2008-09

Tata Steel Limited:09 Financial Analysis {Fiscal Year 2008-09}

2008

Tata Steel
Financial Analysis
The report gives an insight into the financial health and strength of the Tata Steel
Company (formerly known as TISCO). The company’s performance for the Fiscal
Year 2008
2008-09 has been reviewed by studying the Annual Report, news and other
sources of information available on the internet. The report also compares
company’s performance on a time line and gives trend analysis for past 5 years.

Submitted to:
Prof. R. Srinivasan
Management and Financial Account
Accounting
International Management Institute

ANISH CHARU ASHWINI DIVAY

November, 2009
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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008
INTRODUCTION
We bring to you the story of one of the oldest and most successful organizations of our times and
celebrate the true spirit of steel with Tata Steel Limited. The reasons for choosing TSL for our study are
simple.

• It is Asia’s First and India’s larges

largest steel company in the private
Sector

• It is India’s 2nd largest and 2nd most profitable company in

private sector

• It is one of the most admired companies in terms of HR

Practices and Sustainable growth and Corporate Social Responsibility

TATA GROUP
The Tata Group is a multinational conglomerate based in Mumbai, India. India In terms of market
capitalization and revenues, Tata Group is the largest private corporate group in India and has been
recognized
gnized as one of the most respected companies in the world. It has interests in steel, automobiles,
information technology, communication
communication, power, tea and hospitality.

The Tata Group has operations in more than 85 countries across six continents and its companies
compa export
products and services to 80 nations. The Tata Group comprises 114 companies and subsidiaries in seven
business sectors, 27 of which are publicly listed. 65.8% of the ownership of Tata Group is held in
charitable trusts. Companies which form a mmajor part of the group include Tata Steel,
Steel Corus Steel, Tata
Motors, Tata Consultancy Services
Services, Tata Technologies, Tata Tea, Titan Industries,
Industries Tata Power, Tata
Communications, Tata Teleservices
Teleservices, Tata AutoComp Systems Limited and the Taj Hotels.
Hotels

The group takes the name of its founder, Jamsetji Tata,, a member of whose family has almost invariably
been the chairman
hairman of the group. The current chairman of the Tata group is Ratan Tata,
Tata who took over
from J. R. D. Tata inn 1991 and is currently one of the major international business figures in the age of
globality.. The company is currently in its fifth generation of family stewardship.
The 2009 annual survey vey by the Reputation Institute ranked Tata Group as the 11th most reputable
company in the world. The survey included 600 global companies.

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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

VISION
Guided by a powerful vision, Tata Steel strives forward to reach newer and higher milestones, every year.

TATA Steel: An Overview

• Established in 1907 by Jamshetji N Tata in Jamshedpur

• Formerly known as Tata Iron and Steel Company Limited (TISCO)
• 28.1 million tonnes per annum of crude steel
production capacity
• With Corus acquisition, TSL is world
world’s 6th largest
steel producer
• Ranked “ Best Steel Maker” by World Steel
Dynamics in 2006, 2005 and 2001
• Ranked 315th on Fortune Global 500 (post the
Corus acquisition
• 82,700 employees (2007)
• Listed on BSE and NSE
• Headquartered in Jamshedpur, Jharkhand and
registered office in Mumbai

Backed by 100 glorious years of experience in steel making, Tata Steel is among the top ten steel
producers in the world with an existing annual crude steel production capacity of 30 Million Tonnes Per
Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia and is now the world`s
second most geographically diversified steel producer and a Fortune 500 Company.

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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}

Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian
markets, with manufacturing units in 26 countries.

It was the vision of the founder; Jamsetji Nusserwanji Tata., that on 27th February, 1908, the first stake
was driven into the soil of Sakchi. His vision helped Tata Steel overcome several periods of adversity
and strive to improve against all odds.

Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA which is
slated to increase to 10 MTPA by 2010. The Company also has proposed three Greenfield steel projects
in the states of Jharkhand, Orissa and Chhattisgarh in India with additional capacity of 23 MTPA and a
Greenfield project in Vietnam.

Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings,
Singapore, Tata Steel has created a manufacturing and marketing network in Europe, South East Asia and
the pacific-rim countries. Corus, which manufactured over 20 MTPA of steel in 2008, has operations in
the UK, the Netherlands, Germany, France, Norway and Belgium.

Tata Steel Thailand is the largest producer of long steel products in Thailand, with a manufacturing
capacity of 1.7 MTPA. Tata Steel has proposed a 0.5 MTPA mini blast furnace project in Thailand.
NatSteel Holdings produces about 2 MTPA of steel products across its regional operations in seven
countries.

Tata Steel, through its joint venture with Tata BlueScope Steel Limited, has also entered the steel
building and construction applications market.

The iron ore mines and collieries in India give the Company a distinct advantage in raw material
sourcing. Tata Steel is also striving towards raw materials security through joint ventures in Thailand,
Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata Steel has signed an agreement with
Steel Authority of India Limited to establish a 50:50 joint venture company for coal mining in India.
Also, Tata Steel has bought 19.9% stake in New Millennium Capital Corporation, Canada for iron ore
mining.

