CH 1 Steel Industry Profile

Introduction
Steel is crucial to the development of any modern economy and is considered to be the back bone of human civilization. The level of per capital consumption of steel is treated as an important index of the level of socio economic development and living standards of the people in any country. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flows and income generation. All major industrial economies are characterised by the existence of a strong steel industry and the growth of many of these economies has been largely shaped by the strength of their steel industries in their initial stages of development.

Steel, the recycled material is one of the top production in the manufacturing sector of the world. New innovations are also taking place in Steel Industry for cost minimization and at the same time production maximization. Some of the cutting edge technologies that are being implemented in this industry are thin-slab casting, making of steel through the use of electric furnace, vacuum degassing, etc.

The liberalization of industrial policy and other initiatives taken by the government have given a definite impetus for entry, participation and growth of the private sector in the steel industry. While the existing units are being modernized/expanded, a large number of new/Greenfield steel plants have also come up in different parts of the country based on modern , cost effective, state of-the-art technologies. At prey of sent, total (crude) steelmaking capacity is over 34 million tones and India, the 8th largest producer.

Steel is crucial to the development of any modern economy and is

considered to be the

backbone of human civilization.

It is a product of a large and technologically complex industry having strong forward and

backward linkages in terms of material flows and income generation.

History of Indian Steel Industry

Steel is an important indicator to analyze the economic development of a country. The steel industry is highly scientific and technology oriented. Technological advancement is very important for the overall health of the steel industry.

- During Ancient Period

The history of iron and steel making in India goes back by several centuries. It dates to 480 BC when archers in India used arrows tipped with steel. The iron pillar of Dhar near Indore in Madhya Pradesh dates back to about AD, the iron pillar of Kutab Minar near Delhi dates back to about 400 AD and the iron beams of Sun temple of Konark in rissa dates back to the century. These pillars are a testimony to ancient India's expertise in the making of steel.

- Before Independence

The roots of the Indian Steel industry in modern times can be traced to the year 874, when a company called Bengal Iron works at Kulti near Asansol in West Bengal produced iron The prominent steel manufacturers before independence were Indian Iron and Steel company ( 1922 ) , Mysore Iron and Steel Works ( 1923 ) and Steel corporation of Bengal ( 1987 ).

- After Independence

India found it difficult to sustain development in steel sector after independence on its own due to the lack of technological development. The high cost of developing technology in this sector proved to be a major hindrance. That's when the government decided to go for synergy with other countries for technology transfer. Some of the prominent steel plant set up

then was in Rourkela in collaboration with West Germany and in Bokaro in collaboration with Russia. These steel plants came under the purview of public sector enterprises.

- Post Liberalization

The post liberalization scenario in the Indian Steel industry has witnessed a monumental shift. Some of the salient features are :

- The need for license for increasing capacity has been abolished.

- Steel industry has been removed from the list of Industries under the control of state sector.

- Foreign equity investment in steel has gone up to 74%.

- In January 99 the price and distribution controls were removed.

- Policies like convertibility of rupee on trade account, freedom to mobilize resources from overseas financial markets and restructuring of existing tax structure have immensely benefited the industry.

SWOT Analysis of Indian Steel Industry

STRENGTH Low labour wage rates WEAKNESS Labour productivity is still very low Abundance of Quality manpower Steel production in India is also hampered by power shortages. OPPORTUNITY Growing domestic and international market Product mix and Product diversification Becoming of subcontractor to large units THREAT Entry of multinational in domestic market Stiff competition by countries like iraq, China, japan, etc, Slow improvement in quality

Positive stimulation from India is deficient in raw construction industry materials required by the steel industry. Mature production base Insufficient freight capacity and transport infrastructure

Abundant scope to capture export market

Inability to match fast changing customer needs

Future Aspect of Indian Steel Industry

It has to be said that the global recession has affected the Indian steel industry especially stainless steel, but the steel industry is trying to offset the negative effect of the recession by focusing on transportation and construction projects which are usually funded by the government.

India is the only country globally to record a positive overall growth in crude steel production at .0 per cent for the period January March 2009.

It is estimated that India's steel consumption will grow at nearly 2012 .

6%

annually till

The National Steel Policy has forecasted the demand for steel would reach million tons by 2009- 2020.

Milestone The Indian steel industry has come a long way since its humble beginnings. The takeover of the British steel giant Corus steel by Tata Steel and the acquisition of Arcelor by Mittal Steel herald a new beginning for the Indian steel industry. These events signify the fact that the Indian steel industry has acquired a global identity and are today extremely competitive globally. Some of the prominent steel producers today are Posco, Tata Steel, Essar, Ispat, Sail and Rinl. Future trends

It has to be said that the global recession has affected the Indian steel industry especially stainless steel, but the steel industry is trying to offset the negative effect of the recession by focusing on transportation and construction projects which are usually funded by the government. India is the only country globally to record a positive overall growth in crude steel production at 1.01 per cent for the period January -March 2009. It is estimated that India's steel consumption will grow at nearly 16% annually till 2012. The National Steel Policy has forecasted the demand for steel would reach 110 million tons by 2019-2020.

SCENARIO OF PRESENT STEEL INDUSTRY IN INDIA The Indian steel industry have entered into a new development stage from 2005-06, riding high on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India becoming the 5th largest producer of steel. It has been estimated by certain major investment houses, such as Credit Suisse that, Indias steel consumption will continue to grow at nearly 16% rate annually, till 2012, fuelled by demand for construction projects worth US$ 1 trillion. The scope for raising the total consumption of steel is huge, given that per capita steel consumption is only 40 kg compared to 150 kg across the world and 250 kg in China. The National Steel Policy has envisaged steel production to reach 110 million tonnes by 2019-20. However, based on the assessment of the current ongoing projects, both in Greenfield and Brownfield, Ministry of Steel has projected that the steel capacity in the county is likely to be 124.06 million tonnes by 2011-12. Further, based on the status of MOUs signed by the private producers with the various State Governments, it is expected that Indias steel capacity would be nearly 293 million tonne by 2020. Production

Steel industry was delicensed and decontrolled in 1991 & 1992 respectively. Today, India is the 7th largest crude steel producer of steel in the world. In 2010-09, production of Finished (Carbon) Steel was 59.02 million tonnes. Production of Pig Iron in 2010-09 was 5.299 Million Tonnes. Last 5 year's production of pig iron and finished (carbon) steel is given below: (in million tonnes) Category Pig Iron Finished Carbon Steel 2004-05 2005-06 2006-07 2007-08 2010-09
3.228

4.695 44.544

4.993 55.416

5.314 58.233

5.289 59.02

40.055

(Source: Joint Plant Committee) Demand - Availability Projection

Demand Availability of iron and steel in the country is projected by Ministry of Steel annually. Gaps in Availability are met mostly through imports. Interface with consumers by way of a Steel Consumer Council exists, which is conducted on regular basis. Interface helps in redressing availability problems, complaints related to quality.

Steel Prices

Price regulation of iron & steel was abolished on 16.1.1992. Since then steel prices are determined by the interplay of market forces. There has been an up-trend in the domestic steel prices since 2006-07 and the trend accentuated since January this year. Rise in raw material prices, strong demand in the international and domestic market and up-trend in the global steel prices have been some of the reasons cited by the industry for increase in the steel prices in the domestic market. The mismatch in demand and supply is considered to be the main reason on the demand side for the rise in steel prices. Honorable Steel Minister has held discussion with all major steel investors including Arcellor-Mittal, POSCO, Tata Steel, Essar, Ispat and also SAIL, RINL to explore the possibility of expediting the ongoing as well as envisaged steel projects. The Government also took various fiscal and other measures for stabilizing the steel prices like exempting pig iron, non alloy steel and steel making inputs like zinc, ferroalloys and met coke from customs duty; withdrawing DEPB benefits on export of various categories of steel products and bringing back railway freight on iron ore from classification 180 to 170 for domestic steel producers. In May 2010, the Government imposed 15% export duty on semi-finished products, and hot rolled coils/sheet, 10% export duty on cold rolled coils/sheets and pipes and tubes and 5% export duty on galvanized steel in coil/sheet form in order to further curtail rising prices and increase supply of steel in the domestic market.

Imports of Iron & Steel

Iron & Steel are freely importable as per the extant policy. Last five years import of Finished (Carbon) Steel is given below:Year Qty. (In Million Tonnes) 2004-2005 2.109 2005-2006 3.850 2006-2007 4.436 (Partly estimated) 2007-08 6.581 2010-2009 5149 (Partly estimated) (Source: Joint Plant Committee)

Exports of Iron & Steel

Iron & Steel are freely exportable. Advance Licensing Scheme allows duty free import of raw materials for exports. Duty Entitlement Pass Book Scheme (DEPB) introduced to facilitate exports. Under this scheme exporters on the basis of notified entitlement rates, are granted due credits which would entitle them to import duty free goods. The DEPB benefit on export of various categories of steel items scheme has been temporarily withdrawn from 27th March 2010, to increase availability in the domestic market.

