!

Preface

Projects are an indispensable part of any kind of formal education. They help us to have a

practical exposure as well as better outlook of the subject, which we are studying.

I did my summer project in Reliance Mutual Fund, Pune. My project topic was to find out

Investment Opportunities in Indian Steel Sector. This project is to study the Indian Steel Industry

and the various factors that affect its performance. The objective is to find out intrinsic value of

the selected companies from Indian Steel Industry. While investing money in any company

people consider the performance of the company. But there are various factors that affect

company’s performance. Theses factors are analyzed at three levels.

1st Economic factor: - These are the factors that influence the economy and the company as well.

The effect of these factors is less on company performance.

2nd Industry factors:- These factor effects the whole industry as well as the company like-

industry growth, competition etc…

3rd Company factors: - These are the factors which are inside the company. They affect the

company most. Like- Sales, Net profit, EPS etc…

I will be satisfied if the organization gets benefit from the study and the findings.
 TABLE OF CONTENT

Sr. No. Content Page No.

1. Acknowledgement 5

2. Self declaration 6

3. Company Certificate 7

4. Company Profile 8

5. Project Introduction 11

6. Objective and Limitation of research 12

7. Research Methodology 13

8. World Steel Industry – Overview 14

9. Indian Economic Analysis 17

10. Indian Steel Industry Analysis 22

11. Company Analysis 27

11.1 Tata Steel Limited – Financial Statement Analysis 33

Projected Profit & Loss A/c 36

Intrinsic value calculation of TATA shares 37

11.2 SAIL- Financial Statement Analysis 41

Projected Profit & Loss A/c 44

Intrinsic value calculation of SAIL shares 45

"
 11.3 Bhushan Steel Limited- Financial Statement Analysis 48

Projected Profit & Loss A/c 51

Intrinsic value calculation of Bhushan Steel shares 52

11.4 Jindal Steel & Power Limited- Financial Statement Analysis 55

Projected Profit & Loss A/c 58

Intrinsic value calculation of Jindal Steel & Power Ltd. shares 59

11.5 ISPAT Industries Limited- Financial Statement Analysis 62

Projected Profit & Loss A/c 65

Intrinsic value calculation of ISPAT Industries Ltd. shares 66

12. Finding and Conclusions 69

13. References 71

#
 ACKNOWLEDGEMENT

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 Self declaration

This is to certify that the dissertation / project report entitled “INVESTMENT

OPPORTUNITY IN INDIAN STEEL SECTOR” with special reference to

“RELIANCE MUTUAL FUND” is done by me in an authentic work carried out

for the partial fulfillment of the requirement for the award of the degree of PGDM.

The matter embodied in this project work has not been submitted earlier for award

of any degree or diploma to the best of my knowledge and belief.

DEEPAK

Roll No. 9218

%
&
 Company profile

Reliance Mutual Fund

Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of the fastest

growing mutual funds in the country. Reliance Mutual Fund (RMF) is one of India’s leading Mutual

Funds, with Average Assets Under Management (AAUM) of Rs. 1,02,179 Crores and an investor count

of over 73 Lakh folios. (AAUM and investor count as of July 2010). RMF offers investors a well-rounded

portfolio of products to meet varying investor requirements and has presence in 159 cities across the

country. It is an ISO 9001:2000 certified company, which offers innovative mutual fund products to a

wide pool of customers.

Details of Reliance Mutual Fund:

• The schemes of Reliance Mutual Fund are being managed by Reliance Capital Asset

Management Ltd, which is a subsidiary of Reliance Capital Limited.

• Reliance Capital Ltd holds 93.37% of the paid-up capital of the Reliance Capital Asset

Management Ltd.

• Reliance Mutual Fund continues to be the largest fund house in terms of average assets with an

AAUM of Rs 1, 02,179 crore in July 2010.

• Reliance Mutual Fund has over 14 years of extensive market experience, 47 schemes (as

on July 31, 2010) combined with a strong performance track record.

'
Different types of mutual fund offered by the Reliance Mutual Fund:

• Equity / Growth based products- The main objective of investing in such scheme is to provide

capital appreciation over the medium to long- term range. Generally, in such schemes a major

portion of the accumulated sum is invested in equities.

• Debt / Income based products- the main objective of investing in such scheme is to provide

regular and steady income to the investors of such funds. Generally, in such schemes a major

portion of the accumulated sum is invested in fixed income securities.

• Sector Specific products - The main objective of investing in such funds is to gain leverage out of

the fast growing sectors. Generally, in such schemes all the sum accumulated is invested in

securities of a particular type of sector.

AMC (Assets Management Company)

AMC:- A company that invests its clients' pooled fund into securities that match its declared

financial objectives. Asset management companies provide investors with more diversification

and investing options than they would have by themselves.

Mutual funds, hedge funds and pension plans are all run by asset management companies. These

companies earn income by charging service fees to their clients.

Reliance Mutual Fund’s capital are managed by Reliance Capital Assets Management

Company (RCAM), which is a subsidiary of Reliance Capital Limited.

This is an &#' " $ Public Limited Company incorporated under the Companies Act, 1956 on

February 24, 1995. RCAM is authorized to act as Investment Manager of the Mutual Fund.
 Management pillars of reliance mutual fund

Board of Directors

Mr. Soumen Ghosh Mr. Kanu Doshi Mr. Manu Chadha Mr.Sushil Tripathi

Management Team

CEO Head Equity Investments Head Fixed Income

-
Mr. Sundeep Sikka Mr. Madhusudan Kela Mr. Amitabh Mohanty
 Project Introduction

Investment Opportunities In Indian Steel Sector:- In today’s time people are more aware about

making good use of there money, specially saving. So they search the available options and invest in the

one, that is suitable to there requirement. Now the share market awareness is also increasing. So many

investors invest direct in the market. Many other options are there like:- Mutual Funds, Ulips ,Insurances.

So these companies also invest the money in the market. Before investment they should know the future

prospects, where they are going to invest. This project is to find out the investing opportunities in the

Indian steel sector for the investors. If somebody is going to invest in this area, this project can be a help

to that one (Person, Investment institute).

This project requires financial analysis of a Indian steel companies, opportunities or

threats to them in the economy. The competitive and management advantages of a company. Historical

and present data is used in this analysis, called as Fundamental Analysis, ultimate goal to make financial

forecast. So the basic analysis which is done in this project is done is Fundamental Analysis to find the

Investment opportunities in Indian steel sector. This analysis provides a pool of information to the

investors based on that he has to decide whether to invest or withdraw money from earlier investment.
 Objective of research

Every research has its objective. So without objectives it is useless. The objective of my research is

following:-

To study the steel industry.

To find out the intrinsic value of selected five companies of the Indian steel sector.

Limitations

1 The research is based on historical data.

2Future predication is based on various external factors so the projection may not be true.

3 Indian steel sectors have many big companies, so to analyze every company is very difficult so I have

selected five companies.

4 As research is based on secondary data, the data may not provide right information. It may be

manipulated.
 Research Methodology

Collection of data:- Secondary data is used in this research. The data is collected from internet,

newspaper as well as journals. The secondary data include mainly Balance Sheet and Profit & Loss A/c of

a company, various information related to the economy and industry.

Analysis of data: - &#$ + #" ' analysis is used to find out the results. It includes three analyses-

1 Economy analysis: - This is about to analyze all the trends in the Indian economy. Many economic

factors such as income level, demographic factors that can affect economy are taken to analyze.

2 Industry analysis: - In industry analysis the recent trends and many factors such as industry growth,

competition level, demand and supply level etc. that can affect working in the industry are analyzed.

3 Company analysis: - in company analysis the financial statements are used for analysis. Ratio analysis

is used as a tool to analyze the company financial and fundamental position. Ratio includes Liquidity

ratio, Profitability ratio, Solvency ratio and Efficiency ratios.

"
 World Steel Industry – Overview

The world steel industry recorded a high growth rate in production as well as in consumption

over the past few years. The main reason is the soaring steel demand in automobile and in

construction sector before the recession and in recovery. The Asia-Pacific Region- especially

China and India is witnessing higher production and consumption of steel. That is due to per

capita consumption of steel in these countries reaching US/ Europe level. China’s share in steel

production is larger than combined US, Europe, Russia and Japan. India follows China.

Production of steel in 2009-10:-

Total world production was 1,226.5 mmt in 2009, down from 1,329.0 mmt in 2008.

During 2000-2007 steel production grow by 59% from 843 million tons to 1346 million tons. But

in the recession during 2007-2009 it’s production reduced by 8.9% from 1346 million tons to

1226 million tons. But as the recovery goes on from recession there are expectations for growth

in the production as well as in demand of steel.

According to World Steel, the steel demand in US is

expected to increase by 26.5% in 2010, which was down 41.6% in 2009. China is expected to

remain largest consumer of steel in the world with 6.7% increase to579 million tons in 2010,

consuming around 48.4% in 2009. World steel forecasts that apparent steel use will increase by

10.7% to 1,241 mmt in 2010 after contracting by -6.7% in 2009 and Global steel demand is

expected to improve further 5.3% to 1306 million tons in 2011, while 6.7% decline in 2009.

India’s steel demand maintained stable growth during the crisis and is expected to grow by

13.9% and 13.7% in 2010 and 2011 respectively, after 7.7% in 2009. In 2011, India’s apparent

steel use will reach 71.6 mmt.

