ASSIGNMENT FOR CORPORATE FINANCE ON

Qualitative and Quantitative Analysis on

JSW Steel

Submitted to : Prof. T.V.

Submitted from : Anuja Desai (33) Gunjan Rahi (39) Ritesh Kothari (83) Rahul Khajuria (115) Arpit Gupta (21) 1

ACKNOWLEDGEMENTS

I take immense pleasure in thanking Prof. T.V. , our course facilitator for introducing us to the basic concepts of Corporate Finance and initiating us into undertaking this topic.

CONTENTS

SUBJECT

PAGE No.

1. Company Overview................................................... 04 2. Business Risk Analysis of JSW Steel.............................. 06 3. PEST Analysis..........................................................................10 4. SWOT Analysis................ 13 5. Company Overview.................................................... 14 6. Ratio Analysis of JSW Steel.............................................. 15 A. Profitability Ratios...............................................................05 B. Liquidity Ratios....................................................................06 C. Gearing/ Solvency Ratios....................................................08
Conclusion for Ratio Analysis .........................................................10

7.

1. COMPANY OVERVIEW JSW Steel Ltd., belonging to JSW group, part of the O P Jindal Group, is one of the lowest cost steel producers in the world. The group has diversified interest in mining, carbon steel, power, industrial gases, port facilities, Aluminium, Cement and Information Technology. JSW Steel Limited is engaged in manufacture of flat and long products viz. H R Coils, C R Coils, Galvanised products, auto grade / white goods grade CRCA Steel, Bars and Rods. Incorporated in 1994, it has grown to US $ 5 billion in fifteen years. JSW Steel Limited has the largest galvanizing and colour coating production capacity in the country and is the largest exporter of galvanized products with presence in over 100 countries across five continents. JSW Steel Limited reported a growth of 11% in Crude Steel production for April 2011 compared to that of corresponding month in the last fiscal year. The global steel demand has seen a growth in excess of 13% in the year 2010. The revival in the advanced economies and the consumption levels across all continents in the world is propelling the demand for steel worldwide. The Indian manufacturing growth remains positive driven by the demand from key consumption sectors such as infrastructure, automotive, consumer goods and housing, to name a few. The demand for steel in India has seen a robust growth in excess of 9-10% over the year 2009-10. Rapid urbanization and spending on infrastructure within India is certain to drive steel demand and in the year 2011 12, it is estimated demand is likely to grow between 12 14%. The international market also has seen a steady rise in steel demand and prices, and the global supply of finished steel also remains well balanced. The deluge in the Australian coal mines coupled with low supplies of iron ore from India is resulting in a price volatility pushing up input raw material prices and compelling the steel manufacturers to increase steel prices. Going forward, due to this cost push of the input raw materials, steel prices are likely to see further increase in the coming months. VISION: Global recognition for Culture and Quality while nurturing nature and society. MISSION: Supporting Nations growth in steel and Power with speed and innovation CORE VALUES: Transparency Strive for Excellence Dynamism Passion for Learning

PRODUCT RANGES: JSW Steel is among the largest integrated steel companies in India, having established production facilities at close proximity to the mineral resources as well as to the market for its products. Our cost of production is among the lowest in the country. The integrated steel plant produces hot rolled coils in various Carbon and Low Alloy grade of steel for wide application ranging white goods, automobiles, line-pipe, railway wagons etc PRODUCTS: HR coils Galvanized sheets CR coils Pellets CR Coils Wire rods Billets Colour coated products

