Report

SUMMARY:Fundamental analysis is very helpful to the investor, which is reflected in the investment

purpose. Any investors who go to systematic investment, he/she would like to know, the com-

plete scenario of the industry. The objective of the study is to analyse the financial performance

With reference to iron and steel industries. Fundamental analysis consist of three parts, they are

a) Economic analysis: Economic analysis is done because it affects the company’s tax and it

will effect to the revenue of the industry as a whole. Also other factors are considered in the eco-

nomic analysis.

b) Industry analysis: All the sub factors of the industry were up from the secondary data avail-

able in the websites and other sources in order to analyse each factor within the industry.

c) Company analysis: It is done by calculating various ratios by taking the data on each com-

pany, the companies taken here to analyse are randomly selected.

1. INTRODUCTION

Equity Analysis:Equity Analysis is based on FACTS and not on HOPE. Equity analysis is of two inde-

pendent Analyses namely Technical analysis and Fundamental analysis.

A] TECHNICAL ANALYSIS:

Technical analysis refers to the study of market data like prices and volume to determine

the future direction of prices movements. Technical analysis mainly seeks to predict the short

term price travels. The focus of technical analysis is mainly on the internal market data, i.e.

prices and volume data. It appeals mainly to short term traders.

The official definition of technical analysis is the analysis of past price data to determine future

price movements. It is the study of prices in order to make better trades. The basis of modern-day

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technical analysis can be traced back to the Dow Theory, developed around 1900 by Charles

Dow. It includes principles such as the trending nature of prices, confirmation and divergence,

and support and resistance.

It is a method of evaluating securities by taking the market data, such as charts of price,

volume, and open interest which can help to predict future market trends.

Technical analysis works because humans are predictable. People often behave in pre-

dictable ways. They will consistently repeat their behaviour under similar circumstances.

The field of technical analysis is based on three assumptions:

- The market discounts everything

- Price moves in trends

- History tends to repeat itself

B] FUNDAMENTAL ANALYSIS:

Fundamental analysis is the study of the various factors that affect a company's earnings

and dividends. Fundamental analysis studies the relationship between a company's share price

and the various elements of its financial position and performance. Fundamental analysis also in-

volves a detailed examination of the company's competitors.

The objective of fundamental analysis is to determine a company's intrinsic value or its

growth prospects. This intrinsic value can be compared to the current value of the company as

measured by the share price. If the shares are trading at less than the intrinsic value then the

shares may be seen as good value.

Many people use fundamental analysis to select a company to invest in, and technical

analysis to help make their buy and sell decisions.

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Origin of Fundamental Analysis:

Formulated 60 years ago by Graham and Dodd's college text "Security Analysis” and it

was Popularized in Benjamin Graham's book, "The Intelligent Investor”

It focus on intrinsic value and it is been Justified by a firm's assets, earnings, Dividends

and financial strength.

Graham Proposed a Method to Reduce the Risk of Misjudgement:

• First determine an "intrinsic" value for a stock that is independent of the market

• Tangible assets are a particularly important component

• Other factors to be looked are earnings, dividends, financial strength, and stability

• Investors should limit their purchases to stocks selling not far above this value

• Stocks selling below their intrinsic value would offer an even better margin of safety to in-

vestors

Key facts

• It’s not about price, it’s about value;

• Value is subjective

Fundamental analysis believes that analysing the Economy, Strategy, Management,

Product, Financial status and other related information will help to choose shares that will out-

perform the market and provide consistent gains to the investor.

Fundamental analysis is the examination of the underlying forces that affect the interest

of the Economy, Industrial sectors and companies. It tries to forecast the future movement of the

capital market using signals from the Economy, Industry and Company. Fundamental analysis

requires an examination of the market from a broader perspective. The presumption behind Fun-

damental analysis is that a successful economy raises industrial growth which leads to develop-

ment of companies.

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Fundamental analysis is a method of finding out the future price of a stock which an in-

vestor wishes to buy. It relates to the examination of the intrinsic worth of a company to find out

whether the current market price is fair or not, whether it is overpriced or under-priced, in the

back ground of the company’s performance and in the background of the performance of the in-

dustry to which the company belongs and also the general socio-political scenario of the country.

The Fundamental approach suggest that every stock has an intrinsic value which should

be equal to the present value of the future stream of income from the stock discounted at an ap-

propriate risk related rate of interest. Estimation of real worth of a stock is made by considering

the earning potential of the company which depends on investment environment and factors re-

lating to specific Industry, competitiveness, quality of management, operational efficiency, prof-

itability, capital structure and dividend policy.

A basic assumption of Fundamental Analysis is that intrinsic value and market price can

differ from time to time. Those investors, who can perform good Fundamental analysis and spot

discrepancies between market price and intrinsic value, are able to realize profits by taking suit-

able decisions before the discrepancy is eliminated by the market.

VALUATION METHODOLOGIES:

A) Top-Down Valuation (EIC Analysis)

B) Discounted Cash Flow (DCF) Models

C) Dividend Discount Model (DDM)

D) FCFF and FCFE based DCF (Free cash flow valuation method)

2. OBJECTIVES OF THE STUDY:

a) The objective of the study is to analyse the financial performance With reference to iron and

steel industries.

b) Guide the investor which company is good to invest.

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c) To acquire knowledge about the iron and steel sector.

3. RESEARCH METHODOLOGY:

Research methodology is way to systematically solve the research problem. The research

methodology used for finding out the solution.

a) Type of Data:

The methodology used in the study involves the collection of secondary data. The major-

ity of data was collected with the help of the annual reports provided by the companies.

b) Sources of Data:

-SECONDARY DATA: Secondary data were obtained from the internal records of the company

i.e., from the published annual reports and website of the company.

c) COMPANIES AND PERIOD OF STUDY

d) TOOLS OF DATA ANALYSIS:

(i) GRAPH CHARTS

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COMPANY NAME PERIOD

JINDAL SAW

2009-12

BUSHAN STEEL

JINDAL STEEL AND POWER

JSW ISPAT Steel

JSW STEEL

SAIL

TATA STEEL

UTTAM GALVA STEEL

(ii) RATIOS TAKEN INTO CONSIDERATION:

RATIOS

CURRENT

RATIOGP MARGIN

EARNINGS

YIELD

NET

PROFIT

MARGIN

FIXED AS-

SETS

TURNOVER

RATIO

PEG RATIO

QUICK RATIO

CURRENT AS-

SETS

TURNOVER RA-

TIO

NET GEAR-

ING

ASSETS

TURNOVE

R

PE RATIODIVIDEND

COVER

NET WORK-

ING CAPITAL

TO TOTAL

ASSETS

INVENTORY

TURNOVER

DEBT TO

ASSETS RA-

TIO

DIVIDEND

PAYOUT

RATIO

TOBIN'S Q

RATIO

EARNING

RETEN-

TION RA-

TIO

ROARETENTION

RATIO

DEBT

EQUITY

RATIO

ROEDIVIDEND

YIELDZ SCORE

OPERATING

MARGIN

DEBT COLLEC-

TION PERIOD

EPS

GROWTH

RATE

4. LIMITAIONS OF THE STUDY

The reliability and accuracy of calculations and interpretation depends very much on the

information supplied in the form of annual reports and other records.

Analysis is made by taking only three years of data.

This study can be useful only for long term investments.

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Data collection is restricted to secondary source. No primary data are collected.

5. DATA ANALYSIS AND INTERPRETATION

THE FUNDAMENTAL ANALYSIS CONSISTES OF EIC ANALYSIS:

Fundamental analysis is widely recognized as EIC analysis, where, E stands for Eco-

nomy, I stand for Industry and C stands for Company. In the current work an effort is made to

understand these variables as a whole.

5.1 Economy Analysis:

The economy of India is the eleventh largest in the world by nominal GDP and the third

largest by purchasing power parity. The country is one of the G-20 major economies and a mem-

ber of BRICS. The Indian economy is marching towards a high growth along with uncertainties.

Despite improvement in the overall optimism about the economy, the financial markets contin-

ued to witness high fluctuation primarily driven by the direction of foreign capital flows and

movement in industrial production and inflation. The inflation led to increase in prices of some

vegetables and fruits, unexpected rapid rise in international crude oil prices that kept prices in the

domestic economy high.

India: Selected Economic Indicators

YEARS 2008/09 2009/10 2010/112011/1

22012/13 est

Real GDP (at factor cost) 6.7 8.4 8.4 6.9 7.5

Agriculture 0.1 1 7 2.5 3

Industry 4.3 9.7 7.6 3.9 6

Of which : Manufacturing 4.3 9.7 7.6 3.9 6

Services 10 10.5 9.3 9.4 9.2

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http://en.wikipedia.org/wiki/BRICS

http://en.wikipedia.org/wiki/G-20_major_economies

http://en.wikipedia.org/wiki/Purchasing_power_parity

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

http://en.wikipedia.org/wiki/Gross_domestic_product

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

India’s robust macroeconomic performance:

Key Parameters 2005-06 2011-12 Change

Real GDP (INR billion)1 32,542 52,220 60% higher

Real Per Capita GDP (INR) 1 33,548 46,221 38% higher

Investment / GDP (%)2 35.8 37.6** 5% higher

Exports (US $ bn)1 103 303 194 % higher

Gross International Reserves (US$

bn) 1151# 294 ## 94% higher

Foreign Direct Investment outflow

(US $ bn)6.1 25.8** 323% higher

Foreign Direct Investment inflow

(US $ bn)9.1 46.8 414 % higher

Sources:

1 Reserve Bank of India data (as on March 2012) # as on 31 March 2006

2 IMF WEO Database April 2012 ## As on 30 March 2012

** For FY 2010-11

+ For calendar year 2006

++ For calendar year 2011

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5.1(a) GDP:

The Gross Domestic Product in India expanded 1.3 % in the first quarter of 2012 over the

previous quarter, currently GDP is 5.3%. From 2000 until 2012, India’s GDP Growth Rate aver-

aged to 7.4% reaching all-time high of 11.8% in December of 2003 and a record low of 1.6% in

December of 2002.

The Gross Domestic Product in India was worth 1848 billion US dollars in 2011, accord-

ing to a report published by the World Bank. The GDP value of India is roughly equivalent to

2.79 % of the world economy. This page includes a chart with data for India GDP. Real GDP to

grow by 8.8% during FY12.

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Sectoral Composition of GDP:

YEAR

AGRICUL-

TURE

IN-

DUSTRY

SER-

VICES

1950-51 53.1 16.6 30.3

1960-61 48.7 20.5 30.8

1970-71 42.3 24 33.8

1980-81 36.1 25.9 38

1990-91 29.6 27.7 42.7

2000-01 22.3 27.3 50.4

2010-11 14.5 27.8 57.7

2011-12 13.9 27 59

Source: calculated from CSO data

5.1(b) Agriculture and Food:

India ranks second in world in farm output; it employs 52.1% of the total workforce. It is

the largest economic sector and a significant contributor to overall socio-economic development

of India. India receives an average annual rainfall of 1,208 millimetres, and a total annual

4000 billion cubic meters of total utilizable water resources, including surface and groundwater.

