A PROJECT REPORT

ON

Steel Industry
OF

Tata Iron & Steel Co.

Submitted To : MR V DHANRAJ.

Group Members: 1. RAKESH ROY. (REGNO: 10301138)

2. MOHAMMED MUZAMMIL M. (REGNO: 10301127)
3. JEMY JOHN. (REGNO: 103011)
4. A M SAMSUDEEN. (REGNO: 10301141)
5. R ABDUL HAKKIM. (REGNO: 10301101)
6. RATHANA SABAPATHY. (REGNO: 10301140)
7. ASHWIN KUMAR. (REGNO: 103011)
8. VIJENDAR KUMAR SINGH. (REGNO: 103011)
TATA STEEL
INTRODUCTION:

Tata Steel, formerly known as TISCO (Tata Iron and Steel Company Limited), is the world's
fifth largest and India's largest steel company, with an annual crude steel capacity of 28
million tonnes. Ranked 315th on Fortune Global 500, it is based in Jamshedpur, Jharkhand,
India. It is part of Tata Group of companies. Tata Steel is also India's second-largest and
second-most profitable company in private sector with consolidated revenues of Rs 1, 32,110
crores and net profit of over Rs 12,350 crores during the year ended March 31, 2008. Its
main plant is located in Jamshedpur, Jharkhand, with its recent acquisitions; the company has
become a multinational with operations in various countries. In 2000, the company was
recognised as the world's lowest-cost producer of steel. The company was also recognized as
the world's best steel producer by World Steel Dynamics in 2005. The company is listed on
Bombay Stock Exchange and National Stock Exchange of India, and employs about 82,700
people (as of 2008).

On 2nd April, 2007, the Company completed the acquisition of Corus Group plc, Steel
Company headquartered at UK for an Enterprise Value of USD 14.7 billion. Post the
acquisition of Corus, Tata Steel Group is now the world’s 6th largest steel company with
current steel deliveries of 32 million tonnes. Set up as Asia’s first integrated steel plant and
India’s largest integrated private sector steel company, a century ago, it is now the world’s
second most geographically diversified steel producer, with operations in 24 countries and
commercial presence in over 50 countries. The Jamshedpur operations in India is increasing
its capacity from 5 mtpa to 10 mtpa by end 2010 and the Company has also signed MoUs to
set up four greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in
India and one in Vietnam.

Few years back, Tata Steel embarked on a journey to pursue Growth and Globalisation
through organic and inorganic strategy to increase its capacity in excess of 50 mtpa by 2015.
The Company identified several strategic levers including building a stronger base in India,
acquisitions in both growing and developed markets, strategic investments in raw material
assets and focus on branding.

Vision
“We aspire to be the global steel industry benchmark for Value Creation and Corporate
Citizenship”
FINANCIAL RATIO ANALYSIS OF TATA STEEL

1. Liquidity Ratios:-
Liquidity Ratios measures the ability of the firm to meet its short term obligations. They also
reflect the firm’s ability to meet financial contingencies that might arise.

(A).Current Ratio: - This ratio indicates the firm’s ability to meet its current liabilities. This
ratio is of very high importance to the suppliers of short term funds like the bankers and trade
creditors.

It is measured by: - Current Ratio = Current Assets / Current Liabilities

As per Balance Sheet 31st March 2008 & 2009. (All figures are in crore.)

Year Current Asset Current Liabilities Current Ratio

2006
2007
2008 3,613.70 3,855.26 0.94
2009 5,707.05 6,039.86 0.94
2010

Analysis: - The industry norm value of current ratio is 2:1. However it does not mean so that
higher current ratio means good company profile. It may signify higher unused cash,
inventory which again may result in inventory carrying cost.
In both the years the Current ratio for Tata Steel is same. However it does not mean any
increase or decrease in current ratio of any company gives the growth profile of the company.

B) Quick Ratio:-

This ratio is calculated on pre assumption that all the current assets are of same level
of liquidity. But this is not the reality. Cash in Hand is more liquid that the same cash
equivalent of inventory. So to get a real picture of liquidity we calculate Liquid Ratio.

