Industry Profile: 1) Contribution to GDP/ Indias industrial output: India occupied the eighth position in terms of global crude

steel output. Indias per capita steel consumption is low at 30 kg, compared to global standards for developed countries pegged at 400 to 500 kg.

Government targets to increase the production capacity from 56 million tones annually to 124 MT in the first phase which will come to an end by 2011 - 12. Currently with a production of 56 million tones India accounts for over 7% of the total steel produced globally, while it accounts to about 5% of global steel consumption. The steel sector in India grew by 5.3% in May 2009. Globally India is the only country to post a positive overall growth in the production of crude steel at 1.01% for the period of January - March in 2009

1) Growth trends and factors contributing: Growth trends

The steel industry is in the growth phase. Indian steelmakers plan to increase annual steel production capacity to 81.4 million tonnes by FY10, larger than the domestic consumption forecast of 65 million. Continuously improving macro-economic factors, a younger demographic profile, urbanization, government focus on infrastructure, increasing demand for automobiles and houses are likely to push up demand for steel.

Steel Sector Trends

India emerged as the fourth largest steel producer in the world and is expected to become the 2nd largest producer of crude steel in the world by 2015.

India also maintained its lead position as the world's largest producer of direct reduced iron (DRI) or sponge iron. Sponge iron production for sale was 20.8 million tonnes in 2008-09 which was higher by 2.1% over 2007-08.

The country is likely to achieve a crude steel production capacity of 124 million tonnes by the year 2012.

222 Memorandum of Understanding (MoUs) have been signed by the investors with various State Governments for setting up additional 276 million tonnes of steel capacity in the country.

Factors contributing

Rise of the Private Sector Public Sector versus Private Sector Gradual Industry Consolidation Huge Investment in Infrastructure Booming Industrial Production

2) Present scenario / important players in the sector The leading firms of the industry, namely Steel Authority of India (SAIL), Tata Steel, ESSAR Steel and JSW Steel. SAIL, Tata Steel, Essar Steel, JSW Steel, Indian Iron and Steel Company (IISCO), Jindal Iron and Steel Company (JISCO), Jindal Vijayanagar Steel Limited (JVSL), ISPAT, Bhushan Steels & Strips, Uttam Galva, Mukand, ISMT

Company Profile Products of the company: Product Wise Semis Long Products Blooms, Billets & Slabs Structurals Crane Rails Bars, Rods & Rebars

Wire Rods HR Coils, Sheets & Skelp Plates Flat Products CR Coils & Sheets GC Sheets\ GP Sheets and Coils Tinplates Electrical Steel Tubular Products Railway Products Pipes Rails Wheels, Axles, Wheel Sets

Plant Wise Bhilai Steel Plant Blooms, Billets & SlabsBeams Channels, Angles Crane Rails Plates Rails Pig Iron, Chemicals & Fertilisers Bokaro Steel Plant HR Coils & Sheets Plates CR Coils & Sheets GP Sheets & Coils/ GC Sheets Pig Iron, Chemicals & Fertilisers Durgapur Steel Plant Blooms, Billets & Slabs Joists, Channels, Angles Bars, Rods & Rebars Skelp Wheels, Axles, Wheel Sets Pig Iron, Chemicals & Fertilisers Rourkela Steel Plant HR Coils Plates CR Coils & Sheets GP Sheets/ GC Sheets

Tinplates Electrical Steel Pipes Pig Iron, Chemicals & Fertilisers Salem Steel Plant Stainless Steel

Collaborations: SAIL & MOIL Ferro Alloys Pvt. Ltd and S&T Mining Co. Pvt. Limited Joint Venture Agreement with Govt. of Kerala to acquire equity stake in steel complex ltd MoU signed with shipping corporation of India for incorporation of a jv for carrying out transportation of imported coking coal & dry bulk shipping trade. MOU signed with L&T

Research Problem: The Balance Sheet and the Statement of Income are essential, but they are only the starting point for successful financial management. Ratio Analysis of Financial Statements to analyze the success, failure, and progress of any business. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare ratios with the average of businesses similar to yours and compare your own ratios for several successive years, watching especially for any unfavourable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them.

Review of literature:

Steel The 4000 years Indian steel industry is on the upswing. During April-December 2004-05, the production of the finished steed recorded a growth of 4 per cent and reached 28.3 million tonnes. In the world scenario, Indian steel industry ranks 10th. It represents approximately Rs. 9,000 crore of

capital and provides direct employment to more than 0.5 million people. Major Players: Steel Authority of India (SAIL), Bbilai Steel Plant, Durgapur Steel Plant, Rourkela Steel Plant, Bokaro Steel Plant.

Objectives:

Findings: Data Presentation and Ratio Analysis:

Comparison of SAIL for the years 2008 and 2009

Liquidity Ratios:

Current Ratio: The current ratio has been defined as Current Assets/Current Liabilities. Current assets include cash, current investments, debtors, inventories(stocks) ,loans & advances, and prepaid expenses. Current Liabilities represent liabilities that are expected to mature in the next twelve months. These comprise loans, secured or unsecured, that are due in the next twelve months and current liabilities and provisions. This ratio indicates the firms 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.

Year

Current cr) 26318 34511

Current cr) 9439 12228

Ratio

Asset(in Liabilities(in 2008 2009 2.79 2.82

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio. 2008(in Current Assets: Inventories Sundry Debtors Other current assets Loans and advances Cash and Bank Balances Current Liabilities and provisions: Current Liabilities Provisions 6400 3039 7713 2820 20 (8) cr) 26318 6857 3048 273 2379 13759 9439 2009(in cr) 34511 10121 3024 1014 2122 18228 12228 Increase in % 24 48 (1) 271 (10) 33 30

Both the years the Current Ratio is higher than the international norm and in 2009 it has gone up. It means the company has more current assets to pay off the liabilities. We know the ideal ratio internationally is 2:1.Th rising up of the current ratio in 2009 can be mostly attributed to the significant increase in the inventories which is 48% as shown in table above and the cash and bank balances from 33% as shown in table above .This has brought about an increase in current assets the numerator of the ratio which is 24%.However there has been an increase in current liabilities of the current liabilities and provisions which is 20% as shown in the table above which has brought about an increase in current liabilities and provisions which is the denominator of the ratio which is 30%.This has resulted in a marginal increase of 0.03 in the current ratio in 2009 compared to the year 2008.