India is the largest producer in the world of milk, jute and pulses, and also has the world's second

largest cattle population.

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http://en.wikipedia.org/wiki/Pulses

http://en.wikipedia.org/wiki/Groundwater

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_composition

Agriculture including all activities accounted for 13.9 % of GDP in 2011-12 as compared

to 14.5 in 2010- 11. It decreased due to severe drought experienced in most parts of the country.

In 2011-12 agriculture and allied sectors are estimated to achieve a growth rate of 2.5 %.

5.1(c) Industry:

Industrial growth measured in terms of the index of industrial production (IIP) shows

changing trends. The Index of Industrial Production compares the growth in the general

level of industrial activity in the economy with reference to a comparable base year.

Industry accounts for 28% of the GDP and employ 14% of the total workforce. India is

12th in the world in terms of nominal factory output Growth had reached 15.5 % in 2007- 8 and

then started declining. This was mainly due to the account of global economic meltdown. There

was a recovery from 2.5 % in 2008-9 to 5.3 % in 2009-10 and 8.2 % in 2010-11. Industry ac-

counts for 28% of the GDP and employ 14% of the total workforce. India is 12th in the world in

terms of nominal factory output.

5.1(d) Services Sector:

The share of services in India’s GDP at current prices, increased from 33.5 % in 1950-1

to 55.1 % in 2010-11 and 56.3 % in 2011-12 as per Advance Estimates. Trade, hotels, and res-

taurants as a group, with 16.9 % share, are the largest contributor to GDP. In the years 2009-10

and 2010-11, the services sector registered a growth rate of 10.5 % and 9.3 % respectively. In

2011-12, as per the Advance Estimates, the growth rate of services has been placed at 9.4 %

As per the National Sample Survey Organization’s (NSSO) report on the ‘Employment

and Unemployment Situation in India, 2009-10’ for every 1,000 people employed 679 and 75

people are employed in agriculture sector in rural and urban areas respectively. On the other

hand, the services sector accounted for 147 and 582 of every 1,000 persons employed in rural

and urban areas respectively.

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5.1(e) Infrastructure

India has the world's third largest road network, covering more than 4.3 million kilome-

ters and carrying 60% of freight and 87% of passenger traffic. Indian Railways is the fourth

largest rail network in the world, with a track length of 1,14,500 kilometers. India has 13 major

ports, handling a cargo volume of 850 million tons in 2010.

India has a national teledensity rate of 74.15% with 926.53 million telephone subscribers,

two-thirds of them in urban areas, but Internet use is rare, with around 13.3 million broadband

lines in India in December 2011.However, this is growing and is expected to boom following the

expansion of 3G and WiMAX services.

5.1(f) Inflation

Inflation is the rate at which the general level of prices for goods and services are rising

and subsequently increasing the purchasing power.

Inflation has both positive and negative effect according to the range in which it operates.

Lower range of inflation is damaging to the manufacturers or producers

Higher range is damaging to the consumers

Average rate (3%-4.5%) of inflation is encouraging for both and to the economy as a

whole. The inflation rate in India was recorded at 7.25 % in June of 2012. Historically,

from 1969 until 2012, India Inflation Rate averaged 8.02 % reaching an all-time high of

34.68 % in September of 1974 and a record low of -11.3100 % in May of 1976. This

page includes a chart with data for India Inflation Rate.

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http://en.wikipedia.org/wiki/WiMAX

http://en.wikipedia.org/wiki/3G

http://en.wiktionary.org/wiki/teledensity_rate

http://en.wikipedia.org/wiki/Indian_Railways

http://en.wikipedia.org/wiki/Indian_Road_Network

http://en.wikipedia.org/wiki/List_of_countries_by_road_network_size

CONTROL MEASURES TAKEN TO CONTROL INFLATION:

The government is aware that inflation hurts the lower income group of society. Mea-

sures taken to control prices of essential commodities include:

-- Import prices reduced to zero on rice, wheat pulses, edible oils (crude) and onions etc.

-- Increase and develop industrial production to raise supply according to the demands.

-- To increase industrial production, government liberalized laws related to and reduced prices

of necessary raw materials and services.

-- The RBI hiked the repo rate 13 times between March 2010 and January 2012, cumulatively

by 375 basis points (bps).

--The cash reserve ratio (CRR) has been reduced from 6.0 to 5.5 % in order to ease the liquidity

situation and aid revival of growth. As of April 2012,

INDICATOR CURRENT RATE

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Inflation 7.23

Bank rate 9%

CRR 4.75%

SLR 23%

Repo rate 8%

Reverse repo rate 7%

5.1(g) Consumer Confidence in INDIA:

Consumer confidence improved to 81.2 in the second half of 2011 from 62.8 in the first

half of 2011. From 1995 until 2011, India Consumer Confidence averaged 63.78 reaching an all-

time high of 86.6 in December of 2007 and a record low of 34.30 in December of 1997. Gener-

ally consumer confidence is high when the unemployment rate is low and GDP growth is high.

Measures of average consumer confidence can be useful indicators of how much consumers are

likely to spend. This page includes a chart with historical data for India Consumer Confidence.

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5.1(h) Balance of Trade:

India’s trade deficit equivalent to 10303 Million USD in June 2012. From 1994 until 2012, In-

dia’s Balance of Trade averaged -3739.1 Million USD reaching an all-time high of 491.3 Million

USD in November of 2001 and a record low of -19644.0 Million USD in October of 2011. India

is leading exporter of gems and jewelry, textiles, engineering goods, chemicals, leather manufac-

tures and services. India is poor in oil resources and is currently heavily dependent on coal and

foreign oil imports for its energy needs. Other imported products are: machinery, gems, fertiliz-

ers and chemicals. Main trading partners are European Union, The United States, China and

UAE. This page includes a chart with historical data for India Balance of Trade.

5.1(i) Interest Rate:

Interest rate in India was last reported at 8.00 %. From 2000 until 2012, India Interest

Rate averaged 6.49 % reaching an all-time high of 14.5 % in August of 2000 and a record low of

4.25 % in April of 2009. In India, interest rate decisions are taken by the Reserve Bank of India's

Central Board of Directors. The official interest rate is the benchmark repurchase rate.

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5.1(j) Indian Rupee Exchange rate:

From 1973 until 2012, the USDINR averaged 30.81 reaching an all-time high of 57.13 in

June of 2012 and a record low of 7.19 in March of 1973. The USDINR spot exchange rate speci-

fies how much one currency, the USD, is currently worth in terms of the other, the INR. This

page includes a chart with data for USDINR - Indian Rupee Exchange rate.

5.1(k) INDIAN STOCK MARKET:

Historically, from 1979 until 2012, the Sensex averaged 5308.4 reaching an all-time high

of 21005.0 in November of 2010 and a record low of 113.3 in December of 1979. The Sensex is

a major stock market index which tracks the performance of large companies based in India. A

stock market or exchange is the centre of a network of transactions where securities buyers meet

sellers at a certain price. This page includes a chart with historical data for India Stock Market.

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5.1(l) Fiscal Situation:

The Indian government will re-evaluate its fiscal deficit target of 5.1% of GDP for the

current financial year 2012-13 after the mid-year economic review, depending on its expenses

and capital resources. The Indian government is planning to narrow down its fiscal deficit in the

current fiscal to 5.1% from 5.9% for previous fiscal 2011-12 or to about Rs 5.13 trillion in the

current fiscal.

5.1(m) India’s key strengths:

Good growth prospects supported by ongoing economic liberalization and strong domes-

tic demand

Stable financial system

Strong external liquidity position

Vibrant, transparent and high-yielding capital markets

High savings and investment ratio

Strong and competitive private sector

Low susceptibility to event risk

Steadily rising government revenues

Healthy sect oral diversity of economy

Largely local currency denominated debt

Conducive investment climate

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Strong financial regulatory framework

High growth in exports

Strong demographic advantage

Highly educated work force

Innovative society

5.1(n) Favoured FII investment destination:

FII INFLOWS (equity): Amount in USD million

YEAR INDIAINDONE-

SIA

KORE

A

TAIWA

NSOUTH AFRICA

BRAZI

L

2000 1586 91 10127 3021 2474 -1161

2001 2748 428 5790 7494 3466 460

2002 707 872 -2259 -110 -622 -460

2003 6673 1121 11794 15887 -1 2509

2004 8623 2199 9316 8054 5208 662

2005 10702 3403 -2764 19185 7330 2208

2006 8372 1878 -11808 17108 10998 1170

2007 17824 3551 -29221 2244 8890 -1924

2008 -12173 1870 -33368 -15377 -5565 -12019

2009 17626 1385 24827 13720 8988 10028

2010 28711 2331 18595 8689 4834 3600

2011 -543 2600 -6716 -9340 -2002 3623

TOTAL 90856 21729 -5687 70575 43998 8696

5.1(o) Planned disinvestments in INDIA:

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Definition of 'Disinvestment'

The action of an organization or government selling or liquidating an asset or subsidiary.

Also known as "divestiture".

Details of Proposed disinvestment: (*) Note: Values based on current market cap as on

January 12, 2012.

Company Name Offering Details (%)Indicative Divestment Size

(USD million)

Bharat Heavy Electricals 5% GoI Disinvestment 622*

Hindustan Copper10% GoI Divestment and 10%

Fresh issue520*

Steel Authority of India5% GoI Divestment and 5%

Fresh Issue365*

RINL 10% GoI Divestment NA

Hindustan Aeronautics 10% GoI Divestment NA

National Aluminum Company Ltd. 10 273

MMTC Ltd. 9.33 160

NHPC Ltd. 10 416

NMDC Ltd. 10 1249

MOIL Ltd. 10 79

Engineers India Ltd. 10 158

Rashtriya Chemicals & Fertilizers 12.5 76

5.1(p) Trade growth is higher than world average:

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5.2 Iron and Steel Industry Analysis:

Indian steel industry plays a significant role in the country’s economic growth. It contri-

bution to the traditional sectors, such as infrastructure & constructions, automobile, transporta-

tion, industrial applications etc. stainless steel is finding innovative applications due to its special

property. India is the fifth largest steel producer in the globe.

The country has attracted global steel with its giant steel mills, acquisition, continuous

modernization & up gradation of old plants, improving energy efficiency, and backward integra-

tion into global raw material sources. Global steel giants from across the world have shown in-

terest in the industry due to its phenomenal performance. For instance the crude steel production

in India registered a year on year growth of 6.4% in 2010 and reached 66.8 Million Metric Tons.

Indian Steel Industry Outlook to 2012” is an outcome of an extensive research and con-

ceptual analysis of the Indian steel industry. The report provides detail information on steel in-

dustry in India. The new research report “Indian Steel Industry Outlook to 2012” says that the,

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Indian crude steel production will grow at a CAGR of around 10% during 2010-2013. Moreover,

with the government incentive plans to develop economic growth by providing funds in various

industries, such as construction, infrastructure, automobile, and power that will help the steel in-

dustry in future.

Major steel-producing countries:

Rank Country/Region 2007 2008 2009 2010 2011

World

1,351.3

0

1326.