Exports of finished carbon steel and pig iron during the last five years and the current year is as : Exports (Qty. in Million Tonnes) Year 2004-2005 2005-2006 2006-2007 (Prov.estimated) 2007-2010 2010-2009 (Prov.estimated) Finished (Carbon) Steel Pig Iron 4.381 4.478 4.750 4.627 3.482 0.393 0.440 0.350 0.560 0.350

Ch 3 Research Methodology

1) Problem Identification
Problem identification contains the need for the research project. The problem usually represented as a management question. It is followed by a more detailed set of objectives. Here in this project report, the problem is to analyze the inventory control system of Steel manufacturing Company.

2) Objective Of Study
To study the companys history in brief. To study the procedure followed by store department that can help to manage the inventories. To study the technique of inventory control used in the company. To study how company can better manage its inventory by any other techniques. To study the policy of the company.

3) Assumption And Benefit Of Study

Assumptions:Followings are the main assumptions of the study: Financial data given to the researcher is of recent and represent the current position of the business. As there are many numbers of items in the inventory, hence some costs like holding cost is taken as an overall for all inventory rather than separate cost for separate inventory item. As Steel Plates are supplied directly by the head office of the company situated in Mumbai, we cannot alter it, hence in the calculation of EOQ, steel plates have not considered.

Benefits:Following are the main benefits of the study: The main benefit is to know the companys environment practically.

To get the practical knowledge about the companys inventory management system. The other main benefit is to apply the bookish knowledge which has been learnt in the preceding year.

4) Research Design
The choice of the research design must appropriate to the purpose of the research. Research design constitutes the blueprint for the collection, measurement and analysis of the data.

There are basically two types of research design; exploratory research and conclusive research. In conclusive research there are mainly two types of research design; descriptive research and experimental research. In experimental research one variable is taken as constant and the other variable changes to note the change. While in descriptive study, it covers the rationale for using one alternative instead of the other. Here, for preparing the project report researcher have chosen descriptive research design.

5) Data Collection
This part of the report specifies the method of data collection. There are basically two method of data collection like; primary and secondary data collection method. Here researcher used both the method.
PRIMARY DATA:

Primary data are those which are collected by the researcher for the first time and specifically for the research work. As in case of the daily life, if we want any information on any happening or on any event, we either ask someone who knows it or we observe ourselves. Researcher has collected most of the information required for the research work by asking questions to the manager of the company.
SECONDARY DATA:

Secondary data are those data which is not collected by researcher but collected by someone else and may be for other purpose, but now used by the researcher for his research work.

Here in this research work also researcher has also collected secondary data from companys records and books of accounts. After collecting the primary and secondary data, the data were edited, analyzed before used for the research.

6) Sampling Unit
Sampling Units includes 3 manufacturing Companies. Here are the names of selected Manufacturing companies.

ESSAR Steel LTD. TATA Steel LTD Jindal Steel LTD. Steel Authorities India LTD.

7) Limitation
At every stage of human life, there are limitations which become obstacles in the path for what he wanted to do, act or think. The availability of the time for the completion of the project work is very short; hence much information cannot be taken. The information collected by the secondary data and provided by the company might not be correct. The analysis, conclusions and suggestions made are as per the researchers limited understanding about the research subject. Some of the information, which is treated as confidential by the company was not disclosed, which is the obstacle in the way of research work. There are some data in which accurate data was not available; hence the approx amount is taken for the research work.

Ch3 Inventory Management

Meaning of inventory
The term inventory has been defined by different persons in a different way. Inventory is nothing but the materials, work-in-process and finished goods, spares and others which are stored to meet an unexpected demand.

DEFINITION AND CLASSIFICATION OF INVENTORIES

The American institute of Accountants has set forth a definition of inventories which has

been accepted both by accountants and finance executives. The definition is as follows:

The term inventory designate the aggregate of those items of tangible personal property which (1) Are held for sale in the course of business, (2) Are in the process of production for sale, or (3) Are to be currently consumed in the production of goods or services to be available for sale. The definition implies that there are four types of inventories; finished goods, work in progress, raw material, and supplies which are consumed in the creation and distribution goods and services. Every business needs adequate liquid resources in order to maintain day-to-day cash flow. It needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate working capital is not just important in the short-term. Sufficient liquidity must be maintained in order to ensure the survival of the business in the long-term as well. Even a profitable business may fail if it does not have adequate cash flow to meet its liabilities as they fall due. Therefore, when businesses make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building, etc, but must also take account of the additional current assets that are usually involved with any expansion of activity. Increased production tends to engender a need to hold additional stocks of raw materials and work in progress. Increased sales usually mean that the level of debtors will increase. A

general increase in the firms scale of operations tends to imply a need for greater levels of cash. Then we should know, why should the managers of a business pay special attention to working capital? Management must ensure that a business has sufficient working capital. Too little will result in cash flow problems highlighted by an organization exceeding its agreed overdraft limit, failing to pay suppliers on time and being unable to claim discounts for prompt payment. In the long run, a business with insufficient working capital will be unable to meet its current obligations and will be forced to cease trading even if it remains profitable on paper.On the other hand, if an organization ties up too much of its resources in working capital it will earn a lower than expected rate of return on capital employed. Again this is not a desirable situation.

The three components, which put affects on working capital, are as: 1) Inventory 2) Receivable 3) Cash .

Operating cycle

cash

debtors

raw material

sales

wip

finished goods

For a manufacturing company like; steel industry; cement industry and many other manufacturing companies, Inventory management is the most crucial part for the organization. Inventories which may classified as: 1. Raw material 2. Work-in-progress 3. Finished goods Whereas receivable and cash management can be done after sales but inventory management must be done before sale. It requires appropriate forecasting of production and sales. As it is based on forecasting, so it becomes difficult task for any financial manager for any organization. Inventory Management must be designed to meet the dictates of market place and support the companys Strategic Plan. The many changes in the market demand, new opportunities due to worldwide marketing, global sourcing of materials and new manufacturing technology means many companies need to change their Inventory Management approach and change the process for Inventory Control. Inventory Management system provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities and communicate with customers. Inventory Management does not make decisions or manage operations; they provide the information to managers who make more accurate and timely decisions to manage their operations. The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers. Inventory Management and the activities of Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timely decisions to manage their operations.

The basic building blocks for the Inventory Management system and Inventory Control activities are: 1) Sales Forecasting or Demand Management 2) Sales and Operations Planning 3)Production Planning 4)Material Requirements Planning 5)Inventory Reduction If we see for TATA STEEL, company is maintaining more than 5% inventories in their hand. Also the company consuming raw material more than 20% of sale value in the last year. So inventory management is one of the essential for the organization.

MAJOR TYPES OF INVENTORY

Raw material
Raw materials are inventory items that are used in the manufacturer's conversion process to produce components, subassemblies, or finished products. These inventory items may be commodities or extracted materials that the firm or its subsidiary has produced or extracted. They also may be objects or elements that the firm has purchased from outside the organization. Even if the item is partially assembled or is considered a finished good to the supplier, the purchaser may classify it as a raw material if his or her firm had no input into its production. Typically, raw materials are commodities such as ore, grain, minerals, petroleum, chemicals, paper, wood, paint, steel, and food items. However, items such as nuts and bolts, ball bearings, key stock, casters, seats, wheels, and even engines may be regarded as raw materials if they are purchased from outside the firm.

Work-in-process
Work-in-process (WIP) is made up of all the materials, parts (components), assemblies, and subassemblies that are being processed or are waiting to be processed within the system. This generally includes all materialfrom raw material that has been released for initial processing up to material that has been completely processed and is awaiting final inspection and acceptance before inclusion in finished goods. Any item that has a parent but is not a raw material is considered to be work-in-process. A glance at the rolling cart product structure tree example reveals that work-in-process in this situation consists of tops, leg assemblies, frames, legs, and casters. Actually, the leg assembly and casters are labeled as subassemblies because the leg assembly consists of legs and casters and the casters are assembled from wheels, ball bearings, axles, and caster frames.

Finished goods
A finished good is a completed part that is ready for a customer order. Therefore, finished goods inventory is the stock of completed products. These goods have been inspected and have passed final inspection requirements so that they can be transferred out of work-inprocess and into finished goods inventory. From this point, finished goods can be sold directly to their final user, sold to retailers, sold to wholesalers, sent to distribution centers, or held in anticipation of a customer order.

