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MAJOR PROJECT REPORTOn
Comparative study of the financial analysis of Tata steel and Jindal Steel
Submitted in partial fulfillment of the requirement ofBachelors of Business Administration (BBA)
Guru Gobind Singh Indraprastha University,Delhi
Faculty Guide Submitted By: Vipul Singh Archit Aggarwal Assistant Professor
SESSION 2014 – 2015Guru Gobind Singh Indraprastha University
Sector-16C, Dwarka,New Delhi – 110075
1
MAJOR PROJECT REPORTOn
Comparative study of the financial analysis of Tata steel and Jindal Steel
Submitted in partial fulfillment of the requirement ofBachelors of Business Administration (BBA)
Guru Gobind Singh Indraprastha University,Delhi
Faculty Guide Submitted By: Vipul Singh Archit Aggarwal Assistant Professor
SESSION 2014 – 2015Guru Gobind Singh Indraprastha University
Sector-16C, Dwarka,New Delhi – 110075
2
CERTIFICATE
This is to certify that Archit Aggarwal, 11121401712 of Jagannath International Management school has successfully completed his major research project on Ratio Analysis used to Comparative study of the financial statement analysis of Tata steel and Jindal Steel under my guidence and as per requirements of Guru Gobind Singh Indraprastha University.
This project is original and has not been submitted elsewhere.
Date
Signature of Guide
Place: Vipul Singh
(Assistant Professor)
3
ACKNOWLEDGMENT
I have taken efforts in this project. However, it would not have been possible without the kind support and help of many individuals and organizations. I would like to extend my sincere thanks to all of them.
I am highly indebted to Mr.VIPUL SINGH (ASSISTANT PROFESSOR) for their guidance and constant supervision as well as for providing necessary information regarding the project & also for their support in completing the project.
I would like to express my gratitude towards my parents & member of Jagannath International Management school for their kind co-operation and encouragement which help me in completion of this project.I would like to express my special gratitude and thanks to industry persons for giving me such attention and time.
My thanks and appreciations also go to my colleague in developing the project and people who have willingly helped me out with their abilities.
Date: 15 September 2013 Archit Aggarwal
BBA 5-B EVENING
11121401712
4
DECLARATION
I hereby declare that the project work entitled Ratio Analysis used to Comparative study of the financial statement analysis of Tata steel and Jindal Steel submitted to the [UNIVERSITY NAME], is a record of an original work done by me under the guidance of Mr.VIPUL SINGH (ASSISTANT PROFESSOR), Faculty Member of Jagannath International Management school and this project work has not performed the basis for the award of any Degree or diploma/ associate ship/fellowship and similar project if any.
Archit Aggarwal
11121401712
5
TABLE OF CONTENTS
Introduction6
S.NO. Particulars Page No
1 INTRODUCTION 8
2 OBJECTIVE OF THE STUDY 38
34 Research Methodology 40
5 Conceptual Discussion 47
6 Analysis 54
7 Findings/ Observations 57
8 Conclusion 58
9 RECOMMENDATION 59
10 REFERENCES 60
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1. Introduction
1.1. Overview of Steel IndustryThe steel sector is one of the most crucial sectors in the development of a nation and is considered as the backbone of civilisation. The level of per capita consumption of steel is an important determinant of the socio-economic development of the country.The Indian steel industry has entered a new development stage since 2007–08 and is riding on the resurgent economy and the growing demand for steel. India’s 33 per cent growth in steel production in the last five years was second only to China among the top five steel producing nations, according to data by World Steel Association (WSA).India is the fourth largest producer of crude steel and the largest producer of soft iron in the world. Presently, the Indian steel industry employs around 500,000 people while the per capita consumption in 2013 stood at around 57.8 kilograms. However, these figures are expected to rise with increased industrialisation throughout the country.
Market Size
According to the data released by Department of Industrial Policy and Promotion (DIPP), the Indian mining and metallurgical industries attracted foreign direct investments (FDI) to the tune of US$ 1,467.88 million and US$ 8,267.99 million, respectively, in the period April 2000–August 2014.The Indian steel industry is divided into primary and secondary sectors. The primary sector comprises a few large integrated steel providers producing billets, slabs and hot rolled coils. The secondary sector involves small units focused on the production of value-added products such as cold rolled coils, galvanised coils, angles, columns, beams and other re-rollers, and sponge iron units. Both sectors cater to different market segments.Companies such as Steel Authority of India Ltd (SAIL), RashtriyaIspat Nigam Ltd (RINL) and NMDC Ltd are responsible for the bulk of the production in the public sector, while companies such as Tata Steel, JSW Steel and Essar Steel are some of the big names in the private sector of the Indian steel industry.Steel production in the country has increased at a compound annual growth rate (CAGR) of 6.9 per cent over 2008–2012. The infrastructure sector accounts for close
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to 60 per cent of the country's total steel demand while the automobile industry accounts for 15 per cent.
Investments
The steel industry and its associated mining and metallurgy has seen a number of major investments and developments in the recent past. Some of them are as follows:
Adani Enterprises Ltd has planned to buy out the royalty rights of Carmichael coal project from Linc Energy Ltd for a sum of US$ 145 million. It is estimated that this project will provide electricity for up to 100 million people in India.
Jindal SAW Ltd has entered into an asset purchase agreement and plans to acquire PSL-North America Llc, a US-based steel pipe maker. Jindal SAW, a part of the OP Jindal Group, produces SAW pipes widely used in the energy sector for the transportation of oil and gas.
Tata Steel Ltd has bought 100,000 tonnes of iron ore from NMDC Ltd over the last two months and has also sought a long-term supply tie-up with the state-run miner. It has already started sourcing small quantities of iron ore from NMDC from June 2014 by participating in the e-auctions being conducted by NMDC from time to time.
Tata Steel has chalked out aRs 12,000–14,000 crore (US$ 1.96–2.28 billion) capital expenditure plan to fund expansion of its Kalinganagar plant in 2014–15. The company’s capacity would increase from the current 9.5 million tones (MT) to 13 MT after the expansion.
Indsur Group announced that its US arm IndsurStelcoreInc has won a Rs 500 crore (US$ 81.71 million)order from a Mexican firm for supply of around 100,000 tonnes of steel plates. Indsur has manufacturing plants for steel castings, auto components, pipes, steel and steel related products strategically located in India, the UK, and the US.
JSW Steel Ltd plans to acquire WelspunMaxsteel Ltd (WMSL) in a deal worth over Rs 1,000 crore (US$ 163.42 million). This move is aimed at achieving the strategic goal to enhance its steel production to 40 million tonnes per annum (MTPA) in the next decade from the current 14.3 MTPA. This acquisition, together with that of Ispat made earlier, will help JSW strengthen its position in the western Indian market.
Government Initiatives
The Government of India plans to set up a steel plant under SAIL at Bayyaram in Khamman District of Telangana, according to MrNarendra Singh Tomar, Union
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Minister of Steel and Mines. A feasibility study is already underway and soon after its completion, a site would be selected for plant and funds allocation.Some of the other recent government initiatives in this sector are as follows:
After the approval of the new mining law by the Parliament of India, the SAIL-led Afghan Iron and Steel Consortium (AFISCO) will soon recommence negotiations with the Afghanistan government to set up a plant with a capacity of 1.5 MTPA.
The Ministry of Steel has proposed to set up special purpose vehicles (SPVs) with State governments to revive investment in the steel sector. The role of the SPVs will be to acquire land and obtain all necessary environment and forest clearances, while NMDC Ltd will be the company creating these SPVs.
The Ministry of Steel has also proposed Special Mining Zones, where regions with mineral resources will be identified as strategic resources and one nodal authority will arrange necessary green clearances for mining projects in such areas.
In addition, the Government of India has picked up pace in giving several projects environmental clearances, as it seeks to reboot the investment flow in the country. The clearances were given for key projects such as coal mining at Chhatrasal for Sasan Power and Mahanadi for Coal India. This move will significantly help in enhancing the Indian steel sector.
