Sfm Assingment

The company chosen for the Strategic Financial Accounting is TATA STEEL, the sixthlargest steel producer in the world and also the company that continues to be the 'lowest-cost steel producer in the world' as well.

Tata Steel is principally engaged in mining, production and distribution of steel and steel products. The company has major domestic operations in India and international operations in Ivory Coast, Mozambique, Vietnam, South Africa, Australia and Oman. The company also operates 17 distribution and commercial centers around the world. The Tata Steel operations include steel division, bearings division, ferro alloys and minerals division, agrico division, Tata growth shop (TGS), tubes division, and wire division. The other major international operations of the company include Corus Group; NatSteel, a wholly-owned subsidiary of Tata Steel; Tata Steel (Thailand); and Tata Metaliks The growth of the company As of 2003, Tata Steel was essentially a one-site company, centered in the pristine locales of Jamshedpur but was a small operation with only 4 million tonnes annual capacity and lagged behind its competitors and lacked foreign presence. At this point From high-level discussions of senior management emerged a target - 15 million tonnes annual capacity by 2015, subsequently revised to 50 million tonnes a ten-fold-plus increase in just ten-plus years. Of course, the company's jewel in the crown Jamshedpur was to be very much a part of the action. Target capacity was set at 10 million tonnes by 2010, with gradual increments over the years: 4 to 5 million tonnes in 2005 (already achieved), 5 to 6.8 million tonnes in 2008 (on schedule) and 6.8 to 10 million tonnes in 2010 (expected). such an ambitious target was born out of the management's confidence in a vibrant world economy, with special emphasis on engines of growth like India, China, Russia, South-East Asia and Brazil. whenever a country's per-capita GDP had exceeded $3,000, a metal boom had been witnessed. This was because, there is a strong co-relation between GDP and consumption of metals. And also increasing importance of branded steel in the company's scheme of operations - it now accounts for $1.5 billion in annual sales. As for Tata Steel's growth plans, the management had identified that acquisition would definitely play an important part in the company's future plans. This was especially true of developed markets where the costs of establishing Greenfield projects were prohibitive. The company was established in Jamshedpur, India, in 1907. In the past few years, Tata Steel has invested in Corus (UK), Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings (Singapore). With these, the company has created a manufacturing and marketing network in Europe, South East Asia and the Pacific-rim countries. It has the capacity to produce over 30 million tonnes of crude steel every year. It operates in more than 20 countries and has a commercial presence in over 50.

The step wise analysis of the company is done as follows: 1. Comparitive evaluation Y/E Mar TATA STEEL

SAIL

JWS STEEL

EPS

P/E

EV/EBIT DA

EP S

P/E

EV/EBIT DA

EPS

P/E

EV/EBIT DA

2007

49. 0

9.2

5.0

14. 9

7.6

4.4

69.3

7.7

5.0

2008

71. 7

9.7

5.5

18. 6

9.9

5.6

84.2

9.7

7.7

2009

87. 9

7.9

5.6

23. 7

7.8

4.1

92.5

7.8

6.3

2010

93. 0

7.4

5.2

25. 5

7.2

3.7

103. 5

6.9

6.7

2007-08

2006-07

Trend Analysis 2008-09 2004-05 2003-04 1 EBIDTA/Turnover 41.89% 31.82% 2 PBT/Turnover 36.34% 24.83% 3 Return on Averaage Capital Employed 49.43% 28.02% 4 Return on Avg. Net Worth 62.01% 46.28% 5 Asset Turnover 110.13% 100.41% 6 Inventory Turnover (in days) 37.00 39.00 7 Debtors Turnover

2005-06

38.83%

41.93%

41.34%

40.35%

30.09%

33.70%

35.68%

34.44%

16.12%

20.53%

32.37%

40.81%

18.33%

22.84%

36.09%

42.90%

99.17%

105.36%

76.54%

108.13%

42.00

43.00

43.00

45.00

(in days) 9.00 11.00 12.00 13.00 16.00 27.00 8 Gross Block to Net Block 1.63 1.65 1.68 1.68 1.65 1.69 9 Net Debt to Equity 0.78 0.81 (0.15) 0.02 0.18 0.42 10 Current Ratio 1.12 0.90 2.18 1.10 1.10 1.03 11 Interest Cover ratio 7.35 9.44 37.01 43.08 29.21 22.76 12 Networth per share (post CCPS conversion) 360.18 376.28 214.80 171.68 123.68 78.77 13 Earnings per share (Basic) 69.45 66.80 65.28 63.35 62.77 31.55 14 Dividend Payout 29.00% 30.00% 26.00% 23.00% 24.00% 24.00% 15 P/E Ratio 2.97 10.38 6.89 8.47 6.39 12.16

2. Comparison with the previous year profits reveals : 08-09 Turnover

147,329

Operating profit

13,862

Profit after tax

4,951

Earnings per share

59

Return on invested capital EBIDTA

21% 13%

07-08 (in Crores) 131,534 13,645 12,350 163 20% 14%

There has been increase in the total profits, store and spare stock, total debt & net cash flow from operating activities, also cash outflow Decrease in the expenditure, stock in trade and net finance charges. There has also been considerable effect of the exceptional items in the form of restructuring and disposal/impairment of assets in both the financial years.

