Tata Steel Limited

:

2008-09 09

Financial Analysis

{Fiscal Year 2008-09} 2008

Tata Steel
Financial Analysis
The report gives an insight into the financial health and strength of the Tata Steel Company (formerly known as TISCO). The company’s performance for the Fiscal Year 2008 2008-09 has been reviewed by studying the Annual Report, news and other sources of information available on the internet. The report also compares company’s performance on a time line and gives trend analysis for past 5 years. Submitted to: Prof. R. Srinivasan Management and Financial Account Accounting

International Management Institute

ANISH CHARU ASHWINI DIVAY
TEAM ACAD

November, 2009

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:
INTRODUCTION

Financial Analysis

{Fiscal Year 2008-09} 2008

We bring to you the story of one of the oldest and most successful organizations of our times and celebrate the true spirit of steel with Tata Steel Limited. The reasons for choosing TSL for our study are simple. • It is Asia’s First and India’s larges steel company in the private largest Sector • It is India’s 2nd largest and 2nd most profitable company in private sector • It is one of the most admired companies in terms of HR Practices and Sustainable growth and Corporate Social Responsibility

TATA GROUP
The Tata Group is a multinational conglomerate based in Mumbai, India. In terms of market India capitalization and revenues, Tata Group is the largest private corporate group in India and has been recognized as one of the most respected companies in the world. It has interests in steel, automobiles, gnized information technology, communication power, tea and hospitality. communication, The Tata Group has operations in more than 85 countries across six continents and its compa companies export products and services to 80 nations. The Tata Group comprises 114 companies and subsidiaries in seven business sectors, 27 of which are publicly listed. 65.8% of the ownership of Tata Group is held in charitable trusts. Companies which form a m major part of the group include Tata Steel, Corus Steel, Tata Steel Motors, Tata Consultancy Services Tata Technologies, Tata Tea, Titan Industries, Tata Power, Tata Services, Industries Communications, Tata Teleservices Tata AutoComp Systems Limited and the Taj Hotels. Teleservices, Hotels

The group takes the name of its founder, Jamsetji Tata, a member of whose family has almost invariably , been the chairman of the group. The current chairman of the Tata group is Ratan Tata, who took over hairman Tata from J. R. D. Tata in 1991 and is currently one of the major international business figures in the age of n globality. The company is currently in its fifth generation of family stewardship. . The 2009 annual survey by the Reputation Institute ranked Tata Group as the 11th most reputable vey company in the world. The survey included 600 global companies.

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:
VISION

Financial Analysis

{Fiscal Year 2008-09} 2008

Guided by a powerful vision, Tata Steel strives forward to reach newer and higher milestones, every year.

TATA Steel: An Overview
• • • • • • • • • Established in 1907 by Jamshetji N Tata in Jamshedpur Formerly known as Tata Iron and Steel Company Limited (TISCO) 28.1 million tonnes per annum of crude steel production capacity With Corus acquisition, TSL is world 6th largest world’s steel producer Ranked “ Best Steel Maker” by World Steel Dynamics in 2006, 2005 and 2001 Ranked 315th on Fortune Global 500 (post the Corus acquisition 82,700 employees (2007) Listed on BSE and NSE Headquartered in Jamshedpur, Jharkhand and registered office in Mumbai

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

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09}

Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing units in 26 countries. It was the vision of the founder; Jamsetji Nusserwanji Tata., that on 27th February, 1908, the first stake was driven into the soil of Sakchi. His vision helped Tata Steel overcome several periods of adversity and strive to improve against all odds. Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA which is slated to increase to 10 MTPA by 2010. The Company also has proposed three Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with additional capacity of 23 MTPA and a Greenfield project in Vietnam. Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings, Singapore, Tata Steel has created a manufacturing and marketing network in Europe, South East Asia and the pacific-rim countries. Corus, which manufactured over 20 MTPA of steel in 2008, has operations in the UK, the Netherlands, Germany, France, Norway and Belgium. Tata Steel Thailand is the largest producer of long steel products in Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has proposed a 0.5 MTPA mini blast furnace project in Thailand. NatSteel Holdings produces about 2 MTPA of steel products across its regional operations in seven countries. Tata Steel, through its joint venture with Tata BlueScope Steel Limited, has also entered the steel building and construction applications market. The iron ore mines and collieries in India give the Company a distinct advantage in raw material sourcing. Tata Steel is also striving towards raw materials security through joint ventures in Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata Steel has signed an agreement with Steel Authority of India Limited to establish a 50:50 joint venture company for coal mining in India. Also, Tata Steel has bought 19.9% stake in New Millennium Capital Corporation, Canada for iron ore mining. Exploration of opportunities in titanium dioxide business in Tamil Nadu, ferro-chrome plant in South Africa and setting up of a deep-sea port in coastal Orissa are integral to the Growth and Globalisation objective of Tata Steel. Tata Steel’s vision is to be the global steel industry benchmark for Value Creation and Corporate Citizenship. Tata Steel India is the first integrated steel company in the world, outside Japan, to be awarded the Deming Application Prize 2008 for excellence in Total Quality Management.

