ECONOMIC

ANALYSIS

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 ECONOMIC FACTORS
In this we will look into the factors which directly or indirectly influence the Steel industry. Steel
industry is directly impacted by its environment. So, knowing all the factors in depth is very
essential to peep into the future prospects of this Industry. Current situation of these factors are
as follows -

1. Gross Domestic Product –

During the first quarter of 2008-09, real GDP growth was 7.9 per cent as against 9.2 per cent a
year ago. The end-August 2008 release of national income aggregates by the Central Statistical
Organization placed the growth of real GDP originating in agriculture, industry and services at
3.0 per cent, 5.2 per cent and 10.2 per cent, respectively, during April-June 2008 as against 4.4
per cent, 9.6 per cent and 10.6 per cent a year ago.

2. Rainfall and Monsoon –

There are some distinctive features in macroeconomic developments during the second quarter of
2008-09 (July-September) in relation to the preceding quarter. According to the India
Meteorological Department, cumulative south-west monsoon season rainfall for the country as a
whole was two per cent below the long period average.

Key Indicators –
India Month of MAY

Series Name 2004 2005 2006 2007 2008

Exchange rate movements 45.2508 43.4889 45.4073 40.7814 42.1175

Inflation developments 2.2352 4.9513 5.0328 6.6667 7.8125

Growth Rates (%) Jan - April'07 Jan - April'08 Inc./(dec)

Real GDP 9.20 7.90 -14%
Net profit 33.9 8.2 -75.81%
Telephone Con(in million) 26 34.4 32.31%
Railway revenue 6.1 9.4 54.10%
Cargo - Major Ports 14.9 8.3 -44.30%

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Growth Rates (%) April - Jun'07 April - Jun'08 Inc./(dec)
Agriculture 4.40 3.00 -32%
Industry 9.60 5.20 -46%
Services 10.60 10.20 -4%
Real Pvt Final Cons. Exp. 7.6 8 5%
Real Gross fixed cap. formation 13.3 9 -32%

Growth Rates (%) April - Aug'07 April - Aug'08 Inc./(dec)

Index of Industrial Prod. 10.00 4.90 -51%

Growth Rates (%) 2007 2008 Inc./(dec)

Capital Goods 20.10 9.20 -54%
Cons. Non Durable Prod. 10.00 8.60 -14%
Cons. Durable Prod. (2.30) 5.60 343%
Basic Good Prod. 9.90 3.80 -62%
Intermediate Good Prod. 9.90 7.00 -29%
Total Exp. 34.50%
Raw Material exp. 35.90%
Staff Cost 23.20%

Growth Rates (%) Upto 10 oct 07 Upto 10 oct 08 Inc./(dec)

Bank Credit 4.4 10.4 136.36%
Bank Credit (in Rs.Crores) 84,280 245491 191.28%
Credits to Various Branches
Services 35.30%
Industry 30.60%
Agriculture 18.50%
Personal Loans 17.40%
Housing Loans 16.60%
Real Estates Loans 52.90%
C.B. inv. In Shares, debt, bonds -5.2 17.5 436.54%
SLR investments(in Rs.Crores) 90806 80176 -11.71%
Money Supply 21.9 20.3 -7.31%
Reserve Money 24.4 17.6 -27.87%

Growth Rates (%) 30-Jun-08 2-Aug-08 Inc./(dec)

C.G. Cash Bal.((in Rs.Crores) 37194 2967 -92.02%

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 3. Industries –
Manufacturing output growth, electricity generation and mining activity slowed to 5.2 per cent,
2.3 per cent and 4.1 per cent, respectively, from 10.6 per cent, 8.3 per cent and 4.9 per cent in the
corresponding period last year. Manufacturing activity was led by chemicals and chemical
products, beverages, tobacco and related products, machinery and equipments including
transport equipment and parts, which together accounted for 89 per cent of the growth of
industrial production during April-August 2008, despite constituting only 30 per cent of the
index in terms of weight.

On the other hand, production of food products, jute textiles, wood and wood products, rubber,
plastic, petroleum and coal products declined and had a moderating effect on overall
manufacturing sector growth. The use-based classification indicates some moderation in
investment demand with the growth of capital goods production slowing to 9.2 per cent from
20.1 per cent a year ago.

For the private non-financial corporate sector, sales increased by 30.0 per cent during April-
June 2008, higher than 19.2 per cent in the corresponding quarter a year ago. There was
deceleration in income from non-core activities, largely attributable to subdued conditions in the
capital market.

Growth in expenditure at 34.5 per cent outpaced sales growth. On a year-on-year basis, raw
material expenses rose by 35.9 per cent and staff cost increased by 23.2 per cent. Due to mark-to-
market losses on foreign currency borrowings resulting from exchange rate depreciation during
the quarter, a sizeable number of companies reported erosion in financial performance.

Despite an increase in interest outgo, the interest burden (interest to gross profits ratio) at 16.7
per cent remained distinctly lower when compared with 50.0 per cent in the 1990s and 43.7 per
cent in the first half of the current decade. At the sectoral level, manufacturing companies
recorded higher sales growth when compared with information technology and non-IT service
companies.

Early results for the second quarter of 2008-09 for a truncated sample of companies indicate
continuing moderation in profitability growth, especially for manufacturing companies. Sales
growth was driven by a combination of increased volumes and higher prices but was not able to
fully mitigate rising input cost and staff cost pressures.

Financing costs have increased due to rising interest payments as well as the impact of losses on
foreign liabilities. Income from non-core activities were lower reflecting subdued treasury
incomes. Consequently, corporates' earnings growth appears to have weakened further in the
second quarter of 2008-09.

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The assessment for July-September 2008 reflects a lower level of optimism than in the previous
round of the survey, with the business expectations index for July-September 2008 down by 2.4
per cent from the previous quarter. There was moderation in all major parameters such as the
overall business situation, the overall financial situation, production, order books, cost of raw
materials and profit margins.

Demand conditions appear to have weakened as reflected in the assessment of production, order
books and export demand. Higher input costs are expected to compress profit margins
significantly during the second and third quarters of 2008-09. For October-December 2008,
working capital finance requirements are expected to remain high; there are, however, concerns
about the availability of finance.

Capacity utilisation is expected to remain generally stable and production capacity is expected to
be adequate to meet demand. An increasing number of respondent firms expect price pressures to
rise on the back of higher raw material costs and expect to pass on higher prices to end-
consumers to protect profit margins. The business expectations index for October-December
2008 was 2.6 per cent lower than in the preceding quarter.

Other business confidence surveys continue to reflect uncertainty on the outlook, as also noted in
the First Quarter Review of July 2008. Business confidence has generally ebbed relative to its
level in previous survey rounds on increases in the cost of finance and raw materials and some
concerns on moderation in overall economic conditions and export demand.

According to one survey, there was a decline of 19 per cent in the indicator for the overall
economic conditions over the next six months in relation to its level polled in the previous
quarter. Another survey reported a 28.1 per cent decline in the composite business optimism
index for October-December 2008 across sales volumes, new orders and net profits, reflecting
subdued demand conditions.

4. Price Level and Inflation –

Seasonally adjusted purchasing managers' indices indicate that manufacturing sector activity has
lost some momentum due to deterioration in both local and export market conditions and
increased inflationary pressures. Forward looking indicators point towards some slowdown and
margin pressures.

Lead indicators of activity in the services sector suggest that the pace of expansion has picked up
in the communication sector with an increase of 33.8 per cent in switching capacity in April-July
2008 as against a decline of 53.1 per cent a year ago.

Railway revenue earnings from freight traffic increased by 9.4 per cent, higher than the growth
of 6.1 per cent in the corresponding period last year due to higher traffic for carriage of
petroleum, oil and lubricants (POL), container services and cement.
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Growth in cargo handled at major ports increased by 8.3 per cent as compared with 14.9 per cent
a year ago. In the civil aviation sector, handling of import cargo and export cargo increased by
6.6 per cent and 8.1 per cent, respectively, as against 23.4 per cent and 3.6 per cent in the
corresponding period of 2007-08. Growth in passengers handled at domestic and international
terminals declined/decelerated to (-) 2.2 per cent and 7.9 per cent, respectively, from 27.3 per
cent and 11.8 per cent a year ago.

According to the CSO's end-August 2008 release, The share of PFCE in GDP at 59.8 per cent
during the first quarter of 2008-09 remained stable whereas the share of GFCF increased to 32.3
per cent of GDP from 32.0 per cent a year ago.

5. Interest rate structure and credit policy –

Credit extended by scheduled commercial banks (SCBs) increased by 29.4 per cent (Rs.5,91,935
crore) on a year-on-year basis up to October 10, 2008 as compared with an increase of 23.1 per
cent (Rs.3,77,628 crore) a year ago. On a financial year basis, bank credit increased by 10.4 per
cent (Rs.2,45,491 crore) up to October 10, 2008 as compared with the increase of 4.4 per cent
(Rs.84,280 crore) in the corresponding period last year. Food credit increased by Rs.4,496 crore
as against a decline of Rs.9,501 crore in the previous year.

Non-food credit recorded an increase of 10.4 per cent (Rs.2,40,995 crore) as compared with an
increase of 5.0 per cent (Rs.93,781 crore) in the corresponding period of the previous year.

On a year-on-year basis, non-food credit growth was higher at 29.3 per cent up to October 10,
2008 than 23.3 per cent a year ago. Provisional information on the sectoral deployment of bank
credit available up to August 2008 indicates that on a year-on-year basis, credit to the services
sector recorded the highest growth (35.3 per cent), followed by industry (30.6 per cent),
agriculture (18.5 per cent) and personal loans (17.4 per cent). Growth in housing and real estate
loans decelerated to 13.9 per cent (16.6 per cent) and 46.3 per cent (52.9 per cent), respectively.

Within the industrial sector, there was a sizeable credit pick-up in respect of infrastructure (35.8
per cent as against 32.0 per cent a year ago), petroleum (91.8 per cent as against 32.9 per cent),
basic metals and metal products (32.2 per cent over 20.6 per cent), cement and cement products
(62.8 per cent over 18.1 per cent a year ago), chemicals (27.1 per cent as against 15.3 per cent)
and construction (48.3 per cent as against 42.9 per cent).

There was moderation in credit growth to food processing (25.6 per cent over 29.0 per cent),
textiles (23.1 per cent as against 28.7 per cent) and vehicle, vehicle parts and transport
equipments (27.5 per cent as against 34.2 per cent). Credit to industry constituted 44.6 per cent
of the total expansion in non-food bank credit up to August 2008, followed by services (30.3 per
cent), personal loans (16.7 per cent) and agriculture (8.4 per cent).

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The share of infrastructure, petroleum, construction, cement and mining and quarrying in total
credit to industry increased to 22.5 per cent, 6.7 per cent, 3.3 per cent, 1.6 per cent and 1.4 per
cent, respectively from 21.6 per cent, 4.6 per cent, 2.9 per cent, 1.3 per cent and 1.0 per cent.
Priority sector advances grew by 20.8 per cent with a moderation in their share in outstanding
gross bank credit to 33.1 per cent in August 2008 from 34.7 per cent a year ago. While there has
been a sharp increase in credit off-take by petroleum and fertliser companies in 2008-09, the
annual growth rate of non-food credit, even excluding credit to petroleum and fertiliser sectors,
has been significantly higher at 25.6 per cent in August 2008 as compared with 24.5 per cent a
year ago.

6. Banks investment in various Sectors –

Commercial banks' investments in shares, bonds/debentures and commercial papers (CPs)

increased by 17.5 per cent (Rs.13,600 crore) on a year-on-year basis up to October 10, 2008 as
against a decline of 5.4 per cent (Rs.4,458 crore) a year ago. On a financial year basis, such
investments by banks fell by 4.6 per cent (Rs.4,386 crore) during 2008-09 so far (up to October
10), as against a decline of 7.2 per cent (Rs.6,025 crore) in the corresponding period of 2007-08.

The year-on-year growth in total resource flow from SCBs to the commercial sector was 28.9 per
cent up to October 10, 2008 over and above the growth of 21.9 per cent a year ago. During the
current financial year, banks' investments in instruments issued by all-India financial institutions
and mutual funds declined by Rs.11,411 crore as against an increase of Rs.51,656 crore in the
corresponding period of the previous year.

Additional resources raised by corporates in the form of external commercial borrowings (ECBs)
was lower at Rs.6,494 crore (US $ 1.6 billion) during April-June 2008 as compared with
Rs.28,822 crore (US $ 7.0 billion) during the corresponding period last year. An amount of
Rs.4,652 crore (US $ 1.1 billion) was mobilised through issuance of American Depository
Receipts/Global Depository Receipts (ADRs/GDRs) during April-September 2008 as compared
with Rs.11,284 crore (US $ 2.8 billion) raised during the corresponding period last year.

7. Performance of Banks –

Aggregate deposits of SCBs increased by 21.6 per cent (Rs.6,15,263 crore) on a year-on-year
basis up to October 10, 2008 as compared with 24.7 per cent (Rs.5,65,124 crore) a year ago. On
a financial year basis, aggregate deposits rose by 8.5 per cent (Rs.2,72,420 crore) as compared
with an increase of 9.3 per cent (Rs.2,42,163 crore) in the corresponding period of the previous
year.

The share of savings deposits in total deposits has been declining and there appears to be some
migration from small savings instruments to term deposits with banks where the rates of return

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are relatively more attractive. The incremental annual credit-deposit ratio increased to 96.2 per
cent on October 10, 2008 from 66.8 per cent a year ago.

SCBs' incremental investment in Government and other approved securities during 2008-09 up
to October 10, 2008 was Rs.9,201 crore as against Rs.1,56,236 crore in the corresponding period
last year. The ratio of such investments to aggregate deposits on an incremental basis was 3.4 per
cent which was much lower than 64.5 per cent in the corresponding period last year.

8. Change in CRR and SLR –

Adjusting for collateral securities under the liquidity adjustment facility (LAF) operations,
however, statutory liquidity ratio (SLR) investments increased by Rs.80,176 crore during 2008-
09 so far as against the increase of Rs.90,806 crore in the corresponding period last year.
Inclusive of LAF collateral securities on an outstanding basis, SCBs' holdings of SLR securities
amounted to Rs.10,72,416 crore or 28.2 per cent of net demand and time liabilities (NDTL) on
October 10, 2008 implying an excess of Rs.1,20,870 crore or 3.2 per cent of NDTL over the
prescribed SLR of 25 per cent of NDTL.

Money supply (M3) increased by 20.3 per cent on a year-on-year basis up to October 10, 2008,
lower than 21.9 per cent a year ago but above the indicative projection of 17.0 per cent set out in
the Annual Policy Statement of April 2008. On a financial year basis, M3 increased by 7.7 per
cent (Rs.3,07,403 crore) up to October 10, 2008 as compared with the increase of 8.1 per cent
(Rs.2,68,694 crore) in the corresponding period of the previous year.

Reserve money increased by 17.6 per cent on a year-on-year basis as on October 17, 2008 as
compared with 24.4 per cent a year ago. On a financial year basis, reserve money declined by 2.9
per cent (Rs.27,296 crore) up to October 17, 2008 as compared with the increase of 8.1 per cent
(Rs.57,189 crore) in the corresponding period of the previous year.

Among the components of reserve money, currency in circulation registered a higher growth of
7.3 per cent (Rs.43,095 crore) as compared with 4.5 per cent (Rs.22,702 crore). Bankers' deposits
with the Reserve Bank declined by 20.3 per cent (Rs.66,793 crore) against an increase of 18.7
per cent (Rs.36,984 crore) in the corresponding period last year. Among the sources of reserve
money, the Reserve Bank's net credit to the Central Government increased by Rs.15,534 crore as
against a decline of Rs.1,43,116 crore in the corresponding period last year.

Adjusted for transactions under the LAF, however, the Reserve Bank's credit to the Central
Government showed an increase of Rs.57,244 crore, mainly on account of securities received
under special market operations (SMO) and reduction in cash balances of the Government of
India with the Reserve Bank. The Reserve Bank's net foreign exchange assets (NFEA) increased
by Rs.93,402 crore as compared with an increase of Rs.1,71,080 crore during the corresponding
period of the previous year.

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Adjusted for revaluation of foreign currency assets, however, NFEA declined by Rs.34,556 crore
as compared with an increase of Rs.2,17,201 crore during the corresponding period of the
previous year. The ratio of NFEA to currency increased marginally from 209.2 per cent on
March 31, 2008 to 209.7 per cent by October 17, 2008.

During the second quarter of 2008-09, liquidity conditions were generally tight and, except in the
first week of July, there were continuous injections of liquidity under the LAF. In addition, an
amount of Rs.26,000 crore (net) was mopped up through the issuances of 91-day, 182-day and
364-day Treasury Bills during July-September, 2008.

Net injections under the LAF increased from an average of Rs.8,622 crore in June 2008 to
Rs.22,560 crore in August 2008. During September 2008, liquidity injections under the LAF
ranged between Rs.1,025-90,075 crore, reaching a level of Rs.90,075 crore on September 29,
2008 with adverse developments in international financial markets coinciding with advance tax
outflows and the half-yearly bank closing. To ease liquidity pressures, the Reserve Bank
unwound the market stabilisation scheme (MSS) to the tune of Rs.3,105 crore during June 30-
August 21, 2008.

The Reserve Bank also cut the cash reserve ratio (CRR) by 250 basis points in October 2008 and
expanded liquidity support to the market through additional facilities referred to later. During
October 2008, liquidity injections under the LAF rose to Rs.91,500 crore on October 10, 2008,
but there was a turnaround in liquidity conditions in the subsequent period and the Reserve Bank
absorbed Rs.27,745 crore under the LAF on October 22, 2008. Banks' dependence on export
credit refinance (ECR) rose from a daily average of Rs.2,208 crore in June 2008 to Rs.3,110
crore in August 2008 and further to Rs.6,752 crore on September 29, 2008 before declining to
Rs.91 crore on October 22, 2008.

The Central Government's cash balances declined from Rs.37,194 crore on June 30, 2008 to
Rs.2,967 crore on August 2, 2008 and it took recourse to ways and means advances during
August 4-6 and September 2-14, 2008 with a peak level of Rs.10,903 crore on September 5,
2008. In the subsequent period, the Central Government's cash balances increased to Rs.29,753
crore on October 20, 2008.

On a net basis, average daily LAF absorption, which stood at Rs.9,881 crore in the first quarter
of 2008-09 changed to a net injection of Rs.30,912 crore during the second quarter and
Rs.53,259 crore in October 2008 (up to October 22).

The balances under the MSS increased marginally from Rs.1,76,422 crore in June 30, 2008 to
Rs.1,77,817 crore on September 25, 2008 before declining to Rs.1,71,317 crore on October 22,
2008. Cash balances of the Central Government with the Reserve Bank fell from an average of
Rs.30,587 crore in the first quarter of 2008-09 to Rs.17,821 crore in the second quarter and
Rs.36,599 crore in October 2008 (up to October 22).

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The total overhang of liquidity as reflected in the balances under the LAF, the MSS and the
Central Government's cash balances taken together declined from a daily average of Rs.1,93,726
crore in June 2008 to Rs.1,53,863 crore in September 2008 and further to Rs.1,22,182 crore on
October 5, 2008. The total overhang of liquidity increased to Rs.2,17,415 crore on October 20,
2008.

Overall Assessment
The global steel industry has been going through major changes since 1970. China has emerged
as a major producer and consumer, as has India to a lesser extent. Consolidation has been rapid
in Europe. The volume of steel consumed has been the barometer for measuring development
and economic progress. Whether it is construction or industrial goods, steel is the basic raw
material. Lighter metals and stronger alloys have been developed, plastics and synthetics have
replaced steel in many areas.

Steel consumption increases when economies are growing, as governments invest in

infrastructure and transport, and build new factories and houses. Economic recession meets with
a dip in steel production as such investments falter.

