A PROJECT REPORT ON DEBTORS MANAGEMENT & ITS BENCHMARKING PROCESS AT TATA STEEL

BY PRIYAMWADA 11BSPHH010614 TATA STEEL LTD.

A REPORT ON

DEBTORS MANAGEMENT & ITS BENCHMARKING PROCESS AT TATA STEEL

BY
PRIYAMWADA 11BSPHH010614 TATA STEEL LIMITED

A Report Submitted in Partial Fulfillment of the Requirements of MBA Program of IBS Hyderabad

Submitted to:Dr. Debajani Sahu IBS Hyderabad (Faculty Guide) & Mr. Sujit Mathew TATA Steel Ltd. (Head Sales & EPA, Finance & Accounts) Date of Submission 4th June 2012.
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AUTHORIZATION

This is to certify that this is a bonafide project report submitted in partial fulfillment of the requirements of MBA program of IBS Hyderabad. This report document titled DEBTORS MANAGEMENT & ITS BENCHMARKING PROCESS AT TATA STEEL is a submission of work done by Priyamwada, Enrolmment No. 11BSPHH010614. This report has been formally submitted to Dr. Debajani Sahu, Faculty Guide, IBS Hyderabad This report has been verified and authenticated by: Dr. Debajani Sahu, Faculty Guide, IBS Hyderabad

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ACKNOWLEDGEMENT

Exchange of ideas generates a new object to work in a better way. Apart from the ability, hard work and dedication, guidance and cooperation are two pillars of a successful project. My heart is bound to pay gratitude to them who have helped me for the completion of my project. I convey our heartfelt to Mr. Sujit Mathews (Head sales & EPA a/c, Tata Steel), for giving me an opportunity to gain the best of my knowledge here at TATA STEEL, as a company guide. I would really like to thank my project guide Mr. Surj Kumar & MR. Vikas Agarwal, Manager (Finance & Accounts, Tata Steel) for their enlightening guidance & constant inspiration during my SUMMER INTERNSHIP PROGRAM. I am also thankful to Ms. Padma Mohanty (Sr.Accountant) & Mr. Gautam Ghosh (Manager, TMDC) for their help and encouragement. I am deeply indebted to my faculty guide Dr. Debajani Sahu for always encouraging and guiding me during my study course. Lastly I thank my parents for their support, who helped me constantly during the course of my SUMMER INTERNSHIP PROGRAM.

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ABSTRACT
This study looked at the evaluation of accounts receivable management at Tata Steel. Many organizations today are faced with the problem of having huge accumulated balances owing to accounts receivables which are sometimes written off and thus interfering with the organizations operations. A firms profitability is determined partly by way of its receivables management. An efficient management of receivables /debtors will yield significant results and its neglect can be highly dangerous to any firm. The paper aims at presenting the importance of accounts receivable in the credit policy management and deciding whether the adopted model is a suitable model for managing receivable risk in Indian context. Debtors management tries to minimize the amounts of money tied up in form of accounts receivables and thus takes the organization back to its original set goals.

Keywords: Debtors, Receivables Management, Risk, Accounts, India.

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EXECUTIVE SUMMARY
The Summer Training Programmed is an integral part of our PGDM curriculum to give the students a practical exposure to the actual working of a concern. I Priyamwada, a first year M.B.A student of
IBS Hyderabad., Enrollment no 11BSPHH010614 have undergone my summer internship programme

at TATA STEEL, JAMSHEDPUR. The project studies the procedure of DEBTORS MANAGEMENT & ITS BENCHMARKING PROCESS AT TATA STEEL . The project was undertaken at the Commercial Centre , Finance Division concerned with SALES ACCOUNTS. The customers from whom receivables or book debts have to be collected in the future is called TRADE DEBTORS or simply as DEBTORS and represents the firms claim or asset. Debtors constitute a substantial portion of current asset of several firms. Grating credit and creating debtors amounts to blocking of firms funds. The interval between date of sale and date of payment has to be financed out of working capital. As substantial amounts are tied-up in trade debtors, it needs careful analysis and proper management. In this project an attempt has been made to understand, what are different methods adopted by TATA STEEL for managing their debtors? What steps and actions are taken or should be taken to recover these dues on time? What is the debtor trend in TATA STEEL (Profit Centre wise)? A Comparative Study of Debtors position in different steel industries with TATA STEEL. An effort has been made to analyze the collection period of different profit centers in order to find out which Profit Centre is not performing well in the recovery of their debtors and the reason for the same. The main focus of the project was on Controlling Debtors and finding out the reason for the same. An attempt has also been made, to set up a benchmark for comparing the debtors report prepared by TATA STEEL with its competitors all over the world. The best layout of the graphical representation has been proposed to the IT department of Tata Steel for designing & coding process for its implementation in the Business Intelligence Warehouse ,a tool for Automated Debtors Analysis. Tata Steel follows the best practice using its CAM 1-4 & Credit Decision modules.

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TABLE OF CONTENTS
Topics Authorization Acknowledgement Abstract Executive Summary Chapter 1 Objective & Methodology 1.1 Background 1.2 Objective 1.3 Research Methodology PageNo. i ii iii iv 12-15 13 13 14

Chapter 2 Industry & Economy Analysis 2.1 Steel Industry Global Scanario 2.2 Steel Industry in India 2.3 Major Players 2.4 Production & Consumption 2.5 Critical Success Factors 2.6 Demand Drivers 2.7 Regulatory Environment 2.8 Issues & Challenges 2.9SWOT Analysis

16-38 16 17 18 19 20 22 25 29 34

Chapter 3 Company Analysis- TATA STEEL LIMITED 3.1 Introduction 3.2 Vision & Mission 3.3 Subsidiaries & Joint Venture 3.4 Products 3.5 Important events 3.6 Financial Performance
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37-59 38 40 42 44 47 50

3.7 Dividend Policy 3.8 Capital Structure 3.9Porojects & Operations 3.10Portors Five Model

52 54 55 56

Chapter 4 On- Site-Project Report- Debtors Management 4.1 Introduction 4.2 Credit Policy & Terms 4. 3 Receivables Procedure 4.4Credit Decision Procedure 4.5 Ageing of Debtors 4.6 No. of Days Sale

60-72 61 62 64 66 67 70

Chapter 5 Data Analysis & Interpretation 5.1 Credit Decision Modules -Z score Analysis ( Tata Motors) 5.2 Profit Centre Wise Analysis 5.3 Debtors over 6 months 5.4 Comparative Analysis of TATA STEEL with Competitors 5.5 Debtors to Sales Comparison

73-94 74 82 85 88 92

Chapter 6 Suggestions & Conclusion Chapter 7 Debtors Benchmarking Process 7.1 Objective 7.2 Methodology 7.3 Inbuilt BIW 7.4 Conclusion Chapter 7 Bibliography

95-97 98-104 99 99 101 102 105-106

Chapter 8 Annexture

106-118

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LIST OF ILLUSTRATIONS

1. List of Tables Table no. 1. World Crude Steel Production 2010-11 2. Total Finished Steel Production, Export & Consumption 3. Financial Performance 4. Dividend Declared 5. Credit Terms 6. Steel Debtors Trend 7. Wire Debtors Trend 8. Tubes Debtors Trend 9. Bearings Debtors Trend 10. FAMD Debtors Trend 11. Steel Ageing Analysis 12. Tubes Ageing Analysis 13. Wires Ageing Analysis 14. Bearings Ageing Analysis 15. FAMD Aging Analysis 16. Debtors Over 6 Months 17. Debtors to Sales Tata Steel 18. Debtors to Sales SAIL 19. Debtors to Sales JSW Page no. 16 27 51 53 67 82 83 84 85 86 87 87 87 88 88 92 93 94 95

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2. List of Figures & Graphs

Figure no. 1. Share of crude steel production 2010-11 2. Production of steel in world 3. Steel supply chain 4. Turnover , PAT & EBIT of Tata Steel 5. A/R Procedure 6. Credit Decision Procedure 7. Outstanding Report of Debtors 8. Overdue Report of Debtors 9. Excel Benchmarking Sheet 10. Sample A category report

Page no. 17 20 22 51 65 67 68 69 101 102

Graph No. 1. Steel Debtors 2010-12 2. Wire Debtors 2010-12 3. Tubes Debtors 2010-12 4. Bearing Debtors 2010-12 5. FAMD Debtors 2010-12 6. Tata Steel Ratio & collection period 7. SAIL Ratio & collection period 8. JSW Ratio & collection period 9. Debtors to Sales Tata Steel 10. Debtors to Sales SAIL 11. Debtors to Sales JSW

Page No. 82 83 84 85 86 90 91 92 93 94 95

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CHAPTER 1
OBJECTIVE & RESEARCH METHODOLOGY

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1.1 BACKGROUND

Cash collection is one of the most important functions of a company, second only to revenue generation. Thus, Debtors/accounts receivable management is an indispensable tool for every company. The accounts receivable collection risk cannot be fully avoided, and cannot be reduced by the full amount. Nevertheless, it can be reduced to an acceptable, tolerable and reasonable measure that does not jeopardize the business success and long-term business goals. Accounts receivable risk management includes research, analysis and detection of possible risks of receivables collection failures prior to the execution of the sales contract and insurance measures against these risks. The results obtained by the conducted research and by analysis of existing models ( Z-Score) of accounts receivable collection, helped to reduce the collection risk for the business environment found in India

1.2 AIM & OBJECTIVES OF THE REPORT

The project basically studies the debtors management process at TATA STEEL. The main objectives are :

i.
ii. iii. iv. v.

Analysis of Outstanding, Overdue debtor & their recovery process. To measure the credit worthiness of customers based on a z-score model. Profit Centre wise analysis of sundry debtors & Ageing report. To Compare and analyze the debtors position of TATA STEEL with its competitors. To understand the various methods of making debtors reports, and setting up a benchmark for comparing the debtors reports that can be graphically represented using BIW with its competitors worldwide.

1.3 RESEARCH METHODOLOGY

1.3.1 TYPE OF RESEARCH The study is descriptive in nature &is a applied research in the sense that it focuses basically on analyzing the debtor management at TATA STEEL.

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1.3.2 SIGNIFICANCE OF THE STUDY Debtors Management is one of the most important aspects of an organization as it deals with the amount outstanding with the debtors and its proper collection to sustain the profitability of the concern. A proper eye on the debtors standings gives the organization the required information to review not only its own credit terms but also to formulate a flexible policy for future. It is also important for the fact that the profits of the company depend upon its accounts receivables and therefore it needs careful analysis and proper Management. 1.3.3 SCOPE & LIMITATION OF THE STUDY The scope of this study is limited to the study of Debtors Management at TATA STEEL LIMITED. The scope encompassed with the debtors section of the company which is a part of Finance and Accounting Department. 1.3.4 TOOLS FOR COLLECTION OF DATA Primary datas are collected by interviewing customers and employees of TATA STEEL LTD. Secondary datas are collected by using Company website, newsletters, internet, TMDC Library, Annual report. magazines and text books. 1.3.5 ANALYSIS DESIGN For analysis, Altmans Z-Score Model, percentages, indices, ratios, trends and pivot charts have been used.

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CHAPTER 2
ECONOMY & INDUSTRY ANALYSIS

STEEL INDUSTRY

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2.1 STEEL INDUSTRY: GLOBAL SCENARIO & STRUCTURE

The current scenario of the global steel industry is in its best position in comparing to last decades. The price has been rising continuously. The demand expectations for steel products are rapidly growing for coming years. The shares of steel industries are also in a high pace. The steel industry is enjoying its 6th consecutive years of growth in supply and demand. And there is many more merger and acquisitions which overall buoyed the industry and showed some good results. The supreme crisis has lead to the recession in economy of different countries, which may lead to have a negative effect on whole steel industry in coming years. However steel production and consumption will be supported by continuous economic growth. WORLD CRUDE STEEL PRODUCTION IN 2011 Table1 Rank Country 2011 2010 % 2011/2010 1 2 3 China Japan United States 4 5 6 India Russia South Korea 7 8 9 10 Germany Ukraine Brazil Turkey 44.3 35.3 35.2 34.1 43.8 33.4 32.9 29.1 1.0 5.7 6.8 17.0 72.2 68.7 68.5 68.3 66.9 58.9 5.7 2.7 16.2 695.5 107.6 86.2 638.7 109.6 80.5 8.9 -1.8 7.1

Source: Euro journals 2012

In December 2011, world crude steel production for 64 countries reporting to the World Steel Association (world steel) was 117.1 Mt, an increase of 1.7% compared to December 2010. The crude steel capacity utilization ratio of the 64 countries in December 2011 declined slightly to
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71.7% compared to 73.3% in Nov 2011. Compared to Dec 2010, the utilization ratio in December 2011 is -2.1 percentage points lower. Global crude steel production reached 1414 million tonnes in calendar year 2010, a growth of 15% over 2009. China was the largest crude steel producer in the world with production reaching 626.56 million tonnes, a growth of 9.2% over 2009. India once again emerged as the 5th largest producer in 2010 and recorded a growth of 11.3% as compared to 2009. India also emerged as the largest sponge iron producing country in the world in 2010, a rank it has held on since 2002. If proposed expansions plans are implemented as per schedule, India may become the second largest crude steel producer in the world by 2015 . SHARE OF WORLD CRUDE STEEL PRODUCTION 2010 & 2011
Fig 1

Source:World Steel Association; Annual Reports 2011

From the above pie description , The EU recorded an decrease of 0.5% compared to 2010, producing 177.4 Mt of crude steel in 2011. Spain produced 15.6 Mt of crude steel in 2011, a 4.6% decrease on 2010 while Italy produced 28.7 Mt in 2011, an 11.3% increase over 2010. Brazil produced 35.2 Mt in 2011, 6.8% higher than 2010. In December 2011, world crude steel production for the 64 countries reporting to the World Steel Association (world steel) was 117.1 Mt, an increase of 1.7% compared to December 2010.

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2.1.1 GLOBAL ECONOMIC ENVIRONMENT

Indian steel producers are eyeing and buying when it comes to the international markets. The regulatory environment, has changed for the better. Not only is it enabling the industry to stretch out to foreign shores, the country's steel industry is getting renewed global attention. Tata Steel has been given the green signal by the South African government to start construction on its US$ 103 million ferrochrome steel plant at Richards Bay in the country's KwaZulu-Natal region. i. After acquiring Singapore's NatSteel last year, Tata Steel now plans to buy Thailand's Millennium Steel PCL for US$ 400 million as part of its US$ 23 billion expansion programme over the next 12 to 15 years. ii. The acquisition of the Anglo-Dutch steelmaker Corus makes Tata Steel the world's 4th largest steelmaker, adding 19 MT of steel-making capacity. Jindal Steel is close to picking up a stake in Thailand's largest stainless steel producer. The country's fourth-largest steelmaker, Essar Steel, will partner two state-run Vietnamese companies to build a US$ 527 million plant in that country. The company has a 0.4 MT production facility in Indonesia, apart from the 4.6 MT plant in India. The UK-based specialty steel and engineering group, Caparo's new facilities are coming up in Chennai, Pitampur, Bawal, Noida and Gurgaon. Mumbai-based Essar Global has agreed to buy Canada's Algoma Steel for US$ 1.63 billion in the second largest Indian acquisition ever of a North American company. The deal will give Essar, India's fourth largest producer of the metal, a foothold in a lucrative developed market.

iii. iv.

v.

vi.

2.1.2 PRESENT SCENARIO OF THE STEEL INDUSTRY i. India is increasingly attracting the world's interest as a result of the country's impressive economic performance, brought about by the liberalization process of the past two decades and its opening up to the world economy. India is a reputed name in the world steel industry. The industry has gained strength from the strong Indian economy, and strong sectors like infrastructure, construction and automobile. India has
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been ranked as the 4th largest producer of crude steel in the world in 2011. Thus, the country offers vast scope for the steel industry in future. Indian Steel Producers are increasingly looking for overseas acquisitions in steel as well as raw materials. Mittal Steel acquired Arcelor to become the largest steel producer in the world. Similarly, Tata Steel acquired Corus to become the 5th largest producer of steel in the world. ii. However, the current market turmoil has dented the growth curve of various industries such as automobile and construction, which, in turn, has hit the Indian steel industry hard. The governments plans to boost up the economy by injecting funds in various industries like infrastructure, construction, automobile and power, near future is expected to see growth. iii. Although the Indian steel industry is experiencing a slow but steady growth, the steel industry in India has huge scopes in the future with massive scale of infrastructural development happening all across the country. The Indian steel industry caters to many other industrial sectors such as construction industry, mining industry, transportation industry, automobile industry, engineering industry, chemical industry, etc. iv. The steel industry of India has further plans for development. Plans are being chalked out for setting up of 3 pig iron manufacturing units of a combined capacity of 6 lakh tons per year and a steel manufacturing unit of the capacity of producing 1 million tons yearly in West Bengal, with the technical and financial support from China. With all these developments, the Steel Industry of India is all set to become one of the most reputed industries in the international market. v. The world crude steel output reached 1,344 million tonnes in 2010, up by around 100 million tonnes over 2009. This increase of 7.5% was driven mainly by China where the crude steel production grew by 60 million tonnes over 2010 (an increase of 14%). While Chinas production constitutes 34% of the world production, the countrys consumption constitutes almost 31% of the world consumption. The crude steel production in India was higher by 12% in 2011 over 2010. vi. The increase primarily was due to a sustained demand momentum in key-end use segments like construction, capital goods and automobiles. The supply side has not been able to keep pace with the strong demand resulting in India becoming a net importer of steel. Steel production in the European Zone remained stable, with year-end
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figures of 210 million tonnes, a growth of around 2% over 2010. The imports in the European Union also remained at a high level during 2010. The latest global steel consumption forecast predicts 6.77% year on year increase in steel consumption in the current year. The additions in the capacity are likely to be around 90 million tonnes. The greatest concern of the steel industry is the availability of raw materials at a competitive price. There have been unprecedented cost increases in iron ore by around 65% and coking coal by around 200% in 2010, which had an impact on the steel prices. Fig 2

Source:World steel Association, Annual report 2011.

Indian steel industry also experienced a strong growth in demand, propelled particularly by the demand for steel in China. The production of crude steel at 67 million tonnes in 2010 was more than double the production level a decade back in 2000 (33 million tonnes) portraying the significant growth in the Indian Steel Industry. India now ranks 4th in terms of crude steel production among the top six crude steel producing nations in the world, the others being China, Japan, United States, Russia and South Korea. The Finished Steel production in India in the current financial year stands at 58 million tonnes registering an increase of 9% over the previous year.
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2.1.3 IMPACT OF GLOBAL ECONOMIC CRISIS ON STEEL INDUSTRY The three key pillars of the international financial markets are confidence, capital and liquidity and these three are somewhat interrelated. Until September 2008, all these three pillars were on a high and therefore, businesses across the various sectors were performing in a robust manner. However, the confidence in the financial system was shaken with successive crises across various banks in the US and Europe. This then resulted in a significant erosion of capital in the banking industry in the developed world which eventually spiraled into an unprecedented global financial crisis. This phenomenon brought about a sharp decline in consumption of steel as it did in other products, affecting the steel demand across the globe. Consequently, global liquidity was choked and the manufacturing sectors including the consumers of the steel industry were severely affected. It is estimated that during the second half of the year, the steel demand declined by around 20% globally over the same period last year.

2.2 IRON AND STEEL INDUSTRY IN INDIA

2.2.1 HISTORY Iron and steel industry in the country has experienced a sustainable growth since the independence of the country. A humble beginning of the modern steel industry was reached in India at Kulti in West Bengal in the year 1870. But the outset of bigger production became noticeable with the establishment of a steel plant in Jamshedpur in Bihar in 1907. It started production in 1912. The new township was named after Jamshedji Tata.

This venture was followed by Burnpur and Bhadrawati Steel plants in 1919 and 1923 respectively. It was, however, only after Independence that the steel industry was able to find a strong foothold in the country. Excluding the Jamshedpur plant of the Tatas, all are in the public sector and looked after by Steel Authority of India Ltd. (SAIL). Bhilai and Bokaro Steel plant were set up with Soviet alliance. Durgapur and Rourkela came up with British

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and West German technical expertise, respectively. Exports in the first five years were mainly due to recession in the domestic iron and steel market. Once domestic demand revived, exports declined. India once again started exporting steel only in 1975 touching a figure of 1 million tonne of pig iron export and 1.4 million tonnes of steel export in 1976-77. Thereafter, exports again fell rapidly to meet rising domestic demand. Only after liberalization of the steel sector the exports of iron and steel have once again started increasing. Though the country's production of iron and steel is sufficient to meet the domestic demand, however, some quantity of steel is always needed to be imported especially those grades and qualities which are required in small quantities, and therefore do not justify setting up of production capacities. 2.2.2 STRUCTURE OF THE INDIAN STEEL INDUSTRY We still have a number of persons in our country in SAIL, TISCO and other big and small steel plants who have the capabilities. They have the will to excel and transform the country, given a long term vision. We should be ready to compete in outside markets. If our steel industry gears up in about three to four years, Indian steel can be both in India and foreign markets. Our vision should be towards this.
Fig 3

India 2010: A vision for the new millennium, by APJ Adbul Kalam and YS Rajan [21]

The steel industry in India is concentrated in the east, south and west of the country. The integrated foundries are located in the east, while electric steel is produced predominantly in the south and west. In the future the east will see rapid expansion as more integrated capacities are being built in Orissa and other eastern states due to its raw materials.