Exploration of opportunities in titanium dioxide business in Tamil Nadu, ferro-chrome plant in South
Africa and setting up of a deep-sea port in coastal Orissa are integral to the Growth and Globalisation
objective of Tata Steel.

Tata Steel’s vision is to be the global steel industry benchmark for Value Creation and Corporate
Citizenship. Tata Steel India is the first integrated steel company in the world, outside Japan, to be
awarded the Deming Application Prize 2008 for excellence in Total Quality Management.

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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}

Areas of business
The company produces crude steel and basic steel products, and makes steel for building and
construction applications through Tata BlueScope Steel, its joint venture with Australia's BlueScope
Steel.

Tata Steel has also set up joint ventures for the development of limestone mines in Thailand, the
procurement of low-ash coal from Australia and coking coal from Mozambique, and the setting up of a
deep-sea port in Orissa in India. The company is exploring opportunities in the titanium dioxide business
in Tamil Nadu, India, and will soon be producing high carbon ferrochrome from its plant in South Africa.

STEEL PLANT PROJECTS :

India:
The Company has embarked upon setting up three green field steel plants in eastern India:
• 12 MTPA* plant in Jharkhand
• 6 MTPA plant in Orissa
• 5 MTPA plant in Chhattisgarh
• Jamshedpur Steel Works will become a 10 MTPA unit by 2010.
*MTPA = million tonnes per annum

OTHER PROJECTS:

India:

• 1.2 MTPA Metcoke project in West Bengal

• Deep sea port in Dhamra, Orissa
• Titanium Dioxide project in Tamil Nadu
• Joint Venture with BlueScope Steel for metallic coating and painting steel unit

Overseas:
• Development of a source of low ash coal from Queensland, Australia
• Ferro Chrome production in Richards Bay, South Africa
• Coking Coal project in Mozambique
• Development of iron ore deposits in Ivory Coast (West Africa)
• Limestone mining project in Oman
• JV with Steel Authority of India Limited for coal mining in India
• Iron ore mining project with New Millennium Capital Corporation, Canada

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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
Joint ventures, associates and subsidiaries:

Tata Steel has numerous joint ventures and subsidiaries. Among them are:

• Tinplate Company of India

• Tayo Rolls
• Tata Ryerson
• Tata Refactories
• Tata Sponge Iron
• Tata Metaliks
• Tata Pigments
• Jamshedpur Injection Powder (Jamipol)
• TM International Logistics
• mjunction services
• TRF
• Jamshedpur Utility and Service Company (JUSCO)
• The Indian Steel and Wire Products(ISWP)
• Lanka Special Steel
• Sila Eastern Company

Awards and Recognitions

• Tata Steel India awarded the Deming Application Prize 2008 for excellence in Total Quality
Management. It is the first integrated steel company in the world, outside Japan to get this award.
• World Steel Dynamics has ranked Tata Steel as the world's best steel maker (for two consecutive years)
in its annual listing in February 2006.
• Tata Steel has been conferred the Prime Minister of India's Trophy for the Best Integrated Steel Plant
five times.
• It has been awarded Asia's Most Admired Knowledge Enterprise award five times in 2003, 2004, 2006,
2007 and 2008.
• Conferred the prestigious Global Business Coalition Award for Business Excellence in the Community in
recognition of its pioneering work in the field of HIV/ AIDS awareness.
• Tata Steel works has been conferred the prestigious social accountability (SA) 8000 certification by
social. Accountability international (SAI), USA. It is the first steel company in the world to receive this
certificate.
• Corporate Sustainability Report of Tata Steel hailed by United Nations Environment Programme
(UNEP) and Standard and poor as strongest, submitted by any corporate house from emerging
economies.
• Best governed company Award 2006 for setting high standards in governance practices.
• Tata Steel won "Award for Corporate Social Responsibility in Public health" by US- Indian Business
Council (USIBC), Population Services International (PSI) and the center for Strategic and International
Studies (CSIS) in 2007.

MAJOR SOURCES OF REVENUE (Both operating and other):

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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

• According to the annual report 2008

2008-2009 of Tata
Steel, the particulars are as follows:

Figure1: Major Sources of Revenue

• The divisional net sales of the company are shown

here:

Figure2: Division-wise
wise major sources of Revenue

Tata Steel Stock Price last 3 Years (30-10-2006 to 30-10-2009)

TEAM ACAD
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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

RATIO ANALYSIS
a financial ratio or accounting ratio is a ratio of two selected numerical values taken from an enterprise's
financial statements. There are many standard ratios used to try to evaluate the overall financial condition of a
corporation or other organization. Financial ratios may be used bby y managers within a firm, by current and
potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to
compare the strengths and weaknesses in various companies.[1] If shares in a company are traded in a financial
fi
market, the market price of the shares is used in certain financial ratios.

