Anandi Steel Co Ltd

About the company Anandi Steel is an Indian iron and steel company, with its headquarter in Kalingnagar Industrial complex, Jajpur having a global reputation for landmark production and safety practices which have played a central role in global benchmarking process in the steel industry. Mission and Vision The vision of the company is to be the world-wide leader in the steel and Iron products through excellence in operational standards and cost leadership. The mission of the company is to satisfy its customer with the best quality of products as well as to provide its product to all possible sectors where there is a requirement of steel or iron. Overview and Products With the above vision and mission Mr. Som Prakash Anandi founded Anandi Steel in the year 1963. Since its inception the prime focus of the company was to achieve breakthrough synergy in production of steel with specialty grades like austenitic, martensitic, IS 403, IS 407, IS 409, IS 410, IS 411, IS 412, IS 413, IS 421, IS 423, IS 425.In addition they also engage in production of specialist steel services for various industries like aircraft industry, consumer industry, automotive industry, turbine industry, ancillary industry, packaging industry, construction industry. It achieved cost leadership through, several methods like, optimized production practices, mergers and acquisitions, cost cutting, achieving record level of resource utilization as well as investing in training. Acquisitions It started the acquisition spree in year 1967 when it acquired Ghanshyam steel Limited which was famous for its long products division including TMT bars, rebars, sheets, gauntlets, joints, pipes, reinforced pipes, and several other tertiary as well as second products. It went a step further when it acquired Uttam Dass steel in 1971 , which was famous for its piping division specializing in special types of annealed , supercritical cooled, crystalled , nitrated , quenched, normalized critical steels, which catered to sectors like defense sectors, shipbuilding, aircraft industry, utilities, nuclear power plants. Anandi steel furthered their acquisition spree when they acquired general mild steel makers Balaji Steels, which was had a national reputation for incorporation of latest technologies in production line as well as best technical quality management practices which differentiated it from the industry brethren. In-house expansion In 1982 it went for the first time for the in-house expansion project which included commissioning of several units like Hot strip mill, cold rolling mill, twin funnel coke ovens, ferro alloys, blast furnaces, central machining workshop and a power plant of capacity 500 Mega Watt. The commissioning details are as follows:

Hot strip mill: a state of art hot strip mill of capacity 2.0088 MTPA of finished flat steel, in conjunction with a 500MW steins reheating furnace coupled with cooling ladders. New commissioning includes 1.53 MTPA of raw processing capacities in tandem with 120MW steins heating furnace. Cold Rolling Mill: Earlier the capacity comprised of 2.76 MTPA of raw processing capability with the synergy of 12 high rolling mills of Siemens coupled with four 16 high rolling mills from Hitachi. The associated annealing comb furnaces were from SMSDiemeg. Coke Ovens: The twin funneled coke ovens were resource from Quingdao veishanmechanical Company. The associated equipment of tuyers were sourced from Mcnally Bharat. While the coke car, coke rack, the pusher and the finisher were sourced from BAEMAERSK Nord ferro alloys. Blast Furnace: The two blast furnaces sourced were of 2751cubic meter and 2389 cubic meter supplied by Larsen & Toubro Company in collaboration with Quingzhan Metal Works. The number of tuyers on the two furnaces were 38 and 32 respectively.

Products The Product Mix offered by Anandi steels are: 1) Slabs: Slabs produced vary in width from 1600 mm to 2300 mm, which would enable Anandi steels to cater to a wide plethora of markets which either have their inputs as slabs, or have in-house strip and rolling mills. 2) Blooms: Blooms produced adhere to the dimensional variances of 1000mm by 750mm by 2300 mm which would enable in wide applicability to a plethora of industries including canning, production packaging, shaping and joint industries. 3) Pig Iron: is a product catering to widespread manufacturing industries. Since it acts as a basic input for all class of foundries. Produced from the state of the art blast furnaces with level 4 automation 4) HR coils: The pre-fabricated slabs freshly out of the melt shaft is sent to the roughing mill and then to the reheating furnance. After being reheated it is sent to the thinning rolls which makes coils of varying thickness from 1 mm to 2.8 mm. These HR coils act as intermediate product in same unit and can also be sold to other unit for processing. It comprises of black coil and pickled coil. The pickling is done through an optimum mix of nitric acid, sulfuric acid and hydrochloride acid so as to ensure a smooth surface finish free of any rust. Black coils are HR coils which are sold as it is without pickling. 5) CR coils: The input from Hot Strip mill which are black coil of unpicked nature undergo the cold rolling in complex processes comprising of combination of 12 high and 20 high tandem mill of Hitachi and Siemens respectively which effectively reduces the thickness from 2 to 0.1 mm. The output is a product having high economic value addition which leads to remarkable contribution margin.

