Uzma Final Project New

8/13/2019 Uzma Final Project New

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Financial Statement analysis of Indian steel Industry

1.1 STEEL INDUSTRY PROFILE

History of the Steel Industry dates back to the ancient times in Armenia which is

approximately around three thousand and five hundred Before Christ. Steel is nothing but

the alloy of iron and carbon. But the History of the Steel Industry in the modern times

was initiated during the medium half of nineteenth century (during 1850s to be precise).

The initiator of it was a person named Mr. Henry Bessemer of England. At the same

time, another person named Mr. William Kelly, a resident of United States, has also

started the production of steel and was completely an independent approach from Mr.

Bessemer. The process in which the first ever production of steel was carried out came to

be known as Bessemer process. This helped the steel industries to produce steel in large

quantities and also at comparatively low costs.

History Of the Steel Industry was enriched and modernized through the

introduction of Open-Hearth process of steel production which made the

industries to produce steel out of domestic iron ores. This process was first

adopted by the steel industries situated in United States of America in the

year 1888. This time saw rapid innovations in the processes of steel

production which got its impetus from the increased want for steel from

various industries namely, railway industry, automobile industry, industry

involved in construction of bridges, etc. During this time period, the enhanced

demand as well as supply of steel pushed the ranking of USA to the first

position, in terms of the steel production.


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1.1.1 DEVELOPMENT OF STEEL INDUSTRY IN INDIA:

The significant recent developments in The Development of Steel Industry in India

should be viewed in conjunction with the type and system of Government that has been

ruling the country. However, its production in significant quantity started only after 1900.The growth of steel industry can be studied by dividing the period into pre and post

independence era. By 1950, the total installed capacity of ingot steel production was 1.5

million tons per year. In a short span of about 3 decades or so the capacity was increased

11 folds to about 16 MT by the 90s. In F i r s t F i v e - Y e a r P l a n ( 1 9 5 1

t o 1 9 5 6 ) No new steel plant came up, as the first plan was mainly agriculture

oriented. However, IISCO was allowed to expand form 1MT/year to 2 MT/year of ingots,

and from 0.5 MT/year to 1.0 MT/year of steel. And, the First Five-Year Plan

contemplated a new Steel Plant to be erected in Public Sector. Thus the Hindustan Steel

Limited (HSL) was born on 19th Jan 1954 with the decision of setting up three steel

plants each with one million tons ingot steel per year at Rourkela, Bhilai and Durgapur.

Though TISCO and IISCO were scheduled to expand, TISCO started its expansion

program. During SECOND FIVE-YEAR PLAN (1956 TO 1961), ad d i t io na l s t ee l

p r odu ci ng c ap ac i t y was a dded and a deci sion was taken to increase the

ingot steel output in India to 6 million tons per year. The three one million ton

steel plant one each at Rourkela, Bhilai and Durgapur were completed during this

period. They st arted produ ct ion du ring the end of th is plan.

The salient features are given below:

In addition to the above BSP and DSP each were having the capacity to produce 300,000

tons of pig iron for sale. During THIRD FIVE-YEAR PLAN (1961 TO 1966), the three

steel plants under HSL, TISCO, and IISCO were expanded as shown below. However,

these could be completed only by 19681969.


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The ambling expansion program taken up during the Third Five-Year Plan could not be

completed during that period. All the expansion programs were actively executed during

this period. During FOURTH FIVE-YEAR PLAN (1969 1974), Balancing facilities

were incorporated in all the steel plants. Salem Steel Plant work was taken up during this

period. Licenses were given for setting up of many Mini Steel Plants and Rolling Mills.

Government accepted the idea of setting up two more Steel Plants in the South one at

Visakhapatnam a n d o t h e r a t H o s p e t i n Karnataka. Both of them were

envisaged to produce plain low Carbon Steel Products initially with a capacity of 2

MT/year of ingots. Steel authority of India Ltd., was also formed during this period on 2nd

Jan 1973. Central Research and Development Organization was set up in June, 1973 to

tackle the research and development problems of Iron and Steel Industry.

During the FIFTH FIVE-YEAR PLAN (1974 TO 1979), Work on Salem project

progressed well. Bokaro with 1.7 MT capacities started in Feb 1978. The expansions of

Bhilai Steel Plant form 2.5 MT to 4 MT and Bokaro from 1.7 MT to 4.0 MT picked up

momentum. The idea of setting up the 5thintegrated steel plant at Vizag took a definite

shape. By the end of fifth five-year plan the total installed capacity from six integrated

plants was 10.6 MT/year. During the Annual plans 1979 to 1980, various plans named

above were reviewed and the progress on different plants consolidated. Soviet Union

has agreed to help in setting up the Vizag steel plant. During SIXTH FIVE-YEAR PLAN

(19801985), Work in expansion of Bhilai and Bokaro Plant was progressed. Bokaro's

intermediate stage of 2.5 MT completed. Many of the units were commissioned e.g.

a)Salem steel plant was commissioned b) on 31.9.81 work on Vizag Steel Plant started

with a bang and c) top priority was accorded to modernize the plant at TISCO. Schemes

for modernization of BSP, RSP, DSP, and IISCO were initiated at the end of sixth five-

year plan. The capacity from six integrated steel plants stood at 11.56 MT. During

SEVENTH FIVE-YEAR PLAN (1985 TO 1991), almost all the units in the expansion

work of Bhilai and Bokaro to 4 MT completed. Progress of Vizag Steel Plant picked up

and the rationalized concept has been introduced to commission the plant with 3 MT

liquid steel capacities by 1990. In EIGHTH FIVE-YEAR PLAN (1992 TO 1997), all units of

Vizag Steel Plant were commissioned by July, 1992. Government of India has given

permission to set up Mini Steel Plants in Private Sectors. IN NINTH FIVE-YEAR PLAN


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(1998 TO 2002), National Development Council under Central Government has deposited

Rs.859.200 corers in ninth five year plan that targets an overall 6.5% growth gross

domestic production and will necessitate a 7% growth in the remaining years of plan.

1.1.2 GLOBAL SCENARIO

As per IISI

In March 2005 World Crude Steel output was 92.8MT when compared to March2004 (87.2 MT), the change in percentage was 6.5%.

China remained the worlds largest Crude Steel producer in2005 also (27.5MT)followed by Japan (9.6MT) and USA (8.1MT). India occupied the8thposition

(8.8MT)

USA remained the largest importer of semi-finished and finished steel productsin 2002 followed by China and Germany.

the global steel scenario have been:Under the auspices of the OECD (Organization for Economic Co-operation

&Development), the negotiations among the major steel producing countries for a Steel

Subsidy Agreement (SSA) held in 2003 with the objective to agree on a complete

negotiating text for the SSA by the middle of 2004. It also set subsidies for the Steel

Industry of a ceiling of 0.5% of the value of production to be used exclusively

for Research & Development.

The global economy witnessed a gradual recovery from late 2003 onwards.China has become one of the major factors currently driving the world

economy

As a result of these economic developments IISI has projected an increaseby6.2% or 53 million metric tones in 2004 in the global consumption of

finished steel products. IISI has split the growth into two separate areas,

China and the Rest of the World (ROW). Steel consumption in China has

been estimated to increase by 13.1% or 31 met in 2004.


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USA has repealed the safeguard measures on import of steel as a result of aruling, by a WTO Dispute Resolution Panel, which held these measures to be

illegal under the WTO regime.

1.1.3 PRESENT SCENARIO OF INDIAN STEEL INDUSTRY:

India is uniquely placed to become a very large producer and consumer of finished steel

products in the world. Substantial reserves of high grade iron ore, low wage rates;

technical and managerial skills of a high order have all enabled India to gain this stature,

by becoming 10thlargest producer of steel in the world. Unfortunately for the Indian steel

industry, the price and distribution controls to which it was subjected till about economic

liberalization process began in the early1990s did not permit the large integrated steel

plants to modernize their steel manufacturing facilities or to upgrade their technologies to

the state of art levels from time to time.

With the economic liberalization that was initiated in 1992, Indian Steel Industry has to

accept the inevitable i.e. to appreciate the implications of low import duty rated, face

foreign competition and somehow improve its strengths and competitive edge to produce

good quality products at lower prices and learn to survive in the market place. Following

liberalization, the steel Industry is well set on the path of globalization. The dynamics of

the World Steel Industry has a close relation with Indian steel Industry. Presently in

India, Steel products are being produced from four different sources viz.

Integrated Steel Plants

Mini Steel Plants Re-rolling Mills Alloy & Special Steel Plants Integrated Steel Plants have larger capacity and produce Steel from basic raw

materials and the other three categories mentioned are characterized by lowinvestment and low break-even point


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1.1.4 CHARACTERISTICS OF INTEGRATED STEEL

PLANTS:

Highly capital intensive. They have long gestation period. Labour intensive. They have large capacities They would have all facilities including raw materials resources, water

supply, power supply, testing and inspection facilities, township facilities,

medical, educational and recreational etc.

Inter dependency of all the processing units on the proceeding and succeedingunits in the path of materials flow.

