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GLOBAL BUSINESS PROJECT-III

AN EIC FRAMEWORK

By:
Anvesh Agarwal (10BSUHH010008) Section B

GLOBAL BUSINESS PROJECT

SAIL

FINAL REPORT

INVESTMENT ANALYSIS OF STEEL AUTHORITY OF INDIA LTD.


FINAL REPORT

A report submitted in complete fulfillment of the requirements of BBA Program of IBS Hyderabad

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Distribution List: 1. Prof. Sarvanan

Authorization: This copy of the report prepared by me is being submitted to Prof. Sarvanan- IBS Hyderabad as per the completion of the Global Business Project-3 a part of BBA course.

Name: Anvesh Agarwal Mobile No.: 9000350101

Enrollment No.: 10BSUHH010008 Email id: anveshagarwal@ymail.com Course Section: B

Name of the Faculty Guide: Prof. Sarvanan

Submitted to: Prof. Sarvanan Submission Date: 29th, November 2012

Signature of Faculty (Dr. M. Syam Babu)

Signature of Student (Anvesh Agarwal)


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ACKNOWLEDGEMENT

I am immensely pleased to place on record my profound gratitude and heartfelt thanks to my GBP coordinator Prof Sarvanan for taking out his precious time to guide for completing the two credit course of Global Business Project. The project has really helped in understanding how to go about a project report and better understanding of the Investment Analysis of the company. The project will be of great use to us in the future.

I would also like to express our gratitude towards our institute ICFAI Business School, Hyderabad for giving us the opportunity to undergo a course of Global Business Project.

I would especially like to thank to our mentor Prof Sarvanan (faculty guide) for guidance and cooperation during the course and in fact without his navigational assistance it would have been very difficult for us to structure the project report. We would always be grateful to him for his help and support. And last but not the least, our heart-felt gratitude to those unseen hands that have guided us throughout this project and have helped in its successful completion.

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Learning investment analysis is a journey into a wealth of knowledge that is an exciting mix of the practical and the analytical. It looks to technique to evaluate and to theory to explain. It is natural to feel a degree of trepidation at the start of such a journey. To help o set this we need to familiarize ourselves with the landscape and landmarks, to develop an overview of our route. Some of these landmarks may be familiar others may be new or be seen from a dierent perspective. Armed with this we can map out our route.

The study has been broadly divided into 5 segments as follows:Segment 1: Introduction to the project Segment 2: Theoretical view Segment 3: Company Profile Segment 4: Analysis and Interpretation

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TABLE OF CONTENTS

Introduction to the project 7


Impact on the economy....... 7 How to Choose a Sound Investment?.... 9 Introduction to the Steel Industry. 10 Introduction to the Company 12 Rationale of the Project.. 13 Objective of the Project.. 13 Methodology 14

Theoretical view. 15
Fundamental Analysis. 15 Technical Analysis... 24

Company Profile 43
Introduction to the Company 43 Major Units. 45 MOUs.. 46 Joint Ventures.. 47 History.. 49 Organizational Structure 50

Analysis and Interpretation. 51


Fundamental Analysis 51 Technical Analysis.. 59

Conclusion and Recommendations. 68 References.. 69

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INTRODUCTION
Investment and its impact on the economy:
A standard definition investment is the sacrifice of current consumption in order to obtain increased consumption at a later date. From this perspective, an investment is undertaken with the expectation that it will lead, ultimately, to a preferred pattern of consumption for the investor. This definition makes consumption the major motivation for investment. In contrast, many investors would argue that their motivation for investment is to increase their wealth. This observation can be related back to the definition by noting that wealth permits consumption or, in more formal language, an increase in the stock of wealth permits an increase in the flow of consumption. Wealth and consumption are, therefore, two sides of the same coin. Looking more closely, two different forms of investment can be identified. Real investment is the purchase of physical capital such as land and machinery to employ in a production process and earn increased profit. In contrast, financial investment is the purchase of securities such as stocks and bonds. We do not explicitly discuss real investments in this book. Firms undertake real investment to generate the maximum profit given the market conditions that they face. There are many interesting issues raised by the real investment activities of firms including issues of research and development, capacity expansion, and marketing. There are however, links between the two forms of investment. For example, the purchase of a firms shares is a financial investment for those who buy them but the motive for the issue of the shares is invariably that the firm wishes to raise funds for real investment. The impacts of these investments in the 0.300+ It contributes to current demand of capital goods, thus it increases domestic expenditure. It enlarges the production base (installed capital), increasing production capacity; It modernizes production processes, improving cost effectiveness. It allows for the production of new and improved products, increasing value added in production. It incorporates international world-class innovations and quality standards, bringing the gap with more advanced countries and helping exports and an active participation to international trade.
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Investment analysis is the study of how an investment is likely to perform and how suitable it is for a given investor. Investment analysis is the key to any sound portfolio-management strategy. Investors not comfortable doing their own investment analysis can seek professional advice from a financial advisor. An analysis of past investment decisions. An investment analysis is a look back at previous investment decisions and the thought process of making the investment decision. Key factors should include entry price, expected time horizon, and reasons for making the decision at the time. For any investor, investment analysis is essential. Looking back at past decisions and analyzing the mistakes and successes will help fine-tune strategies. Many investors don't even document why they made an investment let alone analyze why they were wrong or right. You could make a proper decision, extraordinary events could lose you money, and if you didn't analyze it, you would shy away from making the same decision. The general principles of investment are: Meeting your financial goals and reducing stress is more important than trying to outperform the market, It is better to limit losses than to accept large losses in the hope of a turnaround. The market moves in a series of uptrend's and downtrends. History is not obligated to repeat itself. Market sectors (Technology, Healthcare, Energy, etc) provide better diversification than asset classes based on company size (large cap/small cap) or geography (Indian/foreign). Costs should be kept low.

The types of investments available in the economy are investment in Debt, Equity or Derivative Securities, Low Risk or High Risk investments, Short-Term or Long-Term investments, Domestic or Foreign investments

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How to choose a sound investment?


This provides an introduction to the tools of investment analysis that can be used to guide informed investment decisions. These tools range from the knowledge of the securities that are available and how they are traded, through the techniques for evaluating investments, to theories of market functioning. The basis of fundamental analysis is that the true value of a security has to be based on the future returns it will yield. The analysis allows for temporary movements away from this relationship but requires it to hold in the long-rum. Fundamental analysts study the details of company activities to makes predictions of future profitability since this determines dividends and hence returns. This method of security analysis is considered to be the opposite of technical analysis. Fundamental analysis gives you an idea of what a companys future prospects are likely to be. Large institutional investors like to buy shares in companies with good fundamentals. Whereas the timing of the financial statements used with fundamental analysis can sometimes cause problems. If you get the information too late you might end up buying the stock after it leaves the buy zone. Another method of evaluating securities Technical analysis is through the examination of past prices for predictable trends. Technical analysis employs a variety of methods in an attempt to find patterns of price behavior that repeat through time. If there is such repetition (and this is a disputed issue), then the most beneficial times to buy or sell can be identified. Technical analysts believe that the historical performance of stocks and markets are indications of future performance. Technical analysis is based on objective data. You can look at a stock chart and plainly see whats happening right now. You can see which direction the price is moving in. You can see how popular the stock is based on its volume characteristics. On the other hand, technical analysis doesnt care about the company behind the stock. You might want to know what industry the company is in, but apart from that, the underlying company isnt really a concern.