#
Top 5 steel producing countries in 2009:-

1. China 567.8 mmt

2. Japan 87.5 mmt

3. India 62.8 mmt

4. Russia 60.0 mmt

5. United States 58.2 mmt.

The largest five world steel producing companies in 2009:-

1 ArcelorMittal 77.5 mmt

2. Baosteel 31.3 mmt

3. POSCO 31.1 mmt

4. Nippon Steel 26.5 mmt

5. JFE 25.8 mmt

$
 Short range outlook for apparent steel use, finished steel (2009-2011)

ASU, mmt Growth Rates, %

Regions 2009 (e) 2010 (f) 2011 (f) 2009 (e) 2010 (f) 2011 (f)

European Union (27) 118.4 134.6 145.2 -35.2% 13.7% 7.9%

Other Europe 23.9 27.2 30.4 -12.5% 13.5% 11.9%

C.I.S. 35.8 39.8 43.0 -28.2% 11.0% 8.0%

N.A.F.T.A. 80.9 99.9 107.1 -37.4% 23.5% 7.2%

Central & South America 33.6 40.4 43.1 -24.1% 20.0% 6.7%

Africa 26.4 28.7 31.3 9.6% 8.6% 9.3%

Middle East 40.7 44.7 48.4 -8.0% 10.0% 8.2%

Asia & Oceania 761.5 825.7 857.7 8.7% 8.4% 3.9%

World 1,121.2 1,240.9 1,306.2 -6.7% 10.7% 5.3%

China 542.4 578.7 594.9 24.8% 6.7% 2.8%

BRIC 640.9 692.0 720.7 17.5% 8.0% 4.1%

MENA 57.5 62.9 68.2 0.8% 9.5% 8.4%

World excl. China 578.8 662.2 711.3 -24.5% 14.4% 7.4%

World excl. BRIC 480.3 548.9 585.6 -26.8% 14.3% 6.7%

e = Actual, f = Forecasted

%
 Indian Economy Analysis

The Indian Economy is Eleventh largest economy in the world by nominal value and fourth

largest in purchasing power. Our GDP is worth $3.526 trillion. Our GDP is divided in three main

sectors - Service sector, Industry sector and Agricultural sector. Service sector contributes

62.5% to the GDP while industry sector’s contribution is around 20%. Remaining 17.5%

contribution is done by Agriculture sector. Economy health indicators-

GDP growth:- The fiscal year 2009-10 began as a difficult one. There was a significant

slowdown in the growth rate in the second half of 2008-09, following the financial crisis that

began in the industrialized nations in 2007 and spread to across the world. The GDP growth rate

in 2008-09 was 6.7% with growth in last two quarters around 6%. But the real turnaround came

in the second quarter of 2009-10 when economy grow with 7-9% and the overall growth in

2009-10 fiscal was 7.4% more than expectation of 7.2%. Industrial sector grow with 8.2% and

service sector grow with 8.7% in 2009-10. Indian economy is the second fastest growing

economy after China.

Per capita income and expenditure:-

Income Per capita steel

consumption
Rs (%) Kg

Growth

2004-05 29,745 36.5

2005-06 32,012 7.6 39.5

2007-08 37,328 8.1 49.4

2008-09 38,695 3.7 47.0
2009-10 40745 5.3

&
Population of India:- India occupies 2.4% of world’s land area. But have 17.5% of

world’s population. India is the second most populous country in the world and is projected to be

largest populated country in the world by 2025 surpassing China. Current population level is

1.15 billion people and growth rate is 1.55%. India’s population is growing so fast that it creates

new opportunities and demand. India has the highest number of youth in the world. It shows that

we have a large number of people earning for there family.

Age structure:

0–14 years: 30.8%, male: 188,208,196, female: 171,356,024

15–64 years: 64.3%, male: 386,432,921, female: 364,215,759

65+ years: 4.9%, male: 27,258,259, female: 30,031,289

Population Projections (in millions)

Year Under 15 15–64 65+ Total

2000 361 604 45 1010

2005 368 673 51 1093

2010 370 747 58 1175

2015 372 819 65 1256

2020 373 882 76 1331

Projections according to CSO

'
Indian Automobile & infrastructure sector:-

These are the sector which plays an important role in the

consumption of the steel so the demand of steel depends on the growth of these two

sectors most.

Indian Infrastructure sector:-

The infrastructure sector include various construction activities

related to Roads, Railways and Housing etc. The growth rate accelerated by 5.1 per cent

Year-on-year in April 2010, compared with 3.7 per cent in April 2009. Investment in the

infrastructure sector is expected to be around US$ 425.2 billion during the Eleventh Five Year

Plan (2007-12), as against US$ 191.3 billion during the Tenth Plan. India has the world's second

largest road network, aggregating over 3.34 million kilometers (km).According to the Planning

Commission, the road freight industry will be growing at a compound annual growth rate

(CAGR) of 9.9 per cent from 2007-08 to 2007-12. A target of 1,231 billion tone km (BTK) has

been put on road freight volumes for 2011-12. !! $ # " ' ! 4 ##& ' % , (

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In FY 08, Construction sector contributed about 8.5% to the country’s GDP. Over past 3 years,

construction as a percentage of GDP has increased from 8.0% in FY 06 to 8.5% in FY 08. The 2010

Commonwealth Games in New Delhi throws a mega opportunities for building material companies,

construction equipments & technologies companies for this year. India has a large and growing middle

class population of 300 mn people, out of which a large section is need on new houses. So all these

factors are good for the infrastructure sector.

Indian Automobile sector:- The Automobile industry in India is the seventh largest in the world

with an annual production of over 2.6 million units in 2009. In 2009, India emerged as Asia's fourth

largest exporter of automobiles, behind Japan, South Korea and Thailand. India has emerged as one of the

World’s largest manufacturers of small cars. According to New York Times, India's strong engineering

base and expertise in the manufacturing of low-cost, fuel-efficient cars has resulted in the expansion of

manufacturing facilities of several automobile companies like Hyundai Motors, Nissan, Toyota,

Volkswagen and Suzuki. So the good growth in automobile sector is helpful to the steel industry.
 ()*)+, -./0+1/0)*

Indian economy

Year GDP-

2003 4.3

2004 8.3

2005 6.2

2006 8.4

2007 9.2

2008 9.0

2009 7.4

2010 6.5

2012 8.6*

2014 9.5*

*Estimated by trend analysis.

Indian economy is also expected to grow at a good pace.

 Indian Steel Industry Analysis

India’s economic growth is contingent upon the growth of steel industry of India. Consumption

of steel is taken as the indicator of economic development. While steel continues to have a

stronghold in traditional sectors such as construction, housing, ground transporting specially in

engineering industries such as power generation, petrochemical and fertilizer etc. Steel industry

has been moving from strength to strength. India has emerged the third largest producer of steel

in the world and likely to become second largest producer of steel by 2015-16.

In 2009-10, steel production was 60 million tones that is expected to double to 124

million tones by 2012. The ministry of steel projected for the next five year the demand of steel

will grow at annual growth rate of 10%. The steel consumption rose 8% in the year ended at

March 2010. The steel consumption increase to 56.3 million tones in 2009-10 compared to 52.3

to previous year.

Govt. Policy For Steel Industry:- In 1991 reforms govt. change its policy to encourage

the steel production in the country and power up the growth of the economy and development of

the country. In new policy steel industry was included in the list of ‘High Priority’ industries.

Price and distribution of steel were deregulated from January 1992. Import and export of iron

and steel was freely allowed. Foreign equity investment limit is increased up to 74%.

In 2005 Govt. formulated a National Steel Policy ( NSP ). This policy is formulated with a view

to accelerate the growth of steel industry and attain the vision of India becoming a developed

country by 2020.
Steel Industry Growth:-

Steel production grew at 3.18% in 2009-10 compared to 2008-09. Trends of the

steel production are following.

Year Production Growth

2000-01 29.7 ----

2001-02 30.63 3.13%

2002-03 33.67 9.92%

2003-04 36.19 7.48%

2004-05 40.05 10.66%

2005-06 42.63 6.44%

2006-07 55.16 29.39%

2007-08 58.23 5.56%

2008-09 63.44 8.94%

2009-10 65.46 3.18%

"
Consumption of Steel in India:-

The consumption for the last ten years is given below.

Apparent Consumption of Finished Steel

2000-2001 26.87

2001-2002 27.350 (3.1%)

2002-2003 28.897 (5.32%)

2003-2004 31.169 (7.88%)

2004-2005 34.389 (10.33%)

2005-2006 38.151 (10.9%)

2006-2007 49.777 (30.47%)

2007-2008 52.125 (4.7%)

2008-2009 52.351(0.4%)

2009-2010 56.475 (7.9%)

(Prov.)

#
The increase in the consumption is due to the increasing demand from infrastructure and

automobile sector. As the economy is on recovery and both these sector are recovering from

effect of recession so the demand is expected to increase more, so the consumption also.

Raw material & inputs for steel production:-

Key raw material inputs needed in steel making include iron ore, coal,

limestone and recycled steel. Two main steel producing routes and their inputs are:

o The integrated steel making route, based on the Blast Furnace (BF) and Basic Oxygen

Furnace (BOF), uses raw material including iron ore, coal, limestone and recycled steel.

On average this route uses 1725 kg of iron ore, 645 kg of coal, 150 kg of limestone and

138 kg of recycled steel to produce one tone of crude steel.

o The Electric Arc Furnace (EAF) route, based on the EAF, uses primarily recycled steel or

Direct Reduced Iron (DRI). On avg. it uses 1050 kg of recycled steel, 65 kg of coal and

43 kg of limestone to produce one tone of crude steel.

$
 Indian Steel Industry Life Cycle Stage:-

Year Sales# Growth

2005 54211 -----
2006 53746 -0.8
2007 66662 24
2008 77524 16.3
2009 89075 14.9
2010* 96295.4 8.1
2011* 108914 13.1
2012* 118676.7 8.96
2013* 128740.3 8.47
2014* 138853.9 7.85

;6

5=

56 23)4/5
9=
,"
96

6
566< 566> 566? 5696 5695 569< 569>
2=

Various ups and downs happened in the Indian steel industry during last years. Based on the

graph we can say that our industry is presently in maturity stage.

*indicates that data is based on trend analysis.

#is the sale of the industry. This sale is the total of the five company’s sale which is selected for financial analysis.

%
 Company Analysis

Following companies would be analyzed from Indian Steel Sector.

1 Tata Steel

2 SAIL

3 Bhusan Steel

4 Jindal Steel

5 Ispat Industries

These selection criteria for selection of companies include following bases:-

1 Net Profit

2 Total Assets

3 EPS

4 Sales

5 Working Capital

Final accounts of these companies are analyzed with the help of RATIO ANALYSIS. Ratio Analysis is a

tool which is used to evaluate interpretation and provide information to the management about the

business. It takes the past performance of the business and finds the areas where improvement is required.

Theses ratios include:-

&
1Liquidity ratio: - Liquidity ratio shows the short term financial position of the company. It checks

ability of the company to meet the short term obligations. Whether the company has enough funds for

payment of the short term liabilities or the liabilities that can occurs during next year.

Current ratio: - It is calculated by the following formula:-

Current Ratio = Current Assets/ Current Liabilities

This ratio indicates the available current assets for the current liabilities. High current ratio shows more

money available for the current liability. A company having high current ratio is safe for investment. A

current ratio of 2:1 is considered satisfactory- But a high ratio is also indicates that the funds are not

utilized properly.

