DPR Swastic Repaired)

Swastik Ores & Power Pvt. Ltd.
Sponge Iron Project
Metfin Corporate Advisors Pvt. Ltd.

Swastik Ores & Power Pvt. Ltd.
80 TPD Sponge Iron Project

263513 MCD BMC 1 C
/conversion/tmp/activity_task_scratch/25223675.docx
01 October 2009
November, 2009
Hargarh Industrial Area,

Tahsil : Sihorah,
Metfin
Dist: Jabalpur,
Madhya Pradesh.
Corporate Advisors Pvt. Ltd. (www.metfinadvisors.com)

Content
Chapter Title Page
Executive Summary i
1. Introduction 1
1.1 Study Background_____________________________________________________________________1
1.2 Group Background____________________________________________________________________1
1.3 Promoters___________________________________________________________________________2
1.3.1.1 Pankaj Tekriwal_______________________________________________________________________2
1.3.1.2 Ashok Kumar Maskara_________________________________________Error! Bookmark not defined.
1.3.1.3 Rohit Maskara________________________________________________Error! Bookmark not defined.
1.4 Mott MacDonald in India________________________________________Error! Bookmark not defined.
1.5 Scope of Work________________________________________________________________________5
1.5.1.1 Market analysis and marketing concept____________________________________________________5
1.5.1.2 Technical Assessment_________________________________________________________________5
1.5.1.3 Organization and Overhead Costs________________________________________________________5
1.5.1.4 Human Resources_____________________________________________________________________5
1.5.1.5 Implementation scheduling______________________________________________________________6
1.5.1.6 Financial Analysis and investments_______________________________________________________6
1.6 Approach____________________________________________________________________________6
1.7 Caveats_____________________________________________________Error! Bookmark not defined.
2. Market Assessment 11
2.1 Introduction_________________________________________________________________________11
2.2 Steel Value Chain____________________________________________________________________11
2.3 Industry Structure____________________________________________________________________12
2.3.1 Based on Manufacturing Process________________________________________________________14
2.3.1.1 Integrated (Primary Route) Producers____________________________________________________14
2.3.1.2 Secondary Producers_________________________________________________________________14
2.3.2 Based on Finished Products____________________________________________________________15
2.3.3 Indian Scenario______________________________________________________________________15
2.3.3.1 Consumption of Total Finished Steel_____________________________________________________15
2.3.3.2 Per Capita Consumption of Finished Steel_________________________________________________16
2.3.3.3 Crude Steel Production________________________________________________________________17
2.3.3.4 Process Route Production_____________________________________________________________17
2.4 Structural Steel_______________________________________________Error! Bookmark not defined.
2.4.1 Product Description___________________________________________________________________17
2.4.2 Product Application___________________________________________________________________18
2.4.3 Existing Demand Supply Scenario_______________________________________________________20
2.4.3.1 Demand____________________________________________________________________________20
2.4.3.2 Supply_____________________________________________________________________________21
2.4.3.3 Demand Supply Gap Scenario__________________________________________________________22
2.4.3.4 Prices_____________________________________________________________________________22
2.4.4 Projected Demand Supply Scenario______________________________________________________24
2.4.4.1 Demand____________________________________________________________________________24
2.4.4.2 Supply_____________________________________________________________________________24
2.4.4.3 Demand Supply Gap__________________________________________________________________25
2.4.4.4 Future Pricing_______________________________________________________________________26
2.5 Conclusions_________________________________________________________________________26
3. Marketing Plan 28
3.1 Competition Analysis__________________________________________________________________28
3.2 SOPPL SCOT Analysis________________________________________________________________28
Swastik Ores & Power Pvt. Ltd. MetFin Corporate
3.2.1.1 Strengths___________________________________________________________________________28
3.2.1.2 Concerns___________________________________________________________________________28
3.2.1.3 Opportunities________________________________________________________________________29
3.2.1.4 Threats____________________________________________________________________________29
3.3 Marketing Plan______________________________________________________________________29
3.3.1.1 Product Mix_________________________________________________________________________29
3.3.1.2 Pricing_____________________________________________________________________________29
3.3.1.3 Target Market_______________________________________________________________________29
4. Technical Assessment 30
4.1 Project Configuration__________________________________________________________________30
4.2 Manufacturing Process________________________________________________________________30
4.2.1 Steel Melting Shop___________________________________________________________________30
4.2.1.1 Manufacturing Process________________________________________________________________30
4.2.1.2 Process Description__________________________________________________________________31
4.2.1.3 Technology/ Plant and Machinery Suppliers________________________________________________34
4.2.2 Rolling Mill___________________________________________________Error! Bookmark not defined.
4.2.2.1 Process Flow________________________________________________________________________38
4.2.2.2 Assessment_________________________________________________________________________39
4.2.3 Captive Power Plant___________________________________________Error! Bookmark not defined.
4.2.3.1 Manufacturing Process_________________________________________Error! Bookmark not defined.
4.2.3.2 Process Description___________________________________________Error! Bookmark not defined.
4.2.3.3 Clean Development Mechanism (CDM) Opportunity__________________Error! Bookmark not defined.
4.2.3.4 Technology/ Plant and Machinery Supplier__________________________Error! Bookmark not defined.
4.2.4 Laboratory and Research Development___________________________________________________39
4.3 Location Analysis____________________________________________________________________40
4.4 Environment Management Plan and Statutory Clearances____________________________________41
4.4.1 Sources of Environmental Pollution______________________________________________________41
4.4.1.1 Thermal Pollution____________________________________________________________________41
4.4.1.2 Noise Pollution______________________________________________________________________41
4.4.1.3 Water Pollution______________________________________________________________________41
4.4.1.4 Air Pollution_________________________________________________________________________41
4.4.1.5 Solid Waste_________________________________________________________________________41
4.4.2 Statutory Clearances__________________________________________________________________42
4.5 Raw Material________________________________________________________________________42
4.5.1.1 Iron Ore____________________________________________________________________________42
4.5.1.2 DRI or Sponge Iron____________________________________________Error! Bookmark not defined.
4.5.1.3 Coal_______________________________________________________________________________44
4.5.1.4 Scrap_______________________________________________________Error! Bookmark not defined.
4.6 Utilities_____________________________________________________________________________49
4.6.1.1 Power_____________________________________________________________________________49
4.6.1.2 Water______________________________________________________________________________49
4.7 Manpower Details____________________________________________________________________49
4.8 Project Cost_________________________________________________________________________50
4.8.1.1 Land and Land Development___________________________________________________________50
4.8.1.2 Building and Civil Works_______________________________________________________________51
4.8.1.3 Plant and Machinery Cost______________________________________________________________52
Swastik Ores and Power Pvt. Ltd., Sponge Iron Project No.10152, Nov,2009
4.8.1.4 Miscellaneous Fixed Assets____________________________________________________________53

4.8.1.5 Preliminary and Pre-operative Expenses__________________________________________________53
4.8.1.6 Interest During Construction (IDC) Period_________________________________________________54
4.8.1.7 Margin Money for Working Capital_______________________________________________________54
4.8.1.8 Contingency________________________________________________________________________54
4.9 Implementation Schedule______________________________________________________________54
4.10 Conclusions_________________________________________________________________________55
5. Financial Assessment 56
5.1 Introduction_________________________________________________________________________56
5.2 Capacity Utilisation___________________________________________________________________56
5.3 Revenue Stream_____________________________________________________________________57
5.4 Cost Stream________________________________________________________________________59
5.4.1 Variable Cost________________________________________________________________________59
5.4.1.1 Raw Material________________________________________________________________________59
5.4.1.2 Utilities_____________________________________________________________________________59
5.4.1.3 Spares and Consumables______________________________________________________________60
5.4.1.4 Material Handling and Transportation_____________________________________________________60
5.4.1.5 Repairs and Maintenance______________________________________________________________60
5.4.2 Fixed Costs_________________________________________________________________________61
5.4.2.1 Manpower Cost______________________________________________________________________61
5.4.2.2 Administration Expenses and Misc. Expenses______________________________________________61
5.4.2.3 Selling and Distribution Expenses________________________________________________________61
5.4.2.4 Miscellaneous Expenses_______________________________________________________________61
5.5 Operating Profits_____________________________________________________________________62
5.6 Working Capital______________________________________________________________________62
5.7 Means of Finance____________________________________________________________________63
5.8 Project Evaluation____________________________________________________________________64
5.9 Project Risk Assessment_______________________________________________________________65
5.9.1.1 5% increase in Raw Material Prices______________________________________________________65
5.9.1.2 5% decrease in Selling Prices___________________________________________________________65
5.9.1.3 10% increase in Project Cost___________________________________________________________66
5.9.1.4 10% decrease in Capacity Utilisation_____________________________________________________66
5.10 Conclusions_________________________________________________________________________67
Appendices 68
Appendix A. Financial Model – Base Case___________________________________________________________69
Tables
Table 1.1: Annual Licensed Capacities_____________________________________________________________1
Table 2.1: Industry Structure____________________________________________________________________14
Table 2.2: Consumption of Total Finished Steel in India_______________________________________________16
Table 2.3: Domestic Crude Steel Production________________________________________________________17
Table 2.4: Process Route Production_____________________________________________________________17
Table 2.5: Projected Demand Supply Gap__________________________________________________________26
Table 3.1: Competition Analysis__________________________________________________________________28

Table 4.1: Manpower Requirement_______________________________________________________________49
Table 4.2: SuMetFinary of Capital Investment_______________________________________________________50
Table 4.3: Building and Civil Works Cost___________________________________________________________51
Table 4.4: Induction Furnace - Plant and Machinery Cost______________________________________________52
Table 4.5: Power Plant -EPC Contract Value_______________________________________________________52
Table 4.6: Miscellaneous Fixed Assets____________________________________________________________53
Table 4.7: Preliminary and Pre-operative Expenses__________________________________________________54
Table 5.1: Capacity and Capacity Utilisation________________________________________________________56
Table 5.2: Revenue Stream_____________________________________________________________________58
Table 5.3: Utilities - Consumption Norm and Unit Rates_______________________________________________59
Table 5.4: Utilities - Consumption Norm and Unit Rates_______________________________________________60
Table 5.5: Operating Profit______________________________________________________________________62
Table 5.6: Working Capital Requirement___________________________________________________________63
Table 5.7: Project Phasing______________________________________________________________________64
Table 5.8: Means of Finance____________________________________________________________________64
Table 5.9: Financial Evaluation - Base Case________________________________________________________64
Table 5.10: Financial Evalution - 5% increase in Raw Material Prices_____________________________________65
Table 5.11: Financial Evaluation - 5% decrease in Selling Prices_________________________________________65
Table 5.12: Financial Evalution - 10% increase in Project Cost___________________________________________66
Table 5.13: Financial Evaluation - 10% decrease in Capacity Utilisation___________________________________66
Figures
Figure 2.1: Steel Value Chain____________________________________________________________________12
Figure 2.2: Industry Structure____________________________________________________________________13
Figure 2.3: Productwise Consumption_____________________________________________________________15
Figure 2.4: Per Capita Consumption of Steel in India__________________________________________________16
Figure 2.5: Demand of Structural Steel Products_____________________________________________________20
Figure 2.6: Supply of Structural Steel_______________________________________Error! Bookmark not defined.
Figure 2.7: Domestic Structural Steel Prices (Rs./Ton)_________________________Error! Bookmark not defined.
Figure 4.1: Project Configuration__________________________________________________________________30
Figure 4.2: Steel Melting Shop - Process Flow Diagram_________________________Error! Bookmark not defined.
Figure 4.3: Rolling Mill - Process Flow Diagram______________________________________________________39
Figure 4.4: Waste Heat Recovery Boiler Based Power Plant - Process Diagram______Error! Bookmark not defined.
Figure 4.5: Coal Based Power Plant - Process Diagram________________________Error! Bookmark not defined.
Executive Summary
Swastik Ores and Power Pvt. Ltd. (SOPPL) registered
under Companies Act, 1956, is a private limited
company incorporated on 13th October 2009. SOPPL is
incorporated for setting up a sponge iron plant.
SOPPL is considering installing 80 metric tonne per

day (TPD) of DRI Sponge Iron Plant. The Company
has approached the Lending Institutions for the
purpose of raising debt for undertaking the Project. The
Lending Institutions as a part of their appraisal have
asked the Management of SOPPL to get a Techno-
Economic Feasibility Study of the Project carried out by
an Independent Consultants.
In this regards, the Company has approached and

appointed MetFin Corporate Advisors Pvt. Ltd. (MetFin
or Consultants) for undertaking the Techno-Economic
Feasibility Study of the Project.
Project Configuration
The expansion will come-up at Hargarh Industrial Area,

Tahsil: Sihora, District Jabalpur, in the state of Madhya
Pradesh.
 80 TPD Sponge Iron Kiln
The Project Configuration offers the following

advantages –
 A project with better flexibility in operations.
 An ideal capacity leading to better absorption of
fixed and semi-fixed costs.
 Near to raw material availability offering better
bargaining power.
 Adequate flexibility for setting up value added
product lines in future.
1 Swastik Ores and Power Pvt. Ltd., Sponge Iron Project No.10152, Nov,2009
1. Introduction
Figure S.1: Project Configuration Sized Iron Ore