IMPORTANCE OF INVENTORYMANAGEMENT
One of the most important aspects of any business is inventory management. Those who have never worked in the business sector may not understand the importance of efficient inventory management. But, the reality of it is if you don't have control of your inventory, you will be unable to ascertain you will have enough inventory on hand to handle the needs of your customers.

Even worse than that- you will not have enough supplies on hand to produce the products you need to meet the needs of your customers. While inventory management has always been important, it has become more important over the past several decades. As the needs of companies increase, they must in turn increase demands on their suppliers. In order for suppliers to have the goods their customers need, it is necessary for them to maintain excellent and accurate inventory management. Before you even have customers you will need to plan for the maintenance of proper inventory levels. You will also need to maintain a system for increasing those levels as business dictates, and this requires the implementation of efficient and effective inventory management procedures.

OBJECTIVES OF INVENTORY MANAGEMNET:

The inventory management consists of achieving two conflicting objectives: a) Maintenance of large size inventory to assure continuity of operation in the most efficient manner. b) Minimize the firms investment in inventory to maximize profitability. Both over investment and under investment in inventories are undesirable, because costs and benefits are associated with the levels of inventory. If the firm m i n i m i z e s t h e investment in inventories the cost can be reduced. Smaller the

inventory, lower the cost to the firms. But investment in large inventories.

MAINTENANCE COSTS:
There are mainly three types of cost in inventory. There are the costs to carry standard inventory and safety stock level. Ordering costs and Setup costs comes into play in inventory. Finally there are shortfall costs. A good inventory system will balance carrying costs against shortfall costs.

COST OF HOLDING INVENTORY:

The operating objective of inventory management is to minimize costs associated with the inventory. Costs relating can be divided under two heads: ordering costs and carrying costs. These costs are very important in deciding the optimum level of inventory.

ORDERING COSTS:
These costs are related to ordering of inventory. Ordering costs are payments for secretarial services, written and other forms of communication, book-keeping. Thus ordering costs consists of clerical and stationary costs. These costs are also called as set up costs. They are generally fixed per order placed regardless of the number of units. T h e l a r g e r t h e number of order placed, the higher are such costs. The ordering costs c a n b e m i n i m i z e d b y p l a c i n g f e w e r orders for a larger amount. But purchase of larger quantity of inventory would increase the carrying cost.

CARRYING COSTS:
Carrying costs are related to maintenance of inventory carrying costs include expenditure for storage, handling of materials, extra heat, light, insurance and property tax. Carrying costs also include the opportunity cost of fund s i.e. interest on investment in inventory. Large inventories cause diversion of funds from other profitable ventures. This is the opportunity cost of funds. Carrying costs are nearly proportionate to the value of inventory. If the level of inventory increases, the carrying costs also increase and vice versa. Thus the total cost of inventory i.e. ordering and carrying costs should be compared with the benefits arising from holding of inventory to determine the optimum level of inventory.

BENEFITS OF HOLDING INVENTORIES:

Another important element in the determination pf optimum inventory level, relates to the benefits of holding inventories. Inventories perform certain basic functions which are of very much importance in firms production and marketing strategies. The basic function of inventories to act as a buffer to decouple or uncouple the various activities of a firm so that all do not have to be pursued at exactly the same rate.

INVENTORY MANAGEMENT means :

However departments involve in inventory management process will define and look it differently like For finance, inventory is defined as the sum of the Value of raw-materials, fuels and lubricants, spare-parts, maintenance consumables , semi-processed materials and finished goods stock at any given point of time. For operational aspect, definition of inventory would be the amount of raw materials, fuel and lubricants, spare parts and semi-processed material to be stocked for the smooth running of the plant. For procurement aspect, inventory represents what business plans to buy and how much inventory it intends to hold over a given time frame, is based on three factors: - A business' desired ending inventory, - Cost of goods sold, and - Beginning inventory. But it is not like that high level of inventory is also undesirable. Because high level of inventory means high storage cost, high clerical and supervision cost, loss of disruption, threat of theft or manipulation, etc. After all, a large amount of money has been blocked in it. Now we cannot use that money in other productive purposes. Many a times it becomes threat of the risk of liquidity also. Hence, large amount of inventory is also harmful. Inventory should not high or low but it should just, optimum.

Inventory management System

Meaning:
Inventory management technique is in simple term is the technique employed by the firm to manage its inventory and exert a proper control on it. It is the operational aspect of the inventory management and help to realize the objective of the inventory management and control.

For a process operational company like port industry and many other operational companies, Inventory management is the most crucial part for the organization.

Technique of Inventory system :

There are many techniques of inventory management in use. To choose which technique for is depend on the convenience of the firm. What is important is to cover all items of inventory and all stages means from the stage of the receipt from the supplier to the stage of its use. The techniques most commonly used are as follow: Always Better Control (ABC) classification High, Medium and Low (HML) classification Vital, Essential, Diffential (VED) classification Fast moving, Slow moving and Non-moving (FSN) classification Economic Order Quantity (EOQ) Two-Bin System Material Requirement Planning (MRP) Just-In-Time (JIT)

Now, let us see each in detail.

ABC Analysis:
One of the widely used techniques for the inventory control is the Always Better Control (ABC) analysis. It is based on the simple logic that each item of an inventory should not give equal control, some items need much control while some items needs less control. Now, how to decide which items need much control and which items need less control, ABC analysis decides it on the basis of its value and its proportion of use. Items are classified in different groups like A, B and C. Once items are classified in different categories then it is clear where we have to put our efforts. Items having A category should give more consideration and requires tighter control failure to do so may results in huge loss to the company. And the stock of such an item should be maintained at the lowest possible level consistent with the demand. While on the other hand the item having C category are in less value but its use in production is much more hence to make tighter control on it is also not advisable, for this category item some amount

of safety stock is also maintained to avoid stock out. While on the half way there is a B category items which is given somewhat moderate attention and control.ABC analysis is based on the value of the items only, hence it is also known as Control by Importance and Exception (CIE). The following steps are involved in developing the ABC analysis system: - Classify the items of inventories, determining the expected use in units and the price per unit for each item. - Determining the total value of each item by multiplying units of item with its unit price. - Rank the items in accordance with the total value, give first rank to the item having highest value and so on. - Find out the percentage (%) of number of units of each item to the total units of all items and the percentage of value of each item to the value of total items. - Combine the items on the basis of their relative value to form three categories- A, B, and C.

From the above figure, we can see that items having category-A constitutes only 15% of all units, but forms the value around 70%. These items require the highest control. While on the other extreme end there is a items having category-C which constitutes 55% of all units but forms the value only around 10%. While in the middle way there are items having categoryB which constitutes around 30% of all units and constitutes 20%.

The below table can clearly represent it as:

Category A B C

% of Units 15% 30% 55%

% of Value 70% 20% 10%

HML Classification:
The High, Medium and Low follow the same procedure which is followed by the ABC analysis. The difference lies in that in this system the unit value is considered and not its annual consumption. The item first should be arranged in descending order, then it is up to the management to fix the three categories on its basis. For example, management may decide to fix like items having value of Rs.10,000 will be given High category. While items having value between Rs. 5,000 to 10,000 will be given as Medium category, and the items having less than Rs. 5,000 will be given as Low category.

VED Classification
While in ABC classification, inventories are classified on the basis of their consumption value, in HML the unit value is the base of classification, but in VED, criticality of inventory is the base for the vital, essential and desirable classification.VED analysis is done to determine the criticality of an item and its effect on production and other services. It is specially used for classification of spare parts. If a part is vital, it is given V classification, if it is essential, it is given E classification and if it is not so essential, it is given D classification. For V items, a large stock of inventory is generally is maintained, while for D items, minimum stock is enough.

FSN Analysis:
FSN stands for fast moving slow moving and non-moving. Here, classification is based on the pattern of issues from stores and is useful in controlling obsolescence. To carry out an FSN analysis, the date of receipt or the last date of issue, whichever is later is taken to determine the number of months, which have lapsed since the last transaction. The items are generally grouped in the period of 12 months. FSN analysis is helpful in identifying active items which need to be reviewed regularly and surplus items which have to be examined further. Non-moving items may be examined further and their disposal can be considered.

Economic Order Quantity (EOQ):

Economic order quantity is the technique which solves the problem of the material manager. EOQ is the quantity at which the total cost comprising ordering cost and carrying cost is at its least point.

Basically one of the most important questions of material management-How much to order? is answered by the EOQ model.