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:
Areas of business

Financial Analysis

{Fiscal Year 2008-09}

The company produces crude steel and basic steel products, and makes steel for building and construction applications through Tata BlueScope Steel, its joint venture with Australia's BlueScope Steel. Tata Steel has also set up joint ventures for the development of limestone mines in Thailand, the procurement of low-ash coal from Australia and coking coal from Mozambique, and the setting up of a deep-sea port in Orissa in India. The company is exploring opportunities in the titanium dioxide business in Tamil Nadu, India, and will soon be producing high carbon ferrochrome from its plant in South Africa. STEEL PLANT PROJECTS : India: The Company has embarked upon setting up three green field steel plants in eastern India: • 12 MTPA* plant in Jharkhand • 6 MTPA plant in Orissa • 5 MTPA plant in Chhattisgarh • Jamshedpur Steel Works will become a 10 MTPA unit by 2010. *MTPA = million tonnes per annum OTHER PROJECTS: India: • • • • 1.2 MTPA Metcoke project in West Bengal Deep sea port in Dhamra, Orissa Titanium Dioxide project in Tamil Nadu Joint Venture with BlueScope Steel for metallic coating and painting steel unit

Overseas: • Development of a source of low ash coal from Queensland, Australia • Ferro Chrome production in Richards Bay, South Africa • Coking Coal project in Mozambique • Development of iron ore deposits in Ivory Coast (West Africa) • Limestone mining project in Oman • JV with Steel Authority of India Limited for coal mining in India • Iron ore mining project with New Millennium Capital Corporation, Canada

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09}

Joint ventures, associates and subsidiaries: Tata Steel has numerous joint ventures and subsidiaries. Among them are: • • • • • • • • • • • • • • • Tinplate Company of India Tayo Rolls Tata Ryerson Tata Refactories Tata Sponge Iron Tata Metaliks Tata Pigments Jamshedpur Injection Powder (Jamipol) TM International Logistics mjunction services TRF Jamshedpur Utility and Service Company (JUSCO) The Indian Steel and Wire Products(ISWP) Lanka Special Steel Sila Eastern Company

Awards and Recognitions
• • • • • •

• •

Tata Steel India awarded the Deming Application Prize 2008 for excellence in Total Quality Management. It is the first integrated steel company in the world, outside Japan to get this award. World Steel Dynamics has ranked Tata Steel as the world's best steel maker (for two consecutive years) in its annual listing in February 2006. Tata Steel has been conferred the Prime Minister of India's Trophy for the Best Integrated Steel Plant five times. It has been awarded Asia's Most Admired Knowledge Enterprise award five times in 2003, 2004, 2006, 2007 and 2008. Conferred the prestigious Global Business Coalition Award for Business Excellence in the Community in recognition of its pioneering work in the field of HIV/ AIDS awareness. Tata Steel works has been conferred the prestigious social accountability (SA) 8000 certification by social. Accountability international (SAI), USA. It is the first steel company in the world to receive this certificate. Corporate Sustainability Report of Tata Steel hailed by United Nations Environment Programme (UNEP) and Standard and poor as strongest, submitted by any corporate house from emerging economies. Best governed company Award 2006 for setting high standards in governance practices. Tata Steel won "Award for Corporate Social Responsibility in Public health" by US- Indian Business Council (USIBC), Population Services International (PSI) and the center for Strategic and International Studies (CSIS) in 2007.

MAJOR SOURCES OF REVENUE (Both operating and other):
TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

According to the annual report 2008 2008-2009 of Tata Steel, the particulars are as follows:

Figure1: Major Sources of Revenue

The divisional net sales of the company are shown here:

Figure2: Division-wise major sources of Revenue wise

Tata Steel Stock Price last 3 Years (30-10-2006 to 30-10-2009)

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:
RATIO ANALYSIS

Financial Analysis

{Fiscal Year 2008-09} 2008

a financial ratio or accounting ratio is a ratio of two selected numerical values taken from an enterprise's financial statements. There are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and by potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies.[1] If shares in a company are traded in a fi financial market, the market price of the shares is used in certain financial ratios.

