A3~~iv RESTRICTED FILt CiOrY Report No. AA- 2a
Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may I not be published nor may it be quoted as representing their views.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized
THE INDIAN IRON AND STEEL COMPANY LIMITED
BALANCING SCHEME Public Disclosure Authorized
June 29, 1966 Public Disclosure Authorized
iFC-Department of Investments Africa, Asia and the Middle East CURRENCY EQUIVALENTS
U.S. $1 = 7.50 Rs. Rs. 1 = 0.13 U.S. $
Historical Figures Before June 6, 1966
U.S. $1 = 4.76 Rs. Rs. 1 = 0.20 U.S. $ APPRAISAL OF
THE INDIAN IRON AND STEEL CCIPAINY LIMITED
Dkj%Uftk1MUiJU.Lv-T) A T A 1T1\-T-~ ouflfil~if,I 1
TjpTPnE OF (.ONTF.N!rP Page PREFACE
CZTThkM A DtyVi =
Ie THE COr^N^Y - - 8
TT T. R A fl7T'flfn
III.1~%T A ln f A16 15 iV. rv 1Ui'JU,±aI rPL AI'JJJ 2FlWU1 . MUmOJLU1UINo 17 - 21
V. PROTECTIVE ARRANGar4ETS 22
'Vl. CONCtLvSiOltS 23
Annexes
1. Description of Present Facilities
2. Income Statements
3. Source and Application of Funds Statements
4. Balance Sheets
5. Comments on Financial Statements
6. Capital Expenditure Schedule
7. Map showing location of main Indian Steel Plants in relation to Coal & Iron deposits. PREFACE
This report is based on the findings of several missions, the last two including Mr. Richard Lisle of IFC who visited India in the summer of 1965 and again in the spring of 1966. Mr. Robert lKng of IFC and Mr. Hans Pollan of the Bank contributed materially to its preparation. APFRAISAL OF
THE INDIAN IRON AND STEEL CO0NPAI4Y LLIITED
BALANCING SCHME
Summary i. For the last fourteen years, the Bank has been closely associated with the Indian Iron and Steel Company Limited (IISCO). Three Bank loans, totalling US$71 million equivalent, have provided the Company with the foreign exchange needed to implement successfully two major expansion programs, and to make IISCO independent of purchased coal and public rail transportation of coal by developing its coal mines and building a coal ropeway. Although there were delays and large local currency overruns, IISCO made good use of the Bank funds. The objectives of the two major expansion programs were achieved in fiscal year 1962/63, when production reached the new annual rated capacity of 800,000 tons of saleable steel compared to 317,000 tons in 1952/53. Work on the Collieries Development program started in 1963/6b; it is exDected that from 1967/68, it will provide the Company with a progressively increasing sunnlv of coking coal of imnrnved quali+y which will satisfv all expected requirements by 1972/73. ii. With the completion of the previous expansion programs there remains some imbnlance in the works in thatnt-he f+i.fishing mnlls still have unused capacity. The proposed project (the Balancing Scheme) is i-ntpn8pri tor- mn-Vec i+. r)rcih1o fr%-" +^- 4+ intended-- -this to make it -- f-- IISGOTTq 'C to ii+-1ili,,g Acaracexcess caai- by increasing the output of the primary production facilities. By incree-asing iron productio+;n th -ou,gg,h imrovsed las l1uMMn> -- k'rYct--- ~~~~~.. . 't'.t _L * Uvf ',JZV.AUeVtA&s -VV..r. V tw . LJOV v 4. 'At ±sO ,' fri C U4.¼'. 6 and the use of the better quality Company coal, 300,000 additional to n s -fngt- st e ee l can be produced f.omLmoCI 1I iic a tLi on. s o. a nAd add ioJr.s to the present steel making facilities. iii. The Balancing Scheme will add about 248,000 tons of various categ^-r i n w4 * o0 s t e e I t UVLLe Ci'JoLIp any I so U IVJJu I, u,L yJ.7 I 1 4 I5 h.. AA-0 / appears that there will be adequate demand in India for the increased
r , earl 1t6OO the fra.i of the c has b … by the ComQpainE Aot Amendment which might have permitted the Indian CVVZ4-,a,RIet to coUrvteU uue uovernumenti loas ris u a coriIrolling intere II the Company's shares. A recent agreement between IISCO and the Government established a deflnite iftterstsald repaymrrerit schedule for the Goverimdrit loanis and provided that no conversion would occur as long as the debt service was maulia±ned. v. The project is technically sound; the capital costs are conserva- tively estimated and provisions for contingencies should be adequate under normal circumstances. The capital cost of the proposed project, which is expected to require four years to complete, is estimated at Rs. 277.0 million equivalent. Foreign exchange costs are estimated at Rs. 116.1 million ($15.5 million) and local currency costs at Rs. 160.9 million. - ii -
vi. Over the next four years, which is the construction period of the Balancing Srheme. heavv capital expenditures will have to hb financed by cash flow, a reduction in net working capital and an in- crease in lrng-term debt. A $30 millinn Bank Inan is proposed to cover the foreign exchange portion of capital costs ($15.5 million), imported mnint.nn:nton _,n:nroQpares annA replacements"onlnoynman*F.a forf^v- the+.hci Companrvr^.mmnnnar (-tQw mnill;on)i o _nno interest during construction ($5.5 million). In addition, the Indus- tr--ia'l TDev~l^pm.nnt Barbl. of. T.L4a (TMNB w-1 .. -oa-k a of- 'Do. 50 millior to help cover the rupee costs of the project.
vii. The proposed financial plan is workable. The earnings of
hiie ComIIpany are ex±eclt el to OI-Vi.LVA aeU1, tUu.LhY pli esr 4LlanLdll priutJJuU Bank loans and other debt obligations anticipated. The Company's expectation that it will be able to Carry out the project witho-ut re- course to additional financing is not unreasonable. In any event, additional overvdraft faciitiJes are expected to be available to supple- ment the proposed financial plan and IISCO's capital structure would permit the use of additional overdrafts and additional long-term debt if made available.
viii. The Company's earnings will improve through the increase in production and reduction in average operating costs; in addition, IISCO will benefit from the tax incentives for investments under the 1966 tax law. The return from the new investment compares favorably with the earnings of the industry as a whole. Some concern arises, however, over the fast increasing cost of the replacement of fixed assets. IISCO will require, even after completion of the project, substantial capital resources to improve its operations through modernization.
ix. The Indian economy will benefit from the increase in domestic steel production which the project achieves at relatively low capital costs.
x. Proposed protective arrangements provide for restrictions on short-term borrowings and on any new capital expenditures. The project would be a suitable basis for a Bank loan of US $30 million equivalent for a term of 18 years including five years of grace. T. TUR GOMPANY
A, General A ~ m _ _ _4 Tr-- -- 4 - TTP1 1. The present I,dian Iron and Qteel Com.pany Limi ed (IISGO) can into existence on December 31, 1952, as the result of a merger of an oluer companLy, IndianIron and SU C±Uor,pny, and the Steel Cooration of Bengal (S)COB). The original Indian Iron and Steel Company organized by the managing agency of Martin Burn Limited had plants at lKulti, established in 1874, and at Burnpur, constructed in 1919, both producing foundry iron. SCOB, organized in 1937 by the same mnagingiu agents had a steel plant at Burnpur, which began production in 1939, using hot metal from Indian Iron. The two plants at Burnpur were physically integrated so that a merger was logical.
B. Properties and Investments
2. The Burnpur plant is an integrated steel works with a nominal installed capacity of 1,000,000 ingot tons, and 800,000 tons of saleable steel per year. It is located in the Damodar River Valley about 140 miles northwest of Calcutta. The Kulti Foundry is about 12 miles from Burnpur (see map Annlex 7).
3. A detailed description of existing facilities with their rated capacities and production data is given in Annex 1. In brief, the major installations include coke ovens, four blast furnaces, a bessemer/open hearth duplex melting shop, and various rolling mills. The plant is well laid out, and is in reasonably good condition, particularly when the age of some of the units and the output that is being achieved are taken into account. h. The Kulti Foundry is one of the largest foundries in India and manufactures iron, steel and non-ferrous castings. The bulk of its production consists of centrifugally cast iron pipes, about 75% of the total.
5. The Company owns iron ore mines at Gua and Manoharpur, which presently supply about 65% of iron ore requirements, and coal raines at Jitpur and Ramnagore which sunnlv about 12% of coal reauirements. The remaining raw materials are purchased.
6. The Company owns the towns of Burnpur and Kulti and provides all the nncipAl services. Nearly half of tbhe workers live in these towns in quarters constructed by the Company. The remainder live in the nearby to+-.mr of Asasol. 7. IISCO has two substantial investments. It owns indirectly, through a trust arrangement (Dalhousie Trust) 13.5, of its own shares which represent the former investment of the original Indian Iron and Steel Company in SCOB. The Company has started a new foundry project IISCO Stanton Pipe and Foundry Company in Ujjain; MIadhya Pradesh in the western part of India. The collaborators are Stanton and Staveley Ltd. of the U.K.. technical collaborators for Kulti.
C. The 1953 and 1955 Extensions, and Collieries Development
8. Since 1952, the Comnpany has successfully carried out two major e pansions, the so-caled"' •3 and 1955 Fxtensions". The new installa- tions reachied their rczd capacities in f,.scal year 1962/63. The fina:L comrn,leto+3n da te i.,m -wrei 1-r,'- 1 cat.e - beyd +'he ori gi na 1 cs+t rnae+.s, d to delays before < arns.:ri'&.to.r.andi to riodifications of the original projects , as T 1 a ' -in.~-i ' t
9. Thse11 costs of the tw Aasin r u,mie elow: ( In lviillion Rupees) C Original Actual Increase Estim4A-ef du (DULU30-.) 1953 Extensions:
Foreign Exchange 150.0 139.4 (7) Local Currency 199.9 2hh.2 22
OUU±Ij~ d± | 4y .y .IA.uJt 955~~~~~~~~~~~~~~n-~ Z 'I P.o-l
Foreign Exchange 95.2 95.3 Local Currency 53.5 99.3 86
Sub-Total 148.7 194.6 31
1953 and 1955 Extensions:
Foreign Exchange 245.2 234.7 (4) Local Currency 253.4 343.5 36
Tota:L 498.O 578.2 16
-10. The foreign exchange cost of these expansions was covered by two Bank loans: Loan 71IN of US$31.5 million equivalent signed on December 18, 1952 and Loan 159IN of US$20 million equivalent signed on December 19, 1956. The elimination of certain items from the list of goods and a greater reliance than originally forecast on local procurement brought about $2.4 million in foreign exchange savings, with the result that the Bank contribution totalled only US$49.1 million equivalent. 11. Large local currency overruns, however. resulted in both cases in an increase in the total cost of the expansions. There were several reasons for the local currency overruns:
1 ~ an underestimate of the local currency cost; 2) changes and additions.to the original projects; 3) locanl procur-mA nf cert+in ite-mq which werp originally scheduled for purchase with ioreign exchnane.