It is calculated by (Current Asset-Inventory – Prepaid Expense / Current Liability)

As per Balance Sheet 31st March 2008 & 2009. (All figures are in crore.)
Year (Current Assets – Inventory- Prepaid Expense) Current Current
Liabilities Ratio
2006
2007
2008 13,570.52 3,855.26 3.52
2009 3,442.72 6,039.86 0.57
2010

Analysis:- As per the industry norms the Quick Ratio should be 1:1. There is a huge
difference between the Quick Ratios of the company. It also shows the decreasing trend. In
the year 2008 there was high unutilized cash. But for the current year the situation is more
balanced.

2. Profitability Ratio:-

This ratio shows a company’s effectiveness on generating profit. In other words the
profitability ratio reflects a company’s operating performance.

Gross Profit Ratio:-

Gross Profit is defined as Sales – Cost of Goods Sold. Now the Gross Profit Ratio is a ratio of
Gross Profit to the Sales. We express it in terms of Gross Profit Margin. It is the amount of
each rupee of sale that left over after repaying the Cost of Goods Sold. We calculate this ratio
by the following formula.

As per Balance Sheet 31st March 2008 & 2009. (All figures are in crore.)
Year Gross Profit Sales Gross Profit Margin
2006
2007
2008 7515.05 19,933.83 37.70%
2009 8295.84 24,624.04 33.69%
2010

Analysis: - It indicates the Gross Profit over sales of any company. This ratio can be changed
by 1. Change in Sales Volume. 2. Changes in sales price 3. Change in cost of production.
According to the data of 2007 and 2008 there is a decrease of Tata Steel in earning the Gross
profit which we can find out form the above table.

(B) Operating Profit Margin:-

This ratio signifies the operational efficiency of any business entity. In this case a lower ratio
indicates the higher efficiency. This ratio is calculated with the help of the following formula.

Operating profit ratio= (operating profit (EBIT)/sales)*100

As per Balance Sheet 31st March 2008 & 2009. (All figures are in crore.)
Year Operating Profit Sales Gross Profit Margin
(EBIT)
2008 8,360.25 19,933.83 41.94%

2009 9,278.34 24,624.04 37.68%

Analysis: - There is a decrease in Operating Profit Ratio for Tata Steel. According to the
sales figure the EBIT value in 2009 in comparatively less than that of 2008. As we know a
lower operating profit ratio indicates higher efficiency of the firm. So, on the basis of the
calculated data we can say that the operating efficiency of Tata Steel has actually increased
for the current year with a comparison between 2008 and 2009.

(C ) Net Profit Ratio: - It relates the firms Net Profit and the firm’s Sales level. It indicates
what percentage of every rupee of sales the firm was able to transform into the Net Profit.
The net profit margin measures the profit that is available from each rupee of sales after all
expenses have been paid, including cost of goods sold, selling, general and administrative
expenses, depreciation, interest and taxes
This ratio is calculated by the following formula.
Net Profit Margin = (Net Profit after Tax / Sales)*100

As per Balance Sheet 31st March 2008 & 2009. (All figures are in crore.)
Year Net Profit after Tax Sales Net Profit Margin
(PAT)
2008 4670.49 19,933.83 23.43%
2009 5193.21 24,624.04 21.09%

Analysis: - We can see that there is a decrease in the Net Profit Margin. Actually it indicates
the firm’s ability to transfer its sales into the net profit. So, here analyzing the consecutive
two years data we can see that the profitability of Tata Steel has actually decreased in 2009
than of the year 2008.

(D) Return on total assets: -

It relates the profit of the firm to its tangible assets. In other words it indicates the how much
profit the firm has gained by utilizing its resources. It is calculated by the following formula.

Return of Total Asset = (Net Profit after Tax / Total Assets)*100

As per Balance Sheet 31st March 2008 & 2009. (All figures are in crore.)
Year Net Profit after Tax Total Assets Return of Total Asset
(PAT)
2008 4670.49 47,075.52 9.92%
2009 5193.21 58,741.77 8.84%
Analysis:- Again we can see that there is reduction in the return to total asset ratio. The
return Tata Steel earned over their Total Asset in 2008 the value reduced in the year 2009. It
also means to achieve a certain amount of revenue Tata Steel has used more amount of its
capital.
3. Turnover Ratios:-
These ratios determine how quickly certain assets are converted into cash. It measures the
ability of the firm to manage assets and convert into cash. High turnover ratios are usually
associated with good asset management and low turnover ratios with poor asset management.