India has one of the largest iron ore reserves in the world of about 17 billion tonnes. The reserves are largely located in the states of Orissa, Jharkhand and Chhattisgarh. At present only the top two Indian steel makers (SAIL and Tata Steel) have captive iron ore mines, while the others have to purchase ore from domestic iron ore miners.

Indian steelmakers, particularly Tata Steel and Steel Authority of India Limited (SAIL), are highly desirable elements for future mergers and acquisitions. Steel companies in this region will benefit in the years ahead from an improving economy, abundant and low cost iron ore, low wage costs and sizeable expansions of their plants. Indian steel producers are already among the lowest cost producers in the world.

According to Deutsche Bank Research,1 the three biggest steelmakers in India have a combined output of almost 20 million tonnes and have a domestic market share of 51%. Their domestic competitors are numerous medium-sized and smallish companies and more mergers can be expected between these companies as these firms need to improve their position with regard to the powerful suppliers of raw materials. Indias extremely low wages, as shown in Figure 4, and favourable energy prices will continue to promise substantial cost advantage compared to production facilities in (Western) Europe or the U.S. But labour productivity in India is still very low. This may be due to the technology being used and also, specifically in the public sector, steel plants also employ people engaged in peripheral jobs not directly related to the core business as part of a welfare state policy.

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2.3 MAJOR PLAYERS

2.3.1 Tata Steel Tata Steel (earlier known as Tata Iron & Steel Company or Tisco) represents the country's single largest, integrated steel plant in the private sector. The company has a wide product portfolio, which includes flat and long steel, tubes, bearings, ferro-alloys and minerals as well as cargo handling services. While in terms of size, Tata Steel ranks 34th in the world; it was ranked first (for the second time) among 23 world class steel companies by World Steel Dynamics in June 2005. Recent overseas acquisitions are Tata Steel buying Anglo-Dutch firm Corus for over 12 billion dollars

With its plant located in Jamshedpur (Jharkhand) and captive iron ore mines and collieries in the vicinity, Tata Steel enjoys a distinct competitive advantage. The main plant at Jamshedpur manufactures 5 MTPA of flat and long products, while its recently acquired Singapore-based company, NatSteel Asia, manufactures 2 MTPA of steel across Singapore, China, Philippines, Malaysia and Vietnam. 2.3.2 Steel Authority of India Limited (SAIL) Steel Authority of India Limited (SAIL) is a leading Public Sector Undertaking (PSU) in which the Government of India owns about 86 per cent of equity. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. It is ranked amongst the top ten public sector companies in India in terms of turnover.

SAIL have five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being Indias largest producer of iron ore and of having the countrys second largest mines network. This gives them a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making.
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2.3.3 Bhushan Power & Steel Ltd Bhushan Power & Steel Ltd., an ISO 9002 certified company, is a merged entity of Bhushan Industries Ltd., Bhushan Metallics Ltd. and Decor Steel Ltd. Bhushan Steel has a turnover of more than USD 540 Million and is a leading manufacturer of Flat, Round and value added products in Steel.

Bhushan have 7 World class and state of art plants at Chandigarh, Derabassi, Kolkata and Orissa in India. A completely integrated plant is commissioned under Phase I in Orissa and Phase II is all set for take-off. In Orissa plant, technology and equipments are procured from world-renowned Companies like Luirgi from Germany, ABB Ltd., SMS Demag, Siemens etc. It is selling its Value added range of products in Secondary Steel through a large distribution network in India (comprising more than 25 sales offices) and Abroad. 2.3.4 Jindal Steel & Power Limited (JSPL) Jindal Steel and Power (JSPL), part of the US$4 billion Jindal Organization, has business interests in steel production, power generation, mining iron ore, coal and diamond exploration/mining. The current turnover of the company is over Rs. 30 billion and on a path of catalyzing economic development of the country through its contribution to the infrastructure sector. JSPL with its obsession for excellence is increasing its portfolio of value-added products, bringing the world's best to India and making an international mark. Production Capabilities expanded to serve the infrastructure sector, catalysing economic, development and growth. JSPL has the integrated steel plant (as approved by Joint Plant Committee) at Raigarh in the state of Chhattisgarh, India. The facilities include world's largest coal-based Sponge Iron Plant with a capacity of 1.37 million TPA using ten indigenously developed rotary kilns.

JSPL today is the largest private sector investor in Chhattisgarh with a total investment of Rs.100 billion. JSPL has recently signed an MoU with the State Government of Orissa to set up a 2 million tonne steel plant with an investment of Rs.13.5 billion which would be expanded to 6 million tonne and another MoU has been signed with the State Government of Jharkhand to set up a 5 million steel plant with an investment of Rs.120 billion.
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2.3.5 ESSAR Steel Essar Steel Limited (the "Company") is the flagship Company of the Essar Group and looks after the Groups interest in the steel business. The Company was incorporated in June 1976 under the name of Essar Construction Limited and was engaged primarily in core sector activities, including marine construction, pipeline laying, dredging and other port-related activities. In 1984, the Company ventured further into other core sectors mainly the field of exploration and development, drilling onshore and offshore oil and gas wells for Indian Public Sector oil exploration companies. In view of this the Companys name was then changed to Essar Offshore and Exploration Limited in May 1987. In August 1987, the Companys name was changed to Essar Gujarat Limited, to reflect its highly diversified business interest. The Company diversified into the steel business in late 1980s with the purchase of an HBI manufacturing plant in Emden, Germany, which was dismantled and relocated to Hazira, on the west coast of India. To reflect its business strategy of focusing on steel making operations, the name of the Company was changed from Essar Gujarat Limited to Essar Steel Limited in December 1995. The Company operates the following facilities at Hazira, Gujarat State: MMTPA gas based Hot Briquetted Iron (HBI) plant; MMTPA Hot Rolled Coils (HRC) plant The plant has requisite infrastructure like captive jetty, assured power supply, captive lime and oxygen plants and quality raw material from its HBI Plant. The products conform to quality requirements of international rating agencies like TUV Rhineland, Lloyds Register, API etc. This is the first steel plant in India to be awarded ISO 9002 certification for the complex as a whole. In addition, it is the first steel plant in India to receive ISO 14001 certification for the best environment management.

The Steel complex is the first fully integrated large-scale steel manufacturing facility in Western India and incorporates the latest state-of-the art equipment and technology for Steel making. The Company has emerged as the largest exporter of flat products from India with total exports aggregating over US$ 1.25 billion since 1996 to different markets including US and Europe.

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2.4 PRODUCTION, CONSUMPTION AND GROWTH OF STEEL INDUSTRY IN INDIA

The rapid pace of growth of the industry and the observed market trends called for certain guidelines and framework. Thus was born the concept of the National Steel Policy, with the aim to provide a roadmap of growth and development for the Indian steel industry. India is one of the few countries where the steel industry is poised for rapid growth. Indias share in world production of crude steel increased from 1.5% in 1981 to around 3.5 % in 2004. While plant closures and privatization are rare in India, the private sector is considered to be the engine of growth in the steel industry and technological changes and modernization are taking place in both the public and the private sector integrated steel plants in India. TOTAL FINISHED STEEL (ALLOY + NON-ALLOY) ('000 TONNE) Table 2

Year 2005-06 2006-07 2007-08 2008-09 2009-10 April-Dec

Production for sale

Import

Expor Co n s u mp t i o n 4801 t 5242 5077 4437 3235 2462 41433 46783 52125 52351 57675 44275

46 4305 52 4927 56 56 7029 52 6 57 5841 07 9 60 7296 16 5 89 4 2010-11 Plant Committee (JPC), Annual Reports 2011. 47 5359 2 Source: Joint 29

6 Table-02 explains about the production, consumption and growth of steel industry in India. The Production of steel in India is a constant growth every year since 2005-10. Whereas, the maximum import of the steel from the foreign countries occupied first place during the year 2009-10 and it can be found that the maximum exports are during the year 2006-07. While the consumption pattern of steel in India is a constant demand for every year.

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2.5 CRITICAL SUCCESS FACTORS

WHAT DO CUSTOMERS WANT? (Analysis of demand)

HOW DO FIRMS SURVIVE COMPETITION? (Analysis of competition)

KEY SUCCESS FACTORS

Low price. Product consistency. Reliability of supply. Specific technical specifications for special steels.

Commodity products, excess capacity, high fixed costs, excess capacity, exit barriers, and substitute competition mean intense price competition and cyclical profitability. Cost efficiency and strong financial resources essential.

Conventional sources of cost efficiency include: large-scale plants, low-cost location, and rapid adjustment of capacity to output. Alternatively, high technology, small scale plants can achieve low costs through flexibility and high productivity. Differentiation through technical specifications and service quality.

FACTORS HOLDING BACK THE INDIAN STEEL INDUSTRY.

The growth of the Indian steel industry and its share of global crude steel production could be even higher if they were not being held back by major deficiencies in fundamental areas. Investment in infrastructure is rising appreciably but remains well below the target levels set by the government due to financing problems.

i.

Energy Supply - Power shortages hamper production at many locations. Since 2001 the Indian government has been endeavoring to ensure that power is available nationwide by 2012. The deficiencies have prompted many firms with heavier energy demands to opt for producing electricity with their own industrial generators. India will rely squarely on
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nuclear energy for its future power generation requirements. In September 2005 the 15th and largest nuclear reactor to date went on-line. The nuclear share of the energy mix is likely to rise to roughly 25% by 2050. Overall, India is likely to be the worlds fourth largest energy consumer by 2010 after the US, China and Japan. ii. Problems in procuring raw-material inputs - Since domestic raw material sources are insufficient to supply the Indian steel industry; a considerable amount of raw materials has to be imported. For example, iron ore deposits are finite and there are problems in mining sufficient amounts of it. Indias hard coal deposits are of low quality. For this reason hard coal imports have increased in the last five years by a total of 40% to nearly 30 million tons. Almost half of this is coking coal (the remainder is power station coal). India is the worlds sixth biggest coal importer. The rising output of electric steel is also leading to a sharp increase in demand for steel scrap. Some 3.5 million tons of scrap have already been imported in 2006, compared with just 1 million tons in 2000. In the coming years imports are likely to continue to increase thanks to capacity increases.

iii.

Inefficient transport system - In India, insufficient freight capacity and a transport infrastructure that has long been inadequate are becoming increasingly serious impediments to economic development. Although the country has one of the worlds biggest transport networks the rail network is twice as extensive as Chinas its poor quality hinders the efficient supply of goods. The story is roughly the same for port facilities and airports. In the coming years a total of USD 150 bn is to be invested in transport infrastructure, which offers huge potential for the steel industry. In the medium to long term this capital expenditure will lay the foundations for seamless freight transport.

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2.6 DEMAND DRIVERS OF STEEL INDUSTRY

i. Government policies and initiatives: The Government has approved the National Steel Policy (NSP) 2005, whose long-term goal is to ensure that India has a modern and efficient steel industry, capable of standing up to international competition and catering to the growing domestic demand for steel. This in turn has led to sustained growth in the steel sector. On account of the buoyancy in the sector, foreign companies are also showing interest in investing in steel industry in India. The government's thrust on infrastructure, in itself, could emerge as a crucial growth driver in the long run. ii. Infrastructure & Construction: It is projected that the Tenth Plan outlay for civil aviation is Rs. 129 billion. For roads it is Rs. 597 billion, for telecom it is Rs. 870 billion and for power, it is Rs. 1.76 trillion. The power sector has enormous potential in boosting demand for steel. Addition of 41,000 MW of power generating capacity between 2002 and 2007 and about 61,000 MW between 2007 and 2012 should drive steel offtake in a significant way. The demand for natural gas is expected to grow in the coming years on account of its cost advantage and availability. This would necessitate laying gas pipelines across the country to transport it from the supply centers to consumption centers. From 25 malls in 2003, India expects to commission more than 600 malls by 2010 (100 million sq ft). This expected investment in infrastructure will create substantial demand for high quality steel products in the market. iii. Roads: The thrust on infrastructure spending has seen major improvement, particularly in roadways and highway projects. The government intends to embark on the construction of 48 new projects with a view to four lane about 10,000 kms of roads in addition to the existing ongoing programme of NHAI. This has not only increased construction activities but has also led to increased demand in passenger and commercial vehicles leading to sustained growth in demand for steel. iv. Automobile: In 2004-05, India's auto industry consumed about 2.8 mt of steel (about 8% of India's steel consumption). This is expected to grow at 11% to 12% over the next five years following India's emergence as a global outsourcing hub for the auto industry. The strong growth in the automobile sector could be attributed to domestic demand fuelled by

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growth in the service sectors, increase in working population, higher disposable income and easy availability of finance. v. Housing: Low interest rates and easy availability of housing finance has resulted in a housing boom; the Housing and Urban Development Corporation intends to add two million houses every year (35% in urban areas), estimated to create an additional annual demand of 0.6 to 0.8 mtpa of steel. Further, as per estimates, there is still a significant amount of unfulfilled demand (40 m) for dwelling units in the country, which would keep the demand ticking. vi. White goods: Rising income and the easy availability of low cost finance has started a white goods (refrigerators, air conditioners and washing machines) revolution in India, leading to an increased consumption of steel. vii. Industrial Projects: India's industrial growth is encouraging. A number of companies have strong capex plans and this will lead to increased consumption of steel. Infact, the steel industry is expected to emerge as a major steel consumer itself.

2.7 REGULATORY ENVIRONMENT

2.7.1 National Steel Policy 2005 i. The 2005 National Steel Policy (Government of India 2005) sets out the Indian Governments vision for the future of the steel industry. The central goal is the creation of an industry with 110 million tonnes of capacity and 100 million tonnes of production by 2019-20 implying an average growth in production of nearly 7 per cent a year.

ii.

The Indian Ministry of Steel estimates that achieving this goal will require an extra US$65 billion in capital expenditure in addition to funds for technology upgrades at existing facilities.

iii.

The national policy seeks to facilitate the creation of additional capacity, removal of procedural and policy bottlenecks that affect the availability of production inputs, increased investment in research and development, and the creation of road, railway, and
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port infrastructure. The policy focuses on the domestic sector but also envisages a steel industry growing faster than domestic consumption, which will enable export opportunities to be realised. Current steel investment plans Indias ready availability of iron ore and low cost labor contribute significantly to the cost competitiveness of producing steel in India. Notably, Tata Steel, the second largest steel producer in India, has been (with Posco) the worlds lowest cost steel producer since 2001. A comparative advantage for Indias iron and steel industry is the ready domestic availability of significant reserves of high quality iron ore (a key raw material input to steel making), predominantly in the east of India. Although current steel production capacity is located in both the east (.at products from large producers near iron ore supplies) and in the west (long products from smaller producers nearer large construction centers), most significant forthcoming developments are planned in the east to take advantage of low cost iron ore supply. Of particular interest to investors in the Indian iron and steel industry is the state of Orissa, where abundant natural resources and a large coastline make it an attractive target. It contains 25 per cent of Indias iron ore reserves and 20 per cent of Indias coal reserves. 2.7.2 Institutional and Policy Settings Many government initiatives have been aimed at increasing investment in the steel industry in India, with the following issues being prominent in this context. i. Allowing Private Ownership and Foreign Investment-Revised foreign investment rules for steel and other high priority industries have increased capital inflow, and ownership of crude steel operations is now split approximately evenly between private and public entities. Although profitable publicly owned companies (which include RINL and SAIL) appear unlikely to be privatised for political reasons (Gupta 2005), the Indian Government has sought to improve their performance by granting some of them Navratna status, which affords them greater autonomy in investment, joint venture and commercial decision.
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iv.

v.

ii.

Improving Intellectual Property Laws-The compulsory licensing regime, which still applies to some sectors, enables the Indian Government to force the granting of a technology license if it deems that a patent has not provided a sufficient public benefit at a reasonable price. Its removal from the steel sector has provided greater security in intellectual property ownership and will facilitate the transfer of intellectual property to India and the development of indigenous technology solutions.

iii.

Deregulation of Pricing and Distribution of Iron and Steel-Steel was the first major industry to have pricing and distribution controls removed. Before these controls were removed, prices did not necessarily re.ect production costs or product quality and regulation of product distribution prevented the industry from implementing efficient logistics.

iv.

Customs Policy-The government has significantly reduced the duty payable on inputs to steel production, on capital equipment and on finished steel products and has streamlined the associated approvals processes. The government administers schemes covering duties, licenses and taxes to support firms that export steel, although some (for example, the Duty Entitlement Passbook Scheme and Duty Free Replenishment Certificate) have the net effect of remitting duty in excess of what was levied on the inputs to the production of the export goods (OECD 2006d) and are potentially subject to challenge in trade forums. Special Economic Zones (SEZs)-The government introduced special economic zones in June 2005, with the aim of creating internationally competitive regions in which exporting businesses can base their operations. Eight of these zones are functional or under construction and approval has been given for an additional eighteen zones. Previously existing Export Processing Zones (EPZ) have been converted to special economic zones. Steel plants operating in special economic zones are not subject to restrictive normal laws for the purpose of export operations and also receive some additional advantages including tax holidays, freedom to source inputs domestically or
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v.

externally without any specific approval or duty payable, and sales tax reimbursement on domestic purchases. However, the proposed new economic zones will be relatively small, which may limit their effectiveness given that economies of scale are one of the key advantages of such zones vi. Special Investment Regions-The government has recently announced plans to set up special economic and investment regions in six states, modeled on similar regions established in China (Pudong), United States (Houston), and the Netherlands (Rotterdam). The regions are planned to support further downstream processing, such as steel production, and encompass a number of SEZs, with central and state governments providing world class infrastructure linkages to form a larger industrial region. This policy is at an early stage of development, but the key difference between special economic and investment regions and special economic zones appears to be that linking infrastructure will be built by the government in the former but is generally the responsibility of industry in the latter.

2.8 ISSUES & CHALLENGES

i. Dependence on Global Market: The concern with respect to new steel capacities cropping up across the globe have become louder, as this development would lead to significant pressure on steel prices going forward. Further, the biggest disruption in the growth pattern is from a slowdown in Chinese steel consumption. Post Olympics, demand from China has reduced and therefore demand for Indian iron-ore. There is good amount of excess steel available for world consumption. As global companies have realized the threat of excess supply, they are looking at M&A (mergers and acquisitions) option to retain market share and improve margins. ii. Cheap Imports: The domestic steel sector is facing threat from cheap imports, now that the import duties on steel in India being amongst the lowest in the world. Import pressure is consequently leading to pressure on margins of the domestic companies on account of lower steel realisations. iii. Increased transportation charge: Railway has decided to reclassify iron-ore to a higher tariff class of 180(present is 170), which will increase the transportation charge by 5%.
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iv.

Lack of best professionals: The methods that are adopted for the creation of wealth in the Indian steel industry are also supposed to act as hindrances to the growth and development of the Indian steel industry. The Indian steel industry has also not been able to draw the best professionals in the steel industry and that has been a major drawback of the industry.

vi.

Lack of infrastructure: Even though India is capable of producing steel at a good rate and also increase the volume of production there is not enough land available to support such activities. One of the major reasons for such problems is the consistently increasing population of India.

v.

vii.

Raw materials: The steel industry has seen a dramatic increase in the price of raw materials, including iron ore. It is crucial and important for the sustainable development of the steel industry to break out of the stranglehold that these three companies have on raw material supply.

viii.

Unremunerative prices: Stagnating demand, domestic oversupply and falling prices in the last four years have hit Indian steel makers. Barring the sporadic rise in demand in the recent months, it has suffered from unremunerative prices to the extent that companies have been finding it difficult to maintain capital costs.

ix.

Systemic deficiencies: However, most of the weaknesses of the Indian steel industry can be classified as systemic deficiencies. Some of these are described here.

x.

High cost of capital: Steel is a capital intensive industry; steel companies in India are charged an interest rate of around 14% on capital as compared to 2.4% in Japan and 6.4% in USA.

xi.

Low labour productivity: In India, the advantages of cheap labour gets offset by low labour productivity; eg, at comparable capacities labour productivity of SAIL and TISCO is 75 t/man year and 100 t/man year, for POSCO, Korea and NIPPON, Japan the values are 1345 t/man year and 980 t/man year.

xii.

High cost of basic inputs and services The electricity, eg, cost of electricity is 3 cents in the USA as compared to 10 cents in India; and freight cost from Jamshedpur to Mumbai is $50/tonne compared to only $34 from Rotterdam to Mumbai. Added to this are poor quality and ever increasing prices of coking and non-coking coal.

