Documente Academic
Documente Profesional
Documente Cultură
Presented to
Prof. Amit Parakh
By:
Ankita Sarni- PGDBA-01/06
Anurag-PGDBA-01/08
India is the seventh largest steel producer in the world and, India's rapid economic growth and soaring
demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put Indian
steel industry on the global map. The outlook for Indian steel industry is very bright. India's lower
wages and favorable energy prices will continue to promise substantial cost advantages compared to
production facilities in (Western) Europe or the US.
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Steel Authority of India © Anurag and Ankita Sarni
CIMP
Projects worth around Rs 28,000 crore are in various stages of implementation. This includes
ongoing 28 numbers of projects worth more than Rs 2,800 crore spread over six production
units across the country.
SAIL is ready to own the 2,028-hectare block in the Rowghat iron ore mine deposits in
Chhattisgarh to feed its flagship unit, the Bhilai Steel Plant.
They are developing two major mechanised iron ore mines – at Rowghat in the western
region and Chiria in the east. Both the mines will be developed with latest technology to
ensure assured supply of required quantity of quality iron ore to SAIL plants.
They are also planning to set up a pellet plants (one at Bhilai and another near Manoharpur),
which would enable utilisation of huge iron ore fines generated during the mining operations,
apart from reducing cost of hot metal production which help in generation of revenue from the
waste materials.
SAIL is providing customized services to its clients.
46,261.05 49,739.74
40,291.75
32,569.53 33,220.78
Mar ' 05 Mar ' 06 Mar ' 07 Mar ' 08 Mar ' 09
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Steel Authority of India © Anurag and Ankita Sarni
CIMP
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Steel Authority of India © Anurag and Ankita Sarni
CIMP
Bhushan
steel Market Share
6% Ispat
7% SAIL
JSW 42%
19%
TATA
26%
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Steel Authority of India © Anurag and Ankita Sarni
CIMP
Valuation of SAIL
CALCULATION OF BETA FROM HISTORICAL DATA:
We calculate the Beta by doing a regression of SAIL’s stock return with the market return.
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.586972953
R Square 0.344537248
Adjusted R
Square 0.339787518
Standard Error 15.7375221
Observations 140
ANOVA
Significance
df SS MS F F
Regression 1 17965.52674 17965.53 72.538279 2.504E-14
Residual 138 34178.40504 247.6696
Total 139 52143.93177
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Steel Authority of India © Anurag and Ankita Sarni
CIMP
1) We wanted to use another method as well for calculation of Beta to compare the difference
between the valuations done by using beta from different methods.
2) This method is helpful in a way because, it helps us figuring out the operational leverages,
financial leverage and risk implicit in the business of the company.
3) The standard deviation of this method is very low compared to the one using Regression on
Historical data. This is because the sample size used is more than 5.
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Steel Authority of India © Anurag and Ankita Sarni
CIMP
Note: The regression beta is of a larger sample base (7 companies in this case) which reduces the
standard error in statistical estimation. Assuming the regression beta for SAIL has a standard error of
.16. The average industry regression beta would have a much lower error. Statistically, the standard
error for the sample would be - individual error / square root of number of samples i.e. 0.16/√7 = .06
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Steel Authority of India © Anurag and Ankita Sarni
CIMP
The Bottom Up beta by this method is 0.7 only which is less than the Regression beta by almost 0.7.
The difference is primarily due to the greater financial leverage (D/E ratio) of the company.