OVERALL PERFORMANCE MEASURES

1. Price/earnings ratio:
P/E RATIO P/E RATIO = Net income (Rs.) Weighted Average No. of Ordinary Shares for Basic EPS (Nos.) EPS = Net Income / No. of Ordinary Shares for Basic EPS (Rs.) Market Share Price (Rs.) P/E RATIO 2008-09 5073690 0000.00 7305848 34.00 2007-08 2006 2006-07 2004-05 2003-04 (Market price per share/Net income per share) 4687030000 4222150000 3506380000 34741600 0.00 0.00 000 0.00 697748601.0 572409842.0 553472856.0 55347285 0 0 0 6

69.44696 583

67.17362089

73.76

63.35

62.77

360.18

379.00

242.72

171.68

123.68

5.19

5.64

3.29

2.71

1.97

Analysis: The P/E gives you an idea of what the market is willing to pay for the company’s earnings. Here in this case Price/earnings ratio in FY2008-09 had FY2008 increased almost 3 times from the value in FY2003-04. However, 04. due to the recent turmoil in the financial market, this ratio is reduced to 5.19 from 5.64 last. This means that the market has lower confidence in the shares of Tata Steel compared to last year.

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

2. Return on assets:
2008-09 5073.69 1152.69 2113.87 41.66 67715.82 2007-08 4687.03 786.50 2379.33 50.76 53844.30 2006-07 4222.15 173.90 2039.50 58.17 31051.16 2005-06 3506.38 118.44 1733.58 49.90 18425.88 2004-05 3474.16 186.80 1833.66 43.43 15843.29

Net Income Interest Tax Tax rate Total Assets Return on Assets ROA

(Net Income + Interest (1-tax rate))/Total Assets*100 tax

8.49

9.42

13.83

19.35

22.60

Analysis: The ROA is a very important tool from the investment point of view. The ROA tells an investor how much profit a company generated for each Re.1 in assets. The 1 figure of 22.60% in FY 2004-2005 to 2004 8.49% in FY 2008-2009 indicates that 2009 the company is steadfastly moving from being an asset light company to an asset heavy one. This ratio also helps the company decide whether or not to initiate a new project. The basis projec of this ratio is that if a company is going to start a project they expect to earn a return on it.

3. Return on Shareholders’ equity:

2008-09 Net Income Shareholders' equity Return on shareholders' equity 16.81 5073.69 30176.26

2007-08 4687.03 27300.73

2006-07 07 4222.15 14096.15

200506 3506.38 9755.30

200405 3474.16 7059.92

(Net Income/shareholders' equity)*100

17.17

29.95

35.94

49.21

Analysis: The ROE is defined as the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Over the years, Tata steel has been witnessing a downfall in its ROE, a fact which is also witnessed in the S/E ratio. ROE also acts as a useful tool to compare the profitability of Tata steel with its competitors.

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

PROFITABILITY MEASURES Every firm is most concerned with its profitability. One of the most frequently used tools of financial ratio analysis is profitability ratios which are used to determine the company's bottom line. Profitability ratios show a company’s overall efficiency and performance. We can divide profitability ratios into two types: margins and returns. Ratios that show margins represent the firm’s ability to translate sales dollars into profits at various stages of measurement. Ratios that stages show returns represent the firm’s ability to measure the overall efficiency of the firm in generating returns for its shareholders.

4. Gross margin percentage:
2008-09 Net sales revenue Cost of goods sold Gross margin Gross margin percenta ge 24315.77 17308.43 2007-08 20028.28 13183.05 2006-07 17985.69 11571.94 2005-06 15394.15 10101.42 2004-05 14646.98 9259.17

Analysis: This number represents

Net sales revenue - cost of goods sold 7007.34 6845.23 6413.75 5292.73 5387.81 Gross margin/Net sales revenues*100 28.82 34.18 35.66 34.38 36.78

the proportion of each unit of revenue that the company retains as gross profit. The Gross margin percentage of 34.18 percent in 2007-2008 and 28.82 percent in 2008 2008-2009 indicates that for every 2009 100 paisa that the company generates in revenue, 34 paisa and now 29 paisa respectively, can be put towards paying off selling, general and administrative expenses, interest expenses and distributions to shareholders. Also, since there has been a 15% reduction in GMP, it clearly means that the asset base has reduced.

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

5. Profit Margin Percentage:
2008-09 Net Income Net sales revenue Profit Margin Percentage 5073.69 24315.77 2007-08 4687.03 20028.28 2006-07 4222.15 17985.69 2005-06 3506.38 15394.15 2004-05 3474.16 14646.98

Analysis: Indicates what portion

Net income / net sales revenue*100 20.87 23.40 23.48 22.78 23.72

of sales contributes to the income of a company. Thus the Profit Margin is 20.65 percent in 2008-2009 and 23.8 percent in 2009 2007-2008, respectively, are the 2008, contributions to the income of the company.