12. A tud rd. P_Bn,?r I,-,nWW"CV7rTM ~-f' T .M,1I EC4 millio4n, T.hi ph wnc iaPin December 22, 1961 but became effective only on September 17, 1963 provides fo reig.eca.efra.ign 4--fo 4 Colliyerieyeeometporm.. wvhic1h is designed to render IISCO independent of purchased coal and public rail tran.sportatiorU of co.a"l..TVWhen in fu" -peration-4 ir.J14J i*year 1797/73)J the Company collieries will supply IISCO with approximately 1.9 million tons
Of lea coin co. annua` VVA" LhSwi-U1 sati Jsf a"" olf tWAh e GQXgsJa-u-s -1 w. ,d "' coal requirements of IISCO at that time including those arising from the proposedu proj, UC, tI-Le DBalnci.Lg Sch1e1me. ThUe 0dliU1 UIem of.Ldlays i starting construction, modifications in the original scope of the projec-t, delays in implementation, large local currency overruns and substitution of local procurement for imports resulting in foreign exchange savings exper- ienced with 'he earlier projects has developed with the Collieries Develop- ment program.
13. The latest cost estimates by the Company for the Collieries Development -or the period ending March 31, 1972, are as follows:
(kIn Millions ) %b Original Present Increase Estimate Estimate (Decrease)
Foreign exchange $19.5 $15.6 (20%) Local currency Rs. 98.6 Rs. 195.8 99%
At present the project is well behind schedule, but arrangements have recently been made by the Company to help reduce further delay. Local currency costs are assumed to remain unchanged by the recent devaluation of the Indian rupee from Rs. 4.76 to Rs. 7.50 to the US$1.
14. In addition to the programs mentioned above, the Company financed from its own funds between 1955 and 1960, a new spun pipe foundry at Kulti to increase annual iron pipe capacity from 100,000 tons to 165,000 tons,
D. Financial
15. Financial statements for the period from March 31, 1958 to March 31, 1965 are attached, showing Income Statements (Annex 2), Source and Application of Funds Statements (Annex 3). Balance Sheets (Annex 4). and Comments on Financial Statements (Annex 5). 4 16. Summarized income statements (Annex 2) are shown below:
(In Million Rupees)
Years Ended March 31 1959 1960 1961 1962 1963 1964 1965 Steel Sold ('OOOMT) 514 678 705 724 798 8Q8 734 Net Sales 276.0 347.5 388.7 402.4 464.9 491.6 505.5 Cost of Goods Sold 208.2 254.5 265.1 288.9 322.6 332.9 3L440
Operating Profit 67.8 93.0 123.6 113.5 142.3 158.7 161.5
Other Income 21.5 30.5 14.4 48.6 20.8 34i0 27.6
Gross Income 89.3 123.5 138.0 162.1 163.1 192.7 189.1
Depreciation 20.0 30.0 29.7 33.5 34.0 h4h.0 44.7 Interest 10.3 20.1 17.9 17.3 16.1 lb.5 13.2 Misc. Expenses .14.2 17.8 20.6 19.2 21.7 19.1 21.5
Other Expenses 44.5 67.9 68.2 70.0 71.8 77.6 79.4
Income Before Taxes 44.8 55.6 69.8 92.1 91.3 115e1 109.7 Income nnd Wlt+.h Tns 1r9 6.h' 16-6 39.6 35.6 3U.7 LS.)
N\T,+. Trinrome 1,99L o 53.2 C _5EC 7 7jS 64.3
n: _ * 1 __J_n n X on n mn 5 mn 7 r) t~nl7 tNn n1 n .ULV -L U e1*U;d sV |.{ f 6 L1 f :1. 7L
Return on Average Equity 11.9%O 13.0% 12.9% 11.7% 11 i5% 14. 4% 11.0e
17. The over 80% increase in net sales revenue from 1958/59 to 1964/65 and the onLy 657% increase in cost of goods sold resulted in a 140% gain in operating profits. Tonnage sales of steel and other products (mostly pig iron and coke) increased about 40%. Prices increased about 30% compared to a 20% increase in production costs per ton largely due to the increased cost of raw materials. Offsetting the increase in operating profit to some extent was the large rise in taxes and depreciation charges.
18. Net income after taxes increased 50% from Rs. 42.9 million in 1958/59 to Rs. 64.3 million in 196h/65. The decline in earnings in 196h/65 was mainly due to an increase in taxes and a decline in other income. The decline in production and sales which'was largely due to a mishap in one of the blast Lurnaces was more than offset by an increase in nrices. Return on equity compared favorably with returns of similar comoanies not orly in India, but in oth.,r countries. 19. Balance sheets (Annex h) for the last seven years are summarized below:
(In Million Rupees)
As at March 31, 1959 1960 1961 1962 1963 1964 1965 Current. Assets 280.2 272.5 28- 9 325 2 357 9 1,12.3 Lt62.l Current Liabilities 222.9 238.2 196.6 199.2 199.9 191.4 251.2 Net Working Capital 57.3 34.3 88.3 126.0 158.0 220.9 210.9 Net Fixed Assets 602-3 6h6.O 657.h 6h1.5 630.1 608.0 590.3 Other Assets 12.5 12.6 12.5 12.5 13.2 13.3 13.4 Total Net Assets 672.1 692.9 758.2 780.0 801.3 842.2 814.6 Less T.Long'Tem Th1,+ '1( 'if1m 'I 'n - -17 9q> < 97Q96 go27. Equity 361.8 391.6 428.1 462.4 505.8 562.6 607.1
Current Ratio 1.3:1 1.1:1 1.5:1 1.6:1 1.8:1 2.2:1 1.8:1 Debt/Equity 46:54 43:57 44:56 41:59 37:63 33:67 26:74 20. The March 31, 1965 working capital position was satisfactory with a current ratio of 1.8:1 and net workine capital of Rs. 211 million. The Company has overdraft and cash credit facilities renewable each year with two local banks totalling Rs. 17h million. Outstanding overdraft balances were nil and IISCO had Rs. 91 million in cash and equivalent.
21. Source and application of funds (Annex 3) from March 31, 19551 to March 31j 1.Q65 are in si mmn -rV fol I nnws:
(In Million RPupees)
Cash Generation 6l. Long-Term Borrowing:
Government Loan 41.0 153.6 Other (34.8)
Total Sources 783.3
Fixed Assets 338.9 Increase in Net Working Capital 121.6 Amortization of Long-Term Debt: IBRD Loans 141.6 Government Loan 36.7 178.3 Dividends 1lt3 0 Other 1.5
Total Uses 783.3 22. Te±III large cashL 11 genlerat.ion durnUUJ1LI,LJJ.1 s"peiodws ~±-1I-±L±U1 U WCD. UO'-Usdchel _;I±_-.L~.LJ.. to increase fixed assets and working capital, and pay dividends. Long- term borrowuig was more tha-n offset by repaymenits.
23. At present net fixed assets (excluding Kulti) amount to about Rs. h6 ; per ton of annual ingot capacity. Total book deprecia- tion amounts to 42O of total gross fixed assets, a rather low percentage considering the age of existing facilities.
24. Included in long-term debt are three IBRD loans and two Indian Government loans. The first two IBRID loans (71\11i and 1591N) have been fully disbursed, and repayments made on schedule. On March 31, 1966, about 75, of the total loan amounts of US$49.1 million equivalent had been repaid; the balance will be retired over the next two years. Disbursemernt of Loan 3071N started only in 1963/64 and is scheduled to be completed in 1969/70, whereas repayment is scheduled to start in February 1967.
25. The two Indian Government loans are the Government Special Advance, and the Government Loan. The Government Special Advance was granted to help finance the "1953 Extensions". The Agreement dated July 15, 1953 between the Government and IISCO provided that the loan would have no maturity and bear no interest prior to June 30, 1958. After that date or such other later date as might be mutually agreed upon, the Government would decide whether IISCO should be charged any interest, and when the Company should repay the Advance. It was further agreed that interest and repayment of the advance should, to the extent that it was not paid out of the proceeds of a share capital increase, be payable by the Coyriany o;,t of earning3 arising f-rom a special elemert in the Government conro]led iron and steel prices over and above normal prices. IISCO agreed to issue, if reaqiested by the Governme;at, new sV;are capital, and to use the oroceeds to repav the Speeial Ar1vqnnDc The terms of' the issue (including timing, amount of the share capital increase, portion of the ad-arnce to be reDaid. etc.) were to be agreed between the Gnvernment and IISCO.
26. On December 31, 1963, the "Companies (Amendment) Act, 1963" was enaeted which gave the G-pvNrPmcrnn+. the rigt,1- if ir. it+ opier.n itTwas necessary in the public interest to do so, to convert Government loans to a eompny nto,fl0 rnrecaital. Th-is riht applies - the Goven-ent+ Special Advance as well as to the Government Loan, which if converted at pr i-migah+. have g-ire-n the cor.l te rCo--vw,rv-----Co..pany r--r .1 0 t- - - l.~ IJ I~~X Uf~ ww'.AeJIUrJ . 1~.)/
2 T C-ovrr*-en..~J ~he .d the Sj,I.IcLjiy haLVe now signedt-U A ,LI nt, which has been approved by the Bank, stating that neither the Special Advance n.or the G-overnmen,t Loan, will be con,verted into equity- as long as the Company adheres to the interest and repayment scheduie agreed upon. T_ .- .s.L A …---- L I1 .0 _1'___ 1, -LIL accordcaln%ce withOl tI,,e Ag-Uetnitiiu ~LUlit ±Lrsu stiUa-L.LIflu 0Lof Rs.n_ 51.U million against repayment of the Special Advance has been paid. Repay- ments of ±the JcPial Advauvce anid ithe overvmenui Loan will be completed by 1972. - 7 -
28. Eqluity increased L.bout 70CY, almost entirely due to retained earninas- hptween March 31. ±9q9 and March 31. 1965. IISCO's dividend policy has been conservative and payments have averaged about one-third of net inrcmoe. At the snme timej lonyg-term debt declined and ITSCO's debt/equity ratio has improved considerably. Over this period debt seArv' rD onoornd varnrn nt ho+wTrn 92. and 7-7 times. Anti AvPraoed L.2 times.
, . ' _ *J ' _ _ - - -_ _ - _ - -O shares and about 270,000 Rs. 100 par 5% cumulative preference shares. rThe -rsin-rshare -r se5q-114ensl + aboui+ Ps. 97 mar,basedr on -S* WZt IA4.J.UCJ 4UCJ 'SJ A. ~ A.LALS WUtIL JS4~ J -r - CJ'.J 4 -- *t--- 6 the present dividend of Rs. 1.7 per share yield 6%. Aside from the
.JLJ..LAUILV Lt 1LAOU. U J. pJ a.AIU ±ZV.UJA.L416Q VJJ JLWU .AJJ..LV "..LIJ &' St of India (L-C) (25.8%), the ordinary shares are widely distributed in small
old--lA II .* .LICV holdsL3.00.Up ofLVUUVLce Wlte. p)eee
E. Management
30. The Company is administered by managing agents. Martin Burn Limited have been the managing agents sinc the CcUpany was founded and are currentLy under a 10-yc:ir contract cnding August 15, 19.70 Thoy receive a commission of 7-1/2% of net profits of IISCO, up to a maximum of Rs. 3.5 million per year (starting from August 16, 1964) and with a minimum of Rs. 50,000.
31. The group of foreign and Indian personnel who make up tne management team have proved themselves capable of operating IISCO's works at a high capacity, producing products of acceptable quality and making a profit. They appear capable of coping with the problems associated with the Collieries Development program and the expansion and operation of the facilities contemplated under the proposed project.