Quick Ratio: Also called the acid test ratio, the acid test ratio is defined as quick assets / current liabilities. Quick assets are defined as current assets excluding inventories.

Year

Current Asset Inventory(in cr) 26318- 6857 34511 10121

Current Liabilities(in cr)

Ratio

2008 2009

9439 12228

2.06 2.00

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio.

2008(in Current Assets: Inventories Sundry Debtors Other current assets Loans and advances Cash and Bank Balances Current Liabilities and provisions: Current Liabilities Provisions 6400 3039 cr) 26318 6857 3048 273 2379 13759 9439

2009(in cr) 34511 10121 3024 1014 2122 18228 12228

Increase in % 24 48 (1) 271 (10) 33 30

7713 2820

20 (8)

There is a marginal fall of 0.06 in the ratio in the year 2009 compared to the year 2008 because there is a significant rise in the inventories which is 48% as shown in table above .Furthermore the cash and bank balances which is 33% as shown in table above .This has increased the numerator which is an increase of 26%. However there has been an increase in current liabilities of the current liabilities and provisions which is 20% which has brought about an increase in current liabilities and provisions

the denominator of the ratio which is 30%. This is a fairly stringent measure of liquidity as it excludes inventories, perhaps the least liquid of current assets from the numerator

Leverage Ratios:

Debt Equity Ratio (times): This ratio is defined as total debt /total equity. The numerator of this ratio consists of all the debt, short term as well as long term, and the denominator consists of net worth plus preference capital plus deferred tax liability. In general the lower the debt equity ratio the higher the degree of protection enjoyed by the creditors.

Year 2008 2009

Total Debt(in cr) 3045 7539

Net Worth(in cr) 23004 27984

Ratio 0.13 0.27

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio.

2008(in 2009(in Total Debt: Secured loans Unsecured loans Net worth: Share Capital Reserves and surplus cr) 3045 925 2119 23004 4130 18933 cr) 7539 1413 6065 27984 4130 23853

Increase in % 148 52 187 22 0 26

The net worth includes the share capital plus the reserves and surplus. The reserves and surplus increased by 26% as shown in table above. This has increase the net worth which is the denominator of the ratio of 22%. There is a rise in the ratio from 0.13 in 2008 to 0.27 in 2009.This is attributed to an increase in the unsecured loans which account for almost 80% of the debt of 187% as shown in

table above and this has brought an increase in the total debt which happens to be the numerator of the ratio of 148%.Thus the ratio has increased because there has been a higher increase in debt compared to equity.

Total Debt Ratio: This ratio is given by Total Debt/Total Assets. The debt ratio compares a company's total debt to its total assets, which is used to gain a general idea as to the amount of leverage being used by a company. A low percentage means that the company is less dependent on leverage. The lower the percentage, the less leverage a company is using and the stronger its equity position. The higher the ratio, the more risk that company is considered.

Year 2008 2009

Debt(in cr) 3045 7539

Total Assets(in cr) 27677 36855

Ratio 0.11 0.21

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio. 2008(in 2009(in Total Debt: Secured loans Unsecured loans Total Assets: Fixed assets Current Assets: Inventories Sundry Debtors Other current assets Loans and advances Cash and Bank Balances cr) 3045 925 2119 27677 13960 26318 6857 3048 273 2379 13759 cr) 7539 1413 6065 36855 18813 34511 10121 3024 1014 2122 18228 Increase in % 148 52 187 33 35 24 48 (1) 271 (10) 33

There has been a marginal increase of 0.11 in the ratio in 2009 compared to 2008 as there is increase in the unsecured loans which account for almost 80% of the debt of 187% and this has increased the total debt which happens to be the numerator of the ratio by 148%. Furthermore there is an increase in the total assets of 33% as shown in table above. This increase in total assets is due to an increase in fixed assets of 35% and also an increase in inventories of 48% as shown in table above and also an increase in cash and bank balances of 33% under the current assets as shown in the table above. Thus there is marginal increase in the total debt ratio.

Profitability Ratios:

Gross Profit Margin: The gross profit ratio is defined as (gross profit/net sales)* 100%. Gross profit is defined as the difference between the net sales and the cost of the goods sold. This ratio shows the margin left after meeting manufacturing costs. It measures the efficiency of production as well as pricing. To analyse the factors underlying variation in gross profit margin the proportion of various elements of cost (labour, cost , manufacturing overheads) to sales my be studied in detail.

Year 2008 2009

Gross Profit(in cr) 11469 9404

Net Sales(in cr) 39508 43150

Ratio 29% 22%

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio.

Excise duty Expenditure Net Sales Gross Profit

2008(in cr) 6045 30425 39508 11469

2009(in cr) 5531 36848 43150 9404

Increase in % (8) 21 9 18

There is a fall of 7% in the gross profit margin and this can be attributed to rise in net sales which is the denominator of the ratio of 9%.The rise in net sales is due to a fall in excise

duty of of 8%. However there is a fall in gross profit which is the numerator of the ratio of 18% even though there is a rise in the net sales. The main reason due which the gross profit has fallen in 2009 is due to a rise in the expenditure of 21% as shown in the table above.