(A) Fixed assets turnover ratio: - It indicates the efficiency of utilization of fixed assets.
The fixed assets turnover ratio is the sales turnover divided by the fixed assets.
It is calculated by the following formula

Fixed Assets Turnover Ratio= Sales / Fixed Assets.

As per Balance Sheet 31st March 2008 & 2009. (All figures are in crore.)
Year Sales Fixed Assets. Fixed Asset Turnover
Ratio
2008 19,933.83 12,623.56 1.57
2009 24,624.04 14,482.22 1.70

Analysis: - For both of the years 2008 and 2009 the fixed asset turnover ratio of Tata Steel is
more than 1. As we know this ratio shows the company’s ability to turn its fixed assets into
the turnover. The turnover has actually increased here. But the turnover is also very good in
the year 2008.

(B)Total assets turnover ratio:- It measures the overall efficiency and performance of the
assets employed in business. Total assets turnover ratio is defined as sales turnover divided
by the total assets. It is measure of firm’s total assets management.
This ratio is calculated by the following formula.

Total Asset Turnover Ratio= Sales Turnover / Total Assets.

As per Balance Sheet 31st March 2008 & 2009. (All figures are in crore.)
Year Sales Turnover Total Assets. Total Asset Turnover
Ratio
2008 19,933.83 47,075.52 0.42
2009 24,624.04 58,741.77 0.42

Analysis: - Here for both the years the value of Total Asset Turnover Ratio is same it is
showing that overall turnover of assets to sales remained same for both the years.
(C ) Debtors Turnover ratio/Average collection period:-
This ratio indicates the efficiency of the firm in collecting its receivables from its customers
to whom the firm has sold on credit. It indicates the effectiveness of the collection policy
adopted by the firm.

It is calculated by the following formula.

Debtors Turnover Ratio= (Debtors / Credit Sells)*365

As per Balance Sheet &P&L 31st March 2008 & 2009. (All figures are in crore.)
Year Debtors Turnover Ratio
2008 11.00
2009 9.00

Analysis: - As it shows the company’s ability to recover the amount that is market due or in
other words the company has sold on credit. It is very important for any company to calculate
this ratio as depending on that the company can decide about its current position to recover
the receivables.
For both the years the value is good.

(4) Leverages Ratios:- Leverage ratios indicate the extent to which the firm has financed its
assets by borrowing. The use of debt financing increases the risk of the firm. The leverage
ratios reflect the financial risk posture of the firm. The more extensive the use of debt, the
higher would the firm’s leverage ratios and more risk present in the firm. Some of the
leverages ratios are explained below.

(4) Debt Equity Ratio:- Though it doesn’t signify anything related to meeting short term
liability it is often discussed under this topic. A firm has two options when going for
expansion one is raising debt and other going for public issue. Generally very high debt is not
preferred by the investors because it signifies the risk and high form of equity has threat of
hostile bid and acquisition.

The above ratio is calculated by the following formula.

Debtors Equity Ratio= (Total Debt / Equity)

As per Balance Sheet &P&L 31st March 2008 & 2009. (All figures are in crore.)
Year Debt Equity Ratio Long Term Debt Equity
Ratio
2008 1.08 1.07
2009 1.34 1.31
Analysis: - Here we can see that in both Debt Equity Ratio and in Long Term Debt Equity
Ratio has increase for both of the years. Logically speaking that when this ratio for any
company increase it does not show good performance of the company.
(B) Interest coverage ratio:- This ratio is the sum of the net earnings before taxes and
interest charge divided by the interest expenditure.
The above ratio is calculated by the following formula.

Interest coverage ratio = EBIT/Interest

As per Balance Sheet &P&L 31st March 2008 & 2009. (All figures are in crore.)
Year Interest coverage ratio
2008 8.35
2009 5.71

Analysis: -
It actually measures the firm’s ability to meet the interest obligations. Here in this case we
can see that the interest coverage ratio is decreasing, it means the firm’s ability is reducing.

( 5) Market value ratios:-

(A) Price Earnings Ratio: - This ratio highlights the relationship between the market
price of a share and the current earnings per share. The market value, on the other
hand is the value of equity as perceived by investors.

Price earnings ratio = Market Price per share / earnings per share.