A potential source for earning foreign exchange through exports. They serve as centers for the development of ancillary industries. They are major consumer of refractory materials.

The integrated Steel Plants in India are:

Rourkela Steel Plant Bhilai Steel Plant Bokaro Steel Plant Durgapur Steel Plant Indian Iron and Steel Company (IISCO) Tata Iron and Steel Company (TISCO) Visakhapatnam Steel Plant (VSP)

1.1.5 EXIM POLICY (2002-2007):

To facilitate sustained growth in exports to attain a share of 1% of globalmerchandise trade.

To stimulate sustained economic growth by providing access to essential rawmaterials, intermediates, components, consumables and capital goods required for

augmenting production and providing services.


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To enhance the technological strength and efficiency of Indian agriculture,industry and services, thereby improving their competitive strength while

generating new employment opportunities, and to encourage the attainment

of internationally accepted standards of quality.

To provide consumers with good quality goods and services at internationallycompetitive prices while at the same creating a level playing field for the

domestic producers

1.1.6 THE NEW INDUSTRIAL POLICY REGIME:

The New Industrial policy has opened up the iron and steel sector for private investment

by

(a)Removing it from the list of industries reserved for public sector and

(b)Exempting it from compulsory licensing.

Imports of foreign technology as well as foreign direct investment are

freely permitted up to certain limits under an automatic route. Ministry of Steel plays the

role of facilitator, providing broad directions and assistance to new and existing

steel plants, in the liberalized scenario.

1.2.1 GROWTH AND PRESENT STATUS OF THE

STEEL INDUSTRY

1.2.2 THE GROWTH PROFILE:

STEEL: The liberalization of industrial policy and other initiatives taken by the

Government have given a definite impetus for entry, participation and growth of

the private sector in the steel industry. While the existing units are being modernized/

expanded, a large number of new/green field steel plants have also come up in different

parts of the country based on modern, cost effective, state of-the-art technologies. At

present, total (crude) steelmaking capacity is over 34 million tons and India, the

8thlargest producer of steel in the world, has to its credit, the capability to produce a

variety of grades and that too, of international quality standards. As per the ratings of the

prestigious World Steel Dynamics, Indian HR products are classified in the Tier II


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category quality products- a major reason behind their acceptance in the world market.

EU, Japan has qualified for the top slot, while countries like South Korea, USA share the

same class as India. In pig iron also, the growth has been substantial. Prior to 1991, there

was only one unit in the secondary sector. Post liberalization, the AIFIs has sanctioned 21

new projects with a total capacity of approx 3.9 million tones. Of these, 16 units have

already been commissioned. The production of millions in 2002-0n ton3. During the year

2003-04, the production of Pig Iron was 5.221 million tones.

1.2.3 GROWTH POTENTIAL OF INDIAS STEEL INDUSTRY

India has traditionally been one of the major producers of steel in the world. Till the

1990s the steel industry of India was regulated and controlled by government policies.

After the economic reforms of the early 1990s, the Indian steel industry has evolved

significantly to conform to global standards. India has set a vision to be an economically

developed nation by 2020. The steel industry is expected to play a major role in India's

economic development in the coming years. The steel industry of India has a very high

growth potential and is expected to register significant growth in the coming decades.

India is expected to emerge as a strong force in the global steel market in coming years.

The two major aspects that are expected to play a significant role in the growth of the

steel industry in India are

. Steel production in

India has grown from 17 MT in 1990 to 36 MT in 2003. It is expected that by 2011, the

steel production in India will grow to 66 MT.

The major sectors where consumption of steel is expected to grow in thecoming years are -


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-tech engineering industries such as power generation, petrochemicals, fertilizers.

The current scenario of the Indian steel industry indicates that there is huge growthpotential in this industry. The per capita-consumption of steel in India, according to latest

available estimates, is only 29 kg. This is much less compared to the global average of

140kg. The per capita consumption level of developed nations like the United States of

America is 400kg. In this respect, one of the major initiatives that need to be taken is to

focus on increasing the consumption of steel in the rural areas of India. The potential for

the growth of consumption of steel in the rural areas of India for purposes like rural

housing, rural infrastructure, etc is high which needs to be tapped efficiently. In order to

realize the growth potential in the steel industry of India, it is essential to ensure that the

industry can remain competitive. One of the major aspects in this regard is the

availability of inputs. Shortage of inputs like coke has led to increase in costs earlier.

Moreover proper infrastructure facilities like transport infrastructure, power etc are of

prime importance in maintaining the competitiveness of the industry.

Most developed countries have regulations that are aimed to protect the domestic steel

industry. The Indian steel industry has comparatively much lesser protection through

regulations. Proper regulatory measures should be adopted by the government to protect

the domestic steel industry.

1.2.4 PRESENT STATUS

Indian Steel Industry Outlook to 2012

Indian steel industry plays a significant role in the countrys economic growth. The major

contribution directs the attention that steel is having a stronghold in the traditional sectors,

such as infrastructure & constructions, automobile, transportation, industrial applications etc.Moreover, steel variant stainless steel is finding innovative applications due to its corrosion

resistive property. India is the fifth largest steel producer at the global front and struggling to

become the second largest producer in the coming years.


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The country has acquired a central position on the global steel map with its giant steel

mills, acquisition of global scale capacities by players, continuous modernization & up

gradation of old plants, improving energy efficiency, and backward integration into

global raw material sources. Global steel giants from across the world have shown

interest in the industry due to its phenomenal performance. For instance - the crude steel

production in India registered a year-on-year growth of 6.4% in 2010 and reached 66.8

Million Metric Tons. New research report Indian Steel Industry Outlook to 2012 says

that the, Indian crude steel production will grow at a CAGR of around 10% during 2010-

2013. Moreover, with the government proactive incentive plans to boost economic

growth by injecting funds in various industries, such as construction, infrastructure,

automobile, and power will drive the steel industry in future. The report also reveals that,

steel consumption in India is expected to grow significantly in coming years as per capita

finished steel consumption is far less than its regional counterparts. Indian Steel Industry

Outlook to 2012 is an outcome of an extensive research and conceptual analysis of the

Indian steel industry. The report provides detail information on steel industry in India.

The report also presents an insight into the future outlook of various vertical industry

segments, including automotive, aerospace, marine, consumer durables, power, railways,

telecom, and housing. The report classifies the finished steel product market into two

categories - Alloy and Non-alloy. The report also covers information on industry-wise

steel demand, overall steel consumption, production, and trading market. Besides, it

provides industry forecast for different market segments.

1.2.5 INDIAN STEEL INDUSTRY: GLORIOUS PRESENT,

GLITTERING FUTURE

Indias target for 100 Mt steel production by 2018. The National Steel Policy has set a

target of 60 Mt of steel production by 2010 and to further increase it to a level of 100 Mt

by 2018. The major steel producers in India are planning to expand their capacities in

tune with the National Steel Policy formulations. Some major expansion programmes of

the leading steel producers in the country are mentioned below:

(i) Steel Authority of India (SAIL) has planned to add 1 Mtpy of its 12 Mtpy capacity by

2004-05. The company has planned a seven million tonne capacity addition by 2011-12


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to take its total capacity to 20 Mtpy by that period. SAIL has decided to spend Rs. 25,000

crore by 2011-12. The capital expenditure envisaged would double SAILs finished steel

output to 16.6 Mtpy from the present level of 8.6 Mtpy. While the hot metal production

will reach about 20 Mtpy by 2011-12 crude steel output will be around 28.7 Mtpy from

the present level of 11.83 Mtpy. SAIL has earmarked Rs. 4,300 crore for its priority

schemes to be completed by 2006-07. The hot metal production at SAILs Bhilai Steel

Plant will rise to 7 Mtpy from the current level of 4 Mtpy and that Durgapur Steel Plant

will increase to 3.2 Mtpy from the present 1.98 Mtpy. Similarly, Rourkelas hot metal

production will go up to 3 Mtpy by 2011-12 from 1.73 Mt at present and the same for

Bokaro will reach 6.5 Mtpy from 4.1 Mtpy at present. Mr. V. S. Jain, Chairman, SAIL,

has explained that the massive growth plan would not affect the companys financials as

the SAIL Board has already envisaged a policy to maintain the debt-equity ratio at 1:1.

The capital expenditure will be financed through internal accruals and will be aided by

market borrowings, if required. SAIL has planned to gradually reduce the volume of

semi-finished steel products share in the total production of saleable steel to 4 percent by

2011-12 as against 20 percent at present. The capital expenditure plan includes up

gradation and modernization of some of the existing assets as well as installation of new

facilities. SAIL will develop and modernize its iron ore mines with special thrust on

Chirra mines. An extensive plan has also been drawn up to revamp the companys iron

and steel units at its plants at Bhilai, Durgapur and Bakaro.