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Introduction to the Steel Industry


Steel is crucial to the development of any modern economy and is considered to be the backbone of human civilization. The level of per capita consumption of steel is treated as an important index of the level of socioeconomic development and living standards of the people in any country. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flows and income generation. All major industrial economies are characterized by the existence of a strong steel industry and the growth of many of these economies has been largely shaped by the strength of their steel industries in their initial stages of development. Steel industry was in the vanguard in the liberalization of the industrial Sector and has made rapid strides since then. The new Greenfield plants represent the latest in technology. Output has increased, the industry has moved up i n the value chain and exports have raised consequent to a greater integration with the global economy. The new plants have also brought about a greater regional dispersion easing the domestic supply position notably in the western region. At the same time, the domestic steel industry faces new challenges. Some of these relate to the trade barriers in developed markets and certain structural problems of the domestic industry notably due to the high cost of commissioning of new projects. The domestic demand too has not improved to significant levels. The litmus test of the steel industry will be to surmount these difficulties and remain globally competitive. Steel has been the key material with which the world has reached to a developed position. All the engineering machines, mechanical tools and most importantly building and construction structures like bars, rods, channels, wires, angles etc are made of steel for its feature being hard and adaptable. Earlier when the alloy of steel was not discovered, iron was used for the said purposes but iron is usually prone to rust and is not so strong. Steel is a highly wanted alloy over the world. All the countries need steel for the infrastructural development and overall growth. Steel has a variety of grades i.e. above 2000 but is mainly categorized in divisions steel flat and steel long, depending on the shape of steel manufactured. Steel flat includes steel products in flat, plate, sheet or strip shapes. The plate shaped steel products are usually 10 to 200 mm and thin rolled strip products are of 1 to 10 mm in dimension. Steel flat is mostly used in construction, shipbuilding, pipes and boiler applications. Steel long Category includes steel products in long, bar or rod shape like reinforced rods made of sponge iron. The steel long
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products are required to produce concrete, blocks, bars, tools, gears and engineering products. After independence, successive governments placed great emphasis on the development of an Indian steel industry. In Financial Year 1991, the six major plants, of which five were in the public sector, produced 10 million tons. The rest of India steel production, 4.7 million tons, came from 180 small plants, almost all of which were in the private sector. India's Steel production more than doubled during the 1980s but still did not meet the demand in the mid-1990s, the government was seeking private-sector investment in new steel plants. Production was projected to increase substantially as the result of plans to set up a 1 million ton steel plant and three pigiron plants totaling 600,000 tons capacity in West Bengal, with Chinese technical assistance and financial investment. The commissioning of Tata Iron & Steel Company's production unit at Jamshedpur, Bihar in 1911-12 heralded the beginning of modern steel industry in India. At the time of Independence in 1947 India's steel production was only 1.25 Mt of crude steel. Following independence and the commencement of five year plans, the Government of India decided to set up four integrated steel plants at Rourkela, Durgapur, Bhilai and Bokaro. The Bokaro plant was commissioned in 1972. The most recent addition is a 3 Mt integrated steel plant with modern technology at Visakhapatnam. Steel Authority of India (SAIL) accounts for over 40% of India's crude steel production. SAIL comprises of nine plants, including five integrated and four special steel plants. Of these one was nationalized and two were acquired; several were set up in collaboration with foreign companies. SAIL also owns mines and subsidiary companies.

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Introduction to the Company


Steel Authority of India Limited (SAIL) is one of the largest state-owned steel-making companies based in New Delhi, India and one of the top steel makers in World. With a turnover of 48,681 crore, the company is among the top five highest profit earning corporates of the country. It is a public sector undertaking which trades publicly in the market is largely owned by Government of India and acts like an operating company. Incorporated on January 24, 1973, SAIL has more than 1 lakh employees. During 2010-11, the manpower of SAIL reached a level of 110794 (as on 31.3.2011) from 116950 (as on 1.4.2010) The company's current chairman is C.S Verma. With an annual production of 13.5 million metric tons, SAIL is the 14th largest steel producer in the world. Major plants owned by SAIL are located at Bhilai, Bokaro, Durgapur, Rourkela, Burnpur and Salem. SAIL is investing Rs 21000 crore in West Bengal, to set up a wagon factory.[3] SAIL is a public sector company, owned and operated by the Government of India. According to a recent survey, SAIL is one of India's fastest growing Public Sector Units.Besides, it has R&D centre for Iron & Steel (RDCIS), Centre for Engineering and Technology (CET), Management Training Institute (MTI) and SAIL Safety Organization (SSO) located at Ranchi capital of Jharkhand.

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Rationale of the Project:


I chose SAIL for an analysis for the reasons mentioned below:

As I had done my Global Business Project-II on Steel Industry I thought it would be better if I choose a company from the same industry. SAIL being the market leader in the industry would help me in better understanding the dependence of it on the steel industry. SAIL being a government company the required data will be available on the authentic websites of government that can be relied upon. This analysis would also help me in the future for starting up a business in this industry. This company also has integrated manufacturing plants so it would be interesting to study about its operations and finance. Finally as there is high growth prospectus for this company, as per the increasing demand in the steel industry, hence the study would be helpful.

Objective of the project


The broad objective of our project is to learn how to analyze and predict companys future. The specific objectives of our project are as follows: To do a depth study on the financial aspect of SAIL. Comparing SAIL and its performance with that of other players of the steel industry in India. To gain the capability of analyzing any organizations Financial Statements using various tools of Fundamental Analysis. To predict the stock prices of a company by using various tools of Technical Analysis. To be capable enough to know the companies performance with respect to the economy and its conditions.

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Methodology

Data: The study of technical and fundamental analysis will be based on the secondary data availability from various authentic sources. Variables: The variables used for Fundamental Analysis will be the annual reports of the company and its income statement. The variables used for Technical Analysis will be the companys shares prices, market index, volume of shares traded. Period: The duration for which the companys fundamental and technical analysis would be done will be 5 years. Tools: The various tools that will be used for analysis are The Fundamental Analysis is done through financial statement analysis. The Technical Analysis is done using the following tools: Chart Types like Line Charts, Bar Charts, Candle Stick Charts, Point and Figure Charts and Open High Low Close Charts (OHLC). Overlays like Bollinger Bands, Simple Moving Average, and Exponential Moving Average.

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THEORITICAL VIEW
Fundamental Analysis:
Fundamental analysis is a stock valuation methodology that uses financial and economic analysis to envisage the movement of stock prices. The fundamental data that is analyzed could include a companys financial reports and non-financial information such as estimates of its growth, demand for products sold by the company, industry comparisons, economy-wide changes, changes in government policies etc. The outcome of fundamental analysis is a value (or a range of values) of the stock of the company called its intrinsic value (often called price target in fundamental analysts parlance). To a fundamental investor, the market price of a stock tends to revert towards its intrinsic value. If the intrinsic value of a stock is above the current market price, the investor would purchase the stock because he believes that the stock price would rise and move towards its intrinsic value. If the intrinsic value of a stock is below the market price, the investor would sell the stock because he believes that the stock price is going to fall and come closer to its intrinsic value. To find the intrinsic value of a company, the fundamental analyst initially takes a top-down view of the economic environment; the current and future overall health of the economy as a whole. After the analysis of the macro-economy, the next step is to analyze the industry environment which the firm is operating in. One should analyze all the factors that give the firm a competitive advantage in its sector, such as, management experience, history of performance, growth potential, low cost of production, brand name etc.

Ratio Analysis:
When it comes to investing, analyzing financial statement information (also known as quantitative analysis), is one of, if not the most important element in the fundamental analysis process. At the same time, the massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. However, through financial ratio analysis, you will be able to work with these numbers in an organized fashion. The objective of this project is to provide you with a guide to sources of financial statement data, to highlight and
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define the most relevant ratios, to show you how to compute them and to explain their meaning as investment evaluators. In this regard, I draw attention to the complete set of financials for SAIL a publicly listed company on the NSE and BSE that manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other alloy steels.

