TATA Steel's New Business Move

Source: The Economic Times

"From houses to vehicles

From roads to bridges

From machines to electrical appliances

From hand tools to weapons

Each fulfill different deal

With a power of "STEEL"

TATA steel is a global giant in steel industry. It is present across 100 countries!

Its production capacity is 34 million tonnes per annum.

But, there steel business has a problem and to tackle it they are entering into something new?

First, few insights about the steel industry:

The steel industry of India, which started with the setting up of Bengal Iron & Steel Company in 1875, was valued at 75850.17 million USD in 2021.

It contributes more than 2% of India's GDP.

India is the 2nd largest crude steel producer with 118.1 metric ton.

The Government of India (GOI) launched the National Steel Policy 2017 for long term growth in demand and supply of steel by 2030-31.

The GOI also give production linked incentives for specialty steel.

Just for knowledge:

(normal steel is required to undergo coating & heat treatment to get its usage value, whereas, specialty steel is already a high value added steel and not required to undergo different processes. Specialty steel is used in automobiles, smartphones etc.)

source @pwc

Now, what's the problem with the steel industry?

It is CYCLICAL .

Demand for steel increases in boom and slumps in recession.

Why?

This is where the pie chart on the above will help you.

Think what will happen to the sectors where steel is used during economic boom and downturn.

See the below 2 graphs showing demand of steel vis-a-vis growth trend in steel consuming sectors:

Source @crisil

Source @crisil

What you observed?

When the sectors were down from FY2019 to FY21P (see pink circles and lines in 1st chart) steel demand went down.

When the sectors are expected to perform well from FY21 to FY25 (see blue circles in 1st chart) steel demand is also expected to increase.

When the sectors were growing moderately (see FY16 to FY20 in 1st chart), the steel demand was also moderate.

So, what TATA Steel is planning?

It is entering into "New Material Business" (NMB) to protect its revenues from cyclical nature of steel industry.

NMB is not a alien term - it means now TATA steel would deal in materials also. Which materials?

Currently, they are starting with 3:

1. Fibre Reinforced Polymer (‘FRP’) Composites

2. Graphene

3. Medical Material and Devices

Suniye na, ye sab he kya aakhir?

Fibre Reinforced Polymer (‘FRP’) Composites is a combination of fibre (usually glass, carbon, wood etc.) and polymer (it includes chemical compounds like epoxy which is used in adhesives).

With FRP, TATA is focussing on infra, railways interiors (coach design), drinking water pipelines and pressure vessels (container designed to hold gases).

Graphene is used in electronics like transistors, semi-conductors, bendable phones etc. TATA is dealing in 10 graphene enriched products.

TATA earned $2 million in revenue from graphene sales in FY 2020-21.

This is Graphene (Source @science alert)

Medical Materials and Devices

With this, TATA is focusing on becoming an aggregator of cheap medical materials for domestic manufactures.

This will help them to make quality medical devices meeting global standard. They are aiming for HealthTech for India to make India self reliant in medical technology space.

It covers medical consumables, implantables (rod or knee cap), ceramics (used for total hip replacement).

The TATA's NMB move has huge growth potential considering the usage & demand of things where these materials are used.

With this information you can take a call of long term investing in TATA Steel. (this is not a investment recommendation or advice)

How you are viewing this move of TATA Steel?

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