(ii)Tata Steel is implementing an expansion of 1 Mtpy to be completed by the end of

2005 which will take into capacity at Jamshedpur to 5 Mtpy. The company has planned to

invest Rs. 7,800 crore over the next five year to raise its capacity by another 2.4 Mtpy to

a total of 7.4 Mtpy by 2009. The bulk of the cost will be met through long-term internal

accruals and long term borrowings. Tata steel will also invest between Rs. 12,000 to

15,000 crore to set up a 6 Mtpy steel plant Duburi in Orissa. The company has also

planned on developing the Rs.2.000 crore Dhurma Part projects which will be built along

with Larsen and Toubro and other partners. The company will also play a railway line to

connect it to the Paradip port.


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(iii) RINLs Vizag Steel Plant has decided to take its present rated capacity of 3.5 Mtpy

of liquid steel to 5 Mtpy by 2007-08 in its phase I expansion plan at a cost of Rs. 2,500

crore mainly through internal accruals and process up gradations.

(iv) Ispat Industries Ltd has planned to increase its production capacity at its Dolvi plant

in Maharashtra from 2.5 Mtpy to 3.2 Mtpy in 2004-05 at an investment of Rs. 1,000

crore. With balancing and de-bottlenecking, the capacity for production of hot-rolled

steel will reach 3.6 Mtpy by 2005-06.

(v) JVSL is installing a new Blast Furnace and has planned to expand its hot metal

capacity from the existing 1.6 Mtpy to 2.5 Mtpy by 2004-05 and further to 4.0 Mtpy by

2005-06 at an investment of Rs. 2,500 crore.

(vi) Essar Steel Ltd is setting up a 1 Mtpy capacity Blast Furnace to expand its existing

capacity to 3.4 Mtpy by 2005-06. SMS Demag AG of Germany will provide the expertise

in the expansion and modernization.

(vii) Jindal Steel & Power Ltd. (JSPL) will expand the steelmaking capacity from 1.15

Mtpy to 2.15 Mtpy at an investment of Rs. 1,200 crore. The company is also expanding

its DRI production capacity from the existing 6.5 lakh tonnes per year to 1.31 lakh tonnes

per year and will increase its power generation capacity from 205 MW to 255 MW.

(viii) Bhushan Steel & Strips will expand the production of its Khopoli Plant by 0.5 Mtpy

for production of CRCA Coils and Sheets GP/GC sheets and coils, precision tubes and

CDW tubes for application in the automotive industry.

(ix) Jindal Stainless is expanding its capacity to 0.5 Mtpy by 2004-05 at an investment of

Rs. 350 crore to manufacturer value added cupro nickel coins for use in mints.

(x) Tinplate Company of India (TICL) will expand its capacity from 90,000 tpy to

125,000 tpy at an investment of Rs. 46 crore. The company will also invest Rs. 110 crore

for the installation of a new tinning line. ORISSA ATTRACTS GREEN FIELD STEEL

PROJECTS, In addition to the Tata Steel projects at Duburi in Orissa mentioned above,

many new greenfield projects are to be setup in the state. Some of which are mentioned

below :

(a) BHP Billiton Australia in collaboration with Posco of South Korea will set up a 10

Mtpy plant at Duburi at an investment of Rs. 39,000 crore. Which will include the cost of

power plants also.


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(b) SPS sponge Iron Ltd will install a Rs. 400 crore sponge iron / steelmaking plant in

Jharsguda in Orissa. The first phase costing about Rs. 62 crore is likely to go on stream

soon. The company intends to set up a 2.2 lakh tonne sponge iron plant and then add a

2.6 lakh tonne capacity billet caster for making steel in the second phase. In the third

phase, SPS will install a Blast Furnace as to produce 200,000 tpy of cold pig and a rolling

mill to produce one lakh tonnes of finished steel per year and a 20 MW captive power

plant.

(c)Sunflag Iron & Steel Co will set up a 1 Mtpy plant at Sambalpur district at an

investment of Rs. 937 crore. The first phase may be commissioned in 2007.

(d) Orissa Sponge Iron Ltd has proposed to invest Rs. 1,037 crore in two phase for its

plants at Gurla and Govindpur in Sambalpur district. The first phase of the project is

likely to commission in 2007.

(e)Bhushan Steel and Strips Ltd has planned to install a 1.2 Mtpy capacity hot strip plant

at Lapanga in Jharsguda district at a cost of Rs. 1,650 crore in the first phase. A further

investment of Rs. 1,850 in the second phase will take the capacity to 2.8 Mtpy by 2006-

07.

(f) Jindal Stainless is setting up a 0.8 Mtpy capacity by 2009. The company 2006-07 and

may add a further 0.8 Mtpy capacity by 2009. The company is likely to invest Rs. 1,146

crore in 2004-05. According to media reports some Rs. 50,000 crore worth of

investments are proposed to be made in steel in Orissa. If all plans work right, Orissa

could be Indias steel capital in future.

Conclusion

The Indian steel industry has made marginal additions to its capacities in the decade

up to 2003-04. The new green field projects and the massive expansions announced by

leading producers may take the countrys production capacity to a level by 2011-12 that

will help the consumption level to 60 Mtpy as envisaged in the National Steel Policy.

Removal of infrastructure bottlenecks in railway and road transportation, speedy up

gradation of ports and supply of uninterrupted power with consistent frequency will help

the steel industry grow at a rapid space. The government should take a pragmatic view of

the problems faced by the steel industry and take proactive steps in consultation with the

Indian Steel Alliance so that it may become a major global player by 2011-12


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CHAPTER 2

PROFILE OF THE

ORGANIZATION


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2.1 ORIGIN OF THE ORGANIZATION

2.1.1 RashtriyaIspat Nigam Limited:

The foundation stone for RashtriyaIspat Nigam Limited was laid in the year 1971 and this

organization is the corporate body of Visakhapatnam Steel Plant. They have three

different mines under their control being the blast furnace grade limestone mine,

manganese mine and dolomite mine. They are specialized in the production of the

following products:

Rounds

Beams

Wire rods

Squares

Billets

Channels

Blooms

Rebarsor reinforcement bars

History

The plans for a steel plant in Visakhapatnam were announced in 1971 by then Prime

Minister of India,Indira Gandhi.Originally, intended as a plant of the state-ownedSteel

Authority of India Limited,RINL was established as a separate company in 1982, just

before the start of its operations. RINL is wholly owned by theGovernment of India.In

November 2010, the company was granted the Navratna status by the Government of
http://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Steel_Authority_of_India_Limitedhttp://en.wikipedia.org/wiki/Steel_Authority_of_India_Limitedhttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Steel_Authority_of_India_Limitedhttp://en.wikipedia.org/wiki/Steel_Authority_of_India_Limitedhttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Prime_Minister_of_India


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India.[4]RINL union to protest against the disinvestment by going on strike on 28-29 June

2012.[5]In September 2011, the government announced plans to divest 10% of its stake in

RINL via aninitial public offerings

Operations

RINL operates a 3 million tonne per annum capacity steel plant in Visakhapatnam. RINL

is investing 125 billion (US$2.26 billion) in the first phase of expanding its capacity, to

target production of 6.3 million tonnes of steel a year by 2012.In the next phase of its

expansion to be completed by 2015, it plans to invest 70 billion (US$1.27 billion) to

add another 4 million tonnes to its annual capacity. In addition, it plans to invest 250

billion (US$4.53 billion) to add capacity for the production of 4 million tonnes of

specialized steel. Its annual capacity is expected to reach almost 15 million tonnes by

2015.

2.1.2 Steel Authority of India:

Steel Authority of India shortly called as SAIL is one of the top public sector steel-

makers in India and they produce steel products both for export and for domesticconsumption as well. SAIL holds the pride of being one among the four Maharatnas in

the Central Public Sector Enterprises in India. They are the major manufacturers and

sellers of the following steel products:

Alloy steel

Stainless steel

Rods and bars

Railway products

Structurals
http://en.wikipedia.org/wiki/Rashtriya_Ispat_Nigam#cite_note-rinl-navratna-3http://en.wikipedia.org/wiki/Rashtriya_Ispat_Nigam#cite_note-rinl-navratna-3http://en.wikipedia.org/wiki/Rashtriya_Ispat_Nigam#cite_note-rinl-navratna-3http://en.wikipedia.org/wiki/Rashtriya_Ispat_Nigam#cite_note-4http://en.wikipedia.org/wiki/Rashtriya_Ispat_Nigam#cite_note-4http://en.wikipedia.org/wiki/Rashtriya_Ispat_Nigam#cite_note-4http://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Rashtriya_Ispat_Nigam#cite_note-4http://en.wikipedia.org/wiki/Rashtriya_Ispat_Nigam#cite_note-rinl-navratna-3


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Electrical sheets

Galvanized steel

Cold and hot coils and rolled sheets

2.1.3 Tata Steel:

Tata Steel is a part of the Indias popular Tata group and they are one among the global

steel service and manufacturing companies in India. They have a balance presence in

over 50 developed countries in the continent of Europe and they have manufacturing

units in 26 different countries all over the world.

2.1.4 Visveswarayya Steels:

Visveswarayya Steels is actually a unit of the Steel Authority of India and they are

dealing in the production of pig iron and alloy steels. The company began as a separate

entity in the year 1923 and it has now come under the SAIL.