Road Ahead
The recently released Union Budget 2014–15 has paved the way for the development of the Indian steel sector with proposals for the construction of 100 smart cities and changes in the MMRD Act. Also, India’s ranking in the global list for production of crude steel is all set to improve with increasing demand for domestic consumption in the years to follow. As per Tata Steel, India's steel sector is anticipated to witness investment of about Rs 2 trillion (US$ 32.68 billion) in the coming years.Exchange Rate: INR 1 = US$ 0.0163 as on October 28, 2014Key Points
Supply With trade barriers having been lowered over the years, imports play an important role in the domestic markets.
Demand The demand is derived from sectors that include infrastructure, consumer durables and automobiles.
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Barriers to entry High capital costs, technology, economies of scale, government policy.
Bargaining power of suppliers
Low for fully integrated players who have their own mines for raw materials. High, for non integrated players who have to depend on outside suppliers for sourcing raw materials.
Bargaining power of customers
High, presence of a large number of suppliers and access to global markets.
Competition High, presence of a large number of players in the unorganized sector.
Financial Analysis The world Gross Domestic Product (GDP) is expected to grow by 3.4% in 2014.
With advanced economies expected to do well in 2015, the global growth projection for 2015 is 5%. (Source:- IMF & SAIL annual report) This is despite the fact that there was a noticeable slowdown in the emerging market and developing economies during 2013, a reflection of the sharp deceleration in demand from key advanced economies. As such, we reckon that while global prospects have improved but the road to recovery in the advanced economies is still uncertain and volatile.
World crude steel production grew at 3% reaching 1,606 MT in 2013, as per World Steel Association (WSA). The growth in production is coming mainly from Asia, as the crude steel production in all other regions (except Africa) declined in 2013. China's crude steel production increased 6.6% YoY to 779 MT in 2013. However, the EU recorded a negative growth of 1.8% compared to 2012.
prospects The Indian metals and mining sector is currently facing a multitude of
challenges like weak macro environment, leveraged balance sheets and heightened regulatory risks. The sector has suffered valuation de-rating since FY12 due to various factors like environmental and regulatory concerns, cost increases, delayed projects and high interest rates.
Government delays in allocating coal blocks for captive consumption by steel manufacturers seriously hurt the competitive edge of the Indian steel sector. Same was the story with iron ore. There are delays in allocating iron ore mines
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as well as approval for mining licenses. As a result, no new investment in the steel sector is happening to add new steel capacities.
There are trends of demand recovery in the property sector and the demand for infrastructure has also been strong since the Modi government came to power. However, underlying demand in the EU is not expected to improve much in 2014. Overall, steel demand is expected to remain weak due to the continuing economic crisis in the developed countries and the structural shift in the Chinese economy. Moreover the world is reeling under the pressure of large surplus capacity which will remain a serious cause of concern, especially in times of subdued global demand.
GDP growth in India stood in the region of sub 5% in FY14 on account of stalled investment against the backdrop of tightening policies, widening trade and fiscal deficit, high inflation and weak FDI inflows. Further, FY14 was also a year of subdued activity for steel using sectors in particular the auto segment. It is expected that the next fiscal will continue to remain a challenging year for the automotive sector if interest rates remain high. However, decline in fuel expenses (which has been the case recently) may help a bit.
Steel demand in India has remained sluggish so far in 2014 amidst weak activity and poor sentiment; however, activity is expected to accelerate modestly in the coming years. Strengthening domestic consumption and improving external conditions will help underpin the growth of steel using sectors.
References: Media reports, Press Releases, Press Information Bureau, Department of Industry Policy and Promotion, Ministry of Steel, Confederation of Indian Industries
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1.2. Profile of the Jindal steel
O.P.JINDAL GROUP
The Jindal Group is a US$ 18 billion corporation, which has emerged as emerged as one of India's most dynamic business organization in the past 3 years. It was founded in 1952 by Shri O. P. Jindal, a firstgeneration entrepreneur who started an indigenous single-unit steel plant in Hisar, Haryana.
Over the last 3 decades the Group has grown to be a multi-national and multi-product steel corporation with business spanning across mining, power, industrial gases, steel making and port facilities. From mining iron ore and coal, the group produces sponge iron, wide range of hot-rolled and cold-rolled steel products, high-grade pipes and value added items such as stainless steel, galvanized steel & coated pipes. It is not only into power generation but it has also diversified into petroleum, infrastructure,diamond and high value metals. Presently the group has manufacturing outfits across India, US, UK and Indonesia and mining concession in Chile, Indonesia & Mozambique and marketing representative's offices across the globe.
Growth has been a part of Jindal Group with its motto 'Growth with a social conscience.' Their commitment is sustainable development, of people and the communities in which they operate. The group's strength is its dynamic and aggressive leaders. These leaders are none other than the four sons of Shri O. P. Jindal. Their hunger for growth is enormous and have a clear vision of being recognized as best in the industry. Under their leadership companies have grown by leaps and bounds.
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The group comprises of the founder's sons who manage companies:
Mr Prithvi Raj Jindal
Jindal Saw Ltd.Jindal SAW USA , LLCHexa Securities & Finance Company Ltd.IUP Jindal Metals and Alloys LimitedS V Trading LimitedJindal ITF Ltd.
Mr Sajjan Jindal
JSW Steel Ltd.JSW Energy Ltd.JSW Holdings Ltd.JSW Infrastructure & Logistics Ltd.Vijaynagar Minerals Pvt. Ltd.Jindal Praxair Oxygen Company Ltd.JSoft Solutions Ltd.JSW Building Systems Ltd.
Mr Ratan Jindal
JSL Stainless LimitedPT Jindal Stainless, IndonesiaJSS Steelitalia Ltd.Jindal Stainless Steel way Ltd.
Mr Naveen Jindal
Jindal Steel & Power Limited
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Jindal Power LimitedJindal Petroleum LimitedJindal Shadeed Iron & Steel
O.P JINDAL GROUP OF COMPANIES
JSW STEEL LTD.
JSW Group is a part of the O.P. Jindal Group, which is a $11 billion corporation. It has set up business in the core sectors of India, with innovative and sustainable avenues in steel, energy and infrastructure. The group is working for India’s development as a global superpower.
It is leading from the front in every sector that it operates in. JSW Energy has grown ten-fold in three years while JSW Cement created the building blocks of India with its environment friendly product. JSW Infrastructure contributes to the nation’s development by providing world class services to clients through ports, terminals, shipyards and other facilities.
Expansions, up gradation and technological innovations are a way of life at JSW and they are focused on becoming the Company that puts India on the global map. The JSW Group is committed to create more smiles at every step of the journey. JSW Foundation is in constant pursuit of making life better for communities with its various initiatives in the fields of health, education, livelihood and sports along with art and culture.
Their zero effluent plants, green townships and happy employees are changing the course of the nation with their spirited growth. JSW Group creates opportunities for every Indian and leads to the creation of a sustainable, dynamic and developed nation.
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Jindal Stainless ltd
Jindal Stainless is a part of OP Jindal group and is the largest manufacturer of stainless steel in India and is ranked as the 8th largest in the world, with a capacity of 1.8 million tons. Excellence and Success are the characteristics similar to the metal it produces. Jindal Stainless is innovative and versatile in its thought process, strong and unrelenting in its operations. JSL has crafted its success story by fully integrating its operations based on a strategy of both, backward and forward integration, starting frommining, melting, casting, hot rolling to cold rolling and further value additions .This has been the driving philosophy of the company from its one unit presence in the early 70’s to its present multi- location presence across the globe. JSL product range includes: Ferro Alloys, Stainless Steel Slabs, Blooms, Hot Rolled Coils, Plates and Cold Rolled Coils/ Sheets, Stainless Steel Strips for Razor Blade Steel and Coin Blanks for mints in India & EU.
Jindal Steel and Power LTD.
Jindal Steel and Power Limited (JSPL) is one of India's major steel producers it has setup sectors like Mining, Power Generation and Infrastructure.
JSPL is a part of O. P. Jindal Group With an annual turnover of over US$ 3.5 billion. It is consistentlytapping new opportunities by increasing production capacity, diversifying investments, and leveraging its core capabilities to venture into new businesses. The company’s investments exceed US$ 30 billion in the future and have several business initiatives running simultaneously across continents.