2 Profitability ratios: - Various stakeholders are interested in this ratio. Because these ratios show the

profit earning capacity of the company. This ratio is calculated to know the profitability of the company.

o Gross Profit ratio:- The formula is-

Gross Profit Ratio= Gross Profit*100/Sales

A high ratio of gross profit is a sign of good management0 it implies the cost of production is

relatively low. It also shows that may be prices are high or the cost of production is low.

o Net Profit ratio:- This ratio is the relation between net profit and sales.

Net Profit ratio= Net Profit*100/Sales

It indicates management’s ability to operate business unit with sufficient success to recover

revenues and cost of borrowed funds. A high net profit ratio is good for a company because it

shows that company can survive if the prices would come down.

'
 o Return on Assets:- This ratio is-

Return on Assets = Net Profit after Tax*100/Total Tangible Assets

The assets are purchased by this money invested by the investors. So the return on this

money also important if this ratio is higher it means the money is well utilized by the

management.

o Return on Capital Employed: - It provides a test of profitability related to the sources of

long term funds. Its comparison with related firms ratios throws light on how efficiently the long

term funds of owners and lenders are being used

Return on Capital Employed = EBIT*100/Capital Employed

o E P S: - It measures the profits available to the share holders on a per share basis. It measures the

profitability firm the point of view of owners.

E P S = Net Profit Available to Equity Shareholders/No. of Equity Shares

o Dividend per Share(D P S):- This ratio is the relation between dividend paid and no. of

shares.

D P S = Dividend Paid/ No. of Equity Shares

o Dividend Payout Ratio: - It is known as the payout ratio .It measures the relationship between

the earnings belonging to the ordinary shareholders and the dividend paid to them.

Dividend Payout Ratio = D P S*100/E P S

3 Activity ratios:-

o Working Capital Turnover ratio:- This ratio indicates how efficiently the working capital

has used in the production of the goods and services.

Working Capital Turnover ratio = Net Sales/Working Capital

 o Total Assets Turnover ratio: - This ratio indicates the efficient use of total assets in these

goods production.

Total Assets Turnover ratio = Net Sales/Total Tangible Assets.

4 Leverage ratios:-

o Debt- Equity ratio:- It show ‘s relationship between borrowed funds and owners capital. It is

the ratio of the amount invested by outsiders to the amount invested by the owners of the

business.

Debt – equity ratio = Total debts / Shareholders equity

A high ratio shows large share of financing by the creditors of the firm, a low ratio shows a

smaller claim of creditors. It indicates the margin of safety for creditors.

o Preference Dividend Coverage ratio:- It measure s the ability of the firm to pay the

dividends on the preference shares.

Pr. Dividend Coverage Ratio = EAT / Preference Dividend

It reveals the safety margin available to the preference shareholders. As the rule, the higher the

coverage, the better it is from their point of view.

Interest Coverage ratio: - This measures the debt servicing capacity of the firm as fixed

interest on long term loan is concerned.

Interest Coverage Ratio = EBIT / Interest

"
From lenders view the larger the coverage, the greater is the ability of the firm to handle fixed charge

liabilities and more assured payments of interest. Lower the ratio shows the firm is using excessive debt

and then though is unable to give assured.

While calculating the various ratios some assumptions are taken into consideration. The various

assumptions are following-

Operating profit is considered as net sales of the company.

Financial expenses are considered as interest paid on Debts.

Preparation of Projected Profit & Loss A/c:-

Projected means forecasted. On the basis of the last five years

information next five years projection is done. For projection Compounded Annual Growth Rate (CAGR)

is calculated. The formula of CAGR is following:-

1/n
CAGR = Ending amount. Initial amount -1

n= No. of years.

For making the projection various assumptions are taken. The assumptions are following—

In first two years the companies are assumed to grow at the CAGR.

In next two years the economic growth rate is also adjusted in the CAGR. The CAGR is increased

by 9%, which is the Economic growth rate projection.

For last two years Economic growth rate (9.5%) is adjusted in the previous growth rate of

company and next two years projection is done on that rate.

Depreciation and Tax rate are taken in approximate figures of the last years.

"
 Calculation of intrinsic value:-

Intrinsic value is the value of a security, justified by factors such as assets, dividends,

earnings, and management quality. Intrinsic value is at the core of fundamental analysis

since it is used in an attempt to calculate the value for an individual stock and then

compare it with the market price- The intrinsic value is what an asset is actually worth.

If investment period is 5 years than first the expected dividend has to be calculated.

1 Dn= (EPSn*D.P.R.)

EPS = Earning per Share.

D.P.R. = Dividend Payout Ratio

2 Intrinsic value = D1/ (1+Ke/100)1 + D2/ (1+Ke/100)2 + D3/ (1+Ke/100)3 +Dn/ (1+Ke/100)n

Ke= Cost of Capital

n = No. of Years

3 Expected Market Price = EPSn*Avg. P/E ratio

n= No. of Year.

4 Ke calculation= Rf + (Rm - Rf)

Rf = Risk free rate of return,

= beta of the company.

Rm= return from market.

Some assumptions taken during the calculation:-

1 Risk free return is assumed at 6%.

2 Dividend Payout Ratio is taken as the Avg. of the last five years.

3 Return of the market is assumed at 12%.

"
 Tata Steel Limited

Profit & Loss a/c of Tata Steel Limited

Rs Crore

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Income
Operating income 24,348.32 19,654.41 17,452.66 15,132.09 14,489.70
Expenses
Material consumed 8,279.44 6,024.80 5,679.95 4,661.53 4,288.88
Manufacturing expenses 3,349.96 2,693.73 2,589.24 2,364.40 2,219.02
Personnel expenses 2,305.81 1,589.77 1,454.83 1,351.51 1,291.00
Selling expenses 61.49 52.53 64.71 80.75 86.18
Administrative expenses 1,518.83 1,224.54 986.20 902.30 853.42
Expenses capitalized -343.65 -175.50 -236.02 -112.62 -204.82
Cost of sales 15,171.88 11,409.87 10,538.91 9,247.87 8,533.68
Operating profit 9,176.44 8,244.54 6,913.75 5,884.22 5,956.02
Other recurring income 305.36 347.28 485.14 256.95 156.55
Adjusted PBDIT 9,481.80 8,591.82 7,398.89 6,141.17 6,112.57
Financial expenses 1,489.50 929.03 251.25 168.44 228.80
Depreciation 973.40 834.61 819.29 775.10 618.78
Other write offs - - - - -
Adjusted PBT 7,018.90 6,828.18 6,328.35 5,197.63 5,264.99
Tax charges 2,114.87 2,380.28 2,040.47 1,734.38 1,823.82
Adjusted PAT 4,904.03 4,447.90 4,287.88 3,463.25 3,441.17
Non recurring items 297.71 239.13 -123.02 -4.37 -47.80
Other non cash adjustments - - 57.29 47.50 80.79
Reported net profit 5,201.74 4,687.03 4,222.15 3,506.38 3,474.16
Earnings before appropriation 11,589.20 9,281.01 7,198.31 5,296.59 4,111.58
Equity dividend 1,168.95 1,168.93 943.91 719.51 719.51
Preference dividend 109.45 22.19 - - -
Dividend tax 214.10 202.43 160.42 100.92 101.86
Retained earnings 10,096.70 7,887.46 6,093.98 4,476.16 3,290.21

""
 Balance Sheet of Tata Steel Limited

Rs Crore

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Sources of funds
Owner's fund
Equity share capital 730.79 730.78 580.67 553.67 553.67
Share application money - - 147.06 - -
Preference share capital 5,472.66 5,472.52 - - -
Reserves & surplus 23,501.15 21,097.43 13,368.42 9,201.63 6,506.25
Loan funds
Secured loans 3,913.05 3,520.58 3,758.92 2,191.74 2,468.18
Unsecured loans 23,033.13 14,501.11 5,886.41 324.41 271.52
Total 56,650.78 45,322.42 23,741.48 12,271.45 9,799.62
Uses of funds
Fixed assets
Gross block 20,057.01 16,479.59 16,029.49 15,407.17 13,085.07
Less : revaluation reserve - - - - -
Less : accumulated depreciation 9,062.47 8,223.48 7,486.37 6,699.85 5,845.49
Net block 10,994.54 8,256.11 8,543.12 8,707.32 7,239.58
Capital work-in-progress 3,487.68 4,367.45 2,497.44 1,157.73 1,872.66
Investments 42,371.78 4,103.19 6,106.18 4,069.96 2,432.65
Net current assets
Current assets, loans & advances 11,591.66 38,196.34 14,671.91 4,997.00 4,935.90
Less : current liabilities & 11,899.95 9,755.78 8,279.70 6,913.83 6,895.99
provisions
Total net current assets -308.29 28,440.56 6,392.21 -1,916.83 -1,960.09
Miscellaneous expenses not written 105.07 155.11 202.53 253.27 214.82
Total 56,650.78 45,322.42 23,741.48 12,271.45 9,799.62
Notes:
Book value of unquoted 41,665.63 3,790.47 5,793.46 3,477.38 2,119.75
investments
Market value of quoted investments 1,491.89 3,260.65 2,979.00 4,079.52 1,952.43
Contingent liabilities 12,188.55 9,250.08 7,185.93 3,872.34 2,983.05
Number of equity shares 7305.92 7305.84 5804.73 5534.73 5534.73
outstanding (Lacs.)