2.1.5 Bokaro Steel Plant:
http://en.wikipedia.org/wiki/File:Bokaro_Steel_Plant_Main_Gate.jpg


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Bokara Steel Plant began its journey as a limited company in the year 1964 and the

company is situated in the Bokaro District of the state of Jharkhand. The plant holds the

pride of being the countrys first Swadeshi Steel Plant. Even though, the company began

its journey as a separate entity, it is now merged with the Steel Authority of India. Bokaro

Steel Plant is located in theBokaro district ofJharkhand.It is the fourth integrated public sector

steel plant inIndia built withSoviet help. It was incorporated as a limited company in 1964. It

was later merged with the state-ownedSteel Authority of India Limited (SAIL).Formerly it was

known as Bokaro Steel Limited (BSL). Bokaro Steel Plant is hailed as India's first Swadeshi

movement steel plant. Its first blast furnace was started on 2 October 1972. At present it houses

five blast furnaces with total capacity to produce 4.5 MT of liquid steel. The plant is undergoing

a mass modernisation drive after which its output capacity is expected to cross 10 MT. The first

shop of Bokaro Steel Plant got the ISO 9001 certification way back in 1994, and its SAIL JYOTI

products enjoy a loyal market. The plant's yearly profit stood at 1,120 croresIndian rupee (INR)

for thefinancial year 200304 and has increased every year since then reaching to 8,426 crores

INR in the financial year 200708.

ENVIRONMENT MANAGEMENT

As a responsible corporate citizen, BSL has taken effective measures in the area of

pollution control in By-Product Coke Oven Batteries, Battery No: 1 & 2. BSL has takenadequate steps to check emissions from Coke Ovens and has installed Air cooled self

sealing doors resulting in significant reduction in door emissions; Doors designed,

manufactured and supplied by Simplex Castings Ltd, Bhilai India.
http://en.wikipedia.org/wiki/Bokaro_districthttp://en.wikipedia.org/wiki/Jharkhandhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Soviethttp://en.wikipedia.org/wiki/Steel_Authority_of_India_Limitedhttp://en.wikipedia.org/wiki/Swadeshi_movementhttp://en.wikipedia.org/wiki/Swadeshi_movementhttp://en.wikipedia.org/wiki/ISO_9001http://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Financial_yearhttp://en.wikipedia.org/wiki/Financial_yearhttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/ISO_9001http://en.wikipedia.org/wiki/Swadeshi_movementhttp://en.wikipedia.org/wiki/Swadeshi_movementhttp://en.wikipedia.org/wiki/Steel_Authority_of_India_Limitedhttp://en.wikipedia.org/wiki/Soviethttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Jharkhandhttp://en.wikipedia.org/wiki/Bokaro_district


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CHAPTER-3

RESEARCHMETHODOLOGY


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Study of the selected Research Problem

3.1: Statement of the Research Problem

To identify the areas of financial strength and financial weakness of the Steel industry in

India by analyzing the financial health in terms of the liquidity position, solvency

position, efficiency level and the profitability position of the company by using the

technique of Ratio Analysis.


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3.2: Statement of the Research objectives

1. To know the short term liquidity position of the major players in the IndianSteel Industry.

2. To know the profitability position of the major players in the Indian SteelIndustry.

3. To know the solvency position of the major players in the Indian SteelIndustry.

4. To find the efficiency in terms of the utilization of the resources of the majorplayers in the Indian Steel Industry.


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3.3: Research design and the Methodology

Ration analysis is being used as the technique for checking the financial health of the

Steel Companies. Secondary data in the form of income statement & the balance sheets

of the company have been taken for 5 years (2007 to 2011). The data has been

analyzed by taking the relevant ratios for achieving the research objectives.

Ratio analysis is the process of determining and interpreting numerical relationships

based on financial statements. A ratio is simply one number expressed in terms of

another. It shows the arithmetical relationship between any two figures. A ratio, in

general, is a statistical yardstick by means of which the relationship between the figures

can be compared and measured. The financial ratios focus attention on the inter-

relationship between the figures appearing in the financial statements.

Ratio may be expressed in the following three ways:

(A)Ratio. Specially the simple division of one number by another, e.g., current assert tocurrent liability ratio is 2:1

(B)Rate. The ratio between two numerical facts, usually ossver a period of time, e.g.,stock turnover is three times a year.

(C)Percentage. A special type of rate which expresses the relation in hundredth, e.g.,gross profit is 25% on sales.

The technique of ratio analysis is the most important tool of financial analysis. It helps in

comparison of the performance of various firms and judging their financial soundness,

profitability and efficiency. Ratios must be worked out on the basis of figures which are

related to each other in a significant manner. Computations of ratios of unrelated figures

do not serve any purpose. For example, there is no meaningful relationship between total

debtors and paid-up capital. But there is a definite relationship between debtors and creditsales or between current assets and current liabilities


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ADVANTAGES OF RATIO ANALYSIS

The ratio analysis is very useful because of the following reasons:

Helpful in simplifying financial data : Ratio analysis is helpful in simplifying thecomplex and large figures of financial statements which enable to understand

their relative importance.

Helpful in determining trends: by the use of ratio analysis, the trend in profit,sales, cost, etc. of the previous year can be determined by analyzing the financial

statement and future forecasts can be made accordingly.

Helpful in controlling: by comparing the ratio regarding efficiency and financialposition with the standard ratios, unfavorable results can be controlled.

Helpful in locating weak spots : with the help of ratio analysis, management canfind out which activities are being operated successfully and which are not and

where more control is required.

Helpful in measuring operating efficiency; ratio analysis is also helpful to assesthe managerial efficiency. It helps in determining whether the assets are being

used optimally or not.

Benefits to other parties interested in the business: creditors can determine shortterm solvency of business with the help of ratio analysis. Financial institutions

and long term creditor can determine whether the business is capable to repay

their loan and interest in time.


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CLASSIFICATION OF RATIOS

The following classification is based on the financial statement from which the ratios are

calculated. Thus, there are:

(A)Liquidity Ratios(B)Leverage or Capital Structure Ratios(C)Activity Ratios(D) Profitability Ratios or Income Ratios

Examples of ratios that can be calculated under each of the above categories are as

follows:

(A) Liquidity Ratios Current ratio Liquid ratio

(B) Leverage or Capital Structure Ratios Debt Equity Ratio Debt to Total Funds Ratio Proprietary Ratio Fixed Assets to Proprietors Fund Ratio Capital Gearing Ratio Interest Coverage Ratio

(C) Activity Ratios


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Stock Turnover Ratio Debtors Turnover Ratio Creditors Turnover Ratio Working Capital Turnover Ratio Fixed assets-turnover ratio

(D) Profitability Ratios

Gross Profit Ratio

Net Profit Ratio

Operating Ratio Expenses Ratio Return on Capital Employed

ANALSIS FOR SHORT-TERM CREDITORS

The analysis is also called analysis for short-term solvency of the company. Short-term

creditors of the company are primarily interested in knowing the companys ability to pay

its short-term creditors as and when they become due. For this purpose creditors focus

their attention on the companys cash- generation power and on companys total current

assets in relation to its total current liabilities. Company must have as much as total

current assets as to be able to meet its obligation on account of current liabilities and have

something to meet day to day requirements of the business. Ratios calculated for this

purpose are liquidity ratios.


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(i) LIQUIDITY RATIOS

Liquidity refers to the ability of the company to meet its current obligations. The liquidity

ratios, therefore, have to do with the size and relationships of current liabilities, which are

the obligations soon becoming due, and current assets, which presumably provide the

source from which these obligations will be met. A companys financial position is not

sound unless it has adequate liquidity.

Liquidity ratios include two ratios:

(a) Current ratio.

(b) Quick ratio.

(a) Current ratio

The current ratio is computed by dividing current assets by current liabilities. The

formula for its computation is as follows:

Current assets/ Current liabilities

OBJECTIVES:

Current ratio is the relation of a companys current assets to its current liabilities. This

ratio establishes the ability of the business to meet its short-term obligations and is,

therefore, of particular significance to short-term creditors. It is always desirable that in a

business there should be a considerable excess of current assets over current liabilities. In

a business, a 2:1 ratio of current assets to current liabilities is treated a satisfactory

relation, which may vary from business to business. The idea of having almost twice as

much asset as liabilities is only to tide over the contingency loss on account of realization

of assets in order to meet liabilities and leave some amounts as working capital in the

business. For example, there may be large amounts of bad debts or stocks may become

unsalable or losses may occur in realization of short-term investments.