PROFITABILITY RATIOS The main aim of an enterprise is to earn profit which is necessary for the survival and growth of the business enterprise. It is earned with the help of amount invested in business. It is necessary to know how much profit has been earned with the help of the amount invested in the business. This is possible through profitability ratio. These ratios examine the current operating performance and efficiency of the business concern. These ratios are helpful for the management to take remedial measures if there is a declining trend. The important profitability ratios are: Net profit ratio: A ratio of net profit to sales is called Net profit ratio. It indicates sales margin on sales. This is expressed as a percentage. The main objective of calculating this ratio is to determine the overall profitability. The ratio is calculated as Net profit ratio =Net profit/Net sales100 Net profit ratio determines overall efficiency of the business. It indicates the extent to which management has been effective in reducing the operational expenses. Higher the net profit ratio, better it is for the business. Operating profit ratio: Operating profit is an indicator of operational efficiencies. It reveals only overall efficiency. It establishes relationship between operating profit and net sales. This ratio is expressed as a percentage. It is calculated as:
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Operating profit =Operating profit /Net sales100 It helps in examining the overall efficiency of the business. It measures profitability and soundness of the business. Higher the ratio, the better is the profitability of the business. This ratio is also helpful in controlling cash. Return on Capital Employed: A ratio that indicates the efficiency and profitability of a company's capital investments. Calculated as:

ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings. A variation of this ratio is return on average capital employed (ROACE), which takes the average of opening and closing capital employed for the time period.

Return on Net Worth: It is the ratio of net profit to share holder's investment. It is the relationship between net profit (after interest and tax) and share holder's/proprietor's fund. This ratio establishes the profitability from the share holders' point of view. The ratio is generally calculated in percentage. This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. As the primary objective of business is to maximize its earnings, this ratio indicates the extent to which this primary objective of businesses being achieved. This ratio is of great importance to the present and prospective shareholders as well as the management of the company. As the ratio reveals how well the resources of the firm are being used, higher the ratio, better are the results. The inter firm comparison of this ratio determines whether the investments in the firm are attractive or not as the investors would like to invest only where the return is higher.

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SOLVENCY RATIOS The solvency ratio measures the size of a company's after-tax income, excluding non-cash depreciation expenses, as compared to the firm's total debt obligations. It provides a measurement of how likely a company will be to continue meeting its debt obligations. Current Ratio: The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities. The concept behind this ratio is to ascertain whether a company's shortterm assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). In theory, the higher the current ratio, the better.

The current ratio is used extensively in financial reporting. However, while easy to understand, it can be misleading in both a positive and negative sense - i.e., a high current ratio is not necessarily good, and a low current ratio is not necessarily bad. Quick Ratio: The quick ratio - aka the quick assets ratio or the acid-test ratio - is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.

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As previously mentioned, the quick ratio is a more conservative measure of liquidity than the current ratio as it removes inventory from the current assets used in the ratio's formula. By excluding inventory, the quick ratio focuses on the more-liquid assets of a company. The basics and use of this ratio are similar to the current ratio in that it gives users an idea of the ability of a company to meet its short-term liabilities with its short-term assets. Another beneficial use is to compare the quick ratio with the current ratio. If the current ratio is significantly higher, it is a clear indication that the company's current assets are dependent on inventory. Net Working Capital Ratio: A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as:

Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its shortterm liabilities with its current assets (cash, accounts receivable and inventory). Also known as "net working capital" or "working capital ratio.

If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company cannot be used to pay off any of the company's obligations. So, if a company is not operating in the most efficient manner (slow collection), it will show as an increase in the working capital. This can be seen by comparing the working capital from one period to another; slow collection may signal an underlying problem in the company's operations.

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DEBT COVERAGE RATIOS:


In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments. In government finance, it is the amount of export earnings needed to meet annual interest and principal payments on a country's external debts. In personal finance, it is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be over 1. That would mean the property is generating enough income to pay its debt obligations.

Interest Coverage Ratio: The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by the company's interest expenses for the same period. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable.

The ability to stay current with interest payment obligations is absolutely critical for a company as a going concern. While the non-payment of debt principal is a seriously negative condition, a company finding itself in financial/operational difficulties can stay alive for quite some time as long as it is able to service its interest expenses. In a more positive sense, prudent borrowing makes sense for most companies, but the operative word here is "prudent." Interest expenses affect a company's profitability, so the cost-benefit analysis dictates that borrowing money to fund a company's assets has to have a positive effect. An ample interest coverage ratio would be an indicator of this circumstance, as well as indicating substantial additional debt capacity. Obviously, in this category of investment quality, Zimmer Holdings would go to the head of the class.

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Debt-Equity Ratio: The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed.

To a large degree, the debt-equity ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using less leverage and has a stronger equity position.

The debt-equity ratio appears frequently in investment literature. However, like the debt ratio, this ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities. Nevertheless, this easy-to-calculate ratio provides a general indication of a company's equity-liability relationship and is helpful to investors looking for a quick take on a company's leverage. Generally, large, well-established companies can push the liability component of their balance sheet structure to higher percentages without getting into trouble. Capital Employed to Net Worth Ratio: This ratio is also known as equity ratio. This is yet another way of expressing relationship between Debt and Equity. This is to know how much funds are being contributed together by lenders and owners for each rupee of owners contribution.

Capital Employed to Net Worth Ratio = Capital Employed/Net Worth

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ACTIVITY RATIOS: Accounting ratios that measure a firm's ability to convert different accounts within its balance sheets into cash or sales. Activity ratios are used to measure the relative efficiency of a firm based on its use of its assets, leverage or other such balance sheet items. These ratios are important in determining whether a company's management is doing a good enough job of generating revenues, cash, etc. from its resources.

Debtors Turnover Ratio: An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

Some companies' reports will only show sales - this can affect the ratio depending on the size of cash sales. By maintaining accounts receivable, firms are indirectly extending interest-free loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. A low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm.

Current Assets Turnover Ratio:

Current Assets Turnover Ratio indicates that the current assets are turned over in the form of sales more number of times. A high current assets turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in current assets. Higher the current ratio better will be the situation. Current assets turnover ratio = Liquid Assets/ Liquid Liabilities
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A high current assets turnover ratio indicates the capability of the organisation to achieve maximum sales with the maximum investment in current assets. It indicates that the current assets are turned over in the form of sales more number of times. As such, higher the current assets turnover ratio better will be the situation. Total Assets Turnover Ratio: The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars.

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.

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Technical Analysis:
A method of evaluating future security prices and market directions based on statistical analysis of variables such as trading volume, price changes, etc., to identify patterns. Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Technical analysis can help investors anticipate what is "likely" to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time. Technical analysis is based on objective data. You can look at a stock chart and plainly see whats happening right now. You can see which direction the price is moving in. You can see how popular the stock is based on its volume characteristics. Technical analysis doesnt care about the company behind the stock. You might want to know what industry the company is in, but apart from that, the underlying company isnt really a concern. A fundamental principle of technical analysis is that a market's price reflects all relevant information, so their analysis looks at the history of a security's trading pattern rather than external drivers such as economic, fundamental and news events. Therefore, price action would also tend to repeat itself due many investors collectively tend toward patterned behavior hence technicians' focus on identifiable trends and conditions. Market action discounts everything Based on the premise that all relevant information is already reflected by prices, technical analysts believe it is important to understand what investors think of that information, known and perceived. Prices move in trends Technical analysts believe that prices trend directionally, i.e., up, down, or sideways (flat) or some combination. The basic definition of a price trend was originally put forward by Dow Theory. History tends to repeat itself Technical analysts believe that investors collectively repeat the behavior of the investors that preceded them. To a technician, the emotions in the market may be irrational, but they exist. Because investor behavior repeats itself so often, technicians believe that recognizable (and predictable) price patterns will develop on a chart.
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Technical analysis is not limited to charting, but it always considers price trends. For example, many technicians monitor surveys of investor sentiment. These surveys gauge the attitude of market participants, specifically whether they are bearish or bullish. Technicians use these surveys to help determine whether a trend will continue or if a reversal could develop; they are most likely to anticipate a change when the surveys report extreme investor sentiment. Surveys that show overwhelming bullishness, for example, are evidence that an uptrend may reverse; the premise being that if most investors are bullish they have already bought the market (anticipating higher prices). And because most investors are bullish and invested, one assumes that few buyers remain. This leaves more potential sellers than buyers, despite the bullish sentiment. This suggests that prices will trend down, and is an example of contrarian trading.