5

1,219.7

0

1,413.6

0

1,490.1

0

1

People's Republic

of China 494.9 500.3 573.6 626.7 683.3

2 Japan 120.2 118.7 87.5 109.6 107.6

3 United states 98.1 91.4 58.2 80.6 86.2

4 India 53.5 57.8 62.8 68.3 72.2

5 Russia 72.4 68.5 60 66.9 68.7

6 South Korea 51.5 53.6 48.6 58.5 68.5

7 Germany 48.6 45.8 32.7 43.8 44.3

8 Ukraine 42.8 37.3 29.9 33.6 35.3

9 Brazil 33.8 33.7 26.5 32.8 35.2

10 Turkey 25.8 26.8 25.3 29 34.1

5.2(a) Market Size

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The RNCOS research report of 'Indian Steel Industry Outlook to 2012,' highlighted that

Indian crude steel production will grow at a compound aggregate growth rate (CAGR) of around

10 per cent during 2010-2013, whereas the finished steel consumption is estimated to grow at a

CAGR of around 12 per cent during FY 2012-14.

In India, growth in apparent steel use is expected to grow by 6.9 per cent in 2012 and by

9.4 per cent in 2013. The Indian steel producers have signed 222 memorandum of understanding

(MoUs) with the State Governments for a planned capacity addition of about 275.7 30 MT by

2020.

5.2(b) Production

In 2011-12 (prov), production for sale of total finished steel (alloy + non alloy) was 73.42

mt.

Production for sale of Pig Iron in 2011-12 (prov), was 5.78 mt.

Indian steel industry : Production for Sale (in million tonnes)

Category 2007-08 2008-09 2009-10 2010-11 2011-12*

Pig Iron 5.28 6.21 5.88 5.68 5.78

Sponge Iron 20.37 21.09 24.33 25.08 20.37

Total Finished Steel (alloy + non al-

loy)56.07 57.16 60.62 68.62 73.42

Source: Joint Plant Committee; *provisional

India is the largest producer of sponge iron in the world with the coal based route ac-

counting for 76% of total sponge iron production in the country.

Last five year's production for sale of pig iron, sponge iron and total finished steel are:

5.2(c) Imports

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Iron & steel are freely importable as per the extant policy.

Indian steel industry : Imports (in million tonnes)

Category 2007-08 2008-09 2009-10 2010-11 2011-12*

Total Finished Steel (alloy + non al-

loy) 7.03 5.84 7.38 6.66 6.83


Last five year’s import of total finished steel (alloy + non alloy) is given below:-

5.2(d) EXPORTS

Iron & steel are freely exportable.

Advance Licensing Scheme allows duty free import of raw materials for exports. Duty

Entitlement Pass Book Scheme (DEPB) was introduced to facilitate exports. Under this

scheme exporters on the basis of notified entitlement rates, are granted due credits which

would entitle them to import duty free goods. The DEPB benefit on export of various

categories of steel items scheme is currently applicable for steel exports.

Last five year’s export of total finished steel (alloy + non alloy) is given below:-

Indian steel industry : exports (in million tonnes)

Category 2007-08 2008-09 2009-10 2010-11 2011-12*

Total Finished Steel 5.08 4.44 3.25 3.64 4.04


5.2(e) India witnesses huge growth in FDI in steel industry:

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FDI in Steel has a growth of 60.73% at $ 1,765.07 mn while several new proposals to set up steel

plants in the country are pending. Among those include POSCO’s 12 million ton per annum in

Orissa entailing an investment of Rs 52,000 cr, POSCO’s Karnataka project of 6 million ton per

annum with an investment of Rs 32,000 cr, ArceloMittal’s Orissa project of 12 million ton per

annum with Rs 40,000 cr investment, Arcelor Mittal’s Jharkand 12 million ton per annum with

an investment of Rs 50,000 cr, Arcelor Mittal’s Karnataka state projects with a capacity of 6

million ton per annum with an investment of 30,000 cr respectively. NMDC-Severstal has pro-

posed an investment of Rs 9000 cr for 3 million ton per annum plant in Karnataka and Tata

Steel-Nippon Ltd has proposed 60,000 tones project in Jharkhand entailing an investment of

Rs2300cr.

The government in order to monitor and coordinate various issues concerning major steel

investments in the country, an Inter-Ministerial Group (IMG) will be constituted. Inter-Ministe-

rial Group (IMG) on steel sector is a forum to coordinate, monitor and review issues affecting

major steel sector investment

India Government is also working on the new Steel Policy to update the existing policy

of 2005 and it may be announced soon after due discussions.

As per the report of the Working Group on Steel for the 12th Plan, there exist many fac-

tors which carry the potential of raising the per capita steel consumption in the country, currently

estimated at 55 kg . An estimated infrastructure investment of nearly a trillion dollars, a pro-

jected growth of manufacturing from current 8% to 11-12%, increase in urban population to 600

million by 2030 from the current level of 400 million will increase the consumption of steel in

India.

The amount of FDI inflow into the sector for 2011-12 was worth US$ 1,765.07 million,

as per data provided by Department of Industrial Policy and Promotion (DIPP), Ministry of

Commerce.

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5.2(f) Opportunities for growth of Iron and Steel in Private Sector

The New Industrial Policy Regime

The New Industrial policy opened up the Indian iron and steel industry for private invest-

ment by (a) removing it from the list of industries reserved for public sector and (b) exempting it

from compulsory licensing. Imports of foreign technology as well as foreign direct investment

are now freely permitted up to certain limits under an automatic route. Ministry of Steel plays the

role of a facilitator, providing broad directions and assistance to new and existing steel plants in

the liberalized scenario.

The Growth Profile

(i) Steel

The liberalization of industrial policy and other initiatives taken by the Government have

given a definite movement for entry, participation and growth of the private sector in the steel in-

dustry. While the existing units are being modernized/expanded, a large number of new steel

plants have also come up in different parts of the country based on modern, cost effective, state

of the art technologies. In the last few years, the rapid and stable growth of the demand side has

also prompted domestic entrepreneurs to set up fresh Greenfield projects in different states of the

country.

Crude steel capacity was 89 mt in 2011-12 (prov) in India, has to its credit, the capability

to produce a variety of grades and that too, of international quality standards. The country is ex-

pected to become the 2 nd largest producer of crude steel in the world by 2015-16, provided all

requirements for creation of fresh capacity are adequately met.

(ii) Pig Iron

India is also an important producer of pig iron. With setting up several units in the private

sector, not only imports have been reduced but also India has turned out to be a net exporter of

pig iron. The private sector accounted for 91% of total production for sale of pig iron in the

25 | P a g e

country in 2011-12 (provisional). The production of pig iron has increased from 1.6 mt in 1991-

92 to 5.78 mt in 2011-12 (provisional).

(iii) Sponge Iron

India is the world’s largest producer of sponge iron with a host of coal based units, lo-

cated in the mineral-rich states of the country. Over the years, the coal based route has emerged

as a key contributor and accounted for 76% of total sponge iron production in the country. Ca-

pacity in sponge iron making too has increased over the years and stands at around 35 mt.

5.2(g) Porter's five Forces for steel industry

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\

1] SUPPLIER POWER:

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SUPPLIER POWER-Supplier concentration -Importance of volume to supplier -Impact of inputs on cost or differ-entiation -Presence of substitute inputs - Threat of forward integration

THREAT OF NEW ENTRY - Absolute cost learning - Government policy - Economies of scale - Capital requirements - Brand identity - Switching costs - Access to distribution

THREAT OFSUBSTITUTES -Switching costs -Buyer preference to substi-tute-Price performance tradeOff of substitutes

DEGREE OF RIVALRY -Exit barriers-Industry growth-In-termittent overcapacity-Product differences-Switching costs-Brand identity

BUYER POWER -Bargaining leverage -Buyer volume -Brand identity -Product differentiation - Buyers' incentives

HIGH LOW

- there are less suppliers

- there are no substitutes

-if supplier do forward integration

- if buyer do backward integration

- if buyer is in strong position

2] BUYER POWER:

HIGH LOW

- if buyer do backward integration

-there is no product differentiation

-When there are no substitutes

-if supplier do forward integration

- if industry has created brand identity

3] THREAT OF NEW ENTRY: Low

Threat of new entry is low has

- It requires huge capital

- High government policy

- Difficulty in brand switching

4] THREAT OF SUBSTITUTES: Low

Threat of substitutes for steel industry is low. Some of the substitutes for steel are ti-

tanium, plastic, wood etc.

28 | P a g e

5] DEGREE OF RIVALRY: HIGH

Degree of rivalry is high because:

-Low switching costs

-Low level of product differentiation

- No easy exit

5.2(h) KEY GROWTH DRIVERS FOR STEEL INDUSTRY:

The key growth drivers for steel industry are:

1]Construction: The Indian construction industry has a growth rate of 12 to 14 %.The construc-

tion and infrastructure industries are the largest consumers of steel in India 61 per cent of total

consumption in 2010 is by this sector. Increase in government expenditure in the construction

has laid to stronger growth in steel industry. With economy growing and increase in income

levels of individual so it is believed that demand for steel from this sector will continue to grow

at current.

2] Automobile: The Indian automobile sector is the second fastest growing market after China

and it has been an important sector for demand of alloy steel. Automobile sector which is experi-

encing growth and competition will be one of the major drivers for steel consumption in the

coming years and its contribution in the overall demand is likely to improve from the current

period.

3] Auto components Industry: Auto components market has grown at 19%CAGR both from

domestic and export. International companies such as General Motors, Ford, Daimler Chrysler,

Toyota and Volkswagen are outsourcing auto parts from India because it has cost advantage.

29 | P a g e

Also the growing domestic automobile industry which depends on steel industry for its parts

manufacturing will increase the demand for steel in India.

5] Infrastructure: The 11th Five-year plan had huge investments in all the roads, railways, air-

ports and power related sectors of infrastructure. This sector had an investment of $200bn in

power, $80bn in railways, $48bn in roads, $13bn in ports and $9bn in airports. Because of in-

crease in the above activities the demand for products of steel will be increased.

6] Consumer Durables: It has a growth average of 10% per annum and it is expected to grow at

double digit rates for future years. The domestic appliances market which includes spin driers of

washing machine, water filters, microwave ovens, furniture etc have opened new opportunities

for steel consumption, which will increase the demand of steel.

The demand for steel will be 113.3 million tons by 2016-17. Therefore, it is likely that in the

next five years, demand will grow at higher annual average rate of 10.3% as compared to around

8.1% growth achieved during the last two decades (1991-92 to 2010-11) .

