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ManagerialEconomics

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A PROJECT REPORT ON

SUBMITTED BY

GOMATHI THEVAR

CORE A

01092

FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

UNDER THE GUIDANCE OF

PROF. SAPNA SURI

PADMASHREE DR.D.Y.PATIL UNIVERSITY

DEPARTMENT OF BUSINESS MANAGEMENT

ACADEMIC YEAR 2010-2011

JSW STEEL LTD

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Introduction

JSW Steel, the flagship company of the JSW Group, is

the largest integrated private steel manufacturer in

India in terms of installed capacity. Jindal Steel

Limited is the most valuable private steel producer

in India, with an annual turnover of over US $2.1

billion (Rs. 10,000 crore), Jindal Steel & Power

Limited (JSPL) forms a part of the US $12 billion

(over Rs. 60,000 crore) Jindal Group. JSPL is a

leading player in Steel, Power, Mining, Oil & Gas and

Infrastructure. Mr. Naveen Jindal, the youngest son

of the legendary late Shri. O P Jindal, drives JSPL

and its group companies Jindal Power Ltd, Jindal

Petroleum Ltd., Jindal Cement Ltd. and Jindal Steel

Bolivia with a belief in the concept of self-

sufficiency. The company produces economical and

efficient steel and power through backward

integration from its own captive coal and iron-ore

mines and passes on the benefits to its customers.

However, in terms tonnage, it is the third largest

steel producer in India.

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Vision

The vision is to understand and connect with the

expectations of the stakeholders and collectively

move towards the enhancing to livelihood

opportunities, for the youth around our plant

location

Mission

To manufacture steel in an economically viable manner

and simultaneously preserving the environment and

empowering the society by utilizing the potential of

young thinking, adhering to our values, catalyzing

growth and by creating sustainable livelihoods

Company Background

JSW Steel Ltd, the flagship company of the JSW

group, is a fully integrated steel maker and is

ranked among the top 5 in India. It is the only

manufacturer in India to use corex as well as

blast furnace technology for steel production.

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The companys upstream steel-making facility is

located in Vijaynagar, Karnataka, and

downstream in Maharashtra producing products

ranging from MS slabs and hot rolled coils to

value-added products like galvanized

coils/sheets and cold rolled coils/sheets.

Jindal Steel is a part of the Jindal Group,

founded by O. P. Jindal (19302005). In 1969,

he started Pipe Unit Jindal India Limited, one

of the earlier incarnations of his business

empire. The Jindal family established Vidya

Devi Jindal School, a residential school for

girls in Hisar, India, in 1984. Although not

marketed as such, it is widely known to cater

to the wealthy through its private location and

remarkable array of activities. The school's

student body comprises girls from affluent

business and political families of India.

After Jindal's death in 2005, much of his

assets were transferred to his wife, Savitri

Jindal. Jindal Group's management was then

split among his four sons with Naveen Jindal as

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the Managing Director of Jindal Steel and Power

Limited. His elder brother, Sajjan Jindal, is

currently the head of ASSOCHAM, an influential

body of the chambers of commerce, and the head

of JSW Group, part of O.P. Jindal Group.

On June 3, 2006, Bolivia granted development

rights for one of the world's largest iron ore

reserves in the El Mutn region to Jindal

Steel. With an initial investment of US$ 1.5

billion, the company plans to invest an

additional US$ 2.1 billion over the next eight

years in the South American country. Savitri

Jindal, the widow of O. P. Jindal, is ranked as

the 19th richest Indian person according to

Forbes.

Product profile

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JSW Steel offers the entire gamut of steel

products, pellets, slabs, HR coils/ sheets, HR

plates, CR coils, Galvanized coils/ sheets,

Colour coated coils/ sheets. It is the leading

manufacturer of cold rolled, galvanized and

colour coated steel with manufacturing

facilities at Vasind & Tarapur in Maharashtra.

JSW Steel is the largest manufacturer and

exporter of galvanized steel in India with its

products exported to over 100 countries. It is

the first Indian Company, under a technology

licensing from BIEC International Inc., USA to

produce Galvalume sheets. By 2020 the company

would be producing 32 million tons of steel

annually with Greenfield integrated steel

plants coming up in West Bengal and Jharkhand.