2. BUSINESS RISK ANALYSIS It is formulated on following parameters: INDUSTRY RISK: Recovery in advanced economies in the Steel Industry has been slower than expected due to tighter bank lending, Increased fiscal, Financial uncertainty and moderation in demand. Also, Concerns remains over Euro area sovereign debt problems, lowering risk appetite. However Euro Area industrial production growth was at 5.3% YoY in Aug 2011 as compared to 4.4% in July 2011. INCENTIVES FOR NEW INVESTMENTS AND NEW PRODUCT APPROVAL: JSW Steel Ltd. commissioned the new blast furnace in July 20, 2011. The company quickly ramped the blast furnace, and achieved the 80% utilization level in just 2 months. Also the company in this financial year, got the approval from the following Automobile Companies: 1)160 mm dia Bar for Tata Motors 2) Steel for Front Axle Beam for Volvo- Eicher Motors & 3) Steel for Bull Gears for Mahindra & Mahindra Tractors LEGISLATION REGARDING POLLUTION CONTROL MEASURES: To create an environmental friendly and pollution free environment , the JSW Foundation builds model villages by developing rural infrastructure complete with roads and drainage system. To improve living standards, it creates sanitary facilities for providing effective disposal of solid waste. The Foundation also sensitizes rural eco-friendliness through enhanced tree planting. The Foundation builds libraries and has also build an art centre for accelerating rural sociocultural development. To create garbage-free villages, the Foundation sets up garbage management units using proper garbage handling mechanism. It takes utmost care to create rural awareness on the importance of hygiene and the crucial role people can play to make that a reality. To minimize waste produced the Foundation has introduced scientific recycling and reusing technologies. MARKET POSITION: JSW's steel producing portfolio includes 3.1 mtpa capacities of Ispat Industries also, which was acquired by the Sajjan Jindal-led firm in last December i.e December 2010. Its Vijayanagar and Salem units are currently producing about 7.8 mtpa. Besides SAIL and JSW, Tata Steel and Essar Steel are two other big domestic producers, having a capacity of 7 mtpa and 8 mtpa, respectively. The sources have confirmed that JSW Group has set a target to become a global conglomerate with USD 100 billion turnover by 2020 and 40 mtpa steel producing capacity.

The Group, which marks its presence in US, Chile, Mozambique and South Africa apart from India, had posted a turnover of about USD 9 billion in 2010-11 and the Company is eyeing to close the current fiscal with a turn over of USD 14 billion. Moreover, the Sajjan Jindal-led firm has also announced that it will increase the capacity of its Vijayanagar plant to 12 mtpa by 2014 from 10.2 mtpa of today and has sought government approval to expand its capacity to 16 mtpa. The company is also hoping to secure funding for its proposed 10 mtpa steel plant in West Bengal by the end of this fiscal. Keeping an eye on the Huge demand of Steel worldwide, JSW Steel had achieved highest ever quarterly production of crude steel of 1.647 million tones in January-March quarter. While the total sales of the company during the quarter ended March 31, 2011 stood at 1.733 million tonnes. OPERATING EFFICIENCY: JSW has taken several steps to improve operational efficiency, to preserve margin in spite of disproportionate increase in raw material costs relative to increase in the steel product prices. We are also focusing on enhancing our backward integration in addition to improving product mix and growing volumes. JSW Steel is expanding its capacities from 7.8 mtpa to 11 mtpa.The Company had announced to expand this capacity by another 2 mtpa to 13 mtpa by June 2013. The Company has further plans of implementing two more greenfield projects of 10 mtpa each in phases in West Bengal and Jharkhand. This capacity is in addition to the 3.3 mtpa capacity of recently acquired Ispat Industries Ltd, which has been renamed to JSW Ispat Steel Ltd. Major Competitors: Steel Authority of India (SAIL) Rashtriya Ispat Nigam Ltd. (RINL) ISPAT Tata Steel Co. (TISCO) Essar Steel Lloyds Steel Industries Ltd. National Mineral Development Corporation (NMDC)

Technology:

Human Resources: All the process of a successful Human Resource policy is followed by JSW Steel Ltd. like Mentoring Young Trainees, Prudent mix of Energy and Experience of the Employees, Rewards & Recognitions, Effective financial Communication, etc. An effective structure of Communication followed in the Company is shown below: Research & Development: At JSW Steel Ltd., innovation is driven by its skilled R& D team. It works to redefine national and Global benchmarks in Iron & Steel manufacture. The result has improved productivity and has consistently decline costs. The R&D team comprises 44 Qualifies members who work along with shop- floor teams to design and implement shop-floor processes; its efforts are facilitated by a full-fledged R&D centre equipped with contemporary infrastructure, Pilot Testing and Simulation facilities. R&D activities are focused on Plant performance improvement, new 8

process development, Product and Grade development, to strengthen its infrastructure.Energy conservation and Waste management. The innovation-centric mindset at the company is reflected in its investment in R&D The company invested Rs 42.44 Crores in 2010-2011 Corporate Social Responsibilities: Environment:

To create an environmental friendly environment, the Foundation builds model villages by developing rural infrastructure complete with roads and drainage system. To improve living standards, it creates sanitary facilities for providing effective disposal of solid waste. The Foundation also sensitizes rural eco-friendliness through enhanced tree planting. The Foundation builds libraries and has also build an art centre for accelerating rural sociocultural development. To create garbage-free villages, the Foundation sets up garbage management units using proper garbage handling mechanism. It takes utmost care to create rural awareness on the importance of hygiene and the crucial role people can play to make that a reality. To minimize waste produced the Foundation has introduced scientific recycling and reusing technologies. Livelihood: To create livelihoods for rural women by providing revolving fund, skill training and other linkage services to empower rural women to reduce gender-based discrimination. For Ex: To provide more earning options by breaking the barrier of gender division of jobs, women are being trained and placed in other unorthodox jobs like power-tiller operation, pump operation, mechanical & electrical maintenance, driving job etc.

3. PEST Analysis Political Factors : The factors that affect the Indian Steel Industry plays a vital role in the growth of Steel manufacturers like JSW Steel Ltd. The company is located in the Bellary region of Karnataka, India which is a politically sensitive area. This is due to the huge returns the politicians see in the mining belt. The two important main parties are the Congress and the BJP take the maximum opportunity to possess the hold of the mines so that they have the final say. Due to these factors the company has to ensure that they keep the politicians and the parties in their good books. Economical Factors : The strong international demand for steel especially propelled by China coupled with a high domestic requirement resulting from Indias economic boom has immensely benefited the Indian steel industry. Ironically however, the company has also benefited from the economic depravity of the region. The high illiteracy rate, the fertility of the iron ore belt has indeed helped the company to contract employees at a very low cost. The industrial belt of Bellary is not is not as developed like other major cities as there are hardly any major industries which contributes to the financial stability of the locals. Thereby, JSW has naturally become the dream company for many and to stick on in spite of frustration and disappointments. The companys progress has also affected the local people who are in no where connected to the companys advancement. The land price around the JSW has soared up to unaffordable prices for the locals. The daily basic items like fruits, vegetables and groceries has shot up so high that it matches the prices seen at some of the cities. Social/ Cultural Factors: Social changes in the lives of those who are connected to JSW steel and reside around their premises experience a visible change. The standard of living has changed with the higher income and buying capacity of the employees. A contract labourer working in the company brings more money than tilling the barren land. This higher financial capability has helped people to live in better conditions having the basic needs of their lives met. More children are seen going to schools, migrations to the cities is arrested to a larger extent. People are able to live decently and are having stronger purchase power. All these have helped 10