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2.9 SWOT Analysis

2.9.1 Strengths: i. Availability of iron ore and coal: India has abundance of iron ore, coal & other raw materials required for iron & steel making. It has 4th largest iron ore reserves (13 bn tons) in the world. ii. Low labor wage rates: India has low unit labor cost, this gets reflected in low cost of production. iii. Abundance of quality manpower: It has 3rd largest pool of technical manpower, next to United States & erstwhile USSR, capable of understanding and assimilating new technologies. 2.9.2 Weakness i. Unscientific mining: India is deficient in raw materials required by the steel industry. Iron ore deposits are finite and there are problems in mining sufficient amounts of it. India's hard coal deposits are of low quality ii. Low productivity: According to an estimate crude steel output at the biggest Indian steelmaker is roughly 144 tonnes per worker per year, whereas in Western Europe the figure is around 600 tonnes. iii. iv. Power shortages: Steel production in India is also hampered by power shortages. Inadequate infrastructure: Insufficient freight capacity and transport infrastructure impediments to hamper the growth of Indian steel industry v. Low R&D investments: There are inadequate investments in infrastructure. High cost of debt: Since huge capital investment is required therefore cost of these dbt is very high. 2.9.3 Opportunities i. Unexplored rural market: The Indian rural market remains fairly unexposed to the multi-faceted use of steel. ii. Growing domestic demand: There is enormous scope for increasing consumption of steel in almost all sectors in India.
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iii.

Export Market Penetration: It is estimated that world steel consumption will double in next 25yrs. Quality improvement of Indian steel combined with low cost advantages will definitely help in substantial gain in export market.

iv.

Consolidation: As global companies have realized the threat of excess supply, they are looking at M&A (mergers and acquisitions) option to retain market share and improve margins.

2.9.4 Threats i. Technological change: Technological changes force the industry structure to change. In India where capital itself is costly, technological obsolescence is a major threat. ii. Price sensitivity & Demand volatility: The demand for steel is derived demand and the purchase quantity depends on end-use requirements. The traders are price sensitive and buy when there are discounts. Dumping of steel by developed countries: High quality products for developed countries available for imports at competitive prices.

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CHAPTER 3

COMPANY PROFILE
TATA STEEL LTD

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3.1 INTRODUCTION
Backed by 100 glorious years of experience in steel making, Tata Steel is the worlds 6th largest steel company with an existing annual crude steel production capacity of 30 Million Tonnes Per Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia and is now the world`s second most geographically diversified steel producer and a Fortune 500 Company. Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing units in 26 countries.

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

Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings, Singapore, Tata Steel has created a manufacturing and marketing network in Europe, South East Asia and the pacific-rim countries. Corus, which manufactured over 20 MTPA of steel in 2008, has operations in the UK, the Netherlands, Germany, France, Norway and Belgium. Tata Steel Thailand is the largest producer of long steel products in Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has proposed a 0.5 MTPA mini blast furnace project in Thailand. NatSteel Holdings produces about 2 MTPA of steel products across its regional operations in seven countries.Tata Steel, through its joint venture with Tata BlueScope Steel Limited, has also entered the steel building and construction applications market. Tata Steels vision is to be the global steel industry benchmark for Value Creation and Corporate Citizenship. Tata Steel India is the first integrated steel company in the world, outside Japan, to be awarded the Deming Application Prize 2008 for excellence in Total Quality Management. 3.1 .1 HISTORY Tata Steel was established in 1907, as a materialisation of its Founders dream of a prosperous and independent India. Jamsetji Nusserwanji Tatas vision helped Tata Steel to overcome several periods of adversity and strive
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to improve against all odds. Completing hundred years in 2007, the Company continues on its journey of growth and globalistaion through organic and inorganic strategies. Driven as much by its commitment to society as by its performance and profits the Tata Steel Vision today aspires to make the Group the global steel industry benchmark for both value creation and corporate citizenship. 3.1.2 TATA STEEL TODAY The Tata Steel Group has always believed that mutual benefit of countries, corporations and communities is the most effective route to growth. Tata Steel has not limited its operations and businesses within India but has built an imposing presence around the globe as well. With the acquisition of Corus in 2007 leading to commencement of Tata Steel's European operations, the Company today, is among the top ten steel producers in the world with an existing annual crude steel production capacity of around 30 million tonnes per annum and employee strength of above 80,000 across five continents. The Group recorded a turnover of Rs.147,329 Crores (US$ 28,962 million) in 2008 - 2009. The Company has always had significant impact on the economic development in India and now seeks to strengthen its position of pre-eminence in international domain by continuing to lead by example of responsibility and trust. Tata Steels overseas ventures and investments in global companies have helped the Company create a manufacturing and marketing network in Europe, South East Asia and the Pacific-rim countries. The Groups South East Asian operations comprise Tata Steel Thailand, in which it has 67.1% equity and Nat Steel Holdings, which is one of the largest steel producers in the Asia Pacific with presence across seven countries. Tata Steels overseas ventures and investments in global companies have helped the Company create a manufacturing and marketing network in Europe, South East Asia and the Pacific-rim countries. The Groups South East Asian operations comprise Tata Steel Thailand, in which it has 67.1% equity and Nat Steel Holdings, which is one of the largest steel producers in the Asia Pacific with presence across seven countries.

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3.1.3 TATA STEEL'S OPERATIONS IN EUROPE AND SOUTH EAST ASIA Corus is Europes second largest steel producer. With main steelmaking operations in the UK and the Netherlands, Corus supplies steel and related services to the construction, automotive, packaging, mechanical

engineering and other markets worldwide. Corus comprises three operating Divisions, Strip Products, Long Products and Distribution & Building Systems and has a global network of sales offices and service centres, employing around 37,000 people worldwide. (www.corusgroup.com) Tata Steel Thailand is a major steel producer in Thailand and is the largest producer of long steel products with a manufacturing capacity of 1.7 mtpa. ( www.tatasteelthailand.com) NatSteel Holdings is headquartered in Singapore and is a leading supplier of premium steel products for the construction industry. It became a 100% subsidiary of Tata Steel in February 2004. NSH produces about 2 MT of steel products annually across its regional operations.

(www.natsteel.com.sg) 3.1.4 Production Capacity Tata Steels Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA, which is slated to increase to 10 MTPA by 2011. The Company also has proposed three Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with additional capacity of 23 MTPA and a Greenfield project in Vietnam. 3.1.5 Global Footprints Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing operations in 26 countries. It is the first integrated steel plant in Asia and is now the worlds second most geographically diversified steel producer and a Fortune 500 Company.

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Subsidiaries The journey of Tata Steel since 1922 has been marked by steady growth through various joint ventures and subsidiaries. As the Company has continued to venture into new territories, its subsidiaries have played a significant role in accelerating both its Indian and overseas operations. Joint Ventures Over the years, Tata Steel has strengthened its position through meaningful partnerships with enterprises across the globe. These enterprises that form a healthy partnership with Tata Steel are leaders in their respective industry segments and include such names as: Dhamra Port Company Limited, mjunction, Tata Bluescope, Tata International Logistics Limited, Tata NYK and S&T Minining. 3.1.6 Raw Material Sourcing Tata Steels Indian operations are self-sufficient in iron ore through its captive mines. The mines and collieries in India give the Company a distinct advantage in raw material sourcing. It is 60% self sufficient for coking coal and the rest is procured mostly through imports. However, for Corus operations, the Company needs to source raw materials through contracts with mining companies in UK and the Netherlands. Tata Steel is also striving towards raw materials security through joint ventures in Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata Steel has signed an agreement with Steel Authority of India Limited to establish a 50:50 joint venture company for coal mining in India. Also, it has bought 19.9% stake in New Millennium Capital Corporation, Canada for iron ore mining. Exploration of opportunities for titanium dioxide in Tamil Nadu, commissioning a ferro-chrome plant in South Africa and setting up of a deep-sea port in coastal Orissa are on for meeting the Company's objectives of growth and globalization.

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3.1.7 Products Tata Steel`s Jamshedpur Works produces hot and cold rolled coils and sheets, galvanised sheets, tubes, wire rods, construction rebars and bearings. In an attempt to 'decommoditise' steel, Tata Steel has introduced brands like Tata Steelium (the world's first branded Cold Rolled Steel), Tata Shaktee (Galvanised Corrugated Sheets), Tata Tiscon (re-bars), Tata Bearings, Tata Agrico (hand tools and implements), Tata Wiron (galvanised wire products), Tata Pipes (pipes for construction) and Tata Structura (contemporary construction material). Apart from these product brands, the company also has in its folds a service brand called steeljunction the worlds largest retail marketplace for steel. Corus main operating divisions comprise Strip Products, Long Products and Distribution and Building Systems Division. The NatSteel group produces construction grade steel such as rebars, cut-and-bend cages for construction, mesh, precage bore pile, PC wires and PC strand. Tata Steel Thailand produces round bars and de-formed bars for the construction industry. 3.1.8 Corporate Sustainability Regarded globally as a benchmark in corporate social responsibility, Tata Steel's commitment to the community remains the bedrock of its hundred years of sustainability. It's mammoth social outreach programme covers the company-managed city of Jamshedpur and over 800 villages around it through upliftment initiatives in the areas of income generation, health and medical care, education, sports, and relief. The Company, fully conscious of its responsibilities to the future generations, has always taken pro-active measures to ensure optimum utilistion of natural resources. This is reflected in the ISO-14001 certification that all its operations have achieved for environment management. Other group companies like Corus and Nat Steel, over the years have also made significant contribution to society in a number of ways. The Tata Steel Groups focus in the area of corporate sustainability includes social welfare, environmental sustainability, sports and inclusive growth. This ensures that all its constituents and stakeholders share the Groups successes.
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3.1.8 Recognitions Tata Steel India is the first integrated steel company in the world, outside Japan, to be awarded the Deming Application Prize 2008 for excellence in Total Quality Management. Other recognitions received by the Company in the year 2009 are: Golden Peacock Award for Corporate Social Responsibility on March 4, 2009 and the ET Award for the 'Company. The Deming Application, established in December 1950 in honour of W. Edwards Deming, was originally designed to reward Japanese companies for major advances in quality improvement. Tata Steel Indias Award of the Deming Application Prize-2008 for excellence in Total Quality Management was a first to an integrated steel company outside Japan. Mr. B. Muthuraman, Managing Director, Tata Steel, received the coveted medal from Mr. Fujio Mitarai, Chairman of The Deming Prize Committee in Japan.

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3.2 VISION & MISSION

3.2.1 Vision

We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship

We make the difference through: Our people, by fostering team work, nurturing talent, enhancing leadership capability and acting with pace, pride and passion. Our offer, by becoming the supplier of choice, delivering premium products and services, and creating value for our customers. Our innovative approach, by developing leading edge solutions in technology, processes and products. Our conduct, by providing a safe working place, respecting the environment, caring for our communities and demonstrating high ethical standards.

3.2.2 Mission
Consistent with the vision and values of the founder Jamsetji Tata, Tata Steel strives to strengthen Indias industrial base through the effective utilization of staff and materials. The means envisaged to achieve this are high technology and productivity, consistent with modern management practices. Tata Steel recognizes that while honesty and integrity are the essential ingredients of a strong and stable enterprise, profitability provides the main spark for economic activity.

Overall, the Company seeks to scale the heights of excellence in all that it does in an atmosphere free from fear, and thereby reaffirms its faith in democratic values.

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3.3 SUBSIDERIES & JOINT VENTURES

3.3.1 SUBSIDERIES

Jamshedpur

Injection

Powder

Limited

(Jamipol)

JAMIPOL

manufactures carbide de-sulphurising compounds which are used for desulphurising hot metal for the production of low-sulphur, high-quality steel.www.jamipol.com Jamshedpur Utility and Services Company Limited (JUSCO) Reengineered out of Tata Steel's town services, JUSCO is a wholly owned subsidiary of Tata Steel and is the country's first enterprise that provides municipal and civic services for townships. JUSCO is the only EMS 14001 civic services provider in the country.www.juscoltd.com Lanka Special Steel Limited The only unit in Sri Lanka manufacturing galvanised wires. Rawmet Ferrous Industries Tata Steel acquired 100% equity stake in Rawmet Ferrous Industries on January 15, 2007. Currently, the Company is based out of Kolkata and operates as a subsidiary of Tata Steel. Rawmet has a Ferro Alloy Plant near Cuttack, with a capacity of 50,000 tonnes production per annum of High Carbon Ferro Chrome. Sila Eastern Company Limited Established to develop limestone mines in Thailand, mainly for the captive use of Tata Steel. Tata Steel KZN Proposes to set up high carbon ferrochrome plant in South Africa. The plant is slated to be commissioned by October 2007 with an annual production capacity of 135,000 tonnes during Phase I. Tata Metaliks Limited Tata Metaliks is recognised as Indias number one pig iron manufacturing and selling company. Promoted by Tata Steel Limited and assisted by The West Bengal Industrial Development Corporation, the pig iron produced by the Company is rated as the best in the country for years now.www.tatametaliks.com Tata Pigments LimitedTPL's range of products includes oxides of iron, dry cement paint, exterior emulsion paint and distemper. Its products are used in paints, emulsion, cement floors, plastic etc.www.tatapigments.com
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Tata Refractories Limited (TRL) It produces High Alumina, Basic, Dolomite, Silica and Monolithic Refractories and offers design, procurement and re-lining applications services. It is one of the few companies worldwide to produce silica refractories for coke ovens and the glass industry. The Company has a basic bricks manufacturing unit in China.www.tataref.com

Tata Steel Processing and Distribution Limited (TSPDL) Tata Steel Processing and Distribution Limited is wholly owned subsidiary of Tata Steel. With 8 large processing units, 17 sales locations and a host of partners like external processing agencies, suppliers, retailers and other stakeholders, today TSPDL is Indias largest steel service organisation. www.tspdl.com

Tata Sponge Iron Limited (TSIL) TSIL is the first Indian sponge iron plant based on Tata Steel's Direct Reduction Technology. Its major product lines are sponge iron lumps and fines.www.tatasponge.com

Tayo Rolls Limited India's leading roll manufacturer and supplier, the company produces rolls which find application in integrated steel plants, power plants, the paper, textile and food processing sectors, and the government mint.www.tayo.co.in

Tinplate Company of India Limited (TCIL)With a market share of over 35%, it is the industry leader in India. It has the capability to supply all tinning line products including electrolytic tinplate / tin-free steel and cold-rolled products.www.tatatinplate.com

TRF Limited TRF, one of India's leading companies in the business of design, manufacture, supply, installation and commissioning of engineered-to-order equipment and systems in the areas of bulk material handling, processing, reclaiming and blending. TRF has also made its mark in the fields of coke oven equipment, coal dust injection systems for blast furnaces and coal beneficiation systems.www.trfltd.com

The Indian Steel and Wire Products Limited (ISWP) Recently acquired by Tata Steel, ISWP has two units - a wire unit comprising wire drawing mills, wire rod mills and a fastener division and a steel roll manufacturing unit named Jamshedpur Engineering and Machining Company - JEMCO.

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3.3.2 JOINT VENTURES

Dhamra Port Company, Orissa A JV between Larsen & Toubro Ltd. and Tata Steel Ltd., the company will build a deep draft (18 metres) all weather port on the east coast of India. The port will handle 80 million tonnes per annum of cargo.www.dhamraport.com Mjunction services limited mjunction, operating at the cutting edge of Information Technology, is a 50:50 venture of SAIL and Tata Steel. It is India's largest eCommerce company and the world's largest emarketplace for steel mjunction offers a wide range of selling, sourcing and knowledge services that empower businesses with greater process efficiencies.www.mjunction.in Tata BlueScope Steel Limited A joint venture with BlueScope Steel Limited, Australia, Tata BlueScope Steel Limited offers a comprehensive range of branded steel products for building and construction applications. The Company is constructing a state-of-the-art metallic coating and painting facility at Jamshedpur.www.tatabluescopesteel.com TM International Logistics Limited (TMILL) TMILL provides material handling and port operation services at Haldia and Paradip Ports in addition to providing freight forwarding and chartering services.www.tmilltd.com Tata NYK A joint venture with Nippon Yusen Kabushiki Kaisha (NYK Line) for setting up a shipping company to cater to dry bulk and breakbulk cargo. Tata Steel and NYK will each hold 50% stake in the joint venture company. www.tatanykshipping.com S&T Mining Company Pvt LtdTata Steel imports about half of its coal requirements from overseas. As the countrys steel consumption enters a high and sustainable growth phase, the company is undertaking massive expansion plans. Accordingly, a new JV company, S&T Mining Co Private Limited was incorporated in September 2008 with its registered office in Kolkata. The Chairman of S&T Mining is Mr. S.N.Singh (Managing Director, Rourkela Steel Plant) while the MD of the company is Mr. Sandeep Kumar from Tata Steel.

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3.4 PRODUCTS AT A GLANCE

Flat products: The Flat products business group of Steel division is the countrys largest manufacturer of world class steel products. With the capacity of 2.5 million tonnes per annum of hot rolled, cold rolled and coated products, this business group produces 65% of total saleable steel. The steel with a soul, Tata Steelium is one of the first branded cold rolled steel products in India. The brand promises

superior formability, flatness, surface quality, thickness, consistency and strength. Long Products: The Long products business group of the Steel division produces value-added finished products comprising SBQ (Special Bar Quality), Wire rods, Merchant bars and semis in the form of continuous cast billets. Ferro Alloys and Minerals: This business unit operates the chrome mines in Sukinda valley in Orissa and has a Ferro-chrome making unit in Bamnipal and a Ferro-manganese unit in Joda. It is one of the largest players in global Ferro-chrome market. Tubes: Tata Steel tubes business unit is the largest domestic manufacture of steel tubes. It promotes 3 lines of businesses: Standard tubes, Precision tubes and closed structural. Bearings: Tata Steel produces around 22.46 million ball bearings and 2.56 million taper roller bearings. Growth Shop: Growth shop offers world class services and equipment. Over the years it has played an important role in modernization of Tata Steels Jamshedpur plant. The growth shop has the capacity to design, manufacture and commission equipment for the steel and allied industries.

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3.5 Important Events in Companys History

356.1 Economic Liberalization in India

The economic liberalization reforms did away with the Licence Raj. In 1991, after being bailed out of bankruptcy by the International Monetary Fund, the government of P. V. Narasimha Rao initiated several breakthrough reforms, including opening up international trade and investment, deregulation, initiation of privatization etc. This period was hailed as a breath of fresh air after the tight and rigid control of the licensing policy that was earlier prevalent in the country. India has been on a fast track of economic growth ever since.
3.5.2 TATA STEEL Response

The 1991-1992 government policy was a momentous change from the earlier trade controls and restrictions and brought with it a new era of growth for the country. The iron and steel industry became one of the foremost sectors to be opened under the New Economic Policy. Substantial private investment fl owed in, with the consequent changes heralding a new beginning for the interplay of free market enterprise in this vital sector. Embracing these new liberalization measures, Tata Steel, under the guidance and leadership of its senior officers, embarked on a series of modernization and restructuring initiatives which helped it grow from strength to strength. The full impact of economic liberalization, which meant that steel could be easily imported, was felt in 1993-94. The Company set targets to reduce costs of production and raise the level of net realization. This was a turning point for the Company, which was judged Number 1 in the league table of world-class steel companies by World Steel Dynamics in the year 2001. The Company also began work in earnest on Phase III of its multi-thousand crore modernization programme and, after the fifth phase of modernization, was awarded ISO-9000 certification. The Six Sigma programme was introduced thereafter. In addition, as a measure to upgrade quality, a model of the USs Malcolm Baldrige Awards was adopted under the banner of the JRD QV Awards. Tata Steel Limited (India) is today one of the lowest cost producers of steel in the world.

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3.6 FINANCIAL PERFORMANCE

Table 3-Financial Performance Performance Indicator Grouping Shipments (kt) Consolidated > Tata Steel India > Tata Steel Europe > NatSteel > Tata Steel Thailand Turnover (US$ m) Consolidated > Tata Steel India > Tata Steel Europe > NatSteel > Tata Steel Thailand EBITDA (US$ m) Consolidated > Tata Steel India > Tata Steel Europe > NatSteel > Tata Steel Thailand Profit After Tax (US$ m) Consolidated Basic EPS (US$) Consolidated FY08 31,678 4,782 22,800 2,493 1,433 29,502 4,417 22,478 1,718 914 4,101 1,852 2,039 51 113 2770 176.81 FY09 28,542 5,232 19,691 2,369 1,112 33,045 5,454 24,575 3,021 889 4,148 2,118 1,997 63 33 1110 66.07 FY10 23,607 6,169 14,422 1,779 1,198 22,966 5,612 14,768 1,403 708 2,095 2,199 (303) 56 31 -451 -24.92 FY11 23,540 6,416 14,873 1,803 1,290 26,635 6,593 17,044 1,663 877 4,398 2,742 943 68 12 2015 99.03

The conversion rate used is US$ 1= 44.585 INR

Source :Investors presentation, TATA STEEL. Tata Steel is now in a very good position recovering the last year loss(-451US$) which was basically because of loss of Tata Steel Europe & turned into huge profit in the fy11( 2015 US $) Fig 4

[50]

Refering Annexture 1

After recession, continuous increase in turnover i.e 41.58%, reached its highest in its lifetime. Debtors turnover days i.e 5.0 shows that the debtors have reduced to a large extent over a decade & the chances of defaults have minimized. Good sign for a company . EPS has continuously increased over few last year Dividend payout i.e 19% again catching up the pace as earlier days , recovering the impact of recession.

