Strong

Government Stake No Yes No

Financial Strength Very Strong Very Strong Very Strong

International Presence Yes Yes Yes

Source: METFIN Research

1.14 SOPPL SCOT Analysis

1.14.1.1 Strengths Promoters have over 3 decades of experience in domestic Steel

industry. Location advantage with proximity to major markets. Location advantage with proximity to a large number of mines. Greenfield market Availability of iron ore within 50 Kms. radius. Availability of coal within 250 Kms. radius. M.P. Government allotted 38 Hectares of iron ore mines to A sister

concern Hi-Tech Abrasives Ltd.

1.14.1.2 Concerns Economies of scale of major players in domestic market affecting

the overall pricing of the market

1.14.1.3 Opportunities Favourable future demand-supply scenario. Technology available locally.



The M.P. has adequate reserves of iron ore and coal. Availability of skilled manpower. No player of sponge iron in M.P.

1.14.1.4 Threats Major players having a good presence in the industry Generic threat of global slow down

1.15 Marketing Plan

1.15.1.1 Product Mix

The Company is planning to set up another sponge iron unit in second phase. SOPPL will have to concentrate on marketing of value added products. The Company will be in a position to sell the following products – Sponge Iron

The scope of the Consultant is limited to sponge iron only.

1.15.1.2 Pricing

The company is concentrating on allotment of mines, thus the raw materials cost will be reduced.

SOPPL will have to price their products according to market and competitors including the discount structure. The Company will not be in a position to control price movements. Hence, the Company will have to develop an efficient Market Intelligence System.

1.15.1.3 Target Market

The domestic demand supply scenario is favourable and hence the Consultants recommend the Company to focus on the domestic market. The major markets for sponge iron are the secondary sectors. The strategy of focusing on domestic market will optimise marketing costs.

The Consultants have analysed and found that the market is within the radius of 300-500km. The nearby markets are Indore in Madhya Pradesh, Kanpur and Allahabad in Uttar Pradesh, Maharashtra and Chhattisgarh.



The Consultants recommend the Company to geographically expand their brand presence. This will enable the Company to have a better margin.

The Consultants have analyzed and found that Madhya Pradesh is a green field Market and at present there is no sponge iron plant there but many steel plants are coming in this area. Basically, the steel plants are coming in secondary routes.

The Consultants recommends that the proposed site is the ideal location for Sponge Iron plants. Availability of Market within the radius of 300-500kms makes the location ideal.

1.16 Project Configuration

The proposed plant will come-up at Hargarh Industrial Area, Tahsil: Sihora, District Jabalpur, in the state of Madhya Pradesh., SOPPL is considering installing 80 metric tonne per day (TPD) of DRI Sponge Iron Plant.

Figure 4.8: Project Configuration

Source: SOPPL and METFIN Assessment

The Project Configuration offers the following advantages –

A project with better flexibility in operations.

An ideal capacity leading to better absorption of fixed and semi-fixed costs.


Sized Iron Ore(Raw Material)

DRI Sponge Iron (80TPD,24000TPA)


102030405060708090

East

West

North

DRI Sponge Iron To Market


102030405060708090

East

West

North

4. Technical Assessment


Near to raw material availability offering better bargaining power.

Adequate flexibility for setting up value added product lines in future.

1.17 Manufacturing Process

1.17.1.1 Sponge Iron

1.17.1.2 Manufacturing Process

Iron Ore and non-coking coal are the prime raw materials for the production of sponge iron through.The process of sponge iron making aims to remove oxygen from Iron Ore. When that occurs, the departing oxygen causes micro pores in the ore body making it porous.The final product, when observed under a microscope, resembles a honeycomb structure looking spongy in texture, hence the name sponge iron.Sponge iron is distinct due to its high metallic iron content and consistent chemical and physical characteristics. This provides secondary steel makers flexibility in preparing their furnace charge to produce finer quality steels than what is possible using steel scrap only. Some of the features of the sponge iron produced are:

1. High iron content and high degree of metallization.2. Uniform and consistent quality.3. Lower sulphur and phosphorus content.4. Negligible tramp element.5. Minimum dust generation during material handling.6. Good flow ability in bins, pipes and conveyors for continuous

and trouble free charging.7. Superior technical support to induction furnace operators.8. The quality of sponge iron is primarily ascertained by the

percentage of metallization (removal of oxygen) , which is the ratio of metallic iron to the total iron present in the product.

Description of facilities of Sponge iron plant

1. Raw material preparation & storage in day bins.



2. Rotary kiln, Pre-heater and Rotary cooler, ABC, DSC.3. Product processing facilities and product storage bins.

The properties of Sponge Iron typically produced are:

Constituent PercentageChemical Fe, Total 60-65Fe, Metallic 76-80Metallisation 88(+/-2)Sulphur 0.03 maxPhosphorus 0.05 maxCarbon 0.10 maxGangue content 6-8Physical Size lump +4mmFines -4mmBulk density 1.6-2.0 MT/m³Inherent density 3.5 MT/m³ (approx.)

DAY BINSThe Day Bin building for DRI Kiln have separate bins for storage of about one day’s requirement of coal (3-18 mm) injection coal (0-3 mm) and dolomite (2-6 mm). Weigh feeders are provided to draw various materials in the required proportion from the bins and deliver to the conveyors for feeding into the kiln.

Rotary Kiln and cooler



Rotary kiln of a certain dia and length are provided for reduction of iron ore into sponge iron using non-coking coal as reductant. Other main components of kiln are:

1. Feed end and discharge end housing of welding steel construction with refractory lining including feed chute

2. Pneumatic cylinder actuated labyrinth air seal complete with auto lubricating system at feed end and discharge end.

3. On board equipments like fans, manifolds, valves, piping, actuators, air inlet parts, slip ring housing etc.

4. Cooling fans at feed end and discharge end5. Fuel-on system consisting of compressed pipeline with cooling fans6. Feed end double flap valves and dust valves.

