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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.

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• 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

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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.

ke

ko
Fig 1.1

kd

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

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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
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.

Percentage of cost ke

ko

kd

Leverage (B/S)

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

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

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

Cost ke
%

ko

kd

Leverage D/E

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:

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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

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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.
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.

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• 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
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

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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 8th 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

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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.

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 8th
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.

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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:

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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.

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’.

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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.

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

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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:
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:

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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.

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:

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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:
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.

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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.

18
With a current capacity of 35 MT the Indian Steel Industry is today the 8th 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
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

19
new millennium, the steel industry will play a critical role in transforming India into an
economic superpower.

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.

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• 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.

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

21
• 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

• 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) 4.100
(Prov. estimated)

TABLE 3.2 imports of Iron & steel

Exports of Iron & Steel

22
• 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)
Pig Iron
Steel
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)
4.750 0.350
(Prov.estimated)

Duties & Levies on Iron & Steel

Customs Duty

- 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%.

23
- 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.

2) Research & Development

3) Rebates to SSI Corporations

4) Expenditure on ERU of JPC

• SDF levy was abolished on 21.4.94

24
• 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.

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

25
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- 2003- 2004-05 2005-
03 04 06
Debt-Equity 4.77 5.23 4.61 3.95 3.6
EPS 0 0.73 2.89 3.89 3.87

Correlation = -0.845577914
2. Essar steels.
2001 2002- 2003- 2004- 2005-
-02 03 04 05 06
Debt- 12.06 49.56 10.8 4.41 2.27
Equity
EPS 0 0.09 1.18 11.62 9.12
Correlation = - 0605511885

27
Essar steel

60
50
40
EPS

30
20
10
0
1 2 3 4 5
Debt Equity

Series1 Series2

3. ISPAT Industries
2001 2002- 2003- 2004- 2005-
-02 03 04 05 06
Debt- 5.32 6.84 6.62 4.35 3.91
Equity
EPS 0 1.21 0.65 10.15 0
Correlation = -0.358974306
4. Jai Corporation
2001 2002- 2003- 2004- 2005-
-02 03 04 05 06
Debt- 0.05 0.04 0.03 0.05 0.09
Equity
EPS 23.19 19.8 31.97 9.76 8.11
Correlation = -0.776267118

28
Jai Corporation

35
30
25
EPS

20
15
10
5
0
1 2 3 4 5
Debt Equity

Series1 Series2

5. JSW steels
2001 2002- 2003- 2004- 2005-
-02 03 04 05 06
Debt- 5.6 7.74 4.9 1.85 1.06
Equity
EPS 0 0 3.91 43.22 37.02
Correlation = -0.921288319
JSW Steel

50

40

30
EPS

20

10

0
1 2 3 4 5
DEBT EQUITY

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
Correlation = -0.19522

7. Man Industries (India)

29
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

25

20

15
EPS

10

0
1 2 3 4 5
DebtEquity

Series1 Series2

8. Modern steels
2001 2002- 2003- 2004- 2005-
-02 03 04 05 06
Debt-Equity 3.98 5.69 3.96 1.52 1.21
EPS 0 0 12.86 34.22 23.44
Correlation = -0.885730591