Mr. Naveen Jindal, the youngest son of the legendary Shri. O. P. Jindal leads JSPL and its group companies. The company produces economical and efficient steel and power.
JSPL today sports a product portfolio that caters to varied needs in the steel market. The company alsohas the distinction of producing the world's longest 121m rails and large size parallel flange beams.
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JSPL operates the largest coal based sponge iron plant in the world at Raigarh in Chhattisgarh. The company aims for a fast-paced growth so as to contribute substantially to India's long termprosperity. An enterprising spirit and the ability to discern future trends have been the driving force behind the company's remarkable growth story.
The company has reached new heights with the combined force of innovation, adaptation of new technologies and the collective skills of its 15,000 strong, committed workforce.
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About the company
Jindal SAW Ltd is a part of O.P. Jindal Group, one of the country's topmost industry and indigenous steel producers and exporters. It was started in 1984, when it became the first company in India to manufacture Submerged Arc Welded (SAW) Pipes using the internationally acclaimed U-O-E technology.
From beginning operations with a single product at a single location in 1984, Jindal SAW today offers 'Total Pipe Solutions' to the world. As part of the $15 billion O.P. Jindal Group, the company is firmly on its way to new markets and areas of growth. With its subsidiary, Jindal ITF, it is powering ahead in its enterprises with respect to water management, waterborne transportation, waste-to-energy and rail infrastructure. Moreover, its unstinting support to Svayam, an initiative of S.J. Charitable Trust is making a positive difference in making public infrastructure accessible to all.
To move ahead of the competition, the need of the hour is to focus on the basics, master it and then excel in other aspects. Jindal SAW does this all with a promise that meets the most exacting of international standards and passes stringent quality checks. Thus, reinforcing the company's commitment to superior levels of excellence.
Every requirement and need of the market is addressed by Jindal SAW's exhaustive range of products. The latest advances in technology and manufacturing processes ensure that the product is always there when the need arises. Moreover, the proximity of plants to ports further ascertains that there is no lag in timelines being
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met. All leading to a firm relationship with customers that surpasses commercial transactions, and stands the test of time.
Jindal SAW Ltd. is in a commanding position in India’s tubular market, being the leader with a turnover of Rs. 7500 Crore.
It has diversified from a single product company to a multi-product company, manufacturing large diameter submerged arc pipes and spiral pipes for the energy transportation sector; carbon, alloy and stainless steel seamless pipes and tubes manufactured by conical piercing process used for industrial applications; and Ductile iron (DI) pipes for water and wastewater transportation. Besides these, the company also provides various value added products like pipe coatings, bends and connector castings toits clients.
Jindal SAW has gained the confidence and trust of its stakeholders - from employees, associates, shareholders and people whose lives have benefitted by the company's endeavors.
With its vision of sustainable development, Jindal SAW has played a leading role in developing livable cities across the world - that in turn has helped transform the lives of people staying in them.
Jindal SAW helps residents and organizations in numerous cities by ensuring timely transportation of oil,gas and water. The pipes produced by the company are energy efficient, reduce dependence on fossil fuels, and help conserve natural resources like water.CompanySecretaryCompany sectary
Sh. Sunil Jain
Director
Smt. Savitri Devi Jindal ChairpersonSh. P. R. Jindal Vice ChairmanSh. Indresh Batra Managing Director
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Ms. Sminu Jindal Managing DirectorSh. Devi Dayal DirectorDr. S. K. Gupta DirectorSh. Kuldip Bhargava DirectorDr. Raj Kamal Agarwal DirectorSh. Ravinder Nath Leekha DirectorSh. Girish Sharma DirectorSh. H. S. Chaudhary Whole Time Director
Corporate officeJindal Centre,12, Bhikaiji Cama Place,New Delhi - 110066Rged.office Internal auditor A1, UPSIDC Industrial Area,Nandgaon Road, Kosi KalanDistrict Mathura, 281403 (U.P.)
InternalAuditorsSatutory auditor Internal auditorM/s T. R. Chadha & Co.Chartered AccountantsM/s Singhi & Co.Chartered Accountants
StatutoryAuditorsSatutory auditor M/s N. C. Aggarwal & Co.Chartered Accountants
BankersBankers
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State Bank of PatialaState Bank of IndiaPunjab National BankCanara BankAxis Bank Ltd.Credit Agricole & Investment Bank Ltd.HDFC Bank Ltd.ICICI Bank Ltd.Ing Vysya Bank Ltd.Standard Chartered BankState Bank of MysoreState Bank of TravancoreSyndicate BankUnited Bank of IndiaKarnataka Bank Ltd.
Share Price Trends
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PRODUCTS
Large Diameter PipesSeamless Tubes & PipesDuctile Iron (DI) Spun Pipes
Large Diameter Pipes
This Strategic Business Unit (SBU) manufactures and markets large diameter Submerged Arc Weldedpipes using U-O-E, J-C-O and Helical process. These pipes are mainly used for energy transportation inoil and gas sector. The range of the LSAW pipes varies between 16 inches - 56 inches for outer diameter and up to 50.8 mm of wall thickness. The combined installed large diameter pipe manufacturing capacity of these facilities is 1,650,000 MT per annum.
To cater the North American market Jindal SAW Limited has set up a double jointing and coating facility located at Baytown, Texas in the name of Jindal SAW USA, LLC which is 100% step down subsidiary. It was incorporated in United States in the year 2007. This facility has shipping capabilities by Rail, Road and Barges within the North American market.
Jindal SAW Ltd. is the most welded line pipe manufacturer in Asia after Japan. The company's products are highly in demand in the markets of Gulf, Middle East, South East Asia and Africa, North America and Latin America with a record of manufacturing and supplying over 21,049 Kms of Line Pipes, of which more than 12,430 Kms of Line Pipes have been exported to major oil and gas companies across the world.
Products
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LINE PIPES
Longitudinal Submerged Arc Welded Pipes Adapting (U-O-E & J-C-O Process)
Helical Seam Submerged Arc Welded Pipes (HSAW)
ANTI-CORROSION COATINGS
3 Layer Polyethylene/ 3 Layer Polypropylene
Fusion Bonded Epoxy (Fbe)/ Dual Layer Fusion Bonded Epoxy (DFBE)
Coal Tar Enamel (CTE)
Internal Flow Efficiency
Concrete Weight Coating (CWC)
Insulation Coating
SEAMLESS TUBES AND PIPES
The Seamless division produces Tubes & Pipes at a state of the art plant at Sinnar, which is approx. 205 Kms from Mumbai near Nasik in Maharashtra State, India, with technology & equipments from Germany, acknowledged by world leaders in Seamless Tube & Pipe
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technology. Their plant has annual installed capacity of 220,000 M Tons for Carbon & Alloy Steel Pipes and is equipped with modern manufacturing machines and latest testing facilities.
INDUSTRIES SERVICED
Petroleum, Refineries & FertilizersOil DrillingBoilers, Heat Exchangers & Condenser ApplicationsSuper Heater & Low Temperature ApplicationsMechanical Tubing & Structural ApplicationAutomobile ApplicationsGeneral EngineeringFluid Conveyance ApplicationsBearing Steel Tube Industry
PRODUCTS
PRODUCT OUTSIDE DIAMETER(D)(mm)
Wall thickness(t)(mm) Annul capacity
Hot Finished Carbon/ Alloy SteelSeamless Tubes and Pipes.
33.40 to 177.80 3.38 to 25.00 80000 MT
Seamless Drill Pipes & Greensconforming to API 5D.
60.30 to 177.80 4.00 to 19.05 120000 MT
Seamless Drill Pipes & Greensconforming to API 5D.
60.30 to 168.30 6.45 to 12.70 120000 MT
Cold Finished Carbon/ Alloy SteelSeamless Tubes and Pipes.