The kiln will be lined with high alumina castable refractories throughout its length with dams at feed end and discharge end.The kiln feed from the charging end consist of screened Iron Ore, coal, and dolomite. Air is supplied to the kiln through air ports provided on kiln periphery along the kiln length. This ensures a controlled combustion resulting in a very even temperature profile. A part of required coal will be thrown from discharge end pneumatically into the kiln. Necessary rotary feeder, compressor, piping, and valves will be provided for the injection system.In the kiln, the iron ore is dried and heated to the reduction temperature of about 1000 D.C. The iron oxide of the ore is reduced to metallic iron by carbon monoxide generated in the kiln from coal. The heat required for the reduction process is also supplied by the combustion of coal. Thermocouple installed along the length of the kiln shell determines the thermal profile of the kiln. The temperature inside the kiln is controlled by regulating the amount of combustion air admitted into the kiln through ports with the help of fans mounted on the kiln shell and by controlled coal injection. The reduced material from the kiln is cooled indirectly in a rotary cooler by water spray. At the discharge end, the cooler will act as a screening section, which separates all the accretions larger than 50 mm from the reduced material.These lumps are discharged separately via lump gate. Rest of the material is discharged on a conveyor via double flap valve.The cooled product is conveyed to the product processing building by a system of belt conveyors. The products from the cooler discharge contain sponge iron ores, char and spent dolomite. In the product processing building, the product will be first screened in a double deck screen having 3mm and 20mm screens.The screened product i.e. +3mm to +20mm and -3mm fraction is subjected to magnetic separation. The magnetic fraction of 3 to 20mm is stored in separate product storage bins. Char generated in the plant is stored separately for use as fuel in the power plant.



Rotary Kiln Cross-Section

1.17.1.3 Process Description

Coal based Direct Reduction ProcessThe coal based direct reduction process is more commercially viable and is currently in use in India.The main component in the flow sheet of these rotary kiln systems are similar consisting of the solid feed system, the rotary kiln, a product



cooler, screens, magnetic separators and gas cleaners, coal based plants have the advantages of utilizing smaller mixed units, lumps iron as feed stock and abundant availability of non-coking coal. Various technologies in this category are given below:

1. The SL/RN process: Developed by steel company of Canada (STELCO), LURGI Chemie, Republic Steel Company and National Lead Corporation in 1964.

2. Codir Process: The Coal –Ore –Direct Reduction Process developed by Krupp -Renn.

3. The Accar Process: Developed by Allis – Chalmers in 1972 at Niagara Metals (Canada).

4. The Tata Direct Reduction Process: TDR Developed by M/S. TISCO and further improved upon with the assistance of LURGI.

5. JINDAL Technology: Based on the LURGI GMBH Technology and developed indigenously.

1 Rotary Kiln Process

This process has been essentially been designed to carry out reductions using solid reluctant like non-metallurgical coal. A long, slightly inclined, slowly rotating kiln is employed to carry out the reduction. The charge is fed from the higher level and it travels under gravity, aided by rotating motion through several heating zones. The reduced charge comes out from the other end of the kiln and passes through a continuous cooling cooler without coming in contact with atmospheric air.

The reduced and cooled product is screened and the oversized are subjected to magnetic separation to obtain clean, and sized sponge iron while the non-magnetic oversized portion as well as the undersized are re-circulated through the charge. In a country like India, which does not possess adequate natural gas and abundant non-coking coal bed, the rotary kiln process is the obvious choice for producing sponge iron from their own grade iron ores.

2 Process Selected



The rotary kiln process is a well established process for production of coal based sponge iron. The process, in general, salient features of the various rotary kiln processes available now for commercial exploitation, and the processes selected are discussed in this chapter.

In this process a refractory lined rotary kiln is used for reduction of iron ore in solid state. The kiln is mounted with a slope of 2.5%downwards from the feed end to the discharged end. A central burner located at the discharge end is used for initial heating of the kiln.

Sized iron ore is continuously fed into the kiln along with coal, which has dual role of fuel as well as reductant. Small quantities of lime stone/dolomite are added to scavenge the sulphur from the coal.

A number of air tubes are provided along the length of the kiln. The desired temperature profile is maintained by controlling the volume of combustion air through these tubes. Air is introduced through these tubes axially in the free space over charge.

The rotary kiln is broadly divided into two zones namely, the pre-heating zone and the reduction zone. The pre-heating zone extends over 40 to 50 percent of the length of the kiln. In this zone, the moisture in the charge is driven off, and the volatile matter in the coal, liberating over a temperature range of 600 to 800 degree centigrade, is burnt with the combustion air supplied through the air tubes in the free space above the charge. Heat from the combustion raises the temperature of the lining and the bed surface.

As the kiln rotates, the lining transfers the heat to the charge. Charge material, pre heated to about 1000 degree centigrade enters the reduction zone. Temperature of the order of 1050 to 1100 degree centigrade is maintained in the reduction zone, which is the appropriate temperature for solid state reduction of iron oxide to metallic iron.

The reduced product is discharged into a rotary cooler along with coal ash, culminated limestone and residual char, where they are cooled to below 100 degree centigrade indirectly by spraying water on the outer surface of rotary cooler.

The product is then screened and magnetically classified.



DOLOMITE STOCK HOUSE

DOLOMITEIRON ORE

CRUSHER

COAL

IRON ORE STOCK HOUSE

VIBRATING SCREEN

COARSE COAL STOCK HOUSE

FINE COAL STOCK HOUSE

CRUSHER

VIBRATING SCREEN

ROTARY KILN ROTARY COOLER

SPONGE FINES

SPONGE IRON LUMPS

SPONGE IRON

MAGNETIC SEPARATOR

SIZER

DOLOCHAR

CHIMNEY

IDFAN

ESP

FDC



1.17.1.4 Technology/ Plant and Machinery Suppliers

There are both domestic and international technology / equipment suppliers for SMS, which include Players like – SMS Demang , Germany Electrotherm, India Inductotherm, India Megatherm, India Concast, India

SOPPL plans to have 3 X 12 Ton IF. The advantage of having multiple furnaces include – Improved plant reliability Improved part load efficiency Better spare management More efficient utilisation of electrical systems (maximum demand) Less robust building design Possibility of rationalisation of resources (spares, manpower)

ensuring optimum cost

The disadvantages of multiple furnaces include – More manpower requirement More resource required for maintenance

The Consultants note that SOPPL is in advance stages of discussion with Inductotherm India Ltd./Electrotherm (India) Limited (Electrotherm) for the purpose of procuring the Induction Furnace and Ladle Refining Furnace. As discussed above, Electrotherm is one of the leading technology providers is this segment and has successfully executed similar assignments in recent past.

The Consultants are satisfied with the configuration selected and believe that SOPPL will have long term advantage.