Modern steels

40
35
30
25
EPS

20
15
10
5
0
1 2 3 4 5
Debt Equity

Series1 Series2

9. Raipur Alloys& strips

30
Debt- 15.58 6.91 1.19 0.96 1.36
Equity
EPS 3.39 47..55 20.13 13.44 8.91
Correlation = -0.76429

10. Ramsarup Industries


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

Ramsarup Industries

25

20

15
EPS

10

0
1 2 3 4 5
debt eqity

Series1 Series2

11. Ruchi strips and alloys


Debt- 1.77 1.89 1.45 1.1 1.09
Equity
EPS 0 0 0.32 0.78 0
Correlation = -0.56052

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

31
SAIL

20

15
EPS

10

0
1 2 3 4 5
Debt Equity

Series1 Series2

13. Shah alloys


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

60
50
40
EPS

30
20
10
0
1 2 3 4 5
Debt Equity

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
Correlation = -0.04737057

16. Sunflag Iron & steel company.

32
Debt- 1.09 0.93 0.8 0.69 0.73
Equity
EPS 0.54 0.41 0.52 2.15 1.85
Correlation = -0.767986797

Sunflag iron & steel company

2.5

1.5
EPS

0.5

0
1 2 3 4 5
Debt Equity

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
Correlation = -0.842083925

Surya Roshni

8
7
6
5
EPS

4
3
2
1
0
1 2 3 4 5
Debt Equity

Series1 Series2

18. Tata steel.


Debt- 1.13 1.35 0.99 0.53 0.31

33
Equity
EPS 5.51 26.48 46.02 60.91 61.51
Correlation = -0.819162079

Tata steel

70
60
50
40
EPS

30
20
10
0
1 2 3 4 5
Debt Equity

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
Correlation = -0.489470891

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
Correlation = -0.335747157
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
Correlation = -0.821474944
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

34
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

40
35
30
25
EPS

20
15
10
5
0
1 2 3 4 5
Debt Equity

Series1 Series2

2. Maharastra Seamless
Debt- 0.34 0.3 0.41 0.42 0.83
Equity
EPS 17.35 20.9 23.1 28.84 47.22
Correlation = 0.970062142

Maharastra Seamless

50

40

30
EPS

20

10

0
1 2 3 4 5
Debt Equity

Series1 Series2

3. National Steel & Agro Industries.

35
0.63 0.6 0.66 0.86 0.97
1.63 2.91 3.17 4.4 6.13
Correlation = 0.928165

National Steel & Agro Industries

7
6
5
4
EPS

3
2
1
0
1 2 3 4 5
Debt Equity

Series1 Series2

4. Rathi Udyog.
Debt- 0.53 0.69 0.75 1.12 1.95
Equity
EPS 1.1 1.98 3.18 6.14 15.65
Correlation = 0.996996846

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

10

6
EPS

0
1 2 3 4 5
Debt Equity

Series1 Series2

36
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 2002- 2003- 2004- 2005-06
-02 03 04 05
Debt- 1.08 1.41 1.33 1.16 1.34
Equity
EPS 76.32 95 97.84 165.38 183.92
Correlation = 0.116371927

37
Jindal Steel & Power

200

150
EPS

100

50

0
1 2 3 4 5
De bt Equity

Series1 Series2

2. Kanishk steel Industries.


2001 2002- 2003- 2004- 2005-06
-02 03 04 05
Debt- 0.42 0.42 0.37 0.25 0.43
Equity
EPS 0.35 0.3 1.35 0.84 2.48
3.Surana Industries.
Debt- 2.37 2.68 2.67 3.44 3.02
Equity
EPS 1.17 2.31 2.56 3.63 14.99
Correlation = 0.389289208

38
Surana Industries

16
14
12
10
EPS

8
6
4
2
0
1 2 3 4 5
De bt Equity

Series1 Series2

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 Dependent Slightly Independent Total
(<0) (>.5) dependent

39
(0 to <.5)
Number 20 5 4 0 29
companies
Percentage 69% 17.25% 13.75% 0 100%
share

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.

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

40
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 Independent Total


correlated
“r” values >0.5 0 to <0.5 <0
Number of 26 1 2 29
companies
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 1.7 1.96 2.57 3.09 3.12
Ratio
EPS 12.15 13.6 22.31 37.89 37.9
Correlation= 0.978458
Bhusan Steel

40
35
30
25
EPS

20
15
10
5
0
1 2 3 4 5
Interest coverage Ratio

Series1 Series2

Bhuwalka Steel Industries


Interest Coverage 0.99 1.02 1.2 1.35 1.24
Ratio

41
EPS 0 0.73 2.89 3.89 3.87
Correlation= 0.964580197
Bhuwalka Steel Industries

3
EPS

0
1 2 3 4 5
Interest Coverge Ratio

Series1 Series2

Essar Steels
Interest Coverage -0.99 0.99 1.31 2.65 1.9
Ratio
EPS 0 0.09 1.18 11.62 9.12
Correlation = 0.792931522

14

12

10

0
1 2 3 4 5
-2

Interest Coverage Ratio EPS

42
ISPAT Industries
Interest Coverage -0.49 0.74 1.17 1.77 -0.22
Ratio
EPS 0 1.21 0.65 10.15 0
Correlation = 0.757412738

12

10

0
1 2 3 4 5
-2

Interest Coverage Ratio EPS

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
70
60
50
40
30
20
10
0
-10 1 2 3 4 5