As per Balance Sheet &P&L 31st March 2008 & 2009. (All figures are in crore.)
Year Price Earnings Ratio: -
2008 10.38
2009 2.97

Analysis: - It actually denotes the company’s future prospect. As here we can see that there is
decrease in the price earnings ratio it show’s a decrease in company’s growth profile
 (B) Earnings per share:- The shareholders invest their money with the expectation of
getting dividends and capital appreciation on the shares. . Since the earnings form the
basis for dividend payments as well as a basis for any future increase in the market
price of the shares, investors are always extremely interested in knowing the earnings
per share.

Earnings per share: (Net profit after taxes – Preference dividends) / Number of
ordinary shares

As per Balance Sheet &P&L 31st March 2008 & 2009. (All figures are in crore.)
Year Earnings per share
2008 60.45
2009 66.80

Analysis: -
Here it shows that for Tata Steel the earning per share increasing. It is good symbol form the
company prospective as well as from the Share Holder’s prospective also. Seeing more
earning there is a chance for share holders to invest on the company.
TATA STEEL SWOT COMPANY ANALYSIS
STRENGTH.

1. * Tata Steel’s Indian operations are self-sufficient in the case of its major raw material
iron ore through its captive mines.
2. Tata had a strong retail and distribution network in India and SE Asia. Tata was a
major supplier to the Indian auto industry and the demand for value added steel
products was growing in this market.
3. * The Company is on its way to reach a crude steel capacity of 10 million tonnes per
annum by FY 2011. The first phase of reaching the crude steel capacity of 6.8 million
tonnes per annum, Brown field projects, is nearing completion
4. Tata Steel has been on a path of accelerated growth with foray into several
geographies and markets through aggressive mergers and acquisitions.

WEAKNESS

1. Raw materials for steel production are rapidly depleting and are non renewable,
company has to come up with sustainable methods in steel production.

2. * Steel production in India is also hampered by power shortages.

3. Insufficient freight capacity and transport infrastructure impediments too hamper the
growth of Indian steel industry.

4. Low Labour Productivity

In India the advantages of cheap labour get offset by low labour productivity.

5. High Cost of Basic Inputs and Services

High administered price of essential inputs like electricity puts Indian steel industry at
a disadvantage; about 45% of the input costs can be attributed to the administered
costs of coal, fuel and electricity.

OPPORTUNITIES.

1. The biggest opportunity before Indian steel sector is that there is enormous scope for
increasing consumption of steel in almost all sectors in India.

2. Unexplored Rural Market

The Indian rural sector remains fairly unexposed to their multi-faceted use of steel.

3. Excellent potential exist for enhancing steel consumption in other sectors such as
automobiles, packaging, engineering industries, irrigation and water supply in India.
 4. The Tata Steel Group is leveraging the Group’s collective Research and Development
experience in the Group’s various geographies to further enhance the Group’s
performance and also the integration process.

5. Booming infrastructure has opened up high demand for steel worldwide.

THREAT

1. In the developed world, industries have been facing rising environmental costs due to
the increased concerns on Global Warming. It is, therefore, a challenge and
responsibility for the Steel industry to be the trustee in conservation of nature for
future generations
2. It is recognised that the steel and aluminium industries are significant contributors to
man-made greenhouse gas emissions as the manufacture of steel produces carbon
dioxide (CO2), and the manufacture of primary aluminium generates both CO2 and
perfluorocarbons (PFCs).
3. High raw material input cost and scarcity of non renewable raw materials are a threat
to the industry.( eg: Coal, limestone etc)
4. Threat of Substitutes
Plastics and composites pose a threat to Indian steel in one of its biggest markets
automotive manufacture. For the automobile industry, the other material at present
with the potential to upstage steel is aluminium.

PEST ANALYSIS OF THE STEEL INDUSTRY

The industry took the first faltering steps in 1907 with the setup of the first integrated steel
plant in Jamshedpur by TISCO. Since then the Indian Steel industry has emerged as one of
the core sectors in the Indian economy with a very significant impact on economic
growth.The Indian steel industry comprises producers of finished steel, semi-finished steel,
stainless steel & pig iron. The private sector controls almost 2/3rd of the steel market

Industry Classification based on Products.

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A scan of the external macro-environment in which the firm operates can be

expressed in terms
of the following factors:

Political.
Economical.
Social.
Technological.

PEST Analysis Diagram