Wor ing Capital Management at Tata Steel

A Report submitted to INDIAN BUSINESS ACADEMY On 27 th June 2005 In Partial Fulfillment of Requirements for the Post Graduate Diploma in Business Management

By Priyan a Agarwal FP46/129

(.1.O. (ci{i.vc This is to certify, that Miss Priyan a Agarwal is a bonafide student of Indian Business Academy, Bangalore and is presently pursuing a Post Graduate Diploma in Business Management. Under my guidance, she has submitted her project report titled Wor ing Capital Management at Tata Steel in partial fulfillment of the requirement for the summer internship project during the Post Graduate Diploma in Business Management. This report has not been previously submitted as part of another degr ee or diploma of another Business School or University.

Mr. Manish Jain, CEO, Indian Business Academy INDIAN BUSINESS ACADEMY La shmipura, Thataguni Post Kana pura Main Road, Bangalore 560 062 INDIA Tel: +91-80-28435931/32/33/34 Fax: +91-80-28435935

Icvn. (ci{i.vc This is to certify, that Miss Priyan a Agarwal is a bonafide student of Indian Business Academy, Bangalore and is presently pursuing a Post Graduate Diploma in Business Management. Under my guidance, she has submitted her project report titled Wor ing Capital Management at Tata Steel in partial fulfillment of the requirement for the summer internship project during the Post Graduate Diploma in Business Management. This report has not been previously submitted as part of another degr ee or diploma of another Business School or University.

Prof. Ramesh G Tagat, Dean, Indian Business Academy INDIAN BUSINESS ACADEMY La shmipura, Thataguni Post Kana pura Main Road, Bangalore 560 062 INDIA Tel: +91-80-28435931/32/33/34 Fax: +91-80-28435935

^cno. (ci{i.vc This is to certify, that Miss Priyan a Agarwal is a bonafide student of Indian Business Academy, Bangalore and is presently pursuing a Post Graduate Diploma in Business Management. Under my guidance, she has submitted her project report titled Wor ing Capital Management at Tata Steel in partial fulfillment of the requirement for the summer internship project during the Post Graduate Diploma in Business Management. This report has not been previously submitted as part of another degr ee or diploma of another Business School or University.

Prof. George Thomas, Internal Mentor, Indian Business Academy INDIAN BUSINESS ACADEMY La shmipura, Thataguni Post Kana pura Main Road, Bangalore 560 062 INDIA Tel: +91-80-28435931/32/33/34 Fax: +91-80-28435935

^vvcn Ic.[vvion I, Miss Priyan a Agarwal, the undersigned, a student of Indian Busines s Academy, Bangalore, declare that this project report titled Wor ing Capital Management at Tata Steel submitted in partial fulfillment of the requirement for the summer internship project during the Post Graduate Diploma in Business Management, a prestigious Post Graduate Diploma awarded by Indian Business Academy, Bangalore. This is my original wor and has not been previously submitted as a part of another degree or diploma of another Business school or University. The findings and conclusions of this report are based on my personal study and experience, during the tenure of my summer internship.

Miss Priyan a Agarwal, B.Sc (Economics), PGDBM 2004-06. INDIAN BUSINESS ACADEMY La shmipura, Thataguni Post Kana pura Main Road, Bangalore 560 062 INDIA Tel: +91-80-28435931/32/33/34 Fax: +91-80-28435935 - 1 ACKNOWLEDGEMENT I ta e this opportunity to than various people who all have made me sail through successfully my internship programme with a project at Tata Iron and Steel Compa ny Ltd. I would li e to express my gratitude towards than ing the following people: Mr. Manish Jain, CEO, Indian Business Academy, Bangalore, for providing me the opportunity to have such a good experience of an internship program. Mr. Ramesh Tagat, Dean, Indian Business Academy, Bangalore, for the motivation g

iven at the beginning of the project. Mr. George Thomas, Internal Mentor, Indian Business Academy, Bangalore, for extending support during the entire internship program. Mr. S.N.Banerjee, Head Mar eting and Finance, Kol ata, who supported a nd helped me whenever needed. Mr. Shan arnarayanan Head of Finance, Bangalore, who made it possible for me to pursue my intership at Tata Steel. Mrs. Banashree Mitra Manager Accounts, Kol ata, who showed the greatest confiden ce in me which would always act as a motivator in my life. Mrs. Debjani Dasgupta Manager Accounts, Kol ata, who actually helped m e out immensely in my project. Mr. Abhijit Bose Manager Accounts, Kol ata, who was always behind me for any in d of guidance. - 2 Mr. Vinod Tiwari Senior Credit Manager, Flat Product, Kol ata, who also helped m e to carry out my project wor . Mr. Sanjay Agarwal Senior Credit Manager, Long Product, Kol ata, who provided me with the required materials. Mr. Ashwini Lal Ferro Alloy and Minerals Division, Kol ata, who helpe d me by explaining the entire operations of the department. Apart from these, I would li e to than all the other officers and staff of all the floors of Tata Center where I had received immense support in carrying out my internship programme. This is inclusive of the Finance & Accounts Department, 13 th Floor, Tata Centre. I would li e to than all other people who are in some way or the other involved with my internship. These include my friends and other colleagues. Finally, I am highly than ful to my parents and my entire family, wh o have shown all inds of support and at all points of time.

Priyan a Agarwal Indian Business Academy

PGDBM 04-06 Table of Content Executive Summary ...... i 1) Mission....1 2) Vision...2 3) Strategic Goals.....3 4) Values..3 5) Corporate Social Responsibility......3 6) Quality Policy..4 7) Research Policy...4 8) Environmental, Occupational, Health and Safety Policy....5 9) Human Resource Policy..6 10) The Steel Industry in India........7 11) Indian Steel Industry-A SWOT Analysis10 12) Tata Iron and Steel Company..11 13) Landmar s of Tata Steel......17 14) Organizational Structure of Tata Steel........19 15) Product and Segment of Application..21 16) Strategic Challenges faced by Tata Steel...27 17) Ris s of the Company.............................29 18) Wor ing Capital Management........30 19) Credit Management Module38 20) Factoring or Bill Discounting......42 21) O.E.Finance.....42 22) Receivable Purchases..............47 23) Letter of Credit and Bill Discounting......................................50 24) Overdraft Management55 25) Reduction of days sales outstanding for Flat Product.....57 26) Predictions for 201071 27) Steel Industry-World....73 28) Steel Industry-China.....74 29) Steel Industry-India. .....................................75 30) World Net of China...79 31) BCG Matrix...80 32) Conclusion.....83 33) Equity Analysis .84 34) Financial Analysis.....90 35) Information Technology Services.94 36) Human Resource Policy at Tata Steel96 37) Future Outloo .100 Exhibits... -aBibliography.I i EXECUTIVE SUMMARY Tata Steel, a steel manufacturing company in India, was rated amongst top 3 best steel companies in the world by World Steel Dynamics in the year 2004. It is one of the few companies that adopts the concept of Economic Value Add and thereby a chieved an incremental EVA of Rs. 516 crores in the year 2004. The operations of the compan y have also increased in terms of turnover of its branded products by 84%. Thus, for a

company having a high Networth of Rs. 4360 crores, it is very essential to possess a saf e liquidity position. It should ensure that its money doesnt remain bloc ed in the mar et and there is constant flow of funds for operational, investment and financial activities. A company of a turnover of Rs. 12070 Crores is expected to have a good managemen t of its Wor ing Capital. Wor ing Capital of a company is the difference between its current assets and the current liabilities. It includes the companys debtors, ban /cash, creditors, inventory, outstanding and other miscellaneous expenses. Each of these needs to be managed separately so as to have a control over the liquidity of business. Management of Wor ing Capital includes various sub-components at the op erational level of the company which directly affect the level of Wor ing Capit al. These include study of Letter of Credit, Bill Discounting, Factoring through Receivable Pur chases and O.E.Finance, Channel Financing, Overdraft management. Proper Wor ing Capi tal Management depends on how well these sub-components are handled. The c ompany needs to overcome the shortcomings in this respect. The customer base of Tata Steel is found in the construction, auto a nd auto ancillary, white good appliance and the general engineering sector. Thus, in orde r to control the Wor ing Capital of the company, they need to control their exposure i n terms of extending credit to its customers. They need to reduce the customers d ays sales oustandings and manage the overdue that accrues to them. ii Over the years, it has been observed that Tata Steel has shown a po sitive trend in its Wor ing Capital. Tata Steel is nown for its human resource policies and it also has a well maint ained and very efficient IT infrastructure. The entire functions of the company are well c oordinated on a national scale. The objective of the company now is to increase the scale of its business by inc reasing its profits and the turnover and also by venturing into new line of busi ness. It is now targeting to be the World Class Industrial Enterprise from a World Class Steel C ompany. It is striving to have a huge global base.

TATA STEEL MISSION Consistent with strives to strengthen f men and material. The productivity, consistent with the vision and values of the Founder Jamshedji Tata, Tata Steel Indias industrial base through the effective utilization o means envisaged to achieve this are high technology and modern management practices.

Tata Steel recognizes that while honesty and integrity are essential i ngredients of a strong and stable enterprise, profitability provides the main spar for economic activity. Overall, the company see s to scale heights of excellence in all that it does in an atmosphere free from fear, and one which encourages innovativeness and creativit y. 2 3

TATA STEEL STRATEGIC GOALS Create a culture of continuous learning and change. Achieve world class status in services and products Reach the position of the most cost competitive steel producer. Establish industry leadership. TATA STEEL VALUES Trusteeship Integrity Respect for the individual Credibility Excellence TATA STEEL CORPORATE SOCIAL RESPONSIBILITY Tata Steel believes that the primary purpose of a business is to improve the qua lity of life of people. Tata Steel will volunteer its resources, to the extent it can reasonably afford, to sustain and improve healthy and prosperous environment and to improve the quality of lif e of the people of the areas in which it operates. 4

TATA STEEL QUALITY POLICY Consistent with the group purpose, Tata Steel shall constantly strive to improve the quality of life of the communities it serves through excellence in al l facets of its activities. We are committed to create value for all our sta eholders by continua lly improving our systems and processes through innovation, involving all our employees. This policy shall for the basis of establishing and reviewing the Quality Object ives and shall be communicated across the organization. The policy will be revi ewed with business direction and to comply with all the requirements of the Quality Manage ment Standard. TATA STEEL RESEARCH POLICY Tata Steel believes that research provides the foundation for sustained , long-term, sta eholder delight. Tata Steel shall nurture and encourage innovative research in a creative ambience to ensure that the competitive advantage in its over

all business is retained and surpassed. Towards this goal, the Company commits itself to providing all necessary resources and facilities for use by motivated researchers of the highest caliber. Research at Tata Steel shall be aligned to the technological initiatives necessary to evolve and fulfill the overall business objectives of the Company. 5

TATA STEEL ENVIRONMENTAL, OCCUPATIONAL, HEALTH AND SAFETY POLICY Tata Steel reaffirms its commitment to provide safe wor place and clean environ ment to its employees and other sta eholders as an integral part of its p hilosophy and values. We will continually enhance our Environmental, Occupational Heal th & Safety (EHS) performance in our activities, products and services through a stru ctured EHS management framewor . Towards this commitment, we shall: Establish and achieve EHS objectives and targets Ensure compliance with applicable EHS legislation and other requirement and go beyond Conserve natural resources and energy by constantly see ing to reduce consumption and promoting waste avoidance and recycling measures Eliminate, minimize and/ or control adverse environmental impacts and occupational health and safety ris s by adopting appropriate state-of-art technology and the best EHS management practices at all levels and functions. Enhance awareness, s ill and competence of our employees and contractors so as to enable them to demonstrate their involvement, responsibility and accountability for sound EHS performance. 6

TATA STEEL HUMAN RESOURCE POLICY Tata Steel recognizes that its people are the primary source of its competitiven ess. It is committed to equal employment opportunities for attracting the best availa

ble talent and ensuring a cosmopolitan wor force. It will pursue management practices designed to enrich the quality of life of it s employees, develop their potential and maximize their productivity. It will aim at ensuring transparency, fairness and equity in all its dealings wi th its employees. Tata Steel will strive continuously to foster a climate of openness, mutual trus t and team wor . 7 THE STEEL INDUSTRY IN INDIA The steel industry is generally a stable industry except for the cycl ical movements of prices due to its commodity nature. But the last one and half years proved othe rwise for the Indian steel ma ers. It has been a rollercoaster ride for the Indian steel i ndustry with fortunes fluctuating drastically, both positively and negatively. First was the boom in domestic steel mar et. It was followed by rapid growth in exports to China. The same Chinese demand resulted in shortage of raw material forcing many Indian steel ma ers to cut the level of production when the demand was pea ing. Then was the news of Ch inese slowdown, which effectively curtailed the expectations on steel exports to Chi na. It was followed by the unrest among the domestic steel users about steel prices, which resulted in the steel minister tal ing about steel regulator. INDUSTRY STRUCTURE: INDIA Four Major Strategic Groups 1 1) The Integrated Steel Producers: SAIL, TISCO, RINL Approximately 45% mar et share. 2) Secondary Majors: Jindal, ESSAR, LLYODS, Ispat Approximately 20% mar et share. 3) Mini Steel plants 4) Rerollers 1

The Iron And Steel Review, January 2005 issue

8 The Indian steel industry was in doldrums in the late nineties. The steel deman d growth

rate was stagnated below 4 percent. Almost all the majors steel ma ers in India with the exception of TISCO were ma ing losses because of excess capacity and low price l evels. Analysts have even written off some of the major steel ma ers. But things change d with the boom in the domestic steel demand in early 2002. The Infrastructure initia tive ta en by the government li e the Golden Quadrilateral highways project, an increase in housing activity and an improvement in the off ta e of consumer durables and passenger cars were the main reasons behind the demand pic up. This demand growth helped steel ma ers to raise prices. The steel prices of Cold Rolled steel and the Hot Rolled steel were almost doubled at the end of 2003 compared w ith the 2001 price levels. The result, the steel majors were out of red and the steel stoc s were showing a sharp upswing. Added to the domestic boom was the upsurge in Chinese s teel demand. The steel demand in China was growing at a rate of more tha n 10 percent per year and accounted for around 90 percent of the growth in global ste el demand in 2002 and 2003. This proved to be a good export opportunity for Indian steel ma ers. I n the first six months of 2003 alone, Indian steel ma ers exported steel worth $621 million , which is 137 per cent more than the total exports worth $262 million during the whole of 2002. For a moment it loo ed there was no stopping for the Indian steel ma ers. But fortunes of Indian steel ma ers changed dramatically by the end of 2003. The same upsurge in steel demand in China which helped the Indian steel ma ers to boost e xports played the spoilsport. Co ing coal (co e) and Iron ore are the main raw materials for integrated steel producers (ISP) which account for more than forty per cent of the steel output in India. As around 900 g of co ing coal is required to ma e one tonnes of steel, co e is among the high-value inputs for steel ma ing. Among the ISPs, TISCO has captive coalmines to satisfy its input needs. But the government owned integrated steel ma ers SAIL and RINL (Rashtriya Ispat Nigam Ltd-which owns Vizag Steel Plant) depend on imported co e. They import around 15 million tonnes of co e every year . China is one of the main suppliers of co e along with Australia, New Zealand and Canada. Due to the strong domestic demand, China has more or less st opped the export of the co e. The stoppage of co e exports from China has created supply vacu um. As a 9 result the co ing coal prices quadrupled in one-year, from around US $ 100 per t onne in

early 2003 to US $ 400 in March 2004. This shortage forced SAIL and RINL to cut their production at the pea of steel demand. For example, SAIL s Rour ela Steel plant reduced the daily hot metal production from 5000 tonnes to 4100 tonne s in early 2004. The Durgapur Steel plant cut average daily production of hot metal from 6000 ton nes to 5000 tonnes. If the integrated steel ma ers faced the problem of co e shortage, th e secondary producers faced the problem of steel scrap shortage. Typically, the se condary steel ma ers use steel scrap as the raw material. The booming steel demand in China re sulted in a supply shortage for steel scrap in Asia. The rising prices of steel raw mat erials have increased the cost of production by 30 to 40 percent for the Indian steel ma er s in early 2004 compared with 2002 levels. This has severely affected the bottom line steel ma ers as they were not able harvest on the rising steel demand and prices in the domestic mar et. Some of the steel companies seem to be awa ening to the reality. Jin dal group recently announced that it is merging two of its steel companies Jindal Iron and Steel Company (JISCO) and Jindal Vijaya Nagar Steel (JVSL). JISCO is the manufacture r of valueadded steel products and JVSL is ma ing steel from iron. Media report s speculate that TISCO and Ispat Industries are loo ing for acquisitions. But these act ivities are negligible compared with pace of consolidations happening in the rest of the wor ld. The biggies have to come together to form steel giants, who can challenge the global stars li e Arcelor or Ispat International. The industry has miles to go in this regard.

10 INDIAN STEEL INDUSTRY A SWOT ANALYSIS Strengths: Abundance of Iron-Ore and other minerals for steel S illed manpower and low unit labor costs High ash content of domestic co ing coal Low labor productivity Wea nesses: High costs of some basic inputs li e power, coal, fuel, etc. High social costs

Opportunities: Low per capita consumption Unexplored rural mar et Low export mar et penetration Threats: Substitution by aluminum, plastic and composites one of the most remu nerative mar ets Automobiles Poor R&D and threat of technological obsolescence in a large part of the mar et Availability of imported low ash co ing coal.

11 TATA IRON AND STEEL COMPANY Established in 1907, Tata Steel is Asia s first and India s largest integrated p rivate sector steel company. With its captive iron ore and coal mines and one of the world s most modern steel ma ing and finishing facilities at Jamshedpur in eastern India, which includes a state-of- the art Cold Rolling Mill complex, Tata Steel is among the lowest cost producer of steel in the world. Since inception in 1907, Tata steel has pioneered the steel industry in India t o occupy a leading position in the global steel industry today. The steel busines s unit, which forms 86% of Tata Steel s turnover, manufactures and mar ets steel products broadly, categorized into Flat Products and Long Products. Considering India is a developing country and is expected to grow @ 6 to 7 % per year, infrastructure and construction industry is expected to continue to grow at a healthy rate. Development of infra structure viz. roads, bridges, dams, ports, etc is a ey enabler to achieve vi sion 2020 laid by the government. In 2001-02, in order to create focus, the steel business was restruc tured into profit centers & cost centers. 2 The 4 million tonnes Jamshedpur plant, which produces both flat and l ong products, is undergoing a million tonnes capacity expansion to be completed by September 2005 . The company intends to raise its capacity to 15 million tonnes per annum by 2010 through organic growth and acquisitions. The Jamshedpur capacity will produce 7 .4 million

Poor quality of basic infrastructure Distribution networ Low IT usage in efficiency enhancement Fragmentation

tonnes and the balance capacity will be put up or acquired elsewhere in India and overseas. Tata Steel recently announced its first major overseas invest ment in NatSteel, Singapore, which will give it a manufacturing footprint in six countri es in the Asia Pacific region and China. Tata Steel is also exploring opportunities in the Ferro-chrome and titanium busi nesses in South Africa and the southern Indian state of Tamil Nadu, India respectively. Ta ta Steel s relentless quest for excellence through initiatives li e ASPIRE, which combines TPM, Six Sigma, Total Operational Performance, Suggestion Management and Quality Circ les, 2 Tata Steel Intranet Web Site

12 has reaped rich benefits. The company has been conferred the prime Mi nister s Trophy for the Best Integrated Steel Plant five times from the Indian Ministry of Steel . It was the first Tata Company to win the JRD Quality Value Award, categorizing its operati ons as "world class" under the Tata Business Excellence Model. It has been r an ed among the top four world class steel companies by World Steel Dynamics, USA, fo r the past four years. It was also awarded Asia s Most Admired Knowledge Enterprise Aw ard-2003 by Teleos, an independent Knowledge Management company of South Korea. Products Tata Steel s products include hot and cold rolled coils and sheets, g alvanized sheets, tubes, wire rods, construction re-bars, rings and bearings. In an atte mpt to discommoditise steel, the company has introduced brands li e Tata Steelium (th e world s first branded Cold Rolled Steel), Tata Sha tee (Galvanized Corrugated S heets), Tata Tiscon (re-bars), Tata Pipes, Tata Bearings, Tata Agrico (hand tools an implemen ts) and Tata Wiron (galvanized wire products). The Construction Solution Group explores new avenues for steel utilization by techniques that are economical, use less natura l resources and energy. Tata Steel has also developed "galvannealed" cold rolled steel with technical assistance from Nippon steel & Arcelor for high-end auto applications. Strategic Business Units Apart from the main steel division, Tata Steel s operations are groupe d under the fallowing strategic business units. Bearings Divisions: Manufactures ball bearings, double row self-aligning bearings, clutch release bearings and tapped roller bearing for two wheelers, fa ns, water pumps, etc.