TRENDS

Use the stock chart to identify the current trend. A trend reflects the average rate of change in a stock's price over time. Trends exist in all time frames and all markets. Day traders can establish the trend of their stocks to within minutes. Long term investors watch trends that persist for many years. Trends can be classified in three ways: UP, DOWN or RANGEBOUND.
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In an uptrend, a stock rallies often with intermediate periods of consolidation or movement against the trend. In doing so, it draws a series of higher highs and higher lows on the stock chart. In an uptrend, there will be a POSITIVE rate of price change over time. In a downtrend, a stock declines often with intermediate periods of consolidation or movement against the trend. In doing so, it draws a series of lower highs and lower lows on the stock chart. In a downtrend, there will be a NEGATIVE rate of price change over time. Range bound price swings back and forth for long periods between easily seen upper and lower limits. There is no apparent direction to the price movement on the stock chart and there will be LITTLE or NO rate of price change. Trends tend to persist over time. A stock in an uptrend will continue to rise until some change in value or conditions occurs. Declining stocks will continue to fall until some change in value or conditions occurs. Chart readers try to locate TOPS and BOTTOMS, which are those points where a rally or a decline ends. Taking a position near a top or a bottom can be very profitable. Trends can be measured using TRENDLINES. Very often a straight line can be drawn UNDER three or more pullbacks from rallies or OVER pullbacks from declines. When price bars then return to that trend line, they tend to find SUPPORT or RESISTANCE and bounce off the line in the opposite direction. A famous quote about trends advises that "The trend is your friend". For traders and investors, this wisdom teaches that you will have more success taking stock positions in the direction of the prevailing trend than against it.

Support and Resistance


The concept of SUPPORT AND RESISTANCE is essential to understanding and interpreting stock charts. Just as a ball bounces when it hits the floor or drops after being thrown to the ceiling, support and resistance define natural boundaries for rising and falling prices. Buyers and sellers are constantly in battle mode. Support defines that level where buyers are strong enough to keep price from falling further. Resistance defines that level where sellers are too strong to allow price to rise further. Support and resistance play different roles in uptrends and downtrends. In an uptrend, support is where a pullback from a rally should end. In a downtrend, resistance is where a pullback from a decline should end. Support and resistance are created because price has memory. Those prices where significant buyers or sellers entered the market in the past will tend to generate a similar mix of participants when price again returns to that level.

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When price pushes above resistance, it becomes a new support level. When price falls below support, that level becomes resistance. When a level of support or resistance is penetrated, price tends to thrust forward sharply as the crowd notices the BREAKOUT and jumps in to buy or sell. When a level is penetrated but does not attract a crowd of buyers or sellers, it often falls back below the old support or resistance. This failure is known as a FALSE BREAKOUT. Support and resistance come in all varieties and strengths. They most often manifest as horizontal price levels. But trendlines at various angles represent support and resistance as well. The length of time that a support or resistance level exists determines the strength or weakness of that level. The strength or weakness determines how much buying or selling interest will be required to break the level. Also, the greater volume traded at any level, the stronger that level will be. Support and resistance exist in all time frames and all markets. Levels in longer time frames are stronger than those in shorter time frames.

CHART TYPES Charts represent the price data fluctuations caused by varying market forces. The information found in these charts enables a chartist skilled in the science of technical analysis to draw trading signals for future price activity. The primary chart types used for the analysis of the market are:

Line Chart Bar Chart Candlestick Chart

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The most popular type of chart in use today is the candlestick chart. Originally developed in Japan, it did not come into popular use until the 1980s. The line chart is the original type of chart and is still in wide use today, primarily due to its convenience and effectiveness in plotting price data over extremely long and short periods of time. The bar chart is also used by many traders. Although any one of these chart types can be used equally well for most analytical techniques, most traders develop certain preferences for use in their analysis. Line Chart In order to plot a line chart, single prices for a selected time period are connected by a line. The most popular variation of the line chart is the daily line chart, which plots each day's closing price. The basic problem with the daily line chart is its lack of data on intraday market activity. This issue has been amended in recent years with the use of computer power to plot line charts with smaller increments. Whereas other chart forms may fall behind in the accurate reporting of price data over very small intervals, the line chart can be used to plot data for intervals as short as 5 seconds or even a single tick. Line charts are also extremely useful for obtaining a big picture view of market trends over several years. The only remaining flaw with the line chart is its lack of ability in reporting price gaps, as these cannot be represented on a continuous chart. Bar Chart

Any given line in the bar chart consists of four important points.

High - The top point of the vertical bar Low - The bottom point of the vertical bar

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Opening Price - A small horizontal line to the left of the vertical bar Closing Price - A small horizontal line to the right of the vertical bar

The bar charts advantages are its ability to display the price range over the selected period as well as its capacity to plot price gaps. One of the bar charts major disadvantages however is its inability to plot the whole price fluctuation, even when plotted for extremely small periods of time. Candlestick Chart Technical Analysis Figure 2 The candlestick chart is quite similar to the bar chart as it also consists of the same four primary price points: the high, the low, the open and the close. The candlestick is often considered easier to view and thus analyze than its bar and line chart contemporaries.

The body of the candlestick bar is comprised of the difference between the open and close price. If the opening price was lower then the closing price or the given commodity gained value, then the body of the bar is colored blue. To contrast, if the opening price was higher then the closing price or the given commodity lost value, then the body of the bar is red. If the high and low prices are located outside of the open-close range they are marked off by two lines known as the upper and lower shadows. The upper shadow protrudes from the top of the candlestick's body and marks the high price for the given time period represented by the bar. Conversely, the lower shadow protrudes from the bottom and marks the low price.

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CHART PATTERNS

Trend Reversal Patterns


The sideways price action of a reversal pattern signifies that upon breaking out of the pattern there will be a turnaround in the current trend. I will be investigating the Head and Shoulders and Inverse Head and Shoulders and Double Tops and Bottoms and Triple Tops and Bottoms. Other reversal patterns such as Rounded Tops and Bottoms, V-Formations, and Diamond Formations are not as common and harder to see. Rounded Tops and Bottoms will be discussed briefly on the next page while you can check our glossary for some information on VFormations and Diamond Formations. Head and Shoulders The Head and Shoulders pattern is one of the most classic patterns in a technical analysts tool kit. This three-peak formation is named for its resemblance to a head and two shoulders. The center peak (head) protrudes above the remaining two peaks (shoulders), which are set at or close to identical levels. The common line of support for all three peaks, which does not have to be a horizontal line, is known as the Neckline. The final downward penetration of the neckline confirms the start of a new downward trend.

There is a chance that even after there is a break of the neckline that the trend may not reverse. A good validation of a reversal would be if the break is significant or if the neckline is tested and it turns from support to resistance. Also, a trader should look and see if momentum was higher
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during the formation of the left shoulder compared to the right shoulder as this would indicate that buying pressure is decreasing and a true reversal pattern is taking place. During a true head and shoulders reversal, the downward move can be expected to be equal to the distance from neckline to head. Inverse Head and Shoulders The inverse Head and Shoulder pattern follows the same model. In the chart below you can see that at first price is heading downwards. After the pattern forms, price reverses and there is a substantial move in an upward direction. Soon though price retracts and tests the neckline. The neckline holds as support, and the uptrend continues, completing the reversal. You can also see, from the momentum indicator, that selling pressure eases by the time the right shoulder is forming.

