Submitted by
Asha .V
Jinto Antony Kurian
Manu M. Das
Shalini
Date: 15/12/07

Tata Steel, established in 1907 is the flagship company of the $ 17.8 billion Tata Group, one of India’s largest and most respected business houses. It is currently the world’s sixth largest steel producer.
This report, deals with the analysis of financial performance of Tata Steel, over a span of four years, 2003 to 2007. The report integrates the balance sheet, profit and loss, ratios, and cash flow statements for these years. A trend analysis has been made and SWOT analysis done for this period.
Balance sheet is the most significant financial statement. It indicates the financial condition or the state of affairs of a business at a particular point of time. More specifically, balance sheet contains information about resources and obligations of a business entity. It provides a snapshot of the financial position of the firm at the close of the firms accounting period.
Profit and loss- reflects the earning capacity and potential of a firm. It’s a score board of the firm’s performance during a period of time. Generally accepted convention is to show one year’s event in the profit and loss account.
Ratio analysis is a powerful tool for financial analysis. In financial analysis, ratio is used as a benchmark for evaluating the financial position and performance of a firm. Ratio helps to summarize large quantities of financial data and to make qualitative judgment of the firm’s financial performance.
Cash flow analysis is useful for short term planning. A firm needs sufficient cash to pay debts maturing in the near future, to pay interest and other expenses and to pay dividends to shareholders.
2

3

Tata Steel was established in 1907. Tata Steel is India’s largest steel company with the capacity of 25.6 million tones annually. It was also Asia’s first such enterprise. It is among the lowest cost steel producer world wide. The capive raw material resources and state-of-the-art 5 million ton plant at Jamshedpur, Jharkand, gives it a competitive edge over other steel players.
In order to be a global major, Tata Steel has acquired Corus(18 million ton), Natsteel
Asia(2 million ton) and Millennium Steel( renamed Tata Steel Thailand-17 million ton) and is planning more mergers and acquisitions in future. It plans to create manufacturing networks in eight markets in South East Asia and Pacific countries.
The plant at Jamshedpur will also be expanded to 7 million tons by June 2008 and 10 million ton by December 2010. The company will have a capacity of 50 million ton by
2015 through organic growth. The Company has a wire manufacturing unit in Sri Lanka known as Lanka Special Steel, and a joint venture in Thailand for limestone mining – Sila
Eastern.
The products are targeted at automobile sector and construction industry. They will emerge as a major global player in wire business with manufacturing facilities in India,
Sri Lanka and Thailand.
Tata Steel products include hot and cold rolled coils and sheets, galvanized sheets, tubes, wire rods, construction rebars, rings and bearings. To ‘decommoditise’ steel, the company has introduced brands like Tata Steelium, Tata Shaktee, Tata Tiscon, Tata
Bearings, Tata Agrico, Tata Wiron, Tata Pipes and Tata Stuctura. The company’s
Customer Value Management initiative addresses the customer problems and provides solutions. The Retail Value Management addresses the needs of distributors, retailers and end consumers. The company has opened steel retail store- steel junction for steel shopping.
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Board of Directors
Tata steel has a well efficient board of directors, who have managed the company to achieve higher productivity. The names of the directors and the designation they hold in the company are given below briefly.
Mr. Ratan Tata Chairman
Mr. James Leng Non - Executive Deputy Chairman
Mr. Nusli N Wadia Company Director
Mr. S.M Palia Company Director
Mr. Suresh Krishna Financial Institutions' Nominee
Mr. Ishaat Hussain Board Member
Dr. Jamshed J Irani Board Member
Mr. Subodh Bhargava Board Member
Mr. Jacques Schraven Non - Executive Independent Director
Dr. Anthony Haward Non - Executive Independent Director
Mr. Philippe Varin Non - Executive Non independent Director
Dr.T Mukherjee Non Executive Director
Mr. B Muthuraman Managing Director
Mr. Andrew Robb Non Executive Independent Director
Mergers and Acquisition
Tata steel over the past few years have been into Mergers & Acquisition with major steel companies across the world. In 2005, Tata steel made its first major overseas investment in Natsteel and later owing the whole 100% of the company. This led Tata steel to enter into the South East Asia. In 2006, Tata steel acquired Millennium which further enhanced its market position in South East Asia. In the same year Tata BlueScope
Steel Limited was formed as a 50:50 joint venture between Tata steel and BlueScope
Australia. Tata Steel acquired 100% of the millennium company’s share. Tata acquired
Corus Group in financial year 2007 was the biggest investment by an Indian company in an overseas venture. This acquisition has pushed Tata steel into the sixth in terms of total production capacity.
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Company
Nat Steel Asia
Millennium Steel
Country
Singapore 100%
Thailand 67.1%
Proportion of investment $ invested
Year of activity
USD 468m Feb 2005
USD 167m Apr 2006
Corus UK 100 %
Corporate Social Responsibility
USD 12.2b Jan 007
Tata Steel is a company that believes in values and social well being. It therefore has a strong and active involvement in Corporate Social Responsibility, and is dedicated to the discharge of social responsibilities to the community and the society at large, where industry is located.
Tata Steel was pioneers in setting up of labor welfare practice, even before it got mandated world over. In 1912, it prepared a Memorandum of Health for the Steel City.
The company conducted a eight hour workday in 1912.
Medical aid in has been provided since 1915. A Welfare Department was initiated in
1917. Leave with pay, provident fund, workmen’s compensation (1920) and maternity benefits (1928) were also introduced.
Besides providing work for the unemployed the company took the decision to address the needs of those who migrated to the locality in search of jobs. They supported entrepreneurship and economic growth, in surrounding areas and later to other regions.
The company extended a helping hand to the rural poor empowering them with means for their livelihood.
At the same time, Tata Steel also addressed the basic need for health care, food, education and income generation by developing rural infrastructure, empowering and other community welfare programmes.
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ENVIORNMENT MANAGEMENT
Tata Steel is committed to the cause of environment management which it considers as a prerequisite for good business performance. It follows a structured approach at every stage of production and services and by a consolidated process of review, the Company continues to improve environmental conditions of the locality. By taking some initiatives
Tata was able to:

Reduce Greenhouse Gas (GHG) emissions.

Optimize the consumption of raw material and water and increase waste reuse and recycling during the year

Set up new emissions standards and discharges in steel-making process.

Lower specific energy consumption

Reduce carbon dioxide emission rate

Come up with alternative energy sources

Reduce use of refrigerants

Handle hazardous wastes as per Hazardous Waste Management and Handling
Rules 1989/2000 requirements

Maintain emissions well below the Indian and international standards

Recycle solid waste and reuse it.

Treat waste water from the steel making process with best available
Physio-chemical methods
Over the years, the Company has tried to bring down the use of water in the process of steel making. Today, the plant uses much less water for every tonne of steel produced than in the past. The Company do not rely on ground water source for industrial or domestic use at Jamshedpur. Water recirculation in all process units has contributed to reduction in specific water consumption.
The Company has entered into an agreement with a world water management expert to take care of water supply and sewage treatment plant, as well as to conserve water.
Tata Steel notched a commendable 9 out of 10 points for environment and safety in ratings by World Steel Dynamics. The company continues their policy of environmental management with all faithfulness and loyalty.
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The report focuses on the key financial highlights of Tata steel across five financial years.
SWOT, Financial ratios, cash flow are some of the tools which have been used to analyze the financial health. The company financial analysis has been done using a trend analysis, which shows the difference in the ratios from the year 2003.
SWOT shows the strength, weakness, opportunities and threat which the company has.
We have also done SWOT analysis to show where the company is strong and the future threats.
Financial ratios have been calculated which shows how much the company has improved over the previous year. Trend analysis is then done to see whether there is increase/decrease.
Cash flow analysis shows how much of cash is coming into the business and how much is going out from the business. It shows the total cash which the company has at the end of a financial year.
Using these tools we have analyzed what are various reasons for the change in the figures. We have also looked into how the change can affect the other aspects of the balance sheet.
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
Tata steel is the largest steel manufacturer in India and is the 6 th largest steel player globally. o The company is the largest producer of steel in India. It is the major supplier of steel to the nation. Tata was previously ranked 56 th
in the world. After the acquisition of Corus, it moved ahead to 6 th
place in terms of production.