OVERALL PERFORMANCE MEASURES

1. Price/earnings ratio:

P/E RATIO 2008-09 2007-08 2006

2006-07 2004-05 2003-04
P/E RATIO = (Market price per share/Net income per share)
Net income 5073690 4687030000 4222150000 3506380000 34741600 Analysis: The P/E gives
(Rs.) 0000.00 0.00 0.00 0.00 000 you an idea of what the
Weighted 7305848 697748601.0 572409842.0 553472856.0 55347285 market is willing to pay
Average No. 34.00 0 0 0 6 for the company’s
of Ordinary earnings. Here in this
Shares for case Price/earnings ratio
Basic EPS in FY2008-09
FY2008 had
(Nos.) increased almost 3 times
EPS = Net 69.44696 67.17362089 73.76 63.35 62.77 from the value in
Income / No. 583 FY2003-04.04. However,
of Ordinary due to the recent turmoil
Shares for in the financial market,
Basic EPS this ratio is reduced to
(Rs.) 5.19 from 5.64 last. This
Market 360.18 379.00 242.72 171.68 123.68 means that the market has
Share Price
lower confidence in the
(Rs.)
shares of Tata Steel
P/E RATIO 5.19 5.64 3.29 2.71 1.97
compared to last year.

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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

2. Return on assets:

2008-09 2007-08 2006-07 2005-06 2004-05

Analysis: The ROA is a very
Net 5073.69 4687.03 4222.15 3506.38 3474.16 important tool from the investment
Income
Interest 1152.69 786.50 173.90 118.44 186.80
point of view. The ROA tells an
Tax 2113.87 2379.33 2039.50 1733.58 1833.66
investor how much profit a company
Tax 41.66 50.76 58.17 49.90 43.43
generated for each Re.1 1 in assets. The
rate figure of 22.60% in FY 2004-2005
2004 to
Total 67715.82 53844.30 31051.16 18425.88 15843.29 8.49% in FY 2008-2009 2009 indicates that
Assets the company is steadfastly moving
Return (Net Income + Interest (1-tax
tax rate))/Total Assets*100 from being an asset light company to
on an asset heavy one. This ratio also
Assets helps the company decide whether or
ROA 8.49 9.42 13.83 19.35 22.60
not to initiate a new project.
projec The basis
of this ratio is that if a company is
going to start a project they expect to
earn a return on it.

3. Return on Shareholders’ equity:

Analysis: The ROE is defined as

2008-09 2007-08 2006-07
07 2005- 2004- the amount of net income
06 05
returned as a percentage of
Net Income 5073.69 4687.03 4222.15 3506.38 3474.16
shareholders equity. Return on
Shareholders' 30176.26 27300.73 14096.15 9755.30 7059.92 equity measures a corporation's
equity profitability by revealing how
much profit a company generates
Return on (Net Income/shareholders' equity)*100
with the money shareholders
shareholders'
equity
have invested. Over the years,
Tata steel has been witnessing a
downfall in its ROE, a fact
16.81 17.17 29.95 35.94 49.21 which is also witnessed in the
S/E ratio. ROE also acts as a
useful tool to compare the
profitability of Tata steel with its
competitors.

TEAM ACAD
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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

PROFITABILITY MEASURES

Every firm is most concerned with its profitability. One of the most frequently used tools of
financial ratio analysis is profitability ratios which are used to determine the company's bottom
line. Profitability ratios show a company’s overall efficiency and performance. We can divide
profitability ratios into two types: margins and returns. Ratios that show margins represent the
firm’s ability to translate sales dollars into profits at various stage
stagess of measurement. Ratios that
show returns represent the firm’s ability to measure the overall efficiency of the firm in generating
returns for its shareholders.

4. Gross margin percentage:

2008-09 2007-08 2006-07 2005-06 2004-05

Net sales 24315.77 20028.28 17985.69 15394.15 14646.98
revenue
Analysis: This number represents
Cost of 17308.43 13183.05 11571.94 10101.42 9259.17 the proportion of each unit of
goods
revenue that the company retains as
sold
Gross Net sales revenue - cost of goods sold gross profit. The Gross margin
margin 7007.34 6845.23 6413.75 5292.73 5387.81
percentage of 34.18 percent in
2007-2008
2008 and 28.82 percent in
Gross Gross margin/Net sales revenues*100
margin 2008-2009
2009 indicates that for every
percenta 100 paisa that the company
28.82 34.18 35.66 34.38 36.78
ge generates in revenue, 34 paisa and
now 29 paisa respectively, can be
put towards paying off selling,
general and administrative
expenses, interest expenses and
distributions to shareholders. Also,
since there has been a 15%
reduction in GMP, it clearly means
that the asset base has reduced.

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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

5. Profit Margin Percentage:

2008-09 2007-08 2006-07 2005-06 2004-05

Net Analysis: Indicates what portion
5073.69 4687.03 4222.15 3506.38 3474.16
Income of sales contributes to the
Net sales
income of a company. Thus the
24315.77 20028.28 17985.69 15394.15 14646.98 Profit Margin is 20.65 percent in
revenue
2008-2009
2009 and 23.8 percent in
Profit Net income / net sales revenue*100
2007-2008,
2008, respectively, are the
Margin contributions to the income of
Percentage the company.
20.87 23.40 23.48 22.78 23.72

6. Earnings per share:

2008-09 2007-08 2006-07 2005-06 2004-05

Net Analysis: Since Tata Steel is a
5073690 4687030 4222150 3506380 3474160
income
0000.00 0000.00 0000.00 0000.00 0000 publically traded company,
(Rs.)
Weighte
Earnings per share becomes
d one of the most widely used
Average and important ratios. EPS
No. of refers to the portion of a
7305848 6977486 5724098 5534728 5534728
Ordinary company's profit allocated to
34.00 01.00 42.00 56.00 56
Shares each outstanding share of
for Basic common stock. Simply put
EPS
Earnings per share serves as an
(Nos.)
Earnings Net income/ No. of shares outstanding indicator of a company's
per share 69.45 67.17 73.76 63.35 62.77 profitability. If we compare
the EPS of Tata steel for the
last two years, we see an
increase of 2 percent. This
means that the there is a 2
percent growth rate in the
company’s earnings.