-20

Interest Coverage Ratio EPS

Jindal Steel & Power

43
Interest Coverage Ratio 0 2.49 4.5 7.24 3.86
EPS 76.32 95 97.84 165.38 183.92
Correlation = 0.682591577

200
180
160
140
120
100
80
60
40
20
0
1 2 3 4 5

Interest Coverage Ratio EPS

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

50
45
40
35
30
25
20
15
10
5
0
1 2 3 4 5

Interest Coverage Ratio EPS

Kamdhenu Ispat
Interest Coverage Ratio 2.17 2.67 6.29 5.46 6.83

44
EPS 1.35 0.92 3 3.21 4.14
0.953289656

8
7
6
5
4
3
2
1
0
1 2 3 4 5

Interest Coverage Ratio EPS

Man Industries (India)


Interest Coverage Ratio 1.28 2.06 8.17 5.26 2.91
EPS 1.85 6.52 20.54 9.37 13.35
0.864527881

25

20

15

10

0
1 2 3 4 5

Interest Coverage Ratio EPS

Modern Steels
Interest Coverage Ratio 0.9 0.08 3.84 4.4 3.21

45
EPS 0 0 12.86 34.22 23.44
Correlation = 0.883975699

40
35
30
25
20
15
10
5
0
1 2 3 4 5

Interest Coverage Ratio EPS

Mukand
Interest Coverage Ratio 0.44 0.15 1.28 1.11 1.58
EPS 0 0 1.77 25.4 15.14
Correlation = 0.580644107

National Steel & Agro Industries


Interest Coverage Ratio 1.73 2.19 2.73 3.09 2.86
EPS 1.63 2.91 3.17 4.4 6.13
Correlation = 0.80187938
7

0
1 2 3 4 5

Interest Coverage Ratio EPS

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

46
Correlation = 0.794942537
Rathi Udyog
Interest Coverage Ratio 1.95 2.18 2.73 4.75 5.45
EPS 1.1 1.98 3.18 6.14 15.65
Correlation = 0.901336542
Ruchi Strips and Alloys
Interest Coverage Ratio 0.25 1.09 1.461 1.93 1.06
EPS 0 0 0.32 0.78 0
Correlation = 0.826180608

2.5

1.5

0.5

0
1 2 3 4 5

Interest Coverage Ratio EPS

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

47
18
16
14
12
10
8
6
4
2
0
-2 1 2 3 4 5

Interest Coverage Ratio EPS

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

Sunflag Iron and Steel Company


Interest Coverage Ratio 1.321 1.26 1.45 3.27 5.65
EPS 0.54 0.41 0.52 2.15 1.85
Correlation = 0.832772226
6

0
1 2 3 4 5

Interest Coverage Ratio EPS

Surya Roshni
Interest Coverage Ratio 1.36 1.34 1.54 1.71 2.04

48
EPS 4.28 3.64 4.56 4.75 6.98
Correlation = 0.951935523

8
7
6
5
4
3
2
1
0
1 2 3 4 5

Interest Coverage Ratio EPS

Tata steel
Interest Coverage 2.06 5.28 12.74 24.15 32.11
Ratio
EPS 5.51 26.48 46.02 60.91 61.51
Correlation= 0.921938615

70

60

50

40

30

20

10

0
1 2 3 4 5

Interest Coverage Ratio EPS

49
Tulsyan NEC
Interest Coverage Ratio 1.48 1.56 1.5 1.63 1.76
EPS 3.18 5.7 5.6 6.24 9.21
Correlation = 0.930749819

Vardhman Industries
Interest Coverage Ratio 1.49 3.06 3.3 4.487 3.72
EPS 1.06 4.85 5.99 6.85 5.93
0.965505203

Welspun Gujarat Stahl Roh


Interest Coverage Ratio 1.07 1.03 4.74 2.59 1.51
EPS 0.05 0.11 5.09 3.1 4.51
Correlation = 0.738428231

0
1 2 3 4 5

Interest Coverage Ratio EPS

50
Correlated:
The companies in which EPS and coverage Ratio slightly correlated i.e. the interest paid on
debt are comparatively less. The companies are:

Vallabh Steels
Interest Coverage Ratio 1.51 4.33 5.84 4.26 2.91
EPS 1.45 5.7 5.6 6.24 9.21
Correlation =0.3670254
10
9
8
7
6
5
4
3
2
1
0
1 2 3 4 5

Interest Coverage Ratio EPS

Independent:
These are the companies which doesn’t have any influence on EPS on interest coverage
ratio.