It is one of the lowest cost producers of steel and also the most efficient steel plant in the world. o They have direct access to raw material their cost of production is low compared to other companies.

The acquirement of Corus enabled the company to upgrade its technology. o With the acquisition of Corus, the company not only moved ahead in terms of its production capacity but also in terms of its latest state of the art technology.

The company has backward integration in terms of raw materials such as iron ore and coal. The company owns mines and coal fields which ensure that there is no fluctuation in the price of raw material. o
Tata steel has its own coal mines which has led to easy access of raw material and also to bring down the cost of production.

The company has a strong management team which focuses on expanding its presence domestically as well as globally.
o
The management team is one of the best among other companies. They have efficient team which works to expand the company internationally.

The company’s practices the best corporate governance in India which has helped the firm in going for foreign acquisitions. o
The company has strictly followed the corporate norms. This has enabled them to move ahead to acquire foreign companies.
Weakness

The acquisition of Corus group is difficult that expected. o Corus group is one of the largest steel producers in UK. Tata steel management had to make crucial decision. These decisions looked good in paper, but were difficult to implement.

Equity dilution from acquisition of Corus would reduce its earning per share. o The company has issued additional equity share in year 2007, which will have an impact on the EPS. The value of the shares may come down.
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Opportunities

India economy is fast growing in terms of steel consumption, giving a wider market sector. India is second fastest growing economy after China. o India is the second largest next to China, in terms of production of steel.
China leads the market by a huge margin, giving an opportunity for Tata steel to increase its productivity and bridge the gap.

The nation is going through a transformation in infrastructure in terms of roads, ports, airports. o Many airports and other infrastructures are coming up in India, which will give a good market for them domestically.

The consumer base is increasing
Threats

The price
1
of steel in its peak and there can be a deflation in the price. o Steel price has been inflating every year. There may come a period when the price may start going downwards, which will affect the company’s revenue.

There is no slowdown in the rate of production in China
2
. o Tata steel may have a chance to grab some part of market which China is enjoying. But with China’s production capacity going up every year, it is difficult to get a bigger market share.
1 http://www.economywatch.com/business-and-economy/steel-industry.html
2 http://www.steelonthenet.com/production.html
, http://www.steelonthenet.com/production.html
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Ratio
EBITDA/TURNOVER
PBT/TURNOVER
RETURN ON AVERAGE CAPITAL EMPLOYEE
RETURN ON AVERAGE NET WORTH
ASSET TURNOVER
AVERAGE INVENTORY TO TURNOVER
AVERAGE DEBTORS TO TURNOVER
GROSS BLOCK TO NET BLOCK
NET DEBT TO EQUITY
2003-
2004
33.61
24.59
28.1
46.28
100.71
7.37
6.74
1.69
0.36
2004-
2005
42.48
36.17
49.69
62.01
110.15
7.7
3.88
1.65
0.15
2005-
2006
40.03
33.87
40.81
42.9
108.52
9.49
3.27
1.68
0.02
2006-
2007
41.18
34.81
32.37
36.09
71.38
9.01
2.96
1.68
-0.12
CURRENT RATIO
INTEREST COVER RATIO
NET WORHT PER SHARE
EARNINGS PER SHARE
DIVIDEND PAYOUT
P/E RATIO
Source : Company annual report
1.03
22.82
118.16
31.55
23.89
12.16
1.1
29.36
123.68
63.77
23.61
6.39
INVENTORY TURNOVER RATIO AND INVENTORY HOLDING PERIOD
1.11
43.08
2.51
37.01
171.68 242.72
63.35 73.76
23.4
8.47
26.16
6.01
Inventory Turnover ratio
Inventory Holding
Period(days)
2003-04 2004-05 2005-06 2006-07
12.19 11.85 9.3 9.86
30 31 39 37
The inventory turnover ratio is also known as Stock Turnover Ratio. This ratio indicates the speed at which the inventory is sold. The inventory turnover ratio of Tata Steel is good in 2003-04 and 2004-05, in 2006-07 it is satisfactory. This ratio can be expressed in days also.
GROSS BLOCK TO NET BLOCK
Gross Block to Net Block
2003-04 2004-05 2005-06 2006-07
1.69 1.65 1.68 1.68
Gross block is fixed assets without deducting depreciation and net block is obtained after deducting depreciation from fixed assets. The ratio is stable from 2003-04 to 2006-07.
11