Net Profit Margin: Net profit margin is given by net (profit/ net sales)*100%

Profit

margin is an indicator of a company's pricing policies and its ability to control costs. It takes into account the fixed costs involved in production minus the overheads. This ratio shows the earnings left for the shareholders (both equity and preference) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing and tax management. Jointly considered the gross profit and the net profit margin ratios provide a valuable understanding of the cost and the profit structure of the firm and enable the analyst to identify the sources of the business efficiency or inefficiency.

Year 2008 2009

Net Profit(in cr) 7537 6175

Sales(in cr) 39508 43150

Ratio 19.07% 14.31%

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio.

Excise duty Expenditure Net Sales Net profit

2008(in cr) 6045 30425 39508 7537

2009(in cr) 5531 36848 43150 6175

Increase in % (8) 21 9 (18)

There is a fall of 4.76% in the net profit margin in the year 2009 compared to the year 2008 and this can be attributed to rise in net sales which is the denominator of the ratio of 9%.The rise in net sales in due to a fall in the excise duty of 8%. However there is a fall in net profit which is the numerator of the ratio of 18% even though there is a rise in net sales and though there is fall in the provision for taxation which is a fall of 18%. The main reason due to which the net profit has fallen in 2009 is due to a rise in the expenditure of 21% as shown in the table above.

PBT to Average Capital Employed or Return on Capital Employed: This ratio is obtained by (Profit Before Tax /Average Capital employed)*100%. Return on Capital Employed is the post tax version of the earning power. It considers the effects of taxation, but not the capital structure. It is internally consistent. Its merit is that it is defined in such a way that it can be compared directly with the post tax weighted average cost of capital of the firm.

Year 2008 2009

PBT(in cr) 11469 9404

Average Capital Employed(in cr) 26963 31501

Ratio 42.54% 29.85%

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio. 2008(in cr) 11469 6045 30425 26963 2119 18933 2009(in cr) 9404 5531 36848 31501 6065 23853 Increase in % 22 (8) 21 17 187 26

PBT Excise duty Expenditure Average Capital Employed Unsecured loans Reserves and surplus

There is a fall in the PBT to Average Capital Employed by 12.69% in 2009 compared to 2008. There is a fall in Profit before tax which is the numerator of the ratio of 22% even though there is a rise in the net sales. The main reason due which the Profit before tax has fallen in 2009 is due to a rise in the expenditure from of 21%. The change in the Average Capital Employed which is the denominator of the ratio is a rise of 17% .This in primarily because there has been a significant increase in the reserves and surplus under the shareholders funds of 26%. Furthermore there has been a further increase in the unsecured loans of 187% as shown in the table above which have contributed towards the rise in the average capital employed.

Return on Average Net Worth: This ratio is given by (Profit After Tax/ Average net worth)*100%. The numerator of this ratio is equal to the profit after tax less preference dividends. The denominator includes all the contributions made by equity shareholders( paid up capital+ reserves and surplus).This ratio is also called return on equity. The return on net worth measures the profitability of equity funds invested in the firm. Because maximising shareholder wealth is the dominant financial objective , return on the average net worth is the most important measure of net worth in the accounting sense.

Year 2008 2009

PAT(in cr) 7537 6175

Average Net Worth(in cr) 20094 25494

Ratio 37.51% 24.22%

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio. 2008(in cr) 7537 30425 3931 20094 18933 2009(in cr) 6175 36848 3228 25494 23853 Increase in % (18) 21 (18) 27 26

PAT Expenditure Provision for taxation Average Net Worth Reserves and surplus

There is a fall in the Return on Average Net Worth by 13.29% in the year 2009 compared to the year 2008. This can be attributed to a fall profit after tax of 18% even though there is a rise in net sales and though there is fall in the provision for taxation of 18%.The main reason due to which the profit after tax has fallen in 2009 is due to a rise in the expenditure by 22%.. The average net worth which is the denominator has risen by 27% .The rise in average net worth can be attributed to the rise in reserves and surplus under the shareholders funds of 26% as shown in the table above.

Valuation Ratios:

Net Worth per Share:

The Net worth per share is calculated by Net Worth/No of

shares. The numerator of this ratio includes all the contributions made by equity shareholders( paid up capital+ reserves and surplus).The denominator on the other hand is the total number of equity shares. This ratio is important in assessing the equity stock of the company in the capital markets. Since the market value of equity reflects the combined influence of the total equity shareholders wealth which includes paid up share capital and the reserves and surplus, it is an important ratio of the firms performance. This ratio throws light on the firms performance as it shows the total value of each share in terms of the share capital as well as the reserves and surplus.

Year 2008 2009

Net Worth(in cr) 23004 27984

No. of share(in cr) 413 413

Ratio(Rs) 55.69 67.75

There is a rise in the net worth per share of 22%. This rise in the net worth per share is due to an increase in the net worth. The net worth which is the numerator has risen by 22%. The rise in average net worth can be attributed to the rise in reserves and surplus under the shareholders funds which is an increase of 26%.The denominator on the other hand which

comprises of the number of shares remains constant for both the years at as shown in the table above.

Earnings per share of Rs. 10 (Rs) : This Earnings per share is obtained by the profit after taxes/No of shares. The earnings per share is simply profit after tax less preference dividend divided by the number of outstanding equity shares. This ratio is important in assessing the equity stock of the company in the capital markets. Since the market value of equity reflects the combined influence of risk and return , it is an important ratio of the firms performance. This ratio throws light on the firms performance as it shows the profit left over for the equity shareholders who are the owners of the company.

Year 2008 2009

PAT(in cr) 7537 6175

No. of share(in cr) 413 413

Ratio(Rs) 18.25 14.95

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio. 2008(in cr) 7537 30425 3931 413 2009(in cr) 6175 36848 3228 413 Increase in % (18) 21 (18) 0

PAT Expenditure Provision for taxation No of shares

There is a fall in the earnings per share from of 18%. This fall in the earnings per share is attributed to a fall in the in the profit after tax of 18%. The denominator which is the number of shares is constant for both the years as shown in the table above. The fall in the profit after tax is there even though there is a rise in net sales and though there is fall in the provision for taxation of 18%. The main reason due to which the profit after tax has fallen in 2009 is due to a rise in the expenditure of 21% as shown in the table above.

