A STUDY ON FUND MANAGEMENT IN STEEL AUTHORITY OF INDIA LTD.

Under Guidance of:

Mr. B.M. Moharkar AGM (Finance), SAIL

Presented by:
Aman Bachhraj Enrolment No.-112162678

Global Steel Scenario

Globally Steel is considered as a cyclic industry. After last recession, Global Steel Industry has been consolidating its position and has been marked by many mergers and acquisitions. 1518 million tonnes Crude Steel Production in 2011, registering a growth of 6.2% over 2010. China accounted for most of the incremental production. Appetite for steel by China has been the driving force of the growth in production/consumption of Steel. Region wise crude steel production (in Million Tonnes) is as under:

Overview of Indian Steel Industry

4th largest steel producing nation in the world with crude steel production of 68.62 million tonnes in 2010-11 (as per Ministry of Steel) Apparent consumption of finished steel in 2010-11 - approx. 67.8 million tonnes, up from 64.8 million tonnes in 2009-10 showing a growth of 4.62 %. Per capita steel consumption: approx. 57 kg Finished steel exports in 2010-11: approx. 3.64 million tonnes. India is a net exporter with imports of approx. 6.66 million tonnes in 2010-11.

Indian steel industry : Production for Sale (in million tonnes) Category Pig Iron Sponge Iron Total Finished Steel (Alloy + Non Alloy) 2007-08 5.28 20.37 56.07 2008-09 6.21 21.09 57.16 2009-10 5.88 24.33 60.62 2010-11 5.68 25.08 68.62

Indian Steel Industry

Steadily increasing production of steel in the country

Finished Steel Production

Overview of SAIL
Formed in 1973 as a holding company with the objective:
Of bringing in companies producing steel and related inputs under one umbrella.

Leading steel producer in India: around 23% share of crude steel

production. Turnover of Rs.47040.50 crore in the financial year 2010-11. The Government of India owns about 86% of SAIL's equity. The company owns and operates five integrated steel plants.

Overview of SAIL
Production Facilities: 5 Integrated Steel Plants 3 Special Steel Plants 1 Subsidiary - Ferro Alloy Plant Marketing Network: 34 Branch Sales office 27 Customer Contact Office (CCO) 54 Warehouses Captive Mines: 9 Iron Ore Mines 5 limestone mines 2 Dolomite Mines 3 Collieries

Shareholding Pattern
Category of Shareholders
Government of India Domestic Financial Institution Foreign Institutional Investors Individuals (Incl. Employees, NRI, GDRs) Others TOTAL

% age Holding
85.82 4.73 5.08 3.16

1.21 100.00

Fund Management Overview

Procurement of Funds Utilization of Funds Objectives Efficiency and effectiveness Transparency and accountability Fund Management Strategies Active Passive

Objectives of the Study

Primarily to understand the basic concepts of Fund Management. Secondly, to understand and evaluate the various sources of funds at the Steel Authority of India Ltd. Thirdly, to locate areas of weakness, if any.

Research Methodology
Data Collection
PRIMARY DATA Meetings and Interviews with various Mangers. SECONDARY DATA Balance Sheet, P & L a/c, Annual Reports, Financial Year Book, Web Sites

Analysis
Sources of Funds Secured Loans
(Rs.in crore)

2010-11 11813

2009-10 7755

2008-09 1473

2007-08 926

2006-07 1556

Unsecured Loans
(Rs.in crore)

2010-11 8352

2009-10 8756

2008-09 6065

2007-08 2119

2006-07 2625

Analysis (Cont.)
Deployment of Funds
(Rs.in crore)

2010-11 Total Fixed Assets Total Current Assets 37992 39119

2009-10 29309 40112

2008-09 19466 35666

2007-08 14499 27308

2006-07 13348 21674

Capital Structure
(Rs.in crore)

YEAR 2007 2008 2009 2010 2011

OUTSIDERS FUND 4155 2988 7555 16511 20165

SHAREHOLDERS FUND 17313 23063 27984 33316 37069

DEBT EQUITY RATIO 0.24 0.13 0.27 0.50 0.54

Analysis (Cont.)
Management of Working Capital
(Rs.in crore)

Year

2006-07 2007-08 2008-09 2009-10 2010-11

Current Assets/Gross Working Capital 21673

27309 35666 40113 39119

Current Liabilities

Net Working Capital

8016 11550 16056 20518 19243

Trend (%)

% change over 200607

44.08 100.29 155.96 140.05

13657 15759 19610 19595 19876

100 144.08 200.29 255.96 240.05

Loans and Advances

Year Total Current Assets Loans and Advances Trend (%) % change over 2006-07

(Rs.in crore) % of total Current Assets

2006-07 2007-08

21673 27309

3098 3644

100 117.61

17.61

14.29 13.34

2008-09
2009-10 2010-11

35666
40113 39119

4292
5155 6176

138.54
166.39 199.35

38.54
66.39 99.35

12.03
12.85 15.78

Cash and Bank Balance

Year Net Working Cash and Bank Trend Capital Balance (%) (Rs.in crore) % change over % of Net Working 2006-07 capital

2006-07 8016 2007-08 11550 2008-09 16056 2009-10 20518 2010-11 19243

9610 13759 18229 22436 17479

100 143.17 17.61 189.68 38.54 233.46 66.39 181.88 99.35

119.88 119.12 113.53 109.34 90.83

Findings and Suggestions

The company must maintain a reasonable level of absolute liquid assets in order to meet short-term commitments and emergency requirements. The management of SAIL should also try to maintain a definite proportion among various components of working capital in relation to overall current assets to keep an adequate quantum of liquidity all the times. The company is more traditionally financed with low debt and more of equity financing, so in future debt should be preferred for financing to bring the ratio close to the ideal ratio of 1:1. The overall state of liquidity should be improved so as to put a favourable impact on the profitability of SAIL.

Conclusion
In the globalized competitive scenario, it is not enough to scout for available ways of raising finance but resources mobilizations has to be undertaken through innovative ways or financial products which ensure the need of investors. In an efficient organization funds should come from diverse sources and no part of funds should be kept idle. In SAIL, it is found that company is banking upon only one source of finances i.e. long- term debt from government and banks. Working capital position presents a depressing trend where inventories are mounting and liquidity has incurred heavy losses during later years of study. The obvious reasons responsible for declining operating profits are increase in costs and declining sales.