REPORT OF THE WORKING GROUP ON STEEL INDUSTRY FOR THE

TWELFTH FIVE YEAR PLAN (2012 – 2017)

30 | P a g e

Total Steel Demand and Required Level of Finished Steel Production (Alloy & Non-Alloy)

For the 12th Plan (2012-17) (Year-Wise Break-Up)

(Figures in million tonnes)

2011-12 2012-13 2013-2014 2014-2015 2015-2016 2016-2017

Domestic Demand for Car-

bon Steel66.5 73.3 80.8 89.1 98.3 108.3

Domestic Demand for Alloy

Steel3.5 4 4.25 4.5 4.75 5

Scenario 1: Total Domestic

Demand for Steel70 77.3 85.05 93.6 103.05 113.3

Scenario 2: Total Demand

for Steel including Export

Demand

66.3 75.3 84.6 94.1 105.1 115.3

Imports (estimated) 7 6 5.5 5.5 5 5

Exports (estimated) 3.3 4 5 6 7 7

Net Exports (-)3.7 (-) 2.0 (-) 0.5 0.5 2 2

Recent Growth Rates of Production of Selected Steel Consuming Industry Groups: 2008-09

to 2010-11

Item Group Steel Products Growth rates (%)

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used 2008-09 2009-2010 2010-2011

LPG Cylinder HRC 5.7 55 13.9

Drums & Barrels CR (-)21.4 42.7 (-)2.5

Complete Tractors HRC/STRLS (-)0.4 26.3 23.9

Refrigerators CR 3.1 25.8 9.8

Power Transformers CRGO (-)1.9 16.5 13.4

Commercial Vehicles CR/PLATE (-)23.6 36 32.8

Passenger Cars HR/CR/PLATE 6.7 26 28.4

Auto Ancillaries & Parts HR/CR - - 25

Motor Cycles CR 4.6 24.2 24.7

Agricultural Implements HR/PLATE (-)26.6 (-)11.1 (-)28.2

Material Handling Equip-

ment

Plate/ HRS/

Strls.(-)3.5 22.9 (-)8.4

Washing Machines HR/CR 8.1 26.4 (-)0.8

Diesel EnginesHR/ Plate /

Strls.18.8 5.3 11.2

5.3 Company Analysis:

The purpose of company analysis is to analyse financial and non-financial aspects of a

company to determine whether to buy, sell, or hold the shares of the company.

32 | P a g e

After determining the economic and industry conditions, company analysis is done to

know the financial health. This is done by studying the company’s financial statements and num-

ber of ratios.

5.3(a) Jindal Steel and Power Ltd:

Jindal Steel and Power (JSPL) part of the Jindal Group is engaged in steel Manufactur-

ing, power generation, coal and iron-ore mining, and exploration and mining of minerals and

metals. JSPL primarily operates in India. The company is headquartered in New Delhi, India and

employs about 15,000 people.

With an annual turnover of over US$ 3.5 billion, JSPL is a part of the US$ 15 billion di-

versified O. P. Jindal Group and is consistently tapping new opportunities by increasing produc-

tion capacity, diversifying investments, and leveraging its core capabilities to venture into new

businesses. The company has committed investments exceeding US$ 30 billion in the future and

has several business initiatives running simultaneously across continents.

Through its 100% subsidiary Jindal Steel & Power (Mauritius) Ltd., Mauritius (JSPLM),

JSPL has acquired Shadeed Iron & Steel Co. LLC (Shadeed) in Oman. Jindal Shadeed has in-

stalled a 1.5 MTPA gas-based Hot Briquetted Iron (HBI) plant with an investment of US$ 500

million and started commercial production from the Oman plant four months ahead of schedule

in December 2010. The company will be setting up a steel plant and rolling mills in Oman in the

next two years.

Swot Analysis:JSPL is engaged in steel manufacturing, power generation, coal and iron-ore mining, and

exploration and mining of minerals and metals. The company is one of the top five steel produ-

cers in the Indian market with capacity of three million tons per annum (mmtpa). JSPL operates

the world’s largest coal-based sponge iron manufacturing facility at Raigarh, Chhattisgarh, with

an installed capacity of 1.37 mmtpa. The company’s strong market position gives it advantage of

scale and increases its bargaining power. However, stringent government regulations may im-

pose new liabilities or increase operating expenses, either of which could result in a material de-

cline in the company’s profitability.

33 | P a g e

STRENGTHS

- Strong market position

- Geographic concentration

- Integrated steel operations in India

- Strategically located power projects

WEAKNESSES


OPPORTUNITIES

- Investments in Jindal Power

- Expanding operations in South America

THREATS

- Stringent government regulations

- Intense competition

5.3(b) Jsw Steel Ltd:JSW Steel (JSW or the company) is engaged in the production and distribution of iron

and steel products. Through its subsidiaries the company is also engaged in acquisition and in-

vestment in steel related and steel allied businesses, steel service centre, and mining. JSW oper-

ates in India, the US, the UK, Mozambique, the Netherlands, Panama, and Chile. It is

headquartered in Mumbai, India and employs over 8,900 people.

JSW Steel is one of the lowest cost steel producers in the world. It has established a

strong presence in the global value-added steel segment with the acquisition of steel mill in US

and a service centre in UK. JSW Steel has also formed a joint venture for setting up a steel plant

in Georgia. The Company has also tied up with JFE Steel Corp, Japan for manufacturing the high

grade automotive steel. JSW Steel has acquired a majority stake in Ispat Industries Ltd. Making

JSW Steel India’s largest steel producer with a combined capacity of 14.3 MTPA. The Company

has also acquired mining assets in Chile, USA and Mozambique.

By 2020, the Company aims to produce 34 million tons of steel annually with Greenfield integ-

rated steel plants coming up in West Bengal and Jharkhand.

34 | P a g e

Swot AnalysisJSW is engaged in the production and distribution of iron and steel products. The com-

pany distributes its products across India and abroad through a strong distribution network. JSW

has expanded its retail network of JSW Shoppe from 50 stores at the end of FY2009 to 280 at the

end of FY2011. As a result, the JSW Shoppe sales increased to 1.12 mtpa in FY2011, up by 77%

compared with FY2010. Strong distribution network in the domestic and market enables the

company to cater to a large customer base thereby increasing its revenues and market share.

However, intense competition threatens to erode the market share of the company.

STRENGTHS

- Strong distribution network in India

- Diversified end markets

- Strong research and development (R&D)

- capabilities

WEAKNESSES


OPPORTUNITIES

- Collaboration with Ispat Industries

- Positive outlook for global crude steel pro-

duction

THREATS

- Environmental regulations

- Disruptions in supply of iron ore Intense

competition

5.3(c) Sail:

Steel Authority of India (SAIL or the company) is engaged in the business of manufactur-

ing and marketing steel and its allied products. It is a fully integrated iron and steel maker, pro-

ducing both basic and special steel products for construction, engineering, power, railway, auto-

35 | P a g e

motive, and defence industries. The company primarily operates in India. SAIL is headquartered

in New Delhi, India and employed about 110,800 people.

SAIL traces its origin to the formative years of an emerging nation - India. After inde-

pendence the builders of modern India worked with a vision - to lay the infrastructure for rapid

industrialisation of the country. The steel sector was to propel the economic growth. Hindustan

Steel Private Limited was set up on January 19, 1954.

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 ex-

port markets. SAIL is also among the five Maharatnas of the country's Central Public Sector En-

terprises.

Swot AnalysisSAIL is engaged in the business of manufacturing and marketing steel and its allied

products. SAIL is India’s largest steel producer of finished steel with about one-fifth of the mar-

ket share. SAIL operates through five integrated steel plants, three special steel plants, a subsidi-

ary, and several joint venture companies. A leading market position gives the company advant-

age of scale and increases its bargaining power. However, high competition is likely to affect the

market share of SAIL.

STRENGTHS

- Leading steel company in India

- Diversified product mix

- Captive sources of iron ore and other

Minerals

WEAKNESSES

- Government control

- Dependence on imports for the supply of

coking coal

36 | P a g e

OPPORTUNITIES

- SAIL-SCL joint venture

- Modernization and expansion plans

THREATS

- High competition


- Economic or industry downturns

5.3(d) Tata Steel:Established in 1907, Tata Steel is among the top ten global steel companies with an an-

nual crude steel capacity of over 28 million tonnes per annum (mtpa). It is now one of the

world's most geographically-diversified steel producers, with operations in 26 countries and a

commercial presence in over 50 countries.

The Tata Steel Group, with a turnover of US$ 26.13 billion in FY 2011- 2012, has over

81,000 employees across five continents and is a Fortune 500 company.

Tata Steel’s vision is to be the world’s steel industry benchmark through the excellence

of its people, its innovative approach and overall conduct. Underpinning this vision is a perform-

ance culture committed to aspiration targets, safety and social responsibility, continuous im-

provement, openness and transparency.

Tata Steel’s larger production facilities include those in India, the UK, the Netherlands,

Thailand, Singapore, China and Australia. Operating companies within the Group include Tata

Steel Limited (India), Tata Steel Europe Limited (formerly Corus), NatSteel, and Tata Steel

Thailand (formerly Millennium Steel)

Swot AnalysisTata Steel is one of India's largest integrated private sector steel companies. The com-

pany. Manufactures and distributes steel, welded steel tubes, cold rolled strips, bearings and

other related products. The company's strong brand image has enabled it to maintain its position

in the domestic market and expand operations in international markets. However, intense com-

petition from low cost steel producers in China could affect Tata Steel's profit margins.

37 | P a g e

STRENGTHS

- Strong brand image

- Vertical integration

- Inorganic growth

WEAKNESSES

- Geographical concentration

- Dependence on imports

OPPORTUNITIES

- Growing domestic demand

- Growth in global automobile industry

- Growth in global demand

THREATS

- Consolidation in the global steel industry

- Increasing steel prices

- Competition from China

5.3(e) Bushan Steel Ltd:

Bhushan Steel Ltd formerly known as Bhushan Steel & Strips Ltd. is a globally

renowned one of the leading prominent player in Steel Industry. Backed by more than two dec-

ades, of experience in Steel making, Bhushan Steel is now India’s 3rd largest Secondary Steel

Producer Company with an existing steel production capacity of 2 million tonnes per annum’s

(approx.).

It was the vision of the founder; BrijBhushanSingal, that the first stake was driven into

the soil of Sahibabad (Uttar Pradesh) in 1987. His vision helped BSL overcome several periods

of adversity and strive to improve against all odds.

The cmpany has three manufacturing units in the state of Uttar Pradesh (Sahibabad Unit),

Maharashtra (Khopoli unit), and Orissa Plant (Meramandali unit) in India and sales network is

across many countries.

The company is a source for vivid variety of products such as Cold Rolled Closed An-

nealed, Galvanized Coil and Sheet, High Tensile Steel Strapping, Colour Coated Coils ,Galume

38 | P a g e

Sheets and Coils, Hardened & Tempered Steel Strips , Billets, Sponge Iron, Precision Tubes and

Wire Rod.

Swot AnalysisA well-conceived vision consists of two major components—“CORE IDEOLOGY” and

an “ENVISIONED FUTURE”. A good vision builds on the interplay between these two comple-

mentary Yin-and-Yang forces; it defines “What we stand for and Why we exist” that does not

change the Core Ideology and sets forth “What we aspire to become, to achieve, to create” that

will require significant change and progress to attain the Envisioned Future.

STRENGTHS

- Integrated steel operations in India

- Diversified product mix

- Diversified end markets

WEAKNESSES

- High competition


OPPORTUNITIES

- Growing domestic demand


THREATS

- Stringent government regulations

- Increasing steel prices

5.3(f) Jindal Saw:

Jindal SAW Ltd. is in a Jindal SAW Ltd. is a part of the USD $ 15 billion O.P. Jindal

Group, one of the country's topmost industry houses and the foremost indigenous steel producers

and exporters. It started operation in the year 1984, when it became the first company in India to

manufacture Submerged Arc Welded (SAW) Pipes using the internationally acclaimed U-O-E

technology.