19.05 to 140.00 1.50 to 19.05 20000 MT
Anti Corrosion 3 LPE / FBE Coating
2 to 14 as per DIN 30670 2 to 14 as per DIN 30670 1million SQM
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DUCTILE IRON (DI) SPUN PIPES
The integrated Greenfield project of Ductile Iron pipe and pig iron unit is a port based facility situated at Samaghogha, Mundra in Gujarat, India, commissioned in 2005. The highlights of our plant are:
Port based facility of Ductile Iron pipes located on Western coast of IndiaState of the art facility with latest technology.Installed capacity of 300,000 MT per annum has been enhanced to 500,000 MT per annum by installation of a state of art Small Diameter Plant (SDP), with size range DN 80 – DN 250 along with latest linings /coatings facilities conforming toNational/International standardsBackward Integration with own Blast Furnace & Coke Oven facility to produce &provide a continuous supply of pig iron & coke (main inputs in manufacturing of DI pipes).Spread in an area of 225 acres with a work force of more than 2,600 people.Accredited with ISO 9001, ISO 18001 & Product certification for International standards ISO 2531, BS EN 545, BS-EN- 598 and ISO 7186 by British Standards Institute & Bureau Veritas.
In line with its Vision to serve the global market, Jindal SAW has also acquired a DI pipe manufacturing plant at Sertubi, Italy having installed capacity 80,000 MT per annum. The plant will cater to the requirements of European countries.
The plant has been conforming to various standards like ISO 2531, UNIEN 545 and UNIEN598. It is equipped to provide various coatings such as Zn & Zn-Al Coatings as per National & International Standards and Blue/Red Epoxy or black synthetic paint.
Further, Jindal SAW has installed a Ductile Iron pipe manufacturing plant at Abu Dhabi, United Arab Emirates. This facility is capable to manufacture DI pipes in size range of DN 250 – DN 2200, with an installed capacity of 350,000 MT per annum.
The plant has been conforming to ISO 2531, BSEN 545, BSEN598 and ISO 7186. It also offers various coating facilities like Zn & Zn-Al Coatings as per National & International Standards; Blue/Red Epoxy or Black Bitumen and External and
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Internal Polyurethane Coatings as per BS EN 15189 and BS EN 15655 respectively for DN 250 to 2200 mm.
A) Technical Specifications
Product Name-Ductile Iron Pipe with Socket & Spigot ends suitable for Push on-JointingClass of Pipe - C20, C25, C30, C40, C50, C64, C100 & Class K9Size Range - DN 80mm to DN 1000mmStandard Length - 5.5m / 6.0mInternal Linings -Cement Mortar LiningCement Mortar Lining with Bituminous Seal CoatCement Mortar Lining with Epoxy Seal Coat
Cement Type: OPC/ Sulphate Resistant Cement/ Blast Furnace SlagCement / High Alumina Cement
Outside Coatings -Zinc Coating (130 gm/m2 or 200 gm/m2 or 400 gm/m2) withfinishing layer of Bitumen/ Blue Epoxy/ Red EpoxyPolyethylene SleevingAlloy of Zinc and Aluminum with or without other metals having aminimum mass of 400 gm/m2 with finishing layer of Bitumen/BlueEpoxy/Red Epoxy
Coating of Joint Area Bitumen; Epoxy; Polyurethane.Conforming Specifications IS 8329 ; ISO 2531 : ISO 7186 ; BS EN 545 ; BS EN 598Quality Certifications –British Standards Institute and DNVProduct - British Standards Institute and Bureau VeritasB) Lining /Coating on Ductile Iron PipesInternal LiningDuctile Iron Pipes installed in water systems today are normally provided with cement mortar lining. Use of cement lining of the pipe avoids tuberculation by creating a high pH at the pipe wall, and ultimately by providing a physical barrier to the flow water to contact with the pipe wall. Further, linings are also smooth, which results in high coefficients with Haizen Willams C as 140 (Colebrook coefficient k =
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0.1). In case of sewerage application, suitable lining will provide corrosive resistance to septic transformation (cycle of Sulphate, sulphuric acid) to avoid severe carrion to pipe wall. The advantages of internal cement mortar lining are:
Internal protection of pipe wall against fluid aggressivenessImprovement and performance of pipe flow characteristicsFor potable water pipelines, assurance of keeping water quality withinspecified limits.Withstand against corrosion due to septic transformations.
Types of Lining & Service ConditionsTYPES OF LINING MATERIAL
SERVICE CONDITION REFERENCE STANDARDS
Ordinary Portland Cement Drinking water ISO 4179BS EN 197-1
Blast Furnace Slag Cement
Drinking waterISO 4179BS EN 197-1
Portland Slag Cement Drinking water ISO 4179BS EN 197-1Sulphate resistance Cement
Raw water/Drinking Water/ Sea water/Non-septic Sewers
ISO 4179BS 4027
High Alumina Cement Septic Sewers/ Drinking Water/Acids/Alkali waters/ Pickling Brine/ Sea water
ISO 4179BS EN 14647
Cement Mortar Lining withBituminous/epoxy Seal Coat
Drinking water/ Sewers ISO 4179BS EN 14901
Outer CoatingIntrinsic corrosion resistance of Ductile Iron in various corrosive soils is as least as good as and even somewhat better than that of Cast Iron, as there is not much variation chemically between the two materials. When subjected to corrosion, the
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nodular graphite of ductile iron pipes forms corrosion by products that adhere firmly to the unattached metal, which provides a barrier against further corrosion. In addition, uniform spreading of spheroidal graphite of ductile iron results in less susceptible to deep localized pitting than that of grey iron pipe, which is important in evaluating its relative resistance to failure by perforation. Due to rubber gasket jointing, ductile pipes are electrically discontinuous. As a result, long line corrosion current, which is dependent on exposure of a single electrical unit to varying soil conditions, can not develop. Additionally, any accumulation of stray current is limited to short electrical units and usually is of little significance in developing corrosion.
Additional external protection to ductile iron pipe provides long service performance, especially for smaller diameter pipes where wall thickness is comparatively less.
Following external protection is normally being provided: -Types of CoatingS.NO TYPE OF COATING REFERENCE
STANDARDS1 Zinc coating with finishing layer of Bitumen/ Epoxy ISO 8179 -1
2 Zinc coating with finishing layer with additional protection bypolyethylene sleeving
ISO 8180
3 Alloy of Zinc and Aluminum with or without other metals havingminimum mass of 400 gm/m with finishing layer.
ISO : 14713
Pricing StrategyPricing of welded steel pipes are very volatile. Pricing of steel depends on several factors. Some of these factors are:
1. Cost factors:Majorly cost based pricing is adopted in JSL. The method determines the price of a product or service that uses direct costs, indirect costs, and fixed costs whether related to the production and sale of the product or service or not. These costs are converted to per unit costs for the product and then a predetermined percentage of these costs are added to provide a profit margin. Costbased pricing is done by two means. First, present costs of raw material, operational costs incurred and several indirect costs are involved, by calculating these costs the
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pricing is done. Second, by considering the economic factors and objectives the mark up price is decided.
2. Demand factor:Steel market is very volatile. The pricing is highly dependent on the demand in international market. Since the product is welded steel pipes and is used for conveyance of oil and natural gas,therefore the demand of oil and gas is a major driver of prices. Oil and gas demand and prices are major drivers of prices. When oil and gas companies hold the projects, demand of commodity fluctuates which in turn affects the prices of steel pipes.
3. Competitive factors:Company has to keep an eye on competitor’s price. India In steel pipe sector is facing major competition from many countries like China, Japan, and Korea etc. Dealing in international market with potential competitors is not an easy task.Competition in international market is intense and major business comes from foreign clients. Pricing strategy of competitors plays an important role in such condition.
Marketing strategiesMarketing in JSL is well defined. JSL is market leader in SAW pipes. Marketing department in JSL works mainly on two marketing strategies:
Personal selling
Personal selling is one of the oldest forms of promotion. It involves the use of a sales force to support a push strategy (encouraging intermediaries to buy the product) or a pull strategy (where the role of the sales force may be limited to supporting retailers and providing after-sales service). It is the personal selling process that allows JSL the greatest freedom to adjust a message to satisfy customers' information needs. Sales force allows the marketer or seller tocommunicate directly with the prospect or customer and listen to his or her concerns, answer specific questions, provide additional information, inform, persuade, and possibly even recommend other products or services. Personal selling in JSL is used to meet some objectives of promotion in the following ways:
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Salespeople, especially when selling in steel pipe markets, are to educate customers on new product offerings. In fact, salespeople serve a major role in discussing products with clients. Building awareness using personal selling is very important in business markets. As discussed, the advent of controlled word-of-mouth marketing is leading to personal selling becoming a useful mechanism for introducing customers to new products.