Raw Material Handling Section

Raw Material Storage Crushing and Screening Day Bunkers

Kiln

Screening, Separation and Briquette

DRI

Coal, Iron Ore & Flux

1.17.2 Sponge Iron

1.17.2.1 Process FlowThe process flow diagram for manufacturing sponge iron is as shown in the figure. The 350 MTPD Rotary kiln for the production of sponge iron is supplied by M/s Beekay Engineering Corporation, Bhilai. The consultants have examined the structures of the kiln along with the refractory lining during the site visit. Further, it is noted that the buildings are designed taking into account seismic conditions as per Indian Standards.

The sponge iron plant was found to be in working condition. The consultants believe that the sponge iron plant will be in a position to produce as per the designed capacity, depending on availability of input materials. Currently, GHIL is following a preventive maintenance system. However, once the sponge iron plant operates at full capacity for 8-10 months, GHIL would have sufficient information to switch over to predictive maintenance system. This would further bring down the maintenance cost.

Figure 4.9: Process Flow Diagram




1.17.2.2 AssessmentThe sponge iron plant has a capacity of 350 MTPD. Based on industry standards, it is noted that sponge iron plant have an availability of about 300 days a year, indicating a rated annual capacity of 105,000 MT. the sponge iron plant has been supplied by Beekay Engineering Corporation (BEC), Bhilai. Based on past experience and information collected from secondary sources, the Consultants note that BEC has about 40 years of experience in manufacturing capital goods. BEC has supplied equipments and spares to reputed steel manufacturers like SAIL, SJK Steel Limited, Jindal Steel and Visa Industries. The Consultants are satisfied with the capability of BEC as a supplier and believe the sponge iron plant would be able to operate satisfactory.

During site visit, the Consultant noted the refractory lining of sponge iron kiln is in good position. The sponge iron plant is however being run based on availability of iron ore. Hence, there are stoppages. The Consultants believe that the sponge iron plant will be in position to achieve a capacity utilization of 82.5% of the rated annual capacity, based on availability of raw material. This means that the sponge iron plant can achieve an annual production of about 86,625 MT.

1.17.3 Laboratory and Research Development

SOPPL plans to become a supplier of repute in the market for sponge iron. This can be achieved by the Company by constant improvements in their processes through research and development. Hence, the Company had planned an investment of Rs million for setting up of R & D laboratory. This laboratory will consist of modern equipments like emission spectroscope, raw material analysis equipment, and other equipment.

1.18 Location Analysis

The proposed project will come-up at Hargarh Industrial Area, Tahsil: Sihora, District Jabalpur, in the state of Madhya Pradesh. The project will consist of 80 TPD Sponge Iron. Based on site visit the following points are noted – The Plant is about 20 Km from National Highway. The Plant is about 40 Km from Jabalpur/Katni city. The industrial

area at Jabalpur and Katni houses many big industries in different sectors like Iron Ore, Granites, Cements etc. Hence skilled and unskilled manpower is adequately available.

Sihora town has good social infrastructure with availability of good schools and colleges. Just 20 KM from the propose site.


The Plant is about 40 Km from Jabalpur and Katni Town.


The necessary power will available from Madhya Pradesh Power Ditribution Corporation, by through a 11KV dedicated line for Industrial Area, which essentially means uninterrupted supply.

Canal pipe line for industrial water supply is up to the site.

The Consultants note that –Proximity to Rail, Roads and airport is advantageous in terms of ease in transport of finished goods and raw material

The availability of good social infrastructure together with industrialised area augurs well for availability of skilled and unskilled manpower.

A dedicated power supply line ensures the uninterrupted power supply to the Plant.

The Proposed Site is situated nearby of Raw Materials head basically Iron Ore and Coal.

1.19 Environment Management Plan and Statutory Clearances

1.19.1 Sources of Environmental Pollution

The major sources of pollution include – Thermal pollution (heat) Noise pollution Water pollution Solid waste Fumes / air pollution

The following mitigation measures can be adopted by the Project.

1.19.1.1 Thermal Pollution

Effective design of buildings ensuring natural ventilation will be used for dissipating heat generated during the manufacturing process. Further, wherever required mechanical ventilation like fans, air-conditioners and water cooling systems will be deployed.

1.19.1.2 Noise Pollution

Equipments like blowers, compressors, fans are the major source of noise pollution. The Company will use suitable acoustic insulation cladding to ensure that noise levels are maintained within the permissible levels.



1.19.1.3 Water Pollution

Water contamination by acids, lubes, oils and cleaning chemicals is anticipated. The Company will have suitable waste water treatment facility and the recycled water will be used for beautification. The sewerage water will be biologically treated.

1.19.1.4 Air Pollution

Fumes generated in the steel making process will be treated in a Fume Treatment Plant before discharge. Electro Static Precipitators will be used for handling fumes from CPP.

1.19.1.5 Solid Waste

Ash from CPP will be the major solid waste generated in the Project. The Project plans to have a pneumatic handling system for ash. Ash from CPP will be transported to silo. Ash from silo will be transported in trucks to point of use. Ash will find application in construction site. However, the Company may have to look for sustainable disposal mechanism, which may include promoting manufacturing bricks.

Slag from the steel manufacturing process will be another waste generated. The Project will have slag granulation plant. The same will be sold in market, which would be used in construction sites. Sale to cement manufacturing units can be another alternative. However, company may have to look for sustainable disposal mechanism.

1.19.2 Statutory Clearances

The technology and manufacturing process for the various components of the expansion is well established. There are numerous plants operating these technologies in India. Hence, obtaining necessary clearances from Pollution Control Board will not be difficult. SOPPL will also need to get other clearances from Factory Inspector and Water Department.

During discussions, SOPPL officials informed that new environment protection equipment should be installed.

1.20 Raw Material

1.20.1.1 Iron Ore India has the 4th largest Iron ore reserves in the World.



Eastern India have the highest quantity of high grade (Fe content > 65%) reserves in India. Both public and private sector players are in the business of Iron ore mining. India is the 3rd largest exporter of Iron ore after Australia and Brazil. Quality of Raw Materials General The major raw materials required for production of sponge iron by

the rotary kiln process are: sized iron ore/pellet and non-coking coal. Blast furnace grade limestone, in small quantities, is also required to scavenge the sulphur. This chapter deals with the annual requirement, quality consideration and sources of supply of the raw materials.

SOPPL will acquire iron ore from the site which is within the radius of 20kms. Hence, the Project will be in a position to source Iron Ore required for the proposed plant from same sources.

