INVETORY MANAGEMENT

2011
GIAFOUR

PROJECT REPORT 3/7/2011

INVENTORY MANGMENT

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INTRODUCTION

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CHAPTER-1

1.1 INTRODUCTION

Every business needs adequate liquid resources in order to maintain day-to-

day cash flow. It needs enough cash to pay wages and salaries as they fall

due and to pay creditors if it is to keep its workforce and ensure its supplies.

Maintaining adequate working capital is not just important in the short-term.

Sufficient liquidity must be maintained in order to ensure the survival of the

business in the long-term as well.

Even a profitable business may fail if it does not have adequate cash flow to

meet its liabilities as they fall due.

Therefore, when businesses make investment decisions they must not only

consider the financial outlay involved with acquiring the new machine or the

new building, etc, but must also take account of the additional current assets

that are usually involved with any expansion of activity.

Increased production tends to engender a need to hold additional stocks of

raw materials and work in progress. Increased sales usually mean that the

level of debtors will increase. A general increase in the firm’s scale of

operations tends to imply a need for greater levels of cash.

Then we should know, why should the managers of a business pay special

attention to working capital?

Management must ensure that a business has sufficient working capital. Too

little will result incash flow problems highlighted by an organization exceeding

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its agreed overdraft limit, failing topay suppliers on time and being unable to

claim discounts for prompt payment. In the long run, abusiness with

insufficient working capital will be unable to meet its current obligations and

willbe forced to cease trading even if it remains profitable on paper.

On the other hand, if an organization ties up too much of its resources in

working capital it willearn a lower than expected rate of return on capital

employed. Again this is not a desirable situation.

The three components, which put affects on working capital, are as:

1. Inventory

2. Receivable

3. Cash

Operating cycle

For a manufacturing company like; steel industry; cement industry and many

other manufacturing companies, Inventory management is the most crucial

part for the organization.

Inventories which may classified as:

1. Raw material

2. Work-in-progress

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3. Finished goods

Whereas receivable and cash management can be done after sales but

inventory management must be done before sale. It requires appropriate

forecasting of production and sales. As it is based on forecasting, so it

becomes difficult task for any financial manager for any organization.

Inventory Management must be designed to meet the dictates of market place

and support the company’s Strategic Plan. The many changes in the market

demand, new opportunities due to worldwide marketing, global sourcing of

materials and new manufacturing technology means many companies need to

change their Inventory Management approach and change the process for

Inventory Control.

Inventory Management system provides information to efficiently manage the

flow of materials, effectively utilize people and equipment, coordinate internal

activities and communicate with customers.

Inventory Management does not make decisions or manage operations; they

provide the information to managers who make more accurate and timely

decisions to manage their operations.

The Inventory Management system and the Inventory Control Process

provides information to efficiently manage the flow of materials, effectively

utilize people and equipment, coordinate internal activities, and communicate

with customers. Inventory Management and the activities of Inventory Control

do not make decisions or manage operations; they provide the information to

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Managers who make more accurate and timely decisions to manage their

operations.

The basic building blocks for the Inventory Management system and Inventory

Control activities are:

1) Sales Forecasting or Demand Management

2) Sales and Operations Planning

3)Production Planning

4)Material Requirements Planning

5)Inventory Reduction

If we see for TATA STEEL, company is maintaining more than 5% inventories

in their hand. Also the company consuming raw material more than 20% of

sale value in the last year. So inventory management is one of the essential

for the organization.

1.2 MAJOR TYPES OF INVENTORY

Raw material

Raw materials are inventory items that are used in the manufacturer's

conversion process to produce components, subassemblies, or finished

products. These inventory items may be commodities or extracted materials

that the firm or its subsidiary has produced or extracted. They also may be

objects or elements that the firm has purchased from outside the organization.

Even if the item is partially assembled or is considered a finished good to the

supplier, the purchaser may classify it as a raw material if his or her firm had

no input into its production. Typically, raw materials are commodities such as

ore, grain, minerals, petroleum, chemicals, paper, wood, paint, steel, and food

items. However, items such as nuts and bolts, ball bearings, key stock,

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casters, seats, wheels, and even engines may be regarded as raw materials if

they are purchased from outside the firm.

Work-in-process

Work-in-process (WIP) is made up of all the materials, parts (components),

assemblies, and subassemblies that are being processed or are waiting to be

processed within the system. This generally includes all material—from raw

material that has been released for initial processing up to material that has

been completely processed and is awaiting final inspection and acceptance

before inclusion in finished goods.

Any item that has a parent but is not a raw material is considered to be work-

in-process. A glance at the rolling cart product structure tree example reveals

that work-in-process in this situation consists of tops, leg assemblies, frames,

legs, and casters. Actually, the leg assembly and casters are labeled as

subassemblies because the leg assembly consists of legs and casters and

the casters are assembled from wheels, ball bearings, axles, and caster

frames.

Finished goods

A finished good is a completed part that is ready for a customer order.

Therefore, finished goods inventory is the stock of completed products. These

goods have been inspected and have passed final inspection requirements so

that they can be transferred out of work-in-process and into finished goods

inventory. From this point, finished goods can be sold directly to their final

user, sold to retailers, sold to wholesalers, sent to distribution centers, or held

in anticipation of a customer order.

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1.3 HISTORY OF INDIAN STEEL SECTOR

Steel is an important indicator to analyze the economic development of a

country. The steel industry is highly scientific and technology oriented.

Technological advancement is very important for the overall health of the steel

industry.

Indian Steel Industry

During Ancient Period

The history of iron and steel making in India goes back by several centuries. It

dates to 480 BC when archers in India used arrows tipped with steel. The iron

pillar of Dhar near Indore in Madhya Pradesh dates back to about 321 AD, the

iron pillar of Kutab Minar near Delhi dates back to about 400 AD and the iron

beams of Sun temple of Konark in Orissa dates back to 13th century. These

pillars are a testimony to ancient India's expertise in the making of steel.

Before Independence

The roots of the Indian Steel industry in modern times can be traced to the

year 1874, when a company called Bengal Iron works at Kulti near Asansol in

West Bengal produced iron. One of the most important landmarks in the

history of Indian steel industry was the commencement of the Tata Iron and

Steel Company at Jamshedpur in the state of Bihar in 1907.The other

prominent steel manufacturers before independence were Indian Iron and

Steel Company (1922),Mysore Iron and Steel Works(1923) and Steel

Corporation of Bengal (1937).

After Independence

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India found it difficult to sustain development in steel sector after

independence on its own due to the lack of technological development. The

high cost of developing technology in this sector proved to be a major

hindrance. That's when the government decided to go for synergy with other

countries for technology transfer. Some of the prominent steel plant set up

then was in Rourkela in collaboration with West Germany and in Bokaro in

collaboration with Russia. These steel plants came under the purview of

public sector enterprises.

Post Liberalization

The post liberalization scenario in the Indian Steel industry has witnessed a

monumental shift. Some of the salient features are:

• The need for license for increasing capacity has been abolished.

• Steel industry has been removed from the list of Industries under the

control of state sector.

• Foreign equity investment in steel has gone up to 74%.

• In January 1992 the price and distribution controls were removed.

• Policies like convertibility of rupee on trade account, freedom to

mobilize resources from overseas financial markets and restructuring

of existing tax structure have immensely benefited the industry.

Future trends

• It has to be said that the global recession has affected the Indian steel

industry especially stainless steel, but the steel industry is trying to offset

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the negative effect of the recession by focusing on transportation and

construction projects which are usually funded by the government.

• India is the only country globally to record a positive overall growth in

crude steel production

at 1.01 per cent for

the period January

-March 2009.

It is estimated that

India's steel consumption will grow at nearly 16% annually till 2012.

• The National Steel Policy has forecasted the demand for steel would

reach 110 million tons by 2019-2020.

1.4 SCENARIO OF PRESENT STEEL INDUSTRY IN INDIA

• The Indian steel industry have entered into a new development stage

from 2005-06, riding high on the resurgent economy and rising demand

for steel. Rapid rise in production has resulted in India becoming the 5th

largest producer of steel.

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• It has been estimated by certain major investment houses, such as

Credit Suisse that, India’s steel consumption will continue to grow at

nearly 16% rate annually, till 2012, fuelled by demand for construction

projects worth US$ 1 trillion. The scope for raising the total consumption

of steel is huge, given that per capita steel consumption is only 40 kg –

compared to 150 kg across the world and 250 kg in China.

• The National Steel Policy has envisaged steel production to reach 110

million tonnes by 2019-20. However, based on the assessment of the

current ongoing projects, both in Greenfield and Brownfield, Ministry of

Steel has projected that the steel capacity in the county is likely to be

124.06 million tonnes by 2011-12. Further, based on the status of MOUs

signed by the private producers with the various State Governments, it is

expected that India’s steel capacity would be nearly 293 million tonne by

2020

Production

• Steel industry was delicensed and decontrolled in 1991 & 1992

respectively.

• Today, India is the 7th largest crude steel producer of steel

in the world.

• In 2008-09, production of Finished (Carbon) Steel was 59.02

million tonnes.

• Production of Pig Iron in 2008-09 was 5.299 Million Tonnes.

• Last 5 year's production of pig iron and finished (carbon)

steel is given below:

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(in million tonnes)

Category 2005-06 2006-07 2007-08 2008-09 2009-10

Pig Iron 3.228 4.695 4.993 5.314 5.289

Finished Carbon Steel 40.055 44.544 55.416 58.233 59.02

(Source: Joint Plant Committee)

Demand - Availability Projection

• Demand – Availability of iron and steel in the country is projected by

Ministry of Steel annually.

• Gaps in Availability are met mostly through imports.

• Interface with consumers by way of a Steel Consumer Council exists,

which is conducted on regular basis.

• Interface helps in redressing availability problems, complaints related

to quality.

Steel Prices

• Price regulation of iron & steel was abolished on 16.1.1992. Since then

steel prices are determined by the interplay of market forces.

• There has been an up-trend in the domestic steel prices since 2006-07

and the trend accentuated since January this year.

• Rise in raw material prices, strong demand in the international and

domestic market and up-trend in the global steel prices have been

some of the reasons cited by the industry for increase in the steel

prices in the domestic market.

• The mismatch in demand and supply is considered to be the main

reason on the demand side for the rise in steel prices. Honorable Steel

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Minister has held discussion with all major steel investors including

Arcellor-Mittal, POSCO, Tata Steel, Essar, Ispat and also SAIL, RINL

to explore the possibility of expediting the ongoing as well as

envisaged steel projects.

• The Government also took various fiscal and other measures for

stabilizing the steel prices like exempting pig iron, non alloy steel and

steel making inputs like zinc, ferro-alloys and met coke from customs

duty; withdrawing DEPB benefits on export of various categories of

steel products and bringing back railway freight on iron ore from

classification 180 to 170 for domestic steel producers.