Commanding position in India’s tubular market, being the undisputed leader with a

turnover in excess of Rs. 7500 Crore.

39 | P a g e

With integrated facilities at multiple locations and an ever expanding market opportunity,

Jindal SAW Ltd. has diversified from a single product company to a multi-product company,

manufacturing large diameter submerged arc pipes and spiral pipes for the energy transportation

sector; carbon, alloy and stainless steel seamless pipes and tubes manufactured by conical pierc-

ing process used for industrial applications; and Ductile iron (DI) pipes for water and wastewater

transportation. Besides these, the company also provides various value added products like pipe

coatings, bends and connector castings to its clients.

Swot AnalysisWith its vision of sustainable development firmly in place, Jindal SAW has played a

leading role in developing liveable cities across the world - that in turn has helped transform the

lives of people staying in them.

STRENGTHS



- Backward integration

WEAKNESSES



OPPORTUNITIES


THREATS

- Government regulations

- Huge loss

5.3(g) JSW ISPAT:

Ispat Industries Limited (IIL) is one of the leading integrated steel makers and the largest

private sector producer of hot rolled coils in India. Set up as Nippon DenroIspat Limited in May

1984 by founding Chairman Mr M L Mittal, IIL has steadily grown into aRs 9,400-crore com-

pany, assuming its position as flagship of the reputed Ispat Group. A corporate powerhouse with

operations in iron, steel, mining, energy and infrastructure, the Group today figures among the

40 | P a g e

top 20 business houses in the country.

Headquartered at Mumbai, IIL employs a total of 3000 people and is the leader in the na-

tional speciality steel market. The company's core competency is the production of high quality

steel, for which it employs cutting edge technologies and stringent quality standards. It produces

world-class sponge iron, galvanized sheets and cold rolled coils, in addition to hot rolled coils,

through its two state-of-the art integrated steel plants, located at Dolvi and Kalmeshwar in the

state of Maharashtra.

Swot Analysis

The JSW Ispat Group has been moving from strength to strength, consistently breaking

new grounds and spearheading new developments in iron and steel. JSW ISPAT has taken ex-

pansive technological strides to emerge as one of India’s leading manufacturers of quality steel

products. In the process, the company and its parent Group have achieved many firsts in the steel

sector and swept past a host of memorable milestones.

STRENGTHS

- Inorganic growth

- Captive sources of iron ore and other

Minerals

WEAKNESSES

- Geographical concentration

OPPORTUNITIES


- Positive outlook for global crude steel

production

THREATS

- Disruptions in supply of iron ore Intense

competition

5.3(h) Uttam Galva Steels Ltd:

41 | P a g e

Uttam Galva Steels Limited is one of the largest manufacturers of cold rolled steel

("CR") and galvanized steel (GP) in Western India.

The Company is into the business of procuring hot rolled steel ("HR") and processing it

into CR and further into GP and Colour Coated Coils. In Galvanized coils it specializes in mak-

ing ultra-thin sheets, which could be as low as 0.13mm thickness. The excess capacity of CR

which is not used for galvanizing is converted to value added grades in Cold Rolled Closed An-

nealed ("CRCA") coils, cut to length sheets and also sold as Full Hard CR in the overseas mar-

kets.

The Company has expanded and modernized its operations at Khopoli which have in-

creased its cold rolling capacity to 1million MT per annum as of March 2010. The Company has

also increased its GP capacity to 750,000 MT per annum as of March 2010. The Company has

also added a new colour coated line (Uttam Spectrum) with a capacity of 90,000 MT per annum

as of March 2010. Due to its high quality products and brand image in the market, the Company

expects that its increased volumes will be easily absorbed into the domestic and export markets.

Swot AnalysisAs part of its modernization program, the Company has also invested in improving pro-

duction and overall quality of its manufacturing processes and finished products and Intends to

increase its production of higher value- added products.

STRENGTHS

- 50% of companies product is exported


WEAKNESSES


- High competition


OPPORTUNITIES


THREATS

- Government regulations

42 | P a g e

- brand image in producing cold rolling steel

5.3(i) RATIO ANALYSIS:

Ratio analysis is an important and age-old technique. It is a powerful tool of financial

analysis. It is defined as “the indicated quotient of two mathematical expression” and as “the re-

lationship between two or more things”. Systematic use of ratio is to interpret the financial state-

ment so that the strength and weakness of a firm as well as its historical performance and current

financial condition can be determined.

A ratio is only comparison of the numerator with the denominator. The term ratio refers

to the numerical or quantitative relationship between two figures. Thus, ratio is the relationship

between two figures, and obtained by dividing the former by the latter. Ratios are designed show

how one number is related to another.

In the view of the requirements of the various uses of ratio, it has divided into the following

important categories:

(1)Liquidity ratios:

Liquidity is the ability of the firm to meet its current liabilities as they fall due. Since

liquidity is basic to continuous operations of the firm, it is necessary to determine the de-

gree of liquidity of the firm. Important liquidity ratios analyzed are as follows:

a) CURRENT RATIO:

Current Ratio is the most common ratio for measuring liquidity. It represents the

ratio of current assets to current liabilities. It is also called working capital ratio. In a

43 | P a g e

sound business, a current ratio of 2:1 is considered as an ideal one. The current ratio

of a firm measures its short –term solvency, i.e., its ability to meet short-term obliga-

tions.

Table No.1

Table showing Current ratio

COMPANY NAME

CURRENT RATIO

(times)AVERAGE CUR-

RNET RATIORANK

2010 2011 2012

JINDAL SAW 2.43 3.16 2.69 2.76 1

BUSHAN STEEL 1.94 1.81 1.42 1.72 4

JINDAL STEEL AND

POWER1.02 1.44 1.21 1.22 6

JSW ISPAT Steel 1.04 0.59 0.53 0.72 8

JSW STEEL 0.58 1.00 0.80 0.79 7

SAIL 2.04 1.96 1.49 1.83 3

TATA STEEL 1.11 1.81 0.79 1.24 5

UTTAM GALVA STEEL 1.34 1.11 3.50 1.99 2

The ideal ratio is 2, the ratio of 2 is considered as a safe margin of solvency due to the

fact that if current assets are reduced to 1 instead of 2, the company will be able to pay creditors.

Interpretation: In the above companies Jindal saw company has maintained a good average ra-

tio of 2.76, which is more than the ideal ratio 2. Other than Jindal saw, Uttamgalva, SAIL and

Bushan steel have maintained close to the ideal ratio.

b) QUICK RATIO:

This ratio is sometimes known as “Acid Test Ratio” or “Liquidity ratio”. It is the relation

between quick assets to current liabilities. It is determined by dividing “quick assets” by current

liabilities.

44 | P a g e

The term ‘quick assets’ refers to current assets which can be converted into cash immedi-

ately. It comprises all current assets except stock and prepaid expenses.1:1 is considered as an

ideal Acid Test Ratio. Quick ratio is the true test of business solvency. A highest ratio indicates

sound financial position and vice-versa.

Table No.2

Table showing Quick ratio

COMPANY NAME

QUICK RATIO

(times)AVERAGE

QUICK RA-

TIO

RANK

2010 2011 2012

JINDAL SAW 1.73 1.80 1.52 1.68 1

BUSHAN STEEL 0.93 0.66 0.85 0.81 5

JINDAL STEEL AND

POWER0.76 1.05 -1.81 0.001 8

JSW ISPAT Steel 0.67 0.21 0.14 0.34 7

JSW STEEL 0.31 0.59 0.54 0.48 6

SAIL 1.58 1.39 0.81 1.26 3

TATA STEEL 0.86 1.53 0.56 0.98 4


Quick ratio or Acid Test, explains company’s ability to repay short-term creditors out of

its liquid assets. It shows the number of times short-term liabilities are covered by quick assets.

Its ideal is 1.

Interpretation: In the above companies Jindal saw has maintained good average ratio of 1.68,

which is more than the ideal ratio 1. Other than Jindal saw, Uttamgalva, SAIL and TATA also

have good average.

c) NET WORKING CAPITAL TO TOTAL ASSETS:

45 | P a g e

The Working Capital to Total Assets ratio measures a company's ability to cover its short

term financial obligations (Total Current Liabilities) by comparing its Total Current Assets to its

Total Assets. This ratio can provide some insight as to the liquidity of the company, since this ra-

tio can uncover the percentage of remaining liquid assets (with Total Current Liabilities subtrac-

ted out) compared to the company's Total Assets.

Table No.3

Table showing net working capital to total assets ratio

COMPANY NAME

NET WORKING CAPITAL TO

TOTAL ASSETS

(%)

AVERAGE NET

WORKING CAPITAL

TO TOTAL ASSETS

RANK

2010 2011 2012

JINDAL SAW 37.11 46.65 43.22 42.33 2

BUSHAN STEEL 11.93 10.01 08.92 10.29 4

JINDAL STEEL AND

POWER00.85 12.07 06.99 06.64 5

JSW ISPAT Steel 01.70 -17.47 -18.90 -11.55 8

JSW STEEL -18.91 0.00 -12.61 -10.50 7

SAIL 41.17 33.61 17.97 30.92 3

TATA STEEL 02.27 14.86 -05.59 03.84 6


Net Working Capital to Total Assets ratio is defined as the net current assets (net working

capital) of a company expressed as a percentage of its total assets. This ratio represents the avail-

ability of working capital in relation with capital employed.

Interpretation: UTTAM GALVA steel has the good net working capital expressed as a percentage of

its total assets. JSW STEEL and JSW ISPAT steel has negative average net working capital to total as-

sets because current liabilities are more than the current assets.

(2) PROFITABILITY RATIOS:

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A business firm is a profit earning organization. The income statement of the firm shows the

profit earned by the firm during the account period. Profitability is an indication of the efficiency

with which the operations of business are carried on. Poor operational performance may indicate

poor sales and hence poor profits. The profit figure has, however, different meanings to different

parties interested in financial analysis. The following are the important profitability ratios.

a) RETURN ON ASSETS (ROA): Profitability can be measured in terms of relationship be-

tween net profit and total asset. This ratio is also known as return on gross capital employed.

It measures the profitability of investment. The overall profitability can be known by applying

this ratio.

COMPANY NAMEROA (%) AVERAGE

ROARANK

2010 2011 2012

JINDAL SAW 17.28 09.27 03.84 10.13 3

BUSHAN STEEL 06.53 05.30 04.08 05.30 6

JINDAL STEEL AND

POWER11.60 11.48 09.17 10.75 1

JSW ISPAT Steel -07.58 -17.71 -02.14 -09.14 8

JSW STEEL 09.98 07.96 05.42 07.79 5

SAIL 15.82 09.16 06.26 10.41 2

TATA STEEL 08.47 09.86 08.77 09.03 4


Table No.4 showing ROA

47 | P a g e

Return on Assets ratio measures the return achieved on a company's total assets.