Price Earning Ratio (PER) : This ratio is given by Market Price per share / Earnings per share. The market price per share may be the price prevailing on a certain day or the average price over a period of time. The earnings per share is simply profit after tax less preference dividend divided by the number of outstanding equity shares. The price earnings ratio or the price earnings multiple as it is commonly referred to is a summary measure which primarily reflects the following factors which are growth prospects ,risk characteristics , shareholders orientation, corporate image, and the degree of liquidity.

Year 2008 2009

Market price (in Rs) 185 96

EPS(in Rs) 18.25 14.95

Ratio 10.13 6.42

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio. 2008 185 18.25 30425 cr 3931 cr 7537 cr 2009 96 14.95 36848 cr 3228 cr 6175 cr Increase in % (48) (18) 21 (18) (18)

Market price(in Rs) EPS(in Rs) Expenditure Provision for taxation Profit After Tax

There is a fall in the price earnings ratio of 37%. This fall in the price earnings ratio is attributed to a fall in the market price per share of 48%. Furthermore there is a fall in the earnings per share which is the denominator of the price earnings ratio of 18%.This fall in the earnings per share is attributed to a fall in the in the profit after tax which is the numerator of the ratio. The denominator of the earnings per share which is the number of shares is constant for both the years. The fall in the profit after tax is 18% even though there is a rise in net sales and though there is fall in the provision for taxation of

18% the main reason due to which the profit after tax has fallen in 2009 is due to a rise in the expenditure of 21% as shown in the table above.

Dividend per share of Rs.10 (Rs.):

The dividend per share ratio is given by total

dividend paid /no of shares. The dividend paid per share is simply dividend paid to equity shareholders divided by the number of outstanding equity shares. This ratio is important in assessing the equity stock of the company in the capital markets. Since the market value of equity reflects the combined influence of risk and return , it is an important ratio of the firms performance. This ratio throws light on the firms performance as it shows the profit left over and the actual dividend paid out of the profit left over to the equity shareholders who are the owners of the company

Year 2008 2009

Dividend(in cr) 1528 1074

No. of share(in cr) 413 413

Ratio(in Rs) 3.70 2.60

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio. 2008(in cr) 1528 30425 3931 7537 413 2009(in cr) 1074 36848 3228 6175 413 Increase in % 30 21 (18) (18) 0

Dividend Expenditure Provision for taxation Profit After Tax No of shares

There is a fall in the dividend per share of 30%. This fall in the dividend per share is attributed to a fall in the dividend paid to equity shareholders which is the numerator of the ratio of 30%. The denominator which is the number of shares is constant for both the years. The fall in the dividend paid to equity shareholders is due to a fall in the profit after tax of 18% even though there is a rise in net sales and though there is fall in the provision for taxation of 18% the main reason due to which

the profit after tax has fallen in 2009 is due to a rise in the expenditure of 21% as shown in the table above.

Turnover Ratios:

Working Capital Turnover Ratio: The working capital turnover ratio is given by gross sales/ working capital. The working capital represents the difference between the current assets and the current liabilities. This ratio indicates the contribution or the enhancement made by the funds deployed in the working capital to the sales.The higher the working capital ratio the more to contribution of the working capital in generating the sales.

Year 2008 2009

Gross Sales(in cr) 45555 48681

Working Capital(in cr) 16879 22283

Ratio 2.70 2.18

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio.

2008(in Working Capital: Current Assets: Inventories Sundry Debtors Other current assets Loans and advances Cash and Bank Balances Current Liabilities and provisions: Current Liabilities 6400 cr) 16879 26318 6857 3048 273 2379 13759 9439

2009(in cr) 22283 34511 10121 3024 1014 2122 18228 12228

Increase in % 32 24 48 (1) 271 (10) 33 30

7713

20

Provisions Gross Sales

3039 45555

2820 48681

(8) 7

There is a fall in the working capital turnover ratio by 0.52. This is mainly attributed to the rise in the numerator which is the gross sales of 7%. As per the denominator there is a rise in the working capital of 32%. The increase in working capital is attributed to the increase in the increase in the inventories of 48% and the cash and bank balances of 33% as shown in the table above. Furthermore there is an increase in the current liabilities and provisions is due to an increase in current liabilities of the current liabilities and provisions of 21%.The fall in the working capital turnover ratio is there even though both gross sales and working capital has risen from 2008 to 2009 because the proportionate increase of the effect in the working capital is higher than the proportionate increase in the gross sales from the year 2008 to the year 2009.

Inventory Turnover: The inventory turnover ratio is obtained by cost of goods sold/ average inventory. The inventory turnover or stock turnover measures how fast the inventory is moving through the firm and generating sales. The inventory turnover reflects the efficiency of the inventory management. The higher the ratio, the more efficient the management of inventories and vice versa. However, this may not always be true. A high inventory turnover may be caused by a low level of inventory which may result in frequent stock outs and loss of sales and customer goodwill.

Year 2008 2009

Cost of goods sold(in cr) 39508 43150

Average Inventory(in cr) 6754 8489

Ratio 5.85 5.08

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio. 2008(in cr) 39508 6045 45555 6754 1412 2009(in cr) 43150 5531 48681 8489 2595 Increase in % 9 (8) 7 26 84

Cost of goods sold Excise duty Sales Average Inventory Raw materials

finished and semi finished products (including scrap)

3944

5817

48

There has been a fall in the inventory turnover ratio by 0 .78 in the year 2009 compared to the year 2008.The numerator which represents the cost of goods sold has increased by 9%. This increase in the cost of goods is attributed to the increase in sales of 7% and an decrease in excise duty of 9%. The denominator represents the average inventory which has risen by 26%.This rise in the average inventories is contributed by increase in raw materials of 84%. In addition to this the increase in average inventory is caused by increase in finished and semi finished products (including scrap) of 48% as shown in the table above.

