tata steel project

8/4/2019 Tata Steel Project

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IILM INSTITUTE OF HIGHER LEARNING 2010 - 12

FINANCIAL REPORT

OF

SUBMITTED TO SUBMITTED BY

Mr. Vivek Saxena DEEPAK SAH

PRATEEK JAIN

PRADEEP K.SAINI

PREETI SINGH

SOJANYA KUMARI

R.ANUSUYA


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Acknowledgement

We would like to acknowledge and extend our

heartfelt gratitude to Mr. Vivek Saxena and Mrs.

Kirtika Malhotra our faculty for Corporate

Finance for giving and helping us in this project. It

was a good learning for us as we came to know

about the different aspects of the company from

finance point of view and its calculation as well as

the analysis. We would also like to extend our

gratitude to Mrs. Kirtika Malhotra for guiding us

througout the project.


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Table of Contents

1. COMPANY PROFILE

2. STOCK HOLDER ANALYSIS

3. CORPORATE GOVERNANCE

4. CAPITAL SRUCTURE ANALYSIS

5.LEVERAGE

6.DIVIDEND POLICY

7. WORKING CAPITAL REQUIREMENTS

8. CREDIT POLICY


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Company Profile

Backed by 103 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 6.8 MTPA whichis 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.


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Tata Steel Thailand is the largest producer of long steel products in Thailand, with a

manufacturing capacity of 1.7 MTPA. Tata Steel has proposed a 0.5 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 50:50 joint venture company

for coal mining in India. Also, Tata Steel has bought 19.9% 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

Globalization objective of Tata Steel.


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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.

STOCKHOLDERANALYSIS

As per the clause 49 of listing agreement of SEBI, the Board ofDirectors of the company shall

have an optimum combination of Functional, Independent and Non Independent Directors.

The number of Functional Directors or Executive Directors (including CMD/MD should

not exceed 50% of the actual strength of the Board. In case of a listed company on the Stock

Exchanges and whose Board ofDirectors is headed by an Executive Chairman, the number of

Independent Directors shall be at least 50% of Board Members.

139 Years Old Strong Brand Equity

Group Revenues

38%ofGroup Revenue

3.2 OfIndias GDP

US$ 28.8 Billion

Indias Largest Employer Over 2889,500 Employees

InternationalIncome

TotalSales


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As on 31st March, 2010, the Company has 12 Directors on its Board, of which 6 Directors are

independent. The number of Non- ExecutiveD

irectors is more than 50% of the total number ofDirectors. The Company is in compliance with the Clause 49 of the listing Agreement pertaining

to compositions of directors. None of the Directors on the Board is a Member on more than 10

Committees and Chairman of more than 5 Committees (as specified in Clause 49), across all the

companies in which he/she is a Director. The necessary disclosures regarding Committee

positions have been made by the Directors. The names and categories of the Directors on the

Board as on 25th

June, 2010

Category Directors No of

Directors

No of

Share

Held

Promoter-Executive Directors Mr. Ratan Tata(Chairman)

Mr. B. Muthuraman(Vice Chairman)

Mr. H.M. Nerurkar(Managing Director)

3

24,821

5,940

637

Independent Directors

Non-Executive

Mr. Nusli Neville Wadia

Mr. S. M. PaliaMr. Suresh Krishna

Mr. Subodh BhargavaMr. Jacobus Schraven

Mr. Andrew Robb

6

Nil

3,008Nil

1,012Nil

Nil

Non-Executive

Non Independent Directors

Mr. Ishaat Hussain

Dr. Jamshed J. IraniDr. Kirby Adams

2

2,216

7,406Nil


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CapitalStructure

Particular NoofShare Amount (Rs. inCrores)

Equity Share(Rs. 10 each )

88,72,14,196 887.21

Preference Share Capital - -

Debt - 25239.20

LeverageAnalysis

2009-2010

19944.47 / 8722.7 = 2.29

2008-09

26843.73 / 8468. = 3.17

The use of fixed assets in generating earnings is referred to as operating leverage. Operating

Leverage is measured by comparing the change in profits to the change in sales. Higher levels of

operating leverage tend to result in wider variations in profits given a change in sales. Therefore

in the year 2009-2010 the company was highly leveraged. This variation is called operating risks.

