Captial Structure Trend in Indian Steel Industry

Chapter 1

Introduction

1.1 Capital structure

Capital structure plays an important role in the creation of higher market value in terms of

higher earning per share. The earning per share increase with the leverage of the firm. But

the leverage also increases the financial risk of the shareholders e.g. Essar steel (Essar), the

leading sponge iron manufacturer and the flagship company of the Essar group, during the

late 1990s faced a serve financial crisis when it defaulted the repaying the Floating rate

Note holders on the maturity date. As a result, it can be affected by capital structure or

financing decisions, a firm would like to have capital structure, which maximizes the

market value of the firm. If the leverage affects the cost of capital and the value of the firm,

an optimum capital structure would be obtained at that combination of debt equity that

maximizes the total value of the firm or minimize the weighted average cost of capital. The

traditionalists believe that capital structure affects the firm value while Modigliani and

Miller approach (MM), under the assumption of perfect capital market and no taxes argues

that capital structure decision is irrelevant. Modigliani and Miller approach reverse their

position when consider corporate taxes. Tax saving results from interest paid on debt

creates value of the firm. However, the tax advantage of debt is reduced by personal taxes

and financial distress. Hence, the trade off between costs benefits of debt can turn capital

structure into a relevant decision. Various theories have been propounded to explain capital

structure and value of the firm. They are following Assumption & Definition:

In order to grasp the elements of the capital structure and the value of the firm or the cost

of capital controversy properly, the following assumptions need to be consideration:

A firm employs only two types of capital: debt and equity.

The total assets of the firm are given. The degree of leverage can be changed by

issuing debt to repurchase shares or issuing shares to retire debt.

Investors have the subjective probability distribution of the expected future

operating earning for given firm.

The firm has a policy of distributing 100% of its earning as dividends; in realty the

company maintains certain amount has retained earning.

1

The operating earnings of the firm are expected to grow or decline over a period

of time.

The firm can instantaneously change in capital structure without incurring any

transaction costs.

The theories of capital structure can be grouped into two categories:

1. Relevance theories,

2. Irrelevance theories

Relevance theories:

Under the relevance theory, it is stated that capital structure decision are relevant to the

extent the debts affects value of the cost of capital.

According to net income approach, the firm can increase its value of the over all cost of

capital by increasing the proportion of debt in the capital structure. This implies that the

capital structure relevant in determining the value of the firm. The financial manager can

reduce the cost of capital and consequently increase the value of the firm by increasing the

proportion of debt in the capital structure. The net income approach clearly underlines the

importance of debt as it is determinant the determinant of value of firm (V).

This approach is based on following assumptions:

The use of debt does not change the risk and perception of the investors; as the

result, the equity-capitalization rate, ke and debt capitalization rate, kd remain

constant with changes in leverage. This is important assumption because if with

increasing use of debt in the capital structure the risk perception of the investor’s

changes, i.e. if they perceive the firm to be more risky with the increased amount of

debt, the rate return required to be increase.

The debt capitalization rate is less than the equity capitalization rate (i.e. kd< ke). In

other words, the rate of return required by debt suppliers is less than the rate of

return required by equity capital suppliers.

The corporate income taxes do not exist.

Given these assumptions, when a firm increases its financial leverages, it uses more of a

cheaper source of finance. As a result the overall cost of capital declines.

Weighted average cost of capital as given by

2

ko=ke[E/V]+kd[D/V]

Since kd is less than ke, increase in the proportion of the debt in the capital structure would

mean higher value of D/V resulting into value of ko, i.e. overall cost of capital.

The optimum capital structure would occur at the point where the value of the firm

maximum and overall cost of capital is minimum. Under this approach maximum value of

the lowest cost of capital when it is fully debt financed.

Traditional approach:

The traditional view point states that the value of the firm increases with the increase in the

financial leverage but up to the certain limit only. Beyond this limit, the increase in

financial leverage will increase its WACC (Weighted Average Cost of Capital) also hence

the value of the firm decline.

Under traditional approach, the cost of the debt is assumed to be less than the cost of

equity. In case of 100% equity firm, the overall cost of the capital of the firm (ko) is equal

to the cost of equity (ke) but when the debt is introduced in the capital structure and the

financial leverage increases, the cost of equity (ke) remains constant as the investors expect

a minimum leverage increases, the cost of equity (ke) remains constant as the equity

investor s expect a minimum leverage in every firm. The ke doesn’t increase even with

increase in leverage. The argument for ke, remaining unchanged may be that up to a

particular degree of leverage, the interest change may not be large enough pose a real

ke

kd

ko

3

Fig 1.1

dividend payable to share holders. This constant ke and lower kd makes the ko to fall

initially. Thus, it shows that the benefit of cheper debts is available to the firm. But this

portion does not continue when leverage is further increased. The increase in leverage

beyond a limit increases in the risk in the equity investors also and as a result the ke also

starts increasing. However, the benefit of use of debt may be so large that even after

offsetting the effects of increase in ke and ko may still go down or may become constant

for some degree of leverage. However, if the firm increases leverage and consequently the

leverage even further, then the risk of the debt investor may also increased and

consequently the kd also starts increasing. The already increasing ke and the now

increasing kd makes the ko to increase. Therefore, the value of the use of leverage beyond

a point will result in to an increase in the overall cost of capital of the firm and decreases

the value of the firm.

Thus there is a level of financial leverage in increased further, the effect may be adverse

and value of firm may decrease. In another words, a firm benefited from moderate level of

leverage when advantage of using debt outweigh the disadvantages of increasing ke.

Irrelevance theories:

Under these theories, capital structure decisions do not affect value of the firm.

ko

ke

kd

4

Percentage of cost

Leverage (B/S)

Net income approach

According to the net income (NOI) approach the market value of the firm does not affect

by the capital structure changes. The market value of the firm found out by capitalizing the

net operating income at overall, or the weighted average cost of capital, ko which is

constant.

Symbolically,

V = D+E = NOI / ko

Where ko is the overall capitalization rate and depends on the business risk of the firm. It

does not depend on the financial mix. If NOI and ko are independent of capital structure

changes.

The critical assumptions of NOI approach are:

The market capitalizes the value of the firm as a whole. Thus, the proportion in

which debt and equity have been using in the capital structure is not relevant in

determining the value of the firm.

The market uses an over all capitalization rate, ko to capitalize the net operating

income, ko depend on operating income. Ko depends on the business risk. If the

business risk is assumed to remain unchanged, ko is constant.

The use of less debt costly funds increases the risk of share holders. This causes the

equity capitalization rate increases. Thus the advantage of debt is offset exactly by

increase. Thus, the advantage of debt is offset exactly by the increase in the equity

capitalization rate, ke.

The debt capitalization rate, kd is constant.

The corporate tax does not exist.

As started above, under NOI approach, the total value of the firm is found out by dividing

the net operating income by the overall cost of the capital, ko. The market value of

equity,E, can be determined by subtracting the value of the debt, D, from the total market

value of the firm (i.e.E=V-D). The cost of equity, ke will be measured as follows:

Ke = NOI-INT/ (V-D)

The overall cost of capital is constant and the cost of equity increases as debt increases as

debt is substituted for equity capital. This approach implies that there is not any unique

5

optimum capital structure. In other words, as the cost of capital is same at all capital

structure.

Fig 1.3

1.2 Modigliani-Miller approach:

Modigliani-Miller approach state that the value of the firm is independent of its debt policy

is based on the critical assumption that corporate income taxes do not exist.

In reality, corporate income taxes exist, and interest paid to debt holders is treated as a

deductible expense. Thus, interest payable by the firm saves taxes. This makes debt

financing as advantage. Modigliani-Miller approach states that the value of the firm will

increase the debt due to the deductibility of interest charges for tax computation, and the

value of the levered firm will be higher than of the unlevered firm. Considering an e.g. of

firm U and L:

ke

ko

Leverage D/E

Cost %

kd

6

Income statement of a Firm U and L:

Income Firm U Firm L

Net operating income 2,500 2,500

Interest 0 500

PBT 2,500 2000

Tax rate @ 33.7% 842.5 647

PAT 1,657.5 1,353

Dividend to share holders 1,657.5 1,353

Interest to debt holders 0 500

Total income to investors 1,657.5 1,853

Tax advantage on debt 0 195.5 Relative

advantage of debt: 1,853/1657.5 0 1.12

Interest tax shield is a cash flow and therefore, it is valuable. Suppose that firm L employ

debt of Rs 5000 perpetually. If firm L’s debt Rs 5000 is permanent, then the interest tax

shield of Rs 250 is perpetuity.

The cash flow arising on the account of the interest tax shield are less risky than the firm’s

operating income that is the subject of business risk. Interest tax shield depends on the

corporate tax rate and the firm’s ability to earn enough profit to cover the interest

payments. The corporate taxes do not change frequently. Firm be assumed to earn at least

equal to he interest payable otherwise it would not like to borrow. Thus the cash inflows

from the interest tax shield can be considered less risky, and they should be discounted at a

lower discount rate. It will be reasonable to assume that the risk of the interest payment

generating them. Thus, the discount of 10%, which is the rate of return required by the debt

holders. The PV of the un levered firm perpetual tax shield of Rs 195.5 is.

PV of interest tax shield = 195.5/0.10= Rs 1955.00

Thus the assumption of debt, we can determine the present value of the interest tax shield

as follows:

Present value = Corporate tax rate * interest/ cost of debt.