Double Top

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A double top is formed when the price of a pair in an uptrend rises and encounters resistance. Following this, price retreats to a support level which will become the neckline and subsequently returns to the resistance level. After failing to break the resistance level a second time the pair falls back down. At the neckline price breaks down into a new downward trend. Double Bottom

The same but opposite scenario occurs in the case of a double bottom. A downtrend reverses after testing a certain support level twice. Failing to breakthrough, price reverses into a new uptrend. Sometimes, the pair will retest the neckline, which should switch its role from support to resistance. Triple Tops / Triple Bottoms

In the typical triple top formation each one of the heads is about the same size. A line of resistance can be drawn connecting the three tops. A neckline should be drawn connecting the support levels. After the third head, price falls below the neckline. The market may rebound for a short attempt at breaking back past the neckline only to be followed by the start of a new downward trend.

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Above is an example of a triple top. Notice that the neckline is slanted upwards instead of perfectly horizontal, which is normal. For all of these patterns, a trader will be hard pressed to find them exactly as they are shown in their theoretical forms. Rounded Tops/ Rounded Bottoms Another variation of the shape a top and bottom can take is one in which the reversal is "rounded". The rounded top formation forms when the market gradually yet steadily shifts from a bullish to bearish outlook while in the case of a rounded bottom, from bearish to bullish. The prices take on a bowl shaped pattern as the market slowly and casually changes from an upward to a downward trend.

Continuation Patterns
Continuation patterns indicate that the price action described by the pattern is merely a pause in the prevailing trend and that upon breaking out of the pattern the price trend will continue in the same direction. I will look at the following patterns that imply trend reversals: Flags, Rectangles, Triangles, and Wedges. Of course, patterns do not result in a continuation of the prevailing trend all the time and analytical skill is needed to gauge whether they will come to fruition.
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Flags

Flags are a type of short-term pause in the dynamic and progressive movement of a market trend. Flags are usually marked by a sharp, almost horizontal entry into the pattern. Flags are bound by parallel lines of support and resistance. The pattern is commonly followed by a sharp break back into the prevailing trend. Flags have a tendency to form slanted in the direction opposite to the major market trend they inhabit.

Also on the above, is a flag pattern during a downtrend, that plays out in a long timeframe. The consolidation phase lasts two months but does not turn into a new trend. The line of support is broken, ending the flag pattern and continuing the downtrend. Rectangles

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A Rectangle is a period of consolidation within an existing trend where the price moves sideways, fluctuating between two horizontal lines before finally resuming its previous trended course. Such a pattern is not very significant to the trends future course a rectangle seldom accelerates the prevailing trend beyond its previous slope. Though not characteristic in determining any anomalous effects in the presiding trend, a rectangle pattern presents an opportunity to trade within, as one can open alternating positions as the price repeatedly bounces from support to resistance and back.

Triangle patterns are usually characteristic of a trend consolidation followed by an accelerated break out of the pattern in the direction of the continuing trend. Triangles form in three basic categories: symmetrical, ascending and descending. A variant of the triangle pattern is the wedge.

Symmetrical Triangle

A symmetrical triangle is indicative of a period of consolidation during an uptrend or a downtrend. The symmetrical triangle has a line of support that slopes upwards and a line of resistance that slopes downward. The triangle pattern yields to a breakout in the direction that corresponds with the trend beforehand, though not always.

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Ascending Triangle

An ascending triangle is indicative of a period of consolidation during an uptrend. It is formed when price action moves between a line of resistance that is relatively flat or horizontal and a line of support that is sloping upwards. As the two lines converges the chance of a break out increases. When price moves strongly above the line of resistance the pattern ends. Above is a daily chart showing an uptrend that consolidates for almost a month in an ascending triangle pattern. Descending Triangle

A descending triangle is indicative of a period of consolidation during a down trend. It is formed when price action moves between a line of resistance that is sloping downwards and a line of support that is relatively flat or horizontal. As the two lines converges the chance of a break out increases. When price moves strongly below the line of support the pattern ends and the downtrend continues.

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OVERLAYS Most chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security's overall trend. One simple method traders use to combat this is to apply moving averages. A moving average is the average price of a security over a set amount of time. By plotting a security's average price, the price movement is smoothed out. Once the day-to-day fluctuations are removed, traders are better able to identify the true trend and increase the probability that it will work in their favor. (To learn more, read the Moving Averages tutorial.)

Types of Moving Averages There are a number of different types of moving averages that vary in the way they are calculated, but how each average is interpreted remains the same. The calculations only differ in regards to the weighting that they place on the price data, shifting from equal weighting of each price point to more weight being placed on recent data. The three most common types of moving averages are simple, linear and exponential. Simple Moving Average (SMA) This is the most common method used to calculate the moving average of prices. It simply takes the sum of all of the past closing prices over the time period and divides the result by the number of prices used in the calculation. For example, in a 10-day moving average, the last 10 closing prices are added together and then divided by 10. As you can see in Figure 1, a trader is able to make the average less responsive to changing prices by increasing the number of periods used in the calculation. Increasing the number of time periods in the calculation is one of the best ways to gauge the strength of the long-term trend and the likelihood that it will reverse.

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Figure 1

Many individuals argue that the usefulness of this type of average is limited because each point in the data series has the same impact on the result regardless of where it occurs in the sequence. The critics argue that the most recent data is more important and, therefore, it should also have a higher weighting. This type of criticism has been one of the main factors leading to the invention of other forms of moving averages.

Exponential Moving Average (EMA) This moving average calculation uses a smoothing factor to place a higher weight on recent data points and is regarded as much more efficient than the linear weighted average. Having an understanding of the calculation is not generally required for most traders because most charting packages do the calculation for you. The most important thing to remember about the exponential moving average is that it is more responsive to new information relative to the simple moving average. This responsiveness is one of the key factors of why this is the moving average of choice among many technical traders. As you can see in Figure 2, a 15-period EMA rises and falls faster than a 15-period SMA. This slight difference doesnt seem like much, but it is an important factor to be aware of since it can affect returns.

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Major Uses of Moving Averages Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels. Moving averages can be used to quickly identify whether a security is moving in an uptrend or a downtrend depending on the direction of the moving average. As you can see in Figure 3, when a moving average is heading upward and the price is above it, the security is in an uptrend. Conversely, a downward sloping moving average with the price below can be used to signal a downtrend.

Figure 3

Another method of determining momentum is to look at the order of a pair of moving averages. When a short-term average is above a longer-term average, the trend is up. On the other hand, a long-term average above a shorter-term average signals a downward movement in the trend.

Moving average trend reversals are formed in two main ways: when the price moves through a moving average and when it moves through moving average crossovers. The first common signal is when the price moves through an important moving average. For example, when the price of a security that was in an uptrend falls below a 50-period moving average, like in Figure 4, it is a sign that the uptrend may be reversing.

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Figure 4

The other signal of a trend reversal is when one moving average crosses through another. For example, as you can see in Figure 5, if the 15-day moving average crosses above the 50-day moving average, it is a positive sign that the price will start to increase.

Figure 5

If the periods used in the calculation are relatively short, for example 15 and 35, this could signal a short-term trend reversal. On the other hand, when two averages with relatively long time frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend.

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Another major way moving averages are used is to identify support and resistance levels. It is not uncommon to see a stock that has been falling stop its decline and reverse direction once it hits the support of a major moving average. A move through a major moving average is often used as a signal by technical traders that the trend is reversing. For example, if the price breaks through the 200-day moving average in a downward direction, it is a signal that the uptrend is reversing.