"#
 Various Ratios of Tata Steel Limited

Ratios/Years 2008-09 2007-08 2006-07 2005-06 2004-05

1 Current ratio 0.97 3.91 1.77 0.72 0.72

2 Gross Profit ratio 33.69% 37.70% 34.91% 33.76% 36.83%

3 Net Profit ratio 21.36% 23.84% 24.19% 23.17% 23.98%

4 Return on Assets 7.61% 8.53% 13.26% 18.52% 21.08%

5 Return on Capital Employed 12.39% 15.06% 26.66% 42.26% 53.73%

6 E. P. S. 69.70 63.85 72.74 63.35 62.77

7 D. P. S. 16.00 16.00 15.50 13.00 13.00

8 Dividend payout ratio 22.96% 25.05% 21.31% 20.52% 20.71%

9 Working Capital Turnover ratio --------- 0.61 3.37 ---------- ---------

10 Total Assets Turnover ratio 0.35 0.35 0.54 0.79 1.48

11 Debt-Equity ratio 1.31% 1.07% 0.67% 0.25% 0.37%

12Pr. Dividend Coverage ratio 44.81 200.45 ------- ------- -------

13 Interest Coverage ratio 5.71 8.34 26.18 31.85 24

14 P/E ratio 3.28 11.58 6.06 8.4 6.9

"$
 Projected Profit & Loss A/c of TATA Steel Limited

Mar’10 Mar’11 Mar’12 Mar’13 Mar’1

Income
Operating income 27,720.56 31,559.86 36,325.40 41,810.54 48,730.18
Expenses
Material consumed 9,757.32 11,499.00 13,735.60 16,407.17 19,900.25
Manufacturing
expenses 3,711.76 4,112.63 4,597.90 5,425.52 6,126.49
Personnel expenses 2,665.52 3,081.34 3,605.10 4,217.96 5,002.50
Selling expenses 56.52 51.94 48.10 44.54 41.55
Administrative
expenses 1,754.25 2,026.12 2,368.53 2,768.81 3,281.03
Expenses capitalized -391.11 -445.12 -512.30 -589.65 -686.94
Cost of sales 17,523.52 20,239.67 23,660.17 27,658.73 32,775.59
Operating profit 10,197.04 11,320.19 12,665.23 14,151.81 15,954.59
Other recurring
income 360.94 426.63 511.10 612.29 745.03
Adjusted PBDIT 10,557.98 10,893.56 12,154.13 13,539.52 15,209.56
Financial expenses 1,727.37 2,003.23 2,351.79 2,784.48 3,313.53
Depreciation 948.49 993.3 1045.57 1095.71 1154.29
Other write offs ------ ------
Adjusted PBT 7,882.12 7,897.03 8,756.77 9,659.33 10,741.74
Tax charges 2,624.47 2,629.71 2,916.00 3,216.55 3,576.99
Adjusted PAT 5,257.65 5,267.32 5,840.00 6,442.78 7,164.75
Non recurring items 488.12 800.32 1,358.22 2,305.03 4,064.45
Other non cash
adjustments 0.00 0.00 0.00 0.00 0.00
Reported net profit 5,745.77 6,067.64 7,198.22 8,747.81 11,229.20
EPS* :?->< :5-5? ?=-:< 76->7 99>-<5
*it is assumed that company issues new shares after every two years. So the shares are calculated on CAGR of the

company share capital.

"%
 Intrinsic value of shares of Tata steel limited:-

Year EPS D.P.R Expected Cost of d/(1+Ke/100)

Dividend Capital
2010 78.64 0.22 17.3 16.2% 14.88

2011 72.28 0.22 15.9 16.2% 11.77

2012 85.74 0.22 18.86 16.2% 12.02

2013 90.69 0.22 19.95 16.2% 10.94

2014 116.42 0.22 26.51 16.2% 12.51

=62.12

Now Expected market price in 2014=EPS (in 2014)*Avg. P/E ratio

= 116.72*7.2=840.38Rs.

Ke = Rf + (Rm - Rf)

= 6%+1.7(12%-6%) = 6%+1.7*6% =6%+10.2% =16.2%

Intrinsic value= 62.12+840.38/ (1+Ke/100)5

=62.82+396.84=459.66

"&
 Interpretation

1 Current ratio: - There are many changes in the current ratio during last five years. In 2004-05 and

2005-06 it was 0.72. In 2006-07 it increased to 1.77 and in 2007-08 was 3.91. But in 2008-09 it also

decreased to 0.97. 2:1 is considered a satisfactory ratio. But the ratio is very low to this. So the short term

payment ability is not satisfactory of the company.

2 Gross Profit ratio: - Gross Profit ratio is in the range of 33-36% for the last five years. This is healthy

percentage of G.P. The G.P. is good though the sale is increasing of the company. The company have

good control on its cost.

3 Net Profit ratio: - Like Gross Profit the Net Profit is also moving in a short range of 21-23%. So the

company is earning and maintaining good net profit. This is good for the company.

4 Return on Assets: - The Return on Assets has decreased from 21% to 7.61% from 2004-05 to 2008-09.

Though the sale of the company has increased but the assets have increased more than sale. And the

utilization of assets is decreasing year on year which is not good for the company.

5 Return on Capital Employed: - This ratio indicates how efficiently the long term funds are being used in

the business. Return on Capital Employed has drastically in the last 5 years from 53% to 12%. The funds

have also increased 7 times that is the main reason for decrease in return. The extra capital is not used so

effectively that 5 years ago. Company should pay attention towards this. It is good until the company is

getting returns more than the capital charges.

6 Earning Per Share: - This shows the amount available to equity shareholders. The E P S is in the range

of 62-70%. In last year it was 69% more than the last year. This is satisfactory for the company as well as

investors.

"'
7 Dividend Per Share (D P S):- This is the dividend paid to the customers. The dividend has increased

form 12% to 16% in the last 5 years. It shows that the company is paying constant returns to the investors,

which is satisfactory.

8 Dividend Payout ratio: - This ratio shows the payment made to the shareholders out of the total amount

belong to them. The Dividend Payout ratio is moving in the range of 20-25%. But it is going with a near

constant rate for the last 5 years. The dividend paid % is less but it is nearly constant. That is good.

9 Working Capital Turnover ratio: - this ratio shows the use of working capital in production of goods

and services. But the working capital condition of the company is not good. There are various changes in

the working capital in last 5 years. It is positive in two years but negative in 3 years. So working capital

condition is not satisfactory of the company.

10 Total Assets Turnover Ratio: - This ratio shows the efficient use of assets in production. The ratio is

decreasing in the last 5 years. And at the and of 2008-09 it was 0.35 from 1.48% in 2004-05. The sale has

increased to 1.7 times but the assets are also increased up to 6 times. That’s why the assets could not be

utilized efficiently.

11 Debt- Equity ratio: - Debt equity ratio is the relation between debt and equity. In 2004-05 it was 0.37%

which increased to 1.31% in 2008-09. It shows that the company is able to get funds but this ratio is not

satisfactory because it creates more fixed payment liability on company. So the risk increases if sometime

company is not able to pay interest than it would increase the interest burden also on the company.

12 Preferential Dividend Coverage ratio: - This ratio shows the company’s ability to pay preferential

dividend. This ratio is available for only two years. As per the ratio it is 44.81 in 2008-09 which is good

but there is a sharp decrease in this ratio from previous year in which it was 200.45.but the inconsistency

in the payment of dividend is a worry.

"
13 Interest Coverage ratio: - This ratio shows the ability to pay the interest on it’s fixed rate liabilities.

This ratio has decreased to 5.71 from 24 in last 5 years, which is not good but still the ratio is satisfactory.

Intrinsic value:-

Market price on 24 Aug 2010=521

Intrinsic vale= 459.66

Now Intrinsic Value < Market Price

So the share can be sold.

#
 Steel Authority of India Limited(SAIL)

Profit & Loss a/c of SAIL

Rs Crore

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Income
Operating income 43,798.58 39,958.67 34,328.77 28,200.48 28,714.30
Expenses
Material consumed 22,042.58 16,821.39 15,963.13 13,903.23 11,155.33
Manufacturing expenses 3,762.77 3,317.74 2,925.43 2,793.45 2,427.11
Personnel expenses 8,401.73 7,919.28 5,087.76 4,156.97 3,811.75
Selling expenses 935.68 1,143.90 1,066.73 1,108.12 971.78
Administrative expenses 1,644.78 1,321.44 1,064.29 1,035.99 780.67
Expenses capitalized -1,930.40 -1,832.22 -1,423.08 -1,352.05 -921.71
Cost of sales 34,857.14 28,691.53 24,684.26 21,645.71 18,224.93
Operating profit 8,941.44 11,267.14 9,644.51 6,554.77 10,489.37
Other recurring income 2,279.89 1,539.69 1,354.96 892.30 676.55
Adjusted PBDIT 11,221.33 12,806.83 10,999.47 7,447.07 11,165.92
Financial expenses 253.24 250.94 332.13 467.76 605.05
Depreciation 1,285.12 1,235.48 1,211.48 1,207.30 1,126.95
Other write offs 128.02 75.49 128.59 181.44 184.89
Adjusted PBT 9,554.95 11,244.92 9,327.27 5,590.57 9,249.03
Tax charges 3,284.28 3,934.65 3,253.80 1,694.36 2,592.37
Adjusted PAT 6,270.67 7,310.27 6,073.47 3,896.21 6,656.66
Non recurring items -277.12 161.90 53.75 45.64 -14.35
Other non cash adjustments 181.26 64.61 60.57 71.12 174.66
Reported net profit 6,174.81 7,536.78 6,187.79 4,012.97 6,816.97
Earnings before appropriation 22,052.47 18,348.43 12,886.63 7,861.47 6,839.66
Equity dividend 1,073.90 1,528.25 1,280.42 826.08 1,363.03
Preference dividend - - - - -
Dividend tax 181.26 258.91 197.98 115.86 185.24
Retained earnings 20,797.31 16,561.27 11,408.23 6,919.53 5,291.39

#
 Balance Sheet of SAIL

Rs Crore

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Sources of funds
Owner's fund
Equity share capital 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 23,853.70 18,933.17 13,182.75 8,471.01 6,176.25
Loan funds
Secured loans 1,473.60 925.31 1,556.39 1,122.16 1,603.98
Unsecured loans 6,065.19 2,119.93 2,624.13 3,175.46 4,165.81
Total 35,522.89 26,108.81 21,493.67 16,899.03 16,076.44
Uses of funds
Fixed assets
Gross block 32,728.69 30,922.73 29,912.71 29,360.46 28,043.48
Less : revaluation reserve - - - - -
Less : accumulated depreciation 20,459.86 19,351.42 18,315.00 17,198.32 15,558.41
Net block 12,268.83 11,571.31 11,597.71 12,162.14 12,485.07
Capital work-in-progress 6,544.24 2,389.55 1,236.04 757.94 366.48
Investments 652.70 538.20 513.79 292.00 606.71
Net current assets
Current assets, loans & advances 35,666.84 27,309.01 21,673.75 18,788.80 15,521.37
Less : current liabilities & 19,609.72 15,758.74 13,656.77 15,317.67 13,198.12
provisions
Total net current assets 16,057.12 11,550.27 8,016.98 3,471.13 2,323.25
Miscellaneous expenses not written - 59.48 129.15 215.82 294.93
Total 35,522.89 26,108.81 21,493.67 16,899.03 16,076.44
Notes:
Book value of unquoted 660.12 546.02 521.61 296.61 608.32
investments
Market value of quoted investments 2.70 5.12 4.31 3.33 0.89
Contingent liabilities 32,193.13 17,143.54 5,605.90 5,541.62 4,566.72
Number of equity shares 41304.01 41304.01 41304.01 41304.01 41304.01
outstanding (Laces.)