6. Earnings per share:

2008-09 Net income (Rs.) Weighte d Average No. of Ordinary Shares for Basic EPS (Nos.) Earnings per share 5073690 0000.00

2007-08 4687030 0000.00

2006-07 4222150 0000.00

2005-06 3506380 0000.00

2004-05 3474160 0000

Analysis: Since Tata Steel is a

7305848 34.00

6977486 01.00

5724098 42.00

5534728 56.00

5534728 56

69.45

Net income/ No. of shares outstanding 67.17 73.76 63.35 62.77

publically traded company, Earnings per share becomes one of the most widely used and important ratios. EPS refers to the portion of a company's profit allocated to each outstanding share of common stock. Simply put Earnings per share serves as an indicator of a company's profitability. If we compare the EPS of Tata steel for the last two years, we see an increase of 2 percent. This means that the there is a 2 percent growth rate in the company’s earnings.

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:
7. Cash Realization:

Financial Analysis

{Fiscal Year 2008-09} 2008

2008-09 Cash generated by operations Net income (Rs.) Cash realization (times) 7397.22

2007-08 6254.20

2006-07 5118.10

2005-06 3631.39

2004-05

Analysis: It measures how
3174.8

5073.69

4687.03

4222.15

3506.38

3474.16

Cash generated by operations / Net income 1.46 1.33 1.21 1.04 0.91

close a company’s net income is to being realized in cash. Companies such as Tata Steel that are less risky have cash realization ratios that exceed 1.0, indicating that income may not be dependent on nonnon cash sources such as mark-tomark market accounting valuations, which can be affected by aggressive valuation decisions by management.

8. Asset Turnover:

2008-09 Net sales revenue Total Assets Asset turnover (times)

2007-08

2006-07

2005-06

2004-05

Analysis: This ratio is useful to
14646.98

24315.77

20028.28

17985.69

15394.15

67715.82

53844.30

31051.16

18425.88

15843.29

Sales revenue/total assets 0.36 0.37 0.58 0.84 0.92

determine the amount of sales that are generated from each dollar of assets. In the case of Tata steel, it has a low asset turnover which indicates that it makes high profit margin on its products. This ratio is also indicative of the pricing strategy employed by the company.

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

9. Invested capital turnover . 2008-09 2007-08 2006-07 07 2005-06 Net sales revenue Long-term liabilities + Shareholders' equity Invested capital turnover (times) 24315.77 20028.28 17985.69 15394.15

2004-05 14646.98

58741.77

47075.52

25597.50

14617.16

12143.30

Sales revenues/Long term liabilities + shareholders' equity 0.41 0.43 0.70 1.05 1.21

Analysis: The figures indicate that : there has been a increase in invested capital, however the increase in return has not matched the growth in capital investment. This indicates that Tata Steel’s overall profitability has not been healthy for the studied period. FY % Investment Inves %Return 2005-06 24.78 5.10 2006-07 83.91 16.83 2007-08 75.12 11.36 2008-09 20.37 21.41

Analysis: Equity turnover is used to calculate the rate of return on common equity, and is a measure of how well a company uses its stockholders' equity to generate revenue. The higher the ratio is, the more efficiently a company is using its capital. w.r.t Tata Steel's invested capital turnover, this again shows a downturn over last 5 years and gives the impression that the company is not able to grow its revenue from stockholder's equity.

2008-09 Net sales revenue Shareholders' equity Equity turnover (times) 24315.77 30176.26

10. Equity turnover . 2007-08 2006-07 20028.28 27300.73 17985.69 14096.15

2005-06 15394.15 9755.30

2004-05 14646.98 7059.92

Sales revenues/shareholder's equity 0.81 0.73 1.28 1.58 2.07

11. Day's cash Total Expenses Total noncash expenses Total Cash Expenses Cash cost per day Cash Day's cash (days) TEAM ACAD 2008-09 17308.43 973.40 2007-08 13183.05 834.61 2006-07 07 11571.94 819.29 2005-06 10101.42 775.10 2004-05 9259.17 618.78

Total expenses - Total non non-cash expenses 16335.03 44.75 1590.60 35.54 12348.44 10752.65 9326.32 Total cash expenses/365 33.83 29.46 25.55 465.04 7681.35 288.39 Cash/cash cost per day 13.75 260.74 11.29 8640.39 23.67 246.72 10.42

Analysis: The Day's cash or cash : balance ratio indicates the number of days that a company can pay its debts, as they become due, out of current cash. The increase in the ratio over last few years indicate better company image in the market. The abnormal value in 2006-07 is 2006 due to the Tata Steel acquiring Corus.