• In May 2008, the Government imposed 15% export duty on semi-

finished products, and hot rolled coils/sheet, 10% export duty on cold

rolled coils/sheets and pipes and tubes and 5% export duty on

galvanized steel in coil/sheet form in order to further curtail rising prices

and increase supply of steel in the domestic market.

Imports of Iron & Steel

• Iron & Steel are freely importable as per the extant policy.

• Last five years import of Finished (Carbon) Steel is given below:-

Year Qty. (In Million Tonnes)

2005-2006 2.109
2006-2007 3.850
2007-2008 4.436

(Partly estimated)
2008-09 6.581
2009-2010 5149

(Partly estimated)
(Source: Joint Plant Committee)

Exports of Iron & Steel

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1. Iron & Steel are freely exportable.

2. Advance Licensing Scheme allows duty free import of raw materials

for exports.

• Duty Entitlement Pass Book Scheme (DEPB) introduced to facilitate

exports. Under this scheme exporters on the basis of notified

entitlement rates, are granted due credits which would entitle them to

import duty free goods. The DEPB benefit on export of various

categories of steel items scheme has been temporarily withdrawn from

27th March 2009, to increase availability in the domestic market.

• Exports of finished carbon steel and pig iron during the last five years

and the current year is as :

Exports (Qty. in Million Tonnes)

Year Finished (Carbon) Steel Pig Iron

2005-2006 4.381 0.393

2006-2007 4.478 0.440

2007-2008 4.750 0.350

(Prov.estimated)

2008-2009 4.627 0.560

2009-2010 3.482 0.350

(Prov.estimated)

(Source: Joint Plant Committee)

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CHAPTER-2

Company profile

Present scenario of TATA steel

The Tata Steel Group has always believed that mutual benefit of countries,

corporations and communities is the most effective route to growth. Tata Steel

has not limited its operations and businesses within India but has built an

imposing presence around the globe as well. With the acquisition of Corus in

2008 leading to commencement of Tata Steel's European operations, the

Company today, is among the top ten steel producers in the world with an

existing annual crude steel production capacity of around 30 million tonnes

per annum and employee strength of above 80,000 across five continents.

The Group recorded a turnover of Rs.147, 329 Crores (US$ 28,962 million) in

2009 - 2010. The Company has always had significant impact on the

economic development in India and now seeks to strengthen its position of

pre-eminence in international domain by continuing to lead by example of

responsibility and trust. Managing a global workforce and setting global

benchmarks is primarily about managing diversity. In a process of inclusive

growth, every person contributes to the blueprint of the future and is truly

committed to the stated objectives. And one of the key requisites for

successful diversity management is a shared vision.

HISTORICAL ACHIEVEMENT OF TATA STEEL

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Below is a chronological list of major business decisions in the history of Tata

Steel ltd.

➢ 1907

The Tata iron and steel company was formed at Mumbai.

➢ 1917

During the year 1, 50,000 equity shares were issued at par and 26,250

deferred shares were issued at a premium of Rs.370 per share.

➢ 1973

With the effect from 1st April, the wholly owned subsidiary, West

Bokaro Ltd. was amalgamated with the company.

➢ 1983

During the year Indian tube company Ltd. was amalgamated with the

company.

During the year Tata steel agreed to purchase the bearing

manufacturing plant of Metal box India of Kharagpur.

➢ 1985

With the effect from 1st October, Indian Tube co ltd. was amalgamated

with TISCO.

➢ 1987

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On 2nd March, 300000 tonnes capacity bar and rod mill costing about

Rs.78 crores was commissioned under the second phase of

modernization.

On 11th August, approval were received for investment of Rs. 16 crores

in the capital of Tata Timken ltd. , a company promoted by Tata steel.

➢ 1988

During the period the company, installed a new sinter plant with a

capacity of 1.3 million tones per annum.

➢ 1992

During the year company privately placed with UTI, LIC, Army group

insurance fund and GIC and its subsidiaries 17.5% non-convertible

debenture worth Rs.185 crores.

➢ 1995

30,018,246 no. of equity shares allotted to Tata sons ltd. and their

associate companies on exercise of warrant held by them.

➢ 1997

Tata steel’s international trading division was awarded the prestigious

ISO-9002 certification by the Indian Register Quality System (IQRS).

➢ 2000

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Tata steel, the flagship of Tata group, has entered into understanding

with Tata International to export 30% of production at Tata steel

major’s new 1.2 million tones cold rolling in Jamshedpur.

Tata steel has tied up with the POSCO-Hyundai steel processing

venture located in Chennai for getting its cold rolled coil process.

Tata steel has launched its largest branded steel product. Tata Tiscon,

a specially construction grade steel, which will be available in the retail

market.

➢ 2001

Tata SSL has become a subsidiary of Tata Iron and steel company,

following a successful open offer to the shareholder of TSSL.

➢ 2002

TISCO entered into a power distribution business. TISCO has began

distribution power in Jamshedpur.

➢ 2008-09

Jamshedpur plant’s crude steel making capacity from 6.8 mtpa to 9.7

mtpa, at an estimated cost of Rs.13,900 crore. The scheduled date for

completion of the project is April 2011.

Projects and operations: India

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The Tata Steel Group’s growth and globalization strategy is driven by its

business expansion while maintaining profitability and mitigating risks. The

Tata Steel Group over the years has focused on enhancing raw material

security and announced major joint ventures in various parts of the globe.

Tata Steel’s Indian operations are one of the most competitive assets in the

global steel industry and therefore, capacity expansion in India is one of the

key strategies for Tata Steel. The Indian operations draws its greatest

strength and its competitive position as one of the lowest cost producers of

steel in the world from the quality and yield of its raw material units. The

mines have successfully offered raw material security and have partially

insulated Tata Steel from the volatility of the global markets. The Company

has, therefore, continuously modernized and expanded its raw material

facilities right from the 1950s, when it had launched its two million tonne

expansion programme.

In the financial year 2009-10, the Company commissioned its 1.8 million

tonnes of crude steel making capacity at Jamshedpur, which will be further

augmented by 3 million tonnes through the ongoing brown field expansion, by

2011. The 3-mtpa expansion at Jamshedpur will enable Tata Steel to

strengthen its market share in the Flat Products segment and simultaneously

reduce the operating costs over a large volume of production. The long-term

strategy is to continue to pursue capacity expansion in India through

Greenfield projects as well.

Therefore the India growth strategy remains a fundamental part of the long-

term strategy of the Tata Steel Group.

1. Jharkhand

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Seraikela Plant

Greenfield Project

Project Highlights:

• Setting up a 12 million tonnes per annum Greenfield integrated steel

plant in the state.

• The Greenfield project is to be set up in two phases. The first phase of

6 mtpa is likely to be set up within 36 months to 54 months from the

date of obtaining all statutory clearances.

Capacity: 12 mtpa integrated steel plant.

Project Update: Tata Steel is awaiting the R&R Policy from the State

Government for its Greenfield project.

Press Releases

• Telemedicine centre inaugurated at Tata Main Hospital.

• Tribal cultural centre, Tata Steel organized the award ceremony for

Jyoti Fellowship and Moodie Endowment.

• Graduation ceremony of trainees at Tata Steel’s technical training

centre in Seraikela.

• Jharkhand honors Tata Steel Sports Persons.

Jamshedpur Plant

Brownfield Project

Project Highlights

MoUs with the Government of Jharkhand was signed in 2005 for:-

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• Expansion of Tata Steel's existing plant at Jamshedpur from 5 mtpa to

10 mtpa.

• Co-operation in the area of Human Resource Development through

Industrial Training Institutes.

• The project includes the development of iron ore mines and other raw

materials sources including coal and logistic linkages for this plant.

Project Update: The first phase which entails reaching a crude steel

capacity of 6.8 mtpa has essentially been completed. The capacity of the

Jamshedpur plant is expected to become 10 mtpa by December 2011.

Chhattis garh

Jagdalpur Plant (Bastar)

Project Highlights

• MoUs with the Chhattisgarh government was signed on June 04,

2005.

• The integrated steel plant will have an ultimate capacity of 5 mtpa of

steel with 2 mtpa in the first phase.

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• The project also includes development of captive iron ore mines to

meet the iron ore requirements of this plant.

Capacity: 5 mtpa Greenfield integrated steel plant.

Project Updates: The process of acquiring land is under progress. The

Company has also applied for environmental clearances and other

licenses.

Orissa

1. Greenfield Project at Kalinganagar

Project Update: Preliminary work focusing on land acquisition,

rehabilitation and resettlement work is in progress. The order for

equipment and services has been placed in accordance to the

stipulations in the MoUs signed with the Orissa State Government. A

grant for the mining lease of iron ore has been sought.

Capacity: Greenfield Steel Plant of capacity 6mtpa.

2. Port Project at Dhamra

The Dhamra Port Company Ltd. is a 50:50 joint venture between Tata

Steel Ltd. and Larsen and Toubro for the development of a deep water

port in Dhamra, Orissa.

3. West Bengal

Haldia Plant

Project Highlights: Hoogly Met Coke and Power Company Ltd. (incorporated

in 2005), is a 100% subsidiary of Tata Steel. The Company was set up to

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produce low ash metallurgical coke primarily to meet Tata Steel’s requirement

at its Jamshedpur plant and also to supply hot gases to Tata Power for

electricity generation by adopting heat recovery route.

Capacity: 1.2 mpta of coke.

Project Update: Capacity of plant is likely to be increased to 1.6 mtpa in

2009.

Tamil Nadu

1. Tuticorin Mines

Project Highlights

• MoUs with the Government of Tamil Nadu signed on June 27, 2002.

• Titania project involves mining, mineral separation and value addition

i.e. pigments production in phases subject to techno- economic

viability.

• Prospecting license over 80 sq.km area granted by the Government of

Tamil Nadu in the districts of Tirunelveli and Tuticorin with due

approval from Government of India.

• The feasibility study conducted with the help of Consortium Partners

comprising Outokumpu Finland's physical separation division based in

USA, Outokumpu-Lurgi, Germany, Pincock Allen and Holt, USA, a

resource and mining consulting company and L&T.

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• Environmental Impact Assessment of the project carried out and

Environmental Management Plan drawn with the assistance of MIN-

MEC Consultancy.

Capacity: 60,000 tonnes per annum of titanium di-oxide.

Press Releases

• Tata Steel committed to its Titanium-dioxide project in Tuticorin and

Tirunelveli.

• Tata Steel signs MoUs with Tamil Nadu Government for its Titanium

Oxide project.

• “TATA COLONY” at Koottappanai Village, Tirunelveli, inaugurated.

Tata Relief Committee initiative for Tsunami affected victims of Tamil Nadu.

Projects and operations: International

The Tata Steel Group’s growth and globalization strategy is driven by its

business expansion while maintaining profitability and mitigating risks. The

Tata Steel Group over the years has focused on enhancing raw material

security and announced major joint ventures in various parts of the globe.