 Ferro Alloys and Minerals Division: Operates chrome mines and has uni t for ma ing Ferro chrome and Ferro manganese. It is one of the largest players in the global Ferro chrome mar et. 13 Rings and Agrico Division: The ring plants manufactures forged and rolled rings for bearings and automotive components .Tata Agrico is the first organ ized manufacturer in India of hand tools and implements for application in agricultur e. Tata Growth Shop (TGS): Has designed, developed, manufacture, erected and commissioned thousands of tones of equipments ranging from overhead cranes to high precision components, including a roc et launch pad for the India n Space and Research Organization. Tubes Division: The biggest steel tube manufacturer with the largest mar et share in the country, it aspires to strengthen its mar et presence by expanding and modernizing its commercial and precision tube manufacturing capacity. Wire Division: A pioneer in the manufacture of steel wires in India, it prod uces coated and uncoated wires, branded as Tata Wiron. The division also o perates a wholly owned subsidiary in Sri Lan a. TIS GROUP ASSOCIATE COMPANIES and % STAKE OF TATA STEEL 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Tata Refractories Limited (TRL)51% The Tinplate Company of India Limited (TCIL)..30.60% Tata Yodogawa Limited (TAYO).36.53% Tata Sponge Iron Limited (TSIL)..39.74% Tata Pigments Limited (TPL)...100% TRF Limited (TRF)...34.77% Stewarts and Lloyds of India Limited (S&L)99.99% Tata Metali s Limited (TML)...46.66% Jamshedpur Injection Powder Limited (JAMIPOL).28.22% Tata Ryerson Limited (TRYL)..50% TM International Logistics Limited (TMILL)...51% Metaljunction.com Private Limited...50%

14 SUBSIDIARY / ASSOCIATES / JVS Tinplate Company of India Limited (TCIL): With a mar et share of over 35%, it is the industry leader in India. It has the capability to supply all tinning line pro duct including electrolytic tinplate / tin-free steel and cold-rolled products. Tayo Rolls Limited: The country s leading roll manufacturer and supplier, the co mpany produces rolls which find application in integrated steel plants, the paper, tex tile and food processing sectors, and the government mint. It also produces special castings f or use in power plants.

Tata Ryerson Limited (TRYL): Is in the business of steel processing and distribu tion. It offers hot and cold rolled flat steel products in customized sizes an d quantities through processing services. It also provides materials management services. Tata Refractories Limited (TRL): Produces High Alumina Refractory, Basic Refractory, Dolomite Refractory, Silica and Monolithic Refractories. It is one o f the few companies worldwide to produce silica refractory for co e ovens and the glass i ndustry. TRL offers Total Refractory Solutions, which include design, procurement , re-lining applications etc. (www.tataeref.com) Tata Sponge Iron Limited (TSIL): Has the first Indian sponge iron pla nt based on indigenously developed Direct Reduction Technology. Its major product lines are sponge iron lumps and fines.(www.tatasponge.com) Tata Metali s: Is among the top wealth creating companies (measured in terms of EVA) in the country. Tata Metali s is engaged in the business of manufactu ring and selling foundry grade pig iron (www.tatametali s.com) Tata Pigments Limited: Its range of products includes synthetic iron o xide pigments used to lend colour to paints, emulsions, cement floors, plastics etc. Its three main products Tata Red, Tata Yellow and Cemplus enjoy premium positioning. 15 Jamshedpur Injection Powder Limited (Jamipol): Manufactures carbide and magnesium-based de-sulphurising compounds which are used for de-sulphuris ing hot metal for the production of low-sulphur, high-quality steel. TM International Logistics Limited (TMILL): Provides material handling a nd port operation services at Haldia and Paradip Ports in addition to freight forwarding and chartering services to Tata Group companies and other enterprises. MetalJunction.com Private Limited (MJ): A joint venture company between SAIL and Tata Steel, it is in the business of providing e-business services an d solutions to Indian industry. MJ has two divisions--metaljunction.com (e-selling business uni t) and commercejunction.com (e-procurement business unit). It also offers complete e-so urcing services TRF Limited: It is one of India s leading companies in the business of design, manufacture, supply, installation and commissioning of engineered-to-order equipment and systems in the areas of bul material handling, loading and unloa ding, processing, reclaiming and blending of bul materials. With world-class technical a ssociates, TRF has also made its mar in the fields of co e oven equipment, coal dust injection systems for blast furnace and coal beneficiation systems.

Jamshedpur Utility and Service Company Limited (JUSCO): Re-engineered ou t of Tata Steel s town services, JUSCO a wholly owned subsidiary of Tata S teel and is the country s first enterprise that provides municipal and civic services f or townships. JUSCO is the only EMS 14001 civic services provider in the country. The Indian Steel and Wire Products Limited (ISWP): Recently acquired b y Tata Steel, ISWP has two units-a wire unit comprising wire drawing mills, wire rod mi lls and fastener division and a steel roll manufacturing unit named Jamshedpur Engineeri ng and Machining Company (JEMCO). Lan a Special Steel Limited: The only unit in Sri Lan a manufacturing galvanized wires. 16 Sila Easten Company Limited: Established to develop limestone mines in Thailand, mainly for the captive use of Tata Steel. Environment Management: Jamshedpur was India s first planned industrial township. In more recent times, Tata Steel has received ISO 14000 certification for environment management for its steel wor s. Most of its other, mines and collieri es also have been accredited with ISO certification. Corporate Social Responsibility The welfare of its employees and the upliftment of the communities in which it operates are critical part of Tata Steel s gu iding values and principles, inextricably interloc ed with productivity at the steel plan t .This belief has resulted in a mammoth social outreach programme covering the town of Jamshedpur (population 0.65 million) and over 600 villages in and around its manufacturing and raw materials operations. The company-run town of Jamshedpur has India s on ly ISO 14001 certified municipal services and is also amongst the six participating cities of the UN Global Compact Cities Pilot programme for addressing intractable social, economic and environmental issues in the urban context. The company has dedicated a gencies for community welfare wor in diverse areas such as education, community h ealth and HIV/AIDS awareness, income generation for economic well-being, environmen t management, relief, sports, art and culture, etc. Regarded globally as a benchmar in corporate social responsibility coupled with its record of 75 years of industria l harmony, Tata Steel s commitment to its employees and the community remains the bedroc of continued sustainability.

17 LANDMARKS OF TATA STEEL 3 1882 At the age of 43 Jamshetji Nusserwanji Tata read a report by a German Geolo gist, Ritter Von Schwartz on the availability of iron ore in Chanda Distric t in the Central Provinces, which gave him the idea of giving India a steel plant. 14 November 1900 Jamshetji was in England seeing the Secretary of St ate for India, Lord George Hamilton. He decided to build a steel plant in India. 24 February 1904 P N Bose, an Indian Geologist who discovered the G orumahisani hills with its input storehouse of iron ore, informed J N Tata about his finding s. 1907 CM Weld and Srinivasa Roa discovered the village of Sa chi at the confluenc e of two rivers; Subernare ha and Khar ai and the Railway Station of Sa chi. 26 August 1907 Tata Iron and Steel Company was floated. 16 February 1912 First Steel was made. 31 October 1912 The Bar Mills commenced rolling. 2 January 1919 Visit of Lord Chelmsford to rename Sa chi as Jamshedp ur and Kalimati Railway Station as Tatanagar Railway Station. 5 March 1920 Jamshedpur Labour Association formed. The principle of J oint Consultation introduced for the first time in India. 8 August 1925 Mahatma Gandhi, Chittaranjan Das and CF Andrews visited Jamshedpur to discuss labour problem with RD Tata. 3

Facts about Tata Steel, 2003

18 14 September 1937 Research and Control Laboratory opened. 26 July 1938 JRD Tata succeeded Sir N B Sa latvala as the Chairman of the Compan y.

20 December 1955 Agreement signed with Kaiser Engineers for two milli on tones expansion programme. 1 April 1973 Amalgamation with West Bo aro Limited for coal mines operation. 19 April 1993 Mr. Ratan Tata too over as the Chairman. 16 September 1997 Received Prime Ministers Trophy for the best integra ted steel plant for the year 1995-96. 24 April 2000 Inauguration of the Cold Rolling Mill Complex. 27 September 2002 Won the Golden Peacoc Award for Corporate Social Responsibility & Excellence in Corporate Governance. 3 December 2003 Placed second in Leadership Development among companies in Asia Pacific in a study conducted by Hewitt Associates.

19 ORGANISATIONAL STRUCTURE OF TATA STEEL The entire structure of the organization of Tata Steel can be broadly divided in to 3 levels, each level having separate roles and responsibilities. These 3 levels are upper management, senior management and the middle management. Each of these lower lev els is responsible to perform its functions and thereby report to the nex t higher level in the organization on a periodic basis. Overall, we can say that the compan y has a flat structure, beginning from the top management to the lowest level of management. The Upper Management of the company has designation li e the Managing Director of the entire company and the Group Executive officer. The Senior Managem ent has the various Vice Presidents of the different departments which come directl y under the Managing Director. Under the Vice Presidents we have the Chiefs of th e various functions who coordinate the activities of its function along with the other departments. There can be more than one chief in a department depending upon the number of li ne of the products. This is seen in the Long Products Departments. The Chie fs are also accompanied by the Heads in some of the departments. Under these Chie fs and Heads, we have the various Sectional Heads who are the Unit Leaders, the Ma nagers or the Officers. This structure is prevalent in the entire organization on a national s cale. In the Finance and Accounts Department of Tata Center, Kol ata, the f

unctions are handled by the Head of Mar eting and Finance. Then, there are the va rious Manager Accounts who handle the different aspects of the department. Under these Manager s are the officers who carry out the actual accounting wor of the department. The following is the organizational chart of Tata Steel:

20

21 PRODUCT and SEGMENT OF APPLICATION 1) FLAT PRODUCT HR LPG / Tubes / Cold Rolling / pipes CR Auto/ Appliances / Panels / Furniture Galvanized Roofing / Auto / Appliances Galvannealed Auto With a stretched capacity of 2.5 million MT of Hot Rolled, Cold roll ed & Coated Products, Flat Products business group produces approx. 65% of total s aleable steel. A constant pursuit to increase customer focus, enrich product mix, energy efficient technologies & optimum utilization of raw materials have resulted in a long term competitive advantage. 4 Products Galvanized Plain Spangled Galvanized Plain with differential coating Galvanized Plain zero spangle Galvanized Plain s in passed Galvannealed (GA) 2) LONG PRODUCT SBQ Auto HC / WR Auto / Construction / Railways / Power LC / WR Electrode / General Engineering MSWR Construction / General Engineering Rebars Construction Semis Others 4

Tata Steel Intranet Web Site

22 The Long Products Department was created in the year 1999-2000. It is the outcome of Tata Steels relentless trust towards customer-oriented organization. The department generates around 35% of wor s saleable steel in the company. Half of the division s product mix is value-added finished product comprising of Wire rods and merchant bars. The other half is semis in the form of c.c. billets. 5

FEW KEY CUSTOMERS IN TARGETED SEGMENTS KEY SEGMENT PRODUCT MARKET KEY CUSTOMERS HR for LM / CM Tata Motors, Asho Leyland HR for MC / HC ASIL, Hero, TPI, ITW HR for CF Wheels India, Kalyani Lemmerz, Toyota CR for high end (Auto, Appliance) Tata Motors, Asho Leyland, Maruti, Mahindra & Mahindra, Hyundai CR for distribution Authorized Distributor Galvanized Corrugated (GC) Authorized Distributor HCWR Bansal, Ramswarup, Mi i Wires, Arti Steel LCWR ESAB, Advani Oerli on, Feero Wires TISCON (Re-bars) Gammon, DLF, Chevron Authorized Distributors CAPACITY OF FLAT PRODUCT IN THE MARKET 6 SAIL 41% TATA STEEL 20% ESSAR 14% LIOYDS 4% ISPAT 9% JVSL 10% OTHERS 6% 5 6

Tata Steel Intranet Web Site TBEM 2003, Building Sustainability by Tata Steel

23 CAPACITY - FLAT PRODUCTS 41% 20% 14% 4% 9% 10% 6% SAIL TATA STEEL

ESSAR LIOYDS ISPAT JVSL OTHERS

CAPACITY OF LONG PRODUCT IN THE MARKET 7 SAIL + IISCO 10% TATA STEEL 3% RINL 10% OTHERS 77% CAPACITY - LONG PRODUCTS 10% 3% 10% 77% SAIL + IISCO TATA STEEL RINL OTHERS KEY ENTERPRISE PROCESSES

TBEM 2003, Building Sustainability by Tata Steel

24

Investment management Human Resource Improvement and Change management Order generation Operation and fulfillment Supply management Research and Development Information management Social responsibility and corporate services.

POSITIVE REFERRALS FROM CUSTOMERS Customers giving positive referrals for Tata Steels products: TELCO MARUTI FORD Wheels India / Bra es India Wheel and Axle plant ESAB L&T

Leadership Strategic planning and ris Mar et development

management

Customers having purchasing intention from Tata Steel due to this positive refer ral: All ancillaries Major ancillaries KRUPP JBM TVS Group buy All auto manufacturers All electrode manufacturers All construction sub contractors / Major project customers of L&T 25

CUSTOMER SATISFACTION DETERMINATION TYPE OF DATA PARAMETERS TOOLS Opinion Data Feedbac , Survey, Complaints, Call Reports, Customer meets, Top executive customer meets Customer satisfaction Index measurement, Complaint analysis, Visit reports Behavior Data Repeat Business, Mar et Share Repeat Business, mar et share in ey mar ets

PROCESS FOR FOLLOW UP WITH CUSTOMERS ON PRODUCTS/SERVICES

FEEDBACK Close proximity of sales offices Customer champions/ RVM wor shops Call centers Planned customers visits by sales personnel Concept of dedicated CAMs Maintain adequate

sales person per ey customer Customer visits by application engineers/plant personnel Distributor monthly reports 26 DETERMINATION OF CUSTOMER CONTACT REQUIREMENTS

CUSTOMER SATISFACTION DETERMINATION TYPE OF DATA PARAMETERS TOOLS Opinion Data Feedbac , Survey, Complaints, Call Reports, Customer meets, Top executive customer meets Customer satisfaction Index measurement, Complaint analysis, Visit reports Behavior Data Repeat Business, Mar et Share Repeat Business, mar et share in ey mar ets

CUSTOMER GROUP PROCESS FOR CAPTURING REQUIREMENTS Distribution Channel 1. Distributor / Retailer meets feedbac 2. Retail Value Management wor shop 3. Fabricators/architects meets 4. Distributor/retailers visits 5. Call centers Enterprise Accounts / Key Commercial Channel / Original Equipment Customers 1. Customer value management wor shop 2. Customer page 3. Customer visits by CAMs, application engineers, plant personnel 4. Visits by customer champions 5. Customer forum/ customer visits feedbac s

27

STRATEGIC CHALLENGES FACED BY TATA STEEL 1. Operational: Operational challenges includes some of the following i .e. increasing service level expectation of customers, commodity nature of steel, balancing the economies of scale in manufacturing and simultaneously servicing a fragmented domestic mar et, innovation as a substitute to investment. 2. Human Resource: Human Resource challenges are attracting and retaining talen t, managing rising employee costs, empowering employees at lowest levels, developing employees for the future and improving the quality of life in the locations of operations. 3. Business: Business challenges includes shareholders and promoters exp ectation of returns on par or better than equivalent opportunities, balancing n eeds of all sta eholders, upholding the ethical standards in current environment. 4. Global: Consolidation in steel industry, emerging dominance of China, reduc ing trade barriers, driven by WTO, li ely appreciation of rupee against dollar. 5. Societal: Lac of understanding of industry and business, law and order situ ation in the local areas and increasing expectations of the community in an underdeveloped state, witnessing the successful financial performance of the company.

28

STRATEGIC PLANNING PROCESS LEVEL KEY PARTICIPANTS TIME HORIZON COMMONLY USED

STRATEGIC PLANNING TOOLS Corporate Business Review Committee of Tata Steel Top management (MD, DMD, VPs) Key senior leaders Short term: Up to within a year Long term: Over a year, up to 5 years Long Term Cash Flow Forecasting Growth Horizon Framewor Project Based Analyses Business Unit (profit center/cost center) Chief of Business Unit / VPs Key senior leadership of business unit Short term: Up to within a year Long term: Over a year, up to 5 years Product Portfolio Matrix Functional Unit Chief of functional unit Key senior leadership of functional unit Short term: Up to within a year Long term: Over a year, up to 5 years Focus Group Discussion: Scenario Analysis Department Key senior leadership Key Operating Staff Short term: Up to a quarter Long term: Up to a year, once a quarter Decision Tree Analysis

29 RISKS OF THE COMPANY Li e all other companies Tata Steel also faces certain ris s at the strategic, operational and the governance level. These ris s vary according to the level in the organiz ation. At the departmental level, there are ris s related to audit monitoring an d others which are dealt with by the Strategic planning process. At the business unit le vel, ris s related to credit policy extended to customers, their rating, etc. are targeted for mitigat ing it. At the corporate level, ris s faced are broader in nature based on the overa ll assessment of the business opportunities and projects. Types of Ris s faced by Tata Steel Financial Ris : Any financial strategy has to pass a series of scrut iny so as to minimize the financial ris s which is nown as the Investment Manageme nt Process. The proposal is first analyzed by the Study Group technically, financia lly, and for the environment and regulatory aspects. After the proposal bei ng sanctioned by them it is sent to the Investment Management Committee (IMC). This sensitivity analysis helps to reduce the ris for the organization. Price Ris : Price forecast is done through a price ladder mechanism and a prici ng model (developed in-house) for lin ing the global prices to domestic p rice movements. The basic price ladders, forecasting model and the forecast values ar e continuously evaluated and improved. Strategic development also addresses the factor of dumping ris .

30 WORKING CAPITAL MANAGEMENT INTRODUCTION Firms need money to pay for their day to day activities. They have to pay salari

Societal Ris

es, bills, suppliers & so on. The funds available to do this, is nown as the firms wor ing capital. Managing the wor ing capital needs of the organization is important, because sho rtage of funds could disrupt the day to day operations where as by holding ex cess funds the interest burden of the firm starts mounting & eating into its profits . There are two concepts of Wor ing Capital, Gross Wor ing Capital & Ne t Wor ing Capital. Gross wor ing capital is the sum total of all Current Assets, Inventori es, Debtors, Loans & Advances & Cash & Ban balances. Net Wor ing Capital is the difference between Current Assets & Current Liabilities & therefore represents the funds wh ich the firm has to finance through Borrowings. A firm needs to invest in Cu rrent assets to ensure Smooth and Uninterrupted Operations. How much the firm invests will depen d on its operating cycle. Cash flows in a cycle into, around and out of a business. It is th e life blood of the business and it is the primary responsibility of the management to e ep it flowing to generate profits. A profitable business generates cash surpluses, which is used to expand the business. The faster the Business Expands, the more funds it will require fo r meeting its wor ing capital needs. Good management of wor ing capital will generate cash , help to improve profits and reduce ris s. The two most important elements in the business cycle that absorbs ca sh are inventory (Stoc s of Raw Materials and Spares, Wor in Progress and F inished Goods) and Debtors (Money to Be Collected from Customers). Tata Steel endeavor to shorten the cycle by (i) collecting money from debtors quic er and (ii) reducing inventory levels relative to sales, so that they have to borro w less money 31 to meet their wor ing capital needs. As a consequence, the aim is to reduce the interest burden and free additional funds to support growth in its Operations and Sales. Wor ing Capital Management includes the following at Tata Steel: Debtors Management Ban / Cash Management Inventory Management In order to analyze these, we need to go to the nitty-grittys of mode of financin g by Tata Steel. These can be explained by the following:

1) 2) 3) 4) 5)

O.E. Finance Receivable Purchase Channel Financing L/C and Bill Discounting Overdraft Management

The art of managing credit ris is becoming more challenging than eve r. Even a single event of default of a customer carries huge implications on the bottom line. Th e closure of a transaction from Customer Order to Payment realisation is becoming more and more important in the context of strategic benefits and achieving effective customer satisfaction. Thus, there is growing need for new tools in order to better understand, quantify and manage credit ris . Thus, it becomes very important for a corporate to decide how it shall be satisfying its customers along with managing i ts impact on the bottom line.