3. The Chairman’s message conveys that the adverse environment created by the economic slowdown was tackled by improving operations globally, optimum resource allocations, maintaining lower inventory and stringent manufacturing strategies( which was geography specific) and also used issued securities to maintain the liquidity to meet the operating margins demanded by the situation. The discussions of the Senior management reveals the following The loss of investors confidence resulted in significant erosion of capital in the banking industry in the developed world which eventually spiralled into an unprecedented global financial crisis. This phenomenon brought about a sharp decline in consumption of steel as it did in other products, affecting the steel demand across the globe and the steel demand declined by around 20% globally. In response the company increased production post commissioning of the 1.8 mtpa programme and focussing on performance improvement to neutralise the effect of reduced realizations, in India, whereas in South East Asia, the focus is on working capital management and cost reduction. In Europe they cut production by idling blast furnaces at three sites in order to align production with demand which resulted in cash savings of £712 million (US$1.02 billion) in the second half of the financial year 2008-09. Further, these efforts have been supplemented by a strategic restructuring initiative launched as “Fit for Future” programme which when completed, will result in improvement of the operating profit of around £200 million annually. In all their sites across the Group, the journey of ‘Continuous Improvement’ stays on course, covering the entire range of manufacturing and mining processes. Tata Steel in India is an integrated player, for the majority of its raw material requirements. However, raw material self-sufficiency for the consolidated entity is at 25% post the Corus acquisition. It has been the stated objective of the company to increase self-sufficiency of raw materials to 50% in the medium to long term. Its pursuing raw material interests in coking coal and iron ore either in terms of virgin sites with significant resource potential or in terms of smaller existing ventures which can be quickly aligned to the requirements in Europe. Riversdale Energy Mining Limited, where we hold 35% stake, has announced an inferred reserve of around 4 billion tonnes in one tenement, in Mozambique. The gross debt in the Tata Steel Group was US$10.54 billion in March 2008 which increased to US$11.78 billion as at the end of March 2009. The increase was primarily on account of raising of new loans to the tune of US$2.07 billion, during the year in Tata Steel India, to fund growth projects and to ensure an adequate liquidity buffer in the wake of global liquidity crisis. Taking into account the liquid cash and cash equivalents on the books as at March 31, 2009 of US$1.9 billion, the net consolidated debt as at March 31, 2009 was US$9.9 billion.

The company focused on internal and external levers during the existing uncertain financing situations, internally it reduced spend management and made sharp reduction in working capital levels. It also focussed on improvement in the productivity levels and reduction in overheads. On capital expenditure, they have re-prioritised on the most value creating and critical projects and reworked the capital planning strategy.externally it depended on long term loans for liquidity and value creating long term assets. The liquidity position of the Group at the year end was approximately US$1.9 billion 4. Review of the Profit & Loss account and Balance sheet reveals the following Net profit margin which is 2.11% can be considered moderate ,due to the effect of recession on some units this margin may is lower, but not worst. this margin indicates the managements efficiency to cope up the adverse situations, along with the manufacturing, administering & selling the product. Some of the key expense ratios areDirect material=23% Direct labour=9.3% Stores & spares consumed=5.07% Conversion charges=4.2% Purchase power=4.4% Other expenses-5.1% 5. Review of balance sheet Composite ratio’s • • • •

EBIDTA/Turnover 38.83% PBT/Turnover 30.09% Return on Average Capital Employed 16.12% Return on Avg. Net Worth 18.33%

Turnover ratio’s • • •

Inventory Turnover (in days) 43.00 Debtors Turnover (in days) 9.00 Asset Turnover 99.17%

Capital efficiency ratio’s

• •

Gross Block to Net Block 1.63 Net Debt to Equity 0.78

Liquidity ratio’s • •

Current Ratio 1.12 Interest Cover ratio 7.35

• • • •

Net worth per share 360.18 Earnings per share (Basic) 69.45 Dividend Payout 29.00% P/E Ratio 2.97

Overall performance= gross block * Equity

sales gross block

* net profit sales

= net profit equity

= 23,544.69 * 26,843.73 * 24,316 30,176.26 23,544.69 26,843.73 8. Cash flow statement The overall cash flow from operating activities is positive and is exceeding the investing activites cash flow. The net cash inflow after tax deduction is 7397.22 Investing activities total = (9428.08) Net financing activities = 3156.42 The over increase in cash flow is 1590.60 which indicates that most of he investment activities are financed from internally generated cash flows. 10. Financial position and prospects The company has adopted cost management , low inventory strategies to operate and sustain in the current scenario of recession which has lowered the market position. The “weather to storm” and “fit for the future” programmes are to overcome the adverse environment. The reduction at some locations and restructuring and disposal /impairment of the non usable assets helped the company to curtail the capital expenditure and idle the capacity. The key business drivers are-lean production & cost effective and efficient operations. 11. Future strategies and financial prospects:

The companies future vision is to become a global benchmark in value creation & corporate citizenship. The company has a goal for 2012 in terms of return on invested capital, safety and carbondioxide emission and becoming employer of choice in the industry. Continuous improvement has been the focus in all site and businesses. The Growth strategy includes expansion in India, competitive sustenance of European businesses and investment in raw materials assets. The implementation of internal controls by the management monitored by Corporate Audit Division, brings out effectiveness in company’s risk management, control and governance processes. Acquisitions and strategic alliances are also critical to strengthen, refocus and position companies for increased growth and profitability. The Tata Steel Group is strongly pursuing its long-term strategy of acquiring and developing mining projects for its raw material security for iron ore and coking coal. The Group has been concentrating on the geographies that are logistically favourable with respect to its plants in Europe and Asia. Projects like the 3 million tonne expansion in Jamshedpur, the proposed steel plant in Orissa and raw material projects in Mozambique, South Africa and Canada are key drivers of our future value creation

Conclusions: The long standing of the company in the industry has enabled it to gain competitive advantage through cost leadership and differentiation. The company has embarked on a well thought strategically focused growth ,trying to emerge successful in the times of the current economic slowdown,by maintaining investor confidence.