7

The present value of the interest shields (PVINTS) is independent of the cost of debt: it is

simply the corporate tax rate times the amount of permanent debt (TD). For the firm L, the

present value of the interest tax shield can be determined as: 0.337*5000= Rs1685. note

that the government, though its fiscal policy, assumes 33.7% (the corporate tax rate) of

firm L’s Rs 5000 debt obligation.

Limitations of debt borrowing:

The corporate tax rate and equity income of personal tax rate decreases, the advantage of

borrowing reduces. With reduced corporate tax and personal tax rate on equity income the

overall tax under the equity alternative and investors gets a large share of firm’s income.

Thus, the attractiveness of the borrowing depends on corporate tax rate and, personal tax

rate on interest income personal tax rate on equity income. The advantage of borrowing

reduces when the personal tax rate on equity income decreases.

Net tax advantage on debt = (T-Tpd)-(1-T)*(1-Tpe)

Where Tpd =personal tax rate on interest.

Tpe = personal tax rate on equity income.

The following are to be considered while change in the corporate tax rate:

The absence of personal taxes, the advantage of debt is determined by the corporate

tax rate, T.

The corporate tax and personal tax on equity income favor debt and the personal

tax on the interest income reduces tax advantage of debt.

In the absence of the personal tax on the equity income, the personal tax on interest

income reduces the tax advantage of the debt and it disappear if the personal tax

rate on the interest income is equal to corporate tax rate.

In case of single personal tax rate for equity income and the interest income, the tax

advantage of debt is reduced by the persona; tax rate of equity income and interest

income.

Corporate and personal taxes in India:

In India interest income is tax exempt up to Rs 12,000. After this limit, investors are

required to pay tax at marginal rate, which can be high as 30%. Dividend in the hand of the

share holders is exempt from tax. Capital gains on the shares are treated favorably than

8

interest income. From October 2005, there is no tax on long term capital gains. Where as

short term capital gains tax rate is 10%. Tax on capital gains are payable only they are

realized.

In India, companies are required to pay dividend tax on the amount of distributed dividend.

Thus, dividends are taxed twice at the amount distributed earnings.

Net operating profit 1.000

Less: corporate tax at 33.7% 0.3370

Income for distribution 0.6630

Less: dividend tax @ 15% 0.0950

Dividend 0.568

Total tax (0.337+.095) 0.432

The company payout 100% dividend the government gets about 43.2% of the firm equity earnings.

1.3 A capital structure trend in Indian Steel industry

Capital structure in Indian steel industries large/medium had under gone various changes

due to the growth in the infrastructure projects and global demand. This made the steel

industry to grow at a wide range by reducing debt. The higher demand for steel both in

global & domestic market had higher opportunity for expansion. The Indian steel industry

is almost 100 years old now. Till 1990, the Indian steel industry operated under a regulated

environment with insulated markets and large scale capacities reserved for the public

sector. Production and prices were determined and regulated by the Government, while

SAIL and Tata Steel were the main producers, the latter being the only private player. In

1990, the Indian steel Industry had a production capacity of 23 MT. 1992 saw the onset of

liberalization and the Indian economy was opened to the world. Indian steel sector also

witnessed the entry of several domestic private players and large private investments

flowed into the sector to add fresh capacities.

9

The last decade saw the Indian steel industry integrating with the global economy and

evolving considerably to adopt world-class production technology to produce high quality

steel. The total investment in the Indian steel since 1990 is over Rs 19,000 crores mostly in

plant equipments, which have been installed after 1990. The steel industry also went

through a turbulent phase between 1997 and 2001 when there was a downturn in the global

steel industry. The progress of the industry in terms of capacity additions, production,

consumption, exports and profitability plateaued off during this phase. But the industry

weathered the storm only to recover in 2002 and is beginning to get back on its feet given

the strong domestic economic growth and revival of demand in global markets.

With a current capacity of 35 MT the Indian Steel Industry is today the 8 th largest producer

of steel in the world. Today, India produces international standard steel of almost all

grades/varieties and has been a net exporter for the past few years, underlining the growing

acceptability of its products in the global market.

Steel is a highly capital intensive industry and cyclical in nature. Its growth is intertwined

with the growth of the economy at large, and in particular the steel consuming industries

such as manufacturing, housing and infrastructure. Steel, given its backward and forward

linkages, has a large multiplier effect.

Economists quantify the economic impact of any sector through measures such as the

output multiplier effect, forward and backward effects etc. Based on the Indian input-

output model, the Iron, Steel and Ferro Alloys sector (sector code 72 of CSO Table)

reveals high output multiplier of 2.64 and ranks 4 out of 115 sectors into which the

economy is divided. The output multiplier effect is defined as the total increase in output

generation (in case of sector 72, total increase of 2.64 units including unitary increase of

the sector’s own output) for one unit increases of final demand in the particular sector.

The Forward Linkage refers to the inter relationship between the particular sector and all

other sectors which demand the output of the former as their inputs. In the CSO table of 60

sectors (where all iron and steel sub sectors have been merged to one sector), the Forward

10

Linkage of the Iron and Steel sector at 4.79 is quite significant (ranks 4 out of 60 sectors

into which the economy is divided). The significant output multiplier effect and the

forward linkage effects are the compelling reasons propelling various economies to set up

domestic plants to satisfy the local demand. Economists have estimated that for every

additional one lakh rupees output (2002-03 prices) in the Iron, Steel and Ferro alloys

sector, an additional 1.3 man years of employment are created.

With capital investments of over Rs 100, 000 crores, the Indian steel industry currently

provides direct/indirect employment to over 2 million people. As India moves ahead in the

new millennium, the steel industry will play a critical role in transforming India into an

economic superpower.

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/green field steel plants have also come up in different parts of the country based on

modern, cost effective, state of-the-art technologies.

At present, total (crude) steel making capacity is over 34 million tones and India, the 8 th

largest producer of steel in the world, has to its credit, the capability to produce a variety of

grades and that too, of international quality standards. As per the ratings of the prestigious

“World Steel Dynamics", Indian HR Products are classified in the Tier II category quality

products – a major reason behind their acceptance in the world market. EU, Japan has

qualified for the top slot, while countries like South Korea, USA share the same class as

India.

11

Chapter 2

Research design

2.1 Introduction:

The formidable problem that follows the tasks of defining the research problem is the

preparation of the design of the research project, popularly known as the “research design”.

Decisions regarding, what, where, how much, by what means concerning an inquiry or

research study constitute a research design.

2.2 Statement of the problem:

Capital structure in steel industry had undergone various changes due to higher cost of raw

material like

1. Coke

2. Iron ore

3. Lime stone

The raised prices from 2000 lead the industry to borrow the debt to maintain the

inventories. The proportional rise in steel prices year 2001-02 made the industry to reduce

debt equity ratio and increased the coverage ratio. This change in the debt equity ratio

made steel industry less benefiting under interest tax shield. The lead higher payment of

tax on there low borrowed debt. Modigliani-Miller approach states that the EPS of the firm

depends on the optimal capital structure. The steel industry due to the rise in the profits

lowered the debt and paying higher taxes. To study various changes affect on the steel

industry EPS on debt equity ratio from 2002 to2006.

Review of literature:

Franco Modigliani and Merton Miller approach (generally referred to as M& M) both the

Nobel laureates in financial economics have a profound influence on the capital structure

theory ever since their seminal paper. In their 1963 article, MM show that the value of the

firm will increase with increase with debt due to the deductibility of interest charges for tax

computation, and the value of the firm will be higher than the unlevered firm.

12

2.3 Objectives of the study:

1. To examine the debt equity and EPS trend from 2001-02 to 2005-06 in the steel

sector.

2. To analyze the impact of Debt-Equity structure on EPS.

3. To analyze the correlation between the long existence of the company and EPS

2.4 Scope of the study:

To bring into light impact created on the EPS by debt equity ratio on the steel industries.

To find out the trend in the steel sector affected Debt equity on EPS.

To examine Modigliani-Miller approach had created any impact on levered and unlevered

steel companies by effecting on EPS.

2.5 Operational definitions:

The study has divided in to two sections:

1. Debt Equity on EPS

2. Interest Coverage ratio on EPS.

In Debt Equity on EPS there are three sections:

1. When “r” value between the EPS and Debt Equity is 0, it is understood that

EPS has absolutely no dependence on the Debt Equity structure of the firm.

They are termed as ‘structured’ companies.

2. When the “r” value is greater than 0.5, it is taken as high dependence on EPS on

the Debt Equity structure. These companies are termed as ‘Dependent’.

3. EPS is said to have nominal dependence on the Debt Equity structure of the

firm, when “r” value ranges from 0 to 0.5. They are termed as ‘slightly

Dependent’ companies.

The correlation above reflects a measure of historical alignment of Debt Equity of a

company with that EPS.

13

Estimation issue:

In setting up the regression describes with respect of the length of the estimation period,

the return interval and the choice of the Debt Equity. A longer period provides more data

and provides less risk over the period.

Future the samples are classified between regression coefficients between the

coverage ratio and EPS. They are:

1. Highly correlated.

2. Correlated.

3. Independent.

Classification was made on the basis of age of the sample companies. Companies in the

age group of 1-10 are termed as ‘Infants’. 10-20 years are named as ‘Toddlers’. And above

20years are called ‘Adults’.

The highly correlated >0.5 indicates that 50% chance of the relation between the interest

coverage and Debt Equity on EPS.

If the correlation is < 0.5 to 0 indicates that <50% and more than the 0% chance of the

relation between the interest coverage and Debt Equity on EPS.

If its <0 the relation moves in the opposite direction to there interest coverage and Debt

Equity on EPS.

