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Introduction Backed by 100 glorious years of experience in steel making, Tata Steel is among the top ten steel producers in the world with an existing annual crude steel production capacity of 30 Million Tonnes Per Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia and is now the world`s second most geographically diversified steel producer and a Fortune 500 Company. Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing units in 26 countries. It was the vision of the founder; Jamsetji Nusserwanji Tata., that on 27th February, 1908, the first stake was driven into the soil of Sakchi. His vision helped Tata Steel overcome several periods of adversity and strive to improve against all odds.
43

TATA STEEL ANALYSIS

Sep 13, 2014

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TATA STEEL ANALYSIS OF FINANCIAL STATEMENT OF LAST 5 YEARS..
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Page 1: TATA STEEL  ANALYSIS

Introduction

Backed by 100 glorious years of experience in steel making Tata Steel is among the top ten steel producers in the world with an existing annual crude steel production capacity of 30 Million Tonnes Per Annum (MTPA) Established in 1907 it is the first integrated steel plant in Asia and is now the world`s second most geographically diversified steel producer and a Fortune 500 Company

Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets with manufacturing units in 26 countries

It was the vision of the founder Jamsetji Nusserwanji Tata that on 27th February 1908 the first stake was driven into the soil of Sakchi His vision helped Tata Steel overcome several periods of adversity and strive to improve against all odds

Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 68 MTPA which is slated to increase to 10 MTPA by 2010

The Company also has proposed three Greenfield steel projects in the states of Jharkhand Orissa and Chhattisgarh in India with additional capacity of 23 MTPA and a Greenfield project in Vietnam

Through investments in Corus Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings Singapore Tata Steel has created a manufacturing and marketing network in Europe South East Asia and the pacific-rim countries Corus which manufactured over 20 MTPA of steel in 2008 has operations in the UK the Netherlands Germany France Norway and Belgium

Tata Steel Thailand is the largest producer of long steel products in Thailand with a manufacturing capacity of 17 MTPA Tata Steel has proposed a 05 MTPA mini blast furnace project in Thailand NatSteel Holdings produces about 2 MTPA of steel products across its regional operations in seven countries

Tata Steel through its joint venture with Tata BlueScope Steel Limited has also entered the steel building and construction applications market

The iron ore mines and collieries in India give the Company a distinct advantage in raw material sourcing Tata Steel is also striving towards raw materials security through joint ventures in Thailand Australia Mozambique Ivory Coast (West Africa) and Oman Tata Steel has signed an agreement with Steel Authority of India Limited to establish a 5050 joint venture company for coal mining in India Also Tata Steel has bought 199 stake in New Millennium Capital Corporation Canada for iron ore mining

Exploration of opportunities in titanium dioxide business in Tamil Nadu ferro-chrome plant in South Africa and setting up of a deep-sea port in coastal Orissa are integral to the Growth and Globalisation objective of Tata Steel

Tata Steelrsquos vision is to be the global steel industry benchmark for Value Creation and Corporate Citizenship

Tata Steel India is the first integrated steel company in the world outside Japan to be awarded the Deming Application Prize 2008 for excellence in Total Quality Management

THE TATA GROUP

Before we discuss at the length of the company we would like to throw some light on the Tata Group of companies in present day India

Tata Steel is one of the ventures of the Tat Group but it has many successful companies under one umbrella Some of the other notable Tata concerns and their lines of businesses are shown below

VISION OF THE COMPANY

COMPETITION

Tata Steel is undoubtedly the best steelmaker in the wrold It produces the cheapest and best quality of steel in the world In the last seven years the position of Tata Steel has reduced drastically because of Corus acquisition The results of the acquistion will be profitable after 2010

MAJOR LOCAL STEEL PLAYERS

MANAGEMENT EFFICIENCY

The structure of the Board was recently modified in 2007 post the acquisition of Corus acquisition to suitable incorporate changes which will lead to the adequate realization of synergies from the deal within the given stipulated time frame to reap the benefits from the much talked about and

criticized deal

BOARD OF DIRECTORS

14 Board of Directors

8 independent 6 non independent

No of independent directors is more than one third of total number of directors

LEGAL ENVIRONMENT

Global operations require compliance with multiple and complex laws and regulations In countries where the political systems are still evolving

frequent changes in economic policy are common investment guarantees and property rights are secured any unforeseen changes can expose the Grouprsquos businesses to uncertainties The Group operations are primarily in countries where investment flows are freer and where there are established political business and legal frameworks in place There is an established due process to independently evaluate country risk exposures for investments in

emerging economies

TATA STEEL ndash PRODUCTS

Financing and Liquidity Strategy of the Tata Steel Group in response to the global economic crisis

They have responded by increasing production post commissioning of the 18 mtpa programme and focusing on performance improvement to neutralise the effect of reduced realisations whereas in South East Asia the focus is on working capital management and cost reduction In Europe we have cut production by idling blast furnaces at three sites in order to align production with demand as a part of the ldquoWeathering the Stormrdquo initiative which resulted in cash savings of pound712 million (US$102 billion) in the second half of the financial year 2008-09 Further these efforts have been supplemented by a strategic restructuring initiative launched as ldquoFit for Futurerdquo programme which when completed will result in improvement of the operating profit of around pound200 million annually In all sites across the Group the journey of lsquoContinuous Improvementrsquo stays on course

Recognizing the uncertain financing environment and the fragile state of the global banking industry they focussed on both internal and external levers Internally as an organisation the company placed primary importance on conserving liquidity through reduced spend management and sharp reduction in working capital levels They also focussed on improvement in the productivity levels and reduction in overheads On capital expenditure they have re-prioritised on the most value creating and critical projects and reworked the capital planning strategy

On the external front the company raised long term capital which acted as a liquidity buffer in the current circumstance and would be deployed in value creating long term assets The above actions ensured that the Tata Steel Group had adequate liquidity and also financial flexibility for growth and exigencies The liquidity position of the Group at the year end was approximately US$19 billion of cash and cash equivalents and undrawn lines

THE EIC APPROACH

1ECONOMY

The steel industry has traditionally been very sensitive to the changing economic conditions The recent economic meltdown has created several challenges ndash which when addressed appropriately can be countered to positive eff ect However unlike the previous global recessions this time around all the countries have come together and taken action Additionally there has been a tremendous amount of governmental response to the global depression which is helping to bring about a possible easing of the situation

The global downturn also had a major effect on various industries dependant on steel Major contraction in the construction projects automobiles white goods demand from the third quarter of 2008-09 resulted in the global demand for steel dropping by 21 compared to the level consumed in the same quarter of the previous year

The demand for steel declined by 26 in the UK and Europe in the third quarter compared to a year earlier and after a further contraction in the fourth quarter demand had fallen by 57 in the UK and 44 in Europe compared with a year ago This reflected in a sharp downturn in private construction projects as well as large falls in automotive and mechanical engineering amplified by severe destocking by both end users and service centers

2INDUSTRY

Some of the major sectors are

Indian steel production has increased by 5 million tones every year The economic reforms initiated by the government since 1991 have added new dimensions to industrial growth in general and steel industry in particular Steel industry has been removed from the list of industries reserved for the public sector

Automatic approval of foreign equity investment up to 100 is now available Price and distribution controls have been removed from January 1992 with a view to make the steel industry efficient and competitive

Company

The year 2008-09 was a historical one epitomised by the acute global financial imbalance which initially appeared to have spared India only to impact the markets adversely as the year rolled on The global economic slowdown has impacted the steel sector as well Amidst the turmoil in the global marketplace Jamshedpur Works performed remarkably creating many records on the way

Indian operations witnessed a less pronounced drop in demand of 11 in the third quarter reflecting the reduced activity in infrastructure and commercial vehicles Steel is required by various industries as an important raw material constituent

Tata Steel has taken aggressive steps to meet the challenges of these difficult times through major initiatives in cost reduction process improvement and production rationalisation The highest priority is being given to expanding steel producing capacity in Jamshedpur and ensuring raw material security for the European operations which do not have captive iron ore and coal resources The Tata Steel Group has developed a pipeline of high quality projects which will be executed though we will re-phase the sequence Projects like the 3 million tone expansion in Jamshedpur the proposed steel plant in Orissa and raw material projects in Mozambique South Africa and Canada are key drivers of our future value creation

