Project Report on

Fundamental & Technical Analysis of Steel sector

Submitted By: Saurabh Arora 10/MBA/48

Under the Guidance of: Prof. Archana Singh Associate Professor, DSM Ms Upali Research Scholar,DSM

DELHI SCHOOL OF MANAGEMENT

Delhi Technological University
Bawana Road Delhi-110042. Year- 2012

TITLE NAME OF THE PROJECT: Fundamental & Technical Analysis of Steel sector NAME OF THE ORGANIZATION: DELHI SCHOOL OF MANAGEMENT LOCATION: DELHI TECHNOLOGICAL UNIVERSITY PROJECT GUIDE: PROF ARCHANA SINGH

SUBMITTED BY: SAURABH ARORA ROLL NO. (2010/MBA/48)

INDEX
Topic ACKNOWLEDGEMENT EXECUTIVE SUMMARY Page no. 5 6 7 8 8 9 24 29 30 30 31 31 32

STEPS INVOLVED IN ANALYZING A COMPANY

CHAPTER 1 : INTRODUCTION EFFICIENT MARKET HYPOTHESIS TECHNICAL ANALYSIS FUNDAMENTAL ANALYSIS CHAPTER 2 : LITRATURE REVIEW CHAPTER 3 : RESEARCH METHODOLOGY OBJECTIVE OF THE STUDY DATA COLLECTION VALUATION TECHNIQUE

CHAPTER 4 : CURRENT CONDITION OF INDIAN ECONOMY POLITICAL RISK ECONOMIC POLICIES

OVERALL ECONOMIC PROSPECT CHAPTER 5 : CURRENT CONDITION OF STEEL INDUSTRY HISTORY OF STEEL SECTOR CURRENT MARKET SITUATION CHAPTER 6 : ANALYSIS OF COMPANIES ANALYSIS OF JINDAL STEEL ANALYSIS OF TATA STEEL ANALYSIS OF JSW STEEL ANALYSIS OF NMDC ANALYSIS OF SESA GOA ANALYSIS OF SAIL

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36 36 42 47 52 57 62 67 69

CHAPTER 7 : CONCLUSION BIBLIOGRAPHY

CERTIFICATE This is to certify that the project work done on Fundamental & Technical Analysis of Steel sector Submitted to Delhi School of Management, Delhi Technological University by Saurabh Arora in partial fulfillment of the requirement for the award of Masters in Business Administration, is a bonafide work carried out by him under my supervision and guidance. This work has not been submitted anywhere else for any other degree/diploma.

Date: Seal/Stamp of the Organization

Faculty Mentor Prof. Archana Singh

ACKNOWLEDGEMENT A project starts with an objective but it is accomplished only with enormous efforts and tremendous support and guidance. With due respect and regards I wish to express my deep sense of gratitude, indebtedness and sincere phrases of thanks to Prof. S.K. Garg for giving us the opportunity to work on a project which will enhance our learning. The process of completion of project report involves creation of debt towards innumerable persons. I express my profound gratitude to my Project mentor Dr. Archana Singh who helped me with their guidance during the project. Dr. Archana has taught me both consciously and unconsciously how to proceed with fundamental and technical analysis of the various companies and how to interpret the enormous data that was available. I also express my appreciation and thanks to all my classmates who have helped me whenever needed and who have contributed to my learning which I will cherish forever.

SAURABH ARORA

EXECUTIVE SUMMARY The project deals with the fundamental and the technical analysis of the 6 companies in the steel sector. These companies have been chosen from the BSE steel indices. The BSE steel indices in India consists following six companies. Jindal Steel & Power JSW Steel NMDC Ltd. Sesa Goa Steel Authority of India Tata Steel

This project will try to analyze whether to invest in these stocks or not. And if you are investing in these stocks then whether to invest for long period of time or for short period of time. Fundamental analysis equips us to analyze what is the growth potential in a particular stock and the Technical analysis helps us to time the market to get maximum profitability from the situations emerging in the market. The benefit of doing fundamental analysis of a company is to maximize return over a long period of time and the Technical analysis helps us to capitalize on the various opportunities emerging in the markets due to the sentiments prevailing in the market. These opportunities are generally scary to a retail investor because they dont have understanding of the markets but give a huge advantage to a technical analyst. This project will focus on the various developments in the country and outside country that might help or hamper the growth of steel sector; also will look at the various indicators which will tell how the prices of stocks will move in the short run.

STEPS INVOLVED IN ANALYZING A COMPANY: 1. The approach used herein is the Top- Down approach where we will first look at the state of the economy of India the move on to the Steel sector and how it has been performing in the past couple of months and finally analysis of all the six steel companies. 2. We analyze the Industry to find any information on any event which might hamper the growth of the industry in the foreseeable future 3. Second step is to analyze the financial statement of the company. The statement is analyzed for any sort of negative sign which may increase the riskiness of a project, for e.g. Cases with Negative PAT figures in the past 2 years etc. 4. The third step is to analyze the key financial ratios of the company such as: Leverage ratio, liquidity ratio, profitability ratio, turnover ratio, inventory norms and try to find any trend, which might help to find out the true potential of the company. 5. Compare the financials of the company with other companies in the same line of business and reach at a credit rating for the company. 6. Value the company return for past 5 year and compare it with investors expectation. 7. For Technical analysis we use the data for the company for last six months. 8. If possible we try to find some formations which can help us in predicting the direction in which prices of stocks might move from the current levels. 9. Technical analysis also pays a lot of attention on the moving averages over a period of time and with the help of various indicators like EMA, SMA, MACD etc. tries to predict the price direction. While the technical analysis focuses on short term view and the fundamental analysis focuses on the long term investment. So considering this in mind a short term investor should focus more toward technical analysis as it captures the sentiments of the markets and a long term investor should focus more on fundamental analysis.

CHAPTER 1 : INTRODUCTION EFFICIENT MARKET HYPOTHESIS An investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments. Although it is a cornerstone of modern financial theory, the EMH is highly controversial and often disputed. Believers argue it is pointless to search for undervalued stocks or to try to predict trends in the market through either fundamental or technical analysis. Meanwhile, while academics point to a large body of evidence in support of EMH, an equal amount of dissension also exists. For example, investors, such as Warren Buffett have consistently beaten the market over long periods of time, which by definition is impossible according to the EMH. Detractors of the EMH also point to events, such as the 1987 stock market crash when the Dow Jones Industrial Average (DJIA) fell by over 20% in a single

INTRODUCTION TO TECHNICAL ANALYSIS Technical Analysis is a broad term that covers a wide range of study. Stock charts, indicators, support and resistance, angle of ascent or descent of price, candlestick patterns, entry and exit signals, stop losses, and technical patterns. Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. If you understand the benefits and limitations of technical analysis, it can give you a new set of tools or skills that will enable you to be a better trader or investor. The field of technical analysis is based on three assumptions:

1. The market discounts everything. 2. Price moves in trends. 3. History tends to repeat itself.

1. The Market Discounts Everything A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysis assumes that, at any given time, a stock's price reflects everything that has or could affect the company - including fundamental factors. Technical analysts believe that the company's fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market.

2. Price Moves in Trends In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption. 3. History Tends To Repeat Itself Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market
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movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves. Types of charts There are four main types of charts that are used by investors and traders depending on the information that they are seeking and their individual skill levels. The chart types are: the line chart, the bar chart, the candlestick chart and the point and figure chart.. Notice how the data used to create the charts is the same, but the way the data is plotted and shown in the charts is different. LineChart The most basic of the four charts is the line chart because it represents only the closing prices over a set period of time. The line is formed by connecting the closing prices over the time frame. Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices. However, the closing price is often considered to be the most important price in stock data compared to the high and low for the day and this is why it is the only value used in line charts.

Figure 1: A line chart

Bar Charts The bar chart expands on the line chart by adding several more key pieces of information to each data point. The chart is made up of a series of vertical lines that represent each data point. This vertical line represents the high and low for the trading period, along with the closing price. The close and open are represented on the vertical line by a horizontal dash. The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar. Conversely, the close is represented by the dash on the right. Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black,
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representing an up period for the stock, which means it has gained value. A bar that is colored red signals that the stock has gone down in value over that period. When this is the case, the dash on the right (close) is lower than the dash on the left (open).

Figure 2: A bar chart

Candle stick Charts The candlestick chart is similar to a bar chart, but it differs in the way that it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. The difference comes in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close. And, like bar charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period. A major problem with the candlestick color configuration, however, is that different sites use different standards; therefore, it is important to understand the candlestick configuration used at the chart site you are working with. There are two color constructs for days up and one for days that the price falls. When the price of the stock is up and closes above the opening trade, the candlestick will usually be white or clear. If the stock has traded down for the period, then the candlestick will usually be red or black, depending on the site. If the stock's price has closed above the previous days close but below the day's open , the candlestick will be black or filled with the color that is used to indicate an up day.

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Figure 3 : A candlestick chart. Conclusion Charts are one of the most fundamental aspects of technical analysis. It is important that you clearly understand what is being shown on a chart and the information that it provides. Now that we have an idea of how charts are constructed, we can move on to the different types of chart patterns. Chart Patterns A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future price movements. Chartists use these patterns to identify current trends and trend reversals and to trigger buy and sell signals. In the first section of this tutorial, we talked about the three assumptions of technical analysis, the third of which was that in technical analysis, history repeats itself. The theory behind chart patters is based on this assumption. The idea is that certain patterns are seen many times, and that these patterns signal a certain high probability move in a stock. Based on the historic trend of a chart pattern setting up a certain bprice movement, chartists look for these patterns to identify trading opportunities. While there are general ideas and components to every chart pattern, there is no chart pattern that will tell you with 100% certainty where a security is headed. This creates some leeway and debate as to what a good pattern looks like, and is a major reason why charting is often seen as more of an art than a science Head and Shoulders This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. Head and shoulders top (shown on the left) is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about

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to end. Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is the lesser known of the two, but is used to signal a reversal in a downtrend.

