Professional Documents
Culture Documents
Tata Steel is one of the ventures of the Tat Group but it has many successful
companies under one umbrella. Some of the other notable Tata concerns
and their lines of businesses are shown below.
BOARD OF
DIRECTORS
14 Board of Directors
LEGAL ENVIRONMENT
Global operations require compliance with multiple and complex laws and
regulations. In countries where the political systems are still evolving,
frequent changes in economic policy are common, investment guarantees
and property rights are secured, any unforeseen changes can expose the
Group’s businesses to uncertainties. The Group operations are primarily in
countries where investment flows are freer and where there are established
political, business and legal frameworks in place. There is an established due
process to independently evaluate country risk exposures for investments in
emerging economies
The steel industry has traditionally been very sensitive to the changing
economic conditions. The recent economic meltdown has created several
challenges – which when addressed appropriately, can be countered to
positive eff ect. However, unlike the previous global recessions, this time
around, all the countries have come together and taken action. Additionally,
there has been a tremendous amount of governmental response to the
global depression which is helping to bring about a possible easing of the
situation.
The global downturn also had a major effect on various industries dependant
on steel. Major contraction in the construction projects, automobiles, white
goods demand from the third quarter of 2008-09 resulted in the global
demand for steel dropping by 21% compared to the level consumed in the
same quarter of the previous year.
The demand for steel declined by 26% in the UK and Europe in the third
quarter compared to a year earlier and after a further contraction in the
fourth quarter, demand had fallen by 57% in the UK and 44% in Europe
compared with a year ago. This reflected in a sharp downturn in private
construction projects, as well as large falls in automotive and mechanical
engineering, amplified by severe destocking by both end users and service
centers.
2. INDUSTRY
Company
The year 2008-09 was a historical one epitomised by the acute global
financial imbalance which initially appeared to have spared India only to
impact the markets adversely as the year rolled on. The global economic
slowdown has impacted the steel sector as well. Amidst the turmoil in the
global marketplace, Jamshedpur Works performed remarkably creating
many records on the way.
Tata Steel has taken aggressive steps to meet the challenges of these
difficult times through major initiatives in cost reduction, process
improvement and production rationalisation. The highest priority is being
given to expanding steel producing capacity in Jamshedpur, and ensuring
raw material security for the European operations which do not have captive
iron ore and coal resources. The Tata Steel Group has developed a pipeline
of high quality projects, which will be executed, though we will re-phase the
sequence. Projects like the 3 million tone expansion in Jamshedpur, the
proposed steel plant in Orissa and raw material projects in Mozambique,
South Africa and Canada are key drivers of our future value creation.
FinancialAna
lysis
Balance Sheet Analysis
ASSET SIDE
Capital budgeting
Tata steel has increasing debts. So the company has gone in for debt
financing and thus, the company is having a comparatively higher borrowing
from the market. Basically the Debt-Equity ratio has to be as low as possible
so that the company has lower borrowings and has to pay less interest.
INVESTMENTS
It can be seen that investments in the last year has increased drastically
from negative cash flows to positive cash flows in investment. This was
result of investing subsidiary companies especially Tata Steel Holdings PTE.
It made an investment of about Rs 35,633 crores against Rs 72 lakhs. This
has lead to increase in investments.
Cash management
This requires cash ratio, which includes cash and cash equivalent / current
liabilities. Over years this company has managed to keep up their cash
management at par with other companies. In recent times this company has
raised their cash ratio as compared to previous years.
Debtors Management
Tata steel took over Corus in recent past and had taken a loan for that
purpose and due to this loan their Debtor’s turnover ratio just shot up from
29.81 to 33.45.
Inventory Management
Tata steel has managed to keep their inventory management very efficient
during these years as we can see below that it keeps on increasing and that
is what every company needs, a very efficient inventory management
system.
LIABILITIES
1. SHARE CAPITAL
➢ EQUITY CAPITAL
TATA STEEL
7000
6203.3
6000
5000
TATASTEEL
4000
3000
2000
1000 580.67
553.67 553.67
0
2005 2006 2007 2008
In the
current year the company issues equity capital of Rs 4881 cr as
against 1393 crores, this led to the sharp increase in equity capital.
The company has a mix of debt and equity for fund raising. In last four
years company raised money through right s and debentures but this
year they preferred equity capital.