F. Labor
32. Employment at the various establishments of the Company on March 31, 1965 is shown below:
Burnpur Kulti Mines Collieries Total
Un-skilled 5,624 2,562 1,570 2,471 12,227 Skilled 6,761 4,440 1,209 331 12,741 Executives, Technical Supervisors, Clerical
and Trainees 4.029 1,323 224 538 _6,114
Total 16,L1 8,325 3,003 3,340 31,082
In addition. 1;906 nersons are employed at Burnpur and Kulti for the maintenance, sanitation and security of Company-owned houses, roads and heospvi tals. - 8 -
33. In general. the Comnanv eninvs amicable labnr relations. It has recognized one union as a bargaining agent for the daily-paid workers.- 1Vemmhrrshipi ionth lsni-not comipulsory, however, an.d on the whole, unionism is not particularly strong or influential in the Company. ver- fe c o-n gievances have led to wildcat+. s+.riks and o-n similarly rare occasions, problems have been taken to Government for
34. The s+af of the 4industrial ndust--I a-I re" ---pers -r*.el dep-r+= 1.11. ~ .a. W., UUAL .L~.'.U Ut .J.L .1. -..&O %4AJLLO O L1~ '4. QJUhL.. ment seems good, but Company policy is not well documented. As a r esUl, ir.dLvdUal. cases Utend 4tojUbe AhJandled on VJ&hei.L.eri rather than in the framework of a general policy.
35. The Company has three programs designed specifically to train skilled craft and trade workers, arnd to provide a continuous flow of trained young men capable of assuming either junior supervisory or Juiuor manageriai positions. One oI tne outstanding features oI the programs is their practical orientation. Because these training programs have been in operation for a number of years, the Company has prepared lower echelon supervisory talent to assume the additional responsibilities which will be necessitated by the proposed project. - 9 - II. THE PROJECT
A. Introductrion
36 The finishinng mills of the Burnpur Works have the potential capacity - writh some minor mechnical modifications - for just over 1,000,000 tons a vear of rolled nroducts: however. the maximum output attainable at present is only about 800,000 tons because the primary nroduction farilities cnnnot spnnIv the additionnl steel reouirpe.
37. The instnIlation of new iron nnd steelmnking fncilitips - of an economic size by modern standards - would provide capacity far in excPss5- of' +.he npre-set. mTnhInn.ce nntd ruTrvOrld xr,lhb Iogical in the *ns.o-v+ of a major development embracing all stages of production. The Company has such a development *,nder consideration for the future, bu+t +he present does not contemplate an investment of this magnitude.
38. The alternative, which forms the basis of the current project, is +o achi;eve the Aes-ired ces .,r. -4tput broadl- by modernizati4on ofr -~~~.5'..5 ~~~~~ ~~ ~~ ~ ~J.LLLL ~~ 4LJ.'.~~~~~.~~~ .LLI ~~~~~JU.U LS.L .JAJ.L ~~~~~~~JdA-L.LJ LSJW iIIU'.L~~~~~~~~~~~V1 sd. LAu UJ..L the existing plant, by application of improved technology, and by in- salLlationL o UoLrL theWitLaIuAIL ne-w faciJL'les Utfulred 'uo blance intermediates stages of production. This alternative can be carried out at a relativel- low capital cost per t'on of addlti-onal o-utput.
TeT9 bue fiti from the projecT wili ariste both from the increaseu tonnage of prodrc;t for sale and from the lower unit production costs resulting from higher throughput.
B. Project Description
40. The production required at each major facility is shown below:
('000 MT) Current Projected Coke Ovens, 1,450 1,h50 of whic-nh for blast furr.aces 1,200 1,. Blast furnaces, 1,200 1,460 of wnich for steel making 900 1,160
Melt-,g Shop 1000 1 200 Bloo:;rng Mill 900
Continucus Casting -- Finis-hing Mi11 800 1n 8LN
The present cokerr.r oven have a rae+aaiyr+n of aro.d 1 C230 000 tons.,r per year of' screened furnace coke - ample capacity is therefore available with.out addit io.L 4to 4the -3-4g- pln. - I0( -
41. The main features of the project are summarized below:
i. Mines - Iradir. i>ci--%es '1 b improved at thm, ccycany's Gua mine. The scheme inciudes equipment for handling and stocking out the fines for use at a later date. Equipment for the develop- ment of the 'ompany-owned Niwar limestone mine is also Iincluueud. ii. Blast Furnaces - The addition of steam and oil injection facilities - together with the improved raw material input referred to later - will result in smoother operation of the furnaces and reduce specific coke consumption, besides providing the required increase in production.
iii. Steel Plant - With a better raw material input in the blast furnace, it is anticipated that the quality of the hot metal supplied to the melting shop will improve. It is not envisaged, however, that the improvement will be sufficient to allow the elimination of duplexing on the Bessemer.
The increase in output of the open-hearth shop, from the present 1 million tons to about 1.22 million tons per year will be achieved by fitting oxygen roof lances to the furnaces together with the necessary instrumen-- tation and control eqouinment. Tonnage oxygen will he supplied from a new 200 ton/day facility. The intensive use of oxygen will hoth snped un meltdown of the scrap charge and shorten the refining period.
A new 40-ton electric arc furnace will be installecl to provide the halance of the ingot steel reqnrem;ents of about 80,000 tons/year.
Additional scrap chargers and other handling c^alliman+.lSnll o nwtriA;n +^ > .T;T+ln +'ho A "^"_"cnA, ~~<~~~= -- -Pr--- d o.op .._ , the i- eas materials flow through the melting shop.
Lv. Continuous Casting - The additional production from the steel pl.nt =; excs co O.r the bl.o.g% mill capacity - will be cast directly to bloom and slab Sections or. a new cor.tir.u-Uous casting-plnt with- a41 capacity of around 300,000 tons per year. The blooms
ready for re-rolling in the finishing mills. - 11 -
v. Rolling Mills - Various relatively minor mechanical modifications will be required in the finishing mills both to improve quality and to cope with the increased throughput. In addition, the project provides for a new naint-coating line for sheets and eouinment for welding-up of structural sections, both of which the lompnany qnt-cipntee will 'h profitable new productn.s
vi Power Plant - Two new boilers of 150,0C!0 lb/hr each will be installed to provide the additional steam required for full utilization of th.e eWdsting elec- tricity generating capacity.
vii. Increased railway, material handling and stocking f'e,n4 1 4-nes .dn- enera-1g,-pl 4 w. 1cll b ronrd as required by the generally increased level of opera-
tior.sUVJJ.A wit:n-;iL lJJA.L.LII 4--ULA~ .kJ..LOUL.-'I-- c. Capital Costs
42. The capital cost of the project is estimated at Rs. 277.0 MiL-Lon, of which Rs. i 6.L million ($l5.i mnillion) is expectedVo be foreign exchange expenditures. No bids have been received for the main items in the project; the estimated costs and contingencies are based on the experience of the Company's consulting engineers, the International Construction Company of London, and appear reascnable. Tne proposed Bank loan would include $15.5 million to cover the foreign exchange portion of capital costs. - 12 -
A breakdown of the caDital cost estimates is given below:
(Tn Million Runees)
Foreig n TLocnl Exchange Currency Total
Mines 2.0 6.7 8.7 Stnm. nnri O:il Tnicrtir 1 .1 2.2 3.3 Electric Furnace 4.3 8.3 12.6 rtnpn Wny44, Chag ° 09) 2. 3 Oxygen Plant 9.6 14.2 23.8 o-t+;--1.- rl- &;_ -33 ife aI. n V- W^V- -~ CW.L4rU j,7||J),) 0 j VJ4, U Rolling Mills 12.3 10.9 23.2 Boi4 ler Plar4.t- 14.2.e 26.9 )-I I Railways 2.7 3.6 6.3 Vari.-ous Ser-VLces 2 4. 3 I1 Ore Stockyard 0.6 6.0 6.6 r;_ -: : A_ I :_|_L*__n11 n r' n n1 geerngaiU ftU'liusJ UraUt±UII1 i -d ±- I.-. U u 1 93.9 121.9 215.8 Future Escalation 9.4 24.4 33.8 (FE 10%, LO 20%) 103.3 146.3 249.6 ContinepniePs 12.8 A___ 27-) (FE 12-1/2%, LC 10%)
Total Capital Costs 116.1 160.9 277.0
D. Imported Spare Parts
43. T'o insure that all plant and services are maintained in efficient p.eL .AtgcrLLLU.Ldtior. d.u.in thule const-UCJ.LOn perioLd-.VU,a pre- requisite to the successful implementation of the Balancing Scheme, provision of $9.0 mil'ion will be included in the Bank loan for i-ported spare parts and replacements items for the years 1966/67 through 16 8/60 ±L)?OUfl (J Y - 13 -
E. Raw Materials
I.X. 'DV,- 4; -- _ . .;_ \ e m s |W l .; S _ _ t 44L I 11]G L4a JI WI;V; I 'X,4U |sLIX UO as. VVs VLIss VUs VJ %-;v zv W4 -' USV Pp vJ- imately 2,350,000 tons per year. Company-owned mines will supply 1,200,000
toUns (io ar.dIU t I Ih.LIIUIVIWU w 'UlbepuchtaULJ_ U oaVd contract b -a sis. hS. TWhlen the BalancIng Schemle Ls in operation, t-he pattern of lLie- stone supply will be approximately 180,000 tons per year from Bird & Co., .Lu,UUU0 wxin per year from Sutna anu i0,U000 tons per year from the Company's own Niwar mine. The Sutna and Niwar limestone are of better quality than the present supply from Bird.
46. When the present Collieries Development comes into full operation in 1972/73, the company will obtain all of its coking coal requirements from its own mines. This coal will be of better quality and lower ash content than that from proseut sources.
47. The slag bank recovery operation recently started by the Heckett Co. is expected to yield enough scrap to meet the increased requirements for the Balamcing Scheme.
F. Labor
48. It is not expected that labor rf-nuirPmPnts will intrease appreciably when the project is completed. In any case, the company would have no problem in obtanining additional manpower of the type reqonrer
&; T 1Ut-lit-As qnni Power
49. A fter the installation of the +wo new boilers, generating capacity available will nonrally be o0,000 KW. The average electric power requirent is e t+r^ b5r.,+nC:n nlY I rhztT h a sustaz inned ma1mimm demnnd of 64,000 D;. The company has therefore requested an additional supply of, 25jooonn J frrnm TDUCGto enahbl it. tn met. hot.h average and maximum demainis and has received assurances that the supply will be available.
50. The completion of the coal ropeway from Chasnalla to Burnpur will enable the company to transport the majo- portion of its coal supplls hyr this means and thus relieve pressure on the railway system sufficiently to enable< th latero coper~ a.rith increasesz cc'~-~ the,c othe v..jrawmr nn a supplies-o
4 4 nn'k'l+ l -nn-In++n .,4+~ r,-.,- r-n ,,,r +l,n ,-.-nr r.r. - Yhnc . mnnv nl cn+cinrlinq all specifications are ready to go out to tender. The consultant estimates c om - 4.t e i 4-n s _y mid_ 190._ (n ne ox s6) be UlJIL;I xL_ OF:>uL::GY Ui uJ.U JJ'uS9sBsVJ -WSv ]-L GDv" X > ,u fQA'v Uiv QkQ iV completed in four years or mid 1970. (Annex 6) - 14 -
I. Engineering and Construction Management
53. The international Construction Company will be responsible for design engineering, procurement services and construction management. A continuing satisfactory relationship has existed between the company and this consulting firm for many years. During these years, the consultants have functioned as the company's engineering department with sole responsi- bility for project and construction engineering.
