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Contents
About JSW Steel: ..................................................................................................................................... 1
The corporate Governance analysis: ...................................................................................................... 2
The Management of the company: .................................................................................................... 2
The Board of Directors: ....................................................................................................................... 6
Stockholder Analysis: .............................................................................................................................. 7
Cost of Capital (WACC) and Risk and Return: ......................................................................................... 9
Calculating cost of capital (WACC): ................................................................................................... 11
Capital Structure Choice : ..................................................................................................................... 13
Optimal Capital Structure: .................................................................................................................... 14
Average Net Profit: ............................................................................................................................... 14
Equity capital:........................................................................................................................................ 15
Calculating ROE: .................................................................................................................................... 15
Average dividend paid: ......................................................................................................................... 15
Payout Ratio and Retention Ratio:........................................................................................................ 15
Average Growth Rate:........................................................................................................................... 16

JSW Steel limited one among the many companies belong to the JSW Group. The JSW group’s
beginning can be traced from the establishment of first company by Mr O.P Jindal in Hissar
named Pipe Unit Jindal Limited. After his death his two sons Sajjan Jindal and Naveen Jindal
along with his wife Savitri Jindal took over the controls of various companies. The group is
into four core sectors that is steel, energy, cement and Infrastructure. Group currently holds
$13 billion worth of value.

About JSW Steel:

JSW steel was stablished by Mr Sajjan Jindal in 1994 with the name of Jindal Vijay Nagar
Steel limited. The plant was stablished at Vijaynagar with mere capacity of 4 MTPA kept
growing over time. The company changed its name to JSW steel limited in Jun 2005 as it
stablished other steel plants as well e.g in Salem and other part of world. Currently the company
has capacity of 18 MTPA , with largest steel exporter in India to over 100 countries. The
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company offers hot and cold rolled products, color coated products, galvanized products, TMT
bars, wire rods, and special alloy steel.

The galvanised products are marketed under the brand name GALVPLUS. These products have
diverse applications in industries that include Automobile, Infrastructure, Storage Tanks, Pipes,
and Transmission Towers etc.

The registered office of JSW Steel is at Mumbai. The plants located at Vasind and Tarapur in
Maharashtra and Toranagallu in Karnataka. JSW has upstream facilities like the Raw material
handling plant, coke oven, corex plant, pellet plant, continuous casting plant & a hot strip mill.
On the other hand, hot & cold rolling divisions are major downstream set-ups.

The corporate Governance analysis:

The Management of the company:

The key management team of company as below:

Jt.Managing Director & Group

M V S Seshagiri Rao
CFO
Rajeev Pai Chief Financial Officer
Sajjan Jindal CEO
Chairman & Managing
Sajjan Jindal
Director
Savitri Devi Jindal Chairperson Emeritus
Seturaman Mahalingam Ind. Non-Executive Director
Vinod Nowal Deputy Managing Director
Mr Sasindran COO
P Rajshekhara President of Operations

As we can see from the above table there are two heads some positions one as group heads
and one as standalone head. This is due the fact that the company is very nearly controlled by
the JSW group company which hold many JSW companies. The reason being is JSW steel is
largest source of revenue for the parent group company. The Major key roles are being
controlled by the family members of Jindal family. Mr Sajjan Jindal is elder son of O P
Jindal. Savitri devi Jindal is wife of Mr O P Jindal. Therefore , we can say that the company
is primarily run by the family .

The details of few key management members are as below:

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(Bloomberg, n.d.)
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(Bloomberg, n.d.)
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We can clearly observe the CEO Mr Sajjan Jindal is earning far ahead from any of equivalent
management members. Not only that he is also member of 7 other companies. As it is a family
owned and run company we can assume there that Mr Sajjan Jindal has higher power and
authority beyond the purview of any normal CEO and thus he is earning a good amount. Mr
Sajjan Jindal also owns .98 % of total equity of firm this also gives more authority to him.

