Krakatau Steel (B)
Situation
Krakatau Steel has been claimed as the biggest steel company in
Indonesia. Indonesia’s citizen also presumes Krakatau Steel as one of
the valuable asset for Indonesia. However, Krakatau Steel must take
another step to became the Global Company. By having corporation with
POSCO, the biggest steel company in South Korea to make a joint
venture to make a joint venture which requires 388 hectares land, has
shown that Krakatau Steel is ready to go to the next level.
Therefore Anto, a financial analyst in PT Krakatau Steel, would like
to see the position and the opportunity of PT Krakatau Steel to compete
with other global steel companies. This assessment will also be used as
a mean to find an appropriate company as a benchmark. Anto will used
3 reputable global steel companies which come from different region in
the world. The steel companies are Arcelor Mittal (Luxembourg),
POSCO(Pohan Iron and Steel Company, South Korea), and U.S Steel
(United States Steel Company). Anto also use PT Gunawan Dianjaya
Steel Tbk and PT Jaya Pari Steel Tbk as a local comparison. Anto ask the
help of Moody’s Corporation too analysis this.
Analysis
Moody’s corporation is a reputable company which provides credit
ratings, research, tools and analysis that contributes to transparent
financial markets. Moody’s also creates financial rating for steel industry
that is used to measure the financial performance of steel industry
globally. This measurement is made to help investors and others to
assess the financial performance, specifically the credit risk of a steel
company. Using moody’s global steel measurement people can also
assign rating to each company and rank it. In this rating methodology,
there are 4 categories that Moody is focusing :
1.
2.
3.
4.
Size and Business Profile
Operating Performance and Volatility
Financial Policies
Financial Strength
The four categories will be broken down into 10 sub factors. Key
rating factors including the weight score of each category:
To analyze using Moody’s there are 7 ratings categories.
The result is
PT Krakatau Steel
Size and
Business
Profile
Operation
g
Performan
ce and
Volatility
Financial
Policies
Financial
Strength
Net Consolidated
Sales ($USD billions)
Operational
Diversity, Regional
Diversity, Import
Threat/Export
Reliant
EBIT Margin (3 year
average)
Return on Average
Tangible Assets (3
year average)
Volatility based on
the Coefficient of
Variation of CFO/Net
Sales
Debt / Capital
Debt / EBITDA (3
year average)
EBIT / Interest (3
year average)
CFO-div / Debt (3
year average)
FCF / Debt (3 year
average)
Weight Krakatau Steel
ed
25%
B
1.74
10%
A
5
1
0.25
4
0.40
6.20% Ba
2
0.20
5%
7.22% Baa
3
0.15
10%
4.46% Aaa
6
0.60
15%
10%
47.15% Baa
Caa
3
0
0.45
0.00
2
0.10
10%
5.85
5%
Ba
3.01
5%
7.77% Caa
0
0.00
5%
-4.95% Caa
0
0.00
100%
2.15
Ba2
div
8
9414
2
9
1378
72
10
148402
PT Gunawan Dianjaya Steel
Weighted
Size and
Business
Profile
Operatio
ng
Performa
nce and
Volatility
Financial
Policies
Financial
Strength
Net Consolidated
Sales ($USD
billions)
Operational
Diversity,
Regional
Diversity, Import
Threat/Export
Reliant
EBIT Margin (3
year average)
Return on
Average Tangible
Assets (3 year
average)
Volatility based
on the Coefficient
of Variation of
CFO/Net Sales
Debt / Capital
Debt / EBITDA (3
year average)
EBIT / Interest (3
year average)
CFO-div / Debt (3
year average)
FCF / Debt (3
year average)
Gunawan
Dianjaya Steel
25%
0.20 Ca
a
0
0.00
10%
3 Ba
a
3
0.30
10%
9.70% Ba
a
15.01% Aa
3
0.30
5
0.25
1.98% Aa
a
6
0.60
39.91% A
4.03 B
4
1
0.60
0.10
5.04
3
0.15
0
0.00