INCREASE IN AUTHORISED SHARE CAPITAL In order to facilitate the issue of Ordinary Shares with dif erential voting rights as to voting and/or dividend (hereinafter referred to as A Ordinary Shares) in the future, the authorised share capital of the Company was increased from ` 8,000 crores to ` 8,350 crores by creation of a new class of Capital viz. 35,00,00,000 A Ordinary Shares of ` 10 each aggregating to ` 350 crores.

PREFERENTIAL ISSUE OF SHARES AND WARRANTS TO TATA SONS LIMITED Pursuant to the shareholders approval obtained through Postal Ballot, the following securities were allotted to Tata Sons Limited on 23rd July, 2010: i. ii. 1,50,00,000 Ordinary Shares of ` 10/- each at a premium of ` 584/- per share aggregating to ` 891 crores and 1,20,00,000 Warrants, where each Warrant would entitle Tata Sons Limited to subscribe to one Ordinary Share of the Company at a price of ` 594/- per share. As per the SEBI (ICDR Regulations 2009), an amount equivalent to 25% of the price i.e. ` 148.50 per Warrant aggregating to ` 178.20 crores was received from Tata Sons Limited. The option to convert the Warrants into Ordinary Shares is exercisable by Tata Sons Limited before 23rd January, 2012.

3.7 DIVIDEND POLICY

For the year ending March 2011, Tata Steel has declared an equity dividend of 120.00% amounting to Rs 12 per share. At the current share price of Rs 399.95 this results in a dividend yield of 3%. The company has a good dividend track report and has consistently declared dividends for the last 5 years.
[51]

Table 4-Dividend DeclaredAnnouncement Date 26-05-11 Effective Date 04-07-11 Dividend Type Final Dividend (%) 120.00 Remarks

-Increase over the last year

27-05-10

12-07-10

Final

80.00

-daecrease due to Loss of TATA Steel Europe

25-06-09

06-07-09

Final

160.00

26-06-08

18-07-08

Final

160.00

AGM

17-05-07

08-06-07

Final

155.00

155% Dividend ( 130% for the year 200607 and special dividend of 25% on occasion of the Cenetenary year of the company.)

18-05-12

Final

120.00

3.8 CAPITAL STRUCTURE

Table 5 Capital Structure

Capital Structure (Tata Steel) Period Instrument Authorized Capital From To (Rs. cr) 2010 2011 Equity Share 2100 2009 2010 Equity Share 1750 2008 2009 Equity Share 1750 2007 2008 Equity Share 1750 2006 2007 Equity Share 1750 2005 2006 Equity Share 600

Issued -PAIDUPCapital (Rs. cr) Shares (nos) Face Value Capital 960.13 959214450 10 959.21 888.13 887214196 10 887.21 731.37 730592471 10 730.59 731.37 730584320 10 730.58 581.07 580472856 10 580.47 554.07 553472856 10 553.47

There has been a continuous increase in the total capital of the company after the constant period till 2005. This is a good sign for a company, as it is easily able to get its finace from the market.

[52]

3.9 PROJECTS & OPERATIONS GROWTH PLANS FOR INDIA

The Tata Steel Groups growth and globalisation strategy is driven by its business expansion while maintaining profitability and mitigating risks. The Tata Steel Group over the years has focused on enhancing raw material security and announced major joint ventures in various parts of the globe. i. Seraikela Greenfield Project, Jharkhand Project Highlights:
a. b.

Setting up a 12 million tonnes per annum Greenfield integrated steel plant in the state. The Greenfield project is to be set up in two phases. The first phase of 6 mtpa is likely to be set up within 36 months to 54 months from the date of obtaining all statutory clearances. Capacity: 12 mtpa integrated steel plant. Project Update: Tata Steel is awaiting the R&R Policy from the State Government for its Greenfield project.

ii.

Jamshedpur Plant, Jharkhand-Brownfield Project Project Highlights MoUs with the Government of Jharkhand was signed in 2005 for
a. b.

Expansion of Tata Steel's existing plant at Jamshedpur from 5 mtpa to 10 mtpa. Co-operation in the area of Human Resource Development through Industrial Training Institutes. The project includes the development of iron ore mines and other raw materials sources including coal and logistic linkages for this plant. Project Update: The first phase which entails reaching a crude steel capacity of 6.8 mtpa has essentially been completed. The capacity of the Jamshedpur plant is expected to become 10 mtpa by December 2011.

c.

iii.

Commissioning of Coated Steel Manufacturing Plant Project Highlights: The manufacturing facility for coated steel of Tata Bluescope Steel Ltd. is under construction at Jamshedpur and is expected to be completed by March 2010. Tata Bluescope Steel Ltd. is a 50:50 joint venture between Tata Steel Ltd. and Bluescope Steel Australia.

[53]

iv.

JV between Tata Steel & Nippon Steel Corporation Project Highlights: Tata Steel and Nippon Steel Corporation (NSC), Japan will set up a Continuous Annealing and Processing Line at Jamshedpur, India with 0.6 mtpa capacity. The line will produce automotive cold rolled flat products and address the local needs of Indian automotive customers for high-grade cold rolled steel sheets. Tata Steel will hold 51% and NSC will hold 49% stake in the joint venture company. The proposed joint venture aims to capture the growing demand for high-grade automotive cold-rolled flat products in India. NSC will transfer its technology for producing high-grade cold-rolled steel sheets for automotive application including skin panel and high tensile steel.

v.

Other Projects Simultaneously the Company also has a few major ongoing capital projects, which includes the capacity augmentation of Hot Strip Mill, Coke Dry Quenching at Coke Ovens Batteries 5, 6 & 7 and setting up a new mill for producing Full Hard Cold Rolled (FHCR) coils at Jamshedpur. 1. Jagdalpur (Bastar) Project, Chhattisgarh Project Updates:
a.

After acquisition fulfilling necessary processes, the land has been transferred in favour of the Department of Industries, which will subsequently lease it out to Tata Steel Limited. The Chhattisgarh Government has accorded approval for drawing water from river Sabri and the Ministry of Railway, Government of India has granted an in principle approval for the railway corridor. Prospecting License for iron ore has been granted in Bailadila-I deposits after approvals have been obtained from the Ministry of Environment and Forest and Ministry of Mines, Government of India. Public hearing for the Environment clearance has been successfully conducted. Conforming to the Companys CSR initiatives, several activities in the field of health, youth and women empowerment, sports and skill development are being carried out for local residents and displaced families.

b.

c.

d. e.

2. Kalinganagar Greenfield Project, Odisha Project Highlights: Preliminary work on the 6 million tonne per annum capacity Greenfield steel plant at Kalinganagar, Odisha(to be constructed in two phases) is in progress, focusing on land acquisition, rehabilitation and resettlement work.

[54]

Project Update:
a. b.

As of March 2010, a total of 806 families have been shifted from the plant site. The rehabilitation colonies for their resettlement have been provided with good infrastructural facilities that include clean drinking water, street lighting, and a community centre set up by the Company. A hospital with all amenities is also being provided by the Company. During the financial year 2009-10, construction of a warehousing shed and a building for a power receiving sub-station had started at one corner of the plant area. As per the MOU signed with the State Government of Odisha, the Company has fulfilled its obligation of placing the order for equipment and services.

c. d.

3. Port Project at Dhamra, Odisha Project Highlight: The Dhamra Port Company Limited, a 50:50 joint venture of Tata Steel Limited and Larsen & Toubro, is developing a deep-draught port under a concession agreement awarded by the Government of Odisha on Build, Own, Operate, Share and Transfer (BOOST) basis. Situated between Haldia and Paradip, Dhamra Port will be one of the deepest ports in India with a draft of 18 meters, capable of accommodating super capesize vessels up to 1,80,000 DWT. Once commissioned, Dhamra Port will be of strategic importance to Tata Steel in terms of its integrated logistic cost of raw materials and will also consolidate Tata Steels supply chain network, contributing to its expansion aspirations. Project update: Phase-I of the project is almost complete and the port is expected to commence commercial operations by August 2010. In Phase-I, two fully mechanised berths, one for handling imported cargo and the other for export cargo with back-up facilities are being built, along with a rail corridor for hinterland connectivity. The capacity is estimated to be 27 MTPA in Phase-I.

4. Haldia Plant, West Bengal Tata Steel merged Hooghly Met Coke and Power Company Ltd. (HMPCL) with itself from 1st April 2009. The plant is located in Haldia, West Bengal. Close proximity to the Haldia Dock Complex offers several advantages, including the import of coking coal in a more cost effective manner. The company has a production capacity of 1.6 million tonnes of coke.

[55]

5. Tuticorin Mines, Tamil Nadu Project Highlights

a. b.

MOU with the Government of Tamil Nadu signed on June 27, 2002. Titania project involves mining, mineral separation and value addition i.e. pigments production in phases subject to techno- economic viability. Prospecting license over 80 sq.km area granted by the Government of Tamil Nadu in the districts of Tirunelveli and Tuticorin with due approval from Government of India. The feasibility study conducted with the help of Consortium Partners comprising Outokumpu Finland's physical separation division based in USA, Outokumpu-Lurgi, Germany, Pincock Allen and Holt, USA, a resource and mining consulting company and L&T. Environmental Impact Assessment of the project carried out and Environmental Management Plan drawn with the assistance of MIN-MEC Consultancy. Capacity: 60,000 tonnes per annum of titanium di-oxide.

c.

d.

e.

3.10 PORTER FIVE FORCES MODEL- CHALLENGES

Backed by robust volumes as well as realizations, steel Industry has registered a phenomenal growth across the world over the past few years. The situation in the domestic industry was no exception. In fact, it enjoyed a double digit growth rate backed by a robust growing economy. However, the current liquidity crisis seems to have created medium term hiccups. In this case we have analyzed the domestic steel sector through Michael Porters five force model so as to understand the competitiveness of the sector as well as pointed out the initiatives taken by Tata Steel to safeguard its position from all the five forces of threats, namely: I. Threats of new entrants: the willingness and ability of firms to enter a particular industrydepends on the barriers to entry. Such barriers include; capital requirements, economies ofscale, government policy & product differentiation. II. III. IV. V. Intensity of rivalry among existing competitors The bargaining power of suppliers The threat of substitute products The bargaining power of buyers
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3.10.1 Entry barriers: High i. Capital Requirement: Steel industry is a capital intensive business. It is estimated that to set up 1 mtpa capacity of integrated steel plant, it requires between Rs 25 bn to Rs 30 bn depending upon the location of the plant and technology used.Tata Steel has already made sufficient efforts to safeguard itself in this regard. Its has a lineup of Greenfield projects which it plans to establish not only in domestic markets( Jharkhand, Orissa & Chhattisgarh but also internationally( Bangladesh , Iran & Vietnam). Besides, it has already completed its expansion capacity of its existing plant from 5 mtpa to 6.8 mtpa at Jamshedpur with an investment of Rs 5,000 crore, while it is in the process of expanding the capacity from 6.8 mtpa to 10 mtpa with an estimated investment of Rs 15,000 crore. The company has invested Rs 8,000 crore out it and it expects to achieve 10 mtpa capacity by 2011-12. It would prove to be very difficult for any new entrant to come up with such huge investment outlays. ii. Economies of scale: As far as the sector forces go, scale of operation does matter. Benefits of economies of scale are derived in the form of lower costs, R& D expenses and better bargaining power while sourcing raw materials. Tata Steel being an integrated steel company has its own mines for key raw materials such as iron ore and coal and this protects them for the potential threat for new entrants to a significant extent. Tata Steel owns raw material assets such as coal and limestone mines through joint ventures or completely, with the assets spread across countries such as Australia, Oman and Mozambique. iii. Government Policy: The government has a favorable policy for steel manufacturers. However, there are certain discrepancies involved in allocation of iron ore mines and land acquisitions. Furthermore, the regulatory clearances and other issues are some of the major problems for the new entrants. Tata Steel being a century old company under the flagship Tata Sons which is known for its Corporate Social Responsibility already enjoys a respectable position in front of the Indian Government. The Jharkhand government on May,24th 2009, has granted a prospecting licence (PL) to Tata Steel for the Ankua iron ore mines. A senior company official said that Tata Steel has been allocated 1,800 hectares for prospecting in the Ankua area. Another 10,000 acres of land will be allocated to them for their project in Ranchi.
[57]

iv.

Product differentiation: Steel has very low barriers in terms of product differentiation as it doesnt fall into the luxury or specialty goods and thus does not have any substantial price difference. However, Tata Steel still enjoy a premium for their products because of its quality and its brand value created more than 100 years back. Tata Steel has introduced brands like Tata Steelium (the world's first branded Cold Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata Bearings, Tata Agrico (hand tools and implements), Tata Wiron (galvanized wire products), Tata Pipes (pipes for construction)and Tata Structura (contemporary construction material).Apart from these product brands, the company also has in its folds a service brand called steeljunction. Currently two Global Steel majors namely Arcelor- Mittal, which is the worlds largest I and POSCO, are posed to be the biggest threat as they plan to enter the Indian Steel Industry very soon.

v.

3.10.2 Competition: High i. The steel industry is truly global in terms of competition with large producing countries like China significantly influencing global prices through aggressive exports. ii. Steel, being a commodity it is, branding is not common and there is little differentiation between competing products. iii. The 4 major domestic rivals are SAIL, JSW, ISPAT & ESSAR STEEL. Rest are all smallish mills which together accounts for 30 % of the total market share. The market shares of the 5 major players in the Indian Steel Industry are :

COMPETITION ANALYSIS-Concentration Ratio i. In Economics the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. This may also assist in determining the market form of the industry. One commonly used concentration ratio is the four-firm concentration ratio, which consists of the market share, as a percentage, of the four largest firms in the industry. In general, the N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry

[58]

ii.

The 4 firm concentration ratio of the Iron and Steel Industry is 71%.This implies that there is oligopoly in the industry as it is dominated my few major players. Major percentage of market output is generated by the 4 Largest firms in the industry.

iii.

All the major domestic competitors like SAIL, ESSAR, JSW, JSPL have announced massive expansion plans recently:

iv.

SAIL has announced that it will achieve production capacity of 40 Million Tons by 2020.

v. vi.

JSW plans to expand its production to 32 Million Tons by 2020 Other players such as JSPL, ESSAR have similar production expansion plans which will contribute in overall achievement of 200 Million Tons steel production by the year 2020.

3.10.3 Bargaining power of suppliers: High i. The bargaining power of suppliers is low for the fully integrated steel plants as they have their own mines of key raw material like iron ore coal for example Tata Steel. However, those who are non-integrated or semiintegrated has to depend on suppliers. An example could be SAIL, which imports coking coal. ii. Since domestic raw material sources are insufficient to supply the Indian steel industry, a considerable amount of raw materials has to be imported. For example, iron ore deposits are finite and there are problems in mining sufficient amounts of it. Indias hard coal deposits are of low quality. For this reason hard coal imports have increased in the last five years by a total of 40% to nearly 30 million tons. Almost half of this is coking coal (the remainder is power station coal). India is the worlds sixth biggest coal importer. The rising output of electric steel is also leading to a sharp increase in demand for steel scrap. Some 3.5 million tons of scrap have already been imported in 2006, compared with just 1 million tons in 2000. In the coming years imports are likely to continue to increase thanks to capacity increases. iii. Globally, the Top three mining giants BHP Billiton, CVRD and Rio Tinto supply nearly two-thirds of the processed iron ore to steel mills and command very high bargaining power. In India too, NMDC is a major supplier to standalone and nonintegrated steel mills. In order to safeguard itself from the high bargaining power of the buyers, Tata Steel has forayed much earlier into the strategy of Backward Integration. Tata Steel and state-owned SAIL have largely been able to withstand raw material price fluctuations
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due tocaptive iron ore mines. Tata Steel is also one of the least cost markers of steel in the world. Other private steel companies, hit by steep iron ore and coal prices, have passed on the hikes to the customers, prompting the government to clamp down on price increases to control inflation. iv. The company is dependent on imports for a major portion of its raw material iron ore and coking coal requirements. Tata Steel is self-sufficient to the extent of 25 per cent for iron ore needs. With supplies coming in from its mines at New Millennium Corporation in Canada and potentially from the Ivory Coast over a longer term, its iron ore security would gradually increase to around 62 per cent by 2015. Over all, raw material security would reach 50 per cent by 2015 and go up to about 60 per cent by 2018. 3.10.4 Threat of substitutes: Low i. Plastics and composites pose a threat to Indian steel in one of its biggest markets automotive manufacture. For the automobile industry, the other material at present with the potential to upstage steel is aluminium. ii. However, at present in India the high cost of electricity for extraction and purification of aluminum weighs against viable use of aluminium for the automobile industry. Steel has already been replaced in some large volume applications: railway sleepers (RCC sleepers), large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes), and domestic water tanks (PVC tanks). The substitution is more prevalent in the manufacture of automobiles and consumer durables. 3.10.5 Bargaining power of Consumers: Mixed Some of the major steel consumption sectors like automobiles, oil & gas, shipping, consumer durables and power generation enjoy high bargaining power and get favorable deals. However, small and retail consumers who are scattered and consume a significant part do not enjoy these benefits.

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CHAPTER 4
DEBTORS MANAGEMENT AT TATA STEEL

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4.1 INTRODUCTION TO DEBTORS MANAGEMENT

The term Debtor is defined as debt owed to the firm by customer arising from the sale of goods/services in the ordinary course of business. The debtor represents an important component of the current assets of the firm. Receivable may also known as Account Receivable, trade creditors or customer receivables. When the firm sells its products/services and doesnt receive cash immediately, firm is said to have granted trade credit to the customer. Trade credit thus creates receivable/books debts, which the firm is expected to collect in the near future. Accounts receivable are thus amounts due from customer, which bear no interest. In essence, a company is providing no cost financing to the customer to encourage the purchase of the companys products/services. The extension of credit can be justified only if the increase in sales and related cash collection (discounted for the time until collection take place) exceeds the amount otherwise generated under CASH ONLY policy. These customers from whom receivable or book debts are to be collected in future are called as TRADE DEBTORS or simply as DEBTORS and represent the firms claim on assets. Trade debtors are expected to be converted into cash within a short period and are included in the current assets. Since, debtors often accounts for significance portion of total assets, it requires careful attention and adequate management. It is a skill-demanding field because the customer has to be bestowed with trust along with a continuous vigilance.

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4.2 CREDIT POLICY OF TATA STEEL

The credit policy provides a yardstick for measurement of credit, a level of receivables is identified and compared monthly, as per the requirements. The policy is influenced by the nature of the market and strength of the competition. The policy clearly defines the standard for target debtor level, which in turn is significant. Influence both on payment terms and on the whole of the credit control operations, since it determines how much tolerance, if any, is to be shown to slow paying customers. TATA STEEL has a body known credit control committee, which formulates and gives the final approval for any credit policy matter. The credit guidelines as they have emerged today are the combined efforts of the finance and marketing departments. A credit control committee headed by V.P. (F&A) and consist of all product and sales manager from various division along with C.F.C. and other concerned executives as its members. The committee meets at least in two months. The annual limit for credit sales is provided by V.P. (F&A) in consultation with other management officials. The committee then discusses in detail about the brake up of the above lump into credit limit for different sales officers and also for various customers i.e. both regional and party wise credit limits are set by the body. Hence the basic purpose for this committee is to set the standards and also to have an overall control over the credit situation, thereby keeping the financing of the working capital cost effective and preventing any liquidity problems from arising. As a general rule, Credit is allowed to customers who take large and repeated orders. One time customer is not entertained for credit. 4.2.1 CREDIT TERMS OF TATA STEEL Credit terms refer to the terms and conditions on which trade transit will be made available. Thus, the stipulations under which goods are sold under credit are referring to as Credit Terms. These are related to the repayment of the amount under the credit sale. These terms can be finalized only after a scrutiny of a number of factors. The various factors, which must be taken into accounts, are:-

[63]

i.

The seller companys place in the market and the credit terms on which it is buying from its own suppliers.

ii.

The availability of the capital needs to finance its own credit sales and whether this is to be borrowed and if so at what cost; also the availability of capital to finance the payment of other overheads. The existence of buyer or sellers market.

iii.

iv.

The volume of sales planned and how these will be spread over the range of customers.

v.

The profit margin to be obtained.

vi.

The competitive factors.

vii.

The character of the market. a. The period the buyer will have the goods i.e. the buying companys inventory turnover and average collection period will ultimately decide the selling companys credit terms.

b. The condition of the customer finances and the degree of the credit risk, which the credit sale will involve.

Credit terms has three components 1. Credit Period

2. Credit Limit

3. Cash Discount

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1. Credit Period It is the duration of time for which trade credit is extended. During this period the customer must pay the overdue amount. 2. Credit Limit It is decided by top management and varies according to market condition. This total amount is broken up into regional limits, which is the further segregated into monthly limits within which the different parties have to be accommodated. The credit control committee as discussed above performs this function. 3. Cash Discount It is offered to induce the customers to make prompt payments. The customers can take advantage of discount if they pay the amount within the stipulated time. These credit terms are usually written in abbreviations, for e.g. 2/10 net 30, where:a. 2 signifies the rate of cash discount (2%)

b. 10 represent the time duration (10 days) within which a customer must pay to be entitled to the discount.

c. 30 represents the credit period.