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Financial analysis of JSW

Profit & Loss account -- in Rs. Cr. --

Mar '08 Mar '09 Mar '10

Income

Sales Turnover 12,628.91 15,179.29 19,456.64

Excise Duty 1,237.86 1,172.70 1,289.18

Net Sales 11,391.05 14,006.59 18,167.46

Other Income 309.91 -608.47 474.25

Stock Adjustments 283.56 285.22 64.74

Total Income 11,984.52 13,683.34 18,706.45

Expenditure

Raw Materials 6,560.14 9,386.47 11,415.86

Power & Fuel Cost 532.43 673.07 1,014.82

Employee Cost 273.98 288.75 365.20

Other ManufacturingExpenses

165.58 194.03 249.60

Selling and Admin

Expenses

639.26 717.74 724.63

Miscellaneous Expenses 146.99 170.58 188.53

Preoperative Exp

Capitalised0.00 0.00 0.00

Total Expenses 8,318.38 11,430.64 13,958.64

Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths

Operating Profit 3,356.23 2,861.17 4,273.56

PBDIT 3,666.14 2,252.70 4,747.81

Interest 494.84 836.82 900.26

PBDT 3,171.30 1,415.88 3,847.55

Depreciation 687.18 827.66 1,123.41

Other Written Off 0.00 0.00 0.00

Profit Before Tax 2,484.12 588.22 2,724.14

Extra-ordinary items -33.16 176.80 96.03

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PBT (Post Extra-ord Items) 2,450.96 765.02 2,820.17

Tax 722.77 306.52 797.43

Reported Net Profit 1,728.19 458.50 2,022.74

Total Value Addition 1,758.24 2,044.17 2,542.78

Preference Dividend 29.06 28.99 28.92

Equity Dividend 261.87 18.71 177.70

Corporate Dividend Tax 49.44 8.11 34.31

Per share data (annualised)

Shares in issue (lakhs) 1,870.49 1,870.49 1,870.49

Earning Per Share (Rs) 90.84 22.96 106.59

Equity Dividend (%) 140.00 10.00 95.00

Book Value (Rs) 394.99 410.07 504.00

From the above profit and loss account of JSW steel

ltd we can say that the company is in good financial

position since last three years as there subsequent

increase in the total income of the company but at

the same time the total expenses of the company is

also subsequently increasing year after year from

last three years. This is so because there is

tremendous increase in the cost of the power and fuel

as compared to last two years, apart from these the

cost of selling and administration, employee cost,

manufacturing cost have also increased in the last

financial year. But at the sametime the net sales,

sales turnover of the company is continuously

increasing so JSW steel ltd need to worry about the

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situation since they are financially in the strong

position.

Balance Sheet ------------------- in Rs. Cr. -------------------

Mar '08 Mar '09 Mar '10

Sources of funds 12 mths 12 mths 12 mths

Total Share

Capital537.01 537.01 527.11

Equity Share

Capital248.08 248.08 248.08

Share Application

Money0.00 0.00 0.00

Preference Share

Capital288.93 288.93 279.03

Reserves 7,140.24 7,422.24 9,179.23

Revaluation

Reserves 0.00 0.00 0.00

Networth 7,677.25 7,959.25 9,706.34

Secured Loans 5,497.08 8,214.61 8,987.51

Unsecured Loans 2,049.45 3,058.02 2,597.59

Total Debt 7,546.53 11,272.6311,585.10

Total Liabilities 15,223.78 19,231.8821,291.44

Mar '08 Mar '09 Mar '10

Application of

funds

12 mths 12 mths 12 mths

Gross Block 13,952.32 16,896.7521,795.58

Less: Accum.

Depreciation2,996.83 3,810.31 4,929.44

Net Block 10,955.49 13,086.4416,866.14

Capital Work in

Progress5,612.43 9,242.06 6,684.27

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Investments 923.53 1,250.11 1,768.35

Inventories 1,549.16 2,051.42 2,585.77

Sundry Debtors 337.39 398.14 563.25

Cash and Bank

Balance205.78 207.91 117.40

Total Current

Assets2,092.33 2,657.47 3,266.42

Loans and Advances 997.26 1,980.02 2,216.05

Fixed Deposits 133.44 212.05 169.71

Total CA, Loans &

Advances3,223.03 4,849.54 5,652.18

Deffered Credit 0.00 0.00 0.00

Current

Liabilities5,054.69 9,115.34 9,415.28

Provisions 436.01 80.93 264.22

Total CL &

Provisions5,490.70 9,196.27 9,679.50

Net Current Assets -2,267.67 -4,346.73-4,027.32

Miscellaneous

Expenses0.00 0.00 0.00

Total Assets 15,223.78 19,231.8821,291.44

Contingent

Liabilities11,145.95 8,170.64 6,990.48

Book Value (Rs) 394.99 410.07 504.00

CompanyPerformance through the Recession

The unprecedented global credit crises have been

putting pressure on economic activities of all the

countries. Along with the US and Europe, where the

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recessionary signs are evident from their recent

economic data, other major countries like Japan,

China, Russia, etc are also facing the heat. The

effects on the Indian economy have also been evident

though on a relatively smaller scale. Being capital

intensive, construction projects have been worst hit

in all these countries, as banks worldwide are facing

a liquidity crunch and are reluctant to lend easily.