Aggregate supply conditions in the Indian economy have shown resilience in the second quarter
of 2008-09 in the face of a deteriorating global macroeconomic and financial environment. There
are, however, growing indications that the underlying economic cycle is turning in tune with
global economic developments and that domestic economic activity is straddling a point of
inflexion.

While the 2008 south-west monsoon season has been near normal as anticipated, large temporal
variations have resulted in some production losses on account of floods in June in some north-
eastern, eastern and northern States and deficient rainfall in July over the north-east, central India
and Kerala. At the all-India level, the area sown under various crops is close to the normal
cropping coverage but lower by about 2.6 per cent in relation to the high level a year ago.

Acreage under key crops such as rice and oilseeds has increased on a year-on-year basis but there
are downside risks for the prospects of crops such as sugarcane, coarse cereals, pulses and jute.
First advance estimates of the production of foodgrains in 2008-09 from the Ministry of
Agriculture suggest that some improvement in these key crops could occur as these early
indications firm up into a clearer picture on the final level of output for the year and the overall
outlook on agriculture.

Industrial activity in the second quarter of 2008-09 has shown mixed developments with
indications of a moderation in pace diffusing across the sector. While the pick-up in industrial
production in July 2008 surprised consensus expectations, occurring as it did after an uneven
trough during November 2007-June 2008, base effects weighed heavily on the growth rates
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observed in August and could continue to cast a shadow in some of the months ahead, especially
in October-December 2008.

Slackening of momentum is essentially located in the basic and intermediate goods sectors,
weighed down by the decline in production of fertilisers, steel, aluminum products, yarns and
fibre, organic pigments and the like. The rebound in capital goods production in July after a sag
in the preceding two months was not sustained in August, indicative of considerable uncertainty
in the evolving investment climate.

On the other hand, the sustained turnaround in consumer goods output, particularly durables,
indicates that the strength of consumption demand is inducing supply responses, aided by the
return of pricing power in an environment of high inflation. Manufacturing activity is being
driven by industries such as chemicals, machinery and transport equipment and beverages and
tobacco products.

In fact, excluding items such as wood and products, leather and paper products, textiles, rubber,
plastic, petroleum and coal products which have recorded a decline/negligible growth in
production and together have a weight of only 26 per cent in the IIP, the growth of industrial
output would be 6.5 per cent, somewhat above the observed headline growth of 4.9 per cent in
April-August, 2008. Surveys of corporate finances are indicating a worsening outlook with
erosion of profitability due to rising expenditures relative to sales, particularly in respect of raw
materials and other inputs, staff costs and exchange losses.

Various surveys suggest that overall business confidence is flagging. Service sector activity
appears to be moderating in several sub-sectors except in communication and freight movement
in terms of lead indicators. Construction activity may pick up in the coming months on the back
of some improvement in cement and steel production.

Widening gaps in the physical infrastructure, markedly in power but elsewhere too except in coal
production, could impose a binding constraint on growth. Capacity addition in the power sector
has remained far short of tenth Plan targets, worsening the persisting large shortage in the
country.

Electricity output appears to have been sharply affected by the downslide in hydro power
generation, with the energy content of reservoirs posting a shortfall of 27 per cent of the full
reservoir level (FRL) at the all-India level up to mid-October 2008.

While thermal power generation has provided support, delays in commissioning/commercial

operations, high moisture content in coal due to the monsoon as well as the loss of 3.8 billion
units of generation during April-August due to shortages of coal reported by utilities across the
country are debilitating factors. Shortages of fuel have also resulted in a loss of 1.2 billion units
in the first five months of 2008-09 under nuclear power generation.

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Aggregate demand conditions continue to be mainly investment-driven, although some
slackening which set in during the first quarter of 2008-09 appears to have become broad based.
So far, however, investment intentions remain strong as indicated by the memoranda/letters of
intent/direct industrial licences.

Private consumption, the mainstay of aggregate domestic demand in India, appears to be firming
up steadily since the third quarter of 2007-08 and is expected to benefit from fiscal stimuli on
account of enhanced expenditures of subsidies, the farm loan waiver and salaries consequent
upon the Sixth Pay Commission award that could come into play during the second half of the
year.

Reflecting the aggregate demand pressures, key monetary and banking aggregates - money
supply, deposit and non-food credit growth - have been expanding during the year so far at rates
that are significantly elevated relative to indicative trajectories given in the Annual Policy
Statement of April 2008. Money supply has continued to rise at the expansionary rates of 2003-
08, propelled by the sustained pace of credit growth.

In the July 2008 Review, concerns relating to the significantly overdrawn state of the banking
system due to elevated credit growth were expressed in this context. Supervisory review
processes have been initiated with selected banks with a view to putting in place appropriate
adjustments in their operations.

The unabated bank credit growth relative to the sources of funds and the whittling down of
excess SLR investments warrants serious policy surveillance in the context of overall financial
stability and the efficiency of financial intermediation.

The developments in monetary conditions resulted in a tightening of liquidity conditions in

domestic financial markets through the second quarter of 2008-09. The strains on market
liquidity were aggravated by sizeable fluctuations in the Central Government's cash balances,
advance tax payments in mid-September, higher than anticipated credit growth as well as the
heightening of volatility in domestic equity and foreign exchange markets in the wake of the
sudden deterioration in international financial markets.

In the money market, overnight interest rates generally ruled above the upper bound of the
corridor albeit in a narrow range with a peak in the second week of October 2008 as the
international financial turbulence intensified. While the measures announced by the Reserve
Bank in September-October 2008 alleviated these pressures, considerable uncertainty surrounds
the evolution of liquidity conditions in the months ahead, given the fragile international
environment. In response to the measures announced by the Reserve Bank, interest rates have
moderated across the overnight market segments.

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In the Government securities market, high demand for SLR securities depressed yields across the
spectrum from mid-July with intermittent spurts on liquidity concerns. Yield curve inversion
became persistent through the quarter, with the yield on the benchmark 10-year security ruling
consistently below those on lower maturity securities in reflection of the uncertain
macroeconomic outlook and to some extent, the softening of international crude prices.

In the foreign exchange market, activity picked up mainly on rising import demand induced by
volatile international crude prices, portfolio outflows and uncertainties surrounding the global
outlook. There was considerable volatility in the spot segment with the exchange rate slipping to
multi-year lows as the extraordinary developments in international financial markets unfolded.
Forward premia rose sharply at end-June and remained at elevated levels up to July 2008 after
which the premia have tended to ease albeit unevenly across all maturities.

The forward premia went into discount due to dollar shortages towards end-September 2008 but
recovered modestly in October 2008. The equity markets have weakened sporadically on cues
from global markets, and particularly those in Asia. These developments in domestic financial
markets render the macroeconomic outlook unsettled and uncertain.

Signs of deterioration in the fiscal situation appear to be adding to aggregate demand pressures in
the economy. The revenue deficit of the Central Government has exceeded 177 per cent of the
budget estimates during April-August 2008 and overshooting is also observed in the other deficit
indicators. While tax revenues were buoyant and direct taxes raised their contribution to gross
tax collections to 45 per cent, current expenditures on subsidies, social and other economic
services eroded these gains and widened the deficits at all levels.

Impending expenditures on subsidies and salary revisions could bring additional pressures to
bear on the fisc and consequently, on aggregate demand. The Government will need to address
the issue of providing subsidies to the public sector oil marketing and fertiliser companies
directly in cash instead of the current practice of issuance of oil and fertiliser bonds.

Excess demand conditions are also reflected in the merchandise trade deficit which has expanded
by close to 43 per cent in April-August 2008 on a year-on-year basis, though mainly in response
to the increase of 77 per cent in the average price of the Indian basket of crude.

Although the outlook remains uncertain at the current juncture, the softening of international
crude prices in subsequent months should have a salutary effect in terms of containing the
merchandise trade deficit over the rest of the year. Non-oil import growth has remained elevated,
albeit considerably moderated from the increase recorded a year ago.

While exports are regaining momentum and international commodity prices, including crude,
seem to be retreating, the widening of the trade deficit needs to be viewed in the context of the
turmoil in international financial institutions and markets and the evolving environment

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Industry

Analysis

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 Industry Factors
Steel is an alloy of iron and carbon containing less than 2% carbon and 1% manganese and small
amounts of silicon, phosphorus, sulphur and oxygen. Steel is the most important engineering and
construction material in the world. It is used in every aspect of our lives, from automotive
manufacture to construction products, from steel toecaps for protective footwear to refrigerators
and washing machines and from cargo ships to the finest scalpel for hospital surgery

Most steel is made via one of two basic routes:

1. Integrated (blast furnace and basic oxygen furnace).

2. Electric arc furnace (EAF).

The integrated route uses raw materials (that is, iron ore, limestone and coke) and scrap to create
steel. The EAF method uses scrap as its principal input.

The EAF method is much easier and faster since it only requires scrap steel. Recycled steel is
introduced into a furnace and re-melted along with some other additions to produce the end
product.

Steel can be produced by other methods such as open hearth. However, the amount of steel
produced by these methods decreases every year.

Of the steel produced in 2005, 65.4% was produced via the integrated route, 31.7% via EAF and
2.9% via the open hearth and other methods. (Source: World Steel in Figures 2006)

History of the Steel Industry

The Indian steel industry is more than 100 years old. The industry was highly government
regulated until 1991 and large-scale capacities were mainly reserved for public sector. SAIL and
TISCO (now Tata Steel Ltd.) were the main producers, TISCO being the only private player in
the industry. The industry was de-licensed in 1991, paving the way for entry of several new
domestic players. Furthermore, the industry was decontrolled in 1992 to enable free market
interplay of demand and supply forces. The next five years saw large amounts of investment
pouring in and production expanded by more than 50%. Steel industry was delicensed and
decontrolled in 1991 & 1992 respectively.

15
The South East Asian crisis in 1997-98 marked the beginning of a downturn in the global
industry. Demand of finished steel by these booming South East Asian economies suddenly
declined by about 35-40 MT, which resulted in a glut situation globally. As a result steel prices
fell to their 20- year lows. Big producers had to cut production as inventories started piling up.
From 2002 onwards, the situation has improved with global demand mainly driven by huge jump
in Chinese demand. However, with spiraling growth in steel production in China, there are fears
of an oncoming downturn in the global industry.

Indian Steel industry has shown the second highest growth rate for steel production in Asia after
China in 2006. With a GDP growth of around 8% in 2005-06, Indian economy as well as the
industrial development got a boost and this helped to shape the increasing steel demand and
production in India.

Raw Materials

Supply of raw materials is a key issue for the world steel industry. IISI manages projects which
look at the availability of raw materials such as iron ore, coking coal, freight and scrap.

Scrap iron is mainly used in electric arc furnace steelmaking. As well as scrap arising in the
making and using of steel, obsolete scrap from demolished structures and end-of life vehicles
and machinery is recycled to make new steel. About 500 million tonnes of scrap are melted each
year.

Iron ore and coking coal are used mainly in the blast furnace process of ironmaking. For this
process, coking coal is turned into coke, an almost pure form of carbon which is used as the
main fuel and reductant in a blast furnace.

Typically, it takes 1.5 tonnes of iron ore and about 450kg of coke to produce a tonne of pig iron,
the raw iron that comes out of a blast furnace. Some of the coke can be replaced by injecting
pulverised coal into the blast furnace.

Iron is a common mineral on the earth’s surface. Most iron ore is extracted in opencast mines in
Australia and Brazil, carried to dedicated ports by rail, and then shipped to steel plants in Asia
and Europe.

Iron ore and coking coal are primarily shipped in capesize vessels, huge bulk carriers that can
hold a cargo of 140,000 tonnes or more.Sea freight is an area of major concern for steelmakers
today, as the high demand for raw materials is causing backlogs at ports, with vessels delayed in
queues.

16
Many elements and materials go through chemical reactions with other elements. When steel
comes into contact with water and oxygen there is a chemical reaction and the steel begins to
change to its original form - iron oxide. In most modern steel applications this problem is easily
overcome by coating. Many different coating materials can be applied to steel. Paint is used to
coat automobiles, and enamel is used on refrigerators and other domestic appliances. In other
cases, elements such as nickel and chromium are added to make stainless steel, which can help
prevent rust.

Steel Prices

Price regulation of iron & steel was abolished on 16.1.1992. Since then steel prices are
determined by the interplay of market forces.

There has been an up-trend in the domestic steel prices since 2006-07 and the trend accentuated
since January this year.

Rise in raw material prices, strong demand in the international and domestic market and up-trend
in the global steel prices have been some of the reasons cited by the industry for increase in the
steel prices in the domestic market.

The mismatch in demand and supply is considered to be the main reason on the demand side for
the rise in steel prices. Honourable Steel Minister has held discussion with all major steel
investors including Arcellor-Mittal, POSCO, Tata Steel, Essar, Ispat and also SAIL, RINL to
explore the possibility of expediting the ongoing as well as envisaged steel projects.

The Government also took various fiscal and other measures for stabilizing the steel prices like
exempting pig iron, non alloy steel and steel making inputs like zinc, ferro-alloys and metcoke
from customs duty; withdrawing DEPB benefits on export of various categories of steel products
and bringing back railway freight on iron ore from classification 180 to 170 for domestic steel
producers.

In May 2008, the Government imposed 15% export duty on semi-finished products, and hot
rolled coils/sheet, 10% export duty on cold rolled coils/sheets and pipes and tubes and 5% export
duty on galvanized steel in coil/sheet form in order to further curtail rising prices and increase
supply of steel in the domestic market.

17
Exports and Import Position

Year – 2006 in Million Metric Tonnes

Net Exports (exports-imports)
Rank Countries

1 China 32.6
2 Japan 30.1
3 Ukraine 29.1
4 Russia 25.6
5 Brazil 10.7
6 Belgium-Luxembourg 27.6
7 Germany 24.9
8 Slovakia 22.7
9 South Africa 2.6
10 Austria 2.26
11 Finland 22.3
12 Netherlands 22
13 France 21.9
14 Kazakhstan 1.3
15 India 1.2

Current Scenario
The Indian steel industry has entered into a new phase in 2008, but it will be riding
high on the resurgent economy and there will be a rising demand for steel. The
domestic steel consumption has grown manifold in the last few years. The Indian
steel industry has registered an average growth rate of more than 10% CAGR in
output in the last five years. During the same period, steel consumption has also
moved in perfect lockstep and has maintained a growth rate of 10%.
18
Top 10 steel-producing countries

%
Country Rank 2007 2006 07/06
China 1 489.0 422.7 15.7
Japan 2 120.2 116.2 3.4
United States 3 97.2 98.6 -1.4
Russia 4 72.2 70.8 2.0
India 5 53.1 49.5 7.3
South Korea 6 51.4 48.5 6.0
Germany 7 48.5 47.2 2.8
Ukraine 8 42.8 40.9 4.7
Brazil 9 33.8 30.9 9.3
Italy 10 32.0 31.6 1.2

World crude steel output reached 1,343.5 million metric tons (mmt) for the year 2007. This is an
increase of 7.5% on 2006. The total represents the highest level of crude steel output in history
and it is the fifth consecutive year that world crude steel production grew by more than 7%.

While the overall output remains high, 2007 has seen a small slowdown in the growth rate, year-
on-year growth peaking at the end of the first quarter. This slowdown in growth was seen in
nearly all the major producing countries and regions including China, EU, CIS and the US. The
exception was in the Middle East where production growth accelerated during the second half of
the year.

19
World Crude Steel Production Share -

2001 2006 2007

World crude steel production for the 66 countries reporting to the World Steel Association
(worldsteel) was 108.4 million metric tons (mmt) in September’08. This is 3.2% lower than the
same month last year.
Total world crude steel production was 1,035.8 mmt in the first nine months of 2008, a 4.6%
increase over the same period in 2007. In September 2008, the world crude steel production
moving annual total (MAT) growth rate further slowed to 4.7% from 5.6% last month.

China’s crude steel production for September 2008 was 39.6 mmt, a decrease of -9.1% on
September 2007. In the first nine months of 2008, China produced 391.0 mmt of crude steel, an
increase of 6.2% compared to the same period in 2007.
Overall, Asia produced 60.4 mmt of crude steel in September 2008 compared to 63.7 mmt in
September 2007, a -5.1% decrease in crude steel production. South Korea showed a 12.7%
increase in September producing 4.6 mmt of crude steel.
In September 2008, the EU produced 17.4 mmt of crude steel, an increase of 0.9% and in the
first nine months the EU produced 160.1 mmt, a 1.2% increase over the same period in 2007.
Germany produced 4.0 mmt of crude steel in September, a decrease of -0.6 compared to the
same month last year. Italy showed an increase of 2.4% producing 2.7 mmt in September.

Russia produced 6.1 mmt, 7% higher than September 2007 and in South America, Brazil
produced 3.0 mmt in September, an increase of 5% compared to the same month in 2007.

Total crude steel production in North America was 10.9 mmt in September 2008, the same
amount as September 2007. The North America MAT growth rate again rose, to 6.4% from 6.1%
last month. This is its tenth consecutive monthly increase.

20
Current & Historic pricing levels
Hot Cold
World Steel Prices Hot Rolled Steel Wire Medium Steel
Rolled Rolled
US $/tonne Steel Coil Rod Sections
Steel Plate Steel Coil
Aug 2007 603 814 686 594 825
Sep 2007 602 810 673 580 821
Oct 2007 611 826 680 584 844
Nov 2007 615 833 688 584 853
Dec 2007 630 837 705 598 859
Jan 2008 639 847 716 621 871
Feb 2008 699 887 772 687 905
Mar 2008 800 978 890 758 970
Apr 2008 915 1065 985 852 1042
May 2008 998 1160 1080 920 1105
Jun 2008 1073 1225 1144 1005 1184
Jul 2008 1099 1307 1186 1067 1234
Aug 2008 1093 1300 1179 1062 1227
All steel prices above are $/metric tonne.

Current Happening (31st October 2008)–

After a spate of production cuts, it is now time for steel companies to go in for price cuts. Lack
of demand and a softening global price scenario have led all large steel companies, including the
largest steelmaker by capacity Tata Steel, to actively consider a price reduction in the range Rs
3,000- 4,000 per tonne.

The cut would be in the prices of the base category product such as hot rolled coils, which
would subsequently be passed through in all value-added products like galvanised steel and cold
rolled steel that are more widely used in consumer goods, say officials of steel companies.
The current price of hot rolled coils is about Rs 37,000 per tonne, which after the reduction
would come down to about Rs 34,000, narrowing the gap with international steel prices. The
average price in European and US steel markets is currently in the range of $650 to $680 per
tonne.
21
“There is no demand in the market and this price cut is the second part of the strategy followed
by steel companies who have cut production,” said a senior industry executive. Lack of credit
has led customers to defer home purchases and also that of consumer goods, leading to a
reduction in the usage of steel. Companies have cut production by about 20% due to the lower
demand.

Tata Steel had said prices could fall by more than 10% in the October-December quarter due to
slowing economic growth and cutting of requirements from users of steel. Even Sail had said that
prices would fall in the coming quarters due to lower demand.

The other steel producers include the Sajjan Jindal-promoted JSW Steel, Essar Steel and the
Pramod Mittal-o wned Ispat Industries. Then there are various galvanised steel and cold rolled
steel companies that also buy from these primary producers and make custom made steel for cars
and consumer goods.

Key Growth drivers of the Steel Industry

Construction: The construction industry has been witnessing a growth rate of 12%-14% in
recent times. Steel construction is now identified with speed and since India is in need of speedy
project implementation, steel is the best alternative for fast track construction. With economy
surging ahead and expected increase in income levels of population, it is believed that demand
for steel from this sector will continue to grow at current rates if not improve

Automobile: The domestic automobile industry has also grown at more than double-digit rates
in the past five years. The Indian automobile sector is the second fastest growing market after
China and has emerged as a prime demand driver for alloy steel. Automobile sector which is
experiencing growth and competition is likely to be one of the major drivers for steel
consumption in the coming years and most likely, its contribution in the overall demand pie is
likely to improve from the current levels.