1. Australia

2. Bowen Basin Project

Location: Bowen Basin in Central Queensland.

Project Highlights

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• Tata Steel has a joint venture with Vale in Australia for a Coking Coal

Mine.

• Tata Steel on December 14, 2005 signed agreements to buy a 5%

interest in the Carborough Downs Coal Project located in Queensland,

Australia.

• Tata Steel and Vale, along with other joint venture partners (Nippon

steel, JFE and POSCO) have undertaken a large scale expansion of

the Carborough Downs Coal Mine near Moranbah in Central

Queensland in Australia.

• The Carborough Downs coal project is majority owned and operated by

a subsidiary of AMCI Holdings Australia Pty Ltd.

• The project life is currently estimated to be 14 years and approximately

58 million tonnes of raw coal is expected to be mined during this

period.

• There is a further potential resource of 100 million tonnes of raw coal in

the unexplored areas and deeper seams.

• The clean coal envisaged to be produced would be low-ash coking coal

and PCI coal, highly suitable for steel making.

• Tata Steel also signed an off take agreement for a proportion of the

production over life of the project.

• The first raw coal production started in August 2006 and the mine is

currently producing around 1 mtpa.

Capacity: Mining capacity of 58 million tonnes of raw coal for 14 years.

Project Updates

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• Commissioning of the large scale and new mining equipment (Long

wall), which will be one of the largest in Australia, is expected by mid

2009.

• The second phase of expansion has been undertaken, at the end of

which the company is expected to produce 3.7mtpa of coking coal and

PCI coal.

Press Releases

• Tata Steel's investment for the expansion of production at Carborough

downs coal mine in Australia.

• Tata Steel acquires stake in Australian coal mines.

1. Canada

1. Iron ore project

Location: Northern Quebec, Labrador and Newfoundland provinces.

Project highlights:

• Tata Steel, through its subsidiaries, signed a Heads of Agreement

memorandum with New Millennium Capital Corporation, Canada.

• The aim was to develop iron ore projects in the region.

• Tata Steel holds a 19.9% stake in NML with an option to acquire an

80% equity interest in NML’s Direct Shipping Ore project.

• The agreement also provides exclusivity to Tata Steel in the Labmag

taconite iron ore property.

• Tata Steel will have 100% off take rights to the produce of the mine at

the time of production commencement.

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• The iron ore from this project will serve Tata Steel’s European facilities.

Capacity: The DSO resource is estimated to be approximately 100 million

tonnes. The LabMag deposit consists of 3.5 billion tonnes of proven and

potential mineral reserves. These reserves are contained in the 4.6 billion

tonnes of measured and indicated resources and 1.2 billion tonnes of inferred

resources.

Project Update: Tata Steel, along with NML is trying to work out an

economically viable solution to advance the project. The feasibility study for

the DSO project is progressing and production is expected to commence in

2011.

1. Ivory Cost

1. Nimba Iron ore Project

Location: Nimba Iron ore deposits in Ivory Coast.

Project Highlights:

• Tata Steel Limited and SODEMI (State Owned Company for Mineral

Development), on December 11, 2007 entered into Joint Venture

agreement for the development of Mount Nimba Iron ore deposits in

Ivory Coast (West Africa).

• The project will be implemented by a joint venture company – Tata

Steel Cote d’ivoire, wherein Tata Steel will have a major shareholding

(75%).

• The Mt. Nimba deposit spread over 3 countries – Liberia, Guinea and

Ivory Coast is one of the biggest iron ore deposits in West Africa.

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• The initial phase will involve exploration and detailed feasibility

assessments followed by construction of the mine and beneficiation

facilities.

• The iron ore from this project will be supplied to Tata Steel Group

facilities especially those located in the United Kingdom and The

Netherlands.

Capacity: To be assessed.

Project Update: The project is in its initial phase that involves exploration

and detailed feasibility assessments followed by construction of the mine and

beneficiation facilities.

Press Releases: Tata Steel’s joint venture in Ivory Coast for Mount Nimba

Iron Ore.

Mozambique

1. Key coal exploration tenements

Location: Key coal exploration tenements (the Benga and Tete licensees)

held by Riversdale in Mozambique.

Project Highlights

• Tata Steel and Riversdale Mining Ltd. Australia signed a joint venture

agreement on November 30, 2007.

• Under the terms of agreement, Tata Steel will pay AUD100 million

(approximately 88.2 million USD) to acquire 35% of Riversdale's Benga

and Tete licenses.

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• The JV comprises two licenses (the Benga and Tete licenses) and

covers an area of 24,960 hectares (approximately 96.7 square miles).

• The coking coal derived from this project will be supplied to the Tata

Steel Group's facilities in Europe, Asia and elsewhere.

• The Government of Mozambique has approved the mining contract for

the tenements, which is a signal for the Benga Coal project to

commence.

Capacity: Potential to extract 720 million tonnes by open-cut methods from a

major coal resource in the Benga License.

Project Update: The feasibility study for the project is in progress.

Press Releases

• Tata Steel Signs MoUs with Riversdale Mining Limited.

• Tata Steel signs JV with Riversdale Mining for Mozambique Coal

Project

The Netherlands

Operations: The IJmuiden Steelworks is Corus’ largest and most cost-

efficient steel making facility, with a production capacity of 7.6mtpa.

Projects: A number of capital expenditure schemes are in progress at

IJmuiden. Among them is a €20m pilot plant that is being jointly funded with

ULCOS, the European Commission and the Dutch government. The

60,000tpa pilot plant is intended to prove the commercial and technical

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viability of a new iron making process called Hisarna. If successful, the project

will considerably reduce the carbon dioxide emissions of the existing

integrated steelmaking process. Hisarna would also be more energy efficient

than existing technology and use cheaper and more abundant raw materials.

1. Oman

1. Limestone Project

Location: Uyun region in the Salalah province.

Project Highlights

• Tata Steel Limited and the members of the Al Bahja Group, a leading

business house of Oman signed a Joint Venture Agreement on

January 16, 2008 – Tata Steel has a 70% stake in the joint venture.

• The project envisages mining of limestone in the Uyun region

(limestone is the key raw material for producing good quality steel),

which lies in the Salalah province of Oman and has large deposits of

limestone.

• Capacity: To be assessed.

Updates: Exploration and feasibility studies are in progress.

Press Releases: Tata Steel’s joint venture in the Sultanate of Oman for

Uyun limestone.

1. Singapore

Tata NYK Shipping Pvt Ltd.

Tata NYK Shipping Pte Limited is a Singapore based 50:50 joint ventures

between Tata Steel and Nippon Yusen Kabushiki Kaisha (NYK line),

Japanese shipping major.

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Project Highlights

• The JV was set up to cater to ship bulk cargo such as coal, iron ore

and steel.

• The shipping firm would handle the Tata Steel Group’s requirements

for moving raw materials and steel.

• The Company would ensure a strategic control over logistics in the

future.

• Tata NYK has entered into a long term charter for 8 Supramax /

Panamax vessels.

• Orders have been placed for building two new Supramax vessels.

• The Company handled a total of 4.48 million tonnes of cargo in FY 09.

Project Update:

As part of its long-term strategy, the Company plans to enter into a long term

carter for capsize vessels in 2009.

NatSteel Holdings

NatSteel, a 100% subsidiary of the Tata Steel Group, is headquartered in

Singapore and has presence in Vietnam, Thailand, Australia, China, Malaysia,

Philippines and Singapore. The Singapore operations comprise steel making

and rolling operations of capacity 7, 50,000 tonnes per annum and have a

well-established downstream business. The downstream business comprising

direct sales to contractors uses 45 knowledge-centric services and consists of

a cut and bend facility and products like mesh, cages and couplers which

benefits the customers in terms of higher yields, higher productivity, and

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lesser space requirement and just in time steel in desired sizes. The

downstream facility in Singapore, produces over 4, 00,000 tonnes per annum

of cut and bends bars, mesh, pre-cages, bore pile cages etc., and is the

largest single location facility in the world.

Of the two units operating in China, one is a rolling mill at Xiamen producing

about 5,00,000 tonnes of bars and rods and the other is a wire drawing plant

at Wuxi, with a capacity of 1,00,000 tonnes per year. In the Xiamen city, the

market share is about 25%.

1. South Africa

Tata Steel (KZN) (PTY) Ltd.

TSKZN is a South Africa based subsidiary of Tata Steel, in the business of

producing Ferro Chrome and Charge Chrome.

Project Highlights

• The ground-breaking ceremony of Ferro Chrome Project was held at

Richards Bay on August 21, 2006.

• A Ferro Chrome Plant was commissioned at Richards Bay in 2008 to

produce High Carbon Ferro Chrome, for global consumers.

• The proposed plant in South Africa will manufacture High Carbon Ferro

Chrome with a Chrome content of +64%, and the annual production

capacity will be 134,500 Metric Tonnes Per Annum (mtpa) in Phase I.

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• TSKZN commenced commercial production on 1st July, 2008 and in

the first year it has achieved a production of 63,479 mtpa of saleable

grade Charge Chrome.

Capacity: 1, 51,000 tonnes per annum.

Project Update: The Ferro Chrome used in the manufacture of stainless

steel will be exported to Tata Steel’s customers in Asia, Europe, the USA and

in other parts of the world.

1. United Kingdom

Corus

Corus, the European arm of the Tata Steel Group, is headquartered in

London in the United Kingdom. Corus’ crude steel capacity in the UK is in the

region of 13mtpa.

Operations: Corus produces carbon steel by the basic oxygen steel making

method at three integrated steelworks in the UK at Port Talbot, Scunthorpe

and Teesside (currently mothballed), and special and alloy steels through the

electric arc furnace method in Rotherham. In addition, there are a number of

downstream rolling, coating and processing facilities.

Performance: Liquid steel production in 2008-09 at 16 million tonnes was

20% lower than that of 2007-08. Turnover for the period was Rs.1,09,570

crore (US$ 21,539m).

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Projects: A number of capital expenditure schemes are in progress in the UK.

Among them is the £60m BOS gas recovery plant at Port Talbot, which is

expected to significantly reduce natural gas and electricity purchases and

materially reduce carbon dioxide emissions at the site through the utilization

of gas generated inside the Basic Oxygen Steel plant.

2. Vietnam

Ha Tinh Project

Project Highlights

• A proposed steel complex with an estimated capacity of 4.5 million

tonnes per year.

• Tata Steel signed a MoUs with Vietnam Steel Corporation (VSC) on

May 29, 2008 to develop a steel complex in Ha Tinh. Another MOU

was signed to set up a cold rolling mill in Ha Tinh province.

• Tata Steel is partnering with VSC in establishing a steel complex in Ha

Tinh province, which will be phased over 10 years. On the successful

completion of the study and financial closure, Tata Steel will have a

stake of minimum 65% and VSC will have a stake of 35% in the Steel

complex.

