Financial Analysis Of Tata Steel And Jindal Steel Finance Essay - Free Essay Example

Tata Steel, formerly known as  TISCO  and  Tata Iron and Steel Company Limited, is the worlds seventh largest steel company,  with an annual crude steel capacity of 31 million tonnes. It is the largest private sector steel company in India in terms of domestic production. Ranked 258th on Fortune Global 500, it is based in  Jamshedpur,  Jharkhand,  India.  It is part of  Tata Group  of companies. Tata Steel is also Indias second-largest and second-most profitable company in private sector with consolidated revenues of  Indian rupee132,110 crore (US$  29.99 billion)  and net profit of over  Indian rupee12,350 crore (US$  2.8 billion)  during the year ended March 31, 2008.  Tata steel in the 8th most valuable brand according to an annual survey conducted by Brand Finance and The Economic Times in 2010.   Snapshot Registered Office Bombay House,    24 Homi Mody Street,    Fort    Mumbai   -   400001    Maharashtra       India Tel. 022-66658282 Fax 022-66657724 Website https://www.tatasteel.com Chief Executive Name Mr.  H M Nerurkar Secretary Name Mr.  A Anjeneyan Face Value 10 Market Lot 1 Business Group Name Tata Group Incorporation Date 26/08/1907 Industry Name Steel Registrar of Company Not Available Listed on National Stock Exchange of India Ltd.    The Stock Exchange, Mumbai PROFIT LOSS A/C OF TATA STEEL LTD (RS. CR) Period months 2010/03 2009/03 2008/03 INCOME Net Operating Income 24,940.65 24,348.32 19,654.41 EXPENSES Material Consumption 8,491.42 8,279.44 6,024.80 Manufacturing Expenses 3,803.33 3,349.96 2,693.73 Personnel Expenses 2,361.48 2,305.81 1,589.77 Selling Expenses 82.17 61.49 52.53 Administrative Expenses 1,622.77 1,518.83 1,224.54 Capitalised Expenses -326.11 -343.65 -175.5 Cost of Sales 16,035.06 15,171.88 11,409.87 Reported PBDIT 8,905.59 9,176.44 8,244.54 Other Recurring Income 331.59 305.36 347.28 Adjusted PBDIT 9,237.18 9,481.80 8,591.82 Depreciation 1,083.18 973.4 834.61 Other Write-offs 0 0 0 Adjusted PBIT 8,154.00 8,508.40 7,757.21 Financial Expenses 1,848.19 1,489.50 929.03 Adjusted PBT 6,305.81 7,018.90 6,828.18 Tax Charges 2,168.50 2,114.87 2,380.28 Adjusted PAT 4,137.31 4,904.03 4,447.90 Non-recurring Items 909.49 297.71 239.13 Other Non-cash Adjustments 0 0 0 REPORTED PAT 5,046.80 5,201.74 4,687.03 APPROPRIATIONS Equity Dividend 709.77 1,168.95 1,168.93 Preference Dividend 45.88 109.45 22.19 Retained Earnings 13,677.33 10,096.70 7,887.46 BALANCE SHEET OF TATA STEEL (RS.CR) Period months 2010/03 2009/03 2008/03 SOURCES OF FUNDS Owned Funds Equity Share Capital 887.41 730.79 730.78 Share Application Money 0 0 0 Preferential Share Capital 0 5,472.66 5,472.52 Reserves Surplus 36,281.34 23,501.15 21,097.43 Loan Funds Secured Loans 2,259.32 3,913.05 3,520.58 Unsecured Loans 22,979.88 23,033.13 14,501.11 TOTAL 62,407.95 56,650.78 45,322.42 USES OF FUNDS Fixed Assets Gross Block 22,306.07 20,057.01 16,479.59 Accumulated Depreciation 10,143.63 9,062.47 8,223.48 Less: Revaluation Reserve 0 0 0 Net Block 12,162.44 10,994.54 8,256.11 Capital Work-in-progress 3,843.59 3,487.68 4,367.45 Investments 44,979.67 42,371.78 4,103.19 Net Current Assets Current Assets, Loans Advances 13,425.27 11,591.66 38,196.34 Less: Current Liabilities Provisions 12,003.02 11,899.95 9,755.78 Total Net Current Assets 1,422.25 -308.29 28,440.56 Miscellaneous Expenses not written off 0 105.07 155.11 TOTAL 62,407.95 56,650.78 45,322.42 Number of Equity shares outstanding (Cr.) 88.72 73.06 73.06 Bonus component in Equity Capital 252.97 252.97 252.97 Notes: Book Value of Unquoted Investments 44,243.24 41,665.63 3,790.47 Market Value of Quoted Investments 4,397.79 1,491.89 3,260.65 Contingent liabilities 13,184.61 12,188.55 9,250.08 CAPITAL STRUCTURE OF TATA STEEL (RS.CR) From Year To Year Class Of Share Authorised Capital (Cr.) Issued Capital (Cr.) Paid-up Shares Face Value Paid-up Capital (Cr.) 2009 2010 Equity Share 1,750.00 888.13 887214196 10 887.21 2008 2009 Equity Share 1,750.00 731.37 730592471 10 730.59 2007 2008 Equity Share 1,750.00 731.37 730584320 10 730.58 JINDAL STEEL (JINSP) Jindal Steel and Power Limited  (JSPL) is the most valuable private steel producer in India, with an annual turnover of over