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

12. Day's receivables (or collection period) . 2008-09 2007-08 2006-07 2005-06 Accounts receivables Net sales revenue Current ratio 159.25 24315.77 143.44 19691.00 NA 17985.69 NA 15394.15

2004-05 NA 14646.98

2.39

Accounts Receivables/ (Sales/365) 2.66 NA NA

NA

Analysis: A measure of the average time a company's customers take to pay for purchases, equal to accounts receivable divided by annual sales on credit times 365. The lower, the better. The analysis couldn't be made as the necessary figures could be found only for last two years which display a slight slump. This means that the number of day in which a sale is realised has extended by a little margin.

Analysis: A measure of performance, calculated by average inventory divided by average daily cost of sales. This returns a figure equivalent to the number of days an item is held as inventory before it is sold. The lower the days inventory, the more efficient the company is, all other things being equal. This again has been almost constant over the last 5 years with last year indicating best performance in this aspect.

Inventory Cost of goods sold Day's inventory

2008-09 2,868.28 17308.43 60.49

13. Day's inventory . 2007-08 2006-07 2006 2,047.31 1827.54 13183.05 11571.94

2005-06 1732.09 10101.42

2004-05 1523.34 9259.17 60.05

Inventory/(cost of sales/365) 56.68 57.64 62.59

2008-09 Cost of goods sold Inventory Inventory turnover 17308.43 2,868.28

14. Inventory turnover . 2007-08 2006-07 07 13183.05 2,047.31 11571.94 1827.54

2005-06 10101.42 1732.09

2004-05 9259.17 1523.34

Cost of sales/inventory 6.03 6.44 6.33 5.83 6.08

Analysis: The ratio of a company's annual he sales to its inventory; or equivalently, the fraction of a year that an average item remains in inventory. Low turnover is a sign of inefficiency, since inventory usually has a rate of return of zero. Inventory turnover has been almost same over the years which implies that Tata Steel has been successfully in controlling Inventory (intake of raw materials and it's ra conversion into semi-finished or finished semi goods).

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

15. Working capital turnover . 2008-09 Net sales revenue Current assets Current liabilities Working capital Working capital turnover 24315.77 10285.09 8974.05 1311.04 2007-08 20028.28 36962.44 6768.78 2006 2006-07 17985.69 13701.89 5453.66 2005-06 15394.15 4237.60 3808.72 2004-05 14646.98 4083.58 3699.99 383.59

Current assets - current liabilities 30193.66 8248.23 428.88 Sales revenue / working capital

18.55

0.66

2.18

35.89

38.18

Analysis: Current assets minus current liabilities. Working capital measures how much in liquid assets a company has available to build its business. The number can be positive or negative, depending on how much debt the company is carrying. This ratio indicates that Tata steel has been able to improve its working capital considerably and this can be used to expand and improve their operations.

Analysis: An indication of a company's ability to meet short-term debt obligations; term the higher the ratio, the more liquid the company is. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. Tata steel's ratio has always been healthy in last 5 years though relative to 2007-08, the current ratio has 08, decreased but still it is still higher than the first two years of study. This indicates that Tata Steel is in relatively good short-term term financial standing.
17. Acid-test ratio test 2008-09 Monetary current assets Current liabilities Current ratio 6804.62 8974.05 0.76 2007-08 2211.18 6768.78 2006-07 07 34357.46 5453.66

16. Current ratio . 2008-09 Current assets Current liabilities Current ratio 10285.09 8974.05 2007-08 36962.44 6768.78 2006-07 13701.89 5453.66 2005-06 4237.60 3808.72 2004-05 4083.58 3699.99

current assets/current liabilities 1.15 5.46 2.51 1.11 1.10

2005-06 11368.91 3808.72

2004-05 2062.85 3699.99 0.56

Monetary current assets/current liabilities 0.33 6.30 2.98

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Analysis: This ratio is the most stringent measure of how well the company is covering its short-term obligations, since the ratio only considers that part of current assets which can be turned into cash immediately (thus the exclusion of inventories). The ratio tells creditors how much of the company's short term debt can be met by selling all the company's liquid assets at very short notice. Tata Steel acquired Corus in the year 2006 and hence the ratio has spiked in FY 2005-07 and this 2005 does justify the fairness of low ration in the next two Fiscal Years.

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

18. Capital intensity
2008-09 Net sales revenue Property, plant and equipment Capital intensity (times) 24315.77 2007-08 20028.28 2006-07 07 17985.69 2005-06 15394.15 2004-05 14646.98

14482.22

12623.56

11040.56

9865.05

9112.24

Sales revenue/property, plant and equipment , 1.68 1.59 1.63 1.56 1.61

Analysis: The capital intensity ratio indicates the relation of sales to that of current assets. Tata Steel has to use a majority of its capital to buy expensive machines instead of more labour and hence Tata Steel is a capital intensive industry with its investment increasing in every fiscal year by a considerable margin.