• Tata Steel will also have a stake of 30% in Thach Khe Iron Ore Joint

Stock Company, which would undertake mining in the Thach Khe iron

ore mine.

Capacity: A proposed steel complex with an estimated capacity of 4.5 million

tonnes per year.

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VNSteel

Overview: Established in 995 by a merger of Metal Corporation and Steel

Corporation, VNSteel is Vietnam’s largest steel company and has various

manufacturing plants and a distribution system across the country. The total

capacity of VNSteel including that of its joint ventures is around 2.2 million

tonnes with a product mix ranging from crude steel, high quality construction

steel to sheet and plate products serving other economic sectors.

Project Updates: The Company has completed the feasibility study for the

steel complex, to be developed in 3 phases. Tata Steel, in collaboration with

VNSteel and VICEM has also completed the detailed project report for

Phase1, which is the cold rolling mill.

Press Releases

• JV between Tata Steel, Vietnam Steel Corporation and Vietnam

Cement Industries.

• Vietnam Steel Corporation and Tata Steel sign a MoUs.

• Vietnam Steel Corporation and Tata Steel sign a Memorandum of

Cooperation.

• Vietnam Prime Minister visits Tata Steel.

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LEGENDARY HEROES OF THE TATA STEEL

Here is the story of some heroes/ tycoons who thought to build India. They

believe building India means not only earning money but also to increase the

wealth o the country’s people. It is the story of struggle, anxiety, adventure

and achievement.

JAMSHETJI NUSSERWANJI TATA

The founder of TATA Steel began with a textile mill in central India in 1870’s.

At the age of 43, Jamsetji read a report by a German Geologist Ritter Von

Schwartz on the availability of iron ore in Chanda district in central provinces,

which gave him the idea of giving India a steel plant.

SIR DORABJI TATA

J. N. Tata had exhorted to his sons to pursue and develop his life’s work his

elder son, through his endeavors in setting up TATA steel and TATA power.

Sir Dorabji Tata was instrumental in transforming his father’s grand vision into

reality. He was the first chairman of gigantic Tata.

JEHANGIR RATANJI DADABHAI TATA

The late chairman of the TATA group pioneered civil aviation on the

subcontinent in 1932 by launching TATA airlines, now known as Air India.

Under his control, the number of TATA venture grew from 13 to 80,

encompassing steel, power generation, hotel, consultancy services,

information technology etc.

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RATAN TATA

Mr. Ratan N Tata is the present

chairman of TATA group of sons,

with his efficient leadership TATA

group is soaring new heights, from

Corus take over to brands like

Jaguar and Land Rover.

BOARD OF DIRECTORS

AS ON 25 JUNE 2009

• MR. Ratan N. Tata (Chairman)

• Mr. B. Muthuraman (Vice Chairman)

• Mr. James Leng

• Mr. Nusli N. Wadia

• Mr. S. M. Palia

• Mr. Jacobus Schraven

• Dr. Anthony Hayward

• Mr. Andrew Robb

• Mr. Suresh Krishna

• Mr. Ishaat Hussain

• Dr. Jamshed J. Irani

• Mr. Subodh Bhargava

• Mr. Kirby Adams

• Mr. H.M. Nerurkar

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SENIOR MANAGEMENT

• Mr. B. Muthuraman(Managing Director)

• Kirby Adams (Chief executive officer)

• H.M Nerurkar

• Kaushik Chatterjee

• Jean-Sebastien Jacques

• Arun Baijal

• Manzer Hussain

• Avneesh Gupta

• R. P. Singh

• Marjan Oudeman

• Anand Sen

• Scott MacDonald

• Varun Jha

• Phil Dryden

• Abanindra M. Misra

• Frank Royle

• Om Narayan

• Tor Farquhar

• Radhakrishnan Nair

• Partha Sengupta

• Hridayeshwar Jha

• N. K. Misra

• Binay Kumar Singh

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• Santi Charnkolrawee

• T. V. Narendran

• V. S. N. Murty

• Helen Matheson

• Sandip Biswas

• Lim Say Yan

• Bimlendra Jha

• Dr. Debashish Bhattacharjee

TOP COMPETITORS OF TATA STEEL

• Jindal Steel

• SAIL

• Essar steel

SOME OTHER MAJOR PLAYER IN THIS INDUSTRY

• Saw pipes

• Uttam steel ltd

• Ispat industry ltd

• Mukand ltd

• Mahindra Ugine steel co.ltd

• Usha ispat ltd

• Kalyani steel ltd

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• Electro steel casting ltd

• Sesa Goa ltd

• NMDC

• Llyod steel industry l

2.6 VISION AND MISSION STATEMENT OF TATA STEEL

Vision

We aspire to be the global steel industry benchmark for

Value Creation and Corporate Citizenship

➢ We make the difference through:

➢ Our people, by fostering team work, nurturing talent, enhancing

leadership capability and acting with pace, pride and passion.

➢ Our offer, by becoming the supplier of choice, delivering premium

products and services, and creating value for our customers.

➢ Our innovative approach, by developing leading edge solutions in

technology, processes and products.

➢ Our conduct, by providing a safe working place, respecting the

environment, caring for our communities and demonstrating high

ethical standards.

Mission

Consistent with the vision and values of the founder Jamsetji Tata, Tata

Steel strives to strengthen India’s industrial base through the effective

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utilization of staff and materials. The means envisaged to achieve this are

high technology and productivity, consistent with modern management

practices.

MAJOR BRANDs OF TATA STEEL

Brands

The Tata Steel Group’s Brand building endeavors have always been directed

at building assurance, reliability and superior product quality in every

segment. Outstanding performance by the Company’s different divisions have

surpassed their own brand standards and created higher quality parameters

for each other.

Galvano™ is Galvanized Plain (GP) steel offering available in

sheet and coil forms for all customer segments like white

goods, panels, bus bodies etc. Galvano™ meets the diverse

and specific needs of the general engineering segment. Unlike the ordinary

spangled and crushed spangled products available in the market, Galvano™

is a Zero spangled product with unmatched surface finish and mechanical

properties.

Tata Agrico, a division of Tata Steel is the pioneer

manufacturer of superior quality agricultural implements in the

country under the brand name 'Agrico'. Since 1925, it has

been the leading brand in shovels, powrahs, crowbars, kudalies, pickaxe and

hammers. These implements cater to the needs of Agricultural, Horticulture

Industry, maintenance of roads, dams, railway- tracks, collieries etc. in India

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and abroad. The Agrico products are the first in India to be manufactured with

ISO: 9002 Certification. All Tata Agrico implements are guaranteed against

manufacturing defects and are distributed all over the country through a

network of consignment agents and distributors. The Agrico division recently

expanded its product offerings by launching three new products and many

more variants in the existing category.

Tata Bearings manufactures a wide variety of bearings and

auto assemblies, like Ball Bearings, Tapered Roller Bearings,

Magneto Bearings, Double Row Angular Contact Bearings,

Clutch Release Assemblies, Fan Support Assemblies and Cylindrical Roller

Bearings. It is the only Bearings Manufacturer in India to win TPM Award from

Japan Institute of Plant Maintenance, Tokyo and is amongst the largest

bearing manufacturers in India.

Tata Pipes has matured into a fully bloomed brand since

1996. A deeply thought out branding exercise was undertaken

in order to unleash the power of the ‘Tata Pipes' Brand. Tata

Pipes are manufactured with the HFIW process in the Long Products

Division's high-tech facility at Jamshedpur.

Tata Shaktee is Tata Steel’s flagship brand in the field of

galvanised corrugated sheets. Since Tata Shaktee was

launched in Feb 2000, the brand has been consistently

delivering on its promises of longevity and strength. Tata Shaktee is the only

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brand, which produces 4 ft wide GC sheets called "Tata Shaktee Wider GC

Sheets".

Tata Steelium is another brand of the Flat Products Division

of Tata Steel. Apart from providing a certain level of quality

the name also assures the customer of the genuineness of

the product. It goes a long way in meeting the challenge of gaining a

sustainable competitive edge in the marketplace. The brand has acquired new

customers in retail untapped areas and made an aggressive entry into the

retail segment through exclusive shops called Steelium zones. Customer

relationship building programmes are undertaken with a view to increasing

market share.

Tata Tiscon is the first Thermo Mechanically Treated (TMT)

rebar in the country. Every Tata Tiscon rebar is made from

pure steel, with the most advanced TMT technology from

Tempcore, Belgium. Tata Tiscon is available for both residential and project

applications. It has the best combination of strength, ductility and unparalleled

quality consistency. Tata Tiscon forms an unbreakable and unshakeable bond

with cement (atoot jod), and together they lend a strong foundation for

building construction.

Tata Tiscon became the first rebar in India to be awarded the ‘Superbrand'

status in the construction rebar category. Retail sales have received a boost

through new marketing initiatives and consumer schemes launched as a

result of continuous monitoring of consumer sales.

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Tata Steel Wire Division is the leading producer of steel wires

under the brand name Tata Wiron, with a 30% market share

of the organized wire market in India. It manufactures a wide

range of wires catering to the needs of the various industry segments such as

automobile, infrastructure, power and general engineering. The products are

well established across the markets of Europe, USA, Middle East Asia,

Australasia, South Asia and Far East Asia. Tata Wiron GI wires have a

distinct brand identity of being a valued business partner for its consumers.

RESEARCH DESIGN

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CHAPTER-3

3.1 RESEARCH METHODOLOGY

The study is based on descriptive and applied research. The efficiency of

inventory management model at TATA Steel requires a thorough knowledge

of iron making process and expertise in identifying the materials. The

accounting is as well as in planning the control of inventory is thoroughly

studied by ratio analysis.

Data collection method

I. Primary source

• Personal interview

• Finance and Accounts department

• Purchase department

• Plant visit

I. Secondary source

• Concern data

• Website

• Annual report

• Company records

• Intranet of company

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Presentation of data

• Data is presented in the form of tables, diagram and trend lines.

• Data analysis and interpretation.

• The data analysis has been done using various inventory ratios.

Limitation of the studies

• The study is based on the comparison across companies. This

company follows various accounting policies. Hence the choice of

accounting for the companies to an extent distort the inter company

comparison.

• Ratio alone cannot show whether performance is good or bad.

• The data is pertaining up to the year 2009.

• Ratio does not take into account the impact of certain non-financial

parameters. The study is limited

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ANALYSIS &

INTERPRETATION

OF DATA

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CHAPTER: 4

DATA ANALYSIS AND INTERPRETATION

4.1 INVENTORY MANAGEMENT IN TATA STEEL

Inventory management is one of the most important managerial activities.

TATA steel has its own mines and querries in India and also in some other

countries. The raw material inventory includes materials from its own source

as well as purchased from others. Raw material inventory, therefore lies both

at works and its place of extraction. These are transported to works both by

road and rail.

