Financial Management

Case 3 : Krakatau Steel (A) Financial Management

Created by:
Syndicate 4 YP 50 B
Reynold Andika

29113319

Tanri Ariandi

29113453

Fitria Rizki

29113462

Dian Putri P.

29113499

Gian Lawalata

29113546

Master of Business Administration

School of Business and Management
Institut Teknologi Bandung
2014

I. BACKGROUND
PT Krakatau Steel Tbk is an extremely well-known steel company in
Indonesia and also the largest steel manufaturer in Southeast Asia. In 2009, the
company has become a market leader with domestic market share 57% in HRC (Hot
Rolled Coil), 32% in wire rod and 33% in CRC (Cold Rolled Coil). Krakatau steel has
ten subsidiaries.
First Initial Public Offering (IPO) of Krakatau in November 2010. PT
Krakatau Steel Tbk offers 3.155.000.000 shares to public which is 20% of the paid-up
capital in order to expand its production capacity, beside adding more production
machine, PT Krakatau Steel Tbk is also planning to use 24,2% of the IPO income to
buy the raw materials (iron ore pellet, scrap, billet and slab), 25% to finance
maturation of 388 hectares land for integrated steel mills project with POSCO) and
15% to increase the capital investment in two PT Krakatau Steel Tbk subsidiary, PT
Krakatau Bandar Samudera and PT Krakatau Daya listrik.
But during the IPO there has been conflicts going on, the share price was
claimed too low. At first offering (2-4 November 2010), 3.155.000.000 shares were
offered at price Rp 850,- per share. At the same time Ministry of State Owned
Enterprises, Mustafa Abubakar and the underwriter denotes the price of its initial
public offering of shares (initial public offering / IPO) of PT Krakatau Steel is
already optimal. This issue triggers Bambang to do a financial performance
measurement of Krakatau Steel compare to other local steel companies. Bambang
decides to compare it to the financial performance of PT Gunawan Dianjaya Steel
and PT Jaya Pari Steel as the steel companies which were already settled in BEI
before PT Krakatau Steel.

II. ANALYSIS
In this case, mr Bambang Suproyatno want to analyze three company, which is
krakatau steel, gunawan dianjaya, and jaya pari. He wanted to know which of those
company is worthed to invest. In order to analyze the perfomance of company, there 3
kind of analysis that can be used :
1 Trend Analysis
Trend analysis is use to analyze the company continuos growth. The better
growth rate of one company, describe the stability of company performance. To
determine the growth of amount of return from of the company, we use 4 aspect
which is revenue, return, market and debt performance for the input value at CAGR
Formula. The comparison table of the 3 company provide below

KRAKATAU STEEL
?"
REVENUE
Gross Profit Margin
GROSS PROFIT / REVENUE
Operating Profit Margin OPERATING PROFIT / REVENUE
Net Profit Margin
NET INCOME / REVENUE
COGS to Revenue
COGS / REVENUE
Operating Exp to Revenue OPERATING EXP / REVENUE
MARKET
Earning per share
NET INCOME / REVENUE
Book value per share EQUITY / OUTSTANDING SHARE
RETURN
Return on Assets
NET INCOME / ASSET
Return on Equity
NET INCOME / EQUITY
DEBT
Debt to Equity
DEBT / EQUITY
Debt to Capital
DEBT / CAPITAL

GUNAWAN DIANJAYA

2007

2008

2009

2010

2007

2008

2007

2008

2009

2010

11,95%
5,34%
2,11%
88,05%
6,60%

13,16%
6,59%
2,23%
86,84%
6,57%

7,01%
0,15%
2,92%
92,99%
6,86%

15,04%
0,67%
7,15%
84,96%
8,36%

21,01%
14,86%
7,76%
78,99%
6,15%

18,54% -11,45% 17,37% 16,17%

18,54% -12,73% 12,51% 12,70%
2,75% -9,14% 10,00% 9,70%
86,84% 111% 82,63% 83,83%
4,73% 5,24% 5,32% 3,46%

15,69%
13,37%
13,37%
84,17%
2,32%

11,55%
6,60%
0,66%
88,12%
4,95%

13,08%
8,88%
6,54%
86,92%
3,97%

Rp31
Rp46
Rp39 Rp81 Rp38.024,69 Rp24.585
Rp2.719.881 Rp2.719.881 Rp580.584 Rp589 No data No data

2009

JAYA PARI

Rp26
Rp82

2010

Rp21 Rp55 Rp65 Rp2 Rp38

Rp79 Rp295 Rp360 Rp363 Rp400

2,82%
6,18%

2,99%
8,45%

3,87%
8,52%

6,04%
11,43%

18,19%
No data

3,97% -15,45% 15,92% 15,61% 12,28% 0,01% 6,81%

No data -31,63% 26,51% 19,00% 18,15% 0,74% 9,33%

88,02%
135,19%

158,64%
261,23%

120,40% 89,20%
210,42% 92,92%

No data
No data

No data 104,67% 66,41% 21,82% 47,78% 30,51% 37,00%

No data 56,74% 48,97% 64,00% 172,00% 110,67% 148,00%

Using the data we can calculate the value of CAGR. The higher company CAGR
value, the better it perfomance. The calculation of CAGR presented below :

TABLE COMPARASION (CAGR Calculation Trend 2007 - 2010)