2.6 Methodology:

The study is undertaken as a cluster sampling study. 29 companies operating in

steel industry both Large/Medium are selected. Information of capital structure is

gathered through web sites of these companies. The data gathered for a period of 5

years i.e. 2001-2002 to 2005-2006. The data gathered was analyzed for examining

impact created upon EPS by the Debt-Equity structure. The formula used for

regression calculation is Y= a + bx where “X is the independent factor and “Y is

dependent factor. Therefore X and Y debt equity and EPS of the companies

respectively. Taking b as a constant factor where b = Sxy/Sx^2.The purpose of

calculating the Debt Equity structure of the firm. Future the samples are classified

between regression coefficients between the coverage ratio and EPS. They are:

14

1. Highly correlated.

2. Correlated.

3. Independent.

Classification was made on the basis of age of the sample companies. Companies in

the age group of 1-10 are termed as ‘Infants’. 10-20 years are named as ‘Toddlers’.

And above 20years are called ‘Adults’.

Shown in table are the companies from steel Large/Medium industrial sector and

regression coefficients for Debt – Equity; coverage ratio & EPS. The companies

were classified into structured, Dependent, slightly dependent and independent.

Table shows the basis of classification adopted. The table provides the following:

1. When “r” value between the EPS and Debt Equity is 0, it is understood that

EPS has absolutely no dependence on the Debt Equity structure of the firm.

They are termed as ‘structured’ companies.

2. When the “r” value is greater than 0.5, it is taken as high dependence on

EPS on the Debt Equity structure. These companies are termed as

‘Dependent’.

3. EPS is said to have nominal dependence on the Debt Equity structure of the

firm, when “r” value ranges from 0 to 0.5. They are termed as ‘slightly

Dependent’ companies.

A change in Debt Equity component is said to bring a negative change in the EPS of the

firm when “r” value is less than 0. They are independent companies.

Hypothesis:

H0: “there is significant impact on the change in debt equity on EPS”.

H1: “There is no significant impact on the change in the debt equity on EPS”.

The study indicates that there is no impact on the debt equity on EPS of steel industry. 20

industries of 29 industries showed ther is no impact on Debt Equity on EPS.

15

Sample design:

In the cluster sampling method, population to be divided in to a number of groups, called

clusters. Here Cluster sampling is Large/Medium steel manufacturers. The entire steel

companies of both Large /medium are selected. Total sample size is 29 industries.

Tools and techniques:

Tools used are statistical packages like excel and SPSS.

Techniques: correlation coefficient is used as a technique for calculating of the Debt equity

and EPS. Use the correlation coefficient to determine the relationship between two

properties. For example, you can examine the relationship between a location's average

temperature and the use of air conditioners.

Correlation (X,Y)= {sum( X-avg X)(Y-avgY)}/sqr sum( X-avg X)(Y-avgY)

Data collection is done through the web sites of the companies. The balance sheets are

collected for the period of 5years. The data is analyzed by total debt & equity ratio and

interest coverage ratio.

Plan of analysis:

The balance sheet of the companies is analyzed by collecting the following information:

Debt Equity ratio:

The Debt Equity ratio which indicates the relative contribution of the creditors and the

owners of the firm and calculated by:

Debt/Equity

The components of debt equity ratio will vary depending on the nature of the business and

the patterns of the cash flows. The debt component includes only long term liabilities

including current liabilities and the equity component consist of net worth and the

preference capital. It includes only the preference shares which are not redeemable in one

year. Some time debt means all liabilities – long term and short term.

Coverage ratio:

16

Interest coverage ratio: one measure of firm’s ability to handle financial burdens is the

interest coverage ratio. This ratio tells us how many times the firm can cover or meet the

interest payment associated with debt.

Interest coverage ratio = EBIT/ Interest expense.

EBIT during the financial year and the interest paid during the year are calculated.

The data of the different companies are collected and the correlation coefficient is

calculated accordingly X as a debt equity and Y as an EPS. In coverage ratio as “X” and

EPS as “Y”. The data analyzed by means of correlation coefficient.

2.7 Limitations of the study:

1. The study is under pre tested ratios are used as analysis.

2. The study is only on steel manufacturers. It doesn’t depend on the product they

manufacture like HR coils, CR coils, Ingots, Sheets etc.

3. The study is limited only to Indian steel industry & data collection is limited to 5 years.

4. The data is collected in company’s web sites. if it is not available it is collected in the

Bse India.com. The original data may differ in small extent.

5. The study is restricted to 29 steel industries.

17

Chapter 3

Profile of the industry

Indian Steel industry is almost 100 years old now. Till 1990, the Indian steel industry

operated under a regulated environment with insulated markets and large scale capacities

reserved for the public sector. Production and prices were determined and regulated by the

Government, while SAIL and Tata Steel were the main producers, the latter being the only

private player. In 1990, the Indian steel Industry had a production capacity of 23 MT. 1992

saw the onset of liberalization and the Indian economy was opened to the world. Indian

steel sector also witnessed the entry of several domestic private players and large private

investments flowed into the sector to add fresh capacities.

The last decade saw the Indian steel industry integrating with the global economy and

evolving considerably to adopt world-class production technology to produce high quality

steel. The total investment in the Indian steel since 1990 is over Rs 19,000 crores mostly in

plant equipments, which have been installed after 1990. The steel industry also went

through a turbulent phase between 1997 and 2001 when there was a downturn in the global

steel industry. The progress of the industry in terms of capacity additions, production,

consumption, exports and profitability plateaued off during this phase. But the industry

weathered the storm only to recover in 2002 and is beginning to get back on its feet given

the strong domestic economic growth and revival of demand in global markets.

With a current capacity of 35 MT the Indian Steel Industry is today the 8 th largest producer

of steel in the world. Today, India produces international standard steel of almost all

grades/varieties and has been a net exporter for the past few years, underlining the growing

acceptability of its products in the global market.

Steel is a highly capital intensive industry and cyclical in nature. Its growth is intertwined

with the growth of the economy at large, and in particular the steel consuming industries

18

such as manufacturing, housing and infrastructure. Steel, given its backward and forward

linkages, has a large multiplier effect.

Economists quantify the economic impact of any sector through measures such as the

output multiplier effect, forward and backward effects etc. Based on the Indian input-

output model, the Iron, Steel and Ferro Alloys sector (sector code 72 of CSO Table)

reveals high output multiplier of 2.64 and ranks 4 out of 115 sectors into which the

economy is divided. The output multiplier effect is defined as the total increase in output

generation (in case of sector 72, total increase of 2.64 units including unitary increase of

the sector’s own output) for one unit increases of final demand in the particular sector.

The Forward Linkage refers to the inter relationship between the particular sector and all

other sectors which demand the output of the former as their inputs. In the CSO table of 60

sectors (where all iron and steel sub sectors have been merged to one sector), the Forward

Linkage of the Iron and Steel sector at 4.79 is quite significant (ranks 4 out of 60 sectors

into which the economy is divided). The significant output multiplier effect and the

forward linkage effects are the compelling reasons propelling various economies to set up

domestic plants to satisfy the local demand. Economists have estimated that for every

additional one lakh rupees output (2002-03 prices) in the Iron, Steel and Ferro alloys

sector, an additional 1.3 man years of employment are created.

With capital investments of over Rs 100, 000 crores, the Indian steel industry currently

provides direct/indirect employment to over 2 million people. As India moves ahead in the

new millennium, the steel industry will play a critical role in transforming India into an

economic superpower.

19

Global Scenario

" In 2005 World Crude Steel output at 1129.4 million metric tonne was 5.9% more than the

previous year. (Source: IISI)

“China remained the world's largest Crude Steel producer in 2005 also (349.4 million

metric tonne) followed by Japan (112.47 million metric tons) and USA (93.89 million

metric tons). India occupied the 8th position (38.08 million metric tons). (Source: IISI)

The International Iron & Steel Institute (IISI) in its forecast for 2006 has confirmed the

trend of recent years of an increase in steel use in-line with general economic growth and

with the fastest growth occurring in the countries with the highest GDP growth such as

India and China. Apparent world-wide Steel Demand is forecast to grow to between 1,040

and 1,053 million tonnes in 2006 from a total of 972 million tonnes in 2004. This is a

growth of 4-5% over the two year period. However, according to IISI the cost of raw

materials and energy would continue to represent a major challenge for the world steel

industry.

Market Scenario

After liberalization, there have been no shortages of iron and steel materials in the

country.

Apparent consumption of finished (carbon) steel increased from 14.84 Million

Tonnes in 1991-92 to 46.600 million tonnes (Provissionally estimated) in 2006-07.

Steel industry that was facing a recession for some time has staged a turnaround

since the beginning of 2002.

Efforts are being made to boost demand.

China has been an important export destination for Indian steel.

The steel industry is buoyant due to strong growth in demand particularly by the

demand for steel in China.

20

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 2006-07, production of Finished (Carbon) Steel was 49.350 million

tonnes(Prov).

Production of Pig Iron in 2006-07 was 4.960 Million Tonnes (Prov).

The share of Main Producers (i.e SAIL, RINL and TSL) and secondary producers

in the total production of Finished (Carbon) steel was 35% and 65% respectively

during the period of April-December, 2006 and April-March, 2007.

Last 4 year's production of pig iron and finished (carbon) steel is given below:

(in million tonnes)

Category 2002-03 2003-04 2004-05 2005-06 2006-07 (April-Mar' 07)

(Prov. estimated)

Pig Iron 5.285 3.764 3.228 4.695 4.960

Finished Carbon Steel 33.671 36.957 40.055 44.544 49.350

Table 3.1. Pig iron and finished (carbon) steel production.

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.

