India, the world’s second-largest producer of steel, is experiencing significant growth in its steel market. Steel is a durable metal made by combining iron with various other elements. It has widespread uses, including in construction, automobiles, and various other products. The Indian steel industry is projected to grow substantially, with production increasing from 135 million tons in 2024 to 210 million tons by 2029. This growth reflects an average annual increase of 9.18%. Such growth drivers have caught the eye of investors, drawing attention to Electrosteel Steels' Unlisted Shares as the company expands and strengthens its financial position.
Infrastructure and Housing: The Indian government has been making investments in infrastructure, including building roads, bridges, railways, and expanding housing projects. These large-scale construction efforts require significant amounts of steel. As the demand for infrastructure increases, companies that are well-positioned to supply steel will see growth opportunities.
Growing Per Capita Steel Consumption: In addition to the demand for large projects, the average steel consumption per person in India is also on the rise. By 2031, it is expected that each individual in the country will be linked to about 158 kg of steel usage annually. This increase in per capita consumption is driven by growing urbanization, increasing industrial activity, and a rise in consumer goods that rely on steel. This trend suggests that both major construction projects and everyday consumer products will require more steel in the years ahead.
These factors are likely to influence the price of [View Electrosteel Steels’ Unlisted Share Price].
ESL Steel Limited is a fully integrated iron and steel manufacturing company, which means they handle every part of the process, from taking raw materials (like iron ore) and turning them into pig iron and then into finished steel products. ESL Steel does everything in-house. Vedanta Limited (VEDL) is the parent company of ESL Steel, which helps the company get better access to raw materials and funding, which is vital for growth and stability.
Current Production Capacity: ESL Steel’s production capacity is measured in terms of “hot metal” and finished steel.
Hot Metal: Hot metal is the molten (or liquid) metal produced when raw materials are melted in a furnace. It is the first stage before the metal is turned into finished steel. Simply put, hot metal is iron in a liquid state after being heated.
Capacity Numbers: Right now, ESL Steel produces 1.7 million tonnes of hot metal per year. The company plans to expand this to 3 million tonnes of finished steel per year, which means it will soon be able to produce nearly twice as much steel.
ESL Steel transforms raw materials, such as iron ore, pig iron, and steel scrap, into finished steel products by melting them into hot metal in a furnace, casting that metal into shapes, and then refining it to remove impurities and produce items for final usage by various industries.
These are the inputs that ESL uses in its steel-making process, or products they handle as part of that process.
Raw materials are the foundation of steel production. Their quality, cost, and availability directly affect the efficiency and profitability of the manufacturing process.
Iron Ore:Iron ore is the essential ingredient for steel. It is a naturally occurring rock that contains iron compounds. High-grade iron ore can reduce impurities in the final product and lower processing costs. ESL Steel sources iron ore from its own mines, which helps maintain a steady, cost-effective supply while reducing dependency on external suppliers.
Pig Iron:Pig iron is produced by smelting iron ore in a blast furnace. It is an intermediate product that contains a high carbon content, making it less pure than finished steel. The name "pig iron" originates from the traditional method of casting it in molds resembling piglets. This product undergoes further refining to become high-quality steel. Its efficient production is essential for ensuring the continuous flow in the integrated steelmaking process.
Steel Scrap:Steel scrap consists of recycled metal from old structures, vehicles, and other metal items. Using this scrap in the steel production process is not only energy efficient but also environmentally beneficial, as it reduces the need for new raw material extraction and conserves natural resources. Using scrap can lower production costs while helping ESL Steel meet sustainability targets.
2. By-Products in the Process
In addition to the primary raw materials, the steel manufacturing process produces and utilizes several by-products that are essential for operational efficiency.
Metallurgical Coke:Metallurgical coke is a special fuel made from coal. It’s produced by heating coal in a way that no air is present, which removes impurities and leaves behind a substance that’s very high in carbon. This carbon-rich material burns at extremely high temperatures. These high temperatures are essential in a blast furnace, which is a huge oven used to melt iron ore. When the coke burns, it helps turn the iron ore into pig iron, an important step before making steel. By making its own coke, ESL Steel can be sure it always has enough high-quality fuel. This control over fuel quality is key to keeping the steel production process running smoothly.