#
 Various Ratios of SAIL

Ratios/Years 2008-09 2007-08 2006-07 2005-06 2004-05

1 Current ratio 1.82 1.73 1.59 1.23 1.18

2 Gross Profit ratio 17.48% 25.10% 24.56% 18.96% 32.60%

3 Net Profit ratio 13.40% 18.16% 17.38% 13.79% 23.19%

4 Return on Assets 11.19% 18.02% 17.66% 12.54% 23.52%

5 Return on Capital Employed 27.97 44.31 45.53 36.92 62.44

6 E. P. S. 14.95 18.25 15.02 9.72 16.50

7 D. P. S. 2.60 3.70 3.10 2.00 3.30

8 Dividend payout ratio 17.39% 20.27% 20.63% 20.57% 20%

9 Working capital Turnover ratio 2.73 3.46 4.28 8.12 12.36

10 Total Assets Turnover ratio 0.79 0.95 0.98 0,88 0.99

11 Debt-Equity ratio 0.23 0.12 0.22 0.30 0.51

12 Pr. Dividend Coverage ratio --------- --------- -------- --------- -------

13 Interest Coverage ratio 39.23 46.11 29.47 13.33 16.59

14 P/E ratio 6.43 10.46 8.08 10.12 6.45

#"
 Projected Profit & Loss A/c of SAIL

13(56 13(56 13(56 13(56 " 13(56 #

Income
Operating income 48,673.36 54,090.70 60,651.90 68,008.98 77,040.57
Expenses
Material consumed 26,133.68 30,984.09 37,252.17 44,788.28 54,708.88

Manufacturing expenses 4,198.49 4,684.67 5,275.87 5,941.68 6,762.23

Personnel expenses 9,283.90 10,258.70 11,432.29 12,740.14 14,335.20
Selling expenses 926.88 918.16 910.35 902.61 895.65
Administrative expenses 1,981.63 2,387.46 2,920.34 3,572.15 4,445.18
Expenses capitalized -2,322.07 -2,793.21 -3,410.78 -4,164.90 -5,173.22
Cost of sales 40,202.51 46,439.87 54,380.68 63,779.96 75,973.92
Operating profit 8,470.85 7,650.83 6,271.22 4,227.02 1,066.65
Other recurring income 3,088.79 4,184.69 5,802.91 8,046.89 11,453.94
Adjusted PBDIT 11,559.64 11,835.52 12,074.13 12,273.91 12,520.59
Financial expenses 252.75 252.26 251.83 251.40 251.00
Depreciation 1360.59 1414.07 1474.59 1537.68 1609.67
Other write offs 126.89 125.77 124.76 123.76 122.86
Adjusted PBT 9,819.41 10,043.42 10,161.29 10,361.07 10,537.06
Tax charges 3,338.59 3,414.76 3,454.83 3,522.76 3,582.60
Adjusted PAT 6,480.82 6,628.66 6,706.46 6,838.31 6,954.46
Non recurring items -580.92 24.94 54.74 54.74 126.36

Other non cash adjustments 183.07 184.90 186.93 188.98 191.19

Reported net profit 6,082.97 6,838.50 6,948.13 7,082.03 7,272.01
EPS* 14.72 16.56 16.82 17.15 17.6
*as per the trends there is no increase in share capital during last five years so it is assumed that company is not going for new

issue of shares.

##
Intrinsic value of shares of SAIL:-

Year EPS D.P.R Expected Cost of

Dividend Capital Dividend/(1+Ke/100)
2010 14.72 0.1977 2.91 14.52% 2.54
2011 16.56 0.1977 3.27 14.52% 2.49
2012 16.82 0.1977 3.33 14.52% 2.22
2013 17.15 0.1977 3.39 14.52% 1.97
2014 17.6 0.1977 3.48 14.52% 1.77
=10.99

Expected market price of shares of SAIL in 2014=EPS (2014)*Avg. P/E ratio

= 17.6*8.31=146.26

Ke = Rf + (Rm - Rf)

= 6%+1.42(12%-6%)

= 6%+1.42*6%

= 6%+8.52%

= 14.52%

Intrinsic value=10.99+146.26(1+14.52/100)5

=10.99+74.26=85.25

#$
 Interpretation

1 Current ratio: - The current ratio of the company is increasing constantly in last five years, in 2008-09

end it was 1.82. This ratio is less than 2:1 but still it is acceptable. And good trends are followed in this

ratio.

2 Gross Profit ratio: - The gross profit in 2008-09 was 17.48 which is also not satisfactory and is very

low. Secondly it has been decreasing for the last 5 years continuously.

3 Net Profit ratio: - The net profit ratio is 13.40% in 20008-09. But it shows that the indirect expenses are

well managed. But this ratio is also decreasing. So it is a risky condition.

4 Return On Assets: - Return on assets ratio11.19 which is quite well. But the continuous decrease is a big

concern for the company.

5 Return on Capital Employed: - Return on capital employed is 27.97% in 2008-09 which is OK. But still

it is decreasing year on year for last five years. In 2004-05 it was 62.44% which was good. Due to sharp

increase in capital, it could not be efficiently utilized. But in future it can be properly used.

6 Earning Per Share (E P S):- is an instability in the E P S during 2004-05 to 2008-09. But this is

moving in the range of 14 to 18. That is due to the change in the profit margin. But still it is good.

7 Dividend per share (D P S):- The company is paying dividend every year. It also changes due to change

in profit and dividend paid. As there is consistency in dividend paid that is good for the company.

8 Dividend Payout ratio: - The company paid 17% of the income to the shareholders. This was 20% in

earlier years. But there is a consistency in the payment of dividend. This is a strong point to invest in the

company.

#%
9 Working Capital Turnover ratio: - This ratio is not sufficient because it has decreased from 12.36 to

2.73 in last five years. It shows that working capital is not efficiently utilized in the company. The

working capital has increased to 8 times while sales hardly doubled during this period.

10 Total Assets Turnover ratio: - Total Assets Turnover ratio is less than 1% in last five years. In 2004-05

it was 0.99 but at the end of 2008-09 it was 0.79 which is not satisfactory.

11 Debt-Equity ratio: - The long term fixed interest bearing capital is not so much introduced in the

company. It is 0.23% in 2008-09 and follow some unstable trends. In 2007-08 it was 0.12% while at the

end of 2004-05 it was 0.51%. So the company is reducing the burden of fixed cost payments but on the

other hand it increases the cost of capital.

12 Preferential Dividend Coverage ratio: - No data about Pr. Dividend is available.

13 Interest Coverage ratio: - The ability for paying interest is increasing constantly. It has increased to

39.23 to 16-59 in last five years. So this ratio is satisfactory.

14 Intrinsic value:-

Market price on 24th August 2010=191.55

Intrinsic value= 85.55

Intrinsic value is less than Market price.

So the shares can be sold.

#&
 Bhushan Steel Limited

Profit & Loss a/c of Bhushan Steel Limited

Rs Crore

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Income
Operating income 4,985.72 4,180.23 3,829.60 2,793.99 2,674.99
Expenses
Material consumed 3,475.23 3,035.76 2,909.65 2,187.63 2,082.85
Manufacturing expenses 217.02 209.10 154.32 130.45 113.05
Personnel expenses 100.86 73.87 51.01 36.43 23.61
Selling expenses 140.12 86.10 102.22 59.94 48.27
Administrative expenses 99.25 44.30 37.76 24.35 17.74
Expenses capitalized -140.13 -104.26 -53.46 -41.03 -15.85
Cost of sales 3,892.35 3,344.88 3,201.50 2,397.77 2,269.68
Operating profit 1,093.37 835.35 628.10 396.21 405.31
Other recurring income 17.22 16.76 18.01 12.17 6.57
Adjusted PBDIT 1,110.59 852.11 646.12 408.38 411.89
Financial expenses 117.27 107.80 85.82 75.38 79.39
Depreciation 234.41 211.41 208.92 165.76 164.72
Other write offs - - - - -
Adjusted PBT 758.92 532.89 351.38 167.24 167.78
Tax charges 139.48 115.20 59.11 5.21 12.30
Adjusted PAT 619.44 417.69 292.27 162.04 155.48
Non recurring items -198.13 6.04 20.99 -7.58 -2.12
Other non cash adjustments - - - -0.11 -
Reported net profit 421.30 423.73 313.26 154.34 153.35
Earnings before appropriation 605.35 441.22 349.30 194.27 279.12
Equity dividend 10.62 10.62 10.62 10.32 10.12
Preference dividend - - - - -
Dividend tax 1.80 1.80 1.80 1.45 1.32
Retained earnings 592.93 428.80 336.88 182.50 267.68

#'
 Balance Sheet of Bhushan Steel Limited

Rs Crore

Mar ' 09 Mar ' Mar ' Mar ' Mar '
08 07 06 05
Sources of funds
Owner's fund
Equity share capital 42.47 42.47 42.47 41.27 40.47
Share application money 400.44 - - 3.60 -
Preference share capital - - - - -
Reserves & surplus 1,985.59 1,582.85 1,172.03 848.40 690.12
Loan funds
Secured loans 5,136.32 3,333.11 2,412.84 1,650.91 1,089.79
Unsecured loans 2,929.93 2,385.02 829.14 385.27 227.68
Total 10,494.75 7,343.46 4,456.48 2,929.45 2,048.06
Uses of funds
Fixed assets
Gross block 3,281.86 2,927.09 2,693.73 1,795.91 1,657.81
Less : revaluation reserve - - - - -
Less : accumulated depreciation 1,395.89 1,168.07 970.27 775.83 610.81
Net block 1,885.97 1,759.02 1,723.46 1,020.08 1,047.01
Capital work-in-progress 7,400.13 4,567.97 1,892.11 1,295.22 385.70
Investments 107.73 58.46 20.85 19.17 18.99
Net current assets
Current assets, loans & advances 2,746.40 2,420.14 1,763.88 1,202.51 1,069.44
Less : current liabilities & provisions 1,645.48 1,462.14 943.82 607.53 473.07
Total net current assets 1,100.92 958.01 820.06 594.98 596.36
Miscellaneous expenses not written - - - - -
Total 10,494.75 7,343.46 4,456.48 2,929.45 2,048.06
Notes:
Book value of unquoted investments 58.98 52.71 18.81 18.81 18.81
Market value of quoted investments 0.56 1.25 1.94 0.39 0.19
Contingent liabilities 2,424.34 2,545.91 1,551.57 1,931.44 930.37
Number of equity shares outstanding 424.72 424.72 424.72 412.72 404.72
(Lacs.)