Quality requirements of Iron Ore

Unlike in the gas based shaft furnace process, for production of sponge iron the rotary kiln based processes can operate with 100% sized pellets, a cheaper fees stock. Therefore, it is envisaged to use pellets/iron ore, and the sources of its supply for the plant are discussed below.The quality requirement of for sponge iron production can be classified into:-

Physical Requirements: Strength and granulometry are the two important physical requirements. The pellet should be hard, and possess high strength. The optimum tumbler strength of the ore should be 80% minimum. Depending on the reductibility, closely calibrated ores in the size range of 5 to18 mm generally used.

Metallurgical requirements:It should be highly reducible, thermally stable and have a low tendency for sticking and disintegration during heating and reduction.

Chemical requirements:


The SOPPL proposed site is in the radius of 20kms from the Iron Ore mines.


Apart from the removal of oxygen, no other major chemical change takes place in direct reduction. The gangue material in sponge iron, originating from iron ore, namely, silica and alumina and the sulphur and phosphorus contents adversely affect the economics in subsequent steel making operation. Therefore, the ore should be high in iron content and low in gangue.

Chemical Composition Percentage Mix

Fe (Total) 65% (Maximum)

SiO2 + Al2O3 5% (Maximum)

Sulphur 0.01% (Maximum)

Phosphorus 0.06% (Maximum)

Moisture 2% (Maximum)

Size 5-18mm

1.20.1.2 Coal

Based on review of secondary information, the Consultants conclude – India is the world's third largest coal producer (after China and the

United States), so most of the country's coal demand is satisfied by domestic supplies.

India accounts for 10% of global reserves of Coal.



Major Indian coal fields are found in Bihar, West Bengal, and Madhya Pradesh.

Indian coal generally has a high ash content and low calorific value, so most coking coal must be imported.

The Indian government controls almost all coal production. Nearly all of India's 390 mines are under Coal India Ltd. (CIL), which accounts for about 90% of the country's coal production.

Coal available in India finds application in Power Plant, Cement Industry and DRI manufacturing.

SOPPL will get coal from the nearby site which is within the diameter of 150kms. Hence, the Project will be in a position to source coal required for the proposed plant from same sources.

Quality requirement of coalNon-coking coal is generally used as reductant in the rotary kiln process. Other reductants such as anthracite and lignite can also be used.

The major requirements of coal for production are:1. Non-coking characteristics2. Low ash content3. Low sulphur content4. Good reactivity5. High ash fusion temperature6. Medium volatile matter

Chemical Composition Percentage Mix

Fixed Carbon 40% to 55%

Volatile Matter 25% to 30%

Ash 15% to 20%

1) Non-coking character:Non-coking coal is required in sponge iron production, since the coking reaction leads to formation of rings inside the kiln. Practically permissible caking index is 3 maximum for rotary kiln operations.

2) Low ash contents:



High ash leads to under utilization of the kiln volume available for reduction. It also increases the consumption of fixed carbon, since additional energy is consumed in heating the inert ash mass to reaction temperature. An ash content of 30 percent maximum is the practicable limit for normal operation.

3) Low sulphur content:To control the sulphur in sponge iron, the sulphur in coal should be one percent maximum.

4) Good reactivity:An important step in solid state reduction is the boudward reaction, whereby carbon dioxide generated from burning of coal reacts with coal to regenerate carbon monoxide, the coal, therefore, should possess sufficient “reactivity” so that the bounded reaction proceeds at sufficient rate. Bituminous and sub-bituminous coal exhibits very good reactivity suitable for production of sponge iron.

5) Ash fusion temperature:Coals with low ash fusion temperature leads to sticky mass and consequent unstable kiln operation by forming accretions inside the kiln and reducing the reduction rate by formation of slag layer on the surface of the ore. Hence, coals with ash fusion temperature above 1150 degree centigrade are desirable for rotary kiln operation. Ash fusion temperature is governed by its chemistry. Coal with as of high sulphur trioxide equivalent, low silica ratio and alkali ratio has lower eutectic temperatures, and hence is not desirable.

6) Volatile matter:Coals with optimum volatile content are required for coal based rotary kiln process. Coal with very low volatile matter result in very low reactivity of char, and thus give rise to poor metalized product. Very high volatile coals, though they yield highly reactive char, are also not preferred. Generally for rotary kiln process volatile matter should be in the range of 28 to 32 percent.

Sponge Iron Kiln1) Gas Volume at FD cooler inlet Nm ³/hour 27000

2) Gas temperature (Inlet) 900-950⁰ C

3) Gas Temperature (Outlet) 180-200⁰ C



4) Gas Pressure (Inlet) 710 mm WG

5) Inlet Dust Burden 35 g/Nm³

6) Outlet Emissions Required mg/Nm³ +/- 50

Forced draft cooler is a tubular convective type heat exchanger used for cooling

of hot gasesIn sponge iron plant the kiln outlet gases are at 950 to 1000 degree centigrade. These flue gases cannot be let out to atmosphere as it is and are to be de-dusted. Hence, it is mandatory to provide dust collecting system. The major problem of providing the dust collecting system is the temperature of the flue gases and it becomes necessary to cool the kiln exhaust gases to around 180 to 200 degree centigrade. The best way to accomplish this task is to have a air to gas heat exchanger. Although dilution with ambient air/water spray etc. are available for the heat exchange. Air to gas forced draft heat exchanges are the simple, economical and best suited system.

System descriptionThe air to gas flue gas cooler is a tubular heat exchanger where, the hot kiln exhaust are made to pass over the tubes and cold atmospheric air is made to pass through the tubes.This system says considerable energy due to lower pressure drop. Also the cleaning of the FD cooler is easy as the dusty air is made to pass over the tubes. Since there are practically no moving parts in the system and the design is a modular construction, it is easy to install, economical and easy to maintain. This system is design for 24X7 operations.

System advantages No water required. Hence saving in cost. Less power consumption due to low pressure drops of system. Low in operating cost due to use of ambient air. Easier to install, clean and maintenance due to modular system. Less space required due to modular construction.

Design basis FD cooler is for the cooling of flue gases. Flue gas would pass outside the tubes and cooling air inside the tubes. Easier maintenance on the heating surface. Lesser choking of the tubes.



Low pressure drop in the flue gas side thereby saving the power consumption of ID fan.