Sinter:Sinter is made by heating tiny bits of iron ore with coke and a few other ingredients until they stick together into a clumpy, porous material. This clumpy material is important because its holes let air flow through more easily. Better airflow means that the furnace works more efficiently when turning iron ore into pig iron. In simple terms, a sinter acts like a helpful bridge, making the process of melting iron ore smoother and more efficient.
Self-Generated Power:Rather than relying solely on external power sources, ESL Steel generates its own electricity. This in-house power generation not only reduces overall energy costs but also provides a safeguard against potential disruptions in the public power grid. Consistent power supply is vital for maintaining the continuous operation of high-temperature furnaces and other critical production processes.
ESL Steel produces a range of steel products that serve different needs in industries like construction and infrastructure and also deals in raw and intermediate materials needed for the process. They also generate their own power and produce their own metallurgical coke, and sinter which are all vital to their integrated manufacturing process.
These are the main outputs of ESL's manufacturing process, the things they make from raw materials.
1. BilletsIn steelmaking, billets are like that basic block. They are made by pouring hot, melted steel into a simple shape (usually a long, square, or rectangular block) that is easy to handle. These billets are not the finished product yet—they are the raw material that will later be rolled, cut, or shaped into items like bars, rods, or wires. In other words, billets are the first step in turning molten steel into many different kinds of steel products. Think of billets as raw dough that later gets shaped into bread or pastries.
2. TMT BarsTMT stands for Thermo-Mechanically Treated bars. Put simply, these are strong steel bars used to hold concrete together in construction. They are made by heating a long steel bar and then quickly cooling its outer layer. This fast cooling makes the outside very hard, while the inside stays a little softer. This mix of hard and soft gives the bar extra strength and flexibility. These bars are used in building houses, bridges, roads, and other structures to keep them safe and strong.
3. Wire RodsWire rods are another type of semi-finished product that is later processed into a variety of items. These are long, cylindrical pieces of steel that are often wound into coils for easy storage. Wire rods are the raw material for making many small wire products. They are later stretched and cut to make items like electrical wires, nails, screws, and springs. These are used in home appliances, vehicles, and many everyday products.
4. Ductile Iron (DI) Pipes
Ductile iron pipes are pipes made from a type of iron that has been treated to be more flexible. Instead of being hard and easily broken, ductile iron can bend without cracking. These pipes are used to carry water, sewage, or gas. They are found in water supply systems, drainage systems, and factories because they can handle high pressure and last a long time.
To summarize, the company generates revenue from a variety of sources.
→ Sale of Steel Products: The primary source of revenue is from selling billets, TMT bars, wire rods, and DI pipes.
→ Trading of Raw Materials: ESL Steel also earns money by trading in raw materials like iron ore, pig iron, and steel scrap.
→ Other Income: Additional revenue comes from by-products, including metallurgical coke and sinter, and from the sale of self-generated power used within the plant.
Increased Production VolumesESL Steel is actively scaling up its production capacity.→ Expansion of Capacity: The company is planning on increasing its capacity to 3 million tonnes of steel per year. This means more steel can be produced, which is important because more production typically leads to higher sales and revenue.→ Proof of Growth: In the last financial year, ESL Steel recorded production volumes of 1.47 million tonnes of hot metal and 1.38 million tonnes of saleable steel, showing that the expansion plans are already in motion.
Captive Resource UtilisationESL Steel has taken steps to make sure it is self-sufficient with key resources.→ In-House Production: The company produces its own metallurgical coke and sinter, which are important for the steel-making process. This means it does not have to rely on external suppliers for these items, reducing costs and ensuring consistent quality.→ Self-Generated Power: By generating its own electricity, ESL Steel reduces its reliance on external power sources, which helps control costs and ensures uninterrupted production.→ Own Iron Ore Mines: The company also has its own mines. For instance, in the last year, its mines produced 5.4 million tonnes of iron ore, with 5 million tonnes used internally. This direct control over raw materials gives ESL Steel a competitive edge.