(Raw Material)
DRI Sponge Iron

(80TPD,24000TPA)
90
80
70
60 Sponge Iron
50 To Market East
40 West
Source: SOPPL and METFIN Assessment 30 North
20
10
0
Project FinancialsThe summary of the
1st Qtr 2nd Qtr Project
3rd Qtr 4th Qtr Cost is
indicated in Table S.1 below.
Table S.1: Summary of Capital Investment

Description Unit 2009-10 Total
Land and Land Development Rs. Lakh 75.00 75.00
Building and Civil Works Rs. Lakh 940.00 940.00
Plant and Machinery Rs. Lakh 1903.00 1903.00
Miscellaneous Fixed Assets Rs. Lakh 15.00 15.00
Preliminary and Pre-operative Expenses Rs. Lakh 25.00 25.00
Margin Money Rs. Lakh 231.00 231.00
IDC Rs. Lakh 125.00 125.00
Total 3314.00 3314.00
Source: MetFin Estimates
1.1 Study Background

SOPPL is considering
installing 80 TPD of DRI Swastik Ores and Power
Sponge Iron Plant. Pvt. Ltd. (SOPPL) registered
under Companies Act, 1956, is a private limited company incorporated

on 13th October 2009. SOPPL is incorporated for setting up a sponge
iron plant.
SOPPL’s selected manufacturing location (Plant) at Hargarh Industrial

Area, Tahsil: Sihora, District Jabalpur, in the state of Madhya Pradesh.
SOPPL is considering installing 80 metric tonne per day (TPD) of DRI

Sponge Iron Plant. The Company has approached the Lending
Institutions for the purpose of raising debt for undertaking the Project.
The Lending Institutions as a part of their appraisal have asked the
Management of SOPPL to get a Techno-Economic Feasibility Study of
the Project carried out by an
Independent Consultants.
The proposed
manufacturing facility of In this regards, the Company
SOPPL in Hargarh has approached and
industrial area (MPAKVN) appointed MetFin Corporate
Tahsil Sihora, Dist:Jabalpur Advisors Pvt. Ltd. (MetFin or
in the state of Madhya Consultants) for undertaking
the Techno-Economic
Pradesh.
Feasibility Study of the
Project.
1.2 Group Background
The company is promoted by Mr. Pankaj Tekriwal, Mr. Vivek Agarwal

and Mr. Ramesh Chandra Verma. The company is incorporated for the
purpose of setting an 80 TPD Sponge Iron Plant.
Table 1.2: Annual Licensed Capacities
Particulars Annual Licensed Current Installed Capacities

Capacities (TPA)
Capacity Basis Capacity (TPA)
Sponge Iron 210,000 80 TPD x 300 days 24,000
Source: SOPPL
Considering a favourable market scenario and demand of sponge iron

in developing economies like India, SOPPL now proposes for setting
up a plant. In this regard, SOPPL has applied to Madhya Pradesh
Audyogik Kendra Vikash Nigam (MPAKVN) for land which has been
allotted at Hargarh Industrial Area,
Tahsil: Sihora, District: Jabalpur, in
The Proposed site is the state of Madhya Pradesh.
near to the iron ore
mines area. The area of Jabalpur/Sihora has a
large number of Iron Ore Mines.
SOPPL has carried out internal
geological survey. However, based on the results from the limited
survey carried out by SOPPL, the Consultants estimate that an average
60 – 62 % Fe Iron ore will be available from the area. Further, there
may be adequate reserves to meet the requirement of SOPPL for
operations.
1.3 Promoters
SOPPL is promoted by
Mr. Pankaj Tekriwal, SOPPL is promoted by Mr.
Pankaj Tekriwal, Mr. Vivek
Mr. Vivek Agarwal and
Agarwal and Mr. Ramesh
Mr. Ramesh Chandra
Chandra Verma. The
Verma. subsequent sections provide a
brief account of the promoters.
1.3.1.1 Mr. Pankaj Tekriwal
Mr. Tekriwal is one of the Promoters / Founders of SOPPL. He is an

Engineer and also has a vast experience of over 10 years in domestic
steel industry. He is a member of many social and business
organisations. He is the driving force in the Organisation for
implementing technology in the Indian environment
Mr. Tekriwal is the director of the company known as High Tech

Abrasives Ltd. He is the main person on the technology side and
master of marketing of steel products. He is very good at procuring in a
short spell of time and arranging the raw materials of steel units. This is
very critical to any steel manufacturing unit.
 He is very good in stream-lining the supply chain and has the ability
of cost control to achieve highest level of production.
 He is in the course of patenting the technology for making steel
shots and grits. Earlier the surface cleaning in the Engineering side
was done by Sand Blast but now the process has been banned by
the WHO. This technology is to his credit.
 He may be the first person who is thinking to change the hot Sponge
Iron into Induction furnace and down stream the product so that the
valuable energy can be saved and which is going to be cost
effective and will be good for the national interest. Because energy
is National Wealth which should be preserved and cautiously used.
 He is helping many technocrats to put their thoughts in reality and
developing new technology which can be adopted in India.
 A hard-working and painstaking and very friendly with his labourers
and staff Mr Tekriwal is very passionate with his work and
dedicated to long hours of working.
1.3.1.2 Mr. Vivek Agarwal
Mr. Vivek Agarwal received his Bachelor’s in Civil Engineering degree

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

in steel manufacturing industries since 7 years. He is also responsible
for the complete implementation of integrated steel manufacturing and
processing units.
He also implements ISO 9001 quality systems with a team of managers

and a total work force of 25. Since 1991, he worked as a project
consultant on various industrial and commercial projects.
Some of the prestigious steel projects that he has handled include:
 Surya Wires, Vandana Industries, Swastic Wires, Sarti Ispat Loha

Udyog, Radhakrishna Rolling Mill Ltd., Prakash Steels Ltd.
In addition to several steel projects, he was involved in establishing

quality control aspects in the food processing, plastics, sewerage,
software making and environmental controls in industries.
1.3.1.3 Mr. Ramesh Chandra Verma
Mr. Ramesh Chandra Verma is a science graduate and has about 41

years of experience in various industries.
During 1965-76, he worked with M/s Heatly & Gresham (India) Ltd.,
looking after marketing of heavy civil engineering machines, oil burning
equipments etc. In 1976, he joined M/s Incorporated Engineers Pvt.
Ltd., Calcutta, looking after oil handling turnkey projects. During 1981-
85, he worked as Works Manager in M/s Ether (India) Ltd. From 1985-
89, he worked with M/s Macloid Steel (Pvt.) Ltd. and looking after
marketing of steel shots and grits.
In 1989, he became a partner in M/s Steel Abrasive Industries, Raipur

and continued till 1991. During 1991-93, he was the founder and
director of M/s Hi-Tech Abrasives Ltd., a company engaged in the
manufacture of steel shots, grits and ingots. He was also the director of
M/s Raipur Abrasives Ltd., a company engaged in manufacture of
ingots during 1993-95. Thereafter, he was a director in M/s Southern
Ispat Ltd. wherein C.I. Ingots, moulds, M.S. Ingots and CTD bars were
manufactured.
Subsequently, after completion of the above assignments, he took up

the responsibility of project formulation and implementation in M/s
Global Hi-Tech Industries Ltd. to set up a sponge iron plant, melting
shop, concast and re-rolling facilities.
1.4 MetFin Corporate Advisors Pvt. Ltd.
MetFin Corporate
MetFin provides business Advisors Pvt. Ltd. is a
planning and advisory corporate advisory firm
services for a wide incorporated in Kolkata
spectrum of clients in and having corporate
industry, infrastructure and Office in Mumbai. It
provides comprehensive
social development.
range of corporate
advisory Services including Corporate & Financial Management,
structuring / restructuring, Technical management, Investment Banking
MetFin is an established and multi faceted organization dedicated to the

provision of a wide range of professional services. Our experience
ranging from Finance to Business Solutions and markets, combined
with a versatile group of professionals and an integrated multi-
disciplinary approach broadens its capabilities and enhances ability to
identify, confront and resolve a variety of issues and concerns for
clients across the world.
Located in many cities in India -Mumbai, Delhi, Kolkata, Bangalore,

Indore, Bhubaneswar and Baroda and also have international offices in
Singapore, Hong Kong and Kazakhstan.
To be the preferred Corporate Service provider & consistently delivering

value through innovation and commitment.
Our values serve as a compass for our actions and describe how we
behave in the world.
Our vision guides every aspect of our business by describing what we

need to accomplish in order to continue achieving sustainable growth.
Nurturing a winning network of Advisory group and network companies,

together we create mutual, enduring value.
1.5 Scope of Work
The Scope of Work as envisaged by the Consultants includes –

1.5.1.1 Market analysis and marketing concept
Definition of the basic idea of the project, objectives and strategy
 Demand and market
 Structure and characteristics of the market
 The estimated existing size and capacities of the industry
(specifying market leaders), its past growth, estimated future
growth (specifying major programmes of development), local
dispersal of industry, major problems and prospects, general
quality of goods
 Approximate present size of demand, its past growth, major
determinants and indicators
 Marketing concept, sales forecast and marketing budget
 Description of the marketing concept, selected targets and
strategies
 Anticipated competition from existing and potential local & foreign
producers and supplies
 Localization of markets and product target group
 Sales programme
 Estimated annual sales revenues from products, pricing of the
product.
 Estimated annual costs of sales promotion and marketing
1.5.1.2 Technical Assessment
 Comments on the technology of the equipment proposed to be
acquired for the project
 Assess the technical feasibility
1.5.1.3 Organization and Overhead Costs
 Organizational layout
 General Management
 Production
 Sales
 Administration
 Estimated overhead costs
 Factory
 Administrative
 Financial
1.5.1.4 Human Resources
 Estimated human resources requirements, broken down into labour
and staff and into major categories of skills.
 Estimated annual human resources costs, classified as above,
including overheads on wages and salaries
1.5.1.5 Implementation scheduling
 Proposed approximate implementation time schedule
 Estimated implementation costs
1.5.1.6 Financial Analysis and investments
 Total investment costs
 Rough estimate of working capital requirements
 Estimated fixed assets
 Project Financing
 Proposed capital structure and proposed financing
 Cost of finance
 Production cost (significantly large cost items to be classified by
materials, personnel and overhead costs, as well as by fixed and
variable costs)
 Financial evaluation based on the above-mentioned estimated
values
1.6 Approach
The Consultants adopted aThe Consultants adopted

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

 Current demand /supply scenario.
 Projected demand /supply scenario during 2009-17.
 Projected demand /supply Gap analysis during 2009-17.
 Technology requirement and cost of equipments.
 Project configuration.
 Operating costs covering raw material, power, labour and spares.

 Working capital requirement covering spares, raw material, work-in-
progress.
 Financial and technical feasibility of the project.
1.6.1.1 Caveats
 There was a recessionary trend in the global market till March, 2009,
which has affected fresh investments in the core sectors like iron
and steel industry. It is very difficult to actually predict the
investments due to recessionary trend faced by the market.
 The mismatch between demand and supply also leads to price
volatility witnessed during recent times. Stagnation in steel prices for
long periods followed by sudden spurt also affects the end-users.
 Financial crisis in the global markets could be leading to a slowdown
in the global economy which could translate into sluggish demand
for steel products.
1.7 Key Personnel
Chairman- Mr R. S. Rathod
Mr. Rathod is an eminent personality in Finance world. He is retired IRS
Officer and Ex-Chairman of CBDT with wide range of experience in
formation of various fiscal and monetary policies. He has also served as
special Secretary to Ministry of Finance, Govt. of India. He has also
been Ex-Chairman of Bank of Rajasthan. He is known for his expertise
in taxation and Banking
Vice-Chairman- Dr. M. K. Sinha

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

A Science Graduate, Fellow Chartered Accountant and a Doctorate
in Financial Management having a vast experience in metal and power
industry. He has been awarded with ‘Bharat Gaurav’ award for his
contribution in industrial and financial management. He is having 35
year’s rich experience as Senior Executive to Managing Director, also

he is Special Advisor to many large Corporate
Director- Mr. C. S. Jalan

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

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

Mr. Bhupendra Parikh, M.Com. LLB, CAIIB, is a Former Director of
Gujarat State Fertilizers & Chemicals Ltd appointed by Government of
Gujarat. He is a president of several social and corporate organizations.
He has worked with Bank of Baroda in various positions, having very
good background of Industrial Finance. He has travelled various
countries in world for financial consultancy related work
Director- Mr. D. Kantha
Mr. D. Kantha, a Chartered Engineer turned a management consultant,
established his core competence in cross-cultural attributes, keeping
his main focus in Technology, products, projects, HRD, services,
Manufacturing, Corporate, Policy and Strategy, while elevating himself
in various levels of operation both in general and corporate
management .He has worked with MNC like Martin Burn, Guest keen
Williams, Bird- Heilgers group and Andrew Yule group
Dr. Narendra Mohan PhD (Metallurgy, USSR)

Dr. Mohan’s research work on the Development of Technology of
Stainless Steel making in Oxygen converters led to the award of Soviet
Patent. He has developed Ferrous and Non-ferrous Foundry and
established good test center for the development of Rural Industries at
Srinagar. He is currently Chairman cum Managing Director of Chemet
Consultant Pvt. Ltd. and Chemet Engineers India Pvt. Ltd
Mr. S. K. Khandelwal , Chartered Accountant