To maintain the minimum required inventory is not an easy task. There are

many reasons for each different organization as to what the quantity should

be maintained. TATA STEEL’s raw material inventory consist of mainly coal

and iron ore, but there are many other things included in it in small quantities.

TATA STEEL has its transportation system which helps in carrying the

materials from different locations to Jamshedpur works.

Each types of production department maintain separate inventory level. TATA

steel maintains different types of inventory i.e. raw material, WIP, finished

goods, transit inventory, buffer inventory, anticipation inventory and

cycle inventory.

For valuation of inventory TATA Steel generally uses FIFO method and for

ordering, they use EOQ method.

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First in first out (FIFO): A method of valuation of inventory, by which the cost

are allocated on the assumption that goods are consumed or sold in the order

in which they are received and taken in to stock.

Economic Ordering Quantity (EOQ): It is the optimum quantity of goods for

which if orders are placed, the aggregate order placing cost and the

aggregate inventory carrying cost will be equal and economical. There will not

be any loss by either way. For any item of goods, annual requirement in units,

cost of placing one order, cost of carrying one unit in inventory for one year

are the influencing factors. Any change in one or more of them will change the

EOQ of that item.

To find out EOQ; the formula is= √2AO/C

Where; A= Annual consumption; O= ordering cost, C= carrying cost

Channels of ordering raw material:

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Policies maintained by TATA STEEL for inventories

• Finished and semi-finished products produced and purchased by the

Company are carried at lower of cost and net realizable Value.

• Work-in-progress is carried at lower of cost and net realizable value.

• Coal, iron ore and other raw materials produced and purchased by the

Company are carried at lower of cost and net realizable value.

Stores and spare parts are carried at cost. Necessary provision is made and

charged to revenue in case of identified obsolete and non-moving items.

• Cost of inventories is generally ascertained on the ‘weighted average’

basis.

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4.2 FINANACIAL ANALYSIS OF TATA STEEL RELATED TO INVENTORY

Ratio analysis is the major and efficient tool for management to analyze the

data. So here some ratios are given which are related to inventories and with

analysis.

>Raw material conversion period

This ratio shows in how many day raw materials is used to manufacturing.

To find this ratio, the formula is;

Average stock of raw material x 365

Total raw material consumed

Where average stock of raw material = (Op. stock of raw mat.+ Cl. Stock of

raw mat.)/2

Particulars 2009- 2008- 2007- 2006- 2005-

10 09 08 07 06
Opening stock of raw 901.56 720.52 707.54 603.7 287.02

material
Closing stock of raw material 1433.2 901.56 720.52 707.54 603.7

6
Average stock of raw 1167.4 811.04 714.03 655.62 445.36

material 1
Total raw material consumed 5709.9 3429.5 3121.4 2368.3 1715.1

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1 2 6 4

If we look towards for the year 2005-06, then we can easily observe that, the

raw material conversion period is too high than the year 2009-10. This trend is

showing that the period for conversion of raw material is decreasing year by

year. It very good sign for the company. Because as soon as raw material is

used for production the storing cost will be less. So this chart is showing how

efficiently TATA steel is reducing it’s storing cost and how fast raw material is

used for production.

>WIP conversion period

This ratio shows, in how many days the WIP converted into finished products.

To find out this ratio, the formula is;

Average stock of work-in-process x 365

Cost of production
Where average stock of WIP = (Op. stock of WIP+ Cl. Stock of WIP)/2

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Particulars 2009-10 2008-09 2007-08 2006-07 2005-

06
Opening stock of WIP 71.48 28.94 23.93 32.42 13.76
Closing stock of WIP 73.17 71.48 28.94 23.93 32.42
Average stock of WIP 72.325 50.21 26.44 28.18 23.09
Cost of production 18917.7 14423.4 13300.1 11469.7 9516.9

1 7 7 1 7

As we can see in the chart that WIP converted into finished product within a

day in the year 2005-06 to 2007-08. But in recent year it is taking more than

one day. If we measure this chart, we can say that the efficiency level of

TATA steel is reducing year by year to convert WIP to finished goods.

>Finished goods conversion period

It refers to the time in which the finished goods are converted into sales or in

other way we can say that the time period between production and sales

when the finished goods kept in the ware house before the actual sale is

made.

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So formula for FGCP is;

Average stock of finished goods x 365

Cost of goods sold

Where average stock of finished goods

= (Op. stock of finished goods +Cl. Stock of finished goods)/2

Particulars 2010-09 2008-09 2007-08 2006-07 2005-06

Opening stock of finished goods 1074.27 1078.08 1000.62 887.82 622.13

Closing stock of finished goods 1361.85 1074.27 1078.08 1000.62 887.82

Average stock of finished goods 1218.06 1076.18 1039.35 944.22 754.975

Cost of goods sold 18989 14874.23 13673.31 12012.39 10555.24

From the table and the chart we can easily observed that, though in the year

2006-07 the conversion period increased than the year 2005-06. But

fortunately the recession period couldn’t hit the sales for the year 2007-08 to

2009-10. The finished goods were converted into sales even less than only 25

days in the year 2009-10. It shows the efficiency of not only quality of the steel

but also the efficiency of marketing department of TATA steel

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Raw material to current asset

It indicates the percentage of raw materials in the current asset of the

company.

To find out this;

Raw material(closing) x 100

Current asset

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06

Raw material(Closing) 1433.26 901.56 720.52 707.54 603.7

Current asset 10047.48 6636.28 13701.89 4237.6 4083.58

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This chart and table can show the one unexpected downfall in the year 2007-

08, which is less than 6%. If we observe carefully then we can see that, in the

year 2007-08, the raw material trend is nearly same to other years, but due to

huge cash in hand increase the current asset. Which reduce the percentage

of raw material to current asset.

Finished goods to current asset

It indicates the percentage of finished goods in the current assets of the

company. Finished goods are such a component of the current assets which

can be easily converted into cash.

So the formula is;

Finished goods(closing) x 100

Current asset
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06

Finished goods(Closing) 1361.85 1074.27 1078.08 1000.62 887.22

Current asset 10047.48 6636.28 13701.89 4237.6 4083.58

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As we saw in the raw material to current assets, which is same as finished

goods to current assets. Due to huge amount of cash held in the year 2007-

08, the percentage of finished goods is lesser than the other years. But in the

year 2006-07 it is near to 25%. But the percentage is going downwards in the

year 2009-10, which is less than 15%.

Average inventory turnover ratio

It indicates the percentages of inventory with gross sales.

The formula is;

Average inventory x 100

Gross sales

Where average inventory = (Op. inventory+ Cl. Inventory)/2

Particulars 2009- 2008- 2007-08 2006-07 2005-06

10 09
Opening inventory 2047.31 1827.54 1732.09 1532.34 922.91
Closing inventory 2868.28 2047.31 1827.54 1732.09 1532.34
Average inventory 2457.80 1937.43 1779.82 1632.22 1227.63
Gross sales 26843 22191.8 19762.5 17144.2 15876.8

7 2 7

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As we can observed that, the trend is showing nearly constant, except the

year 2005-06. The inventory level is increasing as well as the gross sales. It

shows the constant growth of sales and inventory.

a) >Stock turnover ratio

Every firm has to maintain a certain level of inventory of finished goods so as

to be able to meet the requirements of the business. But the level of inventory

should neither be too high nor too low.

The stock turnover ratio measures the number of times a company sells its

inventory during the year.

The formula for stock turnover ratio is;

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06

Cost ofCost
goodsofsold
goods sold 18989 14874.23 13673.31 12012.39 10555.24
Average
Average stock stock 2457.8 1937.43 1779.82 1632.22 1227.63

Where average stock = (Op. inventory+ Cl. Inventory)/2

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As we can find out that in the year 2005-06 the ratio was very high as

compare to other years. In the year 2006-07 it is even less than 7.5, but after

that TATA maintained the consistency on its growth.

b) >Spare parts index

It shows the index of spare parts, which are used to fixed asset.

To find out spare parts index, the formula is;

Stores and spares parts(closing) x 100

Net block of fixed asset

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06

Stores and spares 505.44 442.66 505.44 442.66 349.06

parts(closing)
Net block of fixed assets 11040.56 9865.05 11040.56 9865.05 9112.24

This index is showing downwards in recent years. But in the year 2005-06 it is

less than 4. And in the year 2007-08 it is more than 4.5. So TATA steel should

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try to reduce this index. But the chart is showing very impressive that index is

reducing year by year.

c) >Inventory conversion period

This ratio shows in how many days inventories are converted into sales. It is

major ratio analysis for cash conversion period. Because it is the first

component of the cash conversion period.

The formula is;

Inventories(closing)
Particulars
Sales/365 2009-10 2008-09 2007-08 2006-07 2005-06
Inventories(Closing) 2868.28 2047.31 1827.54 1732.09 1523.34
Sales 24315.7 19693.2 17551.0 15139.3 14498.9

7 8 9 9 5

From this chart we can observed that in the year 2008-09 and 2007-08, the

inventory was most efficiently converted into sales. But unfortunately it is very

high in the year 2009-10. So it shows the inefficiency for the company

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d) >Current ratio

This ratio is used to judge the short term solvency of a company and is

worked out by dividing the aggregate Current Assets by its aggregate Current

Liabilities.

To find out the current ratio, the formula is;

Current asset
Current liabilities
Particulars 2009-10 2008-09 2007-08 2006-07 2005-06
Current asset 10047.48 6636.28 13701.89 4237.6 4083.58
Current liability 8974.05 6768.78 5453.66 3808.72 3699.99

In the year 2007-08 this ratio is too high due to huge amount cash held in the

company. From here we can say that company has huge liquidity but in other

sense we can say that company blocked this huge amount of cash without

investing. Again it is very good sign for the company, because the recession

hit the world in the year 2008-09 and company has huge amount of liquidity to

face the crisis moment. Again we can see that the in the year 2008-09 the

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ratio is even less than 1. So 2007-08 heavy cash amount saved in the year

2008-09. Rest of the year maintained the consistency, which is just above 1.

e) >Acid test ratio

It measures the company’s most liquidity against the current liability. Here we

exclude the inventory from the current asset. Because inventory is less

liquidity than other current assets. So it indicates the coverage of current

liabilities with quick realizable assets.

The formula to find acid test ratio;

Current assets- Inventories

Particulars
Current liabilities 2009-10 2008-09 2007-08 2006-07 2005-06
Current assets 10047.48 6636.28 13701.89 4237.6 4083.58
Inventories 2868.28 2047.31 1827.54 1732.09 1523.34
Current liability 8974.05 6768.78 5453.66 3808.72 3699.99

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As we have seen in the current ratio, in the year 2007-08 is highest than the

others. Here also this ratio is highest than the other due to heavy amount of

cash, which shows the most liquidity. Here we can see that the current ratio of

the year 2006-07 and 2009-10 was same. But due to less inventory

percentage in current assets the acid test ratio is higher than the year 2006-

07. 2006-07 ratio is even less than the year 2008-09. So for the year 2008-09

liquidity is little bit better than 2006-07, after facing the crisis period. And it is

slowly moving upwards in the year 2009-10.

f) >Total inventories to total assets

This ratio shows the percentage level of inventories in compare to total asset.

