Accounts Project - Financial Statement Analysis of Steel Authority of India Limited - By Irfan Ahmad & Manisha Yadav

7/30/2019 Accounts Project - Financial Statement Analysis of Steel Authority of India Limited - By Irfan Ahmad & Manisha Yadav

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INTRODUCTION

Steel Authority of India Limited (SAIL) is one of the largest state-owned steel makers in India and

one of the top steelmakers in World. With a turnover of 48,681 crore (US$9.87 billion), the company

is among the top five highest profit earning corporates of the country. It is a public sector undertaking

which trades publicly in the market is largely owned by Government of India and acts like an operating

company. Incorporated on January 24, 1973, SAIL has more than 1 lakh employees. During 2010-

11,the manpower of SAIL reached a level of 110794 (as on 31.3.2011) from 116950 (as on 1.4.2010)

The company's current chairman is C.S Verma. With an annual production of 13.5 million metric tons,

SAIL is the 14th largest steel producer in the world.

Major plants owned by SAIL are located Bhilai, Bokaro, Durgapur, Rourkela, Burnpur (near Asansol)

and Salem. SAIL is a public sector company, owned and operated by the Government of India.

According to a recent survey, SAIL is one of India's fastest growing Public Sector Units. Besides, it

has R&D centre for Iron & Steel (RDCIS), Centre for Engineering and Technology (CET),Management Training Institute (MTI) and SAIL Safety Organization (SSO) located at Ranchi capital

of Jharkhand.


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HISTORY

1959-1973

SAIL traces its origin to the Hindustan Steel Limited (HSL) which was set up on January 19, 1954.HSL was initially designed to manage only one plant that was coming up at Rourkela.

For Bhilai and Durgapur Steel Plants, the preliminary work was done by the Iron and Steel Ministry.

From April 1957, the supervision and control of these two steel plants were also transferred to

Hindustan Steel. The registered office was originally in New Delhi. It moved to Calcutta in July 1956,

and ultimately to Ranchi in December 1959.

A new steel company, Bokaro Steel Limited (Bokaro Steel Plant), was incorporated in January 1964

to construct and operate the steel plant at Bokaro. The 1 MT phases of Bhilai and Rourkela Steel

Plants were completed by the end of December 1961. The 1 MT phase of Durgapur Steel Plant was

completed in January 1962 after commissioning of the Wheel and Axle plant. The crude steel

production of HSL went up from 1.58 MT (195960) to 1.6 MT. The second phase of Bhilai Steel Plant

was completed in September 1967 after commissioning of the Wire Rod Mill. The last unit of the 1.8

MT phase of Rourkela - the Tandem Mill - was commissioned in February 1968, and the 1.6 MT stage

of Durgapur Steel Plant was completed in August 1969 after commissioning of the Furnace in SMS.

Thus, with the completion of the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT at Durgapur,

the total crude steel production capacity of HSL was raised to 3.7 MT in 1968-69 and subsequently to

4MT in 1972-73.

1973-present

The Ministry of Steel and Mines drafted a policy statement to evolve a new model for managing

industry. The policy statement was presented to the Parliament on December 2, 1972. On this basisthe concept of creating a holding company to manage inputs and outputs under one umbrella was

mooted. This led to the formation of Steel Authority of India Ltd. The company, incorporated on

January 24, 1973 with an authorized capital of Rs. 2000 crore, was made responsible for managing

five integrated steel plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel Plant

and the Salem Steel Plant. In 1978 SAIL was restructured as an operating company.


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RATIO ANALYSIS

Ratio analysis is a process of identifying the financial strengths and weaknesses of the firm.

This may be accomplished either through a trend analysis of the firms ratios over a period of

time or through a comparison of the firms ratios with its nearest competitors and with the

industry averages.

Ratio analysis is a very useful tool to raise relevant questions on a number of managerial

issues. It provides clues to investigate those issues in detail. However, caution needs to be

applied while interpreting ratios as they are calculated from the accounting numbers.