Credit terms followed in TATA STEEL The credit terms, i.e. the credit period and cash discount, followed by TATA STEEL are as follows:a. Credit Period- The credit period is decided on the basis of the type of the product and is generally of fixed nature. However, special customer may be allowed a variance in the set credit period depending upon the volume of the sales and customer relationships. b. Interest Charged- Interest free credit is allowed for 30 days in most cases. After every 30 days extension there is a 1% rise in interest rate for secured credit. The rate of interest

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for unsecured credit is 1% more than the corresponding rate under secured credit. There is a penal interest of 3% over the applicable rate of interest. Table 5-Credit terms Time Period After 30 days After 60 days After 90 days Secured Credit 18.5% 19.5% 20.5% Unsecured Credit 19.5% 20.5% 21.5%

c. Cash Discount -Cash Discount of 2% has also been allowed for certain products in different division. The discounts have had a positive response from certain customers, who are cash rich and customer who had working capital problems i.e. whose inventory turnover have also ignored the discounts and debtors turnover is low or whose operating cycle is long. d. Collection Efforts-A constant touch with the customer is the best way of reminding him about his payment schedule in a polite but firm manner. A daily, weekly and monthly report regarding the total sale is done to keep a track on debtors and cash position.

4.3 ACCOUNTS RECEIVABLE PROCEDURE IN TATA STEEL

Fig 5

Account Receivable Managnment

Invoice Generation

Cash / Remittance Processing

Hosting

Application / Reconcillation

Notice presentment 1st Party Collection

Bad Debts / Delinquency Managnment

Source: Tata Steel project manual 2008-2009

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4.3.1 EARLY AND LATE STAGE DEBT COLLECTION

Accounts receivable activity is defined by the age of the receivable assigned for collection. In Tata Steel, Typically early stage collection references debt placed for treatment 90 days or less from the point of delinquency. Conversely, the term late stage refers to older accounts or those previously placed with one or more collection agencies or attorneys.

4.3.2 A/R ANALYSIS, STRATIFICATION & REPORTING

In Tata Steel, the compilation of accounts receivable information and the distillation of unique characteristics therein to determine value, work priority and collection probability are key to designing a recovery strategy. Analysis, Stratification and Reporting describe the critical process of information collation and its transformation into meaningful data to support operations.

4.4 CREDIT DECISION PROCEDURE IN TATA STEEL

Fig 6 Risk Classification of the Entry Should we Extend Credit to this entity If Yes, The recommended Credit limits The Structuture of Credit i.e. Secured(%) or Unsecured(%) Recommended Credit as per % of Net Worth Sanctioned Credit limit (Specifying the structure and Amount) Individual Firm wise Credit limit (Incase entity has different firms) Sales Centre wise allocation of sublimits
Source: Tata Steel project manual 2008-2009

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4.5 AGEING OF DEBTORS

Debtors Aging Report is a report showing how long invoices from each customer have been outstanding. Aging Report is an analysis of accounts receivables broken down into categories by length of time outstanding. Typically, the aging report categorizes receivables as "current," "30 days," "60 days," "90 days," and "120 days and over." The purpose of this report is to show the business owner what receivables need to be dealt with more urgently because they have been overdue longer. 4.5.1 OUTSTANDING REPORT ON DEBTORS The outstanding report shows the debtors balance as a sum total of within credit period & total overdue till date of individual customers with the detailed bifurcation of dues till date. A sample report prepared at Tata steel is presented here- Fig 7

Source: April review report on debtors, Tata steel ltd

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4.5.2 OVERDUE REPORT ON DEBTORS The Overdue Debtor Report provides a list of all Debtors with overdue invoices. This report includes the customer code, amounts outstanding, & any unallocated credits of the top few important customers & the grand total of all. A sample report prepared at Tata steel is presented here-Fig 8

Source: April review report on debtors, Tata steel ltd

Debtor Ageing Reports can be used to generate

i.

A report of all the financial activity for a Debtor over a specific time period, to be printed out on the companys letterhead, with a remittance advice slip.

ii.

A list of balances for a Debtor - their amounts outstanding & overdue by 7, 30, 60 etc days.

iii.

A list of all Debtors with overdue accounts.

With the help of this aged report the company decides which customer they should continue business with & which should be taken utmost care to minimize the loss of profit.
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4.6 No. of Days Sale, Turnover ratio & Collection Effectiveness Index
4.6.1 No. Of Days Sale No. Of Days Sale refers to the number of days of net sales that are tied up in credit sales (accounts receivable) that havent been collected yet. Also known as Average collection Period indicates how quickly receivables or debtors are converted into cash. We observe that collection of debts is the concluding stage in the process of sales transactions. The liquidity of debtors, therefore, is measured through the debtors' turnover rate. The turnover rate converted into average collection period is a significant measure of the collection activity of debtors'. A average collection period is a measure of how long it takes from the time the sales is made to the time the cash is collected from the customers. The debtors' turnover rate and average collection period can be computed as follows: o Total net sales (S) o Average debtors (D) (D) = Opening debtors + Closing debtors 2

o Turnover of debtors (S/D) o Average collections period [365 / (S /D)] the firm to in debtors. policy of a higher the

A higher debtors turnover coupled with quick average collection of debtors enables transact a larger volume of business without corresponding rise in the investment Lower turnover and larger average collection period is an indication of liberal credit firm and thereby, implying ineffective credit management. On the other hand, turnover, more effective and rewarding the investment made in debtors.

4.6.1.1 Methods of calculation Simple average method This is the most common & universally accepted method of calculation of DSO. In this the simple average debtors are taken for day sale calculation.
DSO = (Average Receivables/Sales) * Days in Period

[70]

Three Months Rolling Average method- This is a new method widely accepted of DSO calculation. In this average of three months debtors on a rolling basis is calculated to get the final figure. DSO = (3months Average Receivables /Sales) * Days in 3 months Period This method is used at Tata Steel for calculation of DSO, as i. ii. iii. It takes into account the trend of debtors over 3 months. The effect of any economic mishap is minimized. More accurate than 12 months average method.

4.6.2 Collection Effectiveness Index These days the Collection Effectiveness Index (CEI) is becoming increasing popular in the credit and collections world. CEI was developed by Dr. Venkat Srinivasan and the Credit Research Foundation (Link). With the Credit Research Foundation collecting statistics, it is also possible to do the same industry benchmarking and comparisons that you might do with DSO. CEI is a percentage that expresses the effectiveness of collection efforts over time. The closer to 100 percent, the more effective the collection effort. CEI is ratio that measures the quality of collection efforts over time. It is essentially the percentage of receivables closed or paid in a given time period. While Percent Current has a implied limit of 100%, this is not the case for CEI.

4.6.3 Comparison of DSO & CEI CEI is a more appropriate measure of performance over time while DSO is for measuring performance at a single point in time. CEI makes comparison with other companies possible just as DSO does. CEI does not change if a company nets their receivables by removing items they deem disputed and therefore un-collectible. CEI and DSO should move in opposite directions which makes sense. If the collections efforts increase the DSO should decrease. DSO and CEI can, under certain write off and revenue conditions again, track the same way and thus we have another exception.
[71]

Chapter 5
ANALYSIS & DATA INTERPRETATION

[72]

5.1 TATA STEELS CREDIT MONITORING AND CONTROL

ANALYSIS TAKING TATA MOTORS AS A CUSTOMER FOR AN EXAMPLE As most of the credit is unsecured, keeping a timely vigilance on the debtors is important from the safety and the liquidity position of the firm. This primarily requires an efficient collection process because slackness in the collection efforts lengthens the average collection process period, and increases the percent of bad debts. For monitoring the debtors TATA STEEL is using some steps; these steps are as follows:a. Preparations of an aging schedule. b. Strict control over the overdue debtors. c. Analysis of overdue debtors. d. Collection of reasons for overdue and devising and action plan to reduce the same. e. Appraising the management with the reasons. f. Periodical analysis and assessment of debtors at various higher echelons of management. g. Calculations of days sales outstanding. h. Calculation of Average Collection Period.

With the help of these monthly reports are generated and are sent for reviews to credit control committee chaired by V.P (F&A). In case of secured credit the TATA STEEL is also the debtors of its customers, it uses its accounts payable as a tool to realize its accounts receivables. In cases, which have the symptoms of becoming the bad, a reconciliation statement is prepared a mutual agreement arrived at. However in the worst-case legal action is pursued and bad debt are not off before 5 years.

[73]

5.1.1 TATA STEELS CREDIT ASSESSMENT MODULE-1 (Solvency) Corporate Bankruptcy Prediction (Z Score) Ratios X1 X2 X3 X4 Note: Z score from 4.00 to 2.60 is to be considered as medium risk. Z score less than 2.60 is to be considered as high risk. Z score less than 1.60 is assign of bankruptcy. Description
Working Capital/Total Assets Retained Earnings/Total Assets EBIT/Total Assets Net Worth/Total Liabilities

Result

Coefficient

Z Score

Z-Score Financial Analysis Tool The Z-score formula for predicting bankruptcy was published in 1968 by Edward I. Altman. He was then an Assistant Professor of Finance at New York University, and, in 2009, is still a professor at NYU, now as a long-tenured one. The Z-score is a formula involving multipe variables that measures the financial health of a company. The formula may be used to predict the probability that a firm will go into bankruptcy within two years. The Z-score formula is now regarded as outdated, but it was widely influential in business practice and in what became an academic field of bankruptcy prediction. Z-scores are still used occasionally as an easy-tocalculate control measure for the financial distress status of companies in academic studies about other topics. Estimation of the formula The Z-score is a linear combination of four or five common business ratios, weighted by coefficients that were estimated by Altman's application of the statistical method of discriminant analysis to a dataset of publicly held manufacturers. Altman first identified a set of firms which had declared bankruptcy, and he then collected a matched sample of firms which had survived, with matching by industry and approximate size (assets). The estimation was originally based on data from publicly held manufacturers, but has since been re-estimated based on other datasets for private manufacturing, non-manufacturing and service companies.

[74]

The original Z-score formula is as follows: Z = 1.2T1 + 1.4T2 + 3.3T3 + .6T4 + .999T5 T1 = Working Capital / Total Assets T2 = Retained Earnings / Total Assets. T3 = Earnings Before Interest and Taxes / Total Assets. T4 = Market Value of Equity / Book Value of Total Liabilities. T5 = Sales/ Total Assets. Zones of Discrimination Z > 2.99 -Safe Zone 1.8 < Z < 2.99 -Grey Zone Z < 1.80 -Distress Zone Z-score estimated for private firms T1 = (Current Assets-Current Liabilities) / Total Assets T2 = Retained Earnings / Total Assets T3 = Earnings Before Interest and Taxes / Total Assets T4 = Book Value of Equity / Total Liabilities T5 = Sales/ Total Assets Z' Score Bankruptcy Model Z' = .717T1 + .847T2 + 3.107T3 + .420T4 + .998T5 Zones of Discrimination Z' > 2.9 -Safe Zone 1.23 < Z' < 2. 9 -Grey Zone Z' < 1.23 -Distress Zone

[75]

Z-score estimated for Non-Manufacturer Industrials & Emerging Market Credits T1 = (Current Assets-Current Liabilities) / Total Assets T2 = Retained Earnings / Total Assets T3 = Earnings Before Interest and Taxes / Total Assets T4 = Book Value of Equity / Total Liabilities Z-Score Bankruptcy Model Z = 6.56T1 + 3.26T2 + 6.72T3 + 1.05T4
Zones of Discrimination

Z > 2.6 -Safe Zone 1.1 < Z < 2. 6 -Grey Zone Z < 1.1 -Distress Zone

Example-TATA MOTORS LIMITED, Jamshedpur

Z = 1.2T1 + 1.4T2 + 3.3T3 + .6T4 + .999T5 T1 = Working Capital / Total Assets. T2 = Retained Earnings / Total Assets. T3 = Earnings Before Interest and Taxes / Total Assets. T4 = Market Value of Equity / Book Value of Total Liabilities. T5 = Sales/ Total Assets. Zones of Discrimination Z > 2.99 -Safe Zone 1.8 < Z < 2.99 -Grey Zone Z < 1.80 -Distress Zones Particulars T1 T2 T3 T4 T5
[76]

Values -0.8 0.01 0.17 0.003 1.4

Z = 1.2T1 + 1.4T2 + 3.3T3 + .6T4 + .999T5 = 1.2*-.8+ 1.4*0.01 + 3.3*0.17 + 0.6*0.003 + 0.999*1.4 = 1.0154 Thus, from the above value TATA MOTORS LIMITED is in Distress zone for giving credit limit in Sales. So, Company should take a conservative policy for credit limit. Bankruptcy model evaluation Z = 6.56T1 + 3.26T2 + 6.72T3 + 1.05T4 =6.56 (-0.8) + 3.26 (0.01 )+ 6.72 (0.17 )+ 1.05 (.003) =-1.7917 (Distress Zone )

5.1.2 TATA STEELS CREDIT ASSESSMENT MODULE-2 (Financial Viability)

Ratio (a). Current Ratio (b). Acid Test Ratio (a). Asset Turnover Ratio (b). Inventory Turnover Ratio (c). Receivables Turnover Ratio (a). Debt Equity Ratio (b). PBIT/ Interest on debt (a). Gross Profit Ratio (b). Net Profit Ratio Description Current Asset/ Current Liabilities Quick Asset/ Current Liabilities Sales/Total Assets Total Inventories/Gross Sales Total Receivables/Gross Sales Debt/Equity PBIT/ Interest on debt PBIT/Sales PAT/Sales Year

Liquidity Ratio

Turnover Ratio

Structured Ratio Profitability Ratio

Credit Decision (Tick appropriate column)

Low Risk MEDIUM RISK HIGH RISK

- An increasing trend of high Debt Equity Ratio is a common trait among the failing companies. - No ratio should be interpreted in isolation and the credit decision should be taken after reviewing the ratios in totality.

[77]

Example TATA MOTORS LIMITED, Jamshedpur

Ratio (a). Current Ratio (b). Acid Test Ratio (a). Asset Turnover Ratio (b). Inventory Turnover Ratio (c). Receivables Turnover Ratio (a). Debt Equity Ratio (b). Interest coverage ratio (a). Gross Profit Ratio (b). Net Profit Ratio Year 2008
Standards

Liquidity Ratio

Turnover Ratio

0.76 0.46 1.4 .08 0.05 1.71 3.00 0.83 0.04

2:1 1:1 >1 >1 >1 1:1 >1 >1 >1

Structured Ratio Profitability Ratio

Credit Decision (Tick appropriate column)

Low Risk

MEDIUM RISK

HIGH RISK

As most of the ratios are below standards the risk associated with the company is very high, but a few satisfying criteria neutralizes the effect of high risk & makes its a medium risk company. So TATA Steel should take utmost care while considering TAAT Motors as there major customer for credit sales. 5.1.3 TATA STEELS CREDIT ASSESSMENT MODULE- 3 (Technological and Commercial)
Technological Strong Medium Weak

Product Quality Product Mix Technological Know-How Process Suitability Plant/Equipment

Credit Decision (Tick the Appropriate Column)

Low Risk

Medium Risk

High Risk

[78]

Explanation A party or firm may be analyzed on the basis of above parameters, while making the credit decision. At Tata Steel, all said standards are duly studied and observed over period of timing for making a valid decision regarding grant of credit as may be needed by the party. If all the above parameters of the party are found to be strong or a combination of strong and medium as it may feel suitable, the credit decision for the party may be positive. 5.1.4 TATA STEELS CREDIT ASSESSMENT MODULE-4 (Quality and Credibility of Management (willingness to pay))
Particulars Quality of Management (a). Track Record (b). Market Reputation (c). Experience in Field (d). Ownership dispute (e).Technical Competence (a). Ethics in Business dealings (b). Commitment Level (c). Relationship with Creditor (d). Relationship With Regulatory Authority (e). Relation With Bank (f). Relation With Competitors (g). Past Performance With Us (h). Promptness in Payment (i). Honouring Commitments (j). Payment Patterns and Adherence to Credit Terms (k). Willingness to Furnish Information (l). Capacity to Stocks (m). Ability to Absorb supply Spikes (n). Avoidances of Over Trading (a). Financial Soundness of Group Companies (b). Possible diversion of Funds to new business (c). Bank Rating Strong

Medium

Weak

Credibility of Management

Low Risk

High Risk

Medium Risk

[79]

5.1.5 TATA STEELS CREDIT DECISION MODULE

CAM-1 CAM-2 CAM-3 CAM-4 Notes I.

Criteria Solvency Financial Viability Technological and Commercial Quality and Credibility

Low Risk

Medium risk

High Risk

Maximum weightage should be given to criteria number 1 and 2 customers in organized sectors. In case of a new company, financial data may not be available and hence it is suggested that promoters past records and performance of the group companies should considered as guide for providing credit. In case of customers in organized sector, criteria 1 and 2 are relevant. In case of government departments past performance, repayment patterns and adherence to credit disciplines should be considered as a guide as other criteria are non-relevant.

II.

III. IV.

Conclusion on TATA MOTORSApplying CAM of TATA STEEL on TATA MOTORS resulted as under i. The solvency position of TATA Motors is poor these days, so it is quite risky for Tata steel to carry on the business with them, may be because of economic crisis & rising inflation rates. ii. iii. The financial validity lies in the medium risk zone, so utmost care should be taken. In terms of technology & commercial tata motors have a very storng position in the market, so they can be trusted on this. iv. Tata Motors are well known for Quality products, also has a good credit worthiness in the market.

Altogether, Tata Motors are considered as a credit worthy customer & a quality product provider. So continueing business with them is beneficial for Tata Steel for its growth, as Tata Motors is the major customer of Tata Steel.

[80]

5.2 PROFIT CENTRE WISE ANALYSIS

5.2.1 DEBTORS TREND ANALYSIS
Table:6
STEEL' 10-12 10

yr09- yr10- yr1111 12

508 451 564

Apr May June

July

Aug

Sep

Oct

Nov

Dec

Jan

Feb Mar

Avg'10 Avg'11 Avg'12 Debtors'10 Debtors'11 Debtors'12

Graph:1

417 494 364

443 501 351

444 461 396

446 452 428

501 432 455

497 512 541

561 458 762

690 452 721

541 433 676

603 429 724

577 440 669

374 344 680

STEEL Debtors2010-12
800 700

600

Amount in Crore

500 400

300
200

100 0 yr09-10 yr10-11 yr11-12 Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar

Month
Avg'10 Avg'11 Avg'12 Debtors'10 Debtors'11 Debtors'12 Series7

ANALYSIS : From table 6 The average debtors for the year 2009-2010 is Rs508 crores. A decrease by Rs57 crores in the next year to Rs451 crores. There is an increase of average debtors by Rs 113 crores to Rs 564 crores in the year 2011-2012. INTERPRETATION: There is an upward trend observed in the monthly debtors position of the year 2009-2010. Whereas, a drastic fall in debtors by Rs 113 crores in the month of march. The debtors of 20112012 follows a gradual decrease in the first few months till an increase in the month of September and then follows a decreasing trend. The debtors of 2011-2012 follows a continuous increasing trend till the month of October, headed by a decrease over the next two months.
[81]

Hence, it can be concluded that the debtors position of STEEL has increased over the last two years.
Table:7 WIRE'10- yr09- yr10- yr1112 10 11 12 Apr May June July Aug Avg'10 3 Avg'11 33 Avg'12 75 Debtors'10 4 3 3 3 3 Debtors'11 20 29 33 30 29 Debtors'12 41 41 40 43 41 Graph:2

Sep Oct Nov Dec

Jan

Feb Mar

2 30 50

2 35 88

3 37 99

2 36 112

2 37 119

2 39 122

1 37 110

WIRE 2009-11
140
120

Amount in Cr.

100 80
60

40 20
0

Avg'10

Avg'11

Avg'12

Debtors'10

Debtors'11

Debtors'12

ANALYSIS : From table 7 The average debtors for 2009-2010 is Rs 3 crores. An increase by Rs 30 crores to Rs 33 crores in the next year is observed. Again an increase in average debtors by Rs 45 crores to Rs 75 crores is seen in the year 2011-2012. INTERPRETATION: The debtors trend for the year 2009-2010 almost follows a constant pattern. For the year 20102011, an increasing trend is observed over the first 3 months followed by a gradual decrease over the next three months and a fluctuating trend thereafter. For the year 2011-2012, it is constant for first two months, followed by a gradual increase over the next few months. A small decrease is observed in the last month.

[82]

Table:8
TUBES' yr09- yr10- yr1110-12 10 11 12 Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Avg'10 3 Avg'11 32 Avg'12 62 Debtors'10 3 4 3 3 2 2 2 3 5 5 3 1 Debtors'11 29 29 39 41 34 36 37 37 34 22 23 26 Debtors'12 32 33 28 25 20 36 79 111 97 97 95 91 Graph:3
120

TUBES 2009-2012

Amount in Cr.