FinancialAnalysis

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 2: TATA STEEL  ANALYSIS

Through investments in Corus Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings Singapore Tata Steel has created a manufacturing and marketing network in Europe South East Asia and the pacific-rim countries Corus which manufactured over 20 MTPA of steel in 2008 has operations in the UK the Netherlands Germany France Norway and Belgium

Tata Steel Thailand is the largest producer of long steel products in Thailand with a manufacturing capacity of 17 MTPA Tata Steel has proposed a 05 MTPA mini blast furnace project in Thailand NatSteel Holdings produces about 2 MTPA of steel products across its regional operations in seven countries

Tata Steel through its joint venture with Tata BlueScope Steel Limited has also entered the steel building and construction applications market

The iron ore mines and collieries in India give the Company a distinct advantage in raw material sourcing Tata Steel is also striving towards raw materials security through joint ventures in Thailand Australia Mozambique Ivory Coast (West Africa) and Oman Tata Steel has signed an agreement with Steel Authority of India Limited to establish a 5050 joint venture company for coal mining in India Also Tata Steel has bought 199 stake in New Millennium Capital Corporation Canada for iron ore mining

Exploration of opportunities in titanium dioxide business in Tamil Nadu ferro-chrome plant in South Africa and setting up of a deep-sea port in coastal Orissa are integral to the Growth and Globalisation objective of Tata Steel

Tata Steelrsquos vision is to be the global steel industry benchmark for Value Creation and Corporate Citizenship

Tata Steel India is the first integrated steel company in the world outside Japan to be awarded the Deming Application Prize 2008 for excellence in Total Quality Management

THE TATA GROUP

Before we discuss at the length of the company we would like to throw some light on the Tata Group of companies in present day India

Tata Steel is one of the ventures of the Tat Group but it has many successful companies under one umbrella Some of the other notable Tata concerns and their lines of businesses are shown below

VISION OF THE COMPANY

COMPETITION

Tata Steel is undoubtedly the best steelmaker in the wrold It produces the cheapest and best quality of steel in the world In the last seven years the position of Tata Steel has reduced drastically because of Corus acquisition The results of the acquistion will be profitable after 2010

MAJOR LOCAL STEEL PLAYERS

MANAGEMENT EFFICIENCY

The structure of the Board was recently modified in 2007 post the acquisition of Corus acquisition to suitable incorporate changes which will lead to the adequate realization of synergies from the deal within the given stipulated time frame to reap the benefits from the much talked about and

criticized deal

BOARD OF DIRECTORS

14 Board of Directors

8 independent 6 non independent

No of independent directors is more than one third of total number of directors

LEGAL ENVIRONMENT

Global operations require compliance with multiple and complex laws and regulations In countries where the political systems are still evolving

frequent changes in economic policy are common investment guarantees and property rights are secured any unforeseen changes can expose the Grouprsquos businesses to uncertainties The Group operations are primarily in countries where investment flows are freer and where there are established political business and legal frameworks in place There is an established due process to independently evaluate country risk exposures for investments in

emerging economies

TATA STEEL ndash PRODUCTS

Financing and Liquidity Strategy of the Tata Steel Group in response to the global economic crisis

They have responded by increasing production post commissioning of the 18 mtpa programme and focusing on performance improvement to neutralise the effect of reduced realisations whereas in South East Asia the focus is on working capital management and cost reduction In Europe we have cut production by idling blast furnaces at three sites in order to align production with demand as a part of the ldquoWeathering the Stormrdquo initiative which resulted in cash savings of pound712 million (US$102 billion) in the second half of the financial year 2008-09 Further these efforts have been supplemented by a strategic restructuring initiative launched as ldquoFit for Futurerdquo programme which when completed will result in improvement of the operating profit of around pound200 million annually In all sites across the Group the journey of lsquoContinuous Improvementrsquo stays on course

Recognizing the uncertain financing environment and the fragile state of the global banking industry they focussed on both internal and external levers Internally as an organisation the company placed primary importance on conserving liquidity through reduced spend management and sharp reduction in working capital levels They also focussed on improvement in the productivity levels and reduction in overheads On capital expenditure they have re-prioritised on the most value creating and critical projects and reworked the capital planning strategy

On the external front the company raised long term capital which acted as a liquidity buffer in the current circumstance and would be deployed in value creating long term assets The above actions ensured that the Tata Steel Group had adequate liquidity and also financial flexibility for growth and exigencies The liquidity position of the Group at the year end was approximately US$19 billion of cash and cash equivalents and undrawn lines

THE EIC APPROACH

1ECONOMY

The steel industry has traditionally been very sensitive to the changing economic conditions The recent economic meltdown has created several challenges ndash which when addressed appropriately can be countered to positive eff ect However unlike the previous global recessions this time around all the countries have come together and taken action Additionally there has been a tremendous amount of governmental response to the global depression which is helping to bring about a possible easing of the situation

The global downturn also had a major effect on various industries dependant on steel Major contraction in the construction projects automobiles white goods demand from the third quarter of 2008-09 resulted in the global demand for steel dropping by 21 compared to the level consumed in the same quarter of the previous year

The demand for steel declined by 26 in the UK and Europe in the third quarter compared to a year earlier and after a further contraction in the fourth quarter demand had fallen by 57 in the UK and 44 in Europe compared with a year ago This reflected in a sharp downturn in private construction projects as well as large falls in automotive and mechanical engineering amplified by severe destocking by both end users and service centers

2INDUSTRY

Some of the major sectors are

Indian steel production has increased by 5 million tones every year The economic reforms initiated by the government since 1991 have added new dimensions to industrial growth in general and steel industry in particular Steel industry has been removed from the list of industries reserved for the public sector

Automatic approval of foreign equity investment up to 100 is now available Price and distribution controls have been removed from January 1992 with a view to make the steel industry efficient and competitive

Company

The year 2008-09 was a historical one epitomised by the acute global financial imbalance which initially appeared to have spared India only to impact the markets adversely as the year rolled on The global economic slowdown has impacted the steel sector as well Amidst the turmoil in the global marketplace Jamshedpur Works performed remarkably creating many records on the way

Indian operations witnessed a less pronounced drop in demand of 11 in the third quarter reflecting the reduced activity in infrastructure and commercial vehicles Steel is required by various industries as an important raw material constituent

Tata Steel has taken aggressive steps to meet the challenges of these difficult times through major initiatives in cost reduction process improvement and production rationalisation The highest priority is being given to expanding steel producing capacity in Jamshedpur and ensuring raw material security for the European operations which do not have captive iron ore and coal resources The Tata Steel Group has developed a pipeline of high quality projects which will be executed though we will re-phase the sequence Projects like the 3 million tone expansion in Jamshedpur the proposed steel plant in Orissa and raw material projects in Mozambique South Africa and Canada are key drivers of our future value creation

FinancialAnalysis

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 3: TATA STEEL  ANALYSIS

THE TATA GROUP

Before we discuss at the length of the company we would like to throw some light on the Tata Group of companies in present day India

Tata Steel is one of the ventures of the Tat Group but it has many successful companies under one umbrella Some of the other notable Tata concerns and their lines of businesses are shown below

VISION OF THE COMPANY

COMPETITION

Tata Steel is undoubtedly the best steelmaker in the wrold It produces the cheapest and best quality of steel in the world In the last seven years the position of Tata Steel has reduced drastically because of Corus acquisition The results of the acquistion will be profitable after 2010

MAJOR LOCAL STEEL PLAYERS

MANAGEMENT EFFICIENCY

The structure of the Board was recently modified in 2007 post the acquisition of Corus acquisition to suitable incorporate changes which will lead to the adequate realization of synergies from the deal within the given stipulated time frame to reap the benefits from the much talked about and

criticized deal

BOARD OF DIRECTORS

14 Board of Directors

8 independent 6 non independent

No of independent directors is more than one third of total number of directors

LEGAL ENVIRONMENT

Global operations require compliance with multiple and complex laws and regulations In countries where the political systems are still evolving

frequent changes in economic policy are common investment guarantees and property rights are secured any unforeseen changes can expose the Grouprsquos businesses to uncertainties The Group operations are primarily in countries where investment flows are freer and where there are established political business and legal frameworks in place There is an established due process to independently evaluate country risk exposures for investments in

emerging economies

TATA STEEL ndash PRODUCTS

Financing and Liquidity Strategy of the Tata Steel Group in response to the global economic crisis