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

Mr. Bubna is a Commerce graduate and FCA with expertise in Taxation
and accounts. He advises a number of corporate in Taxation related
matters
Mr. Pradeep K Tiwari, Lawyer

Mr. Tiwari has vast experience in cases related to Bank disputes,
Company affairs and all other movable and immovable disputes
Mr. Manish Agarwal, Chartered Financial Analyst

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

Mr. Agarwal is expert in mining execution and development. He is also
acknowledged name in ferro-alloy industry
Mr. R. P. Sinha M.Tech (Mechanical) (IIT Kharagpur)

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

Mr. Garecha is B.E. (Mining) with years of experience in Public sector
Steel industry. He is consultant and advisor to many upcoming steel
companies
Mr. J. P. Tapuriah B.Tech (Mechanical Engineering)

He is B.Tech in Mechanical Engineering with 40 years techno
commercial experience in steel, steel casting, alloy steel, sponge iron,
power plant etc. both in project implementation and plant operations
Mr. Sunil Sharma B.Com (Mumbai University)

Mr. Sharma is a Commerce Graduate from Mumbai University with vast
experience in Investment management. He has successfully handled
private placement in the country. He is in international fund raising
Ms. Rajeshri R. Mittal M.A. (Sociology)

Proprietor of Mittal Business partners (MBP), a Global M & A Advisory
firm having a very good networking with international M&A advisors in
more than 50 countries including Singapore, Hong Kong, Switzerland,
US, UK, Canada etc. She is working hard to become a global leader in
M & A activities with partnering with international firms
Tax Advisors
S. Jaykishen, Kolkata
Corporate Matters
Adv. Pradeep Tiwari, ( L.P Tiwari & Co.) , Kolkata
Merchant Bankers
Microsec Ltd., Kolkata
Saffron Capital Advisors Pvt. Ltd., Mumbai
Leverage Capital, Kolkata
Technical Consultants
Chemet Engineers India Pvt. Ltd, NewDelhi
Mott Mc Donald, Mumbai
DSCL Energy Services Co. Ltd, New Delhi
ShaktiPunj Engineers (P)Ltd, Raipur
2. Market Assessment
Research House
ARC Financial Services Pvt. Ltd., New Delhi
1.8 Introduction
Steel, is considered as a crucial growth driver for the modern economy.

The level of socio-economic development and living standard of people
in a country is measured by the per capita consumption of steel.
Steel has played a significant role being the driver of many developing
economies. The industry is currently seen as the sunrise industry for
developing nations. The leading steel producers like United States,
Russia and Japan face stiff competition from fast developing nations
like China and India. Liberalisation in 1991, played a decisive role in
assisting the Indian companies move up the value chain with better
quality and increased domestic production of value added products.
1.9 Steel Value Chain
Steel finds extensive usage in our day-to-day life. Practically the

sustainability of all industries to a greater extent is dependent on steel.
In order to meet specific requirements of key industries the steel
industry gradually has undergone major technological advancements to
produce the right quality metal which in turn made significant
contribution to overall growth of the industry.
The major raw material for manufacturing steel is iron ore. Iron ore can
be converted to steel using the following methods -
 Classical / Primary route of blast furnace and basic oxygen furnace
 Modern / Secondary route of electric arc / induction furnace
 Mix of Primary and Secondary route
The Figure 2 .2 represents steel industry value chain. From Figure 2 .2

and information collected
from secondary sources,
There are a large number the Consultants note the
of products in the entire following –
value chain. These  There are a large
products have a market of number of intermediate
their own and are traded in products in the entire
both domestic as well as value chain. These
global market.
intermediate products have a market of their own and are traded in

both domestic as well as global market
 The demand – supply scenario of each intermediate product has an
impact on the prices of finished steel, both in domestic as well as
international markets
 Investment needed varies across the value chain and hence the
structure of industry varies across the value chain
Economies of scale, market proximity, raw material nearness, land and

utility requirements and pollution generated varies across the value
chain and hence different players adopt different plant configurations
depending on internal strengths and market realities.
Figure 2.2: Steel Value Chain
Iron ore / Pellet & Coal Iron Ore / Pellet & Coal
Blast furnace Sponge iron kiln DRI

Pig Scrap
Iron
Basic oxygen furnace EAF / Induction furnace Ferro
alloys
Billets /
Blooms / Ingots / Continuous Caster / VOD /AOD
Ingots
HRC Hot rolling Casting Tube Rolling

& mills mills
Scrap
Cold rolling Pipe mill Casts Seamless Bars /

CRC angles /
tubes /
& channels /
scrap
Scrap Scrap /
Coating ERW /
SAW Wire rods
pipes /
Coated Scrap
sheets
Source: METFIN Database
1.10 Industry Structure
The steel industry of India

India ranks fifth among the has capital investments of
top steel producers of the more than Rs.100, 000
world with a production crores. The total
capacity of 64.40 million employment in the industry
Tons is more than two million
(including direct and indirect
employment).
The size of India's steel industry has increased considerably in recent

years. According to latest available estimates, India ranks fifth among
the top steel producers of the world with a production capacity of 64.40
million Tons. The Indian steel industry has come a long way since its
humble beginnings. The takeover of the British steel giant Corus steel
by Tata Steel and the acquisition of Arcelor by Mittal Steel, has herald a
new beginning for the Indian steel industry. These events signify that
the Indian steel industry has acquired a global identity and is today
extremely competitive
globally.
Indian steel production  It has to be said that the
stood at about of 54.52 global recession has
million Tons during 2008- affected the Indian steel
09, of which domestic industry especially
consumption was to the stainless steel, but the
tune of about 52.16 million steel industry is trying to
Tons offset the negative effect
of the recession by
focusing on transportation and construction projects which are
usually funded by the government.
 India is the only country globally to record a positive overall growth
in crude steel production at 1.01 per cent for the period January
-March 2009.
 It is estimated that India's steel consumption will grow at nearly 16%
annually till 2012.
 The National Steel Policy has forecasted the demand for steel would
reach 110 million tons by 2019-2020.
India is the fifth largest producer of steel in the world. Indian steel
production stood at about of 54.52 million Tons during 2008-09, of
which domestic consumption was to the tune of about 52.16 million
Tons. The steel industry can broadly be divided into two major
categories - based on the type of finished products or on the basis of
the manufacturing process. Figure 2 .3 illustrates the Indian steel

industry structure.
Figure 2.3: Industry Structure
STEEL
INDUSTRY
STRUCTURE
Based on Finished Products Based on Manufacturing

Process
Long Flat Primary Secondary

Products Products Producers Producers
A.1. Based on Manufacturing Process

1.10.1.1 Integrated (Primary Route) Producers
The manufacturers whose value chain extends from iron ore to finished
steel at a single location are known as Integrated Producers like, Steel
Authority of India Limited (SAIL), Tata Steel Limited (Tata Steel or TSL)
and Rashtriya Ispat Nigam Limited (RINL). These players mostly adopt
the primary route for manufacturing steel.
1.10.1.2 Secondary Producers
The manufacturers whose value chain extends from iron ore to finished
steel at various locations are known as Secondary Producers. This
segment is a distinctly heterogeneous one, not only in its composition
but also spread, capacity level, capacity utilization and production/
items of production. It is comprised mainly of Mini Blast Furnace units,
Sponge Iron producers, Induction Furnace (IF) and Electric Arc Furnace
(EAF) units, Re-rolling (RR) units, Hot Rolled (HR) units, Cold Rolled
(CR) units, Galvanised/Colour coated units, Tin Plate units and Wire-
Drawing units The input in the secondary route is either steel scrap or
molten iron, which is a recent development. The players like Essar
Steel, Ispat Industries produce steel by using scrap steel. This method
utilises electric arc furnace or induction furnace to produce steel.
Based on product categories (and major producers), the industry can

be divided as indicated in Table 2 .3.
Table 2.3: Industry Structure
Products Players
Iron Ore NMDC, Kudremukh Iron Ore Company, Sesa Goa, SAIL, Tata Steel
Pig Iron RINL, Sesa, Usha Ispat, Malvika Steel, Kalinga Steel, Kirloskar, SAIL
Sponge Iron Essar, Ispat, Vikram Ispat, Topsworth Group
Hot Rolled Coils/Sheets / Plates SAIL, Tata, Essar, Ispat, JSW
Cold Rolled Coils/ Sheets SAIL, Tata, Ispat, Essar, JSW, Lollyds, Bhushan, Uttam
Galvanized Sheets SAIL, Tata, Ispat, Essar, JSW, Bhushan, Uttam, Lloyds
Bars / Rods / Wire Rods SAIL, Tata, RINL , Mukand, Usha Martin,
Alloy Steel Products Mukund, MUSCO, Kalyani, Usha Martin, Facor, Sunflag, Viraj
Source: Research Reports
A.2. Based on Finished Products
Finished products are either flat products or long products. Flat

products include hot rolled or cold rolled sheets and coils, galvanised
sheets/coils, whereas long products include bars and rods, structurals
and railway materials. The application of flat and long products are
different, based on the end use. The demand for flat products and long
products is almost balanced indicating a trend typical in developing
countries as seen in Figure 2 .4.
Figure 2.4: Productwise Consumption
Flat Products
48%
Long
Products
52%
Source: Sector Reports
As discussed, steel is a complex industry with a large number of

intermediate products. The Project being planned by the Company
does not include all the intermediate products discussed in the value
chain. Further, a large number of intermediate products will be
consumed in-house to manufacture value-added products. In the
subsequent sections, the Consultants have focused on products being

planned by the Company under the Project.
A.3. Indian Scenario
1.10.1.3 Consumption of Total Finished Steel
Table 2 .4 below shows the consumption of total finished steel during

the period 2005-09.
Table 2.4: Consumption of Total Finished Steel in India

Consumption of All figures in Million Tons
Total Finished Steel 2005-06 2006-07 2007-08 2008-09
Long 23.45 26.11 28.49 27.01
Flat 17.98 20.67 23.31 25.15
Total Consumption 41.43 46.78 51.80 52.16
Share of Long (%) 57 56 55 52
Share of Flat (%) 43 44 45 48
Source: JPC
The Consultants note the following from the Table 2 .4 above –

 During the period 2005-09,
the consumption of long
The per capita consumption
products has grown at a
of steel has grown at a
CAGR of 4.8%.
CAGR 10.4% during the  The consumption for flat
period 2003-08 to reach an products has grown at a
estimated 50.2 Kg during CAGR of 11.8% during the
the year 2008 period 2005-09.
The Consultants believe that the phenomenal growth rate in
consumption of both long and flat products in India has been on
account of increased demand of these products from the infrastructure
industry.
1.10.1.4 Per Capita Consumption of Finished Steel
The per capita consumption of finished steel in India stood at about

30.6 Kg during the year 2003. Since then the per capita consumption of
steel has grown at a CAGR 10.4% during the period 2003-08 to reach
an estimated 50.2 Kg during the year 2008. The Figure 2 .5 below
indicates the per capita consumption of steel in India during the period
2003-08.
Figure 2.5: Per Capita Consumption of Steel in India
60 14.0%
50 12.0%
10.0%
40
8.0%
30
6.0%
20
4.0%
10 2.0%
0 0.0%
2003 2004 2005 2006 2007 2008
Per Capita Consumption (in Kgs) Y-o-Y Growth
Source: JPC
The Consultants note that the per capita consumption of steel in India
has grown over the years; still it is lower than the developed nation’s
average of about 150 Kg.
1.10.1.5 Crude Steel Production
Table 2 .5 below indicates the crude steel production in India during

the period 2005-09. As indicated in the Table 2 .5 below, last three
years have seen steady growth trends in crude steel production.
Table 2.5: Domestic Crude Steel Production

(All figures are in million Tons)
Crude Steel 2005-06 2006-07 2007-08 2008-09 CAGR
Production 46.46 50.82 53.90 54.52 5.48%
Capacity 51.17 56.84 59.00 64.40 7.97%
Capacity Utilisation 91.00 89.00 91.00 85.00
Source: JPC
1.10.1.6 Process Route Production
Table 2 .6 below shows the process route production during the years
2005 to 2009. The production has been contributed largely by strong
trends in growth of the electric route, particularly the Induction Furnace
route.
Table 2.6: Process Route Production

(All figures are in million Tons)
Process 2005-06 2006-07 2007-08 2008-09 CAGR
Route
Production
Oxygen 24.34 25.39 22.1 25.63 1.73%
EAF 8.57 10.03 13.99 10.90 8.36%
IF 13.49 15.39 17.81 17.99 10.07%
Source: JPC
1.11 Sponge Iron