KRAKATAU STEEL

GUNAWAN STEEL

JAYA PARI STEEL

8%
8%
50%
-1%
8%

-6%
-6%
9%
2%
-5%

-7%
-11%
-12%
1%
5%

38%
-89%

-92%
no data

-12%
11%

29%
23%

-4%
no data

-24%
-21%

0%
-12%

no data
no data

19%
32%

Revenue Aspects
Higher is better
Gross Profit Margin
Higher is better
Operatin Profit Margin
Higher is better
Net Profit Margin
Lower is better
COGS to Revenue
Lower is better
Operatin Expense to Revenue
Due of IPO its normal the Market Aspects
book value is significantly Earnings per share
Book Value per share
decreasing for KS
Return Aspect
Higher is better
Return on Assets
Higher is better
Return on Equity
Debt
Lower is better
Debt to equity
Lower is better
Debt to Capital

Comparing the three company above, krakatau steel showed the best performance due
to its stability in growth of financial performance. So investing in Krakatau steel is a
good idea base on this analysis.
BUMN Financial Scoring Framework
Using Financial Scoring Framework , financial ratio as a benchmark for scoring
the Financial Scoring Framework :
o Return of Equity
o Return of Investment
o Cash Ratio
o Current Ratio
o Collection Period
o Inventory Turnover
o Total Asset Turnover
o Total Equity to Total Asset

Krakatau Steel
Financial Indicators
Return of Equity
Return of investment
Cash Ratio
Current Ratio
Collection Period
Inventory Turnover
Total Asset Turnover
Total Equity to Total Asset
Total Score
Category

Ratio
11,4%
13,4%
60,5%
177,3%
29,1
160,9
84,5%
52,9%

Gunawan Dianjaya Steel

Score
16
12
5
5
5
3
7
2,5
55,5
Healthy
Grade A

Financial Indicators
Return of Equity
Return of investment
Cash Ratio
Current Ratio
Collection Period
Inventory Turnover
Total Asset Turnover
Total Equity to Total Asset
Total Score
Category

Ratio
26,55%
34,24%
0,89%
169,03%
20,0
118,9
159,15%
60,09%

Score
20
15
0
5
5
4
5
8,5
62,5
Less Healthy
Grade AA

PT. Jayapari Steel

Financial Indicators
Return of Equity
Return of investment
Cash Ratio
Current Ratio
Collection Period
Inventory Turnover
Total Asset Turnover
Total Equity to Total Asset
Total Score
Category

Ratio Score
9,48%
14
14,25% 12
12,17%
2
276,83% 5
79,9
4,5
95,4
4
104,01% 4
72,98% 7,5
53
Healthy
Grade BBB

Table above present the result of BUMN health Classification. From that table we can
take some point:
1. As the year of 2010, Krakatau Steel has a total score by 55 Grade A , that
means healthy company.
2. As the year of 2010, Gunawan Dianjaya Steel has a total score by 62.5
Grade AA , that means healthy company
3. As the year of 2010, Jaya Pari Steel has a total score by 53 Grade BBB , that
means less healthy company
What we are seeking from analysis in BUMN health is the company welfare, as we
knew that, from the table Gunawan Dianjaya is the most welfare company. So base on
this analysis its decided to put Gunawan Dianjaya as the best company.


DuPont Formula
Dupont formula is based from ROE formula which modified. ROE is a basic
aspect to determined how valuable a company in the eyes of investor. The higher
ROE also the more valuable.

Year 2010
Krakatau Steel

ROE RESULT
11,43%

Year 2010
Jayapari Steel

ROE RESULT
9,48%

Year 2010
ROE RESULT
Gunawan Dianjaya Steel
26,55%
Gunawan Dianjaya Steel shows the highest ROE base on of Dupont analysis.
The result of Dupont Analysis has a positive correlation with the result of Dupont.
A company with good Dupont ROE

ratio is actually have a good financial

performance. Combined the three analysis before, resulting in one company which is
Gunawan Dianjaya, as the best choice company to invest in.

In 2010 PT Krakatau Steel achieved the stage as the healthiest company with

a grade A using Financial Scoring Framework instruments financial performance.

Which mean, to invest your capital in this company is a good decision and also
low financial risk.
Using the Financial Performance instruments such as CAGR Formula we can
calculate, measure and analyze the financial performance of the companies. In
this case if PT Krakatau Steel is comparing to the similar companies, PT Krakatau
Steel is much more promising both its investment return and business growth.

In this case, Krakatau only got ROE 11,43% lower than Gunawan Dianjaya Steel .
It is may happen because the size, and other aspects of the company, the bigger
the company, the more complex they are.

III. CONCLUSSION

Trend analysis shows Krakatau steel as the best choice to invest

BUMN Financial Scoring Framework and Dupont analysis resulting in

Gunawan Dianjaya as the right choice one.

ROE is not the righteous framework to see a company performance, as its a

good one, but sometimes in choosing a good performance we have to relied to
other variable as comparison or second opinion

Analytical method is only a tool to select or make a point of a company, but

the it is not absolute.

IV. RECOMMENDATION
Based on DuPont analysis, we recommend Mr. Bambang to invest in Gunawan
Dianjaya Steel. They have the highest result among another, so as an investor we
should find the best perfomance and with 26,55% of ROE the company has good
financial performance among the other.