We can summarise that the company is primarily run and owned by Jindal family and power
of control is under Sajjan Jindal’s hand. Although company is having very prominent and
efficient team in top management which is keeping the steel company competitive and running
in profits even though the steel sector is facing many economic challenges from China and
America.
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The Board of Directors:

These are INSIDERS on board of directors on company.

Name (Connections) Title Age

Sajjan Jindal Chairman & MD 59

M. V. S. Rao Joint MD, Group CFO & Non-Independent Executive 60

Director

Vinod Nowal MBA, DBM, Deputy MD & Non-Independent Executive Director 63

Ph.D.

Jayant Acharya Director of Commercial & Marketing and Non-Independent 55

Executive Director

And these are other board members of the company:

Type of Board
Name (Connections) Primary Company Age
Members

Savitri Jindal Chairman Emeritus Jindal Steel & Power Limited 68

M. Jain B.Com, FCA, Unit Chairman JSW Energy Limited 72

FCS

Sangita Jindal Unit Chairman JSW Steel Limited --

Punita Kumar-Sinha Member of the Board Blackstone Asia Advisors L.L.C. 56

of Directors

Malay Mukherjee Member of the Board Zamin Ferrous Limited 70

of Directors

Seturaman Mahalingam Member of the Board TVS Capital Funds Limited 70

F.C.A., FCA of Directors

Nirupama Rao Member of the Board KEC International Limited 67

of Directors

Haigreve Khaitan Member of the Board Khaitan & Co. 48

of Directors

Hiroyuki Ogawa Member of the Board JSW Steel Limited --

of Directors

Harshraj Mariwala Member of the Board Marico Limited 67

of Directors
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Gunjan Krishna Member of the Board JSW Steel Limited

of Directors

As we can observe there are many family members in the board of directors. And other
members are very prominent heads of other companies in India. The board of Directors is
also dominated by the family members.
Most of the directors are MD or directors of some other company also few are CA advisor
which suggest their importance in Board of Directors as they can suggest on company law
and taxes of country.
Moreover, the Board of director is loaded with big management people of the country and
family members. This suggest this company is still away from following truly company
concept where any small employee of company can become the CEO of organization and run
it as his vison.

Stockholder Analysis:
Following are the shareholding in equity for key promotors and non-promoters :

Shares of Major Owners of Equity Shares : 30 Jun 2016 - 30 Sep

2018 : (% share in total equity shares)
30-Jun- 31-Mar- 30-Sep-
16 17 18
Promoters
Arti Jindal 0.01 0.01
Beaufield Holdings Ltd 0.68
Danta Enterprises Private Limited 2.5 2.5
Danta Enterprises Pvt Ltd 2.5
Deepika Jindal 0.01
Estrela Investment Company Ltd 0.17
Glebe Trading Pvt Ltd 0.71
Jsl Overseas Ltd 0.87
Jsw Energy Limited 2.9
Jsw Holdings Limited 7.19 7.27 7.38
Jsw Logistics Infrastructure Pvt Ltd 0.71
Jsw Techno Projects Management Ltd 2.07 9.49 10.01
Karnataka State Industrial And Infrastructure Development
Corporation 0.38
Mendeza Holdings Ltd 0.17
Nalwa Sons Investments Ltd 1.88 1.88 1.88
Parth Jindal 0.15 0.15 0.15
Sahyog Holdings Private Ltd 4.58
Sahyog Tradcorp Private Limited
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Sajjan Jindal 0.96

Sangita Jindal 0.12
Vividh Finvest Private Ltd 5.82
Non-Promoters
Gagandeep Credit Capital Pvt Ltd 1.9 1.9 1.91
HUF
Hindu Undivided Family 0.82
Huf 0.78
Iepf 0.5
Lotus Global Investments Ltd 1.73 1.73 1.58
Non-Resident Indian (Nri) 1.33 1.18
Shamyak Investment Private Ltd 1.05
The Indiaman Fund (Mauritius) Limited 1.32

