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REPORT KRAKATAU STEEL (B)

MBA CCE 48 - SYNDICATE 4 :


Bonfry NCN Nuze – NIM 29112437
Daniel Yobs Purba – NIM
Tunjung Larasati – NIM 29112518
Widyawan Widarto – NIM 29112509

I. Objective
Currently Krakatau Steel has been claimed as the biggest steel company in Indonesia.
Even all Indonesia citizens presumes Krakatau Steel as one of the valuable asset of Indonesia.
However being the biggest local steel company is not enough. Going global is another step
that Krakatau Steel must take. Having corporation with POSCO, the biggest steel company in
South Korea to make a joint venture which required 388 hectares land, has shown that
Krakatau Steel is ready to go to the next level. Therefore Anto, a finance analyst in PT.
Krakatau Steel, would like to see the position and the opportunity of PT. Krakatau Steel to
compete with other global steel company. This assessment will also be used as a mean to find
an appropriate company as a benchmark.

II. Analysis
To asses PT. Krakatau Steel’s position and opportunity in global competence, we use
two local companies, PT Gunawan Dianjaya Steel and PT Jaya Pari Steel, and three global
steel companies from different region in the world, which are Arcelor Mittal (Luxembourg),
POSCO (Pohang Iron and steel Company, South Korea), and U.S. Steel (United States Steel
Company).
In Moody’s assessment, financial statement of 2008, 2009, and 2010 are used. Some
of the ratios in Moddy’s Global Steel measurement are using data of three years while other
ratios only use the data of 2010. Below are the key rating factors including the weight score
of each category:
Rating factors / sub-factors weighting

Categories Broad rating Rating


Sub-factor
Factor Weighting
Factor Sub-factor
Weighting

1. Net Consolidated sales ($USD billions) 25%


Size and
2. Operational Diversity
1 Business 35%
3. Regional Diversity 10%
Profile
4. Import Threat / Export Reliant
1. EBIT Margin 10%
Operating
2. Return on Average Tangible Assets 5%
2 Performa and 25%
Volatility 3. Volatility based on the Coefficient of Variation
10%
of CFO/NET Sales
Financial 1. Debt / Capital 15%
3 25%
Policies 2. Debt / EBITDA 10%
1. EBIT / Interest 5%
Financial
4 15% 2. CFO-div / Debt 5%
Strength
3. FCF / Debt 5%

Listed below are formulas for calcutating Broad Rating Factor :


1. Size and Business Profile
 Net Consolidated Sales ($USD billion) number is derived from the last revenue
data.
 Operational Diversity, Regional Diversity, Import Threat/Export Reliant value
are available in exhibit 2.
2. Operating Performance and Volatility

 EBIT Margin =

 Return on Average Tangible Assets =

 Volatility based on the Coefficient of Variation CFO/Net sales =

3. Financial Policies

 Debt/Capital =

 Debt/EBITDA =
4. Financial Strength

 EBIT/Interest =

 CFO-div/Debt =


FCF/Debt =
First, we compute value of each sub-factor and determine what rating from the result of computing value. Below are the results of value
calculation and what rating they are in each of the value according to Moody’s criterion:
Gunawan Diandjaya
Broad Rating Rating Krakatau Steel Jaya Pari Steel POSCHO Arcelor Mittal U.S Steel
Steel
Categories
Factor Sub-factor Value Rating Value Rating Value Rating Value Rating Value Rating Value Rating

1. Net Consolidated
1.74 B 0.20 Caa 0.50 Caa 53.43 Aaa 78.03 Aaa 17.37 Aaa
Size and Sales ($USD bilion)
1 Business 2. Operational Diversity
Profile 3. Regional Diversity 5 A 3 Baa 2 Ba 7 Aa 7 Aa 6 A
4. Import Threat
1. EBIT Margin 6.20% Ba 9.70% Baa 10.65% Baa 11.93% Baa 5.50% Ba 2.49% B
2. Return on Average
Operating 7.22% Baa 15.01% Aa 13.38% A 12.11% A 4.12% Ba 2.82% Ba
Tangible Asset
2 Performance
3. Volatility based on the
and Volatility
Coefficient of Variation of 32% A 917% Caa 119% Caa 87% B 39% A 345% Caa
CFO/Net Sales

Financial 1. Debt/Capital 47.15% Baa 39.91% Baa 27.03% Aa 41.09% Baa 52.31% Ba 69.57% Ba
3
Policies 2. Debt/EBITDA 5.85 Caa 4.03 Baa 2.04 Baa 2.94 Baa 7.21 Caa 121.90 Caa
1. EBIT/Interest 3.01 Ba 5.04 B 64.76 Aaa 11.12 Aa 2.55 Ba 2.49 B
Financial
4 2. CFO-Div/Debt 9.28% Caa 4.45% Caa 54.28% Aa 19.88% Ba 12.18% Ba 0.36% Caa
Strength
3. FCF/Debt -4.95% Caa 11.61% Baa 56.04% Aaa 13.45% Baa 1.29% B 0.29% Caa

After that we substitute rating appropriately with its own value, like the table below:
Aaa Aa A Baa Ba B Caa

6 5 4 3 2 1 0

After we know each rating value, we compute the weighted sub-factor with its own weight and also compute total score each of steel
company, the results is shown below:
Gunawan
Jaya Pari
Broad Rating Rating Krakatau Steel Diandjaya POSCHO Arcelor Mittal U.S Steel
Categories Steel
Steel
Factor Sub-factor Value Rating Value Rating Value Rating Value Rating Value Rating Value Rating
1. Net Consolidated
1 0.25 0 0.00 0.00 0.00 6 1.50 6 1.50 6 1.50
Size and Sales ($USD bilion)
1 Business 2. Operational Diversity
Profile 3. Regional Diversity 4 0.40 3 0.30 2 0.20 5 0.50 5 0.50 4 0.40
4. Import Threat
1. EBIT Margin 2 0.20 3 0.30 3 0.30 3 0.30 2 0.20 1 0.10
2. Return on Average
Operating 3 0.15 5 0.25 4 0.20 4 0.20 2 0.10 2 0.10
Tangible Asset
2 Performance
3. Volatility based on the
and Volatility
Coefficient of Variation of 4 0.40 0 0.00 0 0.00 1 0.10 4 0.40 0 0.00
CFO/Net Sales
Financial 1. Debt/Capital 3 0.45 3 0.45 5 0.75 3 0.45 2 0.30 2 0.30
3
Policies 2. Debt/EBITDA 0 0.00 3 0.30 3 0.30 3 0.30 0 0.00 0 0.00
1. EBIT/Interest 2 0.10 1 0.05 6 0.30 5 0.25 2 0.10 1 0.05
Financial
4 2. CFO-Div/Debt 0 0.00 0 0.00 5 0.25 2 0.10 2 0.10 0 0.00
Strength
3. FCF/Debt 0 0.00 3 0.15 6 0.30 3 0.15 1 0.05 0 0.00
Total 1.95 1.80 2.60 3.85 3.25 2.45
Rating Ba2 Ba3 Baa3 A2 Baa2 Ba1
1. Operating Performa and Volatility
2. Financial Policies
3. Financial Strength
4. Size and Business Profile

III.Conclusion and Recomendation