Indian Institute of Management,

Kozhikode
EPGP MBA Batch 12

Final Project Assignment

Financial Accounting

Presented By
Group 3:

EPGP-12A-006 Ajitava Deb

EPGP-12A-021 Anirban Das

EPGP-12A-022 Anirban Kar

EPGP-12a-114 Sumantra Sarathi Halder

EPGP-12A-108 Souvik Sengupta

1.Indian Steel & Iron Industry – An overview

Introduction
India’s economic growth is contingent upon the growth of the Indian Steel Industry. Steel is
crucial to the development of any modern economy and is considered to be the backbone
of human civilization. The level of per capita consumption of steel is treated as an
important index of the level of socio-economic development of any country. It is the
product of a large and technologically complex industry having strong forward and
backward linkages in terms of material flow income generation. All major industrial
economics are characterised by the existence of a strong steel industry and the growth of
many of these economies has been largely shaped by the strength of their steel industries
in different stages of development.
India being is a developing country, Iron & Steel industry has a very important role to play.
The large amount of iron and steel is required for constructing bridges, rail tracks, railway
locomotives, ship building, machinery, construction and automobile industries. Iron and
steel industry accelerate industrialization and is therefore called the backbone of all
industry.

Global Scenario
 In 2019, the world crude steel production reached 1684 million tonnes (Mt) and showed a growth
of 3.4% overall.

 China remained world’s largest crude steel producer in same period (996.3 Mt) followed by India
(101.95 Mt), Japan (99.3 Mt) and the USA (87.9 Mt).
Table: Top 10 Steel Producing countries Y2108 & Y2019
Rank Country 2019 (Mt) 2018 (Mt) %2019/2018
1 China 996.3 920 8.3
2 India 111.2 109.3 1.8
3 Japan 99.3 104.3 -4.8
4 United States 87.9 86.6 1.5
5 Russia 71.6 72 -0.7
6 South Korea 71.4 72.5 -1.4
7 Germany 39.7 42.4 -6.5
8 Turkey 33.7 37.3 -9.6
9 Brazil 32.2 35.4 -9
10 Iran 31.9 24.5 30.1

 World Steel Association has projected Indian steel demand to grow by 5% in 2020, while globally,
steel demand has been projected to grow by 3.9% in 2020. Chinese steel use is projected to show
7.8% growth in 2020.

 Per capita finished steel consumption in 2019 was 224.5 kg for world and 590.1 kg for China
(Source: World Steel Association). The same for India was 74.1 kg in 2018 (Source: JPC).
Indian Steel Market overview
India is the world’s second largest steel producer from 2018 after China. In FY19, India
produced 131.57 million tonnes (MT) of crude steel and 111.2 MT of gross finished steel.
Exports and imports of finished steel stood at 5.75 MT and 5.07 MT, respectively till
November 2019. In India, as per Indian Steel Association (ISA), steel demand to grow by
over 7 per cent in both 2019-20 and 2020-21.
The Indian Government has taken various steps to boost the sector, including the
introduction of National Steel Policy 2017 and allowing 100 per cent Foreign Direct
Investment (FDI) in the steel sector under the automatic route. Between April 2019 and
September 2019, inflow of US$ 11.40 billion has been witnessed in the metallurgical
industries as Foreign Direct Investment (FDI).

The Government has launched the National Steel Policy 2017 that aims to increase the per
capita steel consumption to 160 kgs by 2030-31 from current per capita consumption of
74.1 kg. The government has also promoted Policy which provides a minimum value
addition of 15 per cent in notified steel products which are covered under preferential
procurement.
National Mineral Development Corporation is expected to invest US$ 1 billion on
infrastructure in next three years to boost iron production. Government introduced Steel
Scrap Recycling Policy aimed to reduce import.
As per Economic Survey 2018-19, steel production will touch 128.6 million tonnes by 2021
and 300 million tonnes by 2030-31.
Huge scope for growth is offered by India’s comparatively low per capita steel consumption
and the expected rise in consumption due to increased infrastructure construction and the
thriving automobile and railways sectors.

