Tata Sponge case (Annual report review) We have already studied in class, how to read an annual report.

Study the attached annual report and answer the following questions:

1. What is the business of the company, Tata Sponge Ltd? Which industry does
the company supply its products? Where are its products used?

2. With reference to pages 8 to 10 of the annual report, what steps have been
taken by the company to tackle the recessionary scenario during 2008-09? Give precise, point-wise answer. PAGE NO.8 : 7 STEPS ARE METIONED UNDER POINT LOOKING INWARD

3. What are the main components of cost for the company? Which is the major
raw material for the company? What has the raw material cost, as a percentage of sales been, in the given 2 years? (Get this info from the P&L a/c) Any comments on the same? PAGE No.38 4. Comment on the cash-flow of the company for FY09 and FY08. What is the EV at CMP? What does it tell you? 5. Sponge iron prices crashed during 2008-09. Still, Tata Sponge was able to generate decent profits. How were they able to do so? What strategy of the company paid off? optimum utilization of resources streamlined operational efficiency, saved expense, and earned profits both quantifiable and intangible. For the first time in India, we started to mathematically model our kilns operations. In this process, before putting raw material inside kiln, we mathematically calculate process data, shifting dependence from man to system. A bold initiative was to introduce Critical Chain Project Management (CCPM) which emphasizes on resources rather than rigid scheduling, thereby reducing plant shutdown days. Total Productivity Maintenance is implemented within the plant following the 5-S approach towards a hreepronged goal: zero-accidents, zero-rejections and zerobreakdowns.TSIL sold all its products throughout the year. For the Company, the main marketing thrust was building and keeping long-term contracts with 80 % of our customers. This explains our higher net realizations. We used the downturn as an opportunity to serve our customers better, adding several value-adds to our product as a bundled package. despite market volatility, we did not re-negotiate price keeping the contract sacrosanct. Second, we brought down the order-to-delivery cycle from a fortnight to 10 days. Third, we brought down the time to address customer complaints from 21 to 7 days. Last but never the least, we leveraged the TATA brand to position ourselves as an ethics-driven company. (WRITE ONLY HIGHLITED POINTS)

6. What is the installed capacity for sponge iron manufacturing in tonnes for
FY09? What is the % utilised capacity? installed capacity of 3,90,000 tons per annum to produce Sponge Iron which is a source of metaliks for the secondary steel producers, employing induction furnaces or electric arc furnaces for producing steel. 87% UTILISATION. (342074/390000) 7. How much tonnes of sponge iron did the company sell in FY09? At what price per tonne? Was it better than FY08? Sell =342074 tonnes @ Rs.19763/tonn (6760600000/342074) 6760600000= income from sell 342074= production 8. At what price per tonne did the company buy iron ore in FY09? Was it cheaper or more expensive than FY08? At what price per tonne did the company buy coal in FY09? 9. Has the company decided upon some strategy due to which some raw materials cost may come down? Comment. 10. What is the market capitalisation of the company? What is the PE ratio of the company based on FY09 EPS? What is the dividend yield based on FY09 dividend? Comment on the valuations. 11. At CMP, do you find Tata Sponge as a good investment idea? Will you classify it as a conservative investment/aggressive investment/speculative investment? Why? Give precise, point-wise answers. Consider CMP as Rs.300 for all calculations. All answers should be given in precise, point-wise form. Any case solutions containing paragraph form answers will be straight-away given zero marks. Answer in brief; be precise and to-the-point. --- Enjoy and wish you all a happy new year! ---