22
Auto components Industry: During the last five years, auto components market has grown at
19% CAGR, led by both robust domestic demand as well as exports. India is fast emerging as
hub for auto components. International companies such as General Motors, Ford, Daimler
Chrysler, Toyota and Volkswagen are outsourcing auto parts from India as it has cost advantage
with regard to forgings and castings. Also, the growing domestic automobile industry, which
relies on steel industry for its parts manufacturing, will enhance the demand for steel in India.

Infrastructure: Infrastructure sector comprises of roads, railways, airports and power. The 11th
Five-year plan has lined up huge investments in all the above related sectors of infrastructure.
The sector wise anticipated investment are $200bn in power, $80bn in railways, $48bn in roads,
$13bn in ports and $9bn in airports. Because of surge in the above activities, the demand for long
products of steel will be increasing in years ahead.

Consumer Durables: The consumer durables sector has also been witnessing robust growth. It
has grown at an average of 10% per annum and is expected to grow at double-digit rates for
coming years. The share of white goods and utensils is predominant in India. The domestic
appliances market which includes spin driers of washing machine, almirahs, thermo ware, water
filters, dishwashers, microwave ovens, catering equipments, cutlery, furniture etc have opened
new opportunities for steel consumption, thus ensuring a steadily growing trend of steel off take.

Oil & Gas Industry: Oil & gas sector is the major consumer of steel tubes and pipes. The pipe
consumption in oil & gas sector is expected to grow at a rate of 25% CAGR as this sector is set
to witness massive capital investment. Apart from laying cross-country pipelines, exploration
and production activities are also experiencing strong growth in both international as well as
domestic markets.

Thus, in view of the robust growth expected in all the above mentioned sectors, there is no
reason to believe that demand will slowdown in the coming future. Infact, if one were to go by
government projections, then the demand is likely to increase at a CAGR of 11% until 2020.
What gives us further conviction is the low per capita consumption of steel in India, which at 40
kgs currently is way below the world average of 150 kgs. Thus, the next few years are likely to
be very good for the Indian steel manufacturers as far as demand is concerned.

23
Mergers and Acquisitions

Both globally and domestically, the steel industry is undergoing consolidation. Pace of M&A
activity has picked up in recent years. The recent merger between the global giants Arcelor and
Mittal Steel makes them the largest producer in the world with production capacity of nearly
10% of total world output. It would be three times the size of the entire Indian steel industry.
India is an attractive destination for these steel majors with its vast resources. The government
can safeguard the interests of the public sector units, but the private players are under substantial
threat of hostile take-over bids from these foreign companies.

Indian steel companies have been looking to expand capacities to take advantage of the growing
domestic demand. SAIL, India’s largest producer has embarked on an INR 350 bn capex plan.
Orissa has become an important destination with POSCO, Mittal Steel, TSL and SAIL all setting
up plants there.

Business Cycle

Steel, as any other major industry is cyclical in nature. As demand exceed supply, prices start to
increase. As a result, producers start building up capacities which when become operational lead
to a situation of over-supply. Competition between producers leads to price-cutting, the installed
capacities go out of operation and the balance between demand and supply is restored. Today,
capacity utilisation in India has been rising over the last few years and currently stands at 91%.
Steel prices have been falling in recent times and there are fears that we are on the verge of
slowdown in the industry. However, with the huge domestic market fundamentals, it can be
expected that Indian steel industry is going to withstand a global slowdown, if it happens.
Moreover, the major increase in steel prices in the last two years was mainly due to escalating
international prices of coke. Coke prices had risen by nearly 450% in the period 2002-04. It is
expected that the ongoing consolidation in the global industry will help steel majors influence
input prices and also control volatility in steel prices.

24
Looking ahead

The Indian steel industry is probably not enjoying one of the best phases and indications are that
this phase is on the verge to end. The Ministry of Iron and Steel also shares this positive view on
the industry and have projected the production capacity in India to be around 66MT in 2011-12
and 110 MT in 2020. They also expect domestic demand to be around 60 MT (2011-12) and 100
MT (2020). Various domestic companies have put in action capacity expansion plans and also
major foreign steel majors like Arcelor-Mittal and Posco are setting up plants in India. Because
of its strong domestic demand fundamental which are expected to strengthen even further and the
vast Indian rural market, India doesn’t need to worry too much regarding its steel sector. There
are considerable risks like China becoming net exporter and downturn in global steel industry.
But these would not affect India much as our external exposure is very limited so far. If steel
prices crash more globally, the Indian government may be required to step in and restrict
imports. We expect the Indian steel industry to recuperate over all these downside risks and grow
stronger in the coming years.
Fun Facts about the Steel Industry
1. The amount of energy needed to produce a ton of steel has been reduced by 34 percent
since 1972.
2. $10 billion has been invested to create a New Steel that is better for the environment.
3. Steel parts are more dent-resistant and are up to 30 percent stronger than they were a
decade ago.
4. The first steel-made automobile was introduced in 1918.
5. Over half of all the types of steels present in today’s automobiles did not even exist 10
years ago.
6. 24. One scrapped car produces more than four steel utility poles.
7. Steel comprises approximately 75 percent of all major appliances.
8. Indian Industry is the Largest producer of Sponge Iron - 12.8 mT in 2005-06 (a growth
of 25%).
9. India’s exports of Finished Steel in 2005-06, 4.4 mT, Imports 3.7 mT.
10. The first steel plant in India was set-up by Bengal Iron and Steel Works Company in
1870.
11. India accounts for nearly 3.45% of total world production (as on 2006).

25
 Key Indicators of Steel Industry Scenario

Industry Scenario - Key Indicators

Steel - 66 Companies(Aggregate)

Particulars 1/6/07 1/6/08 Var.(%)

Net Sales 30939 42581 38

OPM 24.2 23.6 -2.5

OP 7499 10066 34

OI 751 662 -12

PBIDT 8250 10728 30

Interest 918 1629 77

PBDT 7332 9099 24

Depreciation 1325 1454 10

PBT 6007 7645 27

Tax 1983 2501 26

PAT 4024 5144 28

Figures in Rs Crore

Source: Capitaline Corporate Database

26
Steel - Large Sales NP Mkt. Cap. B.V Rs CPS Rs. EPS Rs. P/C P/E
26 Companies 133,272.22 16,949.71 110,090.95 6.5
SAIL 39,768.18 7,297.25 52,869.12 55.8 20 17 6.4 7.5
Tata Steel 19,654.78 4,514.30 31,093.48 298.8 70.4 58.7 6 7.3
JSW Steel 11,391.05 1,729.35 8,982.14 391.7 126.6 88.3 3.8 5.4
Essar Steel 10,635.24 429.54 5,904.22 40.2 10.5 3.7 4.9 14
Ispat Inds. 8,323.09 34.08 2,316.52 5.5 5.5 0.3 3.4 0
Rashtriya Ispat 7,938.27 1,365.71 0 1,349.90 351.2 279.3 0 0
JSL Ltd 5,050.73 264.43 1,769.06 115.1 31.5 16 3.5 6.8
Bhushan Steel 4,152.30 422.39 2,818.31 382.7 148.8 99 4.5 6.7
Uttam Galva 3,155.84 123.95 397.76 62.3 16.6 10.9 2.1 3.2
Bhushan 2,634.49 201 0 150.8 37.9 24.9 0 0
Lloyd Steel Inds 2,204.64 -79.5 153.5 -33.6 1.8 0 4.5 0
Natl. Steel&Agro 2,154.22 25.23 69.11 64.2 14 7 1.5 3
Mukand 1,919.34 51.25 467.54 87.8 14.8 6.8 4.3 9.4
Ajmera Realty 1,842.14 245.55 768.82 51.7 23.9 20.6 2.7 3.2
Usha Martin 1,639.26 140.9 1,304.79 34.6 8.5 5.5 6.1 9.5
Ramsarup Inds 1,581.85 59.42 145.43 135.2 42.8 34 1.9 2.4
Surya Roshni 1,259.12 13.09 139.75 69.1 14.6 4.8 3.7 11.2
ISMT Ltd 1,193.19 100.05 477.59 36.6 10.3 6.7 3.2 4.9
Saraswati Indl. 1,134.07 69.77 0 367.9 111.3 93 0 0
Tata Ryerson 1,033.36 34.93 0 31.8 9.2 7 0 0
Sunflag Iron 989.48 43.62 228.7 18.1 5 2.6 2.8 5.4
Indian Iron & St 952.62 32.05 0 -14.5 1.4 0.8 0 0
MUSCO 920.44 28.45 131.06 57.8 16.5 8.2 2.4 4.9
Shah Alloys 900.04 -120.48 54.05 65.6 0 0 0 0
Avery Cycle Inds 653.3 8.08 0 991.8 155.1 81.6 0 0
Visvesva. Iron 191.18 -84.7 0 6.8 0 0 0 0

27
Michael Porters Five Forces

Suppliers’ Power Intensity of Competition

High Raw Material Prices
Competition from Foreign

Lack of Captive Source Players
Hurting Steel Producers

Lack of Transportation
Spurt in Merger and Acquisition

Backward Integration Activities

Buyers’ Power

Increasing Demand for

Steel

Fragmented Coke
Suppliers

Threat of New Entrants Threat of Substitutes

High Cost of Basic Inputs
Use of Aluminum/Plastic

and Services

28
SWOT Analysis –

Strengths Weaknesses
1. Availability of iron ore and coal
2. Low labour wage rates 1. Low Productivity
3. Abundance of quality manpower 2. High dependence on imported coke
4. Mature production base 3. High cost of debt
4. Inadequate infrastructure
5. Low research and Development
investment.
6. Unscientific mining

Michael Porters Five Forces –

Opportunities Threats
1. Buyers’ Power
1. Largely untapped rural market 1. China becoming net exporter
2. PerIncreasing Demandway
capita consumption for below
Steel 2. Protectionist policies followed by
world average foreign countries
Fragmented Coke Suppliers 3. Dumping by competitors
3. Growing domestic market
4. Hostile takeover by foreign
4. Exports
companies
5. Consolidation

29
Key Findings
• Indian steel industry is closely linked with domestic economic growth.

• India housing and construction industry is likely to grow in India, which is one of the
major steel consuming industries.

• Growing Indian automobile industry, which depends on steel industry for parts
manufacturing, will lead to a strong steel demand in future.

• The high cost of electricity in India may hamper the steel industry' s production level.

• Recent increase in production capacity and foreign investment in India is pushing the
Indian steel production.

• Demand is expected to rise in future with economic and industrial growth.

30
 INTER -

INDUSTRY

ANALYSIS
31
 Inter-Industry Scenario
Key indicators of SAIL, TATA &JSW

Key Indicators (Rs in Crs)

Comp. Years 2004 2005 2006 2007 2008
SAIL Market Capitalization 13,341.19 26,000.87 34,406.23 47,127.86 76,309.14
TATA Market Capitalization 14,150.38 22,188.61 29,688.13 26,097.93 50,640.15
JSW Market Capitalization 1,058.70 4,652.54 4,751.48 8,091.10 15,321.27

SAIL Net Worth 5,037.67 10,306.65 12,601.41 17,313.15 23,063.57

TATA Net Worth 4,515.86 7,059.92 9,755.30 13,949.09 21,828.21
JSW Net Worth 1,220.15 2,870.69 4,077.19 5,293.26 7,388.32

SAIL Enterprise Value 19,995.43 25,638.54 32,531.21 41,698.55 65,594.94

TATA Enterprise Value 17,281.85 24,681.59 31,915.89 28,061.91 68,196.80
JSW Enterprise Value 5,767.57 8,366.46 8,748.66 11,926.33 22,528.58

SAIL EBDIT 4,706.25 11,144.28 7,380.80 10,966.23 12,954.48

TATA EBDIT 3,518.19 6,144.86 6,189.57 7,332.19 8,830.00
JSW EBDIT 1,412.32 2,306.85 2,075.61 2,819.87 3,665.79

SAIL EBIT 3,583.66 10,017.33 6,173.50 9,754.75 11,719.00

TATA EBIT 2,893.08 5,526.08 5,414.47 6,512.90 7,995.39
JSW EBIT 1,099.44 1,947.31 1,669.79 2,321.64 2,978.61

SAIL EBT 2,628.21 9,365.35 5,705.74 9,422.62 11,468.06

TATA EBT 2,665.96 5,297.28 5,239.96 6,261.65 7,066.36
JSW EBT 690.16 1,472.61 1,301.14 1,914.83 2,483.77

SAIL Dividends - 1,363.03 826.08 1,280.42 1,528.25

TATA Dividends 368.98 719.51 719.51 943.91 1,168.93
JSW Dividends - 103.23 125.58 204.98 261.87

SAIL Non operating income 1320.97 969.54 624.29 558.25 233.57

TATA Non operating income 259.24 485.62 314.53 299.38 292.83
JSW Non operating income 60.04 10.2 374.5 15.58 16.66

32
1. Market Capitalization

The total dollar market value of all of a company's outstanding shares. Market
capitalization is calculated by multiplying a company's shares outstanding by the current
market price of one share. The investment community uses this figure to determining a
company's size, as opposed to sales or total asset figures. It has been increasing for all the
three companies in the last five years indicating the importance of steel industry in the
growing economy. The market capitalization of SAIL is the highest a Government
enterprise followed by TATA Steel which acquired Corus. JSW has also seen a rising
market capitalization.

2. Net Worth

For a company, total assets minus total liabilities. Net worth is an important determinant
of the value of a company, considering it is composed primarily of all the money that has
been invested since its inception, as well as the retained earnings for the duration of its
operation. Net worth can be used to determine creditworthiness because it gives a
snapshot of the company's investment history. also called owner's equity, shareholders'
equity, or net assets. The net worth for all the three companies has been increasing for the
last five years.

3. Enterprise Value

A measure of what the market believes a company's ongoing operations are worth.
Enterprise value is equal to (company's market capitalization - cash and cash equivalents
+ preferred stock + debt). The number is of importance both to individual investors and
potential acquirers considering a takeover attempt. Although it has been increasing
consistently for all the three companies Tata Steel’s enterprise value is more. One of the
reasons are the number of merger & acquisitions that Tata Steel had done including the
Corus Steel in 2007 which has increased its enterprise value.

4. Operating Profit

A measure of a company's earning power from ongoing operations, equal to earnings

before deduction of interest payments and income taxes. also called EBIT (earnings
before interest and taxes) or operating income. The operating profit for all the three
companies has gone up due to the growth in industrial production. The steel industry

33
 plays a major role in the growth of the industry which directly reflects in the increasing
operating profit. One more reason for the increase besides the volume is also the cutting
down of cost by the steel industry. Infact Tata Steel is one of the lowest cost of
production in the world for steel.

5. Earning Before Interest Tax

The difference between EBDIT & EBIT represents the depreciation component. In other
words it represents the fixed cost that the companies incur towards plant & machinery. In
the steel industry it forms a major component. SAIL has the highest depreciation in
comparison to the other two. The reason is that it is a government enterprise with huge
investments in plant & machinery.

6. Earning Before Tax

The EBT has been decreasing for all the three companies in the last five years. This
indicates that the debt portion of the capital employed has been decreasing for all the
three companies. This also means higher profit available to share holders for distribution
as profit.

7. Dividend

The increase in EBT also reflects in the increase in the dividend distributed over the five
year period. The increase has been most in SAIL followed by TATA. The increase in
TATA has been phenomenal as it had many mergers and acquisitions which has
contributed to the increasing profit & its distribution.

8. Non Operating Income

It is the profit and revenue of a savings association that are nonrecurring in nature and
that do not result from the ordinary savings and lending operations of the institution.
These include profit on the sale of real estate owned or other nonmortgage investment.
Non operating income of SAIL has reduced considerably over the years.But for TATA it
has remained almost constant over the years. And for JSW it is very volatile showing
wide ups and downs in the five years.

34
Cost in Percentage to Sales

Cost in % to Sales (Rs in Crs)

Comp. Years 2004 2005 2006 2007 2008
SAIL Raw Materials 32% 33% 44% 39% 35%
TATA Raw Materials 21% 21% 20% 20% 20%
JSW Raw Materials 43% 45% 50% 46% 52%

SAIL Power & Fuel Cost 10% 8% 9% 8% 7%

TATA Power & Fuel Cost 7% 5% 6% 6% 5%
JSW Power & Fuel Cost 14% 9% 7% 5% 5%

SAIL Employee Cost 22% 13% 15% 15% 20%

TATA Employee Cost 15% 10% 9% 9% 9%
JSW Employee Cost 1% 2% 2% 2% 2%

SAIL Other Man. Exp. 10% 9% 12% 11% 11%

TATA Other Man. Exp. 14% 13% 14% 14% 13%
JSW Other Man. Exp. 7% 8% 12% 12% 12%

SAIL Selling & Adm. Exp. 6% 4% 5% 4% 4%

TATA Selling & Adm. Exp. 10% 9% 9% 9% 7%
JSW Selling & Adm. Exp. 2% 5% 1% 1% 1%

35
1. Raw Materials
Raw material cost forms the major part in the steel sector, that’s why all the three
companies have highly spent on their Raw material in percentage to its Revenue. SAIL is
decreasing from 2006 to 2008 that is 44% to 35%. Tata steel is almost same at 20% and
in case of JSW Steel it is increasing from 46% to 52%. It shows that JSW is heavily
expending on Raw Material that’s why their end product is also very costly as compared
to TATA whose end product is very cheap.

2. Power & Fuel Cost

Power and fuel cost forms very miniscule part of the overall cost. The power & fuel for
all the three companies are decreasing. Power and fuel cost is again very less in TATA as
compared to the other two.

3. Employee Cost
Employee cost structure in all the three companies differs widely. JSW is least to spend
on its employee. In JSW, employee cost forms very miniscule part of the overall cost.
Employee cost is very high in SAIL, as it is a government undertaking. And over the
years Employees in all the three companies is in a decreasing mode which shows that
they are becoming to highly depend on machines so their employee cost is reducing in
percentage to their sales.

4. Other Manufacturing Expenses

Other manufacturing expense is on an increasing mode in all the three companies accept
TATA, which has reduced marginally. It is highest in TATA in their percentage to sales.
But in all three companies it almost similar.

5. Selling & Administration Expenses

Selling and Administration Expense is also high in TATA compared to SAIL and JSW.
JSW is a very miniscule spender on its selling and distribution expense this shows that do
not spend much on its advertisements and promotional expenses. TATA spends a lot to
make its product quite familiar with each and every class. That’s its product is the most
popular. But over the uears it has reduced as their product is becoming popular with the
public.

36
Compounded Annual Growth Rate

Net Sales –

Net Sales

Five Years CAGR

SAIL – 17%

TATA – 16%

JSW – 37%

Five Years Compounded Annual Growth Rate of Net Sales of JSW is very high. This shows that
in these five years JSW has shown tremendous Growth in terms of Net Sales, followed by SAIL
and then TATA.

37
Adjusted Net Profit

Adjusted Net Profit

Five Years CAGR

SAIL – 31%

TATA – 25%

JSW – 66%

Five Years Compounded Annual Growth Rate of Adjusted Net Profit of JSW is at its highest
among the three Companies. This shows that in these five years JSW has shown tremendous
Growth in terms of Adjusted Net Profit, followed by SAIL and then TATA.

38
Gross Profit

Gross Profit

Five Years CAGR

SAIL – 36%

TATA – 24%

JSW – 33%

Five Years Compounded Annual Growth Rate of Gross Profit of SAIL is high among the three
Companies. All the three Companies are very close to each other in terms of Gross Profit CAGR.
This shows that in these five years they have shown tremendous Growth in terms of Gross Profit.

39
Operating Profit

Gross Profit

Five Years CAGR

SAIL – 29%

TATA – 26%

JSW – 27%

Five Years Compounded Annual Growth Rate of Operating Profit of SAIL is high among the
three Companies. All the three Companies are very close to each other in terms of Operating
Profit CAGR. This shows that in these five years they have shown tremendous Growth in terms
of Operating Profit.