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Steel Authority of India © Anurag and Ankita Sarni
CIMP
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Steel Authority of India © Anurag and Ankita Sarni
FORCASTED CASH FLOW ON THE BASIS OF HISTORICAL BETA (1.42)
CIMP
PV Free cash flow, years 1-10 46214.8 (Horizon value in ye ar 10)
PV Horizon value 37179.1 176658
PV of company 83393.8
Buy
Fair Price 201.9
Current Price 162.0
Year 0 Year 1 Year 2 Year 3 Year 4 Ye ar 5 Ye ar 6 Ye ar 7 Ye ar 8 Ye ar 9 Ye ar 10 Ye ar 11
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
1 Sales T urnover 32569.53 33221 40292 46261 49740 53719 58016 62658 67670 73084 78931 85245 92065 99430 107384 109532
2 Cost of goods sold 18224.93 21646 24684 28692 34857 44062 40612 43860 47369 51159 55252 55409 59842 64629 69799.8 71195.8
3 EBITDA (1-2) 14344.6 11575 15607 17570 14883 9656.8 17405 18797 20301 21925 23679 29836 32223 34800 37584.5 38336.2
4 Depreciation 1126.95 1207.3 1211.5 1235.5 1285.1 1692.1 1827.5 1973.7 2131.6 2302.1 2486.3 2685.2 2900 3132 3382.61 3450.26
5 Profit before tax (EBIT) (3 - 4) 13217.65 10368 14396 16334 13597 7964.6 15577 16824 18169 19623 21193 27151 29323 31668 34201.9 34886
6 Tax 2592.37 1694.4 3253.8 3934.7 3284.3 2389.4 4673.2 5047.1 5450.8 5886.9 6357.9 8145.2 8796.8 9500.5 10260.6 10465.8
7 Profit after tax (5 - 6) 10625.28 8673.4 11142 12399 10313 5575.2 10904 11777 12719 13736 14835 19005 20526 22168 23941.3 24420.2
-
8 Investment in fixed assets 12485.07 322.93 -564.43 -26.4 697.52 6532.8 1504.1 1624.5 1754.4 1894.8 2046.4 2210.1 2386.9 2577.8 2784.04 751.691
9 Investment in working capital 2323.25 1147.9 4545.9 3533.3 4506.9 5430.4 1719 1856.5 2005 2165.5 2338.7 2525.8 2727.8 2946.1 3181.76 859.075
-
10 Free cash flow (7 + 4 - 8 - 9) -3056.09 9055.8 8372.3 10128 6394 4695.9 9508.6 10269 11091 11978 12936 16955 18311 19776 21358.2 26259.7
Assumptions:
Sales growth (percent) Base Year 2.0 21.3 14.8 7.5 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 2.0
Costs (percent of sales) 67.8 80.3 76.1 75.6 82.0 70.0 70.0 70.0 70.0 70.0 65.0 65.0 65.0 65.0 65.0 65.0
Working capital (percent of sales) 7.1 10.4 19.9 25.0 32.3 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0
Net fixed assets (percent of sales) 38.3 36.6 28.8 25.0 24.7 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0
Depreciation (percent of net fixed
assets) 9.0 9.9 10.4 10.7 10.5 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0
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Steel Authority of India © Anurag and Ankita Sarni
FORCASTED CASH FLOW ON THE BASIS OF BOTTOM UP BETA (0.7)
CIMP
-
8 Investment in fixed assets 12485.07 322.93 -564.43 -26.4 697.52 6532.8 1504.1 1624.5 1754.4 1894.8 2046.4 2210.1 2386.9 2577.8 2784.04 751.691
9 Investment in working capital 2323.25 1147.9 4545.9 3533.3 4506.9 5430.4 1719 1856.5 2005 2165.5 2338.7 2525.8 2727.8 2946.1 3181.76 859.075
-
10 Free cash flow (7 + 4 - 8 - 9) -3056.09 9055.8 8372.3 10128 6394 4695.9 9508.6 10269 11091 11978 12936 16955 18311 19776 21358.2 26259.7
Assumptions:
Sales growth (percent) Base Year 2.0 21.3 14.8 7.5 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 2.0