Accounting numbers suffer from accounting policy changes, arbitrary allocation procedures

and inflation.

1.PROFITABILITY RATIOA class of financial metrics that are used to assess a business's ability to

generate earnings as compared to its expenses and other relevant costs incurred during

a specific period of time. For most of these ratios, having a higher value relative to a

competitor's ratio or the same ratio from a previous period is indicative that the

company is doing well.

a) Gross Profit Margin Ratio:

The gross profit margin reflects the efficiency with which management produces

each unit of product. This ratio indicates the average spread between the cost of goods

sold and the sales revenue.

Gross Profit Margin Ratio = (Gross Profit / Sales) * 100

Gross profit = PBDITA (profit before depreciation, interest, tax and amortization)

2006 2007 2008 2009 2010

22.322 27.425 28.086 22.176 27.339

Analysis: Decrease in gross profit ratio indicates that direct expenses are increasing

and cost of goods sold is increasing.

22.32227.425 28.086

22.17627.339

0

20

40

2006 2007 2008 2009 2010


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b) Net Profit Margin Ratio:

Net profit margin ratio establishes the relationship between net profit and sales and

indicates management efficiency in manufacturing, administrating and selling of the

product. Net profit is obtained when operating expenses, interest and taxes aresubtracted from the gross profit.

Net Profit Margin Ratio = (Net Profit / Sales) * 100

2006 2007 2008 2009 2010

11.99 15.253 16.246 12.151 14.842

Analysis: Previously the net profit was increasing but after 2008 it goes down, this

indicates operating expenses increases year to year.

c) Operating Ratio:

The operating ratio is a financial term defined as a company's operating expenses as a

percentage of revenue. This financial ratio is most commonly used for industries

which require a large percentage of revenues to maintain operations, such as railroads.

Operating ratio= (Cost of Goods Sold + Operating Expenses)/Net Sales

2006 2007 2008 2009 2010

0.8756 0.8417 0.8345 0.8738 0.8462

11.99

15.25316.246

12.15114.842

0

5

10

15

20

2006 2007 2008 2009 2010

0.8756

0.84170.8345

0.8738

0.8462

0.8

0.85

0.9

2006 2007 2008 2009 2010


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2006 2007 2008 2009 2010

16.75 14.16 8.36 11.28 30.69

Analysis: It indicates that the company is borrowing less from outside in the later

years.

c) Proprietary Ratio or Equity Ratio:The equity ratio is a financial ratio indicating the relative proportion

of equity used to finance a company's assets. The two components are often taken

from the firm's balance sheet or statement of financial position (so-called book

value), but the ratio may also be calculated using market values for both, if the

company's equities are publicly traded.

Equity Ratio = Proprietary Fund / Total Assets

2006 2007 2008 2009 2010

0.42 0.49 0.54 0.5 0.47

Analysis: In the year 2008 it increases, which shows that the business expands but in

the later years it decreases which indicates that the business is not expanded.

3)ACTIVITY RATIOS:Activity ratios measure the effectiveness of the firms use of resources.

a) Capital Turnover Ratio:A ratio of how effectively a publicly-traded company manages

the capital invested in it to produce revenues. It is calculated by taking the

total of the company's annual sales and dividing it by the average stockholder

0.420.49

0.540.5 0.47

0

0.2

0.4

0.6

2006 2007 2008 2009 2010

16.7514.16

8.3611.28

30.69

0

10

20

30

40

2006 2007 2008 2009 2010


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equity, which is the average amount of money invested in the company. A

high ratio indicates that the company is using its capital well, while a low ratio

indicates the opposite. It is also called equity turnover.

Capital Turnover Ratio = Net Sales/ Capital Employed

2006 2007 2008 2009 2010

2.58 1.66 1.48 1.42 1.09

Analysis: In the previous years it decreases, which indicates that the sales are less but later it

increases which indicates that the sales are increased.

b) Net Working Capital Turnover Ratio:

Working capital is used by lenders to help gauge the ability for a company to

weather difficult financial periods. Working capital is calculated by

subtracting current liabilities from current assets. Due to differences in

businesses and the fact that working capital is not a ratio but an absolute

amount, it is difficult to predict what the ideal amount of working capital

would be for your business.