40
 Ratio Analysis
Liquidity Ratios
Years 2004 2005 2006 2007 2008
SAIL Current Ratio 0.75 0.99 1.18 1.36 1.6
TATA Current Ratio 0.67 0.65 0.71 1.26 2.86
JSW Current Ratio 1.29 1.06 0.87 0.78 0.62

SAIL Quick Ratio 0.5 0.68 0.75 0.81 0.93

TATA Quick Ratio 0.41 0.31 0.29 0.56 0.71
JSW Quick Ratio 0.55 0.28 0.18 0.26 0.18

Current ratio for all the three companies as of

2008 is in a good position except for JSW
which is decreasing as the years are
increasing. It shows that they are more and
more becoming dependent on Creditors for
the funding of their operations.

Quick Ratio also for TATA and SAIL is

good. But JSW is lacking in this factor. So,
if the need arises then this company will
not have the enough money to pay off
debts.

41
 Solvency Ratios
Years 2004 2005 2006 2007 2008
SAIL Debt to Equity ratio 2.86 0.94 0.44 0.28 0.18
TATA Debt to Equity ratio 0.99 0.53 0.31 0.51 0.67
JSW Debt to Equity ratio 4.9 1.85 1.06 0.83 0.88

SAIL Long Term D/E ratio 2.28 0.83 0.4 0.24 0.15
TATA Long Term D/E ratio 0.95 0.51 0.3 0.5 0.66
JSW Long Term D/E ratio 4.84 1.81 1.01 0.8 0.85

SAIL Interest coverage ratio 3.75 15.36 13.2 29.37 46.7

TATA Interest coverage ratio 12.74 24.15 31.03 25.92 8.61
JSW Interest coverage ratio 1.73 4.1 3.53 5.71 6.02

In all the three Companies Debt component

has been reduced and they are becoming
more dependent upon owners funds. In
SAIL it is very less it means most of its
funding is done by the govt., who is the
owner of the Company.

This ratio shows that all the Companies

debt is long term debt to equity ratio and
that’s why showing same trend as debt to
equity ratio.

42
 Interest Coverage Ratio is very high in
SAIL which shows its ability to pay off its
interest obligation. Then TATA is also
having its ability to pay and JSW interest
coverage ratio is the lowest of all the three
companies.

Turnover Ratios
Years 2004 2005 2006 2007 2008
SAIL Inventory Turnover ratio 7.1 8.8 6.17 5.99 6.65
TATA Inventory Turnover ratio 9.93 10.17 8.47 8.77 8.99
JSW Inventory Turnover ratio 12.83 13.02 8.16 9.61 9.86

SAIL Debtors Velocity 19 18 20 20 21

TATA Debtors Velocity 12 10 9 9 10
JSW Debtors Velocity 9 11 9 8 8

SAIL Creditors Velocity 28 28 31 32 33

TATA Creditors Velocity 80 82 89 93 103
JSW Creditors Velocity 36 34 35 40 35

SAIL Asset turnover ratio 0.75 0.99 1.18 1.36 1.6

TATA Asset turnover ratio 0.97 1.24 1.2 1.26 1.37
JSW Asset turnover ratio 0.57 0.98 0.86 0.98 1.03

43
It is high in JSW it means it is very efficient in
managing its inventory to convert it into sales.
Over the years it has reduced which shows they
are becoming inefficient in utilizing their
inventory.

It is very less in JSW which shows that

customers clear their bills very quickly in just 8
days. In TATA also it is good but in SAIL it is
little more.

Creditors velocity is high in all the Companies

when compared with the debtors velocity it
means their operations are also funded by their
creditors. It is very high in TATA which might
reflect a bad position to the public at large. It
might hamper their credibility.

44
 Asset turnover ratio in all the three Companies
is almost on the same plane. There is only a
slight difference. TATA has the highest asset
turnover ratio. It means they are very good in
utilizing their assets to convert it into sales.

Profitability Ratios
Years 2004 2005 2006 2007 2008
SAIL Gross profit margin 19.5 34.8 22.58 27.78 28.17
TATA Gross profit margin 29.51 38.72 36.11 37.1 39.79
JSW Gross profit margin 28.73 34.37 25.09 30.33 29.03

SAIL Net profit margin 10.41 21.29 12.28 15.71 16.39

TATA Net profit margin 14.65 21.89 20.46 21.36 21.12
JSW Net profit margin 6.45 12.96 9.3 13.9 13.68

SAIL Return On Equity 0.6 1.65 0.96 1.41 1.77

TATA Return On Equity 5.06 6.34 6.34 7.42 6.15
JSW Return On Equity 0.17 4.44 2.77 5.62 6.85

SAIL Return on Capital Employed 25.36 68.77 38.03 51.28 49.43

TATA Return on Capital Employed 38.18 63.79 50.13 36.79 23.32
JSW Return on Capital Employed 11.65 30.8 17.59 26.24 24.05

SAIL Return On Net Worth 66.43 88.85 35.04 41.47 37.33

TATA Return On Net Worth 45.36 60.02 41.7 35.62 26.08
JSW Return On Net Worth 22.46 39.89 17.41 26.98 26.8

45
Gross profit margin is high in case of TATA as
their cost in percentage to sales is also very
less. It implies TATA uses cost effective
techniques to generate revenue. JSW GPM has
remained stable where as for SAIL its growth
rate is remarkable.

Net Profit Margin has also shown the similar

trend accept that for JSW it has been on a
increasing trend unlike a Gross profit margin.

It is high in JSW as compared to the other two

companies. It shows the earning available to
the persons at the last resort. So this
company will be in good prospects of the
investors. TATA’s ROE is also good. But
SAIL’s ROE is not great.

46
 It tells that the returns that the Company has
earned from its total capital it has employed. It
is very high in SAIL, which is a good sign for
this govt. undertaking.

It is the 'final measure' of profitability to

evaluate overall return. It is also very high in
SAIL, which is a very good sign. For both
TATA and JSW it is almost same. The
difference is negligible.

Valuation Ratios
Years 2004 2005 2006 2007 2008
SAIL Dividend Per Share - 3.3 2 3.1 3.7
TATA Dividend Per Share 10 13 13 15.5 16
JSW Dividend Per Share - 8 8 12.5 14

SAIL Earning Per Share 6.08 16.06 9.44 14.54 17.62

TATA Earning Per Share 46.02 60.91 61.51 69.95 61.06
JSW Earning Per Share 3.91 43.22 37.02 54.69 66.5

SAIL Price Earning Ratio 5.31 3.92 8.82 7.85 10.49

TATA Price Earning Ratio 8.33 6.58 8.72 6.43 11.35
JSW Price Earning Ratio 2.1 8.34 8.18 9.02 12.32

47
DPS is the amount of the dividend that
shareholders will receive, over an year, for
each share they own. It is very high in
TATA which will put good reflection in the
minds of the investors. JSW is also giving
handsome dividends to its shareholders.
Only SAIL is not showing interest in
paying to its shareholders despite of
fetching good returns.

Earning per share is very good in JSW and

then in TATA but SAIL’s EPS is very
poor. It shows that SAIL will not be
popular with the investors in the future as
they are providing very less earnings.

P/E ratio is a reflection of the market's

opinion of the earnings capacity and future
business prospects of a company. It is
almost on a similar pace in all the three
companies. And all these three companies
hold good future ahead. In JSW it is
marginally high, followed by TATA and
then in the end SAIL.

48
 SAIL

ANALYSIS

49
 STEEL AUTHORITY OF INDIA LIMITED

Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a
fully integrated iron and steel maker, producing both basic and special steels for domestic
construction, engineering, power, railway, automotive and defence industries and for sale in
export markets.

Ranked amongst the top ten public sector companies in India in terms of turnover. The company
has the distinction of being India’s largest producer of iron ore and of having the country’s
second largest mines network. This gives SAIL a competitive edge in terms of captive
availability of iron ore, limestone, and dolomite which are inputs for steel making.

SAIL's wide range of long and flat steel products are much in demand in the domestic as well as
the international market. This vital responsibility is carried out by SAIL's own Central Marketing
Organisation (CMO) and the International Trade Division. CMO encompasses a wide network of
34 branch offices and 54 stockyards located in major cities and towns throughout India.
With technical and managerial expertise and know-how in steel making gained over four
decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and
consultancy to clients world-wide.

SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at
Ranchi which helps to produce quality steel and develop new technologies for the steel industry.
Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management
Training Institute (MTI) and Safety Organisation at Ranchi. Our captive mines are under the
control of the Raw Materials Division in Kolkata. The Environment Management Division and
Growth Division of SAIL operate from their headquarters in Kolkata. Almost all our plants and
major units are ISO Certified.

Steel Authority of India Limited (SAIL). The Group's principal activities are to manufacture and
market iron and steel. The Group produces both basic and special steels for domestic
construction, engineering, power, railway, automotive and defence industries and for sale in
export markets. The Group's steel plants are located at Bhilai, Bokaro and Salem and iron ore
mines are located at Dalli, Kiriburu, Megahataburu and Bolani. It has distribution network across
the country with 56 warehouses and network of dealers in all the districts of India.

Major projects implemented during 2002-03 includes upgradation of BF-3 with increase in
useful volume and installation of INBA Cast House Slag Granulation Plant at BF-3 at DSP,
installation of De-scaling Unit before 950 mm Roughing Stand of Rail & Structural Mill of BSP
50
and installation of Combined Blowing Technology in Converter No. 2 at SMS-II of BSL. Efforts
were also made in nonsteel sectors and consultancy orders were procured from petroleum,
chemicals and power sectors besides steel sector. In addition to executing consultancy projects in
India, projects were executed during 2003-04 by SAILCON in Iran, Egypt and Georgia. During
the period of 2004-05, SAIL has wide use of e-commerce, e-procurements worth Rs. 298 crore
and e-selling worth Rs. 1,156 crore and during the same year the company earned the enviable
status of a virtual zero debt company. SAIL entered into an agreement with GAIL for supply of
natural gas for its integrated steel plants. A MoU was also signed with KIOCL for joint
development of some iron ore mines of the company. SAIL received the prestigious SCOPE
Gold Trophy for Excellence and Outstanding Contribution to the Public Sector Management-
Institutional category for the year 2004-05.

The Company bagged, 'Business world-FICCI-SEDF Corporate Social Responsibility Award -

2006'. SAIL has undertaken a massive modernisation and expansion plan during the year of
2006-07 with an indicative cost of over Rs. 40,000 crore to expand capacity of hot metal to over
25 million tonnes from current level of 14.6 million tonnes. The company introduced several
new products in the domestic market during the year 2006-07: HCR-EQR TMT for earthquake
resistant construction, rock bolt TMT for tunnel construction, EN series HR coils for LPG
cylinders, MC 12 HR coils for chains etc. In addition, Bhilai Steel Plant developed high strength
vanadium rails; Durgapur Steel Plant produced S-profile loco wheels for high-speed locos and
Rourkela Steel Plant rolled special plates, which were used, in the indigenously built rocket
PSLVC-7.

As on January 2008, India's two biggest steel makers, public sector Steel Authority of India Ltd
(SAIL) and private sector Tata Steel Ltd, have formed a joint venture company (JVC) to mine
coal blocks for securing assured coking coal supply to meet their increasing production needs.
As on June 2008, SAIL made a joint venture with Shipping Corporation of India may own a few
bulk carriers to have continuous availability of vessels. The Company is setting up three steel
processing units (SPU) in Madhya Pradesh for manufacturing various types of steel items used
by the construction industry.

The company's Corporate Plan, 2012 (CP12) was formulated in 2004 for 4 integrated steel
plants for increase in Hot Metal production to 20 Mt by 2012. After merger of in IISCO Feb 06,
the Hot Metal production Plan was revised to 22.5 Mt by 2012. Expansion of Special Steel Plants
was also included. Hon'ble Minister of Steel reviewed the Corporate Plan 2012 in Jul'2006,
wherein it was decided to take up the Expansion of Integrated Steel Plants and Special Steel
Plant in one go based on Composite Project Feasibility Report (CPFR).

51
 VISION

To be a respected world-class corporation and the leader in Indian steel business in quality,
productivity, profitability and customer satisfaction.

CREDO

• We build lasting relationships with customers based on trust and mutual benefit.
• We uphold highest ethical standards in conduct of our business.
• We create and nurture a culture that supports flexibility, learning and is proactive to change.
• We chart a challenging career for employees with opportunities for advancement and rewards.
• We value the opportunity and responsibility to make a meaningful difference in people’s lives.

Steel Authority of India Limited Key Data:

Country: INDIA
Exchanges: BOM
Currency: Indian rupee.
Fiscal year end: March
Share type: equity
Major industry: Metal Producers & Products
Manufacturers
Sub Industry: Steel Producers - Non-integrated.
Employees: 132973
Shares Outstanding: 4,130,400,545
Closely Held Shares: 3,544,690,285
Type: Public Company
Stock Exchanges: Mumbai
Ticker Symbol: SAIL
Incorporated: 1973
NAIC: 331221 Rolled Steel Shape Manufacturing; 331111 Iron and Steel Mills
Address: Ispat Bhavan, Lodi Road, New Delhi 110 003, India
Telephone: (91) 24367481
Fax: (91) 24367015
Web: http://www.sail.co.in

52
Top Management -
S.No NAME DESIGNATION
1. S K Roongta Chairman
2. G Ojha Director (Personnel)
3. Soiles Bhattacharya Director (Finance)
4. Shoeb S Ahmed Director (Commercial)
5. V K Gulhati Director (Technical)
6. V Shyamsundar Managing Director
7. B N Singh Managing Director
8. V K Srivastava Managing Director
9. R Ramaraju Managing Director
10. S P Rao Managing Director
11. B S Meena Director
12. G Elias Director
13. S C Jain Director
14. R P Sengupta Director
15. Velu Annamalai Director

Bankers -
SNo. Bankers
1 State Bank of India 14 Jammu & Kashmir Bank Ltd
2 Bank of Baroda 15 State Bank of B J
3 State Bank of Patiala 16 Central Bank of India
4 State Bank of Hyderabad 17 State Bank of Indore
5 Punjab and Sind Bank 18 Allahabad Bank
6 Punjab National Bank 19 UCO Bank
7 Syndicate Bank 20 State Bank of Mysore
8 Oriental Bank of Commerce 21 IDBI Bank
9 Bank of India 22 Yes Bank Ltd
10 United Bank of India 23 HDFC Bank Ltd
11 Bank of Maharashtra 24 Corporation Bank
12 Canara Bank 25 Indian Overseas Bank
13 State Bank of Saurashtra

53
Equity shares for last Five Years

Share Capital and its Break Up

Year Mar-08 Mar-07 Mar-06 Mar-05 Mar-04
Share Capital 4130.4 4130.4 4130.4 4130.4 4130.4
Equity Authorised 5000 5000 5000 5000 5000
Equity Issued 4130.4 4130.4 4130.4 4130.4 4130.4
Equity Subscribed 4130.4 4130.4 4130.4 4130.4 4130.4
Equity Called Up 4130.4 4130.4 4130.4 4130.4 4130.4
Equity Paid Up 4130.4 4130.4 4130.4 4130.4 4130.4

Share holding pattern including promoter and general public

Steel Authority OF India Limited

Ownership Pattern as on 30-06-2008 No of Shares % Share Share Holder
Indian (Promoter & Group) 3544690285 85.8195 1
Total of Promoter 3544690285 85.8195 1
Non Promoter (Institution) 467051637 11.3077 426
Non Promoter (Non-Institution) 117882973 2.854 341676
Total Non Promoter 584934610 14.1617 342102
Total Promoter & Non Promoter 4129624895 99.9812 342103
Custodians(Against Depository Receipts) 775650 0.0188 2
Grand Total 4130400545 100 342105

Reserves and surplus for the last five years

Industry :Steel
Reserves Total and its Break Up
Year Mar-08 Mar-07 Mar-06 Mar-05 Mar-04
Reserves Total 18933.17 13182.75 8471.01 6176.25 907.27
Capital Reserves 15.27 14.47 12.12 10.21 9.93
General Reserves 2542.51 1772.51 1137.51 700 0
Share Premium 235.29 235.29 235.29 235.29 235.29
Debenture Redemption Reserve 262.44 348.83 387.25 471.98 639.36
Profit & Loss Account Balance 15877.66 10811.65 6698.84 4758.77 22.69

Cause of Increase and Decrease in Reserve and Surplus

Reserves and surplus has gone up from 13182.75 to 18933.17, which can be mainly attributed to
the following factors –

54
 1. Profit and Loss Account Balance has also gone up from 10811.65 to 15877.66. It is
mainly accounted due to the fact that Sales has gone up. So, the overall Revenue has
increased.

2. General Reserves has also gone up due to the fact that Profit and Loss Account Balance
has gone up. It is always some percentage of P&L a/c which is given to G/R.

3. Debenture Redemption Reserve has gone down due to the fact that they have decreased
their debt proportion in the fund mix. So, now they are required to keep less reserve for
the debenture redemption.

Product profile of the company

As Per 2008

Product Name Capacity Utilised -% Production Sales Quantity Sales

Steel-Main-Saleable 114.02 12531293 11871956 40770.1
Alloy Steel-Saleable 112.23 512891 442575 9
2534.32
Others 0 0 0 1558.32
Pig Iron 23.58 410303 307719 622.82
Finished Prod.Internally 0 0 0 490.81
Cons.
Pig Iron(Alloy) 50.72 29418 24292 49.95
Middling/Rejects 0 0 131472 10.5
Steel-Indigenous 0 0 653 2.47
Steel Ingots 0 0 2921 6.77
Cinders 0 0 0 0
Calcium Ammonium 0 0 0 0
Nitrate(CAN)
Crude Steel 89.46 314894 0 0
Crude Steel (Main) 105.1 13648705 0 0
Export Benefits 0 0 0 -60.79

Market share of the company sales

The company has a market share of the Company Sales of 29.8%. Market conditions for
SAIL are fairly buoyant, as SAIL still ranks first among the 26 Large Steel Producing
Companies. Although, prices showed a downward trend as compared to other Companies
of this Industry. But still it has a largest market share with a Sales of Rs. 39768.18crores
in Indian Steel Industry.

55
Key Indicators
Years 2008 2007 2006 2005 2004
Market 13,341.19 26,000.87 34,406.23 47,127.86 76,309.14
Net Worth 5,037.67 10,306.65 12,601.41 17,313.15 23,063.57
Enterprise Value 19,995.43 25,638.54 32,531.21 41,698.55 65,594.94
Operating Profit 4,706.25 11,144.28 7,380.80 10,966.23 12,954.48
EBDIT 4,706.25 11,144.28 7,380.80 10,966.23 12,954.48
EBIT 3,583.66 10,017.33 6,173.50 9,754.75 11,719.00
EBT 2,628.21 9,365.35 5,705.74 9,422.62 11,468.06
Dividends - 1,363.03 826.08 1,280.42 1,528.25
Non operating 1320.97 969.54 624.29 558.25 233.57
income

Working Notes-
Non Operating income

NON OPERATING INCOME

Years 2008 2007 2006 2005 2004
Dividend Income 14.45 17.34 13.66 13.38 8.22
Interest Income 1,184.7 752.6 461.49 262.76 128.9
Profit on sale of Fixed Assets 49.78 13.93 58.24 11.09 52.42
Fee Income 11.36 10.14 10.72 31.52 0
Provision Written Back 60.62 175.53 80.18 239.5 44.03
Total non operating income 1320.97 969.5 624.29 558.25 233.57
4

Trends in various costs over a period off 5 years as a % of net sales

Cost in Percentage to Sales

(Rs in Crs) Years 2004 2005 2006 2007 2008
Sales 100 100 100 100 100
Raw Materials 32% 33% 44% 39% 35%
Power & Fuel Cost 10% 8% 9% 8% 7%
Employee Cost 22% 13% 15% 15% 20%
Other Manufacturing Expenses 10% 9% 12% 11% 11%
Selling and Administration Expenses 6% 4% 5% 4% 4%

56
 Ratios Analysis
Ratios can be an invaluable tool for making an investment decision. Even so, many new
investors would rather leave their decisions to fate than try to deal with the intimidation of
financial ratios. The truth is that ratios aren't that intimidating, even if you don't have a degree in
business or finance. Using ratios to make informed decisions about an investment makes a lot of
sense, once you know how use them.