FIXED ASSETS TURNOVER RATIO
2003-04 2004-05 2005-06 2006-07
Fixed Asset Turnover Ratio 1.36 1.59 1.53 1.59
Fixed Asset Turnover Ratio shows the relationship between sales and fixed assets. It shows whether the fixed assets are fully utilized in generating sales. A standard fixed asset turnover ratio is five times. Tata steel is having a lower ratio which explains that the capacity is not fully utilized.
NET DEBT TO EQUITY RATIO
Net Debt to Equity Ratio
2003-04 2004-05 2005-06 2006-07
0.72 0.36 0.23 0.14
The Debt to Equity ratio shows the relationship of the capital provided by the creditors to the amount provided by shareholders. The ratio decreases form 0.72 to 0.36 in 2004-05 and again decreases in 2005-06 and 2006-07.
PROPRIETARY RATIO
2003-04 2004-05 2005-06 2006-07
Proprietary Ratio 43.88 58.14 66.73 41
This ratio establishes the relationship between shareholder’s funds and the total assets. It indicates the total assets financed by the shareholders. The ratio initially is good then it increased. But in 2006-07 it came down. The ratio is satisfactory and indicates a favorable position to the creditors during liquidation.
RETURN ON ASSETS
Return on assets
2003-04 2004-05 2005-06 2006-07
0.17 0.31 0.26 0.21
Return on Assets is an indicator of overall performance of the company. Here the ratio increases in 2004-05, then goes on decreasing. This indicates that there is a fall in the overall profitability of Tata steel.
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AVERAGE DEBTORS TO TURNOVER
Average Debtors to turnover
2003-04 2004-05 2005-06 2006-07
0.04 0.04 0.04 0.033
The average debtor to turnover ratio’s almost stable. It has decreased by 0.1 in 2006-07.
OPERATING PROFIT MARGIN
Operating Profit
Margin
2003-04 2004-05 2005-06 2006-07
0.25 0.23 0.35 0.36
Operating profit margin is also known as operating margin. It measures the management’s efficiency. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt. Operating profit margin is increasing which is a good sign for the company.
DIVIDEND PAYOUT RATIO
Dividend Payout
Ratio
2003-04 2004-05 2005-06 2006-07
0.24 0.24 0.23 0.26
The dividend payout ratio is dividends divided by profit after tax. It is the percentage of net income returned to shareholders in the form of dividends. The ratio is almost stable. It has increased by 0.3 in 2006-07.
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2006-07
Net cash from operating activities :

Inflow of cash because of Impairment in assets which was not there in the previous years.

The assets written off, also is less compared to the previous year.

Amortization of long term expenses has been substantially increased from 4.98 crores to 65.10 crores, generating inflow.

The cash movement in the operating activities is relatively same, the difference comes from the profit carried forward from previous year.

Net cash from operating activities increased by 40%
Net cash from investing activities :

Purchase of fixed assets has gone up from 1527 crores to 2007 crores, increase of
31%. Though there has been an outflow, this has also shown an increase of sales revenue from 17144.22
*
crores to 19762.57
*
crores, increase of 15 % in the balance sheet.

Sale of investments has doubled from 7089.51
* crores to 14623.48
* crores, an increase of 106%.

The net cash in investing activities has seen an increase in the outflow of cash from 2464.59
*
crores to 5427.60
*
crores, increase of 120%.
Net cash from financial activities:

Equity capital has been issued for the current year, which has brought an inflow of 1393.20
*
crores. Equity shares have not been given for the previous years for a long time.

Similarly share warrants worth 147.06
* crores have also been issued for previous years.

Proceeds from borrowings have seen an enormous inflow of cash from 535.64
* crores to 8043.69
*
crores.

