1

“A study on Investment analysis of TATA STEEL”

A

Field project

In partial fulfillment of

Integrated Master of Business Administration

By

Pradeep Kumar

CUJ/I/2012/IMBA/21, Sem. 4th

Centre for Business Administration

Central University of Jharkhand, Ranchi

Under the supervision of

Mr. Vijay Kumar Sharma

Asst. Professor

Centre for Business Administration

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DECLARATION FROM STUDENT

I hereby declare that the work incorporated in this report entitled “A study of Investment

analysis on TATA STEEL” is the outcome of original study undertaken by me Carried out

under the guidance of Mr. Vijay Kumar Sharma, Asst. Professor, Central University Of

Jharkhand.

I further declare that the matter in this report has not been submitted by me as a whole or in part

at any other University or Institution for the award of any Degree or Diploma.

Date- ----------------------

Place- (Pradeep Kumar)

Integrated MBA

CUJ/I/2012/IMBA/21

Centre for Business Administration

3

CERTIFICATE FROM CENTRE

This is to certify that the contents of this thesis entitled “A study on Investment analysis of

TATA STEEL” by Pradeep Kumar (21) 4th

Sem. submitted to Center for Business

Administration (CUJ) for the Award of Degree Master of Business Administration (MBA) is

original research work carried out by him under my supervision.

This report has not been submitted either partly or fully to any other University or Institute for

award of any degree or diploma to best of my knowledge.

Date- ------------------------------

Place- (Mr. Vijay Kumar Sharma)

Asst. Professor

4

PREFACE

Master of Business Administration is a course, which combines both theory and its applications

as its contents of study in the field of management. As part and parcel of this course, every

aspirant has to prepare Report on particular a particular topic .The purpose of this report is to get

the in depth knowledge regarding how an expert make investment decision.

One of the India renowned steel companies is Tata Steel, which is being researched by me from

the Investment perspective. By studying TATA STEEL from an investment perspective I would

be able to know whether it is lucrative or not to invest in TATA STEEL. My finding is totally

based on the fundamental and technical analysis.

The data for analysis had been collected through the Secondary sources like Annual report,

Newspaper, books.

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ACKNOWLEDGEMENT

“Acknowledgement is an art, one can write glib stanzas without meaning a word,

and on the other hand one can make a simple expression of gratitude”

We express our deep and sincere thanks to our guide Mr. Vijay Kumar Sharma. Initially he

helped me in selecting this project and then guided me throughout the project. He also helped me

by taking a lot of pain and sacrificing their personal valuable time in completion of this project

report.

I would like to thank my Liberian, who took adequate care & effort in searching books,

magazines, journals, etc., so that I could complete my project smoothly and well in stipulated

timeframe.

Last but not the least: I would like to cite my beloved parents, seniors and all my friends for their

and encouragement, support and blessings. These pages could scarcely have been written without

their help.

We express our gratitude to the Head and Faculty members of Center for Business

Administration (CUJ), who directly or indirectly helped me.

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EXECUTIVE SUMMERY

This report is an outcome of a study of investment analysis of Tata Steel.

This research has help in knowing that on which basis the investors take

decision to invest in the company

The research conducted by me is the combination of both Applied and

Descriptive Analysis. The investment analysis is based on the Fundamental

and Technical analysis. Under the fundament analysis, I have done the

economic, industrial and company analysis and in the technical analysis I

had analyze share data of Tata Steel for the last 20 days by using line graph

of opening and closing price, total volume, moving average line of the

closing price and candlestick chart.

From the detail study of the different factor, I come to the conclusion that it

is good for the investors to invest in Tata Steel.

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TABLE OF CONTENT

SL.

NO.

TOPIC PAGE NO.