Major Steel Producers in India wrt Net Sales & Market Capitalisation
Company Name Net Sales Market Capitalisation
(in Crores) (in Crores)

JSW Steel 76,727.00 59,366.93

Tata Steel 70,610.71 43,662.74
SAIL 66,967.31 14,890.54
Hindalco 45,749.16 35,779.78
Jindal Steel 27,715.97 16,376.36
Tata Steel BSL 20,891.60 2,667.99
Jindal Stainless 12,585.01 1,934.32
NMDC 12,152.67 28,628.29
Jindal Saw 9,829.49 2,612.39
Jindal (Hisar) 8,956.40 1,528.39

We’re choosing below two industries for our Financial Accounting Project

 JSW Steel Limited – As the Market leader in this segment

 Jindal Steel Limited – One of the key players in this segment
Annual Report of the two Companies Financial Year: 2018-2019:

JSW STEEL

Jindal Steel Limited

2.Comparative and Comment on the Managerial Discussion of

two companies:
Here both of the company adopted Indian Accounting Standard (referred to as ‘Ind AS’)
with effect from 1 April, 2016 and accordingly these financial results along with the
comparatives have been prepared in accordance with the recognition and measurement
principles stated therein, prescribed under Section 133 of the Companies Act, 2013 (“Act”)
read with the relevant Rules framed thereunder and the other accounting principles
generally accepted in India.

Analysis on JSPL :

Improved utilisation of cash by maximising EBITDA

Focus to overall cash management system by planning their production in accordance with
cash velocity and EBITDA maximisation, EBITDA of USD 12.63 million.

Operating income during the year rose 41.3% on a year-on-year (YoY) basis. The
company's operating profit increased by 29.9% YoY during the fiscal. Operating profit
margins witnessed a fall and stood at 21.3% in FY19 as against 23.1% in FY18.

Depreciation charges increased by 41.1% and finance costs increased by 10.3% YoY,
respectively. Other income grew by 435.2% YoY.Net profit for the year declined by
133.8% YoY.

Special Focus customer and market analysis to create a larger pipeline of long term orders

Transformation of balance sheet by continuing on deleveraging journey by focusing on

enhancing internal cash generation Which indicates that the company's current liabilities
during FY19 stood at Rs 214 billion as compared to Rs 195 billion in FY18, thereby
witnessing an increase of 10.0%.
Long-term debt down at Rs 299 billion as compared to Rs 330 billion during FY18, a fall
of 9.2%.

To increase per Capita Steel Consumption to 160 Kgs by 2030-31 reduce the carbon
footprint of the steel industry

Enrichment of internal audit facility, it has acquired in-depth knowledge about the
Company, including its businesses and operations and systems and processes. Emerging
Economies of likely to be the fastest growing region in the steel industry with 6.5% and
6.4% growth

Analysis on JSW Steel:

With a strategic focus on enriching its product mix, the Company has decided to increase
the volume and share of value added and special products in its portfolio. Considering the
growth potential in these value added segments, the Company has decided to set
up various strategic facilities.

Cost reduction projects and manufacturing integration like:

Coke oven plant of 1.5 MTPA under Dolvi Coke Projects Limited (DCPL): The Company
through DCPL will be setting up a second line of 1.5 MTPA coke oven plant along with CDQ
facilities to cater to the additional coke requirement for the crude steel capacity
expansion to 10 MTPA at Dolvi. This project is expected to be commissioned by June 2020.

The Company had fifty direct and indirect subsidiaries and ten JVs as on 31 March, 2019.
The Company has acquired certain overseas subsidiaries and domestic joint ventures during
the year. Further, JSW Retail Limited was incorporated as a wholly owned subsidiary by the
Company during the year with an objective to achieve retail focus and increase the retail
steel sales to improve profitability. Other than these, there has been no material change in
the nature of the business of the subsidiaries

During FY 2018-19, JSW Steel (USA) generated EBITDA of USD 26.09 million compared to
EBITDA of USD 13.22 million in FY 2017-18. The increase was mainly attributable to higher
sales volume of plate product

In terms of the Policy, Equity Shareholders of the Company may expect Dividend if the
Company has surplus funds and after taking into consideration relevant internal and
external factors enumerated in the policy for declaration of dividend. The policy also
enumerates that efforts will be made to maintain a dividend pay out (including dividend
distribution tax and dividend on preference shares, if any) in the range of 15% to 20% of the
consolidated net profits of the Company after tax, in any financial year, subject to
compliance of covenants with Lenders / Bond holders

Efficiency, productivity improvement and cost-reduction initiatives replacing of primary

gas coolers (PGC) in Coke Oven - 4 by product plant to improve process efficiency.