They have responded by increasing production post commissioning of the 18 mtpa programme and focusing on performance improvement to neutralise the effect of reduced realisations whereas in South East Asia the focus is on working capital management and cost reduction In Europe we have cut production by idling blast furnaces at three sites in order to align production with demand as a part of the ldquoWeathering the Stormrdquo initiative which resulted in cash savings of pound712 million (US$102 billion) in the second half of the financial year 2008-09 Further these efforts have been supplemented by a strategic restructuring initiative launched as ldquoFit for Futurerdquo programme which when completed will result in improvement of the operating profit of around pound200 million annually In all sites across the Group the journey of lsquoContinuous Improvementrsquo stays on course

Recognizing the uncertain financing environment and the fragile state of the global banking industry they focussed on both internal and external levers Internally as an organisation the company placed primary importance on conserving liquidity through reduced spend management and sharp reduction in working capital levels They also focussed on improvement in the productivity levels and reduction in overheads On capital expenditure they have re-prioritised on the most value creating and critical projects and reworked the capital planning strategy

On the external front the company raised long term capital which acted as a liquidity buffer in the current circumstance and would be deployed in value creating long term assets The above actions ensured that the Tata Steel Group had adequate liquidity and also financial flexibility for growth and exigencies The liquidity position of the Group at the year end was approximately US$19 billion of cash and cash equivalents and undrawn lines

THE EIC APPROACH

1ECONOMY

The steel industry has traditionally been very sensitive to the changing economic conditions The recent economic meltdown has created several challenges ndash which when addressed appropriately can be countered to positive eff ect However unlike the previous global recessions this time around all the countries have come together and taken action Additionally there has been a tremendous amount of governmental response to the global depression which is helping to bring about a possible easing of the situation

The global downturn also had a major effect on various industries dependant on steel Major contraction in the construction projects automobiles white goods demand from the third quarter of 2008-09 resulted in the global demand for steel dropping by 21 compared to the level consumed in the same quarter of the previous year

The demand for steel declined by 26 in the UK and Europe in the third quarter compared to a year earlier and after a further contraction in the fourth quarter demand had fallen by 57 in the UK and 44 in Europe compared with a year ago This reflected in a sharp downturn in private construction projects as well as large falls in automotive and mechanical engineering amplified by severe destocking by both end users and service centers

2INDUSTRY

Some of the major sectors are

Indian steel production has increased by 5 million tones every year The economic reforms initiated by the government since 1991 have added new dimensions to industrial growth in general and steel industry in particular Steel industry has been removed from the list of industries reserved for the public sector

Automatic approval of foreign equity investment up to 100 is now available Price and distribution controls have been removed from January 1992 with a view to make the steel industry efficient and competitive

Company

The year 2008-09 was a historical one epitomised by the acute global financial imbalance which initially appeared to have spared India only to impact the markets adversely as the year rolled on The global economic slowdown has impacted the steel sector as well Amidst the turmoil in the global marketplace Jamshedpur Works performed remarkably creating many records on the way

Indian operations witnessed a less pronounced drop in demand of 11 in the third quarter reflecting the reduced activity in infrastructure and commercial vehicles Steel is required by various industries as an important raw material constituent

Tata Steel has taken aggressive steps to meet the challenges of these difficult times through major initiatives in cost reduction process improvement and production rationalisation The highest priority is being given to expanding steel producing capacity in Jamshedpur and ensuring raw material security for the European operations which do not have captive iron ore and coal resources The Tata Steel Group has developed a pipeline of high quality projects which will be executed though we will re-phase the sequence Projects like the 3 million tone expansion in Jamshedpur the proposed steel plant in Orissa and raw material projects in Mozambique South Africa and Canada are key drivers of our future value creation

FinancialAnalysis

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 4: TATA STEEL  ANALYSIS

Tata Steel is one of the ventures of the Tat Group but it has many successful companies under one umbrella Some of the other notable Tata concerns and their lines of businesses are shown below

VISION OF THE COMPANY

COMPETITION

Tata Steel is undoubtedly the best steelmaker in the wrold It produces the cheapest and best quality of steel in the world In the last seven years the position of Tata Steel has reduced drastically because of Corus acquisition The results of the acquistion will be profitable after 2010

MAJOR LOCAL STEEL PLAYERS

MANAGEMENT EFFICIENCY

The structure of the Board was recently modified in 2007 post the acquisition of Corus acquisition to suitable incorporate changes which will lead to the adequate realization of synergies from the deal within the given stipulated time frame to reap the benefits from the much talked about and

criticized deal

BOARD OF DIRECTORS

14 Board of Directors

8 independent 6 non independent

No of independent directors is more than one third of total number of directors

LEGAL ENVIRONMENT

Global operations require compliance with multiple and complex laws and regulations In countries where the political systems are still evolving

frequent changes in economic policy are common investment guarantees and property rights are secured any unforeseen changes can expose the Grouprsquos businesses to uncertainties The Group operations are primarily in countries where investment flows are freer and where there are established political business and legal frameworks in place There is an established due process to independently evaluate country risk exposures for investments in

emerging economies

TATA STEEL ndash PRODUCTS

Financing and Liquidity Strategy of the Tata Steel Group in response to the global economic crisis

They have responded by increasing production post commissioning of the 18 mtpa programme and focusing on performance improvement to neutralise the effect of reduced realisations whereas in South East Asia the focus is on working capital management and cost reduction In Europe we have cut production by idling blast furnaces at three sites in order to align production with demand as a part of the ldquoWeathering the Stormrdquo initiative which resulted in cash savings of pound712 million (US$102 billion) in the second half of the financial year 2008-09 Further these efforts have been supplemented by a strategic restructuring initiative launched as ldquoFit for Futurerdquo programme which when completed will result in improvement of the operating profit of around pound200 million annually In all sites across the Group the journey of lsquoContinuous Improvementrsquo stays on course

Recognizing the uncertain financing environment and the fragile state of the global banking industry they focussed on both internal and external levers Internally as an organisation the company placed primary importance on conserving liquidity through reduced spend management and sharp reduction in working capital levels They also focussed on improvement in the productivity levels and reduction in overheads On capital expenditure they have re-prioritised on the most value creating and critical projects and reworked the capital planning strategy

On the external front the company raised long term capital which acted as a liquidity buffer in the current circumstance and would be deployed in value creating long term assets The above actions ensured that the Tata Steel Group had adequate liquidity and also financial flexibility for growth and exigencies The liquidity position of the Group at the year end was approximately US$19 billion of cash and cash equivalents and undrawn lines

THE EIC APPROACH

1ECONOMY

The steel industry has traditionally been very sensitive to the changing economic conditions The recent economic meltdown has created several challenges ndash which when addressed appropriately can be countered to positive eff ect However unlike the previous global recessions this time around all the countries have come together and taken action Additionally there has been a tremendous amount of governmental response to the global depression which is helping to bring about a possible easing of the situation

The global downturn also had a major effect on various industries dependant on steel Major contraction in the construction projects automobiles white goods demand from the third quarter of 2008-09 resulted in the global demand for steel dropping by 21 compared to the level consumed in the same quarter of the previous year

The demand for steel declined by 26 in the UK and Europe in the third quarter compared to a year earlier and after a further contraction in the fourth quarter demand had fallen by 57 in the UK and 44 in Europe compared with a year ago This reflected in a sharp downturn in private construction projects as well as large falls in automotive and mechanical engineering amplified by severe destocking by both end users and service centers

2INDUSTRY

Some of the major sectors are

Indian steel production has increased by 5 million tones every year The economic reforms initiated by the government since 1991 have added new dimensions to industrial growth in general and steel industry in particular Steel industry has been removed from the list of industries reserved for the public sector