The formula is;

Total Inventories(closing) x 100

Total assets 2009-10
Particulars 2008-09 2007-08 2006-07 2005-06

Total inventory 2868.28 2047.31 1827.54 1732.09 1523.34

Total Assets 58741.77 47075.52 25597.5 14617.16 12143.3

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The percentage level is decreasing year by year to increase the liquidity level.

But in the year 2008-09, it is very low because of recession period to increase

the liquidity percentage.

4.4 Balance sheet of TATA Steel

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Rs in Crores
Particulars 2008-09 2007-08 2006-07 2005-06 2004-05

Particulars
Sales and other operating expenses 31st MAR 09
24315.77 31st 19691.03
MAR 08 31st17551.09
MAR 07 31st MAR 06
15139.39 31st MAR 05
14498.95

Share capital 6203.45 6203.3 727.73 553.67 553.67

Other income 308.27 242.8 433.67 254.76 148.03

Reserve and Surplus 23176.26 21097.43 13368.42 9201.63 6506.25

Total Income 24624.04 19933.83 17984.76 15394.15 14646.98
Total share holder's fund 30176.26 27300.73 14096.15 9755.3 7059.92

Loans 26946.18 18021.69 9645.33 2516.15 2739.7

Expenditure
Deferred tax liabilities 585.73 681.8 748.94 957 829.42
Manufacturing and other expenses 15525.99 11852.75 10813.84 9320.5 8658.41
Provision for employee separation 1033.6 1071.3 1107.08 1388.71 1541.26

Depreciation 973.4 834.61 819.29 775.1 618.78

Total funds employed 58741.77 47075.52 25597.5 14617.16 12143.3

(-)Expenditure transferred to capital a/c -343.65 -175.5 -236.02 -112.62 -204.82

Net financial
Application charges
of funds 1152.69 786.5 173.9 118.44 186.8

Fixedexpenditure
Total asset 14482.22
17308.43 12623.56
13298.36 11040.56
11571.01 9865.05
10101.42 9112.24
9259.17

Investments 42371.78 4103.19 6106.18 4069.96 2432.65

Profit before taxes and exceptional 7315.61 6635.47 6413.75 5292.73 5387.81

Foreign currency items

translation diff a/c 471.66

Profit
Currentbefore
assetstaxes 7315.61
5707.05 7066.36
3613.7 6261.65
10646.16 5239.96
3002.74 5297.28
2701.14

(-) advances
Loans and Taxes -2113.87
4578.04 -2379.33
33348.74 -2039.5
3055.73 -1733.58
1234.86 -1823.12
1382.44

(-) Current liabilities and tax

Profit after provisions -8974.05
5201.74 -6768.78
4687.03 -5453.66
4222.15 -3808.72
3506.38 -3699.99
3474.16

Net current assets 1311.04 30193.66 8248.23 428.88 383.59

Miscellaneous expenditure 105.07 155.11 202.53 253.27 214.82

Total assets 58741.77 47075.52 25597.5 14617.16 12143.3

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4.5 >COST SHEET OF TATA STEEL Rs in

crore

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

Raw material consumed 5709.91 3429.52 3121.46 2368.3 1715.44

Payment and provision for 2305.81 1589.77 1454.83 1351.51 1291

employee

Operation and other expenses 6213.58 5068.88 4647.28 4038.71 3687.17

(-)Commission -61.49 -52.53 -64.71 -80.75 -86.18

(-)Provision for wealth tax -1 -0.95 -0.97 -0.8 -0.7

Freight and handling charges 1251.23 1098.19 1117.45 1004.32 936.68

Excise duty 2527.96 2498.52 2210.55 2004.83 1377.92

Depreciation 973.4 834.61 819.29 775.1 618.78

Adjustment of WIP

(+) Opening stock of WIP 71.48 28.94 23.93 32.42 9.28

(-) Closing stock of WIP -73.17 -71.48 -28.94 -23.93 -32.42

COST OF PRODUCTION 18917.71 14423.47 13300.17 11469.71 9516.97

Adjustment of finished goods

(+)Opening stock of finished 1074.27 1078.08 1000.62 887.22 620.81

goods

(+) Purchase of finished 358.87 446.95 450.6 656.08 1305.28

goods

(-)Closing stock of finished -1361.85 -1074.27 -1078.08 -1000.62 -887.82

goods

COST OF GOODS SOLD 18989 14874.23 13673.31 12012.39 10555.24

4.6 RAW MATERIAL CONSUMPTION OF TATA STEEL

Raw material is important for any kind of manufacturing industry. That may be

steel industry or may be cement industry or any kind of manufacturing

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industry. Same way, TATA steel is also consuming raw material from various

sources. Major part of raw material is taken from its own mines and some

from various country i.e. Australia. Australia is major supplier of coal. Below

all the details of raw material is given.Here all the details of amount of raw

material consumption, value of raw material and price per tonne of raw

material are given with charts and analysis.

>RAW MATERIAL CONSUMPTION

Types of raw material 2009-10 2008-09 2007-08 2006-07

Iron ore 9545665 8724458 8486755 5986753
Coal 751972 713982 1019483 841649
Coke 3315206 3133450 2773807 2422875
Limestone and Dolomite 1949523 1729070 1863757 1464970
Ferro Manganese 18895 15824 16516 16844
Zinc and Zinc Alloys 22137 19299 20692 21327
Spelter, Sulphur and 1200105 784802 798141 487102

Others

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To produce steel iron ore, coal,coke, ferro manganese, zinc alloys and

spelters, sulpphur are required mostly. All these raw material are required

tproduce in a systematic manner.

In year 2008-09 iron ore and spelters, sulphurs, coke and ferro manganese

are purchased more than the others. Whereas, zinc and alloys are purchased

more in the year 2007-08. In the last year due to heavy production, raw

material consumption is more than others.

Totalcostofrawmaterial

Rs in Crore

Types of raw 2009-10 2008-09 2007- 2006-07 2005-06

material 08

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Iron ore 504.52 445.35 368.29 273.53 181.78

Coal 455.32 206.85 287.91 226.56 92.1

Coke 3695 1873.6 1510.7 1093.71 834.65

2
Limestone and 391.89 318.45 316.76 300.48 217.87

Dolomite
Ferro Manganese 62.99 48.52 50.94 71.84 102.47

Zinc and Zinc Alloys 210.03 345.3 327 159.36 134.63

Spelter, Sulphur and 877.3 529.48 557.84 513.79 362.03

Others

*Pie charts are showing the percentage of expenses

From the above chart we can see that the expenses percentage on coke is

reducing year by year. Whereas, limestone and dolomite expenses

percentage is increasing.

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Price per Tonnes

Types of raw material 2009-10 2008-09 2007-08 2006-07 2005-06

Iron ore 528.53 512.98 422.14 322.3 303.63
Coal 6055.01 2929.57 4032.45 2222.3 1094.28
Coke 11145.61 6066.21 4821.27 3942.99 3444.87
Limestone and 2010.18 1707.3 1831.97 1612.22 1487.2

Dolomite
Ferro Manganese 33336.86 30015.5 32191.61 43497.21 60834.71
Zinc and Zinc Alloys 94877.35 154669.65 169438.83 75966.94 63126.55
Spelter, Sulphur and 7310.2 4575.94 7108.03 6437.33 7423.18

Others

*values are in rupees

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In the year 2006-07 the entire material rate is hiked. But the ferro manganese

price per tonne is showing downwards. It is becoming cheaper year by year.

Iron ore is cheapest raw material for TATA STEEL. From coal, coke is

prepared. But coal is near to half price than coke. The entire raw material

price is increasing except ferro manganese and zinc and alloys.

>Raw material imported Rs in crore

2009-10 2008-09 2007-08 2006-07 2005-06
4146.75 1542.79 1592.25 1226.82 878.12

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Here we can observe that, importing raw material is increasing year by year.

Even in the year 2008-09 more than two times than the last year.

Comparing details 2009-10 2008-09 2007-08 2006-07 2005-06 CGPA

Total raw material consumed 5709.91 3429.52 3121.46 2368.3 1715.14 35.077%

Cost of production 18917.71 14423.47 13300.17 11469.71 9516.97 18.739%

Cost of goods sold 18989 14874.23 13673.31 12012.39 10555.24 15.813%

Current asset 10047.48 6636.28 13701.89 4237.6 4083.58 25.243%

Inventories(Closing) 2868.28 2047.31 1827.54 1732.09 1523.34 17.140%

Sales 24315.77 19693.28 17551.09 15139.39 14498.95 13.799%

Profit after tax 5201.74 4687.03 4222.15 3506.38 3474.16 10.618%

>Comparison of various segment related to inventory

Here we have calculated the CGPA (compounded growth per annum). For

this calculation we have taken the last 5 year data of each segment. This

CGPA shows compounded growth or average growth.

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So here we can observed that as raw material consumption price increasing

more than 35%, but compare to sales and profit after tax is very high. Cost of

production and cost of goods sold is compare to same with each other.

>Revenue generated by TATA Steel, Geographically

Revenue generated by geographical market

Region 2009-10 2008-09 2007-08 2006-07 2005-06
India 20914.02 17491.97 15506 13160.35 12187.82
Others 3401.75 2201.31 2045.09 1979.04 2311.13

*The rupee values are in crore

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TATA STEEL is one of the biggest importers but this company is big seller in

international market. Here we can see in a regular basis the revenue in other

country is increasing year by year. Even in the year 2008-09 it crossed Rs

3000cr. It is a very good sign for TATA STEEL. Here we can see that revenue

in Indian market. It crossed more than Rs 20000cr. It shows not only the

improvement of TATA STEEL’s sales but also it is showing how Indian people

per capita consumption on steel is increasing. I personally prey that this

should increase year after year.

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CHAPTER-6

COMPARISON WITH OTHER COMPANIES

Here I am doing comparison with three other major players in this sector. As

per me, they are

• JINDAL STEEL

• ESSAR STEEL

• SAIL

So first of all, we should understand about that company in brief.

JINDAL STEEL

In the world of business, the Jindal Organization is a celebrity. Ranked sixth

amongst the top Indian Business Houses in terms of assets, the Group today

is a US $10 Billion conglomerate.

Jindal Organization, set up in 1970 by the steel visionary Mr. O.P. Jindal, has

grown from an indigenous single-unit steel plant in Hisar, Haryana to the

present multi-billion, multi-locational and multiproduct steel conglomerate. The

organization is still expanding, integrating, amalgamating and growing. New

directions, new objectives... but the Jindal motto remains the same- "We are

the Future of Steel ".