DECLARATION FROM STUDENT 7

CERTIFICATE FROM CENTRE 7

PREFACE 7

ACKNOWLEDGEMENT 7

EXECUTIVE SUMMARY 7

1 INTRODUCTION 1

2 RESEARCH METHODOLOGY 2-4

2.1 RESEARCH OBJECTIVE 3

2.2 PURPOSE OF THE STUDY 3

2.3 SCOPE OF THE STUDY 3

2.4 TYPE OF THE RESEARCH 3

2.5 SOURCES OF DATA COLLECTION 4

2.6 LIMITATION 4

3 INVESTMENT ANALYSIS 5-14

3.1 FUNDAMENTAL ANALYSIS 7-31

3.1.a INTRODUCTION 7

3.1.b ECONOMY ANALYSIS 8-14

GDP GROWTH 9-10

BALACE OF PAYMENT 11-12

FOREX RATE 13-14

3.1.c INDUSTRYANALYSIS 15-21

GLOBAL STEEL INDUSTRY 15-16

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INDIAN STEEL INDUSTRY 17-21

3.1.d COMPANY ANALYSIS 22-31

INTRODUCTION 22-23

FINANCIAL ANALYSIS 24-31

3.2 TECHNICAL ANALYSIS 32-41

3.2.a BASIC PRINCIPLES OF TECHNICAL ANALYSIS 32-33

3.2.b OBJECTIVE OF THE TECHNICAL ANALYSIS 33

3.2.c PURPOSE OF TECHNICAL ANALYSIS 33

3.2.d CHARTS USED IN TECHNICAL ANALYSIS 34-36

3.2.e DATA ANALYSIS 37-41

4 FINDINGS & CONCLUSION 42

Bibliography 43

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CHAPTER 1

INTRODUCTION

10

INTRODUCTION

The project undertaken is on “A study on Investment analysis of TATA

STEEL”

It describes how analysts decide to invest in the firm, based on the study of both

fundament factors and the technical tools. It is the study of how an investment is

likely to perform and how suitable it is for a given investor. Investment analysis is

key to any sound portfolio-management strategy. An investment analysis is a look

back at previous investment decisions and the thought process of making the

investment decision.

Investment analysis is a journey into a wealth of knowledge that is an exciting mix

of the practical and the analytical. It looks to technique to evaluate and to theory to

explain.

Tata Steel Ltd. is India‟s largest integrated steel player in the private sector and the

world‟s seventh largest steel producer with an annual crude steel capacity of around

30 million tonnes per annum (MT pa). This is the reason why I had decided to do

the investment analysis on this company.

This project describes whether investing in Tata steel is lucrative or not, and if it is

lucrative then how much risk is involved in it.

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CHAPTER 2

RESEARCH METHODOLOGY

12

Research objective

Purpose of the study

Scope of the study

Data sources

Type Of Research

Limitations

13

RESEARCH OBJECTIVE

To do Investment analysis of TATA STEEL

PURPOSE OF THE STUDY

To know how the economic environment effect the investment decision

To know how the market price of the share are fixed.

To study the share price movement of different Indian banks.

To know about the trend of number of volume traded.

To predict or forecast the future price movements.

To identify the pattern of fluctuation.

To know the financial strength of the company by the ratio analysis.

SCOPE OF THE STUDY

This project will be a learning device for the finance student.

Through this project I would study the various methods of the

fundamental and technical analysis.

The project would also be an effective tool for the investors who are

thinking to invest in Tata steel.

The ratio analysis conduct in the research will be useful for those who

want to analyse the financial statement of the company.

The economic analysis conducted in the research can also be used for

the fundamental analysis of other Indian firm. The following sources

have been sought for the preparation report:

Type of Research

Descriptive and analytical research is being undertaken so that to come to a

conclusion.

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SOURCES OF DATA COLLECTION

The entire data used in the report had been collected from the secondary

sources; as such there were no need of any data from the primary sources.

The following sources have been sought for the preparation report:

Tata steel annual report, its available database for the investors in its

official website.

The data collected for the technical analysis derived from the website-

www.moneycontrol.com.

The data collected for the economic analysis was mainly derived from

the government bodies‟ website, such as website of RBI, Ministry of

Statistics and Programme Implementation.

Also website of some international bodies has been extensively

searched for the purpose of collecting facts, such as World steel

Association.

Also, various text books on Security analysis and portfolio

management (like Punithavathy Pandian, S. Kevin), Financial

Management (M.Y.Khan, Prasanna Chandra and I.M.Pandey) were

consulted for the topic.

LIMITATION

Due to shortage of time it is not possible to cover all the factors and details regarding the subject of study.

The last year financial data had not been analysed because the company had not released its annual report, till yet.

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CHAPTER 3

INVESTMENT ANALYSIS

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“Investment analysis is the study of financial securities for the purpose of

successful investing.”

In the stock Market parlance, Investment Analysis is done for making a decision

regarding the buy and sell of the shares. Under investment analysis, the analyst

basically does two types of analysis, i.e.-

1. Fundamental Analysis

This relates to an examination of the intrinsic worth of the

company, to find out whether the current market price is fair, overpriced, or underpriced.