EOQ Model
Annual Cost Total Cost Curve Holding Cost Order (Setup) Cost Order Quantity

We can see from above graph that order should be placed where quantity is QOPT, because it is at this level that total cost is at its least level that can be seen by the total cost curve. Holding cost curve is linear and positively related with the quantity level, the more you store the more you have to spend for its storing. Ordering cost curve is falling because when you increase your order size, now you will put the less orders and less order mean less ordering cost. The point at where the holding cost curve and ordering cost curve meet represents that total cost is at least and at this level order should be placed. Lets see how EOQ works with the help of the mathematical formula, but before that its assumptions are necessary to describe first.

Assumptions:
Demand for the product is uniform and constant throughout the period. Lead time (time from ordering to receipt) is constant. Price per unit of product is constant. Holding cost is based on an average inventory. Ordering costs are constant. All demand for the product will be satisfied (no back orders are allowed).

Now lets see the mathematical representation of the EOQ model. TC = DC + (D/Q)O + (Q/2)C Where, TC = Total Cost D = Annual Demand C = Purchase cost per unit Q = Quantity to be ordered O = Ordering cost per order C = Carrying cost per unit

The formula for the EOQ is: EOQ = (2AO/C) ^ (1/2) EOQ technique is very much popular and useful as long as it gives an answer to the question of how much to order. EOQ applies to both to single item and to any group of stock items with similar holding and procurement cost. Its use causes the sum of the two costs to be lower than under any other system of replenishment.

Material Requirement Planning (MRP):Material Requirement Planning (MRP) has been developed in recent years and is gaining popularity rapidly.MRP is a new solution to old problems: having stock of materials always on hand when needed without carrying excess inventory. Highly dependent upon the computer technology, MRP is most helpful to firms with finished goods or end products which are made from a number of components and which are also subject to uneven or lumpy demand. The technique separates the various components and co-ordinates purchasing and delivery with production. This results in materials arriving exactly when needed for production and, at the same time, reduces the length of time when materials are held in stock. MRP plans and

control goods on order and generates data for determining when and what specific materials to meet previously planned production schedule.

Just In Time (JIT):Popularly known as JIT, is discussed as an efficient tool of materials management these days. JIT is the outcome of the Japanese firms who have introduced the JIT in their firm and achieved a great success. It is also known as Zero Inventory (ZIN), Material as Needed (MAN) and Nick of Time (NOT). As a concept, JIT means that virtually no inventories are held at any stage of production and that the exact numbers of unit is brought to each successive stage of production at the right time. The JIT concept assumes certain conditions which should be needed to present for the success of JIT system. There is a reason for the success of JIT in Japan, as the geographical area of Japan is small and most of the suppliers of the company live in nearby, so it takes very negligent to supply materials. While, in country like India, suppliers live far away hence if the firms in India adopt JIT system, then supplier takes more time to supply the product and because of that production process stops in absence of a material and which may cause huge loss to the company. Hence, in India firms hold inventories and find the optimum levels of inventory to reduce the cost. We are much behind in the way of applying JIT system.

Account Policy for Valuation of Inventory

Measurement of Inventories Inventories should be valued at the lower of cost and net realizable value. Cost of Inventories The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Costs of Purchase The costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Trade discounts, rebates, duty drawbacks and Other similar items are deducted in determining the costs of purchase.

 Costs of Conversion The costs of conversion of inventories include costs directly related to the units of production, such as direct labor. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and the cost of factory management and administration. Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labour. The allocation of fixed production overheads for the purpose of their inclusion in the costs of conversion is based on the normal capacity of the production facilities. Normal capacity is the production expected to be achieved on an average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The actual level of production may be used if it approximates normal capacity. The amount of fixed production overheads allocated to each unit of production is not increased as a consequence of low production or idle plant. Unallocated overheads are recognized as an expense in the period in which they are incurred. In periods of abnormally high production, the amount of fixed production overheads allocated to each unit of production is decreased so that inventories are not measured above cost. Variable production overheads are assigned to each unit of production on the basis of the actual use of the production facilities. A production process may result in more than one product being produced simultaneously. This is the case, for example, when joint products are produced or when there is a main product and a by-product. When the costs of conversion of each product are not separately identifiable, they are allocated between the products on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage in the production process when the products become separately identifiable, or at the completion of production. Most by-products as well as scrap or waste materials, by their nature, are immaterial. When this is the case, they are often measured at net realizable value and this value is deducted from the cost of the main product. As a result, the carrying amount of the main product is not materially different from its cost. Other Costs Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. For example, it may be appropriate to include overheads other than production overheads or the costs of designing products for specific customers in the cost of inventories. Cost Formulas

The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects should be assigned by specific identification of their individual costs. Specific identification of cost means that specific costs are attributed to identified items of inventory. This is an appropriate treatment for items that are segregated for a specific project, regardless of whether they have been purchased or produced. However, when there are large numbers of items of inventory which are ordinarily interchangeable, specific identification of Costs are inappropriate since, in such circumstances, an enterprise could obtain predetermined effects on the net profit or loss for the period by selecting a particular method of ascertaining the items that remain in inventories. The cost of inventories, other than those dealt with in paragraph 14 of IAS-2, should be assigned by using the first-in, first-out (FIFO), or weighted average cost formula. The formula used should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition. A variety of cost formulas is used to determine the cost of inventories other than those for which specific identification of individual costs is appropriate. The formula used in determining the cost of an item of inventory needs to be selected with a view to providing the fairest possible approximation to the cost incurred in bringing the item to its present location and condition. The FIFO formula assumes that the items of inventory which were purchased or produced first are consumed or sold first, and consequently the items remaining in inventory at the end of the period are those most recently purchased or produced. Under the weighted average cost formula, The cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average may be calculated on a periodic basis, or as each additional shipment is received, depending upon the circumstances of the enterprise. Techniques for the Measurement of Cost Techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method, may be used for convenience if the results approximate the actual cost. Standard costs take into account normal levels of consumption of materials and supplies, labour, efficiency and capacity utilization. They are regularly reviewed and, if necessary, revised in the light of current conditions. The retail method is often used in the retail trade for measuring inventories of large numbers of rapidly changing items that have similar margins and for which it is impracticable to use other costing methods. The cost of the inventory is determined by reducing from the sales value of the

inventory the appropriate percentage gross margin. The percentage used takes into consideration inventory which has been marked down to below its original selling price. An average percentage for each retail department is often used. Net Realizable Value The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs of completion or the estimated costs necessary to make the sale have increased. The practice of writing down inventories below cost to net realisable value is consistent with the view that assets should not be carried in excess of amounts expected to be realised from their sale or use. Inventories are usually written down to net realisable value on an item by item basis. In some circumstances, however, it may be appropriate to group similar or related items. This may be the case with items of inventory relating to the same product line that have similar purposes or end uses and are produced and marketed in the same geographical area and cannot be practicably evaluated separately from other items in that product line. It is not appropriate to write down inventories based on a classification of inventory, for example, finished goods, or all the inventories in a particular business segment. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made as to the amount the inventories are expected to realise. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after the balance sheet date to the extent that such events confirm the conditions existing at the balance sheet date. Estimates of net realisable value also take into consideration the purpose for which the inventory is held. For example, the net realisable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the contract price. If the sales contracts are for less than the inventory quantities held, the net realisable value of the excess inventory is based on general selling prices. Contingent losses on firm sales contracts in excess of inventory quantities held and contingent losses on firm purchase contracts are dealt with in accordance with the principles enunciated in Accounting Standard (AS) 4, Contingencies and Events Occurring after the Balance Sheet Date. Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when there has been a decline in the price of materials and it is estimated value, the materials are written down to net realisable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realisable value. An assessment is made of net realisable value as at each balance sheet date.

 Disclosure The financial statements should disclose: (a) The accounting policies adopted in measuring inventories, including the cost formula used; and, (b) The total carrying amount of inventories and its classification appropriate to the enterprise. Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement users. Common classifications of inventories are raw materials and components, work in progress, finished goods, stores and spares, and loose tools.