Net Working Capital Turnover Ratio = Net Sales/Net Working Capital

2006 2007 2008 2009 2010

8.58 4.74 3.86 3.01 2.1

Analysis: It decreases which is not good for the company because all the

assets are not utilized by the company.

2.58

1.661.48 1.42

1.09

0

1

2

3

2006 2007 2008 2009 2010

8.58

4.743.86

3.012.1

0

5

10

2006 2007 2008 2009 2010


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c) Inventory Turnover Ratio:In accounting, the Inventory turnover is a measure of the number of times

inventory is sold or used in a time period such as a year. The equation for

inventory turnover equals the cost of goods sold divided by the

average inventory. Inventory turnover is also known as inventoryturns, stockturn, stock turns, turns, and stock turnover.

Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory

2006 2007 2008 2009 2010

5.1 5.8 6.55 4.75 4.79

Analysis: It indicates that the cost of goods is increasing due to which the

company earns less profit.

5.15.8

6.55

4.75 4.79

0

2

4

6

8

2006 2007 2008 2009 2010


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Appendices

Appendix I Executive Summary of Statement

Appendix II Assets

Appendix III Liabilities

Appendix IV Income and Expenditure


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APPENDIX I

Steel Authority Of India Ltd. Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010

Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths

-

Total income 33415.79 40822.07 47454.82 51374.62 46815.5

Sales 32377.96 39312.59 45685.04 48837.27 44059.72

Income from financial services 475.15 809.72 1311.33 1846.81 2075.6

Total expenses 30534.13 34904.99 40354.32 47077.09 38903.68

Raw material expenses 12283.58 13421.64 13829.23 19902.42 16990.85

Power, fuel & water charges 2528.45 2594.04 2852.03 3260.62 3445.25

Compensation to employees 4359.18 5252.04 8069.15 8745.38 5540.28

Indirect taxes 4625.1 5437.26 6272.14 5569.67 3497.12

Selling & distribution expenses 1043.39 888.31 936.16 986.92 877.93

Other operational exp. of indl.enterprises 0 67.36 79.69 78.65 113.69

Other oper. exp. of non-fin. serviceenterprises 0 0 0 0 0

PBDITA 7356.8 10987.71 12945.78 11066.36 12260.25

PBDTA 6922.39 10671.55 12707.31 10742.29 11544.5

PBT 5707.33 9456.52 11471.43 9454.52 10207.26

PAT 4012.97 6202.29 7536.78 6170.4 6754.37

Net worth 12601.41 17313.15 23063.57 28148.22 33316.7

Paid up equity capital (net of forfeitedcapital) 4130.4 4130.4 4130.4 4130.4 4130.4

Reserves & surplus 8471.01 13182.75 18933.17 24017.82 29186.3

Total borrowings 3388.45 3291.52 2137.29 6700.21 15688.62

Current liabilities & provisions 11765.05 11957.99 14254.62 18131.99 18093.54

Total assets 30644.44 35270.45 42015.47 55476.02 69545.67

Gross fixed assets 30118.39 31111.23 33312.28 39400.55 50416.7

Net fixed assets 12920.08 12796.23 13960.86 18855.1 28641.41

Investments 292 513.79 557.13 672.85 703.61

Current assets 15525.72 19645.73 26049.33 34340.08 38685.01Loans & advances 285.75 323.92 397.28 444.51 483.75


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Growth (%)

Total income1.6808049

822.164012

916.247951

28.2600671

5

-8.8742651

5

Total expenses

15.597537

2

14.314670

2

15.611893

9

16.659356

4

-17.361757

1

PBDITA

-34.842180

449.354474

817.820546

8

-14.517626

610.788461

6

PAT -41.13264454.556101

821.516085

2 -18.1294939.4640541

9

Net worth23.710910

838.741876

633.869238

822.361806

118.361658

4

Total assets4.0150650

615.095756

4 19.12371432.037128

225.361678

8

Profitability ratios (%)