Modular construction saves precious time in erection. Online cleaning of system with compressed air blast. Over temperature protection. Warm cooling air can be used by proper tapping to the advantages of the

plant to reduce fuel consumption. Individual FD cooler for individual kiln.

Description of electro static precipitatorThe waste flue gas leaving from FD cooler/WHRB at a temperature 180-200 degree centigrade will be taken through an insulated mild steel duct to a horizontal three electric field electrostatic precipitator.The dust laden flue gases flow through a system of gas passage consisting of strip type collecting electrodes (400 pitch) between which rigid mast are positioned to act as discharged electrodes. The discharged electrodes are connected to negative terminal of high voltage direct current supply of 85 kv (peak), while the collecting electrodes are terminated to positive supply and earthed. Due to high field strength in the vicinity of discharged electrodes a corona discharge is created. Gas ions are produced which attached themselves to the dust particle.

Under the influence of electrical field the charged dust particles migrate to the collecting electrodes where the charge is lost. As soon as a sufficiently thick layer of dust has been formed a vibration of the collecting electrodes are induced by the use of rapping mechanism, there by dislodging the accumulated dust layer. The dust then drops in to the collecting hopper below the Electro Static Precipitator and has to be discharged through Rotary air lock below each hopper.

An ID fan is installed at the outlet of the Electro Static Precipitator, which creates the suction from the kiln and clean gas having particulate within norms stipulated by Pollution Control Board (stack emission within 50mg/Nm^3), will be vented into the atmosphere through self supported chimney having a height not less than 30 mtr. With respect to existing ground level

Salient features of rotary kiln technology1. The rotary kiln technology is very simple from engineering & design point of

view.

2. This technology can handle wide varieties of iron oxides like limonite’s, goethite, pallets, hematite and magnetite. Whereas the other coal based

technologies uses only hematite ore of required specification.3. This technology can also handle wide varieties of non-coking coal

even up to 20% moisture and 33-34% V.M. and 39% fixed carbon.4. The carbon iron ratio is lowest (0.42-0.44) in this technology which

is unique in coal based technologies.



5. The placement of air injection tubes is completely different from other coal-based technologies.

6. In this technology, 60% of the total coal is injected from the discharged end to maintain the proper carbon distribution in the rotary kiln, whereas in other technologies it is max 40%.

7. The transfer chute design for conveying the material from kiln to cooler is hydraulically operated system. It takes only 10-15 min to clear the bigger pieces of accretions, whereas it takes 24-36 hrs. in other processes.

8. The kiln campaign life on an average comes to 140-160 days and the highest campaign achieved so far is 401 days, which is a record.

9. For the first time in the world blast-furnace gas is being used in rotary-kilns. This has resulted in better reduction, reduced accretion formation % reduction in specific coal consumption (0.025-0.030mt/mt of DRI).

10. Consistently +99% availability, which is highest against any norm.11. Specific energy is lowest i.e. 4.2-4.55 GCAL/MT of DRI after

considering the advantage of steam generation through W.H.R.B.12. Specific power consumption is around 55 kwh per mt of sponge

iron.

1.21 Utilities

1.21.1.1 Power

The Project is a power intensive. SOPPL has an arrangement with the Madhya Pradesh Power Distribution Corporation (MPPDC) in 11 KV through a dedicated line of industrial area for supply of 700 KVA which will sufficient for the existing facilities. Hence, the overall power requirement for the Plant will be met.

1.21.1.2 Water

The Project is a water intensive project. Water will be required for the following applications – Drinking Housekeeping Cooling

SOPPL has an arrangement with Madhya Pradesh Audyogik Kendre Vikash Nigam (MPAKVN). The water is being drawn and stored in a reservoir tank of 50,000 litre capacities and in an emergency overhead



tank of 30,000 litre capacities. For Industrial usage water can be sourced from the Canal, which is about 1 Km from plant. The supply line of water at plant site. Water can be recycled as well.

1.22 Manpower Details

The Consultants estimate a total manpower requirement of 175 people over and above the existing manpower to run the plant successfully. The manpower includes human resource, administrative, sales and marketing, accounts and general administration.

The Consultants believe that the plant will be operational three shifts a day for 300 days in a year. The total manpower required for successfully running the plant has been provided in the Table 4.9 below.

Table 4.9: Manpower Requirement

Description Billets CPP

Management

CEO/ President 1

Senior Management 2 2

Engineers and Management 4 8

Administration 8 12

Workmen

Supervisors 12 12

Skilled Labour 16 18

Unskilled Labour 45 35

Total 87 88

Source: MetFin Estimates

The annual manpower cost for the Project has been estimated at Rs. 102.73 million.

1.23 Project Cost

The summary of the Project Cost is indicated in Table 4.10 below. The Consultants have estimated the total project cost at Rs. 3,314.00 lakhs. The detailed working of each component of Project Cost is discussed in subsequent sections. The Consultants have collected the information required for estimating the Project Cost from the following sources – In house information available with the Consultants


The Consultants estimate a total manpower requirement of 175 people over and above the existing manpower to run the plant successfully

The Consultants have estimated the total project cost at Rs. 2,433.01 million


Budgetary quotation received by the Company.

Table 4.10: Summary of Capital Investment

Description Unit 2009-10 Total

Land and Land Development Rs. Lakh 75.00 75.00

Building and Civil Works Rs. Lakh 940.00 940.00

Plant and Machinery Rs. Lakh 1,903.00 1,903.00

Miscellaneous Fixed Assets Rs. Lakh 15.00 15.00

Preliminary and Pre-operative Expenses Rs. Lakh 25.00 25.00

Margin Money Rs. Lakh 231.00 231.00

IDC Rs. Lakh 125.00 125.00

Total 3,314.00 3,314.00


1.23.1.1 Land and Land Development

The Consultants note that the proposed Project will be coming up at the existing facility of SOPPL at Hargarh Industrial Area, District Jabalpur, Madhya Pradesh. SOPPL has 2.00 hectares of land at the site, which is sufficient for implementation of the Project. Hence, the total cost of Land & Land development has been estimated to be Rs.75 lakhs.

1.23.1.2 Building and Civil Works

The total cost of buildings and civil work is estimated at Rs.940 lakhs details of which are indicated in the Table 4.11 below.


The total cost of buildings and civil work is estimated at Rs. 940.00 Lakhs only.