the people involved with the JSW group positively. But as we analyse the negative aspects of this economic growth JSW are bothered by the changing lifestyle of the youths. The village youth are no longer interested in simple living but are attracted to high lifestyle of the cities which in fact suck most of the financial resource they earn. Due to the lack of the financial resource to meet the growing desire and attraction they tend to robbery and cheating. For instance robbery and thefts are plenty. Surrounding villages has also reported the increase of AIDS cases. In order to catch up with the booming industrial growth prostitution has increased. The clients are the truck drivers who bring materials from all over India and the growing associates employees. The dangerous trend seems to be that some of these women are married and are forced to this flesh trade by their spouse in order to earn more money for their family. Thus the financial change has also changed the traditions, values and the culture of these people immensely. JSW is situated in the location of Toranagallu has various factors which is affected by the environmental factors around the company. The massive expansion of the company has given rise to various employment opportunities especially for the local flock. The land which was their own was barren with scant rainfall and they were not able to cultivate it. When expansion of the company physically lots of these land were bought by the company. The local who sold the land according to the agreement received they assured money as well as job for the family members. This sudden economic growth not only enhanced their economic power but only made them strangers to their own native place. Identity to land and thereby to the village no more exists. Due to the lack of skill of these people they were given jobs which were high risks and thereby leaving the comfort zone of their land to the risky jobs. Thus the local land losers not only gained a new lease of economic growth but also entered the dangerous risk of industrialisation. Technological Factors: SW is the second largest company which has implemented the technology of Corex other than POSCO Korea. Due to this technology production of steel has doubled and has become the boon for the company. Thus technology is one of major focus of JSW group. The plant is its self modern plant with latest mechanisms. Communication is very important medium to cover the large area and a vast work force. 11

Thus computer, inter and intranets, mobiles are widely used mediums so that communications does not suffer. The company also produces in house magazines so that the employees also are kept updated of information happening in other areas and subsidiary plant of JSW plants. With this rampant use of technology communication is not taken for granted. Legal and Ecological factors : With the massive expansion of the companys legal problems have increased. However, the company has devised policies and measures so that the land giver is not affected and jobs are ensured to these land givers so that they can work in the company. The company has also developed its environmental background immensely. The land which was like a barren desert like a place filed with trees which has bought in rain and decrease in the temperatures. The dream of the Top management is to plant 10 lakh saplings in the next two years so that it gives to earth what it has reaped from it.

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4. SWOT ANALYSIS

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Company Overview
JSW Steel (JSTL) has demonstrated excellent project execution skills over the past decade, growing its capacity 6x to 10mtpa through brownfield expansions at Vijaynagar. With the acquisition of Ispat Industries and Salem Steel, it controls 14mtpa capacity. Its main production facilities are located in proximity to rich iron ore reserves at Karnataka. It has investments in iron ore mining in Karnataka and Chile. Its other overseas investments include plate and pipe mill operations and coal mines in the US. JSTL has the lowest conversion cost due to operational efficiencies. Its strategic location near iron ore rich Bellary-Hospet belt helps it to keep iron ore purchase costs low; however, the recent ban on iron ore mining at Bellary and subsequent unavailability of adequate quantity at lower costs can derail volume growth. Earnings have high sensitivity to steel and raw material prices due to high financial and operating leverage.

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6. RATIO ANALYSIS
A. PROFITABILITY RATIOS:
1) Profit Margin Profit Margin = Profit after Tax/ Sales March 2009 3.02 Interpretation: Profit margin Ratio for the year 2009 was 3.02 because of the reason of low profit after tax value i.e. Rs 4585 mn. The net sales in the corresponding year amounted to Rs. 140012.5 mn, but for the year ending march 2010 the ratio increased to 10.4 as the Profit after tax value seen a tremendous increase to Rs. 20227.4 mn. The reason for the same was due to the tremendous increase in operating profit of the company. While for year 2011 the ratio decreased to 8 because of the fall in the profit after tax value of the company which was valued at Rs 20106.7 mn. The fall in the profit margin suggests that the company should keep a check on its increasing expenditure. 2) Asset Turnover Ratio Asset Turnover Ratio = Net sales / Total Assets March 2009 0.88 March 2010 0.96 March 2011 1 March 2010 10.4 March 2011 8