32

CALCULATION OF CUSTOMER PROFITABILITY AT TATA STEEL Gross Realization Excise Freight = Net Realization - Cost to serve (calculated on the basis of per tonne of sales) Sales Commission (paid to the agents) Handling Charges (consignment agent charges) Cost of Rejection (quality complaints) Cost of Credit ( from point of view of inventory raising, charged at the ban rate, the average rate being 13% approximately) Establishment cost of Mar eting Division (salaries, advertisements, administration) Inventory carrying costs (even for the consignment agents/conversion agents, charged at the ban rate) = Net of Net Realization - Cost of production (costs incurred in Jamshedpur, the costs are standardize d per tonne of sales, which is revised from time to time) = Net Profitability of the customer The above calculation is done on a monthly basis for each customer.

This profitability statement forms the basis for deciding whether the company should cont inue with the customer or not.

33 Credit Worthiness of the customers is assessed on the following parameters: a. Ability to Pay: Ability to pay is applicable to the organised sector only. It includes the following: Solvency, Financial Viability, Technological Soundness and Commercial Feasibility. b. Willingness to Pay: It is based on judgement of experts and is applicable to both organised and unorganised sector. It includes the following: Quality of Management, Credibility, Past Performance and Health of the group Company. Birth of the Credit Management Department at Tata Steel after the re Prior to 1999, there was no separate department to loo ceivables. Initially people were happy that the plant is producing; there was no focus on sales of the produced materials. Hence there was a problem of large inventory. Grad ually, people started realizing this and then the started focusing on sales, which lead to hug e piling of receivables or collections. There was hardly any collection done on a regular ba sis. Since 1999 the entire scenario has again changed. The company started having a separate department which would loo after the collections on a daily basis. Credit Management Process Tata Steel has to continuously decide as to how much credit should b e given to its customers and also the credit limit i.e. their maximum exposure. Prior to given credit, the credit department analyses the credit worthiness of the customers based on their financial parameters. This is done with the help of a form in Lotus Notes. At the first place, the customer puts forward a request for credit to the CAM since they have a direct a ccess to the CAMs only. Each customer is handled by a separate CAM (Customer Account Manager). They collect all the required information about the customers and fill the Lotus Notes form or the CMG Module which has a predefined template. Then the credit li mit is fixed based on their credit evaluation. This credit evaluation also includes fac tors li e the goodwill of the customer in the mar et and with their ban s, the future prospec

ts of the company in terms of expansion, etc. While extending credit to the cus tomers it is communicated to them that their credit limit shall not cross the allotted limit. However, in certain cases where the customer needs an extension of the limit, the y might be granted on certain special grounds. 34 The company has a wide variety of customers. These are from different categories of business. They can be either public underta ing or government departm ent or Tata Group Company or private limited companies or traders or distributors. For credit appraisal and ris assessment, customers are broadly classified into three group s: Organised Sector Private & public ltd companies in the private sector, public sector companies including government underta ing Unorganised Sector Traders, partnership firms, SSI units etc. Government Departments Defence, irrigation, Power, Railways, PWD and CPWD Supporting Sections for CMG Co-ordination Accounts (Mar eting & Sales-Kol ata, Jamshedpur) Customer Service Department CRM and HSM, WRM Despatch Financial Controller Flat and Long Product Finance Managers Tata Ryerson Despatch Metal Junction CMIE Debtor Tas force Legal Ban ers Internal Customers of CMG Vice President, Flat and Long products COMS, Flat and Long Products CSM, Flat and Long Product 35 PROCESS OF EXTENDING CREDIT TO THE CUSTOMERS Whatever be the form of company, in the first place CAMs proceed by obtaining two copies of their previous years Balance Sheet. Since these companies ar e listed hence their Balance Sheet can be relied upon in the process of giving cred it. It can tell us about the value of the company and the amount of wor ing capital the company has. CAMs are responsible for entering the non-financial information of the company into Lotus Notes such as the products to be sold, credit period and the nature of t

he credit, etc. All these are then send to the Regional Finance Manager (RFM) via an elec tronic mail, along with the Balance Sheet of the company, who updates the Lotus Notes w ith the financials of the company. The RFM acts as a peer in judging wh ether the credit should be extended or not. Thus, they can also reject the credit pro posal. Once this is done, it is forwarded to the Credit Management Group of Kol ata for the final ap proval. They have the right to accept, reject or suggests changes for the pr oposal even if the RFM does not possess any objection in extending the credit. The CMG assigns and approves the credit limit based on the recommendations made by the RF M. In case RFM/CMG rejects a credit request, CAM can appeal directly to COS/COMS for sanction of credit giving justifications. Once a credit limit is approved, it is saved into the customer database and would form the basis for future credit transactions with the customer. In case of Government Departments li e Railways, PWD, etc. credit is extended on the basis of the past trac record of the business transaction. These companies do n ot have a published Balance Sheet. For such enterprises RFM automatically gives his consent for the proposal. RFM can reject the same if he has any prior infor mation of the customer mar et outstanding or poor payment record or existing dues in other b ranch. The Tata Group Companies shall also be considered at par with the Go vernment Departments and no financials shall be required to approve credit limit for them . A Private Limited Company or Partnership has a Balance Sheet which ca nnot be completely relied upon. Hence they require many more information apart from it. It includes Credit Limit desired and the payment terms with the customer, monthly l ifting 36 of the Customer, Future expected monthly business potential, Price nego tiated, Credit NR, Cash NR, Any comfort letter from the customers ban er / sister company alread y dealing with Tata Steel, Past data (max 6 previous months) on Credit, Overdue >6 month, Sales & collection of the customers, Mar et Information on customers Turnover, PAT for the last three years, etc. In case of traders, transactions are made on the basis of the availa bility of the desired

materials. It can also be on temporary basis. The dealings are finali zed with those Traders who offer highest prices. Their credit worthiness cannot be judged on th e basis of their Balance Sheet or any other financial statement. Credit to a trader is g iven for a specific sale and a period. After the sales are complete, the credit continues for the allotted period and thereafter it is reversed. Distributors are authorized customers by the Company having a long-term relation ship. They are required to lift a minimum fixed tonnage of materials every month. The credit limit for them remains valid for the whole financial year. The COM&S or the VP is responsible for sanctioning of the credit to the distributors. Debtors Control After the credit is extended to a customer, the CMG eeps a regular trac of the status of outstanding and overdue. At the beginning of each month, for each customer, Manager-Mar eting sends an Accounts Statement indicating the receivables and overdue status of the party. In case overdue reaches 50% (and 25% in case of chronic defaulters) of the total outstanding, system stops any further delivery orders thereby stopping further sales. In case where customers total outstanding has become over due > 2 months, while releasing Delivery Order COM&S will decide on the applicable ratio on the basis of which supplies will be effected (70:30, 80:20, 90:10 etc.). Collection under 70:30 rules, means, for every 100 rupees received in advance, m aterial worth Rs.70/- will be supplied to customer and balance will be adjust ed against old dues. 37 Along with the control of debtors, their ously reconciled and confirmation should be obtained from vals as regards of amount due to him. At the beginning Manager sends the Account Statement to all the customers for

accounts needs to be continu the customer at regular inter of each month the Mar eting confirmation of balances.

Interest Collection for Delayed Payments Tata Steel charges an interest to its customers if the payment made is late after the due date. The details on interest payment are mentioned at the time of credit sales in the Sales Order or the MOU. However, these need to be accepted by the customer . All the transactions are recorded in the SAP system which acts as a database and which is ept

updated very instant. Thus, when the credit sales are made, all infor mation li e invoice date, interest free credit period, money receipt date, etc. are all r ecorded in SAP with respect to separate transaction. Thus, SAP automatically calculates the interest that has to be charged to each customer for every delay in payment. The CAM ta es the SAP re port of interest outstanding for each customer and sends it on a monthly basis to the customer for collection and follow-up. When the interest amount is received the customers account is set-off against the balance. CAMs review the status of int erest accrual, its collection and reasons for non-recovery quarterly.

38 CREDIT MANAGEMENT MODULE (BASED ON LOTUS NOTES) The Credit Management Module of Tata Steel is maintained in the Lotus Notes. This module is very exhaustive because it captures all the information abou t the customer to whom credit is being given. It begins by capturing the essential info rmation relating to sales li e: Products to be purchased by the customer Tonnage on cash Tonnage on credit Invoice price (Rs. / MT) Credit period (Days) Proposed credit (Rs. Lacs) Total tonnage Share of spend (%) Future expected Monthly lifting potential (MT) A customer might already have an account with Tata Steel. In such ca ses the accounts status of the customer as on the date when credit sales is being made are also e ntered into Lotus Notes. These includes the amounts of outstanding and overdue as on a particular date, Cheque payment history, existing credit limit, interest free credit period , Guarantee provided, if any, level of secured and unsecured credit. It also ment ions whether the

customers company has been rated by a credit rating agency or not, ho w is its relationship with Tata Steel and what is its level of Management Quality. This module also as s whether the customers company has been referred to the BIFR. All details of relevant financial figures of the current financial year and the past two years are recorded in Lotus Notes. Some of such figures are Wor ing Capital , Retained Earnings, EBIT, Net Worth, Total Assets, Total Liabilities, Debt, Interest on De bt, Equity, Inventory, Receivables, Sales, PAT, etc. Apart from these absolute figures cert ain ratios are also recorded, such as Structural Ratios (Debt-Equity Ratio and In terest Coverage Ratio), Liquidity Ratios (Current Ratio and Acid Test Ratio), Turnover Ratios (Asset 39 Turnover Ratio, Inventory Turnover Ratio and Receivable Turnover ratio) and Profitability Ratios (Gross Profit Margin Ratio and Net Profit Margin Ratio). On the basis of these financial figures the credit management group calculates the Z-score of the customer which forms the Corporate Ban ruptcy Prediction. The Z-score formula It is very essential to now when a company is at ris of corporate collapse. To detect the signs of looming ban ruptcy, investors calculate and analyze all inds of financ ial ratios: wor ing capital, profitability, debt levels and liquidity. However, each of these ratios gives different implications which might turn out to be contradictory also. Thus, NYU Professor Edward Altman introduced the Z-score formula in the late 196 0s which is weighted of the five ey performance ratios into a single score. This gives a very good overview of the corporate financial health of a manufacturing company. The formula 8 is as follows: Z = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E Where Z = score A = Wor ing capital / Total Assets B = Retained earnings / Total Assets C = Earnings before interest & tax / Total Assets D = Mar et Value of Equity / Total Liabilities E = Sales / Total Assets The lower the Z-score, the higher are the odds of ban ruptcy. A Z-score of lower than 1.8 indicates that the company is heading for ban ruptcy. Companies with scores abov e 3 are unli ely to enter ban ruptcy. Scores between 1.8 and 3 lie in a moderate area.

Credit Management Module, Tata Steel

40 The Z-score for a company can vary from quarter to quarter. To eep an eye on their investments, investors should consider chec ing their companies Z-score o n a regular basis. In above figures related to the Z-score is according to the industry as a whole. However, in Tata Steel the following are used: Above 4 is considered to be low ris , betw een 4 and 2.6 is considered to be medium ris , less than 2.6 is considered to be high ris and less than 1.1 is a sign of Ban ruptcy. In 1) 2) 3) 4) 41 5) 6) the credit management module the following are also included: Technology possessed by the customer: Product Quality Product Mix Technical Know How Power Availability Process Suitability Plant / Equipment condition Economic / Commercial factor of the customer: Product Salability Raw-Material Availability: Debtors Quality Labour Relations Insulation from change in import / local tariff Compliance with legal / Regulatory Authorities Quality of Management of the customer: Trac Record Mar et Reputation Experience in field Ownership Disputes (absence of) Technical Competence Credibility of Management of the customer: Ethical in business dealings Commitment Level Relationship with Creditor Relationship with regulatory authorities Relationship with ban s Relationship with competitors Past performance with Tata Steel Length of sound dealings Promptness in payments Honouring commitments Payment patterns and adherence to credit terms Willingness to furnish information Capacity to hold stoc s Ability to absorb supply spi es Avoidance of over-trading Health of the group companies Financial soundness of the group company

 Possible diversion of funds to new business ventures (unli ely) Ban Ratings

42 FACTORING OR BILL DISCOUNTING Tata Steel has two types of customers: Original Equipment Manufacturers and other manufacturing companies Distributors Whatever be the size of business of the customers, there is a persistent ris of failure of the customers to the company. The larger the volume of debtors, the larger would be the exposure of the company to the mar et. Thus, any company would try t o convert its debtors to cash. This can be done either by restricting credit sales to cash sales or by selling its debtors to various factoring agencies most of which are b an s. If sales are made on cash basis, then the customer can pay the money within 7 da ys of raising the invoice, in which case the customer would also be given a cash discount. For sal es made on credit, the company can sell off their debtor which is nown as factoring. Factoring helps the company by providing protection against the bad-debts. Bad-de bts result in bloc ing of funds of the company and leads to non-conversion of debto rs. They act as hindrances in the existing or new or expanding business. Thus, factori ng is used to restrict the bad-debts and to protect the cash flow of the business. Factoring has the following advantages: Ris free sales Accelerated cash flow No bad-debt Saves time spend by CAMs following up for payment No legal cost as assignment of Legal Rights will be on Ban Overdue interest is charged on the Ban s account. FACTORING FOR THE MANUFACTURING CUSTOMERS: The factoring facility that has been designed for customers which are big manuf acturers and high-valued customers is nown as OE Finance or Receivable Purchases. Tata S teel

43 agreement is nown as the Tripartite arrangement which is an arrangement between Tata Steel, the Ban and the Customer. At the time when the agreement is made, all the specifications are made clear to Tata Steel and the customer. When an invoice is raised in the name of a customer, within a day or two it is sent to the ban for discounti ng. As per agreement, the Ban entertains these invoices of the specified parties and ma es an upfront payment to Tata Steel of the corresponding amount. For providing the fac ility of discounting of the bills, the Ban charges certain interest nown as the discounting charges. This discounting charge is borne by Tata Steel. Thus, Tata Steel gets t he debtors money and the debtors have to pay the Ban at a later date, according to the agr eement. However, the debtors shall be paying after the expiry of the credit period. At t he end of the credit period if the customer fails to pay on time, then Tata Steel is not l iable to pay any overdue interest. This entire arrangement of factoring is without recourse in nature i.e . if there is any problem from the side of the customer, then Tata Steel will not ta e the respons ibility for compensation. Thus, the Ban has to deal with the entire process of the transaction thereafter. Calculation of Discounting Charges: The number of days for which the bill has been discounted is the difference betw een the due date when the bill expires and the discounting date. The amount of discounting charges is calculated on the basis of this along with the rate at which the ban discounts the bill. Discounting Charges = Bill Amount * Days Discounting * Rate of discounting. FACTORING FOR DISTRIBUTORS The factoring facility that is extended for Steel is nown as CHANNEL FINANCE. It helps in meeting the financing is has helped to reduce the capital outlay and n. It provides the distributors with new sources of funds which t their business the distributors of Tata needs of the distributors. Th improve cash flow positio help them in carrying ou

44 with instant payment being made in cash. It reduces the interest rates that the distributors

enters into an agreement with a Ban ls of the debtors. This

that it would sell off its bil

have to bear and also the facility of upfront cash discount. Tata Steel carries out its channel financing activities with the help of a separ ate company named Metaljunction.com. Thus, the entire factoring of distributors has been out sourced to an external entity. By doing this, Tata Steel has benefited in th e sense that now they can get the entire payment without the delay due to credit limit, th ereby reducing the overall exposure to uncertainty and chances of bad-debt. The quic receipt of mo ney has now been possible because of the electronic transfer of money. The ar rangement of Channel Financing is also carried on a non-recourse basis. In case of default by any of the distributors, Metaljunction.com shall have to handle it. Thus, Tata Ste el can very successfully reduce its wor ing capital in the form of debtors where the chances of becoming bad if high. Ultimately all this leads to reduction the cost of capital and specialization in hedging of financial ris of the company. How does Channel Finance wor ? 1. Distributor submits documents to Ban 2. TISCO provides LOR & LOC to Ban 3. Ban assigns credit limit to distributor 4. Distributor registers on Metaljunction for transaction 5. Raises a finance request 6. Ban confirms by giving an MRX no. Credits Tata Steels account debits Distributor account 7. Finance manager ma es a Money Receipt 8. Distributor pays ban after credit period along with Interest. OE FINANCE OE Finance is arrangement between Tata Steel and the Ban wherein all the prospe ctive receivables against invoices issued are sold to the ban . It is invoice bac ed f inancing for the purchases made from Tata Steel, on a WITHOUT RECOURSE basis to Tata Steel as 45 to principle and overdue interest. The programme size for this is around 150 cro res. This arrangement does not bloc both Tata Steels and the customers line of credit because these are unsecuritized credit given to the party. Currently this type of financ ing is being done through Citiban and HDFC ban . The other ban s to whom the proposal has be en send are Standard Chartered Ban and Ban of America. It is a Tripar tite agreement wherein the ban finances Tata Steels customers so as to enable them to pay early i.e. before the due date.

&

OE Finance with HDFC: Under this scheme with HDFC, the tenor is based on the cre dit terms that are being offered by Tata Steel which can be upto 90 day s. Also the limit which is set is based on the purchases made from Tata Steel and the internal cre dit limits setup, financials of the OE customers and the Ban s internal credit gu idelines. The OE customers are broadly classified under two categories: Category A: This includes factoring for large corporate who has or are targeti ng corporate ban ing relationships. For such customers, Tata Steel has to ma e an upfront payment of 6.5% to 7.5% interest charges for the period from the date of transaction to the date of maturity of the invoice. The rate 6.5% shall be for t hose who shall agree for direct debit to their account with HDFC Ban . Category B: These include those customers who are having no ban ing relationship with HDFC. Hence it is invoice bac ed finance. Here, Tata Steel has to ma e a monthly payment of interest @ 8.00% to 9.50% p.a. In case of default in payment by the customers, an overdue penal interest @ 4% p .a. is to be charged to the customers. Documents that is required in its operations: The invoice details are electronic ally sent to Tata Steel which shall include information li e date of invoice, name of cust omer, due date of payment, etc. The proof of delivery or the invoice will be ept by Tata Steel and submitted to the Ban on demand (in case of audit) or in case of dispute / defau lt.

