OBJECTIVE OF THE STUDY

The present study is intended to analyze the financial performance for the past five years of NTPC.

project was of intra firm analysis (time series analysis) of NTPC for past five years i.e. from march

2005 to march 2009 and comparative analysis for one year.

Time series analysis or ratio analysis of NTPC was done which gives a direction of change and

reflects whether the firm’s financial performance has improved, deteriorated or remained constant

over time. The study was not to determine the change in the ratios.

The objective of the project can be stated as:

1. Financial performance Analysis of NTPC

1.1. This is to examine the financial progress of the company.

To interpret the financial data so that it could provide aid to the process of decision making
INTRODUCTION

WHY DO WE REQUIRE FINANCIAL ANALYSIS

Today it is fashionable to talk about the new economy. We hear that the businesses are opening in a

globalised economy; that things are moving at a nanosecond pace: that our markets are characterized

by hyper- competition; that disruptive technologies are challenging every business: and that business

must adapt to the empowered customer.

The world of business is characterized by the nature of multiplicity of complexities. Every

business concern is aiming to stand out the cut-throat competition with the main purpose in view:

PROFIT.

The result of almost each and every activity is basically directed to the motive of financial gain in due

respect. In the world of commerce, finance is the blood of each and every operating economic

identity.

Finance is one of the crucial resources of a business. Finance is needed to bring a business into

existence, to keep it alive and to ensure its further growth. Also the basic objective of the financial

management is to maximize the profit objective and the optimum usage of the monetary resources.

Financial management is that managerial activity which is concerned with the planning and

controlling of the firm’s financial resources. The finance functions can be divided into three broad

categories:

2
 1. Investment decision or Long – term Asset Mix decision,

2. Financing decision or Capital Mix, and

3. Dividend decision or Profit allocation

In other words, the firm decides how much to invest in short-term and long-term assets and how to

raise the required funds.

Management, creditors, investors and others to form a judgment about the financial statements can

get further insight about financial strengths and weakness of the firm if they properly analyze

information reported in theses statements. Management is particularly interested in knowing financial

strengths of a firm to make their best use and to be able to spot out financial weakness of the firm to

take suitable corrective actions. The future plans of the firm should be laid down in view of the firm’s

financial strengths and weakness.

The financial transactions by a firm are recorded and are meant to be controlled and optimized so as

to ensure their proper utilization. For this purpose Accounting is used in this regard. The traditional

accounting definition was provided in 1961 by the American Institute of Certified Public Accountants

(AICPA) as : “Accounting is the art of recording, classifying and summarizing, in a significant

manner, and in terms of money, transactions and the events which are, in part at least of a financial

character and interpreting the results thereof.” The main objectives of accounting are:

a) To maintain accounting records.

b) To calculate the profit for the given period.

c) To provide the information about the cash flow.

d) To calculate the financial position by preparing financial statements.

e) To communicate the accounting information.

3
 f) To provide additional information for research purposes.

The above mentioned are the objectives of the accounting, but the main functions of accounting are as

follows:

a) Maintaining systematic records.

b) Communicating the financial results.

c) Meeting legal needs.

d) Measuring business assets

e) Fixing the responsibility

From the various branches of accounting such as financial accounting, Management accounting, Cost

accounting, Tax accounting, Social accounting etc. I will be here using management accounting only.

It is so because financial accounting is concerned with the recording of business transactions and the

periodic preparations of the income statement, balance sheet and cash flow statement from such

records. But management Accounting is concerned with the interpretation of accounting information

to guide the management for future planning, decision making, control, etc.

In a competitive environment, the firm has various competitive advantages and their core

competencies to strive for success in the competition. Markets are volatile and some what

unpredictable in the era of knowledge management. The financial management is required for

managing the money as a resource and ensuring its not just proper utilization but also its investment

and growth.

The firms in an industry fights for the market share and their place in the financial markets. They may

aim for the maximization of the wealth of the share holder. It competes with its competitors and also

the new entrants. The other factors affecting the firm are the government policies, industry regulation,

4
economic phase, technology in use and various other factors. In this threatening scenario, the firm

needs to keep a constant tab on the markets and its competitors. The finance management in an

organization, if optimized can become its core competitiveness. Its ease on procurement of funds,

meeting its short and long – term obligations and proper dividend decisions can give it a competitive

edge.

From the collection, organization, presentation, the financial management takes to the pedestal of

analysis and the interpretation of the data for the basic purpose of responsible decision making. It

helps to portray the real valuation of the firm in terms of where it stands in terms of the performance

measured for a given period of time.

The main objectives of analyzing the financial statements are summarized below:

1. The analysis would enable the calculation of not only the present earning capacity of

business enterprise but also the estimation of the future earning capacity as well.

2. The analysis would enable the management to find out the overall as well as

department wise efficiency of the firm on the basis of available financial information.

The management can easily discover the areas of efficiency and inefficiency.

3. The solvency of the firm – short and long term – can be determined with the help of

financial statement analysis. Short – term solvency position is useful to trade

creditors while debenture holders etc. benefit from the analysis of long – term

solvency.

4. Inter – firm comparison, that is, comparison of two or more firms become easy.

5. Analysis of past results in respect of earning, and financial position of the enterprise

is of great help in forecasting the future results. Also helpful in preparing the budgets.

5
WHAT IS FINANCIAL ANALYSIS AND ITS SIGNIFICANCE

Financial statements are prepared and presented for the external users of the accounting information.

In India, a complete set of financial statements include

 Balance Sheet

 Profit and Loss account

 Schedules and Notes forming part Balance Sheet, and

 Profit and loss account.

In many countries financial statements also include a statement of changes in financial position for

example: - Funds Flow Statement or Cash flow Statement.

Now, let us understand the nature of financial statements:

The key characteristics of financial statement analysis are:-

1. Financial statements relate to a past period and thus, are historical documents.

2. The statements are financial in nature, i.e., expressed in monitory terms.

3. Financial statements indicate financial position through Balance Sheet and

profitability through Profit and Loss account.

6
Parties involved in Financial Statement are of much interest to a number of financial parties. These

include the following:

1) Investors.

Shareholders or proprietors of the business are interested in the well being of the

business. They like to know the earning capacity of the business. They like to know the

earning capacity of the business. They like to know the earning capacity of the business

and its prospects of future growth. Since they are not generally involved in day- to- day

working, they come to know the results of operations and financial position of the

business only through the financial statements.

2) Potential investors

Like shareholders; potential investors are also interested in knowing the earning capacity

of the business and its prospects of future growth. They will also be interested in

knowing, how safe their investments will be. Financial statements greatly help them in

assessing this.

3) Lenders

Lenders to the business like debenture-holders, suppliers of loans and leases are

interested to know short term as well as the long term solvency positions of the entity.

They are interested to assess the long term solvency to ascertain whether the entity will

be able to pay off the debentures/ loans on maturity. They are interested to asses the

short term solvency positions to ascertain whether the entity will be able to service the

debt, i.e., it will be able to pay interest/ lease rentals as and when they become due.

4) Suppliers and trade creditors

The suppliers and creditors are interested to know about the solvency of the business,

i.e., the ability of the enterprise to meet the debts when they fall due. Trade creditors are

7
 likely to be interested in an enterprise over a shorter period than lenders unless they are

dependent on the enterprise as a major leader.

5) Employees and trade unions

Employees are entitled to bonus that depends on the profit earned; they are thus

interested in knowing the profits earned or loss suffered by the business. Financial

statement also helps the trade unions in negotiating the wage/ salaries.

6) Customers

Customers have an interest in information about continuance of an enterprise. For

example, an enterprise may be the supplier of raw materials to many of its customers.

Accordingly, the activities of its customer are largely linked with its ability to continue.

In case it appears that the enterprise will not be able to continue in long run, the

customers have to timely explore alternative resources.

7) Government and their Agencies

Government and their agencies need financial information to regulate the activities of

the enterprise, determine taxation policy, compilation of national income statistics etc.

8) Public

Enterprises affect members of public in a variety of ways. For example, the activities of

an enterprise largely influence the local economy. So the public at a large is interested to

know the progress of enterprise, which they may understand from the financial

statements.

9) Taxation authorities

8
 More particularly, income tax authorities are interested in knowing the profits of the

business so that income tax can be imposed on them. Similarly, sales tax authorities are

interested in the sales and exercise authorities in the production of goods. Financial

statement helps them a great deal in determining the taxes payable.

10) Stock exchange

Stock exchange is an institution, which facilitates dealings of sale and purchase of shares

and debentures of companies. It gives information about companies to their members

who take interest in financial statements, because they provide useful financial

information about companies.

Thus, we find that different parties have interest in financial statement for different purposes.

Meaning of financial analysis:

In the words of Myer, “Financial statement analysis is largely a study of relationships among the

various financial sector in a business, as disclosed by a single set of statements, and study of trends of

these factors as shown in a series of statements”.

According to Kennedy and Muller, “ The analysis and interpretation of Financial statement are an

attempt to determine the significance and meaning of Financial statement data so that forecast may be

made of the prospects of future earnings, ability to pay interest and debt maturities ( both current and

long term) and profitability and sound dividend policy”.

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TECHNIQUES OF FINANCIAL STATEMENT ANALYSIS

Techniques of analysis of financial statements are broadly classified into three categories:

10
 CROSS
SECTIONAL
ANALYSIS

CROSS
SECTIONAL
TIME
CUM TIME
SERIES
SERIES
ANALYSIS
ANALYSIS

Figure 1: Techniques of Financial Statement Analysis

1) Cross-sectional Analysis. It is also called inter-firm comparison. Financial Characteristics like

profitability, solvency and liquidity of an enterprise of an accounting period cannot be

interspersed in isolation and independently. By cross sectional analysis financial characteristics of

an enterprise of a given accounting period are analyzed with reference to financial characteristics

of one or more similar or comparable enterprise.

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 For example, if we speak company A has earned 15% profit on capital investment.

This does not say whether it is adequate or not. If we speak further that a similar

company B has earned 18 % during the same period, and then only it turns into

meaningful analysis. Precisely, this is what is attempted in a cross-sectional analysis.

This is technique of financial statement analysis that prepares and comparative

financial characteristics of an enterprise of an enterprise and some other comparable

enterprises.

2) Time series analysis (horizontal analysis). It is also called intra firm comparison. This

technique is used to depict the trends of financial characteristics of an enterprise over the years.

This is used to reflect the movement of various financial characteristics.

3) Cross-sectional-cum-time series analysis. Cross-sectional analysis is intended to compare the

financial characteristics of two or more enterprises for a defined accounting period. It is possible

to extend such a comparison over the years. Such a cross-sectional trend analysis is a more

effective approach of financial statement analysis.

Purposes and significance of Financial Analysis:

1. Judging the earning capacity or profitability: On the basis of financial statements, the

earning capacity of the business concern may be computed. In addition to this, the

future earning capacity of the concern may be forecasted. All the external users of

accounts, specially the investors and potential investors, are interested in this.

2. Judging the managerial Efficiency: The financial statement analysis helps to pin point

the areas wherein the managers have shown better efficiency and the areas of

inefficiency. For example, using financial ratios, it is possible to analyse relative

proportion of production, administrative and marketing expenses. Any favorable and

12
 unfavorable variations can be identified and reasons thereof can be ascertained to pin

point managerial efficiency and in efficiency.

3. Judging the short – term and long term solvency of the concern: On the basis of

financial statement, the solvency of the concern may be judged. Debenture holders

and lenders judge the ability of the company to pay the principal and interest as most

of the companies raise a portion of their capital requirements by issuing debentures

and raising long – term loans. Trade creditors are mainly interested in assessing the

short – term solvency of the business, as they want to know that the business is in a

position to pay debts as when they are due.

4. Inter – firm Comparison: On the basis of financial statements, a comparative study

may be undertaken for comparing various firms or various points of view. In fact,

inter – firm comparison is not possible without a proper analysis of the financial

statements based on ratios.

5. Making forecasts and preparing budgets: Past financial statement analysis helps in a

great deal in assessing developments in the future.