➢ PREFERNCE CAPITAL
Over the years the company has been increasing its income in share
premium account, through conversion of warrants and preference
shares.
SECURED LOANS
Debentures
In April 2009, the Company further raised Rs. 2,000 crore from a term
loan and in May 2009, it privately placed Rs. 2,150 crore of Non-
Convertible Debentures repayable after 10 years. Thus the Company
raised Rs. 9,400 crore in a year marked by tight liquidity.
One important thing to note is that the interest on debentures
is increasing every year even though the amount of
debentures has reduced considerably.
The increase was primarily on account of raising of new loans to the tune of
US$2.07 billion, during the year in Tata Steel India, to fund growth projects
and to ensure an adequate liquidity buffer in the wake of global liquidity
crisis.
During the year, the company repaid debts to the extent of US$ 1.66 billion
including a prepayment of debt in Tata Steel Europe of around £150 m
(US$215 million). The entire foreign currency term debt in Tata Steel India is
hedged into rupees at acceptable levels. Therefore the company was
unaffected by the volatile movement of the rupee on account of the above
loans.
The
Company entered into a loan agreement with the State Bank of India and
other banks for Rs. 9,500 crores. In January 2008 Rs. 9,000 crores was
repaid with proceeds from the Company’s Rights Issue and Rs. 500 crores
was repaid on 28th February, 2008.� In November 2007, the Company
made a rights issue offering to shareholders in India, (i) 1 ordinary share for
every five ordinary shares at a price of Rs. 300 per share and (ii) 9
cumulative compulsorily convertible preference shares (“CCPS”) for every 10
ordinary shares at a price of Rs. 100 each.
Unsecured Loans
In the year 2008, Tata Steel raised $500 million equivalent seven-year senior
unsecured bank loan facility in yen to fund production capacity expansion
and also acquisitions.
During the current fiscal year, the secured and unsecured loans increased by
Rs. 8,924 crore as compared to the balances as on 31st March, 2008 mainly
due to issue of privately placed non-convertible debentures, term loans
taken from Banks and other short term borrowings.
In 2007 the loans increased from Rs 324 crores to Rs 5562 crores due to
new syndicate foreign currency loans drawn for funding the acquisition of
Corus Group plc. The Company has drawn foreign currency syndicate loans
of Rs. 7,225 crores (USD 1.65 billion) during the year as per details given
below:
1. JPY Syndicated External Commercial Borrowings of USD 495 million
equivalent: Rs. 2,162.66 crores (unsecured loan)
2. External Commercial Borrowings of USD 5 million equivalent: Rs. 21.77
crores (unsecured loan)
3. JPY Syndicated External Commercial Borrowings of USD 750 million
equivalent: Rs. 3,298.88 crores (unsecured loan)
4. International Finance Corporation, Washington - A Loan USD 100 million
equivalent: Rs. 435.35 crores (secured loan)
CURRENT LIABILITIES
The current liabilities increased by Rs. 577 crores from a level of Rs. 3,523
crores as on 31st March, 2007 to Rs, 855 crores as on 31st March, 2008. The
increase was mainly due to increase in the value of purchases/services on
account of expansion projects.
I. PROFIT AND LOSS A/C
Increase in Profit % from 2003 to 2008.
• From the above table TATA STEEL has given good profits in the
year 2004 and 2005.
The Gross Profit has increased over the period of 3 years however the
change in Gross Profit from 2008-09 and 2007-08 was less as compared to
2006-07 and 2007-08. The Graph shows the increase in Gross Profit 2006-07
to 2008-09.
The Profit before depreciation and Tax increased at a rate of 11.84% from
2006-07 to 2007-08 and 4.91% from 2007-08 to 2008-09. The fall in the
PBDT was mainly due to the market crunch and global recession which left
it’s a mark on the company’s Financial Statements’. However it was
observed that the company’s Profits after depreciation and tax followed a
stable increase i.e. an average increase of 11%.
The GP Margin for 2006-07 was 7.58% followed by 39.79% in 2007-08 and
36.43% in 2008-09.
Depreciation:
Total depreciation for the Financial Year 2006-07 accounted to Rs. 819.29
crs followed by Rs. 834.61 crs in 2007-08 and Rs. 973.40 crs in 2008-09.