The group has been technology-driven and has a broad product portfolio. Yet,

the focus at Jindal has always been steel. From mining of iron-ore to the

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manufacturing of value added steel products, Jindal has a pre-eminent

position in the flat steel segment in India and is on its way to be a major global

player, with its overseas manufacturing facilities and strategic manufacturing

and marketing alliances with other world leaders.

Jindal Organization aims to be a global player. In pursuance of its objectives,

it is committed to maintain world-class quality standards, efficient delivery

schedules, competitive price and excellent after sales service.

Financial data of Jindal steel

Balance sheet

Rs. In

crore
Particulars 31st 31st 31st 31st 31st

MAR 10 MAR 09 MAR 08 MAR 07 MAR 06

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Sources of funds

Owner's fund
Equity share capital 15.47 15.4 15.4 15.4 15.4
Preference share - - - - 1

capital
Reserves & surplus 5,399.85 3,740.98 2,481.33 1,829.31 1,302.98
Loan funds
Secured loans 2,105.49 1,783.39 2,115.61 1,780.77 1,159.51
Unsecured loans 2,857.16 2,079.96 1,392.11 964.6 336.35
Total 10,377.97 7,619.73 6,004.45 4,590.08 2,815.24
Uses of funds

Fixed assets
Gross block 7,362.90 5,918.94 4,929.03 3,243.05 2,530.28
Less : accumulated 1,617.00 1,183.11 781.75 542.33 361.76

depreciation
Net block 5,745.90 4,735.83 4,147.28 2,700.72 2,168.53
Capital work-in- 2,318.01 660.48 937.84 1,146.27 345.7

progress
Investments 1,233.40 1,036.19 709.82 430.3 33.38
Net current assets
Current assets, loans 5,189.28 3,299.57 1,801.66 1,490.50 1,036.30

& advances
Less : current liabilities 4,111.64 2,115.48 1,595.39 1,178.45 769.67

& provisions
Total net current 1,077.64 1,184.09 206.27 312.05 266.62

assets

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Miscellaneous 3.02 3.14 3.24 0.74 1.01

expenses not written

Total 10,377.97 7,619.73 6,004.45 4,590.08 2,815.24

Profit and loss account

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06

Income

Operating income 7,677.83 5,368.14 3,523.08 2,565.04 2,253.60

Expenses
Material consumed 3,419.42 1,727.40 1,068.50 536.71 528.2
Manufacturing 773.84 670.87 510.96 545.44 514.13

expenses
Personnel expenses 181.46 132.2 90.14 79.74 50.85
Selling expenses 327.76 264.73 276.47 222.18 171.87
Adminstrative 337.49 277.03 167.2 148.16 72.42

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expenses
Cost of sales 5,039.97 3,072.23 2,113.27 1,532.23 1,337.46
Operating profit 2,637.86 2,295.91 1,409.81 1,032.81 916.15
Other recurring income 199.46 57.31 36.08 26.02 19.34
Adjusted PBDIT 2,837.32 2,353.22 1,445.89 1,058.83 935.49
Financial expenses 267.89 243.02 173.19 108.02 92.51
Depreciation 433.03 451.51 336.47 219.17 152.48
Other write offs 0.2 0.27 0.27 0.27 0.31
Adjusted PBT 2,136.20 1,658.42 935.96 731.37 690.18
Tax charges 465.4 265.55 241.85 154.91 158.11
Adjusted PAT 1,670.80 1,392.87 694.11 576.46 532.08
Non recurring items -144.78 -144.57 7.78 -12 -12.48
Other non cash 10.46 -11.34 1.1 8.48 -3.9

adjustments
Reported net profit 1,536.48 1,236.96 702.99 572.94 515.7
Earnigs before 4,584.28 3,239.54 2,136.05 1,528.77 1,057.60

appropriation
Equity dividend 85.33 62.02 55.43 46.19 46.19
Dividend tax - 10.55 8.87 6.48 6.33
Profit carried to 4,498.95 3,166.97 2,071.75 1,476.10 1,005.08

balance sheet

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ESSAR STEEL

Essar Steel is one of India's largest exporters of flat products,

exporting to the highly demanding US and European markets,

and to the growing markets of South East Asia and the Middle

East.

A number of major client companies have approved our steel for their use,

including Caterpillar, Hyundai, Swaraj Mazda, the Konkan Railway, and Maruti

Suzuki. Essar Steel has acquired extensive quality accreditations. Our lean

team gives us one of the highest productivities and lowest manpower costs

among steel plants internationally.

Seamless integration

A major strategic advantage is our high level of forward and backward

integration. We are totally integrated - from raw material to finished products,

adding value at every stage of the manufacturing process.

Bailadilla facility: Iron ore beneficiation

At Bailadilla, where some of the world's richest and finest ore is available, we

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have set up a beneficiation plant of 8 MTPA capacity, which ensures the

highest quality iron ore. The iron ore slurry is pumped through a 267 km

pipeline (the second longest in the world) to the pellet plant, yielding

advantages in quality, cost and real time inventory management.

Visakhapatnam facility: Pelletization

The slurry is received at our pellet plant at Visakhapatnam, which has a

capacity of 8 MTPA, providing vital raw material for the steel plant at Hazira.

Hazira facility

Our steel complex at Hazira, Gujarat, houses a 5.0 MTPA

sponge iron plant, the world's largest gas-based sponge

iron plant in single location. The plant provides raw

materials for our state-of-the-art 4.6 MTPA hot rolled coil (HRC) plant, the first

and largest of India's new generation steel mills. This plant is fed with inputs

from four electric arc furnaces and three casters. The complex's sophisticated

infrastructure includes independent water supply and power, oxygen and lime

plants, a township and a captive port capable of handling up to 8 MTPA of

cargo with modern handling equipment like barges and floating cranes.

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Financial data

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Particulars 31st MAR 31st MAR 31st MAR 31st MAR 31st MAR

10 08 07 06
09
Sources of funds

Owner's fund
Equity share capital 1,140.48 1,140.48 1,140.48 581.17 507.98
Preference share capital 43.6 43.6 246.52 2,204.12 530.27
Reserves & surplus 3,554.28 3,447.25 3,080.95 1,246.18 686.54
Loan funds

Secured loans 6,317.62 5,383.11 6,533.32 7,355.20 4,126.32

Unsecured loans 993.77 733.47 409.92 650.46 684.27
Total 12,049.75 10,747.91 11,411.19 12,037.13 6,535.38
Uses of funds

Fixed assets
Gross block 15,367.85 14,688.87 13,554.19 10,447.54 6,940.24
Less : revaluation reserve - - - - 0.07
Less : accumulated 6,239.03 5,414.98 4,664.60 4,049.09 3,691.34

depreciation
Net block 9,128.82 9,273.89 8,889.59 6,398.45 3,248.83
Capital work-in-progress 549.61 575.12 1,107.78 2,887.36 589.64
Investments 791.31 515.22 433.43 182.97 768.38
Net current assets

Current assets, loans & 5,465.23 4,829.42 5,592.66 5,229.78 3,689.80

advances
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Balance sheet

Profit and loss account

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06

Income

Operating income 11,717.40 10,763.35 8,087.48 6,168.66 6,098.39

Expenses
Material consumed 3,983.17 4,108.57 2,722.02 2,249.70 2,005.67
Manufacturing 4,426.80 3,587.56 2,721.65 1,918.04 1,505.72

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expenses
Personnel expenses 233.07 225.8 152.8 99.75 76.09
Selling expenses 291.73 215.12 337.13 234.9 244.64
Administrative 269.98 265.5 151.69 171.24 317.13

expenses
Cost of sales 9,204.75 8,402.55 6,085.29 4,673.63 4,149.25
Operating profit 2,512.65 2,360.80 2,002.19 1,495.03 1,949.14
Other recurring 124.48 41.15 59.83 38.56 1.36

income
Adjusted PBDIT 2,637.13 2,401.95 2,062.02 1,533.59 1,950.50
Financial expenses 861.63 890.01 772.04 440.01 570.48
Depreciation 828.11 766.52 631.04 482.1 394.29
Adjusted PBT 947.39 745.42 658.94 611.48 985.73
Tax charges 110.32 383.07 248.19 165.94 204.09
Adjusted PAT 837.07 362.35 410.75 445.54 781.64
Nonrecurring items -707.01 84.16 39.77 172.95 2.98
Other non cash 55.14 -16.02 -14.03 -88.31 -184.72

adjustments
Reported net profit 185.2 430.49 436.49 530.18 599.9
Earnings before 1,859.10 1,874.78 436.49 530.18 -874.78

appropriation
Preference dividend - 11.5 - - -
Dividend tax - 1.96 - - -
Profit carried to 1,859.10 1,861.32 436.49 530.18 -874.78

balance sheet

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STEEL AUTHORITY OF INDIA

Steel Authority of India Limited (SAIL) is the leading steel-making company

in India. It is a fully integrated iron and steel maker, producing both basic

and special steels for domestic construction, engineering, power, railway,

automotive and defense industries and for sale in export markets.

Ranked amongst the top ten public

sector companies in India in terms

of turnover, SAIL manufactures

and sells a broad range of steel

products, including hot and cold

rolled sheets and coils, galvanised

sheets, electrical sheets, structural, railway products, plates, bars and rods,

stainless steel and other alloy steels. SAIL produces iron and steel at five

integrated plants and three special steel plants, located principally in the

eastern and central regions of India and situated close to domestic sources

of raw materials, including the Company's iron ore, limestone and dolomite

mines. The company has the distinction of being India’s second largest

producer of iron ore and of having the country’s second largest mines

network. This gives SAIL a competitive edge in terms of captive availability

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of iron ore, limestone, and dolomite which are inputs for steel making.

SAIL's wide range of long and flat steel products are much in demand in the

domestic as well as the international market. This vital responsibility is

carried out by SAIL's own Central Marketing Organisation (CMO) that

transacts business through its network of 37 Branch Sales Offices spread

across the four regions, 25 Departmental Warehouses, 42 Consignment

Agents and 27 Customer Contact Offices. CMO’s domestic marketing effort

is supplemented by its ever widening network of rural dealers who meet the

demands of the smallest customers in the remotest corners of the country.

With the total number of dealers over 2000 , SAIL's wide marketing spread

ensures availability of quality steel in virtually all the districts of the country.

SAIL's International Trade Division ( ITD), in New Delhi- an ISO 9001:2000

accredited unit of CMO, undertakes exports of Mild Steel products and Pig

Iron from SAIL’s five integrated steel plants.

With technical and managerial expertise and know-how in steel making

gained over four decades, SAIL's Consultancy Division (SAILCON) at New

Delhi offers services and consultancy to clients world-wide.