51
Maharashtra Seamless
Interest Coverage 46.77 60.26 54.34 34.13 43.83
Ratio
EPS 17.35 20.9 23.1 28.84 47.22
Correlation = -0.416955602

70

60

50

40

30

20

10

0
1 2 3 4 5

Interest Coverage Ratio EPS

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

70

60

50

40

30

20

10

0
1 2 3 4 5
-10

Interest Coverage Ratio EPS

52
Chapter 5

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 2002- 2003 2004- 2005- Average
-02 03 -04 05 06 Growth Rate

53
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 1.63 2.91 3.17 4.4 6.13 3.323614166
Industries
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
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 0.54 0.41 0.52 2.15 1.85 0.855378302
Company
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 Saturated category
category
Company name 1.Jindal steel & 1. Bhusan steels 1.Tata steels
power 2.Maharashtra 2. Shah Alloys
seamless 3. Jai Corporation
% in the 25% 40% 15%

54
following
category
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.
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:

55
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.

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.

56
Conclusion

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

57
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
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.

58
Recommendations

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.

59
Bibliography

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.

60
Annexure

1. Bhusan steels 0.889564956 0.978458


2. 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 0.928165 0.80187938


Industries

15. Raipur Alloys and Steel -0.76429 0.54693250


16. Ramsarup Industries -0.13268 0.794942537

17. Rathi Udyog 0.996996846 0.901336542

18. Ruchi Strips and Alloys -0.560522201 0.826180608

61
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


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 0.738428231


A- 1.1 Correlation coefficient between EPS on Debt Equity & coverage
ratio.

62
Company Name 2002 2003 2004 2005 2006
Bhusan steels 12.15 13.60 22.31 37.89 37.9
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 3
2.95 3.09 4.38 14.44 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
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

63
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.

64
Bhusan steels 71.29 66.49 66.22 79.39 75.38
Bhuwalka Steel Industries 15.44 12.78 11.63 10.42 9.64
Essar Steels 961.84 310.87 524.04 565.80 558.07
ISPAT Industries 390.47 344.79 355.69 643.89 985.07
Jai Corporation 0.45 0.43 0.32 0.56 1.00
Jindal Steel & Power 59.99 82.95 83.01 85.63 102.24
JSW steel 444.35 563.45 409.28 474.70 365.01
Kamdhenu Ispat 0.24 0.24 0.34 0.59 0.69
Kanishk Steel Industries 0.70 0.91 0.67 1.10 1.35
Lioyd steel 88.32 119.70 20.74 25.89 42.36
Maharashtra Seamless 1.57 1.36 1.97 3.81 4.83
Man Industries (India) 13.05 14.66 8.28 6.79 26.83
Modern Steels 6.08 4.99 3.60 7.75 7.78
Mukand 199.07 184.17 166.71 114.16 145.63
National Steel & Agro 10.63 9.72 9.12 11.43 17.83
Industries
Panchmahal Steels 8.09 6.63 8.29 8.38 5.52
Pennar Industries 21.53 7.40 22.10 24.99 16.13
Raipur Alloys and Steel 0.53 0.31 0.54 2.69 3.18
Ramsarup Industries 6.79 11.73 10.21 16.43 19.84
Rathi Udyog 0.95 1.15 1.21 1.23 2.70
Ratnamani Metals 2.31 2.30 2.95 4.39 9.80
Ruchi Strips and Alloys 3.84 2.80 2.57 3.17 3.49
SAIL 1,588.27 1,381.79 955.45 651.98 467.76
Shah Alloys 15.77 22.43 21.18 29.81 30.53
Shree Precoated Steels 62.65 10.39 15.57 23.15 32.16
Southern Ispat 0.12 0.12 0.17 0.11 0.23
Steel Exchange of India 0.02 0.00 2.04 3.29 6.46
Steelco Gujarat 22.39 13.86 16.76 12.04 23.78
Surana Industries 5.46 6.44 9.13 8.02 9.78
Sunflag Iron and Steel 29.53 26.85 21.97 21.47 10.89
Company
Surya Roshni 38.95 35.73 27.05 24.56 27.67
Tata steel 403.15 342.41 227.12 228.80 168.44
Tulsyan NEC 5.54 5.10 6.16 7.15 7.97
Vardhman Industries 3.29 2.57 2.32 1.82 2.62
Vallabh Steels 1.48 0.95 0.93 1.68 3.61
Welspun 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