46 Operations process flow: 1. In the first place, Tata Steel sends a recommendation of the customers along with credit limits. It also provides other details for both category A and category B . 2. Then, HDFC does a credit appraisal on the customers and subject to the custo mer meeting the Ban s internal credit guidelines, they confirm as to which category the customers will fall into Category A or Category B along with the limits. In case of customers falling into category A, the ban does factoring of the invoices raised by Tata Steel on the customers. The consent of the c ustomers to pay HDFC Ban on due date is obtained by Tata Steel prior to the commencement of the transaction. In case of customers falling into Category B, once the documentation is completed, the limits shall be uploaded into the system and the trans actions can start. For the customers, HDFC Ban will open a no cheque boo current account

for receipt of funds on due date. 3. Then, Tata Steel sends HDFC Ban a soft copy of the invoices wit h the other details. The file containing the details is uploaded through E-Net/an e-mail, confirming the details to be sent only from e-mail ids prior to operationalising the deal. 4. Based on the file upload/email, HDFC Ban credits the amount of T ata Steel. MIS confirming the transaction is sent to the concerned officials in Tata Steel (based on the mutually agreed format). 5. The entire invoice value is credited to Tata Steel. 6. The interest on the invoice amount for the number of days of dis counting is recovered upfront by debit to Tata Steel account. 7. Tata Steel has to sign an underta ing that they hold the original invoices on the behalf of the Ban . The invoices will be made available to the ban at request o r for any internal / RBI / statutory inspection requirements. The ban will also be allowed to do a sample verification of the invoices once a quarter at its discre tion. 8. In case of material rejection / goods not received by the end cu stomers, the transaction would be reserved and the amount would be debited to Tata Steels account, to the extent of the rejected amount. 47 9. On the due date, HDFC Ban will receive the payment by debiting the customers account. 10. In case the customers account does not have sufficient funds on the due date, the entire overdue amount will attract overdue penal interest @ 4% p.a. This interes t is to be borne by the customer. RECEIVABLE PURCHASES Tata Steel sells its receivables of the debtors which are outstanding to the ban on a particular date. It is nown as factoring of the receivables. This fa ctoring is done on WITHOUT RECOURSE to TISCO as regards the Principle and Overdue Interes t. This arrangement is different from OE Finance in the sense that unli e OE Finance, here the debts are not sold off prospectively. In this the invoices which are to be factored are issued invoices. The company sells a set of receivables to the ban and gets the discounted amount on the date of discounting and also debits Tata Steels account by the amount of interest charges. The date of discounting is the date on which the agr eement is signed between the company and the ban . When the ban pays the mone

y to the company, the company gives a debit authorization for the discount amou nt to the ban . The ban charges an interest on discounting @ 7.5% which is borne by Tata Steel which is the same as OE Finance. The interest shall be calculated from the date of di scounting till the Tuesday following the due date of the said invoices. Current ly, Tata Steel is dealing its RPs with HDFC Ban . HDFC Ban shall conduct a due diligence audit of the invoices to be sold to the Ban and satisfy itself that the invoices existed on the day. In order to ease the collection efforts from the customers on the du e date, Tata Steel collects the money from the customers and pays the same to the ban . The pa yment for the RP to the ban is made on a wee ly basis on very Wednesday. By every Monday, all 25 branches, from all over the country, are intimated to forward the details of the invoices which are paid in a particular wee . All invoices collected by Tata Steel from its customers throughout the wee ended Tuesday is to be paid to the ban on Wedne sday. These details are compiled at the Tata Center, Kol ata Office, Head o f Mar eting and 48 Sales and then the Payment is forwarded to the ban along with a debit authoriz ation to them. This payment is done through a High Value Cheque so that the ban can get the credit on the same day. Interest on discounting is charged by the ban on the d ifference of the number of days of Payment Date and Discounting Date. Thus, Amount of interest = Invoice amt.* Int. Rate* No. of discounting days The facility of Receivable Purchase is present for both the Long Prod uct and the Flat Product Department of Tata Steel. All the receivables from each of th e department is handled by the Finance & Accounts Department at Tata Centre. The receivables of the following customers in the Long Product Departm ent are treated for receivable purchases: HCC GAMMON Ramswarup Mahanadi Coal Fields The receivables of the following customers in the Flat Product Department are tr eated for receivable purchases: Blue Star HMS 1 Hongo LG Electronics

The operating system for Tata Steel is SAP wherein all the invoice t ransactions along with credit sales ta ing place are recorded. Each customer has a unique customer code in SAP and any invoice raised in the name of a particular customer is recorded in S AP itself. 49 This is for both Long and Flat Products. SAP contains a list of all the invoices of each of the customers as on the said date along with the receipt of money from the custo mer on a regular basis. This report is downloaded from SAP in an excel format. This is n own as a master dump of all RPs in the different branches. This dump is essen tially an invoicewise list. The master dump is sorted branch allocation-wise and separa te excel file is prepared for each branch. These individual files are then sub-totaled due date wise and sent to the respective branches so that the branches can pass the entry for mone y receipt. The Master Dump loo s li e the following: CUST. NAME BRANCH DOC. NO. INV. DATE NET DUE DATE INV. AMT. INV. NO. DISC. DATE PAYMENT DATE INT. DAYS INT. AMT.

The first 7 columns are downloaded from SAP into excel. This is done for both flat product and long product customers. Thereafter, a final master list is prepared by pasting all individual customer invoices into a single file. This is the fina l list for sale. The

Mar Auto Maruti Udyog Rasandi Toyota Motors Kirlos ar

payment date is the date when the payment is made to the ban . Interest days (Payment date Discounting Date) are the number of days for which interest is to be charged by the ban on Tata Steel. Every wee all the branches are intimated to send the receipts for t he wee to the Tata Centre, Kol ata. For this the Finance Managers from all the branches are suggested a colour in excel which shall relate to payment received in a particular wee . The Finance Managers fill up the colour in the appropriate invoice row and the same is trans ferred to ban vendor account. After getting all the payment details, all the f iles are consolidated and sub-totaled branch allocation-wise and advice for payment is made from Tata Centre. This amount should exactly with the ban vendor in SAP which acts as a chec whe ther all payments have been transferred to the ban vendor. 50 LETTER OF CREDIT (L/C) AND BILL DISCOUNTING L/C is a document issued by a ban that guarantees the payment, for a specified time period, of a customer s drafts up to a stated amount. It is a commercial instrum ent through which a ban or other financial institution instructs a correspondent institutio n to advance a specified sum of money to the bearer which can be an individual o r a company. The document is called a circular letter of credit when it is not addres sed to any particular correspondent. Letter of Credit is always raised for a particular amou nt. The institution drawing a L/C from a ban shall do it for a particular amount. Thus, this L/C ca n then be used maximum till that specified amount and cannot exceed it. It is used as an i nstrument for payment by most of the companies nowadays. Those who issue such letters are usually so well nown that any ban will honor the letter upon proper identifica tion. L/C is of two types: inland payment and foreign payments. It is largely used in case of international trade. It is considered to be one of the most secured means of obtaining prompt payment for the sale of goods. In Tata Steel, most of the payments from customers, in the Ferro Alloys and Mang anese Division (FAMD), are received with the help of L/C. It is a ind of credit payme nt made to the company which is secured in nature. The entire procedure of o perating through a L/C shall be explained with an example. One of the customers in the FAMD departm ent

is M/S Jindal Stainless Ltd. We ta e a scenario where Tata Steel has raised 7 in voices in the name of Jindals and payment is to be made through L/C. One L/C can have several invoices but one invoice corresponds to only on L/C. Tata Steel charges a certai n amount of interest of the customer, say 8.5% to 10%, because the payment is a ind of delayed payment. Issuance of L/C and the instructions that are made for payment by the customer are as follows: Jindals shall approach its ban , also nown as the opening ban , for the issuan ce of a letter of credit. This L/C value can be greater than or equal to the value of the sum of invoices raised by Tata Steel. Assume that the opening ban for Jindals i s Canara Ban . 51 Every L/C has separate specifications such as the name of the benefi ciary, advising ban , negotiating ban , L/C number, date and amount, Analysis Test Certificate. In this case, the name of the beneficiary is Tata Steel. The advising ban is Tata Steels ban , to whom the opening ban shall ma e the pa yment. Here the advising ban for Tata Steel is HSBC Ban . The negotiating ban as mentioned in the L/C is any ban in Kol ata. Every L/C has a period of valid ity after which it becomes expires. At the end of such a period the opening ban sha ll have to ma e the payment to the beneficiary. A part of the validity days of L/C is free of interest to the opening party and the remaining is charged a fixed inter est. Other additional conditions that need to be mentioned in the L/C are whether partial shipment and transshipment is permitted or not, the latest date of dispa tch of goods to the Jindals and the date of negotiation. Opening ban charges shall be charged to the openers ban account and the beneficiary ban charges s hall be charged to the account of the beneficiary. The L/C shall be payable and reimbursable at Canara Ban . After the L/C has been made it is sent to Tata Steel along with the entire invo ice and other required documents. At the end of the credit period of the letter of credit, the opening ban shall have to issue a payment in the name of the beneficiary. When Tata Steel accepts to receive the payment of its bills (several invoices ma e up a bill), it sells it off to its ban i.e. the opening ban , HSBC. For such a trans action HSBC

charges Tata Steel certain interest. This interest is charged for a duration fro m the date of drawing of invoices or bill to the date of expiry of the L/C. According to the a rrangement with Tata Steel in the FAMD department, the company shall not bear the overdue c harges in case of late receipt of payment from the customers ban . Thus, HSBC would tran sfer this burden on the issuing ban by charging a certain interest for late payment. Prior to HSBC, Tata Steel used to discount its bills with State Ban of India ba sed on its competitive rates. This was started in October 2004 with a few custome rs. The problem with SBI was that the MIS system was not up to the mar and it was becoming diff icult 52 to trac the documents. Thus, Tata Steel was in the need of another ban which c ould be competitive enough and then in late December 2004, HSBC matched their rates with that of SBI. It was then decided that Tata Steel would discount its bills with HSBC from 1 st January, 2005 onwards. According to the agreement, Tata Steel would be discounting only commercial invoices having 30 days of interest free period. Problem of Interest burden on Tata Steel from HSBC in the FAMD Department Tata Steel sells of its L/C to HSBC Ban . Payment for the L/C from the customers shall be received at the end of the validity of the same. Thus, this lead s to a bloc age of liquidity for which HSBC charges an interest on Tata Steel. At the end of the p eriod, in case of late receipt of payment, Tata Steel shall not bear the overdue interest charges. The crux of the problem lies in the fact that HSBC is claiming the all the parties a re failing to pay on time. The payment is being received much later than the due date. The mar et interest rate for factoring through L/C is found to be 6.5%. However, HSBC is ch arging 7.25% to Tata Steel because of the claim. This increases the interest burden on Tata Steel since it has to pay extra interest charges, when the company is not clear with t he fact that whether actually the parties are paying late or not. In case of late receipt o f payment by the opening ban , HSBC would charge an interest of 15% p.a. on a da ily basis to the customer. On an overall basis, HSBC is not losing out but Tata Steel is. Thus, the objective is to analyze the scenario and search for the hidden facts. For this purpose, the primary data, for January 2005 onwards, is coll

ected from HSBC Ban . This data is in an excel format which consists of the followin g columns chronologically: HSBC Reference number for each bill, L/C number and d ate, issuing ban or the customers ban , Name of the Applicant or the customer, in voice number under each L/C, L/C amount, Bill amount, L/C amount which remains outstanding (L/C amount Bill amount), rate of interest charged on the bill to the customer, the d ue date of payment for the L/C, the date of discounting of the bills with HSBC, date when the Cheque is issued by the customers ban at the end of the due date, and the date w hen the Cheque is received by HSBC. Prior to the analysis, according to HSBC there is a huge 53 difference in the number of days between the Cheques issuing date and the Cheque receipt date. The excel sheet is a consolidated one for all the parties of Tata Steel. But the analysis has been done only on the prime customers of the FAMD department i.e. Ra thi Ispat Ltd., Jindal Stainless Ltd., Shah Alloys, Stainless India Ltd. Above 90% of the sales come from these customers. What was done? For each of the party, the difference in the days of receipt of Cheque by HSBC a nd issue date of Cheque is calculated. This gives the delays in receipt of Cheque. This should be minimum but according to HSBCs claim it is very high. According to th e calculations, for only 11% of the cases for Rathi Ispat the Cheque was received within two day s of its issuance in 2005, for Shah Alloys it was for only 4% of the cases, none in case of Jindal and only for 10% of the cases for Stainless India. These figures are very low for a company. For about 33% of the cases for the Rathis payment was received after 9 d ays which is an unfavorable figure. This is 60% for Shah Alloys, 25% for Jindals and 20% for Stainless India. On an overall basis, for around 40% of the cases the paymen t is being received 9 and more days late. (Refer Exhibit 3 (i), (ii), (iii) and (iv)). Thes e figures ma e the entire scenario non-competitive. Because of the above facts, HSBC claims the Tata Steel would not be charged an i nterest rate of 6.5%, instead it would be charged @ 7.25% on the bill for the number of days discounted. Thus, amount of interest = Bill Amount * rate of interest * Discount

ing no. of days. Thus, because of the fault of the customers Tata Steel has to bear excess burden of interest expenses for every bill that is discounted with HSBC. Accordi ng to the calculations done in this respect, the savings that could be done for each party due to the difference in interest rates is as follows: Rathi Ispat Rs. 321041.0405 Shah Alloys Rs. 248139.0777 Jindal Stainless Rs. 161362.7016 54 Stainless India Rs. 40788.32008 Thus, Tata Steel can save a big amount per customer if the management of the com pany can effectively negotiate with the customers to ensure prompt payment of the bill on expiry. On an aggregate, inclusive of Tata Steels 4 prime customers, t he company can save an amount of Rs. 771331.1399 9 only in a short duration of three months for 2005 onwards. (Refer Exhibit 3(v)). Thus, the company needs a modification in the terms of business with its customers. This shall great implications in the year s to come. The following are the suggestions which could prove beneficial for the company: When the payment is received by the ban , it is recorded on that d ate. However, no direct intimation is received by Tata Steel regarding it from the customers ban . Thus, there can be chances of wrong information being deliberately imparted and entered by the ban . Thus, in order to avoi d any ind of such situations from happening or that could happen, Tata Ste el should ma e an arrangement where it would directly receive a copy of payment made by the customers ban for documentation. Tata Steel should ma e all sales on the condition that the customers ban would be ma ing the payment by a post dated Cheque for 10 days. When the Cheque is issued 10 days earlier a copy of it should also be direct ly send to Tata Steel for records. If such a step is ta en then it would benefit both the company and the customer. Tata Steel would be able to cut down on i ts interest expenses whereas the customer ban will save on the payment o f interest @ 15% to the beneficiaries ban . This would in turn lower down the interest burden on the customer directly. While negotiating with the customer, Tata Steel can specify that the opening ban of the customer should have an electronic mode of transmission o f payment to HSBC. If this is done then the entire delay in the recei pt of payment due to postal reasons can be controlled. As observed, most of the opening ban s are nationalized ban which are li ely to be less electronically efficient as compared to the foreign ban s that are nowadays entertain

ing discounting of bills. 9 Refer Exhibit 3(v)

55 Since the opening ban should ensure that the payment is received on time by HSBC, HSBC should claim to the opening ban to explain the reasons for the delay. As it has become a regular happening, the opening ban sh ould ta e care of the same by giving all the details to HSBC. OVERDRAFT MANAGEMENT Tata Steel carries out its financing activities through various ban s. Two of its main ban s that constitute more than 90% of the operational activities are State Ban of India and the Central Ban of India. Since years, Tata Steel was inefficien t in managing its funds with the ban s there were large balances of overdraft with them. This crea ted a lot of burden upon the company. But this was realized soon and the overd raft was brought into control by the managers of the company. Money, which is received from Jamsh edpur, is put into the current of with the ban s on a daily basis from wh ich payments shall be made. However, it is made sure that there is no overdraft limit being reached by the ban s. Thus, according to the ban statement of State Ban of India we can ma e the fol lowing table. From the table it is clear that for four months there is no overdraft bal ance on any day of the month at the end of the day, whereas November has debit balance for j ust one day of the month followed the other months.

10 Ban Statement of State Ban of India 56 OVERDRAFT SCENARIO ON MONTHLY BASIS 0 0 1

MONTH Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr.

NO. OF TIMES AMOUNT (IN RS.) 04 0 0 04 0 0 04 1 28937061.97 04 0 0 05 0 0 05 0 0 05 2 23065575.95 05 3 46728341.5

Overdraft days for different months in State Ban 10

of India

0 0 0 2 3 0 0.5 1 1.5 2 2.5 3 3.5 Sept. 04 Oct. 04 Nov. 04 Dec. 04 Jan. 05 Feb. 05 Mar. 05 Apr. 05 MONTHS N O . O F D A Y S

57 REDUCTION OF DAYS SALES OUTSTANDING FOR THE FLAT PRODUCTS The Flat Product Department has both cash and credit sales. Its customers la rgely cover several companies from the following industries: Construction Sector Automobile Sector Auto Ancillary Sector White Goods Appliance Sector General Engineering

The credit limits, various credit terms and amount of credit given to each of the above sector separately depend on the mar et scenario of the respective sector. Thus, in order to decide how much exposure Tata Steel should ta e in respect of these sectors we n eed to analyze each of the sectors separately and exhaustively. This is follo wed by a SWOT analysis of each one of them. CONSTRUCTION SECTOR Construction Sector is experiencing a boom in the is showing a growth rate of 7% since 2002 onwards. Prior to this also gh growth rate upto 10% in 1997. The growth in this sector shows a d. On the basis of this trend, the construction sector e of 8% till 2010, approximately. 11 Indian economy. It it registered a very hi very smooth upward tren would grow at a rat

11 www.ibef.org 58 GROWTH OF CONSTRUCTION SECTOR 0 2 4 6 8 10 12 14 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1

9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 YEARS I N % As predicted by Rupen Patel, managing director of the Rs 750-crore Patel Enginee ring, it is expected to cloc a turnover of over Rs 2,000 crores in civil en gineering and infrastructural projects in the next three years from 2005. Today, in 2005, we find the infrastructural activities are being underta en in huge scale all over the country. This is mainly due to the support from the Government. 12 Building up of over-bridges, railway trac s, etc. have increased a lot. Examples for some of such activities since 20 05 onwards are as follows 13 : Nagarjuna Constructions has bagged an Rs 450 crores order for construction of a

4-lane highway on NH-58 from National Highways Authority of India (NHAI). Mumbai-based Patel Engineering bagged orders for two irrigation project s in Andhra Pradesh worth Rs 878 crores. Madhucon Projects has also received orders worth over Rs 1,500 crores for irrigation projects in Andhra Pradesh. Domestic majors li e L&T, Hindustan Construction, Bharat Heavy Electric al, Gammon India and Patel Engineering, meanwhile, are switching their focus bac to the Indian mar et. 12 www.google.com 13 www.ibef.org 59 Projects in industries such as surface transport (roads, bridges, rail ways), energy and power (nuclear, hydel and thermal), housing (urban and rural), air ports, shipping, irrigation and flood control worth over Rs 115 la h crores are being initiated. Along with this, the Foreign Institutional Investors sees India as an engineering and construction hub. The value of FII holding is increasing at the cost of domestic holding. The sharp rise in overseas interest for engineering and construction f irms comes on the bac of strong order inflows, which have shot up in recent months. A t least 10 foreign construction majors have set up shops in the last 6 months. As a re sult of the surge in order inflows, FII exposure in the biggest industry player Larsen & Turbo, which exited its cement business to re-emerge as a specialized engineering and construction c ompany, has seen a sharp rise from 10% to 17.1% during the past year. With the removal of the restrictions on the FDI inflows by the Government, we find constructio n projects being underta en on a very large scale. The SWOT of this sector is as follows: Strength: Large potential for expansion in the sector supported by huge investm ents encouragement by the government. Housing industry is being considered as a health barometer of the economy. Increasing volume of infrastructural activities being underta ing in In dia as well as globally. Increase in the per capita income of the middle-class families which leads to a boom in the housing sector. The economy is showing a high overall growth rate. Wea ness:

 Sale of undeveloped plot by the foreign investors is not allowed. Reduction in the minimum land area requirement in the residential sec tor from 100 acres to 25 acres. 60 Minimum area for commercial development pegged at 50000 sq. meters. Opportunity: Liberalization of FDI in the construction sector upto 100%. Loan for infrastructural activities available at a cheaper rate. Raw-material cost is expected to decline over the next 2 years. Outsourcing being introduced in the sector at a larger scale. Threat: Threat of competition laying its adverse impacts on the entire industry. Overall the construction sector can be rated as high in terms of opp ortunity and low in terms of ris . On the basis of the current outstanding of the differ ent sectors the construction sector is having a total exposure of 2.61%. This means that out o f the total credit, the credit to this sector is very low. The construction secto r falls in the third quadrant of the growth-exposure matrix. Because of high opportunities coming up with, new infrastructural activities, Tata Steel can easily increase its exposure to t his sector. AUTOMOBILE SECTOR With a mar et size of approximately Rs 540 billion and consistent gro wth figures of nearly 8% per annum, India s automobile sector consists of the passenger cars an d utility vehicles, commercial vehicle, two wheelers and tractors segment. In the passenger car segment the big players are Maruti Udyog Ltd., Tata Motors Ltd. and Hyundai Motor India. In the motorcycle segment, we have Hero Honda Motors Ltd. and Bajaj Auto Ltd. India s automobile sales expanded by 15.9% in the year ended March 31 , 2005 to 7,896,475 vehicles as against 6,810,537 vehicles sold in the fiscal ye ar 2003-04. This includes sales of passenger cars, two-wheelers and commercial vehicles, includin g utility vehicles and multi purpose vehicles. Automobile exports, meanwhile, jump ed 31.2% in 61 the year ended March 2005 to 629,887 units with passenger cars and m otorcycles contributing to the bul of exports. 14 INFAC is forecasting s, 6-8% in commercial vehicles and Almost all the major rChrysler, Honda, Toyota, Hyundai,

a 12-15% annual growth in the passenger car sale around 10% in two wheelers. automobile manufacturers such as GM, Ford, Daimle already have made significant investments in India. In t

he next 2-3 years from 2005, the passenger vehicle industry is expected to se e investments of more than Rs 30 billion; two wheeler industry is expected to attract investment amounting to Rs 10 billion. Annual growth was 16.0 per cent in April-December, 2004; the growth r ate in 2003-04 was 15.1 percent. The automobile industry grew at a compound annual g rowth rate (CAGR) of 22 per cent between 1992 and 1997. With investment exceedin g Rs. 50,000 crores, the turnover of the automobile industry exceeded Rs. 59,518 cr ores in 2002-03. Including turnover of the auto-component sector, the automotive industrys turnover, which was above Rs. 84,000 crores in 2002-03, is estimated to have e xceeded Rs.1, 00,000 crores in 2003-04. 15 Current scenario in the auto sector 16 Car mar et leader Maruti has lined up around Rs 6,000 crores for it s new plant and engine facility. Hyundai too has planned a $450m second plant with component ma ers chipping in another $150m. Tata Motors has lined up Rs 5,000 crores in investments up to 07. Hero Honda and TVS are planning Greenfield facilities (the combined investment of the two companies may be around Rs 600 crores) Honda Motorcycle and Scooters India, which spent Rs 150 crores each in 03-04 and 04-05, has pledged another Rs 100 crores in 05-06. 14 www.ibef.org 15 www.steel.nic.in 16 www.google.com 62 Premium carma er DaimlerChryslers spend in the three years is pegged a t around Rs 41 crores. In the next 2-3 years, the passenger vehicle industry is expected to see investments of more than Rs 30 billion; two wheeler industry is expec ted to attract investment amounting to Rs 10 billion Between FY04 and FY07, autoville has lined up around Rs 25,000 crore s in investments, including money being pumped in by the components sector as OEMs ramp up capacity. The entire auto sector is expected to grow by 15% till 2010. The au to sector combined with the auto ancillary sector can be graded as high in terms of op portunity and low in

terms of threat. At present Tata Steel is having a total exposure of 30.63% to the auto sector which has a high growth. Hence it just needs to maintain it. The Auto sec tor lies in the first quadrant in the growth-exposure matrix. AUTO ANCILLARY SECTOR A growth of 30% in automobile sales in 04-05 is encouraging ancillary majors to i nvest heavily in capacity expansions. It is spending around Rs 1,600 crores in creating new capacities over the next 2-3 years. The larger ancillary companies hav e benefited from strong demand for commercial vehicles, passenger cars and two-wheelers, auto components companies have been able to protect their profitability desp ite rising metal prices, mainly of steel. The growth in the Indian auto ancillary sector was around 16 percent by the end of the 2004-05 fiscal, which is lower than the growth of 22-24% recorded in 2003-04. In dia has gradually become a sourcing hub for auto companies worldwide. The grow th of auto component exports from India has spurred due to availability of s illed, low co st labour and the high quality consciousness. 17 Among the companies outsourcing from India are General Motors, Ford, D aimler Chrysler, Hyundai, Fiat, Toyota, Delphi, Navistar, Visteon, Cummins and Caterpi llar. A 17 www.ibef.org 63 number of Indian companies with global ambitions are gradually moving towards creating a niche in the world mar et: Bharat Forge Ltd. and Tata Aut o Components System (TACO). Over the past two years, 7 Indian component manufacturers have won the coveted Deming Prize, one of the highest awards on TQM (Total Qu ality Management) in the world. The global auto component industry was expected to touch $1.9 trillion by 2015, of which around 40% ($700 billion) was potentially expected to be sourced from low cost countries li e India. Exports of auto components are expected to incre ase by 30-35% which account for 15% of the total output. With 21.5 percent CAGR, t he figure is expected to touch $2.6 billion by 2006. 18 The flat product department of Tata Steel is having a total exposure of 52.00% i n the auto ancillary sector which is quite high. Along with this, the sector is showing a l

ow growth rate. In the growth-exposure matrix the auto ancillary sector lies in the forth quadrant. So the company needs to reduce its exposure to this sector by some extent. This is necessary to ensure that the company would not suffer in case of adverse situations. The SWOT analysis of the auto and the auto ancillary sector is as follows: Strength: Diversification in the variety of vehicles. Increase in the standard of living of the people leading to rising demand for n ew vehicles. Reduction in the duty rates in Budget 05-06. Export friendly norms provo ing manufacturers to expand their business with better quality. Good rate of R&D activities being underta en. Opportunity: Falling steel prices. 18 www.ibef.org 64 Foreign player are coming. Innovation is ta ing place at a high speed due to improving technolo gy, new models of vehicles being introduced. Expansion through setting up of factories globally. Cheap and easy availability of car loans to the housing sector. FTA effect in the auto-ancillary sector, boosting the same. Threat: Large inventory of vehicles in certain segments. Declining margins with tremendous pressure due to high input cost and increased competition in the industry. Rising oil prices, forcing the customers to adopt other means. WHITE GOODS APPLIANCES SECTOR The White Goods Appliance includes the following: Washing machines, Ref rigerators, Air Conditioners, Coo ers, Washer Dryers, Dishwashers, Electrical Lamps & Tubes, Storage Batteries, Dry Cells, Lead Acid Battery, etc. The important players in t his sector are: Electrolux, National, Daewoo, Whirlpool, Godrej, BPL, Videocon, Sam sung, LG, Onida and Maharaja. White goods industry has been growing at an average rate of 10-12% every year f or the last five years. The Industry is focusing smaller goods in the range of 3 to 4 g capacity as compared to larger machines as there are more and more nuclear families rath er than joint families. The present its capacity is adequate to cater to the demands of domestic requirements as well as exports. The industry is de-licensed and also eligible for automatic approval f or Foreign Direct

Investment. There is greater consumer awareness about the quality and safety of these goods, driving the manufacturers to adhere to the quality standards. The state g overnment will encourage producers of refrigerators, washing machines, itchen app liances, TVs, furniture and other domestic goods. 65 Refrigerator Industry 19 The refrigerator industry has become highly competitive as a number o f brands have entered the mar et and the consumer has a wide choice. There is a shift in Refrigerator Mar et in terms of Capacity. Till about 2000-01, 165 Litres had a larger share and now units of capacity 185-300 Litres are havin g increasing mar et share. Refrigerators form the largest segment of this industry and is estimated at abo ut 3 million appliances, followed by washing machines at about a million ap pliances and air conditioners, which are about .6 million appliances. The Refrigerator industry is growing at a rate of 10 to 12 %, Wash ing machines which was growing very fast at about 20 to 25% has slowed down in the last two years to almost 4 to 5%, and air conditioners are still growing at 20 to 25%. Air Condition Industry Indian air conditioning industry is growing rapidly with a growth rate of 20% ev ery year. However, the penetration of this category is very low. The industry is almost di vided 50:50 into room air conditioning and pac age air conditioning. Example: Whirlpool Whirlpool is a mass player with 27% mar et share in Refrigerators and a 20% mar et share in washing machines. They are leaders in refrigerators. Due to their global cost competitiveness, they do not face threats from the Chinese products in India and also have a high export mar et. Exports are going to grow at an average of 70% to 80%. They are the ey suppliers in Asia and also countries in Latin America, Europe and the US. Electrolux is its global competitor 19 www.google.com 66 The SWOT analysis of the White Goods Industry can be enumerated as follows: Strength: Growth in the service sector. Quality products being demanded by the public forcing the companies t o continuously improve their products. Good rate of R&D activities being underta en. Increasing per-capita income. Scope for continuous replacement of its goods in short spans of time.

Opportunity: Easy availability and reducing steel prices due to increasing competition. Outsourcing is providing new opportunities for expansion. Threat: High rate of precision required, which might lead to high rejection rate. On the basis of the SWOT analysis, we can grade the white goods sector as high i n terms of threat and opportunity. It is showing a very high growth rate of 16.82% in the last financial year. From the following graph, we can notice the trend in growth of t he white goods sector. GROWTH OF WHITE GOODS SECTOR -20 -10 0 10 20 30 40 50 60 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 YEAR I N % 67 However, the amount of business of Tata Steel with companies in this sector is to the extent of only 4.04%. This corresponds to a very small portion of th e total outstanding inclusive of all sectors. In the growth-exposure matrix, the white goods sector lies in the second quadrant. GENERAL ENGINEERING SECTOR The general engineering sector consists of the various industries. A brief on su ch industries is mentioned as follows: Heavy Industry: Heavy Engineering Industry is one of the largest segments of Ind ustrial production. It occupies a whole range of industries such as Heavy Electricity Ma chinery. Turbines, Generators, Transformers, Switchgears, Textile Machinery etc. T he Index of Industrial Production figures of 8 of the 16 major industry groups sh ow substantial growth with the rates ranging from 6% to 28%. Trends across major se ctors show that growth in the two lead sectors-capital goods and consumer non-durable goods-have decelerated but still remain at the double-digit levels which have bee n compensated by the strong recovery in the intermediate goods segment. Machine Tools Industry: It is the Bac bone of the entire industrial engineering sector.

During the last four decades, the machine tool industry in India has established a sound base and there are around 125 machine tool manufactures in the organized sector as also around 300 units in the small ancillary sector. Mining Equipments: At present there are 32 manufactures in the organized sector both in public and private sector for underground and surface mining equipment of variou s types. Out of these 17 units manufacture underground mining equipment. The pr oduction for 2000-2001 & 2001-2002 was Rs. 149.52 crores and Rs. 238.86 crores respectively. Heavy Electrical Industry: Among the Third World countries, India is major expor ter of heavy and light engineering goods. It also ma es construction machinery, equipme nt for irrigation projects, diesel engines, tractors, and transport vehicles, cotton te xtile and sugar mill machinery. The heavy electrical industry meets the entire domestic demand . BHEL is the largest engineering and manufacturing enterprise in India in th e energy 68 related/infrastructure sector today. It has been earning profits continu ally since 1971-72 and paying dividends since 1976-77. BHEL caters to the core sectors o f the economy i.e. Power generation & transmission, industry transportation, telecommu nication, renewable energy etc. Petroleum Industry: The petroleum industry in India is undergoing a major change . The industry has been thrown open for private sector in all the major ar eas of exploration, production, refining and mar eting, resulting in increased demand for t he oil field and related equipment. The users are ONGC, Oil India Ltd. Sugar Industry: Domestic manufactures of sugar machinery occupy a predo minant position in the global scenario. They are capable of manufacturing sugar plants of latest design for a capacity upto 10,000 TCD. There are presently 27 units i n the organized sector for the manufacture of complete sugar plants and components with a curren t level of production value of Rs. 136.87 crores against installed capacity of Rs. 200 c rores. Textile Industry: The industry has developed over the last five decades and is o ne of the oldest industries catering to the needs of textile sector. The Textile Machinery Industry are endeavoring to upgrade the production of sophisticated machines so as to cat er to the needs of garments and weaving sector. Indian Textile Machinery Manufact ures are manufacturing textile machinery. After the patent regime, Indian Textile Industr y is overheated.

The total exposure given by Tata Steel in terms of outstanding of credit sale s in the flat product department to the general engineering sector is 10.72%. This f igure is very competitive and should be maintained. The general engineering sector had shown a decent growth over the yea rs. However, it had a negative growth in 2005 at -5.05%. According to the actual figures, the se ctor lies outside the growth exposure matrix, towards the third quadrant. Instead of the a ctual, if the growth value could be replaced by the trend value, then the sect or would lie in the third quadrant. We could easily substitute the actual figure by the t rend figure because 69 none of the past 10 years data show a negative value. The reason be hind the negative growth would not be sufficient to carry it forward to show a negative trend. DATA 10.72 -5.05 (A), 4.47 (T) GEN. ENG. 4.04 16.82 WHITE GOODS 52.00 0.63 AUTO ANCILLARY 30.63 15.9 AUTOMOBILE 2.61 6.89 CONSTRUCTION % OF TOTAL EXPOSURE CURRENT GROWTH SECTOR MATRIX SHOWING SECTORS WITH RESPECT TO GROWTH & EXPOSURE LEVEL OF EXPOSURE C U R R E N T G R O W T H HIGH LOW L O W H I G H AUTO ANC.

CONST. AUTO WGA GE (T) GE (A) 70 Outstanding payment and overdue payment: When sales are made on credit, the entire amount of sales is outstanding as on t he date of sales. The payment for the same needs to be made when the credit li mit expires. However, in case, payment is still not received with the expiry of t he credit limit, the amount becomes overdue in the name of the customer. Usually, we find that credit sales are negotiated by eeping in mind charging of overdue interest on the customer. Out of the total outstanding, 6.81% remains as overdue i.e. payment i s not received on time. Sector-wise, the construction sector shows a low overdue percenta ge whereas the general engineering sector shows as high as 11.68%. The remaining sect ors have an overdue of 6% approximately. Thus, Tata Steel needs to control its ov erdue for all sectors. Overdue vs. Outstanding 6.81 Total 11.68 Gen. Engg. 6.16 White Goods 6.47 Auto Ancillary 6.03 Automobile 3.98 Construction % overdue (in terms of outstanding) Sector

71 PREDICTIONS FOR 2010 CONSTRUCTION SECTOR The cycle of fluctuations in case of the construction sector consists of three years approximately. This means that in every three years the sector experie nces boom and recession respectively. Thus, according to expectation the construction sector will grow at 7.5% in 2010. At present, Tata Steel is giving very low exposure in terms of outstanding where the percent of overdue is also as low as 3.98%. He nce, it can be suggested that Tata Steel can increase its exposure in this sector. We can place this sector in the low ris and high mar et attractiveness quadrant in the matrix of 2010.

AUTO SECTOR The cycle of fluctuations in case of the auto sector consists of three years app roximately. This means that in every three years the sector experiences boom and recession respectively. It is expected that the automobile sector would grow at rate of ar ound 12% to 15% in 2010. Around 30% of the sales go to this sector and the overdue percen tage is also as low as 6%. Tata Steel can easily maintain the current scenario. We can p lace this sector in the low ris and high mar et attractiveness quadrant in the matrix of 2010. AUTO ANCILLARY SECTOR The cycle of fluctuations in case of the auto ancillary sector consis ts of two years approximately. This means that in every two years the sector experienc es boom and recession respectively. The expected growth in this sector in 2010 shall be less than that of the auto sector. The exposure given to it is extremely very high. Thus, it wo uld lie in the high ris and low mar et attractive region in the matrix of 2010.

72 WHITE GOODS SECTOR The cycle of fluctuations in case of the white goods sector consists of three years approximately. This means that in every three years the sector experie nces boom and recession respectively. In this sector, by 2010 the growth rate would be more than 10% approximately. As observed from the data of 2005, white goods sector is given low exposure from the total outstanding and the overdue percentage is 6.16 %. Thus, the sector would lie in the high ris and high mar et attractiveness quadrant in the matrix of 2010. GENERAL ENGINEERING The cycle of fluctuations in case of the general engineering sector c onsists of two years approximately. This means that in every two years the sector experienc es boom and recession respectively. They shall have a low growth rate by 2010. At present, the exposure given to this sector is only 10% of total outstanding along with a very high level of overdue i.e. in 11.68% times. Thus, the sector can be said to li

e in the high ris and low mar et attractiveness quadrant in the matrix. 2010 SCENARIO MARKET ATTRACTIVENESS R I S K HIGH LOW L O W H I G H CONSTRUCTION AUTO AUTO ANCILLARY GENERAL ENGG. WHITE GOOD APPL. 73 STEEL INDUSTRY WORLD GROWTH OF STEEL CONS. IN THE WORLD -2.000 0.000 2.000 4.000 6.000 8.000 10.000 12.000 1996 1997 1998 1999 2000 2001 2002 2003 2004 YEARS I N % The past data on the consumption of steel in the world is showing an increasing trend. On the basis of the absolute values, the growth in the consumption is c alculated i.e. Growth = (Current year previous year) / previous year *100. The grap h showing the growth figures are very fluctuative, rather increasing, in nature. In US, the demand is led by the booming housing industry. The auto industry is also showing signs of recovery as auto sales hit their strongest levels for the year in July even as US posted a 2.4% GDP growth. In India, CIS and other Asian countries the demand is led by investment activit ies in infrastructure. China is consuming steel li e never before for its infrastructure with investme nts such as Three Gorges project on Yangtze as well as part of its buil d up to the

Beijing Olympics in 2008 and the Shanghai Expo in 2010. The white goods resurgence in Europe leads to a boom in the steel sector. Iraq reconstruction wor is expected to fuel further demand for steel over the next three years. 74 STEEL INDUSTRY CHINA GROWTH OF STEEL IN CHINA 0.000 5.000 10.000 15.000 20.000 25.000 30.000 1996 1997 1998 1999 2000 2001 2002 2003 2004 YEARS I N % The past data on the consumption of steel in China is showing an increasing tren d. On the basis of the absolute values, the growth in the consumption is calcul ated i.e. Growth = (Current year previous year) / previous year *100. The grap h showing the growth figures are very fluctuative, rather increasing, in nature. Ther e are a few dips in the growth rates. Chinas red hot steel sector is expected to produce a record 350 mt of steel this year According to the China Iron and Steel Association (CISA), China s ste el output amounted to 220 mt in 2003 and, this year; it is projected to climb to 350 mt. Chinese steel units produced 82.53 mt of rolled steel in the first quarter this year, up 22.39 per cent year on year and consumed 83.31 mt during the same period, a net rise of 11.01 per cent According to the Xinhua News Agency, the CISA expects the rolled steel price to drop in the light of the present supply-demand situation. According to CISA, in the first three months of 2005, China turned out 77.79 mt of crude steel, a jump of 25.2 per cent year on year, and 72.57 mt of pig iron, an increase of 27.32 per cent year on year.

s total steel output. risen by an annual average of 20 per cent in t more and more people in China buy car

75 China s rolled steel output past nine years, ma ing up 14 per cent of the world The demand for rolled steel has he past five years since 2000 as s and

ran ed the first in the world over the

refrigerators and the country builds in preparation for the Beijing 2008 Olympic s Games. STEEL INDUSTRY INDIA In the Union Budget 2005-06, customs duty on alloy steel has been further brough t down to 10%. Currently the customs duty on prime non-alloy steel and prime alloy ste el is 5% and 10% respectively. The excise duty on all iron and steel items, which had been falling, has increased from 12% to 16% in the Union Budget 2005-06. The rationalization of the excise duty to a single central value added tax will have no impact on the steel industry. The excise duty on scrap will go up from the current 8% to 16%. The customs duty for steel products will continue at the present rates. The move to tax the steel companies at factory prices rather than at the stoc yards will have a positive impact on companies li e SAIL and TISCO, which have very long lead distances. The interim ruling of the World Trade Organization (WTO) declaring the US governments section 201 duty on steel imports as violative of global trade rules is li ely to have an adverse impact on India as it would increase competitivene ss of rival countries. Experts point out that the safeguard duty, which was imposed on countries such a s Japan, China, Brazil, New Zealand, South Korea and the European Union a year ago, had actually helped India as it was excluded from the list. If the figure of steel demand of 840 million tonne for 2005 if is to be accepted , the world should be preparing for additional capacity creation in the industry. Even the c urrent idle 76 capacities pressed into operation will not fully deliver the goods as the same will fall short of the target. The crux of the problem today lies in demand recession, but much of this demand recession is a demand miscalculation. Most of the steel companies fail ed to distinguish between a steady state demand and a pent-up demand. Prices could go down genuinely more with an increase in the asset in tensity of the industry. Prices remain depressed forcing the producers to clear mar ets without covering their variable costs. Steel companies are pressed badly at their margins. (Refer Exhibit 1 and 2). Price per unit is so close to the average variable costs that steel producers ca n hardly aim at covering their fixed costs. This explains the world wide trend by which the steel companies are shutting down their lines, disposing off assets and hivi

ng off related but non-core business. The industry did pay a lot of attention to the problem of the indus try facing erosion in shareholders confidence. The Ministrys vision statement 2020 has placed a high priority to treble the stee l demand in the coming decades. The problem of demand stagnation can be tac led by penetrating vast r ural mar ets where consumption of steel at present is at the lowest. Industry Scenario The industrial sector registered an impressive growth of 8.4 per cent in the first three quarters of 2004-05, the highest after 1995-96, and the services sector recorded an 8.9 per cent growth. The improvement is particularly pronounced in manufacturing , capital goods and consumer durables. Six core industries, i.e. electricity, coa l, finished steel, 77 cement, crude oil and petroleum products registered a lower average gr owth of 5.4 per cent. 20 STEEL SECTOR EXPANSION IN INDIA 21 Steel magnate LN Mittal is expected to set up a 5 million tonnes steel plant in the first phase which will ma e the domestic mar et more competitive. Mittal Steel will invest Rs 250 billion to set up the plant with a total production capacity of 10 million tonnes of steel per year. The plant is expected to gener ate 150,000 jobs in the state. Several leading domestic firms have also put forward proposals that a re being reviewed by the government. Jindal Steel plans to invest Rs 110 billi on, while Essar Steel will invest Rs 50 billion to set up steel plants. Ispat has also proposed to increase its plant capacity at Dolvi, near Mumbai fr om 3-5 MT over the next couple of years. It has also recently proposed to set up a 5 MT plant in Orissa, provided it gets assurance from the state for ca ptive mining leases. Ruias plans Rs 2 -cr one mt mini steel plant as part of its bac wa rd integration plan reported a leading business daily.