Figure 1: Head and shoulders Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high and a low. For example, in the head and shoulders top image shown on the left side in Figure 1, the left shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support or resistance. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows Cup and Handle A cup and handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed.

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As you can see in Figure 2, this price pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally downward/sideways movement in the security's price. Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue. There is a wide ranging time frame for this type of pattern, with the span ranging from several months to more than a year. Double Tops and Bottoms This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created when a price movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals.

Figure 3: A double top pattern is shown on the left, while a double bottom pattern is shown on the right.

In the case of the double top pattern in Figure 3, the price movement has twice tried to move above a certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses and the price heads lower. In the case of a double bottom (shown on the right), the price movement has tried to go lower twice, but has found support each time. After the second bounce off of the support, the security enters a new trend and heads upward. Triangles Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months.

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The symmetrical triangle in Figure 4 is a pattern in which two trendlines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trendline is flat, while the bottom trendline is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trendline is flat and the upper trendline is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout. Flag and Pennant These two short-term chart patterns are continuation patterns that are formed when there is a sharp price movement followed by a generally sideways price movement. This pattern is then completed upon another sharp price movement in the same direction as the move that started the trend. The patterns are generally thought to last from one to three weeks.

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Figure 5

As you can see in Figure 5, there is little difference between a pennant and a flag. The main difference between these price movements can be seen in the middle section of the chart pattern. In a pennant, the middle section is characterized by converging trendlines, much like what is seen in a symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence between the trendlines. In both cases, the trend is expected to continue when the price moves above the upper trendline. Wedge The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a symmetrical triangle except that the wedge pattern slants in an upward or downward direction, while the symmetrical triangle generally shows a sideways movement. The other difference is that wedges tend to form over longer periods, usually between three and six months.

Figure 6

The fact that wedges are classified as both continuation and reversal patterns can make reading signals confusing. However, at the most basic level, a falling wedge is bullish and a rising wedge is bearish. In Figure 6, we have a falling wedge in which two trendlines are
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converging in a downward direction. If the price was to rise above the upper trendline, it would form a continuation pattern, while a move below the lower trendline would signal a reversal pattern. Gaps A gap in a chart is an empty space between a trading period and the following trading period. This occurs when there is a large difference in prices between two sequential trading periods. For example, if the trading range in one period is between $25 and $30 and the next trading period opens at $40, there will be a large gap on the chart between these two periods. Gap price movements can be found on bar charts and candlestick charts but will not be found on point and figure or basic line charts. Gaps generally show that something of significance has happened in the security, such as a better-than-expected earnings announcement. There are three main types of gaps, breakaway, runaway (measuring) and exhaustion. A breakaway gap forms at the start of a trend, a runaway gap forms during the middle of a trend and an exhaustion gap forms near the end of a trend.

Triple Tops and Bottoms Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion. These two chart patterns are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend.

Confusion can form with triple tops and bottoms during the formation of the pattern because they can look similar to other chart patterns. After the first two support/resistance tests are formed in the price movement, the pattern will look like a double top or bottom, which could lead a chartist to enter a reversal position too soon.
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Rounding Bottom A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downward trend to an upward trend. This pattern is traditionally thought to last anywhere from several months to several years.

Figure 8

A rounding bottom chart pattern looks similar to a cup and handle pattern but without the handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the handle in the cup and handle, makes it a difficult pattern to trade. We have finished our look at some of the more popular chart patterns. You should now be able to recognize each chart pattern as well the signal it can form for chartists. We will now move on to other technical techniques and examine how they are used by technical traders to gauge price movements. Moving Averages

Most chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security's overall trend. One simple method traders use to combat this is to apply moving averages. A moving average is the average price of a security over a set amount of time. By plotting a security's average price, the price movement is smoothed out. Once the day-to-day fluctuations are removed, traders are better able to identify the true trend and increase the probability that it will work in their favor. Types of Moving Averages There are a number of different types of moving averages that vary in the way they are calculated, but how each average is interpreted remains the same. The calculations only differ in regards to the weighting that they place on the price data, shifting from equal weighting of

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each price point to more weight being placed on recent data. The three most common types of moving averages are simple, linear and exponential. Simple Moving Average (SMA) This is the most common method used to calculate the moving average of prices. It simply takes the sum of all of the past closing prices over the time period and divides the result by the number of prices used in the calculation. For example, in a 10-day moving average, the last 10 closing prices are added together and then divided by 10. As you can see in Figure 1, a trader is able to make the average less responsive to changing prices by increasing the number of periods used in the calculation. Increasing the number of time periods in the calculation is one of the best ways to gauge the strength of the long-term trend and the likelihood that it will reverse.

Many individuals argue that the usefulness of this type of average is limited because each point in the data series has the same impact on the result regardless of where it occurs in the sequence. The critics argue that the most recent data is more important and, therefore, it should also have a higher weighting. This type of criticism has been one of the main factors leading to the invention of other forms of moving averages. Linear Weighted Average This moving average indicator is the least common out of the three and is used to address the problem of the equal weighting. The linear weighted moving average is calculated by taking the sum of all the closing prices over a certain time period and multiplying them by the position of the data point and then dividing by the sum of the number of periods. For example, in a five-day linear weighted average, today's closing price is multiplied by five, yesterday's by four and so on until the first day in the period range is reached. These numbers are then added together and divided by the sum of the multipliers.

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Exponential Moving Average (EMA) This moving average calculation uses a smoothing factor to place a higher weight on recent data points and is regarded as much more efficient than the linear weighted average. Having an understanding of the calculation is not generally required for most traders because most charting packages do the calculation for you. The most important thing to remember about the exponential moving average is that it is more responsive to new information relative to the simple moving average. This responsiveness is one of the key factors of why this is the moving average of choice among many technical traders. As you can see in Figure 2, a 15period EMA rises and falls faster than a 15-period SMA. This slight difference doesnt seem like much, but it is an important factor to be aware of since it can affect returns.

Major Uses of Moving Averages Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels. Moving averages can be used to quickly identify whether a security is moving in an uptrend or a downtrend depending on the direction of the moving average. when a moving average is heading upward and the price is above it, the security is in an uptrend. Conversely, a downward sloping moving average with the price below can be used to signal a downtrend.

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Figure 3

Another method of determining momentum is to look at the order of a pair of moving averages. When a short-term average is above a longer-term average, the trend is up. On the other hand, a long-term average above a shorter-term average signals a downward movement in the trend. Moving average trend reversals are formed in two main ways: when the price moves through a moving average and when it moves through moving average crossovers. The first common signal is when the price moves through an important moving average. For example, when the price of a security that was in an uptrend falls below a 50-period moving average, like in Figure 4, it is a sign that the uptrend may be reversing.

Figure 4

The other signal of a trend reversal is when one moving average crosses through another. For example, as you can see in Figure 5, if the 15-day moving average crosses above the 50-day moving average, it is a positive sign that the price will start to increase.
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If the periods used in the calculation are relatively short, for example 15 and 35, this could signal a short-term trend reversal. On the other hand, when two averages with relatively long time frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend. Another major way moving averages are used is to identify support and resistance levels. It is not uncommon to see a stock that has been falling stop its decline and reverse direction once it hits the support of a major moving average. A move through a major moving average is often used as a signal by technical traders that the trend is reversing. For example, if the price breaks through the 200-day moving average in a downward direction, it is a signal that the uptrend is reversing.

Figure 6

Moving averages are a powerful tool for analyzing the trend in a security. They provide useful support and resistance points and are very easy to use. The most common time frames that are used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The 200-day average is thought to be a good measure of a trading year, a 100-day average of a half a year, a 50-day average of a quarter of a year, a 20-day average of a month and 10-day average of two weeks.