PBDITA Net of P&E/Total income netof P&E

21.7219887

26.5624796

27.1065565

21.1835446 25.856089

PAT Net of P&E/Total income net ofP&E 11.6721457 14.7729577 15.6799407 11.6074244 14.0375634

PAT Net of P&E/Avg. net worth33.906057

540.090243

736.765690

723.176303

721.279324

9

PAT/Avg. net worth35.035441

741.466697

237.332304

4 24.09757621.977967

3

PAT Net of P&E/Avg. total assets12.922541

218.194401

919.207612

512.174395

910.461640

7

PAT/Avg. total assets13.352980

918.819086

219.503630

212.658335

610.805117

1

Liquidity ratios (times)

Current ratio1.3677578

31.6409484

3 1.91366681.9920885

12.1079245

1

Debt to equity ratio

0.2735800

2

0.1915456

2

0.0929091

3

0.2380331

7

0.4708935

8

Interest cover13.840335

230.259362

348.624606

9 29.44638514.960950

1

Debtors (days)23.618611

221.389345

623.096965

724.189701

828.452866

9

Creditors (days)63.199842

461.330637

763.286015

563.465386

6108.57055

1

Efficiency ratios (times)

Total income / Avg. total assets1.1214249

91.2451462

5 1.23103731.0545737

50.7489180

5

Total income / Compensation toemployees

7.66561372

7.77261217

5.88101845

5.87448687

8.45002419


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APPENDIX II

Steel Authority Of India Ltd.Mar

2006Mar

2007Mar

2008Mar

2009Mar

2010

Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths

-

Gross fixed assets 30118.39 31111.23 33312.28 39400.55 50416.7

Land & building 2604.88 2608.23 2697.05 2773.19 2873.67

Plant & machinery 25021.73 25489.78 26202.33 27742.15 28866.54

Transport & comm.equipment/infrastructure 1089.1 1138.19 1226.82 1373.17 1614.55

Furniture,amenities & other fixed assets 415.45 431.02 456.76 534.25 565.46

Capital work-in-progress 753.48 1193.01 2372.89 6549.86 15029.59

Intangible assets 204.88 221.53 314.25 401.25 1439.04

Net pre-operative expenses pendingallocation 4.46 5.51 16.66 0.84 4.62

Net lease reserve adjustment 0 0 0 0 0

Less: Cumulative depreciation 17198.31 18315 19351.42 20545.45 21775.29

Less: Arrears of depreciation 0 0 0 0 0

Net fixed assets 12920.08 12796.23 13960.86 18855.1 28641.41

Investments 292 513.79 557.13 672.85 703.61

Equity shares 296.49 521.49 545.9 660 676.13

Preference shares 0 0 0 0 0

Mutual funds 0 0 0 0 0Debt instruments 0 0 0 0 0

Approved securites (slr/statutory req.) 0 0 0 0 0

Assisted companies 0 0 0 0 0

Others 0.18 0.18 19.11 20.33 34.96

Less: Provision for dimunition in value ofinvestments 4.67 7.88 7.88 7.48 7.48

Group companies 284.48 509.48 533.89 647.99 664.12

Non-group companies 12.01 12.01 12.01 12.01 12.01

Market value of quoted investments 3.33 4.31 5.12 2.7 6.08

Deferred tax assets 1405.07 1295.13 991.39 1162.39 1031.89


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Borrowings from promoters / directors 0 0 0 0 0

Commercial paper 0 0 0 0 944.78

Hire purchase borrowings 0 0 0 0 0

Deferred credit 0 0 0 0 0

Other borrowings 1454.05 995.05 491.9 1147.9 413.4

Secured borrowings 1122.16 1556.39 925.31 1497.64 7755.9

Unsecured borrowings 2266.29 1735.13 1211.98 5202.57 7932.72

Current portion of long term debt 1448.23 2047.12 1028.64 5211.51 3041.31

Current liabilities & provisions 11765.05 11957.99 14254.62 18131.99 18093.54

Sundry creditors 2427.36 2545.07 2987.25 4104.87 6232.36

Acceptances 0 0 0 0 0

Deposits & advances from customers &employees 768.56 889.51 886.63 1021.22 1216.36