2. Creating Interest
The fact that personal selling involves person-to-person communication makes it a natural method for getting customers to experience product for the first time. In fact, creating interest goes hand-in-hand with building product awareness as sales professionals can often accomplish both objectives during the first encounter with a potential customer.
3. Providing Information
When salespeople engage customers a large part of the conversation focuses on product information. Marketing organizations provide their sales staff with large amounts of sales support including brochures, research reports, computer programs and many other forms of informational material.
4. Stimulating Demand
By far, the most important objective of personal selling is to convince customers to make a purchase. In The Selling Process salespeople accomplish this when offer has detail coverage of the selling process used to gain customer orders.
5. Reinforcing the Brand
Most personal selling is intended to build long-term relationships with customers. A strong relationship can only be built over time and requires regular communication with a customer. Meeting with customers on a regular basis allows salespeople to repeatedly discuss JSL’s products and by doing so helps strengthen customers’ knowledge of what the company has to offer.
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Sales department is divided into two divisions:
1. Export team 2. Domestic team
Export team:
This team deals with only foreign clients. The main work of these teams is to fulfill the objectives (given above). In export division, 3 export teams are available. These teams deal geographically. Globe is divided into three sections and each team is given an area and team is responsible for the given territory only. Inmost of the countries where presently the company is dealing, JSL has its representatives. These representatives find the lead. This lead is given tosales force of respective territory. The respective export team deals with the client. The three territories defined are:(A) Latin America, Gulf and Middle East. (B) Africa and CIS (commonwealth of independent states). (C) Rest of the countries.
Domestic team
These teams deal with domestic clients. In domestic division, 2 teams are available.
Working of marketing department
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Sales
Export team
1 23 12
Domestic
team
Orders confirmation process is done in two ways. First, through bidding, in this process tenders are floated by clients. Bidding is done by suppliers and lowest price quoted supplier is selected. Mostly, government agencies and institutions go for tender process. Government institutions before finalizing orders check the credibility of the company. This process includes several checks comprising study of annual report, quality standards being followed and present and pastclients etc. Client interaction with management is also a part of building relations with clients. Clients are allowed to visit the manufacturing unit to be aware of the processes.
Public Relations
Along with being a successful business entity Jindal SAW Limited has an active sense of social responsibility. As a leading trans-national, the Company is committed to being a good corporate citizen wherever the company is engaged in business activities and interests. The company’s Corporate Social Responsibility Programme voluntarily integrates social and environmental concerns into their operations. As a responsible corporate entity, JSL shoulders many responsibilities. The organization attempts to give its workforce a quality life, a hazard-free working environment, and drive them to a higher standard of living by providing them access to amenities like housing, transportation, medical facilities, schools, and other civic infrastructure. As part of community service, JSL has adopted many villages surrounding the plants. Active volunteers from the organization undertake regular literacy drives, organize free health camps, mobile eye-care units and continuously strive to make these villages independent and progressive.
Svayam
JSL has also undertaken project Svayam under its CSR. The aim of the project is to create “Barrier Free” environment for physically challenged people, who continue to face barriers that prevent them from enjoying full civil, political and developmental rights. This is largely due to ignorance in our society.
Vidya Devi Jindal School
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At VDJS, a Residential School for Girls, the medium of teaching is the English language. The school provides education that nurtures the traditions of our culture and also absorbs the finer influences of the west. It focuses on all round development of personality and thorough education of girls in order to make them conscientious and responsible citizens. More importantly, the school imparts the right values and norms of behavior, thus helping the girl students enhance their confidence and poise. The school is set in restful and calm surroundings
Distribution Channels
Mr. Jindal said JSL aimed to provide a unique experience of buying steel products through branded distribution channels. There are two types of distribution channel through traders and through clients. Traders act as an indirect channel between the buyer and the seller. Mostly cash transactions take place where traders are involved and accounts to almost 90%-95% of the totaltransactions taking place. There is no direct dealing with the company as such. Traders either hoard a certain amount as inventory, whereas there can be other situations where they keep zero inventory. The amount kept as inventory is meant for meeting uncertain demand and the trader delivers the product to the end user. In case of zero inventory, the trader regulates the material flow only after receiving from the manufacturer. Inventory can be of standard/fixed size orcustomized size. Standard size is generally meant for traders whereas clients are provided with customized inventory, suiting their particular demand/s. Traders usually order small amounts, whereas clients purchase in bulk. Direct transaction takes place between the company and theclient. Transaction can be in the form of credit or cash basis. Clients of Jindal Saw Ltd. Are domestic as well as international. Domestic clients include companies such as Bharat Petroleum, Indian Oil, ONGC, Reliance Petroleum, Reliance Industries, Cairn, etc. International clients include GASCO, PEDEC, PETROCHINA, PETRONAS, Saipan, etc. The company also uses 3 Rd party logistics. Transportation cost depends on the contract made between the parties.
The diagram below shows a direct distribution. There are more number of transactions taking place in a direct distribution which also leads to increase in cost& time. Moreover, it does not offer a customized solution. In case of indirect distribution, through traders, there is less number of transaction staking place, which also results in decrease in cost and time. If the trader acts as an assembler, it can
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offer customized solution to its end-user which is not possible incase of direct distribution.
International Competitors
SeAH Steel Corporation
SeAh Steel Corporation (former Pusan steel pipe ind. Co. Ltd.) was founded in Pusan, Korea in 1960. SeAh is a leading manufacturer of steel pipes in Korea, gave birth to SeAh group. Presently the production capacity is 876000 MT of steelpipes. Presently, SeAH Steel has Pohang Factory and Changwon Factory having the largest manufacturing capacity of pipes in Korea. In addition, our company has been able to produce and supply the best quality of steel plates through continuous investment into manufacturing facilities and via efforts of quality innovation since 1998.Now, SeAH Steel with the solid foundation of accumulated reputation and trust, will surely become a blue-chip company by continuous effort toward change and innovation based on eco-friendly operation and administration with integrity.
Products:
Carbon, stainless steel pipes, Pre-coated metal, galvanized steel sheets, High quality anticorrosive oil transmission steel pipe, Chromium-Molybdenum boiler tubes
Production capacity:876000 MT
SUMITOMOSumitomo foundry began producing cast-steel in 1901 in present Konohana ward, Osaka city. One hundred years since then, Sumitomo metals is producing steel pipes for oil and natural gas, wheels and axels for railway cars, steel sheets for automobile bodies and other high-grade steel products. Aside from seamless pipes, the Company also produces wide-bore welded pipes andelectric-resistance welded pipes as well as other tubes and pipes and regards its operations in this sector as one of its flagship businesses. Electric-resistance welded pipe sector has been integrated with the operations of Sumitomo Pipe & Tube Co.,
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Ltd., which commenced operations in July 1999.Sumitomo Metals has almost all kinds of steel pipe manufacturing facilities which produce a wide range of welded steel pipe and tubes. These works are able to produce approximatelythree million metric tons of steel pipe and tubes annually. The company also possesses facilities in affiliated companies in Sakai, Kashimaand Koga.