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INTRODUCTION TO FUNDAMENTAL ANALYSIS

Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis.[1] The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. The Snapshot of Health The balance sheet, also known as the statement of financial condition, offers a snapshot of a company's health. It tells you how much a company owns (its assets), and how much it owes (its liabilities). The difference between what it owns and what it owes is its equity, also commonly called "net assets" or "shareholders equity". The balance sheet tells investors a lot about a company's fundamentals: how much debt the company has, how much it needs to collect from customers (and how fast it does so), how much cash and equivalents it possesses and what kinds of funds the company has generated over time. The Balance Sheet's Main Three Assets, liability and equity are the three main components of the balance sheet. Carefully analyzed, they can tell investors a lot about a company's fundamentals. Assets There are two main types of assets: current assets and non-current assets. Current assets are likely to be used up or converted into cash within one business cycle - usually treated as twelve months. Three very important current asset items found on the balance sheet are: cash, inventories and accounts receivables. Investors normally are attracted to companies with plenty of cash on their balance sheets. After all, cash offers protection against tough times, and it also gives companies more options for future growth. Growing cash reserves often signal strong company performance. Indeed, it shows that cash is accumulating so quickly that management doesn't have time to figure out how to make use of it. A dwindling cash pile could be a sign of trouble. That said, if loads of cash are more or less a permanent feature of the company's balance sheet, investors need to ask why the money is not being put to use. Cash could be there because management has run out of investment opportunities or is too short-sighted to know what to do with the money. Inventories are finished products that haven't yet sold. As an investor, you want to know if a company has too much money tied up in its inventory. Companies have limited funds available to invest in inventory. To generate the cash to pay bills and return a profit, they
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must sell the merchandise they have purchased from suppliers. Inventory turnover (cost of goods sold divided by average inventory) measures how quickly the company is moving merchandise through the warehouse to customers. If inventory grows faster than sales, it is almost always a sign of deteriorating fundamentals. Receivables are outstanding (uncollected bills). Analyzing the speed at which a company collects what it's owed can tell you a lot about its financial efficiency. If a company's collection period is growing longer, it could mean problems ahead. The company may be letting customers stretch their credit in order to recognize greater top-line sales and that can spell trouble later on, especially if customers face a cash crunch. Getting money right away is preferable to waiting for it - since some of what is owed may never get paid. The quicker a company gets its customers to make payments, the sooner it has cash to pay for salaries, merchandise, equipment, loans, and best of all, dividends and growth opportunities. Non-current assets are defined as anything not classified as a current asset. This includes items that are fixed assets, such as property, plant and equipment (PP&E). Unless the company is in financial distress and is liquidating assets, investors need not pay too much attention to fixed assets. Since companies are often unable to sell their fixed assets within any reasonable amount of time they are carried on the balance sheet at cost regardless of their actual value. As a result, it's is possible for companies to grossly inflate this number, leaving investors with questionable and hard-to-compare asset figures.

Liabilities There are current liabilities and non-current liabilities. Current liabilities are obligations the firm must pay within a year, such as payments owing to suppliers. Non-current liabilities, meanwhile, represent what the company owes in a year or more time. Typically, non-current liabilities represent bank and bondholder debt. You usually want to see a manageable amount of debt. When debt levels are falling, that's a good sign. Generally speaking, if a company has more assets than liabilities, then it is in decent condition. By contrast, a company with a large amount of liabilities relative to assets ought to be examined with more diligence. Having too much debt relative to cash flows required to pay for interest and debt repayments is one way a company can go bankrupt. Look at the quick ratio. Subtract inventory from current assets and then divide by current liabilities. If the ratio is 1 or higher, it says that the company has enough cash and liquid assets to cover its short-term debt obligations.

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Current Assets - Inventories Quick Ratio = Current Liabilities

Equity represents what shareholders own, so it is often called shareholder's equity. As described above, equity is equal to total assets minus total liabilities. Equity = Total Assets Total Liabilities

The two important equity items are paid-in capital and retained earnings. Paid-in capital is the amount of money shareholders paid for their shares when the stock was first offered to the public. It basically represents how much money the firm received when it sold its shares. In other words, retained earnings are a tally of the money the company has chosen to reinvest in the business rather than pay to shareholders. Investors should look closely at how a company puts retained capital to use and how a company generates a return on it. Most of the information about debt can be found on the balance sheet - but some assets and debt obligations are not disclosed there. For starters, companies often possess hard-tomeasure intangible assets. Corporate intellectual property (items such as patents, trademarks, copyrights and business methodologies), goodwill and brand recognition are all common assets in today's marketplace. But they are not listed on company's balance sheets. There is also off-balance sheet debt to be aware of. This is form of financing in which large capital expenditures are kept off of a company's balance sheet through various classification methods. Companies will often use off-balance-sheet financing to keep the debt levels low. (To continue reading about the balance sheet, see Reading The Balance Sheet, Testing Balance Sheet Strength andBreaking Down The Balance Sheet.) CASH flow statement The cash flow statement shows how much cash comes in and goes out of the company over the quarter or the year. At first glance, that sounds a lot like the income statement in that it records financial performance over a specified period. But there is a big difference between the two. What distinguishes the two is accrual accounting, which is found on the income statement. Accrual accounting requires companies to record revenues and expenses when transactions occur, not when cash is exchanged. At the same time, the income statement, on the other hand, often includes non-cash revenues or expenses, which the statement of cash flows does not include.

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Just because the income statement shows net income of $10 does not means that cash on the balance sheet will increase by $10. Whereas when the bottom of the cash flow statement reads $10 net cash inflow, that's exactly what it means. The company has $10 more in cash than at the end of the last financial period. You may want to think of net cash from operations as the company's "true" cash profit. Because it shows how much actual cash a company has generated, the statement of cash flows is critical to understanding a company's fundamentals. It shows how the company is able to pay for its operations and future growth. Indeed, one of the most important features you should look for in a potential investment is the company's ability to produce cash. Just because a company shows a profit on the income statement doesn't mean it cannot get into trouble later because of insufficient cash flows. A close examination of the cash flow statement can give investors a better sense of how the company will fare. Most useful current indicators and ratios in fundamental analysis are : 1. Total sales Growing sales reflects growth of the company, can indicate the need of further growth. Fundamental analysis should show not only the changes in volume, but also reveals reasons of this changes. 2. Net margin This indicator is obtained by dividing net profit by total sales, the result is presented as a percentage. In order to calculate net margin, analyst should use net profit after taxes, presented in financial statement. Net margin should be steady and consistent. When it is almost equal year by year, it shows that company is performing well. 3. PE ratio PE ratio (price to earnings ratio) is published in financial listings, and is often used in order to compare various stocks. It is not fully fundamental indicator, because it requires usage of current price of share, to calculate it. Partially it can reflect popularity of particular stock. PE value is calculated by dividing price per share by annual earnings per share. This ratio shows how much one unit of earnings is worth, in market's opinion. It can be interpreted in two ways. Firstly, low PE ratio shows, that market is not interested in particular stock, but this situation might change. Secondly, high PE ratio, shows, that stock is popular, but it also shows market expectations about future earnings potential, and because of this shows higher risk connected with possessing this stock.

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Valuations While the concept behind discounted cash flow analysis is simple, its practical application can be a different matter. The premise of the discounted cash flow method is that the current value of a company is simply the present value of its future cash flows that are attributable to shareholders. Its calculation is as follows:

For simplicity's sake, if we know that a company will generate $1 per share in cash flow for shareholders every year into the future; we can calculate what this type of cash flow is worth today. This value is then compared to the current value of the company to determine whether the company is a good investment, based on it being undervalued or overvalued. There are several different techniques within the discounted cash flow realm of valuation, essentially differing on what type of cash flow is used in the analysis. The dividend discount model focuses on the dividends the company pays to shareholders, while the cash flow model looks at the cash that can be paid to shareholders after all expenses, reinvestments and debt repayments have been made. But conceptually they are the same, as it is the present value of these streams that are taken into consideration.

Ratio Valuation Financial ratios are mathematical calculations using figures mainly from the financial statements, and they are used to gain an idea of a company's valuation and financial performance. Some of the most well-known valuation ratios are price-to-earnings and priceto-book. Each valuation ratio uses different measures in its calculations. For example, priceto-book compares the price per share to the company's book value. The calculations produced by the valuation ratios are used to gain some understanding of the company's value. The ratios are compared on an absolute basis, in which there are threshold values. For example, in price-to-book, companies trading below '1' are considered undervalued. Valuation ratios are also compared to the historical values of the ratio for the company, along with comparisons to competitors and the overall market itself.

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CHAPTER 2 : LITERATURE REVIEW I. Emergence of the Steel Industry Indias economic growth is contingent upon the growth of the Indian steel industry. Consumption of steel is taken to be an indicator of economic development. While steel continues to have a stronghold in traditional sectors such as construction, housing and ground transportation, special steels are increasingly used in engineering industries such as power generation, petrochemicals and fertilizers. India occupies a central position on the global steel map, with the establishment of new state-ofthe-art steel mills, acquisition of global scale capacities by players, continuous modernization and upgradation of older plants, improving energy efficiency and backward integration into global raw material sources. Steel production in India has increased by a compounded annual growth rate (CAGR) of 8 percent over the period 2002-03 to 2006-07. Going forward, growth in India is projected to be higher than the world average, as the per capita consumption of steel in India, at around 45 kg is well below the world average (190 kg) and that of developed countries (400 kg). Indian demand is projected to rise to 200 million tonnes by 2015. Given the strong demand scenario, most global steel players are into a massive capacity expansion mode, either through brown-field or Greenfield route. By 2012, the steel production capacity in India is expected to touch 124 million tonnes and 275 million tonnes by 2020. While green-field projects are slated to add 28.7 million tonnes, brown-field expansions are estimated to add 40.5 million tonnes to the existing capacity of 55 million tonnes. Steel is manufactured as a globally tradable product with no major trade barriers across national boundaries to be seen currently. There is also no inherent resource related constraints which may significantly affect production of the same or its capacity creation to respond to demand increases in the global market. Even the government policy restrictions have been negligible worldwide and even if there are any the same to respond to specific conditions in the market and have always been temporary. Therefore, the industry in general and at a global level is unlikely to throw up substantive competition issues in any national policy framework. Further, there are no natural monopoly characteristics in steel. Therefore, one may not expect complex competition issues as those witnessed in industries like telecom, electricity, natural gas, oil, etc.