Table 4.11: Building and Civil Works Cost

Description Induction Furnace Captive Power Plant

UOM Quantity Rate (in Rs./ Unit)

Cost Quantity Rate (in Rs./ Unit)

Cost

Factory Building M² Total 123.80

Utilities Building M² Total 11.84

Raw Material Storage M² Total 290.97

Klin,Cooler Foundation,etc. M² Total 245.80

Conveyor etc. M² Total 14.88

Water Tanks (Overhead and Underground) & Pump House M² 100 5,500 0.55 250 5,500 211.70

Weigh Bridge M² 76.5 8500 LS - 6.35

ESP M² Total 22.68

Transfer House M² 32 13,500 - 4.32

Stock House Lumpsum 24.00

Cooler, I.D. Foundation M² Total 75.60

Intermediate Bin M² Total 8.10

Total


The Consultants have considered the following while estimating the building and civil works cost – Steel structures for factory building RCC structure for administration building RCC structure for Spares Go-down and Canteen All weather roads (WBM) with open drainsThe full details are in separate table

1.23.1.3 Plant and Machinery Cost

The Consultants estimate the cost of Plant and Machinery to be Rs. 1903 lakhs as indicated in Table 4.12 and Error: Reference source notfound below. The Consultants have considered the following while estimating the cost of Plant and Machinery – Basic equipment cost Packaging and forwarding charges


The Consultants estimate the cost of Plant and Machinery to be Rs. 1,903.00 Lakhs


Excise duty VAT/SAD Insurance Inland transportation cost Erection & Commissioning Cost

Table 4.12: Plant & Machinery Cost

Description

UOM Quantity Rate (in Rs./ Unit)

Value (Rs. Lakhs)

Base Plant and Machinery Cost 1214.00

Packaging and Forwarding Charges 196.00

Duties & Taxes 248.00

Erection & Commissioning 245.00

Total 1903.00


1.23.1.4 Miscellaneous Fixed Assets

The Consultants estimate the Miscellaneous Fixed Assets cost as Rs. 15 lakhs. Details of Miscellaneous Fixed Assets are given in the Table4.13 below. Miscellaneous Fixed Assets include – Fire and safety equipments Furniture and Fixtures Office equipments including networking and coMetFinunication

systems Transport and Vehicles Electrification Other Miscellaneous Fixed Assets

The Consultants have estimated these costs based on experience of handling similar assignments earlier. The Consultants believe the costs considered under Miscellaneous Fixed Assets are reasonable for the size of the Project.


The Consultants estimate the Miscellaneous Fixed Assets cost as Rs. 15.00 Lakhs


Table 4.13: Miscellaneous Fixed Assets

Description UOM

(in Rs. Lakhs)

Furniture and Fixtures Lumpsum 5.00

Computers and Software Lumpsum 2.00

Transports and Vehicles Lumpsum 7.00

Fire and Safety Equipments Lumpsum 0.50

Other Miscellaneous Fixed Assets Lumpsum 0.50

Total 15.00


1.23.1.5 Preliminary and Pre-operative Expenses

Preliminary and Pre operative Expenses is estimated at about Rs.25.00 Lakhs. Details are shown in the Table 4.14 below. Preliminary and Pre operative Expenses include – Administrative Expenses Preliminary Expenses Consultancy fees

Table 4.14: Preliminary and Pre-operative Expenses

Description Amount

Administrative Expenses 10.00

Preliminary Expenses 5.00

Consultancy 10.00

Total 25.00


1.23.1.6 Interest during Construction (IDC) Period

The Consultants estimate the IDC at Rs.125 Lakhs. Details of the assumptions considered while estimating IDC are covered in Chapter 7.

1.23.1.7 Margin Money for Working Capital

The Consultants estimate the Margin Money for Working Capital at Rs.231.00 Lakhs. Detailed estimation of working capital is provided in Chapter 7.


Preliminary and Pre operative Expenses is estimated at about Rs 25.00 Lakhs


1.23.1.8 Contingency

Based on the size of the Project, As most of the quotations are in place.

1.24 Implementation Schedule

The Consultants believe that the Project can be implemented over a period of 9 months from the date of financial closure. Implementation milestones are given in the Figure 4.10 below. The alternate implementation strategy that can be adopted by the Company includes – Implementation through an internal team Appointing a Project Management Consultant Giving EPC Contract for various sections

The Consultants note that the implementation strategy adopted can have a bearing on both Project Cost as well as implementation period.

Figure 4.10: Implementation Schedule


1.25 Conclusions The Project is technically viable Project configuration offers cost advantage and flexibility The location selected offers logistic and cost advantages The Project will be in a position to source input materials

competitively The Project is energy intensive and have already identified the

source for meeting its energy needs Project Cost is estimated at Rs.3314.00 Lakhs. The implementation strategy adopted by the Company will have a

bearing on the Project Cost and implementation period


The Consultants believe that the Project can be implemented over a period of 9 months from the date of financial closure


1.26 Introduction

This chapter evaluates the financial viability of the Project mentioned in the previous chapter. The evaluation parameters considered include Net Present Value (NPV) and Internal Rate of Return (IRR). Other key financial ratios and indicators are also discussed. All information required to compute the financial viability has been collected from the client, technology supplier, in house database and secondary information sources.

Plant and machinery used in the projects usually have life span of 20 to 25 years depending upon the maintenance and nature of the industry. The project horizon considered is 10 years, as the payback period of industrial projects is about 10 years.

1.27 Capacity Utilisation

SOPPL is planning to set up in 2nd phase one more kiln with Captive Power plant, thus a total of 48000 MT and reaching a maximum capacity utilisation of 95% in 2013-2014. The Consultants envisage a three shift of operation and progressive increase capacity utilization as indicated in the Table 5.15 below. The peak capacity utilization has been considered 95% to allow for better volume margins.

The Captive power plant of total 4 MW is going to be installed for running the plant. 4 MW is Waste Heat Recovery based.