Automatic approval of foreign equity investment up to 100 is now available Price and distribution controls have been removed from January 1992 with a view to make the steel industry efficient and competitive

Company

The year 2008-09 was a historical one epitomised by the acute global financial imbalance which initially appeared to have spared India only to impact the markets adversely as the year rolled on The global economic slowdown has impacted the steel sector as well Amidst the turmoil in the global marketplace Jamshedpur Works performed remarkably creating many records on the way

Indian operations witnessed a less pronounced drop in demand of 11 in the third quarter reflecting the reduced activity in infrastructure and commercial vehicles Steel is required by various industries as an important raw material constituent

Tata Steel has taken aggressive steps to meet the challenges of these difficult times through major initiatives in cost reduction process improvement and production rationalisation The highest priority is being given to expanding steel producing capacity in Jamshedpur and ensuring raw material security for the European operations which do not have captive iron ore and coal resources The Tata Steel Group has developed a pipeline of high quality projects which will be executed though we will re-phase the sequence Projects like the 3 million tone expansion in Jamshedpur the proposed steel plant in Orissa and raw material projects in Mozambique South Africa and Canada are key drivers of our future value creation

FinancialAnalysis

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 5: TATA STEEL  ANALYSIS

COMPETITION

Tata Steel is undoubtedly the best steelmaker in the wrold It produces the cheapest and best quality of steel in the world In the last seven years the position of Tata Steel has reduced drastically because of Corus acquisition The results of the acquistion will be profitable after 2010

MAJOR LOCAL STEEL PLAYERS

MANAGEMENT EFFICIENCY

The structure of the Board was recently modified in 2007 post the acquisition of Corus acquisition to suitable incorporate changes which will lead to the adequate realization of synergies from the deal within the given stipulated time frame to reap the benefits from the much talked about and

criticized deal

BOARD OF DIRECTORS

14 Board of Directors

8 independent 6 non independent

No of independent directors is more than one third of total number of directors

LEGAL ENVIRONMENT

Global operations require compliance with multiple and complex laws and regulations In countries where the political systems are still evolving

frequent changes in economic policy are common investment guarantees and property rights are secured any unforeseen changes can expose the Grouprsquos businesses to uncertainties The Group operations are primarily in countries where investment flows are freer and where there are established political business and legal frameworks in place There is an established due process to independently evaluate country risk exposures for investments in

emerging economies

TATA STEEL ndash PRODUCTS

Financing and Liquidity Strategy of the Tata Steel Group in response to the global economic crisis

They have responded by increasing production post commissioning of the 18 mtpa programme and focusing on performance improvement to neutralise the effect of reduced realisations whereas in South East Asia the focus is on working capital management and cost reduction In Europe we have cut production by idling blast furnaces at three sites in order to align production with demand as a part of the ldquoWeathering the Stormrdquo initiative which resulted in cash savings of pound712 million (US$102 billion) in the second half of the financial year 2008-09 Further these efforts have been supplemented by a strategic restructuring initiative launched as ldquoFit for Futurerdquo programme which when completed will result in improvement of the operating profit of around pound200 million annually In all sites across the Group the journey of lsquoContinuous Improvementrsquo stays on course

Recognizing the uncertain financing environment and the fragile state of the global banking industry they focussed on both internal and external levers Internally as an organisation the company placed primary importance on conserving liquidity through reduced spend management and sharp reduction in working capital levels They also focussed on improvement in the productivity levels and reduction in overheads On capital expenditure they have re-prioritised on the most value creating and critical projects and reworked the capital planning strategy

On the external front the company raised long term capital which acted as a liquidity buffer in the current circumstance and would be deployed in value creating long term assets The above actions ensured that the Tata Steel Group had adequate liquidity and also financial flexibility for growth and exigencies The liquidity position of the Group at the year end was approximately US$19 billion of cash and cash equivalents and undrawn lines

THE EIC APPROACH

1ECONOMY

The steel industry has traditionally been very sensitive to the changing economic conditions The recent economic meltdown has created several challenges ndash which when addressed appropriately can be countered to positive eff ect However unlike the previous global recessions this time around all the countries have come together and taken action Additionally there has been a tremendous amount of governmental response to the global depression which is helping to bring about a possible easing of the situation

The global downturn also had a major effect on various industries dependant on steel Major contraction in the construction projects automobiles white goods demand from the third quarter of 2008-09 resulted in the global demand for steel dropping by 21 compared to the level consumed in the same quarter of the previous year

The demand for steel declined by 26 in the UK and Europe in the third quarter compared to a year earlier and after a further contraction in the fourth quarter demand had fallen by 57 in the UK and 44 in Europe compared with a year ago This reflected in a sharp downturn in private construction projects as well as large falls in automotive and mechanical engineering amplified by severe destocking by both end users and service centers

2INDUSTRY

Some of the major sectors are

Indian steel production has increased by 5 million tones every year The economic reforms initiated by the government since 1991 have added new dimensions to industrial growth in general and steel industry in particular Steel industry has been removed from the list of industries reserved for the public sector

Automatic approval of foreign equity investment up to 100 is now available Price and distribution controls have been removed from January 1992 with a view to make the steel industry efficient and competitive

Company

The year 2008-09 was a historical one epitomised by the acute global financial imbalance which initially appeared to have spared India only to impact the markets adversely as the year rolled on The global economic slowdown has impacted the steel sector as well Amidst the turmoil in the global marketplace Jamshedpur Works performed remarkably creating many records on the way

Indian operations witnessed a less pronounced drop in demand of 11 in the third quarter reflecting the reduced activity in infrastructure and commercial vehicles Steel is required by various industries as an important raw material constituent

Tata Steel has taken aggressive steps to meet the challenges of these difficult times through major initiatives in cost reduction process improvement and production rationalisation The highest priority is being given to expanding steel producing capacity in Jamshedpur and ensuring raw material security for the European operations which do not have captive iron ore and coal resources The Tata Steel Group has developed a pipeline of high quality projects which will be executed though we will re-phase the sequence Projects like the 3 million tone expansion in Jamshedpur the proposed steel plant in Orissa and raw material projects in Mozambique South Africa and Canada are key drivers of our future value creation

FinancialAnalysis

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 6: TATA STEEL  ANALYSIS

MANAGEMENT EFFICIENCY

The structure of the Board was recently modified in 2007 post the acquisition of Corus acquisition to suitable incorporate changes which will lead to the adequate realization of synergies from the deal within the given stipulated time frame to reap the benefits from the much talked about and

criticized deal

BOARD OF DIRECTORS

14 Board of Directors

8 independent 6 non independent

No of independent directors is more than one third of total number of directors

LEGAL ENVIRONMENT

Global operations require compliance with multiple and complex laws and regulations In countries where the political systems are still evolving

frequent changes in economic policy are common investment guarantees and property rights are secured any unforeseen changes can expose the Grouprsquos businesses to uncertainties The Group operations are primarily in countries where investment flows are freer and where there are established political business and legal frameworks in place There is an established due process to independently evaluate country risk exposures for investments in

emerging economies

TATA STEEL ndash PRODUCTS

Financing and Liquidity Strategy of the Tata Steel Group in response to the global economic crisis

They have responded by increasing production post commissioning of the 18 mtpa programme and focusing on performance improvement to neutralise the effect of reduced realisations whereas in South East Asia the focus is on working capital management and cost reduction In Europe we have cut production by idling blast furnaces at three sites in order to align production with demand as a part of the ldquoWeathering the Stormrdquo initiative which resulted in cash savings of pound712 million (US$102 billion) in the second half of the financial year 2008-09 Further these efforts have been supplemented by a strategic restructuring initiative launched as ldquoFit for Futurerdquo programme which when completed will result in improvement of the operating profit of around pound200 million annually In all sites across the Group the journey of lsquoContinuous Improvementrsquo stays on course

Recognizing the uncertain financing environment and the fragile state of the global banking industry they focussed on both internal and external levers Internally as an organisation the company placed primary importance on conserving liquidity through reduced spend management and sharp reduction in working capital levels They also focussed on improvement in the productivity levels and reduction in overheads On capital expenditure they have re-prioritised on the most value creating and critical projects and reworked the capital planning strategy