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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

7. Cash Realization:

2008-09 2007-08 2006-07 2005-06 2004-05

Cash Analysis: It measures how
generated close a company’s net income
7397.22 6254.20 5118.10 3631.39 3174.8 is to being realized in cash.
by
operations Companies such as Tata Steel
Net that are less risky have cash
income 5073.69 4687.03 4222.15 3506.38 3474.16 realization ratios that exceed
(Rs.) 1.0, indicating that income
Cash Cash generated by operations / Net income may not be dependent on non-
non
realization cash sources such as mark-to-
mark
(times) 1.46 1.33 1.21 1.04 0.91 market accounting valuations,
which can be affected by
aggressive valuation decisions
by management.

8. Asset Turnover:

2004-05
2008-09 2007-08 2006-07 2005-06
Analysis: This ratio is useful to
determine the amount of sales
Net sales that are generated from each
24315.77 20028.28 17985.69 15394.15 14646.98
revenue dollar of assets. In the case of
Tata steel, it has a low asset
Total turnover which indicates that it
67715.82 53844.30 31051.16 18425.88 15843.29
Assets
makes high profit margin on its
Asset Sales revenue/total assets products. This ratio is also
turnover indicative of the pricing
(times) 0.36 0.37 0.58 0.84 0.92 strategy employed by the
company.

TEAM ACAD
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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

9.. Invested capital turnover

2008-09 2007-08 2006-07
07 2005-06 2004-05 Analysis:: The figures indicate that
Net sales there has been a increase in invested
24315.77 20028.28 17985.69 15394.15 14646.98 capital, however the increase in return
revenue
Long-term has not matched the growth in capital
liabilities + investment. This indicates that Tata
58741.77 47075.52 25597.50 14617.16 12143.30
Shareholders' Steel’s overall profitability has not
equity
been healthy for the studied period.
Invested Sales revenues/Long term liabilities + shareholders'
capital equity
FY % Investment
Inves %Return
turnover 2005-06 24.78 5.10
0.41 0.43 0.70 1.05 1.21 2006-07 83.91 16.83
(times)
2007-08 75.12 11.36
2008-09 20.37 21.41

Analysis: Equity turnover is used to 10.. Equity turnover

calculate the rate of return on common 2008-09 2007-08 2006--07 2005-06 2004-05
equity, and is a measure of how well a Net sales
24315.77 20028.28 17985.69 15394.15 14646.98
company uses its stockholders' equity revenue
to generate revenue. The higher the Shareholders'
ratio is, the more efficiently a company 30176.26 27300.73 14096.15 9755.30 7059.92
equity
is using its capital. w.r.t Tata Steel's
Equity
invested capital turnover, this again Sales revenues/shareholder's equity
turnover
shows a downturn over last 5 years (times) 0.81 0.73 1.28 1.58 2.07
and gives the impression that the
company is not able to grow its
revenue from stockholder's equity.

11. Day's cash

2008-09 2007-08 2006-07
07 2005-06 2004-05
Total 17308.43 13183.05 11571.94 10101.42 9259.17
Expenses Analysis:: The Day's cash or cash
Total non- 973.40 834.61 819.29 775.10 618.78 balance ratio indicates the number of
cash days that a company can pay its
expenses debts, as they become due, out of
Total Cash Total expenses - Total non
non-cash expenses current cash. The increase in the
Expenses
16335.03 12348.44 10752.65 9326.32 8640.39 ratio over last few years indicate
Cash cost Total cash expenses/365 better company image in the market.
per day 44.75 33.83 29.46 25.55 23.67 The abnormal value in 2006-07
2006 is
Cash 1590.60 465.04 7681.35 288.39 246.72 due to the Tata Steel acquiring
Day's cash Cash/cash cost per day Corus.
(days) 35.54 13.75 260.74 11.29 10.42

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 Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

12.. Day's receivables (or collection period) Analysis: A measure of the average time
2008-09 2007-08 2006--07 2005-06 2004-05 a company's customers take to pay for
Accounts purchases, equal to accounts receivable
159.25 143.44 NA NA NA
receivables divided by annual sales on credit times
Net sales
24315.77 19691.00 17985.69 15394.15 14646.98
365. The lower, the better. The analysis
revenue couldn't be made as the necessary figures
Current Accounts Receivables/ (Sales/365) could be found only for last two years
ratio 2.39 2.66 NA NA NA which display a slight slump. This means
that the number of day in which a sale is
realised has extended by a little margin.