Interpretation: The Asset turnover Ratio is the measure of efficiency with which the assets are utilized. There was an increase in net sales of the company from the year 2009 to 2010 i.e Rs 40012.30mn while the total assets increased from Rs. 20596.6 mn. This shows that the company has been able to utilize its assets properly but there was a minute increase in 2011 as compared to 2010. 3) Return on Equity Return on Equity = Profit after Tax / Shareholders Equity March 2009 6.14 March 2010 23.86 March 2011 15.65

Interpretation: 15

The shareholders fund for the year ended march 2009 was Rs. 79592.5 mn whereas the value for the year ended march 2010 was Rs. 970634 mn. The profit after tax value increased from Rs. 4585 mn to Rs. 20227.4 mn over the same period. This implies that the shareholders funds has been utilised more efficiently. But, mainly the reason for such enormous increase in the ROE ratio is attributed to the large increase in the PAT value of the company. Also, the total Reserves of the company has increased from Rs. 74145 mn to Rs. 91674.7 mn over the same period. This indicates that the companys ability to withstand the emergency shocks has also improved. Also, there has been decrease in the ROE value from the FY 2009-2010 to FY 20102011. This is because of the fact that the PAT value of the company has decreased from Rs. 20227.4 mn to Rs. 20106.7 mn.

B. LIQUIDITY RATIOS
1) Debtor Turnover Ratio Debtor turnover = Net sales / Total Debtors March 2009 41.27 Interpretation: The Debtor Turnover Ratio shows the number of times each year the companys debtors turns into cash. In the year 2009 the debtor turnover ratio for the company was highest as compared to 2010 and 2011. This implies that the portfolio of debtors was good in year 2009. But the significant decline in the year 2010 and 2011 indicates that the management of receivables in the company has deteriorated over the period. March 2010 40.48 March 2011 35.85

2) Inventory turnover Ratio Inventory Turnover = Cost of goods sold / Total inventories March 2009 8.43 Interpretation: The ratio indicate that the inventory holding period for JSW Steel has increased over the year. This implies that the company should dispatch the order as soon as possible. The operating cycle time increased over the year implying that the companys funds were struck in receivables and inventories for a longer period. 16 March 2010 8.39 March 2011 7.47

3) Fixed assets turnover ratio Fixed Assets Turnover= Net sales Total fixed assets March 2009 0.98 Interpretation: The Net sales has increased from Rs. 140012.5 mn to Rs. 231632.4 mn,from the year ending March 2009 to March 2011, whereas the Avg. Fixed Assets has increased from Rs. 168967.5 mn to Rs. 274073.5 mn. The above ratios implies that the company has been able to utilize its fixed assets more efficiently in the year 2010-2011. The net sales over the years has grown to a larger extent as compared to the increase in the Average fixed assets over the years. March 2010 1.01 March 2011 1.02

4) Current Ratio: Current Ratio= Current Assets/Current Liabilities March 2009 0.61 March 2010 0.73 March 2011 1.01

Interpretation: It is a widely used indicator of a companys ability to pay its debts in the short-term. For the year ending Mar 2011, the C.R for JSW Steel has increased from 0.73 to 1.01 from the year ending Mar 2010. The reason for such an increase has been due to around double the increase in the Current Assets during this period. Also, there has been a considerable increase in the Cash and Bank Balances of the company.

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5) Quick Ratio: Quick Ratio= QUICK Assets/ Current Liabilities March 2009 0.34 March 2010 0.39 March 2011 0.60

Interpretation: The Quick Assets (Current Assets- Inventories) represents the assets that can be readily convertible to cash. The Liquid Ratio for the company has increased from 0.39 for the year ending Mar10 to 0.60 for the year ending Mar11. This suggests that the firms short-term debt paying capacity has improved over the year.