Pricing & Distribution

21

Price regulation of iron & steel was abolished on 16.1.1992.

Distribution controls on iron & steel removed except 5 priority sectors, viz.

Defence, Railways, Small Scale Industries Corporations, Exporters of Engineering

Goods and North Eastern Region.

Allocation to priority sectors is made by Ministry of Steel.

Government has no control over prices of iron & steel.

Open market prices are generally on rise.

Price increases of late have taken place mostly in long products than flat products.

Imports of Iron & Steel

Iron & Steel are freely importable as per the extant policy.

Last four years import of Finished (Carbon) Steel is given below:-

Year Qty. (In Million

Tonnes)

2001-2002 1.271

2002-2003 1.510

2003-2004 1.540

2004-2005 2.109

2005-2006 (Prov.) 3.765

2006-07 (Apr-Mar, 2007)

(Prov. estimated)

4.100

TABLE 3.2 imports of Iron & steel

22

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 scheme

was temporarily suspended from 27th March 2004 to 12 July, 2004 for export of

steel items. The Scheme has since been restarted. The DEPB rates have also been

substantially reduced.

Exports of finished carbon steel and pig iron during the last four years and the

current year is as :

(Qty. in Million Tonnes)

Finished (Carbon)

Steel Pig Iron

2002-2003 4.506 0.629

2003-2004 4.835 0.518

2004-2005 4.381 0.393

2005-2006 (Prove) 4.350 0.300

2006-2007(April-Mar 07)

(Prov.estimated) 4.750 0.350

Duties & Levies on Iron & Steel

Customs Duty

23

- Peak rate for non-agricultural products reduced from 15 % to 12.5 %.

- Customs Duty on stainless steel and other alloy steel has been reduced from 10 % to 7.5

%. Duty on non- alloy steel remains unchanged at 5%.

- Duty for ferro alloys reduced from 10% to 7.5%.

- Customs Duty on primary and secondary forms of non-ferrous metals viz. Zinc has been

reduced from 10% to 7.5%.

- Duty on steel melting scrap has been raised to 5%.

- Duty on refractories reduced to 7.5 %. Duty most of the raw material for manufacture of

refractories has also been reduced to 7.5%.

- Duty on ores and concentrates reduced from 5 % to 2 %. In respect of Ministry of Steel

this would mean a reduction in duty of 3% on iron ore, manganese ore and chrome ore.

- The Special Countervailing Duty (CVD) of 4 % to be imposed on all imports with a few

exceptions viz. ships for breaking, coal and coke etc. Full credit to be allowed to

manufacturers of excisable goods.

Service tax:

Service tax rate increased from 10% to 12%.

Direct Taxes:

No change in rates of personal income tax or corporate income tax. No new taxes are also

being imposed.

Levies on Iron & Steel

SDF LEVY- This was a levy started for funding modernisation, expansion and

development of steel sector.

The Fund, inter-alia, supports :

1) Capital expenditure for modernisation, rehabilitation, diversification, renewal &

replacement of Integrated Steel Plants.

24

2) Research & Development

3) Rebates to SSI Corporations

4) Expenditure on ERU of JPC

SDF levy was abolished on 21.4.94

Cabinet decided that corpus could be recycled for loans to Main producers

Interest on loans to Main Producers is set aside for promotion of R&D on steel etc.

An Empowered Committee has been set up to guide the R&D effort in this sector.

EGEAF – Was a levy started for reimbursing the price differential cost of inputs

used for engineering exporters. Fund was discontinued on 19.2.96.

Opportunities for growth of Iron and Steel in Private Sector

The New Industrial Policy Regime

The New Industrial policy has opened up the iron and steel sector for private investment by

(a) removing it from the list of industries reserved for public sector and (b) exempting 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. Ministry of

Steel plays the role of facilitator, providing broad directions and assistance to new and

existing steel plants, in the liberalized scenario.

The Growth Profile

(i) Steel

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/green field steel plants have also come up in different parts of the country based on

modern, cost effective, state of-the-art technologies.

25

At present, total (crude) steel making capacity is over 34 million tonnes and India, the 8 th

largest producer of steel in the world, has to its credit, the capability to produce a variety of

grades and that too, of international quality standards. As per the ratings of the prestigious

" World Steel Dynamics", Indian HR Products are classified in the Tier II category quality

products – a major reason behind their acceptance in the world market. EU, Japan have

qualified for the top slot, while countries like South Korea, USA share the same class as

India.

(ii) Pig Iron

In pig iron also, the growth has been substantial. Prior to 1991, there was only one unit in

the secondary sector. Post liberalization, the AIFIs has sanctioned 21 new projects with a

total capacity of approx 3.9 million tonnes. Of these, 16 units have already been

commissioned. The production of pig iron has also increased from 1.6 million tonnes in

1991-92 to 5.28 million tonnes in 2002-03. During the year 2003-04, the production of Pig

Iron was 5.221 million tones.

26

Chapter 4

Analysis of capital structure trend in the Indian steel sector.

The volume of dependence of EPS on the Debt Equity structure of the companies, all the

29 are grouped into 4 categories as shown in the table viz., Saturated, Dependent, Slightly

dependent and Independent.

Saturated category is so named because the EPS has reached the point where a change in

the Debt Equity structure is no way benefit the EPS of the companies. 72.5% of the total

sample falls under this category. Accordingly in this category a change in the debt equity

structure drives the EPS positive. The reason is reduction in debt and increase in owner’s

equity. When ever the owner equity increased there will be the small percentage of

increase EPS. This suggests that companies should have optimal Debt Equity to gain over

interest tax benefit.

The companies under this category are:

1. Bhuwalka Steel Industries

2001 -02 2002-

03

2003-

04

2004-05 2005-

06

Debt-Equity 4.77 5.23 4.61 3.95 3.6

EPS 0 0.73 2.89 3.89 3.87

Correlation = -0.8455779142. Essar steels.

2001 -

02

2002-

03

2003-

04

2004-

05

2005-

06

Debt- 12.06 49.56 10.8 4.41 2.27

27

Equity

EPS 0 0.09 1.18 11.62 9.12

Correlation = - 0605511885

Essar steel

0

10

20

30

40

50

60

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

3. ISPAT Industries

2001 -

02

2002-

03

2003-

04

2004-

05

2005-

06

Debt-

Equity

5.32 6.84 6.62 4.35 3.91

EPS 0 1.21 0.65 10.15 0

Correlation = -0.358974306

4. Jai Corporation

2001 -

02

2002-

03

2003-

04

2004-

05

2005-

06

Debt-

Equity

0.05 0.04 0.03 0.05 0.09

EPS 23.19 19.8 31.97 9.76 8.11


28

Jai Corporation

0

5

10

15

20

25

30

35

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

5. JSW steels

2001 -

02

2002-

03

2003-

04

2004-

05

2005-

06

Debt-Equity

5.6 7.74 4.9 1.85 1.06

EPS 0 0 3.91 43.22 37.02Correlation = -0.921288319

JSW Steel

0

10

20

30

40

50

1 2 3 4 5

DEBT EQUITY

EP

S

Series1 Series2

6. Kamdhenu Ispat

Debt-Equity 0.94 0.71 0.76 0.77 0.65

EPS 1.35 0.92 3 3.21 4.14


29

7. Man Industries (India)

Debt-Equity 2.1 2.04 1.17 1.29 1.13

EPS 1.85 6.52 20.54 9.37 13.35

Correlation =-0.83616

MAN INDUSTRIES

0

5

10

15

20

25

1 2 3 4 5

DebtEquity

EP

S

Series1 Series2

8. Modern steels

2001 -

02

2002-

03

2003-

04

2004-

05

2005-

06

Debt-Equity 3.98 5.69 3.96 1.52 1.21EPS 0 0 12.86 34.22 23.44Correlation = -0.885730591

30

Modern steels

05

10152025303540

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

9. Raipur Alloys& strips

Debt-

Equity

15.58 6.91 1.19 0.96 1.36

EPS 3.39 47..55 20.13 13.44 8.91


10. Ramsarup Industries

Debt-Equity 2.48 3.05 3.45 3.19 1.56EPS 3.33 1.36 6.41 23.77 15.46Correlation = -0.13268

Ramsarup Industries

0

5

10

15

20

25

1 2 3 4 5

debt eqity

EP

S

Series1 Series2

11. Ruchi strips and alloys

Debt-Equity

1.77 1.89 1.45 1.1 1.09

EPS 0 0 0.32 0.78 0Correlation = -0.56052

12. SAIL

Debt-Equity 3.82 5.02 2.86 0.94 0.44EPS 0 0 6.08 16.06 9.44Correlation = -0.87874

31

SAIL

0

5

10

15

20

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

13. Shah alloys

Debt-Equity 2.27 2.15 1.77 1.47 1.67EPS 10.51 23.41 38.45 50.02 19Correlation = -0.77053927

Shah Alloys

0

10

20

30

40

50

60

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

14. Southern Ispat.

Debt-Equity 0.26 0.36 0.31 0.2 0.26

EPS 0 0 1.59 0.38 1.72


32

16. Sunflag Iron & steel company.

Debt-

Equity

1.09 0.93 0.8 0.69 0.73

EPS 0.54 0.41 0.52 2.15 1.85


Sunflag iron & steel company

0

0.5

1

1.5

2

2.5

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

17.Surya Roshni.