A.1.1.1. A.3.1.1. Product Description
Steel has had a major influence on our day to day lives. To meet today`s
demand for high quality steel, the steel industry has developed new
technologies and has strived hard to make the world`s strongest and most
versatile material even better. There are two main routes for steel making. One
is the “classical route”, also called as primary route” based on blast furnace
(BF) and basic oxygen furnace (BOF) and the second is “modern route” also
called as “secondary route”, based on induction furnace (IF) or electric arc
furnace (EAF), using steel scrap or sponge iron i.e. Direct Reduced Iron (DRI)
as basic raw materials.
Steel made from steel scrap is called electric steel. The single largest element
of cost in electric steel making is steel scrap. Rapid increase in steel production
through this route is causing a shortage of good quality scarp (scrap with
minimum contamination). At the same time, steel scrap of high purity is
becoming scarce and it is becoming difficult for IF/EAF operators to procure the
right quality input.
Electric steel production is growing at an annual rate of about 6% to 10% due to

its application in the construction, automobile and engineering sectors. In
United States and Europe, electric steel accounts for nearly 50% of the steel
production. In India, electric steel accounts for about 64% of the total steel
production.
Fortunately, the technology of sponge iron has provided electric steel makers
with an alternative raw material to scrap. This product, known as DRI or sponge
iron, is better in quality than scrap and is also cheaper than scrap.
DRI or sponge iron as it is often referred to, is the substitute for melting scrap
(scrap steel) in the steel making process. DRI is the process of converting iron
ores, to metallic iron without the smelting process. The process of sponge iron
making aims to remove oxygen from iron ore. When that occurs, the departing
oxygen causes micro pores in the ore body making it porous. The final product,
when observed under a microscope, resembles a honeycomb structure looking

spongy in texture, hence the name sponge iron.
Sponge iron is a high ferrous content charge material for iron and steel making.
Sponge iron is produced in lump or pellet form, sized typically at 4 by 20mm.
Sponge iron also comes in compacted and briquette form known as Hot
Briquetted Iron (HBI), which is made by hot compacting sponge iron at
temperatures over 650 degree centigrade into a pillow shaped briquette
measuring 110 X50X30 millimetres.
A.3.1.2. Properties and Applications
Sponge Iron is a substitute of steel scrap for steel making through secondary
route i.e. EAF/IF route. The rapid growth of electric steel making has created
the need to develop alternative source(s) of iron bearing materials (feed
material). The high price of steel scrap, coupled with difficult foreign exchange
resources made sponge iron the most viable alternative for domestic steel
manufacturers adopting EAF/IF route. Further, merits of using sponge iron vis-
a-vis scrap with respect to residual elements in shredded scrap show that the
former is superior as a charge material. The following table shows the
comparison between scrap and sponge iron properties.
Typical Composition of Shredded scraps & sponge iron

(all figures in percentage)
Description Shredded Scrap Sponge Iron

Carbon 0.25 1-1.15
Copper 0.22 0-0.01
Chromium 0.18 0.001-0.01
Nickel 0.11 0.001-0.01
Molybdenum 0.02 0.001-0.002
Tin 0.02 0.001-0.002
Manganese 0.40 0.002-0.02
Sulphur 0.04 0.002-0.02
Phosphorus 0.025 0.02-0.10
Source: Sponge Iron Manufacturers Association (SIMA)
The advantages of sponge iron against scrap are indicated below:
 Cost of sponge iron is lower than scrap.
 Homogeneity of composition is favourable when compared with

scrap.
 It replaces ferrous scrap as a coolant in LD converter.
 Free from tramp elements like copper, zinc, tin, chromium,

tungsten, and molybdenum that are usually present in scrap.
 Ability to use low grade fuels and fuels that are unacceptable
for conventional iron making.
 More suited for some special metallurgical processes than

conventional iron & steel products like precipitation of copper
form leaching solution during copper extraction, production of
metal objects of powder compaction.
 Low sulphur content.
 Environmental friendly.
A.4. Existing Demand Supply Scenario
1.11.1.1 Demand
The domestic demand for The total domestic demand for

sponge iron stood at about sponge iron is estimated at about
19.72 million Tons during 19.72 million MT during 2007-08.
2007-08. The major end user of the
Figure 2.6: Sponge iron demand in domestic market
10
The rise of the ‘middle 8
class’ in the last decade 6
90
has also boosted the 4
80
70 economy 2
60
50
40
30 East West North
20
10
0
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Source: CMIE
sponge iron is the steel sector which is growing at an annual rate of

about 13% driven by construction, automobiles and the engineering
sector. The growth in demand for sponge iron is linked to the growth
observed in the domestic steel industry. Analysis from the past
performances indicates that the sponge iron industry grew at CAGR of
about 25% during 2003-08. The figure 2.5 indicates the trend in
demand for sponge iron in the domestic market during 2003-08. From
the figure 2.5 it is noted that demand for sponge iron in India grew at a
CAGR of about 20% during 2006-08.
1.11.1.2 Supply
The installed capacity for India is the world’s largest

sponge iron in India is sponge iron producer. The
installed capacity of sponge iron
estimated at 26.39 million
in the country stood at 26.39
Tons during 2007-08 with
million MT during 2007-08 with
the industry witnessing
a capacity utilisation of 75%.
75% capacity utilisation There are 324 sponge iron units
in the country. Out of these,
there are 321 coal-based units with a total capacity of 18.40 million
MTPA and 3 gas based units with a total capacity of 7.99 million MTPA.
Out of 321 coal-based many of them are from unorganised sector.
Majority of the total operating units are based on coal as the reducing
agent, the largest being Jindal Steel & Power Ltd. at Raigarh,
Chattisgarh with an installed capacity of 0.65 million MT. The three
units that operate based on gas as the reducing agent include Essar
Steel Ltd. with a capacity of 0.9 million MT at Salav in Alibagh,
Maharashtra and Ispat Industries with a capacity of 1.1 million MT at
Dolvi, Maharashtra.
Figure 2.7: Sponge Iron supply in domestic market
Source:CMIE
The figure 2.6 indicates the trend in supply of sponge iron in domestic
market during 2003-08. From the figure 2.6, it can be noted that
majority of the production of sponge iron is consumed within the
domestic market.
Source: Ministry of Steel

1.11.1.3 Demand Supply Scenario
The domestic demand for sponge iron stood at about 19.72 million MT
during 2007-08. This demand was met through with an installed
capacity of 26.39 million MT indicating utilisation over 75%. At present
the demand-supply scenario is balanced. However, the consultant
believe that new capacities would be needed in future as the industry
can achieve the maximum output of 21.77 million MT with a capacity
utilisation of 82.5%. The factors that restrict capacity utilisation include:
 Many players are small (100 MTPD Kilns) and find it difficult to
manage operation and marketing the product.
 Many small players have problem with sourcing of iron ore as

they fail to have long term contract.
1.11.1.4 Prices
Sponge iron prices are
Any further increase in the directly related to scrap
domestic demand will put prices. Scrap prices have
pressure on the production, doubled in recent times and
as the capacity utilisation are currently ruling in the
range of Rs.27,800 per MT,
has already reached its
increasing from around
peak
15000 Sponge Iron

Scrap
10000
100
90
80
70
90
90
Rs.14,500
6080
80
per MT during March 2006. From the figure 2.7 it can be
50 that spongie iron prices have shot upEast
noted in the range of
70
4070 West
Rs.26,000
60 per MT, increasing from Rs.17,650 per MT during
30 East
5000
December
5060 2007. The spurt in the sponge iron North
prices is due to rise East
in
20 West
40
coke,
1050iron ore, power & fuel prices and increase in wage cost
30 North West
backed
0
20
by rising steel demand. Figure 2.7 indicates trend of
9040
domestic1st sponge
Qtr 2nd iron
Qtr prices
3rd Qtr and melting scrap prices.
4th Qtr North
10
80
030
70
60 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
50
20 East
4010
0 West
30
6
8
06
7
07
08
9
North
'0
'0
'0
'0
20 0
p'
p'
p'
ar
ar
ar
ar
Se
Se
Se
M
M
0
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Sponge Iron & Scrape Prices in domestic market
Globalisation has linked the

domestic and international
market. The prices of
domestic market are
governed by the
international market prices
of steel products
From the figure2.7, it can be noted that due to unavailability of scrap

on account of declining ship-breaking activities the scrap prices
have moved upwards. But rising steel demand and unavailability of
scrap has led to an increase in demand of alternative raw material,
which is sponge iron. The price of sponge iron also increased during
the period. Further the gap between sponge iron prices and scrap
prices are expected to narrow down in future due to the increase in
demand of sponge iron as an alternative raw material for electric
steel. During March 2006 to December 2007, the prices of DRI
increased at a CAGR of 15%.
A.4.1.1. Projected Demand Supply Scenario
1.11.1.5 Demand
India’s per capita steel consumption is, however, abysmally low

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

a shortfal of metallic (scrap) in India to the tune of 16.9 million MT by
the year 2011-12. This metallic shortfall is to be met either through
scrap imports or the creation of additional sponge iron capacity.
Outof these available options, thep robability of increased scrap imports

would depend on the availability and relative price structure of the
same. As already indicated earlier, availability of good quality scrap is
steadily decreasing. Moreover, even under current market conditions,
landed price of scrap at end-user sites in India continues to be more
than comparable landed price of sponge iron. This would further
decrease the demand for scrap and lead to increase in demand for
sponge iron.
The long term demand projections of finishexd steel compiled by

Ministry of Steel, India is predicted to reach 103 million MT by 2011-12
against estimated production of 53.5 million MT during year 2007-08. It
has been assessed that the steel production capacity inthe country by
the year 2011-12 will be nearly 124 million tonnes from 56084 million
tonnes in 2006-07. The working group on steel industry has projected a
total demand of 70.34 million MT for finished steel and total production
of 80.23 million MT during 2011-12.
From the above, the annual demand growth for sponge iron for the
period 2008-12 is estimated to be 12%.
1.11.1.6 Supply
In the medium term the outlook for the sponge iron industry looks very
good with rising demand. The manufacturers in the sponge iron industry
are looking to augment capacity. However, these capacities are
expected to go on stream only by 2011. The figure gives the capacity
addition during 2008-12.
As far as creation of additional sponge iron capacity in India is

concerned, it should be mentioned that prospects of installation of new
gas-based DRI palnts are very remote; keeping in view the natural gas
allocation policy followed by the Government of India (restricts
availability). Accordingly, any new sponge iron capacities to be created
would necessraily have to be based on coal.
Table 2.5 : Major Capacity Addition
Company name Capacity (MTPA) Year of Commissioning
Jai Raj Ispat Limited 60,000 2008-09

1.11.1.7 Demand
B D Castings Pvt. Ltd. 1,500,000 2009-10
Adhunik Metals Ltd. 165,000 2009-10
Monnet Ispat & Energy 250,000 2009-10

Ltd.
Basai Steels Pvt. Ltd. 90,000 2009-10
N M D C Ltd. 100,000 2009-10
Parwaz Sponge Iron 60,000 2009-10

Ltd.
Jai Balaji Jyoti Steels 120,000 2010-11

Ltd.
Pawanjay Steel & 500,000 2010-11

Power Ltd.
Supply Gap
As discussed above, the tightening of supply situation has forced major

players to expand their capacities to cater to the ever-increasing
demand of sponge iron. The demand is expected to grow at an annual
rate of about 12% during 2008-12.
Table 2.7: Demand Supply Gap Analysis
Year Demand Supply without Gap Supply with capacity

capacity additions Gap
additions
2007-08 19.72 19.72 0.00 19.72 0.00
2008-09 21.30 21.77 0.31 21.82 0.27
2009-10 23.00 21.77 2.97 23.61 1.13
2010-11 24.84 21.77 5.93 24.12 3.59
2011-12 26.83 21.77 9.26 24.12 6.91
Source: METFIN Estimates

The detailed demand-
supply gap analysis during
If the domestic Sponge 2008-12 is indicated in the
Iron industry does not table 2.5. The Consultants
further add any new note that the demand for
capacities, this demand sponge iron will surpass
supply gap will grow to supply by 2008-09. From
6.91 million Tons by the the Table 2.5 it can be
year 2011-12 noted that there exists a
demand-supply gap and
new sponge iron plants are required to meet the demand.
1.11.1.8 Future Pricing
Due to growing demand for steel coupled with decreasing availability of

good quality scrap, prices of sponge iron is expected to move upwards.
Further, it is noted that sponge iron manufacturers will be able to pass
on any increase in raw material prices to end-users due to tight
demand-supply scenario. The consultants anticipates that the prices of
sponge iron to move up by 7% per annum during the next two years. In
short, from December 2007; when prices shot up dramatically; till March
2011, the Consultants forecast sponge iron prices to increase at a
CAGR of 17%.
3. Marketing Plan
1.12 Conclusions
The Consultant anticipates
that the prices of Sponge The Consultants conclude the
Iron to move up by 7% per following from the discussions in
annum during next two the chapter –
years
 At present the
demand-supply scenario of
sponge iron is balanced. The consultants note that the demand for
sponge iron will surpass supply by 2008-09. Hence, new sponge
iron plants are required to meet the domestic demand in near
future.
 The Consultants anticipate that the prices of sponge iron to

move up by 7% per annum during next two years. The consultants
forecast the sponge iron prices to increase at a CAGR of 17% till
March 2011 from December 2007.
 With the commencement of operation, SOPPL should focus on

developing long term relationships with mines to insure quality and
timely supply at reasonable rates.
 The domestic consumption of steel stood at 52.16 million Tons for

the year 2008-09.
 India’s per capita steel consumption was estimated at 50.2 Kg
during 2008
 Indian steel production stood at about 54.52 million Tons during the
financial year 2008-09.
 Indian steel production has been contributed largely by strong trends
in growth of the electric route process.
 The demand for sponge iron for the year 2008-09 has been growing
at a CAGR of 20%.
 The major demand drivers of steel are the construction industry,
power, railways and the telecommunication sectors.
 The average prices of sponge iron for the year 2009 were Rs.14,000
per Ton.
 The prices are expected to increase at the average annual rate of
7%.
In this chapter, the Consultants have carried out competition analysis of

SOPPL with other players in the market, Strength, Concerns,
Opportunity and Threat (SCOT) analysis and briefly discussed about
the Marketing Plan of SOPPL.
1.13 Competition Analysis
The Consultants have analysed and found that there is no sponge iron
plant situated in the state of Madhya Pradesh presently.
The main producer of steel is shown below in Table 3.1.
Table 3.8: Competition Analysis
Particulars TISCO SAIL Jindal Group

Product Range Long & Flat Long & Flat Long & Flat
Market Coverage Across India Across India Across India
Technology Primary Route Primary Route Secondary Route & COREX
Plant Locations Multiple Multiple Multiple
Mine Linkage Available Available Available
Group Activities Iron and Steel Industry Iron and Steel Industry Diversified
Corporate Brand Image Strong Strong Strong
Government Stake No Yes No
Financial Strength Very Strong Very Strong Very Strong
International Presence Yes Yes Yes
Source: METFIN Research
1.14 SOPPL SCOT Analysis

1.14.1.1 Strengths
 Promoters have over 3 decades of experience in domestic Steel
industry.
 Location advantage with proximity to major markets.
 Location advantage with proximity to a large number of mines.
 Greenfield market
 Availability of iron ore within 50 Kms. radius.
 Availability of coal within 250 Kms. radius.
 M.P. Government allotted 38 Hectares of iron ore mines to A sister
concern Hi-Tech Abrasives Ltd.
1.14.1.2 Concerns
 Economies of scale of major players in domestic market affecting
the overall pricing of the market
1.14.1.3 Opportunities
 Favourable future demand-supply scenario.
 Technology available locally.
 The M.P. has adequate reserves of iron ore and coal.
 Availability of skilled manpower.
 No player of sponge iron in M.P.