Production capacity: 1674000 MT
Nippon Steel Corporationwas formed as Yawata Steel and Fuji Steel merged to form Nippon Steel Corporation in 1970. Nippon Steel Corporation is the world’s second-largest steel producer in volume and the second most profitable steel company in the world. Oita Works began operation in 1971 in the capital city of Oita Prefecture, Japan. All operations of Nippon Steel's Urban Development Division were integrated in 2002 into Nippon Steel City Produce, Inc. Thereafter, stainless steel businessof Sumitomo Metal Industries and Nippon Steel amalgamated to form Nippon Steel & Sumikin Stainless Steel Corporation. Nippon steel production system begins with advanced metallurgy and clean BOF steel making process. Among the company’s advanced production facilities, is the Kimitsu work UO pipe mill, which is capable of manufacturing large diameter pipes.Cutting-edgeHigh strength Products:Line pipe High toughness line pageant-Sour line pipe OCTG pipe
Production capacity:11000000 MT
NKKNKK is a major Japanese industrial company and one of the country’s largest steelmakers having Headquarters is in Tokyo. Nippon Kōkan KK was founded in 1912 to make products using the steel from Japan’s first steel mills. The company’s innovative superior to conventional welded pipes and Nippon Kōkan eventually also began producing raw steel from iron ore. NipponKōkan expanded greatly in the decades after World War II, with large steelmaking complexes at Fukuyama (in Hiroshima prefecture) and at Kawasaki and Yokohama (the Keihin Steel Works, near Tokyo). In the late 1970s the company expanded its Keihin complex by building an ultramodern steelworks on man-made Ogi Island in
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Tokyo Bay. The NKK Corporation is the second largest steelmaker in Japan (after the Nippon Steel Corporation).
Production capacity:1120000 MT
Domestic Competitors
WelspunIncorporated in 1995, Welspun Gujarat Stahl Rohren Ltd (WGSR) is a part of the welldiversified Welspun Group. The company is a leading manufacturer of submerged arc welded (SAW) pipes, mainly catering to the Oil and Gas exploration companies for transporting their products. Currently it has the capacity of producing pipes of total length of 1000 km per annum. With the demand for the SAW pipes industry expected to be robust in the coming years, the company has chalked out an expansion plan for increasing the existing capacity and also develop facilities for the manufacture of ERW pipes. WGSR is one of the leading manufacturers of SAW pipes in India, mainly catering to the Oil and Gas exploration companies. WGSR caters to the global requirement of high grade Submerged Arc Welded pipes both Spiral and Longitudinal. The company has technology support from Mannesmann Demag, Germany, an API approved pipe maker and the Capello Group, Italy. The company’s plant is located on the Western Coast of India Near Dahej in the state of Gujarat. The location is ideal in terms of proximity to the National Highway and Seaports like Dahej,Kandla, Mumbai and Mundra.
Production capacity: 1500000 MT
Man IndustriesThe MAN GROUP established in 1970, has diversified business interests in India, USA, UK and UAE, having present market capitalization is above USD 300million.Man Group consists of following major companies: Man Industries (India) Ltd. Man Aluminum Limited. Man Infraprojects Ltd. Man USA Inc. The LSAW Line Pipes are manufactured in strict conformanceto the general and customized specifications of clients of various sectors such as Oil, Gas, Petrochemicals, Fertilizers and Dredging.The company’s SSAW Line Pipe Facility at Anjar comprise of 2 (Two) Production Lines and is equipped with all NDT and laboratory facilities to cater to the
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requirements of its world-wide clientele of high pressure/critical application segment.
Production capacity:1175000 MT
Competitive advantage
U-O-E & J-C-O forming processesThis is a special type of process of forming the steel pipes, which is only followed by JSL. No other company follows this process. This is a method how the pipes are formed, which give the company an advantage over its competitors.
PricingJSL is believed in giving Value pricing to its customers. Prices for pipes are lowest when compared to its competitors, whereas the products are of very good standards. It is considered a value for money.
Location advantageLocation has a very prominent role in pricing. Manufacturing plant of JSL is located in Mundra in Gujarat, which is close to the port. This gives easy access for shipping of material to customers.
Quality StandardsJSL believes in keeping good quality standards. It follows ISO 9001, ISO14001, ISO 18001 etc, which are very high quality standards and internationally recognized. These are few factors that give JSL a competitive edge over other competitors.
STP
Segment Mining, Power Generation and Infrastructure, Ferro chrome, Silico manganese, Sponge iron,
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Petroleum, Cement
Target GroupConstruction, oil & gas, transportation, refining, telecom, ship building, power, automobiles,
capital goods, consumer durables and infrastructure sector
Positioning One of the most prestigious and dynamic business groups in the World
SWOT Analysis
Strength
1. Produces economical and efficient steel and power through backward and forward integration
2. Sports a product portfolio that caters to varied needs in the steel market
3. Operates the largest coal - based sponge iron plant in the world
4. Has force of innovation, adaptation of new technologies and the collective skills of its 15,000 strong, committed workforce
5. Has an enterprising spirit and the ability to discern future trends
6. Has operations in Steel, iron, electricity generation and distribution
Weakness
1. Shortage of coking coal and is largely dependent upon its import
2. Weak performance on the back of the higher raw material cost and the power & fuel cost
Opportunity
1. Venture into new businesses by leveraging its core capabilities
2. Increase production capacity to meet the global steel demand
3. Diversify investments to distribute risk in business
Threats
1. Hike in the export duty on iron ore fines and lumps
2. Project implementation and raw material security
3. Issues related to land acquisition, raw material linkages and environmental clearances
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Research Methodology
4 Research Methodology
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Ratio analysis is such a significant technique for financial analysis. It indicates relation of two mathematical expressions and the relationship between two or more things. Financial ratio is a ratio of selected values on an enterprise's financial statement. There are many standard ratios used to evaluate the overall financial condition of a corporation or other organization. Financial ratios are used by managers within a firm, by current and potential stockholders of a firm, and by a firm‘s creditor. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. Essence of ratio analysis: Financial ratio analysis helps us to understand how profitable a business is, if it has enough money to pay debts and we can even tell whether its shareholders could be happy or not.
Financial ratios allow for comparisons:
1. between companies 2. between industries 3. between different time periods for one company 4. between a single company and its industry average
To evaluate the performance of one firm, its current ratios will be compared with its past ratios. When financial ratios over a period of time are compared, it is called time series or trend analysis. It gives an indication of changes and reflects whether the firm‘s financial performance has improved or deteriorated or remained the same over that period of time. It is not the simply changes that has to be determined, but more importantly it must be recognized that why those ratios have changed. Because those changes might be result of changes in the accounting polices without material change in the firm‘s performances.
Another method is to compare ratios of one firm with another firm in the same industry at the same point in time. This comparison is known as the cross sectional analysis. It might be more useful to select some competitors which have similar operations and compare their ratios with the firm‘s. This comparison shows the relative financial position and performance of the firm. Since it is so easy to find the financial statements of similar firms through publications or Medias this type of analysis can be performed so easily. To determine the financial condition and performance of a firm, its ratios may be compared with average ratios of the industry to which the firm belongs. This method is known as the industry analysis that helps
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to ascertain the financial standing and capability of the firm in the industry to which it belongs. Industry ratios are important standards in view of the fact that each industry has its own characteristics, which influence the financial and operating relationships. But there are certain practical difficulties for this method. First finding average ratios for the industries is such a headache and difficult. Second, industries include companies of weak and strong so the averages include them also. Sometimes spread may be so wide that the average may be little utility. Third, the average may be meaningless and the comparison not possible if the firms with in the same industry widely differ in their accounting policies and practices. However if it can standardized and extremely strong and extremely weak firms be eliminated then the industry ratios will be very useful. Objectives of the study 1. To study the financial performance of Tata steel and Jindal steel. 2. To compare the financial performance of Tata steel and Jindal steel.
Data Sources
In this present study, an attempt has been made to evaluate and compare the financial performance of Tata steel and Jindal steel and both of the companies are related with the private sector. The study is based on secondary data and the details are collected through websites, magazines and journals. The time period of study is four years 2009 to 2013. Ratio analysis was applied to analyse the performance of these companies.
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Profitability Ratio Definition
Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project. It is a useful tool for ranking projects because it allows you to quantify the amount of value created per unit of investment.
The ratio is calculated as follows:
Assuming that the cash flow calculated does not include the investment made in the project, a profitability index of 1 indicates breakeven. Any value lower than one would indicate that the project's PV is less than the initial investment. As the value of the profitability index increases, so does the financial attractiveness of the proposed project.
Rules for selection or rejection of a project:
If PI > 1 then accept the project If PI < 1 then reject the project
A profitability ratio is a measure of profitability, which is a way to measure a company's performance. Profitability is simply the capacity to make a profit, and a profit is what is left over from income earned after you have deducted all costs and expenses related to earning the income. The formulas you are about to learn can be used to judge a company's performance and to compare its performance against other similarly-situated companies.