J. Procurement
5h. The goods to be financed by the proposed loan would be procureid through international competition except for those of the imported replacement and spare parts which are normally procured by direct purchase because they are individually of small value or proprietary items. Qualified Indian enterprises will be invited to participate in international competition for the fixed investment in the Balancing Scheme. Awards of contracts, put out to inter- national competition, would be made to the enterprises submittina the lowest evaluated bids on the basis of the cost to the Company at the project site but also taking into account qualityv delivery time, performance guarantees, and service facilities. The cost to IISCO of equipment offered by foreign bidders would thus include imDort duties. which now mnount to 27.5't. Items procured through international competition for which Indian enterprises could submit successful bids are exoected to tstn1 at most about $2 million. a relatively small proportion of the estimated foreign exchange cost of the Balancing Scheme. Her-ver_ disbursement fromm the proposed lonn for goonds -supplied by successful Indian biddJers would. only be made if the cost of such goods falls within 1i theicrlterla of t.he PBanl polii cls ~recdng protectilon affordGd to domestic supplLrs. If the cost of goods supplied by success- ful IndirrVi dder_ should rot meet these crit-ria, itis proposed to malre the equivalent of such cost available for financing of additional spare and replacement parts which the Corpany plans to import Miost oI the goods to be procured in India will also be obtained on the basis of competitive bidding. - 15 -
III. THE ?4ARKET
A. Domestic Suonlv and Demand
55. The original demand estim-ats for finished steel Lunderlvinp the Third Five Year Plan were about 7 million tons for 1965/66, the last year of the Plan. The G-otrernmTent had hoped that following the expn sion of the three existing public sector plants and the construction of a new Government 6 plant, India's fvi-rhed stel ou+pu1t woI,T1d1amournt to about .8 million tons, including the output of IISCO and Tata Iron and Steel. In view of the delays experienced in epanding the three existing Governm,ent plants a-d +he fact that construction work on the fourth Government plant at Bokaro has barely st_arted, total f4nished steel p-.,ducui+,on arnount,ted 4to or'y )4.6 --;-'-'-on tcns in 1965/66. Demand for finished steel was estimated to be about 6 million tor.s.A substa.tia pr-o of the gap buelceen. domestic supp'Ly ar.d demELnd" was met by imports.
56. Total Indian requirements for finished steel are expected to be about 10 lillion tons in 1970/71.* T'hs would uiply an annual growth rate of about 12%' from 1965/66, which appears to be a reasonable expectation., vurrellb estimates oI Uomestic output of finished steel in 1970/7i are about 8 million tons, with the increase principally to come from expanded capacities in the three existing Government plants and the expanded facilities of .iISC0-.
57. 1970/71, however, is not a fully representative year because :it is likely to coincide with the breaking-in phase of the Fourth Plan expansions of the public sector plants, as well as IISCO's project. A year or two later a substantial increase in output could be expected to which the new Bokaro plant would also be contributing. This increase should substantially reduce the shortfall in Indian production, but no excess production is anticipated. a'U 'U'lat tirr-e . B. IISCO Production and S lea 58. In fiscal 1965/66 IISCo produced 723,000 tons of saleable steel (Annex 1). Production is expected to increase from the present level to the nominal installed capacity of 800,000 tons in 1967/68, to 925,000 tons in 1970/71, and to 1,048,000 tons in 1971/72.
59. Detailed production estimates up to 1971/72 are shown on page 5 of Annex 5. The new electric furnace will give the Company increased production flexibility and allow production of special carbon and alloy steel for which there is a large demand.
60. The Company has a strong sales organization and reputation for high quality products. On the whole, there seems to be little doubt that IISCO can dispose of the additional production from the project. - 16 -
61. - ip to foreipn exchange strineencies. steel imports were for nearly ten years subject to strict administrative controls. In the past few years they have principnllv been lirmited to categories not produced in India or those in acute shortage, especially flat products. As a resu+ of the i.port liber l+4vn m "s , which-v have inustbeen announced. imported sections which were formerly in short supply would now be more freely a-,.;4eb1l ;_ 441- TT-A-QR "-Ir-+ U^-nTr "+5 Q nf' +.hn rpnPn'n. clevq1 uqti on C a.J.ai.J.~ LV ULLW. .L'.&LA &C* £ . XStaL I -_k - _…_ -_ of the rupee, the price of any imported steel would, after the payment of dufties, be considerabo'ly h-Ighe'r than t+he posted price for the sWrne TIndimn.ad item. As long as this situation persists, the Indian steel industry will cor,tir.ue to be prot ectJeduI Vids-a-vi.s slteel imJport9s.
C. Government Control of the Steel Market
62. Strict controls over the price, distribution, import and production of steel were put into effect by the Indian Government during World War II, and have remained in force without major changes for about two decades. In response to increasing criticism about the unwieldiness and inequities of the system, the Government arranged for an inquiry into the possibilities of improvements and largely as a result of the recommendations made by the committee concerned, it introduced considerable modifications in the sys-tem effective March 1, 1964.
63. Under the new system, the responsibilities for the planning of production of all, and the distribution and pricing of roughly 60% of the steel categories produced in India - mainlv non-flat items - were vested in a Joint Plant Committee (JPC) consisting of representatives of the five major steel plants and the Railwavs and chaired bv the Iron and Steel Controller. JPC is also responsible for administering freight equalisation for all Indian steel produnts- a svstem in force sqince 19i6 to make it possible for steel and iron made by the main producers to be sold at the same price throiwhnut. Tnndia. The Gonnt.rollr, wihn rn-Pvii.u1v was reponnnsih1e onr administering the controls for all steel items, has continued responsibility for the rest.
6 4. The syste-m now in effe-t has not meant an abandonmPent Of cnntrclS , but has helped to streamline the setting of production programs. Priorities for c-n-trnlled categories are establishd hy a rementl Steel Prioritiy Committee. Its decisions have had considerable influence on the pattern of priorities establis~hed hy JPGJ fJr +the dcnro-, ^lled i+ems. TDJP is repn4b r - -- - …….-5._ t e -- - - _ .aIb Cit ~. -_C I4 for distributing the orders to the producers who consult periodically with JPC on the preparation of their rolling programs.
65. Even wvith a rela-ation of' con.trols, the Governmen.t is likely to wield a strong influence over the Indian steel market because it is the __r _nc 1 conmer-- __ rr4n-- -1 -over on-;h'f ofP s-leab-le steel1 cons-umed in .VIndiLaJ acco. iUI .Vfor LULJ UbVy. VurchLass.yA.Gv Le OLUagen sL. L India is accounted for by purchases by Government agencies. IV. FINANCIAT. PLAN AND FINANCIAL PROJECTIONS
A. General
66. Financial projections from March 31, 1965 through Marcn 31, 1972 are attached showing the Income Statements (Annex 2), Source and Application of Funds Statements (Annex 3) and Balance Sheets (Annex 4). The assumptions upon which the forecasts are based are given in Annex 5, The project:ions cover the period to 1971/72, the first full year of production at the new capacity of 1,048,OOO tons of saleable steel.
B. Proposed Financial Plan
67. The total financial requirements of the company during the period from April 1, 1965 to March 31, 1970 are in siumary as follows:
(Rupees Million)
Collieries Development 259.7
Balancing Sche?nw 235.8 STISCON 18.8
Other Investments 97.5
61] .8
Amortization of Long-Term Debt:
IBRD 184.7
Other 101.6
286.3
Dividends _llL.5
Total Reouirements I;012.6
The provision for "Olther Tnvestments" in fiypi assets covers expenditures for normal replacement, repairs and housing.
68. In 1961, the Bank agreed that provisions of earlier Bank LoarL Agireements Ire strictirg n restme.nt- J n -ie T fx rl ast a,.u1 Al not+ aplyr to an investment by IISCO of about Rs. 20 million in the IISCO Stanton - 18 -
(STISCON) project that would manufacture 60,000 tons of spun pipes and 3,000 tons of qp-niP . c1 tinrgs per evar. Gru n of the nlnnt to p'rordiuce these items was expected to begin in 1963/64, but had to be postponed because nf deHAnvA in Aht.nining thp lndrl nnd +the nin.c:aqnry anvprrimpnf. qnnrov l.q TheP new subsidiary formed in collaboration with Stanton and Staveley Limited of the. U_ K begqn restruction of-Pthe pmla na iain (Mnell.ar Pradesh) durinlg 1964/65; and it is expected to be completed in 1967/68. The subsidiary will
--o rnn bnrn J~K Mn"+4 AL~~ TJSA-4~M. +-'A -f±A. -,VSU~4 UVG- '.. LJ - .TJTQ0 -LIA.J J third by Stanton.
69. The estimated withdrawals on Loan 307IN and the proposed loan
cobi.e~Ji n eJ.4L±L Lwill .L.LJV- --xed&,riairL CJiLU1 U..ZJLUJ.d V11 VIfpeiu .~L -V.LVLU) JJdLAMa .UJWiDyors liOo thatt4dla 7TSOnnLJ.JWV - indebtedness to the Bank will increase by the end of the period.
70. The Company expects to meet its requirements from the following sources during the period April i, 196 toO ivarchn 3, y9(0; tne period of greatest financial strain: (Rupees Million)
Cash generation 495.3
Lor,1g-±erL*m Borrow ing; IERD Loan 307IN 105.4 rroposed IBRD Loan 192.4 Proposed IDB Loan 50.0 347.8 Reduction in Net Working Capital (Including increase in bank overdrafts from none to Rs. 99 million) 135.1 Other 34-h Total Sources 1,012.6
"Other" sources is a balancing item representing the change in current maturities cf long-term debt included in current liabilities.