100
80 60

40 20 0

Avg'10

Avg'11

Avg'12

Debtors'10

Debtors'11

Debtors'12

ANALYSIS: From table 8 The average Debtors for the year 2009-2010 is Rs 3 crores. An increase in the next year by Rs 29 crores is observed. A further increase by Rs 30 crores to Rs 62 crores is seen in the year 20112012.

INTERPRETATION: The monthly debtors trend for the year 2009-2010 follows a gradual fluctuating pattern, signifying, very little decrease and increase in the debtors position of the TUBES Division. In 2010-2011, the debtors remain constant for first 2 months, then a gradual increase till the month of November is seen, followed by a gradual decrease for the rest of the months. For the year 2011-2012, again a fluctuating pattern is observed, a gradual decrease is seen till the month of august, followed by an increase till November, then a gradual decrease till the month of march.

[83]

Table:9
BEARINGS yr09- yr10- yr11' 10-12 10 11 12 Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Avg'10 0 Avg'11 3 Avg'12 6 Debtors'10 0 1 0 0 0 0 0 0 0 0 0 0 Debtors'11 3 3 3 3 4 3 4 2 3 4 5 2 Debtors'12 2 3 3 3 3 4 7 7 9 10 11 10 Graph:4

BEARING 2009-12
12 10

Amount in Cr..

8
6 4

2 0

Avg'10

Avg'11

Avg'12

Debtors'10

Debtors'11

Debtors'12

ANALYSIS : From table 9 The average debtors position for the year 2009-2010 is zero. For the year 2010-2011 the average debtors increases to Rs 3 crores. An increase by Rs 3 crores in the year 2011-2012 to Rs 6 crores is observed in this year.

INTERPRETATION: The debtors figures for the year 2009-2010 is zero throughout, signifying there were no credit sales made in that year. In the year 2010-2011, the debtors remain constant for the first four months followed by a slight increase and decrease over the remaining months of the year. For the year, 2011-2012, there is a gradually increasing trend of the debtors is seen.

[84]

Table:10
FAMD' yr09- yr10- yr1110-12 10 11 12 Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Avg'10 6 Avg'11 52 Avg'12 50 Debtors'10 6 7 7 6 5 5 5 5 6 5 5 5 26 75 59 41 57 61 40 53 111 28 42 Debtors'11 33 Debtors'12 37 46 39 34 31 57 52 80 66 56 64 42 Graph:5

FAMD 2009-12
120 100

AmOUNT IN CR.

80 60 40 20 0

Avg'10

Avg'11

Avg'12

Debtors'10

Debtors'11

Debtors'12

ANALYSIS: From table 10 The average debtors of 2009-2010, is Rs 6 crores. A drastic increase to Rs 52 crores is seen in the year 2010-2011. A decrease in the average debtors by Rs 2 crores in the year 2011-2012 is seen. INTERPRETATION: There is an increase in the debtors position for the first 3 months, for the year 2009-2010, followed by a decrease till the month of November, a slight increase in the next month and then remains constant for the rest of the months. The debtors trend for the year 2010-2011 is very fluctuating throughout the year. For the year 2011-2012 an increase is observed in the 2nd month followed by a slight decrease over the next three months, an increase over the next three months, followed by a gradual decrease till the rest of the months.

[85]

5.2.2 TATA STEELS AGEING REPORT ANALYSIS FOR THE MONTH OF MARCH 2012 (PROFIT CENTRE WISE) 1. STEEL
Profit Centre Mar-11 Jan-12

Steel_O/S Steel_Ovd

34360 6182

72106 15142

Feb'12 63726 7705

Mar'12 63522 5982

Table 11-Source: April review report on debtors, Tata steel ltd

From the above table it can be seen that the Outstanding debtors have increased as compared to last year from 34360 lacs to 63522 lacs showing Increase in credit sales in the current year due to incresed demand. The drop in march compared to januray show collection of receivales, which is a good sign. The overdue amount have reduced to a great extent from 6182 lacs to 5982 lacs with increse in the month of jan to 15142 lacs showing fast recovery process followed at tata steel. 2. WIRE DIVISION
March'11 Jan'12 Profit Centre Wire Divn _O/s 3687 11701 Wire Divn _Ovd 221 1267 Table 12-Source: April review report on debtors, Tata steel ltd Feb'12 12110 958 Mar'12 10756 761

i. ii.

From the above table it can be seen that the Outstanding debtors have drastically increased as compared to last year from 3687 lacs to 10756 lacs showing Increase in credit sales in the current year due to incresed demand. The drop in march compared to januray show collection of receivales, which is a good sign, but here the collection is slow as compared to other profit centres. The overdue amount have incresd over theperiod from 221 lacs to 761 lacs , but as ratio to sales shows a positive trend, with maximum recovery in the last 2 months showing fast recovery process followed at tata steel. 3. TUBES i. ii.

Table 13-Source: April review report on debtors, Tata steel ltd

From the above table it can be seen that the Outstanding debtors have increased as compared to last year from 2642 lacs to 89962lacs showing i. Increase in credit sales in the current year due to incresed demand & heavy production. ii. That the maximum sales have been made in the recent few months. The overdue amount have increased from 377 lacs to 998 lacs, but as ratio to sales shows positive trend, with maximum recovery in the last 2 months.
[86]

4. BEARINGS

Table 14-Source: April review report on debtors, Tata steel ltd

From the above table it can be seen that the Outstanding debtors have increased as compared to last year from 243 lacs to 899 lacs showing Increase in credit sales in the current year due to incresed demand The drop in march compared to januray show collection of receivales which is a good sign. The overdue amount have reduced to a great extent from 35 lacs to 50 lacs I ratio with an increse in the month of jan to 126 lacs showing fast recovery process followed at tata steel. 5. FERRO ALLOY & MINL iii. iv.

Table 15-Source: April review report on debtors, Tata steel ltd

From the above table it can be seen that the Outstanding debtors have increased as compared to last year from 3326 lacs to 4007 lacs showing i. ii. Slow Increase in credit sales in the current year , also statesincrease in cash sales . The huge drop in marchto 33 lacs from 859lacs compared to januray show very fast collection of receivales which is a good sign. The overdue amount have reduced to a great extent from 46 lacs to 33 lacs with increse in the month of jan to 859lacs showing fast recovery process followed at tata steel. Conclusion of all the abovea. The debtors of FAMD are the most trust worthy to the company , & the collection is fastest & maximum at this profit centre. b. Steel is the major selling product so utmost care should be taken while making credit sales

[87]

5.3 OVER 6 MONTHS DEBTORS ANALYSIS

Table:16
DEBTORS >6MONTH yr09- yr10- yr10S 2010-12 10 11 12 Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Avg'10 72 Avg'11 72 Avg'12 43 Debtors'10 75 83 83 79 67 67 65 67 74 72 71 57 Debtors'11 56 59 64 62 64 69 85 84 85 83 87 65 Debtors'12 39 39 39 39 41 44 46 45 53 54 43 36 Graph:5
100

TATA STEEL

Amount in Cr.

80
60 40 20 0

Avg'10

Avg'11

Avg'12

Debtors'10

Debtors'11

Debtors'12

ANALYSIS: From the above table The average debtors of 2009-2010 & 2010-2011 is the same at Rs 72 crores. There is a decrease in average debtors by Rs 29 crores in the year 2011-2012.

INTERPRETATION: In the year 2009-2010, the debtors position is constant for the first 2 months, followed by a gradual decrease till October, followed by an increase for the next 2 months, and then, slight decrease over the next 3 months. For the year 2010-2011, the trend is again fluctuating over the months. For the year 2011-2012, there is a constant trend over the first 4 months, increases slightly and then decreases.

[88]

5.4 COMPARATIVE ANALYSIS OF TATA STEEL WITH SAIL & JSW

5.4.1 TATA STEEL

TATA STEEL Turnover ratio (in times) Collection period(in days) AVG Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 8.23 71.20 18.49 19.74 12.49 29.21 11.38 32.07 9.44 38.66 8.44 43.26 7.64 47.75 6.44 56.72 3.70 98.58 2.41 151.48 1.88 194.50

Turnover ratio (in times)

20.00 15.00 10.00 5.00 0.00

18.49
12.49 11.38

8.23

9.44

8.44

7.64

6.44 3.70 2.41 1.88

AVG

Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02

Collection period(in days)

250.00 200.00 151.48
150.00 194.50

100.00 50.00
0.00

98.58 71.20 19.74

AVG

29.21

32.07

38.66

43.26

47.75

56.72

Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02

Graph 5

ANALYSIS: The turnover has increased from 1.88 times to 18.49 times over the last 10 years. The average turnover being 8.23 times. The collection period has decreased from 194.50 to 19.74 days over the last 10 years, taken into consideration. The average collection period being 71.20 days. INTERPRETATION: The increasing trend of the turnover ratio is a good sign of debtors being recovered faster. The collection period has decreased to 20 days in the year 2011 which indicates that debtors amount is recovered in 20 days, which is within the credit period.
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5.4.2 SAIL
SAIL AVG Mar11 Turnover ratio (in times) 3.78 3.07 Collection period(in 100.10 118.88 ` Mar10 Mar09 Mar08 3.37 4.01 4.29 85.13 Mar07 Mar06 Mar05 Mar04 Mar 03 Mar 02 4.70 77.59 4.31 84.65 4.63 78.84 3.76 97.08 3.16 2.54

108.44 91.04

115.57 143.75

Turnover ratio (in times)

5.00
4.00

3.78
3.07

4.01

4.29

4.70

4.31

4.63 3.76 3.16 2.54

3.37

3.00 2.00
1.00 0.00

AVG

Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02

Collection period(in days)

160.00
140.00

143.75 118.88
100.10 108.44

120.00 100.00
80.00

115.57 91.04 85.13 77.59 84.65 97.08

78.84

60.00 40.00
20.00 0.00 AVG Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02

Graph 6

ANALYSIS: The average turnover of 10 years is 3.78 times. The turnover has increased from 2.54 times to 4.63 times in a period of 4 years. It remains at 4 times with slight fluctuations till 2009. The turnover decreased to 3 times in 2010 and 2011. The collection period follows a gradual decreasing trend from 2002 till 2007, to 78 days. Then it increases to 119 days in 2011. INTERPRETATION: The gradual increasing trend followed by decreasing trend of turnover indicates that the debtors is increasing at a greater rate than the sales which is not a good sign. The trend of the collection period indicates that the recovery of the debts is taking a longer time over the years.

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5.4.3 JSW
JSW AVG Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 Turnover ratio (in times) 6.86 8.96 10.12 10.32 10.84 9.56 6.70 4.98 2.59 2.54 2.01 Collection period(in 77.78 40.72 36.07 35.37 33.67 38.19 54.51 73.22 140.90 143.63 181.46

Turnover ratio (in times)

12.00 10.00
8.00 8.96

10.12

10.32

10.84 9.56 6.70

4.98

6.86

6.00
4.00

2.59

2.54

2.01

2.00
0.00 AVG Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02

Collection period(in days)

200.00 150.00 100.00
50.00 0.00 AVG Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 181.46

140.90

143.63

77.78
40.72

73.22 36.07 35.37

33.67 38.19

54.51

Graph 7

ANALYSIS: The turnover has increased from 2 times in year 2002 to 10 times in the year 2008. Then it decreased gradually to 9 times in 2011. The average being 7 times. There is a gradual decline in the collection period from 181 days to 140 days over 3 years i.e, from 2002-2004. Then in decreases steeply to 73 days in 2005 followed by a gradual decrease till 40 days in 2011.

INTERPRETATION: The trend of turnover indicates that from 2002-2008, the debtors recovery performance was positive. Then, the gradual decrease in the turnover times, signifies that, the debtors recovery process has become slow. The gradually decreasing trend of collection period indicates that performance of debt recovery is positive but still the debts are not recovered within credit period.
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5.5 DEBTORS TO SALES COMPARISION

5.5.1 TATA STEEL Table-17 TATA Steel Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 Sales Turnover 31,902 26,758 26,844 22,190 19,763 17,140 15,871 11,921 9,793 7,597 Sundry Debtors 428 435 636 543 632 539 582 651 958 1,074
Graph-8
35000 30000
Amount in crore

428.03 434.83 635.98

TATA STEEL
543.48 631.63 539.4 581.82 651.3 958.47

25000 20000 15000 10000

5000

1073.66

31902.14 26757.8 26843.73 22189.55 19762.57 17140.24 15871.08 11920.96 9793.27 7597.07 0 Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 Sales Turnover Sundry Debtors

Analysis:
The sales follows an upward trend over a period of 10 years, i.e, from Rs 7597 crores to Rs 31902 crores. The Debtors follows a downward trend decreasing gradually from Rs 1074 crores to Rs 428 crores. Interpretation: The increasing trend of sales followed by a decreasing trend of Debtors indicates that the credit policy is a good one, which is able to stimulate more sales.

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5.5.2 SAIL

Table-18 SAIL Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 Sales Turnover 47,009 43,904 48,722 45,985 39,482 32,687 32,024 24,137 19,262 15,631 Sundry Debtors 4,161 3,494 3,028 3,048 2,315 1,882 1,908 1,550 1,660 1,389 Graph-9
60000 50000
Amount in crore

4161.3

3027.77 3493.9

SAIL
3048.12 2314.75 1881.73 1908.45 1549.96 1660.09 1389.41

40000 30000 20000 10000

47008.8443903.5648721.7145985.36 39481.8 32686.8932023.8724137.0219262.0215630.79 0 Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 Sales Turnover Sundry Debtors

Analysis: The sales follows a gradual upward trend, i.e. an increase in sales from Rs 15631 crores to Rs 47009 crores over a period of 10 years. The Debtors also increase gradually from Rs 1389 crores in 2002 to Rs 4161 crores in 2011.

Interpretation:
The increasing trend of Debtors along with the increasing trend of Sales indicates that the Credit policy is not able able to stimulate more Sales.

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5.5.3 JSW

Table-19 JSW Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 Sales Turnover 25,131 19,457 15,179 12,629 9,297 6,802 6,713 3,556 2,727 2,000 Sundry Debtors 839 563 398 337 245 241 267 407 280 257 Graph-10
30000

838.65 25000
Amount in crore

JSW
563.25 398.14

20000 15000 10000 5000 0

Mar 11

337.39
245.16

241.26

266.6 406.71 279.63

256.89 25130.76 19456.64 15179.29 12628.91 9297.26 6801.52 6712.71 3555.87 2726.8 2000.34
Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02

Sales Turnover

Sundry Debtors

Analysis:
The trend of Sales follows an increasing pattern, i.e. the sales has increased from Rs 2000 crores to Rs 25131 crores over a period of 10 years taken into consideration. The Debtors also follows an increasing pattern i.e. an increase from Rs 257 crores in 2002 to Rs 839 crores in 2011.

Interpretation:
The sales is increasing at a faster rate as compared to the rate of increase in the Debtors. This indicates that the credit policy is not able to stimulate more Sales.

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CHAPTER 6
SUGGESTIONS & CONCLUSION

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6.1 SUGGESTIONS FOR IMPROVING DEBTORS POSITION OF TATA STEEL

i. Five C's of credit worthiness of customers, evaluate the credit worthiness of the customer by collecting the information, through Bank references, Trade references, Financial accounts, Personal contacts, Credit agencies, Past experiences, General source of information like Journals, Business magazines etc. Now a days to reduce the credit risk exposure, many companies are entering in Insurance Policy, so it could be possible solution for Tata Steel for improving debtors position in the company. Credit should be granted to those customers who have a sound financial background and through in built system of Tata Steel, ie. CDM (Credit Decision Module), customers who fall in Low risk and Medium risk category should only be eligible for getting credit.

ii.

iii.

iv.

As the credit of the firm is unsecured, therefore the firm should try to shift credit risk by adopting the policy of taking bank guarantee, letter of credit for the customers, etc. Firm should focus on secured credits rather focusing on unsecured credit. The way in which Channel financing has penetrated in Tata Steel, is really impressive, but now also there is scope of improvement. There are different debtor collection techniques, available in the market, like Invoice discounting, Factoring, LC (letter of credit), etc. which can be used for controlling the dues to a great extent. In case of channel financing, it should be taken care of, that financing is without recourse, i.e. company wont be liable for any default made by the middle person. The company only guarantees the stopping of supplies to the middle men, in case bank report any default.

v.

vi.

Now a days, it is a common practice of appointing a third party, for collecting your dues. This should be taken into account as it removes the burden of collecting the companys dues. Proper agreement between the third party and the company should be formulated in which all the terms and conditions should be mentioned and it should be without recourse or a third party should be appointed legally, this would not hamper of goodwill of the company and on the other hand takes care of the collection process.

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6.2 CONCLUSION i. As per my observation, TATA STEEL has been highly efficient in managing its debtor in a consistent manner, largely because of its well planned procedure, high end technology (i.e. using SAP) and skilled labours. But in the current dynamic business environment, sustaining a position is equally important as is gaining a position. A comparative study has been done to analysis the debtor position of TATA STEEL with its Indian counterpart steel companies. It has shown an overall outstanding performance as compared to other steel companies.

ii.

iii.

Basically, Debtors Management in TATA STEEL starts from the very first stage of identifying the customer, what is their financial viability? What is their reputation? Etc. This is very effectively handled by the companys credit monitoring and control (i.e. CAM & CDM) division and they perform an effective study of their customer before giving credit sales. Once the sale is done, then through different debtor collection technique, they try to keep their debtor as low as possible. Company follows a very systematic procedure for collecting their debts without harming their image in the market. Company has marketing setup for Profit Centre Wise. This marketing setup control the procedure of debtor management, to a great extent. They do the follow up with their customers account division, in the same time try to analysis for, what reasons they (customer) fail in making payment? Thus, according they could take the action and try to avoid in the future.

iv.

v.

Thus, it can be concluded that from past few years performance of the company is extra ordinary and company has left no stone unturned to maintain its position and has shown a continuous increase in the sales with continuous decrease in the debtors position.

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CHAPTER 7
DEBTORS BENCHMARKING PROCESS

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7.1 Objective
i. To find out the best possible way of Graphically representing Debtors Reports with the help of inbuilt Business Intelligence Warehouse. ii. iii. Comparison of various Reports on Debtors presented by other organizations. To setup a best debtors reporting system for TATA Steel.

7.2 Methodology
i. Surfing through internet & gathering as much online available reports & presentations on debtors. Visited sites-NSE, CAPITALINE,BLOOMBERG, MONEYCONTROL, etc.- no relevant reports on debtors found. Visited individual websites of the Fortune 500 company's top 100 in the list - no relevant reports on debtors found. General search on reports on Debtors & Receivables Resulted in various Software solutions & KPI Dashboards, which have been taken for our study. Individual comments & links of the gathered information maintained in an Excel Worksheet.

ii.

iii.

iv.

v.

7.2.1 ABC Categorization

ABC Categorization of the information collected on the basis of the importance it may provide to fulfill our objective. Categorization was done as: i. ii. iii. Best reports categorized as A which amounted to 10 % of the total. The next 20 % were categorized as B The rest 70% were Categorised as C

While evaluating the reports major emphasis was given to A category & this was to be the major pasrt of discussion for implementation.