Figure 6

Moving averages are a powerful tool for analyzing the trend in a security. They provide useful support and resistance points and are very easy to use. The most common time frames that are used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The 200-day average is thought to be a good measure of a trading year, a 100-day average of a half a year, a 50-day average of a quarter of a year, a 20-day average of a month and 10-day average of two weeks. Moving averages help technical traders smooth out some of the noise that is found in day-to-day price movements, giving traders a clearer view of the price trend. So far we have been focused on price movement, through charts and averages. In the next section, we'll look at some other techniques used to confirm price movement and patterns.

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Bollinger Bands

A band plotted two standard deviations away from a simple moving average, developed by famous technical trader John Bollinger.

In this example of Bollinger Bands, the price of the stock is banded by an upper and lower band along with a 21-day simple moving average. Because standard deviation is a measure of volatility, Bollinger Bands adjust themselves to the market conditions. When the markets become more volatile, the bands widen (move further away from the average), and during less volatile periods, the bands contract (move closer to the average). The tightening of the bands is often used by technical traders as an early indication that the volatility is about to increase sharply. This is one of the most popular technical analysis techniques. The closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.
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COMPANY PROFILE
INTRODUCTION TO THE COMPANY: Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. SAIL is also among the five Maharatnas of the country's Central Public Sector Enterprises. The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However, SAIL, by virtue of its Maharatna status, enjoys significant operational and financial autonomy. SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being Indias second largest producer of iron ore and of having the countrys second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making. SAIL's wide ranges of long and flat steel products are much in demand in the domestic as well as the international market. This vital responsibility is carried out by SAIL's own Central Marketing Organisation (CMO) that transacts business through its network of 37 Branch Sales Offices spread across the 4 regions, 25 Departmental Warehouses, 42 Consignment Agents and 27 Customer Contact Offices. CMOs domestic marketing effort is supplemented by its ever widening network of rural dealers who meet the demands of the smallest customers in the remotest corners of the country. SAIL's International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 unit of CMO, undertakes exports of Mild Steel products and Pig Iron from SAILs five integrated steel plants.

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With technical and managerial expertise and know-how in steel making gained over four decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients world-wide. SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute (MTI) and Safety Organisation at Ranchi. Our captive mines are under the control of the Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISO Certified. Vision To be a respected world class corporation and the leader in Indian steel business in quality, productivity, profitability and customer satisfaction. Credo We build lasting relationships with customers based on trust and mutual benefit. We uphold highest ethical standards in conduct of our business. We create and nurture a culture that supports flexibility, learning and is proactive to change. We chart a challenging career for employees with opportunities for advancement and rewards. We value the opportunity and responsibility to make a meaningful difference in people's lives.

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MAJOR UNITS Integrated Steel Plants


Bhilai Steel Plant (BSP) in Chhattisgarh Durgapur Steel Plant (DSP) in West Bengal Rourkela Steel Plant (RSP) in Orissa Bokaro Steel Plant (BSL) in Jharkhand IISCO Steel Plant (ISP) in West Bengal

Special Steel Plants


Alloy Steels Plants (ASP) in West Bengal Salem Steel Plant (SSP) in Tamil Nadu Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Ferro Alloy Plant

Chandrapur Ferro Alloy Plant

Subsidiary

SAIL Refractory Company Limited

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MOUs: SAIL has signed MoUs with several Indian and foreign companies to pursue its strategic interests:

POSCO,Korea: Strategic alliance for cooperation in a wide range of business & commercial interest areas. Pursuant to this, another MoU has been signed for joint venture initiative in the area of (a) manufacture & commercialisation of CRNO; & (b) Exploration of upstream & downstream opportunities in utilising FINEX technology by both the companies

Kobe Steel Limited (KSL), Japan: To explore by joint feasibility study, the technical & economic feasibility of ITmk3 technology for producing premium grade iron nuggets using iron ore fines and non coking coal. Another MoU for collaborating and cooperating for studying the possibility of producing high value products such as (i) products for automobiles, (ii) products for nuclear and ordinary power plants, such as forged material and tubing material, (iii) special alloy steels and bars, and stainless steel tube and/or any other products mutually agreed to between the parties.

Rashtriya Ispat Nigam Ltd. (RINL): For jointly exploring and developing high grade low silica limestone deposits of Qalhat in the sultanate of Oman for supply to steel plants of SAIL & RINL on a long term basis.

Larsen & Toubro Ltd (L&T): To jointly set up, develop, manage and own captive/independent power plant(s) at suitable location/s to meet future power requirements of SAIL including opportunities to own captive thermal coal blocks to cater to the power plants requirements.

National Mineral Development Corporation (NMDC): For jointly developing limestone mine at Arki in Solan district of Himachal Pradesh in 50:50 JV which will supply high grade low silica Limestone primarily to the steel plants of SAIL & NMDC.

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Joint Ventures:

NTPC SAIL Power Company Pvt. Limited (NSPCL): A 50:50 joint venture between Steel Authority of India Ltd (SAIL) and National Thermal Power Corporation Ltd (NTPC Ltd); manages SAILs captive power plants at Rourkela, Durgapur and Bhilai with a combined capacity of 814 megawatts (MW).

Bokaro Power Supply Company Pvt. Limited (BPSCL): This 50:50 joint venture between SAIL and the Damodar Valley Corporation (DVC) is managing the 302-MW power generating station and 660 tonnes per hour steam generation facilities at Bokaro Steel Plant.

Mjunction Services Limited: A 50:50 joint venture between SAIL and Tata Steel; promotes e-commerce activities in steel and related areas. Its newly added services include e-assets sales, events & conferences, coal sales & logistics, publications, etc.

SAIL-Bansal Service Centre Limited: A joint venture with BMW Industries Ltd. on 40:60 basis for a service centre at Bokaro with the objective of adding value to steel.

Bhilai JP Cement Limited: A joint venture company with Jaiprakash Associates Ltd on 26:74 basis to set up a 2.2 million tonne (MT) slag-based cement plant at Bhilai.

Bokaro JP Cement Limited: Another joint venture company with Jaiprakash Associates Ltd on 26:74 basis to set up a 2.1 MT slag-based cement plant at Bokaro.

SAIL & MOIL Ferro Alloys (Pvt.) Limited : A joint venture company with Manganese Ore (India) Ltd on 50:50 basis to produce ferro-manganese and silico-manganese required in production of steel.

S & T Mining Company Pvt. Limited: A 50:50 joint venture company with Tata Steel for joint acquisition & development of mineral deposits; carrying out mining of minerals including exploration, development, mining and beneficiation of identified coking coal blocks.

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International Coal Ventures Private Limited: A joint venture company/SPV promoted by five central PSUs, viz. SAIL, CIL, RINL, NMDC and NTPC (with respectively 28.7%, 28.7%, 14.3%, 14.3% and 14.3% shareholding) aiming to acquire stake in coal mines/blocks/companies overseas for securing coking and thermal coal supplies.

SAIL SCI Shipping Pvt. Limited: A 50:50 joint venture with Shipping Corporation of India for provision of various shipping and related services to SAIL for importing of coking coal and other bulk materials and other shipping-related business.

SAIL RITES Bengal Wagon Industry Pvt. Limited: A 50:50 joint venture with RITES to manufacture, sell, market, distribute and export railway wagons, including high-end specialised wagons, wagon prototypes, fabricated components/parts of railway vehicles, rehabilitation of industrial locomotives, etc., for the domestic market.

SAIL SCL Limited: A 50:50 JV with Government of Kerala where SAIL has management control to revive the existing facilities at Steel Complex Ltd, Calicut and also to set up, develop and manage a TMT rolling mill of 65,000 MT capacity along with balancing facilities and auxilliaries.