On the external front the company raised long term capital which acted as a liquidity buffer in the current circumstance and would be deployed in value creating long term assets The above actions ensured that the Tata Steel Group had adequate liquidity and also financial flexibility for growth and exigencies The liquidity position of the Group at the year end was approximately US$19 billion of cash and cash equivalents and undrawn lines

THE EIC APPROACH

1ECONOMY

The steel industry has traditionally been very sensitive to the changing economic conditions The recent economic meltdown has created several challenges ndash which when addressed appropriately can be countered to positive eff ect However unlike the previous global recessions this time around all the countries have come together and taken action Additionally there has been a tremendous amount of governmental response to the global depression which is helping to bring about a possible easing of the situation

The global downturn also had a major effect on various industries dependant on steel Major contraction in the construction projects automobiles white goods demand from the third quarter of 2008-09 resulted in the global demand for steel dropping by 21 compared to the level consumed in the same quarter of the previous year

The demand for steel declined by 26 in the UK and Europe in the third quarter compared to a year earlier and after a further contraction in the fourth quarter demand had fallen by 57 in the UK and 44 in Europe compared with a year ago This reflected in a sharp downturn in private construction projects as well as large falls in automotive and mechanical engineering amplified by severe destocking by both end users and service centers

2INDUSTRY

Some of the major sectors are

Indian steel production has increased by 5 million tones every year The economic reforms initiated by the government since 1991 have added new dimensions to industrial growth in general and steel industry in particular Steel industry has been removed from the list of industries reserved for the public sector

Automatic approval of foreign equity investment up to 100 is now available Price and distribution controls have been removed from January 1992 with a view to make the steel industry efficient and competitive

Company

The year 2008-09 was a historical one epitomised by the acute global financial imbalance which initially appeared to have spared India only to impact the markets adversely as the year rolled on The global economic slowdown has impacted the steel sector as well Amidst the turmoil in the global marketplace Jamshedpur Works performed remarkably creating many records on the way

Indian operations witnessed a less pronounced drop in demand of 11 in the third quarter reflecting the reduced activity in infrastructure and commercial vehicles Steel is required by various industries as an important raw material constituent

Tata Steel has taken aggressive steps to meet the challenges of these difficult times through major initiatives in cost reduction process improvement and production rationalisation The highest priority is being given to expanding steel producing capacity in Jamshedpur and ensuring raw material security for the European operations which do not have captive iron ore and coal resources The Tata Steel Group has developed a pipeline of high quality projects which will be executed though we will re-phase the sequence Projects like the 3 million tone expansion in Jamshedpur the proposed steel plant in Orissa and raw material projects in Mozambique South Africa and Canada are key drivers of our future value creation

FinancialAnalysis

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 7: TATA STEEL  ANALYSIS

frequent changes in economic policy are common investment guarantees and property rights are secured any unforeseen changes can expose the Grouprsquos businesses to uncertainties The Group operations are primarily in countries where investment flows are freer and where there are established political business and legal frameworks in place There is an established due process to independently evaluate country risk exposures for investments in

emerging economies

TATA STEEL ndash PRODUCTS

Financing and Liquidity Strategy of the Tata Steel Group in response to the global economic crisis

They have responded by increasing production post commissioning of the 18 mtpa programme and focusing on performance improvement to neutralise the effect of reduced realisations whereas in South East Asia the focus is on working capital management and cost reduction In Europe we have cut production by idling blast furnaces at three sites in order to align production with demand as a part of the ldquoWeathering the Stormrdquo initiative which resulted in cash savings of pound712 million (US$102 billion) in the second half of the financial year 2008-09 Further these efforts have been supplemented by a strategic restructuring initiative launched as ldquoFit for Futurerdquo programme which when completed will result in improvement of the operating profit of around pound200 million annually In all sites across the Group the journey of lsquoContinuous Improvementrsquo stays on course

Recognizing the uncertain financing environment and the fragile state of the global banking industry they focussed on both internal and external levers Internally as an organisation the company placed primary importance on conserving liquidity through reduced spend management and sharp reduction in working capital levels They also focussed on improvement in the productivity levels and reduction in overheads On capital expenditure they have re-prioritised on the most value creating and critical projects and reworked the capital planning strategy

On the external front the company raised long term capital which acted as a liquidity buffer in the current circumstance and would be deployed in value creating long term assets The above actions ensured that the Tata Steel Group had adequate liquidity and also financial flexibility for growth and exigencies The liquidity position of the Group at the year end was approximately US$19 billion of cash and cash equivalents and undrawn lines

THE EIC APPROACH

1ECONOMY

The steel industry has traditionally been very sensitive to the changing economic conditions The recent economic meltdown has created several challenges ndash which when addressed appropriately can be countered to positive eff ect However unlike the previous global recessions this time around all the countries have come together and taken action Additionally there has been a tremendous amount of governmental response to the global depression which is helping to bring about a possible easing of the situation

The global downturn also had a major effect on various industries dependant on steel Major contraction in the construction projects automobiles white goods demand from the third quarter of 2008-09 resulted in the global demand for steel dropping by 21 compared to the level consumed in the same quarter of the previous year

The demand for steel declined by 26 in the UK and Europe in the third quarter compared to a year earlier and after a further contraction in the fourth quarter demand had fallen by 57 in the UK and 44 in Europe compared with a year ago This reflected in a sharp downturn in private construction projects as well as large falls in automotive and mechanical engineering amplified by severe destocking by both end users and service centers

2INDUSTRY

Some of the major sectors are

Indian steel production has increased by 5 million tones every year The economic reforms initiated by the government since 1991 have added new dimensions to industrial growth in general and steel industry in particular Steel industry has been removed from the list of industries reserved for the public sector

Automatic approval of foreign equity investment up to 100 is now available Price and distribution controls have been removed from January 1992 with a view to make the steel industry efficient and competitive

Company

The year 2008-09 was a historical one epitomised by the acute global financial imbalance which initially appeared to have spared India only to impact the markets adversely as the year rolled on The global economic slowdown has impacted the steel sector as well Amidst the turmoil in the global marketplace Jamshedpur Works performed remarkably creating many records on the way

Indian operations witnessed a less pronounced drop in demand of 11 in the third quarter reflecting the reduced activity in infrastructure and commercial vehicles Steel is required by various industries as an important raw material constituent

Tata Steel has taken aggressive steps to meet the challenges of these difficult times through major initiatives in cost reduction process improvement and production rationalisation The highest priority is being given to expanding steel producing capacity in Jamshedpur and ensuring raw material security for the European operations which do not have captive iron ore and coal resources The Tata Steel Group has developed a pipeline of high quality projects which will be executed though we will re-phase the sequence Projects like the 3 million tone expansion in Jamshedpur the proposed steel plant in Orissa and raw material projects in Mozambique South Africa and Canada are key drivers of our future value creation

FinancialAnalysis

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 8: TATA STEEL  ANALYSIS

Financing and Liquidity Strategy of the Tata Steel Group in response to the global economic crisis

They have responded by increasing production post commissioning of the 18 mtpa programme and focusing on performance improvement to neutralise the effect of reduced realisations whereas in South East Asia the focus is on working capital management and cost reduction In Europe we have cut production by idling blast furnaces at three sites in order to align production with demand as a part of the ldquoWeathering the Stormrdquo initiative which resulted in cash savings of pound712 million (US$102 billion) in the second half of the financial year 2008-09 Further these efforts have been supplemented by a strategic restructuring initiative launched as ldquoFit for Futurerdquo programme which when completed will result in improvement of the operating profit of around pound200 million annually In all sites across the Group the journey of lsquoContinuous Improvementrsquo stays on course

Recognizing the uncertain financing environment and the fragile state of the global banking industry they focussed on both internal and external levers Internally as an organisation the company placed primary importance on conserving liquidity through reduced spend management and sharp reduction in working capital levels They also focussed on improvement in the productivity levels and reduction in overheads On capital expenditure they have re-prioritised on the most value creating and critical projects and reworked the capital planning strategy