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(b)QUICK RATIO

Quick ratio is calculated by dividing quick current assets by current liabilities. The

formula for its computation is as follows:

Quick current assets

Current liabilities

OBJECTIVES:

This ratio is a better test of financial strength than the current ratio as its gives no

consideration to stocks which may be very slow moving and may not be easily

convertible into cash. Stock in trade may take a lot of time before it is converted into

debtors or bill receivable and finally into cash. Similarly, prepaid or unexpired expenses

do not provide cash at all; they merely reduce the amount of cash required in one period

because of payment in a prior period. Quick ratio is a measure of the instant debt paying

capacity of the business enterprise. It is, therefore, a measure of the extent to which liquid

resources are immediately available to meet current obligations. It is a supplementary

measure of liquidity and places more emphasis on immediate conversion of assets into

cash than does the current ratio. A quick ratio of 1:1 has usually been considered

favorable since for every rupee of current liabilities there is a rupee of quick assets. But

accounts receivable (or sundry debtors) may not be convertible into cash at face value on

a short notice.

SOLVENCY RATIO- AN ANALYSIS FOR LONG-TERM CREDITORS

Long-term creditors include debenture holders, vendors selling equipment in installment

basis and other financiers supplying long-term loans. Long- term creditors are primarily

interested in whether the company has ability to pay regular interest due to them and to

repay the principal at the maturity date. Solvency ratios indicate ability of the company to

meet its interest costs and repayment schedules associated with its long-term indebt ness.

The lenders are mainly interested in:


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Security of their loans

Interest payable thereon

Repayment of their loans at maturity date

Thus, solvency ratios primarily include.

(a) Debt-equity ratio

(b) Interest coverage ratio

(c) Debt to total fund ratio.

(a) DEBT-EQUITY RATIOThis ratio expresses the relationships of long term liability to net worth. Long-term

liabilities are those which are repayable after one year and these are other than those

appearing under current liabilities. The long-term or term liabilities include debentures

and other secured and unsecured loans which are repayable after one year. Net worth or

equity represents equity share capital, reserves, irredeemable preference share capital and

preference share capital not redeemable within a period of 12years from the date of the

balance sheet. Preference shares redeemable within 12 years are considered as debt. It is

computed as follows:

Debt

Equity

OBJECTIVES:

This ratio is a measure of owners stake in the business. Proprietors are always keen to

have more funds from borrowings because:

1. Their stake in the business is reduced and subsequently their risk too.


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2. Interest on loans or borrowings is a deductible expenditure while computingtaxable profits. Dividend on shares is not so allowed by income tax

authorities.

But creditors always like proprietors to have more stakes in the venture, because it

provides a margin of safety to them. Moreover, excessive outside debt may cause

insolvency of the business and is harmful. The normally acceptable debt-equity ratio is

2:1 but relaxations are allowed. If an analyst looks at this ratio and finds that the debt has

reached its maximum level, he may expect rights issue of shares depending upon the

companys expansion/ modernization performance. On net worth is possible, provided

the growth plans are to be funded from untapped borrowings. The other aspect of high

debt is that profits would be adversely affected in case of a fall in sales.

(b)INTEREST COVERAGE RATIO

Here, net income stands for net income before charging income tax and interest on

long-term debts and debt service stands for interest on long-term debts. This ratio is

calculated as follows

Net income before charging interest and income tax

Periodic interest on long-term debt

OBJECTIVES:

Since the borrower has earned 5 times the fixed interest to be paid to long-term creditors

after meeting out his usual business expenses, he is likely to pay off his liability on

account of interest and other periodic fixed profits are calculated keeping future in mind,

this type of ratio can serve as a good index on long-term solvency. The interest coverage

ratio of debt-service ratio indicates how much interest charges are covered by operating

profits available to pay the interest charges. A higher ratio is desirable, but too higher a

ratio indicates that the firm is very conservative in using debt and that it is not using

credit to the best advantage of shareholders. A low ratio indicates excessive use of debt or


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inadequate operations. Thus, both these ratios- debt-equity ratio and interest coverage

ratio- help the creditors and investors of the company to assess the financial status of the

company in order to take a rational decision for long-term investment of their funds in the

business.

(c) DEBTS TO TOTAL FUNDS RATIO

The ratio compares the total liabilities to total assets. it is computed by the formula:

DEBT *100

Debt to total funds ratio = total assets

OBJECTIVES:

This ratio indicates the extent of trading on equity and measures the percentage of assets

financed through borrowings.

ACTIVITY RATIOS- AN ANALSIS FOR MEASURING THE MOVEMENT OF

CURRENT ASSETS

Both the current ratio ant the acid test ratio will be misleading if debtors are too high

because of slow credit collections. Similarly, the current ratio will be misleading if stock

is too high because it is not being turned over (sold) as fast as it should be. Since liquidity

ratio (i.e., current ratio and acid test ratio) ignore the movement of current assets, it is

necessary for short-term creditors to focus their attention on the analysis of policy for

collection of debtors and turnover of stock. Activity ratios signify the effective utilization

of a concern of its available resources. Mainly, activity ratios include:

Capital Turnover Ratio

Fixed Assets Turnover Ratio

Net Working Capital Turnover Ratio

Stock Turnover Ratio

Debtors Turnover Ratio


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A. CAPITAL TURNOVER RATIO:

This ratio is computed by the following formula:

Net sales or cost of good sold

Capital employed

OBJECTIVES:

This ratio measures the effectiveness with which a firm uses financial resources as its

disposal. An enterprise must make full use of fixed assets at its disposal, must maintain

stocks at proper levels and debts must be realized in time. Variations in capital turnover

ratio must be properly looked into. A low ratio may signify that the capital is lying idle or

that there is a fall In sales have been suppressed or that any of the constituents of capital

employed has been inflated. Management sometimes suppresses sales by resorting to

deliberate manipulation. Sales relating to current year may be shown as sales of the next

accounting period. A high capital turnover ratio indicates that either the business firm is

overtrading to an extent that its financial health is in risk or danger or there is

manipulation in the figures.


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B. FIXED ASSETS TURNOVER RATIO

This ratio is computed by dividing the net sales or cost of sales of the concern bt its net

fixed assets.

The formula used is:

NET SALES, i.e., total sales less sales returns

Fixed assets less depreciation

OBJECTIVES:

This ratio is expressed in as number of times. Examples of fixed assets are land and

buildings, plant and machinery, furniture, etc. this ratio shows the efficiency of the

business house in utilizing its fixed assets. Higher this ratio, better it is because it

indicates higher efficiency, i.e., every rupee invested in fixed assets generates higher

sales. A lower ratio signifies inefficiency of assets. It may also point to the

underutilization or non-utilization of certain assets. With the help of this ratio,

arrangement for disposal or alternative uses of such unutilized or underutilized assets

may be made.

C. NET WORKING CAPITAL TURNOVER RATIO

This ratio is computed by dividing the net sales, i.e., total sales less returns by net

working capital. The term net working capital means the excess of current assets over

current liabilities.

The formula is:

Net sales or cost of sales

Net working capital


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Net working capital signifies the excess of current assets over current liabilities.

Examples of current assets are cash in hand, cash at work, bill receivable, sundry debtors,

stock in trade, short-term investments. Current liabilities include sundry creditors, bill

payable, bank overdraft etc.

OBJECTIVES:

The objectives of this ratio are:

The efficiency of the use of working capital in the unit can be measured. For an expected increase in sales, the requirement of working capital can be

calculated by computing this ratio.

A high working capital turnover ratio (if it is expressed in %) indicates efficient use of

working capital and quick turnover of current assets like stock and debtors. A low ratio

indicates low turnover of these assets.

D. STOCK TURNOVER RATIO

How many times stock is purchased during the year is an important calculation because

this depends on the companys purchase policy. Buying in small lots results in repeated

buying and buying in bulk results in infrequent buying. Bulk buying though gives various

advantages of external and internal economies, yet results in heavy carrying costs and

blocking of funds and thus limiting liquidity of the concern. Buying in small lots keep

funds quite free but gives the danger of going out of stock at any time and reduces the

bargaining power of the company. But high turnover of stock does not necessarily mean

that the company buys in small lots. It may be that the company is efficient and sells it

always quickly. It is calculated as under:

Cost of good sold

Average stock held during the year


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This ratio is best calculated by dividing annual turnover by the average of the stock

figures at the end month, as ratios based upon opening or closing stock for the year, or

the average of these, may be misleading, unless stocks are constant throughout the year.

The ratio signifies the number of times, on an average, the inventory or stock turned over

or sold during the period. A higher stock turnover ratio is desirable because it leads to

higher liquidity. It indicates efficient sales performance. Care should be taken to ensure

that turnover of stock does not rise too much signified by a very low ratio, otherwise it

may become difficult to fulfill customers order promptly. A low stock turnover indicates

that stock does not sell quickly and remains in the go down for a long time. This will lead

to excessive blocking up of working capital in inventories. Moreover, slower stock

turnover will reduce liquidity.

E. DEBTORSS TURNOVER RATIO:

Debtors turnover ratio establishes the relationship of receivables to net credit sales.

Debtors, as used in this context, include bills receivable bur exclude debtors which are

not on account of goods, e.g., debtors arising out of sale of furniture will not be included

in this list of debtors for this purpose. This is calculated as follows:

Net credit sales

Average of debtors

OBJECTIVES:

The collection period so calculated is compared with the credit period allowed and then

conclusions are drawn. This shows, the rate at which customer are paying for credit sales.