Technology AdoptionModern technology plays a major role in improving efficiency and product quality.→ Computer Vision in Blast Furnaces: ESL Steel uses computer-based systems to monitor its blast furnace. Computer vision means that cameras and software check the process in real time to catch any issues early.→ Enhanced Sinter-Making Process: Software is also used to improve how sinter is produced, ensuring that the quality of the raw material stays consistent.→ Real-Time Tracking: Modern tracking systems help the company monitor every step of the production process. This reduces waste and leads to higher overall profitability.
Environmental ResponsibilitySustainability is important not just for the planet but also for long-term business success.→ Miyawaki Forestry: ESL Steel has adopted Miyawaki forestry, a tree-planting method that creates dense and fast-growing forests. This helps in absorbing carbon dioxide and improving the environment.→ Electric Forklifts: By using electric-powered forklifts instead of petrol ones, the company reduces its carbon emissions and lowers operational costs.→ Reusing Industrial Waste: The company reuses by-products such as slag and ash, which not only minimizes environmental waste but also creates additional revenue opportunities.
Strategic Mine AcquisitionsAcquiring mines ensures a steady supply of raw materials.→ Iron Ore Supply: Securing its own iron ore mines means ESL Steel is less vulnerable to market shortages and price increases.→ Stable Production Levels: With a direct source of raw materials, the company can maintain steady production levels, which is critical during times of increased demand.
ESL Steel Limited operates in a very competitive Indian steel market. Despite being in a tough environment, the company faces losses mainly due to factors outside its direct control.
Net Loss: In FY 2024, they reported a net loss of ₹967.56 crores, compared to a loss of ₹557.91 crores in FY 2023. This increase in loss shows that external pressures have made operations costlier.
Market Pressures: A drop in the prices of steel products (especially long products) means the company earns less money per unit sold.
Raw Material Volatility: Higher costs for key inputs like coal and iron ore (the basic ingredients for steel) make production more expensive.
Regulatory Delays: The company has faced delays in getting necessary environmental clearances and operating approvals at its Bokaro plant. These delays can slow down production and affect overall profitability.
Even though ESL Steel reports losses on paper, one of its strengths is that it generates strong operating cash flows.
Cash Flow to Market Cap Yield: ESL Steel has a yield of 15%, which is a higher rate than the industry median of 7%. This indicates that the company generates more cash relative to its overall market value compared to many of its competitors.
ESL Steel maintains a balanced approach when it comes to borrowing money.
Debt-to-Equity Ratio: This ratio compares the money borrowed (debt) to the money invested by the owners (equity). ESL Steel’s ratio is 0.46x, which means for every rupee of equity, it borrows 46 paise.
Peer Comparison: This ratio is slightly above the industry median of 0.44x but much lower than competitors like JSW Steel’s 1.2x and Tata Steel’s 1.1x. In simple terms, ESL Steel is using less borrowed money compared to these companies, which can be a sign of financial stability and flexibility. Having a lower debt load means the company can more easily manage its finances and invest in future growth without being burdened by high interest payments.
ESL Steel is not just facing challenges; it is also actively planning for growth to capture more of the expanding market.
Capacity Expansion Explained: The company is progressing with plans to increase its production capacity from 1.5 million tonnes per annum (MTPA) to 2.57 MTPA. In basic terms, this means the company will be able to produce more steel each year.
Economies of Scale: When a company increases production, the cost of making each unit (or tonne of steel) often decreases because fixed costs are spread over a larger output. This can lead to improved profit margins.
In conclusion, Electrosteel Steels operates as a fully integrated steel producer—from owning its raw material sources and producing key inputs to manufacturing final steel products that serve various industries. The company’s vertical integration supports its ability to deliver consistent value to sectors. At the same time, fluctuating steel prices and delays in regulatory approvals have negatively affected profitability. Despite these challenges, strong operating cash flows and a controlled debt level help keep the company financially stable. Backed by its parent, Vedanta Limited, the steelmaker appears equipped to face current market uncertainties while building on its long term roadmap.
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