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7.2.2 Sheet of ABC Categorization Fig 9

s no. URL 1 http://store.kpilibrary.com/items/8?aref=kpilibad 2 3 http://bi4dynamics.co.uk/reporting-microsoft-dynamicsax-axapta#!prettyPhoto[pp_gal]/3/ http://guaranty-solutions.com/sample/DIR_sample.pdf http://ycharts.com/companies/WMT/accounts_receivable #series=type:company,id:WMT,calc:accounts_receivable&z oom=5&startDate=&endDate=&format=real&recessions=fa lse http://www.arcplan.com/en/solutions/solution-templatecfo-cockpit/ar-dso-analysis/ http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&sourc e=web&cd=10&sqi=2&ved=0CG4QFjAJ&url=http%3A%2F% 2Fwww.ncoaug.org%2FNCOAUG%2520Training%2520Day% 2520Aug%25202008%2FJaros%2520KPI%2520Technical%252 0Presentation.pps&ei=DVt7T5vNB4W8rAevqSoAg&usg=AFQjCNGnAQblPYKLGr0nkDCEqmKzWXdhiQ&s ig2=_4HbxGJJc-on2uPYFS8_Eg Comments Better way of representation, A KPI Dashboard available in their store Business Intelligence Dashboards for A/R. Also available different modules related to bussiness operations & sales Debtors Intelligence Report( Collectivity Analysis) Hyperlinks Business Intelligence for Microsoft Dynamics Reporting for Microsoft Dynamics Business Intelligence for Microsoft Dynamics AX.htm DIRs.pdf

4 5

Data of every co. is present here, just need to put up distinct co. name & type of charts to be created ( should be mentioned under the list) chargeble * Accounts Receivable and Days Sales Outstanding Brings Cash Into Company, A trend analysis. images (9).jpg

A Software SolutionA/R Management System. A Solution to keep a track f A/R in a single centeralised system

Jaros KPI's Technical

7 http://reach1to1.com/solutions/ http://www.customervaluegroup.com/cvg/documents/Ac 8 countsReceivableKPIsandDashboards.pdf

AR KPI's & Dashboards

modules available for all calculations n graphical representaion includes BP Navigator AR Aging Analysis Avg Collection Days Billing Graphs Budget Variance Effective Billing Rates Past Due Analysis http://www.3545consulting.com/services/analyze/busines Staff Calendar 9 s-pulse/business-pulse-business-pulse-navigator/ Top 30 Billled / Collected List of Reports tht can be prepared( by:-university of California) 10 http://dafis.ucdavis.edu/ar/reports.cfm This Site has complete financial details of the top 100 co. listed on NYSE. 11 http://www.stock-analysis-on.net/ But containes no specific of data evaluation on receivables part. http://www.ucop.edu/ucophome/policies/acctman/r-21212 2.pdf Analysis of receivables methods page 33 theory receivab mgmt_p33.pdf http://www.9finance.com/accounting/using-theallowance-method-to-record-uncollectiblereceivables.html http://aaupwiki.princeton.edu/index.php/Accounts_Recei vable#Analysis_of_Accounts_Receivable_and_Collections http://www.excelidea.com/account-receivable-ratioanalysis.html https://www.google.co.in/search?q=analysis+of+receivabl es+method+list&hl=en&prmd=imvnsfd&source=lnms&tbm =isch&ei=7z99T4PLB8PHrQf4yqXSDA&sa=X&oi=mode_link &ct=mode&cd=2&sqi=2&ved=0CBwQ_AUoAQ&biw=1264& bih=566#q=receivables+analysis+method&hl=en&tbm=isch &bav=on.2,or.r_gc.r_pw.r_cp.r_qf.,cf.osb&fp=1700e7c3c20f 3ea1&biw=1011&bih=452 http://www.oldschoolvalue.com/blog/stockanalysis/inventory-receivables-analysis-conn/

13 14

Few methods of A/R Analysis.(theory) Account Receivable Ratio Analysis(credit v/s cash sales representation)

15 16

graphs & tables Sales, Inventory and Receivables Analysis

Account Receivable Analytics Solution helps to- Recognize and analyze the payment behavior of your customers and stakeholders. Review cash flow patterns of each credit controller. List the customers who are less likely to pay on time. http://www.satvikinc.com/solutions/accountsKnow the average expected delay in payment of invoices.( a vry 17 receivable.php representaion of Sales as well) A number of methods are used to measure accounts-receivable balances http://aaupwiki.princeton.edu/index.php/Accounts_Recei and the effectiveness of collection policies and procedures mentioned. 18 vable#Analysis_of_Accounts_Receivable_and_Collections (Theory) 19 http://www.geocities.ws/marcelounc/Curso/Gallinger.pdf http://www.rmsna.com/global-services/credit-card20 chargebacks/root-cause-analysis.asp http://www.9finance.com/accounting/using-theallowance-method-to-record-uncollectible21 receivables.html http://www.ucop.edu/ucophome/policies/acctman/r-21222 2.pdf http://www.scribd.com/moustafa_alaa_1/d/68006135Accounts-Receivable-Management-Best-Practices23 0471716545 24 http://wiki.aeonscope.com/aewiki/index.php/Debtors https://www.google.co.in/search?q=accounts+receivables +charts&hl=en&prmd=imvns&source=lnms&tbm=isch&ei= m2l6T5r8PMKIrAf4jYGEAg&sa=X&oi=mode_link&ct=mode& cd=2&sqi=2&ved=0CAwQ_AUoAQ&biw=1366&bih=643 https://www.google.co.in/search?q=accounts+receivables +charts&hl=en&prmd=imvns&source=lnms&tbm=isch&ei= m2l6T5r8PMKIrAf4jYGEAg&sa=X&oi=mode_link&ct=mode& cd=2&sqi=2&ved=0CAwQ_AUoAQ&biw=1366&bih=643#hl= en&tbm=isch&sa=1&q=debtors+charts&oq=debtors+charts &aq=f&aqi=&aql=&gs_l=img.12...511496l514624l0l518788l1 1l10l0l0l0l3l282l1896l0j6j4l10l0.frgbld.&pbx=1&bav=on.2,or .r_gc.r_pw.r_qf.,cf.osb&fp=ee9d6b9e87c5389f&biw=1366& bih=600 http://www.humanresources.hrvinet.com/accountsreceivable-kpi/ http://help.xero.com/Help/Payments_AR.htm A/R using Variance Analysis Root Cause Analysis carried out by this firm for other institutions. Chargable* Gallinger.pdf

method to analyse A/R(AllowanceMethod)( Theory) Accounting Mannual On A/R (Theory) r-212-2.pdf

Book on best practices wht reports on debtors can be prepared are listed

25

charts n diagrams downloaded

26 27 28

debtors charts & diagrams KPI's List mentioned on A/R solution summary

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7.2.3 Sample Reports of Category A Fig10

7.3 INBUILT BUSINESS INTELLEGENCE WAREHOUSE It is a tool which automatically takes in data feed & presents the output oas been n a daily basis, which scheduled to input data at 2am. This tool automatically presentesi. ii. Ageing report of debtors No. of days calculations

Of all the profit centre of the company, with the complete details of each and evry individual customers of tata steel. Some positive & negetive points to be noted in BIW 7.3.1 Positivesi. ii. iii. iv. Allows Multiple Business Centre data feed within a G/L code. Shows Ageing Report details For each & evry navigation , a new tab is plotted , makes quite easy to handle. Based on SAP module, so quite easy to use.
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7.3.2 Negetivesi. ii. iii. iv. v. Ageing report does not automatically show grand total,which is of utmost importance. Navigation icon for Back is missing . Graphs presented only in the form of column graphs. The total of credit balance does not match tha actual debit balance. Double click on any customer shows only the total of clearing items, open items are not taken into acount.

7.4 CONCLUSION The samples have been forwarded to the IT Department of Tata steel to design the best templet the project requires. This will help in the following manner i. ii. iii. iv. The reports will be presented Graphically that will add value to the base data represented in figures . This will help in Faster interpretation of data as graphs helps in better understanding. Will give a complete picture of thefinancial performance of debtors section at a glance. will help in better time management

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BIBLIOGRAPHY
International Research Journal of Finance and Economics, ISSN 1450-2887 Issue 82 (2012) EuroJournals Publishing, Inc. 2012 http://www.internationalresearchjournaloffinanceandeconomics.com Manoj Anand (2001) Working Capital Performance of Corporate India: An Empirical Survey, Management and Accounting Research, Vol 4, No 4, pp 35-65, April June2001. Ioannis Lazaridis and Dimitrios Tryfonidis (2002) The relationship between working capital management and profitability of listed companies in the Athens Stock Exchange, downloaded from www.ssrn..org Hrishikes Bhattacharya H (2003) Working Capital Management Strategic and Techniques,Prentice Hall Ltd, New Delhi Pedro Juan Garcia Teruel and Pedro Martinez Solano (2003) Effects of Working Capital Management on SME profitability, downloaded from www.ssrn..org. Periyasamy.P (2005) Working Capital Management Theory and Practice, Himalaya Publishing House Pvt Ltd, Mumbai. Jain P K and Praveen Kumar (2006) Working Capital Management Practices A Study of Nifty Index Companies, Journal of Institute and Management Studies, Vol 3, pp.1-18. ZENITH International Journal of Multidisciplinary Research,Vol.2 Issue 1, January 2012, ISSN 2231 5780 Bhardwaj, R.N., 1994: Some Aspects of Indias Iron and Steel Industry, Ph.D. Thesis (unpublished), Delhi School of Economics, University of Delhi, India. Government of India. Ministry of Steel, National Steel Policy, 2008. (www.steel.nic.in, 2011) Steel Authority of India Ltd., 1996: Statistics for Iron & Steel Industry in India, New Delhi, India.

Julian M Allwood, jma42@cam.ac.uk Department of Engineering, Trumpinton St, Cambridge CB2 1PZ
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World steel in figures, WSA , 2008 Globalisation in the steel industry http://www.publications.parliament.uk/pa/cm200607/cms elect/cmwelaf/ucglobal/uc2602.pdf The Chinese steel industry recent developments and prospects, Wu, Resources Policy, Vol. 26, 2000. Tata steel .com , official website , investors http://www.tatasteel.com/investors/pdf/financial-history/standalone-financial-ratios11.pdf Tata steel .com , official website , corporate social responsibility http://www.tatasteelindia.com/corporate/management/board-of-directors.asp

( most of the data collected from employee members of the organization)

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ANNEXURE
BALANCE SHEET & P/L ACCOUNTS OF COMPETITORS
Company >> Finance >> Balance Sheet JSW Steel Ltd Industry :Steel - Large (Rs in Crs) Year Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 SOURCES OF FUNDS : Share Capital 563.18 527.11 537.01 537.01 504.04 497.06 469.13 1,631.08 1,352.03 1,351.99 Reserves Total 16,132.71 9,179.23 7,422.24 7,140.24 5,068.25 3,859.16 2,680.59 -131.9 -660.58 -549.91 Equity Share Warrants 529.38 0 0 0 0 0 0 0 0 0 Equity Application Money 0 0 0 0 0 0 0 0 0 0 Total Shareholders Funds 17,225.27 9,706.34 7,959.25 7,677.25 5,572.29 4,356.22 3,149.72 1,499.18 691.45 802.08 Secured Loans 7,675.82 8,987.51 8,214.61 5,497.08 3,632.50 4,058.71 3,836.41 4,647.17 5,405.00 5,168.16 Unsecured Loans 4,275.52 2,597.59 3,058.02 2,049.45 540.53 37.34 0 139.86 535.64 444.15 Total Debt 11,951.34 11,585.10 11,272.63 7,546.53 4,173.03 4,096.05 3,836.41 4,787.03 5,940.64 5,612.31 Total Liabilities 29,176.61 21,291.44 19,231.88 15,223.78 9,745.32 8,452.27 6,986.13 6,286.21 6,632.09 6,414.39 APPLICATION OF FUNDS : Gross Block 27,407.35 21,795.58 16,896.75 13,952.32 10,512.76 8,368.43 7,520.30 6,226.87 6,309.56 4,365.56 Less : Accumulated Depreciation 6,305.20 4,929.44 3,810.31 2,996.83 2,323.66 1,850.45 1,443.91 1,032.12 719.83 437.81 Less:Impairment of Assets 0 0 0 0 0 0 0 0 0 0 Net Block 21,102.15 16,866.14 13,086.44 10,955.49 8,189.10 6,517.98 6,076.39 5,194.75 5,589.73 3,927.75 Lease Adjustment 0 0 0 0 0 0 0 0 0 0 Capital Work in Progress 6,169.05 6,684.27 9,242.06 5,612.43 2,002.93 1,861.95 349.3 51.18 61.41 1,763.86 Investments 4,098.81 1,768.35 1,250.11 923.53 192.94 85.08 229.57 229.57 222.59 222.52 Current Assets, Loans & Advances Inventories 4,138.41 2,585.77 2,051.42 1,549.16 1,011.35 924.23 743.41 287.91 266.45 236.21 Sundry Debtors 838.65 563.25 398.14 337.39 245.16 241.26 266.6 406.71 279.63 256.89 Cash and Bank 1,886.88 287.11 419.96 339.22 337.8 98.87 122.49 78.16 38.84 28.32 Loans and Advances 3,324.43 2,123.39 1,762.12 860.23 884.87 1,303.50 761.5 232.02 152.58 225.47 Total Current Assets 10,188.37 5,559.52 4,631.64 3,086.00 2,479.18 2,567.86 1,894.00 1,004.80 737.5 746.89 Less : Current Liabilities and Provisions Current Liabilities 9,667.33 7,357.67 7,476.28 3,738.12 2,232.27 1,918.34 1,375.95 878.97 889.58 927.62 Provisions 397.4 264.22 80.93 363.71 68.77 224.27 232.31 18.4 0.43 0.4 Total Current Liabilities 10,064.73 7,621.89 7,557.21 4,101.83 2,301.04 2,142.61 1,608.26 897.37 890.01 928.02 Net Current Assets 123.64 -2,062.37 -2,925.57 -1,015.83 178.14 425.25 285.74 107.43 -152.51 -181.13 Miscellaneous Expenses not written off 0 0 0 0 194.87 304.04 350.62 409.28 473.28 535.96 Deferred Tax Assets 100.47 92.66 217.9 136.49 117.43 156.52 71.38 294 460.63 285.53 Deferred Tax Liability 2,417.51 2,057.61 1,639.06 1,388.33 1,130.09 898.55 376.87 0 23.04 140.1 Net Deferred Tax -2,317.04 -1,964.95 -1,421.16 -1,251.84 -1,012.66 -742.03 -305.49 294 437.59 145.43 Total Assets 29,176.61 21,291.44 19,231.88 15,223.78 9,745.32 8,452.27 6,986.13 6,286.21 6,632.09 6,414.39 Contingent Liabilities 5,005.45 3,345.54 3,642.07 4,590.27 1,087.19 561.14 642.66 333.85 662.95 677.17
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Company >> Finance >> Profit & Loss JSW Steel Ltd Industry :Steel - Large (Rs in Crs) Year Mar 11(12) Mar 10(12) Mar 09(12) Mar 08(12) Mar 07(12) Mar 06(12) Mar 05(12) Mar 04(12) Mar 03(12) Mar 02(12) INCOME : Sales Turnover 25,130.76 19,456.64 15,179.29 12,628.91 9,297.26 6,801.52 6,712.71 3,555.87 2,726.80 2,000.34 Excise Duty 1,967.52 1,254.16 1,178.04 1,237.86 742.31 594.43 360.76 314.61 284.17 264 Net Sales 23,163.24 18,202.48 14,001.25 11,391.05 8,554.95 6,207.09 6,351.95 3,241.26 2,442.63 1,736.34 Other Income 438.38 570.42 299.13 311.54 152.5 387.65 369.55 471.31 70.24 2.7 Stock Adjustments 682.98 29.72 290.56 283.56 -66.54 139.29 43.31 -12.33 12.17 -2.57 Total Income 24,284.60 18,802.62 14,590.94 11,986.15 8,640.91 6,734.03 6,764.81 3,700.24 2,525.04 1,736.47 EXPENDITURE : Raw Materials 14,937.08 10,490.40 8,740.66 5,948.46 3,964.00 3,119.11 2,887.97 1,395.88 1,095.92 1,037.01 Power & Fuel Cost 1,181.52 1,005.92 673.07 539.21 393.1 420.19 541.67 467.14 397.96 236.3 Employee Cost 504.76 343.57 278.24 253.43 159.19 116.22 97.17 41.97 36.57 27.66 Other Manufacturing Expenses 2,235.57 1,838.49 1,441.94 1,330.51 992.31 767.95 477.76 223.56 173.26 116.76 Selling and Administration Expenses 147.37 128.06 135.91 77.65 77.44 63.42 303.13 66.03 81.01 23.06 Miscellaneous Expenses 266.89 153.36 979.41 171.1 235 171.53 150.26 93.34 299.11 80.12 Less: Pre-operative Expenses Capitalised 0 0 0 0 0 0 0 0 0 0 Total Expenditure 19,273.19 13,959.80 12,249.23 8,320.36 5,821.04 4,658.42 4,457.96 2,287.92 2,083.83 1,520.91 Operating Profit 5,011.41 4,842.82 2,341.71 3,665.79 2,819.87 2,075.61 2,306.85 1,412.32 441.21 215.56 Interest 850.92 900.26 836.82 494.84 406.81 368.65 474.7 409.28 563.45 444.35 Gross Profit 4,160.49 3,942.56 1,504.89 3,170.95 2,413.06 1,706.96 1,832.15 1,003.04 -122.24 -228.79 Depreciation 1,378.71 1,123.41 827.66 687.18 498.23 405.82 359.54 312.88 280.59 202.69 Profit Before Tax 2,781.78 2,819.15 677.23 2,483.77 1,914.83 1,301.14 1,472.61 690.16 -402.83 -431.48 Tax 383.44 227.2 -11.39 322 347.85 7.76 74.5 17.89 0 1.4 Fringe Benefit tax 0 0 7 5.5 4.35 3.24 0 0 0 0 Deferred Tax 387.67 569.21 223.12 428.08 270.63 433.61 528 143.59 -292.16 -80.41 Reported Net Profit 2,010.67 2,022.74 458.5 1,728.19 1,292.00 856.53 870.11 528.68 -110.67 -352.47 Extraordinary Items 20.38 -0.42 -499.93 73.45 0.51 223.69 -1.54 299.22 -209.55 0.12 Adjusted Net Profit 1,990.29 2,023.16 958.43 1,654.74 1,291.49 632.84 871.65 229.46 98.88 -352.59 Adjst. below Net Profit 0 0 0 0 0 0 264.69 0 0 65.02 P & L Balance brought forward 5,327.78 3,883.15 3,505.86 2,267.56 1,331.66 719.57 -131.9 -660.58 -549.91 -262.46 Statutory Appropriations 0 0 0 0 0 0 0 0 0 0 Appropriations 4,550.09 578.11 81.21 489.89 356.1 244.44 283.33 0 0 0 P & L Balance carried down2,788.36 5,327.78 3,883.15 3,505.86 2,267.56 1,331.66 719.57 -131.9 -660.58 -549.91 Dividend 273.32 177.7 18.71 261.87 204.98 125.58 103.23 0 0 0 Preference Dividend 27.9 28.92 28.99 29.06 27.9 27.9 27.9 0 0 0 Equity Dividend % 122.5 95 10 140 125 80 80 0 0 0 Earnings Per Share-Unit Curr 68.06 78.99 16.99 66.5 54.69 37.02 43.22 3.91 0 0 Earnings Per Share(Adj)-Unit Curr Book Value-Unit Curr 577.75 380.01 309.19 297.82 235.25 187 151.01 9.02 5.11 5.93
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Company >> Finance >> Balance Sheet Tata Steel Ltd Industry :Steel - Large (Rs in Crs) Year Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 SOURCES OF FUNDS : Share Capital 959.41 887.41 6,203.45 6,203.30 580.67 553.67 553.67 369.18 369.18 367.97 Reserves Total 45,807.02 36,074.39 23,972.81 21,097.43 13,368.42 9,201.63 6,506.25 4,146.68 2,816.84 3,077.99 Equity Share Warrants 178.2 0 0 0 147.06 0 0 0 0 0 Equity Application Money 0.61 0.14 0.24 5.65 0.01 0 0 0 0 0 Total Shareholders Funds 46,945.24 36,961.94 30,176.50 27,306.38 14,096.16 9,755.30 7,059.92 4,515.86 3,186.02 3,445.96 Secured Loans 2,009.20 2,259.32 3,913.05 3,520.58 3,758.92 2,191.74 2,468.18 3,010.16 3,667.63 4,056.93 Unsecured Loans 26,291.94 22,979.88 23,033.13 14,501.11 5,886.41 324.41 271.52 372.05 557.98 648.55 Total Debt 28,301.14 25,239.20 26,946.18 18,021.69 9,645.33 2,516.15 2,739.70 3,382.21 4,225.61 4,705.48 Total Liabilities 75,246.38 62,201.14 57,122.68 45,328.07 23,741.49 12,271.45 9,799.62 7,898.07 7,411.63 8,151.44 APPLICATION OF FUNDS : Gross Block 22,846.26 22,306.07 20,057.01 16,479.59 16,029.49 15,407.17 13,179.26 12,505.83 12,192.71 11,412.29 Less : Accumulated Depreciation 10,914.86 10,037.56 8,962.00 8,123.01 7,385.96 6,605.66 5,845.49 5,411.62 4,849.99 4,198.74 Less:Impairment of Assets 126.3 106.07 100.47 100.47 100.41 94.19 94.19 0 0 0 Net Block 11,805.10 12,162.44 10,994.54 8,256.11 8,543.12 8,707.32 7,239.58 7,094.21 7,342.72 7,213.55 Lease Adjustment 0 0 0 0 0 0 0 0 0 0 Capital Work in Progress 6,969.38 3,843.59 3,487.68 4,367.45 2,497.44 1,157.73 1,872.66 763.64 201.08 330.15 Investments 46,564.94 44,979.67 42,371.78 4,103.19 6,106.18 4,069.96 2,432.65 2,194.12 1,194.55 912.74 Current Assets, Loans & Advances Inventories 3,953.76 3,077.75 3,480.47 2,604.98 2,332.98 2,174.75 1,872.40 1,249.08 1,152.95 1,021.59 Sundry Debtors 428.03 434.83 635.98 543.48 631.63 539.4 581.82 651.3 958.47 1,073.66 Cash and Bank 4,141.54 3,234.14 1,590.60 465.04 7,681.35 288.39 246.72 250.74 373.12 219.2 Loans and Advances 15,688.97 5,503.89 5,032.70 33,348.94 3,055.93 1,235.06 1,382.64 657.4 1,163.56 780.94 Total Current Assets 24,212.30 12,250.61 10,739.75 36,962.44 13,701.89 4,237.60 4,083.58 2,808.52 3,648.10 3,095.39 Less : Current Liabilities and Provisions Current Liabilities 7,447.22 6,656.87 6,039.62 3,849.61 3,523.19 2,835.99 2,689.83 2,209.44 1,917.49 1,669.89 Provisions 3,547.98 2,346.52 3,950.79 3,984.82 3,037.54 2,361.44 2,524.42 2,068.99 2,217.11 1,329.14 Total Current Liabilities 10,995.20 9,003.39 9,990.41 7,834.43 6,560.73 5,197.43 5,214.25 4,278.43 4,134.60 2,999.03 Net Current Assets 13,217.10 3,247.22 749.34 29,128.01 7,141.16 -959.83 -1,130.67 -1,469.91 -486.5 96.36 Miscellaneous Expenses not written off 0 0 105.07 155.11 202.53 253.27 214.82 155.97 0 988.99 Deferred Tax Assets 1,125.07 1,178.58 1,306.57 1,211.46 970.02 771.15 777.99 850.6 836.52 233.78 Deferred Tax Liability 2,061.87 2,046.25 1,892.30 1,893.26 1,718.96 1,728.15 1,607.41 1,690.56 1,676.74 1,624.13 Net Deferred Tax -936.8 -867.67 -585.73 -681.8 -748.94 -957 -829.42 -839.96 -840.22 -1,390.35 Total Assets 77,619.72 63,365.25 57,122.68 45,328.07 23,741.49 12,271.45 9,799.62 7,898.07 7,411.63 8,151.44 Contingent Liabilities 4,895.46 4,108.01 3,921.78 2,756.54 5,072.96 2,209.45 1,911.12 1,508.01 1,316.22 1,111.46