Table 5.15: Capacity and Capacity Utilisation

Description Unit 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

DRI

Capacity Tons 24000 24000 48000 48000 48000 48000 48000

Capacity Utilisation % - 65% 70% 75% 80% 85% 90%

Slag % - 182% 182% 182% 182% 182% 182%

Waste Heat Recovery

Capacity Mwh - - 28800 28800 28800 28800 28800

Capacity Utilisation % 0% 0% 0% 75% 85% 95% 95%


The assumptions made while estimating the capacity and capacity utilisations are as follows- The capacity of Sponge Iron Kiln is 80 tons, the numbers of hours

are 24 and the plant will run for 300 days a year. Hence, its capacity


5. Financial Assessment


is 80Tons ×300 days. Therefore, the production of Sponge Iron is 24,000 tons at full capacity

The capacity utilisation is nil in the first year, and increased gradually from 65% in the second year to a maximum of 95% from the year 2016-2017 onwards

The generation of power from waste heat recovery is 28800 MwH, whose capacity utilisation is dependent on the operation of theplant. Hence, its capacity is increased accordingly

The plant will become operational from the first quarter of 2010-2011, assuming around 7 months for the completion of the project

The plant will be operational for 300 days a year taking into account the machine downtime, repairs and maintenance works.

1.28 Revenue Stream

The product produced by the plant, Sponge Iron produced will be sold in the market at prevailing rates and the selling prices considered by the Consultants is as follows- The selling price of billets is taken as Rs 13500 per ton, based on

the prevailing market rates for the past six months

Based on the capacity utilisation as indicated in above, the annual quantities of sales in Tons are given in below. It is noted that the Consultants have considered that the entire produce of the year will be sold off in that year itself.

1.29 Cost Stream

1.29.1 Variable Cost

1.29.1.1 Raw Material The price of iron ore is per prevailing market rates and has to be

procured from the open market The price of coal is as per prevailing market rates and has to be

procured from the open market The price of dolomite is as per prevailing market rates and has to be

procured from the open market



1.29.1.2 Utilities

The utilities required for the manufacturing of sponge iron are power, fuel/ furnace oil and water. Power is the main utility which is required to run the plant. The consumption norms are as follows-

Table 5.16: Utilities - Consumption Norm and Unit Rates

UtilityConsumption Norms Unit Rates

Unit Qty Unit Amount

Power KwH/Ton 100 Rs./ KwH 5.39

Water Cu.M/Ton 0.3 Rs/ Cu.M 2

Fuel Oil Litres/Ton 10 Rs./ Litre 18


The consumption norms of power, water and fuel oil have been considered as per the industry norms and the inputs provided by SOPPL.

1.29.1.3 Spares and Consumables

The consumption norms of spares and consumables as per the industry has been considered at-

Rs 100 per ton

1.29.1.4 Material Handling and Transportation

While estimating the material handling and transportation cost, the Consultants have considered the following – Material handling cost of raw materials included in raw materials

price Finished goods will be transported over a minimum distance of

about 300 kilometres, but out ward fright will be borne by purchaser.

1.29.1.5 Repairs and Maintenance

The repairs and maintenance costs include – Costs of lubricants Cost of replacing bearings and similar parts Replacement of worn out and broken parts Cost for repairing of motor windings Cost of replacement of insulations and similar costs



Based on the above mentioned, the Consultants have considered the following while estimating the repairs and maintenance costs – Billets – Rs 300 per ton

1.29.2 Fixed Costs

1.29.2.1 Manpower Cost

The Consultants have discussed the manpower cost in details in previous chapter.

1.29.2.2 Administration Expenses and Misc. Expenses

Administrative expense is taken as about 2.0% of Total Sales for the entire period of operation. These costs will include telecoMetFinunication cost, printing and stationary costs etc. Administration Expenses includes – Rent and Taxes Printing and Stationery Insurance CoMetFinunication Travel cost for administration staff Statutory expenses

1.29.2.3 Selling and Distribution Expenses

Selling and Distribution expense is taken as 0.50% of Total Sales during the initial years of operations. Distribution Cost includes – Cost of transport and communication by the Sales Team Discounts given by the Company

The Selling and Distribution expenses considered are in line with the industry norms.

1.29.2.4 Miscellaneous Expenses

Apart from this the Consultants have considered miscellaneous costs as 0.25% of Total Sales for the entire period of operation. Miscellaneous Expenses includes – Developmental expenses like R and D Expenses to obtain certifications like ISO Employee training Employee welfare Insurance Charges



1.30 Operating Profits

The operating margin for the business will be about 49.78%, which is in line with industry norms. The details of Operating Profit margin are indicated in the given in the Table 5.17 below.

Table 5.17: Operating Profit

(All figures in Rs. Crore)OPERATING PROFIT

Particulars 1st Year

2nd Year

3rd Year

4th Year

5th Year

6th Year

7th Year

Sale Realization (Net of Excise Duty @ 8.36%)

20.01 22.55 24.21 25.83 27.45 29.07 30.69

Closing Stock of Raw Material 1.82 1.96 2.10 2.24 2.38 2.52 2.66

Closing Stock of Finished Goods 1.05 1.19 1.27 1.36 1.44 1.53 1.62

Total 22.88 25.70 27.59 29.44 31.28 33.13 34.97

Opening Stock of Raw Material 0.00 1.82 1.96 2.10 2.24 2.38 2.52

Opening Stock of Finished Goods 0.00 1.05 1.19 1.27 1.36 1.44 1.53

Cost of Raw Material 10.94 9.96 10.66 11.36 12.06 12.76 13.46

Consumables 0.65 0.70 0.75 0.80 0.85 0.90 0.95

Other Manufacturing Exp. 0.04 0.04 0.05 0.05 0.05 0.05 0.06

Power & Fuel 0.84 0.90 0.97 1.03 1.10 1.16 1.22

Frieght Expenses 0.07 0.15 0.08 0.09 0.09 0.10 0.10

Labour Exp 0.51 0.55 0.59 0.62 0.66 0.70 0.74

Income after Direct Costs 9.84 10.53 11.36 12.12 12.87 13.63 14.39

Salary Exp 0.25 0.27 0.29 0.31 0.33 0.35 0.37

Administrative Exp. 0.30 0.32 0.35 0.37 0.39 0.42 0.44

Sales Promotion Exp 0.10 0.11 0.12 0.13 0.14 0.15 0.15

Repairs and Maintenance 0.12 0.13 0.14 0.15 0.16 0.17 0.18

Preliminary Expenses 0.30 0.30 0.30 0.30 0.30 0.00 0.00

Interest on T/L 2.88 2.70 2.22 1.74 1.26 0.78 0.30

Interest on Cash credit 1.10 1.10 1.10 1.10 1.10 1.10 1.10

Net Profit 4.79 5.59 6.84 8.01 9.19 10.67 11.85




1.31 Working Capital

The working capital requirement based on market conditions and industry norms,

Maximum Permissible Bank Finance

As per Tondon Committee Recommendation (II Method)