Transportation Cost
Employees at Essar Steel Algoma's heat treated plate facility were in for a treat on March 30, 2011, when the Sault Ste. Marie Police Service unveiled its new armored truck at the facility. The reason for this unique event was that the purchase of the Ballistic Armoured Tactical Transport (BATT) vehicle was made possible, in part, by a generous donation by Essar Steel Algoma. The company donated approximately 11 tonnes of armor plating that was used to construct the vehicle; including transportation costs, Essar's donation amounted to about $30,000, said Sault's police chief Bob Davies. BATT is an impressive addition to the local police service's response and rescue vehicles. Media Relations officer Sergeant Lisa Kenopic said that BATT can only be used by trained tactical unit officers in high-risk situations. The armored truck was purchased from the Armoured Group LLC, a Fort Worth (Texas, USA) company that specializes in the development and marketing of armored vehicles. Sault Ste. Marie police's Emergency Services Unit responds to approximately 90-100 highrisk incidents every year. The armored truck is intended to protect officers during such calls including armed and barricaded persons inside buildings, high-risk vehicle stops, hostage situations, gun calls, etc. At the unveiling ceremony, employees and top management from Essar Steel Algoma, the tactical team of the Sault Ste. Marie police, and media were given a tour of the vehicle and the plate mill. The police officers got to see how the armor plate is made; plant employees had the rare opportunity to examine the end use application of a product they made, and to meet the officers whose lives would be protected by that steel. The plant produces a full range of high-quality heat treated products for high strength, abrasion resistant, ballistic and other speciality plate applications. Chief operating officer of Essar Steel Algoma, Pramod Shukla, said that he was proud that Essar has provided its product and support to Canada's first BATT, and hopes that Essar

products will continue to be used in such vehicles. The police department thanked Essar for their generous donation and unstinting support in enhancing the safety of its officers.

Ch4 Company Profile

Company Profile 1) Essar Steel LTD.

Essar Steel is one of India's largest exporters of flat products, exporting to the highly demanding US and European markets, and to the growing markets of South East Asia and the Middle East. A number of major client companies have approved our steel for their use, including Caterpillar, Hyundai, Swaraj Mazda, the Konkan Railway, and Maruti Suzuki. Essar Steel has acquired extensive quality accreditations. Our lean team gives us one of the highest productivities and lowest manpower costs among steel plants internationally. Seamless integration

A major strategic advantage is our high level of forward and backward integration. We are totally integrated - from raw material to finished products, adding value at every stage of the manufacturing process. Bailadilla facility: Iron ore beneficiation

At Bailadilla, where some of the world's richest and finest ore is available, we have set up a beneficiation plant of 8 MTPA capacity, which ensures the highest quality iron ore. The iron ore slurry is pumped through a 267 km pipeline (the second longest in the world) to the pellet plant, yielding advantages in quality, cost and real time inventory management. Visakhapatnam facility: Pelletization

The slurry is received at our pellet plant at Visakhapatnam, which has a capacity of 8 MTPA, providing vital raw material for the steel plant at Hazira. Hazira facility

Our steel complex at Hazira, Gujarat, houses a 5.0 MTPA sponge iron plant, the world's largest gas-based sponge iron plant in single location. The plant provides raw materials for our state-of-the-art 4.6 MTPA hot rolled coil (HRC) plant, the first and largest of India's new generation steel mills. This plant is fed with inputs from four electric arc furnaces and three casters. The complex's sophisticated infrastructure includes independent water supply and power, oxygen and lime plants, a township and a captive port capable of handling up to 8 MTPA of cargo with modern handling equipment like barges and floating cranes.

2) TATA Steel LTD.

Established in 1907, Tata Steel is among the top ten global steel companies with an annual crude steel capacity of over 28 million tonnes per annum (mtpa). It is now one of the world's most geographically-diversified steel producers, with operations in 26 countries and a commercial presence in over 50 countries. The Tata Steel Group, with a turnover of US$ 22.8 billion in FY '10, has over 80,000 employees across five continents and is a Fortune 500 company. Tata Steels vision is to be the worlds steel industry benchmark through the excellence of its people, its innovative approach and overall conduct. Underpinning this vision is a performance culture committed to aspiration targets, safety and social responsibility, continuous improvement, openness and transparency. Tata Steels larger production facilities include those in India, the UK, the Netherlands, Thailand, Singapore, China and Australia. Operating companies within the Group include Tata Steel Limited (India), Tata Steel Europe Limited (formerly Corus), NatSteel, and Tata Steel Thailand (formerly Millennium Steel).

Tata Steel Today

The Tata Steel Group has always believed that mutual benefit of countries, corporations and communities is the most effective route to growth. Tata Steel has not limited its operations and businesses within India but has built an imposing presence around the globe as well. With the acquisition of Corus (now Tata Steel Europe) in 2007 leading to commencement of Tata Steel's European operations, the Company today is one of the largest steel producers in the world with employee strength of above 81,000 across five continents. During the financial year 2010-2011, the Group recorded deliveries of 23.6 million tonnes, which was at par with the previous year (24 million tonnes). The Group recorded a turnover of Rs.1, 18,753 Crores in 2010 - 2011. The Company has always had significant impact on the economic development in India and now seeks to strengthen its position of pre-eminence in international domain by continuing to lead by example of responsibility and trust. Tata Steels overseas ventures and investments in global companies have helped the Company create a manufacturing and marketing network in Europe, South East Asia and the Pacific-rim countries. The Groups South East Asian operations comprise Tata Steel Thailand, in which it has 67.1% equity and Nat Steel Holdings, which is one of the largest steel producers in the Asia Pacific with presence across seven countries.

3) Jindal Steel LTD

In the world of business, the Jindal Organization is a celebrity. Ranked sixth amongst the top Indian Business Houses in terms of assets, the Group today is a US $10 Billion conglomerate. Jindal Organization, set up in 1970 by the steel visionary Mr. O.P. Jindal, has grown from an indigenous single-unit steel plant in Hisar, Haryana to the present multi-billion, multilocational and multiproduct steel conglomerate. The organization is still expanding, integrating, amalgamating and growing. New directions, new objectives... but the Jindal motto remains the same- "We are the Future of Steel ". The group has been technology-driven and has a broad product portfolio. Yet, the focus at Jindal has always been steel. From mining of iron-ore to the manufacturing of value added steel products, Jindal has a pre-eminent position in the flat steel segment in India and is on its way to be a major global player, with its overseas manufacturing facilities and strategic manufacturing and marketing alliances with other world leaders. Jindal Organization aims to be a global player. In pursuance of its objectives, it is committed to maintain world-class quality standards, efficient delivery schedules, competitive price and excellent after sales service.

4) STEEL AUTHORITY OF INDIA

Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets. Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being Indias second largest producer of iron ore and of having the countrys second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making. SAIL's wide range of long and flat steel products are much in demand in the domestic as well as the international market. This vital responsibility is carried out by SAIL's own Central Marketing Organisation (CMO) that transacts business through its network of 37 Branch Sales Offices spread across the four regions, 25 Departmental Warehouses, 42 Consignment Agents and 27 Customer Contact Offices. CMOs domestic marketing effort is supplemented by its ever widening network of rural dealers who meet the demands of the smallest customers in the remotest corners of the country. With the total number of dealers over 2000 , SAIL's wide marketing spread ensures availability of quality steel in virtually all the districts of the country. SAIL's International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 accredited unit of CMO, undertakes exports of Mild Steel products and Pig Iron from SAILs five integrated steel plants. With technical and managerial expertise and know-how in steel making gained over four decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients world-wide. SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute (MTI) and Safety Organization at Ranchi. Our captive mines are under the control of the Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISO Certified.

CH 5 Product Profile

1) Product Profile of ESSAR

LONG PRODUCTS:

These include angles, channels, bars and I- beams where the % reduction of size is not much and the products are big. The products are expected to have the properties of high strength, hardness etc by addition of special alloys.

FLAT PRODUCTS: These include sheets, plates where % reduction is very high and final product is very thin. The products are required to be very soft, ductile so that it can be stretched to thin sheets with a good surface finish. This steel has almost pure iron with very low micro alloying.

COLD ROLLED PRODUCTS: Essar Steels 24 carat Cold Rolled steel is a combination of high strength ductility, consistent mechanical properties, close dimensional tolerance and superior surface finish. Application In automotive body and components, white goods, pipes and tubes, drums and barrels. Specification and Dimensions Thickness: 0.4mm 2.5mm Width: 900mm 1500mm Length: 2500mm

HOT ROLLED PRODUCTS:

Essar Steel produces the finest quality of 24 carat Hot Rolled steel in India. Since its introduction, Essars Hot Rolled steel continues to be a critical input for highly demanding applications. Essars Hot Rolled Products are available in plates, sheets and coil form. Application In General Engineering, automobiles, infrastructure, Oil and Gas pipelines, Line Pipes etc. Specification and Dimensions Thickness:1.6mm 20mm Width: 1250mm 2000mm Length: 2500mm 8000mm GALVANISED COILS AND SHEETS Essar Steels 24 carat Galvanized Steel with a guaranteed zinc coating of 120 gsm offers best resistance to corrosion. To suit a variety of applications, they are available in 3 different surface finishes.

Application Air-conditioning and heating ducts, automotive under-body parts and muffers, water heaters and stoves, coolers and refrigerators.