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Company >> Finance >> Profit & Loss Tata Steel Ltd Industry :Steel - Large (Rs in Crs) Year Mar 11(12) Mar 10(12) Mar 09(12) Mar 08(12) Mar 07(12) Mar 06(12) Mar 05(12) Mar 04(12) Mar 03(12) Mar 02(12) INCOME : Sales Turnover 31,902.14 26,757.80 26,843.73 22,189.55 19,762.57 17,140.24 15,871.08 11,920.96 9,793.27 7,597.07 Excise Duty 2,505.79 1,735.82 2,495.21 2,537.02 2,304.18 2,004.83 1,377.92 1,218.57 1,071.95 899.58 Net Sales 29,396.35 25,021.98 24,348.52 19,652.53 17,458.39 15,135.41 14,493.16 10,702.39 8,721.32 6,697.49 Other Income 1,176.45 1,193.58 651.51 975.08 568.31 356.24 305.19 293.38 134.18 152.25 Stock Adjustments 173.65 -134.97 289.27 38.73 82.47 104.91 289.55 80.31 15.03 -11.38 Total Income 30,746.45 26,080.59 25,289.30 20,666.34 18,109.17 15,596.56 15,087.90 11,076.08 8,870.53 6,838.36 EXPENDITURE : Raw Materials 6,424.21 5,663.82 6,068.78 3,743.14 3,572.06 3,024.38 3,020.42 2,245.42 1,749.97 1,400.61 Power & Fuel Cost 1,558.49 1,383.44 1,222.48 1,048.11 1,027.84 897.57 778.3 724.62 787.75 719.18 Employee Cost 2,606.31 2,354.08 2,295.41 1,803.87 1,598.96 1,397.39 1,403.84 1,575.71 1,444.96 1,322.07 Other Manufacturing Expenses 3,760.87 3,509.37 3,195.88 2,611.20 2,500.00 2,090.67 1,948.00 1,549.92 1,317.36 1,068.56 Selling and Administration Expenses 2,003.03 2,621.68 1,793.83 1,567.31 1,465.83 1,353.71 1,304.05 1,055.47 972.29 817.7 Miscellaneous Expenses 1,364.36 1,347.29 1,278.06 1,238.21 848.31 755.89 693.25 558.59 498.6 375.39 Less: Pre-operative Expenses Capitalised 198.78 326.11 343.65 175.5 236.02 112.62 204.82 151.84 60.79 44.05 Total Expenditure 18,137.14 15,934.92 15,510.79 11,836.34 10,776.98 9,406.99 8,943.04 7,557.89 6,710.14 5,659.46 Operating Profit 12,609.31 10,145.67 9,778.51 8,830.00 7,332.19 6,189.57 6,144.86 3,518.19 2,160.39 1,178.90 Interest 1,686.27 1,848.19 1,489.50 929.03 251.25 174.51 228.8 227.12 342.41 403.15 Gross Profit 10,923.04 8,297.48 8,289.01 7,900.97 7,080.94 6,015.06 5,916.06 3,291.07 1,817.98 775.75 Depreciation 1,146.19 1,083.18 973.4 834.61 819.29 775.1 618.78 625.11 555.48 524.75 Profit Before Tax 9,776.85 7,214.30 7,315.61 7,066.36 6,261.65 5,239.96 5,297.28 2,665.96 1,262.50 251 Tax 2,857.00 1,998.00 2,173.00 2,252.00 2,076.01 1,579.00 1,833.66 920 261.88 15.5 Fringe Benefit tax 0 0 16 19 16 27 0 0 0 0 Deferred Tax 54.16 169.5 -75.13 108.33 -52.51 127.58 -10.54 -0.26 -11.69 30.6 Reported Net Profit 6,865.69 5,046.80 5,201.74 4,687.03 4,222.15 3,506.38 3,474.16 1,746.22 1,012.31 204.9 Extraordinary Items 560.53 624.85 220.24 312.43 -83.74 -1.23 -35.35 -120.33 -161.43 -144.09 Adjusted Net Profit 6,305.16 4,421.95 4,981.50 4,374.60 4,305.89 3,507.61 3,509.51 1,866.55 1,173.74 348.99 Adjst. below Net Profit -4.54 12.28 0 0 0 0 0 0 0 0 P & L Balance brought forward 12,772.65 9,496.70 6,387.46 4,593.98 2,976.16 1,790.21 637.42 307.45 218.15 214.76 Statutory Appropriations 0 0 0 0 0 0 0 0 0 0 Appropriations 2,994.34 1,783.13 2,092.50 2,893.55 2,604.33 2,320.43 2,321.37 1,416.25 923.01 203.84 P & L Balance carried down 16,639.46 12,772.65 9,496.70 6,387.46 4,593.98 2,976.16 1,790.21 637.42 307.45 215.82 Dividend 1,151.06 709.77 1,168.95 1,168.93 943.91 719.51 719.51 368.98 295.19 147.11 Preference Dividend 0 45.88 109.45 22.19 0 0 0 0 0 2.07 Equity Dividend % 120 80 160 160 155 130 130 100 80 40 Earnings Per Share-Unit Curr 9.93 6 54.97 66.75 61.06 69.95 61.51 60.91 46.02 26.48 5.51 Earnings Per Share(Adj)-Unit Curr Book Value-Unit Curr 487.45 416.51 338.04 298.7 240.22 176.19 127.51 122.32 86.54 93.65 http:/ / www. c a pita line . c
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Company >> Finance >> Balance Sheet Steel Authority of Industry :Steel (Rs in Crs) Year Mar 11 Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Mar 04 Mar 03 Mar 02 SOURCES OF FUNDS : Share Capital 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 Reserves Total 32,939.07 29,186.30 24,017.82 18,933.17 13,182.75 8,471.01 6,176.25 907.27 -1,605.16 -1,300.65 Equity Share Warrants 0 0 0 0 0 0 0 0 0 0 Equity Application Money 0 0 0 0 0 0 0 0 0 0 Total Shareholders Funds 37,069.47 33,316.70 28,148.22 23,063.57 17,313.15 12,601.41 10,306.65 5,037.67 2,525.24 2,829.75 Secured Loans 11,813.91 7,755.90 1,497.64 925.31 1,556.39 1,122.16 1,603.98 3,400.78 5,511.59 7,051.38 Unsecured Loans 8,351.58 8,755.35 6,065.19 2,119.93 2,624.13 3,175.46 4,165.81 5,289.28 7,416.35 6,884.38 Total Debt 20,165.49 16,511.25 7,562.83 3,045.24 4,180.52 4,297.62 5,769.79 8,690.06 12,927.94 13,935.76 Total Liabilities 57,234.96 49,827.95 35,711.05 26,108.81 21,493.67 16,899.03 16,076.44 13,727.73 15,453.18 16,765.51 APPLICATION OF FUNDS : Gross Block 38,263.20 35,396.19 32,852.42 30,922.73 29,912.71 29,360.46 28,043.48 27,683.63 27,534.61 27,198.88 Less : Accumulated Depreciation 23,180.54 21,780.91 20,547.03 19,351.42 18,315.00 17,198.32 15,558.41 14,515.73 13,498.75 12,400.73 Less:Impairment of Assets 0 0 0 0 0 0 0 0 0 0 Net Block 15,082.66 13,615.28 12,305.39 11,571.31 11,597.71 12,162.14 12,485.07 13,167.90 14,035.86 14,798.15 Lease Adjustment 0 0 0 0 0 0 0 0 0 0 Capital Work in Progress 22,225.83 14,953.13 6,549.71 2,389.55 1,198.52 757.94 366.48 382.2 361.25 555.94 Investments 684.14 668.83 652.7 538.2 513.79 292 606.71 543.17 543.17 538.62 Current Assets, Loans & Advances Inventories 11,470.72 9,192.67 10,320.31 7,018.10 6,814.10 6,371.66 4,220.69 3,057.06 3,744.37 4,041.83 Sundry Debtors 4,161.30 3,493.90 3,027.77 3,048.12 2,314.75 1,881.73 1,908.45 1,549.96 1,660.09 1,389.41 Cash and Bank 17,478.86 22,436.37 18,264.67 13,759.44 9,609.83 6,172.64 6,132.12 2,035.82 512.91 416.37 Loans and Advances 5,147.41 4,196.43 3,222.14 2,652.83 1,802.57 1,366.40 2,072.37 1,603.36 1,373.33 1,282.31 Total Current Assets 38,258.29 39,319.37 34,834.89 26,478.49 20,541.25 15,792.43 14,333.63 8,246.20 7,290.70 7,129.92 Less : Current Liabilities and Provisions Current Liabilities 11,474.86 10,918.38 7,688.67 6,400.92 5,397.77 5,191.70 4,780.67 4,412.32 4,492.71 4,738.48 Provisions 6,050.03 6,395.36 9,609.76 6,958.70 5,676.32 5,645.14 5,385.40 4,577.92 2,821.40 2,096.29 Total Current Liabilities 17,524.89 17,313.74 17,298.43 13,359.62 11,074.09 10,836.84 10,166.07 8,990.24 7,314.11 6,834.77 Net Current Assets 20,733.40 22,005.63 17,536.46 13,118.87 9,467.16 4,955.59 4,167.56 -744.04 -23.41 295.15 Miscellaneous Expenses not written off0 0 0 59.48 129.15 215.82 294.93 378.5 536.31 577.65 Deferred Tax Assets 1,028.40 1,031.89 1,162.39 991.39 1,295.13 1,405.07 1,187.74 0 0 0 Deferred Tax Liability2,519.47 2,446.81 2,495.60 2,559.99 2,707.79 2,889.53 3,032.05 0 0 0 Net Deferred Tax -1,491.07 -1,414.92 -1,333.21 -1,568.60 -1,412.66 -1,484.46 -1,844.31 0 0 0 Total Assets 57,234.96 49,827.95 35,711.05 26,108.81 21,493.67 16,899.03 16,076.44 13,727.73 15,453.18 16,765.51 Contingent Liabilities 5,042.89 4,719.64 4,199.70 3,739.82 3,635.18 3,730.45 4,056.90 3,159.22 2,853.25 3,118.84 http:/ / www. c a pita line .
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Company >> Finance >> Profit & Loss Steel Authority of Industry :Steel (Rs in Crs) Year Mar 11(12) Mar 10(12) Mar 09(12) Mar 08(12) Mar 07(12) Mar 06(12) Mar 05(12) Mar 04(12) Mar 03(12) Mar 02(12) INCOME : Sales Turnover 47,008.84 43,903.56 48,721.71 45,985.36 39,481.80 32,686.89 32,023.87 24,137.02 19,262.02 15,630.79 Excise Duty 4,321.79 3,383.32 5,534.05 6,217.18 5,393.82 4,605.48 3,455.12 2,881.66 2,370.56 1,982.62 Net Sales 42,687.05 40,520.24 43,187.66 39,768.18 34,087.98 28,081.41 28,568.75 21,255.36 16,891.46 13,648.17 Other Income 2,335.32 2,822.59 2,585.09 1,953.73 1,716.46 1,151.99 1,072.69 976.05 795.89 1,181.17 Stock Adjustments 1,352.67 -1,161.01 1,934.53 436.28 285.21 1,131.31 367.72 -485.84 -433 -422.38 Total Income 46,375.04 42,181.82 47,707.28 42,158.19 36,089.65 30,364.71 30,009.16 21,745.57 17,254.35 14,406.96 EXPENDITURE : Raw Materials 22,080.62 17,342.97 20,206.77 13,935.27 13,272.37 12,391.12 9,358.92 6,904.25 6,234.03 5,663.57 Power & Fuel Cost 3,660.43 3,413.90 3,232.74 2,860.75 2,609.50 2,526.97 2,227.62 2,187.95 2,061.32 1,732.83 Employee Cost 7,623.33 5,416.86 8,561.14 7,917.52 5,083.23 4,156.28 3,811.91 4,757.90 3,722.87 3,248.60 Other Manufacturing Expenses 4,836.40 4,480.20 4,764.05 4,353.43 3,730.51 3,268.56 2,607.77 2,164.42 1,965.95 1,774.29 Selling and Administration Expenses 1,520.42 1,882.24 1,494.99 1,478.62 1,375.59 1,467.62 1,167.04 1,176.07 1,176.43 1,131.18 Miscellaneous Expenses 766.89 689.46 1,154.17 461.17 497.12 525.41 613.33 741.8 737.38 617.77 Less: Pre-operative Expenses Capitalised 3,629.93 2,553.27 2,652.64 1,803.72 1,444.90 1,352.05 921.71 893.07 856.21 798.55 Total Expenditure 37,219.98 30,310.54 36,761.22 29,203.04 25,123.42 22,983.91 18,864.88 17,039.32 15,041.77 13,369.69 Operating Profit 9,155.06 11,871.28 10,946.06 12,955.15 10,966.23 7,380.80 11,144.28 4,706.25 2,212.58 1,037.27 Interest 474.95 402.01 259.41 250.94 332.13 467.76 651.98 955.45 1,381.79 1,588.27 Gross Profit 8,680.11 11,469.27 10,686.65 12,704.21 10,634.10 6,913.04 10,492.30 3,750.80 830.79 -551 Depreciation 1,485.80 1,337.24 1,287.77 1,235.48 1,211.48 1,207.30 1,126.95 1,122.59 1,146.66 1,155.89 Profit Before Tax 7,194.31 10,132.03 9,398.88 11,468.73 9,422.62 5,705.74 9,365.35 2,628.21 -315.87 -1,706.89 Tax 2,352.61 3,295.94 3,414.90 3,743.11 3,265.65 1,913.81 704.07 116.13 -11.56 0 Fringe Benefit tax 0 0 52.24 32.9 26.48 24.33 0 0 0 0 Deferred Tax -63.04 81.72 -238.66 155.94 -71.8 -245.37 1,844.31 0 0 0 Reported Net Profit 4,904.74 6,754.37 6,170.40 7,536.78 6,202.29 4,012.97 6,816.97 2,512.08 -304.31 -1,706.89 Extraordinary Items 13.34 19.68 -23.16 239.52 371.79 38.69 -4.72 50.06 144.19 662.47 Adjusted Net Profit 4,891.40 6,734.69 6,193.56 7,297.26 5,830.50 3,974.28 6,821.69 2,462.02 -448.5 -2,369.36 Adjst. below Net Profit 0 0 0 0 -14.5 -910.27 0 0 0 0 P & L Balance brought forward 24,774.29 20,345.05 16,019.23 10,811.65 6,698.84 4,758.77 22.69 -2,764.93 -2,460.62 -753.73 Statutory Appropriations 0 0 0 0 0 0 0 0 0 0 Appropriations 1,724.74 2,325.13 1,844.58 2,470.77 2,074.98 1,162.63 2,080.89 -275.54 0 0 P & L Balance carried down 27,954.29 24,774.29 20,345.05 15,877.66 10,811.65 6,698.84 4,758.77 22.69 -2,764.93 -2,460.62 Dividend 991.3 1,363.03 1,073.90 1,528.25 1,280.42 826.08 1,363.03 0 0 0 Preference Dividend 0 0 0 0 0 0 0 0 0 0 Equity Dividend % 24 33 26 37 31 20 33 0 0 0 Earnings Per Share-Unit Curr 11.48 15.8 14.5 17.62 14.54 9.44 16.06 6.08 0 0 Earnings Per Share(Adj)-Unit Curr Book Value-Unit Curr 89.75 80.66 68.15 55.84 41.92 30.51 24.95 12.2 6.11 6.85 http:/ / www. c a pita line .
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Annexture 1

No. of Days
Steel-Flat April'11 Total Deb 3 >6 months Overdue 0 April'11 Total Deb 0 >6 months Overdue 0 April'11 Total Deb 9 >6 months Overdue 0 April'11 Total Deb 6 >6 months Overdue 0 April'11 Total Deb 4 >6 months Overdue 0 April'11 Total Deb 5 >6 months Overdue 0 April'11 Total Deb 40 >6 months Overdue 7 April'11 Total Deb 37 >6 months Overdue 2 April'11 Total Deb 8 >6 months Overdue 1 April'11 Total Deb 30 >6 months Overdue April'11 Total Deb 40 >6 months Overdue 20 April'11 Total Deb 15 >6 months Overdue 6 April'11 Total Deb 134 >6 months Overdue 16 May'11 3 0 May'11 0 0 May'11 9 0 May'11 6 0 May'11 4 0 May'11 7 0 May'11 41 7 May'11 30 2 May'11 2 1 May'11 7 1 May'11 42 21 May'11 15 6 May'11 100 18 June'11 4 0 June'11 0 0 June'11 9 0 June'11 5 0 June'11 4 0 June'11 7 0 June'11 66 9 June'11 48 3 June'11 6 1 June'11 10 June'11 41 17 June'11 21 6 June'11 155 19 July'11 5 0 July'11 0 0 July'11 10 0 July'11 5 0 July'11 4 0 July'11 6 0 July'11 68 9 July'11 54 3 July'11 8 1 July'11 10 1 July'11 40 18 July'11 18 6 July'11 164 21 Aug'11 6 0 Aug'11 0 0 Aug'11 9 Aug'11 4 0 Aug'11 4 0 Aug'11 5 0 Aug'11 73 10 Aug'11 48 3 Aug'11 4 1 Aug'11 13 2 Aug'11 43 19 Aug'11 20 6 Aug'11 164 21 Sep'11 1 0 Sep'11 11 0 Sep'11 7 0 Sep'11 6 0 Sep'11 11 0 Sep'11 67 21 Sep'11 40 4 Sep'11 4 1 Sep'11 12 3 Sep'11 45 21 Sep'11 23 7 Sep'11 155 36 Sep'11 8 0 Oct'11 12 0 Oct'11 3 0 Oct'11 20 0 Oct'11 15 0 Oct'11 9 0 Oct'11 10 0 Oct'11 70 27 Oct'11 40 5 Oct'11 4 1 Oct'11 14 4 Oct'11 45 21 Oct'11 15 5 Oct'11 157 42 Nov'11 11 0 Nov'11 3 0 Nov'11 21 0 Nov'11 21 0 Nov'11 17 0 Nov'11 14 0 Nov'11 94 31 Nov'11 49 5 Nov'11 3 1 Nov'11 13 4 Nov'11 48 23 Nov'11 17 4 Nov'11 189 46 Dec'11 10 0 Dec'11 2 0 Dec'11 23 0 Dec'11 19 0 Dec'11 16 0 Dec'11 10 0 Dec'11 129 38 Dec'11 52 6 Dec'11 3 1 Dec'11 14 5 Dec'11 45 22 Dec'11 19 6 Dec'11 229 55 Jan'12 11 0 Jan'12 2 0 Jan'12 23 0 Jan'12 18 0 Jan'12 17 0 Jan'12 8 0 Jan'12 109 46 Jan'12 38 5 Jan'12 2 1 Jan'12 15 5 Jan'12 45 22 Jan'12 16 5 Jan'12 193 62 Feb'12 10 0 Feb'12 1 0 Feb'12 23 0 Feb'12 18 0 Feb'12 17 0 Feb'12 9 0 Feb'12 80 29 Feb'12 41 6 Feb'12 2 0 Feb'12 10 1 Feb'12 41 20 Feb'12 15 4 Feb'12 159 41 Mar'12 10 0 Mar'12 2 0 Mar'12 20 0 Mar'12 15 0 Mar'12 16 0 Mar'12 6 Mar'12 54 9 Mar'12 42 7 Mar'12 2 0 Mar'12 6 0 Mar'12 41 17 Mar'12 18 3 Mar'12 133 20

Steel-Long

Wires

Tubes

Bearings

FAMD

TGS

OMQ

WBC

Jharia

Town-JUSCO

Twon-Steel

Steel

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Tata Motors Annual Report

[112]

Balance sheet

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