6) Coin Blanks: It is the source of raw material supplied to central governments, federal banks and mints throughout the globe for coining purposes. It comprises of state of the art machinery to produce precision enabled product. For producing 1 ton of Coin blank, generally around 200 kg of coke is required. The cost of Low quality coke is 150/kg while the cost of high quality coke is 300/kg 7) Billets: They are intermediate products with dimensional variances to the tune of 100 mm * 230 mm * 50 mm. They form a bulk of the B2B sales experienced by Anandi and despite low margin earns great revenue.

Industries Served The various customer segments are: Manufacturing Industry: The basic raw material for manufacturing Industries as well as their ancillaries was provided by the Martensitic and Austenitic grades and other specific grades produced by Anandi steels. It formed the bulk part of their business. Auto and Ancillary Industry: The different auto grade steels for instance IS4052, IS413 were provided exclusively by Anandi steels where in it was able to charge a premium over the market price. Aircraft Industry: General verities of mild steels where supplied by Anandi steels. It was a minor element in sales. Construction Industry: It was also a major supplier of construction grade steels to big players in the market, the market although lucrative yielded less margins.

Steel Industry Overview: The iron and steel industry in India has grown from the initial efforts of TATA which culminated with the establishment of first steel plant at Jamshedpur in 1907. Thereafter the grown exhibited by the industry for next 4 decades was very sluggish. The industry thereafter picked pace with establishment of steel authority of India in 1954 and entry of Jindal steel in 1952. Anandi steel initially was established as a cost effective produce of steel which catered to regional defense industries in southern India. Later it increased its portfolio of products after a slew of acquisitions. In present day the challenges faced by steel industry are numerous. The industry which is suffering from the problem of bad quality of raw steel as well as rising raw material costs in face of environmental legislations. Solutions to these problems were addressed by Shanti Steel, which resorted to raw material blending in raw materials for the pig iron producing processes. In addition in also resorted to vertical integration in certain aspects like oxygen production as well as internalizing the by product sales. Shanti steel pioneered the process of blending the raw materials like coal for the coke production process, as well as modulating product proportions in several processes like iron making. It also resorted to integrate vertically segments like oxygen procurement which earlier used to lead to greater transport cost. Anandi steels took their cues seriously and the management decided to decide the future course of actions at the company headquarters. On 23rd June 2012, Aditya Prakash, the company MD

convened a board meeting where functional heads of marketing, finance, sales, operation, R &D, HR as well as other board directors were present. The imminent question before the board were what was ailing Anandi steels. There were several opinions and perspectives. But primarily the questions that emerged were: Since contribution margin is very high 435050000 while profit is very low that is only .5 %. Somprakash is concerned about the present and the future of the company, so he called a consultant for the recommendations. Following points came out after discussion of the consultant and Somprakash.

As Anandi Steel operates during the next year which product should be emphasized more than others? What should be done with the ailing product: should it be removed or is there another option available to improve on it? It is noticed that the fixed cost is too high, what actions must be taken to reduce it?

Question: Annual sales for next year is expected to be around 100 crores. The management expects an industry margin of 2% as its margin. What should be the target cost structure and the extent of cost streamlining? Question: As company mission to serve all possible industries, It thought of venturing out into the specialty steel segment which mainly constitute of surgical instruments and other instruments used in Biomedical fields. In order to do so it went on an advertising campaign and incurred a fixed advertising cost of 90 lakhs. It aims to supply specially treated CR coils which requires an additional cost 12000/ton. It aims to sell this at 25% higher price than that of normal CR coils. How many extra units should it produce to recover advertising cost? How many units should it produce to gain 10% profit on this specially treated CR coils. Question: For producing Coin Blank Steel, a mixture of two types of Coke is used, one which is locally produced which is of low quality and the other is imported from Australia, in the ratio 60:40 respectively. The local coke is stored in small quantity by the company as company uses JIT

inventory management technique whereas the imported coke as having a high transportation cost is stored in bulk. A regular customer of the company urgently requires 1000 tons Coin Blank steel. As the delivery date is too short the company is not able to get the locally produced coke in the required quantity and as the stored inventory of the low quality coke can be used to produce only 10% of the required order, Taking care of the delivery date, it is only possible to use the imported coke (which is stocked in sufficient quantity) to produce the remaining quantity. What price can be quoted to the customer so that the company can incur a profit of 9% higher than that of the normal profit?