Debt-Equity 2.46 2.77 2.57 2.4 2.27

EPS 4.28 3.64 4.56 4.75 6.98


Surya Roshni

012345678

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

33

18. Tata steel.

Debt-

Equity

1.13 1.35 0.99 0.53 0.31

EPS 5.51 26.48 46.02 60.91 61.51


Tata steel

0

10

20

30

40

50

60

70

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

19. Vardhman Industries

Debt-Equity 1.27 1.15 0.87 0.78 1.42

EPS 1.06 4.85 5.99 6.85 5.93


20. Vallabh industries

Debt-Equity 3.93 7.74 7.16 2.11 1.13

EPS 1.45 5.7 5.6 6.24 9.21


21. Welspun Gujarat stahl.

Debt-Equity 2.04 1.93 1.23 1.08 1.51

EPS 0.05 0.11 5.09 3.1 4.51


34

Dependent category is 17.25% of total sample, which are dependence on Debt Equity

structure. The reason for such high dependence is high debt than the owner stake. The debt

equity ratio is steeping up towards optimal capital structure. This category shows as an

advantage over tax benefit.

The companies under this list are:

1. Bhusan steels

Debt-Equity 1.28 1.43 1.57 1.7 2.07

EPS 12.15 13.6 22.31 37.89 37.9

Correlation = 0.889565

Bhusan steel

05

10152025303540

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

2. Maharastra Seamless

Debt-Equity

0.34 0.3 0.41 0.42 0.83

EPS 17.35 20.9 23.1 28.84 47.22Correlation = 0.970062142

35

Maharastra Seamless

0

10

20

30

40

50

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

3. National Steel & Agro Industries.

0.63 0.6 0.66 0.86 0.97

1.63 2.91 3.17 4.4 6.13Correlation = 0.928165

National Steel & Agro Industries

0

1

2

3

4

5

6

7

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

4. Rathi Udyog.

Debt-Equity

0.53 0.69 0.75 1.12 1.95

EPS 1.1 1.98 3.18 6.14 15.65Correlation = 0.996996846

36

5. Tulsyan NEC

Debt-Equity 2.28 2.75 3.23 3.66 3.65EPS 3.18 5.7 5.6 6.24 9.21Correlation = 0.828941832

Tulsyan NEC

0

2

4

6

8

10

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

37

Slightly dependent category holds a share of 10.25% of the total sample. There has

continues decrease in equity component in the capital structure of these companies. This

tendency is unlike what happened in the structure category, the trend to debt components

to equity component is slightly similar to that dependent category. The only difference is

the volume of change in the equity components of both the category the percentage of

change every time is not less than 50% in the slightly dependent category.

1. Jindal steel & power.

2001 -

02

2002-

03

2003-

04

2004-

05

2005-06

Debt-Equity

1.08 1.41 1.33 1.16 1.34

EPS 76.32 95 97.84 165.38 183.92Correlation = 0.116371927

Jindal Steel & Power

0

50

100

150

200

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

2. Kanishk steel Industries.

2001 -

02

2002-

03

2003-

04

2004-

05

2005-06

Debt-Equity

0.42 0.42 0.37 0.25 0.43

EPS 0.35 0.3 1.35 0.84 2.48

38

3.Surana Industries.

Debt-Equity

2.37 2.68 2.67 3.44 3.02

EPS 1.17 2.31 2.56 3.63 14.99Correlation = 0.389289208

Surana Industries

02468

10121416

1 2 3 4 5

Debt Equity

EP

S

Series1 Series2

39

Independent category has 0% of the total sample. The very obvious reason for this

category is the debt equity component is zero. No companies in the steel sector has

debt has zero.

“r” value Saturated

(<0)

Dependent

(>.5)

Slightly

dependent

(0 to <.5)

Independent Total

Number

companies

20 5 4 0 29

Percentage

share

69% 17.25% 13.75% 0 100%

Table 4.1

Categorizing the companies based on their “r” values between the Debt Equity &

EPS

The above analysis shows that dependence category of EPS & Debt Equity structure

mostly results the debt component in the capital structure. The companies in the

dependence category reached the maximum point of debt than other categories.

40

Interest coverage Ratio & EPS effect on Indian steel industry:

Coverage ratio gives the idea of ability to cover the financial charges of the firms with

the help of corporate profits. Financial charges with the help of corporate profits.

Financial charges include components like debt servicing, leasing charges etc. if the

company having high coverage ratio in completely equity financed company. The point

of discussion here to make out the kind of relationship between coverage ratio and EPS

of the companies. The classification of the companies made in the table is the vertical

classification based on regression coefficients calculated between the coverage ratio

and the EPS.

Category Highly

correlated

Correlated Independent Total

“r” values >0.5 0 to <0.5 <0

Number of

companies

26 1 2 29

percentage 90% 2.5% 7.5% 100%

Table 4.2

Categorizing the companies based on their “r” values between the coverage Ratio

and EPS

Highly Correlated:

Bhusan steels

Interest Coverage Ratio

1.7 1.96 2.57 3.09 3.12

EPS 12.15 13.6 22.31 37.89 37.9

Correlation= 0.978458

41

Bhusan Steel

05

10152025303540

1 2 3 4 5

Interest coverage Ratio

EP

S

Series1 Series2

Bhuwalka Steel IndustriesInterest Coverage Ratio

0.99 1.02 1.2 1.35 1.24

EPS 0 0.73 2.89 3.89 3.87

Correlation= 0.964580197

Bhuwalka Steel Industries

0

1

2

3

4

5

1 2 3 4 5

Interest Coverge Ratio

EP

S

Series1 Series2

42

Essar SteelsInterest Coverage Ratio

-0.99 0.99 1.31 2.65 1.9

EPS 0 0.09 1.18 11.62 9.12


-2

0

2

4

6

8

10

12

14

1 2 3 4 5

Interest Coverage Ratio EPS

ISPAT IndustriesInterest Coverage Ratio

-0.49 0.74 1.17 1.77 -0.22

EPS 0 1.21 0.65 10.15 0


-2

0

2

4

6

8

10

12

1 2 3 4 5


43

Jai Corporation

0.918933095

Interest Coverage 52 44.6 62.28 22.09 -8.95

EPS 23.19 19.8 31.97 9.76 8.11

-20

-10

0

10

20

30

40

50

60

70

1 2 3 4 5


Jindal Steel & PowerInterest Coverage Ratio 0 2.49 4.5 7.24 3.86EPS 76.32 95 97.84 165.38 183.92Correlation = 0.682591577

0

20

40

60

80

100

120

140

160

180

200

1 2 3 4 5


JSW steel

44

Interest Coverage Ratio 0.03 0.66 1.73 4.1 4.65EPS 0 0 3.91 43.22 37.02Correlation = 0.953793361

0

5

10

15

20

25

30

35

40

45

50

1 2 3 4 5


Kamdhenu IspatInterest Coverage Ratio 2.17 2.67 6.29 5.46 6.83EPS 1.35 0.92 3 3.21 4.140.953289656

0

1

2

3

4

5

6

7

8

1 2 3 4 5


Man Industries (India)

45

Interest Coverage Ratio 1.28 2.06 8.17 5.26 2.91EPS 1.85 6.52 20.54 9.37 13.350.864527881

0

5

10

15

20

25

1 2 3 4 5


Modern SteelsInterest Coverage Ratio 0.9 0.08 3.84 4.4 3.21EPS 0 0 12.86 34.22 23.44Correlation = 0.883975699

0

5

10

15

20

25

30

35

40

1 2 3 4 5


MukandInterest Coverage Ratio 0.44 0.15 1.28 1.11 1.58

46

EPS 0 0 1.77 25.4 15.14Correlation = 0.580644107

National Steel & Agro IndustriesInterest Coverage Ratio 1.73 2.19 2.73 3.09 2.86EPS 1.63 2.91 3.17 4.4 6.13Correlation = 0.80187938

0

1

2

3

4

5

6

7

1 2 3 4 5


Ramsarup Industries

Interest Coverage Ratio 1.32 1.22 1.57 2.28 2.96

EPS 3.33 1.36 6.41 23.77 15.46


Rathi Udyog


EPS 1.1 1.98 3.18 6.14 15.65


Ruchi Strips and Alloys


EPS 0 0 0.32 0.78 0


47

0

0.5

1

1.5

2

2.5

1 2 3 4 5


SAILInterest Coverage Ratio -0.49 0.67 3.75 15.63 13.3EPS 0 0 6.08 16.06 9.44Correlation = 0.952057488

-2

0

2

4

6

8

10

12

14

16

18

1 2 3 4 5


Shah AlloysInterest Coverage Ratio 1.89 2.18 2.86 2.67 2.58EPS 10.51 23.41 38.45 50.02 19Correlation = 0.763573307Surana IndustriesInterest Coverage Ratio 1.36 1.34 1.54 1.71 2.04EPS 1.17 2.31 2.56 3.63 14.99Correlation = 0.913013537

48

Sunflag Iron and Steel CompanyInterest Coverage Ratio 1.321 1.26 1.45 3.27 5.65EPS 0.54 0.41 0.52 2.15 1.85Correlation = 0.832772226

0

1

2

3

4

5

6

1 2 3 4 5


Surya RoshniInterest Coverage Ratio 1.36 1.34 1.54 1.71 2.04EPS 4.28 3.64 4.56 4.75 6.98Correlation = 0.951935523

0

1

2

3

4

5

6

7

8

1 2 3 4 5


49

Tata steelInterest Coverage Ratio

2.06 5.28 12.74 24.15 32.11

EPS 5.51 26.48 46.02 60.91 61.51Correlation= 0.921938615

0

10

20

30

40

50

60

70

1 2 3 4 5


Tulsyan NECInterest Coverage Ratio 1.48 1.56 1.5 1.63 1.76EPS 3.18 5.7 5.6 6.24 9.21Correlation = 0.930749819