Specification and Dimensions Thickness: 0.25mm 1mm Width: 900mm 1220mm Length: 2500mm

2) Product profile Of Tata Steel

Tata Steel produces a vast range of engineering steels in bar and billet form. These range from national and international specifications through to customer specific and proprietary grades.

Aerospace & remelted steels

Tata Steel produces high integrity specialist steels for use in major commercial and military aerospace projects around the world.

Automotive & mechanical engineering steels

Tata Steel is a key player in the production of material for many safety critical automotive applications such as: front suspension assemblies, rear suspension assemblies, steering components, front wheel assemblies, drive line components, and engine and gearbox components.

Energy & Process Industry Steels

Special engineering steels are used throughout the oil and gas extraction industry for components where strength, toughness, resistance to fatigue and corrosion are paramount.

Machining steels
Solutions for optimising the machinability of steels vary with steel type and machining application. Tata Steel offers a range of machining steels allowing the customer to achieve machinability benefits at minimum cost.

Hot rolled products

Primary products Squares

Blooms: 211 - 457 mm sq Billets: 75 211 mm sq

Rounds

Rolled: 76 381 mm dia (larger sizes by agreement) Turned: 70 350 mm dia Slabs Round edge Square edge Width 250 750 mm 100 250 mm Thickness 50 330 mm 50 150 mm

Lengths
Rolled: < 13.1 metres Heat treated products: < 10.4 metres

3) Product Profile of SAIL

Hot Metal (35.6% of production by tonnage)

Hot metal is the liquid form of pig iron, which is then purified with crude steel to produce saleable steel. The company has been able to meet its own demand for hot metal, and then some. In 2008 it produced 7% extra hot metal, after its expansion plan in 2009 and 2010 it intends to produce 13% extra hot metal, and by 2020, 20% extra hot metal.
Special Steel (1.2% of production by tonnage)

Special steel is difficult to make. As demand for any particular type of special steel is low, economies of scale are difficult to create. At the same time, there is less competition in this market. For that reason, from 2007 to 2008 the company increased special steel production by 130%. An example of special steel are high grade plates, which have higher strength and toughness than regular plates, and may be used to build a high traffic bridge.
Pig Iron (0.9% of production by tonnage)

Pig iron is the product of mixing iron ore with coke (a processed form of coal). The company does not produce enough pig iron to satisfy the requirements of its hot metal segment. In 2008 it had to purchase 33% of its pig iron. From 2010 to 2020, as interfirm demand rises faster than supply, it estimates it will have to purchase approximately 40% of its pig iron. These deficits expose the company to the rises and falls in the price of iron ore prices, although the company has entered into some long-term contracts.

Revenue Streams
Of the steel that the company produces, it earns the majority of its revenues from hot rolled steel coils and hot rolled steel plates, with the rest coming from semis, railway materials, bars, and cold rolled coils. However, because the company is based in India and does not have an ADR (and therefore does not file with the United States SEC), the calculation of

product revenues was based on the following assumptions: the company's steel production and sales were the same each month of the year, the company sold all of its steel at global prices, and none of its steel was used internally.
Hot Rolled Steel Coils(40% of revenues): Steel coils are used in heaters, chemical processing equipment, furnace parts, engines, oil burner parts, dryers, oven equipment, petroleum refining equipment and gas turbine parts. Hot Rolled Steel Plates(42% of revenues): Steel plates are used to construct bridges, steel structures, ships, large diameter pipes, storage tanks, boilers, and pressure vess

Comparison
Company Market P/E P/BV EV/EBIDTA ROE D/E Cap(Rs. In crore) 43680.17 6.38 0.92 6.64 16.4 0.64 38599.80 16448.41 8460.02 4330.82 5907.69 9.27 6.24 8.62 13.91 0.00 1.04 1.01 1.45 1.08 .67 7.95 6.09 12.31 8.02 0.00 19.9 15.0 20.5 12.3 -5.3 0.52 0.87 2.83 0.31 2.06

Tata Steel SAIL JSW Steel Bhushan Steel Jindal Steel ESSAR Steel

1) Profit Earning Ratio.

P/E
16 14 12 10 8 6 4 2 0 Tata Steel SAIL JSW Steel Bhushan Jindal Steel Steel ESSAR Steel P/E

2) Profit Book value Ratio

P/BV
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Tata Steel SAIL JSW Steel Bhushan Jindal Steel Steel ESSAR Steel P/BV

3) ROI

ROE
25 20 15 10 ROE 5 0 Tata Steel -5 -10 SAIL JSW Steel Bhushan Jindal Steel Steel ESSAR Steel

4) Dividend Earning Ratio

D/E
3 2.5 2 1.5 1 0.5 0 Tata Steel SAIL JSW Steel Bhushan Jindal Steel Steel ESSAR Steel D/E

Here for comparison the best method is the comparison is ratio analysis of these company and TATA Steel ltd. Ratio analysis Raw material to current asset Finished goods to current asset Stock turnover ratio Average age of stock Inventory conversion period Current ratio Acid test ratio Total inventories to total asset Sales Profit after tax TATA 14.26 13.55 7.72 47.28 39 1.12 0.79 5%
24315.77 5201.74

JINDAL 17.3 17.02 7.77 46.97 53.49 0.61 0.34 9.93% 14001.25
4,498.95

ESSAR 5.72 12.28 5.48 66.6 67.38 1.68 0.89 17.44% 11688.3 1859.1

SAIL 8.83 33.45 5.08 71.85 85.61 2.01 1.42 27.46% 43150.08
20,797.3

It will easy to understand when it will put into chart. So, all the necessary charts are given below.

Raw material to current asset

20 18 16 14 12 10 8 6 4 2 0 TATA JINDAL ESSAR SAIL

Raw material to current asset

If we compare for TATA STEEL with other companies, then we can see that TATA STEELs raw material to current asset is neither too high nor too low. It is maintaining a required amount of raw material in hand. Where ESSAR STEEL is maintaining very low amount of raw material in hand.

Finished goods to current asset

40 35 30 25 20 15 10 5 0 TATA JINDAL ESSAR SAIL Finished goods to current asset

Here we can see that SAIL is playing a defensive role in case of finished goods. But still TATA steel has limited finished goods to sell. TATA STEEL never tried to block its capital.

Stock turnover ratio

9 8 7 6 5 4 3 2 1 0 TATA JINDAL ESSAR SAIL Stock turnover ratio

Both TATA STEEL and JINDAL STEEL have the good stock turnover ratio. In this case TATA STEEL is far ahead than ESSAR STEEL and SAIL.

Average age of stock

80 70 60 50 40 30 20 10 0 TATA JINDAL ESSAR SAIL Average age of stock

As the stock turnover ratio is too high, so the average age of stock is less than 50 days. Where SAIL and ESSAR age of stock is too high. Even SAIL age of stock is more than 70 days.

Inventory conversion period

90 80 70 60 50 40 30 20 10 0 TATA JINDAL ESSAR SAIL Inventory conversion period

Inventory conversion period is lowest than other company for TATA STEEL. So from here we can conclude TATA STEEL is the fastest converter company for Inventory.

Current ratio
2.5 2 1.5 1 0.5 0 TATA JINDAL ESSAR SAIL Current ratio

Current ratio of TATA STEEL is in standard position. Where JINDAL steels current ratio is less than 1 and SAILs current ratio is more than 2. Where SAIL is blocking its working capital there TATA STEEL is keeping appropriate coverage for current liability.

Acid test ratio

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 TATA JINDAL ESSAR SAIL Acid test ratio

TATA STEEL maintained exact amount of highly liquid money in hand, where SAIL maintained huge amount of highly liquid money. So in this case TATA STEEL is good enough to maintain the highly liquid money.

Total inventories to total asset

30% 25% 20% 15% 10% 5% 0% TATA JINDAL ESSAR SAIL Total inventories to total asset

TATA STEEL has less inventories percentage to total asset than other companies. It is a good sign for TATA STEEL. This company never tried to block its current money. From this chart it is clearly shown that SAIL is always maintaining a defensive position.
50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 Ratio analysis TATA JINDAL ESSAR SAIL Series1 Series2 Series3

Here it is clear that SAILs sale and profit is higher than other companies. But if we see TATA STEEL and JINDAL steel, the percentage of profit against sale is high for JINDAL Steel than TATA STEEL. But the sale price of TATA STEEL is less than JINDAL Steel. So, that the sale is higher than JINDAL steel and ESSAR Steel. As SAIL is Government undertaking organization, it is getting lot of subsidiaries and also other facilities from Government. But still TATA STEEL is in second position.