Liquidity Ratios
Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations.
The ratios which indicate the liquidity of a company are Current ratio, Quick/Acid-Test ratio.
These ratios are discussed below -

Liquidity Ratios
Years 2004 2005 2006 2007 2008
1. Current Ratio 0.75 0.99 1.18 1.36 1.60
2. Quick Ratio 0.50 .68 .75 .81 .93

1. Current Ratio

The ratio is mainly used to give an idea of the company's ability to pay back its short-term
liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher
the current ratio, the more capable the company is of paying its obligations. A ratio under 1
suggests that the company would be unable to pay off its obligations if they came due at that
point. While this shows the company is not in good financial health, it does not necessarily mean
that it will go bankrupt - as there are many ways to access financing - but it is definitely not a
good sign.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to
turn its product into cash. Companies that have trouble getting paid on their receivables or have
long inventory turnover can run into liquidity problems because they are unable to alleviate their
obligations.
Here, we can clearly depict that as per passage of time Company’s Current Ratio has improved
significantly being from less than 1 in 2004(i.e. .75) to 1.6 in 2008 (i.e. 2.86). But still it is yet to
reach the ideal ratio. The ideal current ratio is 2:1.

2. Quick Ratio/Acid test Ratio –

A stringent test that indicates whether a firm has enough short-term assets to cover its immediate
liabilities without selling inventory. Companies with ratios of less than 1 cannot pay their current
liabilities and should be looked at with caution.

57
The term comes from the way gold miners would test whether their findings were real gold
nuggets. Unlike other metals, gold does not corrode in acid; if the nugget didn't dissolve when
submerged in acid, it was said to have passed the acid test. If a company's financial statements
pass the figurative acid test, this indicates its financial integrity. The ideal current ratio is 1:1.

It is more rigorous and penetrating test of the liquidity position of a firm. Here it shows that
SAIL’s quick ratio over the years (in the year 2008) has increased to 0.93 compared to .50 in the
year 2004. It almost equal to 1:1(the ideal ratio) which is good.

Solvency Ratios

Solvency ratios are used by investors to get a picture of how well a company can deal with its
long-term financial obligations and develop future assets. As you might expect, a company
weighed down with debt is probably a less favourable investment than one with a minimal
amount of debt on its books.

Solvency Ratios
Sno. Years 2004 2005 2006 2007 2008
1. Debt to Equity ratio 2.86 0.94 0.44 0.28 0.18
2. Long Term D/E ratio 2.28 0.83 0.40 0.24 0.15
3. Interest coverage ratio 3.75 15.36 13.20 29.37 46.70

1. Debt To Equity Ratio

Debt to Equity ratio shows the relative proportions of debt and equity in financing the assets
of a Company. The debt includes short-term and long-term borrowings. The equity includes
the Networth (paid-up equity capital and reserves and surplus) and preference capital.

If the debt to equity ratio is high, it means that the company is using the help of external
resources or debt to finance its operations. This means that whatever the company earns, a
fixed proportion of that earnings would go towards interest. The capacity of the company to
generate earnings will be more without this outside financing and thereby increasing the
shareholder’s wealth.

58
The company would go bankrupt leaving shareholders with nothing if the company fails to
generate returns which are low than the amount invested.

Debt to Equity ratio has drastically gone down in the year 2005(.94) as compared to
2004(2.86). After that it has shown a marginal decline every year.

This shows that the company has reduced its external resources or debt to finance its
operations. This means that whatever the company earns, less portion is bestowed towards
debt in the year 2008 as compared to 2004. It means Company will hamper its tax advantage
but at the same time Company will saved from paying a fixed obligation whatever the profit
is, as Equity holders will only be paid from the residual income.

2. Long Term Debt to Equity ratio

Long term Debt to Equity is also called Gearing Ratio. A high gearing ratio is unfavorable
because it indicates possible difficulty in meeting long term debt obligations.

SAIL has shown decreasing trend of Long Term Debt to Equity which is a good sign. In the
year 2004 it was 2.28 where as in 2008 it was only .15.

3. Interest coverage ratio

Interest coverage ratio indicates how efficiently a company can pay interest on outstanding
debt. The ratio is calculated by dividing a company's earnings before interest and taxes
(EBIT) of one period by the company's interest expenses of the same period. The lower the
ratio, the more the company is burdened by debt expense. Interest coverage ratio in the year
2004 was 3.75, but as years passed it started shooting up in the sky, such that in the year
2008 it is 46.7. This shows that the company is now generating enhanced revenues to satisfy
its interest expenses.

59

Turnover Ratio

Turnover Ratio reflects the efficiency of the Company. The higher the ratio, the more
efficient is the management and vice versa.

Turnover Ratios
Years 2004 2005 2006 2007 2008
1. Inventory Turnover ratio 7.10 8.80 6.17 5.99 6.65
2. Debtors Turnover ratio 15.04 18.52 17.25 18.82 17.15
3. Debtors Velocity 19.00 18.00 20.00 20.00 21.00
4. Creditors Velocity 28.00 28.00 31.00 32.00 33.00
5. Asset turnover ratio 0.75 0.99 1.18 1.36 1.60

1. Inventory Turnover ratio

Inventory Turnover Ratio refers to the number of times the inventory is sold and replaced during
the accounting period. Inventory Turnover Ratio reflects the efficiency of inventory
management. The higher the ratio, the more efficient is the management of inventories, and vice
versa. A low Inventory turnover ratio is not desirable because it reveals the accumulation of
obsolete stock.

The company has shown a decreasing trend in inventory turnover ratio since 2005. This reveals
the accumulation of obsolete stocks. Then in the year 2008 it has gone up to 6.65 as compared to
5.99 in 2007, which is good sign.

2. Debtors Turnover ratio

Debtors Turnover Ratio is calculated by dividing the net credit sales by average debtors
outstanding during the year.

There is not much variation over these five years it is being lying in the range of 15 to 18. In the
2008 it has decreased by 1.67. which shows that now debtors are taking much longer time to pay
their balances, which is not good for a Company.

3. Debtors Velocity

Debtors velocity or ACP (Avg collection Period) is calculated by dividing the days in a year by
the debtors' turnover. The average collection period represents the number of day's worth of
credit sales that is blocked with the debtors (accounts receivable). Higher the debtors velocity the
more the funds are blocked and chances of bad debt increase. Also there is a loss in interest in
the blocked funds. Debtors velocity shows in how many days rapidly the debts are collected.

60
Debtors velocity over the years has shown an increasing trend which is not a good sign. It
implies that now more funds are being blocked up with debtors which otherwise have been
utilised to generate income.

4. Creditors Velocity

The Creditors Velocity that is the average payment period has increased from 28 in 2004 to 33 in
2008. It is not a good sign for the company as it helps a potential creditor to decide whether to
maintain any relation or not, it will encourage them to carry their business with the company’s
competitors.

5. Asset turnover ratio

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the
higher the number the better. The lower the ratio, the more the company is burdened by debt
expense.

Fixed Asset Turnover Ratio has increased to 1.6(2008) compared to .75 (2004) last 5 years. This
shows that the assets have been used efficiently to generate sales.

Profitability Ratios
Profitability is a key piece of information that should be analyzed when you're considering
investing in a company. This is because high revenues alone don't necessarily translate
into dividends for investors (or increased stock prices, for that matter) unless a company is able
to clear all of its expenses and costs. Profitability ratios are used to give us an idea of how likely
it is that a company will turn a profit, as well as how that profit relates to other important
information about the company.

Profitability Ratios
Sno. Years 2004 2005 2006 2007 2008
1. Gross profit margin 19.50 34.80 22.58 27.78 28.17
2. Net profit margin 10.41 21.29 12.28 15.71 16.39
3. Return On Equity 0.60 1.65 0.96 1.41 1.77
4. Return on Capital Employed 25.36 68.77 38.03 51.28 49.43
5. Return On Net Worth 66.43 88.85 35.04 41.47 37.33

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1. Gross profit margin

The gross profit margin ratio tells us the profit a business makes on its cost of sales, or cost of goods sold.
Gross profit ratio measures the efficiency of production as well as pricing.

A high gross profit margin indicates that a business can make a reasonable profit on sales, as long as it
keeps overhead costs in control.

Here in this case we can clearly see that the GPM has decreased in 2008 (28.17) when compared with
2005(34.80). It shows that this year company is unable to make reasonable profit on sales.

Here in this case we can clearly see that the GPM increased marginally (28.17) in 2008 when compared to
(27.78) 2007. Which depicts its good prospects in the future.

2. Net profit margin

Net Profit margin measures the overall efficiency of production, administration, selling, financing, pricing
and tax management. The net profit margin ratio tells us the amount of net profit per Rupee 1 of turnover
a business has earned. Net profit ratio provides an understanding of profit structure of a firm.

The Company is showing a positive trend in its NPM. In 2005 it has shown a steep inclination followed
by a sudden decline in 2006 after that it has increased marginally. So, company is making considerable
profit on its sales.

3. Return On Equity

Return on Equity is very essential as it tell the earning available to the persons at the last resort.
Equity Share holders are paid only in the end (after preference shareholders) if the earnings are
available. So if this ratio is high then the company will come in good prospects of investors.

Here, the ratio is increasing marginally every year. There’s not much variation a slight increase
each year is there. But still 1.77 in 2008 is very low return for the equity holders.

4. Return on Capital Employed

The Return on Capital Employed ratio (ROCE) tells us how much profit the company earns from
the investments the shareholders have made in the company.

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Return on capital employed has been volatile over the years. After a steep incline in the year
2005 then there was a steep decline in the year 2006 followed by a gradual incline decline in the
consecutive years. In 2008 ROCE is 49.43 which is a very good return for a company.

5. Return On Net Worth

It is the 'final measure' of profitability to evaluate overall return. This ratio measures return
relative to investment in the company. Return on Net Worth indicates how well a company
leverages the investment in it.

In the years 2004 and 2005 it has shown a good return on NW after that it has declined. It shows
that Company is not leveraging its investments that well as before it use to.

Valuation Ratio
Valuation ratios are used to analyze the attractiveness of an investment in a company. The idea is
that by using these ratios investors can gain an understanding of how cheap or expensive
a company's current stock price is compared to several different measures. In general, the less
expensive a company is, the more attractive an investment in that company becomes.

Valuation Ratios
Sno. Years 2004 2005 2006 2007 2008
1. Dividend Per Share - 3.30 2.00 3.10 3.70
2. Earning Per Share 6.08 16.06 9.44 14.54 17.62
3. Price Earning Ratio 5.31 3.92 8.82 7.85 10.49

1. Dividend Per Share

Dividend per share (DPS) is the amount of the dividend that shareholders will receive, over an
year, for each share they own.

Few investors’ primary concern is with the amount that a company gives as dividends -- capital
appreciation being only a secondary consideration. For such investors, this ratio obviously plays
a crucial role in their investment calculations.

SAIL’s DPS has increased from 2004 (0) to 2008 (3.7). DPS shows how much the shareholders
were actually paid by way of dividends. Here due to increase in profits the company is paying
slightly higher dividends.

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2. Earning Per Share

EPS is a well-known and widely used investment ratio. The performance and prospects of the
company are affected by EPS. If EPS increases, there is a possibility that the company may pay
more dividend or issue bonus shares. In short the market price of the share of a company will be
affected by all these factors.

EPS has been in an increasing trend over the years, it has only shown a slight decrease by 6.62 in
the year 2006. But still it is not a good EPS to be taken into consideration.

3. Price Earning Ratio

P/E ratio is a reflection of the market's opinion of the earnings capacity and future business
prospects of a company. Companies which enjoy the confidence of investors and have a higher
market standing usually command high P/E ratios.

It would seem that companies with low P/E ratios would offer the most attractive investment
opportunities. On the face of it P/E ratios that are as high as 20 to 60 will not provide that
attractive avenues. Mostly in India Companies have P/E ratios ranging between 5 and 20.

In these years it can be seen that P/E ratio has been a fluctuating ratios which switches off and on
every year. In 2008 it has increased to a great level (i.e. 10.49). It should be consider as a
positive remark.

64
SWOT Analysis of SAIL

Strengths

Largest Steel producer in the country and ranked among the top in the world

The single largest rail manufacturer in the world

An integrated player with good product mix

All its plants are a profit centers.

Weakness

Heavily dependent on import of raw materials

It has high cost structure when compared to its peers like Tata Steel, Jindal Steel and
Power.

Opportunities

Has an opportunity to become self-sufficient in procuring raw materials by acquiring

local and global mines

Threat

SAIL might face threat from TISCO in terms of capacity match. Presently SAIL’s
capacity is 12.63 MT and TISCO’s capacity is 4.9 MT. According to their projected
capacity expansions, by 2012 TISCO will have capacity of 15 MT and SAIL 19.7 MT.
The gap between these capacities will reduce if their projected plans get executed. SAIL
should reduce their cost especially their input cost by owning mines for inputs, which
would help, in effective cost management even during bad times.

65
 TATA

ANALYSIS

66
 TATA STEEL LIMITED
Tata Steel is the world's 6th largest steel company. It is a Asia's 1st and as well as India's largest
integrated steel company in private sector with operations in 24 countries and commercial
presence in over 50 countries.

Tata was established by an Indian parsi business man in 1907. It started its operations in 1912.
From Tata Steel, Tata has started investing in various other businesses like; Oil mills, Airlines
Publishing, Motors, Consultancy services etc in a short span of 30 years. In the year 1945 Tata
entered into tea business by the name of Tata Tea, which was called as Tata Finlay. Tata also
entered into exports as Tata Exports, which is the most successful and the largest export house in
India. Tata played a vital role in the improvement of steel production as steel production in India
has grown from 1.1 million tones in 1951 to 31.63 million tones in 2001-02.

The company's history is a century old, the origins and ascent of Tata Steel, which has
culminated into the century long history of an industrial empire, emerge from the illustrious
efforts of India's original iron man and the remarkable people who thereafter, have kept the fire
burning. Tata Steel was founded by Jamsetji Nusserwanji Tata in the year 1907 as Tata Iron and
Steel Company (TISCO) and later its renamed to Tata Steel Limited. It is an ISO-14001 and also
SA 8000 certified company, is this reflected in company's pro-active measures to ensure
optimum utilization of natural resources and work conditions.

The company received the Award for Best-Integrated Steel Plant in 1994-95. The company also
received the Prime Minister's Trophy for the Best Integrated Steel Plant for the year 1994-95.
This award was subsequently conferred again in 1998-99, 1999-2000, 2000-01 and 2001-02. The
World Steel Dynamics recognised Tata Steel as India's only 'world-class steel makers' thrice in a
row. Cold Rolling Mill Complex in 2000. The final phase of modernisation was to bring about
productivity enhancement through the expansion of the Hot Strip Mill from one million tonnes
per annum to a two million capacity. The company's 75 years of industrial harmony was
celebrated on 2004 with His Excellency, Dr. A P J Abdul Kalam,Former President of India. It
signed Memorandums of Understanding (MoUs) with the Sate Governments for its Green field
Projects in Kalinganagar (Orissa) and in Bastar District (Chhattisgarh) on 2004. Tata Steel
Limited signed four MoU's with the Government of Jharkhand not only for the Greenfield
Project but also the enhancement of capacity of Jamshedpur Works. The current capacity of
Works in Jamshedpur is 5 Million Tonne.

Tata Steel's first step in the Global Market was when it acquired the steel business of NatSteel
Limited, Singapore. It also signed a joint venture BlueScope Steel Limited, Australia in 2005, for
setting up a metallic coating and painting unit. To boost the economy of South Africa and also
add significantly to the Indian economy, Tata Steel commenced the work on Ferro Chrome Plant
in 2006 by acquired Rawnet Ferrous Industries Pvt Ltd, in Orissa, a Ferro Alloys plant with a

67
capacity of 50,000 tpa of high carbon chrome. The company has set up a Joint Venture Company
with Larsen and Toubro Ltd for developing an all weather modern deep water port in the state of
Orissa on the Eastern Coast of India Tata NYK Shipping Pte. Ltd, a joint venture shipping
company between the company and Nippon Yusen Kabushiki Kaisha (NYK Line) has been set
up to cater to dry and break bulk cargo and also the shipping activities. Tata Steel is one of the
few steel companies in the world that is Economic Value Added (EVA) positive. It was ranked
the 'World's Best Steel Maker', for the third time by World Steel Dynamics 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. On 2nd April '07, Tata Steel acquired Corus Europe's second
largest steel producer for consideration of US$ 12 Billion, which made Tata Steel the sixth
largest steel producer globally and the second-most geographically diversified steel producer in
the world. It also entered into an agreement to acquire controlling equity stake in two rolling
mills located in Haiphorg, Vietnam. It signed MoU & MoC for an investment in a 4.5 million
tonnes per annum plant in Vietnam. The company and SODEMI (state owned company for
mineral development) entered into Joint Venture agreement for the development of Mount
Nimba Iron ore deposits in Ivory Coast (West Africa) on December 2007.

As on January 2008, Tata Steel Limited and the members of the Al Bahja Group, a leading
business house of Oman have entered into a Joint Venture Agreement for the development of the
Uyun Limestone deposits at Salalah in the Sultanate of Oman and also in same month and in the
same year the company came to agreement with Steel Authority of India Limited (SAIL) to
establish a 50:50 joint venture company for coal mining in India. The fourth retail outlet,
'steeljunction', at Behala was opened on February 2008 by the company. As of Septeber 2008,
the company have 42.3% satke in Australia based Riversdale Mining, resulted the bought of
7.29% in Septeber 2008 for $120.7 million through its Singapore subsidiary. The company plans
to expand its of Jamshedpur plant's crude steel making capacity from 5 million tonnes to 6.8
million tonnes with cost of Rs.4550 crores and also the company plans to set up a 6 million tonne
integrated steel project at Kalinganagar in the state of Orissa under two phases of 3 million each.

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Vision
We aspire to be the global steel industry benchmark for Value Creation and Corporate
Citizenship.

We make the difference through:

a) Our People, by fostering team work, nurturing talent, enhancing leadership capability and
acting with pace, pride and passion.

b) Our Offer, by becoming the supplier of choice, delivering premium products and services and
creating value for our customers.

c) Our Innovative approach, by developing leading edge solutions in technology, processes and
products.

d) Our Conduct, by providing a safe working place, respecting the environment, caring for our
communities and demonstrating high ethical standards.

“We think we started on sound and straightforward business principles, considering the interests
of the shareholders our own and the health and welfare of the employees, the sure foundation of
our success.”