US $2.1 billion (Rs. 10,000 crore), Jindal Steel Power Limited (JSPL) forms a part of the US $12 billion (over Rs. 60,000 crore) Jindal Group. JSPL is a leading player in Steel, Power, Mining, Oil Gas and Infrastructure. Mr. Naveen Jindal, the youngest son of the legendary late Shri. O P Jindal drives JSPL and its group companies Jindal Power Ltd, Jindal Petroleum Ltd., Jindal Cement Ltd. and Jindal Steel Bolivia with a belief in the concept of self-sufficiency. The company produces economical and efficient steel and power through backward integration from its own captive coal and iron-ore mines and passes on the benefits to its customers. However, in terms tonnage, it is the third largest  steel  producer in  India. The company manufactures and sells  sponge iron, mild steel slabs, Ferro chrome, iron, mild steel, structural, hot rolled plates and coils and coal based sponge iron plant. The company is also involved in  power generation. Jindal Steel Power Ltd. https://content.icicidirect.com/images/white-cut.gif Snapshot Registered Office O.P. Jindal Marg    Hissar   -   125005    Haryana       India Tel. 01662-222471/222472/222473/222 Fax 01662-222476/220499 Website https://www.jindalsteelpower.com Chief Executive Name Mr.  Naveen Jindal Secretary Name Mr.  T K Sadhu Face Value 1 Market Lot 1 Business Group Name Jindal O P Group Incorporation Date Not Available Industry Name Steel Sponge Iron Registrar of Company Not Available Listed on National Stock Exchange of India Ltd.    The Stock Exchange, Mumbai PROFIT LOSS A/C OF JINDAL STEELS (RS. CR) Period months 2010/03 2009/03 2008/03 INCOME Net Operating Income 7,347.44 7,677.83 5,368.14 EXPENSES Material Consumption 3,179.38 3,419.42 1,727.40 Manufacturing Expenses 838.4 773.84 670.87 Personnel Expenses 219.72 181.46 132.2 Selling Expenses 209.68 327.76 264.73 Administrative Expenses 344.78 337.49 277.03 Capitalised Expenses 0 0 0 Cost of Sales 4,791.96 5,039.97 3,072.23 Reported PBDIT 2,555.48 2,637.86 2,295.91 Other Recurring Income 205.37 199.46 57.31 Adjusted PBDIT 2,760.85 2,837.32 2,353.22 Depreciation 512.16 433.03 451.51 Other Write-offs 0 0.2 0.27 Adjusted PBIT 2,248.69 2,404.09 1,901.44 Financial Expenses 331.66 267.89 243.02 Adjusted PBT 1,917.03 2,136.20 1,658.42 Tax Charges 427.78 465.4 265.55 Adjusted PAT 1,489.25 1,670.80 1,392.87 Non-recurring Items -12.5 -144.78 -144.57 Other Non-cash Adjustments 2.93 10.46 -11.34 REPORTED PAT 1,479.68 1,536.48 1,236.96 APPROPRIATIONS Equity Dividend 116.52 85.33 62.02 Preference Dividend 0 0 0 Retained Earnings 5,677.83 4,498.95 3,166.97 BALANCE SHEET OF JINDAL STEELS (RS.CR) Period months 2010/03 2009/03 2008/03 SOURCES OF FUNDS Owned Funds Equity Share Capital 93.12 15.47 15.4 Share Application Money 0 0 0 Preferential Share Capital 0 0 0 Reserves Surplus 6,652.88 5,399.85 3,740.98 Loan Funds Secured Loans 4,235.16 2,105.49 1,783.39 Unsecured Loans 4,148.10 2,857.16 2,079.96 TOTAL 15,129.26 10,377.97 7,619.73 USES OF FUNDS Fixed Assets Gross Block 8,814.21 7,362.90 5,918.94 Accumulated Depreciation 2,110.15 1,617.00 1,183.11 Less: Revaluation Reserve 0 0 0 Net Block 6,704.06 5,745.90 4,735.83 Capital Work-in-progress 7,225.21 2,318.01 660.48 Investments 1,067.11 1,233.40 1,036.19 Net Current Assets Current Assets, Loans Advances 5,175.50 5,189.28 3,299.57 Less: Current Liabilities Provisions 5,045.64 4,111.64 2,115.48 Total Net Current Assets 129.86 1,077.64 1,184.09 Miscellaneous Expenses not written off 3.02 3.02 3.14 TOTAL 15,129.26 10,377.97 7,619.73 Number of Equity shares outstanding (Cr.) 93.12 15.47 15.4 Bonus component in Equity Capital 77.57 0 0 Notes: Book Value of Unquoted Investments 1,067.11 1,233.40 1,036.19 Market Value of Quoted Investments 0 0 0 Contingent liabilities 8,733.08 4,967.08 5,476.85 CAPITAL STRUCTURE OF JINDAL STEELS (RS. CR) From Year To Year Class Of Share Authorised Capital (Cr.) Issued Capital (Cr.) Paid-up Shares Face Value Paid-up Capital (Cr.) 2009 2010 Equity Share 200 93.12 931234082 1 93.12 2008 2009 Equity Share 20 15.47 154652683 1 15.47 2007 2008 Equity Share 20 15.4 153961340 1 15.4 COMPARISION OF TATA STEEL JINDAL STEEL PBDIT, INTEREST AND TAX Profit before depreciation, interest and tax The PBDIT for both the companies was increased