Vardhman IndustriesInterest Coverage Ratio 1.49 3.06 3.3 4.487 3.72EPS 1.06 4.85 5.99 6.85 5.930.965505203

50

Welspun Gujarat Stahl RohInterest Coverage Ratio 1.07 1.03 4.74 2.59 1.51EPS 0.05 0.11 5.09 3.1 4.51Correlation = 0.738428231

Correlated:

51

The companies in which EPS and coverage Ratio slightly correlated i.e. the interest paid on debt are comparatively less. The companies are:

Vallabh SteelsInterest Coverage Ratio 1.51 4.33 5.84 4.26 2.91EPS 1.45 5.7 5.6 6.24 9.21Correlation =0.3670254

0

1

2

3

4

5

6

7

8

9

10

1 2 3 4 5


Independent:These are the companies which doesn’t have any influence on EPS on interest coverage ratio.Maharashtra Seamless Interest Coverage Ratio

46.77 60.26 54.34 34.13 43.83

EPS 17.35 20.9 23.1 28.84 47.22Correlation = -0.416955602

0

10

20

30

40

50

60

70

1 2 3 4 5


Southern Ispat

52

Interest Coverage Ratio 0.58 -0.92 6.94 65.18 14.87EPS 0 0 1.59 0.38 1.72Correlation = -0.027419953

-10

0

10

20

30

40

50

60

70

1 2 3 4 5


Chapter 5

53

Summary of findings, Conclusion Recommendation

Summary of Findings:

The steel industry has undergone a drastic change in the capital structure during 2000-

2006. The changes are due to the high demand for steel both at the global and domestic

arena. This brought changes in the debt equity ratio and capital structure of the firm. The

changes in the capital structure helped to recover the long term debt at higher rate. The

EPS has been raised further showing significance increase e.g. Tata steel EPS was Rs 5.51

in 2001-2002, raised to Rs with a change of 122%. The higher rise in the EPS made the

companies to rethink about capital structure. Given below are some companies having

higher change in EPS from 2001-02 to 2005-06.

Steel sector average growth rate from 2001-02 to 2005-06

Company Name 2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

Average

Growth

Rate in Rs.

Bhusan steels 12.15 13.6 22.31 37.89 37.9 22.11850219

Jai Corporation 23.19 19.8 31.97 9.76 8.11 16.33186756

Jindal Steel & Power 76.32 95 97.84 165.38 183.92 116.6267226

Kamdhenu Ispat 1.35 0.92 3 3.21 4.14 2.182476845

Kanishk Steel Industries 0.35 0.3 1.35 0.84 2.48 0.783521299

Maharashtra Seamless 17.35 20.9 23.1 28.84 47.22 25.78907688

Man Industries (India) 1.85 6.52 20.54 9.37 13.35 7.911304928

National Steel & Agro

Industries

1.63 2.91 3.17 4.4 6.13 3.323614166

Raipur Alloys and Steel 3.39 47..55 20.13 13.44 8.91 9.507801617

Ramsarup Industries 3.33 1.36 6.41 23.77 15.46 6.391693903

Rathi Udyog 1.1 1.98 3.18 6.14 15.65 3.669725179

Ratnamani Metals 2.95 3.09 4.38 14.44 36.92 7.338658834

54

Shah Alloys 10.51 23.41 38.45 50.02 19 24.59005796

Surana Industries 1.17 2.31 2.56 3.63 14.99 3.274531805

Sunflag Iron and Steel

Company

0.54 0.41 0.52 2.15 1.85 0.855378302

Surya Roshni 4.28 3.64 4.56 4.75 6.98 4.725108719

Tata steel 5.51 26.48 46.02 60.91 61.51 30.2085656

Tulsyan NEC 3.18 5.7 5.6 6.24 9.21 5.66482952

Vardhman Industries 1.06 4.85 5.99 6.85 5.93 4.16335974

Vallabh Steels 1.45 5.7 5.6 6.24 9.21 4.841445205

Welspun Gujarat Stahl Roh 0.05 0.11 5.09 3.1 4.51 0.828941231

Average growth in EPS from 2002-06 Table 5.1

Among the top 5 average growth steel companies, Jindal steel & power had obtained

highest average growth rate of Rs.116.63 followed by Tata steels of Rs 30.2 and Shah

Alloys Rs 24.60, Maharashtra Seamless Rs 25.78, Bhusan steels Rs 22.12, & Jai

corporation Rs 16.33.

They can be segmented accordingly:

Category Slightly dependent Dependent

category

Saturated category

Company name 1.Jindal steel &

power

1. Bhusan steels

2.Maharashtra

seamless

1.Tata steels

2. Shah Alloys

3. Jai Corporation

% in the

following

category

25% 40% 15%

Table 5.2

The table 5.2 clearly shows that the Dependent category has higher percentage of the in

EPS growth. This means the change in debt accordingly to EPS had greater return has

compared to saturated category.

55

According to Modigliani-Miller approach corporate income tax exists, and interest paid to

debt holders is treated as a deductible expense. Thus, interest payable by the firm saves

taxes. This is an advantage in debt financing. Modigliani-Miller approach states that the

value of firm will increase the debt due to the deductibility of interest charges for tax

computation, and the value of the levered firm will be higher than of the unlevered firm.

The trend in Indian steel sector clearly indicates that the companies are more interested in

covering debt. This shows a rise in equity. The disadvantage for these companies is the

benefit on interest paid to debt holders which is treated as a deductible expense on before

corporate tax @ 33.7%. Out of 29 companies 20 showed a reduction in debt with the

increasing Net sales. The industry showed 15% good return in EPS growth in the

saturated category.

In the slightly dependent category companies have maintained the minimum requirement

of debt towards equity. They have obtained minimum growth in EPS and benefited very

little in interest on corporate tax @ 33.7%. In slightly dependent category 25% of

companies benefited in EPS growth.

The companies in dependent category show change in debt in proportion to rise in Net

sales. The increase in debt according to profits made this category companies had more

benefit on interest on corporate tax.

The classifications are made in according to the age of the companies. They are grouped

into three categories:

1. Infant Company implies is less than 10 years.

2. Toddler’s Company implies between 10 to 20 years.

3. Adults Company implies above 20 years.

Referring the table 4.2, it is observed that there is a high correlation in EPS & interest

coverage ratio in 26 companies out of 29. They belong to Infant & Adult categories. This

shows that companies are more interested in clearing the debt with rise in Net sales.

56

In independent category Maharashtra Seamless has highest average growth in EPS,

because Maharashtra Seamless showed the negative impact on EPS and interest coverage

ratio & positively impacted on EPS & debt equity ratio. This helped Maharashtra Seamless

manage the debt equity and EPS according to change in Net sales.

Conclusion

57

1. For the past 5 years, most of the companies in steel sector had undergone

downward sloping trend in the use of debt in the capital structure. The 20

companies in the saturated category decreased their debt in rising Net sales. In the

dependent category 5 of 29 companies had undergone increase in debt according to

the rise Net sales .In slightly depended category there are 4 out of 29 steel

companies which shows increase in debt. This indicates a moderate change in the

debt to equity. These shows that steel industry trend to reduce their debt by

increasing Net sales.

2. The impact on the Indian steel industry clearly shows that companies are paying

more corporate taxes in reducing there debt to equity ratio. Their lead to reduction

in EPS. The companies are more conscious about covering their debt. This clearly

indicates that Indian steel industry lacks expansion in production capacity.

3. There is no change in the interest coverage ratio & EPS relation in long existence

companies (Adults) like Tata steels, ISPAT steels, & SAIL etc. The over all

industry had showed that higher coverage ratio in term EPS. This indicate

companies are reducing there long term debt with rising earnings. There same

impacted created in all categories according to age classification.

Most of the Indian steel companies are varying its debt equity from time to time. The turn

over in the industry lead to reduce in debt and where by increase the reserves. Some of the

companies had under gone rapid growth in financial year 2006-07. Tata steel had acquired

Corus a European based steel company with production capacity of 36 MT. the reason for

acquisition is the rise in the prices to lead to build high reserves. The total deal of Corus

steel stood at $12.3 billion. This helped the company to have higher leverage which is an

advantage when comes to corporate Taxes.

Therefore it can be concluded from the above facts that most of the Indian steel industries

choose to remain with as low debt component sector in their capital structure. Some of the

58

major factors that contributed to this tendency are sound generation internal recourses like

iron ore reserves, which has increased efficiency of capital market, global benchmarking of

capital structures and high interest in Indian scenario.

There is a mixed response among companies using debt for the past 5 years. This mixed

response may not suggest an ideal debt equity ratio for the Indian steel sector.

A high coverage ratio will have impact on the EPS but the companies should make an

efficient use of debt for the maximum benefit of the shareholders.

Recommendations

59

1. . Due to the high demand in the steel for the past 5 years the capital structure in

steel industry had reduced from maximum 7 to 1 ratio. The industry need to

have certain amount of Debt Equity ratio which will reduce the interest on

corporate tax benefit.

2. The steel industries need to expand there capacity to take advantage of rising

demand for steel in domestic & international markets. The companies can

borrow the funds, both in international & domestic market to meet the existing

demand by increasing production capacity.

3. The steel companies having lower debt equity ratio should undergo mergers

and acquisitions with high debt ratio firms. This can have change in capital

structure and have benefits under sec 72A.

4. The steel companies are less productive in utilizing resources. Latest

technologies like corex are used for updating technology there by benefiting the

rise of debt and tax reduction by paying interest to the borrowed debt.

