Research Paper Steel

8/2/2019 Research Paper Steel

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Profitability and consistency analysis of Steel Sector in India

Authors:

1. Dr K.S. Vataliya ( M.Com, Ph.D)Principal M.J College of Commerce

Bhavnagar university, Bhavnagar.

2. Rajesh A. Jadav (M.Com)Lecturer in BBA

M.J. College of Commerce

Bhavnagar university, Bhavnagar.

Contact no: 8460385821

E-mail id : [email protected]

Address of Institute :

M. J. College of Commerce(B.B.A)

Bhavnagar UniversityVidhyanagar, Bhavangar,Guajrat 364002
mailto:[email protected]:[email protected]:[email protected]


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Abstract

In India, Steel sector is one the most promising & growing industry. But form the point of view ofprofitability & consistency these are the not as good as it is for overall industry & it differs form one

company to other.

Under the study we have taken the four major players working in the steel sector in India & taken the

financial data of all the companies for three financial years. For the research purpose, there are various ratios

which are calculated & further taken into consideration for the different tests.

In the study secondary data are used which are collected from internet.

Objective of study is to analyze the performance of each company by profitability & consistency under the

study & give them various ranks according to their performance. Thus, it is useful for the measurement of

overall performance of various companies under steel industry in India.

Key Words: Steel sector in India, Profitability & Consistency


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In tro d u ct io n

The Indian iron and steel industry is nearly a century old, with Tata Iron & Steel Co (Tata Steel) asthe first integrated steel plant to be set up in 1907. It was the first core sector to be completely freedfrom the licensing regime (in 1990-91) and the pricing and distribution controls. The steel industry isexpanding worldwide. For a number of years it has been benefiting from the exceptionally buoyantAsian economies (mainly India and China). The economic modernization processes in these

countries are driving the sharp rise in demand for steel.

The New Industrial policy adopted by the Government of India has opened up the iron and steelsector for private investment by removing it from the list of industries reserved for public sector andexempting it from compulsory licensing. Imports of foreign technology as well as foreign direct

investment are freely permitted up to certain limits under an automatic route. This, along with theother initiatives taken by the Government has given a definite impetus for entry, participation andgrowth of the private sector in the steel industry. While the existing units are beingmodernized/expanded, a large number of new/greenfield steel plants have also come up in differentparts of the country based on modern, cost effective, state of-the-art technologies.

Soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has

put India's steel industry on the world map. Dominating the Indian horizon is steel giant Tata Steel,whose takeover of the UK-Dutch steel company Corus is the country's biggest buyout. Meanwhile,the LN Mittal-owned Mittal Steel acquired French steel company Arcelor to create the world's

number one steel company, Arcelor Mittal; and Korean steel giant POSCO is pumping money intomines and steel plants in Orissa to emerge as one of the biggest steel plants in the state.

India's steel production during 2010-11 was 75.463 MTPA in (upto December 2010). India has

emerged as the fifth largest producer of steel in the world and is likely to become the second largest

producer of crude steel by 2015-16.

Considering a steel consumption of 300 kg per man per year to be a fair level of economic

development, India will have to come up to somewhere around 300 million tonnes, if it is to fulfill

its ambitions of being a developed country. That of course is a long journey from the present

production level of around 50 million tonnes but one must consider its past before coming to a

conclusion about its potential. India was producing only around a million tonnes of steel at the time

of its independence in 1947. By 1991, when the economy was opened up steel production grew to

around 14 million tonnes. Thereafter, it doubled in the next 10 years, and then it is doubling again,

maybe over a slightly longer span. Steel Production in India is expected to reach 124 million tons

by 2012 and 275 million tons by 2020 which could make it the second largest steel maker.

Total Finished Steel (alloy+non-alloy): Production for sale (million tonnes)

Year Main

Producers

Majors and Other

Producers

Grand

Total

% of share of

Majors and Other Producers

2000-2001 12.686 19.670 32.356 60.8

2001-2002 13.198 20.178 33.376 60.5

2002-2003 14.534 22.632 37.166 60.9

2003-2004 15.383 25.326 40.709 62.2

2004-2005 15.824 27.689 43.513 63.6

2005-2006 16.413 30.153 46.566 64.8


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2006-2007 17.614 34.915 52.529 66.5

2007-2008 18.020 38.055 56.075 67.9

2008-2009 17.216 39.948 57.164 69.9

2009-2010 18.038 42.586 60.624 70.2

2010-2011

(Prov)

18.280 47.733 66.013 72.3

Source : JPC

Object ives To meas u re the pe r fo rmance o f the compan ie s a cco rd ing to the i r

p ro f i t ab i l i ty .

To meas u re the pe r fo rmance o f the compan ie s a cco rd ing to the i r cons i s t ency . To g ive rank ings to the s ample compan ie s a s pe r the i r ove ra l l pe r fo rmance .