71. The large capital investments during this period, which includes most of the construction period of the Balancing Scheme, will be covered mainly by cash generation, a reduction in net working capital, and long-term borrow- ing. A large portion of the reduction in net working capital will be due to an increase of Rs. 99 million in bank overdrafts. It is expected that present overdraft facilities of Rs. 174 million will remain available during the con- struction period, which would allow additional short-term borrowing of Rs. 75 million if required. The current ratio would remain better than 1:1 even if all the overdraft facilities were utilized. New long-term borrowing will con- sist of the proposed IBRD Loan and the Industrial Development Bank of TIdia (IDB) loan. The IDB loan will have to be on terms acceptable to the Bank, which are essentially an adequate grace period and subordination to all Bank loans. Under present circumstances IISCO does not expect to be able to raise long-term rupee funds in addition to the IDB loan and the IBRD loan is designed to provide the additional long-term funds required. The IBRD loan will total $30 million by the end of the disbursement neriod and will include $15.,' million for capital costs, $9.0 million for spares, and $5.5 million for capita- lized interest nnd commitmtnt charges during the <-vpnr grace nprinrd - 29 -
C. Financial Projections
72. The income estimates (Annex 2) are summarized below:
(In Million Rupees)
Years Ending March 31 1966 1967 1968 1969 1970 1971 1972
Steel Sold (000 MT) 701 770 785 785 790 915 1040
Net Sales 496.1 522.2 537.6 541.0 564.o 623.4 674.9 Cost of Goods Sold 353.6 366.9 373.5 368.2 379.2 413.8 137.9 Operating Profit 142.5 155.3 164.1 172.8 184.8 209.6 237.0 Other Income 16.0 17.8 17.8 17.8 17.8 17.8 17.8 Gross Income 158.5 173.1 181.9 190.6 202.6 227.L4 254.8
Depreciation ),4 L6.8 )o - 56. A7. 71. 756A Interest 12.1 19.0 24.2 29.8 32.2 29.9 25.4 Miscellaneous Expenses 23.1 22.2 22.2 22.2 22.2 22.2 22.2 Other Expenses 79.3 88.0 95.7 108.2 122.3 126.5 123.2
Income Before Taxes 79.2 85.1 86.2 82. 4 80.3 100.9 131.6 Income Tax 43.9 '40.0 40.1 33.2 25.0 36.6 58.8 Net Income 35.3 45.1 46.1 L9.2 55.3 64.3 72.8 nT-4Adend,s 02.9 00.n 2.90 022. 022.9 29 022.9
Return on A^verage Equity 5.7,0 7.2,0 7.,, 7.5%0 d.12 8.9%i 9.5,.
73. The income projections are essentially based on the assumption 4tha 4I4 the pr-esentL costprC .. / i ce r e.-I latMo-.- n6sIL1 p wl'll corlti-nue an-dL tha' arly coEt reductions that are obtained from the Balancing Scheme and the Collieries Developmuen't, will accrue to the C0rnp-ay ' s operatirg procfit. A large part of the reduction in steel costs will be due to the decline in the cost of coau per ton of steel, of which the greater portion will be due to the Collieries Project as can be seen in the table on the following page. In fact, furthler improvement in operating profits can be expected in 1972/73 when IISCO becomes fully self-sufficient in coking coal.
74. The approximate breakdown of the major items contributing to the reduction in the average works cost per ton of saleable steel from 1965/66 to 1971/72 is as follows: (Rs./MT)
Total 1968/69 1969/70 1970/71 1971/72 Reduction
Due to Collieries Development 5 3 6 6 20 Due to Balancing Scheme Coal 5 1 6 Iron Ore 6 2 8 Limestone and Dolomite 2 1 3 Scrap (Increase) (3) (2) (5) Labor 4 3 7 Other Raw Materials (Increase) (3) (2) (5)
Subtotal of Balancing Scheme 11 3 14
Other Labor 10 - - _ 10
TOTAL 15 3 17 9 44
A more complete breakdown of expected works cost is given in Annex 5, page 7.
I *~~~LLJ.r- ±JJ1V Lt,%o1UU LkLUC" 1%oJAL L fZ ) 1LdL.L U -L)VW. Yeart n' MI -413rc 1 1966 19674 1968 196 190 171 17
Lt::ars Edli-JJI9 'arclfl~l )J.L L-u ±)'LUO ±LYUV ±yL)y' .J4_I J7'VfI J. y (t
Current ' 4iblte226.7 )U3 8. 03 261.7 1 2 719 302.9- 377.8. 390.1 ~u rvenh7, bj±aul111T~I eS 44U.0 400.0 e±.( ey). jUe.y 4::(O.L4 e4O.O
Net 'Working Capital 201.1 94.2 115.6 83.4 75.8 99.4 16L.1 Net Fixed AssetS zoy.7 l-.o 81.1 9y0uu.7 Yj9.0u Y9.o 583.3 Other 13.4 13.4 13.4 13.4 13.4 13.4 13.4
804.2 843.4 942.1 997.3 1028.2 1040.4 1060D.8
Less Long-Term Debt 165.2 2 29-4 328.3 326.8 24 268.1
Equity 639.0 619.5 642.7 669.0 7d1.4 742.8 79:2,7
Ratios
Current Ratio 2.1:1 1.3:1 1.4:1 1.3:1 1.3:1 1.4:1 1.7:1
Debt/Equity 20:80 27:73 32:68 32:68 32:68 29:71 26:74 - 21 -
76. The current ratio of the Company will deteriorate as bank over- drafts are used to finance a large portion of capital expenditures. As the bank overdrafts are repaid the current financial position will improve. The Company will require a peak of Rs. 99 mllion in bank overdrafts at the end of 1969/70.
77. Debt service coverage increases from 1.0 1965/66 to 2.1 1971/72 and averages 1.7. The low coverage of 1.0 in 1965/66 is due mainly to the Rs. 51.8 million initial payment on the Government Special Advance, which, however, was made out of accumulated cash reserves.
D. Rate of Return
78. The direct financial benefits from the project will come frorn a reduction in average operating costs per ton, the additional profits on the increase in production, and tax savings from tax. incentives under the 1966 tax law. Average net works costs are expected to decrease from Rs. L1l per ton of saleable steel in 1965/66 to Rs. 369 in 1971/72. The estimated lorks cost saving due to the proposed project at capacity wi'Ll amount to Rs. 11 million annually and onerating Drofit on the additional 250,000 tons of saleable steel will come to about Rs. 48 million resulting in a total annual innrPŽas in profitst bhefore- interests denreciation and taxes of about Rs. 60 million. Using the discounted cash flow method Anid projecting earnings to 1983!84, the after .y rate of roturn on the capital cost of the project is about 10%.
79. From the point of view of the country, the project wJill provide a relatiqe-lyi rnarWnno r. n -- e obtain- -in - -,e steel. alte.ativ would be to import steel at the expense of India's scarce foreign exchange resources. - 22 -
V. PVnP70T1^TrlwnAPr?EMnWVTMS
UTlnrlt +thlResult T-oan Agrementc wi;+th 1TTO loans hve- been secured by a first fixed mortgage and first floating charge upon the C^._--1' Irn order 4-o give the proposed 1on se-4 stau;, it would be secured pari passu with the existing Bank loans by amendment J. UIir present Trust Deed and by the u ofthe Goverrment of India loans.
81. The proposed Loan Agreement provides for a limitation of Rs. :200 mI,llion 1/ on short-ter1 borrowings for ordinary business requirements having a security ranking in priority to or pari passu with the floating charge securing the Bank loans.
82. In order to conserve local currency and to assure the completion of the Collieries Development program, a covenant was incorporated in 'Loan Agreement 307 IN preventing IISCO from undertaking any new ventures or expansion of existing facilities during the construction period if the total aggregate estimated cost thereof would exceed Rs. 10 million, unless aPproved by the Bank. Specifically exempt from this agreement is the IISCO Stanton Project. A similar covenant is included in the proposed Loan Agreement.
83. It is also proposed that TTSCO would not be allowed to draw more than US$8 million equivalent from the Loan Account until security arrangements have been made which are satisfactory to the Bank This same procedure has been followed in previous Bank loans to IISCO.
84. In order for the proposed loan to become effective, the borrower will have to contract a long term loan of Rs. 50 million on terms satis- factory to the Bank.
1/ The amount mentioned in Section 5.03 (a) of Loan Agreement 307 IN is Rs. 50 million. It was increased to Rs. 150 million on October 30, 1963. - 23 -
VI. CONCLUSIONS
85. The Balancing Scheme is a sound project at this point in the Company's development because it permits a significant increase in saleable steel production and a reduction in the average cost per ton a-b a capital cost which permits a return on investment that compares favorably with similar Dro7lects in India.
86. Management has shown a production record anr1 finaneial results over a long period of time that reflect favorably on their capability. Thev a-ppear fully able to rcom-plete and operate the addition-nl facilities of the project.
87. The proposed loan by the Bank will contribute to the realiza- +.i;^n .^f n -hnr wu.hith ic+ is technicallysou2nd a11,r 4,+!hl^ and which is of high economic priority. The additional steel production wil ma-ke a sign.ificart con.tribution to the rdrecn.y
88. The finar.cial pl_. Js workab`e and 4hedeb . blig1,on ar.ti- cipated can be adequately serviced. Heavy capital expenditures during
Usswi v vULL0us uv WU.V1X P':;X-.UQu WYL..1| vU Atu W U.y b4XUco' ]UWY cid X ~U1UU.LLQ i 11 net working capital, and an increase in long-term debt. While additional £ UjJ~~U~UU WYUU±U LLCLVW U%-_:.1 jJ iI U t, U1 L P~Jed.L.L'%.U LAd L)L 'long-te..,.rupee d ebt sould- hav bee-- prfeale, ther apeae toL4be r,o alternative financial plan under present circumstances. The net working UCaiJa.L positiUon.VI tt Ult, Lthelowt I U.Ln Wl±lisU±LlL perit.LU addiLU.ionaUl short-U term borrowing if required, and the Company expects to have adequate un.used uvev;draft facilities to cover norrmal shortfalls. In additionl, IISCO has sufficient financial strength to adequately service more long-term debt if made available.
89. A Bank loan to finance this project fits well into the relation- ship between the Bank and IISCO which has been built up over the past fourteeen years. On the basis of the assumptions made in this report the project is suitable for a Bank loan of US$30.0 million with a term of 18 years including five years of grace. Arivic-'r 1 Page 1
INDIAN IRON AND STEEL COMPANY LIMITED
Plant and Production Data - Burnpur Works
A. Coke Ovens
Five batteries totalling 308 Simon-Carves underjet ovens, and a by- ~~~~~~~~~~~~~~~~~~~~_ _ - . .1 __A1______1 lAq pouct recovery plan. Oune vattery was installed in L929, one In ±yy, one in 1950, and two in 1958.
Annual capacity (screened furnace coke) - 1,530,000 YT 1965/66 production( ii - 1,22,000 MT Representative analysis - % Ash - 26.20 Volatile Matter - 1.54 Fixed carbon - 72.26 Sulphur - 0.52
B. Blast Furnaces
Four blast furnaces as follows - Hearth Annual 1965/66 Installed Diameter Capacity Production
No. 1 1922 17 ft. 250,000 MT NA No. 2 1924 17 ft. 250,000 IviT NA No. 3 1958 25 ft. h00000 MT NA No. 4 1958 25 ft. hOO.000 MT NA
1,300,000 MT 1.218.000 MT
Pie iron analysis -
Fe - 92.50 Si - 1.50 Mn - 0.70 P - 0.30 S - 0.05
C. Steel Plant
1) Three 25-ton bessemer converters and two 900-ton inactive mi .rnye-o usOed to. pou Ul4.-4 forJJ - -. LJ±Lo4nl - o-hearth furnaces.
Annual capacity - 800,000 MT blown metal.
2) Seven open-hearth furnaces (1 x 300 ton tilter, 5 x 200 ton tilters, 1 x 100 tor fixed) and one 900-ton inactive mixer.
Total Annual Capacity - 1000,000 ingot MT.