2. Technical analysis Technical Analysis is a security analysis methodology for

forecasting the direction of prices through the study of past market data, primarily price and volume

FUNDAMENTAL ANALYSIS TECHNICAL ANALYSIS

Economy Industry Company Traditional Modern

Analysis Analysis Analysis Analysis Analysis

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CHAPTER 3.1

FUNDAMENTAL ANALYSIS

18

INTRODUCTION

ECONOMY

ANALYSIS

INDUSTRY

ANALYSIS

COMPANY

ANALYSIS

INTRODUCTION

ECONOMY ANALYSIS

INDUSTRY ANALYSIS

COMPANY ANALYSIS

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INTRODUCTION

Fundamental analysis means analyzing the fundamental factors relating to the economy, industry

and company, that is why it is also called as EIC ANALYSIS.

The objective of fundamental analysis is to evaluate the present and future earning capacity of a

share based on the economy, industry and company fundamentals and thereby assess the intrinsic

value of the share. The intrinsic value is the present value of the true economic worth of a share.

The investor can compare the intrinsic value of the share with the prevailing market price to

arrive at an investment decision.

For example-

If (market value of the share < intrinsic value of the share)

The investors will decide to buy the share, as it is underpriced.

If (market value of the share > intrinsic value of the share)

The investors will decide to sell the share, as it is overpriced (since the market price of the

share is expected to come down in the future.)

Why three tier analysis?

The logic of this three tier analysis is that the company performance depends not only on its own

efforts, but also on the industry and the economy in which it operates. A company

belongs to an industry and the industry operates within the economy.

Three tier analysis (FUNDAMENTAL ANALYSIS)

COMPANY ANALYSIS

INDUSTRY ANALYSIS

ECONOMY ANALYSIS

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ECONOMY ANALYSIS

The performance of a company depends on the performance of the economy, as it impact the

companies in the numerous ways.

For example:-

If the economy is booming or tremendously growing nation income increasesdemand of the

goods increases (steel products) hence the industry and the companies in general tend to be

more prosperous

On the other hand,

If the economy is in recession or the growthnational income decreasesdemand of the goods

decreases (steel products)hence the industries and the company‟s growth, in general, will

dwindle.

Therefore, the analysis of the macro-economic environment is essential to understand the

behavior of the stock prices.

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1. GDP GROWTH

GDP indicates the rate of growth of the economy. It represents the

aggregate value of the final goods produced and serviced rendered in the

economy. The higher growth rate of the economy is more favorable to the

stock market

Financial year(FY) GDP Growth (at factor cost)

2003-04 7.97

2004-05 7.05

2005-06 9.48

2006-07 9.57

2007-08 9.32

2008-09 6.72

2009-10 8.59

2010-11 8.91

2011-12 6.69

2012-13 4.47

2013-14(estimated) 4.86

Source: RBI

0

2

4

6

8

10

12

GDP Growth (at factor cost)

22

As visible from the above table, the Indian economy after reporting fairly

robust growth of over 9 per cent during 2005-08, moderated to a growth of

6.7 per cent in 2008-09 because of the global financial crisis. But soon after

the various monetary and fiscal stimulus (like pruning the interest rate) the

growth surge to 8.5% above in 2009-10 and 2010-11.

Although the fiscal and monetary stimulus led to the surge in economic

growth, but this doesn‟t continue for long time. Soon the economy started

dwindling because of the macroeconomic imbalance (stubborn inflation,

unsustainable fiscal situation). Currently, from the two financial years India‟s

economy is reeling with the sub-5% growth.

But from the new fiscal year the situation will be optimistic as it is visible

from the following happenings:-

Sensex is continuously accelerating and recently on 25th march‟14 it

surged to a life time high of 22,702, because of the speculation of the

winning of capital friendly NaMo‟s government in the looming general

election. (PRESS TRUST OF INDIA, 2014)

Continuous endeavour of the Finance minister P.Chidambaram to leash

the fiscal deficit to 4.8% of GDP. (Bureau, 2014)

Clearance of the stalled projects.

Good estimation by the international bodies, like

International Monetary Fund said on its latest edition of the World

Economic Outlook released by the IMF(on 4th april‟14)- “India‟s growth is expected to recover from 4.4 per cent in 2013 to 5.4 per cent in

2014, supported by slightly stronger global growth, improving export competitiveness and implementation of recently approved investment

projects.”