Hypothesis and Research Methodology

Hy p o th es i s 1 :

H0: The re i s no s ign i f i c an t d i f fe rence be tween g ros s p ro f i t ma rg in ra t io o f

compan ie s .

Ha : The re i s a s ign i f i c an t d i f fe rence be tween g ros s p ro f i t ma rg in ra t io o f

compan ie s .


H0: The re i s no s ign i f i c an t d i f fe rence be tween ne t p ro f i t ma rg in ra t io o f

compan ie s .

Ha : The re i s a s ign i f i c an t d i f fe rence be tween ne t p ro f i t ma rg in ra t io o f

compan ie s .


H0: The re i s no s ign i f i c an t d i f fe rence be tween ope ra t in g expens e s ra t io o f

compan ie s .

Ha : The re i s a s ign i f i c an t d i f fe rence be tween ope ra t ing ra t io o f compan ie s .

Research Methodology

Type of research:Type of research used here is an Analytical Research, the researcher have used the facts already available

and have analyze them to make a critical evaluation of the material.

S a mp le d es ig n :

Sampling design: The sampling used here is convenient sampling.

S a mp le s i ze :

In the study, data collected from four companies consisting three financial years.

Va ria b les o f S tu d y :

Dependent variables: Profitability and Consistency. Independent variables: gross profit margin, net profit

margin, operating expenses ratio.

Meth o d o f d a ta co l l ec t io n :

The data used to calculate the ratios are derived from balance sheet and profit and loss account of sample

companies from the internet.


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Meth o d o f a n a ly s i s o f d a ta :

Here data is preliminarily analyzed using a test called one-way ANOVA. ANOVA means analysis of

variance. On the basis of ANOVA performed on each of the ratios some points are allocated to companies

and on the basis of that conclusion is derived.

Analysis and Interpretat ion

Gross Prof i t Margin : -S AIL Ta ta S tee l J S W S tee l Bh u sh a n S tee l

2 0 1 1 12 .88 34 .20 14 .11 25 .23

2 0 1 0 19 .40 31 .36 17 .33 22 .12

2 0 0 9 17 .48 33 .69 14 .51 17 .22

ANOVA test performed on the above data gives following result.

Anova: Single Factor

SUMMARY

Gro u p s Co u n t S u m Av era g e Va r ia n ceS AIL 3 49 .76 16 .58667 11 .22613

Ta ta S tee l 3 99 .25 33 .08333 2 .292433

J S W S tee l 3 45 .95 15 .31667 3 .080133

Bh u sh a n S tee l 3 64 .57 21 .52333 16 .30703

ANOVA S o u rce o f

Va r ia t io n

S S d f MS F P-v a lu e F cr i t

B e t w e e n

Gro u p s

589 .4508 3 196 .4836 23 .88442 0 .00024 4 .066181

With in

Gro u p s

65 .81147 8 8 .226433

To ta l 655 .2622 11

Interpretation:

The test gives F-ratio value which is greater than the critical value for given degree of freedom. So the

difference between Gross Profit Margin of sample companies is not because of sampling error or any other

reason. This difference can be considered as a significant difference. So we can rank the companies for its

profitability and consistency. We can allocate points to it ranging from 4-1as per the performance indicated

by Average and Variance, given in the Summery section. They are shown in the following table.

Pro f i ta b i l i ty Co n s i s ten cy

S AIL 2 2

Ta ta S tee l 4 4

J S W S tee l 1 3

Bh u sh a n S tee l 3 1

Net Prof i t Margin : -

S AIL Ta ta S tee l J S W S tee l Bh u sh a n S tee l

2 0 1 1 11 .03 23 .16 8 .64 14 .42

2 0 1 0 15 .73 19 .96 11 .09 14 .96

2 0 0 9 13 .40 21 .09 3 .23 8 .42



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S UMMARY

ANOVAS o u rce o f

Va r ia t io n


B e t w e e n

Gro u p s

291 .5907 3 97 .1969 10 .36532 0 .003945 4 .066181

With in

Gro u p s

75 .017 8 9 .377125

To ta l 366 .6077 11

Interpretation:


difference between Net Profit Margin of sample companies is not because of sampling error or any other

reason. This difference can be considered as a significant difference. So we can rank the companies for its

profitability and consistency. We can allocate points to it ranging from 4-1as per the performance indicated

by Average and Variance, given in the Summery section. They are shown in the following table.


