1. Miles to go…
Submitted by
Isha Patil
13810036

2. PHASE I (1984-1991)
• Phiroz Lohawalla came to Ahmedabad on 29th March 1982 from Ferozpur, in Punjab
• Left behind a prospering hardware business because of growing threat of terrorism.
• Experience in hardware business and prior knowledge started a Mini Steel Plant
• A safe bet
• Along with Rajiv Menon, he came to Rajkot

3. Assessing the market potential
• A quick survey revealed
₋ the major players in the steel market
₋ their market shares and the strategies
₋ large unharnessed customer base
• A secondary steel plant would require
- huge capital investment
• technical know-how, both of which they lacked
• entering would be tough
• Ahmedabad seemed the best market to start with
• Immense potential for the long steel products.
Hence they decided to go ahead with the production of long steel products with
50-50 partnership

4. Faridabad Steel Private Limited
• In the mini steel plant market
- hot rolling mills
- required less initial investment than a cold rolling mill
- products were bars, which fall under the category of long steel products
• Only 10 units in and around Ahmedabad
• Supply of raw material
- main raw materials included sponge iron and ferrous scrap
- procured from the shipbreakers Of Alang Shipping Yard, Bhavnagar
- coal and electricity, were also available
• Gestation period was around one year
• Additional capital of Rs 50 lakhs was injected

6. • Factory started operations on 21st October 1984
• Production manager - Shyam Dubey
• Production Process
₋ raw material procured in the form of plates
₋ from decommissioned ships
₋ cut into smaller pieces to the size of 6 mm x 15 mm x 1500 mm
₋ pieces are put inside a pre-heated furnace to the temperature of 9000C
₋ until they become red-hot
₋ These are taken out and passed through 7 different moulds
₋ Each rolling machine makes it more elongated and narrowed
₋ Water poured on the moulds at each Stage
₋ final product put on a cooling platform
₋ products in the shape of bars are tied and packed
₋ The entire process is done manually

7. • Initially only 30 workers (20 laborers and 10 permanent workers)
₋ unskilled laborers hired on a daily contractual basis
₋ machine handling did not call for highly skilled people
₋ Supervisory staff was permanent
• Final product transported by trucks and road-railers to different areas of
Ahmedabad
• Main products - bars, rods
• main customers
₋ Contractors, construction agencies
₋ industries like bearings. textile machinery, screws, etc.
• Government did not to levy any of the excise or control duties on the small-scale
sector of the iron and steel industry
• Technology almost never gave us any trouble
• Quality up to expectations.
• Enough customers to meet our initial supply
• Recovered variable expenses within first year

9. • They started facing frequent breakdowns
₋ small fault in the bearings, couplings or the motor
₋ entire production process would come to a halt.
• The shut down period would be as long as 7—8 days
• Considerable loss in terms of production and high idle capacity, apart from the high costs
of repair and maintenance
• At the end of the year their unit was effectively functional only for 150 days i.e. 12 days
per month.
• salary of the staff for this period and other administrative expenses added to the cost
during this unproductive period
• By the end Of 1987, due to liberal licensing policy of the government a large
₋ number of small players entered the market
₋ leading to increased competition and narrowing margins
• In the year 1988, the government declared excise and control duties on iron & steel.
₋ Excise duty - 15% on the value of the product
₋ Control duty – extent of 0.5% of the value of the product

10. Problems
• Number of mini steel plants had grown to 40
• Increased the demand for raw material
• fluctuations in administered prices
• Raw material market was very volatile
• production cost and administrative costs rose
• Alternatives available i.e. raising its price or lowering the cost of its inputs were
not feasible
• Rajiv and Shyaam both seemed disinterested
• earnings on a continuous decline
• Debt burden increased, had to procure raw material on credit.
• Suppliers agreed to extend the credit period, but on a higher interest rate
• Overall basis the factory generally remained closed

12. PHASE Il (1992-1998)
• Production was restarted with two rolling machines and two workers
• In-house policies changes
₋ buying raw materials in small quantities
₋ offer the finished product at a lower price than competitors, with reduction in the quality.
• Iron in the form of tiny pieces was present in the soil, started selling it, and this fetched
Rs. 15,000 per month.
• Personally marketed products to the customers by providing liberal credit
• Customer base started expanding.
• Within a year, started covering its variable expenses
• Government of India provided the following facilities:
₋ import duties were slashed from 35% to 10%
₋ Hence, prices of metal scrap fell
₋ Diversification into all grades of carbon and alloy steels was made free
₋ Installation of captive rolling mills.
₋ Additional balancing facilities like continuous casting mills, heat furnances, etc.

13. • Within two years the factory started making reasonable profits
• Profits were invested in the business to improve the technology and in setting up two more
factories
• Started using oil instead of - very cost effective
• Procure fuel from IOC at reduced costs through bulk buying
• A pusher was installed to convey the fragmented pieces of scrap
• Old motor was replaced.
• Diversify and expand product line - couplings, channels and forgings
• Number Of employees increased by 75 and now the total number of laborers hired by us had
gone unto 125.

14. But again,
• In 1998 economy went into a decline
• The lowering of the import tariffs
₋ increased competition into
₋ the industry
₋ an excess supply of steel products.
• The number of factories in and around Ahmedabad now had increased to 110.
• Customers begun splitting their orders
• This made them to concentrate more on reducing costs
• Hence, quality aspect was totally ignored.

15. • Orders from customers declined considerably
• Continued to run all the units at full eventually led to huge inventory pileups.
• The funds locked up as inventory were around Rs.28 lakhs
• Interest burden rose to approximately Rs. 8.5 lakhs p.a.
• Failed to pay our creditors
• Total cash loss of Rs. 10 lakhs, besides the burden Of the unsold inventory.
• Excise duty was levies on capacity than production

16. Thank You