Analysis: A measure of performance,

calculated by average inventory
13.. Day's inventory
divided by average daily cost of sales.
2008-09 2007-08 2006-07
2006 2005-06 2004-05
This returns a figure equivalent to the
Inventory 2,868.28 2,047.31 1827.54 1732.09 1523.34
number of days an item is held as
Cost of
inventory before it is sold. The lower goods sold
17308.43 13183.05 11571.94 10101.42 9259.17
the days inventory, the more efficient Day's Inventory/(cost of sales/365)
the company is, all other things being inventory 60.49 56.68 57.64 62.59 60.05
equal. This again has been almost
constant over the last 5 years with last
year indicating best performance in
this aspect.

14.. Inventory turnover

2008-09 2007-08 2006-07
07 2005-06 2004-05
Cost of Analysis: The he ratio of a company's annual
goods 17308.43 13183.05 11571.94 10101.42 9259.17 sales to its inventory; or equivalently, the
sold fraction of a year that an average item
Inventory 2,868.28 2,047.31 1827.54 1732.09 1523.34 remains in inventory. Low turnover is a
sign of inefficiency, since inventory
Cost of sales/inventory
Inventory usually has a rate of return of zero.
turnover 6.03 6.44 6.33 5.83 6.08 Inventory turnover has been almost same
over the years which implies that Tata
Steel has been successfully in controlling
Inventory (intake of raw
ra materials and it's
conversion into semi-finished
semi or finished
goods).

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Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

15.. Working capital turnover

2008-09 2007-08 2006
2006-07 2005-06 2004-05 Analysis: Current assets minus
Net sales current liabilities. Working capital
24315.77 20028.28 17985.69 15394.15 14646.98
revenue
measures how much in liquid assets
Current
assets
10285.09 36962.44 13701.89 4237.60 4083.58 a company has available to build its
Current business. The number can be
8974.05 6768.78 5453.66 3808.72 3699.99 positive or negative, depending on
liabilities
Working Current assets - current liabilities how much debt the company is
capital 1311.04 30193.66 8248.23 428.88 383.59 carrying. This ratio indicates that
Working Tata steel has been able to improve
Sales revenue / working capital
capital its working capital considerably and
turnover 18.55 0.66 2.18 35.89 38.18
this can be used to expand and
improve their operations.

Analysis: An indication of a company's

ability to meet short-term
term debt obligations; 16.. Current ratio
the higher the ratio, the more liquid the 2008-09 2007-08 2006--07 2005-06 2004-05
company is. If the current assets of a Current
10285.09 36962.44 13701.89 4237.60 4083.58
company are more than twice the current assets
liabilities, then that company is generally Current
8974.05 6768.78 5453.66 3808.72 3699.99
considered to have good short-term liabilities
financial strength. Tata steel's ratio has Current current assets/current liabilities
always been healthy in last 5 years though ratio 1.15 5.46 2.51 1.11 1.10
relative to 2007-08,
08, the current ratio has
decreased but still it is still higher than the
first two years of study. This indicates that
Tata Steel is in relatively good short-term
term
financial standing.
Analysis: This ratio is the most stringent
measure of how well the company is
17. Acid-test
test ratio
covering its short--term obligations, since
2008-09 2007-08 2006-07
07 2005-06 2004-05 the ratio only considers that part of current
Monetary
assets which can be turned into cash
current 6804.62 2211.18 34357.46 11368.91 2062.85
assets
immediately (thus the exclusion of
Current inventories). The ratio tells creditors how
8974.05 6768.78 5453.66 3808.72 3699.99 much of the company's short term debt can
liabilities
Current Monetary current assets/current liabilities be met by selling all the company's liquid
ratio 0.76 0.33 6.30 2.98 0.56 assets at very short notice. Tata Steel
acquired Corus in the year 2006 and hence
the ratio has spiked in FY 2005-07
2005 and this
TEAM ACAD does justify the fairness of low ration in the
ANISH CHARU ASHWINI DIVAY next two Fiscal Years.
Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

18. Capital intensity

2008-09 2007-08 2006-07

07 2005-06 2004-05
Analysis: The capital intensity ratio
Net sales indicates the relation of sales to that of
24315.77 20028.28 17985.69 15394.15 14646.98
revenue
current assets. Tata Steel has to use a
Property,
plant and 14482.22 12623.56 11040.56 9865.05 9112.24
majority of its capital to buy expensive
equipment machines instead of more labour and
Capital Sales revenue/property,, plant and equipment hence Tata Steel is a capital intensive
intensity industry with its investment increasing
(times) 1.68 1.59 1.63 1.56 1.61
in every fiscal year by a considerable
margin.