THE CONCEPT OF RATIO ANALYSIS AND RELATED THEORY

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Financial statements aim at providing financial information about a business enterprise to meet the

information needs of the decision-makers. Financial statements prepared by a business enterprise in

the corporate sector are published and are available to the decision-makers. These statements provide

financial data which require analysis, comparison and interpretation for taking decision by the

external as well as internal users of accounting information. The act is termed as financial statement

analysis. It is regarded as an integral and important part of accounting. The most commonly used

techniques of financial statement, analysis are comparative statements, common size statements, trend

analysis, accounting ratios and cash flow analysis. Accounting ratios are an important tool of

financial statement analysis. A ratio is a mathematical number calculated as a reference to

relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, and a

number of times.

The financial statements, it is termed as accounting ratio. For example if the gross profit of the

business is Rs. 10,000 and the sales are Rs. 1,00,000, it can be said that the gross profit is 10%

(10,000/1,00,000) of the sales. This ratio is termed as gross profit ratio. Similarly, inventory turnover

ratio may be 6 which implies that inventory turns into sales six times in a year.

It needs to be observed that accounting ratios exhibit relationship, if any between accounting numbers

extracted from financial statements, they are essentially derived numbers and their efficacy depends a

great deal upon the basic numbers from which they are calculated. Hence, if the financial statements

contain some errors, the derived numbers in terms of ratio analysis would also present an erroneous

scenario. Further, a ratio must be calculated using numbers which are meaningfully correlated. A

ratio calculated by using two unrelated numbers would hardly serve any purpose.

OBJECTIVES OF RATIO ANALYSIS

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Ratio analysis is indispensable part of interpretation of results revealed by the financial statements. It

provides users with crucial financial information and points out the areas which require investigation.

Ratio analysis is a technique. Which involve regrouping of data by application of arithmetical

relationships, though its interpretation is a complex matter. It requires a fine understanding of the way

and the rules used for preparing financial statements. Once done effectively, it provides a wealth of

information which helps the analyst:

1 To know the areas of the business which need more attention;

2 To know about the potential areas which can be improved with the effort in the

. desired direction;

3 To provide a deeper analysis of the profitability, liquidity, solvency and efficiency

. levels in the business;

4 To provide information for making cross sectional analysis by comparing the

. performance with the best industry standards;

5 To provide information derived from financial statements useful for making

. projections and estimates for the future.

Table 1: Objectives of Ratio Analysis

Advantages of Ratio Analysis

The ratio analysis if properly done improves the user’s understanding of the efficiency with which the

business is being conducted. The numerical relationships throw light on many latent aspects of the

business. If properly analysed, the ratios make us understand various problem areas as well as the

bright spots of the business. The knowledge of problem areas help management takes care of them in

future. The knowledge of areas which are working better helps you improve the situation further. It

must be emphasised that ratios are means to an end rather than the end in themselves. Their role is

essentially indicative and that of a whistle blower. There are many advantages derived from the ratio

15
analysis. These are summarised as follows:

• Helps understand efficacy of decisions: The ratio analysis helps you understand whether the

business firm has taken the right kind of operating, investing and financing decisions. It

indicates how far they have helped in improving the performance.

• Simplify complex figures and establish relationships: Ratios help in simplifying the complex

accounting figures and bring out their relationships. They help summaries the financial

information effectively and assess the managerial efficiency, firm’s credit worthiness,

earning capacity, etc.

• Helpful in comparative analysis: The ratios are not being calculated for one year only. When

many year figures are kept side by side, they help a great deal in exploring the trends visible

in the business. The knowledge of trend helps in making projections about the business

which is a very useful feature.

• Identification of problem areas: Ratios help business in identifying the problem areas as well

as the bright areas of the business. Problem areas would need more attention and bright

areas will need polishing to have still better results.

• Enables SWOT analysis: Ratios help a great deal in explaining the changes occurring in the

business. The information of change helps the management a great deal in understanding the

current threats and opportunities and allows business to do its own SWOT (Strength-

Weakness-Opportunity-Threat) analysis.

• Various comparisons: Ratios help comparisons with certain bench marks to assess as to

whether firm, performance is better or otherwise. For this purpose, the profitability,

liquidity, solvency, etc. of a business may be compared:

 over a number of accounting periods with itself (Intra-firm Comparison/Time

Series Analysis),

16
  with other business enterprises (Inter-firm Comparison/Cross-sectional Analysis),

and

 With standards set for that firm/industry (comparison with standard (or industry)

expectations).

Limitations of Ratio Analysis

Since the ratios are derived from the financial statements, any weakness in the original financial

statements will also creep in the derived analysis in the form of ratio analysis. Thus, the limitations of

financial statements also form the limitations of the ratio analysis. Hence, to interpret the ratios, the

user should be aware of the rules followed in the preparation of financial statements and also their

nature and limitations. The limitations of ratio analysis which arise primarily from the nature of

financial statements are under.

• Limitations of Accounting Data: Accounting data give an unwarranted impression of

precision and finality. In fact, accounting data “reflect a combination of recorded facts,

accounting conventions and personal judgments and the judgments and conventions applied

affect them materially. For example, profit of the business is not a precise and final figure. It

is merely an opinion of the accountant based on application of accounting policies. The

soundness of the judgment necessarily depends on the competence and integrity of those who

make them and on their adherence to Generally Accepted Accounting Principles and

Conventions”. Thus, the financial statements may not reveal the true state of affairs and so

the ratios will also not give the true picture.

• Ignores Price-level Changes: The financial accounting is based on stable money

measurement principle. It implicitly assumes that price level changes are either non-existent

or minimal. But the truth is otherwise. We are normally living in inflationary economies

where the power of money declines constantly. A change in the price level makes analysis of

17
 financial statement of different accounting years meaningless because accounting records

ignore changes in value of money.

• Ignore Qualitative or Non-monetary Aspects: Accounting provides information about

quantitative (or monetary) aspects of business. Hence, the ratios also reflect only the

monetary aspects, ignoring completely the non-monetary (qualitative) factors.

• Variations in Accounting Practices: There are differing accounting policies for valuation of

stock, calculation of depreciation, treatment of intangibles, definition of certain financial

variables, etc. available for various aspects of business transactions. These variations leave a

big question mark on the cross sectional analysis. As there are variations in accounting

practices followed by different business enterprises, a valid comparison of their financial

statements is not possible.

• Forecasting: Forecasting of future trends based only on historical analysis is not feasible.

Proper forecasting requires consideration of non-financial factors as well.

Now let us talk about the limitations of the ratios. The various limitations are:

• Means and not the End: Ratios are means to an end rather than the end by itself.

• Lack of ability to resolve problems: Their role is essentially indicative and of whistle blowing

and not providing the solution to the problem.

• Lack of standardized definitions: There is a lack of standardized definitions of various

concepts used in ratio analysis. For example, there is no standard definition of liquid

liabilities. Normally, it includes all current liabilities, but sometimes it refers to current

liabilities less bank overdraft.

• Lack of universally accepted standard levels: There is no universal

yardstick which specifies the level of ideal ratios. There is no standard

list of the levels universally acceptable, and, in India, the industry

18
 averages are also not available.

• Ratios based on unrelated figures: A ratio calculated for unrelated figures would essentially

be a meaningless exercise. For example, creditors of Rs. 100000 and furniture of Rs. 100000

represent a ratio of 1:1. But it has no relevance to assess efficiency or solvency.

Hence, ratios should be used with due consciousness of their limitations while evaluatory the

performance of an organisation and planning the future strategies for its improvement.

TYPES OF RATIO

There is a two way classification of ratios:

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(1) Traditional classification, and

(2)Functional classification.

The traditional classification has been on the basis of financial statements to which the determinants

of ratios belong. On this basis the ratios are classified as follows:

1. Income Statement Ratios: A ratio of two variables from the income statement is known as

Income Statement Ratio. For example, ratio of gross profit to sales known as gross profit

ratio is calculated using both figures from the income statement.

2. Balance Sheet Ratios: In case both variables are from balance sheet, it is classified as Balance

Sheet Ratios. For example, ratio of current assets to current liabilities known as current ratio

is calculated using both figures from balance sheet.

3. Composite Ratios: If a ratio is computed with one variable from income statement and

another variable from balance sheet, it is called Composite Ratio. For example, ratio of credit

sales to debtors and bills receivable known as debtor turnover ratio is calculated using one

figure from income statement (credit sales) and another figure from balance sheet (debtors

and bills receivable)

Although accounting ratios are calculated by taking data from financial statements but classification

of ratios on the basis of financial statements is rarely used in practice. It must be recalled that basic

purpose of accounting is to throw useful light on the financial performance (profitability) and

financial position (its capacity to raise money and invest them wisely) as well as changes occurring in

financial position (possible explanation of changes in the activity level). As such, the alternative

classification (functional classification) based on the purpose, for which a ratio is computed, is the

most commonly used classification which reaches as follows:

1. Liquidity Ratios: To meet its commitments, business needs liquid funds. The ability of the

20
 business to pay the amount due to stakeholders as and when it is due is known as liquidity,

and the ratios calculated to measure it are known as ‘Liquidity Ratios’. They are essentially

short-term in nature.

2. Solvency Ratios: Solvency of business is determined by its ability to meet its contractual

obligations towards stakeholders, particularly towards external stakeholders, and the ratios

calculated to measure solvency position are known as ‘Solvency Ratios’. They are essentially

long-term in nature.

3. Activity (or Turnover) Ratios: This refers to the ratios that are calculated for measuring the

efficiency of operation of business based on effective utilisation of resources. Hence, these

are also known as ‘efficiency ratios’.

4. Profitability Ratios: It refers to the analysis of profits in relation to sales or funds (or assets)

employed in the business and the ratios calculated to meet this objective are known as

‘Profitability Ratios’.

Formula’s Used:

• Liquidity ratios measure a firm’s ability to meet its current obligations

Current assets
Current ratio =
Current liabilities
Current assets – Inventories
Quick ratio =
Current liabilities
Cash + Marketable securities
Cash ratio =
Current liabilities

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• Solvency ratios measure the dependence of a firm on borrowed funds.

• Turnover or activity ratios measure the firm’s efficiency in utilising its assets.

• Profitability ratios measure a firm’s overall efficiency and effectiveness in generating profit.

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• Equity-related ratios measure the shareholders’ return and value

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INTRODUCTION TO A PUBLIC SECTOR UNIT

In India Public Sector Unit is a term used for a government owned corporation (company in the

public sector). The term is used to refer to companies in which the government (either the union

government or the state or both) owned a majority (51% or more) of the company’s equity. Some of

the PSUs in India are enlisted below:

 Air India Ltd.

 Airports Authority of India

 Bharti Bhari Udyog Nigam Ltd.

 Bharat Earth Movers Ltd.

 Bharat Electronics Ltd.

 Bharat Heavy Electricals Ltd.

 Bharat Petroleum Corporation Ltd.

 Bharat Sanchar Nigam Ltd.

 Bharat Yantra Nigam Ltd.

 Coal India Ltd.

24
 Container Corporation of India Ltd.

 Electronics Corporation of India Ltd.

 Engineers India Ltd.

 Fertilizers & Chemicals (Travancore) Ltd.

 Food Corporation of India

 Gas Authority of India Ltd.

 Heavy Engineering Corporation Ltd.

 Hindustan Aeronautics Ltd.

 Hindustan Copper Ltd.

 Hindustan Petroleum Corporation Ltd.

25
 S.A.I.L

(Steel Authority of India Limited)

Company Profile

Steel Authority of India Limited

Website: www.sail.co.in
Industry Finished steel Industry P/E 11.87

(incl. saleable steel)

ROC Reg. No. 6454 Incorporation Year 1954
Ownership Central Govt. - Registered office Ispat Bhavan,

Commercial Enterprises address Lodhi Road,

(PSU) P.B.No.3049,

26
 New Delhi - Delhi

Tel no. 24367481

Fax no. 24367015
ISIN Code INE114A01011
BSE Demat Code 500113
BSE Listing group A

NSE Scrip Code SAIL

Face value (Rs) 10

Beta 1.35
Listed On Bombay , London , National , Uttar Pradesh (Kanpur)

Table 2: S.A.I.L Information

SAIL is one of the largest steel makers in India. With a turnover of Rs. 45,555 crore, the company is

among the top five highest profits earning corporate of the country. It is a public sector undertaking

wholly owned by Government of India and acts like an operating company. Incorporated on January

24, 1973, SAIL has more than 131,910 employees. The company's current chairman is S.K. Roongta.