Key Observations:

1. Many equity owners in promoter’s section are family members of Jindal family or many
Jindal group companies (which ultimately owner by Jindal family only)
2. One major equity owner (10.1 %) is JSW Techno project management ltd. I could not find
much detail about this company on internet. However as per a news in economic times it is a
promotor ( Sajjan Jindal) owned company and it acquires big project and operations are
done by JSW steel. Thus one way or other major owners of the firm are from family only.
(times, n.d.)
3. Non-promoters have very limited ownership. Among them The Indiaman Fund (Mauritius)
Limited and Lotus Gobal investments ltd are major owners. An owner from Mauritius
generates doubts about the round tripping for funds. The other company Lotus Global is also
a Mauritius based company.
4. A Non-resident Indian is also reflected in Non-promoters. The details of the same could not
be found. However, this may be and family person only who got citizenship in another
country.
5. It can be inferred from the ownership that investors have little say in running the company.
6. Other observation can be the company highly rely of prudence and skills of Jindal family. As
long as the family members remain competitive the company must do well or it can face the
fate of Kingfisher.
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Cost of Capital (WACC) and Risk and Return:

JSW Steel 2013 2014 2015 2016 2017

yearly
return 87% -3% 62% 57% 54%

Observations:

1. The company has provided tremendous returns for 4 years on yearly basis .
2. The major reason is growth of India economy and many big infrastructure projects launched
by government.
3. Railway huge infra investment demanded enough steel hence company share price rises.
4. However, in last year 0f 2014 the sock return fell. The major reason can be trade war
between Us and China and dumping of Steel from China to India as US has put sanctioned to
China. Since JSW steel also export steels in US and other international market the sections
from US has been detrimental to its share price.

The risk of JSW steel returns can be seen from below table as Standard deviation of returns are
33%. We can observe there are huge swing on returns both on positive side and negative side.

We can say there is much more volatility of the firm returns as compared to market.

Therefore, this share can provide high gain or high loss to investors. People interested in high
risk investments can choose this as an option.
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To calculate Beta I have done Linear regression on stock return and market returns. The sample
regression results are as below:

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.483869
R Square 0.234129
Adjusted R Square
0.231206
Standard Error
0.023769
Observations 264

ANOVA
df SS MS F Significance F
Regression 1 0.045252 0.045252 80.09416 6.71E-17
Residual 262 0.148026 0.000565
Total 263 0.193278

Coefficients
Standard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%
Upper 95.0%
Intercept 0.002128 0.001466 1.45188 0.147731 -0.00076 0.005013 -0.00076 0.005013
X Variable 11.164171 0.130082 8.949534 6.71E-17 0.908032 1.42031 0.908032 1.42031
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Beta
calculation 2013 2014 2015 2016 2017
JSW steel-
Beta 1.164171 1.435961 1.038461 1.165807 1.561523

As we can notice the beta for the JSW steel is always higher that 1 which reflect that this share is
more volatile then market. In 2017-18 the beta touches 1.56. The major reason for such volatility is
due to fluctuation in steel market sector. The Steel market is suffering from various challenges like
trade war, sudden losses due change in LME rate, China’s aggressive steel selling policy. Under such
hard competition the volatility of JSW steel share has increased However we can say that the share
is still doing well in terms of return it is providing on yearly basis.

Calculating cost of capital (WACC):

For calculating WACC first we collected debt and equity breakdown of the company for 5 years.

Calculating debt to Equity ratio:

Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Total debt 2,49,749.80 2,57,612.30 3,17,643.50 3,28,420.00 3,16,560.00

Total Equity 2,42,841.80 2,57,246.00 2,10,490.30 2,47,750.00 2,84,850.00

D/E ratio 1.03 1.00 1.51 1.33 1.11

Calculating WACC for the firm:

Market yearly return for 5 years of NIFty 50 has been calculated and mentioned below.
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2013-14 2014-15 2015-16 2016-17 2017-18

Market Yearly 18% 26% -10% 19% 9%
return

Sample calculation for Year 2017-18:

The Indian government 10-year bond yield rate is at 6.7%.