Particulars 1st Year

2nd Year

3rd Year

4th Year

5th Year

6th Year

7th Year

Chargeble Current Assets:

Closing Stock of Finished Goods 1.05 1.19 1.27 1.36 1.44 1.53 1.62Closing Stock of Raw Material 1.82 1.96 2.10 2.24 2.38 2.52 2.66Sundry Debtors 5.22 5.88 6.32 6.74 7.16 7.58 8.01Advance Recoverable in Cash or in Kind 0.25 0.25 0.25 0.25 0.25 0.25 0.25Closing Stock of Raw Material 8.35 9.28 9.94 10.59 11.24 11.8

912.54

Other Current Assets Cash & Bank Balances 8.04 7.38 7.21 7.24 7.47 7.73 8.25 TOTAL 16.38 16.66 17.1

617.83 18.71 19.6

220.79

Other Current Liabilities: Sundry Creditors 0.48 0.43 0.46 0.49 0.52 0.55 0.59 Working Capital Gap 15.90 16.22 16.6

917.34 18.19 19.0

720.20

Net Working Capital @25% of Total Current Assets

4.10 4.16 4.29 4.46 4.68 4.91 5.20

Prejected Net Working Capital 5.90 6.22 6.69 7.34 8.19 9.07 10.20 Permissible Bank Finance 10.00 10.00 10.0

010.00 10.00 10.0

010.00


The estimated overall working capital requirement is about Rs. 1000 Lakhs by1st year. The above gives the working capital requirement details for the period under consideration.



It is noted that margin money for first full year operation (2010-11) is estimated at about Rs.231 Lakhs. The estimated margin money also includes the margin for LC of Iron ore and Coal.

1.32 Means of Finance

The total Project Cost is estimated at Rs 3314.00Lakhs. It is estimated that the expenditure will be spread over 7 months covering two financial year periods. The Project phasing during the two years of implementation has been provided in the Table 5.18 below.

Table 5.18: Project Phasing

Description 2009-10 2010-11

Land and Land Development 100% 0

Building and Civil Works 100% 0

Plant and Machinery 100% 25%

Miscellaneous Fixed Assets 100% 0

Preliminary and Pre-operative Expenses 100% 0


After discussions with the Management of the Company, the Consultants have considered a Debt-Equity ratio of 2:1.

The suggested means of finance and cash outflow is indicated in Table5.19 below.

Table 5.19: Means of Finance

Description Unit Total

Equity Rs. Lakhs 839.00

Debt Rs. Lakhs 2400.00

Total Rs. Lakhs 3239.00


1.33 Project Evaluation

IRR and NPV have been considered as the two evaluation parameters. Table 5.20 indicates the details of the key financial indicators. From the, it can be noted that the IRR of the Project is which is much higher than the post tax cost of capital (10.09%) indicating the Project to be financially viable.



Table 5.20: Financial Evaluation - Base Case

Description IRR (%) Rs million Payback (Months)

DSCR

(7 Years)Capital Cost NPV

Base Case 29.9 3239.00 76 3.17


The detailed financial for base case have been provided as Appendix A.

1.34 Project Risk Assessment

1.34.1.1 5% increase in Raw Material Prices

As discussed previously, the raw material price i.e. price of DRI and scrap for billets manufacturing and coal for power plant are dependant on the international crude and coal prices. Traditionally the manufacturers of billets are able to pass on any increase in the raw material prices to the end user. However still, the Consultants have carried out sensitivity by considering an increase in 5% in the raw material prices. The Table 5.21 below indicates the financial viability of the Project with a 5% increase in raw material prices.

Table 5.21: Financial Evalution - 5% increase in Raw Material Prices


DSCR

Capital Cost NPV

Base Case 29.9 76 3.17

5% Increase in Raw material Prices

26.9 80 2.78


The detailed financial for 5% Increase in Raw Material Prices has been provided as Appendix B.

1.34.1.2 5% decrease in Selling Prices

The Consultants have considered a decrease in selling price by 5% taking into account the competition in the market and the discounts that may be given to the clients. Table 5.22 below gives the sensitivity analysis, in the given situation. However, even with decrease in selling prices, the IRR is 17.8% which is much higher than cost of capital.



Table 5.22: Financial Evaluation - 5% decrease in Selling Prices


DSCR

Capital Cost NPV

Base Case 29.9 76 3.17

5% decrease in Selling Prices 27.3 80 2.83


The detailed financial for 5% decrease in Selling cost have been provided in Appendix C.

1.34.1.3 10% increase in Project Cost

The Project cost is mainly dependent on Plant and Machinery. The suppliers of these plant and machinery have been identified and costs have been calculated based on the quotations. However, the Consultants feel that the project cost is sensitive to market dynamics and affected by price fluctuations in steel and power prices. Table 5.23 below gives the sensitivity analysis when the project cost is increased by 10%. Even with this increase, the IRR is much higher than cost of capital.

Table 5.23: Financial Evalution - 10% increase in Project Cost


DSCR

Capital Cost NPV

Base Case 29.9 76 3.17

10% increase in Project Cost 28.9 77.18 2.99


The detailed financial for 10% increase in Project Cost has been provided as Appendix D.

1.34.1.4 10% decrease in Capacity Utilisation

The operational capacity of the plant may be affected by the following factors- Plant is new and the operations may take time to stabilise The plant may suffer from teething problems, affecting its operations The plant may not run on full capacity due to slump in demand.

Therefore, the Consultants have considered a 10% decrease in operation capacities and Error: Reference source not found below



gives the sensitivity analysis. The Project remains viable even with 10% decrease in capacity utilisation.

Table 5.24: Financial Evaluation - 10% decrease in Capacity Utilisation

Description IRR (%)Rs million Payback

(Months)DSCR

Capital Cost NPV

Base Case 29.9 76 3.17

10% decrease in capacity utilisation

27.3 79 2.89


The detailed financial for 10% increase in Project Cost has been provided as Appendix E

1.35 Conclusions The Project is financially viable The Project will have an operating profit margin of about The Project is suggested to be funded by a capital structure of 2:1 The Project remains viable under adverse conditions.



AppendicesAppendix A. Financial Model – Base Case___________________________________________________________69


Appendix A. Financial Model – Base Case


dpr swastic repaired)

Documents

consumption of finished

demand supply gap scenario

projected demand supply

structural steel

steel value chain

process route production

finished products

market analysis