With an annual production of 13.5 million metric tons, SAIL is the 16th largest steel producer in the

world.

The Government of India owns about 86% of SAIL's equity and retains voting control of the

Company. However, SAIL, by virtue of its `Navratna’ status, enjoys significant operational and

financial autonomy. It is ranked 647 in Forbes Global 2000 list of companies. Ranked amongst top

ten public sector undertakings in India, SAIL manufactures and markets steel in various forms.

According to a recent survey, SAIL is one of India's fastest growing Public Sector Units

SAIL is a totally integrated iron and steel manufacturer producing for indigenous construction,

railway, power, engineering, defense and automobile sectors. SAIL operates five integrated steel

27
plants, three special steel plants, and one subsidiary unit. SAIL’s 86% shares are held by government

of India, with remaining 14 percent held by public.

Its product portfolio includes a wide range of items, viz, hot rolled and cold rolled sheets/coils,

galvanised sheets, structural, railway products, plates, pipes, bars, rods alloy and stainless steel

products. These classified under the saleable steel category contributed 95 per cent to the total sales in

2007--08. The rest was chipped in by secondary items like ingots, pig iron, scrap and chemicals

In February 2006, SAIL amalgamated its wholly owned subsidiary, Indian Iron and Steel Company.

The steel ministry has accorded in--principal approval to merge Nilachal Ispat Nigam, National Iron

and Steel Company and Maharashtra Elektrosmelt with SAIL.

The company has a capacity to produce 15.2 million tonnes of hot metal and 14 million tonnes of

crude steel. It intends to expand the capacity of the former to 26 million tonnes by 2010, entailing an

estimated cost of over Rs.54m,000 crore. This expansion would be undertaken through de--

bottlenecking and modernization of its existing facilities. During this period, SAIL plans to eliminate

the production of low--margin semi--finished steel, which presently constitute 17 per cent of its total

production.

SAIL has one of the largest mining networks in the country with captive mines of iron ore, limestone

and dolomite under its belt. The company is the largest iron ore producer in India and has sufficient

iron ore reserves to feed its capacities. IISCO's merger with SAIL in 2005--06 provided the latter with

access to iron ore mines in Chiria having a potential reserve of around two billion tonnes. However,

the company is locked in a legal battle with the Jharkhand government over the claim of these mines.

SAIL sources its entire coal requirement from outside suppliers. The company imports nearly 70 per

cent of these and the rest is being sourced from Coal India. In a bid to augment supplies of key inputs,

the company joined hands with Coal India, National Thermal Power Corp. and National Mineral

28
Development Corp. for the formation of a special purpose vehicle to acquire coal mines abroad.

Additionally, it formed a joint venture with Tata Steel for development of coal mines in India.

The company's other strategic alliances include setting up a ferro alloy plant at Bhilai with

Manganese Ore India and setting up a 2.2 million tonne slag based cement plant at Bokara in joint

venture with Jaiprakash Associates.

Steel Authority of India Limited with its asset worth of US $8.05 billion is largest public sector steel

manufacturer in India. During April 2007- March 2008, SAIL achieved sales of US $7.88 billion and

profits of US $1.45 billion.

SAIL was adjudged runner up as ‘Most Innovative Industry Resource’ organization by Baclubindia in

2007.

Demand for steel has gone down due to financial market crisis. This has led Steel Authority of India

to adopt strong measures to counter this problem. Production of steel at company's Rourkela Steel

Plant has been reduced. In October 2008, sales of saleable steel also saw a decline.

Major plants owned by SAIL are located at Bhilai, Bokaro, Durgapur, Rourkela, Burnpur (near

Asansol) and Salem.

Since its inception, SAIL has been instrumental in laying a sound infrastructure for the industrial

development of the country. Besides, it has immensely contributed to the development of technical

and managerial expertise. It has triggered the secondary and tertiary waves of economic growth by

continuously providing the inputs for the consuming industry.

SAIL today is one of the largest industrial entities in India. Its strength has been the diversified range

of quality steel products catering to the domestic, as well as the export markets and a large pool of

technical and professional expertise.

29
SAIL is a public sector undertaking. In India Public Sector Undertaking is a term used for a

government owned corporation (company in the public sector). The term is used to refer to companies

in which the government (either the union government or the state or both) owned a majority (51% or

more) of the company’s equity.

HISTORY:

Beginning of SAIL goes as far back as 1954 when Hindustan Steel Limited (HSL) was established,

with the President of India holding shares of this company on behalf of Indian citizens. HSL was

primarily set up for managing Rourkela steel plant. Durgapur and Bhilai steel plants were set up

initially under supervision of ministry of iron and steel. From 1957 onwards these two plants were

brought under Hindustan Steel Limited’s control. Registered office of HSL originally set up in New

Delhi shifted to Calcutta in 1956 and thereafter to Ranchi in 1959. After incorporation of Bokaro

Steel Plant in 1964, and completion of Rourkela, Durgapur and Bhilai steel plants, ministry of steel

and mines drafted a policy for forming a holding company to manage all activities of these steel

producing units. Consequently SAIL was established in 1973 with an authorized capital of

Rs.2000.crores.

PRODUCTS AND SERVICES:

SAIL manufactures and markets a wide variety of steel products for:

• Construction

• Railways

• Automobiles

• Defense

30
 • engineering sectors

Steel products include bars and rods, hot and cold rolled steel coils and sheets, steel rails, plates,

electrical sheets, galvanized sheets, alloy steels and stainless steel. SAIL is also credited of being

among TOP TWO iron ore producers in India with its vast network of mines. SAIL also owns

limestone and dolomite mines. SAIL has its own Center for Engineering and Technology (CET),

Research and Development Center for Iron and Steel (RDCIS) in Ranchi.

• MAJOR UNITS:

o Rourkela Steel Plant (RSP) in Orissa set up with German collaboration (The first

integrated steel plant in the Public Sector in India, 2010).

o Bhilai Steel Plant (BSP) in Chhattisgarh set up with Soviet collaboration (1959).

o Durgapur Steel Plant (DSP) at Durgapur, West Bengal set up with British

collaboration (1965).

o Bokaro Steel Plant (BSL) in Jharkhand (1965) set up with Soviet collaboration (The

Plant is hailed as the country’s first Swadeshi steel plant, built with maximum

indigenous content in terms of equipment, material and know-how).

o IISCO Steel Plant (ISP) at Burnpur, West Bengal.

• SPECIAL STEEL PLANTS:

o Alloy Steels Plants (ASP), Durgapur, West Bengal.

o Salem Steel Plant (SSP), Tamil Nadu.

31
 o Visvesvaraya Iron and Steel Limited (VISL), at Bhadravathi, Karnataka

• SUBSIDERIES:

o Maharashtra Elektro-smelt Limited (MEL) in Maharashtra.

• CENTRAL UNITS:

o Centre for Engineering and Technology.

o Research and development centre for iron and steel.

o Management Training Institute.

o SAIL safety organization.

o Raw materials division.

o Central Marketing Organization.

o SAIL consultancy organization.

Board of Directors for the Year : 31-Mar-08

Steel Authority Of India Ltd.

Directors Name Designation Board Meetings Attended

S K Roongta Ch 15

32
K K Khanna Director 9

(Technical)

Arun Kumar Rath Director 10

S C Jain (Dr.) Director 14

R P Sengupta Director 6

Velu Annamalai (Dr.) Director 14

Sidharth Kak Director 14

Nilotpal Roy Md 13

G Elias Director 14

V Shyamsundar Md 14

B N Singh Md 12

V K Srivastava Md 14

G Ojha Director 14

Shyamal Ghosh Director 14

S N P N Sinha Director 2

Mohammad Yusuf Khan Director 7

Deepak Nayyar (Prof.) Director 10

R Ramaraju Md 15

Javaid Akhtar (Prof.) Director 11

P K Sengupta Director 14

Vinayshil Gautam (Dr.) Director 14

S Bhattacharya Director (Finance) 15

S S Ahmed Director 13

V K Gulhati Director 5

(Technical)

B S Meena Director 4

S P Rao Md 2

33
Devinder Kumar Co. Secretary 0

Table 3: Board of Directors

Bankers and Auditors for SAIL

Bankers - Steel Authority Of India Ltd.

Table 4: Bankers of SA.I.L

State Bank Of India
Punjab National Bank
Auditors
Canara Bank
Bank Of BarodaOf India Ltd.
Steel Authority
United Bank Of India
Bank Of India
Ray
Union& Bank
Ray Of India
Dass Maulik
Oriental BankMahendra K Agrawala & Co.
Of Commerce
T R ChadhaBank
Allahabad & Co.
Bank Of Maharashtra
Uco Bank
Central Bank Of India
State Bank Of Patiala
Indian Overseas Bank
Table 5 : Auditors of S.A.I.L
Syndicate Bank
Punjab & Sind Bank
Jammu & Kashmir Bank Ltd.
State Bank Of Hyderabad
State Bank Of Saurashtra
State Bank Of Bikaner & Jaipur
State Bank Of Indore
State Bank Of Mysore
I D B I Bank Ltd.
H D F C Bank Ltd.
Yes Bank Ltd.
Corporation Bank

34
SAIL - Into the Future

Modernisation and Expansion Plan of SAIL Corporate Plan

Expansion Plan, 2010

The investment for modernization and expansion programme of SAIL is estimated at about
Rs.54, 333 crores.

Figure 2: Modernisation and expansion Plan

The Corporate Plan, 2012 was reviewed by Hon’ble Minister of Steel in Jul’06, wherein it was

decided to take up the Expansion of Integrated Steel Plants and Special Steel Plant in one go based on

Composite Project Feasibility Report (CPFR).

By that time Expansion of IISCO Steel Plant and Salem Steel Plant was already approved “in-

principle” based on the Techno-Economic Feasibility Report (TEFR) of MECON. For the Expansion

of other four integrated Steel Plants, MECON was assigned the job of Preparation of CPFR in

Aug’06. The CPFR for the four integrated steel plants was prepared by MECON.

‘In principle’ approval has been accorded by SAIL Board for the expansion plans of IISCO Steel

Plant (Jul’06), Salem Steel Plant (Jun’06), Bokaro Steel Plant (Dec’06), Bhilai Steel Plant (Apr’07),

Rourkela Steel Plant (May’07) and Durgapur Steel Plant (Jul’07).

35
 Item 2006-07 Capacity as per

(Actual) Expansion Plans

2010

Hot Metal 14.61 26.18

Crude Steel 13.51 24.59

Saleable Steel 12.58 23.13

Table 6: Corporate Plan

Fig 3: Objective of growth plan

36
Some major events in: 2008

Steel Authority of India Ltd (SAIL) has informed that the Board of Directors of the Company has

approved the appointment of Shri. S P Rao, Executive Director, SAIL as Managing Director, IISCO

Steel Plant and Director on the Board of Directors of SAIL.

Steel Authority of India Ltd (SAIL) has informed that the Company on February 21, 2008 has signed

a Joint Venture Agreement with M/s. Jaiprakash Associates Limited (JAL) for formation of a Joint

Venture Company (JVC) to set up a cement plant for producing 2 million tonnes of Cement at Bokaro

(Jharkhand) by using slag generated at Bokaro Steel Plant of SAIL.

Steel Authority of India Limited and Larsen and Toubro Limited (L&T) has signed a Memorandum

of Understanding (MoU) to jointly set up, develop, manage and own captive/independent power

plants at suitable location/s to meet future power requirements of SAIL.