This, however, does not mean that there is no relevant or serious competition issue in the steel industry. The growing consolidation in the steel industry worldwide through mergers and acquisitions has already thrown up several significant concerns. The fact that internationally steel has always been an oligopolistic industry sometimes has raised concerns about the anticompetitive behaviour of large firms that dominate this industry. On the other hand the set of large firms that characterize the industry has been changing over time. Trade and other government policies have significant bearing on competition issues. Matters of subsidies, non-tariff barriers to trade, discriminatory customs duty (on exports and imports) etc. may bring in significant distortions in the domestic market and in the process alter the competitive positioning of individual players in the market. The specific role of the state in creating market distortion and thereby the competitive conditions in the market is a wellknown issue in this country.

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Iron is one of the oldest inventions in the world with its first usage reportedly dating back to 4000 BC. Steel is crucial to the development of any modern economy and is consideredto be the backbone of the human civilization. Today Steel (the carbon alloy of Iron) finds application in every imaginable facet of our life. The global steel industry has been witnessing many interesting events that have influenced market dynamics in the last ten years. Steel is an alloy consisting mostly of iron, with carbon content between 0.2% and 2.14% by weight, depending on grade. Carbon is the most cost-effective alloying material for iron, but various other alloying elements are used such as manganese, chromium, vanadium, and tungsten. Carbon and other elements act as a hardening agent, preventing dislocations in the iron atom crystal lattice from sliding past one another. Varying the amount of alloying elements and form of their presence in the steel (solute elements, precipitated phase) controls qualities such as the hardness, ductility, and tensile strength of the resulting steel. Steel with increased carbon content can be made harder and stronger than iron, but is also more brittle. The maximum solubility of carbon in iron (as austenite) is 2.14% by weight, occurring at 1149 C; higher concentrations of carbon or lower temperatures will produce cementite. Alloys with higher carbon content than this are known as cast iron because of their lower melting point and castability. Steel is also to be distinguished from wrought iron containing only a very small amount of other elements, but containing 13% by weight of slag in the form of particles elongated in one direction, giving the iron a characteristic grain. It is more rust-resistant than steel and welds more easily. It is common today to talk about 'the iron and steel industry' as if it was a single entity, but historically they were separate products. Though steel had been produced by various inefficient methods long before the Renaissance, its use became more common after more efficient production methods were devised in the 17th century. With the invention of the Bessemer process in the mid-19th century, steel became a relatively inexpensive mass-produced good. Further refinements in the process, such as basic oxygen steelmaking, further lowered the cost of production while increasing the quality of the metal. Today, steel is one of the most common materials in the world and is a major component in buildings, infrastructure, tools, ships, automobiles, machines, and appliances. Modern steel is generally identified by various grades of steel defined by various standards organizations. There are more than 3500 grades of steel available today; with about 75% of these developed in the last twenty years. Finished steel products can be broadly classified into flats and longs. Longs are used in construction, infrastructure and heavy engineering. Flats are mainly used in making automobiles, commercial vehicles and consumer durables. Hot rolled (HR) steel and Bar & Rods are the most popular varieties of steel produced in India. HR coil and sheets are used in making cold rolled products, pipes and tubes, automobile components, electronic equipment like fridges and for construction purposes. Currently HR Coils and Sheets account for about 26% of the total domestic production and its share has been gradually rising over time. Bars and rods are typically used more extensively in the construction and engineering sectors.

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CHAPTER 3 : RESEARCH METHODOLOGY OBJECTIVE OF THE STUDY The stock prices of a particular company are dependent upon either the supply and demand present in the secondary markets or on the amount of wealth created by the company in the year. The wealth created is reflected in the increasing revenues for the firm This project covers: Study the countrys economic condition to foresee any negative slump, if any, expected in the future and its impact on the Steel Industry. To analyze the past performance in the steel sector in the last couple of years and to find out whether the growth that was present in the past will be continued or not and if not then what are the reasons for it. To analyze the fundamentals of the company to find out its intrinsic value and to analyze whether the stock is undervalued or overvalued. To do a technical analysis on the companies to see whether the stock prices will go up or down from the current levels. This will be based upon the data for the past six months.

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DATA COLLECTION The data used in this project for ratio analysis is taken from the annual reports of the company. The graphs and charts used for Technical analysis of the companies has been taken from the Moneycontol.com which has the option for calculating the various indicators that have been used during the project. The other data which might affect the growth of the company in the near future like the expansion plan and the issues that the company is facing has been taken from various websites and annual reports. The data used for valuation i.e. the beta of the company and the return on market portfolio has been taken from the Bombay Stock exchange website.

VALUATION TECHNIQUE The valuations of the companies have been done by the Gordon Growth Model. The expected return from the stock has been derived from the CAPM model, which is dependent upon the beta of the stock and the return on market portfolio. The CAPM model can be written as: Expected return (Re) = RFR + Beta (Return on Market RFR) And the return given by the share is calculated through analyzing the stock prices and the dividend that was given by the company in the past 5 years and to compare it with the return expected by the investor. If we know what is the average return the company is giving in the past; Then we can calculate whether investment in this stock is worth or not. This return is then compared to the investors requirement of the company to determine whether the company is a good investment or not.

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CHAPTER 4 : CURRENT CONDITION OF INDIAN ECONOMY Political Risk: (Outlook - Negative) The India's Political Outlook after a critical review. The Indian Prime Minister Manmohan Singh is proved to be incapable of handling the complex and difficult situations in his government. The Singh's government comprising different parties with almost contrarian to his views. With executive powers - the top commander of the Indian Government has been under intense pressure. His ruling coalition federal government has failed to commence the important economic reforms, which took a considerable toll on the economy. Assembly elections specifically in Uttar Pradesh was the key event which changed the political theatre. The losing ground of two major political parties of the country, the Congress and the Bharatiya Janata Party (BJP), would definitely make India a battleground in 2014 Lok Sabha elections and is gain for anti-capitalist and anti-socialist regional political parties, which is not favorable for India economy. In 2011, the Indian government faced every month with a disapproval from the people, coming out on street in amass protesting against the government's inactivity on corruption and irregularities in the system. Economic Policies: (Outlook - Negative) The alarming levels of fiscal deficit last year in its Economic Review report, Even though RBI has reduced its policy rates by 50 bps, UNIDOW does not change its stance on the economic policy and downgrade followed by the federal government's inaction on the subject of overspending and fiscal policies to stimulate the economy and command over the unbreakable inflation. The current fall in inflation is largely driven by change in base year and the key index for RBI - manufacturing index is restless. RBI is giving full concentration on the inflation problem, which is undermining the fragile economic growth and revised the policy rates by number of times to contain the rising risk of inflation in the economy. As per VMW's observation, RBI, alongside inflation concern, would think about the economic expansion of the country since the liquidity situation could get distressed and will put India's economic growth at risk. Moreover, the higher cost of credit will certainly have an impact in the corporate balance sheet, which will prevent the short term foreign inflows (i.e. FII inflow) in the country to finance the current account (CA) deficit. RBI might not be concerned about the CA deficit. Overall Economic Prospect: (Outlook - Stable) Despite the rising risk of political and economic policies, the overall economic outlook of India in the long run is still intact. There could be a greater risk of high fiscal deficit followed by the increase in current account deficit due to sharp decline in Indian Rupee and rise in oil prices, which will increase reduce the revenue to the government. Tighter monetary policy and a modest reduction in the deficit will help cool demand somewhat. After moderating towards the end of 2010, inflation has veered up again and remains high. Moreover, inflationary pressures have become more generalized, with non-food prices accelerating.

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CHAPTER 5 : CURRENT CONDITIONS IN STEEL INDUSTRY OF INDIA History of Steel Sector in India: The Indian Metal industry has made a rapid progress on strong fundamentals over the recent few years. The industry is getting all essential ingredients required for dynamic growth... The government is backing the industry through favorable industrial reforms, while the private sector is supporting it with investments worth billions of dollars. The Metals & Mining industry encompasses the extraction (mining) as well as the primary and secondary processing of metals and minerals such as aluminum, gold, precious metals, coal and steel. The industry is oligarchic in structure, with a few producers accounting for the lions share of the output. The largest segment of the global metals market is iron and steel, followed by aluminum. The iron and steel segment comprises more than half the industry in terms of volume. This industry includes metal ore exploration and mining services, as well as iron and steel foundries for smelting, rolling, forging, spinning, recycling, stamping, polishing and plating of iron and steel products such as pipes, tubes, wire, spring, rolls and bars. The precious metal and mineral industry consists of companies engaged in the extraction and primary processing of gold, silver, platinum, diamond, semi-precious stones, uranium and other rare minerals and ores, along with the cultivation of pearls. Even in the tough times of economic slowdown, the industry succeeded to sustain its positive growth momentum on the strong fundamentals of domestic demand from construction, automobile and infrastructure sectors. Global steel giants from all over the world have shown interest in the industry because of its phenomenal performance. For instance - the crude steel production in India registered a moderate year-on-year growth of 2.7% in 2009 and reached 56.6 Million Metric Tons. On the other side, some Asian countries such as Japan and South Korea saw significant decline in their production levels. This further signifies the resilience and strength of the Indian steel industry against external risk factors. The global economic slowdown hampered the growth curve of various steel intensive industries such as construction in 2009 and its impact also fell on steel demand. However, the government proactive incentive plans to boost economic growth by injecting funds in various industries like construction, infrastructure automobile and power will help the steel industry to again achieve its previous growth trajectory. the Indian steel industrys dependence on the other countries is likely to be reduced in next couple of years, India has been a net importer of steel since FY08. The country is likely to add 31mn tonnes of new steel capacity over the next 18-24 months, of which c20mn tonnes will be
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added by the larger players, with cumulative production to increase 26.0mn tonnes over FY1114, still outstripping cumulative demand growth of about 16.0mn tonnes and net import substitution of about 5-6mn tonnes over FY14. Steel prices in India are generally based on import parity. Domestic manufacturers thus benefit from : 1) a 5% import duty; 2) logistics differential; and 3) imports are generally unviable, Given longer lead times, and for low ticket size orders. Given the projected glut in the domestic market and the shifting focus on the export market, we expect a slow but steady shift to export parity-based pricing. This would imply US$40/tonne margin erosion for domestic mills (at current steel prices). Faced with new challenges, Indian companies will need to walk the extra mile to remain relevant in the longer term, in our view. Product differentiation, for example, will be necessary. While this may not ensure sustainable margins, we believe it is of utmost necessity to ensure customer stickiness. In this regard, foreign technological tie-ups and JVs recently signed are a step in the right direction, but most are yet to be tested for success. Last but not the least, as easy access to cheap captive raw materials is now a thing of the past, so focusing on conversion cost and technology becomes that much more important. Current market situation The Indian steel market is one of the fastest growing markets. The steel industry in India plays such a significant role that it has its own Ministry of Steel (MoS). According to MoS and other recent sources, the Indian steel industry has emerged as the 5th largest in the world 1. China 2. Japan 3. Russia 4. United States 5. India 6. South Korea The Indian steel industry is expected to become the 2nd largest steel producing country by 2012 and 2nd largest producer of crude steel by 2015-16. The Indian steel production grew with 8% in 2009-10 to 56.3 million tons. The Indian steel
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Production is expected to reach 124 million tons by 2012; 8-10% of this will be exported. And the Indian steel production is expected to reach around 275 million tons by 2020. While global iron ore miners have captured value from rising steel prices, rising regulatory costs in India have capped upside for the Indian miners (read export duties). In fact, India now has one of the highest taxation regimes on iron ore globally, and could increase even further if the proposed mining tax and increase in export duties get implemented.