Interpretation: Jindal steel and power has a good return on assets, which is 10.75%. SAIL and

Jindal saw also have a good ROA. But JSW ISPAT steel has a negative ROA.

b) OPERATING MARGIN:

Operating margin is a measurement of what proportion of a company's revenue is left

over after paying for variable costs of production such as wages, raw materials, etc. A healthy

operating margin is required for a company to be able to pay for its fixed costs, such as interest

on debt.

Table No.5

Table showing Operating margin

COMPANY NAMEOPERATING MARGIN (%)

AVERAGE OM RANK

2010 2011 2012

JINDAL SAW 13.98 13.87 06.03 11.29 5

BUSHAN STEEL 19.17 18.15 12.64 16.66 3

JINDAL STEEL AND

POWER24.15 26.31 19.28 23.25 2

JSW ISPAT Steel -11.15 -20.01 -11.46 -14.20 8

JSW STEEL 04.09 11.02 06.04 7.05 6

SAIL 23.16 15.28 10.08 16.18 4

TATA STEEL 26.96 30.63 26.64 28.08 1


Operating Margin shows the pre-tax profit as a percentage of turnovers for the last repor-

ted period.

48 | P a g e

Interpretation: TATA steel has a good average pre-tax profit has a percentage of turnovers

which is 28.08%. But JSW ISPAT steel has a negative impact other than this company, others

have positive impact.

c) NET PROFIT MARGIN:

The profit margin tells you how much profit a company makes for every $1 it generates

in revenue or sales. Profit margins vary by industry, but all else being equal, the higher a com-

pany's profit margin compared to its competitors, the better.

Table No.6

COMPANY NAMENET PROFIT MARGIN (%) AVERAGE NET PROFIT

MARGINRANK

2010 2011 2012

JINDAL SAW 10.36 10.67 04.16 08.40 5

BUSHAN STEEL 14.08 13.26 09.48 12.27 3

JINDAL STEEL AND

POWER18.74 19.73 14.31 17.59 2

JSW ISPAT Steel -07.49 -16.89 -02.89 -09.09 8

JSW STEEL 10.39 08.00 04.68 07.69 6

SAIL 15.33 10.40 06.94 10.89 4

TATA STEEL 18.86 21.52 18.09 19.49 1


Table showing Net profit margin

Net Profit Margin ratio shows the profit as a percentage of turnovers.

Interpretation: TATA steel has a good profit as a percentage of turnovers, but JSW ISPAT steel

has a negative percentage due to the net loss in all the above three years.

49 | P a g e

d) ASSETS TURNOVER:

Asset turnover measures a firm's efficiency at using its assets in generating sales or rev-

enue - the higher the number the better. It also indicates pricing strategy: companies with low

profit margins tend to have high asset turnover, while those with high profit margins have low

asset turnover.

Table No.7

COMPANY NAME

ASSETS TURNOVER

(times) AVERAGE ASSETS

TURNOVERRANK

2010 2011 2012

JINDAL SAW 1.66 0.86 0.92 1.15 2

BUSHAN STEEL 0.46 0.39 0.43 0.43 8

JINDAL STEEL AND

POWER0.61 0.58 0.64 0.61 6

JSW ISPAT Steel 1.01 1.04 0.74 0.93 5

JSW STEEL 0.96 0.99 1.15 1.03 3

SAIL 1.03 0.88 0.90 0.93 4

TATA STEEL 0.44 0.45 0.48 0.46 7


Table showing Assets turnover

Interpretation: Uttam Galva steel has a good average assets turnover which is 0.79 times more

than the average total assets. Jindal saw has 0.15 times and JSW steel has 0.03 times more than

the average total assets. But other companies have failed to attain equal to the average total as-

sets.

50 | P a g e

e) DIVIDEND PAYOUT RATIO:

It indicates the proportion of earning available to equity shareholders. This ratio is also

indirectly throws light on the financial policy of the management in plugging back.

Table No.8

Table showing Dividend Pay-out Ratio

COMPANY NAMEDIVIDEND PAYOUT RATIO

AVERAGE DI-

VIDEND PAY-

OUT RATIO

RANK

2010 2011 2012

JINDAL SAW 0.047 0.059 0.123 0.077 4

BUSHAN STEEL 0.012 0.010 0.010 0.011 6

JINDAL STEEL AND

POWER0.078 0.067 0.070 0.072 5

JSW ISPAT Steel 0.000 0.000 0.000 0.000 7

JSW STEEL 0.089 0.137 0.104 0.110 3

SAIL 0.201 0.202 0.231 0.212 1

TATA STEEL 0.141 0.167 0.174 0.161 2


Interpretation: SAIL has practiced good dividend payout out of its profit. It helps in retaining

its investors. But JSW ISPAT have not paid anything due to the loss occurred on last three years.

Even the Uttam Galva has net profit it didn’t pay any dividend due to the less margin.

f) RETENTION RATIO:

51 | P a g e

The per cent of earnings credited to retained earnings. In other words, the proportion of

net income that is not paid out as dividends.

Table No.9

Table showing Retention ratio

COMPANY NAMERETENTION RATIO AVERAGE RE-

TENTION RA-

TIO2010 2011 2012

JINDAL SAW 0.952 0.940 0.876 0.922

BUSHAN STEEL 0.987 0.989 0.989 0.988

JINDAL STEEL AND POWER 0.921 0.932 0.929 0.927

JSW ISPAT Steel - - - -

JSW STEEL 0.910 0.862 0.895 0.889

SAIL 0.798 0.797 0.766 0.787

TATA STEEL 0.858 0.832 0.825 0.838

UTTAM GALVA STEEL 1.000 1.000 1.000 1.000

Interpretation: JSW ISPAT steel had no profit to retain and Uttam Galva had not paid out any

dividend.

g) EARNING RETENTION RATIO:

52 | P a g e

Earning Retention Ratio is also called as Plowback Ratio. As per definition, Earning Re-

tention Ratio or Plowback Ratio is the ratio that measures the amount of earnings retained after

dividends have been paid out to the shareholders. The prime idea behind earnings retention ratio

is that the more the company retains the faster it has chances of growing as a business. This is

also known as retention rate or retention ratio. There is always a conflict when it comes to calcu-

lation of Earnings retention ratio, the managers of the company want a higher earnings retention

ratio or plowback ratio, while the shareholders of the company would think otherwise, as the

higher the plowback ratio the uncertain their control over their shares and finances.

Table No.10

Table showing Earning retention ratio

COMPANY NAME

EARNINGS RETENTION RA-

TIO (%)

AVERAGE EARN-

INGS RETEN-

TION RATIO

RANK

2010 2011 2012

JINDAL SAW 025.17 15.80 07.11 16.03 5

BUSHAN STEEL 196.64 46.82 47.69 97.05 1

JINDAL STEEL AND

POWER014.63 20.59 20.97 18.73 4

JSW ISPAT Steel - - - - 8

JSW STEEL 098.63 77.86 65.37 80.62 2

SAIL 013.05 09.47 06.57 09.70 6

TATA STEEL 048.88 59.57 56.94 55.13 3


Interpretation: BUSHAN STEEL has retained its maximum earnings that are re-invested. JSW

ISPAT had no profit to retain.

h) RETURN ON EQUITY:

53 | P a g e

The profit considered from computing the ratio is taken after payment of preference di-

vidend.

Table No.11

Table showing ROE

COMPANY NAMEROE (rs in crores) AVERAGE

ROERANK

2010 2011 2012

JINDAL SAW 2642.98 1680.03 811.61 1711.54 5

BUSHAN STEEL 19914.29 4733 4819.55 9822.28 1

JINDAL STEEL AND

POWER1588.94 2209.34 2257.78 2018.68 4

JSW ISPAT Steel -562.89 -784.47 -104.75 -484.03 8

JSW STEEL 10813.95 9011.73 7287.03 9037.57 2

SAIL 1635.28 1187.47 857.69 1226.81 6

TATA STEEL 5688.36 7157.62 6894.90 6580.29 3


Return on Equity is a measure of a firm's profitability, expressed by the return achieved on inves-

ted equity capital.

Interpretation: ROE is more for the company Bushan steel having around 9822% increase in

the income of shares. JSW ISPAT steel have negative outcome due to the loss.

I) GP MARGIN RATIO:

54 | P a g e

The gross profit ratio plays an important role in two management areas. In the area of fin-

ancial management, the ratio serves as a valuable indicator of the firm’s ability to utilize effect-

ively outside sources of fund. Secondly, this ratio also serves as important tool in shaping the pri-

cing policy of the firm. This ratio expresses the relationship between gross profit and sales. This

ratio is calculated by dividing gross profit by net sales.

Table No.12

Table showing GP margin ratio

COMPANY NAMEGP MARGIN AVERAGE

GP MARGINRANK

2010 2011 2012

JINDAL SAW 0.18688 0.19727 0.12207 0.168741 6

BUSHAN STEEL 0.25841 0.2924 0.30218 0.284331 3

JINDAL STEEL AND POWER 0.34781 0.38577 0.30576 0.346444 2

JSW ISPAT Steel 0.13585 0.13477 0.038 0.102874 7

JSW STEEL 0.23523 0.20081 0.17428 0.203439 4

SAIL 0.22699 0.16373 0.13154 0.174088 3

TATA STEEL 0.35707 0.38114 0.35499 0.364403 1


It indicates the financial health of business. It shows how well the company is using its

lab ours and materials in the production process and gives an indication of pricing, cost structure

and production efficiency of business.

55 | P a g e

(3) TURNOVER RATIOS:

a) CURRNET ASSETS TURNOVER:

Current Assets Turnover Ratio indicates that the current assets are turned over in the form

of sales more number of times. A high current assets turnover ratio indicates the capability of the

organization to achieve maximum sales with the minimum investment in current assets. Higher

the current ratio better will be the situation.

Table No.13

COMPANY NAME

CURRENT ASSETS TURNOVER

RATIO

AVERAGE CUR-

RENT ASSETS

TURNOVER RA-

TIO

RANK

2010 2011 2012

JINDAL SAW 5.05 2.26 2.59 3.30 5

BUSHAN STEEL 3.18 3.01 2.59 2.93 6

JINDAL STEEL AND

POWER3.05 2.55 2.91 2.84 7

JSW ISPAT Steel 4.70 6.90 6.88 6.16 1

JSW STEEL 6.88 4.93 4.35 5.39 2

SAIL 2.19 2.41 3.34 2.65 8

TATA STEEL 3.98 2.51 4.44 3.64 3


Table showing Current Assets Turnover

Current Assets Turnover ratio shows the productivity of the company's current assets.

Interpretation: JSW ISPAT steel has good productivity of the company’s current assets, other

companies to have good turnover.

56 | P a g e

b) INVENTORY TURNOVER:

This ratio indicates whether investment in inventory is efficiently used or not. It, therefore, ex-

plains whether investments in inventories are within proper limits or not. It also measures the effective-

ness of the firm’s sales efforts.

Inventory Turnover ratio is the turnover of the company divided by its stocks.The Invent-

ory turnover ratio signifies the liquidity of the Inventory. The ratio is therefore a measure to dis-

cover the possible trouble in the form of over stocking or over valuation.