Number of days of inventory:

The number of days of average inventory is given by

number of days in the year/Inventory ratio. This ratio represents the number of days the items are held in inventory before being converted into sales. The number of days of inventory reflects the efficiency of the inventory management. The lower the number of days, the more efficient the management of inventories and vice versa.

Year 2008 2009

Number of days in a year 365 365

Inventory Ratio 5.85 5.08

Ratio 62 days 71 days

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio. 2008(in cr) 39508 6045 45555 6754 2009(in cr) 43150 5531 48681 8489 Increase in % 9 (8) 7 26

Cost of goods sold Excise duty Sales Average Inventory

Raw materials finished and semi finished products (including scrap)

1412 3944

2595 5817

84 48

There is a rise in the number of days of inventory ratio of 9 days in 2009 compared to 2008. With the numerator remaining constant at 365 days this rise in the number of days of inventory is attributed to a fall in the inventory turnover ratio which is the denominator by 0 .78 in the year 2009 compared to the year 2008.The numerator of the inventory ratio which represents the cost of goods sold has increased by 9%. This increase in the cost of goods is attributed to the increase in sales by 7% and an decrease in excise duty of 9% as shown in the table above. The denominator of the inventory ratio represents the average inventory which has risen by 26%. This rise in the average inventories is contributed by increase in raw materials of 84%. In addition to this the increase in average inventory is caused by increase in finished and semi finished products (including scrap) of 48% as shown in the table above.

Debtors Turnover: The debtors turnover ratio is calculated by sales/ average debtors. This ratio shows how many times sundry debtors (accounts receivable) turn over during the year. If the figure for net credit sales is not available one may have to make do with the net sales figure. The higher the debtors turnover the greater the efficiency of credit management.

Year 2008 2009

Sales(in cr) 45555 48681

Average Debtors(in cr) 2891 3234

Ratio 15.76 15.05

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio. 2008(in cr) 2009(in cr) Increase in %

Sales Average Debtors unsecured, considered good including debts backed by bank guarantees unsecured, considered doubtful debts

45555 2891 3048

48681 3234 3024

7 12 (1)

216

179

(17)

The Debtors turnover ratio has fallen by 0.71 in 2009 compared to 2008.The numerator consists of sales which have increased by 7%. The denominator is represented by average debtors which has increased by 12%. This increase in average debtors is attributed to an decrease in unsecured, considered good including debts backed by bank guarantees of 1% as shown in the table above. Further more there is a decrease in unsecured, considered doubtful debts from a decrease of 17%.The ratio has fallen in 2009 compared to 2008 even though both sales and average debtors has increased because the comparative effect by the increase in the average debtors is higher than the increase in sales.

Collection period: The Debtors turnover is given by 365/ Debtors turnover. The average collection period represents the number of days worth of credit sales that is locked in sundry debtors. The average collection period may be compared with the firms credit terms. An average collection period which is shorter than the credit period which is shorter than the credit period allowed by the firm needs to be interpreted carefully . It may mean efficiency of credit management or excessive conservatism in credit granting that may result in the loss of some desirable sales.

Year 2008 2009

Number of days in a year 365 365

Debtors Turnover 15.76 15.05

Ratio 23.15 24.25

The following table consists of items and there changes over the 2 years which have primarily resulted in the change in the ratio. 2008(in cr) 45555 2891 3048 2009(in cr) 48681 3234 3024 Increase in % 7 12 (1)

Sales Average Debtors unsecured, considered good including debts backed by bank guarantees unsecured, considered doubtful debts

216

179

(17)

The collection period has increased by 1.1 days in 2009 compared to 2008. In this ratio the numerator is fixed at 365 days .The Debtors turnover ratio which represents the denominator of the collection period has fallen by 0.71 in 2009 compared to 2008.The numerator of the debtors turnover ratio consists of sales which have increased by 7%. The denominator of the debtors turn over ratio is represented by average debtors which has increased by 12%. This increase in average debtors is attributed to a decrease in unsecured, considered good including debts backed by bank guarantees of 1% as shown in the table above. Further more there is a decrease in unsecured, considered doubtful debts of 17%.The debtors turnover ratio has fallen in 2009 compared to 2008 even though both sales and average debtors has increased because the comparative effect by the increase in the average debtors is higher than the increase in sales.

Comparison of SAIL with TISCO and JSW for 2009

Sr. No. Liquidity Ratios: 1. 2. Current Ratio Quick Ratio Leverage Ratios: Debt Equity Ratio Total Debt Ratio Interest Coverage Ratio Profitability Ratios: Gross Profit Margin Net Profit Margin Return on Net worth Valuation Ratios: Earnings per share(Rs) Dividend per share(Rs) Net worth per share(Rs) Turnover Ratios: Total Assets Turnover Ratio Debtors Turnover Ratio 2.80 2.00

SAIL

TISCO

JSW

0.60 0.40

0.40 0.10

3. 4. 5.

0.27 0.21 29.59

0.90 0.50 7.30

1.40 0.50 1.90

6. 7. 8.

22% 14.31% 22.10%

30.10% 21.40% 21.10%

4.80% 3.30% 6.0%

9. 10. 11.

14.95 2.60 67.75

69.50 16.00 414

22.70 1.00 426

12. 13.

1.30 15.05

0.50 41.30

0.80 38.0

14. 15.