CH 6 Finding and Interpretation

1 Average inventory turnover ratio

It indicates the percentages of inventory with gross sales. The formula is; Average inventory x 100 Gross sales Where average inventory = (Op. inventory+ Cl. Inventory)/2 Company TATA STEEL Particular Opening Stock Closing Stock Avg. of Stock Gross Sale 2047.31 2868.28 2457.80 26843 ESSAR STEEL 2157.52 2633.23 2395.38 12703.08 SAIL 6857.23 10121.45 8489.34 30805.32 JINDAL STEEL 1209.96 1328.05 1269 10123.35

Company TATA STEEL Avg inventory Turnover ratio 9.16% ESSAR STEEL 18.85% SAIL 27.56% JINDAL STEEL 12.54%

2 Stock Turn over Ratio

Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet the requirements of the business. But the level of inventory should neither be too high nor too low. The stock turnover ratio measures the number of times a company sells its inventory during the year. The formula for stock turnover ratio is; Cost of goods sold Average stock Where average stock = (Op. inventory+ Cl. Inventory)/2 company TATA STEEL Particular COGS Avg. Inventory 18974.22 2457.80 ESSAR STEEL 18612.10 2395.38 SAIL STEEL 46521.58 8489.34 JINDAL STEEL 6446.52 1269

Company TATA STEEL Stock Turn Over 7.72 ratio

ESSAR STEEL 7.77

SAIL STEEL 5.48

JINDAL STEEL 5.08

3 Avg. Age of Stock

This ratio shows how many days stock are kept as inventory in the company before sales. To find out the average age of stock is; 365 Stock turnover ratio

Company TATA STEEL Stock Turn Over 7.72 ratio Avg. Age Of 47.27 Stock

ESSAR STEEL 7.77 46.98

SAIL STEEL 5.48 66.61

JINDAL STEEL 5.08 72.71

4. Inventory conversion period

This ratio shows in how many days inventories are converted into sales. It is major ratio analysis for cash conversion period. Because it is the first component of the cash conversion period. The formula is; Inventories(closing) Sales/365

Company TATA STEEL Particular Inventory Sales Inventory conversion period 2868.28 24315.77 43.05 ESSAR STEEL 2633.23 17968.39 53.49 SAIL STEEL 10121.45 54828.28 67.38 JINDAL STEEL 1328.05 5662.17 85.61

5) Current ratio This ratio is used to judge the short term solvency of a company and is worked out by dividing the aggregate Current Assets by its aggregate Current Liabilities. To find out the current ratio, the formula is; Current asset Current liabilities

company TATA STEEL Particular Current Assets Current Liability Current ratio 10047.48 8974.05 1.12 ESSAR STEEL
5,465.23 3,885.22

SAIL STEEL
35,666.84 19,609.72

JINDAL STEEL
5,189.28 4,111.64

1.41

1.82

1.26

6) Total inventories to total assets This ratio shows the percentage level of inventories in compare to total asset. The formula is; Total Inventories(closing) Total assets x 100

Company TATA STEEL Particular Inventory Total Assets Total inventory To total Assets 2868.28 57365.6 5% ESSAR STEEL 2633.23 26517.93 9.93% SAIL STEEL 10121.45 58035.84 17.44% JINDAL STEEL 1328.05 4830.31 27.46%

CH 7 Suggestions

CH 8 Conclusions

CH 9 Bibliographies

Websites www.tatasteel.com www.sail.co.in www.jindalsteel.com www.essarsteel.com www.wikipedia.com www.steel.nic.in www.economywatch.com

Pandey I. M., FINANCIAL MANAGEMENT 9th Edition, Vikas Publishing House Pvt. Ltd., New Delhi, Page No. 634 Cooper Donald R and Schindler Pamela S. BUSINESS RESEARCH METHODS 9th Edition, Tata McGraw - Hill Publishing Company Ltd., New Delhi, Page No. - 610 to 612

CH 10 ANNEXURE

SAIL Balance Sheet

Particulars
Sources of funds
Owner's fund Equity share capital Reserves & surplus 4,130.40 23,853.70 4,130.40 18,933.17 4,130.40 13,182.75 4,130.40 8,471.01 4,130.40 6,176.25 31st MAR 09 31st MAR 08 31st MAR 07 31st MAR 06 31 st MAR 05

Loan funds
Secured loans Unsecured loans Total 1,473.60 6,065.19 35,522.89 925.31 2,119.93 26,108.81 1,556.39 2,624.13 21,493.67 1,122.16 3,175.46 16,899.03 1,603.98 4,165.81 16,076.44

Uses of funds
Fixed assets Gross block Less : accumulated depreciation Net block Capital work-in-progress Investments 32,728.69 20,459.86 12,268.83 6,544.24 652.7 30,922.73 19,351.42 11,571.31 2,389.55 538.2 29,912.71 18,315.00 11,597.71 1,236.04 513.79 29,360.46 17,198.32 12,162.14 757.94 292 28,043.48 15,558.41 12,485.07 366.48 606.71

Net current assets

Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total 35,522.89 35,666.84 19,609.72 16,057.12 27,309.01 15,758.74 11,550.27 59.48 26,108.81 21,673.75 13,656.77 8,016.98 129.15 21,493.67 18,788.80 15,317.67 3,471.13 215.82 16,899.03 15,521.37 13,198.12 2,323.25 294.93 16,076.44

Profit And Loss A/c

Particulars
2010-09 2007-08 2006-07 2005-06 2004-05

Income
Operating income 43,798.58 39,958.67 34,328.77 28,200.48 28,714.30 22,042.58 3,762.77 8,401.73 935.68 1,644.78 -1,930.40 34,857.14 8,941.44 2,279.89 11,221.33 253.24 1,285.12 128.02 9,554.95 3,284.28 6,270.67 -277.12 181.26 6,174.81 16,821.39 15,963.13 13,903.23 11,155.33 3,317.74 2,925.43 2,793.45 2,427.11 7,919.28 5,087.76 4,156.97 3,811.75 1,143.90 1,066.73 1,108.12 971.78 1,321.44 1,064.29 1,035.99 780.67 -1,832.22 -1,423.08 -1,352.05 -921.71 28,691.53 24,684.26 21,645.71 18,224.93 11,267.14 9,644.51 6,554.77 10,489.37 1,539.69 1,354.96 892.3 676.55 12,806.83 10,999.47 7,447.07 11,165.92 250.94 332.13 467.76 605.05 1,235.48 1,211.48 1,207.30 1,126.95 75.49 128.59 181.44 184.89 11,244.92 9,327.27 5,590.57 9,249.03 3,934.65 3,253.80 1,694.36 2,592.37 7,310.27 6,073.47 3,896.21 6,656.66 161.9 53.75 45.64 -14.35 64.61 60.57 71.12 174.66 7,536.78 6,187.79 4,012.97 6,816.97 7,861.47 826.08 115.86 6,919.5 6,839.66 1,363.03 185.24 5,291.4

Expenses
Material consumed Manufacturing expenses Personnel expenses Selling expenses Administrative expenses Expenses capitalized Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Nonrecurring items Other non cash adjustments Reported net profit Earnings before appropriation Equity dividend Dividend tax Profit carried to balance sheet

22,052.47 18,348.43 12,886.63 1,073.90 1,528.25 1,280.42 181.26 258.91 197.98 20,797.3 16,561.3 11,408.2

ESSAR STEEL BALANCE SHEET

Particulars
Sources of funds
Owner's fund Equity share capital Preference share capital Reserves & surplus 1,140.48 43.6 3,554.28 1,140.48 43.6 3,447.25 1,140.48 246.52 3,080.95 581.17 2,204.12 1,246.18 507.98 530.27 686.54 31st MAR 09 31st MAR 08 31st MAR 07 31st MAR 06 31st MAR 05

Loan funds
Secured loans Unsecured loans Total 6,317.62 993.77 12,049.75 5,383.11 733.47 10,747.91 6,533.32 409.92 11,411.19 7,355.20 650.46 12,037.13 4,126.32 684.27 6,535.38

Uses of funds
Fixed assets Gross block Less : revaluation reserve Less : accumulated depreciation Net block Capital work-in-progress Investments 15,367.85 6,239.03 9,128.82 549.61 791.31 5,414.98 9,273.89 575.12 515.22 14,688.87 4,664.60 8,889.59 1,107.78 433.43 13,554.19 4,049.09 6,398.45 2,887.36 182.97 10,447.54 6,940.24 0.07 3,691.34 3,248.83 589.64 768.38

Net current assets

Current assets, loans & advances Less : current liabilities & provisions Total net current assets Total 5,465.23 3,885.22 1,580.01 12,049.75 4,829.42 4,445.74 383.68 10,747.91 5,592.66 4,612.27 980.39 11,411.19 5,229.78 2,661.43 2,568.35 12,037.13 3,689.80 1,761.27 1,928.53 6,535.38