#
 Various Ratios of Bhushan Steel Limited

Ratios/Years 2008-09 2007-08 2006-07 2005-06 2004-05

1 Current ratio 1.67 1.66 1.87 1.98 2.26

2 Gross Profit ratio 17.22% 14.92% 10.94% 8.24% 8.99%

3 Net Profit ratio 8.42% 10.09% 8.14% 5.50% 5.71%

4 Return on Assets 3.47% 4.81% 5.8% 4.36% 6.08%

5 Return on Capital Employed 8.34% 8.72% 9.81% 8.28% 12.06%

6 E. P. S. 99.20 99.77 73.76 37.42 37.89

7 D. P. S. 2.50 2.50 2.50 2.50 2.50

8 Dividend payout ratio 2.52% 2,51% 3.38% 6.68% 6.6%

9 Working Turnover ratio 4.53 4.36 4.67 4.7 4.49

10 Total Assets Turnover ratio 0.41 0.47 0.7 0.79 1.06

11 Debt-Equity ratio 3.75 2.84 2.15 1.75 1.10

12 Pr. Dividend Coverage ratio --------- ---------- ---------- ----------- ----------

13 Interest Coverage ratio 7.47 5.94 5.09 3.22 3.11

14 P/E ratio 4.02 6.64 7.78 4.93 4.24

$
 Projected Profit & Loss A/c of Bhushan Steel Limited

13(56 13(56 13(56 13(56 " 13(56 #

Income
Operating income =0?5=-;9 >0?6>-57 ?06==-5< 70=;;-;: 990<<?->5
Expenses
Material consumed ;07<7-=7 <0<??-:6 =09=>-9> =0755-?? >0??:-95
Manufacturing
expenses 5==-<; ;66->< ;=?->; <5:-? =9?-9=
Personnel expenses 9;<-79 9?6-<= 5<>-?; ;;:->; <:;->5
Selling expenses 9?5-?? 5;?->7 ;9?-6: <5;-?> =:?-9?
Administrative
expenses 9=5->; 5;<-:5 ;:5-;; =76->5 7>7-:;
Expenses capitalized 25<9->5 2<9>->5 2:<=-7= 29;;=->5 25<79-=7
Cost of sales <<;;-?5 =65>-=? =:6>-6: >;>>-77 >7;=-59
Operating profit 9;79-<9 9::7-:9 5;<7-9: ;9>>-;? <=9;-<9
Other recurring income 59-7 5:-?> ;>-95 <>-?< >5-6=
Adjusted PBDIT 9<9;-;7 9?6:-=: 5;?=-57 ;59;-55 <=:=-<>
Financial expenses 957-5: 9<5-= 9=?-< 9:>-9 97:->5
Depreciation 5?6-5> ;;5-<5 ;77-?< <?6-75 =?:->7
Other write offs
Adjusted PBT 966;-?> 9;;5->= 9?5:-6= 5==>-5 ;:76-9=
Tax charges 9?6->7 5;7-?: ;5?-?: <>6-95 >?5-55
Adjusted PAT ?5;-9: 9675-:? 9<7?-9? 567>-6? ;96:-7;
Other non cash
adjustments
Reported net profit ?5;-9: 9675-:? 9<7?-9? 567>-6? ;96:-7;
EPS* 9?<-7< 5<=-= ;59-9? <<7-;= >;=-:>
*it is assumed that company issues new shares after two years. As it has issued shares twice in last five years. The shares are

issued at CAGR.

$
 Intrinsic value of the shares of Bhushan Steel limited:-

Year EPS D.P.R Expected Cost of Avg. P/E ratio

Dividend Capital
2010 184.94 0.048 8.88 13.32% 7.83
2011 245.5 0.048 11.78 13.32% 9.17
2012 321.18 0.048 15.42 13.32% 10.58
2013 449.35 0.048 21.57 13.32% 13.03
2014 635.76 0.048 30.52 13.32% 16.26
=56.87

Expected market price of shares in 2014=EPS (2014)*Avg. P/E ratio

635.76*5.5=3496.68

Ke = Rf + (Rm - Rf)

=6%+1.22(12%-6%)

= 6%+1.22*6%

= 6%+7.32%

=13.32%

Intrinsic value=56.87+3496.68(1+13.32/100)5

=56.87+1862.98=1919.85

$
 Interpretation

1 Current ratio: - The current ratio is 1.6 In 2008-09which is lower than 2:1.while in 2004-05 it was 2.26.

So there is a constant decrease in current ratio. This is not good for the company. This ratio shows that the

company has a risky short term payment situation.

2 Gross Profit ratio: - The gross profit is increasing in the last five years. In 2004-05 it was 8.99%, in

2006-07 it was 10.94% and at the end of 2008-09 it was 17.22%. It means that company’s management is

well controlling the production cost.

3 Net Profit ratio: - Net profit trends are not as gross profit trends. They are moving in 5 to 10% range. In

2004-05 it was 5.71% but then it went to 10.92% in 2007-08 and then decreased to 8.42% in 2008-09. It

shows that there is no good control over indirect expenses of the company.

4 Return on Assets: - This ratio has decreased from 6.08% in 2004-05 to 3.47% in 2008-09. It means the

utilization of the assets for the production is decreasing. It is not satisfactory.

5 Return on Capital Employed: - This ratio changed a bit in the last four years but decreased to the

comparison of fifth year. In 2004-05 it was 12.06% and in next year it was 8.28% and in 2008-09 in the

same range of 8, it was 8.34%.the consistency is good but the ratio is low that is not satisfactory.

6 Earning per Share: - Earning per share has increased during last five years especially in last 2007-08

and 2008-09. It is in 2008-09 is 99.20 than 37.89 in 2004-05. So now there is more profit available for the

equity shareholders.

7 Dividend per Share: - The dividend per share is constant per share at 2.50 in last five years. So the

company is paying a same rate of dividend whether profit increase or decrease. That is good for the

shareholders.

$"
8 Dividend Payout ratio: - Dividend payout ratio is decreasing. It shows that company is not transferring

the benefits of increase in profits to the shareholders. That is not a good policy of company.

9 Working Capital Turnover ratio: - Working capital turnover ratio is almost stable during the last five

years. It is 4.53at the end of 2008-09 and 4.49 in 2004-05. So that rate is good and satisfactory.

10 Total Assets Turnover ratio: - Total assets turnover ratio is decreasing in the five years. It was 1.06 in

2004-05, then 0.7 in 2006-07 and 0.41 in 2008-09. It means the company is adding assets but the returns

are increasing with slow rate. This is not satisfactory.

11 Debt-Equity ratio: - Debt- Equity ratio is increasing continuously in lat five years. In 2004-04 it was

1.10, in 2006-07 it was 2.15 and in 2008-09 it is 3.75. the company is highly levered. So much high debt-

equity ratio is a risky situation for any company. Because it increases the burden for payments of the

fixed rate interest on company.

12 Interest Coverage ratio: - Interest coverage ratio is increasing which is good for the shareholders. It is

more than doubled from 3.11 in 2004-05 to 7.47 in 2008-09. So the company’s ability for interest is good.

12 Intrinsic value;-

Market price as on 24th August 2010=1863.5

Intrinsic value= 1919.85

Intrinsic value is more than Market price of shares.

The stock can be hold and purchased.

$#
 Jindal Steel & Power Limited

Profit & Loss a/c of Jindal Steel & Power Limited

Rs Crore

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Income
Operating income 7,677.83 5,368.14 3,523.08 2,565.04 2,253.60
Expenses
Material consumed 3,419.42 1,727.40 1,068.50 536.71 528.20
Manufacturing expenses 773.84 670.87 510.96 545.44 514.13
Personnel expenses 181.46 132.20 90.14 79.74 50.85
Selling expenses 327.76 264.73 276.47 222.18 171.87
Administrative expenses 337.49 277.03 167.20 148.16 72.42
Expenses capitalized - - - - -
Cost of sales 5,039.97 3,072.23 2,113.27 1,532.23 1,337.46
Operating profit 2,637.86 2,295.91 1,409.81 1,032.81 916.15
Other recurring income 199.46 57.31 36.08 26.02 19.34
Adjusted PBDIT 2,837.32 2,353.22 1,445.89 1,058.83 935.49
Financial expenses 267.89 243.02 173.19 108.02 92.51
Depreciation 433.03 451.51 336.47 219.17 152.48
Other write offs 0.20 0.27 0.27 0.27 0.31
Adjusted PBT 2,136.20 1,658.42 935.96 731.37 690.18
Tax charges 465.40 265.55 241.85 154.91 158.11
Adjusted PAT 1,670.80 1,392.87 694.11 576.46 532.08
Non recurring items -144.78 -144.57 7.78 -12.00 -12.48
Other non cash adjustments 10.46 -11.34 1.10 8.48 -3.90
Reported net profit 1,536.48 1,236.96 702.99 572.94 515.70
Earnings before appropriation 4,584.28 3,239.54 2,136.05 1,528.77 1,057.60
Equity dividend 85.33 62.02 55.43 46.19 46.19
Preference dividend - - - - -
Dividend tax - 10.55 8.87 6.48 6.33
Retained earnings 4,498.95 3,166.97 2,071.75 1,476.10 1,005.08

$$
 Balance Sheet of Jindal Steel & Power Limited

Rs Crore

Mar ' 09 Mar ' Mar ' Mar ' Mar '
08 07 06 05
Sources of funds
Owner's fund
Equity share capital 15.47 15.40 15.40 15.40 15.40
Share application money - - - - -
Preference share capital - - - - 1.00
Reserves & surplus 5,399.85 3,740.98 2,481.33 1,829.31 1,302.98
Loan funds
Secured loans 2,105.49 1,783.39 2,115.61 1,780.77 1,159.51
Unsecured loans 2,857.16 2,079.96 1,392.11 964.60 336.35
Total 10,377.97 7,619.73 6,004.45 4,590.08 2,815.24
Uses of funds
Fixed assets
Gross block 7,362.90 5,918.94 4,929.03 3,243.05 2,530.28
Less : revaluation reserve - - - - -
Less : accumulated depreciation 1,617.00 1,183.11 781.75 542.33 361.76
Net block 5,745.90 4,735.83 4,147.28 2,700.72 2,168.53
Capital work-in-progress 2,318.01 660.48 937.84 1,146.27 345.70
Investments 1,233.40 1,036.19 709.82 430.30 33.38
Net current assets
Current assets, loans & advances 5,189.28 3,299.57 1,801.66 1,490.50 1,036.30
Less : current liabilities & provisions 4,111.64 2,115.48 1,595.39 1,178.45 769.67
Total net current assets 1,077.64 1,184.09 206.27 312.05 266.62
Miscellaneous expenses not written 3.02 3.14 3.24 0.74 1.01
Total 10,377.97 7,619.73 6,004.45 4,590.08 2,815.24
Notes:
Book value of unquoted investments 1,233.40 1,036.19 709.82 430.30 30.55
Market value of quoted investments - - - - -
Contingent liabilities 4,967.08 5,476.85 3,029.51 1,008.24 899.21
Number of equity shares outstanding 1546.53 1539.61 307.92 307.92 307.92
(Lacs)