37
SAIL, Inc.

Annual Performance Analysis/Strategic Planning

Introduction

SAIL is committed to continually improving the organization and service delivery systems. Through

improving systems of data collection and information management, SAIL seeks to increase the

outcomes of our services, and initiate new methods and/or services that can further support our

mission and core values. SAIL leadership worked on a Strategic Planning process that was

determined to represent the course of the organization over a 12 month period. The Executive

Committee had a day long planning session to develop the Strategic Plan and completed a detailed

SWOT analysis on the following areas:

a) Expectations of persons served

b) Expectations of other stakeholders

c) The competitive environment

d) Financial opportunities

e) Financial threats

f) The organization’s capabilities

g) Service area needs

h) Demographics of the service area

38
 i) The organization’s relationships with external stakeholders

j) The regulatory environment

k) The legislative environment

Once this was completed, the Executive Committee decided that being this is the first year such a

planning process has taken place, and given the new time constraints of the accreditation process, the

Strategic Plan for the organization would be combined with the Performance Improvement Plan with

goals set for the next 12 months. It is the vision of SAIL to incorporate a Planning Process that sets

long range goals for the organization based on a variety of factors including the financial

environment, the legislative environment, input from stakeholders, and the vision and mission of the

organization. The Executive Committee believes that the process below represents this planning

process for a vision of one year.

Overview of Performance Improvement System

SAIL has an ongoing performance improvement system within its operational structure. That system

supports the development of data and information used for business and service delivery decision

making within the ongoing operations of the organization. An overview of SAIL’s information

management and performance improvement system is as follows:

Business Function Improvement: SAIL has an information management structure that allows for

information/data to be utilized by the Executive Committee (which serves in place of the Board of

Directors) to make decisions that improve the operations of the organization. Information is utilized

in making decisions that support the health of the organization. Areas of information that are key to

decision making are as follows: Finances, accessibility, resource allocation, corporate compliance,

cultural diversity and competency, risk management, human resources, technology, health and safety,

field trends and service delivery.

39
Service Delivery Improvement: SAIL maintains an organized data collection system for program

improvement. Data is collected at various points in service to measure the effectiveness of services,

the efficiency of provision of services, access to services, and satisfaction with services. The

Executive Committee is charged with the ongoing development of quality indicators, collection of

data, utilizing the data/information to make service delivery and program improvements, analyzing

the data, and needed resource allocation.

40
Performance Analysis for 2008

Business Functions

Financial

2008 Summary

SAIL had $760,651.04 in Revenue with $739,208.11 in expenses. This resulted in a net income of

21,442.93. This gave SAIL a 2.8% profit for the year.

In summation, 2008 proved to be a challenging year. The unanticipated decrease in census at

Structured Day and at SAIL resulted in revenue expectations to not be reached. SAIL also added the

additional expense of CARF which was not anticipated until second quarter of 2009. Changes made

at the end of the fourth quarter will be realized in 2009. Goals for the next fiscal year should include

increasing net income and increasing reserves.

Financial Improvement Plan 2009

With the poor performance in 2008, the unknown factors of the state/county budgets for

the 2009-2010 fiscal year (the state/county fiscal year runs July 1 to June 30) and due to

the current economy, it is incumbent upon SAIL to decrease expenditures and work

towards rebuilding the reserve depleted during the transition from AOC to county dollars

that occurred in Drug Treatment Court funding in 2007 and 2008. In addition, SAIL will

obtain accreditation in February 2009, which will increase the ability of SAIL to

negotiate third party contracts and expand revenue opportunities. Historically, SAIL has

had difficulty in finding a billing system that meets the unique needs of the agency. In

the first quarter of 2008, SAIL purchased a software system that would handle both

billing and clinical documentation. This system proved to be inappropriate, and a new

41
 system was purchased in the fourth quarter. Utilization of this system for billing and

electronic medical records must be achieved early in 2009.

I. Corporate Compliance

Summary:

In 2008, a comprehensive Corporate Compliance program was put into place. The staff

received training on the new program and will at initial hire and annually. A mechanism

has been put in place for anonymous reporting for employees. Employee Surveys were

developed and will be distributed in the first quarter of 2009.

Corporate Compliance Planning and Improvement for 2009

Employee surveys were completed and reviewed by the Executive Committee in 2008

and will continue on an annual basis.

Goal I Objectives Measures Responsible

Persons
Obtain Employee 1. SAIL employees will complete an 4. Surveys will be Executive

feedback on employee survey completed and Committee

SAIL and its 2. Survey will be analyzed and presented to

systems concerns will be addressed with Executive

Staff Committee by

3. Recommendations will be made by end of the

the Executive Committee. fourth Quarter

Table: 7: Corporate Compliance Planning and Improvement Goals

II. Cultural Competency and Diversity

42
 In 2008 SAIL completed a Motivational Interviewing training as part of the MATRIX

training for all clinical staff. Certain SAIL staff attended Motivational Interviewing

trainings presented in the community. SAIL also made more materials available in

Spanish. SAIL served its first deaf client and developed a relationship with a local

translating company. Client satisfaction surveys started to be conducted at the point of

first interview, after completion of IOP when moving into a lower level of care and at

completion of treatment. Satisfaction surveys contained several questions around cultural

competency. Results indicate overwhelmingly positive feedback from the clients.

SAIL currently has 2 bilingual staff members who are fluent in English and Spanish.

There is information on the website in Spanish as well as English. All forms are in both

languages. SAIL currently only provides assessments and individual sessions for Latino

clients. The drop in demand due to the changes in immigration laws and policies of the

state and local governments resulted in the closing of group treatment services for the

Latino population two years ago.

Cultural Competency and Diversity Improvement Plan

Family involvement is critical to providing a culturally competent treatment program.

Unfortunately, the attendance at SAIL’s family program has been poor. In 2009, SAIL

will analyze this situation and develop a solution.

Goal I Objectives Measures Responsible

Persons
Increase 1. Executive Committee will 1. Executive Committee will Executive

family have focus groups have focus groups Committee

involvement preformed with clients conducted and interviews

in Family 2. Executive Committee will with other agencies during

Program talk with other agencies to the second quarter in 2009

43
 discover methods used to 2. Committee will develop

increase family involvement recommendations by end of

3. Executive Committee will the second quarter 2009 and

make recommendation for meet with the staff to obtain

improvement and obtain feedback and suggestions.

feedback from the staff as a 3. Executive Committee will

whole. review and begin

implementation by third

quarter 2009
Table 8 : Cultural Competency and Diversity Improvement Plan

III. Risk Management

In 2008 SAIL increased the number and types of safety drills conducted. SAIL used

innovation to implement a backup fire alarm system. SAIL also improved signage

indicating first aid supplies and fire extinguishers and conducted a self inspection (see

health and safety for details). SAIL also implemented an infectious control plan and

conducted competency- based training for all staff. SAIL saw a 10% decrease in cost of

its professional liability insurance. Charlotte East implemented motion detection system

after a break in. Charlotte East also increased security. The upgrade in technology further

upgraded electronic security. Revenues did not meet projections. With the current

economy it is incumbent upon SAIL to plan for decrease in revenues and cut spending

appropriately (see financial in this document for details). The Risk Management plan for

2009 will be covered under Health and Safety and the Financial Improvement plan in this

document.

IV. Technology

44
2008 had a dramatic increase in technology that should continue through 2009. SAIL

upgraded its Server, began hosting its own email, and purchased a software system for

billing and electronic medical records. SAIL also purchased three new computers to

replace outdated equipment. SAIL entered a lease for a new copier that allows for

authentication in scanning to the server and a scanner/printer/fax in the front office. This

was done at no extra cost due to a buyout of the old lease and the negotiation of the new

lease. SAIL also developed a new website and updated the usefulness of it.

In 2007, SAIL developed a committee to evaluate electronic billing and medical records

systems. The committee ranked systems and made recommendations. The system that

the committee chose was purchased in the first quarter of 2008. Unfortunately, this

system proved to be more costly then presented and was not capable of providing all

services as presented. The system was bought with the understanding of a group module

being developed and guaranteed by first quarter. By the second quarter this was not

realized and a refund was requested. A refund was obtained in November of 2008 and

the committee’s second choice was purchased. By December, the Penelope System by

Athena Software began customization. This system appears to meet the needs of SAIL

and will be fully implemented in 2009, with small transitions occurring throughout the

year.

Technology Improvement Plan for 2009

Full implantation of the Penelope System for both billing and Electronic Medical

Records should be implemented in two stages. First stage will be customization and

implementation of the billing aspect of the system. The second stage will be

customization and implementation of the Electronic Medical Record. Stage one began in

December 2008. Customization of the system comes easily. Training of the office staff

on the billing system will occur in January with full implementation by the end of

45
 February. Stage two customization will begin in February and be completed in April.

Staff training will take place in April with full implementation by the end of the quarter.

Latest Update:

Steel Authority of India Ltd (SAIL) has announced the following Audited Consolidated results for
the year ended March 31, 2009:
The consolidated results for the Year ended March 31, 2009
The Group has posted a net profit of Rs 61884.10 million for the year ended March 31, 2009 as
compared to Rs 75486.20 million for the year ended March 31, 2008. Total Income has increased
from Rs 418371.00 million for the year ended March 31, 2008 to Rs 464482.20 million for the year
ended March 31, 2009.

Figure 3: Latest Updates of the Year March 31, 2009

Virtually Debt-free Company

The company continues to be virtually debt

free as its debt stood at Rs 32,520 mn as
against its cash deposit of Rs 164,370 mn.
SAIL's debt-equity ratio came down to bare
minimum of 0.12x at the end of the
2QFY09. The company paid interest
amounting to Rs 475 mn, while it earned
interest to the extent of Rs 3,730 mn for the
quarter.

Fig 4: S.A.I.L a virtually Debt free Company

46
Mergers and Acquisitions: Steel Authority of India Limited

Deals where company is target

Date Deal Type Acquirer Company Price/Co Event Date Event Name

st Swap

ratio
8-Dec-99 Sale of Proposed 0 30-Jun-99 Cabinet Clearance

asset
8-Dec-99 First media announcement
17-Jan-05 Proposal Dropped

3-Feb-00 Sale of Proposed 0 3-Feb-00 First media announcement

asset
17-Jan-05 Proposal Dropped

5-Mar-00 Sale of Proposed 0 5-Mar-00 First media announcement

asset

21-Apr- Sale of Proposed 0 21-Apr-00 First media announcement

00 asset

16-Mar- Sale of S A I L Power Supply Co. 39100 27-Nov-00 First media announcement

01 asset Ltd.
29-Nov-00 Disinvestment
29-Nov-00 Government Clearance
16-Mar-01 Negotiated deal1

13-Feb- Sale of Bokaro Power Supply Co. Pvt. 56000 9-Feb-02 Negotiated deal1

02 asset Ltd.
13-Feb-02 First media announcement

22-Mar- Sale of Bhilai Electric Supply Co. 9400 22-Mar-02 Negotiated deal1

02 asset Pvt. Ltd.