Types Of Profitability Ratios
Common profitability ratios used in analyzing a company's performance include gross profit margin (GPM), operating margin (OM), return on assets (ROA) , return on equity (ROE), return on sales (ROS) and return on investment (ROI). Let's take a look at these in some detail.
Gross MarginGross margin tells you about the profitability of your goods and services. It tells you how much it costs you to produce the product. It is calculated by dividing your gross profit (GP) by your net sales (NS) and multiplying the quotient by 100:
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Gross Margin = Gross Profit/Net Sales * 100
GM = GP / NS * 100
Example: Imagine that you run a company that sold $50,000,000 in running shoes last year and had a gross profit of $7,000,000. What was your company's gross margin for the year?
1. GM = $7,000,000 / $50,000,000 * 100
2. GM = .14 * 100
3. GM = 14%
For every dollar in shoe sales, you earned 14 cents in profit but spent 86 cents to make it.
Operating MarginOperating margin takes into account the costs of producing the product or services that are unrelated to the direct production of the product or services, such as overhead and administrative expenses. It is calculated by dividing your operating profit (OP) by your net sales (NS) and multiplying the quotient by 100:
Operating Margin = Operating Profit / Net Sales * 100
OM = OP / NS * 100
Example: Let's say you make and sell computers. Last year, you generated net sales of $12,000,000, and your operating income was $100,000,000. What was your operating margin?
1. OM = OI / NS * 100
2. OM = $12,000,000 / $100,000,000 * 100
3. OM = 0.12 * 100
4. OM = 12%
Out of every dollar you made in sales, you spent twelve cents in expenses unrelated to the direct production of the computers.
Return on AssetsReturn on Assets measures how effectively the company produces income from its assets. You calculate it by dividing net income (NI) for the current year by the value of all the company's assets (A) and multiplying the quotient by 100:
Return on Assets = Net Income / Assets * 100
ROA = NI/A * 100
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Example: Imagine that you are the president of a large company that manufactures steel. Last year, your company had net income of $25,000,000, and the total value of its assets, such as plant, equipment and machinery, totaled $135,000,000. What was your return on assets last year?
1. ROA = $25,000,000 / $135,000,000 * 100
2. ROA = 0.185 * 100
3. ROA = 18.5%
This means that you generate 18.5 cents of income for every dollar your company holds in assets.
Return on EquityReturn on equity measures how much a company makes for each dollar that investors put into it. You calculate it by taking the net income earned (NI) by the amount of money invested by shareholders (SI) and multiplying the quotient by 100:
Return on Equity = Net Income / Shareholder Investment * 100
ROE = NI / SI * 100
Example: Imagine that your social media company just went public last year, resulting in a total investment of $100,000,000. Your company's net income for the year was $10,000,000. What is the return on equity?
1. ROE = $10,000,000 / 100,000,000 * 100
2. ROE = 0.10 * 100
3. ROE = 10%
Your company is generating a dime in profit for every dollar invested.
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Liquidity ratios:
Liquidity Ratio may refer to:
Reserve requirement, a bank regulation that sets the minimum reserves each bank must hold.
Acid Test (Liquidity Ratio), a ratio used to determine the liquidity of a business entity
Liquidity ratio, expresses a company's ability to repay short-term creditors out of its total cash. The liquidity ratio is the result of dividing the total cash by short-term borrowings. It shows the number of times short-term liabilities are covered by cash. If the value is greater than 1.00, it means fully covered.The formula is the following:LR = liquid assets / short-term liabilities
Liquidity ratios are the ratios that measure the ability of a company to meet its short term debt obligations. These ratios measure the ability of a company to pay off its short-term liabilities when they fall due.The liquidity ratios are a result of dividing cash and other liquid assets by the short term borrowings and current liabilities. They show the number of times the short term debt obligations are covered by the cash and liquid assets. If the value is greater than 1, it means the short term obligations are fully covered.Generally, the higher the liquidity ratios are, the higher the margin of safety that the company posses to meet its current liabilities. Liquidity ratios greater than 1 indicate that the company is in good financial health and it is less likely fall into financial difficulties.Most common examples of liquidity ratios include current ratio, acid test ratio (also known as quick ratio), cash ratio and working capital ratio. Different assets are considered to be relevant by different analysts. Some analysts consider only the cash and cash equivalents as relevant assets because they are most likely to be used to meet short term liabilities in an emergency. Some analysts consider the debtors and trade receivables as relevant assets in addition to cash and cash equivalents. The value of
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inventory is also considered relevant asset for calculations of liquidity ratios by some analysts.The concept of cash cycle is also important for better understanding of liquidity ratios. The cash continuously cycles through the operations of a company. A company’s cash is usually tied up in the finished goods, the raw materials, and trade debtors. It is not until the inventory is sold, sales invoices raised, and the debtors’ make payments that the company receives cash. The cash tied up in the cash cycle is known as working capital, and liquidity ratios try to measure the balance between current assets and current liabilities.A company must posses the ability to release cash from cash cycle to meet its financial obligations when the creditors seek payment. In other words, a company should posses the ability to translate its short term assets into cash. The liquidity ratios attempt to measure this ability of a company.
Acid-Test Ratio
The term “Acid-test ratio” is also known as quick ratio. The most basic definition of acid-test ratio is that, “it measures current (short term) liquidity and position of the company”. To do the analysis accountants weight current assets of the company against the current liabilities which result in the ratio that highlights the liquidity of the company.Liquidity ratios
— Acid-Test Ratio — Cash Ratio — Current Ratio — Net Working Capital — Quick Ratio — Working Capital — Working Capital Ratio
Cash Ratio
Cash ratio (also called cash asset ratio) isthe ratio of a company's cash and cash equivalent assets to its total liabilities. Cash ratio is a refinement of quick ratio and indicates the extent to which readily available funds can pay off current liabilities. Potential creditors use this ratio as a measure of a company's liquidity and how easily it can service debt and cover short-term liabilities.
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Current Ratio
Current ratio is balance-sheet financial performance measure of company liquidity. Current ratio indicates a company's ability to meet short-term debt obligations. The current ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months.Net Working Capital
Net working capital (NWC) = current assets minus current liabilities.Quick Ratio
The quick ratio is a measure of a company's ability to meet its short-term obligations using its most liquid assets (near cash or quick assets). Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. Quick ratio is viewed as a sign of a company's financial strength or weakness; it gives information about a company’s short term liquidity. The ratio tells creditors how much of the company's short term debt can be met by selling all the company's liquid assets at very short notice.
Working Capital
Working capital is the amount by which the value of a company's current assets exceeds its current liabilities. Also called net working capital. Sometimes the term "working capital" is used as synonym for "current assets" but more frequently as "net working capital", i.e. the amount of current assets that is in excess of current liabilities. Working capital is frequently used to measure a firm's ability to meet current obligations. It measures how much in liquid assets a company has available to build its business.Working Capital Ratio
Working capital ratio is the alternative term for the term "current ratio".
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Following Ratios are used for this Study. 1. Current Ratio. 2. Debt equity ratio. 3. Inventory turnover ratio. 4. Fixed asset turnover ratio. 5. Net operating profit per share. 6. Return on capital employed. 7. Dividend payout ratio. 8. Earnings per share.
DATA ANLYSIS 1. Current ratio
The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to itscurrent liabilities. It is expressed as follows:
The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands. Acceptable current ratios vary from industry to industry and are generally between 1.5 and 3 for healthy businesses. If a company's current ratio is in this range, then it generally indicates good short-term financial strength. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations. If the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities. This may also indicate problems in working capital management.Low values for the current or quick ratios (values less than 1) indicate that a firm may have difficulty meeting current obligations. Low values, however, do not indicate a critical problem. If an organization has good long-term prospects, it may be able to borrow against those prospects to meet current obligations. Some types of businesses usually operate with a current ratio less than one. For example, if inventory turns over much more rapidly than the accounts payable become due, then
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the current ratio will be less than one. This can allow a firm to operate with a low current ratio.If all other things were equal, a creditor, who is expecting to be paid in the next 12 months, would consider a high current ratio to be better than a low current ratio, because a high current ratio means that the company is more likely to meet its liabilities which fall due in the next 12 months. You should view the relation between the operation cycle period and the current ratio.