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

1.15.1.1 Product Mix
The Company is planning to set up another sponge iron unit in second

phase. SOPPL will have to concentrate on marketing of value added
products. The Company will be in a position to sell the following
products –
 Sponge Iron
The scope of the Consultant is limited to sponge iron only.

1.15.1.2 Pricing
The company is concentrating on allotment of mines, thus the raw

materials cost will be reduced.
SOPPL will have to price their products according to market and

competitors including the discount structure. The Company will not be
in a position to control price movements. Hence, the Company will have
to develop an efficient Market Intelligence System.
1.15.1.3 Target Market
The domestic demand supply scenario is favourable and hence the

Consultants recommend the Company to focus on the domestic market.
The major markets for sponge iron are the secondary sectors. The
strategy of focusing on domestic market will optimise marketing costs.
The Consultants have analysed and found that the market is within the
radius of 300-500km. The nearby markets are Indore in Madhya
Pradesh, Kanpur and Allahabad in Uttar Pradesh, Maharashtra and
Chhattisgarh.
The Consultants recommend the Company to geographically expand

their brand presence. This will enable the Company to have a better
margin.
The Consultants have analyzed and found that Madhya Pradesh is a

green field Market and at present there is no sponge iron plant there but
4. Technical Assessment
many steel plants are coming in this area. Basically, the steel plants are
coming in secondary routes.
The Consultants recommends that the proposed site is the ideal

location for Sponge Iron plants. Availability of Market within the radius
of 300-500kms makes the location ideal.
1.16 Project Configuration
The proposed plant will come-up at Hargarh Industrial Area, Tahsil:

Sihora, District Jabalpur, in the state of Madhya Pradesh., SOPPL is
considering installing 80 metric tonne per day (TPD) of DRI Sponge
Iron Plant.
Figure 4.8: Project Configuration Sized Iron Ore

(Raw Material)
DRI Sponge Iron

(80TPD,24000TPA)
90
80
70
60
50 DRI Sponge Iron East
40 To Market West
30 North
9020
8010
70 0
East
50
Source: SOPPL and METFIN Assessment
40 West
30 North
The Project Configuration
20
offers the following advantages –
 A project with
10 better flexibility in operations.
0
 An ideal capacity
1st leading
Qtr 2nd to
Qtrbetter absorption
3rd Qtr 4th Qtr of fixed and semi-fixed
costs.
 Near to raw material availability offering better bargaining power.
 Adequate flexibility for setting up value added product lines in future.
1.17 Manufacturing Process

1.17.1.1 Sponge Iron
1.17.1.2 Manufacturing Process
Iron Ore and non-coking coal are the prime raw materials for the
production of sponge iron through.
The process of sponge iron making aims to remove oxygen from Iron
Ore. When that occurs, the departing oxygen causes micro pores in the
ore body making it porous.
The final product, when observed under a microscope, resembles a
honeycomb structure looking spongy in texture, hence the name
sponge iron.
Sponge iron is distinct due to its high metallic iron content and
consistent chemical and physical characteristics. This provides
secondary steel makers flexibility in preparing their furnace charge to
produce finer quality steels than what is possible using steel scrap only.
Some of the features of the sponge iron produced are:
1. High iron content and high degree of metallization.
2. Uniform and consistent quality.
3. Lower sulphur and phosphorus content.
4. Negligible tramp element.
5. Minimum dust generation during material handling.
6. Good flow ability in bins, pipes and conveyors for continuous
and trouble free charging.
7. Superior technical support to induction furnace operators.
8. The quality of sponge iron is primarily ascertained by the
percentage of metallization (removal of oxygen) , which is the
ratio of metallic iron to the total iron present in the product.
Description of facilities of Sponge iron plant
1. Raw material preparation & storage in day bins.

2. Rotary kiln, Pre-heater and Rotary cooler, ABC, DSC.
3. Product processing facilities and product storage bins.
The properties of Sponge Iron typically produced are:
Constituent Percentage
Chemical
Fe, Total 60-65
Fe, Metallic 76-80
Metallisation 88(+/-2)
Sulphur 0.03 max
Phosphorus 0.05 max
Carbon 0.10 max
Gangue content 6-8
Physical
Size lump +4mm
Fines -4mm
Bulk density 1.6-2.0 MT/m³
Inherent density 3.5 MT/m³ (approx.)
DAY BINS
The Day Bin building for DRI Kiln have separate bins for storage of
about one day’s requirement of coal (3-18 mm) injection coal (0-3 mm)
and dolomite (2-6 mm). Weigh feeders are provided to draw various
materials in the required proportion from the bins and deliver to the
conveyors for feeding into the kiln.
Rotary Kiln and cooler
Rotary kiln of a certain dia and length are provided for reduction of iron
ore into sponge iron using non-coking coal as reductant. Other main
components of kiln are:
1. Feed end and discharge end housing of welding steel construction with
refractory lining including feed chute
2. Pneumatic cylinder actuated labyrinth air seal complete with auto
lubricating system at feed end and discharge end.
3. On board equipments like fans, manifolds, valves, piping, actuators, air
inlet parts, slip ring housing etc.
4. Cooling fans at feed end and discharge end

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

The coal based direct reduction process is more commercially viable
and is currently in use in India.
The main component in the flow sheet of these rotary kiln systems are
similar consisting of the solid feed system, the rotary kiln, a product
cooler, screens, magnetic separators and gas cleaners, coal based
plants have the advantages of utilizing smaller mixed units, lumps iron
as feed stock and abundant availability of non-coking coal. Various
technologies in this category are given below:
1. The SL/RN process: Developed by steel company of Canada
(STELCO), LURGI Chemie, Republic Steel Company and National
Lead Corporation in 1964.
2. Codir Process: The Coal –Ore –Direct Reduction Process developed

by Krupp -Renn.
3. The Accar Process: Developed by Allis – Chalmers in 1972 at Niagara

Metals (Canada).
4. The Tata Direct Reduction Process: TDR Developed by M/S. TISCO

and further improved upon with the assistance of LURGI.
5. JINDAL Technology: Based on the LURGI GMBH Technology and

developed indigenously.
1 Rotary Kiln Process
This process has been essentially been designed to carry out

reductions using solid reluctant like non-metallurgical coal. A long,
slightly inclined, slowly rotating kiln is employed to carry out the
reduction. The charge is fed from the higher level and it travels under
gravity, aided by rotating motion through several heating zones. The
reduced charge comes out from the other end of the kiln and passes
through a continuous cooling cooler without coming in contact with
atmospheric air.
The reduced and cooled product is screened and the oversized are
subjected to magnetic separation to obtain clean, and sized sponge iron
while the non-magnetic oversized portion as well as the undersized are
re-circulated through the charge. In a country like India, which does not
possess adequate natural gas and abundant non-coking coal bed, the
rotary kiln process is the obvious choice for producing sponge iron from
their own grade iron ores.
2 Process Selected
The rotary kiln process is a well established process for production of

coal based sponge iron. The process, in general, salient features of the
various rotary kiln processes available now for commercial exploitation,
and the processes selected are discussed in this chapter.
In this process a refractory lined rotary kiln is used for reduction of iron
ore in solid state. The kiln is mounted with a slope of 2.5%downwards
from the feed end to the discharged end. A central burner located at the
discharge end is used for initial heating of the kiln.
Sized iron ore is continuously fed into the kiln along with coal, which
has dual role of fuel as well as reductant. Small quantities of lime
stone/dolomite are added to scavenge the sulphur from the coal.
A number of air tubes are provided along the length of the kiln. The
desired temperature profile is maintained by controlling the volume of
combustion air through these tubes. Air is introduced through these
tubes axially in the free space over charge.
The rotary kiln is broadly divided into two zones namely, the pre-heating
zone and the reduction zone. The pre-heating zone extends over 40 to
50 percent of the length of the kiln. In this zone, the moisture in the
charge is driven off, and the volatile matter in the coal, liberating over a
temperature range of 600 to 800 degree centigrade, is burnt with the
combustion air supplied through the air tubes in the free space above
the charge. Heat from the combustion raises the temperature of the
lining and the bed surface.
As the kiln rotates, the lining transfers the heat to the charge. Charge
material, pre heated to about 1000 degree centigrade enters the
reduction zone. Temperature of the order of 1050 to 1100 degree
centigrade is maintained in the reduction zone, which is the appropriate
temperature for solid state reduction of iron oxide to metallic iron.
The reduced product is discharged into a rotary cooler along with coal
ash, culminated limestone and residual char, where they are cooled to
below 100 degree centigrade indirectly by spraying water on the outer
surface of rotary cooler.
The product is then screened and magnetically classified.
IRON ORE COAL DOLOMITE
CRUSHER CRUSHER
VIBRATING VIBRATING
SCREEN SCREEN
IRON ORE COARSE COAL FINE COAL DOLOMITE

STOCK HOUSE STOCK HOUSE STOCK HOUSE STOCK HOUSE
ROTARY KILN ROTARY COOLER
SIZER
FDC
MAGNETIC
SEPARATOR
ESP
SPONGE
IRON
IDFAN
SPONGE IRON SPONGE DOLOCHA

CHIMNEY LUMPS FINES R
DESPATCH DESPATCH DESPATCH

POLLUTION
CONTROL SYSTEM
1.17.1.4 Technology/ Plant and Machinery Suppliers
There are both domestic and international technology / equipment

suppliers for SMS, which include Players like –
 SMS Demang , Germany
 Electrotherm, India
 Inductotherm, India
 Megatherm, India
 Concast, India
SOPPL plans to have 3 X 12 Ton IF. The advantage of having multiple

furnaces include –
 Improved plant reliability
 Improved part load efficiency
 Better spare management
 More efficient utilisation of electrical systems (maximum demand)
 Less robust building design
 Possibility of rationalisation of resources (spares, manpower)
ensuring optimum cost
The disadvantages of multiple furnaces include –

 More manpower requirement
 More resource required for maintenance
The Consultants note that SOPPL is in advance stages of discussion

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

believe that SOPPL will have long term advantage.
1.17.2 Sponge Iron

1.17.2.1 Process Flow
The process flow diagram for manufacturing sponge iron is as shown in the
figure. The 350 MTPD Rotary kiln for the production of sponge iron is supplied
by M/s Beekay Engineering Corporation, Bhilai. The consultants have
examined the structures of the kiln along with the refractory lining during the
site visit. Further, it is noted that the buildings are designed taking into account
seismic conditions as per Indian Standards.
The sponge iron plant was found to be in working condition. The consultants
believe that the sponge iron plant will be in a position to produce as per the
designed capacity, depending on availability of input materials. Currently, GHIL
is following a preventive maintenance system. However, once the sponge iron

plant operates at full capacity for 8-10 months, GHIL would have sufficient
information to switch over to predictive maintenance system. This would further
bring down the maintenance cost.
Figure 4.9: Process Flow Diagram
Coal, Iron Ore & Flux
Raw Material Handling Section
Raw Material Storage Crushing and Screening Day Bunkers
Kiln
Screening, Separation and Briquette
DRI