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HISTORY
The Precursor SAIL traces its origin to the formative years of an emerging nation - India. After independence the builders of modern India worked with a vision - to lay the infrastructure for rapid industrialisaton of the country. The steel sector was to propel the economic growth. Hindustan Steel Private Limited was set up on January 19, 1954. Expanding Horizon (1959-1973) Hindustan Steel (HSL) was initially designed to manage only one plant that was coming up at Rourkela. For Bhilai and Durgapur Steel Plants, the preliminary work was done by the Iron and Steel Ministry. From April 1957, the supervision and control of these two steel plants were also transferred to Hindustan Steel. The registered office was originally in New Delhi. It moved to Calcutta in July 1956, and ultimately to Ranchi in December 1959. The 1 MT phases of Bhilai and Rourkela Steel Plants were completed by the end of December 1961. The 1 MT phase of Durgapur Steel Plant was completed in January 1962 after commissioning of the Wheel and Axle plant. The crude steel production of HSL went up from .158 MT (1959-60) to 1.6 MT. A new steel company, Bokaro Steel Limited, was incorporated in January 1964 to construct and operate the steel plant at Bokaro.The second phase of Bhilai Steel Plant was completed in September 1967 after commissioning of the Wire Rod Mill. The last unit of the 1.8 MT phase of Rourkela - the Tandem Mill - was commissioned in February 1968, and the 1.6 MT stage of Durgapur Steel Plant was completed in August 1969 after commissioning of the Furnace in SMS. Thus, with the completion of the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT at Durgapur, the total crude steel production capacity of HSL was raised to 3.7 MT in 1968-69 and subsequently to 4MT in 1972-73.

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ORGANIZATIONAL STRUCTURE

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ANALYSIS AND INTERPRETATION

FUNDAMENTAL ANALYSIS: Profitability Ratios:


1. Operating Profit Margin: This ratio indicates the profitability of current operations. This ratio does not take into account the company's capital and tax structure. Operating Profit Margin = Operating Income (EBIT)/Net Sales. The operating profit margin of SAIL is as follows: Particulars Operating Profit Margin (%) Mar '12 13.15% Mar '11 16.37% Mar '10 22.70% Mar '09 20.41% Mar '08 28.20%

From the above data we can see that the operating profit margin of SAIL is decreasing over the years except in FY2010 which clearly signifies the fact the operating costs have been increasing especially the expenditure on raw materials and the power & fuel costs have been increasing which lead to reduction in the operating profit margins. Comparing SAILs operating profit margin with the industries average it is performing little better but has is following the same trend.

2. Net Profit Margin: Net profit margin is a key financial indicator used to asses the profitability of a company.

Net profit margin is an indicator of how efficient a company is and how well it controls its costs. The higher the margin is, the more effective the company is in converting revenue into actual profit.Net profit margin is mostly used to compare company's results over time. To compare net profit margin, even between companies in the same industry, might have little meaning. The net profit margins of SAIL are:

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Particulars Net Profit Margin (%)

Mar '12 7.71%

Mar '11 11.53%

Mar '10 16.64%

Mar '09 14.10%

Mar '08 18.86%

The trend of net profit margin of SAIL is the same as the trend of operating profit margin, the reason being increase in the interest amount every year from 2008. Comparing SAILs with other companies in the same industry like TISCO, JSW and Bhushan Steel. 2012 Tata Steel JSW Bhushan Steel 19.79% 5.07% 10.30% 2011 23.43% 8.70% 14.47% 2010 20.24% 11.13% 15.05% 2009 2008

21.36% 23.85% 3.27% 8.45% 15.17% 10.14%

From the above data we can clearly see that the net profit margin of the major competitor of SAIL that is NPM of TISCO has been much higher in 2011 and 2012 when compared to that in 2008-2010. On the other hand the NPM of SAIL has been more than JSW its another major competitor. Whereas in comparison to Bhushan Steel the NPM of SAIL was better during the years 2008-2010 but from the past two it has earned less NPM than Bhushan Steel. By this it can be justified that the SAILs performance in terms of NPM has been declining over the years.

3. Return on Capital Employed: ROCE reflects a companys ability to earn a return on all of the capital that the company employs. ROCE is calculated by determining what percentage of a company's utilized capital it made in pre-tax profits, before borrowing costs. To calculate ROCE, you determine what percentage of a company's invested capital it made in pre-tax profit before borrowing costs. The ratio looks like this: = Profit before Interest and Taxation /Capital Employed.

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ROCE is a useful measurement for comparing the relative profitability of companies. But ROCE is also an efficiency measure of sorts; ROCE doesnt just gauge profitability as profit margin ratios do, it measures profitability after factoring in the amount of capital used. Particulars Return On Capital Employed(%) Mar '12 10.81% Mar '11 12.17% Mar '10 18.49% Mar '09 25.17% Mar '08 43.15%

Since the Net Profit of SAIL has been decreasing due to various mentioned reasons the capital employed is also been reducing. When compared to the industry average SAIL has almost the same average as the industry in spite of being the market leader. Moreover the Net worth that is the sum of Share Capital and Reserves has been increasing because of increase in the reserves of the company but since the returns are decreasing it can be said that SAIL has is not being able to use is extra capital and get returns on it. Speaking about the debt which was increased to Rs.7583.79 crores in 2009 from 3045.24 in 2008 and was further increased to RS.16511.25 crores in 2010 and Rs.20165.49 crores in 2011 being the major reason for decline in its return on the total capital employed. 4. Return on Assets: An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment". The formula for return on assets is:

Return on Assets

Mar '12 6.34%

Mar '11 8.57%

Mar '10 13.56%

Mar '09 17.38%

Mar '08 28.87%

The return on Assets of the company though slightly better than the industrys average still has been decreasing form 2008 to 2012 because of the fact that its Net Profit Margin is also declining. To add the assets of SAIL also increased from Rs.35522.89 crores in 2008 to 55908.53 crores in 2012.
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Liquidity and Solvency Ratios:

1. Current Ratio: Current ratio measures the company's ability to pay its short-term liabilities from shortterm assets. Current ratio = Current Assets / Current Liabilities Current Ratio <= Going bankrupt! 1 1< Current Ratio <= May experience difficulties in facing short term 2 2< Current Ratio commitments.

<= Normal, depending on the industry 5 standards for companies of similar size and activity.

5<

Current Ratio Particulars Mar '12 1.71

Very little short term debt! Mar '11 1.12 Mar '10 0.95 Mar '09 1.32 Mar '08 1.16

Current Ratio

The current ratio of SAIL is 1.71 which tells that it can experience difficulties in facing short term commitments. However taking into consideration the current ratio in 2008 and 2010 SAIL has improved in terms of meeting its short term debt. To add, the industry average CR is .99 in 2011 and was 1.03 in 2010, by which we can say that SAIL has improved a lot.

2. Quick Ratio: Quick ratio also known as Liquidity Ratio or Acid Test, it measures the ability of a company to pay off its short-term obligations from current assets, excluding inventories. The reason of excluding inventories is due to it's low liquidity and thus quick ratio provide better measurement of company ability to paid off it current obligations compare
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to current ratio. Quick ratio does not apply to companies with inventory is easily converted into cash, use current ratio instead. Quick ratio = (Current Assets - inventory) / Current Liabilities Quick Ratio 1< 2< Quick Ratio Quick Ratio <= 1 <= 2 <= 5 Dangerous Zone. Very low liquidity. May fail to meet short term commitments Normal, depending on the industry standards for companies of similar size and activity. 5< Quick Ratio Mar '12 0.77 Very little short term debt! Mar '11 Mar '10 0.31 0.28 Mar '09 0.33 Mar '08 0.39

Particulars Quick Ratio

From the above data and information we can conclude that SAIL has always been in dangerous zone and has very low liquidity. However it has been trying to improve it since 2012. To add, the industry average QR is 0.56 in 2011 and was 0.68 in 2010 which again tells us that after 2010 SAIL has drastically improved its conversion into cash.