20 www.ibef.org 21 The Iron and Steel Review, February 2005 issue 78 INDIAS FINISHED STEEL CONSUMPTION GROWTH OF STEEL IN INDIA 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 1996 1997 1998 1999 2000 2001 2002 2003 2004 YEARS I N % The past data on the consumption of steel in India shows an increasi ng trend. On the basis of the absolute values, the growth in the consumption is calcul ated i.e. Growth = (Current year previous year) / previous year *100. The grap h showing the growth figures is very fluctuative in nature. The previous 10 years g rowth figures are averaged out to give the expected growth in the coming 5 years till 2010. The average growth was calculated as 5.68%. Thus, we get the projections graph from this. PROJECTIONS TILL 2010 (@5.68) 45.0 42.6 40.3 38.1 36.1 34.1 32.3 0.0 10.0 20.0 30.0 40.0 50.0 2004 2005 2006 2007 2008 2009 2010 YEAR C O N S . ( i n

m m t )

79 Reasons for the projection in the growth rate Indian scenario: The early recession of 1999 has come to an end and there is a boo m in the steel sector. Increased competition has lead to declining prices in the mar et, the reby increasing the demand. Continuous reduction in import duty on iron and steel Huge investments being made in the construction sector. Overall economic growth of the country. Boom in the Global Economy: Olympics infrastructure with investments in China Housing Sector in U.S.A White goods resurgence in Europe Infrastructure activities in CIS and other Asian Countries Reconstruction wor in Iraq WORLD NET OF CHINA The world, excluding China, shows a good growth trend and a high actual growth r ate. GROWTH IN STEEL IN THE WORLD NET OF CHINA -4 -2 0 2 4 6 8 10 12 1995 1996 1997 1998 1999 2000 2001 2002 2003 YEARS I N % 80 BCG MATRIX The Boston Consulting Group (BCG), a ed and popularized a growth- share vertical axis indicates the annual growth rate of It usually ranges from 0 percent to 20 percent. d high. Relative mar et share, which is s to the various

leading management consulting firm, develop matrix. The mar et growth rate on the the mar et in which the business operates. A mar et growth rate above 10% is considere measured on the horizontal axis, refer

companies mar et share relative to that of its largest competitor in the segment. It serves as a measure of the companys strength in that mar et segment. A relative mar et share of 0.1 means that the companys sales volume is only 10% of the leade rs. Relative mar et share is drawn in log scale, so that equal distances represent the same p ercentage increase. The growth-share matrix is divided into four cells, each indicating a different type of business. They are Question Mar s, Stars, Cash cows and Dogs. These h ave been explained with the countries itself in the various quadrants. BCG MATRIX FOR THE WORLD ECONOMY The BCG Matrix for the year 2004 is drawn on relative mar et share mar et growth rate axis, where we ta e the US economy as a benchmar economy. All other countries are represented in terms of US mar et share. First of all, we are given the cons umption of steel in the global economy including India in the following table. On the basis of the consumption data, we calculate the growth rate (compounded a nnual growth rate i.e. CAGR) for each of the country. The formula for calculation is a s follows: CAGR = (((Last years cons. / first years cons.)^ (1 / No. of years)) 1) * 100 Relative mar et share is calculated on the basis of the absolute mar et share. Absolute mar et share for a country is calculated as a percentage of its consumption in 2 004 with respect to the total global consumption. Since we have ta en US econo my as the benchmar economy, its relative mar et share is ta en as 1x. For all other econo mies we 81 calculate the relative mar et share by dividing its actual mar et share with tha t of the US mar et share. Thus, the relative mar et share of any country can eith er be less than or greater than that of US economy. According to the calculations, China and European Union have a mar et share that is greater than that of US, whereas, CIS, S. Kore a, Japan and India have a mar et share that is less than that of the US economy. WORLD STEEL CONSUMPTION 22

On the basis of the above data on growth and relative mar et share, we draw the BCG Matrix. Each of the countries can be categorized as stars, cash cow, dogs or ??????. Since, we had ta en US as having a mar et share of 1x, we get the following in t erms of the above: China is a star, EU (15) is a cash cow and Japan, India, CIS and S.Korea are dog

s. There is no ????? country in the present scenario. 22 Mar et Research Reports at Tata Steel YEAR CHINA EU(15) CIS US S.KOREA JAPAN INDIA OTHERS TOTAL 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

CAGR 11.7 1.2 7.0 1.5 3.0 -0.1 3.8 3.4 4.1 COUNTRY CHINA EU(15) CIS US S.KOREA JAPAN INDIA OTHERS MKT SH. FOR 2004 27.4 15.1 5.4 12.0 4.9 7.9 3.3 24.1 REL. MKT. SH. 2.3 1.3 0.4 1.0 0.4 0.7 0.3 2.0 82 1 X 10 X 0.1 X 0.5 X 5 X 0% 10% 20% 5% 15% Relative Mar et Share M a r e t G r o w t h R a t e STARS ????? CASH COW DOG U.S CHINA EU(15) CIS S.KOREA JAPAN

87.4 129.2 26.5 100 35.2 77.7 22.2 166.9 645.1 100.7 113 25.2 107 37.4 75.8 22.8 167.1 648.9 103.3 128.5 27.7 113.4 37.9 79.9 22.9 188.3 701.8 110.7 139.6 24.5 119.8 24.7 70.3 23.2 179.3 692.1 122.6 137.3 28.1 116.4 33.8 68.9 25.1 175.8 707.9 124.6 143.8 35.6 120 38.3 76.1 26.3 193.6 758.4 153.4 139.6 38.4 106.2 38.1 73.2 27.1 194.9 770.8 185.6 138.1 36.7 107.4 43.7 71.7 28.9 208.7 820.9 232.4 137.5 38.5 100.5 45.8 73.4 30.3 214.4 872.7 265 145.7 52 115.9 47.2 76.9 32.3 232.9 967.9

INDIA OTHERS BCG MATRIX From the above matrix, we can draw the following conclusions for the various cou ntries: CHINA: China, being a star economy, can be said to be leaders in bu siness and they should also generate large amounts of cash. However, they should ensur e that their growth rate doesnt dip down in any chance otherwise they would land u p being a cash cow, by eeping up the mar et share. EU (15): EU (15) is a cash cow economy which can be said to be having high profi ts and cash generation. They can have low levels of investments because of the low grow th rate. JAPAN, INDIA, CIS and S. KOREA: These countries need to be careful against each other, being a dog in nature. They are li ely to experience various turn around moves from the other dogs, hence they should be careful about it. Since th ey have low growth rate as well as a very low mar et share, there is a chance of them getting liquidated, so they need to ensure constant cash flows for existence in the global economy. 83 CONCLUSION Finally, we can say that the credit management at Tata Steel has various comp onents to be managed. Most of it is under control and some of it needs special care for ma intaining the amount of Wor ing Capital. From the following graph it is clear that the Wor ing Capital scenario has improved a lot. The amount of credit given is also under co ntrol. Wor ing Capital Management 58 57 38 25 44 47 41 37 55 53 38 16 0 10 20 30 40 50 60 70 FY 01 FY 02 FY 03 FY 04

Years D a y s o f S a l e DEBTORS INVENTORY NET WORKING CAPITAL

84 EQUITY ANALYSIS - INTRODUCTION There are two general schools of stoc analysis: fundamental and technical. FUNDAMENTAL ANALYSIS Fundamental stoc analysis requires, among other things, a close examin ation of the financial statements for the company to determine its current financial strength, future growth and profitability prospects, and current management s ills, in o rder to estimate whether the stoc s price is undervalued or overvalued. A good deal of reliance is placed on annual and quarterly earnings reports, the economic, political and competitive environment facing the company, as well as any current news items or rumors rela ting to the company s operations. Simply put, fundamental analysis concerns itse lf with the "basics" of the business in assessing the worth of a stoc . Numerous ratios, derived from balance sheet and income statement data, are used in fundamental analysis including such widely used ratios as, Wor ing Capital Ratio , Debtequity Ratio, Return on Equity Ratio, Earnings per Share, etc. Fundamental analy sis may be the preferred method to use for mid to longer term investors. How ever, it is not suitable for use by day traders because of the amount of research re quired, and the fact that trades are entered into and exited within a very short time frame. The massive amount of numbers in a company s financial statement can be bewildering and intimidating to many investors. On the other hand, if you now how to read t

hem, the financial statements are a gold mine of information. Financial statemen t analysis is the biggest part of fundamental analysis. Also nown as quantitative analys is, it involves loo ing at historical performance data to estimate the future performan ce. Followers of quantitative analysis want as much data as they can find on revenue, expenses, assets, liabilities, and all the other financial aspects of a company. Fundamental analy sts loo at this information for insight into the performance of in the future. T hey don t ignore the company s stoc price; they just avoid focusing exclusively on it. 85 Some of the indicators commonly used to assess company fundamentals in clude: cash flow; return on assets; conservative gearing; history of profit retention for fu nding future growth; and soundness of capital management for the maximizing of shar eholder earnings and returns. Performing fundamental analysis can be a lot of hard wor . But that is, arguably, the source of its appeal. By ta ing the trouble to dig into a company s financial statements and assess its future prospects, investors can learn enough to now when the sto c price is wrong. Those investors able to spot the mar et s mista es can ma e themselves money--a lot of it. At the same time, buying companies based on intr insic, long-term value protects investors from the dangers of day-to-day mar et flux. However, the fact that fundamental analysis shows that a stoc is under-valued d oes not guarantee that it will trade at its intrinsic value any time soon. Things are no t so simple. In reality, real share price behavior relentlessly calls into question almost every stoc holding, and even the most independent-minded investor can start doubting the me rits of fundamental analysis. There is no magic formula for figuring out intrinsic value . FUNDAMENTAL ANAYSIS OF TATA STEEL Valuation of Intrinsic Value of the share of the company as on February, 2005. For finding the intrinsic value of the equity share of Tata Steel, we incorporat e future as well in terms of projections made for the next 5 years and 6 th year onwards. We underta e the following calculations, assumptions and conclusions on the basi s of the previous 5 years financial figures: Estimated growth of the Indian Economy for the next 20 years is 8% and

thereafter it shall stabilize at 5%. The growth in the operating income of the previous 5 years is calcu lated for each of the previous years. These figures were found to be very fluctuative in nature, ranging from -1.89% to 30%. Thus, in order to project the in come figures for the coming years we assume that the company will grow at a 86 conservative estimate of 10% per annum for the next 5 years followed by 7% in the long-run. Next we calculate the ratio of the various components of the cost of sales with respect to the operating incomes for the previous 5 years in order t o project the cost component for the coming years. We find that Tata Steel has been successful in reducing the cost component significantly in the last fe w years. But these gains would stabilize at some point of time. The company is already the worlds lowest cost steel producer. So we propose to assume that the cost structure remains static at the 2004 value. The ratio of cost of sal es to the operating income came out to be 0.6623. (Refer Exhibit 4(i)). The ratio of cash operating profits before taxes to the operating income comes out to be 0.3377 (1-0.6623). Thus, on the basis of the projected ope rating income for the coming years we calculate the projected cash operating profit before taxes by using the formula COPBT for a year = Operating profit for the year * ratio of COPBT to the operating profits. Tata Steels intends to spend 9100 crores for next 6 years to increa se its capacity from 4.7 mT to 9.2 mT. This means company will spend on an average 1200 crores per year for next 6 years till 2010. So we assume that it uses Rs. 1200 towards asset creation. Also during early 1990s Steels sector went for capacity expansion which leads to glut situation during late 90s. This along with recession in world & Indian economy ensured poor growth of industry till 2001. It is only in 2002 that the industry turned arou nd. Due to growing demand from China & increased infrastructure spending in India, Industry has good future growth. Thus projection using past data will not be accurate. We assume that for each of the coming years the Net Bloc would be the sum of the previous years net bloc , Reinvestments for the year or the n et purchases in the assets and the constant (assumed to be Rs. 1200) ad ditional investments for the year. The rate of depreciation, for each of the previous 5 years, is determined on th e basis of the following formula:

87 Rate of dep. for a year = dep. Exp. For the year / (Net Bloc of the previous yr . + (Net purchases or sales of assets for the year / 2)). Thus, for the future we assume that the rate of depreciation would be the averag e of these separate rates for the 5 years. (Refer Exhibit 4(v)). The projected depreciation for the next years is calculated using the formula:

rate of depreciation. (Refer Exhibit 4(vi)). For finding the expected tax rate for the future, we first find the average rate of tax for the last 5 years. Here we find the Effective Tax Rate and the Cash Tax Rate where Effective tax rate (in %) = (Provision for taxes / Adjusted PBT (ded ucting write offs)) *100 Cash tax rate (in %) = (Taxes paid / Adjusted PBT (deducting write offs)) * 100 It is then averaged out for the past 5 years. Therefore, Avg. CTR (in %) = 19.86 However, the corporate tax rate is expected to reduce from the current 36.75% to 30% in the future. Thus, we assume that the tax rate used for the p rojections for future would be at 30% level. (Refer Exhibit 4(ii) and 4(iii)). Projection for cash flow from investment activities is the sum of projections o f the following: Investments in Fixed Assets, Investments in securities, Repla cements and interest & dividend earnings. These projections are done with the help previous 5 years average figure as well as other assumptions made. The se projections indicate cash outflows because of investments activities. (R efer Exhibit 4(iv)). The ratio of Wor ing Capital to Operating Income is calculated for t he last 5 years. This was 40% in 1999 and it fell down to 11.5% in 2004. Thus, we assume that this ratio would continue for the future also. The projected wor ing capital can be calculated by using the formula: Projected W.C. = Projected operating income for the years * 11.5% (Re fer Exhibit 4(vii)). 88 After doing this we determine the changes in the Wor ing capital over the next 5 years by simply calculating the difference in the amount of Wor ing capital. The weighted average cost of capital (WACC) for the company can be calculated to be 10.71%. From all the above calculations we can determine the projected cash operating profits after taxes and the projected free cash flow of the firm. Cash operating profits after taxes = (COPBT Dep.) * (1-T) (Refer Exh ibit

Depreciation = (Previous years Net Bloc

+ reinvestments for the year) * average

4(viii)). Projected FCFF = Projected COPAT + Changes in W.C. + Projected CFIA While projecting the future FCFF for the 6 th year onwards we use summation with the help of the infinite series, the actual formula being Projected FCFF for 6 th year onwards = Projected FCFF of the 6 th year (WACC Long-run g rowth rate) Each of these is discounted to the present value as on 2005 with th e help of WACC. (Refer Exhibit 4(ix)). Hence, Present value of the firm as on February, 2005 = sum of all project ed and discounted FCFF = 26850.37 Thus, the Fair Value of the firm / share (Rs.) = (Present Value of the firm (Secured Loans + Unsecured Loans)) / Equity share capital. Intrinsic / Fair Value of the share of TISCO (Rs.) = 424.18 value of a share = (Equity share capital + Reserves Boo & Surplus Miscellaneous Expenses not written off) / Equity share capital Boo Value Of the share of Tata Steel = 118.55 (Refer Exhibit 4(x)). Mar et Price of the share of Tata Steel as on 24

th

June, 2005 at 3.30 p.m. = 363.40 Thus, we can now say that the share of Tata Steel is selling below pr emium i.e. it is under priced. This shall give indications as to whether an investor should 89 respond to purchase or sale of the share in the stoc mar et. This entire analysis of the intrinsic value of the share is nown as the fundame ntal analysis of a company. However, the information received from the fundamental analysis is very conservative and narrow in scope of analysis. It does not incorporate in the mar et factors that largely influence the price of a companys share. Thus, we can say that fundamental analysis is always incomplete. In order to fill this gap of analysis, we carry out tech nical analysis of the share of the company. This type of analysis is done on a daily basis and ta es into consideration the mar et sentiments towards a particular companys share. Technical Analysis Technical analysis does not concern itself with a company s basics or fundamentals.

Rather, technical analysis involves the study of a stoc s trading patterns thro ugh the use of charts, trend lines, support and resistance levels, and many other mathematic al analysis tools, in order to predict future movements in a stoc s price, and to help iden tify trading opportunities. The basic foundations or premises of technical analysis are that a stoc s current price discounts all information available in the mar et, that price move ments are not random, and that patterns in price movements, in very many cases, tend to repeat themselves or trend in some direction. Bob Prechter, a famous practitioner of technical analysis once commente d that, "... the main problem with fundamental analysis is that its indicators are remo ved from the mar et itself. The analyst assumes causality between external events an d mar et movements, a concept which is almost certainly false. But, just as im portant, and less recognized, is that fundamental analysis almost always requires a forec ast of the fundamental data itself before conclusions about the mar et are drawn. The analyst is then forced to ta e a second step in coming to a conclusion about h ow those forecasted events will affect the mar ets! Technicians only have one step to ta e, which gi ves them an edge right off the bat. Their main advantage is that they don t have to forecast their indicators." 90 A very large number of technical indicators have been developed over the years, including the widely used overbought/oversold indicators such as the Re lative Strength Index, and the trend following indicators such as Moving Averages. Whi le technical analysis can be a great help in trading the mar et, no technical ind icator is infallible. Further, technical analysis is only as good as its interpreter. Finally, a signi ficant of time must be spent in learning the principles of technical analysis, and i n how to properly interpret the various charts and other technical indicators. FINANCIAL ANALYSIS (Refer Exhibit-5(i), (ii), (iii) and 6(all)) Profitability The fortune of the Steel industry changed and so did TISCO. After ex periencing the lowest profit in 2002 which was the worst year for steel industry, w hen the global demand was at an all time low the fortunes changed. TISCO is also one of the mos

t cost efficient steel producers in the world. For 2002-2003, TISCO reduced s pecific energy consumption by 3.90 percent, raw material consumption by 3.50 percent and increased utilization of waste from 72.60 percent to 79 percent. The current years profit is more than Rs 1700 crores which will eve ntually get better with the reduction in the Corporate Tax Rate. The growth rate in profits has bee n around 30%.The acquisition of Nat steel has added capacity to the company and Tata Stee l is all set to be among the top producer of steel in the world. It is also entering fore ign mar ets li e South Africa, South Korea and Japan. With the global demand in steel at an all time high and manifold increase in infrastructure, manufacturing activity etc the profits are going to be higher. Turnover The turnover of the company has consistently increased owing to the i ncrease in global steel demand from 2003 onwards. The steel industry has recovered after a series of low 91 growth for years. The turnover was around Rs 12000 crores in 2003-2004.It experi enced a growth of 22% from the previous year. Return on Equity The Return on Equity has considerably increased owing to the increase in Profits after Tax. The ROE is the indicator of as to how much return the company has been able to earn per rupee invested by the shareholders of the company. The current rate o f ROE is 46% which is high because the margins and sales have considerably imp roved. The company has been specifically able to control its costs and has emerg ed as one of the lowest cost steel producer in the world. Debt Equity Ratio The Debt Equity Ratio is interesting to watch in case of TISCO. Steel Industry b y nature is capital intensive. Thus it requires higher debts. The Debt componen t has come down over the last three years. Currently it is at .77 coming down from 1.92 in 2002 .The year 2002 was tough for the industry as a whole. The demand was going do wn and thus

needed debt. In the year 2002 the company had paid an interest amount to Rs 430 crores and had debt amounting to Rs 4300 crores. In 2003-04 the debt component came dow n to Rs 3300 crores and the company incurred interest expenses amounting to Rs 230 cr ores. The global demand for steel is at an all time high now and the ind ustry is getting financially stronger. The lower interest burden has helped in achieving higher p rofits. TISCO has reduced its total debts by Rs 475 crores as on October 31, 2003, resul ting in lower interest cost. This is in line with the company s decision to prepay its high-cost debts. It is also in tal s with lenders to settle more debt. The total debt of t he company as on March 31, 2003, stood at Rs 4,225.61 crores as against Rs 4,705.4 8 crores in the previous fiscal. The interest burden for the first six months of 2003 -2004 stood at Rs 133.48 crores as against Rs 166.61 crores in the same period of the previous fiscal, representing a 20 per cent reduction. The company is tal ing to a fe w lenders and is willing to pay 50 per cent of the premium on debt. The company cloc ed a 25.38 p er cent 92 fall in interest from Rs 76.41 crores to Rs 57.02 crores for the se cond quarter of 20032004. Interest as a percentage of sales dropped from 3.88 per cent to 2.18 per c ent for the same period.