- Jamsetji N Tata, Founder

Registered Office
Bombay House,24 Homi Mody Street Fort, Mumbai
Maharashtra, 400001
Tel: 91-22-66658282
Fax: 91-22-66657724/66657725

69
Top Management
S.No NAME DESIGNATION
1. Ratan N Tata Chairman
2. James Leng Deputy Chairman
3. B Muthuraman Managing Director
4. Nusli N Wadia Director
5. S M Palia Director
6. Suresh Krishna Director
7. Ishaat Hussain Director
8. Jamshed J Irani Director
9. Subodh Bhargava Director
10. Jacobus Schraven Director
11. Anthony Hayward Director
12. Andrew Robb Additional Director
13. T Mukherjee Additional Director
14. Philippe Varin Director
15. J C Bham Company Secretary

Bankers
1. State Bank of India

Equity shares for last Five Years

Share Capital and its Break Up
Year Mar-08 Mar-07 Mar-06 Mar-05 Mar-04
Share Capital 6203.3 580.67 553.67 553.67 369.18
Equity Authorised 1750 1750 600 600 440
Preference Capital Authorised 6250 250 250 250 250
Equity Issued 731.37 581.07 554.07 554.07 369.58
Equity Subscribed 730.78 580.67 553.67 553.47 368.98
Equity Called Up 730.58 580.47 553.47 553.47 368.98
Equity Forfeited 0.2 0.2 0.2 0.2 0.2
Equity Paid Up 730.78 580.67 553.67 553.67 369.18
Preference Capital Paid Up 5472.52 0 0 0 0
Convertible Preference Share Paid 5472.52 0 0 0 0

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Share holding pattern including promoter and general public

TATA steel
Ownership Pattern as on 30-06-2008 No of Shares % Share Share Holder
Indian (Promoter & Group) 247993096 33.9445 26
Total of Promoter 247993096 33.9445 26
Non Promoter (Institution) 305928799 41.8745 1205
Non Promoter (Non-Institution) 176658558 24.1804 654042
Total Non Promoter 482587357 66.0549 655247
Total Promoter & Non Promoter 730580453 99.9994 655273
Custodians(Against Depository Receipts) 3867 0.0005 1
Grand Total 730584320 100 655274

Reserves and surplus for the last five years

TATA Steel
Reserves Total and its Break Up
Year Mar-08 Mar-07 Mar-06 Mar-05 Mar-04
Reserves Total 21097.43 13368.42 9201.63 6506.25 4146.68
Capital Reserves 1.49 1.49 1.49 1.49 1.49
General Reserves 7484.96 5784.82 4591.46 3091.46 1688.94
Share Premium 6391.92 2201.46 835.26 835.26 1019.75
Debenture Redemption Reserve 646 646 646 646 646
Capital Redemption Reserve 0.83 0.83 0.83 0.83 0.83
Amalgamation Reserve 1.12 1.12 1.12 1.12 1.12
Exchange Fluctuation Reserve 39.71 -5.22 10.96 1.53 14
Exchange Profit / Allowance 1.25 1.25 1.25 1.25 1.25
Contingency Reserve 100 100 100 100 100
Profit & Loss Account Balance 6387.46 4593.98 2976.16 1790.21 637.42
Other Reserves 42.69 42.69 37.1 37.1 35.88

Cause of Increase and Decrease in Reserve and Surplus

Reserve total has gone up from 13368.42 to 21097.43, which is mainly accounted due to
following reasons:

1. Share Premium has gone up from 2201.46 to 6391.92. It is clear that the debt equity ratio
has also decreased so the premium for Equity holders has increased (Equity Share Capital
has increased).

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 2. Profit and Loss Account Balance has also gone up from 4593.98 to 6387.46. It is mainly
accounted due to the fact that Sales has gone up. So, the overall Revenue has increased.

3. General Reserves has also gone up due to the fact that Profit and Loss Account Balance
has gone up. It is always some percentage of P&L a/c which is given to G/R.

Product profile of the company

As Per 2008

Product Name Capacity Utilised - Productio Sales Sales

Steel-Saleable %
101.05 n
4858401 Quantity
4475886 16012.1
Other Raw Mtls. 0 0 0 1661.38
Tubes-Welded-Steel 87.24 268698 233413 1018.42
Charge/Ferro Chrome 110.5 55251 186384 978.7
Steel & Scrap-Semi finished 0 0 254959 571.68
Power & Water-Sales 0 0 0 546.33
Other Products 0 0 0 379.69
Services 0 0 0 250.66
Ferro Manganese 164.69 50230 40631 219.29
Metallurgial Machinery 0 12994 12994 172.7
Bearings 105.42 26355460 27612220 149.88
Agricultural Products 0 0 0 111.23
By Products 0 0 0 95.25
Ball Bearing Rings-Alloy 0 0 1377379 8.56
Scrap/Othr Mtls/Raw Mat.- 0 0 0 7
Steel-Saleable- 0 0 1516 6.91
Bearing Rings-Cast & Alloy 0 0 417 1.99
Exchange Fluctuation 0 0 0 0
Wire Rods 92.59 245370 0 0
Billets 0 0 0 0
Wires 88.51 211001 0 0
Cold Rolled Strips 0 0 0 0
Cold Rolled Profiles 0 0 0 0
Cold Rolled Coils 153.49 153488 0 0

Market share of the company sales

The company has a market share of 14.7 per cent. Market conditions for TATA can be
considered to be fine tuned, as TATA ranks second among the 26 Large Steel Producing
Companies. It has a Second largest market share with a Sales of Rs. 19,654.78 crores in
Indian Steel Industry.

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General View
Years 2008 2007 2006 2005 2004
Market Capitalization 14,150.38 22,188.61 29,688.13 26,097.93 50,640.15
Net Worth 4,515.86 7,059.92 9,755.30 13,949.09 21,828.21
Enterprise Value 17,281.85 24,681.59 31,915.89 28,061.91 68,196.80
Operating Profit 3,518.19 6,144.86 6,189.57 7,332.19 8,830.00
EBDIT 3,518.19 6,144.86 6,189.57 7,332.19 8,830.00
EBIT 2,893.08 5,526.08 5,414.47 6,512.90 7,995.39
EBT 2,665.96 5,297.28 5,239.96 6,261.65 7,066.36
Dividends 368.98 719.51 719.51 943.91 1,168.93
Non operating income 259.24 485.62 314.53 299.38 292.83

Working Notes-
Non Operating income

NON OPERATING INCOME

Years 2008 2007 2006 2005 2004
Dividend Income 170.67 324.16 166.08 111.4 101.01
Interest Income 50.33 77.35 50 42 104.95
Profit on sale of Fixed Assets 28.26 11.19 41 32.42 32.17
Profit on sale of investments 9.98 15.63 9.95 32.77 14.93
Fee Income 0 0 0 0 0
Provision Written Back 0 57.29 47.5 80.79 39.77
Total non operating income 259.24 485.62 314.53 299.38 292.83

Trends in various costs over a period off 5 years as a % of net sales

Cost in Percentage to Sales
(Rs in Crs) Years 2004 2005 2006 2007 2008
Sales 100% 100% 100% 100% 100%
Raw Materials 21% 21% 20% 20% 20%
Power & Fuel Cost 7% 5% 6% 6% 5%
Employee Cost 15% 10% 9% 9% 9%
Other Manufacturing Expenses 14% 13% 14% 14% 13%
Selling and Administration Expenses 10% 9% 9% 9% 7%

73
 Ratios Analysis
Ratios can be an invaluable tool for making an investment decision. Even so, many new
investors would rather leave their decisions to fate than try to deal with the intimidation of
financial ratios. The truth is that ratios aren't that intimidating, even if you don't have a degree in
business or finance. Using ratios to make informed decisions about an investment makes a lot of
sense, once you know how use them.

Liquidity Ratios

Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations.
The ratios which indicate the liquidity of a company are Current ratio, Quick/Acid-Test ratio.
These ratios are discussed below -

Liquidity Ratios
Years 2004 2005 2006 2007 2008
1. Current Ratio 0.67 0.65 0.71 1.26 2.86
2. Quick Ratio 0.41 0.31 0.29 .56 .71

1. Current Ratio

The ratio is mainly used to give an idea of the company's ability to pay back its short-term
liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher
the current ratio, the more capable the company is of paying its obligations. A ratio under 1
suggests that the company would be unable to pay off its obligations if they came due at that
point. While this shows the company is not in good financial health, it does not necessarily mean
that it will go bankrupt - as there are many ways to access financing - but it is definitely not a
good sign.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to
turn its product into cash. Companies that have trouble getting paid on their receivables or have
long inventory turnover can run into liquidity problems because they are unable to alleviate their
obligations.

Here, we can clearly depict that as per passage of time Company’s Current Ratio has improved
significantly being from less than 1 in 2004(i.e. .61) to more than even 2 in 2008 (i.e. 2.86). But
keeping more than required current assets will also mean unnecessary blockage of funds in these
assets which otherwise would have been utilised to generate income. So, this situation should
also have to be avoided. The ideal current ratio is 2:1.

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 2. Quick Ratio/Acid test Ratio

A stringent test that indicates whether a firm has enough short-term assets to cover its immediate
liabilities without selling inventory. Companies with ratios of less than 1 cannot pay their current
liabilities and should be looked at with caution.
The term comes from the way gold miners would test whether their findings were real gold
nuggets. Unlike other metals, gold does not corrode in acid; if the nugget didn't dissolve when
submerged in acid, it was said to have passed the acid test. If a company's financial statements
pass the figurative acid test, this indicates its financial integrity. The ideal current ratio is 1:1.

It is more rigorous and penetrating test of the liquidity position of a firm. Here it shows that
TATA Steel has large part of current assets being tied up in slow moving and un-saleable
inventories and slow paying debts.

TATA’s quick ratio over the years (2008) has increased to 0.71 compared to previous years. But
still it is below 1. It also depicts that company is utilising its funds very efficiently but sudden
liability may arise in front of them making them loose their credibility in front of creditors.

Solvency Ratios
Solvency ratios are used by investors to get a picture of how well a company can deal with its
long-term financial obligations and develop future assets. As you might expect, a company
weighed down with debt is probably a less favourable investment than one with a minimal
amount of debt on its books.

Solvency Ratios
Sno. Years 2004 2005 2006 2007 2008
1. Debt to Equity ratio 0.99 0.53 0.31 0.51 0.67
2. Long Term D/E ratio 0.95 0.51 0.30 0.50 0.66
3. Interest coverage ratio 12.74 24.15 31.03 25.92 8.61

1. Debt To Equity Ratio

Debt to Equity ratio shows the relative proportions of debt and equity in financing the assets
of a Company. The debt includes short-term and long-term borrowings. The equity includes
the Networth (paid-up equity capital and reserves and surplus) and preference capital.

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Debt to Equity ratio has gone down as compared to the year 2004. This shows that the
company has reduced its external resources or debt to finance its operations. This means that
whatever the company earns, less portion is bestowed towards debt in the year 2008 as
compared to 2004. It means Company will hamper its tax advantage but at the same time
Company will be saved from paying a fixed obligation whatever the profit is, as Equity
holders will only be paid from the residual income.

But when compared from 2007 in 2008 debt equity ratio has marginally increased. This
shows that the company is using the help of external resources or debt to finance its
operations. This means that whatever the company earns, a fixed proportion of that earnings
would go towards interest which will affect the earning capacity of the business.

2. Long Term Debt to Equity ratio

Long term Debt to Equity is also called Gearing Ratio. A high gearing ratio is unfavorable
because it indicates possible difficulty in meeting long term debt obligations.

TATA has shown decreasing trend of Long Term Debt to Equity from 2004 to 2007 which is
a good sign but in 2008 it has marginally increased.

3. Interest coverage ratio

Interest coverage ratio indicates how efficiently a company can pay interest on outstanding
debt. The ratio is calculated by dividing a company's earnings before interest and taxes
(EBIT) of one period by the company's interest expenses of the same period. The lower the
ratio, the more the company is burdened by debt expense. Interest coverage ratio in the year
2004 was good at 12.74, but as years passed started showing an increasing trend, but in the
year 2008 it declined drastically from 25.92(2007) to 8.61 (2008) which is not a good sign.
This shows that the company is not generating sufficient revenues to satisfy its interest
expenses.

76

Turnover Ratio

Turnover Ratio reflects the efficiency of the Company. The higher the ratio, the more
efficient is the management and vice versa.

Turnover Ratios
Years 2004 2005 2006 2007 2008
1. Inventory Turnover ratio 9.93 10.17 8.47 8.77 8.99
2. Debtors Turnover ratio 14.81 25.74 30.57 33.75 37.77
3. Debtors Velocity 12.00 10.00 9.00 9.00 10.00
4. Creditors Velocity 80.00 82.00 89.00 93.00 103.00
5. Asset turnover ratio 0.97 1.24 1.20 1.26 1.37

1. Inventory Turnover ratio

Inventory Turnover Ratio refers to the number of times the inventory is sold and replaced during
the accounting period. Inventory Turnover Ratio reflects the efficiency of inventory
management. The higher the ratio, the more efficient is the management of inventories, and vice
versa. A low Inventory turnover ratio is not desirable because it reveals the accumulation of
obsolete stock.

The company has been showing an increasing trend in inventory turnover ratio from 2006. This
shows that the company is managing its inventories efficiently.

2. Debtors Turnover ratio

Debtors Turnover Ratio is calculated by dividing the net credit sales by average debtors
outstanding during the year.

The company has drastically increased its debtors turnover ratio. High DTR is good sign for a
company as funds are not blocked for a long time. The company follows good credit collection
policy. The company enjoys good liquidity in debts.

3. Debtors Velocity

Debtors velocity or ACP (Avg collection Period) is calculated by dividing the days in a year by
the debtors' turnover. The average collection period represents the number of day's worth of
credit sales that is blocked with the debtors (accounts receivable). Higher the debtors velocity the
more the funds are blocked and chances of bad debt increase. Also there is a loss in interest in
the blocked funds. Debtors velocity shows in how many days rapidly the debts are collected.

77
Debtors velocity for the year 2008 has increased when compared to 2007 but initially its shown a
decreasing trend. So, it is not a good sign when compared to 2007 but over the years it indicates
a positive trend.

4. Creditors Velocity

The Creditors Velocity that is the average payment period has increased from 80 in 2004 to 103
in 2008. It is not a good sign for the company as it helps a potential creditor to decide whether to
maintain any relation or not, it will encourage them to carry their business with the company’s
competitors.

5. Asset turnover ratio

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the
higher the number the better. The lower the ratio, the more the company is burdened by debt
expense.

Fixed Asset Turnover Ratio has increased to 1.37(2008) compared to .97 (2004) last 5 years.
This shows that the assets have been used efficiently to generate sales.

Profitability Ratios
Profitability is a key piece of information that should be analyzed when you're considering
investing in a company. This is because high revenues alone don't necessarily translate
into dividends for investors (or increased stock prices, for that matter) unless a company is able
to clear all of its expenses and costs. Profitability ratios are used to give us an idea of how likely
it is that a company will turn a profit, as well as how that profit relates to other important
information about the company.

Profitability Ratios
Sno. Years 2004 2005 2006 2007 2008
1. Gross profit margin 29.51 38.72 36.11 37.10 39.79
2. Net profit margin 14.65 21.89 20.46 21.36 21.12
3. Return On Equity 5.06 6.34 6.34 7.42 6.15
4. Return on Capital Employed 38.18 63.79 50.13 36.79 23.32
5. Return On Net Worth 45.36 60.02 41.70 35.62 26.08

78
1. Gross profit margin

The gross profit margin ratio tells us the profit a business makes on its cost of sales, or cost of goods sold.
Gross profit ratio measures the efficiency of production as well as pricing.

A high gross profit margin indicates that a business can make a reasonable profit on sales, as long as it
keeps overhead costs in control.

Here in this case we can clearly see that the GPM increased to a considerable level (38.72) in 2005 when
compared to (29.51) 2004, after that it has shown only marginal increment every year. But still it is a
good sign.

2. Net profit margin

Net Profit margin measures the overall efficiency of production, administration, selling, financing, pricing
and tax management. The net profit margin ratio tells us the amount of net profit per Rupee 1 of turnover
a business has earned. Net profit ratio provides an understanding of profit structure of a firm.

The Company is showing the similar trend as of Gross Profit Margin for Net Profit Margin. In 2005 it is
21.89 as compared to 14.65 in 2004. Then it has a slight decline in 2006 (20.46) then the increasing trend.
It can be contributed to the increase in sales as per the passage of time.

3. Return On Equity

Return on Equity is very essential as it tell the earning available to the persons at the last resort.
Equity Share holders are paid only in the end (after preference shareholders) if the earnings are
available. So if this ratio is high then the company will come in good prospects of investors.

Here, the ratio is increasing till 2007 and has shown a slight fall in 2008. But still 6.15 is good
return for the equity holders.

4. Return on Capital Employed

The Return on Capital Employed ratio (ROCE) tells us how much profit the company earns from
the investments the shareholders have made in the company.

Return on capital employed has been volatile over the years. After a steep incline in the year
2005 then there was a steep decline in the year 2006 followed by a gradual decline in the
79
consecutive years. This shows that the company is not efficiently utilising the investments made
by the shareholders to generate returns.

5. Return on Net Worth

It is the 'final measure' of profitability to evaluate overall return. This ratio measures return
relative to investment in the company. Return on Net Worth indicates how well a company
leverages the investment in it.

After a considerable increment of 14.66 in the year 2005 (60.02) it has shown a declining trend
to such a level that in 2008 it is only 26.08.

Valuation Ratio
Valuation ratios are used to analyze the attractiveness of an investment in a company. The idea is
that by using these ratios investors can gain an understanding of how cheap or expensive
a company's current stock price is compared to several different measures. In general, the less
expensive a company is, the more attractive an investment in that company becomes.

Valuation Ratio
Sno. Years 2004 2005 2006 2007 2008
1. Dividend Per Share 10 13 13 15.5 16
2. Earning Per Share 46.02 60.91 61.51 69.95 61.06
3. Price Earning Ratio 8.33 6.58 8.72 6.43 11.35

1. Dividend Per Share

Dividend per share (DPS) is the amount of the dividend that shareholders will receive, over an
year, for each share they own.

Few investors’ primary concern is with the amount that a company gives as dividends -- capital
appreciation being only a secondary consideration. For such investors, this ratio obviously plays
a crucial role in their investment calculations.

TATA’s DPS has increased from 2004-10 to 2008-16. DPS shows how much the shareholders
were actually paid by way of dividends. Here due to increase in profits the company is paying
higher dividends.

80
2. Earning Per Share

EPS is a well-known and widely used investment ratio. The performance and prospects of the
company are affected by EPS. If EPS increases, there is a possibility that the company may pay
more dividend or issue bonus shares. In short the market price of the share of a company will be
affected by all these factors.

EPS has been in an increasing trend over the years, it has only shown a slight decrease by 8.89 in
the year 2008. But still it can be considered to be a good return for the share holders.

3. Price Earning Ratio

P/E ratio is a reflection of the market's opinion of the earnings capacity and future business
prospects of a company. Companies which enjoy the confidence of investors and have a higher
market standing usually command high P/E ratios.

In these years it can be seen that P/E ratio has been the most fluctuating ratios which switches off
and on every year. In 2008 it has increased to a great level (i.e. 11.35). It should be consider as a
positive remark.

81
 JSW

ANALYSIS

82
 JINDAL SOUTH WEST STEEL LIMITED

India's second largest private sector steel maker JSW Steel Limited (JSWSL) was originally
incorporated as Jindal Vijayanagar Steel Limited on March 15, 1994. Product portfolio of the
company includes Hot Rolled Product, Cold Rolled Product, Galvanised Product, Pre-painted
Galvanised Product and Jindal Vishwas. JSWSL consists of the most modern, eco-friendly steel
plants with the latest technologies for both upstream & downstream processes. The Company's
four plants are situated in Vijayanagar, Vasind, Tarapur and Salem. JSW Steel Ltd. has received
all the three certificates of ISO: 9001 for Quality Management System, ISO: 14001 for
Environment Management System and OHSAS: 18001 for Occupational Health & Safety
Management System.

During the incorporated year itself, the MOU was made with KSIIDC to be provided with grid
support, approvals for construction of railway siding etc and also the company entered into a
technical arrangement with Voest Alpine Industrieanlagenbau (VAI), for technical details with
respect to productivity, iron ore technical details etc. Two joint venture companies were sets up
namely Jindal Tractebel Power Company Ltd and Jindal Praxair Oxygen Co. (P) Ltd for supply
of power of 2 x 130 MW of power and supply of Oxygen respectively. A year after, in 1995,
Praxair had entered into a Joint venture with the company to build and operate world's largest
cryogenic air separation plants for supply of oxygen, nitrogen and argon to Jindal's integrated
steel facility in Bellary in Karnataka. The BOF & CCP Units were to be commissioned in the
year 1997 to synchronize with the commissioning of the first unit of Corex. During the same
year the Company has entered into a Joint venture with M/s. Mysore Minerals Limited (A
Government of Karnataka Undertaking) the Leaseholder of Thimmappanagudi deposits, to form
Jindal Mysore Minerals Mining Company Private Ltd. JVSL had commissioned the first phase of
the roughing mill of its hot strip mill in March of the year 1997.