On the external front the company raised long term capital which acted as a liquidity buffer in the current circumstance and would be deployed in value creating long term assets The above actions ensured that the Tata Steel Group had adequate liquidity and also financial flexibility for growth and exigencies The liquidity position of the Group at the year end was approximately US$19 billion of cash and cash equivalents and undrawn lines

THE EIC APPROACH

1ECONOMY

The steel industry has traditionally been very sensitive to the changing economic conditions The recent economic meltdown has created several challenges ndash which when addressed appropriately can be countered to positive eff ect However unlike the previous global recessions this time around all the countries have come together and taken action Additionally there has been a tremendous amount of governmental response to the global depression which is helping to bring about a possible easing of the situation

The global downturn also had a major effect on various industries dependant on steel Major contraction in the construction projects automobiles white goods demand from the third quarter of 2008-09 resulted in the global demand for steel dropping by 21 compared to the level consumed in the same quarter of the previous year

The demand for steel declined by 26 in the UK and Europe in the third quarter compared to a year earlier and after a further contraction in the fourth quarter demand had fallen by 57 in the UK and 44 in Europe compared with a year ago This reflected in a sharp downturn in private construction projects as well as large falls in automotive and mechanical engineering amplified by severe destocking by both end users and service centers

2INDUSTRY

Some of the major sectors are

Indian steel production has increased by 5 million tones every year The economic reforms initiated by the government since 1991 have added new dimensions to industrial growth in general and steel industry in particular Steel industry has been removed from the list of industries reserved for the public sector

Automatic approval of foreign equity investment up to 100 is now available Price and distribution controls have been removed from January 1992 with a view to make the steel industry efficient and competitive

Company

The year 2008-09 was a historical one epitomised by the acute global financial imbalance which initially appeared to have spared India only to impact the markets adversely as the year rolled on The global economic slowdown has impacted the steel sector as well Amidst the turmoil in the global marketplace Jamshedpur Works performed remarkably creating many records on the way

Indian operations witnessed a less pronounced drop in demand of 11 in the third quarter reflecting the reduced activity in infrastructure and commercial vehicles Steel is required by various industries as an important raw material constituent

Tata Steel has taken aggressive steps to meet the challenges of these difficult times through major initiatives in cost reduction process improvement and production rationalisation The highest priority is being given to expanding steel producing capacity in Jamshedpur and ensuring raw material security for the European operations which do not have captive iron ore and coal resources The Tata Steel Group has developed a pipeline of high quality projects which will be executed though we will re-phase the sequence Projects like the 3 million tone expansion in Jamshedpur the proposed steel plant in Orissa and raw material projects in Mozambique South Africa and Canada are key drivers of our future value creation

FinancialAnalysis

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 9: TATA STEEL  ANALYSIS

THE EIC APPROACH

1ECONOMY

The steel industry has traditionally been very sensitive to the changing economic conditions The recent economic meltdown has created several challenges ndash which when addressed appropriately can be countered to positive eff ect However unlike the previous global recessions this time around all the countries have come together and taken action Additionally there has been a tremendous amount of governmental response to the global depression which is helping to bring about a possible easing of the situation

The global downturn also had a major effect on various industries dependant on steel Major contraction in the construction projects automobiles white goods demand from the third quarter of 2008-09 resulted in the global demand for steel dropping by 21 compared to the level consumed in the same quarter of the previous year

The demand for steel declined by 26 in the UK and Europe in the third quarter compared to a year earlier and after a further contraction in the fourth quarter demand had fallen by 57 in the UK and 44 in Europe compared with a year ago This reflected in a sharp downturn in private construction projects as well as large falls in automotive and mechanical engineering amplified by severe destocking by both end users and service centers

2INDUSTRY

Some of the major sectors are

Indian steel production has increased by 5 million tones every year The economic reforms initiated by the government since 1991 have added new dimensions to industrial growth in general and steel industry in particular Steel industry has been removed from the list of industries reserved for the public sector

Automatic approval of foreign equity investment up to 100 is now available Price and distribution controls have been removed from January 1992 with a view to make the steel industry efficient and competitive

Company

The year 2008-09 was a historical one epitomised by the acute global financial imbalance which initially appeared to have spared India only to impact the markets adversely as the year rolled on The global economic slowdown has impacted the steel sector as well Amidst the turmoil in the global marketplace Jamshedpur Works performed remarkably creating many records on the way

Indian operations witnessed a less pronounced drop in demand of 11 in the third quarter reflecting the reduced activity in infrastructure and commercial vehicles Steel is required by various industries as an important raw material constituent

Tata Steel has taken aggressive steps to meet the challenges of these difficult times through major initiatives in cost reduction process improvement and production rationalisation The highest priority is being given to expanding steel producing capacity in Jamshedpur and ensuring raw material security for the European operations which do not have captive iron ore and coal resources The Tata Steel Group has developed a pipeline of high quality projects which will be executed though we will re-phase the sequence Projects like the 3 million tone expansion in Jamshedpur the proposed steel plant in Orissa and raw material projects in Mozambique South Africa and Canada are key drivers of our future value creation

FinancialAnalysis

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 10: TATA STEEL  ANALYSIS

Indian steel production has increased by 5 million tones every year The economic reforms initiated by the government since 1991 have added new dimensions to industrial growth in general and steel industry in particular Steel industry has been removed from the list of industries reserved for the public sector

Automatic approval of foreign equity investment up to 100 is now available Price and distribution controls have been removed from January 1992 with a view to make the steel industry efficient and competitive

Company

The year 2008-09 was a historical one epitomised by the acute global financial imbalance which initially appeared to have spared India only to impact the markets adversely as the year rolled on The global economic slowdown has impacted the steel sector as well Amidst the turmoil in the global marketplace Jamshedpur Works performed remarkably creating many records on the way

Indian operations witnessed a less pronounced drop in demand of 11 in the third quarter reflecting the reduced activity in infrastructure and commercial vehicles Steel is required by various industries as an important raw material constituent

Tata Steel has taken aggressive steps to meet the challenges of these difficult times through major initiatives in cost reduction process improvement and production rationalisation The highest priority is being given to expanding steel producing capacity in Jamshedpur and ensuring raw material security for the European operations which do not have captive iron ore and coal resources The Tata Steel Group has developed a pipeline of high quality projects which will be executed though we will re-phase the sequence Projects like the 3 million tone expansion in Jamshedpur the proposed steel plant in Orissa and raw material projects in Mozambique South Africa and Canada are key drivers of our future value creation

FinancialAnalysis

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 11: TATA STEEL  ANALYSIS

FinancialAnalysis

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 12: TATA STEEL  ANALYSIS

Balance Sheet Analysis

ASSET SIDE

Capital budgeting

The ratio required to calculate capital budgeting is mainly Debt-Equity ratio Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as high as possible so that the company has lower borrowings and has to pay less interest

Tata steel has increasing debts So the company has gone in for debt financing and thus the company is having a comparatively higher borrowing from the market Basically the Debt-Equity ratio has to be as low as possible so that the company has lower borrowings and has to pay less interest

INVESTMENTS

It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs This has lead to increase in investments

2006-07 2007-08 2008- 09

Tata Steel 026 069 081

005

025

045

065

085

Tata Steel

2005-06 2006-07 2007-08 2008- 09

Tata Steel 1637 203622 -2002 38269

-250025007500

12500175002250027500325003750042500

Tata Steel

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 13: TATA STEEL  ANALYSIS

Cash management

This requires cash ratio which includes cash and cash equivalent current liabilities Over years this company has managed to keep up their cash management at par with other companies In recent times this company has raised their cash ratio as compared to previous years

Debtors Management

This requires Debtorrsquos turnover ratio which is calculated by DebtorsSales This ratio has to be as low as possible so as to gain maximum liquidity for the company This means that the debtors will return money in these many days

Tata steel took over Corus in recent past and had taken a loan for that purpose and due to this loan their Debtorrsquos turnover ratio just shot up

from 2981 to 3345

Inventory Management

We get inventory turnover ratio by Cost of Goods SoldAverage or Current Period Inventory High turnover ratio is usually beneficial for any company as products tend to deteriorate as they are kept in a warehouse