Analysis: Financial leverage ratios provide an indication of the long-term solvency of term the firm i.e. the extent to which the firm is using long term debt. An increase in this ratio to 2.24 from 1.97 in FY 2007-08 indicates that Tata steel would find it more challenging to pay interest and principal while obtaining further funding.

19. Financial Leverage Ratio 2008-09 Total Assets Shareholders' equity Financial leverage ratio (times) 67715.82 30176.26 2007-08 53844.20 27300.73 2006-07 2006 31051.16 14096.15 2005-06 18425.88 9755.30 2004-05 15843.29 7059.92

Assets/shareholders' equity 2.24 1.97 2.20 1.89 2.24

20. Debt/equity ratio(using long term liabilities) . 2008-09 Long-term liabilities Shareholders' equity Debt/equity ratio (per cent) 28565.51 30176.26 2007-08 19774.79 27300.73 2006-07 11501.35 14096.15 2005-06 4861.86 9755.30 2004-05 5083.38 7059.92

Long-term liabilities/shareholders' equity*100 term 94.66 72.43 81.59 49.84 72.00

TEAM ACAD

Analysis: The D/E ratio is a financial ratio indicating the relative proportion of equity and debt used to finance a company's assets. A high debt/equity ratio, as is the case with Tata Steel at 94.66 percent in FY2008-09, generally FY2008 means that a company has been aggressive in agg financing its growth with debt. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater ear amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business he activities and become too much for the company to handle.

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

21. Debt/equity ratio(using Total liabilities) bt/equity Total liabilities Shareholders' equity Debt/equity ratio (per cent) 2008-09 37539.56 30176.26 2007-08 26543.57 27300.73 2006-07 16955.01 14096.15 2005-06 16955.01 9755.30 2004-05 8783.37 7059.92

Long-term liabilities/shareholders' equity*100 124.40 97.23 120.28 88.88 124.41

Analysis: This D/E ratio is an alternative which is not used as commonly as the previous one, but monly is nonetheless an important financial aid. This ratio also takes into consideration the current liabilities since such liabilities are short-term and involve day to day term operations such as payroll and interest payment.

Analysis: This ratio is a variation of the

22. Debt/capitalization Long-term liabilities Long-term liabilities + Shareholders' equity Debt/capitalization (per cent) 2008-09 28565.51 58741.77 2007-08 19774.79 47075.52 2006-07 11501.35 25597.50 2005-06 4861.86 14617.16 2004-05 5083.38 14617.16

traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. This tells investors whether a company is more prone to using debt financing or equity financing. This ratio in case of Tata steel is evenly poised at 48.63 percent for FY2008-09 thereby meaning that the company has the flexibility of using either of the two financing schemes.

term Long-term liabilities/ (long-term liabilities + shareholders' equity)*100 2.24 1.97 2.20 1.89 2.24

23. Times interest earned(TIE . earned(TIE) Pre-tax operating profit Interest Times interest earned (times) 2008-09 7315.61 2007-08 7066.36 2006-07 6261.65 2005-06 5239.96 2004-05 5297.28

Analysis: TIE is a metric used to
measure a company's ability to meet its debt obligations. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. However, a high ratio can indicate that a company has an undesirable lack of debt any or is paying down too much debt with earnings that could be used for other projects. The rationale is that a company would yield greater returns by investing its earnings into other projects and borrowing at a lower cost of capital than what it is t currently paying for its current debt to meet its debt obligations. Thus for the FY2008-09, Tata steel has earned 7.35 09, times its interest charges.

1152.69

878.70 173.90 118.44 186.80 (Pretax operating profit+interest)/interest 7.35 9.04 37.01 45.24 25.36

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

2008-09 Weighted Average No. of Ordinary Shares for Basic EPS (Nos.) Dividend Dividend per share Market Share Price (Rs.) Dividend yield (per cent)

24. Dividend yield . 2007-08 2006-07

2005-06

2004-05

7305848 34.00

697748601.00

572409842.00

553472856.00

553472856

1168950 0000.00 16.00 360.18 4.44

11689300000. 00 16.75 379.00

9439100000.0 0 16.49 242.72

7195100000.0 0 13.00 171.68

719510000 0 13.00 123.68 10.51

Dividends per share/ Market price per share*100 4.42 6.79 7.57

Analysis: Dividend Analysis shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Tata Steel has given an excellent dividend yield by announcing a dividend of Rs. 16 on each share.

Analysis: Dividend payout ratio is the

percentage of earnings paid to shareholders in dividends. It provides an idea of how well earnings support the dividend payments. Though the FY 09 2008-09 net income has increased, the Dividend payout has decreased since total Dividends paid has been the same as the previous year.