The cash and cash equivalent at the end of financial year 2006-2007 have increased from 288.39
*
crores to 7681.35
*
crores
From the cash flow statement, we infer that there has been an enormous increase in the cash and cash equivalents from the year 2004-05, 2005-06 to 2006-07. The cash and cash equivalents were 250
*
crores, 246
*
crores in 2005, 2006 respectively. In
2007, it has increased to 7681
*
crores.
The increase can be attributed to the issues of additional equities which generated a huge amount of cash.
*
Source: Tata steel annual report
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Overview of Cash flow
The table below shows the various activities in each of the years in comparison with the previous year. It also shows if there is percentage increase or decrease. From the table, we can understand that the cash and cash equivalent has reduced in the financial year
2005-2006. The cash from operating activities has decreased by 4.7%, cash from investing activities decreased by 5.3% and the cash from financial activities has come down by 7.3 %.
2004 2003 change%
Cash from operating activities 2914.44 2093.15 39.23 Increase
Cash from investing activities 1882.63 790.16 138.25 Increase
Cash from financing activities 1154.19 1149.86 0.37 Increase
2005 2004 change%
Cash from operating activities 3816.83 2887.84 32.16903 Increase
Cash from investing activities 2604.13 1882.63 38.32 Increase
Cash from financing activities 1216.72 1127.59 7.9 Increase
2006 2005 change%
Cash from operating activities 3631.39 3814.35 4.7 Decrease
Cash from investing activities 2464.59 2604.13 5.36 Decrease
Cash from financing activities 1125.13 1214.24 7.33 Decrease
2007 2006 change%
Cash from operating activities 5118.1 3631.39 40.94 Increase
Cash from investing activities 5427.6 2464.59 38.32 Increase
Cash from financing activities 7681.35 1125.13 582.7 Increase
The figure in financial year 2007 shows a tremendous increase from year 2006. The acquisition of Corus steel was a reason for the company’s investing activity to shoot up.
*Tables: data from company annual report
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Analysis of financial statement
Sales:
In the year 2004- 2005 the sales of the company increased by 35% compared to previous year due to increase in the domestic sales of steel division due to price realization, improved product mix and higher sales of branded products. For the year 2006-07 the sales increased by 16% due to increase in volumes and prices of almost all the products of the company.
Investments
In the year 2004-2005 the company invested Rs 149.46 crores for the purchasing
5, 20, 00,000 equity share of Natsteel Asia Ptle Ltd. as part of acquisition.
During the FY 06, the company invested for purchasing shares in millennium steels
Public Co. Ltd., Rs 540.55 crores in Natsteel Asia Ple Ltd. for purchasing 5, 00, 00,000 shares and 15,00,00,000 shares allotted on conversion of bridge loan
In the FY 2006-2007 the Company invested in Tata BlueScope Steel Limited, Tata Steel
(Thailand) Public Company Ltd., Natsteel Asia Holdings Pte. Ltd. In connection with the acquisition of Corus Group the Company ring fenced Rs. 3,262.59 crores out of liquid funds as on 31st March, 2007 to provide cash confirmation.
Sundry Debtors :
In the financial year 2004-2005 and 2005-2006, though the Company’s turnover increased but the gross debtors decreased. This was primarily due to better and stringent credit management and increased channel financing for converting credit sales into cash.
A significant number of the Company’s distributors have been covered under the
“Channel Finance scheme”, thereby increasing sales to distribution channel on “cash and carry basis”. Further, the collection drive and better Credit Assessment Process also resulted in reduction of debtors during the year as compared to the previous year.
Loans and advances
Loans and advances decreased from Rs. 1,234.86 crores as on 31st March, 2006 to Rs.
3,055.73 crores as on 31st March, 2007, mainly due to advance of Rs. 1,516 crores for share application money to Tata Steel Asia Holdings Pte. Limited, an SPV for acquisition of shares of Corus Group plc and Rs. 162 crores to Hooghly Met Coke & Power Company Limited.
There has been an increase in Loans and Advances during the year 2004-2005, primarily on account of shareholder’s loan given to Natsteel Asia Pte Ltd towards the purchase consideration for acquisition of steel business of Natsteel Ltd.
Loans (secured and unsecured)
In the year 2007 Secured and unsecured loans increased due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc. In the financial year 2006, the loan balances reduced as the company redeemed Debentures during the year.
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Current Liabilities
The current liabilities increased crores from Rs. 2,835.99 crores as on 31st March, 2006 to Rs. 3,523.20 crores as on 31st March, 2007 mainly due to increase in capital supplies for the 1 million tons and ongoing 1.8 million tons steel expansion projects in
Jamshedpur.
In the year 2006, the liabilities increased compared to the last year on account of capital supplies, retention and deposits due to the 1 million tons expansion and 2.4 million tons expansion programme. The purchase of raw materials also increased during the year, due to the increase in production, thereby increasing the current liabilities for the year.
For the year 2005, t he liabilities increased, primarily on account of the ongoing 1 million tons expansion programme. There was an increase in consumption of maintenance spares and operating consumables, the liabilities towards goods and supplies also increased during the year as compared to the year 2004. The increased level of purchases of raw materials and semi-finished steel materials during the year also contributed towards the increase in the current liabilities.
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25000
20000
15000
10000
5000
0
11921
2004
Gross Sales
15877
17144
2005
Ye ar
2006
19763
2007
Operating profit
8000
7000
6000
5000
4000
3000
2000
1000
0
3495
2004
6045 5938
2005 year
2006
Investments
7000
6000
5000
4000
3000
2000
1000
0
2194.12
2003-2004
2432.65
4069.96
2004-3005
Year
2005-2006
6973
2007
6106.18
2006-2007
18