47
 22-Mar-02 Stock Exchange

Announcement

6-May-02 Sale of Various Parties 20000 6-May-02 First media announcement

asset

12-Apr- Sale of Unknown 0 12-Apr-06 First media announcement

06 asset

31-May- Takeover Fiis 17874.96 31-May-06 Deal Completed

06
31-May-06 First media announcement
31-May-06 Open Market Purchases
Table 9: Mergers And Acquisition of SA.I.L

48
Deals where company is Acquirer

Date Deal Target company Price/Cost Swap Event Event Name

Type ratio Date

Table 10: Deal Where Company is Acquirer
4-Jan-99 Merger Visvesvaraya Iron & Steel 0 25-Sep- AGM Date

Ltd. [Merged] 97
29-Dec- Deal Completed

98
3-Jan-99 First media announcement

28-Jul-00 Takeov Maharashtra Elektrosmelt 1400 28-Jul-00 Preferential Allotment

er Ltd.
28-Jul-00 Stock Exchange

Announcement

1-Sep-04 Merger Indian Iron & Steel Co. Ltd. 0 1-Sep-04 First media announcement

[Merged]
28-Sep- Board meeting

04
28-Sep- Board of Directors approval

04
1-Apr-05 Merger Date w.e.f.
8-Nov-05 High Court Directed

Shareholders Meeting
15-Feb- Cabinet Clearance

06
16-Feb- Deal Completed

06

3-Sep-05 Merger Neelanchal Ispat Nigam Ltd. 0 2-Sep-05 Government Clearance

3-Sep-05 First media announcement

29-Oct-05 Merger Maharashtra Elektrosmelt 0 29-Oct- First media announcement

Ltd. 05
18-May- Cabinet Clearance

06
25-May- Acquirer Company Board

06 meeting

21-May-06 Merger Rashtriya Ispat Nigam Ltd. 0 21-May- First media announcement

06
49 26-May- Negotiations called-off

06
Company Contact Address:

Registered office
Address
-
Street Ispat Bhavan, Lodhi Road, P.B.No.3049,

City New Delhi Pin 110003

code

State Delhi

Email secy.sail@sailex.com

address

Website www.sail.co.in
-

50
 Telephone and fax numbers

-
Country 91 Area 11

code code

Tel no. 24367481

Fax no. 24367015

-

Head office
Address
-
Street Bokaro Steel Plant, Bokaro Steel City,

Jharkhand

City Pin 827001

code

State Jharkhand

Registered office
Address
-
Street Ispat Bhavan, Lodhi Road, P.B.No.3049,

City New Delhi Pin 110003

code

State Delhi

Email secy.sail@sailex.com

address

Website www.sail.co.in

51
 -
Telephone and fax numbers

-
Country 91 Area 11

code code

Tel no. 24367481

Fax no. 24367015

-

Head office
Address
-
Street Bokaro Steel Plant, Bokaro Steel City,

Jharkhand

City Pin 827001

code

State Jharkhand
-
Table 11: S.A.I.L Contact Address

52
RESEARCH METHODOLGY

Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-

business or project.

It is performed by professionals who prepare reports using ratios that make use of information taken

from financial statements and other reports. These reports are usually presented to top management as

one of their bases in making business decisions. Based on these reports, management may:

• To see the progress in the financial health of a business concern.

• To identify the areas of efficiency and inefficiency.

• Continue or discontinue its main operation or part of its business;

• Make or purchase certain materials in the manufacture of its product;

• Acquire or rent/lease certain machineries and equipment in the production of its goods;

• Issue stocks or negotiate for a bank loan to increase its working capital;

• Make decisions regarding investing or lending capital;

• Other decisions that allow management to make an informed selection on various alternatives

in the conduct of its business.

53
 Research Methodology: An Overview

The subject in which research is undertaken: Finance

Subfield of the Subject: Management Accounting and Decision Making

Organisation for Research: NTPC LTD.

Type of Organisation: PSU (Public Sector Undertaking)

The Research type used: Secondary Research

Research Method Adopted: Time Series Analysis

Technique of Research: Accounting Ratios for Decision Making

Objective of research: Financial evaluation using Comparative Analysis

Data Collection: Secondary Data Usage

Fig 5: Research Methodology: An Overview

Time series analysis (horizontal analysis). It is also called intra firm comparison. This

technique is used to depict the trends of financial characteristics of an enterprise over the years.

This is used to reflect the movement of various financial characteristics.

Secondary research (also known as Desk Research) involves the summary, collation and/or

synthesis of existing research rather than primary research, where data is collected from, for example,

research subjects or experiments.

The term is widely used in market research and in medical research. The principal methodology in

medical secondary research is the systematic review, commonly using meta-analytic statistical

54
techniques, although other methods of synthesis, like realist reviews and meta-narrative reviews, have

been developed in recent years.

Secondary research can come from either internal or external sources.

The organization, SAIL required analyzing its financial performance i.e. to see the financial growth

viz. its own progress over the past 5 years. From its various financial competitors.

For the purpose of analysis, the data required was basically the Financial Statements of SAIL. The

source firstly selected was the financial reports provided to me by the industry mentor. This was with

respect to the company in which I am undergoing the summer training. The college resources were

used to access the financial database of CMIE and the data for SAIL was drawn from that database.

The authenticity of the data taken from CMIE is also proven to the extent that it is one of the major

organizations dealing with the task to maintain a corporate database with respect to the companies

listed.

Sources of Data:

 Financial reports provided to me by the industry mentor. They were the Annual Reports for

the time period chosen for the project purpose i.e. of last five years..

 From CMIE database, using the PROWESS software.

 Official website of SAIL

 Internet financial websites.

Sources of references and guidance:

55
The project guidance and help were sought from the esteemed industry mentor, college faculty

mentor and the colleagues at the summer training office. Certain standard financial books were

referred along with the guidelines to prepare the project as provided by the institution.

Steel Authority of India Limited

Registered Office: ISPAT Bhavan, Lodi Road, New Delhi – 110003

Balance Sheet: 5 Years (Rs in Cr.)

Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04

SOURCES OF FUNDS

Owner's Fund

Equity Share Capital 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40

Share Application Money 0.00 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves & Surplus 18,933.1 13,182.7 8,471.01 6,176.25 907.27

7 5

Loan Funds

Secured Loans 925.31 1,556.39 1,122.16 1,603.98 3,378.48

Unsecured Loans 2,119.93 2,624.13 3,175.46 4,165.81 5,310.28

Total 26,108.8 21,493.6 16,899.0 16,076.4 13,726.43

1 7 3 4

USES OF FUNDS

Fixed Assets

Gross Block 30,922.7 29,912.7 29,360.4 28,043.4 27,712.71

56
 3 1 6 8

Less : Revaluation Reserve 0.00 0.00 0.00 0.00 0.00

Less : Accumulated Depreciation 19,351.4 18,315.0 17,198.3 15,558.4 14,558.86

2 0 2 1

Net Block 11,571.3 11,597.7 12,162.1 12,485.0 13,153.85

1 1 4 7

Capital Work-in-progress 2,389.55 1,236.04 757.94 366.48 382.20

Investments 538.20 513.79 292.00 606.71 543.17

Net Current Assets

Current Assets, Loans & Advances 27,309.0 21,673.7 18,788.8 15,521.3 8,201.33

1 5 0 7

Less : Current Liabilities & 15,758.7 13,656.7 15,317.6 13,198.1 8,932.62

Provisions 4 7 7 2

Total Net Current Assets 11,550.2 8,016.98 3,471.13 2,323.25 -731.29

Miscellaneous expenses not written 59.48 129.15 215.82 294.93 378.50

Total 26,108.8 21,493.6 16,899.0 16,076.4 13,726.43

1 7 3 4

Note :

Book Value of Unquoted Investments 546.02 521.61 296.61 608.32 568.32

Market Value of Quoted Investments 5.12 4.31 3.33 0.89 0.77

Contingent liabilities 17,143.5 5,605.90 5,541.62 4,566.72 3,697.19

57
 4

Number of Equity shares outstanding 41,304.0 41,304.0 41,304.0 41,304.0 41,304.01

(in Lacs) 1 1 1 1

Table 12: Balance Sheet of S.A.I.L for past five years.

Steel Authority of India Limited

Registered Office: ISPAT Bhavan, Lodi Road, New Delhi – 110003

Profit and Loss Account : 5 Years (Rs crore)

Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04

Income:

Operating income 39,958.67 34,328.77 28,200.48 28,714.30 21,669.54

58
Expenses

Material consumed 16,821.39 15,963.13 13,903.23 11,155.33 9,315.53

Manufacturing expenses 3,317.74 2,925.43 2,793.45 2,427.11 2,362.05

Personnel expenses 7,919.28 5,087.76 4,156.97 3,811.75 4,758.49

Selling expenses 1,143.90 1,066.73 1,108.12 971.78 870.75

Administrative expenses 1,321.44 1,064.29 1,035.99 780.67 766.73

Expenses capitalized -1,832.22 -1,423.08 -1,352.05 -921.71 -893.07

Cost of sales 28,691.53 24,684.26 21,645.71 18,224.93 17,180.48

Operating profit 11,267.14 9,644.51 6,554.77 10,489.37 4,489.06

Other recurring income 1,539.69 1,354.96 892.30 676.55 372.54

Adjusted PBDIT 12,806.83 10,999.47 7,447.07 11,165.92 4,861.60

Financial expenses 250.94 332.13 467.76 605.05 953.57

Depreciation 1,235.48 1,211.48 1,207.30 1,126.95 1,122.59

Other write offs 75.49 128.59 181.44 184.89 310.01

Adjusted PBT 11,244.92 9,327.27 5,590.57 9,249.03 2,475.43

Tax charges 3,934.65 3,253.80 1,694.36 2,592.37 118.47

Adjusted PAT 7,310.27 6,073.47 3,896.21 6,656.66 2,356.96

Non recurring items 161.90 53.75 45.64 -14.35 143.42

Other non cash 64.61 60.57 71.12 174.66 11.70

adjustments

Reported net profit 7,536.78 6,187.79 4,012.97 6,816.97 2,512.08

Earnings before 18,348.43 12,886.63 7,861.47 6,839.66 -252.85

appropriation

Equity dividend 1,528.25 1,280.42 826.08 1,363.03 -

Preference dividend - - - - -

Dividend tax 258.91 197.98 115.86 185.24 -

59
Retained earnings 16,561.27 11,408.23 6,919.53 5,291.39 -252.85

Table 13: SAIL Profit and loss account

Steel Authority of India Limited

Registered Office: ISPAT Bhavan, Lodi Road, New Delhi – 110003

RATIOS FOR ANALYSIS

60
 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04

PER SHARE RATIOS

Adjusted E P S (Rs.) 17.70 14.70 9.43 16.12 5.71

Adjusted Cash EPS (Rs.) 20.87 17.95 12.80 19.29 9.17

Reported EPS (Rs.) 18.25 15.02 9.72 16.50 6.08

Reported Cash EPS (Rs.) 21.42 18.26 13.08 19.68 9.55

Dividend Per Share 3.70 3.10 2.00 3.30 0.00

Operating Profit Per Share (Rs.) 27.28 23.35 15.87 25.40 10.87

Book Value (Excl Rev Res) Per Share 55.69 41.60 29.99 24.24 11.28

(Rs.)

Book Value (Incl Rev Res) Per Share 55.69 41.60 29.99 24.24 11.28

(Rs.)

Net Operating Income Per Share (Rs.) 96.74 83.11 68.28 69.52 52.46

Free Reserves Per Share (Rs.) 45.02 30.72 19.02 13.07 -0.29

PROFITABILITY RATIOS

Operating Margin (%) 28.19 28.09 23.24 36.53 20.71

Gross Profit Margin (%) 25.10 24.56 18.96 32.60 15.53

Net Profit Margin (%) 18.16 17.38 13.79 23.19 11.39

Adjusted Cash Margin (%) 20.77 20.77 18.16 27.11 17.19

Adjusted Return On Net Worth (%) 31.77 35.34 31.45 66.48 50.58

Reported Return On Net Worth (%) 32.76 36.09 32.40 68.08 53.91

Return On long Term Funds (%) 44.47 45.55 36.75 63.24 28.27

LEVERAGE RATIOS

61
Table 14: SAIL Ratios

Steel Authority of India Limited

Registered Office: ISPAT Bhavan, Lodi Road, New Delhi – 110003

FINANCIAL HIGHLIGHTS

The fortunes of steel sector took a sharp U-turn during the quarter following squeeze in global credit

markets igniting fears of recession. Although, steel producers were restrained to raise prices in an

upturn, they have to follow global prices during downturn, where prices have corrected ~30-40%.

Nevertheless, proposed levy of import duty on steel products and CVD on long products by

government would prevent dumping from China.

Though its believed that domestic steel prices would correct from current level, we still maintain

positive view on the sector considering steel prices cut would accompany cut in raw material prices.

Iron ore and coke prices have started showing signs of downturn; these have corrected 50% and 30%

respectively. However, SAIL, like most other steel producers, is unlikely to benefit from the

downturn in coke prices, since the coal contracts have been finalized for next one year.