I. FINANCIAL RISK
From the above balance sheet Interest charged in 2008 is 41,493 (Rs
mn) and in 2009 it decrease to 38,283 (Rs mn) i.e. Change of -8.4%.
Tax charged in 2008 was 40,493 (Rs mn) and in 2009 it decrease to
39,751 (Rs mn) due to decrease in gross profit.
Finance for the Corus acquisition was raised through bridge loans and
later refinanced by Tata Steel which has led to a dramatic increase in
the interest outflow; in the April-June quarter the interest outflow was
Rs241.7 crore compared to Rs41.6 crore for the same quarter last
year.
Dividend Policy
Tata Steel has been continuously providing dividend to its shareholders to
maximize its wealth. In the year 2008-09 the company paid a dividend of Rs
1168.95 crores. The payment of dividend is always fixed by the company
irrespective of profits or losses.
Tata Steel is giving a significant higher rate of dividend year after year in
comparison to its nearest competitor’s.
In 2006-07 the year the company completed 100 years a dividend of 25%
was issued to the shareholders.
Tata Steel was initially giving higher amount of dividend initially on its PAT.
But over a period of time, it decided to change its strategy and putting back
all its earnings on development of the company.
Fund Flow & Cash Flow Statements
Analysis of Funds Flow and Cash Flow Statements
SOURCES OF FUNDS
The profit after taxes has been consistently increasing in the past five
years despite the global crisis and acquisition of Corus in 2007.So the total
PAT available in 2009 is Rs 21091 crores. Since Tata Steel has a lot of fixed
assets in terms of plants and machinery the depreciation is also increasing
at a slower rate, one more reason is that they introduced two blast furnaces
in Jamshedpur this year, which led ot increase In depreciation this year.
In the last 5 years the share capital of the company was very good, but
due to issuing of new shares the share capital is now negative.
Borrowings have been consistent. The way the company managed its
borrowings was amazing. From negative balances, they turned into Rs 5000
crores positive balances; this was as a result of loans taken to finance Corus
deal. Some installments are to be paid after 2011, so there is not too much
burden on Balance Sheet.
APPLICATION OF FUNDS
The capital expenditure was normal in all the years, not much movement
is seen in terms of investment in plant and machinery.
Ratio Analysis
Operating expenses are expected to increase marginally resulting in
increase of EBITDA margin of 38.7%.But compared to previous year the
EBITDA/Turnover has reduced because the profits were higher than last
years.
ROCE over the years has reduced because of slowdown as well as huge
inventories of stock and new plants introduced in Jamshedpur.
Asset Turnover is very good In last four years the assets were utilized to the
fullest but in the last year due to less demand, it reduced by 1%, but in
overall terms it is optimally used all resources.
Debt Equity Ratio
Tata Steel over the years has been increasing its debt in order to
finance the Corus deal. They took a loan of $ 8 Billion from the bank to
acquire Corus.
Current Ratio
The current ratio is a financial ratio that measures whether or not the
firm has enough resources to pay its debts over the next 12 months. It
compares a firm’s current assets to its current liabilities. Tata Steel
has a high amount of unutilized current assets. The company has high
level of inventory or WIP. Since the demand for steel has reduced
drastically the company is having huge inventory and because of this
the liquid ratio is low.
Debtors Turnover Ratio
EBITDA/TURNOVER RATIO
The EBITDA for the Group at Rs. 18,495 crores (US$ 3,636 mn) for the
financial year 2008-09 was1% higher than the EBITDA of Rs.18, 287
Crores (US$ 3,595 mn) recorded during the financial year 2007-08.
EPS RATIO
P/E RATIO
The Company has embarked upon setting up three green field steel plants in
eastern India:
The term focus is on the implementation of the “Fit for Future” restructuring
in Europe, to continue with the 3 mtpa expansion project in Jamshedpur and
overseas raw material projects, to increase production volume in India and
optimise working capital management across the Group to preserve liquidity
Looking towards the future, the steel industry’s main contribution to the
reduction of CO2 emissions should be to further develop the use of by-
products and to work with its customers to help design well, long lasting,
more energy and material efficient products. Additionally, improvements in
areas other than primary steel production may offer further opportunities for
CO2 reduction