800
700
600
500
400
300
200
100
0
369.18
2003-2004
Capital
553.67
553.67
727.73
2004-3005
Year
2005-2006 2006-2007
Borrowings
12000
10000
8000
6000
4000
2000
0
3382.21
2003-2004
2739.7
2516.15
2004-3005
Year
2005-2006
9645.33
2006-2007
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Tata steel had run into controversy after police shot dead nine tribals in January after a protest against land acquisition for the project turned violent in Jajpur, some 100 km north of Bhubaneswar, Orissa’s capital. (May 2006)
Tata steel has caught in another controversy over acquisition of land for the Titanium project, its first serious foray into the non-ferrous metals business. For the Tatas, the situations in Singur and Tuticorin are much too similar for comfort.
Source: www.Business world. in www.minesandcommunities.org/Action/press1054.htm
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
Tata Steel is causing social and environmental damage at various locations. They must be more socially responsible and come up with programs for environment and resource conservation.

Tata steel must try to be become a world- class steel company in every sense and continue to be a good corporate citizen.

Tata steel should generate more employment opportunities.
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Tata Steel has set ambitious target to possess 50 million tonne per annum capacity by
2015.
 Overseas acquisition till now add up to 21.4 million tonne, which includes Corus production at 18.2 million tonne, Natsteel production at two million tonne and
Millennium Steel production at 1.2 million tonne. Company is looking to add another 29 million tonnes through the acquisition route.
 Company has lined up a series of Greenfield projects in India and outside which includes
1.
6 million tonne Plant in Orissa
2.
12 million tonne in Jharkhand
3.
5 million tonne in Chhattisgarh
4.
3-million tonne plant in Iran
5.
2.4-million tonne plant in Bangladesh
6.
5 million tonne capacity expansion at Jamshedpur
7.
4.5 million tonne plant in Vietnam (feasibility studies underway)
It’s expected that Tata Steel will rise to 4th position in the next 5 years just behind
POSCO, NIPPON and MITTAL ARCELOR. Beyond 2009 and up to 2012 its growth rate is expected to be 5 million tonnes per year average. By 2012 Tata Steel is expected to have a turnover of US $ 24 billion or Rs.120.000 crores and Net profit of US $ 5 billion or Rs. 25000 crores.
22

Bibliography
1.
Financial Accounting by Naraswamy
2.
Financial Management by I M Pandey
3.
Management Accounting by A.Vinod
4.
Management Accounting by Shashi K.Gupta
& R.K. Sharma
5 . Tata Steel Annual report
Reference www.tatasteel.com
www.businessworld.in
www.beginnersinvest.about.com
www.tutor2u.net
http://www.economywatch.com/business-and-economy/steel-industry.html
http://www.steelonthenet.com/production.html
, http://www.steelonthenet.com/production.html
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