1.17.2.2 Assessment
The sponge iron plant has a capacity of 350 MTPD. Based on industry
standards, it is noted that sponge iron plant have an availability of about 300
days a year, indicating a rated annual capacity of 105,000 MT. the sponge iron
plant has been supplied by Beekay Engineering Corporation (BEC), Bhilai.
Based on past experience and information collected from secondary sources,
the Consultants note that BEC has about 40 years of experience in
manufacturing capital goods. BEC has supplied equipments and spares to
reputed steel manufacturers like SAIL, SJK Steel Limited, Jindal Steel and Visa
Industries. The Consultants are satisfied with the capability of BEC as a
supplier and believe the sponge iron plant would be able to operate
satisfactory.
During site visit, the Consultant noted the refractory lining of sponge iron kiln is
in good position. The sponge iron plant is however being run based on
availability of iron ore. Hence, there are stoppages. The Consultants believe
that the sponge iron plant will be in position to achieve a capacity utilization of
82.5% of the rated annual capacity, based on availability of raw material. This
means that the sponge iron plant can achieve an annual production of about
86,625 MT.
1.17.3 Laboratory and Research Development
SOPPL plans to become a supplier of repute in the market for sponge

iron. This can be achieved by the Company by constant improvements
in their processes through research and development. Hence, the
Company had planned an investment of Rs million for setting up of R
& D laboratory. This laboratory will consist of modern equipments like
emission spectroscope, raw material analysis equipment, and other
equipment.
1.18 Location Analysis
The proposed project will come-up at Hargarh Industrial Area, Tahsil:

Sihora, District Jabalpur, in the state of Madhya Pradesh. The project
will consist of 80 TPD Sponge Iron. Based on site visit the following
points are noted –
 The Plant is about 20
The Plant is about 40 Km Km from National
from Jabalpur and Katni Highway.
Town.  The Plant is about 40
Km from
Jabalpur/Katni city. The industrial area at Jabalpur and Katni houses
many big industries in different sectors like Iron Ore, Granites,
Cements etc. Hence skilled and unskilled manpower is adequately
available.
 Sihora town has good social infrastructure with availability of good
schools and colleges. Just 20 KM from the propose site.
 The necessary power will available from Madhya Pradesh Power
Ditribution Corporation, by through a 11KV dedicated line for
Industrial Area, which essentially means uninterrupted supply.
 Canal pipe line for industrial water supply is up to the site.
The Consultants note that –

Proximity to Rail, Roads and airport is advantageous in terms of
ease in transport of finished goods and raw material
 The availability of good social infrastructure together with
industrialised area augurs well for availability of skilled and unskilled
manpower.
 A dedicated power supply line ensures the uninterrupted power

supply to the Plant.
 The Proposed Site is situated nearby of Raw Materials head
basically Iron Ore and Coal.
1.19 Environment Management Plan and Statutory

Clearances
1.19.1 Sources of Environmental Pollution
The major sources of pollution include –

 Thermal pollution (heat)
 Noise pollution
 Water pollution
 Solid waste
 Fumes / air pollution
The following mitigation measures can be adopted by the Project.

1.19.1.1 Thermal Pollution
Effective design of buildings ensuring natural ventilation will be used for

dissipating heat generated during the manufacturing process. Further,
wherever required mechanical ventilation like fans, air-conditioners and
water cooling systems will be deployed.
1.19.1.2 Noise Pollution
Equipments like blowers, compressors, fans are the major source of

noise pollution. The Company will use suitable acoustic insulation
cladding to ensure that noise levels are maintained within the
permissible levels.
1.19.1.3 Water Pollution
Water contamination by acids, lubes, oils and cleaning chemicals is

anticipated. The Company will have suitable waste water treatment
facility and the recycled water will be used for beautification. The
sewerage water will be biologically treated.
1.19.1.4 Air Pollution
Fumes generated in the steel making process will be treated in a Fume

Treatment Plant before discharge. Electro Static Precipitators will be
used for handling fumes from CPP.
1.19.1.5 Solid Waste
Ash from CPP will be the major solid waste generated in the Project.
The Project plans to have a pneumatic handling system for ash. Ash
from CPP will be transported to silo. Ash from silo will be transported in
trucks to point of use. Ash will find application in construction site.
However, the Company may have to look for sustainable disposal
mechanism, which may include promoting manufacturing bricks.
Slag from the steel manufacturing process will be another waste

generated. The Project will have slag granulation plant. The same will
be sold in market, which would be used in construction sites. Sale to
cement manufacturing units can be another alternative. However,
company may have to look for sustainable disposal mechanism.
1.19.2 Statutory Clearances
The technology and manufacturing process for the various components

of the expansion is well established. There are numerous plants
operating these technologies in India. Hence, obtaining necessary
clearances from Pollution Control Board will not be difficult. SOPPL will
also need to get other clearances from Factory Inspector and Water
Department.
During discussions, SOPPL officials informed that new environment

protection equipment should be installed.
1.20 Raw Material

1.20.1.1 Iron Ore
 India has the 4th largest Iron ore reserves in the World.
  Eastern India have the highest quantity of high
grade (Fe content > 65%) reserves in India.
 Both public and private sector players are in the business of Iron ore
mining.
 India is the 3rd largest exporter of Iron ore after Australia and
Brazil.
 Quality of Raw Materials
 General
 The major raw materials required for production of sponge iron
by the rotary kiln process are: sized iron ore/pellet and non-coking
coal. Blast furnace grade limestone, in small quantities, is also
required to scavenge the sulphur. This chapter deals with the
annual requirement, quality consideration and sources of supply of
the raw materials.
The SOPPL proposed site SOPPL will acquire iron ore

is in the radius of 20kms from the site which is within
from the Iron Ore mines. the radius of 20kms. Hence,
the Project will be in a position to source Iron Ore required for the
proposed plant from same sources.
Quality requirements of Iron Ore
Unlike in the gas based shaft furnace process, for production of

sponge iron the rotary kiln based processes can operate with 100%
sized pellets, a cheaper fees stock. Therefore, it is envisaged to
use pellets/iron ore, and the sources of its supply for the plant are
discussed below.
The quality requirement of for sponge iron production can be
classified into:-
 Physical Requirements:
Strength and granulometry are the two important physical
requirements. The pellet should be hard, and possess high
strength. The optimum tumbler strength of the ore should be 80%
minimum. Depending on the reductibility, closely calibrated ores in
the size range of 5 to18 mm generally used.
 Metallurgical requirements:
It should be highly reducible, thermally stable and have a low
tendency for sticking and disintegration during heating and
reduction.
 Chemical requirements:
Apart from the removal of oxygen, no other major chemical change
takes place in direct reduction. The gangue material in sponge iron,
originating from iron ore, namely, silica and alumina and the
sulphur and phosphorus contents adversely affect the economics in
subsequent steel making operation. Therefore, the ore should be
high in iron content and low in gangue.
Chemical Composition Percentage Mix
Fe (Total) 65% (Maximum)
SiO2 + Al2O3 5% (Maximum)
Sulphur 0.01% (Maximum)
Phosphorus 0.06% (Maximum)
Moisture 2% (Maximum)
Size 5-18mm
1.20.1.2 Coal
Based on review of secondary information, the Consultants conclude –

 India is the world's third largest coal producer (after China and the
United States), so most of the country's coal demand is satisfied by
domestic supplies.
 India accounts for 10% of global reserves of Coal.
 Major Indian coal fields are found in Bihar, West Bengal, and
Madhya Pradesh.
 Indian coal generally has a high ash content and low calorific value,
so most coking coal must be imported.
 The Indian government controls almost all coal production. Nearly all
of India's 390 mines are under Coal India Ltd. (CIL), which accounts
for about 90% of the country's coal production.
 Coal available in India finds application in Power Plant, Cement
Industry and DRI manufacturing.
SOPPL will get coal from the nearby site which is within the diameter of
150kms. Hence, the Project will be in a position to source coal required
for the proposed plant from same sources.
Quality requirement of coal
Non-coking coal is generally used as reductant in the rotary kiln

process. Other reductants such as anthracite and lignite can also be
used.
The major requirements of coal for production are:

1. Non-coking characteristics
2. Low ash content
3. Low sulphur content
4. Good reactivity
5. High ash fusion temperature
6. Medium volatile matter
Chemical Composition Percentage Mix
Fixed Carbon 40% to 55%
Volatile Matter 25% to 30%
Ash 15% to 20%
1) Non-coking character:
Non-coking coal is required in sponge iron production, since the
coking reaction leads to formation of rings inside the kiln.
Practically permissible caking index is 3 maximum for rotary kiln
operations.
2) Low ash contents:

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

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

Coals with low ash fusion temperature leads to sticky mass and
consequent unstable kiln operation by forming accretions inside
the kiln and reducing the reduction rate by formation of slag layer
on the surface of the ore. Hence, coals with ash fusion
temperature above 1150 degree centigrade are desirable for
rotary kiln operation. Ash fusion temperature is governed by its
chemistry. Coal with as of high sulphur trioxide equivalent, low
silica ratio and alkali ratio has lower eutectic temperatures, and
hence is not desirable.
6) Volatile matter:
Coals with optimum volatile content are required for coal based
rotary kiln process. Coal with very low volatile matter result in very
low reactivity of char, and thus give rise to poor metalized product.
Very high volatile coals, though they yield highly reactive char, are
also not preferred. Generally for rotary kiln process volatile matter
should be in the range of 28 to 32 percent.
Sponge Iron Kiln

27000
1) Gas Volume at FD cooler inlet Nm ³/hour
900-950⁰ C
2) Gas temperature (Inlet)
180-200⁰ C
3) Gas Temperature (Outlet)
710 mm WG
4) Gas Pressure (Inlet)
35 g/Nm³
5) Inlet Dust Burden
+/- 50
6) Outlet Emissions Required mg/Nm³
Forced draft cooler is a tubular convective type heat exchanger used for cooling
of hot gases
In sponge iron plant the kiln outlet gases are at 950 to 1000 degree
centigrade. These flue gases cannot be let out to atmosphere as it is and
are to be de-dusted. Hence, it is mandatory to provide dust collecting

system. The major problem of providing the dust collecting system is the
temperature of the flue gases and it becomes necessary to cool the kiln
exhaust gases to around 180 to 200 degree centigrade. The best way to
accomplish this task is to have a air to gas heat exchanger. Although
dilution with ambient air/water spray etc. are available for the heat
exchange. Air to gas forced draft heat exchanges are the simple,
economical and best suited system.
System description
The air to gas flue gas cooler is a tubular heat exchanger where, the hot
kiln exhaust are made to pass over the tubes and cold atmospheric air is
made to pass through the tubes.
This system says considerable energy due to lower pressure drop. Also the
cleaning of the FD cooler is easy as the dusty air is made to pass over the
tubes. Since there are practically no moving parts in the system and the
design is a modular construction, it is easy to install, economical and easy
to maintain. This system is design for 24X7 operations.
System advantages
 No water required. Hence saving in cost.
 Less power consumption due to low pressure drops of system.
 Low in operating cost due to use of ambient air.
 Easier to install, clean and maintenance due to modular system.
 Less space required due to modular construction.
Design basis
 FD cooler is for the cooling of flue gases.
 Flue gas would pass outside the tubes and cooling air inside the tubes.
 Easier maintenance on the heating surface.
 Lesser choking of the tubes.
 Low pressure drop in the flue gas side thereby saving the power
consumption of ID fan.
 Modular construction saves precious time in erection.
 Online cleaning of system with compressed air blast.
 Over temperature protection.
 Warm cooling air can be used by proper tapping to the advantages of the
plant to reduce fuel consumption.
 Individual FD cooler for individual kiln.
Description of electro static precipitator

The waste flue gas leaving from FD cooler/WHRB at a temperature 180-
200 degree centigrade will be taken through an insulated mild steel duct to
a horizontal three electric field electrostatic precipitator.
The dust laden flue gases flow through a system of gas passage consisting
of strip type collecting electrodes (400 pitch) between which rigid mast are
positioned to act as discharged electrodes. The discharged electrodes are
connected to negative terminal of high voltage direct current supply of 85
kv (peak), while the collecting electrodes are terminated to positive supply

and earthed. Due to high field strength in the vicinity of discharged
electrodes a corona discharge is created. Gas ions are produced which
attached themselves to the dust particle.
Under the influence of electrical field the charged dust particles migrate to
the collecting electrodes where the charge is lost. As soon as a sufficiently
thick layer of dust has been formed a vibration of the collecting electrodes
are induced by the use of rapping mechanism, there by dislodging the
accumulated dust layer. The dust then drops in to the collecting hopper
below the Electro Static Precipitator and has to be discharged through
Rotary air lock below each hopper.
An ID fan is installed at the outlet of the Electro Static Precipitator, which

creates the suction from the kiln and clean gas having particulate within
norms stipulated by Pollution Control Board (stack emission within
50mg/Nm^3), will be vented into the atmosphere through self supported
chimney having a height not less than 30 mtr. With respect to existing
ground level
Salient features of rotary kiln technology

1. The rotary kiln technology is very simple from engineering & design point of
view.
2. This technology can handle wide varieties of iron oxides like limonite’s,
goethite, pallets, hematite and magnetite. Whereas the other coal based
technologies uses only hematite ore of required specification.
3. This technology can also handle wide varieties of non-coking coal
even up to 20% moisture and 33-34% V.M. and 39% fixed carbon.
4. The carbon iron ratio is lowest (0.42-0.44) in this technology which
is unique in coal based technologies.
5. The placement of air injection tubes is completely different from
other coal-based technologies.
6. In this technology, 60% of the total coal is injected from the
discharged end to maintain the proper carbon distribution in the
rotary kiln, whereas in other technologies it is max 40%.
7. The transfer chute design for conveying the material from kiln to
cooler is hydraulically operated system. It takes only 10-15 min to
clear the bigger pieces of accretions, whereas it takes 24-36 hrs. in
other processes.
8. The kiln campaign life on an average comes to 140-160 days and
the highest campaign achieved so far is 401 days, which is a
record.
9. For the first time in the world blast-furnace gas is being used in
rotary-kilns. This has resulted in better reduction, reduced accretion
formation % reduction in specific coal consumption (0.025-
0.030mt/mt of DRI).
10. Consistently +99% availability, which is highest against any norm.