Asset Turnover Ratio The asset turnover ratio has increased from 78% to 89%.This reflects upon the ef ficiency of the company. The Net Profit Margins are at 16% experiencing a huge rise from 2.78%. The Margins are set to increase for the next year owing to greater profits and cost efficiency. The company is in a good position since it has been able to sustain its costs and the company is fundamentally strong. PE Ratio

has gone up from 4.88 in 200 to Rs 47 in 2004.The ratio was very the investors were actually rea

The PE Ratio tells us how much the investors r every rupee earned by the company. The ratio 3 to 7.25 in 2004.The EPS has gone up from Rs5.51 in 2002 high in 2002 owing to a very low EPS but dy to pay a higher

are willing to pay in the mar et fo

price. The industry is cyclical in nature and the investors forecasted a higher growth in coming years. Profits, owing to greater profits and optimistic forecast s the PE is higher than last year. Net Wor ing Capital The Net Wor ing Capital for a company is the difference between the current asse ts and the current liabilities. Current Assets include receivables, ban and c ash balance, inventory and other miscellaneous expenses. Current Liabilities includes creditors and outstanding. The tremendous fall in the net wor ing capital is either due to the fall in the current assets or a rise in the current liabilities. Here we can say that the debtors have been under control to large extent and for the year 2004 it was extremely low. Having a 93 low net wor ing capital is good for a company. Along with this there was a rise in the current liabilities for the year 2004. GROSS WORKING CAPITAL Over the previous year, the wor ing capital of the different departments has inc reased in terms of days of debtors and days of inventory. This has been observed for Long Products, Flat Products and Ferro Alloys & Minerals Division. (Refer Exhibit 7(iv), (v) an d (vi)). Inventory The level of inventory in the different departments has increased to some extent. (Refer Exhibit 7(i) and (ii)). Debtors The debtors are under control for almost all departments. As per 2004-05 data th e actual debtors were less as compared to the target debtors, which gives a positive sign al that less money is bloc ed in the debtors. It reduces the liquidity of the company. (R efer Exhibit 7(iii)).

94 INFORMATION TECHONOLGY SERVICES AT TATA STEEL Information Technology Service has different computing technologies, netw or ing and infrastructure facilities: Computers: Large Computers, Mid-Range Computers and Des top Computers. Networ ing: Campus Local Area Networ (LAN), Countrywide Wide Area Networ (WAN). Infrastructure: Development and Services Support Facilities. MAJOR PROJECTS UNDERTAKEN 1) SAP for Finance and Accounts: SAP implementation was extended throu gh a new project called Rupantar to Steel Wor s, Administration, Town, Medical, Ri ngs & Agrico and Secondary Products with functions of Financial Accounts, Cos ting, and Materials Management along with Production Recording and Plant Maintenance. The ey business drivers for this project were better revenue management through bette r product Mix decisions, faster closing of accounts and integrated inventory mana gement for purchased items. The SAP project was implemented on 1 st December 2001 in a record ROLE OF IT Enable and improve core business processes Act as a competitive differentiator Promote Open and Knowledgebased culture 95 time of 10 months from the time it was conceived. Due to which Tata Steel was ad judged the Best SAP R/3 implementation in India by SAP. 2) Information System for CRM 3) Data warehouse and data mining for Hot Strip Mill

4) Office automation 5) E-application such as e-Procurement and e-Tender 6) Web sites for different divisions and several intranet applications 7) Knowledge management site for sharing and dissemination of nowledge. SAP SAP, an ERP system, was implemented at Tata Steel for better customer order management and fulfillment. SAP was introduced in the areas of sales and distribution, material management, Financial-Account Receivables and control. Some of the benefits from SAP are: It will lead to complete transparency in customer ledgers, orders, st oc ledgers, dispatches and credit lines. It is Internet enabled and will allow customer to use SAP to get i nformation on their orders. Mar eting and sales decisions will be made on the basis of data available onlin e. Lead time required to process orders, settle complaints, develop new products a nd reconcile accounts, in substantially lesser time. Online availability of data will further improve Inventory Management in the sto c yards, leading to better customer service. 96 TATA STEEL HUMAN RESOURCE POLICY Tata Steel recognizes that its people are the primary source of its competitiven ess. It is committed to equal employment opportunities for attracting the best availa ble talent and ensuring a cosmopolitan wor force. It will pursue management practices designed to enrich the quality of life of it s employees, develop their potential and maximize their productivity. It will aim at ensuring transparency, fairness and equity in all its dealings wi th its employees. Tata Steel will strive continuously to foster a climate of openness, mutual trus t and team wor . HR goal: Creating a World Class development environment The 1. 2. 3. Business plan of Human Resource Management is To improve employee satisfaction and commitment Create a world-class development environment and Control employee costs.

The employees of Tata Steel are categorized under two broad types Officers and Unionized Employees

97 PROCESS OF EMPLOYEE MOTIVATION Employee Participation: The organization see s to bring about an improv ement in the various processes through cooperation and innovation. For this purpose, the orga nization has a system of forming cross-functional tas forces. Cross unit commu nication is achieved through Management Council, nowledge communities, Quality Circl es presentations/competitions, etc. The effectiveness of communication mechan ism is measured through continuous and regular feedbac , satisfaction surveys, Employee Opinion Survey, intranet usage, etc. Tata Steel also encourages job and career related development and lear ning for its employees through the Personal Development Plan (PDP) for the officers. It also encourages mid-year and year-end talent reviews through the Performance Management System nown as EDGE (Ensuring Development and Growth of Employees). This helps in identifying the strengths, areas for improvement and development needs of off icers.

98

A new initiative called TEJASWANI was started to impart the female wor ers with higher operational s ills to enable them to ta e higher level jobs. Identify Motivational Factors through: Communication Informal Meeting Focused HR group discussion Employee Satisfaction Index (ESI) feedbac s Reinforce these in wor environment Measure motivation through ESI Employee Motivating Factors Recognition by peers/seniors Rewards Performance Management System

Succession Planning at Tata Steel is done for all critical positions in the organization. Various criteria such as qualification, experience and competency are listed do wn in the Job Analysis Sheet and the individuals matching with the requirements are then i dentified. The prospective candidates are scanned by the peer group and by the seniors. Recruitment: The identification of characteristics and s ills needed for any job is done through the preparation of the Job Analysis Sheet. It specifies the required qua lifications, wor experience for the job, ey functional responsibilities, ey resul ts areas, competencies necessary for the job. Recruitment at the entry level is done through campus selections at premier engineering and management institutions as well from the internet websites. It encourages having professionals from diverse bac grounds. Training is also given to the employees dependants, nown as the Basic Plant Training Sche mes, which is used for the recruitment of wor men. While recruiting Tata Steel does not discriminate on the basis of gen der, religion, or social status. Retention: Tata Steel ma es all provisions to fill up the expectation gap. At th e point of the Pre-placement tal s itself, the company communicates the correct pict ure of the company, wor ing/living conditions and the compensation pac age so that the empl oyees about the company and it shall reduce the attrition rate because of these reason s. Induction process: The employees are made aware of the organizational culture and business direction through the formal induction process. The new appoin tees are mentored by a senior official so as to guide them in case of difficulties. Training: Tata Steel provides training programme to its employees and the officers to meet up with the advancement in technology and the nature of diversit y in the organization. (Refer Exhibit 8).

99 Employee Safety: Tata Steel has identified 2063 problem areas e prone to accidents and ris s. A special Tas Force has been formed in July 2002 uses on safety of the people. Occupational Health Department ta es care of the ec -ups of the employees. It also initiates Health Awareness Training s regularly

which ar which foc health ch Programme

along with an on-line feedbac system. They are provided with healthy and hygienic wor ing environment. Tata Steel is the first steel plant in India and one amongs t the very few plants to be ISO 14001 certified. This encourages regular internal and exter nal audits to be carried out on environment, health and safety of employees. Other opportunities: The employees at Tata Steel are provided with hou sing schemes, club membership, schooling opportunities, etc. KEY SHORT TERM AND LONG TERM HR PLAN HR PLAN ELEMENT ACTION PLAN Control employee cost (Strategy objective: Lowest cost producer) Right sizing Variable pay system Divest non-core business Create leaders who will build our future (Vision element) Wor ers & supervisors training Preparing wor ers to occupy supervisory position Officers development through rotation & succession planning Improve employee satisfaction & commitment (Vision element) Reward high performance through variable pay To ensure Parivesh Annual plan to improve Health safety and environment.

100 FUTURE OUTLOOK The Indian steel industry has been passing through a rough phase in the recent times. Excess capacities, huge wor forces and lac of better technologies plag ue the sector. Even, globally the situation is no different either. The curr ent performance of steel companies across the world shows that they have much in common. They hav e all been hit hard by the demand crunch, with the vast majority sin ing i nto a sea of red. A global cyclical downswing is very clear. The worry, however, is that the global steel industry is heading for larger trouble than what has so far been presumed. Acc ording to estimates by International Iron & Steel Institute (IISI), crude steel production in 1998 was

down by only 2.3 per cent compared to 1997. And 1997 was a record production yea r of 799 million tonnes. 23 The fluctuating growth rates shown by developed countries after the 1973 oil cri ses were offset by sustained demand for steel in the developing world. The Asian financ ial crises changed that scenario completely. Traders panic ed and liquidated the e xcess inventory they had boo ed in anticipation of higher prices. This caused a sharp er price drop than warranted. The panic also resulted in a disproportionate fall in steel raw mater ial prices-such as scrap, pig iron, DRI, coal and co e. The global recession al so brought down ocean rates, which increased the ability of some manufacturers to redu ce prices further. Analysts estimate that for most steel products the price drop has been as much a s 50 per cent. This has shattered the steel industry worldwide. Restructuring seems to be the only way-out. But most steel companies in developing countries had underta en massive privatization programme between 1992 and 1996. That doesn t seem to have helped them much. New private players who had e ntered the steel business in a big way find their capital costs far too exorbitant, b ringing down their chances of survival sharply. The only conclusion that emerges is that developed countries have benefited at the expense of developing countries. 23 Steel Ministry of India 101 The Road ahead.. 1. Tata Steel expects to grow from a Gross Turnover of around Rs. 10000 Crores in 2003 to Rs. 25000 Crores by 2007-08. 24 2. The profit target of the company is to increase PAT from around Rs. 1000 Cro res in 2003 to Rs. 3000 Crores by 2007-08. 25 3. The company identifies that it needs to venture into New Business that would be more profitable other than steel, its core business, because of oversu pply in the Global Steel Industry. 4. Tata Steel is in a growth mode even in the steel business throug h the organic (internal growth) and acquisition routes.

5. Tata Steel is targeting to be the World Class Industrial Enterpris e from a World Class Steel Company. 6. Tata Steel is developing World Class products and brands to be so ld through a World Class distribution system that would operate at World Class effi ciencies with World Class Knowledge and expertise and yet have roots in the I ndian environment that nurtures the Tata Group and Tata Steel.

24 Facts About Tata Steel, 2003 25 Facts About Tata Steel, 2003 - a EXHIBITS EXHIBIT-1 STEEL MARKET PRICES (AS ON 01-01-05) (Rs. per tonne) ITEM KOLKATA DELHI MUMBAI CHENNAI Pig Iron 18875 20000 19200 18000 Billet 100mm 22250 25000 23600 22500 Blooms 150*150mm 22850 24000 23600 21500 Pencil Ingots 20125 21000 22700 22000 Wire Rods 6mm 25450 26200 26600 29000 Wire Rods 8mm 25350 26200 26200 28500 Rounds 12mm 24250 24500 28200 26500 Rounds 16mm 25250 24500 28000 25500 Rounds 25mm 24850 24500 28000 25500 Tar Steel 10mm 23900 27900 28000 26500 Tar Steel 12mm 23875 27500 27750 26000 Tar Steel 25mm 24100 27700 26500 27000 Angles 50*50*6mm 27450 29500 28000 30500 Angles 75*75*6mm 27500 28500 27650 30500 Joists 125*70mm 30450 31500 29500 32500 Joists 200*100mm 29650 31000 29500 32000 Channels 75*40mm 28050 29400 28250 30500 Channels 150*75mm 32000 29500 28250 30500 Plates 6mm 32325 31400 31800 31800 Plates 10mm 31900 31400 32250 32500 Plates 12mm 31750 31800 31750 31000 Plates 25mm 32125 32200 32750 32700 HR Coils 2.00mm 33100 34000 33100 33500 HR Coils 2.50mm 32625 31800 32625 32500 HR Coils 3.15mm 32150 31800 32100 32000 CR Coils 0.63mm 34600 34500 35750 35000 CR Coils 1.00mm 34000 33600 35000 35000 GP Sheets 0.40mm 37350 39000 38250 37000 GP Sheets 0.63mm 36225 36000 38000 36000 GC Sheets 0.40mm 37350 39400 38500 38000 GC Sheets 0.63 36400 36400 37750 38000

Melting Scrap H M S-I 16375 17800 15000 15800 Melting Scrap H M S-II 15775 17200 14600 15500 Sponge Iron (Coal Based) 12275 15800 14500 16500 Source: The Iron and Steel review, January 2005 issue - b EXHIBIT-2 STEEL MARKET PRICES (AS ON 15-01-05) (Rs. per tonne) ITEM KOLKATA DELHI MUMBAI CHENNAI Pig Iron 18225 20000 19000 18200 Billet 100mm 21750 25000 23550 22600 Blooms 150*150mm 21900 24000 N.A. 21000 Pencil Ingots 20525 22300 22750 22000 Wire Rods 6mm 25550 27800 26300 29000 Wire Rods 8mm 25200 27800 26000 28000 Rounds 12mm 24400 26500 28200 26600 Rounds 16mm 24400 26500 28000 26500 Rounds 25mm 25000 26500 28000 25500 Tar Steel 10mm 24250 28700 28250 26500 Tar Steel 12mm 24050 28000 28125 26000 Tar Steel 25mm 24425 28200 26750 27000 Angles 50*50*6mm 27025 29500 27875 30000 Angles 75*75*6mm 27025 28500 27500 30000 Joists 125*70mm 31750 31500 29250 32000 Joists 200*100mm 30250 31500 30000 32000 Channels 75*40mm 28325 29400 28250 30000 Channels 150*75mm 32175 29500 29875 30000 Plates 6mm 32400 33000 32625 33000 Plates 10mm 31975 33000 32875 34000 Plates 12mm 31450 33500 32625 33000 Plates 25mm 32325 34000 33350 33500 HR Coils 2.00mm 33400 35000 33750 34500 HR Coils 2.50mm 32575 33000 33625 34500 HR Coils 3.15mm 32250 33000 33250 33500 CR Coils 0.63mm 34250 35200 36750 36000 CR Coils 1.00mm 34000 34600 35500 36000 GP Sheets 0.40mm 37450 41000 38750 37500 GP Sheets 0.63mm 35285 36600 38500 36500 GC Sheets 0.40mm 37450 41000 39000 38500 GC Sheets 0.63 35975 37500 38500 38000 Melting Scrap H M S-I 16450 17800 15500 16500 Melting Scrap H M S-II 15925 17200 15000 16000 Sponge Iron (Coal Based) 12850 15800 15000 17000 Source: The Iron and Steel review, February 2005 issue

- c EXHIBIT-3 LETTER OF CREDIT & BILL DISCOUNTING WITH HSBC

EXHIBIT-3(i) LATE RECEIVAL OF CHEQUE BY THE BANK RATHI ISPAT (in %) 11 13 22 23 15 13 5 0-2 days 3,4 days 5,6 days 7,8 days 9,10 days 11,12,13,14,15 days 16 AND ABOVE days

EXHIBIT-3(ii) LATE RECEIVAL OF CHEQUE BY THE BANK SHAH ALLOYS (in%) 4 4 17 13 4 17 39 0-2 days 3,4 days 5,6 days 7,8 days 9,10 days 11,12,13,14,15 days 16 AND ABOVE days

- d EXHIBIT-3(iii) LATE RECEIVAL OF CHEQUE BY THE BANK JINDAL STAINLESS (in%) 0 6 11 14 11 28 31 0-2 days 3,4 days

5,6 days 7,8 days 9,10 days 11,12,13,14,15 days 16 AND ABOVE days EXHIBIT-3(iv) LATE RECEIVAL OF CHEQUE BY THE BANK STAINLESS INDIA (in%) 10 15 25 30 5 15 0 0-2 days 3,4 days 5,6 days 7,8 days 9,10 days 11,12,13,14,15 days 16 AND ABOVE days EXHIBIT-3(v) TOTAL SAVINGS SHOWN FOR DIFFERENT PARTIES SINCE 2005 CUSTOMER SAVING FOR 2005 RATHI 321041.0405 SHAH ALLOYS 248139.0777 JINDAL 161362.7016 STAINLESS INDIA 40788.32008 TOTAL SAVINGS 771331.1399

- e EXHIBIT-4 FUNDAMENTAL ANALYSIS EXHIBIT-4(i) Vertical analysis of Income statement Year 2004 2003 2002 2001 2000 1999 Operating Income 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 Expenses Material Consumed 0.3109 0.2557 0.2603 0.2408 0.2458 0.2808 Manufacturing Expenses 0.1700 0.1928 0.2260 0.2344 0.2429 0.2397 Personnel Expenses 0.1237 0.1387 0.1616 0.1336 0.1554 0.1679 Selling Expenses 0.0075 0.0891 0.0932 0.0934 0.1047 0.1032 Adminstrative Expenses 0.0643 0.0878 0.0977 0.0618 0.0615 0.0596 Expenses Capitalised (0.0142) (0.0069) (0.0065) (0.0315) (0.0443) (0.0346 ) Cost Of Sales 0.6623 0.7571 0.8322 0.7324 0.7661 0.8165

Source: Data collected from HSBC Ban

Operating Profit 0.3186 0.2353 0.1549 0.2556 0.2230 0.1656 Other Recurring Income 0.0192 0.0075 0.0128 0.0120 0.0110 0.0178 Adjusted PBDIT( COPBT) 0.3377 0.2429 0.1678 0.2676 0.2339 0.1835

EXHIBIT-4(ii) Tax Rate Year 2004 2003 2002 2001 2000 1999 Provision for Taxes 920.44 250.79 16.10 49.20 54.50 33.50 Deferred Taxes 0.26 11.69 30.60 0.00 0.00 0.00 Paid Taxes 920.70 262.48 46.70 49.20 54.50 33.50 Adjusted PBT( after write offs) 2828.36 1190.64 211.50 675.34 180.61 ETR 32.543 21.063 7.612 7.285 16.674 18.548 CTR 32.552 22.045 22.080 7.285 16.674 18.548

326.86

EXHIBIT-4(iii) Avg Cash Tax rate % 19.86 Avg Cash Tax rate %( last 3 yrs.) 25.56

- f EXHIBIT-4(iv) Future Cash Flow from investing activities Year 2005 2006 2007 2008 2009 2010 Projected Investments in fixed Assets (1,200) (1,200) (1,200) (1,200) Projected Investments in securities (300) Projected Replacements (625) (650) (700) Interest & dividend earning 90 90 90

(1,200) (1,200) (300) (300) (300) (300) (300) (750) (800) (850) 100 100 100

Projected CFIA (2035) (2060) (2110) (2150) (2200) (2250) EXHIBIT-4(v) Depreciation Year 2004 2003 2002 2001 2000 1999 Net bloc 7,094.21 7,342.72 Depreciation Expense 625.11 Net Purchases/Sell of assets (1,118.72) Rate of Depreciation 0.0907 Avg. Dep. Rate 0.084 0.084 EXHIBIT-4(vi) 7,213.55 7,042.39 5,504.58 5,779.03 555.48 524.75 492.25 426.54 382.18 (907.53) (411.65) (502.68) (597.65) (649.80) 0.0793 0.0773 0.0946 0.0782 0.084 0.084 0.084 0.0840

Year 2005 2006 2007 2008 2009 2010 Reinvestments or Net purchases in asset 625 650 700 750 800 850 Future Net bloc 8919.21 10744.21 12644.21 14594.21 16594.21 Depreciation EXHIBIT-4(vii)

18644.21

Year 2005 2006 2007 2008 2009 2010 Projected W.C (%) 0.12 0.12 0.12 0.12 0.12 0.12 Projected Operating income 10908.41 12544.67 14426.37 16590.33 19078.88 21940.71 Projected W.C. 1254.47 1442.64 1659.03 1907.89 2194.07 2523.18 Changes in W.C. 24.27 188.17 216.40 248.85 286.18 329.11

- g EXHIBIT-4(viii) Year 2005 2006 2007 2008 2009 2010 Operating Income( Projected) 11999.25 13199.18 14519.09 15971.00 17568. 10 19324.91 COPBT 4052.15 4457.36 4903.10 5393.41 5932.75 6526.02 Depreciation 1151.41 1252.22 1353.03 1453.84 1554.65 1655.46 COPAT= (COPBT- Dep)*(1-T) 2030.52 2243.60 2485.05 2757.70 3064.67 340 9.40