Calculating cost of equity:

Ke=Rf + B(Rm-Rf)

=6.7 + 1.56 *(9-6.7)

=11.0%

Total Equity in 2018 = 8800+2,76,050 =2,84,850

Total loan= long term borrowing + short term borrowing =3,16,560

Weight of equity = .47 weight of loan =.53

Financial expenses from P&L statement for 2018 =37090 (assuming it to be interest expense)

Interest rate on loan = 37090/316560 =12 %

Tax rate =30%( assumption)

WACC= 12 * .53*(1-.3) + 11*.47

=9.5%

WACC for 5 years:

10 year bond yield of Indian government 10y Security:

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WACC Calculation Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Total debt 2,49,749.80 2,57,612.30 3,17,643.50 3,28,420.00 3,16,560.00
Total Equity 2,42,841.80 2,57,246.00 2,10,490.30 2,47,750.00 2,84,850.00
Total D+E 4,92,591.60 5,14,858.30 5,28,133.80 5,76,170.00 6,01,410.00
Wd 0.51 0.50 0.60 0.57 0.53
We 0.49 0.50 0.40 0.43 0.47
Corporate Tax 30% 30% 30% 30% 30%
Beta 1.16 1.44 1.04 1.17 1.56
Rm 18% 26% -10% 19% 9%
Rf 0.08 0.09 0.08 0.08 0.07
Ke 19% 34% -11% 21% 11.0%
financial charges 47,026.40 37,142.30 38,597.00 41,360.00 37,090.00
Kd 19% 14% 12% 13% 12%
WACC 16% 22% 1% 14% 9.5%
D/E 1.03 1.00 1.51 1.33 1.11

Capital Structure Choice:

As it is evident from the above details the firm is leveraging approx. 50-60% of its investment
requirement. Since cost of loan is less that cost of equity for majority of years by taking higher debt
the firm is trying to maintain the WACC to lower side. However high leverage leads to higher risk .
The company is currently maintaining balance between equity and debt by taking almost equal
percentage of both.

Today as we know many steel sector industries which are working on higher debt to decrease their
WACC have suffered sudden shock from raw material supply side (coal block scam) and steel price
variation due to China trade war. This lead to bankruptcy of few firms. If Indian market is keep
producing higher return company can rely on debt to keep WACC on lower side. JSW steel has some
regular customers as Indian Railway and other infrastructure companies which can ensure a good
amount of sales for the company. Therefore, investors can be assured for future sales of the
company hence debt can be maintained.
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Optimal Capital Structure:

As we can see the cost of debt is lower than cost of equity. Therefore, higher the debt better the
WACC for the firm. As we see from above chart at 1.51 D/E ratio the WACC achieved was 1% this is
due to during that year market returns were negative and hence cost of equity also reduces.

The optimal capital structure for this firm can be a debt/Equity ratio of 1.5 around where due to
lower cost of debt it can maintain lower WACC. However, WACC also depends on market return and
financial charges on firm which vary the WACC with time.

Average Net Profit:

Income & Expenditure

Summary : Mar 2009 - Mar Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
2018 : Non-Annualised : Rs. 12 mths 12 mths 12 mths 12 mths 12 mths
Million
IGAAP IGAAP INDAS INDAS INDAS
-

Profit after tax 13,345.10 21,664.80 -35,296.70 35,770.00 46,250.00

As we can see the PAT has huge fluctuations on yearly basis. This is due to market fluctuation and
higher input cost variations. The steel raw input it raw Iron which price are decided by LME . The raw
iron prices vary due to change in production rate by China, US and Europe three major players. China
and US are going into trade war on steel because China is following dumping policy to kill the local
steel manufacturers on abroad. Therefore, many countries including India has put sanctions on
import of steel from China. These all market changes play vital role in raw material as well as
finished goods prices in market which ultimately lead to profit fluctuations in steel companies.