This ratio should approximate to the credit terms allowed by the business and is,

therefore, a comment on the efficiency of credit control. If 90 days credit is extended to

customers, then the normal ratio should be 4:1. the higher the ratio, the more favorable

the effect upon working capital, because outsiders are being financed to a lesser extent

while liquid resources will, other things being equal, increase.


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(B)NET PROFIT RATIO:This ratio shows the relationship between net profit and sales. The formula for

computing this ratio is:

Net Profits X 100

Net Sales

Significance:

This ratio measures the rate of net profit earned on sales. It helps in determining the

overall efficiency of the business operations. An increase in the ratio over the previous

year shows improvement in the overall efficiency and the profitability of the business.

(C) RETURN ON CAPITAL EMPLOYED:This ratio reflects the overall profitability of the business. It is calculated by comparing

the profit earned and the capital employed to earn it. This ratio is usually in percentage

and is also known as Rate of Return or Yield on Capital. The formula for computing

this ratio is:

Profit before interest, tax and dividends X 100

Capital Employed

Capital employed can be computed by any of the following two methods:

1. Capital Employed = Equity share capital + Preference share capital + Allreserves + P&L Balance+ Long term loans - Fictitious Assets - Non Operating

Assets

2. Capital Employed = Fixed Assets + Current Assets - Current Liabilities


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(D)RETURN ON TOTAL SHAREHOLDERS FUNDS:For calculating this ratio Net Profit after interest and tax (but before preference

dividend) is divided by total shareholders funds. The formula forcomputing this ratio

is:

Net Profit after interest and tax

Total Shareholders Funds

Here, Total Shareholders Funds= Equity Share capital + Preference share capital + All

reserves + P&L a/c Balance - Fictitious Assets


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CHAPTER-4

DATA ANALYSIS


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4.1ANALYSIS OF DATARation Analysis of Steel Authority of India

Ratio

Mar '

11 Mar ' 10 Mar ' 09Mar ' 08Mar ' 07

Per share ratios

Adjusted EPS (Rs) 11.13 15.35 15.18 17.70 14.70

Adjusted cash EPS (Rs) 14.72 18.61 18.60 20.87 17.95

Reported EPS (Rs) 11.87 16.35 14.95 18.25 15.02

Reported cash EPS (Rs) 15.47 19.62 18.37 21.42 18.26

Dividend per share 2.40 3.30 2.60 3.70 3.10

Operating profit per share (Rs) 16.86 22.31 21.65 27.28 23.35

Book value (excl rev res) per share (Rs) 89.75 80.66 67.75 55.69 41.60

Book value (incl rev res) per share (Rs.) 89.75 80.66 67.75 55.69 41.60

Net operating income per share (Rs) 102.98 98.29 106.04 96.74 83.11

Free reserves per share (Rs) 78.84 69.93 57.16 45.02 30.72

Profitability ratios

Operating margin (%) 16.37 22.69 20.41 28.19 28.09

Gross profit margin (%) 12.88 19.40 17.48 25.10 24.56

Net profit margin (%) 11.03 15.73 13.40 18.16 17.38


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RatioMar '

11Mar ' 10 Mar ' 09Mar ' 08Mar ' 07

Adjusted cash margin (%) 13.68 17.91 16.67 20.77 20.77

Adjusted return on net worth (%) 12.39 19.03 22.40 31.77 35.34

Reported return on net worth (%) 13.23 20.27 22.06 32.76 36.09

Return on long term funds (%) 15.10 21.97 28.98 44.47 45.55

Leverage ratios

Long term debt / Equity 0.31 0.39 0.20 0.12 0.22

Total debt/equity 0.54 0.49 0.26 0.13 0.24

Owners fund as % of total source 64.76 66.86 78.77 88.33 80.54

Fixed assets turnover ratio 1.16 1.20 1.35 1.31 1.16

Liquidity ratios

Current ratio 1.97 2.05 1.82 1.73 1.59

Current ratio (inc. st loans) 1.21 1.60 1.61 1.68 1.52

Quick ratio 1.35 1.53 1.24 1.23 1.01

Inventory turnover ratio 5.13 6.02 5.86 8.62 7.50

Payout ratios

Dividend payout ratio (net profit) 23.49 23.54 20.32 23.71 23.83

Dividend payout ratio (cash profit) 18.04 19.63 16.54 20.19 19.60


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RatioMar '

11Mar ' 10 Mar ' 09Mar ' 08Mar ' 07

Earning retention ratio 74.93 74.92 79.99 75.56 75.66

Cash earnings retention ratio 81.05 79.32 83.67 79.28 80.06

Coverage ratios

Adjusted cash flow time total debt 3.32 2.15 0.98 0.35 0.56

Financial charges coverage ratio 18.66 28.71 44.31 51.04 33.12

Fin. charges cov.ratio (post tax) 14.46 21.15 30.96 36.26 23.71

Component ratios

Material cost component (% earnings) 53.23 45.84 54.60 43.18 47.34

Selling cost Component 2.91 2.77 2.13 2.86 3.10

Exports as percent of total sales 2.30 1.92 1.84 3.08 3.40

Import comp. in raw mat. consumed 62.00 61.27 63.36 50.93 54.52

Long term assets / total Assets 0.48 0.40 0.34 0.34 0.37

Bonus component in equity capital (%) - - - - -


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Ratios of Tata Steel ltd

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Investment Valuation RatiosFace Value 10.00 10.00 10.00 10.00 10.00

Dividend Per Share 12.00 12.00 8.00 16.00 16.00

Operating Profit Per Share (Rs) 118.79 116.45 100.38 125.60 112.85

Net Operating Profit Per Share (Rs) 348.41 305.53 281.11 333.27 269.02

Free Reserves Per Share (Rs) -- 454.52 392.98 309.18 275.25

Bonus in Equity Capital 26.04 26.36 28.50 34.61 34.61

Profitability Ratios

Operating Profit Margin(%) 34.09 38.11 35.70 37.68 41.94

Profit Before Interest And Tax Margin(%) 29.90 33.82 30.95 33.27 37.04

Gross Profit Margin(%) 30.69 34.20 31.36 33.69 37.70

Cash Profit Margin(%) 21.12 23.28 20.65 23.83 26.41

Adjusted Cash Margin(%) 21.12 23.28 20.65 23.83 26.41

Net Profit Margin(%) 19.28 23.16 19.96 21.09 23.43

Adjusted Net Profit Margin(%) 19.28 23.16 19.96 21.09 23.43

Return On Capital Employed(%) 14.84 13.48 13.06 15.01 17.11

Return On Net Worth(%) 12.82 14.22 13.45 21.10 21.52

Adjusted Return on Net Worth (%) 11.84 11.91 11.00 19.87 20.42

Return on Assets Excluding Revaluations 537.64 503.19 418.94 330.24 296.65

Return on Assets Including Revaluations 537.64 503.19 418.94 330.24 296.65

Return on Long Term Funds(%) 14.84 13.54 13.06 15.21 17.16

Liquidity And Solvency Ratios

Current Ratio 0.91 1.78 1.12 0.91 3.81

Quick Ratio 0.67 1.45 0.76 0.57 3.52

Debt Equity Ratio 0.45 0.59 0.68 1.34 1.08

Long Term Debt Equity Ratio 0.45 0.58 0.68 1.31 1.07


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Debt Coverage Ratios

Interest Cover 5.85 6.14 4.41 5.71 8.35

Total Debt to Owners Fund 0.45 0.59 0.68 1.34 1.08

Financial Charges Coverage Ratio 6.45 6.82 5.00 6.37 9.25

Financial Charges Coverage Ratio Post

Tax5.08 5.75 4.32 5.15 6.94

Management Efficiency Ratios

Inventory Turnover Ratio 7.62 9.85 10.90 9.36 10.84

Debtors Turnover Ratio 50.80 67.93 46.58 41.29 33.45

Investments Turnover Ratio 7.62 9.85 10.90 9.36 10.84

Fixed Assets Turnover Ratio 1.48 1.29 1.12 1.22 1.20

Total Assets Turnover Ratio 0.45 0.38 0.40 0.43 0.43

Asset Turnover Ratio 1.48 1.29 1.12 1.22 1.20

Average Raw Material Holding -- 81.57 60.63 74.12 71.68

Average Finished Goods Held -- 24.02 21.78 27.88 29.45

Number of Days In Working Capital -19.12 140.11 20.53 -4.56 520.93

Profit & Loss Account Ratios

Material Cost Composition 29.30 32.05 33.50 35.19 30.85

Imported Composition of Raw Materials

Consumed60.55 60.95 59.69 68.85 50.51

Selling Distribution Cost Composition -- 0.37 0.32 0.25 0.26

Expenses as Composition of Total Sales 5.46 8.10 8.41 13.85 11.64

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 20.11 19.04 16.64 27.15 29.39