C. GEARING RATIOS/SOLVENCY RATIOS:

1) DEBT-TO-EQUITY RATIO: Debt- to- Equity Ratio= (Short-term Debt+ Long-term Debt)/ Shareholders Equity. March 2009 1.42 Interpretation: This ratio measures the relationship of the Capital provided by the creditors to the amount provided by the shareholders. The Debt-to-Equity ratio of any company must be less than 1. This ratio for JSW Steel was 1.2 for the year ending Mar10.This was because the Total Debts of the co. for that year was Rs. 115181 millions whereas the Total Shareholders Equity amounted to Rs. 97063.40 millions. Such excessive use of debt financing is considered risky for any company. Whereas, the ratio improved to 0.72 for the financial year ending Mar11 as the total Debts of the co.shown a minor increase to Rs. 119513.40 millions whereas the Total Shareholders Equity amounted to Rs. 172252.70 millions. The company was able to increase the Shareholders Equity by such a huge margin due to the increase in the Subscribed Equity Capital from Rs. 1870.5 millions to Rs 2231.20 millions. March 2010 1.20 March 2011 0.72

2) INTEREST COVERAGE RATIO:

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Interest Coverage ratio= Profit Before Interest and Tax/Interest Expense March 2009 1.81 March 2010 4.13 March 2011 4.27

Interpretation: There has been a tremendous increase in the Interest Coverage ratio from 1.81 for FY 2008-2009 to 4.13 for FY 2009-2010. The PBIT for the company has more than doubled in 1 year period. For JSW Steel Ltd., the Interest Coverage ratio in 2011 is much higher as compared to the other years and the company is in a much favourable position to pay its interest obligations. A too high Interest coverage ratio is because of using a small dose of debt in the Capital structure. Thus, the companys has turned out to be in a more favourable position of raising a Bank Loan than ever.

3) Dividend per share:

March 2009 1 Interpretation:

March 2010 9.50

March 2011 12.25

It basically indicates the dividend per share value declared by the company to its shareholders. The fluctuation and dividend depends upon the profits of the company. , declaration of dividend is optional for the company and they can use these dividends for the diversification of their business. But the dividend per share is an important tool to inform the shareholders that the company is doing well in the market. The Dividend per share for the year ending march 2011 has increased over its previous financial year despite of the fact that the PAT value has decreased over the same year. This has been possible because of the increasing amount of RESERVES AND SURPLUS of the company.

CONCLUSION FOR RATIO ANALYSIS

The company over the years have given dividends to its shareholders at an increased rate. Also, the consistent increase in the companys Liquidity ratios indicates that the firms ability to pay its short term liabilities have also improved. Also, the firms credit standing has also improved over the years. This has let the company able to take Loans from the financial institutions for its Development works. The decrease in the value of Debtor Turnover and

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Inventory Turnover is a cause of worry for the Management. Thus, the Management should work on its effective ways to control the inventory and the receivables.

COST OF CAPITAL OF JSW STEEL LTD. What is Cost of Capital? Cost of Capital is the rate of return that a firm must earn on its project investments to maintain its Market value and attract funds.

COMPONENTS OF CAPITAL:
a) DEBENTURES b) PREFERENCE SHARES c) EQUITY SHARES d) RETAINED EARNINGS

Cost of capital is the cost at which the company acquires its funds for different operations. It is taken from the investors point of view. It is the expected return of the investors on their different type of investments in different portfolios. The cost of capital helps the company to evaluate the financial feasibility of a venture or project

CAPITAL STRUCTURE OF JSW STEEL LTD.