1HFY09 Result Highlights

• Higher volume growth and strong realization resulted in 35.3% YoY rise in net sales to Rs

232,680 mn.

62
 • Substantial rise in input cost and higher salary/wage revision contracted EBITDA margin by

427 bps to 24.9%. This confines the EBITDA growth to just 15.4% to Rs 57,851 mn.

• Strong growth of 37.3% in interest income and 25.0% lower interest burden led to 19.2%

YoY growth in PAT to Rs 38,448 mn.

• The company achieved production volume of 7.3 MT of hot metal, 6.7 MT of crude steel and

2.0 MT of value-added /special steel products.

• The modernization & expansion programme is progressing as per schedule and the company's

2QFY09 Result Highlights

• Higher share of value-added steel volume and better realization resulted in 33.6% YoY rise in

net sales to Rs 122,386 mn.

• Substantial escalation in cost of coking coal and ferro-alloys along with provision for higher

salary/wage revision shrank EBITDA margin by 409 bps to 24.6%. This confines the

EBITDA growth to just 14.5% to Rs 30,115 mn.

• Thanks to 38.8% higher interest income and 19.9% lower interest burden, PAT grew 18.2%

YoY to Rs 20,096 mn.

Figure 7: Fianancial summary

63
 Figure 8 Income Interest and Interest Cost

Latest Update: as on 28th May 2009

Steel Authority of India Ltd (SAIL) has announced the following Audited Consolidated results for the

year ended March 31, 2009

The consolidated results for the Year ended March 31, 2009

The Group has posted a net profit of Rs 61884.10 million for the year ended March 31, 2009 as

compared to Rs 75486.20 million for the year ended March 31, 2008. Total Income has increased

from Rs 418371.00 million for the year ended March 31, 2008 to Rs 464482.20 million for the year

ended March 31, 2009.

64
RATIO ANALYSIS FOR PAST FIVE YEARS

Liquidity Ratios

Current Ratio:

Current ratio is calculated by dividing current assets by current liabilities. Current assets include cash

and those assets that can be converted into cash within a year, such as marketable securities, debtors

and inventories. Prepaid expenses are also included in current assets as they represent the payments

that will not be made by the firm in the future. All obligations maturing within a year are included in

current liabilities. Current liabilities include creditors, bills payable, accrued expenses, short term

bank loan, income – tax liability and long term debt maturing in the current year. It is the measure of

the firm’s short – term solvency. It indicates the availability of current assets in rupees for every one

rupee of current liability. A ratio of greater than one means that the firm has more current assets than

current claims against them.

Steel industry can be attributed to an industry marked with huge production and consumption of raw

materials. SAIL is a public sector undertaking and is an organization meant for producing steel. The

current ratio is formally advisable to be in a standard ratio of 2:1. It is a widely used indicator of a

company’s ability to pay its debts in a short term. The current ratio of SAIL has never touched the

standard ratio in the given 5 yr. ratios. But it is very much near to the standard ratio in the report of

March 08’.

Since it is a steel producing company, so the gestation period of the inventory is very high. Despite

having such a high gestation period, the ability to maintain a healthy current ratio is a challenging

65
task. The onus of paying short-term debts and meeting short-term liabilities lies on the working

capital present with the firm. It is the difference between the current assets and current liabilities. It

signifies the amount of cash or cash equivalents with respect to the short-term payments or liabilities.

The ratio of SAIL indicates better financial management in the year 07 and 08 as the ratio improved

from what was earlier in 04 and 05. It shows that besides having a high gestation period of inventory,

the Company successfully enabled itself to meet its short-term liabilities.

66
 Current Ratio

1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Mar ' 04 Mar ' 05 Mar ' 06 Mar ' 07 Mar ' 08

Figure 9: Current Ratio

Quick Ratio:

67
Quick ratio is also called acid – test ratio, establishes a relationship between quick, or liquid, assets

and current liabilities. As assets is liquid if it can be converted into cash immediately or reasonably

soon without a loss of value. Cash is the most liquid asset. Inventories are considered to be less

liquid. Inventories normally require some time for realizing into cash; their value also has a tendency

to fluctuate. The quick ratio is found out by dividing quick assets by current liabilities. The quick

assets are got when, inventories are subtracted from current assets. Generally a quick ratio of 1:1 is

considered to represent a satisfactory current financial position.

The quick ratio which is the acid test of the Company’s ability to meet its short-term payments and

liabilities is on a higher side. It dipped in the year 04-06 and then steadily rose from 06 to 08. This

shows that the financial management of the Company is satisfactory. It is advisable that the Company

should keep the quick ratio little above 1 to be on a safer side because, its current ratio has not

touched the standard mark.

Thus the current performance for this given ratio for SAIL is satisfactory.

Quick Ratio

1.4
1.2
1
0.8
0.6
0.4
0.2
0
Mar ' 04 Mar ' 05 Mar ' 06 Mar ' 07 Mar ' 08

68
 Figure 10: Quick Ratio

Inventory turn over ratio

Inventory turnover ratio comes under the category of activity ratios. Activity ratios are employed to

evaluate the efficiency with which the firm utilizes and manages its assets. These ratios are also

called the turnover ratios because it indicates the speed with which assets are being converted or

turned into sales. Activity ratio, thus involve a relationship between sales and assets. Inventory

turnover indicates the efficiency of the firm in producing and selling its products. Inventory turnover

shows how rapidly the inventory is turning into receivable through sales. Generally a high Inventory

turnover is indicative of good inventory management. A low inventory implies excessive inventory

levels than warranted by production and sales activities, or a slow moving obsolete inventory.

From the available data for the past five years, the year 2004 SAIL has the highest Inventory

turnover ratio, thus signifying more inflow of funds through sales for the past five years. Gradually a

declining trend was spotted and the Inventory turnover ratio fell with considerable margin from the

next year onward i.e. 2005. From that year, there has been a low inventory ratio and have been below

the level achieved in 2004. The declining trend continued for two successive years i.e. 2005 and

2006. The year of 2006 showcased the lowest inventory turnover for the selected period of five years.

But after the year 2006, the recovery of sales seems evident from the fact that the ratios improved

slightly and in year 2008 the uprising in the inventory turnover is clearly visible. The downswing was

registered for two continuous years of 2005 and 2006. But still after the slight improvement and

upswings, the inventory turnover ratio for S.A.I.L is not satisfactory. It may seem to be a respite as an

upswing but lower inventory turnover ratio could be damaging the liquidity, solvency and the

working capital management for the company.

69
This shows S.A.I.L has weakness in terms of its activity ratio and delay in converting its product to

sales thus affects the profitability condition of the company. This may also be the cause of the lower

profitability ratios. Also it represents a major scope of improvement in production, operation and

marketing department.

This ratio may seem comfortable and satisfaction when there is intra firm analysis is done.

Inventory turnover ratio

12

10

0
Mar ' 04 Mar ' 05 Mar ' 06 Mar ' 07 Mar ' 08

Figure 11: Inventory turn over ratio

PROFITABILITY RATIOS

A company should earn profit to survive and grow over a long period of time. Profit is the difference

between the revenue and the expenses over a period of time (usually one year). Profit is the ultimate

‘output’ of a company and it will have no future if it fails to make sufficient profits. Therefore, the

financial manager should continuously evaluate the efficiency of the company in terms of profit. The

profitability ratios are calculated to measure the operating efficiency of the company.

Generally two major types of profitability ratios are calculated:

70
  Profitability in relation to sales

 Profitability in relation to investment.

Gross Profit Margin

The first profitability ratio in relation to sales is the gross profit margin. It is calculated by dividing

the gross profit by sales. The gross profit margin reflects the efficiency with which management

produces each nit of product. This ratio indicates the average spread between the cost of goods sold

and the sales revenue.

A high gross profit margin ratio is a sign of good management. A gross margin ratio is a sign of

good management. A gross margin ratio may increases due to any of the following factors

• Higher sales prices, cost of goods sold remaining constant

• Lower cost of goods sold, sales prices remaining constant.

• A combination of variations in sales prices and cost, the margin widening.

• An increase in the proportionate volume of higher margin items,

The analysis of these factors will reveal to the management how a depressed gross profit can be

improved.

S.A.I.L already being a “navratana” company seems to be proving its profitability regularly. As per

the available data for the past five years with respect to the profitability ratios, the profitability

position seems to be comfortable.

Though the highest gross profit margin was witnessed in 2005 and in comparison to that, the gross

profit margin is much lower in 2008. But owing to the period of recession and major changes in the

steel sector, the maintenance of the gross profit margin ratio around 25% is remarkable achievement

with respect to the financial management of S.A.I.L. Also S.A.I.L, a company operating as a P.S.U

71
and is an industry which is characterized by slow moving inventory. Though within this five year

period, the company has seen high fluctuations in this ratio, but still remained a profitable company.

So the company is comfortable in this ratio. Also by the latest update, S.A.I.L has registered profit for

the year 2009 too. And from 2007 onwards this ratio is on an upswing. As by the nature of this ratio,

the company should always try to strive for higher percentage. The performance for this ratio is

satisfactory.

Gross Profit Margin Ratio

35

30

25

20

15

10

0
Mar ' 04 Mar ' 05 Mar ' 06 Mar ' 07 Mar ' 08

Figure 12: Gross Profit Margin Ratio

Net Profit Margin Ratio

Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit.

The net profit margin ratio is measured by dividing profit after tax by sales.

Net profit margin ratio establishes a relationship between net profit and sales and indicates

management efficiency in manufacturing administering and selling the products. This ratio is the

overall measure of the firm’s ability to turn the each rupee sales into net profit. If the net profit

margin is inadequate, the firm will fail to achieve satisfactory return on shareholders funds.

72
 The ratio also indicates the firm’s capacity to withstand adverse economic conditions. A firm

with high net margin ratio would be in advantageous position to survive in the face of falling selling

prices, rising cost of production or declining demand for the product. It would really be difficult for a

low net margin firm to withstand these adversities.

The net profit ratio of S.A.I.L seems to be satisfactory and is in the slab of 15% to 20%. Though

higher the net profit ratio, the better will be the profitability for the company. The net profit ratio of

S.A.I.L is expected to be around 25% and above. But when seen this ratio, with respect to the gross

profit ratio, the situation for S.A.I.L steel seems to be comfortable and quiet satisfactory.

The ratio of S.A.I.L seems satisfactory but when seen in comparison to its competitor, then the ratio

is not satisfactory. S.A.I.L needs to cut down on its operational expenses and manage its assets well,

so as to reduce the taxation.

Net Profit Margin Ratio

25

20

15

10

0
Mar ' 04 Mar ' 05 Mar ' 06 Mar ' 07 Mar ' 08

Figure 13: Net Profit Margin Ratio

LEVERAGE RATIO: Solvency Ratios

73
The solvency or leverage ratios throws light on the long term solvency of a firm reflecting it’s ability

to assure the long term creditors with regard to periodic payment of interest during the period and

loan repayment of principal on maturity or in predetermined installments at due dates. There are thus

two aspects of the long-term solvency of a firm.

a. Ability to repay the principal amount when due

b. Regular payment of the interest.

The ratio is based on the relationship between borrowed funds and owner’s capital it is computed

from the balance sheet, the second type is calculated from the profit and loss a/c.

Long Term Debt / Equity:

A capitalization ratio comparing long-term debt to shareholders' equity. Debt equity ratio shows the

relative claims of creditors (Outsiders) and owners (Interest) against the assets of the firm. Thus this

ratio indicates the relative proportions of debt and equity in financing the firm’s assets. The outsider

fund includes long-term debts as well as current liabilities. The shareholder funds include equity

share capital, preference share capital, reserves and surplus including accumulated profits. However

fictitious assets like accumulated deferred expenses etc should be deducted from the total of these

items to shareholder funds. The shareholder funds so calculated are known as net worth of the

business.