Technology and operational disruptions -effective management of automation systems,

spares management, maintenance scheduling, R S D infrastructure and insurance cover for
plant interruptions and loss of profit
3.Comments on Cash Flow Statement
This section discusses about the comparison between JSW and Jindal statement of cash
flow.

Company JSW Steel (in Crores) Jindal (in Crores)

(For the year ended 31 March (For the year ended 31 March
2019) 2019)
Particulars
Operations 118.17 Operations 5.7
Sale of current 83.5 Working capital 15.83
Investments borrowings from
Major Sources Banks
Non-current 60.17 Long term 14.08
borrowings Borrowings
Inventories 5.17 Inventories 7.72
Trade Receivables 20.56 Trade Receivables 1.21
Purchase of 79.02 Purchase of 7.16
Property, Plant Property, Plant and
and Equipment Equipment
Proceeds from / 31.96 Repayment of Long 27.63
Repayment of term borrowings
current borrowings
Purchase of 83.40 Interest Paid 27.36
Major Uses current investment
Loan given to 33.17
related parties
Investment in 12.37
Subsidiaries and
Joint ventures
Interest Paid 35.32
Dividend Paid 8.86
Capex vs. 79.02 (C) > 33.97 (D) 7.16 (C) < 23.07 (D)
Depreciation
Cash from Operation 118.17 < 79.02 + 8.86 +35.32 5.7 < 7.16 + 27.36
vs. Capex + Dividend 118.17 < 123.2 5.7 << 34.52
Paid + Interest Paid

Analysis on the Cash Flow statement of JSW:

 Based on the analysis of the cash flow statement of JSW, Capex value are greater
than the depreciation value which signifies that the company is expanding.
 Cash from Operation is higher than Capex signifying that the company is generating
good money from operations.
 The major source of cash for JSW is Sale of current investment and non-current
borrowing.
 Major usage of cash was to purchase Capex, current investment and Trade
receivables.
Analysis on the Cash Flow statement of JSPL:

 Based on the analysis of the cash flow statement of Jindal, Capex value are lesser
than the depreciation value which signifies that the company’s asset value is going
down and it signifies the weak state of the company.
 Cash from Operation is lesser than Capex signifying that the company is not
generating good money from operations.
 The major source of cash for Jindal is Working capital borrowings from Banks and
Long term Borrowings
 Major usage of cash was for Repayment of Long term borrowings

4.Computations of the Ratios:

Here we are analysing a comparative studies of the ratios between two companies:

Financial Ratios JSPL JSW

S.No Ratio Numerator Denominator Interpretation 2019 2019
.
Efficiency Ratios
1 Debtors Net Credit Average Times 32.65 13.50
Turnover Sales or Debtors
Ratio Net sales
2 Inventor COGS or Average Times 7.12 7.24
y Net Sales Inventory
Turnover
Ratio
3 Current Net Sales Average Times 0.66 3.26
Assets Current
Turnover Assets
Ratio
4 Non- Net Sales Average NCA Times 0.53 1.07
Current
Assets
Turnover
Ratio
5 Total Net Sales Average Times 0.69 0.81
Assets Total Assets
Turnover
Liquidity Ratios
1 Current Current Current Times 0.39 0.81
Ratio Assets Liabilities
2 Quick Current Current Times 0.35 0.50
Ratio Assets- Liabilities
Inventory-
 Prepaid
Exp
3 Super Cash and Current Times 0.01 0.16
Quick Bank+ Liabilities
Ratio Marketable
Securities
4 Debtors 365 Debtors Days 11.17 27.02
Collectio Turnover
n Period
5 Inventor 365 Inventory Days 51.26 50.41
y Holding Turnover
Period
6 A/P 365 A/P Days 104.75 3.07
Payable Turnover
Period
7 A/P Net Credit Avg Times 3.48 118.56
Turnover Purchases Accounts
or Payables
Purchases
8 Cash Debtors Collection Period Days 34.0 3.79
Cycle or + Inventory Holding
Net Period-A/P
Operatin Payment Period
g Cycle

