Financial Statement Analysis of Sail and Tata Steel – Research Paper – SAURABH JAISWAL
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Financial Statement Analysis of Sail and Tata Steel
A project onFINANCIAL STATEMENT ANALYSIS OF SAIL AND TATA STEELSubmitted to Seshadev SahooByGroup 10(Section: B)Suyash SengarPGP 31354Deepak KumarPGP 31316Chandan KumarPGP 31314Amritansh BharechPGP 31308Arpit RuiaPGP31311Group Project SubmissionFinancial Statement AnalysisTerm IV, 2016[pic 1]INDIAN INSTITUTE OF MANAGEMENT, LUCKNOWTable of Contents1. INTRODUCTION 32. ABOUT THE COMPANY 33. SEGMENT REPORTING 35. CASH FLOW ANALYSIS 96. SPECIFIC ISSUES 127. EVA ANALYSIS 148. RIV ANALYSIS 159. EARNINGS VOLATILITY AND RED FLAGS 1710. FORECASTING FINANCIAL STATEMENTS 1811. CONCLUSION 191. INTRODUCTION The aim of the project is to conduct financial statement analysis for two major players of steel production industry- Steel Authority of India (SAIL) and Tata Steel. We have applied various techniques learned in the course to the financial statements of the companies to understand the growth drivers, operational aspects, profitability and eventually forecast their earnings.2. ABOUT THE COMPANY2.1 STEEL AUTHORITY OF INDIASAIL is one of the largest state-owned steel making company based in New Delhi, India and one of the top steel makers in world with an annual turnover of ₹43,337 crore (US$6.4 billion) (FY 2015-16). It operates 5 fully integrated steel plants with an annual production of 13.9 million metric ton.2.2 TATA STEELTata Steel is the 2nd largest steel company in India with an annual capacity of 9.7 million tonnes and the 11th largest steel producer in the world with annual crude steel capacity of 25.3 million tonnes. Tata Steel has manufacturing operations in 26 countries.
3. SEGMENT REPORTINGThe segment reporting of both the companies are in line with each other as they are in the same business. Both the firms report the segment results under the Primary and Secondary Segment heads. SAIL categorises its 5 integrated Steel Plants including Bokaro and Durgapur Steel Plants, 2 Power JVs with NTPC and a power subsidiary (SAIL-Jagdishpur Power Plant) as Primary Segments for reporting. Tata Steel breaks down business segments into its products like Steel, Ferro Alloys and Minerals and others for purpose of primary segment reporting.SAIL treats Geographic Segmentation as for Secondary Segment Reporting by treating sales revenue in India and foreign countries as separate geographical segments. Tata Steel follows the same suit by segmenting the geography into India and its foreign operations. 3.1 SAIL: SEGMENT REPORTINGPrimary Segments: These are identified on basis of source and nature of risks and returns, internal organization and management structure. As of 2015-16, the primary business segments are BSP, DSP, RSP, BSL, ISP and Power JV companies (with NTPC) and the Jagdishpur Power subsidiary company. This classification has been in place for last 10 years. Analysis:The segment reporting is based around on different steel production plants of SAIL and its power ventures. They all produce similar kinds of steel and ferro alloys. The power companies are in a different line of business.The intersegment sales have been in the range of ~12-15%. This indicates that the segments are getting increasingly integrated. As the businesses are in the same line of work this shows the synergy is rightful.Bokaro Steel Plant is the dominant segment as it has contributed ~95-97% to the revenues of SAIL followed by BSL, Rourkela and Durgapur Steel Plants.In terms of profitability, Bokaro Steel Plant and BSL are the frontrunners. 4 Major segments like ISP, RSP etc. are in losses for the last 5 years which explains the reason why SAIL as a company has dwindling profitability.23% of assets of SAIL are with Bokaro Steel Plants while 18% each are with Durgapur and ISPDespite being lower in both revenue and asset base, Rourkela Steel Plant has getting heavy CapEx investment (~20-25%). Bokaro Steel Plant continues to lead here as well with almost 30-35% investment.The emphasis on RSP suggests that SAIL is looking at it for future growth driver while depending on Bokaro to continue being the dependent sourceFor future growth and profitability, the power ventures of SAIL need to be looked out while improving operational efficiency in RSP, DSP and other steel plants.Secondary Segments: The secondary segment reporting is based on geographical operations of SAIL.Sales Revenue (in crores)Current YearPreviousIndia43281.2349497.59Foreign557.251567.68Total43838.4851065.27Domestic Operations have contributed to almost 98% of sales revenue for SAIL in the last 5 years and have been growing at a Overseas Operations despite experiencing a decline in the last year has been slowly growing in the last 5 yearsNo Inter Segment sales in the last 5 years denote very less synergy and integration between Indian and foreign operations3.2 SEGMENT REPORTING – TATA STEELPrimary Segments: These are identified on basis of source and nature of risks and returns, internal organization and management structure. As of 2015-16, the primary business segments are Steel, Ferro alloys and Materials. Analysis:The intersegment sales have been in the range of ~10-13%. This indicates that the segments are getting increasingly integrated. As the businesses are in the same line of work this shows the synergy is rightful.Steel has been the major source of revenue for the firm and it accounts for almost 80-90% of the net revenue generated from all products.More than 80% of assets are accounted by steel segments; rest are accounted by segment classified as others.Steel being the major segment, major proportion of capital expenditure and depreciation have been assigned to steelThe emphasis on RSP suggests that TATA STEEL is looking at it for future growth driver while depending on steel to continue being the major income sourceSecondary Segments: The secondary segment reporting is based on geographical operations of SAIL.
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By: SAURABH JAISWAL
Submitted: July 22, 2017
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