3
0.15
5%
10%
15%
10%
5%
5%
5%
Ba
a
4.45% Ca
a
11.61% Ba
a
100%
2.45
Ba1
PT Jayapari Steel
Size and
Business
Profile
Operatio
ng
Performa
nce and
Volatility
Financial
Policies
Financial
Strength
Net Consolidated
Sales ($USD
billions)
Operational
Diversity,
Regional
Diversity, Import
Threat/Export
Reliant
EBIT Margin (3
year average)
Return on
Average Tangible
Assets (3 year
average)
Volatility based
on the
Coefficient of
Variation of
CFO/Net Sales
Debt / Capital
Debt / EBITDA (3
year average)
EBIT / Interest (3
year average)
CFO-div / Debt (3
year average)
FCF / Debt (3
year average)
Weighted
Jaya Pari Steel
25%
0.05 Ca
a
0
0.00
2
0.20
10.65% Ba
a
13.38% A
3
0.30
4
0.20
10%
11.37% Aa
a
6
0.60
15%
10%
27.02% Aa
2.04 Ba
a
64.76
Aa
a
54.28% Aa
5
3
0.75
0.30
6
0.30
5
0.25
56.04% Aa
a
6
0.30
10%
2
Ba
10%
5%
5%
5%
5%
100%
3.20
Baa1
POSCO
Size and
Business
Profile
Operatio
ng
Performa
nce and
Volatility
Financial
Policies
Financial
Strength
Net
Consolidated
Sales ($USD
billions)
Operational
Diversity,
Regional
Diversity,
Import
Threat/Export
Reliant
EBIT Margin (3
year average)
Return on
Average
Tangible Assets
(3 year
average)
Volatility based
on the
Coefficient of
Variation of
CFO/Net Sales
Debt / Capital
Debt / EBITDA
(3 year
average)
EBIT / Interest
(3 year
average)
CFO-div / Debt
(3 year
average)
FCF / Debt (3
year average)
Weighted
POSCO
25%
53.43
Aaa
6
1.50
10%
7
Aa
5
0.50
10%
11.93% Baa
3
0.30
10.22% A
4
0.20
10%
10.27% Aaa
6
0.60
15%
10%
48.64% Baa
Baa
2.94
3
3
0.45
0.30
Aa
5
0.25
5%
19.87% Ba
3
0.15
5%
10.90% Baa
3
0.15
5%
5%
11.12
100%
4.40
A1
Arcelor Mittal
Size and
Business
Profile
Operatio
ng
Performa
nce and
Volatility
Financial
Policies
Financial
Strength
Net Consolidated
Sales ($USD
billions)
Operational
Diversity,
Regional
Diversity, Import
Threat/Export
Reliant
EBIT Margin (3
year average)
Return on
Average Tangible
Assets (3 year
average)
Volatility based
on the
Coefficient of
Variation of
CFO/Net Sales
Debt / Capital
Debt / EBITDA (3
year average)
EBIT / Interest (3
year average)
CFO-div / Debt (3
year average)
FCF / Debt (3
year average)
Weighted
Arcelor Mittal
25%
78.03
Aa
a
10%
7
6
1.50
5
0.50
Aa
10%
5.50% Ba
2
0.20
5%
4.12% Ba
2
0.10
10%
9.68% Aa
a
6
0.60
15%
10%
2
0
0.30
0.00
5%
52.31% Ba
7.21 Ca
a
2.55 Ba
2
0.10
5%
12.18% B
1
0.05
5%
1.29% B
1
0.05
100%
3.40
A3
U.S Steel
Weighted
Size and
Business
Profile
Operatio
ng
Performa
nce and
Volatility
Financial
Policies
Financial
Strength
Net Consolidated
Sales ($USD
billions)
Operational
Diversity, Regional
Diversity, Import
Threat/Export
Reliant
EBIT Margin (3 year
average)
Return on Average
Tangible Assets (3
year average)
Volatility based on
the Coefficient of
Variation of
CFO/Net Sales
Debt / Capital
Debt / EBITDA (3
year average)
EBIT / Interest (3
year average)
CFO-div / Debt (3
year average)
FCF / Debt (3 year
average)
U.S
Steel
25%
A
4
1.00
10%
6 A
4
0.40
10%
2.49% B
1
0.10
5%
2.82% B
1
0.05
2.33% Aaa
6
0.60
74.91% Ba
Caa
12.19
5%
B
2.49
5%
3.64% Caa
2
0
0.30
0.00
1
0.05
0
0.00
5%
1
0.05
17.37
10%
15%
10%
1.04% B
100%
Conclusion
From the table we can conclude that PT Krakatau Steel has strength is in
Operating performance and volatility, but weak in its Financial Strength.
The size and business profile and Financial policies is not good but not
bad also. If compared to the other company Krakatau is still not ready
yet to go global. The Krakatau steel can see the POSCO company as a
benchmark for going global. Because the POSCO companies has the
2.55
Baa3
highest rating in from 4 categories that moody is focusing in steel
industry.