Analysis: Financial leverage ratios provide 19. Financial Leverage Ratio

an indication of the long-term
term solvency of 2008-09 2007-08 2006-07
2006 2005-06 2004-05
the firm i.e. the extent to which the firm is Total Assets 67715.82 53844.20 31051.16 18425.88 15843.29
using long term debt. An increase in this
ratio to 2.24 from 1.97 in FY 2007-08
Shareholders' 30176.26 27300.73 14096.15 9755.30 7059.92
indicates that Tata steel would find it more
equity
challenging to pay interest and principal Financial Assets/shareholders' equity
while obtaining further funding. leverage 2.24 1.97 2.20 1.89 2.24
ratio (times)

20.. Debt/equity ratio(using long term liabilities) Analysis: The D/E ratio is a financial ratio
2008-09 2007-08 2006--07 2005-06 2004-05 indicating the relative proportion of equity and
debt used to finance a company's assets. A high
Long-term 28565.51 19774.79 11501.35 4861.86 5083.38
liabilities
debt/equity ratio, as is the case with Tata Steel
at 94.66 percent in FY2008-09,
FY2008 generally
Shareholders' 30176.26 27300.73 14096.15 9755.30 7059.92 means that a company has been aggressive
agg in
equity financing its growth with debt. If a lot of debt is
Debt/equity Long-term
term liabilities/shareholders' equity*100 used to finance increased operations (high debt
ratio (per 94.66 72.43 81.59 49.84 72.00 to equity), the company could potentially
cent) generate more earnings than it would have
without this outside financing.
If this were to increase earnings
ear by a greater
amount than the debt cost (interest), then the
shareholders benefit as more earnings are being
spread among the same amount of shareholders.
However, the cost of this debt financing may
outweigh the return that the company generates
on the
he debt through investment and business
activities and become too much for the
TEAM ACAD company to handle.
ANISH CHARU ASHWINI DIVAY
Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

21. Debt/equity
bt/equity ratio(using Total liabilities)
Analysis: This D/E ratio is an
2008-09 2007-08 2006--07 2005-06 2004-05
alternative which is not used as
Total 37539.56 26543.57 16955.01 16955.01 8783.37
commonly
monly as the previous one, but
liabilities
is nonetheless an important
Shareholders' 30176.26 27300.73 14096.15 9755.30 7059.92 financial aid. This ratio also takes
equity
into consideration the current
Debt/equity Long-term liabilities/shareholders' equity*100
ratio (per liabilities since such liabilities are
124.40 97.23 120.28 88.88 124.41
cent) short-term
term and involve day to day
operations such as payroll and
interest payment.

Analysis: This ratio is a variation of the 22. Debt/capitalization

traditional debt-to-equity ratio; this value 2008-09 2007-08 2006-07 2005-06 2004-05
computes the proportion of a company's Long-term 28565.51 19774.79 11501.35 4861.86 5083.38
long-term debt compared to its available
liabilities
capital. By using this ratio, investors can
identify the amount of leverage utilized Long-term 58741.77 47075.52 25597.50 14617.16 14617.16
by a specific company and compare it to liabilities +
others to help analyze the company's risk Shareholders'
exposure. The higher the debt-to-capital equity
ratio, the more debt the company has
Debt/capitalization term liabilities + shareholders'
Long-term liabilities/ (long-term
compared to its equity. This tells
investors whether a company is more
(per cent) equity)*100
prone to using debt financing or equity 2.24 1.97 2.20 1.89 2.24
financing. This ratio in case of Tata steel
is evenly poised at 48.63 percent for
FY2008-09 thereby meaning that the
company has the flexibility of using
either of the two financing schemes.

23.. Times interest earned(TIE

earned(TIE)
Analysis: TIE is a metric used to
measure a company's ability to meet its
2008-09 2007-08 2006-07 2005-06 2004-05 debt obligations. Ensuring interest
Pre-tax 7315.61 7066.36 6261.65 5239.96 5297.28 payments to debt holders and preventing
operating bankruptcy depends mainly on a
profit company's ability to sustain earnings.
Interest 1152.69 878.70 173.90 118.44 186.80 However, a high ratio can indicate that a
Times (Pretax operating profit+interest)/interest companyany has an undesirable lack of debt
interest 7.35 9.04 37.01 45.24 25.36 or is paying down too much debt with
earned earnings that could be used for other
(times) projects.
The rationale is that a company would
yield greater returns by investing its
earnings into other projects and borrowing
at a lower costt of capital than what it is
currently paying for its current debt to
meet its debt obligations. Thus for the
FY2008-09,09, Tata steel has earned 7.35
TEAM ACAD times its interest charges.
ANISH CHARU ASHWINI DIVAY
Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

24.. Dividend yield

2008-09 2007-08 2006-07 2005-06 2004-05
Weighted Analysis:
Analysis Dividend
Average No. of shows how much a
Ordinary 7305848 company pays out in
697748601.00 572409842.00 553472856.00 553472856
Shares for 34.00 dividends each year
Basic EPS
relative to its share
(Nos.)
1168950 11689300000. 9439100000.0 7195100000.0 719510000 price. In the absence of
Dividend any capital gains, the
0000.00 00 0 0 0
Dividend per dividend yield is the
16.00 16.75 16.49 13.00 13.00
share return on investment for
Market Share a stock. Tata Steel has
360.18 379.00 242.72 171.68 123.68
Price (Rs.) given an excellent
Dividend yield Dividends per share/ Market price per share*100 dividend yield by
(per cent) 4.44 4.42 6.79 7.57 10.51
announcing a dividend
of Rs. 16 on each share.