Iota± 1965/c rroauction - (u,uuu ingottT. Annex 1 Page 2
D. Rolling Mills Maximum Started Annual 1/ Production Operation Capacity To Date (Trr) (MT)
Blooming Mill 1939 950,000 948,000 3L"' Section Mill 1939 4000,00 297,000 IMlorgan Billet Mill 1953 900,000 556,000 18" Section Mill 1939 180,000 156,000 Merchant and Rod Mill 1960 240,000 188,000 Sheet Mills 1940 155,000 152,000
E. Products for Sale (1965/66) (MIT)
Bars and Rods 219,000 Structurals 172,000 Rn;1 s991,000 Billets 92,000 G a1vnizd Shee ts 52;000 Black Sheets 97,000
Total. Saleable Steel 723,000
Pig Iron 219,000 CokXICe 249,000 Coal By-Products N A
1/ Maximun. - varies with product mix. ThEl INDIAN IRON AND STEEL CC1IPA1WXLIMITEUD
Iihco e Sltatements (Ir Million Rupees)
(Actual 1959 to 1965) (Estimrated 1966 to 1972),
Years Ending March 31 1959 1960 1961 1962 1 963 1964 1965 1966 1961 1968 1969 1970 1971 15972
Steel Production Capacity (0CC0!ST) 800 800 800 800 800 800 800 800 800 800 800 80t 925 l,'b8 Steel Produced 5C6 673 722 737 795 810 755 723 785 800 800 80( 925 1,0 4 8 Steel Sold 514 678 7D5 724 798 8cd 734 701 770 785 '785 790 915 1,04O
Average Steel Price (Rsayr) 428 408 471 1489 511 525 565 578 579 578 ';80 580 562 562 Average Steel Works Cost, 9' 318 310 319 339 354 359 386 414 402 404 398 395 378 `69
Operating Profit ."er Ton 110 98 152 150 157 166 179 164 170 174 182 185 1814 193
Net SaLles 276.0 347.5 388.7 1402.4 46c4.9 491.6 505.5 496.1 522.2 537.6 541.0 564.( 623.4 6714.9 Cost of Goods Sold 208.2 254.5 265.1 288.9 322.6 332.9 344-. 353.6 366.9 373.5 368.2 379.2 1413.8 437-9
Operating Profit 67.8 93.0 123.6 113.5 11.2.3 158.7 161.5 142.5 155.3 164.1 172.8 184.13 209.6 237.0 Gross Earnings of Kulti Foundry 6.8 13.0 9.8 18.3 114.8 14.14 12.7 7.8 11.0 11.0 11.0 11.0 11.0 11.0 Retroakctive Increase in Prices 7.5 8.7 - 22.9 ------Miscellaneous Incone 7.2 8.8 4.6 7.4 _6.0 19,,6 114.9 _8.2 6.8 6.8 -6.8 6.13 6.8 6c.8
Gross Income 89.3 123.5 138.0 162.1 163.1 192.7 189.1 158.5 173.1 181.9 190.6 202.6 227.4 254.8
Depreciation 20.0 30.0 29.7 33.5 .14.0 144.,0 44.7 44.1 46.8 49.3 56.2 67.9 74.4 75.6 Interetst 10.3 20.1 17.9 17.3 1]6.1 14.,5 13.2 12.1 19.0 124. 2'9.8 32.2 29.9 2';.14 Miscellaneous Expenses 14.2 17.8 20.6 19.2 21.7 19.1 21.5 23.1 22.2 22.2 22.2 22.2 22.2 22.2
tther ELxpenseis 44.5 67.9 68.2 70.0 71.8 77.6 79.4 79.3 88.0 95.7 103.2 122.3 126.5 1I31.2
Income Before Taxes 44.8 55.6 69.8 92.1 91.3 115.1 109.7 79.2 85.1 86.2 82.14 80.:3 100.9 131.6 Income, Tax amd Wealth Tax 1.9 6.4 16.6 39.6 35.6 38.7 45.4 13.9 40.0 40.1 33.2 25.0 36.6 58.8
Net Income h2.9 149.2 53.2 52.5 55.7 76.14 64.3 35.3 46.i J5j ,_1 64.3 72.8
Dividends 11.7 20.3 21.3 21.7 21.7 22,9 22.9 22.9 22.9 22.9 22.9 22.9 22.9 22.9 THlE INDIAN IRONl AND STEEL COMPALNYLIMITED
Source and A lication cf Funds Statements
(Actual 1959 to 1965) (Estimated 1966 to 1972)
T'ears Enlding March 31 1 959 19620 1961 1962 1,963 19614 1965 1966 1967 1968 1969 1970 1971i 1972
SOURCE OF FUNDS
2 ProfiLt before Taxes and Interest 55.1 75.7 87.7 109.14 107.14 129.6, :L 2.9 91.3 1014.1I 110.14 112.2 112.5 130.8 157.0 Deproeciation 20.0 30.0 29.7 33.5 314.0 144.O 44I.7 14s.1 1.46.8 149.3 56.2 67.9 74.14 75.6
75.1 105.7 117.14 11:2.9 1141.14 173.6, 167,6 135.14 150.9 159.7 168.14 18o.14 205.2 232.6 Increase in Long-Term Debt: IBRD Loan 71IN 17.3 13.1 11.3 ------. - - - IBIBD Loan 159IN 28.8 8.0 10.8 14.7 '5. 3 1.54 ------TBRD Loan 307IN - - - - 6.2 5.6 10. 9 71.2 15;.9 6.6 0.8 - - lERD Loan Balancing Scheame ------2ti6 147.1I 70.7 47.0 27.0 3.9 Government Loan 1.0 - 10.0 ------. --- IDN Loan ------50. - 8 147.1 21.1 62.1 Is.? 5.3 7. 7 5.6 10.9 98.8 113I. 0 77.3 Is7. 27.0 3.9
Decrease (Increase) in Wet Working CaLpital 32.0 23.0 (514.0) (37.7) (32.0) (62.9)) 10.0 9. 8 106.9 (21.14) 32.2 7.6 (23.6) (61s.7)1 OtLher 3.9 (20.6) (3.0) 114.6 1L3.14 7.0C 50.1) 146.9? (32.9) 32.2 (10.9) (0.9) (6.9) 22.6
T'OTAL SOURCES 1L58.1 129.2 122.5 1214.5 128.1 125.14 133.1 203. 323.7 223.5 267.0' 2314.9 201.7 1914.14
APPLICATION OF FUNDS
Investments of Fixed Assets: 1953 Extensions 71IN 50.2 15.14 11.5 0.8 - - ---. 1955 Extensions 159IN 62.14 38.8 19.2 6.9 7.6 2.39 - - - - - Collieries Development 3071N - - - 0.7 .3.14 11.31 18.3 214.0 150.9 146.6 26.8 11.14 7.9 5.2 Balancing Scheme ------7.0 57.0 96.8 75.0 35.1 6.1 STISCON Project ------5.8 10.0 3.0 - - . - Other 21.6 20.14 10.6 9.3 11.7 8. 1 8.14 12.5 25.0 20.0 20.0 20.0 2C.0 20.0
1314.2 714.6 141.3 17.7 22.7 21.7 26.7 142.3 192.9 126.6 1143.6, 106.14 63.0 31.3 Interest: Bankc Ovenrdrfts - 1.0 0.3 - - - 0.6 3.1 14.6 5.9, 7.5 6.1 2.2 IBF10 Loan 711N 5.14 5.6 5.5 5.0 Is.3 3.6, 2.8 2.0 2.5 1. 1 - - . - IDlED Loan 1591W 2.9 3.7 3.7 3.? 3.3 2.8 2.2 1.7 1.9 0.8 - - . IlEND Loan 3077W - - - - 0.7 0.7 0.9 1.2 Is.7 5.8 6.0c 5.7 4.6 14.5 IRRD Loan Balancing Scheame ------'L.6 14.6 8.6 10.8 12.5* 13.3 Government Loan 2.a 1.9 2.6 3.2 2.7 2.31 2.2 2.2 2.2 2.2 2.1 1.6 1'.1 0.6 GovernmenL. Special AdvaLnce ------14.14 3.0 3.0 3.0C 2.14 1.5 o.6 IDBI Loan - - --- .1 14.2 14.2 J.2 14.2
10.3 11.2 12.8 12.2 11.0 9.14 8.1 12.1 19,U 2I4.2 29.4) 32..2 29,9 25,14 Amnortizationi: IBFED Loan 711N - 12.1 12.9 13.2 114.9 15.6 17.14 17.3 23.6 29?.8-- - IBID Loan 1591N - - 10.0 10.14 11.3 11.6 12.2 12.7 17.3 23.3 - - - IEND Loan 3071W ------8.0 i6.6 17.5 18.6 19P.6 20.8 TrBODLoan Balancing Scheme ------.- - 5.9 Oovernmwit Loan - 14.5 7.1 9.7 19.2 5.2 - - -* 10.2I 10.3 10. 2 10.2 Gnvernment Special AdvaLnee------51. -S - 9. -19.5 19?.5 19.1
- 16.6 30.0 33.3 36.14 32.14 29.6 81.13 148.9 69.7 37.5 14.14 149.3 56.0
Taxes .1.9 6.14 16.6 39.6 35.6 3 8.7 145.14 III.9 140.0 0'.1 330 25.0 3is 6 5E Es Divid,ends 11.7 20.3 21.8 21.7 21.7 22.9? 22.9 22.9 22.9 22.9 22.9? 22.9 22. 9 22.9 Other - 0.1 - _ 0.7 0.3- 0).14 - - . --
TOTAL APPILICATIONS 158.1 129.2 122.5 1214.5 128.1 125.t6 133.1 203.2 323.7 2b1.5 267.C) 234.9 201.7 1914.14 THE INDIAN IRON AND STE'EL COMPANY Lfl4ITED
Balance Sheets (ITn tilliori Rupees)
(Actual 1959 to 1965) (Eastitated 1966 to 1972)
As at March 31 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972
ASSETS
Curirent Asisets
Cash 42.7 9.0 12.8 11.1 6.4 49.1 90.6 10.1 12.5 10.7 12.4 9.9 :L1.2 6.9 Accounts Receivable 59.3 69.5 68.3 84.0 94.1 93.2 78.6 80.0 78.6 78.6 78.6 85.0 138.0 90.0 Inventories 147.6 164.5 173.6 200.5 206.6, 203.2 209.4 254.9 209.4 209.4 209.4 212.0 215.0 218.0 Other 30.6 29.5 30.2 29.6 50.El 66.8 83.5 82.7 82.5 78.6 78.7 71.8 63.6 75.2
Total Current Assets 280.2 272.5 284.9 325.2 357.'J 412.3 462.1 427.7 383.0 377.3 379.1 378.7 377.8 390.1
Net Fixed Assets 602.3 646.o 657.4 641.5 630.1 608.0 590.3 589.7 735.8 813.1 900.5 939.0 927.6 883.3
Investments 12.5 12.6 12.5 12.5 13.2 _ 13.3 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 6 TOTAI. ASSETS 895.( 931.1 954.8 975.2 , . 033. 1 5.8 1030.8 -32.2 103.8 1,293.0 1,331.1 3J18.8 1,286.8
LIABILITIES
Current Liabilities
Accounts Payable 170.2 1140.9 91.9 78.7 77.6 80.4 85.5 82.8 85.5 815.5 85.5 90.0 92.0 94.0 Interest Payable 4.6 4.8 5.1 4.7 4.7' 3.5 2.8 2.3 2.8 2.8 2.8 2.8 2.8 2.8 Provision for Taxes 7.4 12.2 29.1 44.8 39.51 41.9 50.0 49.8 45.9 46.0 39.1 30.9 .12.5 64.7 Provision for Dividends 11.] 19.4 20.9 20.8 20.8 22.0 12.7 12.7 12.7 12.7 12.7 12.7 12.7 12.7 Bank Overdrafts - 17.3 1.7 - 9.1 - - 24.o 54.0 59.0 89.0 99.0 54.0 - Cuirrent Maturities of Long-Tert Debt 16.6 30.0 33.3 36.4 32.5 28.8 82.0 36.8 69.7 37.5 48.4 49.3 56.2 33.6 Other 13.0 13.6 14.6 13.8 15.3 14.8 18.2 18.2 18.2 18.2 18.2 18.2 18.2 18.2
Total Current Liabilities 222.59 238.2 196.6 199.2 199.59 191.4 251.2 226.6 288.8 261.7 295.7 302.9 278.4 226.0
Long-Ter Debt
IBRD Loan 71Th 116.2 117.2 115.6 102.4 87.5 71.9 54.5 37.2 29.8 - - - IBERDLoan 159IN 66.3 74.0 74.8 69.2 63.2 53.1 40.9 28.2 23.3 - - ItlRD Loan 307Ii - - - - - 6.2 11.8 22.7 99.0 98.3 87.4 69.6 50.0 295.2 IIRD Loan HIancin±g Scheae ------27.6 74.7 145.4 192.4 219.4 217.4 Governsent Loan 42.8 38.3 71.2 61.5 51.3 46.1 46.1 46.1 46.1 416.1 35.8 25.5 15.3 5.1 Governrent Special Advance 101.8 101.8 101.8 120.9 126.0 131.1 136.2 67.8 67.8 67.8 58.1 38.6 19.1 - 1DB Loan - -- -5 - - - - 5°0. 50.0 50.0 50.0 50c.o
326.51 331.3 363.4 354.0 328.0 308.4 289.5 202.0 293.6 335.9 376.7 376.1 353.8 30:.7
LeAss Current Maturities of Long- T'erm Debt 16.6 30.0 33.3 36.4 32.5 28.8 82.0 36.8 69.7 37.5 48.4 49.3 56.2 331.6
Total Long-Term Debt 310.3 301.3 330.1 317.6 295.E 279.6 207.5 165.2 223.9 299.4 328.3 326.8 297.6 268.1 Fquity
Share Capital 167.1 167.4 167.5 167.5 167.5 167.5 167.5 167.5 L67.5 167.5 167.5 167.5 167.5 167.5 Resernee 27.5 27.5 32.3 36.CAn [ 4L.e55.8 51.9 54.8 54.0 5u.8 54.8 54.8 54.8 Earned Surplus 167.2 196.7 228.3 258.9 292.8 346.3 387.7 L16.7 397.2 420.4 446.7 479.1 520.5 57O).4
Total Equity 361.8 391.b 428.1 462.4 505.F 562.6 6C7.1 639.0 619.5 642.7 669.0 701.4 742.8 792.7 2 2 8 8 TOTAL LIABILITIES 895.0 931.1 954.8 979.2 1,001.2 _Dt)33.6 15.8 1,030.8 _1 . 1,203.8 1,290 1.331.1 L31 . 12. Annex 5 Page 1
THE INDIAN IRON AND STEEL COMPANY LIMITED
Comments on Financial Statements
Income Statements (Annex 2)
1. "Steel Production Capacitv" refers to saleable steel capacity. The Company estimated production capacity at 800,000 tons of saleable steel in 19q8/q99 although manjr exnpnditures on this nlant were not comDleted until 1960/61.