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CHAPTER 6 : FUNDAMENTAL AND TECHNICAL ANALYSIS OF COMPANIES JINDAL STEEL AND POWER

Jindal Steel and Power Limited is extremely well-placed amongst its peers in both steel
and power businesses. A high level of backward integration, large captive coal reserves, differentiated product mix and unique technology adoption places the company at a distinct advantage over its peers. Execution challenges for expansion projects have persisted in the recent past, but things are looking up now as regulatory hurdles for two of its biggest projects appear behind. Nevertheless, its growth story has been pushed back by a year. The company believes to achieve 15% more revenue this and the stock offers significant upside potential once the market starts discounting FY14 earnings. Considering its low-risk profile and an exciting long-term story, the stock should outperform its peers.

POSITIVES OF JINDAL STEEL AND POWER Capacity utilization increasing from 75% to 85% in FY13 coupled with a faster-thanexpected commissioning of the Angul green-field plant would drive earnings growth. Also, if power rates in the country rise due to acute coal shortages, JSPL stands to benefit. It offers a relatively superior business model both in the steel and power businesses. Of our covered metals and mining companies, JSPL expects to report the fastest EBITDA CAGR over FY11-14 (26%). Earnings are relatively insulated with almost 33% contribution from the power business

WHERE THINGS CAN GO WRONG Only half of the upcoming 2400MW upcoming power project has secured coal linkages. commissioning of Utkal B1 block is critical for the profitability of the Angul steel project .

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JINDAL TO GO FOR EXPANSION IN FUTURE AND IS EXPECTED TO INCREASE ITS REVENUE STEEPLY IN NEXT 3-4 YEARS

The growth rate of JSPL should be greater than rest of the peers, given its superior business model and strong growth visibility. The existing 1,000MW project in Chhattisgarh; the upcoming 2,400MW power project, Tamnar II gives an edge to Jindal Steel and power limited. Also with upcoming power capacity increment and increasing demand for power in the country the revenue of Jindal is all set to increase manifold.

Risks with Jindal Steel and Power Limited. Delay in execution of key steel and power projects in India and the ramp-up of international steel and mining operations are the key risks to our forecasts for JSPL. A decline in steel prices as well as merchant power rates poses additional risks to our price target. JSPL has been able to secure coal linkage for only half of the upcoming 2,400MW power capacity, so if it does not receive coal linkage for the balance of the units, this would be a risk to the project.

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JSPL RATIO ANALYSIS Profitability Ratios Mar '11 Mar '10 Mar '09 Mar '08 Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) 30.33 28.41 28.29 21.04 21.30 14.60 27.80 26.49 26.49 19.59 19.59 14.86 28.71 26.71 26.71 19.50 19.50 23.16 34.35 33.99 33.99 22.79 22.79 24.95 30.46 28.96 28.96 19.75 19.75 18.47 37.53 29.88 34.78 27.05 34.35 27.98 42.76 33.99 40.01 30.15 Mar '07

Liquidity and Solvency Ratios. Mar '11 Mar '10 Mar '09 Mar '08 Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio 0.79 1.04 1.39 1.39 0.65 0.74 1.24 0.84 1.04 0.95 0.92 0.77 1.25 1.10 1.03 0.90 0.68 0.73 1.40 1.06 Mar '07

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Debt Coverage Ratios Mar '11 Mar '10 Mar '09 Mar '08 Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio 10.66 1.39 8.17 7.91 1.24 8.32 10.33 0.92 10.59 8.45 1.03 9.68 6.97 1.40 8.35 Mar '07

Comments on the financials Profitability ratios : The company is placed comfortably among its peers in respect of the profitability ratios. Also due to a better product mix the company is expected to keep its advantage over competitors. The operating profit of the company is at 37% for this year which is up from 34% from the previous year. Also the company has Profit before interest and taxes at 29 % which is more than its competitors. The profit made by the company is at sufficient level to meet its various expenses and to grow at a fast pace. Liquidity and solvency ratios : The company has been able to maintain enough liquidity to pay its current obligations. The situation has considerably improved from the past year when the current ratio was at 0.65 also the company has quick ratio of 1.04 for the last year therefore there is very slim chance that the company will face liquidity issues in the near future. Debt servicing ability: The interest coverage ratio stands at a whopping 10.66. also in accordance to the high profitability the debt taken by the company is very less with debt to equity just at 1.39. So there is almost negligible chances that the company will face issues with its debt or interest obligations.

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Valuation Return on market for past 10 years (Rm) = 14.48% Beta for JSPL ( taken from BSE website ) = 1.78 Risk free rate ( Indian Government Bonds ) = 8%

Expected return (Re) = RFR + Beta (Return on Market RFR) = 0.08 + 1.78(0.1448 - 0.08) = 0.1953 or 19.53%

And the return given by the company in the past 5years :

Capital gain: price of stock today-price of stock 5 years back : 470.65 - 104.43 : 366.22 Dividend over 5 years: : 2.4+1.5+2.5+5.5+1.25+1.5 : 14.65 TOTAL GAIN = 366.22+14.65 = 380.87

Return given by stock on year to year basis = 35.96% Since the stock has given year on year growth of about 36% which is way above the expected return of 19.53, this makes investing in this stock an good idea. Whether or not the company would be able to keep up its performance like this would really depend upon the other macro and micro economic variables. According to these valuations JSPL is a very good investment and is certainly the stock to invest if the investor is planning to invest in the steel industry

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TECHNICAL ANALYSIS

JINDAL STEEL AND POWER has shown an uptrend in the recent pass indicating positive sentiments in favor of JSPL. Both the EMA(20) and MACD are showing an downtrend which may continue for some time. MACD is showing a reversal in the sentiments of the people and this can be verified by the sticks graph. There is always a possibility of long continuation of a trend which means that the share prices can go up steeply like in the case of January 2012 rally. RESULT Both in the short term and in the long run JSPL shows positive signs therefore investors should put their money in this share.

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TATA STEEL TATA expects successful commissioning of Tata Steels 2.9mn-tonne brownfield expansion in Jamshedpur to address several investor concerns. The facility would not only be ROE accretive, but would also restrict the increase in gearing. Consolidated debt for Tata Steel is down about 20% from the peak following assets sales earlier this year. The European operation (TSE) remains vulnerable to macro headwinds, but now has several levers to withstand the downturn. Tata Steel offers a favourable risk/reward profile, with peak debt down, ROE accretive India expansion closer to commissioning and valuations already factoring in a negative value for European operations. India volume growth at higher margins: expected rapid stabilization of the 2.9mn-tonne expansion following full commissioning by 1Q FY13, as the new blast furnace (I) is an exact replica of the recently stabilized H blast furnace. Although backward integration for the new facility should fall in place over time, we expect the unit to benefit from operational synergies and better product mix. International mining assets, although incrementally getting closer to commissioning, will take time to achieve scale. Hence, this is not something that will benefit in the short run but can be very lucrative in the long run.

Positives of Tata Steel Tata Steel stock offers a favorable risk-reward profile, with peak debt down (20%), ROEaccretive India expansion closer to commissioning and valuations already factoring in a huge negative value for European operations Successful implementation of restructuring initiatives in Europe and ramp-up of Mozambique coal block would result in additional US$300mn of cash flows for the European operations, helping to reduce investor concerns of parent support to finance its debt obligations.