Dividend Payout Ratio Cash Profit 17.16 16.32 13.68 22.80 24.93

Earning Retention Ratio 78.23 77.27 79.66 71.16 69.02

Cash Earning Retention Ratio 81.65 81.05 83.92 76.03 73.94

Adjusted Cash Flow Times 3.23 4.10 4.83 4.58 3.41


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Earnings Per Share 68.95 71.58 56.37 69.70 63.85

Book Value 537.64 503.19 418.94 331.68 298.78

Profitability Ratios

Operating Profit Margin (%) 34.09 38.11 35.70 37.68 41.94

Profit Before Interest And Tax Margin(%) 29.90 33.82 30.95 33.27 37.04

Gross Profit Margin (%) 30.69 34.20 31.36 33.69 37.70

Cash Profit Margin (%) 21.12 23.28 20.65 23.83 26.41

Adjusted Cash Margin (%) 21.12 23.28 20.65 23.83 26.41

Net Profit Margin (%) 19.28 23.16 19.96 21.09 23.43

Adjusted Net Profit Margin (%) 19.28 23.16 19.96 21.09 23.43

Return On Capital Employed (%) 14.84 13.48 13.06 15.01 17.11

Return On Net Worth (%) 12.82 14.22 13.45 21.10 21.52

Adjusted Return on Net Worth (%) 11.84 11.91 11.00 19.87 20.42


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RATIO ANALYSIS OF RINL:

Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Per share ratios

Adjusted EPS (Rs) 164.43 267.82 394.81 295.86 254.72

Adjusted cash EPS (Rs) 221.12 316.99 491.25 367.76 343.42

Reported EPS (Rs) 162.92 273.13 397.30 278.83 256.12

Reported cash EPS (Rs) 219.61 322.31 493.74 350.73 344.81

Dividend per share 16.30 27.30 - - -

Operating profit per share (Rs) 171.39 281.23 530.43 400.59 386.84

Book value (excl rev res) per share (Rs) 2,034.321,939.211,747.21 1,346.831,065.75

Book value (incl rev res) per share (Rs.) 2,034.321,939.211,747.21 1,346.831,065.75

Net operating income per share (Rs) 2,006.021,866.801,858.62 1,617.611,494.06

Free reserves per share (Rs) - - - -3.06 -5.09

Profitability ratios

Operating margin (%) 8.54 15.06 28.53 24.76 25.89

Gross profit margin (%) 5.71 12.43 23.35 20.31 20.20

Net profit margin (%) 7.53 13.21 19.44 15.90 16.13

Adjusted cash margin (%) 10.23 15.33 24.03 20.98 21.63


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Adjusted return on net worth (%) 8.08 13.81 22.59 21.96 23.90

Reported return on net worth (%) 8.00 14.08 22.73 20.70 24.03

Return on long term funds (%) 9.33 15.72 25.38 21.69 22.17

Leverage ratios

Long term debt / Equity 0.41 0.41 0.39 0.58 0.64

Total debt/equity 0.41 0.41 0.39 0.58 0.64

Owners fund as % of total source 70.46 70.61 71.66 63.13 60.66

Fixed assets turnover ratio 1.04 1.01 1.02 0.89 0.82

Liquidity ratios

Current ratio 2.17 2.75 3.52 4.36 4.33

Current ratio (inc. st loans) 2.17 2.75 3.52 4.36 4.33

Quick ratio 1.61 2.01 2.99 3.86 3.69

Inventory turnover ratio 4.34 3.24 5.92 7.60 6.97

Payout ratios

Dividend payout ratio (net profit) 41.75 29.71 - - -

Dividend payout ratio (cash profit) 30.97 25.17 - - -

Earning retention ratio 58.63 69.70 100.00 100.00 100.00

Cash earnings retention ratio 69.24 74.40 100.00 100.00 100.00


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Coverage ratios

Adjusted cash flow time total debt 1.14 0.65 0.18 0.50 0.27

Financial charges coverage ratio 20.57 26.68 110.80 54.11 75.58

Fin. charges cov.ratio (post tax) 14.85 18.88 77.47 36.42 55.28

Component ratios

Material cost component (% earnings) 60.74 69.66 50.67 53.68 53.70

Selling cost Component 3.18 3.13 3.37 3.98 -

Exports as percent of total sales 3.58 0.86 6.11 5.38 0.06

Import comp. in raw mat. consumed 56.43 55.09 42.13 49.59 -

Long term assets / total Assets 0.48 0.33 0.22 0.18 0.21

Bonus component in equity capital (%) - - - - -


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CURRENT RATIO

Graph1: Current ratios comparative analysis

INTERPETATION

This graph shows that the current ratio of the accounting year 2007-08 are 4 .33, 1.59&

1.52. In year 2008-09 CR are 4.36, 1.37 & 1.68. In year 2009 CR are 3.52,1.82 & 1.61. In

year 2010-11 CR are 2.75,2.09 & 1.6.In year 2011-12 CR are 2.17, 1.97 & 1.21.Thus,this

figure depicts that CR is higher in the year 2008-09.

2011-12

2010-11

2009-10

2008-09

2007-08

1.21

1.6

1.61

1.68

1.52

1.97

2.05

1.82

1.73

1.59

2.17

2.75

3.52

4.36

4.33

Chart Title

RINL Tata steel SAIL


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QUICK RATIO

Graph2: Quick ratios comparative analysis

INTERPETATION

This figure shows that the Quick ratio of accounting year 2007-08 are 3.69,3.52,1.01. In

year 2008-09 QR are 3.86,0.57,1.23. In year 2009-10 QR are 2.99, 0.76, & 1.24. In year

2010-11 QR are 2.01,1.45,&1.53. In year 2011-12 QR are 1.61,0.67,& 1.35.l

Thus, this figure depicts that the QR is higher of RINL in year 2008-09, TATA steels

QR in 2007-08. Sails QR in year 2010-11.

2011-12

2010-11

2009-10

2008-09

2007-08

1.35

1.53

1.24

1.23

1.01

0.67

1.45

0.76

0.57

3.52

1.61

2.01

2.99

3.86

3.69

Chart Title

RINL TATA steel SAIL


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CASH RATIO

Graph3: Cash ratios comparative analysis

INTERPETATION

This Liquidity Ratios depicts that the cash ratio of RINL is higher in2008-09, TATA

steels cash ratio higher in 2007-08, SAILs cash ratio is higher in year 2008-09.

Liquidity is the measure of cash and in the analysis RINL has shown the highest liquidity

followed by SAIL. Tata Steel has the least liquidity but considering the cash and cash like

assets only, the performance is best for Tata Steel indicating high availability of cash

2011-12

2010-11

2009-10

2008-09

2007-08

5.13

6.02

5.86

8.62

7.5

7.62

9.85

10.9

9.36

10.84

4.34

3.24

5.92

7.6

6.97

Chart Title

RINL TATA steel SAIL


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LEVERAGE RATIO

Graph4: leverage ratios comparative analysis

INTERPETATION

This figure depicts that the leverage ratio of 2007-08 are 0.64,1.07,0.22,In 2008-09 are

0.58,1.31,0.12.The LR of 2009-10 are 0.39,0.68,0.2.the LR of 2010-11 are 0.41,0.58,0.39

and for the year 2011-2012 are 0.41,0.45,0.31.Thus the LR is higher of RINL in 2007-08

and in 2008-09 the LR of TATA STEEL and SAIL.

Financial leverage is highest for the Tata Steel followed by RINL and SAIL has the least

financial leverage. High financial leverage indicated the low financial cost but it is also

associated with high financial risk of interest payment. Thus it is expected that Tata Steel

will be having low financial cost and maximum financial risk

0 0.2 0.4 0.6 0.8 1 1.2 1.4

2011-12

2010-11

2009-10

2008-09

2007-08

0.31

0.39

0.2

0.12

0.22

0.45

0.58

0.68

1.31

1.07

0.41

0.41

0.39

0.58

0.64

RINL

TATA steel

SAIL


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DEBT RATIO

Graph5: debt ratios comparative analysis

INTERPETATION

Higher debt indicates high financial risk and low financial cost structure. This figure

depicts that the total debt ratio of 2007-08 are 0.64,1.08,0.24,In 2008-09 are

0.58,1.34,0.13.The TDR of 2009-10 are 0.39,0.68,0.26.the TDR of 2010-11 are

0.41,0.59,0.49 and for the year 2011-2012 are 0.41,0.45,0.54.Thus the TDR is higher of

RINL in 2007-08 and in 2008-09 the TDR of TATA STEEL is higher.TDR of SAIL is

higher in 2011-12.

0 0.2 0.4 0.6 0.8 1 1.2 1.4

2011-12

2010-11

2009-10

2008-09

2007-08

0.54

0.49

0.26

0.13

0.24

0.45

0.59

0.68

1.34

1.08

0.41

0.41

0.39

0.58

0.64

RINL

TATA steel

SAIL


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DEBT-EQUITY RATIO

Graph6: Debt / equity ratios comparative analysis

INTERPRETATION

This figure depicts that the debt equity ratio of 2007-08 are 25.89,41.94,0,28.09,In 2008-

09 are 24.76,37.68,28.19.The DER of 2009-10 are 28.53,35.7,20.41.the DER of 2010-11

are 15.06,38.11,22.69 and for the year 2011-2012 are 8.54,34.09,16.37.Thus the DER is

higher of RINL in 2009-10 and in 2008-09 the DER of SAIL is higher.TDR of TATA

steel is higher in 2007-08.