Collection period(days) Inventory Turnover

24.25 5.08

8.80 9.90

9.60 7.80

Liquidity Ratios:

Current Ratio:

The current ratio for SAIL in the year 2009 is 2.80 compared to TISCO

for which it is 0.60 and JSW for which it is 0.40.The ratio for SAIL is high compared to TISCO and JSW because the current assets for SAIL are much higher at 34511 cr compared to its current liabilities of 12228 cr. The reason for the current assets to be higher is because it has got inventories and cash and bank balances . As for TISCO the current assets are much less than that of SAIL at 5707 cr and the current ratio is low compared to SAIL because the current liabilities and provisions is at 8974 cr. The main reason why the current liabilities and provisions are higher than the current assets for TISCO is because TISCO has got current liabilities of 6039 cr under current liabilities and provisions. Similarly for JSW steel the current assets are at 3015 cr which is much less than that of SAIL and the current ratio is low compared to that of SAIL because the current liabilities and provisions of that of JSW steel is at 7557cr. The main reason why the current liabilities and provisions are higher than the current assets for JSW is because JSW has got current liabilities of 7476 cr under current liabilities and provisions. In short to sum it up the current ratio is higher for SAIL than that of TISCO and JSW because current assets for SAIL is higher than its current liabilities and provisions.

Quick Ratio:

The quick ratio for SAIL in the year 2009 is 2.00 compared to TISCO

for which it is 0.40 and JSW for which it is 0.10. The ratio for SAIL is high compared to

TISCO and JSW because the current assets for SAIL are much higher at compared to its current liabilities of . The reason for the current assets to be higher is because it has got high inventories and cash and bank balances. Inventories are subtracted from the current assets in the numerator in order to arrive at the quick ratio. As for TISCO the current assets are much less than that of SAIL at 5707 cr and the quick ratio is low compared to SAIL because the current liabilities and provisions is at 8974 cr and also inventories are subtracted from the current assets in order to arrive at the numerator of the ratio. The main reason why the current liabilities and provisions are higher than the current assets for TISCO is because TISCO has got current liabilities of 6039 cr under current liabilities and provisions. Similarly for JSW steel the current assets are at 3015 cr which is much less than that of SAIL and the quick ratio is low compared to that of SAIL because the current liabilities and provisions of that of JSW steel is at 7557cr and also inventories of 2051 cr are subtracted from the current assets in order to arrive at the numerator of the ratio. The main reason why the current liabilities and provisions are higher than the current assets for JSW is because JSW has got current liabilities of 7476 cr under current liabilities and provisions. In order to sum it up the quick ratio is higher for SAIL than that of TISCO and JSW because current assets less inventories for SAIL is higher than its current liabilities and provisions.

Leverage Ratio :

Debt Equity Ratio:

The Debt equity ratio for SAIL in the year 2009 is 0.21

compared to TISCO for which it is 0.50 and JSW for which it is 0.50. The ratio for SAIL is low compared to TISCO and JSW because the debt for SAIL is much lower at 7539 cr compared to its total assets of 34523 cr. The reason for the net worth to be higher to debt is because it has got reserves and surplus in the net worth of 23853 cr in 2009. As for TISCO the debt is much higher than SAIL at 26946 cr and the debt equity ratio is high compared to SAIL because the net worth is at 30176 cr out of which the reserves and surplus is 23972 cr. The main reason why the debt is almost equal to the net worth is because TISCO has got unsecured loans of 23033 cr under the debt. Similarly for JSW steel the debt is at 11272 cr which is much higher than that of SAIL and the Debt equity ratio is high compared to that of SAIL the net worth is lower than SAIL at 7959 cr out of which reserves and surplus is at 7422 cr. The main reason why the debt is higher than the net worth for JSW steel because it

has got secured loans of 8214 cr under the debt. To sum it up the debt equity ratio is lower for SAIL than TISCO and JSW is because its debt is lower than its net worth.

Total Debt Ratio:

The Total Debt Ratio for SAIL in the year 2009 is 0.27

compared to TISCO for which it is 0.50 and JSW for which it is 0.50. The ratio for SAIL is low compared to TISCO and JSW because the debt for SAIL is much lower at 7539 cr compared to its total assets of 36855 cr. The reason for the total assets to be higher to debt is because it has got fixed assets under the total assets of 18813 cr in 2009. As for TISCO the debt is much higher than SAIL at 26946 cr and the total debt ratio is high compared to SAIL because the total assets is at 58741 cr out of investments is 42371 cr. The main reason why the debt of TISCO is higher than that of SAIL is because TISCO has got unsecured loans of 23033 cr under the debt. Similarly for JSW steel the debt is at 11272 cr which is much higher than that of SAIL and the total Debt ratio is high compared to that of SAIL because the total assets is lower than SAIL at 20653 cr out of which fixed assets is at 22328 cr with an unfavourable net current assets balance. The main reason why the debt is higher for JSW steel compared to SAIL is because it has got secured loans of 8214 cr under the debt. To sum it up the total debt ratio is lower for SAIL than TISCO and JSW is because its debt is much lower compared to its total assets.

Interest Coverage Ratio:

The Interest Coverage Ratio for SAIL in the year 2009 is

29.59 compared to TISCO for which it is 7.30 and JSW for which it is 1.90. The ratio for SAIL higher compared to TISCO and JSW because the Earnings Before Interest and Taxes(EBIT) for SAIL is much lower at 9657 cr compared to its finance and interest charges of 253 cr. The reason for the EBIT to be higher than its interest charges under the EBIT in 2009. As for TISCO the EBIT is lower than SAIL at 8467 cr and the interest coverage ratio is high compared to SAIL because the interest charges is higher than SAIL at 1152 cr. Similarly for JSW steel the EBIT is at 1474 cr much lower than that of SAIL and the Interest Coverage ratio is low compared to that of SAIL because of the much higher interest charges of 797 cr. To sum it up the interest coverage ratio is higher for SAIL than TISCO and JSW is because its EBIT is much higher compared to its interest charges.