The company has entered into an agreement with the Steel Authority of India (SAIL) in the year
1999 for procuring slab. JSWSL acquired 60 per cent stake in a city-based joint venture
company, Chemicon and also the company made an agreement with Saint-Gobain Glass India to
install an air separation plant for the supply of nitrogen and hydrogen to Saint-Gobain's float
glass unit at Chennai. During the year 2000, the company implemented a total integrated
resource planning solution for its business process, which was the first of its kind in India. The
Company has signed a Memorandum of Understanding (MoU) with miners in and around the
company's captive mines located in the Bellary Hospet region in Karnataka. The MoU has been
signed for supplying iron ore fines for the company's pelletisation plant. JSWSL has made step
to compel in the highly lucrative liquefied petroleum gas sheets segment after extending its focus
in hot-rolled coils (HRC) from south to western India. JSW group acquired the Company and
took over the Management from November 2004. Salem Works is the only integrated steel plant
83
in Tamil Nadu and is located at Pottaneri/M. Kalipatti villages and at about 35 kms from Salem.
In 2005, JSWSL approved the merger of Euro Ikon Iron & Steel Pvt Ltd, Euro Coke & Energy
Pvt Ltd, and JSW Power Ltd. The Company's name was changed to JSW Steel Limited on June
16, 2005. CII-EXIM Bank Award was handed over to the company, 'Commendation Certificate
for Significant Achievement' towards Business Excellence during the year 2005 and in the same
year the Prime Minister National Award also bagged by the company for Excellence in Urban
Planning & Design for Township.

National Sustainability Award was conferred to the company in the year 2006, Second Prize
amongst the Integrated Steel Plants Category by Indian Institute of Metals. During January 2007,
JSW Steel has executed a Development Agreement with The Government of West Bengal, West
Bengal Industrial Development Corporation Limited (WBIDC) West Bengal Mineral
Development and Trading Corporation Limited (WBMDTC) for setting up a 10 MTPA steel
plant in suitable phases. JSW steel has inaugurated two exclusive JSW Shoppe in Hubli,
Karnataka on December 4, 2007, At JSW Shoppe, end consumer will also know about different
application of different steel products being manufactured by M/s JSW Steel through actual
components and pictures from Automobile, White Goods Sectors, and Construction. During the
period of 2007-08, JSWSL received Gold Award in Metal and Mining Sector for Outstanding
Achievement in Safety Management by Greentech Foundation. CII-ITC Sustainability Award:
Commendation Certificate for Significant Achievement in Economic, Environment and Social
Performance. (On 12th Dec 2007 at New Delhi) and IMC Ramkrishna Bajaj National Quality
Award: Special Award for Performance Excellence in the Manufacturing Category. (On 21st
Mar 2008, at Mumbai).

As on June 2008, JSW Steel stated that, it will set up a green field plant in Georgia (Europe) in
partnership with a UK-based company to produce rebars, the project will see an investment of
$42 million by way of equity and debt, where 49 per cent of equity will be held by JSW while
the balance will be held by Geo Steel LLC of the UK. Both companies will invest $7 million
towards direct equity while the remaining amount will be raised by way of debt. JSWSL
inaugurated JSW Shoppe, an exclusive steel retail outlet in Ahmedabad IN June 2008 and planed
to setup 200 exclusive JSW Shoppes across the length and breadth of the country by 2010. Also
it will invest around Rs 550 crore in its Chilean mining concessions to ensure 50 per cent iron
ore security by June 2009, up from 30 per cent now. The Company plans to emerge as 32 million
tonnes per year capacity steel major by 2020.

84
VISION

“It is said that in the journey of life, more important than where you are, is where you are
heading to..” - Sajjan Jindal, Vice Chairman & MD, JSW Steel Ltd.,

OUR VISION

• Preparation and grooming of the next generation of young thinkers.

• Continuous improvement of cost stewardship in the value chain.

• Ability to nurture lasting customer relationships, by anticipating needs and

delivering beyond expectations.

• Catalyst for growth amongst the nation’s steel industries.

• Marketing of value added branded products for both domestic and global markets.

Registered Office

Jindal Mansion,5A Dr G Deshmukh Marg, Mumbai

Maharashtra, 400026
Tel: 91-022-23513000
Fax: 91-022-23526400

85
Top Management
S.No NAME DESIGNATION
1. Savitri Devi Jindal Chairperson
2. Sajjan Jindal Vice Chairman & M.D.
3. Y Siva Sagar Rao Joint Managing Director & CEO
4. Seshagiri Rao M V S Director (Finance)
5. Vinod Nowal Director (Commercial)
6. Biswadip Gupta Director
7. Nagesh Dinkar Pinge Director
8. Zarin Daruwala Nominee (ICICI)
9. V Madhu Nominee (KSIIDC)
10. S Jambunathan Nominee (UTI)
11. S K Gupta Director
12. Anthony Paul Pedder Director
13. Uday M Chitale Director
14. Sudipto Sarkar Director
15. Lancy Varghese Company Secretary
16. K Vijayaraghavan Additional Director
17. Ajay Shah Additional Director
18. G R Sundaravadivel Nominee

Bankers
SNo.
1 State Bank of India
2 Punjab National Bank
3 Vijaya Bank
4 Allahabad Bank
5 State Bank of Mysore
6 State Bank of Indore
7 ICICI Bank Ltd
Bankers
8 State Bank of Patiala
9 Bank of Baroda
10 Indian Bank
11 Indian Overseas Bank
12 Syndicate Bank
13 South Indian Bank Ltd
14 Union Bank of India

86
Equity shares for last Five Years
Share Capital and its Break Up
Year Mar-08 Mar-07 Mar-06 Mar-05 Mar-04
Share Capital 537.01 504.04 497.06 469.13 1631.08
Equity Authorised 2000 2000 2000 2000 2000
Preference Capital Authorised 1000 1000 1000 1000 1000
Equity Issued 248.08 225.01 218.03 190.1 1352.05
Equity Subscribed 248.08 225.01 218.03 190.1 1352.05
Equity Called Up 187.05 163.98 156.98 129.04 1291.02
Equity Forfeited 61.03 61.03 61.05 61.06 61.03
Equity Paid Up 248.08 225.01 218.03 190.1 1352.05
Preference Capital Paid Up 288.93 279.03 279.03 279.03 279.03
Non-convertible Preference Share Paid UP 288.93 279.03 279.03 279.03 0

Share holding pattern including promoter and general public

Share Holding Pattern

Ownership Pattern as on 30-06-2008 No of Shares % Share Share Holder
Foreign (Promoter & Group) 5704612 3.0498 10
Indian (Promoter & Group) 82188593 43.9397 105
Total of Promoter 87893205 46.9895 115
Non Promoter (Institution) 64806159 34.6467 291
Non Promoter (Non-Institution) 34349271 18.3638 574461
Total Non Promoter 99155430 53.0105 574752
Total Promoter & Non Promoter 187048635 100 574867
Grand Total 187048635 100 574867

Reserves and surplus for the last five years

Reserves Total and its Break Up

Year Mar-08 Mar-07 Mar-06 Mar-05 Mar-04
Reserves Total 7140.24 5068.25 3859.16 2680.59 -131.9
General Reserves 3105.95 2411.48 2282.22 1847.89 0
Share Premium 500.85 346.5 163.09 13.94 0
Debenture Redemption Reserve 24.49 42.71 82.19 99.19 0
Profit & Loss Account Balance 3505.86 2267.56 1331.66 719.57 -131.9
Other Reserves 3.09 0 0 0 0

Cause of Increase and Decrease in Reserve and Surplus

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Reserve total has gone up from 5068.25 to 7140.24, which is mainly accounted due to following
reasons:

1. Share Premium has gone up from 346.5 to 500.85. It is clear that the debt equity ratio has
also decreased so the premium for Equity holders has increased (Equity Share Capital has
increased).

2. Debenture Redemption Reserve has gone down due to the fact that they have decreased
their debt proportion in the fund mix. So, now they are required to keep less reserve for
the debenture redemption.

3. Profit and Loss Account Balance has also gone up from 2267.56 to 3505.86. It is mainly
accounted due to the fact that Sales has gone up. So, the overall Revenue has increased.

4. General Reserves has also gone up due to the fact that Profit and Loss Account Balance
has gone up. It is always some percentage of P&L a/c which is given to G/R.

Product profile of the company

As Per 2008

Product Name Capacity Utilised -% Production Sales Quantity Sales

Hot Rolled Steel 108.69 2717134 1747603 5655.7
Galvanised Coils/Sheets 84.93 764401 663875 2816.3
Rolled Products 73.14 329128 291137 945.41
Others 0 0 0 806.27
Hot Rolled Steel Plates 70.74 226355 214883 760.36
M S Slabs 83.45 3171228 187341 510.6
Colour Coating Coils / 90.02 90016 84650 437.87
Cold Rolled Coils/Sheets 47.22 861818 112122 412.13
Steel Billets & Blooms 45.55 455522 103876 284.27
Adjustment 0 0 0 0
Export incentives 0 0 0 0

Market share of the company sales

The company has a market share of 8.5 per cent. Market conditions for JSW can be
considered to be on its track to grow further in near future, as JSW has been ranked third
among the 26 Large Steel Producing Companies. It has a Third largest market share with a
Sales of Rs. 19,654.78 crores in Indian Steel Industry.
88
Competitive Strengths
Location: Our Upstream facility is located in the Iron Ore rich belt of Bellary- Hospet region of
Karnataka. The strategic location of the manufacturing units with respect to established ports and
well connected rail and road networks ensures reliable and cost efficient receipt of raw materials
and dispatch of finished steel.

Technology: In order to maintain leadership in quality and cost of products we have adopted
technologies such as Vibro-compacting non-recovery Coke Ovens, the novel Corex Process as
well as the conventional Blast Furnace route of Iron Making

Integrated operations: We are a vertically integrated company with operations spanning across
iron ore mining to manufacture of value added galvanized and colour coated products.

Marketing: Having one of the largest galvanising capacities in the country, we are one of the
largest exporters of galvanized products to over 50 countries in five continents. We are one of
the largest integrated steel producing companies in India with a customer pool comprising
leading domestic as well as international companies.

Professional Management: As part of our corporate governance practices, we have a qualified

and experienced management in addition to a diversified independent board.

Business/Financial Strategy

Capacity enhancement: We intend to leverage our proximity to iron ore reserves and the
existing infrastructure created by us to expand capacities at low specific investment cost per ton.

Increase vertical integration: Our impetus has been to increase the vertical integration through
strategic tie-up, longterm linkages and acquisitions aimed at ensuring availability of critical raw
materials at low cost.

Improve product profile: We intend to improve the value added products in our product mix to
withstand the vagaries of price volatilities besides being able to offer suite of products to meet
the growing requirements of the customers.

Improve financial profile: Being part of a capital-intensive industry with high volatility in the
product prices, we need to maintain a healthy financial profile and put in place a robust capital
structure.

Investing in technology to improve productivity and reduce wastage: We have invested in

latest technologies for efficient operations and are continuing to improve to ensure that best
operating practices are followed.
89
Qualitative Factors
Company is one of the leading private sector integrated steel manufacturer in India and the
major flat steel producer in Southern India with focus on entire value chain from iron ore to
galvanized products.

Company has one of the largest galvanizing capacities in the country and its galvanised
products are exported to more than 50 countries across five continents

Company is vertically integrated with operations spanning from pellet to manufacturing of

value added galvanized and colour coated products.

Company is having captive power plant and coke oven plant.

Company has come out of CDR framework by prepaying/refinancing of out standing debt

Company has improved its financial position by prepaying debt and replacing it with low cost
debt. For details please refer section on “Financial Statements” and “Management Discussion
and Analysis”

The low per capita consumption of steel in India coupled with increasing investment in
infrastructure, housing, construction and urbanization provide significant growth opportunities
for the domestic steel industry.

Management team consists of experienced professionals with diverse skills in manufacturing,

sales, marketing, finance and supply chain management.

General View
Years 2008 2007 2006 2005 2004
Market 1,058.70 4,652.54 4,751.48 8,091.10 15,321.27
Net Worth 1,220.15 2,870.69 4,077.19 5,293.26 7,388.32
Enterprise Value 5,767.57 8,366.46 8,748.66 11,926.33 22,528.58
Operating Profit 1,412.32 2,306.85 2,075.61 2,819.87 3,665.79
EBDIT 1,412.32 2,306.85 2,075.61 2,819.87 3,665.79
EBIT 1,099.44 1,947.31 1,669.79 2,321.64 2,978.61
EBT 690.16 1,472.61 1,301.14 1,914.83 2,483.77
Dividends - 103.23 125.58 204.98 261.87
Non operating 60.04 10.20 374.50 15.58 16.66

90
Working Notes-
Non Operating income

NON OPERATING INCOME

Years 2008 2007 2006 2005 2004
Dividend Income 5.64 0.34 0.03 0.03 0.02
Interest Income 54.4 7.27 4.69 4.83 2.14
Profit on sale of Fixed Assets 0 2.59 0.58 1.15 0
Profit on sale of investments 0 0 369.2 0 0.05
Provision Written Back 0 0 0 9.57 14.45
Total non operating income 60.04 10.20 374.50 15.58 16.66

Trends in various costs over a period off 5 years as a % of net sales

Cost in Percentage to Sales

(Rs in Crs) Years 2004 2005 2006 2007 2008
Sales 100% 100% 100% 100% 100%
Raw Materials 43% 45% 50% 46% 52%
Power & Fuel Cost 14% 9% 7% 5% 5%
Employee Cost 1% 2% 2% 2% 2%
Other Manufacturing Expenses 7% 8% 12% 12% 12%
Selling and Administration Expenses 2% 5% 1% 1% 1%

91
 Ratios Analysis
Ratios can be an invaluable tool for making an investment decision. Even so, many new
investors would rather leave their decisions to fate than try to deal with the intimidation of
financial ratios. The truth is that ratios aren't that intimidating, even if you don't have a degree in
business or finance. Using ratios to make informed decisions about an investment makes a lot of
sense, once you know how use them.

Liquidity Ratios

Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations.
The ratios which indicate the liquidity of a company are Current ratio, Quick/Acid-Test ratio.
These ratios are discussed below -

Liquidity Ratios
Years 2004 2005 2006 2007 2008
1. Current Ratio 1.29 1.06 0.87 0.78 0.62
2. Quick Ratio 0.55 0.28 0.18 0.26 0.18

1. Current Ratio

The ratio is mainly used to give an idea of the company's ability to pay back its short-term
liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher
the current ratio, the more capable the company is of paying its obligations. The current ratio can
give a sense of the efficiency of a company's operating cycle or its ability to turn its product into
cash. Companies that have trouble getting paid on their receivables or have long inventory
turnover can run into liquidity problems because they are unable to alleviate their obligations.

Here, we can clearly depict that as per the passage of time, Company’s Current Ratio has
reduced siginficantly being from 1.29 in 2004 to .62 in 2008. This does not depict a good picture.
The company would be unable to pay off its obligations if they came due at that point. While
this shows the company is not in good financial health, it does not necessarily mean that it will
go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.
The ideal current ratio is 2:1.

2. Quick Ratio/Acid test Ratio

A stringent test that indicates whether a firm has enough short-term assets to cover its immediate
liabilities without selling inventory. Companies with ratios of less than 1 cannot pay their current
liabilities and should be looked at with caution.

92
The term comes from the way gold miners would test whether their findings were real gold
nuggets. Unlike other metals, gold does not corrode in acid; if the nugget didn't dissolve when
submerged in acid, it was said to have passed the acid test. If a company's financial statements
pass the figurative acid test, this indicates its financial integrity. The ideal current ratio is 1:1.

It is more rigorous and penetrating test of the liquidity position of a firm. Here it shows that JSW
Steel has large part of current assets than the rest two firms tied up in slow moving and un-
saleable inventories and slow paying debts.

JSW’s quick ratio over the years (2008) has increased to 0.18 compared to previous years. But
still it is below 1. It also depicts that company is utilising its funds very efficiently but sudden
liability may arise in front of them making them loose their credibility in front of creditors.

Solvency Ratios
Solvency ratios are used by investors to get a picture of how well a company can deal with its
long-term financial obligations and develop future assets. As you might expect, a company
weighed down with debt is probably a less favourable investment than one with a minimal
amount of debt on its books.

Solvency Ratios
Sno. Years 2004 2005 2006 2007 2008
1. Debt to Equity ratio 4.90 1.85 1.06 0.83 0.88
2. Long Term D/E ratio 4.84 1.81 1.01 0.80 0.85
3. Interest coverage ratio 1.73 4.10 3.53 5.71 6.02

1. Debt To Equity Ratio

Debt to Equity ratio shows the relative proportions of debt and equity in financing the assets
of a Company. The debt includes short-term and long-term borrowings. The equity includes
the Networth (paid-up equity capital and reserves and surplus) and preference capital.

Debt to Equity ratio has drastically gone down in the year 2005(1.85) as compared to
2004(4.9). After that it has shown a marginal decline every year till 2007 and then a slight
increase in the year 2008. This shows that the company is using the help of external
resources or debt to finance its operations. This means that whatever the company earns, a
fixed proportion of that earnings would go towards interest which will affect the earning
capacity of the business.

93
 Overall it gives a view that the company has reduced its external resources or debt to finance
its operations. This means that whatever the company earns, less portion is bestowed towards
debt in the year 2008 as compared to 2004. It means Company will hamper its tax advantage
but at the same time Company will be saved from paying a fixed obligation whatever the
profit is, as Equity holders will only be paid from the residual income.

2. Long Term Debt to Equity ratio

Long term Debt to Equity is also called Gearing Ratio. A high gearing ratio is unfavorable
because it indicates possible difficulty in meeting long term debt obligations.

JSW has shown decreasing trend of Long Term Debt to Equity from 2004 to 2007 which is a
good sign but in 2008 it has marginally increased.

3. Interest coverage ratio

Interest coverage ratio indicates how efficiently a company can pay interest on outstanding
debt. The ratio is calculated by dividing a company's earnings before interest and taxes
(EBIT) of one period by the company's interest expenses of the same period. The lower the
ratio, the more the company is burdened by debt expense. Interest coverage ratio in the year
2004 was 1.73, but as years passed it started showing an increasing trend, such that in the
year 2008 it is 6.02. This shows that the company is now generating enhanced revenues to
satisfy its interest expenses.

Turnover Ratio

Turnover Ratio reflects the efficiency of the Company. The higher the ratio, the more
efficient is the management and vice versa.

Turnover Ratios
Years 2004 2005 2006 2007 2008
1. Inventory Turnover ratio 12.83 13.02 8.16 9.61 9.86
2. Debtors Turnover ratio 10.36 19.94 26.79 38.23 43.36
3. Debtors Velocity 9.00 11.00 9.00 8.00 8.00
4. Creditors Velocity 36.00 34.00 35.00 40.00 35.00
5. Asset turnover ratio 0.57 0.98 0.86 0.98 1.03

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1. Inventory Turnover ratio

Inventory Turnover Ratio refers to the number of times the inventory is sold and replaced during
the accounting period. Inventory Turnover Ratio reflects the efficiency of inventory
management. The higher the ratio, the more efficient is the management of inventories, and vice
versa.

The company has shown a decreasing trend in inventory turnover ratio in the year 2006. This
reveals the accumulation of obsolete stock in this year. Then in the year 2008 it has marginally
gone up by .25 as compared to the year 2007, which is good sign.

2. Debtors Turnover ratio

Debtors Turnover Ratio is calculated by dividing the net credit sales by average debtors
outstanding during the year.

The company has drastically increased its debtors turnover ratio from 10.36 in 2004 to 43.36 in
2008. High DTR is good sign for a company as funds are not blocked for a long time. The
company follows good credit collection policy. The company enjoys good liquidity in debts.