Risks with TATA STEEL A delay in commissioning of brownfield expansion in India, or a 10% further drop in volumes for the European business leading to negative return due to high fixed costs Continuous demand destruction in Europe and delays in commencing mining operations in subsidiaries pose further risk to our thesis
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TSE does not have captive access to raw materials, hence, an increase in raw material prices without a corresponding increase in steel prices is an additional risk

TATA STEEL RATIO ANALYSIS Profitability Ratios Mar '11 Mar '10 Mar '09 Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) Liquidity and Solvency Ratios. Mar '11 Mar '10 Mar '09 Mar '08 Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio
1.78 1.45 0.59 0.58 1.12 0.76 0.68 0.68 0.91 0.57 1.34 1.31 3.81 3.52 1.08 1.07 1.69 1.37 0.69 0.68 34.20 23.28 23.28 23.16 23.16 13.48 31.36 20.65 20.65 19.96 19.96 13.06 33.69 23.83 23.83 21.09 21.09 15.01 37.70 26.41 26.41 23.43 23.43 17.11 39.84 28.10 28.47 23.53 23.90 27.71 38.11 33.82 35.70 30.95 37.68 33.27 41.94 37.04 39.61 33.97

Mar '08

Mar '07

Mar '07

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Debt Coverage Ratios Mar '11 Mar '10 Mar '09 Mar '08 Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio
6.14 0.59 6.82 4.41 0.68 5.00 5.71 1.34 6.37 8.35 1.08 9.25 26.19 0.69 29.45

Mar '07

Comments on the financials Profitability ratios : The company is earning handsomely on its investments, the company has operating profit margin of 38% which is pretty high in comparison to its competitors also it is comfortably placed as it is offering a very good product mix. The company is also earning around 23% as the net profit margin and if these profitability ratios are maintained over a period of time then the company can have tremendous growth. The expansions which are being planned by the company give it a major boost over its competitors. Liquidity and solvency ratios : The company has current ratio of around 1.78 which is very good for any company. The liabilities are very less in comparison to the assets and therefore it is unlikely that the company is going to face any liquidity issue.

Debt servicing ability: The debt of the company is not very high and the interest coverage ratio sits comfortably at 6.14. also the company has increased its interest coverage ratio in the recent past and the chances of company defaulting in its debt payments are very less.

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Valuation Return on market for past 10 years (Rm) = 14.48% Beta for TATA STEEL ( taken from BSE website ) = 1.87 Risk free rate ( Indian Government Bonds ) = 8%

Expected return (Re) = RFR + Beta (Return on Market RFR) = 0.08 + 1.87(0.1448 - 0.08) = 0.2011 or 20.11%

And the return given by the company in the past 5years :

Capital gain: price of stock today-price of stock 5 years back : 398.55 558.21 : -159.66 Dividend over 5 years: : 15.5+16+16+8+12 : 67.5 TOTAL LOSS = 159-67.5 = 91.5

Return given by stock on year to year basis is negative and is nowhere in comparison with the investor expected return of 20.11%. The fall was mainly attributed to recession in the year 2008 and the consecutive steep fall in prices of steel. The fall which came in 2008 came after 6 years of boom for TATA STEEL and from that fall, prices havent reached their earlier level. According to these valuations TATA STEEL is a not a good investment.

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TECHNICAL ANALYSIS

The price of TATA STEEL has increased in a rally in the past 3-4 months but since the it has stabilized. As of now no particular pattern is visible also the EMA and the MACD are also not showing any particular trend. With less movement in the stock in the past one month there is a big fight between the bulls and the bears which is giving a fuzzy figure for short term.

RESULT While in the short run things are not looking so clear and can move in any direction but in the long run TATA STEEL is a good bet. With the expanding capacity and higher margin the stock will move up in the long run. Also with current stock prices low due to morale of markets this is the time to buy and accumulate TATA STEEL.

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JSW STEEL
The disruption in iron ore supply in Karnataka following the Supreme Courts order in April 2011 has hit JSW Steel hard. However, its utilization has improved from a low of 30% to around 60% currently, as iron ore availability has improved both from e-auction and NMDC. While an early resolution of the Karnataka mining issue unlikely, it would impact costs, not availability of iron ore. Utilization set to improve albeit at a higher cost: We do not expect an early resolution of the iron ore mining ban. The Supreme Court recently postponed (until July 2012) its hearing to consider an appeal towards a partial lifting of the ban (at 15 mines having no major violations). Iron ore supply from e-auction has improved for JSW (inventory of 45 days now) and logistics bottle-necks are slowly being addressed. This should further improve its utilization, albeit procuring costs will remain high. J SW believes efficiency improvements from recent complete integration of coke oven sinter, pellet and power plant, coupled with already efficient conversion costs, should support margins. Strategic investment in Ispat to remain a drag: Issues in gas procurement, rising power and interest costs has hit JSW Ispat (49.3% held by JSW Steel) hard. Furthermore, supply of pellets, earlier expected from JSW Steels unit, has also been impacted by the mining ban in Karnataka.

Why JSW is trading at a discount The stock is pricing in most of the negative news flow and is now trading at 53% of its replacement cost. However, with the iron ore mining impasse in Karnataka continuing, the stock will continue to trade at a discount to its peers.

Positives for JSW steel Ramping up utilization levels to 85% as new capacity is fully available in FY13, from an improvement in iron ore availability would also drive operating. leverage benefits. T he iron ore situation returning to normal would shrink the multiple discount with its peers. JSWs balance sheet is relatively far stronger now (would have been better had it not been for the Ispat acquisition). However, because of the iron ore mining impasse in Karnataka and JSWs dependence on local ore, the stock will continue to trade at a discount to its peers.

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Risks with JSW STEEL Iron ore sourcing costs rising further on account of the extended mining ban in Karnataka, and if losses in Ispat widen, would lead to our downside case. higher-than-expected steel prices and lower raw material costs could have upside risks to these estimates and vice-a-versa. Depending upon the outcome of the mining probe in Karnataka, the companys iron ore prices may vary significant JSWs debt represents around 2/3 of its EV currently, making it highly sensitive to earnings and valuation multiples. As is evident in the tables below, a small change in EBITDA and/or target valuation multiple can have both upside and downside risks. A lthough, JSW owns a 49.3% stake in JSW Ispat, it might be obligated to support JSW Ispats balance sheet by the lenders, which represents significant downside risk to our price target.

JSW STEEL RATIO ANALYSIS Profitability Ratios Mar '11 Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%)
14.11 13.71 13.71 8.64 8.64 11.73 17.33 14.46 14.46 11.09 11.09 15.08 14.51 13.41 13.41 3.23 3.23 11.53 23.43 20.09 20.09 14.92 14.92 18.76 28.55 20.76 20.84 14.98 13.80 22.89 20.08 14.01

Mar '10
23.52 17.28

Mar '09
20.42 14.32

Mar '08
29.46 23.05

Mar '07
32.79 26.92

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Liquidity and Solvency Ratios Mar '11 Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio
0.78 0.49 0.74 0.72

Mar '10
0.58 0.31 1.26 1.25

Mar '09
0.44 0.28 1.51 1.34

Mar '08
0.51 0.28 1.06 1.01

Mar '07
0.64 0.43 0.84 0.79

Debt Coverage Ratios Mar '11 Mar '10 Mar '09 Mar '08 Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio
4.44 0.74 5.64 3.81 1.26 4.81 3.00 1.51 3.64 6.13 1.06 7.16 5.85 0.84 6.99

Mar '07

Comments on the financials Profitability ratios : The profitability of the company has decreased in the last year and the fall was quite steep. Also it is earning quite less in comparison to its competitors. While the profitability is quite enough for meeting its cost and obligations but the end return to the shareholders is not good. The company is earning around 8.64% as the net profit margin which is very less to its competitors, the company should manage its profitability or else the condition can get worse. Also due to the low profitability the growth of the company might be hampered. Liquidity and solvency ratios : the company has current ratio of 0.79 which is quite

comfortable for meeting its obligations and the company is unlikely to face liquidity ratios.

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Debt servicing ability: The debt of the company is quite less and therefore interest obligation should not be an issue to the firm and the interest coverage ratio sits comfortably at 4.44. also the company has increased its interest coverage ratio in the recent past and the chances of company defaulting in its debt payments are very less. Valuation Return on market for past 10 years (Rm) = 14.48% Beta for JSW STEEL ( taken from BSE website ) = 1.89 Risk free rate ( Indian Government Bonds ) = 8%

Expected return (Re) = RFR + Beta (Return on Market RFR) = 0.08 + 1.89(0.1448 - 0.08) = 0.2024 or 20.24%

And the return given by the company in the past 5years :

Capital gain: price of stock today-price of stock 5 years back : 595.55 - 611.75 : -16.2 Dividend over 5 years: : 14+1+9.5+12.3 : 36.8 TOTAL GAIN = -16.2+36.8 = 20.6

Return given by stock on year to year basis = 0.67% Since the stock has given year on year growth of about 0.67% which is way too low. Also the stock price is very less in comparison to its peers due to all the negative news related to this particular company and this is likely to continue in the future. Due to these reasons it is not advisable to invest in this stock at the moment till the time all the negativity fades away.

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TECHNICAL ANALYSIS

JSW has in the short run show a rally followed by a correction and the prices have shown a downtrend in the recent past with MACD going below the EMA(9) also the EMA(20) has also shown a downtrend recently. The graph is showing a pennant trend which means that prices are expected to rise in the short run, but it may be a falling star which may go to new low. Result In the short run as well as the long run JSW is looking quite risky, with most of its expansion far in the future as well as no resolution of Karnataka issue the JSW will continue to trade in discount. There may be huge upside if the Karnataka issue is solved quickly but the chances are quite less, the best bit about JSW is that it is backed by a lot of assets and can give good returns after 3 to 4 years.