11. Specific energy is lowest i.e. 4.2-4.55 GCAL/MT of DRI after
considering the advantage of steam generation through W.H.R.B.
12. Specific power consumption is around 55 kwh per mt of sponge
iron.
1.21 Utilities
1.21.1.1 Power
The Project is a power intensive. SOPPL has an arrangement with the

Madhya Pradesh Power Distribution Corporation (MPPDC) in 11 KV
through a dedicated line of industrial area for supply of 700 KVA which
will sufficient for the existing facilities. Hence, the overall power
requirement for the Plant will be met.
1.21.1.2 Water
The Project is a water intensive project. Water will be required for the
following applications –
 Drinking
 Housekeeping
 Cooling
SOPPL has an arrangement with Madhya Pradesh Audyogik Kendre

Vikash Nigam (MPAKVN). The water is being drawn and stored in a
reservoir tank of 50,000 litre capacities and in an emergency overhead
tank of 30,000 litre capacities. For Industrial usage water can be
sourced from the Canal, which is about 1 Km from plant. The supply
line of water at plant site. Water can be recycled as well.
1.22 Manpower Details
The Consultants estimate

The Consultants estimate a a total manpower
total manpower requirement of 175 people
requirement of 175 people over and above the
over and above the existing existing manpower to run
manpower to run the plant the plant successfully. The
successfully manpower includes
human resource,
administrative, sales and
marketing, accounts and general administration.
The Consultants believe that the plant will be operational three shifts a
day for 300 days in a year. The total manpower required for
successfully running the plant has been provided in the Table 4 .9
below.
Table 4.9: Manpower Requirement

Description Billets CPP
Management
CEO/ President 1
Senior Management 2 2
Engineers and Management 4 8
Administration 8 12
Workmen
Supervisors 12 12
Skilled Labour 16 18
Unskilled Labour 45 35
Total 87 88
Source: MetFin Estimates
The annual manpower cost for the Project has been estimated at Rs.
102.73 million.
1.23 Project Cost
The Consultants have The summary of the

estimated the total project Project Cost is indicated
cost at Rs. 2,433.01 million in Table 4 .10 below. The
Consultants have
estimated the total project
cost at Rs. 3,314.00 lakhs. The detailed working of each component of
Project Cost is discussed in subsequent sections. The Consultants
have collected the information required for estimating the Project Cost
from the following sources –
 In house information available with the Consultants
 Budgetary quotation received by the Company.
Table 4.10: Summary of Capital Investment
Land and Land Development Rs. Lakh 75.00 75.00

Building and Civil Works Rs. Lakh 940.00 940.00
Plant and Machinery Rs. Lakh 1,903.00 1,903.00

Miscellaneous Fixed Assets Rs. Lakh 15.00 15.00
Preliminary and Pre-operative Expenses Rs. Lakh 25.00 25.00
Margin Money Rs. Lakh 231.00 231.00
IDC Rs. Lakh 125.00 125.00
Total 3,314.00 3,314.00
1.23.1.1 Land and Land Development
The Consultants note that the proposed Project will be coming up at the
existing facility of SOPPL at Hargarh Industrial Area, District Jabalpur,
Madhya Pradesh. SOPPL has 2.00 hectares of land at the site, which is
sufficient for implementation of the Project. Hence, the total cost of
Land & Land development has
been estimated to be Rs.75
The total cost of buildings lakhs.
1.23.1.2 and civil work is estimated Building and Civil Works
at Rs. 940.00 Lakhs only.
The total cost of buildings and
civil work is estimated at
Rs.940 lakhs details of which are indicated in the Table 4 .11 below.
Table 4.11: Building and Civil Works Cost
Description Induction Furnace Captive Power Plant

UOM Quantity Rate (in Cost Quantity Rate (in Cost
Rs./ Unit) Rs./ Unit)
Factory Building M² Total 123.80
Utilities Building M² Total 11.84
Raw Material Storage M² Total 290.97
Klin,Cooler Foundation,etc. M² Total 245.80
Conveyor etc. M² Total 14.88
Water Tanks (Overhead and
Underground) & Pump
House M² 100 5,500 0.55 250 5,500 211.70
Weigh Bridge M² 76.5 8500 LS - 6.35
ESP M² Total 22.68
Transfer House M² 32 13,500 - 4.32
Stock House Lumpsum 24.00
Cooler, I.D. Foundation M² Total 75.60
Intermediate Bin M² Total 8.10
Total
The Consultants have considered the following while estimating the

building and civil works cost –
 Steel structures for factory building
 RCC structure for administration building
 RCC structure for Spares Go-down and Canteen
 All weather roads (WBM) with open drains
The full details are in separate table
1.23.1.3 Plant and Machinery Cost

the cost of Plant and the cost of Plant and
Machinery to be Rs. Machinery to be Rs. 1903
1,903.00 Lakhs lakhs as indicated in
Table 4 .12 and Error:
Reference source not
found below. The Consultants have considered the following while
estimating the cost of Plant and Machinery –
 Basic equipment cost
 Packaging and forwarding charges
 Excise duty
 VAT/SAD
 Insurance
 Inland transportation cost
 Erection & Commissioning Cost
Table 4.12: Plant & Machinery Cost
Description
UOM Quantity Rate (in Rs./ Value (Rs.
Unit) Lakhs)
Base Plant and Machinery Cost 1214.00
Packaging and Forwarding Charges 196.00
Duties & Taxes 248.00
Erection & Commissioning 245.00

Total 1903.00
1.23.1.4 Miscellaneous Fixed Assets
The Consultants estimateThe Consultants estimate

the Miscellaneous Fixed the Miscellaneous Fixed
Assets cost as Rs. 15.00Assets cost as Rs. 15
Lakhs lakhs. Details of
Miscellaneous Fixed
Assets are given in the
Table 4 .13 below. Miscellaneous Fixed Assets include –
 Fire and safety equipments
 Furniture and Fixtures
 Office equipments including networking and coMetFinunication
systems
 Transport and Vehicles
 Electrification
 Other Miscellaneous Fixed Assets
The Consultants have estimated these costs based on experience of

handling similar assignments earlier. The Consultants believe the costs
considered under Miscellaneous Fixed Assets are reasonable for the
size of the Project.
Table 4.13: Miscellaneous Fixed Assets
Description UOM
(in Rs. Lakhs)
Furniture and Fixtures Lumpsum 5.00
Computers and Software Lumpsum 2.00
Transports and Vehicles Lumpsum 7.00
Fire and Safety Equipments Lumpsum 0.50
Other Miscellaneous Fixed Assets Lumpsum 0.50
Total 15.00
1.23.1.5 Preliminary and Pre-operative Expenses
Preliminary and Pre Preliminary and Pre

operative Expenses is operative Expenses is
estimated at about Rs estimated at about
25.00 Lakhs Rs.25.00 Lakhs. Details
are shown in the Table
4 .14 below. Preliminary
and Pre operative Expenses include –
 Administrative Expenses
 Preliminary Expenses
 Consultancy fees
Table 4.14: Preliminary and Pre-operative Expenses

Description Amount
Administrative Expenses 10.00
Preliminary Expenses 5.00
Consultancy 10.00
Total 25.00
1.23.1.6 Interest during Construction (IDC) Period
The Consultants estimate the IDC at Rs.125 Lakhs. Details of the

assumptions considered while estimating IDC are covered in Chapter 7.
1.23.1.7 Margin Money for Working Capital
The Consultants estimate the Margin Money for Working Capital at

Rs.231.00 Lakhs. Detailed estimation of working capital is provided in
Chapter 7.
1.23.1.8 Contingency
Based on the size of the Project, As most of the quotations are in

place.
1.24 Implementation Schedule
The Consultants believe The Consultants believe

that the Project can be that the Project can be
implemented over a period implemented over a
of 9 months from the date period of 9 months from
of financial closure the date of financial
closure. Implementation
milestones are given in
the Figure 4 .10 below. The alternate implementation strategy that can
be adopted by the Company includes –
 Implementation through an internal team
 Appointing a Project Management Consultant
 Giving EPC Contract for various sections
The Consultants note that the implementation strategy adopted can

have a bearing on both Project Cost as well as implementation period.
Figure 4.10: Implementation Schedule
1.25 Conclusions
 The Project is technically viable
 Project configuration offers cost advantage and flexibility
 The location selected offers logistic and cost advantages
 The Project will be in a position to source input materials
competitively
 The Project is energy intensive and have already identified the
source for meeting its energy needs
 Project Cost is estimated at Rs.3314.00 Lakhs.
 The implementation strategy adopted by the Company will have a
bearing on the Project Cost and implementation period
5. Financial Assessment
1.26 Introduction
This chapter evaluates the financial viability of the Project mentioned in

the previous chapter. The evaluation parameters considered include
Net Present Value (NPV) and Internal Rate of Return (IRR). Other key
financial ratios and indicators are also discussed. All information
required to compute the financial viability has been collected from the
client, technology supplier, in house database and secondary
information sources.
Plant and machinery used in the projects usually have life span of 20 to
25 years depending upon the maintenance and nature of the industry.
The project horizon considered is 10 years, as the payback period of
industrial projects is about 10 years.
1.27 Capacity Utilisation
SOPPL is planning to set up in 2nd phase one more kiln with Captive
Power plant, thus a total of 48000 MT and reaching a maximum
capacity utilisation of 95% in 2013-2014. The Consultants envisage a
three shift of operation and progressive increase capacity utilization as
indicated in the Table 5 .15 below. The peak capacity utilization has
been considered 95% to allow for better volume margins.
The Captive power plant of total 4 MW is going to be installed for

running the plant. 4 MW is Waste Heat Recovery based.
Table 5.15: Capacity and Capacity Utilisation
Description Unit 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

DRI
Capacity Tons 24000 24000 48000 48000 48000 48000 48000
Capacity Utilisation % - 65% 70% 75% 80% 85% 90%
Slag % - 182% 182% 182% 182% 182% 182%
Waste Heat
Recovery
Capacity Mwh - - 28800 28800 28800 28800 28800
Capacity Utilisation % 0% 0% 0% 75% 85% 95% 95%
The assumptions made while estimating the capacity and capacity

utilisations are as follows-
 The capacity of Sponge Iron Kiln is 80 tons, the numbers of hours

are 24 and the plant will run for 300 days a year. Hence, its capacity
is 80Tons ×300 days. Therefore, the production of Sponge Iron is
24,000 tons at full capacity
 The capacity utilisation is nil in the first year, and increased
gradually from 65% in the second year to a maximum of 95% from
the year 2016-2017 onwards
 The generation of power from waste heat recovery is 28800 MwH,
whose capacity utilisation is dependent on the operation of theplant.
Hence, its capacity is increased accordingly
 The plant will become operational from the first quarter of 2010-
2011, assuming around 7 months for the completion of the project
The plant will be operational for 300 days a year taking into account the
machine downtime, repairs and maintenance works.
1.28 Revenue Stream
The product produced by the plant, Sponge Iron produced will be sold
in the market at prevailing rates and the selling prices considered by the
Consultants is as follows-
 The selling price of billets is taken as Rs 13500 per ton, based on
the prevailing market rates for the past six months
Based on the capacity utilisation as indicated in above, the annual

quantities of sales in Tons are given in below. It is noted that the
Consultants have considered that the entire produce of the year will be
sold off in that year itself.
1.29 Cost Stream
1.29.1 Variable Cost

1.29.1.1 Raw Material
 The price of iron ore is per prevailing market rates and has to be
procured from the open market
 The price of coal is as per prevailing market rates and has to be
 The price of dolomite is as per prevailing market rates and has to be
1.29.1.2 Utilities
The utilities required for the manufacturing of sponge iron are power,
fuel/ furnace oil and water. Power is the main utility which is required to
run the plant. The consumption norms are as follows-
Table 5.16: Utilities - Consumption Norm and Unit Rates
Consumption Norms Unit Rates

Utility
Unit Qty Unit Amount
Power KwH/Ton 100 Rs./ KwH 5.39
Water Cu.M/Ton 0.3 Rs/ Cu.M 2
Fuel Oil Litres/Ton 10 Rs./ Litre 18
The consumption norms of power, water and fuel oil have been
considered as per the industry norms and the inputs provided by
SOPPL.
1.29.1.3 Spares and Consumables
The consumption norms of spares and consumables as per the industry

has been considered at-
Rs 100 per ton
1.29.1.4 Material Handling and Transportation
While estimating the material handling and transportation cost, the

Consultants have considered the following –
 Material handling cost of raw materials included in raw materials
price
 Finished goods will be transported over a minimum distance of
about 300 kilometres, but out ward fright will be borne by purchaser.
1.29.1.5 Repairs and Maintenance
The repairs and maintenance costs include –