Analysis: Dividend payout ratio is the 25. Dividend payout

percentage of earnings paid to 2008-09 2007-08 2006-07 2005-06
2005 2004-05
shareholders in dividends. It provides an Dividend 1168.95 1168.93 943.91 719.51 719.51
idea of how well earnings support the Net
dividend payments. Though the FY 4849.24 4687.03 4222.15 3506.38 3474.16
income
09 net income has increased, the
2008-09 Dividend Total Dividends / Net income *100
Dividend payout has decreased since payout
total Dividends paid has been the same 24.11 24.94 22.36 20.52 20.71
(per cent)
as the previous year.

Are the sales supported by corresponding increase in

volumes sold in each of its segments
The net sales increased by 23% during FY09 over FY08 Steel volume H1 H2 Change%
mainly due to higher prices realised on Steel as well as other FY 09 2.38 2.85 20%
producst during the first half of the year of the financial
year. While realisation declined following the global
FY 08 2.26 2.52 12%
economic slowdown, Steel volumes
olumes improved significantly in the second half as can be seen from in the table.

The divisional net sales of the Company are Net Sales FY 09 FY 08 Change Change %
shown here: Steel 20,456 16,539 3,917 24%
Tubes 1,410 1,217 193 16%
As explained above net sales in the Steel Ferroalloys
division increased by 23% due to increase in
prices in the first half of FY 09 and increase in
and Minerals 2,324 1,808 516 29%
volume in the second half of FY 09. Similarly Bearings 127 127 0 0%
sales of Tubes and Ferroalloys improved mainly Total 24,316 19,691 4,625 23%
due to higher realisations experienced during the year on account of increase in prices with lower volumes as
compared to the last year.
TEAM ACAD
ANISH CHARU ASHWINI DIVAY
Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
Company management
Organizational Structure
(Top Management)

TEAM ACAD
ANISH CHARU ASHWINI DIVAY
Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
Corporate Governance

The Company’s Corporate Governance Philosophy

The Company has set itself the objective of expanding its capacities and becoming globally competitive
in its business. As a part of its growth strategy, the Company believes in adopting the ‘best practices’ that
are followed in the area of Corporate Governance across various geographies. The Company emphasises
the need for full transparency and accountability in all its transactions, in order to protect the interests of
its stakeholders. The Board considers itself as a Trustee of its Shareholders and acknowledges its
responsibilities towards them for creation and safeguarding their wealth.

In accordance with the Tata Steel Group Vision, Tata Steel Group (‘the Group’) aspires to be the global
steel industry benchmark for value creation and corporate citizenship. The Group expects to realise its
Vision by taking such actions as may be necessary in order to achieve its goals of value creation, safety,
environment and people.

Board of Directors

The Company has a non-executive Chairman and the number of Independent Directors is more than one-
third of the total number of Directors. As on 31st March, 2009, the Company has 14 Directors on its
Board, of which 8 Directors are independent. The number of Non-Executive Directors (NEDs) is more
than 50% of the total number of Directors. The Company is in compliance with of clause 49 the Listing
Agreement pertaining to compositions of directors.

None of the Directors on the Board is a Member on more than 10 Committees and Chairman of more
than 5 Committees (as specified in Clause 49), across all the companies in which he is a Director. The
necessary disclosures regarding Committee positions have been made by the Directors.

The names and categories of the Directors on the Board, their attendance at Board Meetings during the
year and at the last Annual General Meeting, as also the number of Directorships and Committee
Memberships held by them in other companies are given below:

TEAM ACAD
ANISH CHARU ASHWINI DIVAY
Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}

* Excludes Directorships in associations, private, foreign and Section 25 companies

** Represents Chairmanships/Memberships of Audit Committee and Shareholders’/Investors’
Grievance Committee.

Ten Board Meetings were held during the year 2008-09 and the gap between two meetings did not
exceed four months. The dates on which the Board Meetings were held were as follows:

• 8th April 2008, 26th June 2008, 31st July 2008, 28th August 2008, 24th October 2008, 2nd
December 2008, 18th December 2008, 8th January 2009, 28th January 2009 and 27th February
2009.
• Dates for the Board Meetings in the ensuing year are decided well in advance and communicated
to the Directors.
• Board Meetings are held at the Registered Office of the Company. The Agenda along with the
explanatory notes are sent in advance to the Directors. Additional meetings of the Board are held
when deemed necessary by the Board.
• The information as required under Annexure IA to Clause 49 is being made available to the
Board.
• The Board periodically reviews compliance reports of all laws applicable to the Company. Steps
are taken by the Company to rectify instances of non-compliance, if any.
• During 2008-09, the Company did not have any material pecuniary relationship or transactions
with Non-Executive Directors, other than Dr. J. J. Irani and Dr. T. Mukherjee, to whom the
Company paid retiring benefits aggregating to Rs. 35.68 lakhs and Rs. 28.86 lakhs respectively.
• The Company has adopted the Tata Code of Conduct for Executive Directors, Senior
Management Personnel and other Executives of the Company. The Company has received
confirmations from the Executive Director as well as Senior Management Personnel regarding
compliance of the Code during the year under review. It has also adopted the Tata Code of
Conduct for Non-Executive Directors of the Company. The Company has received confirmations
from the Non-Executive Directors regarding compliance of the Code for the year under review.
Both the Codes are posted on the website of the Company.