S AIL 3 3

Ta ta S tee l 4 4

J S W S tee l 1 1


Op era t in g Ex p en ses Ra t io : -

S AIL Ta ta S tee l J S W S tee l Bh u sh a n S tee l

2 0 1 1 16 .37 38 .11 20 .08 29 .24

2 0 1 0 22 .69 35 .70 23 .52 25 .84

2 0 0 9 20 .41 37 .68 20 .42 21 .93



S UMMARY

Gro u p s Co u n t S u m Av era g e Va r ia n ce

S AIL 3 59 .47 19 .82333 10 .24373

Ta ta S tee l 3 111 .49 37 .16333 1 .652233

J S W S tee l 3 64 .02 21 .34 3 .5932

Bh u sh a n S tee l 3 77 .01 25 .67 13 .3807


S AIL 3 40 .16 13 .38667 5 .522633

Ta ta S tee l 3 64 .21 21 .40333 2 .633633

J S W S tee l 3 22 .96 7 .65333 16 .17503

Bh u sh a n S tee l 3 37 .8 12 .6 13 .1772


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ANOVA S o u rce o f

Va r ia t io n


B e t w e e n

Gro u p s

553 .7872 3 184 .5957 25 .57625 0 .000188 4 .066181

With in

Gro u p s

57 .73973 8 7 .217467

To ta l 611.5269 11

Interpretation:


difference between Operating Expenses Ratio of sample companies is not because of sampling error or any

other reason. This difference can be considered as a significant difference. So we can rank the companies for

its profitability and consistency. We can allocate points to it ranging from 4-1as per the performance

indicated by Average and Variance, given in the Summery section. They are shown in the following table.


S AIL 1 2

Ta ta S tee l 4 4

J S W S tee l 2 3


F ina l Analys i s

In detailed analysis of each ratio, we have seen interpretation of the test performed on the ratio values of

different companies. On the basis of that we can conclude which ratios can help ranking the companies on

the basis of their performance.

The ra t io s wh ich a re cons ide red fo r rank ing a re :

1 ) Gros s p ro f i t ma rg in2 ) Net p ro f i t ma rg in3 ) Opera t ing expens e s ra t io

On the ba s i s o f ove ra l l pe r fo rmance on ra t io s wh ich a re cons ide red fo r rank ing the

fo l lowing re s u l t and in te rp re ta t ion can be s een . We can dec ide the p ro f i t ab i l i ty

and cons i s tency o f the compan ie s and rank them fo r tha t .

Pro f i ta b i l i ty : The fo l lowing t ab le s hows po in t s tha t t he s ample compan ie s havego t fo r the i r pe r fo rmance on each o f the ra t io s .

S AIL Ta ta

S t e e l

J S W

S t e e l

Bh u sh a n S tee l

Gros s P ro f i t Marg in 2 4 1 3

Ne t P ro f i t Marg in 3 4 1 2

Ope ra t ing Expens e s Ra t io 1 4 2 3

The ave rage o f a l l va lue s fo r e ach company s hows the pe r fo rmance o f the company

fo r p ro f i t ab i l i t y . We can compare compan ie s on the ba s i s o f the i r ave rage va lue s .


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S UMMARY


SAIL 3 6 2 1

Ta ta S tee l 3 12 4 0

J SW S tee l 3 4 1 .33333 0 .33333

Bhus han S tee l 3 8 2 .66667 0 .33333

The higher the average value, the higher the profitability of that company. According to this we get

following result for profitability.

Co mp a n y Ra n k

SAIL 3

Ta ta S tee l 1

J SW S tee l 4

Bhus han S tee l 2

Consistency

The fo l lowing t ab le s hows po in t s tha t t he s ample compan ie s have go t fo r the i r

pe r fo rmance on each o f the ra t io s .

S AIL Ta ta

S t e e l

J S W

S t e e l

Bh u sh a n S tee l

Gros s P ro f i t Marg in 2 4 3 1

Ne t P ro f i t Marg in 3 4 1 2

Ope ra t ing Expens e s Ra t io 2 4 3 1

The ave rage o f a l l va lue s fo r e ach company s hows the pe r fo rmance o f the company

fo r cons i s t ency . We can compare compan ie s on the ba s i s o f the i r ave rage va lue s .

S UMMARY


SAIL 3 7 2 .33333 0 .33333

Ta ta S tee l 3 12 4 0

J SW S tee l 3 7 2 .33333 1 .33333

Bhus han S tee l 3 4 1 .33333 0 .33333

The h ighe r the ave rage va lue , the h ighe r the cons i s t ency o f tha t company .

Acco rd ing to th i s we ge t f o l lowing re s u l t fo r cons i s t ency .

Co mp a n y Ra n k

SAIL 2Ta ta S tee l 1

J SW S tee l 3

Bhus han S tee l 4

Limitat ions, Findings & Conclusion

Limita t io n s The s tudy invo lve s on ly th ree yea rs o f compar i s on . So i t c an on ly

p red ic t the p ro f i t ab le t r end fo r a coup le o f yea r , no t more than tha t .