Profitability Ratio :

Gross Profit Margin:

The Gross Profit Margin for SAIL in the year 2009 is 22%

compared to TISCO for which it is 30.10% and JSW for which it is 4.80%. The ratio for SAIL is low compared to that of TISCO but is higher to that of JSW because the gross profit for SAIL is 9404 cr compared to its net sales of 43150 cr. The gross profit being much lower compared to sales is because expenditure on the raw materials is 20076 cr and this has brought down the gross profit margin for SAIL.. As for TISCO the net sales is much lower than SAIL at 24315 cr but the gross profit margin is high because the profit is 7315 cr. The main reason why the gross profit margin of TISCO is higher than that of SAIL is because the manufacturing expenses deducted from the net sales is15525 cr in order to arrive at the gross profit. Similarly for JSW steel the gross profit is at 677 cr which is much lower than that of SAIL and the net sales is also low compared to that of SAIL at 14001 cr and so the main reason that the ratio for JSW is lower compared to SAIL is because the gross profit is low due to high expenditure on materials at 8450 cr is deducted from net sales. To sum it up the gross profit margin for SAIL is higher than JSW but lower than TISCO.

Net Profit Margin: The Net Profit Margin for SAIL in the year 2009 is 14.31% compared to TISCO for which it is 21.40%and JSW for which it is 3.30%. The ratio for SAIL is low compared to that of TISCO but is higher to that of JSW because the net profit for SAIL is 6174 cr compared to its net sales of 43150 cr. The net profit being much lower compared to sales is because expenditure on the raw materials is 20076 cr and this has brought down the gross profit for SAIL and

provision for taxation at 3228 cr has also brought down the net profit. As for TISCO the net sales is much lower than SAIL at 24315 cr but the net profit margin is high because the net profit is 5201 cr. The main reason why the net profit margin of TISCO is higher than that of SAIL is because the manufacturing expenses deducted from the net sales is15525 cr in order to arrive at the gross profit from which tax of 2113 cr is deducted in order to arrive at the net profit. Similarly for JSW steel the net profit is at 458 cr which is much lower than that of SAIL and the net sales is also low compared to that of SAIL at 14001 cr because and so the main reason that the ratio for JSW is lower compared to SAIL is because the gross profit is low due to high expenditure on materials at 8450 cr is deducted from net sales and furthermore there is a provision of tax of 219 cr deducted in order to arrive at the net profit. To sum it up the net profit margin for SAIL is higher than JSW but lower than TISCO.

Return on NET Worth: The Return on Net Worth for SAIL in the year 2009 is 22.10% compared to TISCO for which it is 21.10% and JSW for which it is 6.0%. The ratio for SAIL is higher compared to TISCO and JSW because the profit after tax for SAIL is 6174 cr compared to its net worth of 27984 cr of which 23853 cr is added by the reserves and surplus but more importantly there is a comparative equity share capital of4130 cr. . As for TISCO the profit after tax is lower than SAIL at 5201 cr and the net worth is also low at 24702 cr. The main reason why the net profit after tax of TISCO is lower than that of SAIL is because the manufacturing expenses deducted from the net sales is15525 cr in order to arrive at the gross profit from which tax of 2113 cr is deducted in order to arrive at the net profit. Similarly for JSW steel the profit after tax is at 458 cr which is much lower than that of SAIL and the net worth is also low compared to that of SAIL at 7670 cr and so the main reason that the ratio for JSW is lower compared to SAIL is because the gross profit is low due to high expenditure on materials at 8450 cr is deducted from net sales and furthermore there is a provision of tax of 219 cr deducted in order to arrive at the profit after tax. To sum it up the return on net worth for SAIL is higher than JSW and TISCO.

Valuation Ratios:

Earnings per share:

The Earnings per share for SAIL in the year 2009 is Rs 14.95

compared to TISCO for which it is Rs 69.50 and JSW for which it is Rs 22.70. The earnings per share for SAIL is lower compared to TISCO and JSW because the profit after tax for SAIL is 6174 cr compared to its equity shares of 413 cr . The profit after tax is made lower is because expenditure on the raw materials is 20076 cr and this has brought down the gross profit for SAIL and provision for taxation at 3228 cr has also brought down the profit after tax. As for TISCO the profit after tax is lower than SAIL at 5201 cr and the no of equity shares is significantly lower at 73 cr. The main reason why the profit after tax of TISCO is lower than that of SAIL is because the manufacturing expenses deducted from the net sales is15525 cr in order to arrive at the gross profit from which tax of 2113 cr is deducted in order to arrive at the net profit. Similarly for JSW steel the profit after tax is at 458 cr which is much lower than that of SAIL and the equity shares is also low compared to that of SAIL at 18.7 cr and so the main reason that the earnings per share for JSW is higher compared to SAIL is because the gross profit is low due to high expenditure on materials at 8450 cr is deducted from net sales and furthermore there is a provision of tax of 219 cr deducted in order to arrive at the profit after tax and also the equity shares is low at 18.7 cr. To sum it up the earnings per share for SAIL is lower than JSW and TISCO.

Dividend per share:

The Dividend per share for SAIL in the year 2009 is Rs 2.60

compared to TISCO for which it is Rs 16.00 and JSW for which it is Rs1.00. The earnings per share for SAIL is lower compared to TISCO and higher compared to JSW because the dividend paid to the equity shareholders for SAIL is 1074 cr compared to its equity shares of 413 cr . The profit after tax is made lower is because expenditure on the raw materials is 20076 cr and this has brought down the gross profit for SAIL and provision for taxation at 3228 cr has also brought down the profit after tax which has ultimately brought down the dividend paid to the equity shareholders. As for TISCO the dividend paid is higher compared to that of SAIL at 1168 cr and the no of equity shares is significantly lower at 73 cr. The main reason why the profit after tax of TISCO is lower than that of SAIL is because the manufacturing expenses deducted from the net sales is 15525 cr in order to arrive at the gross profit from which tax of 2113 cr is deducted in order to arrive at the profit

after tax which have ultimately brought down the dividend paid to the equity shareholders. Similarly for JSW steel the dividend paid is at 458 cr which is much lower than that of SAIL and the equity shares is also low compared to that of SAIL at 18.7 cr and so the main reason that the dividend per share for JSW is higher compared to SAIL is because the gross profit is low due to high expenditure on materials at 8450 cr is deducted from net sales and furthermore there is a provision of tax of 219 cr deducted in order to arrive at the profit after tax and this has ultimately brought down the dividend paid also the equity shares is low at 18.7 cr. To sum it up the dividend per share for SAIL is lower than TISCO but higher than JSW.