65
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
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

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


Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
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
Preference Share Capital 0.00 0.28 0.28 0.00 0.00
Reserves 11.08 11.46 12.35 14.38 15.61
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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

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


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
Equity Share Capital 330.35 330.35 507.97 507.98 581.17

66
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
Revaluation Reserves 0.08 0.08 0.07 0.07 0.00
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
Total Liabilities 4,646.38 6,169.33 5,885.26 6,485.19 12,216.57
Sep '02 Mar '03 Mar '04 Mar '05 Mar '06
A 1.6 Essar Steel
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
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
Revaluation Reserves 438.90 408.96 384.90 356.44 328.49
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
Total Liabilities 7,763.59 7,913.70 8,267.16 8,071.13 10,310.90
A 1.7 Ispat Industries

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


Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Total Share Capital 9.26 8.63 8.63 8.63 8.63
Equity Share Capital 9.26 8.63 8.63 8.63 8.63
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 198.86 215.53 243.40 251.67 258.64
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

67
Networth 208.12 224.16 252.03 260.30 267.27
Secured Loans 4.16 3.79 0.56 13.50 6.16
Unsecured Loans 5.19 4.43 3.63 8.98 18.96
Total Debt 9.35 8.22 4.19 22.48 25.12
Total Liabilities 217.47 232.38 256.22 282.78 292.39
A 1.8 Jai Corporation
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
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
Preference Share Capital 0.00 0.00 279.03 279.03 279.03
Reserves -549.91 -660.58 -131.90 2,680.59 3,859.16
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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
Total Liabilities 6,414.39 6,632.09 6,286.21 6,986.13 8,452.27
A 1.9 JSW Steel

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


Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 9.62 9.62 10.24 18.24 18.43
Equity Share Capital 9.62 9.62 10.24 18.24 18.43
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 12.47 12.76 15.57 18.26 22.25
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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

68
Total Debt 9.30 9.36 8.49 7.36 25.61
Total Liabilities 31.39 31.74 34.30 43.86 66.29
A 1.10 Kanishk Steel Industries
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 18.91 18.91 18.91 19.01 25.74
Equity Share Capital 18.91 18.91 18.91 19.01 25.74
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 23.76 24.65 59.72 74.07 248.58
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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
Total Liabilities 134.84 127.22 137.50 255.90 525.28
A 1.11 Man Industries (India)
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 28.14 28.14 78.75 78.75 78.75
Equity Share Capital 28.14 28.14 73.12 73.12 73.12
Preference Share Capital 0.00 0.00 5.63 5.63 5.63
Reserves 201.26 43.12 44.08 228.86 441.55
Revaluation Reserves 242.04 238.40 236.41 235.90 126.63
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
Total Liabilities 1,681.06 1,659.70 1,625.30 1,648.50 1,773.64
A 1.12 Mukand
Balance Sheet ------------------- in Rs. Cr. -------------------

69
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 28.82 43.23 28.82 28.82 28.82
Equity Share Capital 28.82 28.82 28.82 28.82 28.82
Preference Share Capital 0.00 14.41 0.00 0.00 0.00
Reserves 122.39 159.94 215.27 283.99 385.09
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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
Total Liabilities 199.18 261.54 371.23 421.22 906.87
A 1.13 Maharashtra Seamless
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 32.60 44.47 87.61 87.61 87.61
Equity Share Capital 32.60 32.60 32.60 32.60 32.60
Preference Share Capital 0.00 11.87 55.01 55.01 55.01
Reserves 80.22 89.71 100.06 114.40 134.40
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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
Total Liabilities 187.28 208.91 326.19 397.78 439.30
A 1.14 National Steel & Agro Industries
Balance Sheet ------------------- in Rs. Cr. -------------------
Sep '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 6 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 6.54 6.54 13.08 13.08 13.08