5. The steel industries in India have shortage in resources like coke. There is an

impact on the production due to shortage in supply of coke. The steel

companies have to acquire mining companies to maintain the demand. This

makes the companies borrow the capital and maintain proper debt equity ratio.

Bibliography

60

1. I M Pandey “Financial Management” 9th Edition, VIKAS PUBLISHING HOUSE

PVT LTD.

2. Rajesh Kothari & Bobby Dutta “Contemporary Financial Management” 1st edition,

MACMILLIAN INDIA LTD.

3. R S N PILLAI, BAGAVATHI “Management Accounting” 3rd revised edition,

S.CHAND & COMPANY LTD.

4. The Management Accounting, student edition January 2007, ICWAI , reference Dr

Ranachandra Gowda, Dr V V Subrahamanya Sarma on capital structure trends in

Informatics sector.

5. Prasanna Chandra, Tata Mc Grawel publication.

Annexure

61

1. Bhusan steels 0.889564956 0.9784582. Bhuwalka Steel Industries -0.845577914 0.964580197

3. Essar Steels -0.605511885 0.792931522

4. ISPAT Industries -0.358974306 0.757412738

5. Jai Corporation -0.776267118 0.918933095

6. Jindal Steel & Power 0.991853517 0.682591577

7. JSW steel -0.921288319 0.953793361

8. Kamdhenu Ispat -0.19522044 0.953289656

9. Kanishk Steel Industries 0.140165001 0.999511885

10. Man Industries (India) 0.864527881

11. Maharashtra Seamless 0.970062142 -0.416955602

12. Modern Steels -0.885730591 0.883975699

13. Mukand -0.429482116 0.580644107

14. National Steel & Agro Industries

0.928165 0.80187938

15. Raipur Alloys and Steel -0.76429 0.5469325016. Ramsarup Industries -0.13268 0.794942537

17. Rathi Udyog 0.996996846 0.901336542

18. Ruchi Strips and Alloys -0.560522201 0.826180608

19. SAIL -0.878743127 0.952057488

20. Shah Alloys -0.77053927 0.763573307

21. Southern Ispat -0.047370578 -0.027419953

22. Sunflag Iron and Steel -0.767986797 0.832772226

62

Company

23. Surana Industries 0.389289208 0.913013537

24. Surya Roshni -0.842083925 0.951935523

25. Tata steel -0.819162079 0.921938615

26. Tulsyan NEC 0.828941832 0.930749819

27. Vardhman Industries -0.489470891 0.965505203

28. Vallabh Steels 0.502799874 0.3670254

29. Welspun Gujarat Stahl Roh -0.821474944 0.738428231A- 1.1 Correlation coefficient between EPS on Debt Equity & coverage

ratio.

Company Name 2002 2003 2004 2005 2006

Bhusan steels 12.15 13.60 22.31 37.89 37.9

63

Bhuwalka Steel Industries 0.00 0.73 2.89 3.89 3.87

Essar Steels 0.00 0.09 1.18 11.62 9.12

ISPAT Industries 0.00 1.21 0.65 10.15 0.00

Jai Corporation 23.19 19.80 31.97 9.76

8.11

Jindal Steel & Power 76.32 95.00 97.84 165.38 183.92

JSW steel 0.00 0.00 3.91 43.22 37.02

Kamdhenu Ispat 1.35 0.92 3.00 3.21

4.14

Kanishk Steel Industries 0.35 0.30 1.35 0.84 2.48

Lioyd steel

0.00

0.00

0.00

6.43

0.00

Maharashtra Seamless 17.35 20.90 23.10 28.84 47.22

Man Industries (India) 1.85 6.52 20.54 9.37 13.35

Modern Steels 0.00 0.00 12.86 34.22 23.44

Mukand 0.00 0.00 1.77 25.40 15.14

National Steel & Agro Industries 1.63 2.91 3.17 4.40 6.13

Panchmahal Steels 0.00 3.70 0.00 0.00 19.87

Pennar Industries 0.00 0.00 0.00 0.00 3.74

Raipur Alloys and Steel 3.39 47..55 20.13 13.44 8.91

Ramsarup Industries 3.33 1.36 6.41 23.77 15.46

Rathi Udyog 1.10 1.98 3.18 6.14 15.65

Ratnamani Metals

2.95

3.09

4.38

14.44

3

6.92

Ruchi Strips and Alloys 0.00 0.00 0.32 0.78 0.00

SAIL 0.00 0.00 6.08 16.06 9.44

Shah Alloys 10.51 23.41 38.45 50.02 19.00

Shree Precoated Steels 0.00 39.79 7.32 5.80 2.01

64

Southern Ispat 0.00 0.00 1.59 0.38 1.72

Steel Exchange of India 0.09 0.00 0.90 4.76 2.57

Steelco Gujarat 2.98 0.00 2.43 1.57 0.45

Surana Industries 1.17 2.31 2.56 3.63 14.99

Sunflag Iron and Steel Company 0.54 0.41 0.52 2.15 1.85

Surya Roshni 4.28 3.64 4.56 4.75 6.98

Tata steel 5.51 26.48 46.02 60.91 61.51

Tulsyan NEC 3.18 5.70 5.60 6.24 9.21

Vardhman Industries 1.06 4.85 5.99 6.85 5.93

Vallabh Steels 1.45 5.70 5.60 6.24 9.21

Welspun Gujarat Stahl Roh 0.05 0.11 5.09 3.10 4.51

Zenith Birla India

0.00

0.00

0.00

0.00

6.55

A 1.2

Earning Per Share of steel companies from 2002 to 2006.

Bhusan steels 71.29 66.49 66.22 79.39 75.38Bhuwalka Steel Industries 15.44 12.78 11.63 10.42 9.64

65

Essar Steels 961.84 310.87 524.04 565.80 558.07ISPAT Industries 390.47 344.79 355.69 643.89 985.07Jai Corporation 0.45 0.43 0.32 0.56 1.00Jindal Steel & Power 59.99 82.95 83.01 85.63 102.24JSW steel 444.35 563.45 409.28 474.70 365.01Kamdhenu Ispat 0.24 0.24 0.34 0.59 0.69Kanishk Steel Industries 0.70 0.91 0.67 1.10 1.35Lioyd steel 88.32 119.70 20.74 25.89 42.36Maharashtra Seamless 1.57 1.36 1.97 3.81 4.83Man Industries (India) 13.05 14.66 8.28 6.79 26.83Modern Steels 6.08 4.99 3.60 7.75 7.78Mukand 199.07 184.17 166.71 114.16 145.63National Steel & Agro Industries

10.63 9.72 9.12 11.43 17.83

Panchmahal Steels 8.09 6.63 8.29 8.38 5.52Pennar Industries 21.53 7.40 22.10 24.99 16.13Raipur Alloys and Steel 0.53 0.31 0.54 2.69 3.18Ramsarup Industries 6.79 11.73 10.21 16.43 19.84Rathi Udyog 0.95 1.15 1.21 1.23 2.70Ratnamani Metals 2.31 2.30 2.95 4.39 9.80Ruchi Strips and Alloys 3.84 2.80 2.57 3.17 3.49SAIL 1,588.27 1,381.79 955.45 651.98 467.76Shah Alloys 15.77 22.43 21.18 29.81 30.53Shree Precoated Steels 62.65 10.39 15.57 23.15 32.16Southern Ispat 0.12 0.12 0.17 0.11 0.23Steel Exchange of India 0.02 0.00 2.04 3.29 6.46Steelco Gujarat 22.39 13.86 16.76 12.04 23.78Surana Industries 5.46 6.44 9.13 8.02 9.78Sunflag Iron and Steel Company

29.53 26.85 21.97 21.47 10.89

Surya Roshni 38.95 35.73 27.05 24.56 27.67Tata steel 403.15 342.41 227.12 228.80 168.44Tulsyan NEC 5.54 5.10 6.16 7.15 7.97Vardhman Industries 3.29 2.57 2.32 1.82 2.62Vallabh Steels 1.48 0.95 0.93 1.68 3.61Welspun Gujarat Stahl 42.76 38.95 29.99 31.57 53.03

A 1.3 Interest paid by steel companies in Year 2002 to 2006

Balance Sheet ------------------- in Rs. Cr. -------------------

Mar '02 Mar '03 Mar '04 Mar '05 Mar '06

66

12 mths 12 mths 12 mths 12 mths 12 mths

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 424.08 462.48 548.21 690.12 848.40

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Networth 457.12 502.95 588.68 730.59 889.67