Net worth per share:

The Net worth per share for SAIL in the year 2009 is Rs

67.75 compared to TISCO for which it is Rs 414 and JSW for which it is Rs 426. The Net worth per share for SAIL is lower compared to TISCO and JSW because of the net worth of the equity shareholders for SAIL is 27984 cr compared to its equity shares of 413 cr .As for TISCO the net worth is higher at 30176 cr and the no of equity shares is significantly lower at 73 cr. The main reason why net worth of TISCO is higher than that of SAIL is because it has got comparatively high reserves and surplus of 23972 cr. Similarly for JSW the net worth per share is higher than that of SAIL because the net worth is lower at 7959 per share but the no of shares is even more low at 18.7 cr. To sum it up the net worth per share for SAIL is lower than TISCO and that of JSW.

Turnover Ratios

Total Assets Turnover Ratio: The Total Assets Turnover Ratio for SAIL in the year 2009 is 1.30 compared to TISCO for which it is 0.50 and JSW for which it is 0.80. The ratio for SAIL is high compared to TISCO and JSW because the net sales for SAIL is much higher at 43150 cr compared to its average total assets of 32266 cr. The reason for the average total assets to be higher to net sales is because it has got fixed assets under the total assets of 18813 cr in 2009. As for TISCO the net sales is much lower than SAIL at 24315 cr and the total assets turnover ratio is lower compared to SAIL because the average total assets is at 52908 cr out of investments is 42371 c in the year 2009. Similarly for JSW steel the net sales is at 14001 cr which

is much lower than that of SAIL and the total assets turnover ratio is low compared to that of SAIL because the total assets is also lower than SAIL at 18564 cr out of which fixed assets is at 22328 cr in 2009 with an unfavourable net current assets balance To sum it up the total assets turnover ratio is higher for SAIL than TISCO and JSW is because its net sales is higher compared to its average total assets.

Debtors Turnover Ratio: The Debtors Turnover Ratio for SAIL in the year 2009 is 15.05 compared to TISCO for which it is 41.30 and JSW for which it is 38.0. The ratio for SAIL is low compared to TISCO and JSW because the net sales for SAIL is much higher at 43150 cr compared to its average debtors of 3234 cr. As for TISCO the net sales is much lower than SAIL at 24315 cr and the debtors turnover ratio is higher compared to SAIL because the average total assets is much lower than SAIL at 589 cr. Similarly for JSW steel the net sales is at 14001 cr which is much lower than that of SAIL and the debtors turnover ratio is high compared to that of SAIL because the average debtors is also lower than SAIL at 368 cr. To sum it up the debtors turnover ratio is lower for SAIL than TISCO and JSW is because its average debtors is much higher compared to TISCO and JSW.

Collection Period: The Debtors Turnover Ratio for SAIL in the year 2009 is 24.25 days compared to TISCO for which it is 8.80 days and JSW for which it is 9.60 days. The ratio for SAIL is low compared to TISCO and JSW because of the lower debtors turnover at 15.05 with the numerator remaining constant at 365 days. As for TISCO the debtors turnover ratio is higher compared to SAIL because the average total assets is much lower than SAIL at 589 cr. Similarly for JSW steel debtors turnover ratio is high compared to that of SAIL because the average debtors is also lower than SAIL at 368 cr. To collection period is higher for SAIL than that of TISCO and JSW.

Inventory Turnover Ratio: The Inventory Turnover Ratio for SAIL in the year 2009 is 5.08 compared to TISCO for which it is 9.90 and JSW for which it is 7.80.. The ratio for SAIL is low compared to TISCO and JSW because the net sales for SAIL is much higher at 43150 cr compared to its average debtors of 8489 cr. As for TISCO the net sales is much lower than SAIL at 24315 cr and the inventory turnover ratio is

higher compared to SAIL because the average inventory is much lower than SAIL at 2458 cr. Similarly for JSW steel the net sales is at 14001 cr which is much lower than that of SAIL and the inventory turnover ratio is high compared to that of SAIL because the average inventory is also lower than SAIL at 1800 cr. To sum it up the inventory turnover ratio is lower for SAIL than TISCO and JSW is because its average inventory is much higher compared to TISCO and JSW.

CONCLUSION

This report basically comprises of ratio analysis of SAIL for the two years 2008 and 2009. It is using these ratios that we have come to know the various positions of SAIL like the liquidity, leverage, valuation, profitability and so on. It is basically we have got two reasons why we have done ratio analysis which are as follows (i)as long as the accounting biases remain more or less the same over time, meaningful inferences can be drawn (ii) Since similar biases characterise various firms in the same industry, inter firms comparisons are useful. In addition to this we have also done the peer analysis of SAIL with is peer companies like TISCO and JSW. This has helped us to analyse the position based on facts and figures of SAIL with its peer companies and to identify the strengths and weaknesses of SAIL in accordance with its peer companies. Some of the problems encountered in doing ratio analysis were basically variations in accounting policies in different companies, interpretations of various results of the ratios and also the correlation among ratios. To sum it up the importance that this ratio analysis has had is beyond facts and figures of the current years and will help SAIL in determining its course of action in time to come as far as its business is concerned as also to improve the results for its various stakeholders.