EXHIBIT-4(ix) Year 2005 2006 2007 2008 2009 2010 Projected COPAT 2030.52 2243.60 2485.05 2757.70 3064.67 3409.40 Changes in W.C. 24.27 188.17 216.40 248.85 286.18 329.11 Projected CFIA (2035) (2060) (2110) (2150) (2200) (2250) FCFF 19.79 371.77 591.45 856.56 1150.85 1488.51 Value of firm in terminal year-2010, Rs crores 39482.96 Discounted Value 19.79 335.81 482.55 631.24 766.08 24634.70

EXHIBIT-4(x) Present value of firm, Rs. Crore 26850.37 Present value of firm, $ billion 5.97 Fair Value of Firm/ share (Rs.) 424.18 Source: Calculations done on the basis of past financial statements

648.48

803.81

961.31

1125.11

1293.11

1465.31

- h EXHBIT-5 EXHIBIT-5(i) FINANCIAL HIGHLIGHTS INCOME STATEMENT Mar 04 Mar 03 Mar 02 Mar 01 Mar 00 Income : Operating Income 10,699.31 8,716.54 6,704.69 6,834.54 6,089.42 Expenses Material Consumed 3,391.82 2,246.06 1,767.90 1,665.77 1,513.16 Manufacturing Expenses 1,854.92 1,692.97 1,535.04 1,621.19 1,495.45 Personnel Expenses 1,349.59 1,217.72 1,097.60 924.34 957.07 Selling Expenses 81.9 782.96 632.67 645.78 644.92 Adminstrative Expenses 701.43 770.78 663.26 427.21 378.48 Expenses Capitalised -155.28 -60.79 -44.05 -217.76 -272.51 Cost Of Sales 7,224.38 6,649.70 5,652.42 5,066.53 4,716.57 Operating Profit 3,474.93 2,066.84 1,052.27 1,768.01 1,372.85 Other Recurring Income 209.1 66.07 87.13 83 67.54 Adjusted PBDIT 3,684.03 2,132.91 1,139.40 1,851.01 1,440.39 Financial Expenses 230.56 342.41 403.15 481.9 529 Depreciation 625.11 555.48 524.75 492.25 426.54 Other Write offs 0 44.38 0 201.52 157.99 Adjusted PBT 2,828.36 1,190.64 211.5 675.34 326.86 Tax Charges 920.44 250.79 46.7 49.2 54.5 Adjusted PAT 1,907.92 939.85 164.8 626.14 272.36 Non Recurring Items -201.47 26.26 33 -77.63 152.46 Other Non Cash adjustments 39.77 46.2 7.1 4.93 -2.23 Reported Net Profit 1,746.22 1,012.31 189.19 553.44 422.59 Earnigs Before Appropriation 2,053.67 1,228.13 419.66 742.37 513.09 Equity Dividend 368.98 295.19 147.11 196.09 154.86 Preference Dividend 0 0 2.07 0 0 Retained Earnings 1,637.42 895.12 270.27 524.76 341.19

Source: Annual Reports of past 5 years

- i -

EXHIBIT-5(ii) BALANCE SHEET BALANCE SHEET Mar 04 Mar 03 Mar 02 Mar 01 Mar 00 SOURCES OF FUNDS Owner s Fund Equity Share Capital 369.18 367.97 367.97 367.97 367.97 Share Application Money 0 1.21 0 0 0 Preference Share Capital 0 0 0 140 150 Reserves & Surplus 4,146.68 2,816.84 3,077.99 4,380.46 4,040.43 Loan Funds Secured Loans 3,010.16 3,667.63 4,056.93 4,129.96 4,140.91 Unsecured Loans 363.12 557.98 650.89 542.26 766.32 Total 7,889.14 7,411.63 8,153.78 9,560.65 9,465.63 USES OF FUNDS Fixed Assets Gross Bloc 12,505.83 12,192.71 11,412.29 10,762.47 8,746.53 Less : Accumulated Depreciation 5,411.62 4,849.99 4,198.74 3,720.08 3,241. 95 Net Bloc 7,094.21 7,342.72 7,213.55 7,042.39 5,504.58 Capital Wor -in-progress 763.64 201.08 330.15 495.7 1,919.48 Investments 2,194.12 1,194.55 912.74 846.92 803.1 Net Current Assets Current Assets, Loans & Advances 4,933.61 4,484.62 3,329.17 3,225.61 3,025 .11 Less : Current Liabilities & Provisions 7,252.41 5,811.34 4,620.82 2,970.26 2,614.76 Total Net Current Assets -2,318.80 -1,326.72 -1,291.65 255.35 410.35 Miscellaneous expenses not written 155.97 0 988.99 920.29 828.12 Total 7,889.14 7,411.63 8,153.78 9,560.65 9,465.63 Note : Boo Value of Unquoted Investments 1,878.43 752.67 485.12 465.54 460.75 Mar et Value of Quoted Investments 2,031.69 798.26 401.23 381.38 455.33 Contingent liabilities 2,669.02 1,580.70 1,309.84 1,454.37 1,584.59 Source: Annual Reports of past 5 years

- j EXHIBIT-5(iii) CASH FLOWS Mar 04 Mar 03 Mar 02 Mar 01 Mar 00 Profit Before Tax 2,665.96 1,262.50 251 602.44 476.59 Depreciation 625.11 555.48 524.75 492.25 426.54 P and L On Sale Of Assets -32.17 -21.27 -27.68 -6.31 -142.22

P and L On Sale of Investments -1.24 -4.62 -22.83 -1.91 -10.22 Interest Income -21.31 -34.05 -31.22 -35.85 0 Interest Paid Net 140.81 342.41 403.15 412.39 -389.98 Interest Net 0 0 0 0 355.48 Dividend Received -98.34 -23.25 -49.62 -44.2 0 Dividend Net 0 0 0 0 -31.02 Misc. Income 0 -4.57 0 0 0 Amortisation Of Expenses 236.65 230.95 227.02 201.52 0 Payment towards VRS -267.75 -277.01 -189.35 -197.09 -166.11 Provision And WO Net 0 0 0 0 159.12 Provision For Dimunition In Investments 18.37 0.43 17.82 0.47 0 Provisions For BadDebts NPA 0 43 0 0 0 Trade And Other Receivables 364.73 148.88 268.86 -133.87 -19.21 Inventories -96.13 -24.28 -99.82 23.08 71.66 Trade Payables 305.98 127.9 -55.08 208.49 37.22 Tax Provision 0.7 0.6 0.6 0.2 0 Direct Taxes Paid -926.93 -229.95 -63.47 -66.16 -64.81 Net CashFlow-Operating Activity 2,914.44 2,093.15 1,154.13 1,455.45 703.04 Purchase Of Fixed Assets -960.33 -451.23 -534.95 -605.45 -1,148.27 Sale Of Fixed Assets 52.8 39.58 32.27 7.8 498.47 Purchase Of Investments -4,615.68 -1,773.26 -794.62 -52.82 -302.99 Sale Of Investments 3,470.24 1,368.51 657.02 0.03 80.21 Interest Received 24.99 30.54 33.94 34.6 44.43 Dividend ReceivedInvesActivity 98.34 23.25 49.62 44.2 31.02 Inter Corporate Deposits 48.56 -27.55 -3.49 -48.21 -12.16 Investment In Subsidiaries -1.55 0 0 0 0 Extraordinary Items 0 0 60.51 22.29 0 Net Cash Used In Investing Activity -1,882.63 -790.16 -499.7 -597.56 -809. 29 Proceeds From Issue Of Pref. Captl 0 0 -140 -10 0 Proceed From Issue Of Cap. Incl. Sh. Prem. 0 0 0 0 150 Proceed from oth. LTerm Borr 318.71 593 1,178.95 462.25 1,046.10 Repayment Of Borrowings -1,036.04 -1,281.27 -1,143.35 0 0 Dividend Paid -292.8 -145.53 -185.96 -159.31 -154.86 Interest Paid -144.47 -341.29 -385.87 -411.92 0 Others From Fin Activity 0.41 25.23 1.77 4.2 0 Of Other LTerm Borr 0 0 0 0 -1,077.80 Repayment Of Short Term Borrow 0 0 0 -697.26 0 NetCash Used in Fin. Activity -1,154.19 -1,149.86 -674.46 -812.04 -36.56 Net Inc/Dec In Cash And Equivlnt -122.38 153.13 -20.03 45.85 -142.81 Cash And Equivalnt Begin of Year 373.12 219.99 239.23 193.38 336.19 Cash And Equivalnt End Of Year 250.74 373.12 219.2 239.23 193.38 Source: Annual Reports of past 5 years - EXHIBIT-6 Source: Calculations done on the basis of past financial data FINANCIAL ANALYSIS EXHBIT-6(i) NET PROFIT (Rs.Crores) 282 423 553

205 1012 1746 0 200 400 600 800 1000 1200 1400 1600 1800 2000 1999 2000 2001 2002 2003 2004 YEAR N E T P R O F I T

EXHIBIT-6(ii) EARNINGS PER SHARE 7.67 11.26 14.64 5.51 27.43 47.32 0 10 20 30 40 50 1999 2000 2001 2002 2003 2004 YEAR E P S

- l -

EXHIBIT-6(iii) TURNOVER (Rs. Crores) 6336 6943 7810 7683 9844 12070 0 2000 4000 6000 8000 10000 12000 14000 1999 2000 2001 2002 2003 2004 YEAR T U R N O V E R EXHIBIT-6(iv) RETURN ON AVERAGE NETWORTH 7.65 11.51 14.38 6.38 35.88 46.28 0 10 20 30 40 50 1999 2000 2001 2002 2003 2004 YEAR R E T . O N A V G . N W

EXHIBIT-6(v) DEBT-EQUITY RATIO 1.37 1.32 1.18 1.92 1.33 0.77 0 0.5 1 1.5 2 2.5 1999 2000 2001 2002 2003 2004 YEAR D / E

- m EXHIBIT-6(vi) ASSET TURNOVER RATIO (in %) 55.44 58.47 63.59 63.28 78.16 89.96 0 20 40 60 80 100 1999 2000 2001 2002 2003 2004 YEAR A T R EXHIBIT-6(vii) PRICE-EARNING RATIO 13.51 10.3 8.36 17.72 4.88 7.25 0 5

10 15 20 1999 2000 2001 2002 2003 2004 YEAR P / E R A T I O EXHIBIT-6(viii) NET WORKING CAPITAL (Rs. Crores) 1426 1197 1138 1086 958 84 0 200 400 600 800 1000 1200 1400 1600 1999 2000 2001 2002 2003 2004 YEAR N E T W C

- n EXHIBIT-6(ix) CURRENT RATIO 1.79 1.65 1.55 1.54 1.36 1.02 0

0.5 1 1.5 2 1999 2000 2001 2002 2003 2004 YEAR C U R R E N T R A T I O EXHIBIT-6(x) RESRVES & SURPLUS (Rs. Crores) 3796.5 4040.4 4380.5 3078.0 2816.8 4146.7 0.0 1000.0 2000.0 3000.0 4000.0 5000.0 1999 2000 2001 2002 2003 2004 YEAR R & S EXHIBIT-6(xi) INVESTMENTS (Rs. Crores) 585.44 803.1 846.92 912.74 1194.55 2194.12 0 500 1000 1500 2000 2500 1999 2000 2001 2002 2003 2004 YEAR I N

V E S T M E N T S

- o EXHIBIT-6(xii) CASH FLOW FROM OPERATING ACTIVITY (Rs. Crores) 481.9 703.04 1043.53 1154.13 2093.15 2914.44 0 500 1000 1500 2000 2500 3000 3500 1999 2000 2001 2002 2003 2004 YEAR C F O A EXHIBIT-6(xiii) CASH FLOW FROM INVESTMENT ACTIVITY (Rs. Crores) 792.51 809.29 597.56 499.7 790.16 1882.63 0 500 1000 1500 2000 1999 2000 2001 2002 2003 2004 YEAR C F I

A EXHIBIT-6(xiv) CASH FLOW FROM FINANCING ACTIVITY (Rs. Crores) 217.39 36.56 400.12 674.46 1149.86 1154.19 0 500 1000 1500 1999 2000 2001 2002 2003 2004 YEAR C F F A

- p EXHIBIT-6(xv) DIVIDEND PAYOUT RATIO (in %) 57.86 40.68 39.32 72.91 32.9 23.84 0 20 40 60 80 1999 2000 2001 2002 2003 2004 YEAR D P R EXHIBIT-6(xvi) INTEREST COVERAGE RATIO 2.05 2.32 2.6 1.68 5.14 22.82 0 5 10 15

20 25 1999 2000 2001 2002 2003 2004 YEAR I N T . C O V E R R A T I O EXHIBIT-6(xvii) AVERAGE DEBTORS TO TURNOVER (in %) 20.14 17.81 15.86 15.48 10.38 6.75 0 5 10 15 20 25 1999 2000 2001 2002 2003 2004 YEAR D E B T O R / T U R N O V E R

- q EXHIBIT-6(xviii) AVERAGE INVENTORY TO TURNOVER (in %) 12.39 10.73 9.01 8.95 7.72 7.37 0 5 10 15 1999 2000 2001 2002 2003 2004 YEAR I N V . / T U R N O V E R

EXHIBIT-6(xix) PBT/TURNOVER (in %) 5.49 7.75 8.74 3.7 14.39 24.59 0 5 10 15 20 25 30 1999 2000 2001 2002 2003 2004 YEAR P R T / T U

R N O V E R

- r EXHIBIT-7 EXHIBIT-7(i) DIVISION-WISE INVENTORY DIVISION 2004-05 2003-04 LONG PRODUCTS 130.84 94.94 FLAT PRODUCTS 425.70 419.07 RM & IM 203.86 250.94 SHARED SERVICES 28.44 38.00 SUPPLY CHAIN (MRO) 67.27 65.65 TOTAL STEEL DIVISION 856.11 868.60 INTERNATIONAL TRADE 19.79 30.68 FERRO ALLOYS & MINERALS 113.70 78.09 WIRE DIVISION 36.67 32.68 TUBE DIVISION 85.84 79.65 RINGS & AGRICO 30.41 21.78 BEARINGS DIVISION 29.32 25.92 SECONDARY PRODUCTS 10.16 18.20 TCIL CONVERSION 13.02 13.40 GROWTH SHOP 4.53 6.85 OTHERS (TM & SS) 0.45 0.56 TOTAL 1200.00 1176.41 Source: Tata Steel Intranet Web Site EXHIBIT-7(ii) CATEGORY-WISE INVENTORY

CATEGORY AVERAGE 2004-05 AVERAGE 2003-04 FINISHED & SEMI-FINISHED 796.84 584.50 RAW MATERIALS 323.56 255.98 STORES & SPARES 338.56 319.31 GRAND TOTAL 1458.96 1159.79 Source: Tata Steel Intranet Web Site

- s EXHIBIT-7(iii) DIVISION-WISE DEBTORS DIVISION AVG. DEBTORS TARGET DEBTORS 2004-05 2004-05 LONG PRODUCTS 42.04 60.34 FLAT PRODUCTS 247.19 189.23 RM & IM 65.67 63.11 TOTAL STEEL DIVISION 354.9 312.68 INTERNATIONAL TRADE 66.65 34.29 FERRO ALLOYS & MINERALS 80.19 57.99 WIRE DIVISION 64.74 51.5 TUBES DIVISION 33.36 52.78 RINGS & AGRICO 10.72 10.72 BEARINGS DIVISION 15.14 17.14 SECONDARY PRODUCTS 3.85 4.31 TCIL CONVERSION 32.87 14.98 GROWTH SHOP 14.11 13.33 TKM DIVISION 3.97 1.52 TOWN & POWER SERVICES 34.15 24.51 OTHERS 9.61 4.25 TOTAL 724.26 600 Source: Tata Steel Intranet Web Site EXHIBIT-7(iv) LONG PRODUCTS GROSS WORKING CAPITAL PERIOD Inv. Amt. (Rs. Crores) Inv. Days Debtors Amt. (Rs. Crores) Debtors Days Inv.+Debto r Amt. Inv.+Debt . Days Avg. 2003-04 97.85 21 64.15 14 272.25 35 Target 2004-05 115.00 60.34 175.34 1-Apr-04 94.94 20 42.20 9 137.14 29 1-May-04 93.66 20 42.04 9 135.70 29

1-June-04 118.44 26 50.86 11 169.30 37 1-July-04 119.75 26 32.08 7 151.83 33 1-Aug-04 122.37 27 41.47 9 163.84 36 1-Sept-04 146.54 32 50.32 11 196.86 43 1-Oct-04 125.16 25 39.55 8 164.71 33 1-Nov-04 134.02 25 37.85 7 171.87 32 1-Dec-04 153.38 30 41.18 8 194.56 38 Avg. 2004-05 123.01 27 41.98 9 165.00 36 Source: Tata Steel Intranet Web Site - t EXHIBIT-7(v) FLAT PRODUCTS GROSS WORKING CAPITAL PERIOD Inv. Amt. (Rs. crores) Inv. Days Debtors Amt. (Rs. crores) Debtors Days Inv.+Debto r Amt. Inv.+Debt . Days Avg. 2003-04 200.69 33 102.12 Target 2004-05 188.96 - 64.75 1-Apr-04 187.10 31 85.73 14 1-May-04 187.87 31 79.36 13 1-June-04 228.17 36 88.62 14 1-July-04 242.17 38 82.09 13 1-Aug-04 237.95 37 90.54 14 1-Sept-04 242.33 39 86.28 14 1-Oct-04 232.60 38 85.64 14 1-Nov-04 243.63 40 78.33 13 1-Dec-04 280.63 48 63.80 11 Avg. 2004-05 231.07 37 83.20

17 302.81 50 253.71 272.83 45 267.23 44 316.79 50 324.26 51 328.49 51 328.61 53 318.24 52 321.96 53 344.43 59 13 314.28 50

Source: Tata Steel Intranet Web Site EXHIBIT-7(vi) FERRO ALLOYS & MINERALS DIVISION GROSS WORKING CAPITAL PERIOD Inv. Amt. (Rs. crores) Inv. Days Debtors Amt. (Rs. crores) Debtors Days Inv.+Debto r Amt. Inv.+Debt . Days Avg. 2003-04 82.00 43 60.91 32 142.91 75

Target 2004-05 113.70 57.99 171.69 1-Apr-04 78.09 41 67.99 36 146.08 77 1-May-04 92.67 47 72.98 37 165.65 84 1-June-04 109.89 54 58.76 29 168.65 83 1-July-04 115.60 51 60.66 27 176.26 78 1-Aug-04 134.40 56 96.57 40 230.97 96 1-Sept-04 132.07 53 95.01 38 227.08 91 1-Oct-04 122.46 44 95.69 34 218.15 78 1-Nov-04 140.58 48 87.08 30 227.66 78 1-Dec-04 139.74 45 81.53 26 221.27 71 Avg. 2004-05 119.57 59 80.19 40 199.76 99 Source: Tata Steel Intranet Web Site

- u EXHIBIT-8 STAGES OF TRAINING Nature of Diversity Features Education and Training Provided by/at Professional Engineers Doctors Accountants MBAs Technical Medical Financial Managerial Tata Management Development Center Tata Management Training Center Cultural Religion Language Social Creativity Window of the world Tata Management Development Center Leading personalities of society Culture Associates Locations Wor ing in small towns and Metros Rural Development Social Wor Environment Tata Steel Rural Development Society Social Services & Family Initiatives Non-Government Organizations

Women Empowerment and Assertiveness Driving Heavy Vehicles & Crane Women Empowered training programme Sexual harassment issues training Tejaswani Effort Tata Management Development Center Other Social Organizations HR/IR Steel Tribal Bring them into main stream Training to ma e them at part with others before recruitment Tribal Cultural Society Shava Nanavati Technical Institute Registered Relations Create opportunity for induction Basic Plant Training Shava Nanavati Technical Institute Source: TBEM 2003, Building Sustainability by Tata Steel

I BIBLIOGRAPHY

Primary Data collected from Tata Center from the different departments Primary Data colleted from HSBC Ban Credit Management Module CD of the Flat and Long Product Tata World The Tata Steel Intranet Information Kios The Iron and Steel Review, January 2005 issue The Iron and Steel Review, February 2005 issue The Iron and Steel Review, March 2005 issue Facts About Tata Steel, 2003 TBEM 2003, Building Sustainability by Tata Steel The Financial Express The Economic Times The Investors Guide www.google.co.in www.ibef.org www.steel.nic.in www.equitymaster.com