Particulars 2009 2010 2011 2012 2013Tata steels .91 1.12 1.78 .79 0.99Jindal steels 1.04 .65 .79 .69 0.76
2009 2010 2011 2012 20130
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Sata SteelJindal steel
From the above graph and table it is clear that Current ratio of Tata steel increasing from 2009 to 2011 but fall down in 2012 and it is highest in the year 2011 on the other hand the current ratio of Jindal steels fluctuating from 2009 to 2012. It indicates the company’s ability to meet the short term debts.
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2. Debt Equity ratio.
Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year.
DEBTORS TURNOVER RATIO FORMULA:
Debtors Turnover Ratio = Net Credit Sales / Average Trade DebtorsThe two basic components of accounts receivable turnover ratio are net credit annual sales and average trade debtors. The trade debtors for the purpose of this ratio include the amount of Trade Debtors & Bills Receivables. The average receivables are found by adding the opening receivables and closing balance of receivables and dividing the total by two. It should be noted that provision for bad and doubtful debts should not be deducted since this may give an impression that some amount of receivables has been collected. But when the information about opening and closing balances of trade debtors and credit sales is not available, then the debtors turnover ratio can be calculated by dividing the total sales by the balance of debtors (inclusive of bills receivables) given. and formula can be written as follows.Debtors Turnover Ratio = Total Sales / Debtors
Particulars 2009 2010 2011 2012 2013Tata steels 1.34 .68 .59 .45 1.74Jindal steels .92 1.24 1.39 1.33 1.58
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2009 2010 2011 2012 20130
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
tata steeljindal steel
From the above table it is clear that the debt equity ratio of Tata steels goes downward from 2009 to 2012 while the Jindal steels debt equity ratio increase in two year and then slightly reduced in 2012. Debt-to-equity ratio (D/E) indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.
3. Inventory Turnover ratio.
A ratio showing how many times a company's inventory is sold and replaced over a period. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days."
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Particulars 2009 2010 2011 2012 2013Tata steels 9.36 10.90 9.85 9.40 6.94Jindal steels 9.08 8.05 5.81 4.83 4.16
2009 2010 2011 2012 20130
2
4
6
8
10
12
Jindal SteelTata Steel
From the above graph and table it is clear that Inventory turnover ratio of Tata steels is high in comparison to Jindal steels it shows the company’s efficiency in turning its inventory into sales. A low turnover rate indicates poor liquidity. Here Jindal steel performance is not good in comparison to Tata steels.
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4. Fixed asset turnover ratio.
A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.
The fixed-asset turnover ratio is calculated as:
Particulars 2009 2010 2011 2012 2013Tata steels 1.22 1.12 1.29 1.48 1.07Jindal steels 1.04 .83 .75 .88 0.80
2009 2010 2011 2012 20130
0.5
1
1.5
2
2.5
Jindal SteelTata Steel
From the above table and graph it is clear that the ratio of Tata steels were high in the year 2009, 2011 and 2012. Jindal steels ratio was high in the year 2009 and
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2012.it shows that Tata steels has been more effective in using the investment in fixed assets to generate revenues.
5. Net operating profit per share.
A calculation used to analyze real estate investments that generate income. Net operating income equals all revenue from the property minus all reasonably necessary operating expenses. Aside from rent, a property might also generate revenue from parking and service fees, like vending and laundry machines. Operating expenses are those required to run and maintain the building and its grounds, such as insurance, property management fees, utilities, property taxes, repairs and janitorial fees. NOI is a before-tax figure; it also excludes principal and interest payments on loans, capital expenditures, depreciation and amortization.Particulars 2009 2010 2011 2012 2013Tata steels 333.27 281.11 305.53 348.41 429.18Jindal steels 496.46 78.90 102.15 142.13 159.94
2009 2010 2011 2012 20130
100
200
300
400
500
600
Tata steelJindal Steel
From the above table and graph it is clear that net operating profit per share of Tata steels is consistently good in 2009-2012 while Jindal steels net operating profit was high in 2009.
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6. Return on capital employed
A financial ratio that measures a company's profitability and the efficiency with which its capital is employed. Return on Capital Employed (ROCE) is calculated as:
ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed
“Capital Employed” as shown in the denominator is the sum of shareholders' equity and debt liabilities; it can be simplified as (Total Assets – Current Liabilities). Instead of using capital employed at an arbitrary point in time, analysts and investors often calculate ROCE based on “Average Capital Employed,” which takes the average of opening and closing capital employed for the time period.
A higher ROCE indicates more efficient use of capital. ROCE should be higher than the company’s capital cost; otherwise it indicates that the company is not employing its capital effectively and is not generating shareholder value.
Particulars 2009 2010 2011 2012 2013Tata steels 15.01 13.06 13.48 15.03 13.37Jindal steels 23.16 14.86 15.67 13.40 9.57
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2009 2010 2011 2012 20130
5
10
15
20
25
30
35
Tata SteelJindal Steel
From the above table and graph we are able to tell that which companies return on investment is better in 2009 Jindal steels return on capital is better in 2010 it goes down while in Tata steels return on capital employed fluctuates in these four years it were high in 2009 and 2012 while low in 2010 and 2011.
7. Dividend payout ratio net profit.
Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends:
The part of the earnings not paid to investors is left for investment to provide for future earnings growth. Investors seeking high current income and limited capital growth prefer companies with high Dividend payout ratio. However investors seeking capital growth may prefer lower payout ratio because capital gains are taxed at a lower rate. High growth firms in early life generally have low or zero payout ratios. As they mature, they tend to return more of the earnings back to investors. Note that dividend payout ratio is calculated as DPS/EPS.
According to Financial Accounting by Walter T. Harrison, the calculation for the payout ratio is as follows:
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Payout Ratio = (Dividends - Preferred Stock Dividends)/Net Income
Particulars 2009 2010 2011 2012 2013Tata steels 27.15 16.64 19.04 20.11 15.14Jindal steels 5.55 8.16 6.97 7.23 8.69
2009 2010 2011 2012 20130
5
10
15
20
25
30
35
Tata SteelJindal Steel
This ratio identifies the percentage of earnings (net income) per common share allocated to paying cash dividends to shareholders. From the above table it is clear that Dividend payout ratio of Tata steels were high in all the years in comparison to Jindal steels which has low dividend payout ratio.
8. Earnings per share.
The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.
Calculated as:
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When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.
Particulars 2009 2010 2011 2012 2013Tata steels 69.70 56.37 71.58 68.95 66.02Jindal steels 99.35 15.89 22.09 22.58 14.12
2009 2010 2011 2012 20130
20
40
60
80
100
120
Tata SteelJindal Steel
From the above table and graph it is clear that earnings per share of Tata steels were better in all these years 2009-2012. While in Jindal steels it performance was good in 2009 but in 2010,2011 and 2012 it goes down.
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6 Conclusion
After analysing the above ratio it is clear that the position of Tata steels is better in comparison to Jindal steels. In above 8 ratio which we see through graph and table it is shown that in 6 ratio Tata steel company is performing better while the position of Jindal steels is good but in comparison to Tata steels position was not good.
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BIBLIOGRAPHY [1]. Alexander, D., Britton, A., Jorissen, A. (2007) International Financial Reporting and Analysis, 3rd edition. London: Thomson Learning. [2]. European Commission (2008) Final Report of the Expert Group Accounting Systems for Small Enterprises – Recommendations and Good Practices. European Commission Enterprise and Industry Directorate-General. [3]. Eurostat (2011) Key figures on European business with a special feature on SMEs. Dostuno na: http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-ET-11- 001/EN/KSET-11-001-EN.PDF (10-01-2012) [4]. www.moneycontrol.com [5]http://businesstoday.intoday.in [6]http://profit.ndtv.com [7]http://www.indianotes.com [8]http://economictimes.indiatimes.com [9]http://money.rediff.com
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