Profitability Ratios
1 Gross Gross Net Sales Percentage 13.38% 20.98%
margin Profit
Ratio
2 Operatin Operating Net Sales Percentage 20.42% 20.23%
g Profit Profit
Ratio
3 Net PAT Net Sales Percentage -0.94% 10.69%
Income
Ratio
4 Return PAT - Pref. Average Percentage 5.01% 23.48%
on Equity Dividend Equity
Shareholders
Funds
5 Return PAT + Average Percentage 2.39% 8%
on Total Interest (1- Total Assets
Assets Tax Rate)
6 Return PAT + Average Percentage 9.27% 22.02%
on Interest (1- Non-Current
Capital Tax Rate) Liabilities
Employe and Equity
d Shareholders
Funds
7 Cash Net CFOA PAT Times 21.48 195%
Realizati
on Ratio
 8 EPS PAT Number of Rupees -8.60% 34.35%
Equity
shares
Long Term Solvency Ratios
1 Financial Total Equity Times 1.66 2.98
Leverage Liability Shareholders
Ratio ’
Funds
2 Debt Non Equity Percentage 0.78 1.00
Equity Current Shareholders
Ratio Liabilities ’
Funds
3 Debt to Non- Non-Current Percentage 45% 0.50
Capital Current Liabilities +
Employe Liabilities Equity
d Shareholders
’ Funds
4 Interest PBIT Interest Times 1.13 4.19
Coverage
Ratio
Valuation Ratios
1 Price Market Earnings Per Times 19.61 0.09
Earnings Price per Share
Ratio share
2 Price Market Sales Per Times 0.59 1.15
Sales Price per Share
Ratio share
3 Dividend Dividends PAT Percentage 0 0.10
Payout
Ratio
4 Dividend Dividends Market Price Percentage 0 4.1
Yield Per share per share
Ratio
5 MP to BV Market Book Value Times 0.7 2.51
Ratio price per Per share
share

5.Highlights on Best and Worst with the Analysis of various

Financial Aspect:

Here we are going to analysis the various ratios of the two companies with help excel and
produce a graphical view of this.

Since these businesses likely operate with similar fixed asset investments and have similar
capital structures, the results of a ratio analysis should be similar. If this is not the case, it
can indicate a potential issue, or the reverse - the ability of a business to generate a profit
that is notably higher than the rest of the industry
Ratio Type Ratio JSW JSPL Ideal Observation
(Market Value
Leading) (Normal
)