PARTICULARS Equity Share Capital Preference Share Capital AMOUNT (In crores) 223.12 279.03

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Reserves and Surplus Debentures

16.13 2422.36

COMPUTATION OF OVERALL COST OF CAPITAL

1. COST OF DEBT
FORMULA: COST OF IRREDEMABLE DEBT = INTEREST (1-TAX RATE) COST OF REDEEMABLE DEBT = [I (I-t) + (RV-SV)/n] / (RV+SV)/2 Here, In the annual report of the JSW Steel Ltd. 2010-2011, Under the Schedule 3 Secured Loans, is the amount of Debentures that the co. has raised. But, in the annual report, it has not been clearly mentioned that whether the given Debentures are Redeemable or Irredeemable. The amount of debentures is as follows:

Cost of Debt = (I/SV)*100 Here, Interest = PBIT- PBT = Rs. (36332- 27822.8) mn = Rs. 8509.2 mn SV= Total Debt = Rs. 119513.40 mn Hence, Cost of Debt ( Before Tax) , Ki = 7.11% Thus, After Tax Cost of Debt , Kd = Ki(1-t) = 7.11(1- 0.35) = 4.62% . [Note: The Debentures are irredeemable]

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2. COST OF PREFERENCE SHARE CAPITAL Cost of 10% Cumulative Redeemable Preference Share Capital Kp = [d + (RV-SV)/n] / [(RV+SV)/2]. Here, d= 10% of Rs 10 Face value of Preference Share = Rs1. RV = Rs. 279.03 Crores. SV = RV Floatation Cost = Rs.( 279.03 10% of 279.03) crores = Rs. 251.13 crores n=( 2018- 1994) yrs =24 yrs. Hence, Kp =[1 + (279.03 cr. 251.13 cr.) /14] / [(279.03 cr.+ 251.13 cr.)/2] Hence, Kp= 1.13% Note: JSW Steel Ltd. raised the Preference Share Capital on its incorporation i.e, in the year 1994. The 10% Cumulative Redeemable Preference Share Capital is going to be redeemed at 15th Dec, 2018.

3. COST OF EQUITY CAPITAL The cost of equity capital can be calculated by two methods A) DIVIDEND APPROACH CALCULATION OF COST OF EQUITY CAPITAL (Dividend Approach Method)

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FORMULA: Ke = ( D / P) + g Where, Ke = Cost of Equity D = Expected dividend for the year ending 31st March 2011. P = Current Market Price, as on 31st March 2011 g = Growth Rate. Year 2006-2007 2007-2008 2008-2009 2009-2010 Dividend(Rs.) 12.50 14.00 1.00 9.50 % Change Nil 12 -92.85 850

Thus, Expected Growth Rate, g = (12- 92.85 + 850)/3 % = 256.5% Now, Ke = (D/P) + g = [9.50 (3.565) / 952.55] + 256.5% = 256.53% Since, there has been a large variations in the Dividend per share for the Company for the last 3-4 yrs, Hence the Cost of Equity which we have got is an absurd value. So, we will calculate it using the other method i.e. B) CAPITAL ASSET PRICING MODEL (CAPM) FORMULA: Ke = Rf + (Km-Rf) ,where Ke cost of capital Rf risk free return on equity which is 7.2% Beta of the stock which is 1.78 (From the Excel Sheet) 23

Km market return (Calculated from average returns indicated by SENSEX index of last 5 years, which has been taken from the Excel Sheet), which is 12.29% calculation of beta and market value.xls

Hence, Ke = Rf + (Km-Rf) = 7.2 + 1.78 ( 12.29 7.2 ) = 16.26 %

4. COST OF RETAINED EARNINGS Since cost of capital for retained earnings is also the opportunity cost hence it is equivalent to fully subscribed issue or additional shares, which is measured from cost of equity shares. No retained earnings are mentioned in the balance sheet of the company. So cost of retained earnings is zero.

COMPUTATION OF OVERALL COST OF CAPITAL OF JSW STEEL LTD. BY WEIGHTED AVERAGE METHOD
Particulars Amount (in crores) Equity Share Capital Preference Share Capital Debentures 2422.36 0.82 0.16 .13 279.03 0.10 0.01 .001 223.12 0.08 0.04 .0032 Weights Specific Cost Weighted Cost

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Total

2924.51

13.42

Hence, the Overall Cost of Capital for JSW STEEL LTD. is 13.42%

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