Secured Loans 534.82 644.47 788.11 1,089.79 1,650.91

Unsecured Loans 59.71 133.35 142.50 227.68 385.27

Total Debt 594.53 777.82 930.61 1,317.47 2,036.18

Total Liabilities 1,051.65 1,280.77 1,519.29 2,048.06 2,925.85

A 1.4 Bhushan Steel and Strips




Sources Of Funds

Total Share Capital 5.19 5.47 5.47 5.47 5.47

Equity Share Capital 5.19 5.19 5.19 0.00 0.00


Reserves 11.08 11.46 12.35 14.38 15.61


Networth 16.27 16.93 17.82 19.85 21.08

Secured Loans 89.04 83.23 75.22 71.69 63.71

Unsecured Loans 0.64 0.74 0.87 0.98 11.12

Total Debt 89.68 83.97 76.09 72.67 74.83

Total Liabilities 105.95 100.90 93.91 92.52 95.91

A 1.5 Bhuwalka Steel Industries


Sep '02 Mar '03 Mar '04 Mar '05 Mar '06

Total Share Capital 330.35 330.35 507.97 1,004.98 2,785.29


Preference Share Capital 0.00 0.00 0.00 497.00 2,204.12

Reserves -543.64 96.87 86.59 686.54 1,246.18

67


Networth -213.21 427.30 594.63 1,691.59 4,031.47

Secured Loans 3,015.68 4,062.76 4,455.25 4,109.33 7,534.64

Unsecured Loans 1,843.91 1,679.27 835.38 684.27 650.46

Total Debt 4,859.59 5,742.03 5,290.63 4,793.60 8,185.10



A 1.6 Essar SteelBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds

Total Share Capital 981.75 981.75 981.76 1,136.90 2,288.70

Equity Share Capital 685.76 685.76 685.77 685.80 1,218.38

Preference Share Capital 295.99 295.99 295.99 451.10 1,070.32

Reserves -77.69 5.14 49.47 745.56 -567.38


Networth 1,342.96 1,395.85 1,416.13 2,238.90 2,049.81

Secured Loans 5,763.09 5,871.24 6,236.02 5,699.24 8,241.06

Unsecured Loans 657.54 646.61 615.01 132.99 20.03

Total Debt 6,420.63 6,517.85 6,851.03 5,832.23 8,261.09


A 1.7 Ispat Industries







Reserves 198.86 215.53 243.40 251.67 258.64


Networth 208.12 224.16 252.03 260.30 267.27

Secured Loans 4.16 3.79 0.56 13.50 6.16

68

Unsecured Loans 5.19 4.43 3.63 8.98 18.96

Total Debt 9.35 8.22 4.19 22.48 25.12


A 1.8 Jai CorporationBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds

Total Share Capital 1,351.99 1,352.03 1,631.08 469.13 497.06

Equity Share Capital 1,351.99 1,352.03 1,352.05 190.10 218.03


Reserves -549.91 -660.58 -131.90 2,680.59 3,859.16


Networth 802.08 691.45 1,499.18 3,149.72 4,356.22

Secured Loans 5,168.16 5,405.00 4,647.17 3,836.41 4,058.71

Unsecured Loans 444.15 535.64 139.86 0.00 37.34

Total Debt 5,612.31 5,940.64 4,787.03 3,836.41 4,096.05


A 1.9 JSW SteelBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds




Reserves 12.47 12.76 15.57 18.26 22.25


Networth 22.09 22.38 25.81 36.50 40.68

Secured Loans 9.30 9.36 8.49 7.36 25.61

Unsecured Loans 0.00 0.00 0.00 0.00 0.00

Total Debt 9.30 9.36 8.49 7.36 25.61


A 1.10 Kanishk Steel Industries

69




Sources Of Funds




Reserves 23.76 24.65 59.72 74.07 248.58


Networth 42.67 43.56 78.63 93.08 274.32

Secured Loans 90.91 61.28 56.01 154.73 248.56

Unsecured Loans 1.26 22.38 2.86 8.09 2.40

Total Debt 92.17 83.66 58.87 162.82 250.96


A 1.11 Man Industries (India)Balance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds




Reserves 201.26 43.12 44.08 228.86 441.55


Networth 471.44 309.66 359.24 543.51 646.93

Secured Loans 1,118.86 1,250.81 1,197.81 878.41 909.59

Unsecured Loans 90.76 99.23 68.25 226.58 217.12

Total Debt 1,209.62 1,350.04 1,266.06 1,104.99 1,126.71


A 1.12 MukandBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds

70




Reserves 122.39 159.94 215.27 283.99 385.09


Networth 151.21 203.17 244.09 312.81 413.91

Secured Loans 6.46 9.62 17.29 35.27 38.11

Unsecured Loans 41.51 48.75 109.85 73.14 454.85

Total Debt 47.97 58.37 127.14 108.41 492.96


A 1.13 Maharashtra SeamlessBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds




Reserves 80.22 89.71 100.06 114.40 134.40


Networth 112.82 134.18 187.67 202.01 222.01

Secured Loans 74.46 74.73 138.52 185.77 182.29

Unsecured Loans 0.00 0.00 0.00 10.00 35.00

Total Debt 74.46 74.73 138.52 195.77 217.29


A 1.14 National Steel & Agro IndustriesBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds




Reserves -6.48 9.29 34.13 47.79 56.83

71


Networth 0.06 15.83 47.21 60.87 69.91

Secured Loans 63.79 38.16 29.03 56.55 86.43

Unsecured Loans 1.27 6.58 1.26 17.36 17.05

Total Debt 65.06 44.74 30.29 73.91 103.48


A 1.15 Raipur Alloys and SteelBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds




Reserves 4.36 4.36 5.12 6.96 6.97


Networth 21.16 21.16 28.92 30.76 30.77

Secured Loans 35.87 32.49 32.01 31.30 33.18

Unsecured Loans 4.97 6.72 1.29 1.29 1.29

Total Debt 40.84 39.21 33.30 32.59 34.47


A 1.16 Ruchi Strips and AlloysBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds




Reserves 11.75 12.21 13.32 15.27 21.93


Networth 18.29 18.75 19.93 21.88 28.54

Secured Loans 8.17 7.49 9.49 16.93 61.00

Unsecured Loans 3.07 4.37 4.90 11.42 1.37

72

Total Debt 11.24 11.86 14.39 28.35 62.37


A 1.17 Rathi UdyogBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds




Reserves 51.89 70.78 103.03 145.25 169.06


Networth 60.80 79.69 111.94 154.16 186.88

Secured Loans 108.16 110.97 147.04 162.32 304.40

Unsecured Loans 44.19 38.66 42.85 39.49 62.75

Total Debt 152.35 149.63 189.89 201.81 367.15


A 1.18 Shah AlloysBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds

Total Share Capital 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40

Equity Share Capital 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40


Reserves -1,300.65 -1,605.16 907.27 6,176.25 8,471.01


Networth 2,829.75 2,525.24 5,037.67 10,306.65 12,601.41

Secured Loans 7,051.38 5,511.59 3,400.78 1,603.98 1,122.16

Unsecured Loans 6,884.38 7,416.35 5,289.28 4,165.81 3,175.46

Total Debt 13,935.76 12,927.94 8,690.06 5,769.79 4,297.62


A 1.19 Steel Authority of IndiaBalance Sheet ------------------- in Rs. Cr. -------------------

73



Sources Of Funds




Reserves 89.23 92.22 99.98 110.89 128.61


Networth 118.01 119.94 126.66 137.52 155.78

Secured Loans 288.30 265.15 249.79 267.45 289.59

Unsecured Loans 44.26 52.96 58.27 51.92 52.01

Total Debt 332.56 318.11 308.06 319.37 341.60


A 1.20 Surya RoshniBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds




Reserves -0.10 0.02 2.01 2.21 2.57


Networth 4.19 4.65 7.23 7.43 8.44

Secured Loans 0.28 0.02 0.01 0.58 1.78

Unsecured Loans 0.82 2.10 1.56 0.82 0.90

Total Debt 1.10 2.12 1.57 1.40 2.68


A 1.21Southern IspatBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds


74



Reserves 3,077.99 2,816.30 4,146.68 6,506.25 9,201.63


Networth 3,445.96 3,186.02 4,515.86 7,059.92 9,755.30

Secured Loans 4,056.93 3,667.63 3,010.16 2,468.18 2,191.74

Unsecured Loans 648.55 557.98 372.05 271.52 324.41

Total Debt 4,705.48 4,225.61 3,382.21 2,739.70 2,516.15


A 1.22 Tata steelsBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds




Reserves 12.74 14.62 17.45 20.66 25.22


Networth 16.06 17.94 22.42 25.63 30.19

Secured Loans 21.67 20.15 26.68 44.67 83.53

Unsecured Loans 7.10 7.53 7.97 10.38 11.53

Total Debt 28.77 27.68 34.65 55.05 95.06


A 1.30 Vallabh Steels




Sources Of Funds




Reserves 13.38 15.18 17.00 20.33 23.45

75


Networth 18.82 20.58 22.36 25.66 28.75

Secured Loans 50.16 46.86 77.53 81.02 101.01

Unsecured Loans 4.66 4.21 7.54 7.21 6.97

Total Debt 54.82 51.07 85.07 88.23 107.98


A 1.31 Tulsyan NEC

Sources Of Funds




Reserves 10.94 14.79 19.55 24.99 29.70


Networth 18.88 22.73 27.49 32.93 37.64

Secured Loans 22.71 19.25 18.99 23.15 71.69

Unsecured Loans 2.87 2.85 2.68 2.59 2.69

Total Debt 25.58 22.10 21.67 25.74 74.38


A 1.32Vardhman Industries




Sources Of Funds




Reserves 12.74 14.62 17.45 20.66 25.22


Networth 16.06 17.94 22.42 25.63 30.19

Secured Loans 21.67 20.15 26.68 44.67 83.53

Unsecured Loans 7.10 7.53 7.97 10.38 11.53

Total Debt 28.77 27.68 34.65 55.05 95.06

76


A 1.33 Vallabh SteelsBalance Sheet ------------------- in Rs. Cr. -------------------



Sources Of Funds




Reserves 0.10 1.64 74.38 217.21 408.26


Networth 139.38 142.37 215.74 292.85 494.79

Secured Loans 264.60 271.78 157.42 204.04 393.33

Unsecured Loans 2.72 5.59 5.65 180.63 409.37

Total Debt 267.32 277.37 163.07 384.67 802.70

Total Liabilities 406.70 419.74 378.81 677.52 1,297.49

A 1.34 Welspun Gujarat Stahl Roh

77

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