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NMDC The Indian iron ore mining impasse has resulted in speedy approvals for NMDC, as it has stood out as "the ethical miner". However, considering ground realities, we expect volume benefits to be only gradual. Volume growth benefits to be gradual; regulatory proposals to remain an overhang: Additional mining approval in Karnataka would aid medium-term volume growth. However, considering logistics challenges, we expect volume ramp-up at Karnataka to be gradual, also remain cautious on NMDCs targeted volume growth guidance of 50mn tonnes by FY15. The draft mining bill, recently approved by the Cabinet, recommends a mining tax equal to the royalty for non-coal companies, has not been approved by the parliament. If imposed, the impact to EPS will be huge. The Steel Ministry is demanding an export tax hike to 30% (20% currently). A further hike in export duties can affect the profitability very seriously.

NMDC will spend about Rs160bn for its proposed steel plants in Chhattisgarh (3mn tonnes) and Karnataka (2mn tonnes) in FY12 and FY13, respectively. While complete backward integration substantially enhances the financial viability of the project, we believe execution is a key monitor able. NMDC has been eyeing multiple acquisition opportunities for international iron ore and coal assets. Effective utilization of cash resources (Rs207 on 1H FY12) would be a potential catalyst enhancing return ratios as compared to ROE-dilutive cash reserves. However, the quantum of investments and related timelines are not yet known. Export taxes in India, subsidies costs for the steel industry at the expense of miners, Although NMDC boasts world-class mining assets with mine life in excess of 30 years,

Positives for NMDC Expected volume growth to be slow, despite permission to ramp up volumes in Karnataka. Implementation of the proposed mining bill will continue to remain an overhang on the stock. Moreover, NMDC trades at a ~30% premium (according to P/E ratio) to its international peers. DCF does not factor any value for the upcoming steel project. Assuming that the market pays value for the CWIP, it could add cRs30/share upside. Additional volumes from successful international acquisition is a key positive, though not quantifiable.

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Risks With NMDC Export duty increasing further to 30%, coupled with implementation of the mining bill, would lead to our downside case. NMDCs valuation are extrem ely sensitive to long-term price assumption of blended realization. This in turn is dependent on: 1) global commodity prices; 2) export-domestic mix of NMDC; and 3) changes in export duties in India. Variation in any of these estimates would be a risk. Also NMDC is planning for some acquisitions in the foreign market most of them are in early stages, while nothing is final yet but this may pose as a threat in the long run. NMDC RATIO ANALYSIS Profitability Ratios Mar '11 Mar '10 Mar '09 Mar '08 Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) 34.33 25.02 26.66 21.69 21.30 12.34 35.80 27.56 24.60 22.56 21.59 13.61 35.71 27.45 25.51 23.75 22.50 14.26 43.35 26.91 26.09 22.96 22.39 14.95 41.46 25.82 25.60 24.10 22.75 13.47 33.53 27.68 32.78 28.05 33.35 26.98 42.76 31.99 40.01 30.10 Mar '07

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Liquidity and Solvency Ratios. Mar '11 Mar '10 Mar '09 Mar '08 Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio 2.89 2.85 1.27 1.41 2.80 2.76 1.26 1.26 3.03 2.97 1.10 0.84. 3.91 3.83 1.14 0.74 4.06 3.97 1.50 1.10 Mar '07

Debt Coverage Ratios Mar '11 Mar '10 Mar '09 Mar '08 Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio 11.26 1.27 15.17 9.32 1.26 11.32 8.79 1.10 12.59 9.15 1.14 10.68 8.93 1.50 9.35 Mar '07

Comments on the financials Profitability ratios : The profitability of the company are at comfortable levels in comparison to the competitors also with above 21% net profit margin and more than 12% as ROCE the company is certainly giving good returns to its shareholders. The company is also grow ing at a very fast pace and it political issue are solved then a big jump in the prices of shares can be expected. Liquidity and solvency ratios : The company has current ratio of over 2.5 which is more than required and also the quick ratio is also above 2.5 which means that the company has most of its current assets in liquid form i.e. cash and marketable securities. The risk of facing liquidity issue is negligible.
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Debt servicing ability: The debt to equity ratio of the company stands at just 1.27 and the return on the capital is pretty high which suggest that company will not face any issue in meeting its interest obligations. The interest coverage ratio stands at 11.26 which is very high and should not pose threat to the company in the future. Valuation Return on market for past 10 years (Rm) = 14.48% Beta for NMDC STEEL ( taken from BSE website ) = 2.04 Risk free rate ( Indian Government Bonds ) = 8%

Expected return (Re) = RFR + Beta (Return on Market RFR) = 0.08 + 2.04(0.1448 - 0.08) = 0.2121 or 21.21%

And the return given by the company in the past 5 years :

Capital gain: price of stock today-price of stock 5 years back : 170.80 - 69.99 : 100.81 Dividend over 5 years: : 1.85+2.85+2.21+1.75+4.3+1 : 13.96 TOTAL GAIN = 100.81+13.96 = 114.77

Return given by stock on year to year basis = 21.42% Since the stock has given year on year growth of about 21.42% which is almost equal to the demand of the investor so the stock is fairly priced and performing well but the real problematic area for NMDC is the Govt. policy front which increases the stocks riskiness. If we go by the valuations and the return given by the stock, it is a viable option but we have to consider other factors affecting the stock.

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TECHNICAL ANALYSIS

Both the EMA and the MACD has shown a positive trend in the recent time and with MACD crossing the middle line as well as the EMA(9) that means that trend is likely to remain in its favor for some time. No recognizable pattern can be seen in this graph. RESULT For the short term NMDC looks positive but in the long run its future remains in the hands of the government which looks poised to further increase duty on the goods. The valuations state that it is fairly priced and is giving good returns to investors. Also the Karnataka issue is likely to hamper the growth of this stock in the long run. So I suggest investing for short term but limit exposure in the long run.

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SESA GOA The regulatory environment continues to be unfavorable for Sesa Goas iron ore mining operations. Earnings visibility for Sesa Goa over the next two years is quite low, due to uncertainty over volumes in Karnataka, the ongoing government investigation of the Goa mining sector, Proposals included in the draft mining bill and a possible further hike in export duties. with more than half of the balance sheet locked in investments in Cairn India, Western Cluster (WCL) and Vedanta Aluminum ICDs ROE is likely to dip sharply going forward. Sesa Goas Karnataka operations continue to be impacted by the mining ban. Although management claims that the Karnataka mine has been examined and cleared by concerned authorities but the likely production will likely resume from FY13 The ongoing Shah Commission investigation, logistics issues and the fact that the erstwhile Dempo mines need to become compliant as per new regulations are key risks to volumes in Goa. The draft mining bill, recently approved by the Cabinet recommends a mining tax equal to the royalty for non coal companies, although the bill has not yet been approved by the parliament. If imposed will hit the EPS very hardly. Capex commitment in WCL uncertain: Sesa Goas recent proposal to buy a 51% stake in Western Cluster Ltd from Elenito Minerals was ratified by the local government as it will create liquidity issue in the long run Also it is estimated that SESA GOA will have to invest around $600 MN in the next 2-3 years which will most probably create some liquidity issue. Positives with SESA GOA A go ahead to the Vedanta (The parent company of SESA GOA) - Crain Deal will have a positive impact on the prices of the share A positive outcome from the Goa mining scam will also positively affect the share price. If operations are resumed quickly in Karnataka then also it may go in green. Risks Expected a drop in ROE with increased investments in non core activities. Also a great risk in the form of regulatory obstacles faces SESA GOA, if duties over it are increased the the share may move down substantially. The ongoing investigation in Goa and Karnataka add to the existing threat to SESA GOA and
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the investigation may take some time to resolve resulting in long term low return from investment. Variation in global iron ore prices is an obvious risk to Sesa Goa. Besides, outcome of regulatory investigations in Karnataka & Goa mining industry and changes in export duty and royalty rates are other key risks. SESA GOA RATIO ANALYSIS Profitability Ratios Mar '11 Mar '10 Mar '09 Mar '08 Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%)
56.31 40.22 40.22 39.62 39.62 40.37 55.34 35.44 35.44 38.35 38.35 34.53 61.45 40.24 40.24 36.86 36.86 73.31 68.73 41.30 41.30 40.98 40.98 90.41 58.61 30.95 30.76 29.43 29.24 78.10 57.32 53.44 56.42 53.13 62.32 59.18 69.92 67.43 57.74 55.02

Mar '07

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Liquidity and Solvency Ratios. Mar '11 Mar '10 Mar '09 Mar '08 Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio
2.01 1.62 0.08 0.08 3.63 3.33 0.27 0.27 2.60 2.22 1.95 1.27 1.82 0.93

Mar '07

---

---

---

Debt Coverage Ratios Mar '11 Mar '10 Mar '09 Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio
143.83 0.08 7.19 62.13 0.27 4.50 3,346.99 84,120.67 3,565.28

Mar '08

Mar '07

-6.12

-8.08

-4.30

Comments on the financials Profitability ratios : The company is small firm in comparison to its peers like SAIL, TATA STEEL etc. but the company is growing at a very fast pace. The profitability ratio of the company is very high and is unmatched by its competitors this is due to the fact that due to small size of the company it only picks up few projects which generally are the most profitable. Liquidity and solvency ratios : The company has a lot of assets in liquid form and the liabilities of the firm are not that much. The current ratio of the company stands at 2.01 i.e. for every liability there are more than twice the assets backing it up. Also the quick ratio of the co. is more than 1.5 which is more than required.
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Debt servicing ability: The debt of the firm is negligible in comparison to the equity of the firm. Interest coverage of more than 143 is there and it will definitely not be an issue for the firm. Valuation Return on market for past 10 years (Rm) = 14.48% Beta for SESA GOA ( taken from BSE website ) = 1.56 Risk free rate ( Indian Government Bonds ) = 8%

Expected return (Re) = RFR + Beta (Return on Market RFR) = 0.08 + 1.56(0.1448 - 0.08) = 0.1810 or 18.10%

And the return given by the company in the past 5 years :

Capital gain: price of stock today-price of stock 5 years back : 181.51 48.01 : 133.5 Dividend over 5 years: : 2.5+4.5+2.25+3.25+3.5+2 : 18 TOTAL GAIN = 133.5+18 = 151.5

Return given by stock on year to year basis = 32.96% SESA GOA has given a very good profit to its investors. The year on year return given by the stock is around 32.96% which is way ahead of its expected return of 18.1% . If we only go by valuations then the return on the stocks are very attractive but the stock has a lot of political and regulatory issues which might hamper the growth of the company in the future.