2. "Steel Sold" differs from steel produced due to inventory
steel excluding excise taxes, freight, and other charges. The 1965/66 to 1 Q71 /72 PJ res ar,-e b,a on the sale-1bl stee-l p-oduct yml x n- d pri ces given on page 5 of this Annex.
4. "Average Steel Works Cost" gives the average cost excluding - 4ton -- 4to UUJ1-t~k;LcLdepecibo toIf)L1U jJi*EUUUL;t:prouc d; U UVILof' Oa.aleablesteel U U.tz st L . The--LIU -L7'%-1 tf196/6 JI LUu -L7-197-1/72 i -L./I 4 figures are broken down into the various elements of cost on page 7 of this Annex.
5. "Net Sales" include saies of coke and pig iron (both to hle Kulti Foundry and to outsiders), coke oven by-products, scrap and miscella- neous items as well as steel. Sales of pig iron and coke to the Kuiti Foundry are valued at the same unit prices as sales to outsiders. "Steel Sold" multiplied by "Average Steel Price" is the revenue from steel sale!s. The sales revenue for pig iron and coke from 1965/66 to 1971/72 is based on the assumptions of page 6 of this Annex. 1965/66 sales break down roughly as follows:
(Rs. Million)
Steel 701,000 tons at Rs. 578 405.2 Pig Iron 219,000 tons at Rs. 239 52.3 Coke 249,000 tons at Rs. 65 16.2 By-products, scrap, etc. 22.4
496.1
In the projezCtions from 1966/67 to 1971/72 no sales of by-products, scrap, etc. are included.
6. "Cost of Goods Sold" for 1966/67 to 1971/72 include saleable steel, pig iron, and coke. In the projections from 1966/67 to 1971/72 no cost of by-products, scrap, etc. are included. The difference between sales revenue and cost in 1965/66 was about Rs. 10 million. The "Average Steel Works Cost" of steel multiplied by "Steel Sold" is the cost of saleable steel. Annex 5 Page 2
The cost of pig iron and coke for 1965/66 to 1971/72 is given on page 6 of this Annex. Although no complete technical basis for the assumptions of the costs of steel, pig iron, and coke have been provided, the average figures do not appear unreasonable.
7. "Miscellaneous Income" consists mainly of the profit on sale of purchased steel, dividends and interest. The sizeable increasesin 1963/64 and 1964/65 over the previous years are mainly due to receipt of dividends on IISCO shares held in trust, accumulated from previous years, and interest on above average bank deposits.
8. "Depreciation". For the year 1959/60. depreciation represented approximately 4.6% of the average gross value of depreciable assets, but was not calculated at any prescribed rate. On MayT 1. 1961, the Comoanies' Act was amended, and the Company was required to provide book depreciation in a more systematic manner. Deoreciation was thereafter nrovided in ar, amount arrived at by dividing 95% of the original cost by the number of years at the end of which at least 95% of the cost will hnve heen recovegred by depreciation calculated for income taxes. Income tax depreciation is on a declining balance And book depreciation strai ght line. For exnm.ple, an income tax depreciation rate of 15% would require a book depreciation rate of 5%. On the average, depreciatron represented +the llti pr - centages of depreciable assets:
1959/60 4.60o% I1960/641 -3.96, 1961/62 4.24% , n n 14 -I ,I n ot1 L7Vr.C/ U) 4. U/0 1963/64 5.44%
epreciat-ion for ±96oo to i97i/72 was computed on tne basis of 19- 'i/0*5 rates. Depreciation has not been revised to allow for a last minute change in tne capital expenditure schedule, but the change is estimated to be small.
9. "interest" froa 1959/60 to 196Lo/65 on tne Government Special Advance was charged to income, but not paid (see Source and Application of Funds Statements). Accrued interest of Rs. 17.8 million has been added to the principal of the Government Special Advance and will be repaid as principal from 1968/69 to 1971i72; Rs. 16.6 million has been waived by the Govermnent and will be credited to surplus in 1965/66. Starting in 1966/67 interest on Bank loans was increased 57. 5% to adjust for the devaluation of the rupee from Rs. 4.76 to Rs. 7.50 to the US$1.
10. "Miscellaneous Expenses" include selling and administrative expenses, labor profit sharing bonus, donations, and miscellaneous adjust- ments.
11. A "Wealth Tax", discontinued in 1959/60, was paid during 1958/59 on the value of the net assets of the Company. Annex 5 Page 3
12. "Income Tax". The increase in income tax over the past seven years is mainly due to an increase in taxable income. In 195P/59 no income tax was paid due to large development rebate and tax depreciation deduct;ions following heavy capital. expenditure. As capital expenditures declined, development rebate deductions were reduced, tax depreciation charged on a declining balance dropped and taxable income increased. From 1959/60 to 1965/66 income tax rates have been about h5l to 5o%. In 1963 an additional tax called the super profits tax was imnosed, which was replaced in 1964 and 1965 by a lower tax called the surtax. The net result has been to add a 3!% surtax, charged against income w0hich exceeds 10% of equity and long-term debt after deducting income tax. As of March 31, 1965. the Company had not naid any suirtax. The 196q/66 to 1971/7?2 ineome tax has been computed on the basis of 1965/66 tax laws, but does not include anv credit. for nPDvnlnnpmnt. Rehnt.a 'ny e.s+timates.q hnarv not. bheen re-visAed tn allow for a last minute change in the canital exnenditure schedule and related interest pavments, but the change is estimated to be sQm'l.
Source a-d Applic-ation- ofP T`-dA Anx3IN+mns 13."TRD Toan 3017T"W1. T he Comp±an.y has--as, that -I,,,4l-- f ol
.LJ~JIWJ .U'J.. I -Lin I±II LLCqo.i,I.Q CL OUjI~Li 2_ O.~ 'JLW 1.±. '-'.L..2 * the $19.5 million authorized under the loan agreement will be requested by s 4to ..19071L7 -i -f /72. I '-. A larg-LdL.L- rU -h j9U± -hrfloto-i4---Z UL,JUII ULVof i~Ulm-. 0 j.11.x La .L± ±L uut.due LiU ±11interest4 UAZ±i uo ULU..IL1Ir,dur-ng L~con- struction ending in 1966/67 before the bulk of the disbursements are made.
14. "Other" sources of funds is comprised of various changes in balance sheet iterms not included in the income statement. The major item revresents the difference between current maturities of long-term debt from year to year.
15. "Investments in Fixed Assets" for the 1953 and 1955 Extensions, the Collieries Development, and the Balance Scheme do not include canitalized interest during construction.
16. "Other" investments in fixed assets include mainly exoenditures on replacements and housing.
17. Interest and amortization were computed on the basis of the TBRD loan agreements, agreements for the Government Loan and the Government Special Advance and the current bank overdraft agreements. Amortization of Bank loans has been adjusted from the devaluation of June 1968. The pro- posed IBRD loan for the Balancing Scheme will be repaid over the 13 years starting in 1971/72 with interest at 6%.
Balance Sheets (Annex 4)
18. "Cash" appears to be at a normal level starting in 1965/A6. The years 1963/64 and 1964/65 were exceptional; large cash holdings were main- tained in anticipation of a large down payment on the Government Special Advance. Annex 5 Page 4
L7. "-nvtzentOr`Les! nave notL bjeen increased in proportion to tle increase in sales after 1969/70, and are, in fact, lower than as of March 31, n^v/f 41966.
20. "Other" current assets include advance payments on income tax which are identical to the prior year's tax in the income projections. The remainder, representing miscellaneous advances and deposits, does no-t change from the Rs. 38.6 million of March 31, 1966.
21. "Interest Payable". Full provision for the following year's interest payments has not been made in current liabilities.
22. "Provision for Dividends". Until 1964/65 the Company provided for the full payment of the following years anticipated dividends. Sub- sequently, it has been reduced to almost half the expected payment.
23. "Bank Overdrafts". As of March 31, 1965, the Company had over- draft facilities of Rs. 174 million. Of this Rs. 75 million was from National and Grindlays Bank, and Rs. 99 million from the State Bank of India.