70
Equity Share Capital 6.54 6.54 13.08 13.08 13.08
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves -6.48 9.29 34.13 47.79 56.83
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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
Total Liabilities 65.12 60.57 77.50 134.78 173.39
A 1.15 Raipur Alloys and Steel
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 16.80 16.80 23.80 23.80 23.80
Equity Share Capital 16.80 16.80 23.80 23.80 23.80
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 4.36 4.36 5.12 6.96 6.97
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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
Total Liabilities 62.00 60.37 62.22 63.35 65.24
A 1.16 Ruchi Strips and Alloys
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 4.64 4.64 4.71 4.71 4.71
Equity Share Capital 4.64 4.64 4.71 4.71 4.71
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 11.75 12.21 13.32 15.27 21.93
Revaluation Reserves 1.90 1.90 1.90 1.90 1.90

71
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
Total Debt 11.24 11.86 14.39 28.35 62.37
Total Liabilities 29.53 30.61 34.32 50.23 90.91
A 1.17 Rathi Udyog
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 8.91 8.91 8.91 8.91 17.82
Equity Share Capital 8.91 8.91 8.91 8.91 17.82
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 51.89 70.78 103.03 145.25 169.06
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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
Total Liabilities 213.15 229.32 301.83 355.97 554.03
A 1.18 Shah Alloys
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
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
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves -1,300.65 -1,605.16 907.27 6,176.25 8,471.01
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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

72
Total Liabilities 16,765.51 15,453.18 13,727.73 16,076.44 16,899.03
A 1.19 Steel Authority of India
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 27.40 26.40 25.40 25.40 26.00
Equity Share Capital 25.40 25.40 25.40 25.40 26.00
Preference Share Capital 2.00 1.00 0.00 0.00 0.00
Reserves 89.23 92.22 99.98 110.89 128.61
Revaluation Reserves 1.38 1.32 1.28 1.23 1.17
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
Total Liabilities 450.57 438.05 434.72 456.89 497.38
A 1.20 Surya Roshni
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 4.29 4.63 5.22 5.22 5.87
Equity Share Capital 4.29 4.63 5.22 5.22 5.87
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves -0.10 0.02 2.01 2.21 2.57
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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
Total Liabilities 5.29 6.77 8.80 8.83 11.12
A 1.21Southern Ispat
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06

73
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 367.97 369.18 369.18 553.67 553.67
Equity Share Capital 367.97 367.97 369.18 553.67 553.67
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 3,077.99 2,816.30 4,146.68 6,506.25 9,201.63
Revaluation Reserves 0.00 0.54 0.00 0.00 0.00
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
Total Liabilities 8,151.44 7,411.63 7,898.07 9,799.62 12,271.45
A 1.22 Tata steels
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 3.32 3.32 4.97 4.97 4.97
Equity Share Capital 3.30 3.30 4.95 4.95 4.95
Preference Share Capital 0.02 0.02 0.02 0.02 0.02
Reserves 12.74 14.62 17.45 20.66 25.22
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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
Total Liabilities 44.83 45.62 57.07 80.68 125.25
A 1.30 Vallabh Steels

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


Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 5.00 5.00 5.00 5.00 5.00

74
Equity Share Capital 5.00 5.00 5.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 13.38 15.18 17.00 20.33 23.45
Revaluation Reserves 0.44 0.40 0.36 0.33 0.30
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
Total Liabilities 73.64 71.65 107.43 113.89 136.73
A 1.31 Tulsyan NEC
Sources Of Funds
Total Share Capital 7.94 7.94 7.94 7.94 7.94
Equity Share Capital 7.94 7.94 7.94 7.94 7.94
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 10.94 14.79 19.55 24.99 29.70
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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
Total Liabilities 44.46 44.83 49.16 58.67 112.02
A 1.32Vardhman Industries

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


Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 3.32 3.32 4.97 4.97 4.97
Equity Share Capital 3.30 3.30 4.95 4.95 4.95
Preference Share Capital 0.02 0.02 0.02 0.02 0.02
Reserves 12.74 14.62 17.45 20.66 25.22
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Networth 16.06 17.94 22.42 25.63 30.19

75
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
Total Liabilities 44.83 45.62 57.07 80.68 125.25
A 1.33 Vallabh Steels
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '02 Mar '03 Mar '04 Mar '05 Mar '06
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 139.28 140.73 141.36 75.64 86.53
Equity Share Capital 139.28 140.73 141.36 53.54 64.42
Preference Share Capital 0.00 0.00 0.00 22.10 22.11
Reserves 0.10 1.64 74.38 217.21 408.26
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
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

76