0 10 20 30 40 50

2011-12

2010-11

2009-10

2008-09

2007-08

16.37

22.69

20.41

28.19

28.09

34.09

38.11

35.7

37.68

41.94

8.54

15.06

28.53

24.76

25.89

RINL

TATA steel

SAIL


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ADJUSTED CASH MARGIN

Graph7: Cash Margin comparative analysis

INTERPETATION

This figure depicts that the adjusted cash margin of 2007-08 are 21.63, 26.41, 20.77.In

2008-09 are 20.98, 23.83, 20.77.The adjusted cash margin of 2009-10 are 24.03, 20.65,

16.67 and the adjusted cash margin of 2010-11 are 15.33,23.28,17.91 and for the year

2011-2012 are 10.23, 21.12,13.68.Thus the adjusted cash margin is higher of RINL in

2009-10 and in 2008-09 the adjusted cash margin of SAIL is higher. adjusted cash

margin of TATA steel is higher in 2007-08.

0 5 10 15 20 25 30

2011-12

2010-11

2009-10

2008-09

2007-08

13.68

17.91

16.67

20.77

20.77

21.12

23.28

20.65

23.83

26.41

10.23

15.33

24.03

20.98

21.63

RINL

TATA steel

SAIL


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RETURN ON LONG TERM FUND

Graph8: Return on total fund comparative analysis

INTERPRETATION

This figure depicts that the Return on total fund of 2007-08 are 22.17,17.16,45.55.In

2008-09 are 21.69,15.21,44.47.The Return on total fund of 2009-10 are

25.38,13.06,28.98 and the Return on total fund of 2010-11 are 115.72,13.54,21.97 and for

the year 2011-2012 are 9.33,14.84,15.1.Thus the Return on total fund is higher of RINL

in 2009-10 and in 2007-08 the Return on total fund of SAIL is higher. Return on total

fund of TATA steel is higher in 2007-08.

The utilization of long term assets is a measure of effiency of the utilization of resources/

Capital. SAIL has shown the best performance in terms of utilization of long term funds,

followed by RINL and Tata Steel has shown the minimum efficiency in terms of long

term fund utilization.

0 10 20 30 40 50

2011-12

2010-11

2009-10

2008-09

2007-08

15.1

21.97

28.98

44.47

45.55

14.84

13.54

13.06

15.21

17.16

9.33

15.72

25.38

21.69

22.17

RINL

TATA steel

SAIL


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NET PROFIT RATIO

Graph9: profit margin ratios comparative analysis

INTERPETATION

It measures the net profit of a firm with respect to sale. A firm should neither have

a high ratio nor a low. This figure depicts that profit margin ratios of 2007-08 are

16.13,37.04,17.38.In 2008-09 are 15.9,33.27,18.16.The profit margin ratios of 2009-10

are 19.44,30.95,13.4and the Return on total fund of 2010-11 are 13.21,33.82,15.73and for

the year 2011-2012 are 7.53,29.9,11.03.Thus profit margin ratios is higher of RINL in

2009-10 and in 2007-08 profit margin ratios of SAIL is higher. Profit margin ratios of

TATA steel is higher in 2007-08.

The Tata Steel has shown highest profitability, followed by SAIL and RINL has shown

the minimum profitability. It may be because of the higher sales and with better cost

management.

0 10 20 30 40

2011-12

2010-11

2009-10

2008-09

2007-08

11.03

15.73

13.4

18.16

17.38

29.9

33.82

30.95

33.27

37.04

7.53

13.21

19.44

15.9

16.13

RINL

TATA steel

SAIL


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COMPARATIVE RATIO-ANALYSIS

Graph10: profitability ratios comparative analysis

Graph11: Liquidity ratios comparative analysis

05

1015202530

354045

Mar '11

Mar '10

Mar '09

Mar '08

Mar '07

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5


Current Ratio

Quick Ratio

Debt Equity Ratio

Long Term Debt Equity

Ratio


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Graph12: Leverage ratios comparative analysis

Graph13: turn over ratios comparative analysis

0

1

2

3

4

5

6

7

8

9

10


Interest Cover

Total Debt to Owners

Fund

Financial Charges

Coverage Ratio

Financial Charges

Coverage Ratio Post Tax

0

10

20

30

40

50

60

70

80

Mar '11

Mar '10

Mar '09

Mar '08

Mar '07


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Graph14: Profitability Ratios comparative analysis

Graph15: Earning Ratio comparative analysis

0

10

20

30

40

50

60

70

80

90


Dividend Payout Ratio Net

Profit

Dividend Payout Ratio

Cash Profit

Earning Retention Ratio

Cash Earning Retention

Ratio

AdjustedCash Flow Times

0

50

100

150

200

250

300

350

400

450

500

Face Value Dividend

Per Share

Operating

Profit Per

Share (Rs)

Net

Operating

Profit Per

Share (Rs)

Free

Reserves

Per Share

(Rs)

Bonus in

Equity

Capital

Mar '11

Mar '10

Mar '09

Mar '08

Mar '07


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CHAPTER-5

SUMMARY &

CONCLUSION


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SUMMARY & CONCLUSION

This Liquidity Ratios depicts that the cash ratio of RINL is higher in2008-09,TATA steels cash ratio higher in 2007-08, SAILs cash ratio is higher in year

2008-09. Liquidity is the measure of cash and in the analysis RINL has shown the

highest liquidity followed by SAIL. Tata Steel has the least liquidity but

considering the cash and cash like assets only, the performance is best for Tata

Steel indicating high availability of cash.

Financial leverage is highest for the Tata Steel followed by RINL and SAIL hasthe least financial leverage. High financial leverage indicated the low financial

cost but it is also associated with high financial risk of interest payment. Thus itis expected that Tata Steel will be having low financial cost and maximum

financial risk

The utilization of long term assets is a measure of efficiency of the utilization ofresources/ Capital. SAIL has shown the best performance in terms of

utilization of long term funds, followed by RINL and Tata Steelhas shown the

minimum efficiency in terms of long term fund utilization.

The Tata Steel has shown highest profitability, followed by SAIL and RINLhas shown the minimum profitability. It may be because of the higher sales and

with better cost management.


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APPENDIX:

Financial Statements of Rashtriya Ispat Nigam Ltd

Balance sheet


Sources of funds

Owner's fund

Equity share capital 4,889.85 4,889.85 4,889.85 4,889.85 4,889.85

Share application money - - - - -

Preference share capital 2,937.47 2,937.47 2,937.47 2,937.47 2,937.47

Reserves & surplus 5,057.68 4,592.59 3,653.72 1,710.88 346.38

Loan funds

Secured loans 407.28 907.72 332.78 604.45 88.15

Unsecured loans 825.27 100.04 107.95 312.51 369.44

Total 14,117.5513,427.67 11,921.77 10,455.16 8,631.29

Uses of funds

Fixed assets

Gross block 9,473.90 9,005.99 8,900.83 8,875.62 8,832.13

Less : revaluation reserve - - - - -


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Less : accumulated depreciation 8,008.55 7,749.74 7,516.19 7,085.16 6,753.87

Net block 1,465.35 1,256.25 1,384.64 1,790.46 2,078.26

Capital work-in-progress 7,506.90 4,617.81 2,087.19 597.19 180.74

Investments 0.25 0.05 0.05 0.05 -

Net current assets

Current assets, loans & advances 9,550.71 11,859.37 11,804.63 10,448.10 8,252.00

Less : current liabilities & provisions 4,405.66 4,305.81 3,354.74 2,395.59 1,904.58

Total net current assets 5,145.05 7,553.56 8,449.89 8,052.51 6,347.42

Miscellaneous expenses not written - - - 14.95 24.87

Total 14,117.5513,427.67 11,921.77 10,455.16 8,631.29

Notes:

Book value of unquoted investments 0.25 0.05 0.05 - -

Market value of quoted investments - - - - -

Contingent liabilities 8,414.98 9,164.05 9,145.37 3,755.36 -

Number of equity sharesoutstanding (Lacs) 488.98 488.98 488.98 488.98 488.98


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Profit loss account (Rs crore)


Income

Operating income 9,809.15 9,128.38 9,088.37 7,909.87 7,305.71

Expenses

Material consumed 6,373.68 5,442.77 4,261.96 4,270.07 3,989.42

Manufacturing expenses 476.36 543.12 384.60 352.65 349.03

Personnel expenses 1,399.74 1,156.68 1,030.72 740.94 572.34

Selling expenses 312.65 286.53 306.96 315.26 -

Administrative expenses 408.67 324.12 510.41 272.15 503.34

Expenses capitalised - - - - -

Cost of sales 8,971.10 7,753.22 6,494.65 5,951.07 5,414.13

Operating profit 838.05 1,375.16 2,593.72 1,958.80 1,891.58

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