Table No.14

Table showing Inventory Turnover

COMPANY NAME

INVENTORY TURNOVER RATIO

(rs in crores)

AVEARGE INVENT-

ORY TURNOVER RA-

TIO

RANK

2010 2011 2012

JINDAL SAW 5.73 3.56 3.11 4.13 7

BUSHAN STEEL 3.76 2.95 3.33 3.34 8

JINDAL STEEL AND

POWER6.22 5.92 5.61 5.91 4

JSW ISPAT Steel 6.67 5.57 4.57 5.60 5

JSW STEEL 8.39 7.47 7.44 7.76 2

SAIL 4.60 4.63 4.07 4.43 6

TATA STEEL 8.16 9.07 8.39 8.54 1


Interpretation: TATA steel has a good inventory turnover for the last three years. Every com-

pany mentioned in the above have a good inventory turnover for the last three years.

57 | P a g e

d) DEBT COLLECTION PERIOD:

Debt Collection Period ratio is the year's sales which were outstanding at the balance

sheet date, expressed in days. A rough measure of the days of credit that a firm's offers to its sup-

pliers/clients.

Table No.15

Table showing Debt collection period

COMPANY NAME

DEBT COLLECTION PERIOD AVERAGE

DEBT COL-

LECTION

PERIOD

RANK2010 2011 2012

JINDAL SAW 51.87 85.20 85.62 74.23 8

BUSHAN STEEL 41.15 29.32 28.81 33.09 6

JINDAL STEEL AND

POWER23.43 23.71 20.33 22.49 4

JSW ISPAT Steel 22.65 15.72 14.64 17.67 3

JSW STEEL 09.01 10.18 11.58 10.26 2

SAIL 26.99 29.62 31.90 29.51 5

TATA STEEL 07.30 04.93 06.56 06.26 1

UTTAM GALVA

STEEL29.44 38.23 42.71 36.79 7

Interpretation: TATA steel has good average collection of debt which takes around six days to

collect the debt, which helps them to other expenses. But Jindal saw has bad policy of collecting

debt which is taking around eighty five days.

e) FIXED ASSETS TURNOVER RATIO:

58 | P a g e

The fixed-asset turnover ratio measures a company's ability to generate net sales from

fixed asset investments specifically property, plant and equipment - net of depreciation. A higher

fixed-asset turnover ratio shows that the company has been more effective in using the invest-

ment in fixed assets to generate revenues.

Table No.16

Table showing fixed assets turnover ratio

COMPANY NAME

FIXED ASSETS TURNOVER

RATIO

(rs in crores)

AVERAGE

FIXED ASSETS

TURNOVER

RAN

K

2010 2011 2012

JINDAL SAW 4.74 2.29 2.71 3.25 2

BUSHAN STEEL 3.02 1.03 0.76 1.60 5

JINDAL STEEL AND

POWER1.26 1.25 1.36 1.29 8

JSW ISPAT Steel 1.15 1.49 1.36 1.34 7

JSW STEEL 1.29 1.32 1.43 1.35 6

SAIL 3.40 3.28 3.16 3.28 1

TATA STEEL 1.51 2.66 3.19 2.45 3


Interpretation: SAIL has maintained good average fixed assets turnover in order to generate

revenues.

(4) MARKET VALUE ANALYSIS:

59 | P a g e

a) PE RATIO:

PE ratio is used to appraise a company's profit performance. Where a company's prospects are

considered by the stock market to be good, then it is likely that the company's share price will rise,

producing a higher PE ratio.

Table No.17

Table showing PE RATIO

COMPANY NAMEPE RATIO (rs in crores) AVERAGE PE

RATIORANK

2010 2011 2012

JINDAL SAW 07.01 07.83 14.28 09.71 5

BUSHAN STEEL 02.38 06.59 09.66 06.21 1

JINDAL STEEL AND

POWER44.88 20.51 14.88 26.75 7

JSW ISPAT Steel -04.14 -00.88 -07.13 -04.05 8

JSW STEEL 11.03 05.70 09.20 08.64 3

SAIL 11.16 06.83 08.93 08.97 4

TATA STEEL 12.04 04.68 05.08 07.27 2


Interpretation: JINDAL steel and power has good price earning which indicates it has good profit

performance. JSW steel has negative earning due to the negative EPS in all the three years.

b) TOBIN’S Q RATIO:

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Tobin's Q Ratio is the market value of a company's assets divided by their replacement value.

Replacement value is the current cost of replacing the firm’s assets.

Table No.18

Table showing Tobin’s Q Ratio

COMPANY NAME

TOBIN'S Q RATIO

(rs in crores)AVERAGE

TOBIN'S QRANK

2010 2011 2012

JINDAL SAW 1.20 0.72 0.55 0.82 3

BUSHAN STEEL 0.77 0.34 0.39 0.50 6

JINDAL STEEL AND

POWER5.22 2.35 1.39 2.99 1

JSW ISPAT Steel 0.33 0.21 0.18 0.24 8

JSW STEEL 1.29 0.44 0.49 0.74 4

SAIL 1.76 0.62 0.56 0.98 2

TATA STEEL 1.02 0.46 0.44 0.64 5


Interpretation: JINDAL STEEL AND POWER has good market value for its total assets and

JSW ISPAT STEEL has least market value for its total assets.

c) DIVIDEND YIELD:

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Dividend yield is defined as the annual total dividend amount as a proportion of the share

price.

Table No.19

Table showing DIVIDEND YIELD

COMPANY NAMEDIVIDEND YIELD (%) AVERAGE DI-

VIDEND YIELD

RAN

K2010 2011 2012

JINDAL SAW 0.68 0.76 0.86 0.77 4

BUSHAN STEEL 0.52 0.16 0.10 0.26 6

JINDAL STEEL AND

POWER0.17 0.33 0.47 0.32 5

JSW ISPAT Steel 0.00 0.00 0.00 0.00 7

JSW STEEL 0.80 2.41 1.13 1.45 3

SAIL 1.80 2.95 2.60 2.45 2

TATA STEEL 1.17 3.57 3.42 2.72 1


Interpretation: TATA STEEL has the maximum yield on its share. JSW ISPAT and UTTAM

GALVA has zero because they didn’t pay any dividend because of loss and less profit respect-

ively.

d) DIVIDEND COVER:

62 | P a g e

Dividend Cover ratio is calculated as the earnings per share-basic divided by the annual total

dividend amount per share. Dividend cover expresses a company's ability to pay ordinary di-

vidends to shareholders out of profits earned. It shows how many times the ordinary dividend is

covered by the profit available and, for example, if a company pays out one quarter of its profit

as dividends, then the Dividend cover ratio is four.

Table No.20

Table showing Dividend cover

COMPANY NAME

DIVIDEND COVER

(rs in crores)AVERAGE DIVIDEND

COVER

RAN

K2010 2011 2012

JINDAL SAW 20.85 16.67 8.12 15.21 2

BUSHAN STEEL 79.63 94.32 95.68 89.87 1

JINDAL STEEL AND

POWER12.71 14.72 14.11 13.85 3

JSW ISPAT Steel 0.00 0.00 0.00 00.00 7

JSW STEEL 11.22 70.25 09.54 09.34 4

SAIL 04.95 04.94 04.29 04.73 6

TATA STEEL 07.04 05.96 05.74 06.25 5


Interpretation: BUSHAN STEEL has the maximum dividend cover about 89 times. The least

one are JSW ISPAT and UTTAM GALVA.

e) EARNINGS YIELD:

63 | P a g e

COMPANY NAME EARNINGS YIELD AVERAGE

EARNIGS

YIELD

RANK2010 2011 2012

JINDAL SAW 0.142 0.127 0.07 0.113 5

BUSHAN STEEL 0.419 0.151 0.103 0.224 1

JINDAL STEEL AND POWER 0.022 0.048 0.067 0.046 7

JSW ISPAT Steel -0.241 -1.133 -0.140 -0.504 8

JSW STEEL 0.090 0.175 0.108 0.124 3

SAIL 0.089 0.146 0.111 0.115 4

TATA STEEL 0.083 0.213 0.196 0.164 2


Table No.21

Table showing Earnings Yield

The Earnings Yield is the inverse of the PE Ratio. It shows the percentage of each rupee in-

vested in the stock that was earned by the company.

Interpretation: BUSHAN STEEL has the maximum earning yield. The least one is JSW ISPAT

steel due to the low profit.

(4) LEVARAGE RATIOS:

64 | P a g e

Many financial analysts are interested in the relative use of debt and equity in the firm.

These ratios measure the long- term solvency position of the firm. Following are the important

leverage ratios:

a) NET GEARING:

Net Gearing is the Total Debt net of cash & equivalents as a percentage of the Total of Share-

holders' funds and Debt funds. Higher the gearing ratio higher the dependency on equity fin-

ances.

Table No.22

Table showing Net gearing

COMPANY NAMENET GEARING (%) AVERAGE NET

GEARING

RAN

K2010 2011 2012

JINDAL SAW -00.93 04.52 07.99 03.86 6

BUSHAN STEEL 05.58 06.22 07.49 06.43 5

JINDAL STEEL AND

POWER12.03 02.06 08.69 07.59 4

JSW ISPAT Steel 19.00 37.46 37.86 31.44 2

JSW STEEL 33.70 17.05 33.85 28.20 3

SAIL -16.04 -06.60 15.12 -02.50 8

TATA STEEL 03.34 -09.15 13.18 02.46 7

UTTAM GALVA STEEL -18.84 58.72 62.17 34.01 1

Interpretation: UTTAM GALVA steel has higher dependency on equity, then the other com-

panies.

b) DEBT TO ASSETS RATIO:

65 | P a g e

The Debt to Asset Ratio measures the percentage of the company's Total Assets that are fin-

anced with debt (Total Liabilities). This ratio looks at what debt the company owes, and com-

pares that debt to what assets the company owns.

Table No.23

Table showing Debt to assets ratio

COMPANY NAME

DEBT TO ASSETS RATIO (%) AVERAGE

DEBT TO

ASSETS

RATIO

RANK2010 2011 2012

JINDAL SAW 0.16 0.28 0.41 0.28 8

BUSHAN STEEL 0.74 0.73 0.71 0.73 2

JINDAL STEEL AND

POWER0.55 0.58 0.56 0.56 5

JSW ISPAT Steel 0.78 0.57 0.56 0.64 4

JSW STEEL 0.54 0.40 0.39 0.45 6

SAIL 0.33 0.35 0.28 0.32 7

TATA STEEL 0.85 0.79 0.68 0.77 1


Interpretation: The lower the Debt to Asset Ratio it is better, as companies with high amounts

of debt introduce more risk. Here all the companies have maintained less the one.

66 | P a g e

http://www.spireframe.com/define/financial-statement-term/total-liabilities

http://www.spireframe.com/define/financial-statement-term/total-assets

c) DEBT EQUITY RATIO:

It measures company's financial leverage. It is calculated by dividing its total liabilit-

ies by stockholders' equity. It indicates what proportion of equity and debt the company is using

to finance its assets.