TEAM ACAD
ANISH CHARU ASHWINI DIVAY
Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
Audit Committee

The Company had constituted an Audit Committee in the year 1986. The scope of the activities of the
Audit Committee is as set out in Clause 49 of the Listing Agreements with the Stock Exchanges read
with Section 292A of the Companies Act, 1956. The terms of reference of the Audit Committee are
broadly as follows:

• To review compliance with internal control systems;

• To review the findings of the Internal Auditor relating to various functions of the Company;
• To hold periodic discussions with the Statutory Auditors and Internal Auditors of the Company
concerning the accounts of the Company, internal control systems, scope of audit and
observations of the Auditors/Internal Auditors;
• To review the quarterly, half-yearly and annual financial results of the Company before
submission to the Board;
• To make recommendations to the Board on any matter relating to the financial management of the
Company, including Statutory & Internal Audit Reports;
• Recommending the appointment of statutory auditors and branch auditors and fixation of their
remuneration.

Mr. Subodh Bhargava, Chairman of the Audit Committee was present at the Annual General Meeting
held on 28th August, 2008.

The composition of the Audit Committee and the details of meetings attended by the Directors are given
below:

Ethical Practices

Since Tata Motors is a part of a large conglomerate company it needs to have a strong corporate
governance to ensure that its employees act ethically and the business continues to run smoothly
especially during the ever changing and dynamic global economy. “Tata Group’s corporate governance is
founded upon a rich legacy of fair, ethical, and transparent governance practices”
(tatacarsworldwide.com). One of the more important parts of this is the transparency of the company
people have a right to know what the company is doing not only to ensure ethical practices, but for the
insurance of their many shareholders whom have a right to know the inner workings of the company.

Tata has created some models for employees to guide themselves through everyday business practices to
ensure that the corporate governance is continuously being upheld. The Tata business excellence model is
upheld by Tata quality management services. Quality management is an in-house group dedicated to
helping the various Tata companies achieve their business objectives through specific processes. The two
TEAM ACAD
ANISH CHARU ASHWINI DIVAY
Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
main processes that the quality management services employees focus on are business excellence and
business ethics. These two objectives have helped build Tata into the strong, Business Policy &
Competitive Strategy dynamic company it is today. These models are entrenched in the company’s
ethnical standards and Tata feels strongly about enforcing both throughout the company. “Tata quality
management services plays the role of supporter and facilitator in the journey that Tata enterprises
undertake to reach the peaks of business eminence while, at the same time, adhering to the highest ethical
standards” (Tata.com).

To further prove their commitment to quality and ethical practices Tata has introduced annual quality
awards for those companies conducting business with the utmost quality. These awards are called the
JRD quality value awards named after the late chairmen JRD Tata. These awards are presented annually
on July 29th birthday of JRD Tata. Tata has committed to ensuring quality and ethical standards not only
within Tata Motors, but throughout their many other branches and sectors of the Tata Group. They have
done so by benchmarking quality standards through the Tata business excellence model as well as
providing incentives for companies to strive to improve the quality of their service, by awarding JRD
quality management awards.

SWOT analysis of the company

Strengths
• strong brand name of TSL and Tata Group
• India Operations capable of meeting its own iron ore requirements
• raw material security building through global operations
• leading sales and distribution capability
• low ware labor availability
• EVA+ Company

Weakness
• Low R&D investment
• Unscientific Mining
• Low Productivity

Opportunites
• Unexplored rural markets
• Growing domestic markets
• Growing global markets
• Developin countries not restrained under the kyoto protocol
• carbon credit traing on the rise
• high investment in infrastructure development

Threats
• World's big producers entering Indian Markets
• China set to becoming a net exporter
• High duties relating to pollution control and high energy cost
• Global economin slowdown

TEAM ACAD
ANISH CHARU ASHWINI DIVAY
Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008
Comparison with Tata Steel’s major competitors
Major Domestic Steel Producers
• ISPAT
• SAIL
• JSW
• BHUSHAN
• TATA
• ESSAR

Leading Global players

• Arcellor Mittal
• Posco
Comparison between major Indian Steel Players

P/E Comparison of Tata Steel, Arcelor Mittal and Sail (for investment purpose)

Company P/E ratio Debt Equity Ratio

Tata Steel 4.0 0.68
Arcelor Mittal 6.8 0.47
SAIL 8.4 0.24

Last Price Market Cap

Cap. Sales Net Profit Total Assets

(Rs. cr.) Turnover

SAIL 164.55 67,965.74 44,208.43 6,174.81 35,522.89
Tata Steel 471.55 41,836.58 24,315.77 5,201.74 56,650.78
JSW Steel 755.5 14,131.53 14,158.42 458.5 19,231.88
Visa Steel 36.4 400.4 1,035.01 -66.81 1,173.12

TEAM ACAD
ANISH CHARU ASHWINI DIVAY
Tata Steel Limited: Financial Analysis {Fiscal Year 2008-09}
2008

*HRC - Rockwell C Hardness

Sources have been mentioned wherever applicable to the best of our knowledge, however, in case any source is missing, we intend to mention
the necessary credentials.

TEAM ACAD
ANISH CHARU ASHWINI DIVAY