In this ratio, SAIL enjoys upper hand and seems to be at a comfortable position. It is so the company

enjoys almost full control over its management and activities. The claims of outsiders are minismised

to the extent possible. As higher is this ratio, the worst it is. It shows how much the outsiders namely

the creditors and lenders have the stake in the organisation. The higher their stake, higher is their

intervention. It binds the firm to consult them for any actions if they have too higher control. Higher

ratio represents higher indebtedness for the firm. Though it should be noted that the debt brings its on

advantages for the purpose of financing the capital. The firm does not have to pay the part of the

74
profit to the creditors. It gives a leverage effect when properly traded with the equity for a profitable

company. SAIL has been displaying excellence in the financing of capital over the past few years in

succession. It has kept this ratio low, but does not allow it to diminish. Less then one – fourth of the

capital is funded from outside for SAIL, for the year 2008. This represents strong hold by the

management and efficient financial capabilities in funding the capital. Though it should be seen that

SAIL had earlier very high Debt Equity ratio, but the company has managed to not only bring into

control but also to minimize it to the extent to being a Virtually Debt – Free Company. This ratio has

been a star ratio for the company.

Long TermDebt Equity Ratio

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Mar ' 04 Mar ' 05 Mar ' 06 Mar ' 07 Mar ' 08

Figure 14: Long term Debt Equity Ratio

Total Debt/Equity:

A measure of a company’s financial leverage calculated by dividing its total

liabilities by stockholders’ equity. It indicates what proportion of equity and debt the company is

using to finance its assets. Also known as the Personal Debt/Equity Ratio, this ratio can be applied to

personal financial statements as well as companies’. A high debt/equity ratio generally means that a

company has been aggressive in financing its growth with debt. This can result in volatile earnings as

75
a result of the additional interest expense. If a lot of debt is used to finance increased operations (high

debt to equity), the company could potentially generate more earnings than it would have without

this outside financing. If this were to increase earnings by a greater amount than the debt cost

(interest), then the shareholders benefit as more earnings are being spread among the same amount of

shareholders. However, the cost of this debt financing may outweigh the return that the

company generates on the debt through investment and business activities and become too much for

the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing.

For this ratio, SAIL seems to be safe and more than a satisfactory position. The company has no need

to worry for this ratio. The debt for the company seems to be in negligible amounts. Though the

shareholder’s money is put to the risk, but seeing the profitability record of the company and being in

a “Navratna” status ensures safe proposition to the equity owners. There seems to be no short term

debt on SAIL and this makes the company attractive for the creditors. It ensures best payback option

for the creditors. Though in 2004, the Total Debt Equity ratio was too high, but after that a declining

trend can easily be spotted. Currently in 2007 & 2008, the total debt equity ratio is almost similar to

the long – term debt equity ratio. This shows efficient utilization of working capital and timely

generation of funds to meet routine expenses. It also represents that the company has successfully

paid all its short term debts and emerged profitable form 2004 to 2008. Thus for SAIL, this ratio is

more satisfactory and does not require any action. It is only recommended to maintain this ratio for its

current level.

76
 T
otalDebtEqu
ityRatio

1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Mar' 0
4 Mar' 05 Mar' 06 Mar' 07 Mar' 0
8

Figure 15: Total Debt Equity Ratio

Owner’s Fund as Percentage of Total Source

This ratio shows how much percentage of total funds is being funded by the owners of the company.

For SAIL, it seems to be a very comfortable and highly commendable proposition. Being a PSU,

most of its activities are being financed by the owners itself. This makes the claims of outsiders in

SAIL as minimum. Also this means that no or less payments are been made to the creditors and firm

is not pressurized to make payments when not making any profits or at tough times. Also, lower debt

makes the firm as highly credible and solvent to attract the creditors when it needs. More than 85% of

the funding is coming from the owners of SAIL. This represents though a conservative but a safe

approach for the business environment. The factor of being a PSU should be kept in view. From the

year 2004 this ratio has increased significantly from around 30% to more than 85% in 2008. For this

ratio, the company can afford to reduce the percentage of this ratio. But keeping the PSU and

Navratna status in view it should be always between 75% to 80% slab. It is so because of the nature

of industry, aggressive moves in the industry (TATA CORUS – Deal), current recession, cyclical

recession being characterized in this industry and finally the government ownership. Thus for this

ratio, SAIL is at a satisfactory level.

77
 Owners Fundas %of Total source

90
80
70
60
50
40
30
20
10
0
Mar ' 04 Mar ' 05 Mar ' 06 Mar ' 07 Mar ' 08

Figure 16: Owners Fund as % of Total Source

Asset Turnover Ratio

Assets are used to generate sales. Therefore, a firm should manage its assts efficiently to maximize

sales. The relationship between sales and assets is called asset turnover. It implies that how much a

company is producing sales for one rupee of capital employed in net assets. A firm’s ability to

produce a large volume of sales for a given amount of assets is the most important aspect of its

operating performance. Unutilised or under utilized assets increase the firm’s need for costly

financing as well as expenses for maintenance and upkeep.

When this ratio is considered, the SAIL seems to be generating more sales with respect to one rupee

of every fixed asset. Though from 2004 to 2006, this ratio fluctuated to some major extent, but from

2006 onwards, this ratio displayed upward trend. Also it could be seen that SAIL is successfully

generating more sales on every one rupee of fixed asset held by it. This means that SAIL is

successfully minimizing its operational expenses and the cost to maintain its assets. Still it is

advisable for SAIL to strive to achieve higher numbers for this ratio.

78
 Asset Turnover Ratio

1.4

1.2

0.8

0.6

0.4

0.2

0
Mar ' 04 Mar ' 05 Mar ' 06 Mar ' 07 Mar ' 08

Figure 17: Asset turnover Ratio

Earnings Per Share (EPS):

Earnings per share are generally considered to be the single most important variable in determining a

share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. EPS

simply shows the profitability of the firm on a per-share basis. EPS however does not reflect how

much is paid on dividend and how much is retained in the business. An important aspect of EPS that's

often ignored is the capital that is required to generate the earnings (net income) in the calculation.

Two companies could generate the same EPS number, but one could do so with less equity

(investment) - that company would be more efficient at using its capital to generate income and, all

other things being equal would be a "better" company. Investors also need to be aware of earnings

manipulation that will affect the quality of the earnings number. It is important not to rely on any one

financial measure, but to use it in conjunction with statement analysis and other measures. The EPS is

calculated by dividing the PAT by the total number of ordinary shares outstanding. EPS simply shows

the profitability of the firm on a per-share basis; it does not reflect how much is paid as a dividend

and how much is retained in the business.

79
The return on per-share basis by SAIL is positive. This could be due to the fact that SAIL has more

equity than debt and thus the calculation of this ratio is affected by the same fact. In this ratio, it is

expected for SAIL to improve further. As this ratio being low, makes SAIL averse to the investors.

Thus condition for SAIL in this ratio is less than satisfactory.

EarningsPerShare

20
18
16
14
12
10
8
6
4
2
0
Mar' 04 Mar' 05 Mar' 06 Mar' 07 Mar' 08

Figure 18: Earnings Per Share

80
CONCLUSION

The ratio analysis for one of the public sector unit is done for past years i.e. from the period of march

2004 to march 2008. It is a intra firm analysis. It was seen that being a steel unit in certain areas the

firm will be requiring adequate improvement. In the ratio analysis section, we have chosen the

grading bases of satisfactory, less satisfactory and more than satisfactory.

SAIL being a PSU, enjoys better funding from the govt. But it cannot be a standalone advantage point

for SAIL. SAIL has been constantly enjoying better and efficient control of the management and

owners. In all the analysis it was concluded that SAIL is more stable and a safer company for the

lender.

Also to mention that SAIL has an advantage point in being a PSU and also a NAVRATNA. SAIL has

been posting profit for successive 5 years in a row. It has secure financial sources to fund its capital

requirement. The owners share in the capital is almost above 85%. This gives firm an advantage of

having very high credit worthiness. Also this factor serves SAIL as a competitive advantage point for

the company.

81
There are certain areas where SAIL needs to improve. With financial growth of SAIL within itself

over the years (intra firm-time series analysis); some ratios seem to be at satisfactory level demands.

Owners fund and net profit margin ratios are examples of such.

But in certain other ratios, SAIL seems to be at an undisputed advantage position. They are the

liquidity ratios and the capital structure ratios. SAIL is in a better position to take the rightful

advantage of the phenomenon of “trading on equity”. The industry seems to have undergone a slow

down in the recent past, this has been observe that in some years the ratios of both the companies

dipped and rose simultaneously.

The concluding remarks for SAIL will be to emphsise the need to improve its profitability and

activity ratios. There is a strong need for SAIL to improve further its profitability and also to lay more

importance on its turnover ratios. There seems to be a problem in operations and marketing

departments. Though capital structure and liquidity factors are major strengths of the company and

can serve as core competency in finance over its competitors. SAIL has a capability to undertake new

ventures and it is a welcome move, that SAIL is already having an expansion in the near future. The

expansion in production capacity will serve the company with increased operations and profits.

82
 Bibliography

Chandra Prassana (2002), Fianancial analysis, Fianancial accounting ,537-600

Pandey. I.M (2007), Fiananial Management, 517- 557

Maheshwari,s S.N (2005),Financial Management,B.23-B.56

Monga J R (2007) Financial Accounting Concept & Applications Volume 1 and 2 , 69-169

Monga J R (2007-08) Fundamentals of Corporate Accounting (Vol 2 Volumes)

83
 ANNEXURES

AUDITED CONSOLIDATED FINANCIAL RESULTS OF SAIL

Income & expenditure

Mar Mar Mar Mar Mar

Steel Authority Of India Ltd. 2003 2004 2005 2006 2007 Mar 2008

Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

Total income 21033.38 25752 35277.55 34792.52 41145.64 48000.4

Sales 20411.61 25541.44 33582.18 32673.08 39377.59 45772.6

Industrial sales 20369.19 25435.46 33539.55 32646.86 39351.03 45735.92

Income from non-financial services 42.42 105.98 42.63 26.22 26.56 36.68

Income from financial services 95.65 179.96 316.42 480.45 810.65 1307.8

Interest 91.81 80.19 302.78 466.52 757.51 1191.25

Dividends 2.67 8.27 13.5 13.74 12.77 3.48

Treasury operations 0.13 91.34 0.03 0.19 40.37 113.07

Other income 254.81 281.63 458.49 420.49 467.73 340.46

Prior period income & extraordinary income 271.31 221.65 444.62 143.49 233.17 154.54