Tata steel has managed to keep their inventory management very efficient during these years as we can see below that it keeps on increasing and that is what every company needs a very efficient inventory management system

2006-07 2007-08 2008- 09

Tata Steel 708 769 1084

1

3

5

7

9

11

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel

2699 2981 3345

25125225325

Tata Steel

2006-07 2007-08 2008- 09

Tata Steel 021 012 026

002501250225

Tata Steel

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 14: TATA STEEL  ANALYSIS

LIABILITIES

1SHARE CAPITAL

EQUITY CAPITAL

In the current year the company issues equity capital of Rs 4881 cr as against 1393 crores this led to the sharp increase in equity capital The company has a mix of debt and equity for fund raising In last four years company raised money through right s and debentures but this year they preferred equity capital

PREFERNCE CAPITAL

In 2007-08 the company issued preference shares of Rs 5472 crores and issued 60 00000 2 Cumulative Convertible Preference Shares Also 28500000 shares of face value of Rs 10 per share allotted to Tata Sons Limited on a preferential basis during the year 2007-08

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 15: TATA STEEL  ANALYSIS

RESERVES AND SURPLUS

There was a steep increase in reserves in 2008-09 due to increase in foreign currency translation reserve but in 2008-09 the company gained Rs 40 crores in foreign exchange fluctuation reserve On the other side the company faced losses of Rs 5496 crores as actual loss

Over the years the company has been increasing its income in share premium account through conversion of warrants and preference shares

SECURED LOANS

Debentures

Tata Steel placed Non-Convertible Debentures totaling upto Rs 2000 crore in May 2008 comprising of 3 series having phased maturities The Company further raised a 2-year term loan of Rs 2000 crore in May 2008 In November 2008 the Company raised Rs 1250 crore through Non-Convertible Debentures privately placed with the Life Insurance Corporation of India repayable in equal installments at the end of the 6th 7th and 8th years

In April 2009 the Company further raised Rs 2000 crore from a term loan and in May 2009 it privately placed Rs 2150 crore of Non-Convertible Debentures repayable after 10 years Thus the Company raised Rs 9400 crore in a year marked by tight liquidity

2004 2005 2006 2007 2008

Series1 414668 650625 920163 1336842 2109743

2500

7500

12500

17500

22500

Reserves amp Surplus

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 16: TATA STEEL  ANALYSIS

One important thing to note is that the interest on debentures is increasing every year even though the amount of debentures has reduced considerably

LOANS and ADVANCES

The debt in the Companyrsquos consolidated balance sheet has increased considerably after the Corus acquisition The gross debt in the Tata Steel Group was US$1054 billion in March 2008 which increased to US$1178 billion as at the end of March 2009 Tata Steel has about $9 billion of debt in its books and has to repay $795 million in 2009-10 and $13 billion in 2010-11 however the company is free from repayment until December 2009 It has $19 billion cash and cash equivalents in its books and requires $12

billion for its capital expenditure during this fiscal

The increase was primarily on account of raising of new loans to the tune of US$207 billion during the year in Tata Steel India to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis

During the year the company repaid debts to the extent of US$ 166 billion including a prepayment of debt in Tata Steel Europe of around pound150 m (US$215 million) The entire foreign currency term debt in Tata Steel India is hedged into rupees at acceptable levels Therefore the company was unaffected by the volatile movement of the rupee on account of the above loans

2003 2004 2005 2006 2007 2008

Total Borrowings 2003 2004 2005 2006 2007 2008

Tata Steel 4225 3382 2739 2516 9792 18021

10003000500070009000

1100013000150001700019000

BORROWINGS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 17: TATA STEEL  ANALYSIS

The gross debt as on March 2009 showed an increase of US$830 million which was primarily on account of revaluation due to currency movements Taking into account the liquid equivalents of US$19 billion the net consolidated debt as at March 31 2009 was US$99 billion

If the performance of previous years is compared it can be seen that the loans and advances reduced substantially as the advance against equity was converted into investments during the financial year and accordingly there was an increase in the investments

The Company entered into a loan agreement with the State Bank of India and other banks for Rs 9500 crores In January 2008 Rs 9000 crores was repaid with proceeds from the Companyrsquos Rights Issue and Rs 500 crores was repaid on 28th February 20081048698 In November 2007 the Company made a rights issue offering to shareholders in India (i) 1 ordinary share for every five ordinary shares at a price of Rs 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (ldquoCCPSrdquo) for every 10 ordinary shares at a price of Rs 100 each

2004 2005 2006 2007 2008

Loans amp Advances 2004 2005 2006 2007 2008

Tata Steel 6506 9201 13368 21097 18021

2500

7500

12500

17500

22500

LOANS AND ADVANCES

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 18: TATA STEEL  ANALYSIS

Unsecured Loans

In the year 2008 Tata Steel raised $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions

The Company issued USD 0875 billion of 1 Foreign Currency Convertible Alternative Reference Securities (ldquoCARSrdquo) The CARS accrue interest on the outstanding principal amount at a rate equal to 1 per annum and are classified as unsecured debt on the balance sheet of the Company

During the current fiscal year the secured and unsecured loans increased by Rs 8924 crore as compared to the balances as on 31st March 2008 mainly due to issue of privately placed non-convertible debentures term loans taken from Banks and other short term borrowings

In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc The Company has drawn foreign currency syndicate loans of Rs 7225 crores (USD 165 billion) during the year as per details given below1 JPY Syndicated External Commercial Borrowings of USD 495 million equivalent Rs 216266 crores (unsecured loan)2 External Commercial Borrowings of USD 5 million equivalent Rs 2177 crores (unsecured loan)3 JPY Syndicated External Commercial Borrowings of USD 750 million equivalent Rs 329888 crores (unsecured loan)4 International Finance Corporation Washington - A Loan USD 100 million equivalent Rs 43535 crores (secured loan)

2008 2007 2006 2005 2004

Unsecured Loans 23033 14501 5886 324 271

2500

7500

12500

17500

22500

Unsecured Loans

In c

rore

s

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 19: TATA STEEL  ANALYSIS

CURRENT LIABILITIES

The current liabilities increased by Rs 577 crores from a level of Rs 3523 crores as on 31st March 2007 to Rs 855 crores as on 31st March 2008 The increase was mainly due to increase in the value of purchasesservices on account of expansion projects

2008 2007 2006 2005 2004

Tata Steel 6039 3855 3523 2835 2689

500

1500

2500

3500

4500

5500

6500

CURRENT LIABILITIESIn

cro

res

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 20: TATA STEEL  ANALYSIS

I PROFIT AND LOSS AC

Increase in Profit from 2003 to 2008

Tata steel showed steady rate in profit

Its profit increased by 101231 to 468703 from 2003 to 2008 ie by Rs 367472 crores

From the above table TATA STEEL has given good profits in the year 2004 and 2005

Due to deal with CORUS and NATSTEEL companyrsquos profits declined sharply but after 2006 the profit rate increased gradually

Decline in profits in year 2007 to 2008 is because of Recession hit the market

2003 2004 2005 2006 2007 200805

101520253035404550

0

42034974

0911695

992

Increase in Profits

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 21: TATA STEEL  ANALYSIS

Gross Profit

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

977851 883000 149781

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094 Amount (Rs in Crs)

The Gross Profit has increased over the period of 3 years however the change in Gross Profit from 2008-09 and 2007-08 was less as compared to 2006-07 and 2007-08 The Graph shows the increase in Gross Profit 2006-07 to 2008-09

Profit before Depreciation amp Tax

Year 2008-09 2008-07 2007-06

Amount (Rs in Crs)

828901 790097 708094

The Profit before depreciation and Tax increased at a rate of 1184 from 2006-07 to 2007-08 and 491 from 2007-08 to 2008-09 The fall in the PBDT was mainly due to the market crunch and global recession which left itrsquos a mark on the companyrsquos Financial Statementsrsquo However it was observed that the companyrsquos Profits after depreciation and tax followed a stable increase ie an average increase of 11

Gross Profit Margin

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 22: TATA STEEL  ANALYSIS

The GP Margin for 2006-07 was 758 followed by 3979 in 2007-08 and 3643 in 2008-09