Costs (percent of sales) 67.8 80.3 76.1 75.6 82.0 70.0 70.0 70.0 70.0 70.0 65.0 65.0 65.0 65.0 65.0 65.0
Working capital (percent of sales) 7.1 10.4 19.9 25.0 32.3 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0
Net fixed assets (percent of sales) 38.3 36.6 28.8 25.0 24.7 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0 35.0
Depreciation (percent of net fixed
assets) 9.0 9.9 10.4 10.7 10.5 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0
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Steel Authority of India © Anurag and Ankita Sarni
Consolidated Profit and Loss Account
CIMP
Mar ' 09 Mar ' 10 Mar ' 11 Mar ' 12 Mar ' 13 Mar ' 14 Mar ' 15 Mar ' 16 Mar ' 17 Mar ' 18 Mar ' 19 Mar ' 20
Income
Operating income 13597.48 7964.609 15577.41 16823.61 18169.49 19623.05 21192.9 27150.59 29322.63 31668.45 34201.92 34885.96
Expenses
Material consumed 22,042.58 23805.99 25710.47 27767.3 29988.69 32387.78 34978.8 37777.11 40799.28 44063.22 47588.28 51395.34
Manufacturing
expenses 3,762.77 4063.792 4388.895 4740.007 5119.207 5528.744 5971.043 6448.727 6964.625 7521.795 8123.538 8773.421
Personnel expenses 8,401.73 8821.817 9262.907 9726.053 10212.36 10722.97 11259.12 11822.08 12413.18 13033.84 13685.53 14369.81
Selling expenses 935.68 982.464 1031.587 1083.167 1137.325 1194.191 1253.901 1316.596 1382.426 1451.547 1524.124 1600.33
Adminstrative expenses 1,644.78 1694.123 1744.947 1797.296 1851.214 1906.751 1963.953 2022.872 2083.558 2146.065 2210.447 2276.76
Expenses capitalised -1,930.40 -2,026.92 -2,128.27 -2,234.68 -2,346.41 -2,463.73 -2,586.92 -2,716.27 -2,852.08 -2,994.68 -3,144.42 -3,301.64
Cost of sales 34,857.14 37645.71 40657.37 43909.96 47422.75 51216.57 55313.9 59739.01 64518.13 69679.58 75253.95 81274.27
Operating profit 8,941.44 9,656.76 10,429.30 11,263.64 12,164.73 13,137.91 14,188.94 15,324.06 16,549.98 17,873.98 19,303.90 20,848.21
Other recurring income 2,279.89 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000
Adjusted PBDIT 11,221.33 11,656.76 12,429.30 13,263.64 14,164.73 15,137.91 16,188.94 17,324.06 18,549.98 19,873.98 21,303.90 22,848.21
Financial expenses 253.24 258.3048 263.4709 268.7403 274.1151 279.5974 285.1894 290.8932 296.711 302.6452 308.6981 314.8721
Depreciation 1,285.12 1,285.12 1,285.12 1,285.12 1,285.12 1,285.12 1,285.12 1,285.12 1,285.12 1,285.12 1,285.12 1,285.12
Other write offs 128.02 100 100 100 100 100 100 100 100 100 100 100
Adjusted PBT 9,554.95 10,013.33 10,780.70 11,609.78 12,505.50 13,473.19 14,518.63 15,648.04 16,868.15 18,186.21 19,610.08 21,148.22
Tax charges 3,284.28 3003.999 3234.211 3482.934 3751.649 4041.957 4355.59 4694.413 5060.445 5455.864 5883.024 6344.465
Adjusted PAT 6,270.67 7,009.33 7,546.49 8,126.85 8,753.85 9,431.23 10,163.04 10,953.63 11,807.71 12,730.35 13,727.06 14,803.75
Non recurring items -277.12 50 50 50 50 50 50 50 50 50 50 50
Other non cash
adjustments 181.26 200 200 200 200 200 200 200 200 200 200 200
Reported net profit 6,174.81 6,759.33 7,296.49 7,876.85 8,503.85 9,181.23 9,913.04 10,703.63 11,557.71 12,480.35 13,477.06 14,553.75
Equity dividend 1,073.90 1175.558 1268.979 1369.912 1478.957 1596.766 1724.04 1861.536 2010.073 2170.536 2343.879 2531.135
Preference dividend -