Table No.24

Table showing Debt equity ratio

COMPANY NAME

DEBT EQUITY RATIO AVER-

AGE

DEBT

EQUITY

RATIO

RANK2010 2011 2012

JINDAL SAW 13.4697 29.1703 44.9839 29.207 5

BUSHAN STEEL 268.522 390.691 466.601 375.27 1

JINDAL STEEL AND

POWER90.0264 129.666 153.749 124.48 2

JSW ISPAT Steel 6.01731 5.87844 2.90549 4.9337 7

JSW STEEL 46.699 42.06 43.2948 44.017 4

SAIL 3.99749 4.88221 3.89713 4.2589 8

TATA STEEL 59.8827 63.2959 53.749 58.97 3


67 | P a g e

(5) GROWTH RATIOS:

a) EPS GROWTH RATE:

Earnings per share Growth Rate ratio, is expressed as a percentage and it shows the relative

growth of EPS over the last two reporting periods. A minus sign indicates negative growth from

last year. If the previous year's EPS-basic is zero earnings per share growth rate is not defined.

Table No.25

Table showing EPS growth

COMPANY NAMEEPS GROWTH RATE (%) AVERAGE EPS

GROWTH

RATE

RANK2010 2011 2012

JINDAL SAW -0.59 -0.36 -0.51 -0.489 7

BUSHAN STEEL 1.00 -0.76 0.01 0.086 2

JINDAL STEEL AND

POWER-0.84 0.39 0.02 -0.142 5

JSW ISPAT Steel -21.10 0.88 -0.88 -7.034 8

JSW STEEL 3.64 -0.16 -0.19 1.094 1

SAIL 0.09 -0.27 -0.27 -0.152 6

TATA STEEL -0.19 0.26 -0.03 0.013 3

UTTAM GALVA STEEL -0.04 -0.25 0.01 -0.093 4

Interpretation: Here JSW steel has the good average EPS growth rate also BUSHAN and

TATA STEEL also have good average. Other than these three companies all have negative

growth rate.

68 | P a g e

B) PEG RATIO:

The PEG Factor is the price-earnings ratio divided by the earnings per share growth rate.

The PEG ratio is tools that help investors to find undervalued stocks.

- A PEG factor equal to one means that the market is pricing the stock to fully reflect its EPS

growth potential.

- A PEG factor greater than one, indicates that either the stock is overvalued, or that the market

expects its future EPS growth to be greater than the current consensus.

- A PEG factor less than one, indicates that either the stock is undervalued, or that the market

does not expect the company to achieve its forecasted EPS growth.

Table No.26

Table showing PEG RATIO

COMPANY NAME

PEG RATIO AVERAGE

PEG RA-

TIO

RANK2010 2011 2012

JINDAL SAW -11.81625 -21.7281 -27.85297 -20.46576 6

BUSHAN STEEL 2.3693751 -8.63601 670.26196 221.33178 2

JINDAL STEEL AND

POWER-53.42899 52.5691 670.83386 223.32466 1

JSW ISPAT Steel 0.1964939 -0.99921 8.1049194 2.434067 5

JSW STEEL 3.0295247 -34.3235 -47.41143 -26.23513 7

SAIL 119.19506 -24.935 -32.25246 20.66919 4

TATA STEEL -62.97851 17.35785 -138.4126 -61.34441 8

UTTAM GALVA STEEL -328.1092 -31.5807 571.89342 70.734521 3

(6) Z SCORE RATIO:

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The formula may be used to predict the probability that a firm will go into bank-

ruptcy within two years. Z-scores are used to predict corporate defaults and an easy-to-calculate

control measure for the financial distress status of companies in academic studies. The Z-score

uses multiple corporate income and balance sheet values to measure the financial health of a

company. The Z-score is a linear combination of four or five common business ratios, weighted by coef-

ficients. The coefficients were estimated by identifying a set of firms which had declared bankruptcy and

then collecting a matched sample of firms which had survived, with matching by industry and approxim-

ate size (assets).

The Z-score formula was as follows:

Z = 0.012T1 + 0.014T2 + 0.033T3 + 0.006T4 + 0.009T5.

Tn = Working capital / Total assets

Table No.27

Table showing Z score ratio

COMPANY NAMEZ SCORE RATIO AVER-

AGE Z

RATIO

RANK2010 2011 2012

JINDAL SAW 0.03356 0.01778 0.0163 0.02254 5

BUSHAN STEEL 0.02007 0.01209 0.01346 0.0152 7

JINDAL STEEL AND

POWER0.04777 0.03163 0.02794 0.03578 1

JSW ISPAT Steel 0.0098 0.01027 0.0007 0.00692 8

JSW STEEL 0.02993 0.02081 0.02071 0.02381 4

SAIL 0.03499 0.02703 0.02886 0.0303 2

TATA STEEL 0.01866 0.0158 0.01931 0.01792 6


Ranking of Companies Performance of Overall Ratios

70 | P a g e

http://en.wikipedia.org/w/index.php?title=Pair-matched_sample&action=edit&redlink=1

http://en.wikipedia.org/wiki/Financial_distress

http://en.wikipedia.org/wiki/Bankruptcy

http://en.wikipedia.org/wiki/Bankruptcy

COMPANY NAMEJINDAL SAW

BUSHAN STEEL

JINDAL STEEL AND

POWER

JSW IS-PAT Steel JSW STEEL SAIL TATA

STEEL

UTTAM GALVA STEEL

CURRENT RATIO 1 4 6 8 7 3 5 2

QUICK RATIO 1 5 8 7 6 3 4 2

NET WORKING CAPITAL TO

TOTAL ASSETS2 4 5 8 7 3 6 1

ROA 3 6 1 8 5 2 4 7OPERATING

MARGIN 5 3 2 8 6 4 1 7

NET PROFIT MARGIN 5 3 2 8 6 4 1 7

ASSETS TURNOVER 2 8 6 5 3 4 7 1

DIVIDEND PAY-OUT RATIO 4 6 5 7 3 1 2 7

EARNING RE-TENTION RATIO 5 1 4 8 2 6 3 7

ROE 5 1 4 8 2 6 3 7GP MARGIN 6 3 2 7 4 3 1 8

CURRENT AS-SETS TURNOVER

RATIO5 6 7 1 2 8 3 4

INVENTORY TURNOVER 7 8 4 5 2 6 1 3

DEBT COLLEC-TION PERIOD 8 6 4 3 2 5 1 7

FIXED ASSETS TURNOVER RA-

TIO2 5 8 7 6 1 3 4

PE RATIO 5 1 7 8 3 4 2 6TOBIN'S Q RA-

TIO 3 6 1 8 4 2 5 7

DIVIDEND YIELD 4 6 5 7 3 2 1 7

COMPANY NAMEJINDAL SAW

BUSHAN STEEL

JINDAL STEEL AND

POWER

JSW IS-PAT Steel JSW STEEL SAIL TATA

STEEL

UTTAM GALVA STEEL

DIVIDEND 2 1 3 7 4 6 5 7

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COVER

EARNINGS YIELD 5 1 7 8 3 4 2 6

NET GEARING 6 5 4 2 3 8 7 1

DEBT TO ASSETS RATIO 8 2 5 4 6 7 1 3

DEBT EQUITY RATIO 5 1 2 7 4 8 3 6

EPS GROWTH RATE 7 2 5 8 1 6 3 4

PEG RATIO 6 2 1 5 7 4 8 3Z SCORE 5 7 1 8 4 2 6 3

AVERAGE RANKING 4.50 3.96 4.19 6.54 4.04 4.31 3.38 4.88

FINAL RANKING 6 2 4 8 3 5 1 7

Interpretation: By taking the average ranking of all the ratios, we can conclude that TATA

STEEL has performed well to get into the first position, with average ranking of 3.41. Second

position has been occupied by BUSHAN STEEL.

CONCLUSION:

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Many people use fundamental analysis to select a company to invest in, and technical

analysis to help make their buy and sell decisions. Fundamental analysis is the study of the vari-

ous factors that affect a company's earnings and dividends. Fundamental analysis studies the re-

lationship between a company's share price and the various elements of its financial position and

performance. It also involves a detailed examination of the company's competitors.

Fundamental analysis is the cornerstone of investing. In fact all types of investing com-

prise studying some fundamentals. The subject of fundamental analysis is also very vast. How-

ever, the most important part of fundamental analysis involves looking into the financial state-

ments. This involves looking at revenue, expenses, assets, liabilities and all the other financial

aspects of a company.

Positive points about Indian economy, industry and company which attracts the investors:

Economy:

- China, The United States and India will be the hottest countries for corporations to invest

in over the next three years according to UN report

- Currently GDP is 5.3%. From 2000 until 2012, India’s GDP Growth Rate averaged to

7.4%.

- India is likely to emerge as the second most competitive economy in the world af-

ter China in terms of manufacturing in the next five years.

- Good growth prospects supported by ongoing economic liberalization and strong domes-

tic demand

- Despite the economic recession that brought majority of the first-world countries to dire

straits such as the United States, India remained stable.

- Conducive investment climate and Strong financial regulatory framework.

- Vibrant, transparent and high-yielding capital markets and High savings and investment.

Ratio

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http://economictimes.indiatimes.com/topic/manufacturing

http://economictimes.indiatimes.com/topic/China

http://economictimes.indiatimes.com/topic/competitive-economy

http://economictimes.indiatimes.com/topic/India

Steel Industry:

- In India, growth in apparent steel use is expected to grow by 6.9 per cent in 2012 and by

9.4 per cent in 2013. The Indian steel producers have signed 222 memorandum of under-

standing (MoUs) with the State Governments for a planned capacity addition of about

275.7 30 MT by 2020.

- The new research report “Indian Steel Industry Outlook to 2012” says that the, Indian

crude steel production will grow at a CAGR of around 10% during 2010-2013.

- FDI in Steel has a growth of 60.73% at $ 1,765.07 mn while several new proposals to set

up steel plants in the country are pending.

- Threat of new entry is low has it requires huge capital, High government policy and Dif-

ficulty in brand switching

- Growth in apparent steel use is expected to grow by 6.9% in 2012 and by 9.4% in 2013.

Steel Companies:

RANKS OF STEEL COMPANIES

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COMPANY NAMERAN

K

TATA STEEL 1

BUSHAN STEEL 2

JSW STEEL 3

JINDAL STEEL AND

POWER4

SAIL 5

JINDAL SAW 6

UTTAM GALVA STEEL 7

JSW ISPAT Steel 8

These ranks are given based on the ratio analysis done for the above eight companies by

taking last three years data. Among these companies TATA STEEL ranked the top position. An

investor can invest in this company by comparing various ratios which has been calculated

above.

So these are the some of the important positive points of Indian economy, industry and

company which attracts the investors to invest in India. One who invests in a company it is vital

that he should understand what it does, its market and the industry in which it operates. He

should never blindly invest in a company. One of the most important areas for any investor to

look at when researching a company is the financial statement.

We can learn from Fundamental analysis that examination of the forces that affect the in-

terest of the Economy, Industrial sectors and companies can give higher return. It tries to forecast

the future movement of the capital market using signals from the Economy, Industry and Com-

pany. The presumption behind Fundamental analysis is that a successful economy raises indus-

trial growth which leads to development of companies.

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