Therefore, higher levels of fixed costs are often associated with high levels of operating risks

which in turn leads to fluctuations of earnings given a change in sales.

OperatingLeverage- Contribution / PBIT


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FinancialLeverage

2009-10

8722.7 / 7214.30 = 1.21

2008-09

8468.3/ 7315.61 = 1.16

If the financial leverage is higher, it indicates that the firm has taken on a higher amount of

financial risk, and it also conveys positive news about a firms capacity to service more debt.

With higher financial leverage being able to service debt better, it is likely that such firms opt for

increasing debt. Here the financial leverage has not changed much so we can say that the firm

has not taken much risk on its part.

Capitalbudgeting

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.

PBIT / PBT


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CostofCapital

Particular Amount Proportion Cost WACC

Equity Share

(Rs. 10 each)

887.21 0.0340 0.1508 0.00512

Debt 25239.20 0.9660 0.0665 0.06423

26126.41 1.00 0.06935

Cost of Capital (r) = 6.935%

CalculationofCostofEquity (By Gordons Model):

CostofEquity

{8*(1-0.1397) / 617.45} + .1397= 15.08% or 0.1508

CalculationofCostofDebt

CostofDebt

1678.44 / 25239 = 6.65% or 0.0665

WorkingNotes - CalculationofExpected Growth Rate

Year Dividend

Amount

RupeeChanging Growth %

2000-01 5.00 - -

2001-02 4.00 1.00 20

2002-03 8.00 4.00 100

2003-04 10.00 2.00 25

2004-05 13.00 3.00 30

2005-06 13.00 0.00 0

{D * (1-G) / P} + G

Interest / Net Proceeds


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2006-07 15.50 1.50 11.53

2007-08 16.00 0.50 3.23

2008-09 16.00 0.00 0

2009-10 8.00 (8.00) (50)

Expected Growth Rate

139.76 / 10 Years = 13.976% or 0.1397

WorkingCapital requirement

Working capital is essential for any organisation as it is required for day to day operation of the

organisation. Working capital can be divided into two i.e. Gross Working Capital and Net

Working Capital. Gross working capital is the sum of all current assets and Net Working Capital

is the difference between current asset and current liability. Working Capital requirements of the

company depend on certain factors:

1.Nature of Business

2. Seasonality of Operations

3.Production Policy

4.Market Condition

5. Conditions of Supply

6.Length of Operating Cycle.

AverageofLast 10 Years


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Current ratio =1.15

The Current Ratio measures the ability of the firm to meet its current liabilities-current assets get

converted into cash during the operating cycle of the firm and provide the funds needed to pay

current liabilities.

Quick Ratio = 1.47

Quick ratio is fairly stringent measure of liquidity. It is based on those current assets which are

highly liquid-inventories are excluded.

GP Margin = 39.19

This ratio is the percentage of sales left after subtracting the cost of goods sold from net sales. Itmeasures the percentage of sales remaining (after obtaining or manufacturing the goods sold)

available to pay the overhead expenses of the company.

NP Margin = 28.83

The ratio shows the earnings left for shareholders as a percentage of net sales. It measures the

overall efficiency of production, administration, selling, financing, pricing and tax management.

Inventory Turnover (Indays) = 46 Days.

The Inventory Turnover measures how fast the inventory is moving through the firm and

generating sales.

Dividend Policy

Tata Steel has been continuously providing dividend to its shareholders to maximize its wealth.

In the year 2009-10 the company paid a dividend of Rs 709.77crores. 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 competitors.


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Credit Policy

The ratio shows how many times sundry debtors (account receivable) turn over during the year.

Debtors Turnover ratio= 8 days

Debtors Turnover=Net Credit Sales/Average


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Bibliography

http://www.tatasteel.com/corporate/management/board-of-directors.asp

http://www.moneycontrol.com/news_html_files/news_attachment/2011/Tata%20Steel%20FPO

%20Report.pdf

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