Change in stock -469.28 -472.68 475.84 1075.01 256.5 425

Total expenses 21024.75 23153.42 28382.88 30714.43 34881.85 40403.62

Raw material expenses 6444.84 8002.65 10824.05 12218.08 13266.98 13667.81

Packaging expenses 0 0 0 0 0 0

Purchase of finished goods 79.39 66.02 113.08 65.61 1.29 3.63

Power, fuel & water charges 2278.68 2362.92 2448.36 2663.71 2502.14 2747.61

Compensation to employees 3667.75 5151.49 4609.7 4407.61 5309.95 8165.92

Indirect taxes 2501.26 3018.76 3616.59 4638.73 5456.68 6310.99

Royalties, technical know-how fees, etc. 48.19 49.91 49.9 53.61 51.21 59.01

84
Lease rent & other rent 23.83 22.5 24.37 23.07 25.18 22.03

Repairs & maintenance 1638.17 246.85 297.35 2195.01 2455.44 3117.63

Insurance premium paid 8.11 9.22 9.09 9.83 9.52 7.22

Outsourced mfg. jobs (incl. job works, etc.) 44.21 43.81 50.48 63.93 82.7 120.29

Outsourced professional jobs 93.12 95.74 108.6 111.91 121.93 189.51

Directors' fees 0.03 0.05 0.08 0.13 0.2 0.3

Selling & distribution expenses 792.91 807.7 911.86 875.67 850.29 886.33

Travel expenses 143.1 119.9 121.37 182.08 195.33 209.71

Communication expenses 13.26 14.89 14.27 15.33 15.45 20.21

Printing & stationery expenses 7.96 8.09 9.45 9.42 10.87 11.56

Miscellaneous expenses 221.62 215.98 308.6 487.67 480.69 582.33

Other operational exp. of indl. enterprises 0 0 0 0 67.37 79.69

Other oper. exp. of non-fin. service enterprises 0 0 0 0 0 0

Share of loss in subsidiaries/JVs,etc. 0 0 0 0 0 0

Lease equalisation adjustment 0 0 0 0 0 0

Loss on securitisation of assets/loans 0 0 0 0 0 0

Fee based financial service expenses 49.26 38.95 51.28 38.28 17.17 14.3

Treasury operations expenses 24.53 0 7.83 10.55 0 0

Total provisions 178.05 221.72 92.57 48.35 45.07 62.31

Write-offs 11.86 1.3 38.68 4.35 4.6 2.3

Less: Expenses capitalised 20.66 26.47 29.44 52.35 69.82 120.88

Less: Expenses transferred to DRE 0 0 0 0 0 0

Prior period & extraordinary expenses 31.23 66.79 87.45 18.74 25.8 5.11

Interest paid 1393.79 965.28 631.81 450.61 328.08 246.77

Financial charges on instruments 0 0 0 0 0 0

Expenses incurred on raising deposits/debts 0 0 0 0 0 0

Depreciation 1220.48 1195.01 1204.68 1257.12 1263.01 1286.62

Amortisation 120.56 325.73 168.15 1.47 3.44 0

Provision for direct taxes 9.22 128.63 2612.67 1705.69 3288.07 3990.5

85
PAT -460.65 2598.58 6894.67 4078.09 6263.79 7596.78

Minority interest 0.38 0.33 -0.45 -0.17 -0.12 -0.25

Share in profit/loss in associate/jv -0.4 0 0 0 0 0.09

PBDITA 2283.4 5213.23 11511.98 7492.98 11146.39 13120.67

PBDTA 889.61 4247.95 10880.17 7042.37 10818.31 12873.9

PBT -451.43 2727.21 9507.34 5783.78 9551.86 11587.28

Assets

Mar Mar Mar Mar Mar

Steel Authority Of India Ltd. 2003 2004 2005 2006 2007 Mar 2008

Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

Gross fixed assets 29983.81 30185.55 30631.5 31008.34 32414.32 35166.5

Land & building 2063.4 2056.43 2063.34 2753.71 2757.56 2860.95

Plant & machinery 24660.4 24738.24 25121.65 25535.37 26011.6 26755.56

Transport & comm. equipment/infrastructure 958.5 973.39 962.96 1092.56 1142.26 1231.37

Furniture,amenities & other fixed assets 1225.42 1245.37 1253.49 421.51 438.4 464.63

Capital work-in-progress 331.19 390.61 454.47 934.65 1772.84 3451.14

Intangible assets 674.83 721.21 733.88 231.69 249.01 341.8

Net pre-operative expenses pending allocation 38.51 25.66 17.96 14.4 18.67 35.51

Net lease reserve adjustment 0 0 0 0 0 0

Less: Cumulative depreciation 14765.6 15849.97 16965 17485.57 18651.77 19739.02

Less: Arrears of depreciation 0 0 0 0 0 0

Net fixed assets 15218.21 14335.58 13666.5 13522.77 13762.55 15427.48

Investments 4.45 5.87 7.43 20.14 36.99 39.72

Equity shares 4.96 4.9 4.84 15.07 15.99 16.08

86
 Preference shares 0 0 0 0 0 0

Mutual funds 0 4.85 6.43 8.4 25.26 23.57

Debt instruments 0 0.06 0 0 0 0

Approved securites (slr/statutory req.) 0 0 0 0 0 0

Assisted companies 0 0 0 0 0 0

Others 3.62 0.19 0.19 0.18 0.18 4.11

Less: Provision for dimunition in value of investments 4.13 4.13 4.03 3.51 4.44 4.04

Group companies 3.05 3.46 3.46 3 3 3

Non-group companies 1.91 6.29 7.81 20.47 38.25 36.65

Market value of quoted investments 0.79 1.65 2.02 3.33 4.31 5.12

Deferred tax assets 0 0 0 0 0 0

Current assets

Cash & bank balance 717.31 2224.16 6370.31 6243.67 9810.75 13933.08

Inventories 3899.68 3243.45 4523.29 6321.96 6756.37 6954.08

Receivables 2912.8 2696.82 3025.86 3190.85 4004.73 5515.42

Expenses paid in advance 5.61 172.45 750.41 41.68 74.73 102.32

Loans & advances 228.07 222.14 180.48 289.96 329.17 412.61

Deferred revenue expenditure 539.57 439.79 354.95 216.85 129.68 59.66

Total assets 23525.7 23340.26 28879.23 29847.88 34904.97 42444.37

Liabilities

Mar Mar Mar Mar Mar

Steel Authority Of India Ltd. 2003 2004 2005 2006 2007 Mar 2008

87
Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

Net worth 1560.66 4146.47 9478.76 12707.68 17489.41 23288.77

Authorised capital 5000 5000 5000 5000 5000 5000

Issued equity capital 4130.4 4130.4 4130.4 4130.4 4130.4 4130.4

Paid up equity capital (net of forfeited capital) 4130.4 4130.4 4130.4 4130.4 4130.4 4130.4

Forfeited equity capital 0 0 0 0 0 0

Paid up preference capital (net of forfeited capital) 0 0 0 0 0 0

Capital contibution, suspense and application money 0 0 0 0 10.4 1.5

Minority interest reserves -0.62 -0.56 -0.11 0.06 0.18 0.43

Reserves & surplus -2569.74 16.07 5348.36 8577.28 13348.61 19156.87

Free Reserves 235.69 237.35 4859.73 8177.76 12985.16 18879.01

Security premium reserves (Net of deductions) 235.69 235.6 235.6 235.29 235.29 235.29

Other free reserves 0 1.75 4624.13 7942.47 12749.87 18643.72

Specific Reserves 927.69 654.84 488.63 399.52 363.45 277.86

Revaluation Reserves 0 0 0 0 0 0

Accumulated losses 3733.12 876.12 0 0 0 0

Total borrowings 12843.61 8444.08 5353.6 3703.49 3749.9 2979.51

Bank borrowings 2988.83 506.21 393.29 628.18 1220.58 1102.6

Short term bank borrowings 1765.98 202.53 192.06 318.97 243.08 267.98

Long term bank borrowings 1222.85 303.68 201.23 309.21 977.5 834.62

Financial institutional borrowings 0 0 0 0 0 0

Central & state govt. (usually sales tax deferrals) 204.43 204.43 204.43 206.49 205.41 204.82

Debentures / bonds 1942.75 1844.4 1173.35 778.9 765.15 664.5

Convertible 0 0 0 0 0 0

Non-convertible 1942.75 1844.4 1173.35 778.9 765.15 664.5

Fixed deposits 1021.28 581.39 217.1 0 0 0

Foreign borrowings 3452.94 2749.26 1496.94 635.83 563.67 515.65

Of which : euro convertible bonds 0 0 0 0 0 0

88
 Borrowings from corporate bodies 8.38 15.39 10.49 0.04 0.04 0.04

Group / associate cos. 0 0 0 0 0 0

Borrowings from promoters / directors 0 0 0 0 0 0

Commercial paper 0 0 0 0 0 0

Hire purchase borrowings 0 0 0 0 0 0

Deferred credit 0 0 0 0 0 0

Other borrowings 3225 2543 1858 1454.05 995.05 491.9

Secured borrowings 5957.25 3746 1920.6 1435.1 2013.75 1767.1

Unsecured borrowings 6886.36 4698.08 3433 2268.39 1736.15 1212.41

Current portion of long term debt 2743.44 1531.4 1649.69 1516.03 2047.71 1085.37

Current liabilities & provisions 9113.47 10734.62 12184.28 11939.23 12248.6 14611.31

Sundry creditors 2170.24 2169.81 2437.06 2469.96 2665.82 3077.65

Acceptances 0 0 0 0 0 0

Deposits & advances from customers & employees 506.03 647.19 843.77 779.8 909.07 918.89

Interest accrued 1586.41 1517.63 1340.53 1285.18 1088.09 1026.53

Share application money 0 0 0 0 0 0

Other current liabilities 1629.34 1495.79 1413.01 1687.23 1857.96 2530.07

Provisions 3221.45 4904.2 6149.91 5717.06 5727.66 7058.17

Deferred tax liability 8.58 15.65 1862.7 1497.42 1416.88 1564.35

Total liabilities 23525.7 23340.26 28879.23 29847.88 34904.97 42444.37

Net worth (net of reval & DRE) 1021.09 3706.68 9123.81 12490.83 17359.73 23229.11

Contingent liabilities 0 0 0 0 0 0

89
90
Cash flow

Mar Mar Mar

Steel Authority Of India Ltd. Mar 2003 2004 Mar 2005 2006 2007 Mar 2008

Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

Net cash flow from operating activities (indirect method) 3036.29 7213.72 9058.29 3761.73 5753.21 8307.91

Net profit before tax & extra ordinary income -462.53 2725.2 9462.96 5782.21 9518.82 11584.58

Adjustments for depreciation 1220.32 1246.77 1270.06 1270.66 1286.8 1282.37

Adjustments for interest payable 1395.28 950.09 636.16 484 227.49 259.39

Adjustments for provn. for contingencies 0 0 0 0 0 0

Adjustments for foreign exchange (gain)/loss 94.13 44.95 24.86 -20.54 -5.61 -22.89

Adjustments for add back of amortisations & others written off 356.13 338.35 216.12 189.29 132.45 76

Adjustments for add back of other provisional adjustments 859.02 1653.3 0 432.79 0 1178.05

Adjustments for (profit)/loss on sale of investments 0 0 0 0 0 0

Adjustments for (profit)/loss on sale of assets -144.19 -52.42 6.64 -58.14 -14 -48.72

Adjustments for interest income -91.81 -80.19 -255.85 -466.33 -757.51 -1191.25

Adjustments for dividend income -2.67 -8.27 -13.5 -13.74 -12.77 -3.48

Adjustments for other expenses / income 0 0 0 0 -21.94 0

Adjustments for provision / liabilities written back 0 0 -230.76 0 -158.45 0

Adjustments due to minority interest income -55.1 -0.33 0.45 -0.17 -0.12 -0.25

10195.1
Operating cash flow before working capital changes 3168.58 6817.45 11117.14 7600.03 6 13113.8

Cash inflow/(outflow) due to decrease/(increase) in trade & other

receivables -248.62 -53.26 -158.74 -1200.38 -871.8 -1487.11

Cash inflow/(outflow) due to decrease/(increase) in inventories 338.71 656.22 -1279.84 -1798.36 -434.54 -197.71

Cash inflow/(outflow) due to increase/(decrease) in trade & other

payables 70.51 32.72 349.43 135.61 371.04 955.23

Cash inflow/(outflow) due to deposits (banks/FIs) 0 0 0 0 0 0

Cash inflow/(outflow) due to advances (banks/FIs) 0 0 0 0 0 0

Cash inflow/(outflow) due to others 0 0 0 0.17 0.12 0.25

Cash flow generated from operations 3329.18 7453.13 10027.99 4737.07 9259.98 12384.46

Cash (outflow) due to direct taxes paid 0 -1.06 -794.44 -749.66 -3445.27 -3831.92

Cash (outflow) due to dividend tax paid -1.83 -1.08 -82.66 -178.74 -137.71 -240.95

Cash flow before extraordinary items 3327.35 7450.99 9150.89 3808.67 5677 8311.59

Cash inflow/(outflow) from extraordinary items 6.42 0 0 0 116.88 0

Cash (outflow) due to miscellaneous expenditure -297.48 -237.27 -92.6 -46.94 -40.67 -3.68

Net cash inflow/(outflow) from investment activities -36.31 -216.22 -366.5 -447.16 -727.37 -1680.64
91
Cash (outflow) due to purchase of fixed assets -311.7 -400.65 -643.95 -1051.05 -1485.51 -2842.49

Cash inflow due to sale of fixed assets 180.32 90.77 67.95 87.98 45.86 82.46
92