2005-06 2005 Dividend 719.51 Net 4849.24 4687.03 4222.15 3506.38 income Dividend Total Dividends / Net income *100 payout 24.11 24.94 22.36 20.52 (per cent)

2008-09 1168.95

25. Dividend payout 2007-08 2006-07 1168.93 943.91

2004-05 719.51 3474.16

20.71

Are the sales supported by corresponding increase in volumes sold in each of its segments
The net sales increased by 23% during FY09 over FY08 Steel volume H1 H2 Change% mainly due to higher prices realised on Steel as well as other FY 09 2.38 2.85 20% producst during the first half of the year of the financial FY 08 2.26 2.52 12% year. While realisation declined following the global economic slowdown, Steel volumes improved significantly in the second half as can be seen from in the table. olumes

The divisional net sales of the Company are shown here:

As explained above net sales in the Steel division increased by 23% due to increase in 2,324 1,808 516 29% prices in the first half of FY 09 and increase in 127 127 0 0% volume in the second half of FY 09. Similarly 24,316 19,691 4,625 23% sales of Tubes and Ferroalloys improved mainly due to higher realisations experienced during the year on account of increase in prices with lower volumes as compared to the last year.
TEAM ACAD

Net Sales Steel Tubes Ferroalloys and Minerals Bearings Total

FY 09 FY 08 Change Change % 20,456 16,539 3,917 24% 1,410 1,217 193 16%

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:
Organizational Structure
(Top Management)

Financial Analysis

{Fiscal Year 2008-09}

Company management

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09}

Corporate Governance
The Company’s Corporate Governance Philosophy The Company has set itself the objective of expanding its capacities and becoming globally competitive in its business. As a part of its growth strategy, the Company believes in adopting the ‘best practices’ that are followed in the area of Corporate Governance across various geographies. The Company emphasises the need for full transparency and accountability in all its transactions, in order to protect the interests of its stakeholders. The Board considers itself as a Trustee of its Shareholders and acknowledges its responsibilities towards them for creation and safeguarding their wealth. In accordance with the Tata Steel Group Vision, Tata Steel Group (‘the Group’) aspires to be the global steel industry benchmark for value creation and corporate citizenship. The Group expects to realise its Vision by taking such actions as may be necessary in order to achieve its goals of value creation, safety, environment and people. Board of Directors The Company has a non-executive Chairman and the number of Independent Directors is more than onethird of the total number of Directors. As on 31st March, 2009, the Company has 14 Directors on its Board, of which 8 Directors are independent. The number of Non-Executive Directors (NEDs) is more than 50% of the total number of Directors. The Company is in compliance with of clause 49 the Listing Agreement pertaining to compositions of directors. None of the Directors on the Board is a Member on more than 10 Committees and Chairman of more than 5 Committees (as specified in Clause 49), across all the companies in which he is a Director. The necessary disclosures regarding Committee positions have been made by the Directors. The names and categories of the Directors on the Board, their attendance at Board Meetings during the year and at the last Annual General Meeting, as also the number of Directorships and Committee Memberships held by them in other companies are given below:

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09}

* **

Excludes Directorships in associations, private, foreign and Section 25 companies Represents Chairmanships/Memberships of Audit Committee and Shareholders’/Investors’ Grievance Committee.

Ten Board Meetings were held during the year 2008-09 and the gap between two meetings did not exceed four months. The dates on which the Board Meetings were held were as follows: • 8th April 2008, 26th June 2008, 31st July 2008, 28th August 2008, 24th October 2008, 2nd December 2008, 18th December 2008, 8th January 2009, 28th January 2009 and 27th February 2009. Dates for the Board Meetings in the ensuing year are decided well in advance and communicated to the Directors. Board Meetings are held at the Registered Office of the Company. The Agenda along with the explanatory notes are sent in advance to the Directors. Additional meetings of the Board are held when deemed necessary by the Board. The information as required under Annexure IA to Clause 49 is being made available to the Board. The Board periodically reviews compliance reports of all laws applicable to the Company. Steps are taken by the Company to rectify instances of non-compliance, if any. During 2008-09, the Company did not have any material pecuniary relationship or transactions with Non-Executive Directors, other than Dr. J. J. Irani and Dr. T. Mukherjee, to whom the Company paid retiring benefits aggregating to Rs. 35.68 lakhs and Rs. 28.86 lakhs respectively. The Company has adopted the Tata Code of Conduct for Executive Directors, Senior Management Personnel and other Executives of the Company. The Company has received confirmations from the Executive Director as well as Senior Management Personnel regarding compliance of the Code during the year under review. It has also adopted the Tata Code of Conduct for Non-Executive Directors of the Company. The Company has received confirmations from the Non-Executive Directors regarding compliance of the Code for the year under review. Both the Codes are posted on the website of the Company.