3. Debtors Velocity

Debtors velocity or ACP (Avg. collection Period) is calculated by dividing the days in a year by
the debtors' turnover. The average collection period represents the number of day's worth of
credit sales that is blocked with the debtors (accounts receivable). Higher the debtors velocity the
more the funds are blocked and chances of bad debt increase. Also there is a loss in interest in
the blocked funds. Debtors velocity shows in how many days rapidly the debts are collected.

Debtors velocity has shown a decreasing trend after a steep rise in the year 2005. So, it is a good
sign. Over the years it indicates a positive trend. Now, the funds are collected much fater than
before from customers.

4. Creditors Velocity

The Creditors Velocity that is the average payment period has been lying in the range of 34 to 36
except in the year 2007 when it was 40. They have maintained a stable period to pay to their
creditors which shows good repute of the company.

5. Asset turnover ratio

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the
higher the number the better. The lower the ratio, the more the company is burdened by debt
expense.

95
Fixed Asset Turnover Ratio has increased to 1.03(2008) compared to .57 (2004) last 5 years.
This shows that the assets have been used efficiently to generate sales.

Profitability Ratios
Profitability is a key piece of information that should be analyzed when you're considering
investing in a company. This is because high revenues alone don't necessarily translate
into dividends for investors (or increased stock prices, for that matter) unless a company is able
to clear all of its expenses and costs.
Profitability ratios are used to give us an idea of how likely it is that a company will turn a profit,
as well as how that profit relates to other important information about the company.

Profitability Ratios
Sno. Years 2004 2005 2006 2007 2008
1. Gross profit margin 28.73 34.37 25.09 30.33 29.03
2. Net profit margin 6.45 12.96 9.30 13.90 13.68
3. Return On Equity 0.17 4.44 2.77 5.62 6.85
4. Return on Capital Employed 11.65 30.80 17.59 26.24 24.05
5. Return On Net Worth 22.46 39.89 17.41 26.98 26.80

1. Gross profit margin

The gross profit margin ratio tells us the profit a business makes on its cost of sales, or cost of goods sold.
Gross profit ratio measures the efficiency of production as well as pricing.

Here in this case we can clearly see that the GPM has decreased in 2008 (29.03) when compared with
2007(30.33). It shows that this year company is unable to make reasonable profit on sales.

2. Net profit margin

Net Profit margin measures the overall efficiency of production, administration, selling, financing, pricing
and tax management. The net profit margin ratio tells us the amount of net profit per Rupee 1 of turnover
a business has earned. Net profit ratio provides an understanding of profit structure of a firm.

The Company is showing a positive trend in its NPM. In 2005 it has shown a steep inclination followed
by a sudden decline in 2006 after that it has increased marginally. So, company is making considerable
profit on its sales.

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3. Return On Equity

Return on Equity is very essential as it tell the earning available to the persons at the last resort.
Equity Share holders are paid only in the end (after preference shareholders) if the earnings are
available.

Here, the ratio is increasing till 2005 and has shown a slight fall in 2006 followed by a sudden
rise in 2007 and 2008. As the ratio is high, this company will come in good prospects of
investors.

4. Return on Capital Employed

The Return on Capital Employed ratio (ROCE) tells us how much profit the company earns from
the investments the shareholders have made in the company.

Return on capital employed has been volatile over the years. After a steep incline in the year
2005 there was a steep decline in the year 2006 followed by a gradual rise in the consecutive
years. But still this shows that the company is not efficiently utilising the investments made by
the shareholders to generate returns.

5. Return On Net Worth

It is the 'final measure' of profitability to evaluate overall return. This ratio measures return
relative to investment in the company. Return on Net Worth indicates how well a company
leverages the investment in it.

After a considerable increment of 17.43 in the year 2005 (39.89) it has shown a declining trend
that in 2008 it is only 26.80.

Valuation Ratio
Valuation ratios are used to analyze the attractiveness of an investment in a company. The idea is
that by using these ratios investors can gain an understanding of how cheap or expensive
a company's current stock price is compared to several different measures. In general, the less
expensive a company is, the more attractive an investment in that company becomes.

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Valuation Ratios
Sno. Years 2004 2005 2006 2007 2008
1. Dividend Per Share - 8.00 8.00 12.50 14.00
2. Earning Per Share 3.91 43.22 37.02 54.69 66.50
3. Price Earning Ratio 2.10 8.34 8.18 9.02 12.32

1. Dividend Per Share

Dividend per share (DPS) is the amount of the dividend that shareholders will receive, over an
year, for each share they own.

Few investors’ primary concern is with the amount that a company gives as dividends -- capital
appreciation being only a secondary consideration. For such investors, this ratio obviously plays
a crucial role in their investment calculations.

JSW’s DPS has increased from 2004 (0) to 2008 (14). DPS shows how much the shareholders
were actually paid by way of dividends. Here due to increase in profits the company is paying
higher dividends.

2. Earning Per Share

EPS is a well-known and widely used investment ratio. The performance and prospects of the
company are affected by EPS. If EPS increases, there is a possibility that the company may pay
more dividend or issue bonus shares. In short the market price of the share of a company will be
affected by all these factors.

EPS has been in an increasing trend over the years, it has only shown a steep incline by 39.29 in
the year 2005. So, Company has good earning per share to pay dividend to its shareholders and
there by increasing its credibility with them.

3. Price Earning Ratio

P/E ratio is a reflection of the market's opinion of the earnings capacity and future business
prospects of a company.

In these years it can be seen that P/E ratio has been on an increasing trend. So, it shows that this
company enjoys confidence of investors and have high market standing.

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MOVING

AVERAGE

99
 Moving Average
Moving average is the average price of a security at a given time. When calculating a moving
average, you specify the time span to calculate the average price (in our case it is 180 days)

Since the moving average is the average price of the security over the last 180 days, it represents
the consensus of investor expectations over the last 180 days. If the security's price is above its
moving average, it means that investor's current expectations (i.e., the current price) are higher
than their average expectations over the last 180 days, and that investors are becoming
increasingly bullish on the security. Conversely, if today's price is below its moving average, it
shows that current expectations are below average expectations over the last 180 days.

Short term Investors typically would buy when security’s price rises above its moving average
and sell when the price falls below its moving average.

SAIL’s security price in most of the time for first 5 years has shown bullish trend as the security
price is above the moving average, but in last few months there is bearish trend as security price
drops below its moving average so it’s better to wait and buy when the price rises above its
moving average.

100
TATA’s security price in most of the time for first 5 years has shown bullish trend as the security
price is above the moving average, but in last few months there is bearish trend as security price
drops much below its moving average so it’s better to wait and buy when the price rises above its
moving average.

JSW’s security price for first two years is on a same plane. Then after that for other 2 and a half
years it has shown bullish trend but in last few months there is bearish trend as security price
drops much below its moving average so it’s better to wait and buy when the price rises above its
moving average.

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RELATIVE

STRENGTH

INDEX
102
 Relative Strength Index
Relative strength index is used to interpret the strength of a stock. It shows the days stock
finished up Vs finished down.

RSI = 100 – [100/(1+RS)]

RS = (AV of n - days up closes)/(AV of n - days down closes)

n = days (21 Days used)

RSI ranges from 0 -100.

At RSI = 70 the stock is regarded as in the over bought territory and when RSI = 30 the stock is
regarded as in the over sold territory. In Bull market the over bought territory is raised the 80. In
a bear market the oversold territory is brought down to 20.

In SAIL, the maximum RSI is 53.34 and lowest is 47.17. The Company’s RSI is moving in a
stable trend. This means that these stocks are moving in a continuous trend of buying and selling.
At the last point RSI is at 50.65

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In TATA, the maximum RSI is 52.6 and lowest is 48.07. The Company’s RSI is moving in a
stable trend. This means that these stocks are moving in a continuous trend of buying and selling.
At the last point RSI is at 50.30.

104
In JSW, the maximum RSI is 53.15 and lowest is 48.91. The Company’s RSI is moving in a
stable trend. This means that these stocks are moving in a continuous trend of buying and selling.
Company is at its highest point in the end i.e. RSI= 53.15

105
BETA &

RISK

ANALYSIS
106
 Security Analysis
Security Analysis SAIL TATA JSW

Beta (0.01640) (0.71365) 2.34292

Alpha 0.19219 0.04452 0.09020

ROW 0.00032 0.08766 0.05013

Beta square 0.00027 0.50930 5.48928

Beta value is the index. It is actually an indicator of the systematic risk. TATA and SAIL are
having negative Beta whereas JSW has a Beta Greater than one.

This indicates that JSW is an aggressive company. It means that the company will earn more
than the market when market increases and will lose more than the market when market
decreases.

For TATA and SAIL negative Beta indicates that these two companies are the real indicator of
the future prospects of the market. So, these two Companies will reflect the market position in
advance.

Coefficient of Correlation (COC) shows the degree to which the stocks are directly correlated
with the market.

107
% to Total Risk SAIL TATA JSW

SR 0.00000 0.00053 0.00567

USR 2.77424 0.06779 2.25191

TSR 2.77424 0.06832 2.25759

Systematic Risk (COD) 0.00% 0.77% 0.25%

Unsystematic Risk 100.00% 99.23% 99.75%

The above chart shows the percentage of systematic risk and unsystematic risk to total risk.
Systematic risk shows the percentage of risk that cannot be diversified. Systematic risk is very
low for all the three companies. SAIL is having 0% systematic risk which is very good. .

Unsystematic risk is a percentage to total risk (coefficient of determination) which can be always
diversified that means it can be brought down. Unsystematic risks for all the companies are
above 99% which is a very good sign. So, these Companies can diversify their risk almost fully.

108
PORTFOLIO

109
PORTFOLIO Containing 35 Companies
Sectors Companies Beta Total Risk Sys Risk Unsys Risk
IT Wipro 0.56 0.05 0.00% 100.00%
Steel SAIL 0.016 2.77 0.00% 100.00%
Refinery BPCL 1.04 5.5373 0.02% 99.98%
Refinery RIL 1.26 7.9986 0.02% 99.98%
Aluminum MALCO 0.6 0.04166 0.02% 99.98%
Auto TVS 0.06 57.568 0.07% 99.93%
Aluminum HINDALCO -0.6 0.03958 0.08% 99.92%
Auto Hero Honda -0.13 88.56 0.20% 99.80%
Banking ICICI 0.0142 0.00451 0.22% 99.78%
Pharma Glenmark -0.11 0.00451 0.22% 99.78%
Steel JSW -0.71 2.2553 0.24% 99.76%
Banking HDFC 0.0123 0.00301 0.33% 99.67%
Pharma Sun pharma -0.086 0.00301 0.33% 99.67%
Banking SBI -0.25 0.0167 0.36% 99.64%
Pharma Cipla -0.2 0.01666 0.36% 99.64%
Cement Ambuja 0.85 0.231 0.43% 99.57%
FMCG HUL 0.7 0.0999 0.50% 99.50%
Refinery IOCL 1.59 0.302 0.83% 99.17%
IT TCS 0.73 0.0306 1.96% 98.04%
FMCG GILLETE 0.3 0.00272 5.51% 94.49%
FMCG P&G 0.3 0.0033 6.06% 93.94%
Sugar EID 0.69 0.00769 6.24% 93.76%
Cement Acc 0.39 0.032 6.25% 93.75%
Steel TATA 2.3 0.07337 7.73% 92.27%
Ancillary Batteries EXIDE 0.04 0.0327 8.26% 91.74%
IT Infosys 0.74 0.045 11.11% 88.89%
Sugar BCML 1.17 0.01069 12.72% 87.28%
Aluminum NALCO -0.2 0.0023 13.48% 86.52%
Sugar BHSIL 1.21 0.00978 14.93% 85.07%
Tyre J K Tyre 0.92 0.0048 16.67% 83.33%
Tyre CEAT 1.06 0.0059 18.64% 81.36%
Tyre MRF 0.93 0.00386 22.28% 77.72%
Auto Bajaj 1.16 82.55 31.91% 68.09%
Ancillary Batteries TUDOR 0.06 0.0092 56.52% 43.48%
Ancillary Batteries PAE 0.11 0.0136 114.71% -14.71%

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1. This table has been According to the highest to lowest USR followed by Beta from
highest to lowest. USR signifies that risk which can be diversified. So the Companies

which can diversify their risk will have minimal chances of seeing the bad situation. Then

it is being sort according to the Beta as the risk can be diversified by these Companies

then if the Beta is high will mean when the market will rise it will rise more than the

market and when the market will decrease it will decrease more but they can diversify

their risk at that point of time.

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 P/E Cur. 52wk 52wk
Sectors Companies Ratio BV MP High Low FV EPS P/BV
Tyre MRF 4.01 2325.2 2022 8299.5 1790 10 504.13 0.87
Refinery RIL 9.48 502.07 1217.85 3252.1 930 10 128.5 2.43
Banking SBI 10.45 772.37 1249.35 2396.49 991.1 10 119.59 1.62
IT Infosys 14.4 235.64 1262.5 2017 1040 5 87.69 5.36
Steel TATA 2.5 191.27 190.1 952 150 10 75.95 0.99
Cement Acc 6.69 221.28 478.7 1155 369 10 71.6 2.16
Steel JSW 4.03 391.73 310.95 1389 188 10 70.89 0.73
Sugar EID 2.4 56.72 168.95 267 125 2 70.5 2.98
Refinery IOCL 7.04 344.58 367.35 809.9 299 10 57.75 1.07
Auto Hero Honda 13.06 149.55 753.7 894.8 561 2 57.73 5.04
Pharma Sun pharma 20.98 203.15 1193 1557.8 890 5 56.86 5.87
Auto Bajaj 8.57 10 411.3 945 395 10 47.99 41.13
IT TCS 11 111.43 524.55 1124.95 418 1 47.67 4.71
FMCG P&G 16.38 106.79 737.1 844.95 645.3 10 45 6.90
Banking HDFC 24.45 272.17 1088.55 3257 1382 10 44.53 4.00
Refinery BPCL 34.7 322.97 332.15 560 206 10 43.46 1.03
Banking ICICI 11.65 417.93 431.25 1465 282.15 10 37.03 1.03
FMCG GILLETE 26.23 181.77 764.65 1525 520 10 29.15 4.21
Aluminum NALCO 6.25 137.74 165.75 565.9 108.35 10 26.51 1.20
IT Wipro 12.58 78.97 260.45 552 181.7 2 20.71 3.30
Steel SAIL 4.3 55.84 84.45 292.5 62 10 19.66 1.51
Tyre CEAT 2.43 145.96 40.15 244 35 10 16.54 0.28
Pharma Glenmark 19.13 41.1 306.15 730 211.05 1 16 7.45
Aluminum HINDALCO 4.25 112.98 60.45 202.75 38.05 1 14.24 0.54
FMCG HUL 25.65 6.6 249.3 265 170 1 9.72 37.77
Pharma Cipla 21.02 48.2 184.35 243.55 146.4 2 8.77 3.82
Cement Ambuja 6.29 30.61 56.4 160.9 43 2 8.69 1.84
Sugar BHSIL 5.86 101.43 50.75 399.5 38.6 1 8.66 0.50
Tyre J K Tyre 6.16 151.29 49 195 40.5 10 7.95 0.32
Batteries PAE 2.54 38.03 15.25 52 12.5 10 6.61 0.40
Batteries EXIDE 14.31 12.37 49.8 90.9 46.15 1 3.48 4.03
Batteries TUDOR 17.65 9.13 45 102.7 26.15 10 2.55 4.93
Aluminum MALCO 20.54 32.87 43.95 224.8 41 2 2.14 1.34
Sugar BCML 22.93 33.84 43.8 127.9 35.7 1 1.91 1.29
Auto TVS 22.4 34.59 28 78.9 23.05 1 1.25 0.81

112
 2. It has been sort according to the EPS from highest to the lowest followed by P/BV lowest
to highest. If the Companies are ready to give earnings to its investrs then rest of the
things secondary. But still other factors will also need to be considered.

3. Portfolio (Cut Off Point Calculations)

According to the Cut off point calculated of these stocks one must include five
Companies which are as follows –
SAIL, ICICI, Hero Honda, SBI and Nalco

Bar Rp 0.02 0.02

σp= 0.06 0.06
So, range= -0.04 0.08

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Portfolio made Containing 9 Stocks of the Companies

Sectors Steel Banking Steel Tyre Refinery Auto Cement Aluminum IT

Companies TATA SBI JSW MRF RIL Hero Honda Acc NALCO Infosys

2.50 10.45 4.03 4.01 9.48 13.06 6.69 6.25 14.40

P/E Ratio

191.27 772.37 391.73 2,325.2 502.07 149.55 221.28 137.74 235.64

BV

190.1 1,249.35 310.95 2,022.0 1,217.85 753.70 478.70 165.75 1,262.5

MP

952.0 2,396.49 1389.7 8,299.5 3,252.10 894.80 1,155.00 565.90 2,017.0

52wk High

150.0 991.10 188 1,790.0 930.00 561.00 369.00 108.35 1,040.0

52wk Low
MP in %
to 52 wk
20% 52% 22% 24% 37% 84% 41% 29% 63%
High

10.00 10.00 10.00 10.00 10.00 2.00 10.00 10.00 5.00

FV

75.95 119.59 70.89 504.13 128.50 57.73 71.60 26.51 87.69

EPS

0.99 1.62 0.73 0.87 2.43 5.04 2.16 1.20 5.36

P/BV

2.30 (0.25) (0.71) 0.93 1.26 (0.13) 0.39 (0.20) 0.74

Beta

0.07 0.02 2.26 0.00 8.00 88.56 0.03 0.00 0.05

TR
8% 0% 0% 22% 0% 0% 6% 13% 11%
SR
92% 100% 100% 78% 100% 100% 94% 87% 89%
USR

114
Reasons for selecting these Blue Chip Companies

1. TATA
a) It can diversify most of its risk (USR – 92.27%)
b) Very low P/E ratio (2.5)
c) Very low Market Price in % to 52 week high.
d) MP very close to its 52 week low
e) Fairly good EPS (75.95)
f) Beta is 2.3, so that company goes up or down nearly in same trend.

2. SBI
a) It can diversify almost all its risk (USR – 99.64%)
b) Moderately low PE ratio (10.45)
c) MP is almost half of its 52 week high
d) High EPS (119.59)
e) Present in the cut off point list

3. JSW
a) It can diversify almost all its risk (USR- 99.76%)
b) Very low P/E ratio of 4.03
c) Very low Market Price in % 52 week high
d) Fairly good EPS(70.89)

4. MRF
a) Low PE ratio (4.01)
b) Very High EPS (504.13)
c) Very low Market Price in % to 52 week high.
d) Beta is .93, so that company goes up or down nearly in same trend

5. RIL
a) It can diversify almost all its risk (USR - 99.98%)
b) Moderately Low PE ratio (9.48)
c) very good 52 week high of 3252.1
d) Beta value of 1.26, so that company goes up or down nearly in same trend
e) High EPS (128.5)

115
 6. Hero Honda
a) Beta value of 1.59, so that company goes up or down nearly in same trend
b) Very low Face Value of Rs. 2
c) Moderately good EPS (57.73)
d) Moderate P/BV ratio (5.04), in this Company it implies it is fundamentally fine
and the future is bright.
e) Included in the Cut off point

7. ACC
a) It can diversify almost all its risk (USR – 94%)
b) Low PE ratio (6.69)
c) Quite low MP in % to 52 week high
d) Beta value of 0.39, so that company goes up or down nearly in same trend
e) Good EPS (71.6)

8. NALCO
a) Low PE ratio (6.25)
b) Very low MP in % to 52 week high
c) MP very close to its 52 week low
d) Low P/BV ratio
e) Included in the cut off point list

9. INFOSYS
a) Very low Face Value (5)
b) High EPS (87.69)
c) MP Very close to its 52 week low
d) Low MP in % to 52 week high

Bibliography
www.capitaline.com
www.sail.co.in
www.tatasteel.com
www.jsw.com
www.sebi.gov.in
www.worldsteel.org
www.worldbank.org
www.moneycontrol.com

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