Efficiency Debtors 13.51 32.65 Higher Debtors Turnover Ratio is relatively

Ratio Turnover is Lower for the Market Leading
Ratio Better Company
Efficiency Inventory 7.24 7.12 Higher Both companies are in almost
Ratio Turnover is same position but here normal
Ratio Better company is maintaining it.
Efficiency Current 3.27 0.66 Higher Company is working on the
Ratio Assets is consistent improvement of its
Better policies in inventory, accounts
 Turnover receivable, cash and other current
Ratio assets management
Efficiency Non 1.08 0.53 Higher
Ratio Current is
Assets Better
Turnover
Ratio
Efficiency Total 0.81 0.69 Higher
Ratio Assets is
Turnover Better
Liquidity Current 0.81 0.39 Higher
Ratio Ratio is
Better
Liquidity Quick 0.51 0.35 Higher
Ratio Ratio is
Better
Liquidity Super 0.17 0.01 Higher
Ratio Quick is
Ratio Better
Liquidity Debtors 27.02 11.18 Lesser Debtors Collection Period is
Ratio Collection is relatively Higher for the Market
Period Better Leading Company
Liquidity Inventory 27.02 51.26 Lesser
Ratio Holding is
Period Better
Liquidity A/P 3.08 104.76 Lesser
Ratio Payable is
Period Better
Liquidity A/P 118.57 3.48 Higher
Ratio Turnover is
Better
Liquidity Cash 3.79 34.05 Lesser Cash Cycle is relatively much
Ratio Cycle or is Lower for the Market Leading
Net Better Company
Operating
Cycle
Profitability Gross 20.98% 13.38% Higher
Ratio margin is
Ratio Better
Profitability Operating 20.23% 20.42% Higher Operating Profit Ratio is relatively
Ratio Profit is Lower for the Market Leading
Ratio Better Company
Profitability Net 10.69% -0.94% Higher Net Income Ratio is Negative for the
Ratio Income is Non-Leading Company
Ratio Better
Profitability Return on 23.48% 5.01% Higher
Ratio Equity is
Better
Profitability Return on 8.00% 2.39% Higher
Ratio Total is
Assets Better
 Profitability Return on 22.02% 9.27% Higher
Ratio Capital is
Employed Better
Profitability Cash 1.95 -21.49 Higher
Ratio Realizatio is
n Ratio Better
Profitability EPS 0.34 -0.09 Higher
Ratio is
Better
Solvency Financial 2.98 1.66 Lesser
Ratio Leverage is
Ratio Better
Solvency Debt 1.01 0.78 Lesser Debt Equity Ratio is relatively
Ratio Equity is Higher for the Market Leading
Ratio Better Company
Solvency Debt to 0.50 0.45 Lesser
Ratio Capital is
Employed Better
Solvency Interest 4.19 1.13 Higher
Ratio Coverage is
Ratio Better
Valuation Price 0.09 19.61 Lesser PE Ratio is relatively much Lower
Ratio Earnings is for the Market Leading Company
Ratio Better
Valuation Price Sales 1.15 0.59 Lesser
Ratio Ratio is
Better
Valuation Dividend 0.11 0.00 Lesser Dividend Payout is relatively Higher
Ratio Payout is in the Market Leading Company
Ratio Better
Valuation Dividend 4.10 0.00 Higher
Ratio Yield is
Ratio Better
Valuation MP to BV 2.51 0.70 Higher
Ratio Ratio is
Better

Inferences on Overall Comparative Study:

Analysis of fixed assets:

The difference of fixed assets from 2018 to 2019 in case of JSW is increased by 10595
crores which means JSW is expanding their business. This indicates JSW is generating good
amount of operating cash flow, hence they are able to expand their business.
The difference of fixed assets from 2018 to 2019 in case of JSPL is decreased by 2114
crores which means JSPL is downsizing their business. Often this is a result of cash crunch
and thus selling its non- current assets to meet its day to day requirement.
Analysis of Trade payable: -
JSW’s trade payable decreased by 936 crores from 2018 to 2019 which indicates, they are
paying their suppliers on time in return supplier would be happy to provide supplies in
credit in future.
In case of JSPL their trade receivable is increase by 801.52 crores from 2018 to 2019 which
can indicate an inability to fulfil its short-term commitments, hence inviting more serious
problem i.e. supplier may not be ready to provide supplies on credit.

Analysis of trade receivable and inventory:-

JSPL Trade receivable and inventory totalling : 51% of its total current asset.
JSW Trade receivable and inventory : 62% of its total current asset.
JSW has comparatively larger proportion if asset stuck as receivables and inventory
totalling of 62%. This could be an indication of tough business condition for the company
and thus a consequent large credit terms for its customers.
High Debtor Collection Period and Low Debtor Turnover Ratio for JSW implies that either
the company has extended credit period for debtors or the debt collection team is not
performing well.

Regarding long term borrowing: -

Both JSPL and JSW depend on outsider fund but JSPL is less dependent on its long-term
borrowing, which is approximately 65.05% of its non-current liabilities whereas JSW more
dependent on long term borrowing as its long-term borrowing is approximately 75.68% of
its total non-current liabilities.

Regarding available cash :-

JSPL is having very low cash levels which is of 0.70% of its total current asset; possibly
short-term liquidity crisis. Whereas JSW is maintaining approximately 18.77% as cash of its
current asset, indicating a much better position of the company for handling its short term
commitments though Short Term Credit Risk of JSW is lesser than JSPL because of
relatively higher immediately available cash.

Regarding working-capital:-
Both of the fund having working capital in negative figure which indicates their source of
funds (Current liability) is not being utilized properly in their application of funds (Current
asset). Capital Structure of JSW is more Debt based (since Debt Equity Ratio is higher) and
less relied on Owner’s equity.