24. IBRD loans outstanding as of June 1966 were adjusted to take :into account the devaluation of the rupee.
25. "Government Special Advance" was considered as a special cateigorv of long-term liability in the past. It has been included in long-term debt in view of the recent agreement to repay the Special Advance as debt. The repayment terms provided for a Rs, 51.8 million payment in 1965/66 and the balance of Rs. q0_0 million to be renaid in seven eoual half-yearly installments commencing March 31, 1969. Accrued interest of Rs. 17.8 million will be simiLarly repaid in seven half-yearly installmennts eommenning March 31, 1969. From March 31, 1965, interest on the Rs. 101.8 million princi:pal amount of the Snenial Arivnn will be paid semi.nnnually at +he current bhnnk rate. The bank rate is currently 6%.
26. "Government Loan". On August 24, 1963, the Government agreed at the reqniest. nf TTSnO (T.ATh;ih JTnn+.pi _nAri+rnn1 fi.ncn for the Collieries Development program) to a moratorium for the repayment of the principal. The amunt+. of Rs. ).A .1 million outstanding as at March 31, 196L will be repaid in nine half-yearly installments of Rs. 5.13 million starting June 30, '1968 tn"d enT;g Jue30, -I _' -- _- ~ U ~Z J'J, j.L.1070. I C.. T-LJ.U. 4-ereS4tu 14 onL.JJ± 4-h-IA1 I.A.,w1-n-l L&D ULULU.L.Lr, balncL'clIO.ULJ~,U will continue to be paid at the rate of 4.75% per annum in half-yearly ~V... ~ 1 ~i1 '-LVJ UL V%&LJ;- ,)WJ 01. i .Jl. 1I eL )-X.L.
07 ~~~~As o+ M -1__ ON1 n aL TTOrtn 1-A -- -Pz :) -I:42Dn 27. 4£ IL AI0..L-AL _..I.L J.7VJ), L.L±JV%!J LIdLU. U CLtAL1.4IJU.L..L,7UU tLPdj..L UO2..J OA .0ILLS* J_. million of which Rs. 151.4 million was issued and subscribed. The subscribed capita" co-..-1sts of '12,440, 077 LJOrd y s,,ares±of R. 10 par value WIU 269,954 5% cumulative preference shares of Rs. 100 par value, fully paid. Pagee )r
STEEL PRODUCTION ESTIMATES
('000 MT)
Year Ending March 31, 1966. 1967 1968 1969 1970 1971 1972
1. Bars and Rods 219 195 195 195 195 200 230
2. Structurals 172 244 244 244 244 237 310
3. Rails: Heavyr 83 lOO 100 100 100 120 140
.Li±,LU LU ±U ±LU ±LU iLU L
. B-llet 92, 75 90 90 90 18 9 5. Galvanized Sheets 52 80 80 80 80 90 90
6u. Black Sheets 72 72 72 72 60 o6
7. Others: "Z" Section - 8 8 8 8 10 10
Bloom - 1 1 1 1 - -
Total Saleable Steel 723 785 800 800 800 925 1048
EX-MILL PRICE EXCLUDING EXCISE DUTY, FREIGHT EQUALIZATION & OTHER CHARGES EFFECTIVE AUGUST 20, 1965
(Rs./MT)**
Year Ehding March 31, 1966 1967 1968 1969 1970 1971 1972
1. Bars & Rods 550 5)42 5)45 5)47 547 547 547 2 Struet.urals 588 582 587 587 587 587 587 3. Rails: Heavy 528 534 534 534 534 534 526 Light 618 617 617 617 617 617 617 14. Billets 406 395 397 405 405 415 bJ15 5. Ga_vni"ed Sheets+ 772) 769 770 '770) 77r0 773 774j 6. Black Sheets 711 704 704 714 714 714 714 '77 .- OthersL~.u L "Z" Sect:ion NA 587 600 620 620 620 620
BIloor 388 37 337 317 337
I Th VariLatLion 11 jj.LUes are Uue L.o variation in extras and varia tion in sections of rails in 1971/72. Annex q Page 6
Pig TIrn and Gokep Voli,mp Prinp nnA Gost
Assumptions
Years Ehding March 31, 1966 1967 1968 1969 1970 1971 1972
Pig Iron
Production ('000 MT) 1218 1200 1270 1270 1365 1460 1460
Surplus for Sale ('000 MT) 219 220 270 270 365 390 300
Price (Rs./MITI)* 239 258 258 259 256 256 258
vWork Cost (Rs./MTI)* 169 170 170 167 161 156 154
Operating Profit (Rs./MT) 70 88 88 92 95 100 104
Coke
Production ('000 MT) 1422 1450 1450 1450 1450 1450 1450
Surplus for Sale ('000 MT) 249 250 180 195 150 120 170
Price (Rs./MT)* 65 80 80 80 80 80 80
Nork Cost (R.s./MT)* 61 59 59 56 56 55 49
Operating Profit (Rs./MT) 4 21 21 24 24 25 31
* "Price" and 'Work Cost" are comDarable to "Averaee Steel Price" and "Average Steel Works Cost". Annex 5 Pag-e 7 Estimates of Averae Works Cost Per Ton of Saleable Steel (Rs/MT)
Year Ending March 31 1966 1967 1968 1969 1970 1971 1972
1. RAW M4ATERIAIS
(a) Coal 73.49 74.55 74.55 68.34 65.50 54.16 47.07 (b) Irnn Ore 64)96 0),-07 6l,.07 60).7 6),.07 59.o5 56.86 (c) Limestone & TD-olomite 26.96 27.hl 27),1 27.l 27 1f1 25 26 2h, L6 (d) Metal & Ferro Alloy-r- 97 R7 33.22 33.22 3 332 33.22 33.22 (e) Scrap 16.11 13.67 13.67 13.67 13.67 18.82 21.00 (f) Others a9.0 7Of 7Lr)7fr 7.fl0 7Lr)f 7.L4 7r)0
rP rPA T 106P. I1. o96.0 V 96n-I. 96.01107 10? 01 'I.r) i e.76 9.. C- ~ o.l L-LL4..L.J.90C. ol 908. . I I. 55 -92 . --
TTADrnD I nC(A 1I 1tV if C'), n7 n4) (V7 On (n7 00 Ili P0 ).o
4. GENERAL A,'T ories, Supplies,On nrr n.Z etc. y .(O >U.L Yu .L f Cu.' yu.u y±.1 yz~ uu (b) Rolls 5.16 4.92 4.92 4.92 4.92 4.92 4.92
4. GENERAL ADMINISTRATION & GENERAL WUit-li1b e-NSRS (.Y 7.074 .00u 7UU. 7.0uu 7.00 7.UU
5. MISC=LLAN1US 10.86 7.75 7.50 7.50 7.50 7.50 7.50
TOTAL 441.29 431.55 426.62 iL20.i1 417.57 401.29 391.45
LESS: Credi-t for by- products & scrap 27.46 22.83 22.83 22.83 22.83 22.83 22.83
413.83 408.72 L03.79 397.58 394.74 378.46 368.62
PRODUCTION (1000 MT): 723 785 800 8(0 800 925 1048 THE IND IN IRON AND STEEL COKPANY LIMtTED
Capital Kxpenditure Scbedule
Yearis Ending March 31 1967 1968 1969 1970 1971 1972 Total FE LC T FE LC T FE LC T FE LC T FE LC T FE LC T FE ILC T Mine; 0.2 - 0.2 1.6 2.0 3.6 0.1 .o h4.1 0.1 0.7 0.8 - - _ 2.0 6.7 8.7 Stean and Oil Injection - 0.5 0.5 0.2 CI.8 1.0 o.8 0.9 1.7 0.1 - 0.1 - - 1.1 2.2 3.3 Electric Furnace 0.4 0.2 o.6 1.4 2.5 3.9 1.7 3.0 4.7 o0.h 1.8 2.2 o.4 0.8 1.2 - - - 4.3 8.3 12.6 Open Hearth Charging 0.1 - 0.1 0.1 1.0 1.1 - 1.1 1.1 0.7 0.2 0.9 ------0.9 2.3 3.2 Oxygen Plant - 0.5 0.5 1.0 h.o 5.0 4.0 5.o 9.0 3.6 3.3 6.9 1.0 1.1 2.4 - - - 9.6 14.2 23.8 Continuous Casting - 1.0 1.0 3.0 8.0 11.0 10.0 12.0 22.0 15,o 9.2 24.2 3.3 3.3 6.6 - - - 31.3 33.5 64.8 Rolling Mills 0.5 0.5 1.0 5.0 b4.o 9.0 5.6 4.0 9.6 1,2 1.4 2.6 - 1.0 1.0 - _ _ 12.3 10.9 23.2 Boiler Plant - - - 1.4 6.5 7.9 8.4 14.0 22.4 3.0 3.7 6.7 l. 2.7 4.1 - - - 1l.2 26.9 41.1 Railways o.3 0.3 0.6 2,4 1.8 4.2 - 1.2 1.2 - o 0.3 - - - _ - - 2.7 3.6 6.3 Various Services - - - 0.3 1.6 1.9 1.3 1.2 2.5 0.,9 1.1 2.0 0.3 0.4 0.7 _ 2.8 4.3 7.1 Ore Stockyard - - _ 0,1 2.0 2.1 0.2 2.0 2.2 0.2 1.4 1.6 0.1 o.6 0.7 - - - o.6 6.o 6.6 Engineering and Administr-ation 2.0 0.5 2.5 3,0 c.8 3.8 3.0 o.8 3.8 3.0 0.7 3.7 1.1 0.2 1.3 _ - - 12.1 30o 15.1 3.5 3.5 7.0 19.5 35.o 54.5 35.1 49.2 84.3 28.2 23.8 52.0 7.6 lo.4 18.0 - - - 93.9 121.9 215.8 Future Escalation - - - 0,5 2.0 2.5 2.0 5.0 7.0 14.0 10.0 h10 2.0 5.0 7.0 0.9 _2.4 3.3 9.4 24.4 33.8 Total 3.5 3.5 7.0 20,0 37.0 57.0 37.1 51.2 91.3 32.2 33.8 66.o 9.6 15.4 25.0 0.9 2.4 3.3 103.3 1146.3 219.6 MAP
LOCATION OF MAIN INDIAN STEEL PLANTS IN RELATION TO COAL a IRON DEPOSITS
N E P A L
Patna ~~~~~~~~~~~~~rn
IKlIpA \. I -k-RANIGAN}dt K~~~~~~~~~~~8K
\ MSHEDPU>
M KORBA ROURKEL3 y GORU A/S\Nl \E R ;V5 W4 l ~~~~~~SULAIPAT/ l- A . 01 7 J' JODA EAST'7 '%,/, /l l
BHILAI J % "
| s>5 \ \ < z 8ay of Sengal OHALL/-RAJHARA
U* . STEEL PLANTS 1. TISCO- Jamshedpur // 2. IISCO-Burnpur a Kulti o 25 50 75 100 125 150 Miles / 3. Durgapur ------, ,4., , , , Rourkela 5. Bhilai 9 COAL DEPOSITS
| 1 f / IRON ORE DEPO'SITS
AIu,>,,uijatnarn i--'- RAILWAYS, broad gouge
FEBRUARY 1964 IBRD-1258R