Dividend tax 181.26 198.4185 214.1867 231.2228 249.6283 269.5128 290.9949 314.2024 339.2735 366.3576 395.6156 427.2218
Per share data
(annualised)
Shares in issue (lakhs) 41,304.01 41,304.01 41,304.01 41,304.01 41,304.01 41,304.01 41,304.01 41,304.01 41,304.01 41,304.01 41,304.01 41,304.01
Earning Per Share (Rs) 14.95 16.36 17.67 19.07 20.59 22.23 24.00 25.91 27.98 30.22 32.63 35.24
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Steel Authority of India © Anurag and Ankita Sarni
Consolidated Balance Sheet
CIMP
Mar ' 09 Mar ' 10 Mar ' 11 Mar ' 12 Mar ' 13 Mar ' 14 Mar ' 15 Mar ' 16 Mar ' 17 Mar ' 18 Mar ' 19 Mar ' 20
Sources of funds
Owner's fund
Equity share capital 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40 4,130.40
Share application
money -
Preference share capital -
Reserves & surplus 23,853.70 28,954.61 34,538.38 40,565.90 47,072.83 54,097.72 61,682.19 69,871.19 78,713.29 88,260.92 98,570.73 109,703.91
Loan funds
Secured loans 1,473.60 1742.2061 2036.2391 2353.6388 2696.284 3066.204 3465.5905 3896.8109 4362.4221 4865.1858 5408.0849 5994.341
Unsecured loans 6,065.19 8,183.30 9,564.40 11,055.25 12,664.69 14,402.23 16,278.19 18,303.67 20,490.68 22,852.21 25,402.25 28,155.95
Total 35,522.89 43,010.51 50,269.42 58,105.19 66,564.20 75,696.56 85,556.37 96,202.07 107,696.79 120,108.71 133,511.47 147,984.60
Uses of funds
Fixed assets
Gross block 32,728.69 40,561.48 43,365.61 46,290.07 49,344.49 52,539.26 55,885.61 59,395.67 63,082.54 66,960.35 71,044.39 73,096.08
Less : revaluation
reserve -
Less : accumulated
depreciation 20,459.86 21,759.86 23,059.86 24,359.86 25,659.86 26,959.86 28,259.86 29,559.86 30,859.86 32,159.86 33,459.86 34,759.86
Net block 12,268.83 18,801.62 20,305.75 21,930.21 23,684.63 25,579.40 27,625.75 29,835.81 32,222.68 34,800.49 37,584.53 38,336.22
Capital work-in-progress 6,544.24 4,056.15 4,336.56 4,629.01 4,934.45 5,253.93 5,588.56 5,939.57 6,308.25 6,696.03 7,104.44 7,309.61
Investments 652.7 808.90739 864.82944 923.15121 984.06467 1047.7772 1114.5126 1184.5129 1258.0391 1335.3733 1416.8203 1457.7367
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CIMP
Mar' Mar' Mar ' Mar ' Mar ' Mar ' Mar ' Mar ' Mar ' Mar ' Mar ' Mar '
Mar'05 Mar'06 Mar'07 Mar'08
09 10 11 12 13 14 15 16 17 18 19 20
Current
ratio 1.18 1.23 1.59 1.73 1.82 1.98 1.94 1.91 1.89 1.86 1.84 1.82 1.81 1.79 1.78 1.70
ROI 3.98 1.61 1.16 0.97 0.60 0.47 0.46 0.46 0.46 0.46 0.46 0.46 0.46 0.46 0.46 0.48
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Steel Authority of India © Anurag and Ankita Sarni
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References:
1. “Principles of Corporate Finance” by Brealy, Myers, Allen, Mohanty
2. “Security analysis for Investment and Corporate Finance” by Damodran
3. www.wikipedia.com
4. www.bseindia.com
5. www.nseindia.com
6. www.worldsteel.org
7. http://indiabudget.nic.in/
8. http://finmin.nic.in/
9. http://www.worldsteel.org/
10. http://www.worldsteeldynamics.com/
11. www.yahoofinance.com
12. www.rediffmail.com
13. www.moneycontrol.com
14. www.economictimes.com
15. www.buisnessstandard.com
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Steel Authority of India © Anurag and Ankita Sarni