3. Net Working Capital: A measure of both a company's efficiency and its short-term financial health. The net working capital is calculated as

Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory). Hence SAIL is able to pay off its short-term liabilities.

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Debt Coverage Ratios:


1. Debt Equity Ratio: Debt to stockholder's equity measures the long-term component of the capital structure. Debt to stockholder's equity = Total Debt / stockholders' equity. In case of SAIL the debt-equity ratio in 2008 was 0.13 which now increased to 0.40 in 2012 whereas the ideal debt-equity ratio is 2:1. Hence as per the ideal ratio SAIL can increase its debt.

2. Interest Coverage Ratio: The interest coverage ratio is considered to be a financial leverage ratio in that it analyzes one aspect of a company's financial viability regarding its debt.

Particulars Interest Coverage

Mar '12 10.90

Mar '11 18.97

Mar '10 29.28

Mar '09 43.22

Mar '08 51.68

From the above data it is clear that there is great difference in the interest coverage ratio since 2008. Though there is lot of fluctuation in the operating profit and debt amount each year in fact SAIL cleared its little debt last year therefore the ratio is decreasing continuously.

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Activity Ratios:
1. Debtors turnover ratio: It indicates the number of times average debtors (receivable) are turned over during a year.

Debtors Turnover Ratio = Total Sales / Debtors Debtors turnover ratio indicates the number of times the debtors are turned over a year. The higher the value of debtors turnover the more efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. The turn over ratio of SAIL has been decreased from 15.15 to 10.72 from 2008-2011. This tells that SAILs efficiency in terms of liquidating debtors has been decreasing.

2. Total Asset turnover ratio: The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales. This ratio considers all assets, current and fixed. Those assets include fixed assets, like plant and equipment, as well as inventory, accounts receivable, as well as any other current assets. Total Asset Turnover Ratio = Total Sales/Total Assets The lower the total asset turnover ratios, as compared to historical data for the firm and industry data, the slower are the firm's sales. This may indicate a problem with one or more of the asset categories composing total assets - inventory, receivables, or fixed assets. The problem could be in more than one area of current or fixed assets. In case of SAIL their total asset turnover ratio was decreasing from 2008 but again increased in 2012 because of more percentage increase in the sales.

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Earnings per share:


The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. Calculated as:

When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period. Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number. The earnings per share of SAIL over the years are mentioned below: Particulars Earnings Per Share Mar '12 8.58 Mar '11 11.87 Mar '10 16.35 Mar '09 14.95 Mar '08 18.25

From the above data it is clearly evident that the EPS of SAIL has been decreasing year by year except in 2010. There has hardly been any change in the number of outstanding shares of SAIL so it is obvious that the reason for reducing earnings of the shareholders is because of the reducing net profit of the company.

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TECHNICAL ANALYSIS:

Trend line Analysis

The following chart shows the long term stock prices movement of the steel industry leader SAIL. The line in the above figure is the trend that the companys stock is following from the past five years. It is clearly evident that there is downward trend which signifies the fact that there is NEGATIVE rate of price change over time.

Support and Resistance Analysis Figure 1: Trend for 5 years Figure 2: Trend for 1 year

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Figure 1

Figure 2 From the above Figure 1 we can see that SAIL has formed a Resistance level (R1) at Rs.220 after which the attempt to control the increase in price was made and was successful in 2007 and
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mid 2010, further at R2 that is Rs.240 the stock price of SAIL was not increased hence it is the resistance level. Similarly the support levels S1 and S2 are formed at Rs.110 and Rs.90 below the stock price was controlled however recently the stock is trading even below the S2 which can be set in support level when taken into consideration the one year time horizon of the stock prices that is figure 2, in which the R1 itself is Rs.110 which is close to S1 of five year stock movements and there is a control recently at S2 seeing the one year time horizon. However as mentioned earlier Support and resistance exist in all time frames but levels in longer time frames are stronger than those in shorter time frames.

Chart Patterns Analysis


Double Top and Double Bottom Analysis

In this figure the concept of Double Top and Double Bottom is clearly followed as we can see in mid July 2012 there was one of the double tops where the price challenged its resistance level moving away from its range, after which there was a fall till the support level of the stock price in September 2012 and the other top during late September lead to reach the support level in November 2012, both the support levels becoming the double bottom for the stock price and
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hence based on the assumption of the technical analysis that the history repeats itself we can say that the stock will increase for the next coming months. Flag The following figure has two flags during January February 2012 and April May 2012 respectively, first one disturbing the upward trend of the stock and the second one interrupting the downward trend. After the first flag was formed we can clearly the decrease up to the range from resistance in the stock prices of SAIL and after the second flag was formed there was a slight increase in SAILs stock prices from Support level to the normal range.

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Rectangle

A rectangle can be formed during the period of late 2009 to mid 2010s where there was a fluctuation in the stock price (increased prices in this case) after which the stock price of sail again came back to Rs.200. Descending Triangle The stock is following a downtrend in the 5 year time horizon forming a descending triangle in which the downtrend line is flat and the resistance level line or the upper trend line is falling. When these two lines converge the break out possibility increases which is not far in case of SAIL if it continues to fall in the same manner.

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Comparing with the markets performance

There is a good correlation between the market returns and SAILs returns with mostly a slight lesser amount of return till 2010 and after that when SAILs stock gave more returns than the market till date the companys stock returns are not following the same pattern as the market returns in fact are moving exactly opposite to the market returns in the recent times showing a bad indication to the company.
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Simple Moving Average

Exponential Moving Average

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From the theory of moving averages we know that if the recent moving averages are coinciding and are above the longer periods moving average then the stock is likely is show an upward trend but in case of SAIL the 50 days moving average and 100 days moving average are below the 200 days moving average indicating the down trend for its stock price, hence the investors are advised to short sell the stock rather than buying it.

Bollinger Bands

From the above figure we can say that the volatility of the stock is going to increase as the two upper and lower bands are very close to each other. We can also say that the SAILs shares are oversold in the market as the lower band is coinciding with the price level signifying the fact that there are less number of buyers in the market. It also tells us that the supply of SAILs stocks is more than its demand.

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CONCLUSION AND RECCOMENDATIONS


From the above done fundamental analysis we can say that SAILs performance is declining over the period of five years as the crucial determination for the companys performance that is its profitability ratios are decreasing continuously from 2008 till date because of which its share prices also came down to around Rs.78 from around Rs.220 in 2008. The returns on assets and capital employed are also gradually decreasing contributing to the decrease of share prices. Still the company is trying to maintain and improve its liquidity and solvency ratios but is still away from meeting the standards. However sail has been increasing its debt but its still less when compared to the ideal standards. Moreover the activity ratios of SAIL are also giving a negative signal for the company. Speaking about the most important ratio for the shareholders that is EPS which has decreased from Rs.18 in 2008 to Rs.8.58 in 2012 in spite of growing market and inflation. With the help of technical analysis there is noticeable decrease in the share price of SAIL from five years the peak price that it reached during the period 2008-2012 was around Rs.240 which was the normal trading range price during and before 2008. However from the patterns formed from technical analysis like double bottom in recent period and the share price line touching the lower band of the Bollinger bands are giving an indication of increasing price as after the double bottom the share price will reach its resistance level as per the assumption of technical analysis that is history repeats itself and in history whenever there was a bottom the price went up to its resistance level which is a good indication for the investors to buy the shares. If the share price increases the companys performance is also expected hence increasing the ratios and the EPS.

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REFERENCES
moneycontrol.com ncfm Module invesopedia.com tradersedgeindia.com slideshare.com cmsfx.com bse.com nse.com www.sail.com Financial Management by Sheebha Kapil Financial Management by IM Pandey

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