 Costs of lubricants
 Cost of replacing bearings and similar parts
 Replacement of worn out and broken parts
 Cost for repairing of motor windings
 Cost of replacement of insulations and similar costs
Based on the above mentioned, the Consultants have considered the

following while estimating the repairs and maintenance costs –
 Billets – Rs 300 per ton
1.29.2 Fixed Costs

1.29.2.1 Manpower Cost
The Consultants have discussed the manpower cost in details in

previous chapter.
1.29.2.2 Administration Expenses and Misc. Expenses
Administrative expense is taken as about 2.0% of Total Sales for the

entire period of operation. These costs will include
telecoMetFinunication cost, printing and stationary costs etc.
Administration Expenses includes –
 Rent and Taxes
 Printing and Stationery
 Insurance
 CoMetFinunication
 Travel cost for administration staff
 Statutory expenses
1.29.2.3 Selling and Distribution Expenses
Selling and Distribution expense is taken as 0.50% of Total Sales

during the initial years of operations. Distribution Cost includes –
 Cost of transport and communication by the Sales Team
 Discounts given by the Company
The Selling and Distribution expenses considered are in line with the
industry norms.
1.29.2.4 Miscellaneous Expenses
Apart from this the Consultants have considered miscellaneous costs

as 0.25% of Total Sales for the entire period of operation.
Miscellaneous Expenses includes –
 Developmental expenses like R and D
 Expenses to obtain certifications like ISO
 Employee training
 Employee welfare
 Insurance Charges
1.30 Operating Profits
The operating margin for the business will be about 49.78%, which is in
line with industry norms. The details of Operating Profit margin are
indicated in the given in the Table 5 .17 below.
Table 5.17: Operating Profit
(All figures in Rs. Crore)

OPERATING PROFIT
Particulars 1st 2nd 3rd 4th 5th 6th 7th

Year Year Year Year Year Year Year

Sale Realization (Net of Excise Duty @ 20.01 22.55 24.21 25.83 27.45 29.07 30.69
8.36%)
Closing Stock of Raw Material 1.82 1.96 2.10 2.24 2.38 2.52 2.66
Closing Stock of Finished Goods 1.05 1.19 1.27 1.36 1.44 1.53 1.62

Total 22.88 25.70 27.59 29.44 31.28 33.13 34.97

Opening Stock of Raw Material 0.00 1.82 1.96 2.10 2.24 2.38 2.52
Opening Stock of Finished Goods 0.00 1.05 1.19 1.27 1.36 1.44 1.53
Cost of Raw Material 10.94 9.96 10.66 11.36 12.06 12.76 13.46
Consumables 0.65 0.70 0.75 0.80 0.85 0.90 0.95
Other Manufacturing Exp. 0.04 0.04 0.05 0.05 0.05 0.05 0.06
Power & Fuel 0.84 0.90 0.97 1.03 1.10 1.16 1.22
Frieght Expenses 0.07 0.15 0.08 0.09 0.09 0.10 0.10
Labour Exp 0.51 0.55 0.59 0.62 0.66 0.70 0.74

Income after Direct Costs 9.84 10.53 11.36 12.12 12.87 13.63 14.39
Salary Exp 0.25 0.27 0.29 0.31 0.33 0.35 0.37
Administrative Exp. 0.30 0.32 0.35 0.37 0.39 0.42 0.44
Sales Promotion Exp 0.10 0.11 0.12 0.13 0.14 0.15 0.15
Repairs and Maintenance 0.12 0.13 0.14 0.15 0.16 0.17 0.18
Preliminary Expenses 0.30 0.30 0.30 0.30 0.30 0.00 0.00
Interest on T/L 2.88 2.70 2.22 1.74 1.26 0.78 0.30
Interest on Cash credit 1.10 1.10 1.10 1.10 1.10 1.10 1.10

Net Profit 4.79 5.59 6.84 8.01 9.19 10.67 11.85
1.31 Working Capital
The working capital requirement based on market conditions and

industry norms,
Maximum Permissible Bank Finance
As per Tondon Committee Recommendation (II Method)
Particulars 1st 2nd 3rd 4th 5th 6th 7th

Year Year Year Year Year Year Year
Chargeble Current Assets:
Closing Stock of Finished Goods 1.05 1.19 1.27 1.36 1.44 1.53 1.62
Sundry Debtors 5.22 5.88 6.32 6.74 7.16 7.58 8.01
Advance Recoverable in Cash or in Kind 0.25 0.25 0.25 0.25 0.25 0.25 0.25
4 9
Other Current Assets
Cash & Bank Balances 8.04 7.38 7.21 7.24 7.47 7.73 8.25

TOTAL 16.3 16.66 17.1 17.83 18.7 19.6 20.79
8 6 1 2

Other Current Liabilities:
Sundry Creditors 0.48 0.43 0.46 0.49 0.52 0.55 0.59

Working Capital Gap 15.9 16.22 16.6 17.34 18.1 19.0 20.20
0 9 9 7

Net Working Capital @25% of Total Current 4.10 4.16 4.29 4.46 4.68 4.91 5.20
Assets

Prejected Net Working Capital 5.90 6.22 6.69 7.34 8.19 9.07 10.20

Permissible Bank Finance 10.0 10.00 10.0 10.00 10.0 10.0 10.00
0 0 0 0
The estimated overall working capital requirement is about Rs. 1000

Lakhs by1st year. The above gives the working capital requirement
details for the period under consideration.
It is noted that margin money for first full year operation (2010-11) is
estimated at about Rs.231 Lakhs. The estimated margin money also
includes the margin for LC of Iron ore and Coal.
1.32 Means of Finance
The total Project Cost is estimated at Rs 3314.00Lakhs. It is estimated

that the expenditure will be spread over 7 months covering two financial
year periods. The Project phasing during the two years of

implementation has been provided in the Table 5 .18 below.
Table 5.18: Project Phasing
Description 2009-10 2010-11

Land and Land Development 100% 0
Building and Civil Works 100% 0
Plant and Machinery 100% 25%
Miscellaneous Fixed Assets 100% 0
Preliminary and Pre-operative Expenses 100% 0
After discussions with the Management of the Company, the

Consultants have considered a Debt-Equity ratio of 2:1.
The suggested means of finance and cash outflow is indicated in Table

5 .19 below.
Table 5.19: Means of Finance
Description Unit Total
Equity Rs. Lakhs 839.00

Debt Rs. Lakhs 2400.00
Total Rs. Lakhs 3239.00
1.33 Project Evaluation
IRR and NPV have been considered as the two evaluation parameters.
Table 5 .20 indicates the details of the key financial indicators. From
the, it can be noted that the IRR of the Project is which is much higher
than the post tax cost of capital (10.09%) indicating the Project to be
financially viable.
Table 5.20: Financial Evaluation - Base Case
Description IRR (%) Rs million Payback DSCR

(Months) (7 Years)
Capital Cost NPV
Base Case 29.9 3239.00 76 3.17
The detailed financial for base case have been provided as Appendix A.
1.34 Project Risk Assessment

1.34.1.1 5% increase in Raw Material Prices
As discussed previously, the raw material price i.e. price of DRI and
scrap for billets manufacturing and coal for power plant are dependant
on the international crude and coal prices. Traditionally the
manufacturers of billets are able to pass on any increase in the raw
material prices to the end user. However still, the Consultants have
carried out sensitivity by considering an increase in 5% in the raw
material prices. The Table 5 .21 below indicates the financial viability of
the Project with a 5% increase in raw material prices.
Table 5.21: Financial Evalution - 5% increase in Raw Material Prices

(Months)
Capital Cost NPV
Base Case 29.9 76 3.17
5% Increase in Raw
26.9 80 2.78
material Prices
The detailed financial for 5% Increase in Raw Material Prices has been
provided as Appendix B.
1.34.1.2 5% decrease in Selling Prices
The Consultants have considered a decrease in selling price by 5%

taking into account the competition in the market and the discounts that
may be given to the clients. Table 5 .22 below gives the sensitivity
analysis, in the given situation. However, even with decrease in selling
prices, the IRR is 17.8% which is much higher than cost of capital.
Table 5.22: Financial Evaluation - 5% decrease in Selling Prices

(Months)
Capital Cost NPV
Base Case 29.9 76 3.17
5% decrease in Selling Prices 27.3 80 2.83
The detailed financial for 5% decrease in Selling cost have been

provided in Appendix C.
1.34.1.3 10% increase in Project Cost
The Project cost is mainly dependent on Plant and Machinery. The

suppliers of these plant and machinery have been identified and costs
have been calculated based on the quotations. However, the
Consultants feel that the project cost is sensitive to market dynamics
and affected by price fluctuations in steel and power prices. Table 5 .
23 below gives the sensitivity analysis when the project cost is
increased by 10%. Even with this increase, the IRR is much higher than
cost of capital.
Table 5.23: Financial Evalution - 10% increase in Project Cost

(Months)
Capital Cost NPV
Base Case 29.9 76 3.17
10% increase in Project Cost 28.9 77.18 2.99
The detailed financial for 10% increase in Project Cost has been
provided as Appendix D.
1.34.1.4 10% decrease in Capacity Utilisation
The operational capacity of the plant may be affected by the following

factors-
 Plant is new and the operations may take time to stabilise
 The plant may suffer from teething problems, affecting its operations
 The plant may not run on full capacity due to slump in demand.
Therefore, the Consultants have considered a 10% decrease in

operation capacities and Error: Reference source not found below
gives the sensitivity analysis. The Project remains viable even with 10%
decrease in capacity utilisation.
Table 5.24: Financial Evaluation - 10% decrease in Capacity Utilisation
Rs million Payback
Description IRR (%) DSCR
Capital Cost NPV (Months)
Base Case 29.9 76 3.17

10% decrease in capacity
27.3 79 2.89
utilisation
The detailed financial for 10% increase in Project Cost has been
provided as Appendix E
1.35 Conclusions
 The Project is financially viable
 The Project will have an operating profit margin of about
 The Project is suggested to be funded by a capital structure of 2:1
 The Project remains viable under adverse conditions.
6. Financial Model – Base Case
Appendices
Appendix A. Financial Model – Base Case___________________________________________________________69

DPR Swastic Repaired)

Uploaded by

Copyright:

Available Formats

DPR Swastic Repaired)

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

DPR Swastic Repaired)

Uploaded by

Copyright:

Available Formats

Swastik Ores & Power Pvt. Ltd.

Sponge Iron Project

Metfin Corporate Advisors Pvt. Ltd.

80 TPD Sponge Iron Project

Hargarh Industrial Area,

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

4.8.1.4 Miscellaneous Fixed Assets____________________________________________________________53

Table 3.1: Competition Analysis__________________________________________________________________28

SOPPL is considering installing 80 metric tonne per

In this regards, the Company has approached and

The expansion will come-up at Hargarh Industrial Area,

 80 TPD Sponge Iron Kiln

The Project Configuration offers the following

Figure S.1: Project Configuration Sized Iron Ore

DRI Sponge Iron

indicated in Table S.1 below.

Table S.1: Summary of Capital Investment

1.1 Study Background

under Companies Act, 1956, is a private limited company incorporated

SOPPL’s selected manufacturing location (Plant) at Hargarh Industrial

SOPPL is considering installing 80 metric tonne per day (TPD) of DRI

1.2 Group Background

The company is promoted by Mr. Pankaj Tekriwal, Mr. Vivek Agarwal

Table 1.2: Annual Licensed Capacities

Particulars Annual Licensed Current Installed Capacities

Considering a favourable market scenario and demand of sponge iron

Mr. Tekriwal is one of the Promoters / Founders of SOPPL. He is an

Mr. Tekriwal is the director of the company known as High Tech

Mr. Vivek Agarwal received his Bachelor’s in Civil Engineering degree

Mr. Vivek Agarwal manages and implements quality assurance aspects

He also implements ISO 9001 quality systems with a team of managers

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

 Surya Wires, Vandana Industries, Swastic Wires, Sarti Ispat Loha

In addition to several steel projects, he was involved in establishing

Mr. Ramesh Chandra Verma is a science graduate and has about 41

In 1989, he became a partner in M/s Steel Abrasive Industries, Raipur

Subsequently, after completion of the above assignments, he took up

1.4 MetFin Corporate Advisors Pvt. Ltd.

MetFin is an established and multi faceted organization dedicated to the

Located in many cities in India -Mumbai, Delhi, Kolkata, Bangalore,

To be the preferred Corporate Service provider & consistently delivering

Our vision guides every aspect of our business by describing what we

Nurturing a winning network of Advisory group and network companies,

1.5 Scope of Work

The Scope of Work as envisaged by the Consultants includes –

The Consultants adopted aThe Consultants adopted

Based on the information collected the Consultants determined –

 Operating costs covering raw material, power, labour and spares.

1.7 Key Personnel

Vice-Chairman- Dr. M. K. Sinha

Managing Director- Dr. S. K. Choudhary

year’s rich experience as Senior Executive to Managing Director, also

Director- Mr. C. S. Jalan

Director- Mr. A. C. Patel

Director- Mr. Bhupendra K. Parekh

Dr. Narendra Mohan PhD (Metallurgy, USSR)

Mr. S. K. Khandelwal , Chartered Accountant

Mr. Deepak Bubna, Chartered Accountant

Mr. Pradeep K Tiwari, Lawyer

Mr. Manish Agarwal, Chartered Financial Analyst