Since construction contributes to more than 60% of

steel usage, globally demand for steel also has been

facing a significant blow. Also, automakers worldwide

are facing falling sales due to lower disposable

income of the people and, thus, have also been

cutting down their production. This, in turn, has

proved to be another setback for the steel sector

like JSW steel ltd.

It is expected that this challenging scenario to

continue for some more time. Thus, the steel sector,

as a whole, would remain under pressure in the near

future. In this context, the real threat for the

sector might be Chinas policy. Due to their lower

cost of production, resulting from the easy

availability of coking coal and coke, the domestic

selling price is also lower compared to the prices in

other countries. In this situation, the worst problem

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for the global steel industry would be if China

starts offloading their products in these markets.

Fig: Relative Price Performance

Q2 FY09

JSW Steel witnessed a satisfactory performance in

Q2FY09 despite mounting pressure of raw material

prices and other impediments. On a consolidated

basis, the topline of the company came at Rs 4684.10

crore whereas, PAT stood at Rs 252.44 crore

On a standalone basis, the companys core EBIDTA rose

in Q2FY09 by more than 22% to Rs 1130.20 crore as

against Rs 928.46 crore in the corresponding quarter

of the previous year. The forex loss stood at Rs

264.32 crore on a consolidated basis.

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Source: JSWSteel

The kind of performance the company saw in Q2FY09 can

be attributed to the following reasons.

Steep rise in cost of production: - The blended cost

of production rose 86% YoY on a standalone basis.

Prices ofimported coke for the Vijaynagar plant saw

an unprecedented rise of 91% YoY. Iron ore prices

also surged by 62% YoY for the same plant. The effect

of higher coking coal contract prices from $98 per

tonne to more than $300 per tonnealso had its effect

felt during this quarter. Also, during this quarter,

China hiked its export duty on coke by 15% to 40%.

Since JSW imports its coke requirement from China,

this added to further cost pressure.

Depreciation in INR: - The continuation of sharp

depreciation in the INR against the USD and other

major global currencies during this quarter again

forced the company to incur a substantial though

marked to market (MTM) forex loss.

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Hurricane effect :- The pipe and plate mill

facilities in US were hit because of the damage

caused by the hurricanes. The company had to halt

production temporarily during September 08.

Demand slowdown :- The global credit crisis almost

paralysed most of the economies in recent times.This

led to a slowdown in most developed countries like

the US and Europe.The emerging markets were also not

spared. As a result of this, the whole metal sector

has been facing the problem of a significant demand

slowdown, which resulted in a sharp fall in steel

prices. A comparatively less fall in the most

important raw material i.e. coking coal/coke, on the

other hand, has beenputting pressure on margins. JSW

is also no exception and its falling margins are

testimony to that. During this quarter, inventory

rose by 15% of the total production and it expects

another 7-8% addition to that in October 08.

Q3 FY09

JSW Steel reported a very disappointing set of

numbers for Q3FY09. The company posted a net loss

for the first time since 2001-02. Net loss for the

quarter, on a consolidated basis, stood at Rs 187.83

crore (down 167% YoY and down 174% QoQ). The company

faced severe margin pressure due to higher raw

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material costs and lower sales realisations. A

significant drop in sales volume in this quarter also

affected negatively. Consolidated numbers , on a QoQ

basis, the topline showed de-growth of 29%. The

EBITDA and EBITDA margin fell sharply by 58% and 1146

bps, respectively, over the previous quarter.

Saleable steel production fell 18% YoY and 1% QoQ.

Source: JSWSteel

AWARDS AND RECOGNITION

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2010-11

JSW Energy Wins Business Leadership Award:

JSW Energy has received the NDTV Profit Business

Leadership Awards 2010 under the 'Power 'Industry

vertical Vice chairman of JSW Energy N K Jain

received the award from the Union Finance Minister

Pranab Mukherjee on September 1, 2010 at the Trident

Hotel in Mumbai.

2009-10

Greentech Environment Excellence Award 2009:

Gold award in metal and mining sector for outstanding

achievement in Environment Management (10th Oct 2009,

Kovalam).