The va lue o f ra t io s depends on the de f in i t ion o f ra t io and can va rys l igh t ly acco rd ing to i t s de f in i t ion in c a s e o f d i f fe ren t compan ie s .

The s tudy invo lve s on ly ma jo r p laye rs o f s t e e l s ec to r in Ind ia , no t a l lthe compan ie s .


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Fin d in g s Average o f Tech Ta ta S tee l was t he h ighes t among a l l the compan ie s

s howing the h ighes t p ro f i t ab i l i ty wh ich was fo l lowed by Bhus han S tee l

& SAIL , the lowes t ave rage Gros s P ro f i t was o f J SW S tee l .

Average Ne t P ro f i t o f Ta ta S tee l was the h ighes t i . e 23 .16 wh ich wasthe lowes t in c a s e o f J SW S tee l i . e Approx ima te ly 3 .23%. Wherea s

SAIL s howed the ave rage Ne t P ro f i t o f a round 11 to 16%.

The huge gap be tween ave rage ne t p ro f i t & g ros s p ro f i t in c a s e o f Ta taS tee l c an v i s ib le s howing the b ig bu rden o f ope ra t ing expens e s in the

company . The lowes t ope ra t ing ra t io i s in SAIL s howing good con t ro l

o f managemen t ove r the cos t .

From the ana ly s i s and i t s in te rp re ta t ion we can f ind ou t wh ich ra t io sa re more impor tan t and wh ich a re l e s s impor tan t in th i s pa r t i cu la r c a s e .

Gros s P ro f i t Marg in , Ne t p r o f i t ma rg in and Ope ra t ing expens e s ra t ioa re more u s e fu l in a l loca t ing po in t s to the compan ie s fo r the i r

pe r fo rmance .

Retu rn on to ta l a s s e t s , r e tu rn on ne t a s s e t s , r e tu rn on equ i ty andDiv idend pay - ou t r a t io a re l e s s impor tan t in th i s c as e s o we c an t u s e t hem fo r a l loca t ing po in t s to the compan ie s a s the i r pe r fo rmance i s

a lmos t s imi la r on the s e c r i t e r i a .

Co n clu s io n The ma jo r p laye rs o f S tee l s ec to r s hows upwards t r end in ca s e o f

p ro f i t ab i l i ty . We can s tudy the pe r fo rmance and rank the compan ie s

fo r i t s p ro f i t ab i l i ty ; Ta ta S tee l s ecu red the f i r s t r ank & Bhus han

S tee l , SAIL , J SW S tee l fo l lowed by re s t o f compan ie s .

We can s tudy the pe r fo rmance and rank the compan ie s fo r i t sp ro f i t ab i l i ty ; Ta ta S tee l s ecu red the f i r s t r ank & SAIL , J SW S tee l ,

Bhus han S tee l fo l lowed by re s t o f compan ie s .

Bibliography :

Dr. K. S. Vataliya,(2008), Management of Working Capital analysis planning & control, ParadisePublishers.

M Y Khan & P. K Jain,(2007), Financial Management, Tata McGraw-Hill Education. I M. Pandey, (2009), Financial Management, Vikas Publishing House Pvt. Ltd. C. R. Kothari, (2004), Research Methodology Methods & Techniques, New Age International

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http://steel.nic.in/development.htmhttp://steel.nic.in/development.htmhttp://steel.nic.in/overview.htmhttp://steel.nic.in/overview.htmhttp://www.equitymaster.com/research-it/sector-info/steel/http://www.equitymaster.com/research-it/sector-info/steel/http://money.rediff.com/companies/bhushan-steel-ltd/15540019/ratiohttp://money.rediff.com/companies/bhushan-steel-ltd/15540019/ratiohttp://money.rediff.com/companies/steel-authority-of-india-sail-ltd/15510002/ratiohttp://money.rediff.com/companies/steel-authority-of-india-sail-ltd/15510002/ratiohttp://money.rediff.com/companies/tata-steel-ltd/15510001/ratiohttp://money.rediff.com/companies/tata-steel-ltd/15510001/ratiohttp://money.rediff.com/companies/jsw-steel-ltd/15530059/ratiohttp://money.rediff.com/companies/jsw-steel-ltd/15530059/ratiohttp://money.rediff.com/companies/jsw-steel-ltd/15530059/ratiohttp://money.rediff.com/companies/tata-steel-ltd/15510001/ratiohttp://money.rediff.com/companies/steel-authority-of-india-sail-ltd/15510002/ratiohttp://money.rediff.com/companies/bhushan-steel-ltd/15540019/ratiohttp://www.equitymaster.com/research-it/sector-info/steel/http://steel.nic.in/overview.htmhttp://steel.nic.in/development.htm

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