$%
 Various Ratios of Jindal Steel & Power Limited

Ratios/Years 2008-09 2007-08 2006-07 2005-06 2004-05

1 Current ratio 1.26 1.56 1.13 1.26 1.35

2 Gross Profit ratio 28.71% 34.35% 30.46% 31.72% 33.88%

3 Net Profit ratio 19.50% 22.79% 19.75% 22.11% 22.68%

4 Return on Assets 10.6% 12.7% 9.25% 9.93% 14.38%

5 Return on Capital Employed 23.16% 24.95% 18.47% 18.29% 27.81%

6 E. P. S. 99.35 80.34 228.30 186.07 167.48

7 D. P. S. 5.50 4.00 18.00 15.00 15.00

8 Dividend payout ratio 5.53% 4.99% 7.88% 8.06% 8.95%

9 Working Capital Turnover ratio 7.12 4.53 17.07 8.21 8.45

10 Total Assets Turnover ratio 0.53 0.55 0.46 0.44 0.63

11 Debt-Equity ratio 0.77 0.90 1.06 1.21 1.03

12 Pr. Dividend Coverage ratio --------- --------- ---------- ----------- ----------

13 Interest Coverage ratio 8.97 7.85 6.41 7.77 8.46

14 P/E ratio 12.10 25.88 10.34 10.19 10.47

$&
 Projected Profit & Loss A/c of Jindal Steel & Power Limited

Income
Operating income 10,431.10 14,171.69 19,709.98 27,412.64
Expenses
Material consumed 4,325.90 5,472.69 7,401.75 9,540.11
Manufacturing expenses 857.1 949.32 1060.58 1184.87
Personnel expenses 249.39 342.76 482.6 679.5
Selling expenses 385.15 452.58 538.93 641.75
Administrative expenses 495.84 728.48 1101 1664
Expenses capitalized -- -- -- --
Cost of sales 6313.38 7975.83 10584.86 13710.23
Operating profit 4117.72 6225.86 9125.12 13702.41
Other recurring income 259.81 338.42 450.77 599.43
Adjusted PBDIT 4377.53 6565.28 9575.89 14301.84
Financial expenses 349.43 455.79 606.97 808.3
Depreciation 625.08 816.44 1088.78 1451.99
Other write offs 0.18 0.16 0.14 0.12
Adjusted PBT 3402.84 5292.89 7880 12041.43
Tax charges 748.62 1164.43 1733.6 2649.11
Adjusted PAT 2654.22 4128.46 6146.4 9392.32
Non recurring items -267.19 -267.19 -513.4 -513.4
Other non cash
adjustments 15.38 22.62 25.27 28.23
Reported net profit 2402.41 6123.27 5658.27 8907.15
EPS* 9==-=; 5><-<? 5<<-< ;?<-:; ;76-::
*it is assumed that company issues new shares in every three years (As in the trends). The shares are issued at CAGR.

$'
Intrinsic value of the shares of Jindal Steel & Power limited:-

Year EPS D.P.R Expected Cost of Dividend/(1+Ke/100)

Dividend Capital
2010 155.53 0.0708 11.01 13.44% 9.71
2011 264.48 0.0708 18.74 13.44% 14.56
2012 244.4 0.0708 17.3 13.44% 11.85
2013 384.73 0.0708 27.24 13.44% 16.44
2014 390.77 0.0708 27.67 13.44% 14.73
=67.29

Expected market price of shares of Jindal Steel & Power Limited in 2014

=EPS (2014)*Avg. P/E ratio = 390.77*13.79=5388.71

Ke = 6%+1.24(12%-6%)

= 6%+7.44%

=13.44%

Intrinsic value=67.29+5388.71/(1+13.44/100)5

=67.29+2868.49=2935.78

$
 Interpretation

1 Current ratio: - During last five years the current ratio is moving in the range of 1.25-1.50. In 2004-05 it

was 1.35 but in 2007-08 it increased to 1.56 and then decreased to 1.26 in 2008-09. But the current ratio

is not satisfactory. The company’s short term payment ability is not good.

2 Gross Profit ratio:- Gross profit ratio is 28.71% in 2008-09 decreased from 34.35% in 2007-08, which

is the highest in the last five years. In 2004-05 it was 33.88%. The gross profit ratio is good but there is a

decrease in 2008-09, but if we see the last five years ratios there are ups and downs in the ratio. The only

worry is that it is the lowest in last five years. The main reason is the increase in the material cost.

3 Net Profit ratio: - The net profit ratio is also decreased during 2008-09 as the gross profit ratio. But it is

good to get a net profit of 19.50 on sales. The main reason of decrease in the net profit is the decrease in

the gross profit.

4 Return on Assets: - Return on assets is also good though there are fluctuations in the returns in the last

years. In 2004-05 it was 14.38% highest in five years. Then it decreased to 9.93% but after that it is

around 10% which is good.

5 Return on Capital Employed:- Return on capital are also good except 2005-06 and 2006-07, when it

decreased to the lowest level of five years 18.29%. In other years it is around 24% that is a healthy return.

6 E. P. S.:- Earning per share decreased from 167.48 in 2004-05 to 80.34 in 2007-08.bthen it increased to

99.35 in 2008-09. The profit available to shareholder is still good. The reason of that decrease is the

increase in the equity shares. Share no. went to 5 times in 2004-05.

7 D. P. S.:- The dividend per share also decreased in 2007-08, due to the rise in outstanding equity shares.

But it increased in 2008-09 with the increased shares that is good.

%
8 Dividend payout ratio: - The dividend payout ratio also decreased in last two years. It means the

company decreased the dividend out of the available profit. That is not good for the shareholders of the

company.

9 Working Capital Turnover ratio: - Working capital turnover ratio fluctuated during five years. In

2004-05 it was 8.45, and then it increased to 17.07 in 2006-07. Decreased in 2007-08 to 4.53 but

increased to 7.12 in 2008-09. But it is still good and shows that working capital is efficiently utilized in

the company.

10 Total Assets Turnover ratio: - Total al assets turnover ratio is low but almost stable between

0.45-0.60. But the assets are used with low efficiency in the company. That is not satisfactory.

11 Debt-Equity ratio: - Debt- Equity ratio is 0.77 in 2008-09. It was 1.03 in 2004-05. But in last years it

decreased but the present ratio is good. But the decrease is due to issue of new equity shares in 2007-08

and 2008-09.

12 Interest Coverage ratio: - I ntere.st coverage ratio is highest in 2008-09 at 8.97. This is a good ratio. It

shows that company can serve the interest very well.

14 intrinsic value

Market value as on 24th August 2010=708.35

Intrinsic value = 2935.78

Intrinsic value is more then Market price of shares.

The shares can be purchased and hold.

%
 ISPAT Industries Limited

Profit & Loss a/c of ISPAT Industries Limited

Rs Crore

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Income
Operating income 8,264.01 8,362.19 7,527.76 5,053.87 6,078.08
Expenses
Material consumed 5,127.06 5,095.58 4,095.34 3,205.87 3,378.42
Manufacturing expenses 1,439.01 1,396.36 1,264.27 924.61 693.60
Personnel expenses 207.60 202.60 165.34 131.55 112.43
Selling expenses 207.93 189.38 221.71 259.41 204.16
Administrative expenses 159.71 208.38 182.29 176.22 195.27
Expenses capitalized - - - - -
Cost of sales 7,141.31 7,092.30 5,928.95 4,697.66 4,583.88
Operating profit 1,122.70 1,269.89 1,598.81 356.21 1,494.20
Other recurring income 82.73 24.93 32.16 25.76 109.29
Adjusted PBDIT 1,205.43 1,294.82 1,630.97 381.97 1,603.49
Financial expenses 1,129.74 1,108.09 1,099.62 985.07 643.89
Depreciation 646.62 638.12 623.83 571.43 435.99
Other write offs 2.47 - - - 35.68
Adjusted PBT -573.40 -451.39 -92.48 -1,174.53 487.93
Tax charges -335.78 80.82 12.90 -384.18 200.13
Adjusted PAT -237.62 -532.21 -105.38 -790.35 287.80
Non recurring items -474.47 555.36 47.09 -532.97 397.34
Other non cash adjustments 23.98 11.65 38.55 10.34 10.92
Reported net profit -688.11 34.80 -19.74 -1,312.98 696.06
Earnings before appropriation -1,859.86 -1,071.35 -1,118.25 -1,098.51 214.47
Equity dividend - - - - -
Preference dividend - - - - -
Dividend tax - - - - -
Retained earnings -1,859.86 -1,071.35 -1,118.25 -1,098.51 214.47