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TECHNICAL ANALYSIS

The MACD as well as EMA in the short run have not shown any recognizable pattern also the sentiments of the markets could not be captured through these indicators and with the current negative sentiments running Amok in the markets it is advisable to stay away from this counter for the short term. RESULT With both the technical and fundamental analysis not favoring SESA GOA in the short as well as in the long term we would not suggest to enter into this company till either the Karnataka issue is resolved or either the Goa investigation comes in their favor. But till then SESA GOA has too much risk and the chances of the stock prices going further down is probability that cannot be overlooked, the stock prices may go up if the VedantaCrain deal gets through.
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SAIL SAILs modernization-cum expansion projects would yield meaningful upside only in FY14,In the near term, the highest conversion cost places the company at a relative disadvantage compared to peers. Cost of the company are expected to increase by 5 % in the coming year that also put it at disadvantage over other it competitors. SAIL was coming up with a FPO, while it has been delayed it may also be done in some time that will also impact the EPS. Volume growth muted over next 12-15 months, expect the next main expansion (2mn tonnes at ISP) and Bokaro (3.1mn tonnes) to be completed only by August 2012 While other steel expansions - Bhilai (2.1mn tonnes) and Rourkela (2mn tonnes) - are scheduled for commissioning by March 2013. In the near term, we expect volume growth to remain muted. Conversion cost to get worse before improving: expect SAILs wage costs to increase at a CAGR of 5% over FY11-13, on the back of: 1) an increase in inflation-linked wage component; and 2) Provisioning for wage hikes for non-executives (66% of wage costs), due to wage revisions due in Jan 2012. SAILs blended realizations will continue to remain at a discount to its peers, mainly due to an inferior product mix. Cost and time overruns coupled with rising leverage may derate the multiple: Ongoing expansion at SAIL has led to increased leverage and its balance sheet turning into net debt (Rs93bn) from net cash of Rs51bn in FY10. Positives for sail Faster commissioning of capacity of SAIL will add to huge profitability as till now SAIL has the biggest clients. Lower than expected salary increase will cause its profitability to rise rapidly. Since the operating leverage is quite high therefore any positive support from govt will lead to high profitability.

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Risks Volumes will be an issue in the short run and the additional capacity will be added in the late 2013 or 2014. The extra burden of employees in the coming couple of years and revision of salary which is due in 2012 will have adverse effect on the profitability. With these two factor the profitability as well as the stock prices will take a huge hit and can tank up to 10%.

SAIL RATIO ANALYSIS Profitability Ratios Mar '11 Mar '10 Mar '09 Mar '08 Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%)
12.59 14.00 13.68 11.03 10.94 13.21 19.40 17.91 17.91 15.73 15.73 20.46 17.48 16.67 16.67 13.40 13.40 27.61 25.10 20.77 20.77 18.16 18.16 44.03 29.94 20.77 20.77 17.38 17.02 44.94 16.08 11.97 22.69 18.35 20.41 16.61 28.19 24.17 28.09 23.63

Mar '07

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Liquidity and Solvency Ratios. Mar '11 Mar '10 Mar '09 Mar '08 Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio
1.21 1.05 0.54 0.54 1.60 1.53 0.50 0.39 1.61 1.24 0.27 0.21 1.68 1.23 0.13 0.12 1.52 1.01 0.24 0.22

Mar '07

Debt Coverage Ratios Mar '11 Mar '10 Mar '09 Mar '08 Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio
15.93 0.54 18.66 26.26 0.50 28.71 40.02 0.27 44.31 48.48 0.13 51.04 30.64 0.24 33.12

Mar '07

Comments on the financials Profitability ratios : The profitability of the firm is quite low in comparison to the competitors of the firm the firm is working on a low profitability model and this would be a disadvantage to the firm. And this would also hamper growth in the long run. Liquidity and solvency ratios : The company has high liquidity and the current liabilities are more than sufficient to cover all the short term obligations. With quick ratio more than 1 and current ratio 1.21 the issue of liquidity crunch should not arise. Debt servicing ability: The debt of the firm is very less as evident by the low debt to equity ratio. Therefore the interest and debt obligations should not be an issue to the firm.

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Valuation Return on market for past 10 years (Rm) = 14.48% Beta for SAIL ( taken from BSE website ) = 1.56 Risk free rate ( Indian Government Bonds ) = 8%

Expected return (Re) = RFR + Beta (Return on Market RFR) = 0.08 + 1.56(0.1448 - 0.08) = 0.1810 or 18.10%

And the return given by the company in the past 5 years :

Capital gain: price of stock today-price of stock 5 years back : 92.70 146.35 : -53.65 Dividend over 5 years: : 1.5+3.7+2.6+3.3+2.4+1.2 : 14.7 TOTAL LOSS = 53.65-14.7 = 38.95

Return given by stock on year to year basis is negative i.e. people have lost money on this stock. If we go by the valuations and the return given by the stock, it is a not viable option also with other factors stacked against the company this is not a good bet to invest in for some time till things look better for the company.

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TECHNICAL ANALYSIS

The technical analysis of SAIL is not able to give a clear picture of the sentiment surrounding SAIL and there is no recognizable pattern here also. The MACD also the EMA are almost in the mid and can go to either direction from here. The volume of share traded is also has not been very strong in the last couple of months to give any indication. RESULT The company has big projects in the future and with a lot of customers and volumes the company is set to perform well in the distant future but in the short run things do not look so positive as better options are available to the investors Also with not expansion in the volumes in this year and increase in liabilities due to wage increase will also have a negative impact on the profitability in the short run, this impact will depend upon the decision of govt. about how much wage to increase.

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CONCLUSION The Steel industry in the last couple of month have seen a decrease in volumes also with the low market sentiments there is not a single pattern which matches the price chart of the steel industry. Also the prices of the stocks have shown similar trend with spike in prices around three months back and since then the prices have fallen and stabilized. On the basis of the technical as well as the fundamental analysis the result of various companies can be summarized as: company Analysis

Jindal Steel and Fundamental Analysis: the company has better product mix then its Power LTD. competitors and the volumes are increasing therefore we should invest in this stock. The valuations have also shown that the company has given good returns to the investors which is more than the expected return Technical Analysis: MACD is indicating strong reversal in the prices therefore we should invest in this stock. TATA STEEL Fundamental Analysis: TATA Steel is a good bet in the long run with good margins and capacity therefore investment should be made for long term. Valuations tell us that the stock has given less return in the past but with good growth plan for the future you can expect return to be good. Technical Analysis: things are not looking up in the short run and therefore investments should not be made for short duration of time. JSW STEEL Fundamental Analysis: With most of its expansion long in the future and the Karnataka issues JSW is risky bet and therefore investment should not be made. Technical Analysis: In the short run too JSW is not looking good from an investors point of view. NMDC Fundamental Analysis: With Govt. increasing Duty and the Karnataka issue still undecided the stock is very risky in the long run. The valuations are in favor of this stock but things are still too risky as we cannot be sure that the company will maintain same level of return from that share. Technical Analysis: Both the EMA and the MACD has shown a positive trend in the recent time and the stock is showing upward trend which is likely to continue therefore investment should be made.

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SESA GOA

Fundamental analysis: Involved in too many problems such as legal issues in Karnataka and Goa therefore abstain from this stock. The future returns from this company will depend upon the policies taken by the government which is not likely to be anytime soon. Technical Analysis: Technicals too do not favor the company and the downtrend is likely to continue for some time.

SAIL

The stock of the company has not given good return in the past and the things are not looking good for the company in the near future, therefore even if you have to invest for long time then investment should be made after an year when the salary rise has been played out and the expansion of capacity is near. Technical Analysis: Technical Analysis does not give a clear picture of the sentiments revolving around the stocks and the price movement can not be predicted for short period of time.

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Bibliography Appel, Gerald. The Moving Average Convergence-Divergence Method. Great Neck, NY: Signalert, 1979. Nison, Steve. Japanese Candlestick Charting Techniques. New York, NY: McGrawHill, Inc., 1991. ARONSON, David R., 2006. Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals. Hoboken, New Jersey: John Wiley & Sons, Inc. Bodie, Kane, Marcus, Investments, McGraw-Hill Primis, 2003, page 348 Thomsett M. C., Mastering fundamental analysis, Kaplan Publishing, 1998, pages 2836 I.M. Pandey, Tenth Edition

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