Interest accrued 1284.99 1087.79 1023.59 958.2 1223.75

Share application money 0 0 0 0 0

Other current liabilities 1619.96 1764.47 2411.45 2467 3087.02Provisions 5664.18 5671.15 6945.7 9580.7 6334.05

Deferred tax liability 2889.53 2707.79 2559.99 2495.6 2446.81

Total liabilities 30644.44 35270.45 42015.47 55476.02 69545.67

Net worth (net of reval & DRE) 12385.59 17184 23004.09 28148.22 33316.7

Contingent liabilities 5705.22 5605.9 17262.72 32076.05 28384


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APPENDIX IV

Steel Authority OfIndia Ltd.

Indicators / Segments

Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010

-

Segment sales 33884.32 41250.1 48276.09 52068.69 47561.07Alloy Steel Plant 669.21 772 1051.45 1132.75 1215.83

Bhilai Steel Plant 11386.52 13867.87 16709.24 18916.13 16606.04

Bokaro Steel Plant 10069.26 11519.21 12757.04 12284.72 11550.09

Durgapur Steel Plant 3839.9 4488.07 5642.83 6626.63 5917.24

I S P 1358.58 1590.56 1840.26 2351.11 2220.58

Others 486.25 563.65 707.15 1100.22 1028.15

Rourkela Steel Plant 4632.72 6395.01 7384.85 7741.74 7092.69

Salem Steel Plant 785.04 1305.24 1397.13 1265.04 1373.34

Visvesvaraya Iron &Steel Plant

656.84 748.49 786.14 650.35 557.11

Visvesvaraya Iron &Steel

557.11

Less: inter segment 1604.57 2061.44 2720.75 3149.56 3626.37Alloy Steel Plant 174.16 240.1 500.31 587.92 806.36




I S P 19.35 108.19 124.44 325.33 387.1

Others 482.95 554.86 677.42 779.75 970.74


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Visvesvaraya Iron &

Steel Plant

23.81 36.74 53.53 60.9 56.54


56.54

Net sales (net of intersegment) 32279.75 39188.66 45555.34 48919.13 43934.7

Alloy Steel Plant 495.05 531.9 551.14 544.83 409.47




I S P 1339.23 1482.37 1715.82 2025.78 1833.48

Others 3.3 8.79 29.73 320.47 57.41




633.03 711.75 732.61 589.45 500.57


500.57

PBIT 6173.5 9755.18 11719.67 9658.29 10534.04Alloy Steel Plant 30.15 22.73 8.35 -106.94 -22.05




I S P -242.21 -245.37 -280.06 -178.59 185.94

Others 401.13 818.27 1122.3 1825.79 1744.18


Salem Steel Plant -56.92 123.55 107.69 7.12 19.16


29.95 -29.8 -52.05 -148.45 -99.98


-99.98

-Interest / dividend income

0 0 0 0 0

Less: interest expense 467.76 332.13 250.94 259.41 402.01Net unallocableincome/expenditure 0 0 0 0 0


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Less: Tax1692.77 3220.76 3931.95 3226.48 3377.66

Deferred Taxes0 0 0 0 0

PAT4012.97 6202.29 7536.78 6172.4 6754.37

PAT/sales (%)12.4318497 15.8267468 16.5442295 12.6175588 15.3736568

PAT/capital employed

(%) 21.8292065 27.0767513 27.2307994 16.6622305 13.1810923PAT/total assets (%)13.0242055 18.3199918 18.4380822 11.3916451 9.87605167

Accounts Project - Financial Statement Analysis of Steel Authority of India Limited - By Irfan Ahmad & Manisha Yadav

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