%
 Balance Sheet of ISPAT Industries Limited

Rs Crore

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar '
05
Sources of funds
Owner's fund
Equity share capital 1,221.65 1,221.58 1,218.40 1,218.38 685.80
Share application money 51.98 - - - 588.84
Preference share capital 1,050.86 1,072.45 1,070.34 1,070.32 451.10
Reserves & surplus -1,363.05 -544.34 -587.07 -567.38 745.56
Loan funds
Secured loans 7,150.81 6,940.05 7,849.07 8,241.06 5,699.24
Unsecured loans 200.24 284.99 466.43 20.03 132.99
Total 8,312.49 8,974.73 10,017.17 9,982.41 8,303.53
Uses of funds
Fixed assets
Gross block 13,557.39 13,167.93 13,067.37 11,455.71 8,016.31
Less : revaluation reserve 1,070.44 1,151.92 1,240.00 328.49 356.44
Less : accumulated depreciation 4,669.58 3,961.92 3,244.04 2,554.27 1,846.48
Net block 7,817.37 8,054.09 8,583.33 8,572.95 5,813.39
Capital work-in-progress 102.71 108.25 54.68 615.84 933.34
Investments 232.89 118.04 113.59 113.32 53.43
Net current assets
Current assets, loans & advances 3,903.49 3,498.40 3,431.32 2,924.55 2,796.14
Less : current liabilities & provisions 3,743.97 2,804.05 2,165.75 2,244.25 1,292.77
Total net current assets 159.52 694.35 1,265.57 680.30 1,503.37
Miscellaneous expenses not written - - - - -
Total 8,312.49 8,974.73 10,017.17 9,982.41 8,303.53
Notes:
Book value of unquoted investments 232.89 118.04 113.59 113.32 55.33
Market value of quoted investments - - - - -
Contingent liabilities 717.08 639.31 598.41 893.07 1,986.98
Number of equity shares outstanding 12224.42 12224.42 12224.42 12224.42 6925.90
(Lacs)

%"
 Various Ratios of ISPAT Industries Limited

Ratios/Years 2008-09 2007-08 2006-07 2005-06 2004-05

1 Current ratio 1.04 1.25 1.58 1.30 2.16

2 Gross Profit ratio 13.58% 15.18% 21.23% 7.04% 24.58%

3 Net Profit ratio -8.24% 0.41% -0.12% -15.99% 11.24%

4 Return on Assets -5.7% 0.29% -0.16% -10.73% 7.25%

5 Return on Capital Employed 6.72% 7.31% 10.05% -1.9% 14.06%

6 E. P. S. -5.63 0.28 -0.07 -6.65 10.05

7 D. P. S. -------- --------- --------- ---------- ---------

8 Dividend payout ratio -------- --------- --------- ---------- ---------

9 Working Capital Turnover ratio 51.80 12.04 5.95 7.43 4.04

10 Total Assets Turnover ratio 0.68 0.71 0.62 0.41 0.63

11 Debt-Equity ratio 9.04 11.65 13.88 13.66 4.33

12 Pr. Dividend Coverage ratio -------- --------- --------- --------- ---------

13 Interest Coverage ratio 0.49 0.59 0.92 ---------- 1.81

14 P/E ratio 0.8 112.45 ----- 51.6 3.75

%#
 Projected Profit & Loss A/c of ISPAT Industries Limited

13(56 13(56 13(56 13(56 " 13(56 #

Income
Operating income ?075;-<: 70>;=-=> 960<:;-?= 990;?=-6: 950<:6-66
Expenses
Material consumed =0>76-=5 >0;9=-76 :06:9-79 :079?-<9 ?07==-:5
Manufacturing expenses 90:5>-?6 506:5-96 50=5;-?6 ;06:;-7? ;0?6:-:;
Personnel expenses 5<9-7: 5?5-66 ;;5-79 ;75-7? <:6->;
Selling expenses 56?-7> 596-66 599-96 595-5> 5;9-=;
Administrative expenses 9=9-?> 9<<-<6 9;>->: 95:-77 956-=6
Expenses capitalized
Cost of sales ?0656-99 7065<-<6 9605:>-;7 990:5=->5 9;0=?>-99
Operating profit 76;-;> >99-9> 97:-<> 2;<6-== 29099>-99
Other recurring income ::-9: :9-7? >:-=7 >5-75 =7-<<
Adjusted PBDIT 7?6-=; >?;-9< 5>=-6= 25::->; 2906=>->:
Financial expenses 90;66-59 90<7>-<9 90:<5-<9 5065?-?> 50;7<-6<
Depreciation :<5-6= ?<>-9> 7:=-= 995<-: 9;95-7:
Other write offs 6
Adjusted PBT 296>9-:; 29>=7-<; 250<=5-?> 2;0<;9-97 2<0:>;-5?
Tax charges
Adjusted PAT 296>9-:; 29>=7-<; 25<=5-?> 2;<;9-97 2<:>;-5?
Non recurring items 2;==-;: 25>5->9 566-5< 29=5->? 2997-?>
Other non cash
adjustments 57-97 ;=-=; <;-7< =<-;< >?-<5
Reported net profit 29;?:-79 29??>-=9 2556?->? 2;=57-=; 2<?9<-:5
EPS* 299-;= 29=-<; 29?-6> 25?-?: 2;7-;?
*it is assumed that company is not going to issue new shares to public.

%$
Intrinsic value of the shares of Jindal Steel & Power limited:-

Year EPS D.P.R Expected Cost of Dividend/(1+Ke/100)

Dividend Capital
2010 -11.53 ---- ----- 24% -----
2011 -15.43 ----- ----- 24% -----
2012 -18.06 ------ ----- 24% -----
2013 -28.87 ------ ------ 24% -----
2014 -39.38 ------ ----- 24% -----

Expected share price in 2014 = -39.38*33.72 = -1327.89

Ke = 6%+1.73(12%-6%) = 6%+1.73*6% = 6%+10.33% = 16.33%

Intrinsic value= 0+ (-1327.89)/(1+16.33/100)

= -623.31

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 Interpretation

1 Current ratio: - The current ratio for 2008-09 is 1.04 which is decreasing from 2004-05 when it was

2.16. So the short term payment ability of the company is not satisfactory.

2 Gross Profit ratio: - Gross profit ratio is also decreasing of the company. In 2004-05 it was 24.58% but

at the end of 2008-09 it was 13.58%, which is not a good figure also. The reason is the increase in

material cost and in wages etc.

3 Net Profit ratio: - The net profit ratio is also not good. In 2008-09, 2006-07 and in2005-06 there is a net

loss. It shows that management is not able to control and reduce the expenses incurred. It is very bad

condition for the company.

4 Return on Assets: - Return on profit is also negative for 2008-09, 2006-07 and in 2006-07, which is not

good also. So the assets are also not utilized efficiently.

5 Return on Capital Employed: - Return on capital is 6.72% in 2008-09. In 2004 -05 it was more than

double, 14.06%. From 2004-05 it has been decreasing constantly. The return is not sufficient.

6 E. P. S.:- As net profit is negative so the earning per share is also negative. Company has hardly profit

available to equity shareholders. This is not suitable for the shareholders.

7 D. P. S.:- No dividend is paid to shareholders because company is also suffering from losses or having

less profit.

8 Dividend payout ratio: - As no dividend is paid in last five years so the dividend payout ratio is also

zero.

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9 Working Capital Turnover ratio: - In 2008-09 working capital is good at 51.80. in 2004-05 it was 4.04.

It is constantly increasing for last five years. The reason to be the ratio so higher in 2008-09 is decrease in

working capital

10 Total Assets Turnover ratio: - Total assets turnover ratio is a it stable. It is moving in the range of 0.6

to 0.7%. But the utilization of the assets is not done efficiently. But the consistency is a good sign.

11 Debt-Equity ratio: - Debt – Equity ratio of the company is very high and it is increasing for the last

years. So the company is in risky situation, Because company has more fixed interest obligation.

12 Interest Coverage ratio: - Interest coverage ratio is also not good. It is 0.49 in 2008-09. In 2004-05 it

was 1.81. So it is also decreasing and company’s interest payment ability is reducing also.

13 Intrinsic value: - The intrinsic value is negative so investors can get away from the shares of this

company.

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 Findings & Conclusion

Steel demand has started increasing after recession. As the recession hit the world the demand also

decreased. The main reason was decline in the growth of automobile and infrastructure sector, Because

steel demand strongly depends upon these two sectors.

The world steel demand has started increasing as well as the production, is expected to grow by 5.3% in

2011.

The income of Indian people has started after recession. In 2008-09 the growth was 3.7%, while in 2009-

10 its growth was 5.3%. It can be a helpful factor in the demand of steel. Population is increasing and by

2025 we will surpass CHINA, which is also important factor in demand improvement. The growth of

housing and infrastructure sector accelerated to 5.1% in 2009-10 from 3.7% in 2008-09. Investment in

infrastructure sector during 11th plan increased to 452.2 billion US$ from 191.1 billion US$ in 10th plan.

That is also an important factor for steel demand. As per my estimation, Indian economy can grow at a

9.5% in 2013-14.

If we see the steel industry of India, the Govt. has put steel in ‘High Priority’ list. Various exemptions are

done in this sector like-free export and import of iron and steel. Govt. has also aimed to accelerate the

growth of steel industry. Steel industry has a good growth rate and expected to grow around 9%. Though

the growth rate is not stable after recession but it is predicted to go up and to touch 9% (as per govt.

report) .Steel consumption in India has started going up. During recession steel consumption grew by

only 1%in 2008-09, in 2009-10 it increased to 8%. In Indian economy there is no entry barrier in steel

sector, some company’s are establishing there plants here like- POSCO steel. This will increase the

competition as well as production of steel.

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By all this analysis conclusions are following:-

After considering market price of the shares as on 24th August 2010 and the intrinsic value calculated, we

can say that TATA STEEL LIMITED and STEEL AUTHORITY OF INDIA LIMITED, as per my study

are overvalued. Their INTRINSIC value is less than market price, it means they are overvalued in the

market. As per my knowledge their shares can be sold or people can wait for a correction in the market

and can hold their investment till then. Long term investors who have already holding stock in these

companies, I suggest them to hold by seeing good future of the Indian Steel industry.

While by calculating intrinsic value we can say that BHUSHAN STEEL LIMITED and JINDAL STEEL

and POWER LIMITED companies are undervalued. The intrinsic value is more than the market price of

the shares of these companies. So investor can buy shares and the long term investor can hold there who

have invested already can hold there shares and can make an addition to their investment. As per my

study these company have good future growth opportunity.

As per my study ISPAT INDUSTRES LIMITED has a negative intrinsic. So the people can withdraw

their money. And the investors who have already invested in this can sell their stock because the intrinsic

value is negative.

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 References:-

1 http://www.worldsteel.org/- All the world steel data has been got from the

reports and information available on this site.

2 www.indiansteels.com.- All Indian steel related data is recovered from the

reports and information available on this site.

3 www.wikipedia.com

4 www.google.com

5www.moneycontrol.com

6 www.reliancemutualfund.com

7 www.moneycontrol.com- All the financial statement are downloaded from this site.

8 www.money.rediff.com

9 www.indiainfoline.com

10 Financial Management

Author: I. M. Panday

11 Business today

12 The Economic times

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