from 2008 to 2010 but the PBDIT of Tata Steel was between Rs. 8000 to 10000 cr. and Jindal Steel was between Rs. 2000 to 3000 cr. It indicates that the operating efficiency of Tata Steel was working at a large scale than that of Jindal steel. As per the tax paid by the companies , if we see the figures in the last three years Tata Steel has been paying tax within a range of 6%, 3% and 8%, whereas the Jindal Steel is paying the tax on profits for the last three years at a range of about 3% every year. FRINGE BENEFIT TAX Fringe benefit tax was the tax applied to most, although not all, fringe benefits. A new tax was imposed on employers by Indias Finance Act 2005 was introduced for the financial year commencing April 1, 2005. The Fringe Benefit Tax is abolished in the Finance Bill of 2009 by Finance Minister. The instalment of advance FBT for assessment year 2010-11 will be treated as advance income tax paid by the assessee for assessment year 2010-11.The assessee can adjust such sum against his or her advance tax obligation in respect of income for financial year 2009-10, it said. The unadjusted amount, if any, may be claimed as refund in the return of income for assessment year 2010-11 to be filed later this year, the statement added. Tata Steels were having more burden of fringe benefit tax liability of Rs. 18 crore in 2008-09, Whereas Jindal Steel was paying Rs. 4.68 crore for Fringe Benefit Tax in 2008-09. It indicates that both the companies are concerned about their employees and provide the proper advantage of fringe benefit tax for their employees. Fringe benefit tax was been paid the companies, for income tax purpose but as it has been abolished; now the companies need not to pay it. Thats why the FBT in 2010 for both the companies is zero. CAPITAL STRUCTURE Capital structure  refers to the approach a  corporation  finances its  assets  through various combinations of  equity,  debt, or  hybrid securities. A firms capital structure is then the composition or structure of its liabilities. Debt to Equity Ratio The necessary funds of business are provided by ordinary shareholder, preference shareholders and creditors. In business there should be equitable balance between owned capital and debt capital because it affects the long term solvency of the business.    Debt equity ratio = external equities   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   Internal equities   The ratio indicates the use of debt in the capital structure. In Tata steel the use of debt has been reduced from 2008 to 2010, indicating more of equity share capital in their capital structure. But in case of Jindal steels the use of debt has been increased from 2008 to 2010 for been a more leveraged firm. The use of debt and equity help to reduce the total tax on the income for a particular company. It means if a company is more leveraged or ratio of debt to equity is more, it will get the benefit of taxes according to Income Tax Act 1961 and even the return on equity for the shareholders would be more than that of less leveraged firm. SPECIAL ECONOMIC ZONES (SEZ) TATA STEELS GOPALPUR SEZ The SEZ will come up on (December 2010) 3585 acres of land acquired by TATA Steel. The company had acquired the land in mid 90s for setting up a steel plant. But with the project being shelved later, it had decided to use the land for setting up of a SEZ. The land acquisitions work on the Gopalpur SEZ started in 1998-99 and at that time, a compensation of INR 100,000 per acre was fixed for the land ousters. The affected farmers of the Gopalpur SEZ project were paid INR 1.35 crore in 2009-10 while in the current fiscal, a compensation of INR 300,000 has been paid to the farmers till April. For TATA Steels proposed Greenfield steel plant at Kalinganagar, 832 out of 1195 affected families have been displaced and together, these families have been paid a compensation of INR 5.66 crore. (SOURCE BUSINESS STANDARD) JINDAL STEELS KALINGANAGAR SEZ Jindal stainless Ltd, a fully private organization in , Orissa has set up the SEZ in Kalinganagar, Orissa by satisfying the requirements of government under sub-section (1) of section 4 of the Special Economic Zones Act, 2005, for stainless less steel and ancillary/downstream industry.