• •

• • •

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:
Audit Committee

Financial Analysis

{Fiscal Year 2008-09}

The Company had constituted an Audit Committee in the year 1986. The scope of the activities of the Audit Committee is as set out in Clause 49 of the Listing Agreements with the Stock Exchanges read with Section 292A of the Companies Act, 1956. The terms of reference of the Audit Committee are broadly as follows: • • • To review compliance with internal control systems; To review the findings of the Internal Auditor relating to various functions of the Company; To hold periodic discussions with the Statutory Auditors and Internal Auditors of the Company concerning the accounts of the Company, internal control systems, scope of audit and observations of the Auditors/Internal Auditors; To review the quarterly, half-yearly and annual financial results of the Company before submission to the Board; To make recommendations to the Board on any matter relating to the financial management of the Company, including Statutory & Internal Audit Reports; Recommending the appointment of statutory auditors and branch auditors and fixation of their remuneration.

• • •

Mr. Subodh Bhargava, Chairman of the Audit Committee was present at the Annual General Meeting held on 28th August, 2008. The composition of the Audit Committee and the details of meetings attended by the Directors are given below:

Ethical Practices Since Tata Motors is a part of a large conglomerate company it needs to have a strong corporate governance to ensure that its employees act ethically and the business continues to run smoothly especially during the ever changing and dynamic global economy. “Tata Group’s corporate governance is founded upon a rich legacy of fair, ethical, and transparent governance practices” (tatacarsworldwide.com). One of the more important parts of this is the transparency of the company people have a right to know what the company is doing not only to ensure ethical practices, but for the insurance of their many shareholders whom have a right to know the inner workings of the company.

Tata has created some models for employees to guide themselves through everyday business practices to ensure that the corporate governance is continuously being upheld. The Tata business excellence model is upheld by Tata quality management services. Quality management is an in-house group dedicated to helping the various Tata companies achieve their business objectives through specific processes. The two
TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis {Fiscal Year 2008-09} main processes that the quality management services employees focus on are business excellence and business ethics. These two objectives have helped build Tata into the strong, Business Policy & Competitive Strategy dynamic company it is today. These models are entrenched in the company’s ethnical standards and Tata feels strongly about enforcing both throughout the company. “Tata quality management services plays the role of supporter and facilitator in the journey that Tata enterprises undertake to reach the peaks of business eminence while, at the same time, adhering to the highest ethical standards” (Tata.com). To further prove their commitment to quality and ethical practices Tata has introduced annual quality awards for those companies conducting business with the utmost quality. These awards are called the JRD quality value awards named after the late chairmen JRD Tata. These awards are presented annually on July 29th birthday of JRD Tata. Tata has committed to ensuring quality and ethical standards not only within Tata Motors, but throughout their many other branches and sectors of the Tata Group. They have done so by benchmarking quality standards through the Tata business excellence model as well as providing incentives for companies to strive to improve the quality of their service, by awarding JRD quality management awards.

SWOT analysis of the company

Strengths
• • • • • • strong brand name of TSL and Tata Group India Operations capable of meeting its own iron ore requirements raw material security building through global operations leading sales and distribution capability low ware labor availability EVA+ Company

Weakness
• • • Low R&D investment Unscientific Mining Low Productivity

Opportunites
• • • • • • Unexplored rural markets Growing domestic markets Growing global markets Developin countries not restrained under the kyoto protocol carbon credit traing on the rise high investment in infrastructure development

Threats
• • • • World's big producers entering Indian Markets China set to becoming a net exporter High duties relating to pollution control and high energy cost Global economin slowdown

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

Comparison with Tata Steel’s major competitors
Major Domestic Steel Producers • ISPAT • SAIL • JSW • BHUSHAN • TATA • ESSAR Leading Global players • Arcellor Mittal • Posco Comparison between major Indian Steel Players

P/E Comparison of Tata Steel, Arcelor Mittal and Sail (for investment purpose)

Company
Tata Steel Arcelor Mittal SAIL
Last Price Market Cap Cap.
(Rs. cr.)

P/E ratio
4.0 6.8 8.4
Sales Turnover 44,208.43 24,315.77 14,158.42 1,035.01 6,174.81 5,201.74 458.5 -66.81 Net Profit

Debt Equity Ratio
0.68 0.47 0.24
Total Assets

SAIL Tata Steel JSW Steel Visa Steel

164.55 471.55 755.5 36.4

67,965.74 41,836.58 14,131.53 400.4

35,522.89 56,650.78 19,231.88 1,173.12

TEAM ACAD

ANISH CHARU ASHWINI DIVAY

Tata Steel Limited:

Financial Analysis

{Fiscal Year 2008-09} 2008

*HRC - Rockwell C Hardness

Sources have been mentioned wherever applicable to the best of our knowledge, however, in case any source is missing, we intend to mention the necessary credentials.

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ANISH CHARU ASHWINI DIVAY

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