National Award for Excellence in Energy Management

2009:

Excellent Energy Efficient Unit Award 2009 for Best

Energy Management Practices (19, 20 Nov 2009,

Chennai), by CII-Godrej Green Business Centre.

PMs Trophy 2007-08:

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Runner-Up of the best performing Integrated Steel

Plant in the country, known as Steel Ministers

Trophy (declared on 13-Nov-2009).

CII-EXIM Award 2009:

Commendation Certificate for Significant

Achievement for Business Excellence by Confederation

of Indian Industries, on 17-Dec-2009 at New Delhi.

2008-09

National Sustainability Award 2008 :

First prize for excellent performance in integrated

steel plant operations (14 November 2008, New Delhi).

CII-ITCSustainability Awards 2008:

Commendation Certificate for Significant Achievement

on the journey towards sustainable development (on 12

December 2008 at New Delhi).

National Award for Excellence in Water Management

2008:

JSW Steel was adjudged as Water Efficient Unit by

CII during National Competition for Excellence in

Water Management held on 16 and 17 December 2008 at

Hyderabad.

Golden Peacock Award for Corporate Social

Responsibility 2008 :

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JSW Steel Ltd. bagged the prestigious Golden

Peacock Award for Corporate Social Responsibility for

the year 2008' in February 2009

Greentech Safety Award 2008:

Gold award in metal and mining sector for Outstanding

Achievement in Safety Management by Greentech

Foundation (10 April 2008, Mumbai).

FUTURE OFJSW STEEL LTD

JSW Steel, one of the fastest growing steel

companies in the world is going to expand its

production capacity to 11 million mt per year

by 2011 from the current levels of 7.8 million

mt per annum and is the largest private

integrated steel manufacturer in India based on

installed capacity. The company achieved a

significant volume growth of 54 percent in

crude steel production and 74 percent in

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saleable steel during the second quarter of FY

2009-10. JSW is poised to become a major player

in the value-added segment of products in the

future. Its extra wide state-of-the-art hot

strip mill will be ready by March 2010. The

company has plans to expand its capacity to 32

million mt per annum by 2020 by setting up

greenfield projects of 10 million mt per annum

each in Jharkhand and West Bengal.

ARTICLES ON JSW STEEL LTD

JSW Steel posts 8% growth in crude steel

production

Capital Market / 14:27 , Oct 08, 2010

In H1 FY 2011

JSW Steel has reported a growth of 8% in crude steel

production in the first half of FY 2011 compared to

that of corresponding period of last fiscal year.

Crude steel production rose to 3.14 million tonnes in

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H1 FY 2011. Rolled products (flat) production rose to

2.36 million tonnes in H1 FY 2011. Rolled products

(long) production rose to 0.57 million tonnes in H1 FY

2011.

Crude steel production for Q2 FY 2011 stood at 1.57

million tonnes, flat rolled products were 1.27 million

tonnes and long rolled products were 0.26 million

tonnes.

The company has started generation of power at its 300

MW captive power plant and heating of two blocks of

coke oven-4, as part of 10 MTPA expansion project at

Vijayanagar works.

The company made this announcement during the trading

hours today, 08 October 2010.

JSW Steel shines on expansion buzz

Capital Market / 10:10 , Sep 24, 2010

JSW Steel rose 1.16% to Rs. 1269 at 10:12 IST on BSE

on reports the company in consortium with Japan-based

JFE Holdings Inc plans to set up a high-valve

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electric steel plant in India.

Meanwhile, the BSE Sensex was up 66.81 points, or

0.34% at 19,927.82. On BSE, 36,543 shares were trade

in the counter as against an average daily volume of

3.03 lakh shares in the past one quarter.

The stock hit a high of Rs. 1273 and a low of Rs. 1260

so far during the day. The stock had hit a 52-week

high of Rs. 1350.05 on 26 March 2010 and a 52-week low

of Rs. 652 on 4 November 2009.

The mid-cap stock had outperformed the market over the

past one month till 23 September 2010, rising 8.16%

compared with the Sensex's return of 7.89%. It ha

also outperformed the market in past one quarter,

gaining 17.32% as against 11.86% rise in the Sensex.

The company has an equity capital of Rs. 187.05 crore.

Face value per share is Rs. 10. As per reports, the

plant may be located in the western Indian state of

Maharashtra. Steel from the factory would be used to

make transformers, reports added.

JSW Steel's consolidated net profit rose 26.2% to Rs.

295.37 crore on 20.7% increase in net sales to Rs.

4818 crore in Q1 June 2010 over Q1 June 2009.

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