Provided all these factors still the JSW steel is doing very well and maintaining good profits just
booking loss for 1 year.
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Equity capital:

Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Total Equity 2,42,841.80 2,57,246.00 2,10,490.30 2,47,750.00 2,84,850.00

The firm’s equity capital is growing except it reduced on 2015-16 FY due to losses made by the firm.
The company is retaining a huge amount of profits which is reflecting in rise in equity capital. Currently
the Indian Infrastructure market is in growth stage and requires huge investments on major rail, road,
ports sectors. Therefore, JSW steel Is investing regularly in increasing its steel producing capacities.
The rising equity capital is being used for the same purpose.

Calculating ROE:

Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

ROE 5% 8% -17% 14% 16%

As stated earlier the steel sector market is very fluctuating and hence it is very difficult to maintain
profits. Therefore, the ROE of the firm is also very fluctuating. However, firm has done well in 2017-
18 and ROE has improved. Considering the steel sector conditions we can say JSW steel is doing far
better .

Average dividend paid:

Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
Divident paid 222.3 571.6 182.9 180 50

The company is regularly paying dividend however the dividend payment has been reduced over
years as reflected in above data. This is due to raise in infra investments by India government and
which has resulted in increased requirement of steel. To keep up with future steel demands the firm
is investing in increasing manufacturing capacity, R&D and raw material (coal block etc)
procurement. The investors have positive response for this change and the company’s share price
has improved in last two years. Since the firm is regular in payment of dividend it also generates
confident on investors as it will maintain good profits over years.

Payout Ratio and Retention Ratio:

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Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Divident paid 222.3 571.6 182.9 180 50
Net Income 13,345.10 21,664.80 -35,296.70 35,770.00 46,250.00
Payout Ratio 0.017 0.026 -0.005 0.005 0.001
Retention Ratio 0.983 0.974 1.005 0.995 0.999

As we can see the payout ratio is low as compared to retention ratio because the firm is re-investing
in increasing capacity of production to meet the future market demand.

Average Growth Rate:

Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Divident paid 222.3 571.6 182.9 180 50
Net Income 13,345.10 21,664.80 -35,296.70 35,770.00 46,250.00
Payout Ratio 0.017 0.026 -0.005 0.005 0.001
Retention Ratio 0.983 0.974 1.005 0.995 0.999
ROE 5.5% 8% -17% 14% 16%
Average Growth 5.40% 8.20% -16.86% 14.37% 16.22%

The equity growth rate is quite good and rising substantially over years. The firm is growing at good
pace and that’s why maintaining no 1 steel manufacturing firm in terms of turnover. JSW steel has
been keeping up with market and in spite of still competition from China and Europe it is growing its
business in US and other countries as well. The growth in equity reflects the same.

Current market scenario are mixed as Indian government has increased investment in infra leading
to huge steel demand for railways and roads sector however International market is suffering from
slow growth and trade war and sanctions. Provides India maintaining good relations with US and
JAPAN and Europe, the steel sector will grow and remain profitable. The raw material issues of
obtaining coal blocks , power and raw steel has been taken care by the government this could also
help in faster growth of steel manufacturing.

Financially with strong balance sheet and market share JSW steel can be expected to grow and faster
rate and generate good results for its investors.

References
Bloomberg. (n.d.).
https://www.bloomberg.com/research/stocks/private/person.asp?personId=11460495&priv
capId=881242. Retrieved from bloomberg.com.

times, E. (n.d.). https://economictimes.indiatimes.com/industry/indl-goods/svs/metals-mining/jsw-

techno-projects-management-ltd-to-acquire-49-shares-brpl-in-
odisha/articleshow/62116308.cms. Retrieved from economictimes.com.