SAIL has a well-equipped Research and Development Centre for Iron and

Steel (RDCIS) at Ranchi which helps to produce quality steel and develop

new technologies for the steel industry. Besides, SAIL has its own in-house

Centre for Engineering and Technology (CET), Management Training

Institute (MTI) and Safety Organization at Ranchi. Our captive mines are

under the control of the Raw Materials Division in Kolkata. The Environment

Management Division and Growth Division of SAIL operate from their

headquarters in Kolkata. Almost all our plants and major units are ISO

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Certified.

Financial data

Balance sheet

Particulars 31st MAR 31st MAR 31st MAR 31st MAR 31 st MAR

10 09 08 07 06
Sources of funds
Owner's fund

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Equity share capital 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40

Reserves & surplus 23,853.70 18,933.17 13,182.75 8,471.01 6,176.25
Loan funds
Secured loans 1,473.60 925.31 1,556.39 1,122.16 1,603.98
Unsecured loans 6,065.19 2,119.93 2,624.13 3,175.46 4,165.81
Total 35,522.89 26,108.81 21,493.67 16,899.03 16,076.44
Uses of funds

Fixed assets
Gross block 32,728.69 30,922.73 29,912.71 29,360.46 28,043.48
Less : accumulated 20,459.86 19,351.42 18,315.00 17,198.32 15,558.41

depreciation
Net block 12,268.83 11,571.31 11,597.71 12,162.14 12,485.07
Capital work-in- 6,544.24 2,389.55 1,236.04 757.94 366.48

progress
Investments 652.7 538.2 513.79 292 606.71
Net current assets
Current assets, loans & 35,666.84 27,309.01 21,673.75 18,788.80 15,521.37

advances
Less : current liabilities 19,609.72 15,758.74 13,656.77 15,317.67 13,198.12

& provisions
Total net current assets 16,057.12 11,550.27 8,016.98 3,471.13 2,323.25
Miscellaneous - 59.48 129.15 215.82 294.93

expenses not written

Total 35,522.89 26,108.81 21,493.67 16,899.03 16,076.44

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Profit and loss account

Particulars 2009-10 2008-09 2007-08 2006-07 2005-06

Income

Operating 43,798.5 39,958.6 34,328.7 28,200.4 28,714.3

income 8 7 7 8 0
Expenses
Material 22,042.5 16,821.3 15,963.1 13,903.2 11,155.3

consumed 8 9 3 3 3
Manufacturing 3,762.77 3,317.74 2,925.43 2,793.45 2,427.11

expenses
Personnel 8,401.73 7,919.28 5,087.76 4,156.97 3,811.75

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expenses
Selling 935.68 1,143.90 1,066.73 1,108.12 971.78

expenses
Administrative 1,644.78 1,321.44 1,064.29 1,035.99 780.67

expenses
Expenses -1,930.40 -1,832.22 -1,423.08 -1,352.05 -921.71

capitalized
Cost of sales 34,857.1 28,691.5 24,684.2 21,645.7 18,224.9

4 3 6 1 3
Operating 8,941.44 11,267.1 9,644.51 6,554.77 10,489.3

profit 4 7
Other recurring 2,279.89 1,539.69 1,354.96 892.3 676.55

income
Adjusted 11,221.3 12,806.8 10,999.4 7,447.07 11,165.9

PBDIT 3 3 7 2
Financial 253.24 250.94 332.13 467.76 605.05

expenses
Depreciation 1,285.12 1,235.48 1,211.48 1,207.30 1,126.95
Other write offs 128.02 75.49 128.59 181.44 184.89
Adjusted PBT 9,554.95 11,244.9 9,327.27 5,590.57 9,249.03

2
Tax charges 3,284.28 3,934.65 3,253.80 1,694.36 2,592.37
Adjusted PAT 6,270.67 7,310.27 6,073.47 3,896.21 6,656.66
Nonrecurring -277.12 161.9 53.75 45.64 -14.35

items
Other non 181.26 64.61 60.57 71.12 174.66

cash

adjustments

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Reported net 6,174.81 7,536.78 6,187.79 4,012.97 6,816.97

profit
Earnings 22,052.4 18,348.4 12,886.6 7,861.47 6,839.66

before 7 3 3

appropriation
Equity dividend 1,073.90 1,528.25 1,280.42 826.08 1,363.03
Dividend tax 181.26 258.91 197.98 115.86 185.24
Profit carried to 20,797.3 16,561.3 11,408.2 6,919.5 5,291.4

balance sheet

> Here for comparison the best method is the comparison is ratio analysis of

these company and TATA Steel ltd.

Ratio analysis TATA JINDAL ESSAR SAIL

Raw material to current asset 14.26 17.3 5.72 8.83
Finished goods to current 13.55 17.02 12.28 33.45

asset
Stock turnover ratio 7.72 7.77 5.48 5.08
Average age of stock 47.28 46.97 66.6 71.85
Inventory conversion period 39 53.49 67.38 85.61
Current ratio 1.12 0.61 1.68 2.01
Acid test ratio 0.79 0.34 0.89 1.42
Total inventories to total asset 5% 9.93% 17.44% 27.46%
Sales 24315.77 14001.25 11688.3 43150.08
Profit after tax 5201.74 4,498.95 1859.1 20,797.3

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It will easy to

understand when it will

put into chart. So, all

the necessary charts are given below.

If we compare for TATA STEEL with other companies, then we can see that

TATA STEEL’s raw material to current asset is neither too high nor too low. It

is maintaining a required amount of raw material in hand. Where ESSAR

STEEL is maintaining very low amount of raw material in hand.

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Here we can see that SAIL is playing a defensive role in case of finished

goods. But still TATA steel has limited finished goods to sell. TATA STEEL

never tried to block its capital.

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Both TATA STEEL and JINDAL STEEL have the good stock turnover ratio. In

this case TATA STEEL is far ahead than ESSAR STEEL and SAIL.

As the stock turnover ratio is too high, so the average age of stock is less than

50 days. Where SAIL and ESSAR age of stock is too high. Even SAIL age of

stock is more than 70 days.

Inventory conversion period is lowest than other company for TATA STEEL.

So from here we can conclude TATA STEEL is the fastest converter company

for Inventory.

Current ratio of TATA STEEL is in standard position. Where JINDAL steel’s

current ratio is less than 1 and SAIL’s current ratio is more than 2. Where

SAIL is blocking its working capital there TATA STEEL is keeping appropriate

coverage for current liability.

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TATA STEEL maintained exact amount of highly liquid money in hand, where

SAIL maintained huge amount of highly liquid money. So in this case

TATASTEEL is good enough to maintain the highly liquid money.

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TATA STEEL has less inventories percentage to total asset than other

companies. It is a good sign for TATA STEEL. This company never tried to

block its current money. From this chart it is clearly shown that SAIL is always

maintaining a defensive position.

Here it is clear that SAIL’s sale and profit is higher than other companies. But

if we see TATA STEEL and JINDAL steel, the percentage of profit against

sale is high for JINDAL Steel than TATA STEEL. But the sale price of TATA

STEEL is less than JINDAL Steel. So, that the sale is higher than JINDAL

steel and ESSAR Steel. As SAIL is Government undertaking organization, it is

getting lot of subsidiaries and also other facilities from Government. But still

TATA STEEL is in second position.

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SUGGESTIONS AND

CONCLUSION

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CHAPTER: 7

CONCLUSION AND SUGGESTION

Conclusion

During my project, I personally learned a lot of things i.e. how TATA STEEL is

working in case production, raw material consumption etc. I also learned

about inventory management in TATA STEEL. I am happy to work here for

last two months. It gave me nice experience as well as a value addition to my

carrier. During this period I found some good points and some which I think

will help in improving the performance of the company. These are as follows:

My observations:

• TATA STEEL is maintaining three major types of inventories i.e. raw

material, work-in-process and finished goods.

• Cost of inventories is valued under ‘weighted average method’.

• TATA STEEL has prepared high quality inventory storing house to

minimize the cost relating to it.

• TATA STEEL’s inventory conversation period is too efficient than its

competitors. It is very less than the others.

• As per my concern, TATA STEEL is maintaining an appropriate

amount of liquidity to cover its current liability while we see its current

ratio and acid test ratio. It shows its aggressiveness. It never tried to

block its money unnecessarily.

• The raw material inventory of SAIL is very low in percentage in

comparison to TATA STEEL.

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• TATA STEEL is managing its inventory very cleverly. It is keeping only

5% of its total asset, which is lesser than other competitors. It shows

efficiency level of TATA STEEL.

• The Compounded Annual Growth Per Annum of the value of raw

material consumed is more than 35% but sales value is not increasing

that much. But it is far efficient than the others.

• All the raw material price is increasing except ferro manganese and

zinc alloys.

• Raw material conversion period is decreasing year by year. It shows

its efficiency level.

• Expenses on coke are increasing year by year. Where percentage of

expenses on ferro manganese is decreasing.

• Import of raw material is the maximum in the year 2008-09. Where in

rest of the year TATA STEEL was using own mines for raw material.

• Where finished goods conversion period and raw material conversion

period is decreasing, there work in process conversion period is

increasing.

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SUGGESTION

• For better inventory control TATA STEEL must apply VED analysis or

ABC analysis.

• TATA STEEL must keep eye on its WIP conversion period.

• TATA STEEL should try to minimize its inventory conversion period

and also try to minimize the average age of stock to reduce the cost of

inventories.

• As sale price per unit is lesser than the competitors it must keep trend

increasing mode of sales to reduce the blockage of its price in its

inventory.

• Try to make same CGPA of closing stock of inventory and profit after

tax. Because PAT CGPA is still 5% less than Inventory CGPA.

• Cost of production and Cost of goods sold CGPA should tally. Because

cost of goods sold CGPA is still less than 3% than Cost of production

CGPA.

• Inside the plant one quotation is there ‘work must but safety first’. It

should be obeyed by all the employees at least who are working in

production and inventory maintenance departments.

• Try to generate more revenue from other country.

• TATA STEEL should try for acquisition of more mines in India to

reduce the raw material outsourcing or import cost.

* ABC Analysis: It is a part of inventory management in which, the items

included in the inventory are classified into different categories as items of

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higher value occupying lesser space, lower value occupying more space and

others.

*VED Analysis: V=Vital, E=Essential, D=Desirable. It is the one of the major

part of inventory management. Inventories should divide according to their

importance.

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Bibliography

Books

• Financial management by Prasanna Chandra

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• Fundamental Financial management by Bringham & Houston

Websites

• www.tisco.com

• www.sail.co.in

• www.jindalsteel.com

• www.essarsteel.com

• www.wikipedia.com

• www.steel.nic.in

• www.economywatch.com

Other references

• Annual report of TATA STEEL for the year 2005-06, 2006-

07, 2007-08, 2008-09, 2009-10.

• Annual report of SAIL, JINDAL, ESSAR steel for the year

2009-10.

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