PROFIT AND LOSS A/c

Particulars
2010-09 2007-08 2006-07 2005-06 2004-05

Income
Operating income 11,717.40 10,763.35 3,983.17 4,426.80 233.07 291.73 269.98 9,204.75 2,512.65 124.48 2,637.13 861.63 828.11 947.39 110.32 837.07 -707.01 55.14 185.2 1,859.10 1,859.10 8,087.48 6,168.66 6,098.39

Expenses
Material consumed Manufacturing expenses Personnel expenses Selling expenses Administrative expenses Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Adjusted PBT Tax charges Adjusted PAT Nonrecurring items Other non cash adjustments Reported net profit Earnings before appropriation Preference dividend Dividend tax Profit carried to balance sheet 4,108.57 2,722.02 2,249.70 2,005.67 3,587.56 2,721.65 1,918.04 1,505.72 225.8 152.8 99.75 76.09 215.12 337.13 234.9 244.64 265.5 151.69 171.24 317.13 8,402.55 6,085.29 4,673.63 4,149.25 2,360.80 2,002.19 1,495.03 1,949.14 41.15 59.83 38.56 1.36 2,401.95 2,062.02 1,533.59 1,950.50 890.01 772.04 440.01 570.48 766.52 631.04 482.1 394.29 745.42 658.94 611.48 985.73 383.07 248.19 165.94 204.09 362.35 410.75 445.54 781.64 84.16 39.77 172.95 2.98 -16.02 -14.03 -88.31 -184.72 430.49 436.49 530.18 599.9 1,874.78 436.49 530.18 -874.78 11.5 1.96 1,861.32 436.49 530.18 -874.78

JINDAL STEEL BALANCE SHEET

Balance sheet
Rs. In crore

Particulars

31st MAR 09

31st MAR 08

31st MAR 07

31st MAR 06

31st MAR 05

Sources of funds
Owner's fund Equity share capital Preference share capital Reserves & surplus 15.47 5,399.85 2,105.49 2,857.16 10,377.97 3,740.98 1,783.39 2,079.96 7,619.73 15.4 2,481.33 2,115.61 1,392.11 6,004.45 15.4 1,829.31 1,780.77 964.6 4,590.08 15.4 15.4 1 1,302.98 1,159.51 336.35 2,815.24

Loan funds
Secured loans Unsecured loans Total

Uses of funds
Fixed assets Gross block Less : accumulated depreciation Net block Capital work-in-progress Investments 7,362.90 1,617.00 5,745.90 2,318.01 1,233.40 5,918.94 1,183.11 4,735.83 660.48 1,036.19 4,929.03 781.75 4,147.28 937.84 709.82 3,243.05 542.33 2,700.72 1,146.27 430.3 2,530.28 361.76 2,168.53 345.7 33.38

Net current assets

Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total 5,189.28 4,111.64 1,077.64 3.02 10,377.97 3,299.57 2,115.48 1,184.09 3.14 7,619.73 1,801.66 1,595.39 206.27 3.24 6,004.45 1,490.50 1,178.45 312.05 0.74 4,590.08 1,036.30 769.67 266.62 1.01 2,815.24

PROFIT AND LOSS A/C

Profit and loss account Particulars
2010-09 2007-08 2006-07 2005-06 2004-05

Income
Operating income 7,677.83 5,368.14 3,523.08 2,565.04 2,253.60 3,419.42 773.84 181.46 327.76 337.49 5,039.97 2,637.86 199.46 2,837.32 267.89 433.03 0.2 2,136.20 465.4 1,670.80 -144.78 10.46 1,536.48 4,584.28 85.33 4,498.95 1,727.40 670.87 132.2 264.73 277.03 3,072.23 2,295.91 57.31 2,353.22 243.02 451.51 0.27 1,658.42 265.55 1,392.87 -144.57 -11.34 1,236.96 3,239.54 62.02 10.55 3,166.97 1,068.50 510.96 90.14 276.47 167.2 2,113.27 1,409.81 36.08 1,445.89 173.19 336.47 0.27 935.96 241.85 694.11 7.78 1.1 702.99 2,136.05 55.43 8.87 2,071.75 536.71 528.2 545.44 514.13 79.74 50.85 222.18 171.87 148.16 72.42 1,532.23 1,337.46 1,032.81 916.15 26.02 19.34 1,058.83 935.49 108.02 92.51 219.17 152.48 0.27 0.31 731.37 690.18 154.91 158.11 576.46 532.08 -12 -12.48 8.48 -3.9 572.94 515.7 1,528.77 1,057.60 46.19 46.19 6.48 6.33 1,476.10 1,005.08

Expenses
Material consumed Manufacturing expenses Personnel expenses Selling expenses Adminstrative expenses Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Non recurring items Other non cash adjustments Reported net profit Earnigs before appropriation Equity dividend Dividend tax Profit carried to balance sheet

TATA STEEL
Particulars Share capital Reserve and Surplus Total share holder's fund Loans Deferred tax liabilities Provision for employee separation Total funds employed Application of funds Fixed asset Investments Foreign currency translation 31st MAR 09 6203.45 23176.26 30176.26 26946.18 585.73 1033.6 58741.77 31st MAR 08 6203.3 21097.43 27300.73 18021.69 681.8 1071.3 47075.52 31st MAR 07 727.73 13368.42 14096.15 9645.33 748.94 1107.08 25597.5 31st MAR 06 553.67 9201.63 9755.3 2516.15 957 1388.71 14617.16 31st MAR 05 553.67 6506.25 7059.92 2739.7 829.42 1541.26 12143.3

14482.22 42371.78 471.66

12623.56 4103.19

11040.56 6106.18

9865.05 4069.96

9112.24 2432.65

BALANCE SHEET

diff a/c Current assets Loans and advances (-) Current liabilities and provisions Net current assets Miscellaneous expenditure Particulars Sales andTotal assets other operating expenses 5707.05 4578.04 -8974.05 1311.04 105.07 2010-09 58741.77 24315.77 3613.7 33348.74 -6768.78 30193.66 155.11 2007-08 47075.52 19691.03 10646.16 3055.73 -5453.66 8248.23 202.53 2006-07 25597.5 17551.09 3002.74 1234.86 -3808.72 2701.14 1382.44

428.88 253.27 2005-06 14617.16 12143.3 15139.39 14498.95

Rs in 383.59 Crore Rs in 214.82 2004-05 Crores

-3699.99

PROFIT AND LOSS A/C

Other income Total Income Expenditure Manufacturing and other expenses Depreciation (-)Expenditure transferred to capital a/c Net financial charges Total expenditure Profit before taxes and exceptional items Profit before taxes (-) Taxes Profit after tax

308.27 24624.04

242.8 19933.83

433.67 17984.76

254.76 15394.15

148.03 14646.98

15525.99 973.4 -343.65 1152.69 17308.43 7315.61 7315.61 -2113.87 5201.74

11852.75 834.61 -175.5 786.5 13298.36 6635.47 7066.36 -2379.33 4687.03

10813.84 819.29 -236.02 173.9 11571.01 6413.75 6261.65 -2039.5 4222.15

9320.5 775.1 -112.62 118.44 10101.42 5292.73 5239.96 -1733.58 3506.38

8658.41 618.78 -204.82 186.8 9259.17 5387.81 5297.28 -1823.12 3474.16

COST SHEET RS IN CRORE

Particulars Raw material consumed 2010-09 5709.91 2007-08 3429.52 2006-07 3121.46 2005-06 2368.3 2004-05 1715.44

Payment and provision for employee Operation and other expenses (-)Commission (-)Provision for wealth tax Freight and handling charges Excise duty Depreciation Adjustment of WIP (+) Opening stock of WIP (-) Closing stock of WIP COST OF PRODUCTION Adjustment of finished goods (+)Opening stock of finished goods (+) Purchase of finished goods (-)Closing stock of finished goods COST OF GOODS SOLD

2305.81 6213.58 -61.49 -1 1251.23 2527.96 973.4 71.48 -73.17 18917.71

1589.77 5068.88 -52.53 -0.95 1098.19 2498.52 834.61 28.94 -71.48 14423.47

1454.83 4647.28 -64.71 -0.97 1117.45 2210.55 819.29 23.93 -28.94 13300.17

1351.51 4038.71 -80.75 -0.8 1004.32 2004.83 775.1 32.42 -23.93 11469.71

1291 3687.17 -86.18 -0.7 936.68 1377.92 618.78 9.28 -32.42 9516.97

1074.27 358.87 -1361.85 18989

1078.08 446.95 -1074.27 14874.23

1000.62 450.6 -1078.08 13673.31

887.22 656.08 -1000.62 12012.39

620.81 1305.28 -887.82 10555.24