Depreciation

Capital Assets whose ownership does not west in the company is depreciated over the estimated useful life or five years whichever is less

In respect of other assets depreciation is provided on a straight line basis applying the rate specified in Schedule 14 to the Companies Act 1956 or based on estimated useful life whichever is higher However asset value up to Rs 25000 is fully depreciated in the year of acquisition The details of estimated life of each category of assets are as under

Building 30 ndash 60 years Plant amp Machinery 6 ndash 21 years Railway Sidings 21 years Vehicles and Aircrafts 5 ndash 18 years Furniture Fixture amp Office Equipments 5 years Intangibles (computer software) 5 ndash 10 years Development of property for development of mines and collieries

are depreciated over the useful life of the mine or lease period whichever is less subject to a maximum of 10 years

Blast furnace relining is depreciated over a period of 10 years (average expected Life)

2008-09 2008-07 2007-0664006600680070007200740076007800800082008400

828901

790097

708094Amount (Rs in Crs)

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 23: TATA STEEL  ANALYSIS

Total depreciation for the Financial Year 2006-07 accounted to Rs 81929 crs followed by Rs 83461 crs in 2007-08 and Rs 97340 crs in 2008-09

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 24: TATA STEEL  ANALYSIS

II FINANCIAL RISK

TAX AND INTEREST RATE ANYALSIS

From the above balance sheet Interest charged in 2008 is 41493 (Rs mn) and in 2009 it decrease to 38283 (Rs mn) ie Change of -84

Tax charged in 2008 was 40493 (Rs mn) and in 2009 it decrease to 39751 (Rs mn) due to decrease in gross profit

Finance for the Corus acquisition was raised through bridge loans and later refinanced by Tata Steel which has led to a dramatic increase in the interest outflow in the April-June quarter the interest outflow was Rs2417 crore compared to Rs416 crore for the same quarter last year

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 25: TATA STEEL  ANALYSIS

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth In the year 2008-09 the company paid a dividend of Rs 116895 crores The payment of dividend is always fixed by the company irrespective of profits or losses

Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitorrsquos

In 2006-07 the year the company completed 100 years a dividend of 25 was issued to the shareholders

Tata Steel was initially giving higher amount of dividend initially on its PAT But over a period of time it decided to change its strategy and putting back all its earnings on development of the company

2003 2004 2005 2006 2007 2008

Dividend 80 100 130 130 150 160

1030507090

110130150170

Tata Steel

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 26: TATA STEEL  ANALYSIS

Fund Flow amp Cash Flow Statements

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 27: TATA STEEL  ANALYSIS

Analysis of Funds Flow and Cash Flow Statements

SOURCES OF FUNDS

The profit after taxes has been consistently increasing in the past five years despite the global crisis and acquisition of Corus in 2007So the total PAT available in 2009 is Rs 21091 crores Since Tata Steel has a lot of fixed assets in terms of plants and machinery the depreciation is also increasing at a slower rate one more reason is that they introduced two blast furnaces in Jamshedpur this year which led ot increase In depreciation this year

In the last 5 years the share capital of the company was very good but due to issuing of new shares the share capital is now negative

Borrowings have been consistent The way the company managed its borrowings was amazing From negative balances they turned into Rs 5000 crores positive balances this was as a result of loans taken to finance Corus deal Some installments are to be paid after 2011 so there is not too much burden on Balance Sheet

APPLICATION OF FUNDS

The capital expenditure was normal in all the years not much movement is seen in terms of investment in plant and machinery

Investments increased significantly It can be seen that investments in the last year has increased drastically from negative cash flows to positive cash flows in investment This was result of investing subsidiary companies especially Tata Steel Holdings PTE It made an investment of about Rs 35633 crores against Rs 72 lakhs

The company also announces dividends to the shareholders Every year it gives dividends in the range of 100 to 160 This year they gave a dividend of 13 Rs per share due to which the total outlay was Rs 5632 cr

The biggest contributor in Utilization of Funds was because of increase in working capital expenses In early 2008 the unprecedented increase in the prices of input costs particularly raw materials substantially increased the working capital requirements The change in working capital during the financial year was mainly due to increase in inventories on account of volumes and prices partly offset by an increase in creditors The working capital during FY 09 reduced by Rs 225 crore mainly due to a reduction in

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 28: TATA STEEL  ANALYSIS

Inventory (with reduction in finished and semi-finished inventory and increase in raw materials inventory) and Debtors

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 29: TATA STEEL  ANALYSIS

FINANCIAL RATIOS

Ratio Analysis

Operating expenses are expected to increase marginally resulting in increase of EBITDA margin of 387But compared to previous year the EBITDATurnover has reduced because the profits were higher than last years

ROCE over the years has reduced because of slowdown as well as huge inventories of stock and new plants introduced in Jamshedpur

Asset Turnover is very good In last four years the assets were utilized to the fullest but in the last year due to less demand it reduced by 1 but in overall terms it is optimally used all resources

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 30: TATA STEEL  ANALYSIS

Debt Equity Ratio

Tata Steel over the years has been increasing its debt in order to finance the Corus deal They took a loan of $ 8 Billion from the bank to acquire Corus

Current Ratio

2004 2005 2006 2007 2008

Debt Equity Ra-tio

4243 2728 1534 1271 1143

25125225325425

Current Ratio

Tata

Ste

el

The current ratio is a financial ratio that measures whether or not the firm has enough resources to pay its debts over the next 12 months It compares a firmrsquos current assets to its current liabilities Tata Steel has a high amount of unutilized current assets The company has high level of inventory or WIP Since the demand for steel has reduced

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

40

45

4243

2728

15341271 1143

Debt Equity Ratio

Debt Equity Ratio

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 31: TATA STEEL  ANALYSIS

drastically the company is having huge inventory and because of this the liquid ratio is low

Debtors Turnover Ratio

Year 2003 2004 2005 2006 2007 2008

Debtors (days) 4243 2728 1534 1271 1143 1023 NaN

Creditors ( days) 8814 891 907 886 9542 9218 NaN

1030507090

110

DEBTORSCREDITORS TURNOVER Ratio

The stakeholders of the company like distributors and suppliers have a lot of confidence in the company This shows the creditworthiness and brand value of the company Since debtors are paying back in comparatively less number of days shows faster movement of goods in the market

EBITDATURNOVER RATIO

The EBITDA for the Group at Rs 18495 crores (US$ 3636 mn) for the financial year 2008-09 was1 higher than the EBITDA of Rs18 287 Crores (US$ 3595 mn) recorded during the financial year 2007-08

EPS RATIO

EPS is the reported profit over the number of shareholders in the company In the last 5 years EPS has doubled from 31 to 66 and it is expected to reach 104 in FY10

PE RATIO

PE RATIO IS expected to double in 2010 because of higher profitability and dividend payouts in the previous years

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction

Page 32: TATA STEEL  ANALYSIS

Future Prospects

The Company has embarked upon setting up three green field steel plants in eastern India

12 MTPA plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 10 MTPA unit by 2010MTPA = million tonnes per annum

Solution for Sales (SFS) offers based on the Theory of Constraints (TOC) concept saw stabilisation in the steel division The replenishment module was extended to cover 100 of the retail channel of TATA TISCON achieved 90 coverage in TATA SHAKTEE and 60 in TATA Steelium This resulted in a reduction of stock outs in retail shops and more significantly a reduction in channel stocks Reliability solutions were extended to direct customers in the Steelium distribution For the Construction Projects segment an S-DBR (Simplified Drum Buff er Rope) mechanism was implemented under the Theory of strains supply chain improvement initiative which improved the availability of rebars at the warehouses thereby reducing instances of delays and loss of orders

The term focus is on the implementation of the ldquoFit for Futurerdquo restructuring in Europe to continue with the 3 mtpa expansion project in Jamshedpur and overseas raw material projects to increase production volume in India and optimise working capital management across the Group to preserve liquidity

Looking towards the future the steel industryrsquos main contribution to the reduction of CO2 emissions should be to further develop the use of by-products and to work with its customers to help design well long lasting more energy and material efficient products Additionally improvements in areas other than primary steel production may offer further opportunities for CO2 reduction