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2. BALANCE OF PAYMENT

The balance of payment is a systematic record of economic transactions of

the residents of a country with the rest of the world during a given period of

time.

The main purpose of keeping this record is to know the international

economic position of the country and to help the government to take the

decision.

„TEN MILLION

Source:- statistic year book’14, Ministry of Statistics and Programme

Implementation

-1200000

-1000000

-800000

-600000

-400000

-200000

0

TRADE BALANCE

BALANCE OF PAYMENT(BOP)

EXPORT IMPORT TRADE

BALANCE

BALANCE OF

PAYMENT(BOP)

2003-04 303915 367301 -63386 -143993

2004-05 381785 533550 -151765 -115907

2005-06 465748 695412 -229664 -65896

2006-07 582871 862833 -279962 -163634

2007-08 668008 1035672 -367664 -369689

2008-09 857900 1405400 -547500 -97100

2009-10 863300 1423200 -559900 -64200

2010-11 1165700 1746100 -580500 -59500

2011-12 1482500 2394600 -912100 -68500

2012-13 1667700 2732100 -1064500 -20700

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As visible from the above table and graph, India‟s trade balance is

continuously eroding but on the other hand the overall balance of payment is

moving towards the surplus, mainly because surplus in the capital account.

The main reason for the eroding trade balance are-

heavy import of oil, coal, gold

The continuous rise in global crude oil prices due to the some factors

like Middle East political economy and recent Arab spring episodes.

reducing iron ore export earning

India exported 117 MT of iron ore in 2009-10 but soon the figure

show a steep decline to 18 MT in 2012-13. Now India is expected to be a net importer of iron ore.

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3. FOREX RATE

The term “FOREX” means the foreign currency. Therefore, the FOREX rate means

the value of the domestic currency with the foreign currencies.

FOREX rate of INR w.r.t. USD for last 10 year

(FOREX RATE, 2014)

Source:- RBI

From 2003-04 to 2012-13, the INR depreciated (w.r.t USD) but in very less

amount. But the year 2013-14 was very volatile, INR depreciated to all time low of

around 68.8 during august‟13, due to various reason, mainly the quantitative

easing by Fed reserve (because of this there chunk of money were withdrawn by

(FOREX RATE, 2014) FOREX RATE W.R.T.

US Dollar

2003-04 45.952

2004-05 44.932

2005-06 44.273

2006-07 45.285

2007-08 40.241

2008-09 45.917

2009-10 47.417

2010-11 45.577

2011-12 47.923

2012-13 54.409

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FIIs, which led to the decrease in the supply of USD). But soon after the august the

FOREX rate started dwindling because of the various supply-side and demand side

(hiking the import duties on the gold import) initiative and from the last 1 month

the INR is continuously appreciating because of the huge pumping of funds (which

leads to the increase in the supply of USD) by FIIs into the Indian Capital Market,

mainly because of the speculation of the stable government after the general

election.

FOREX rate of INR w.r.t. USD for last 6 month

source: Ministry of Statistics and Programme Implementation

DATE FOREX RATE W.R.T. USD

29-07-13 59.297

28-08-13 68.3611

30-Sep 62.777

29-10-13 61.463

29-11-13 62.34

30-12-13 62.002

29-01-14 62.201

28-02-14 62.072

28-03-14 60.10

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INDUSTRY ANALYSIS

An industry is a group of firm hat have similar technological of production and produce similar

products .each company can be characterized as belonging to an industry.

The performance of companies would, therefore, be influenced by the fortunes of the industry to

which it belongs for this reason an analyst has to undertake an industry analysis so as to study the

fundamental factors affecting the performance of the industry.

1. Global Steel Industry:

While global industrial production in 2012 dropped to its lowest level since 2009,

global steel production reached a record high of 1.55 billion tonnes, up by 1.2% as

compared to 2011. The growth came mainly from Asia and North America while

production in the European Union and South America decreased in 2012 compared

to 2011. Global steelmakers continued to witness supply growth outpacing demand,

with capacity utilization rates remaining consistently below 80%. Subdued steel

prices and a slowdown in demand growth from China continued to weigh on the

global steel sector in the past year. Annual production for Asia was 1.01 billion

tonnes of crude steel in 2012, an increase of 2.6% as compared to 2011. China‟s

crude steel production in 2012 reached 716.5 million tonnes, an increase of 3.1%

on 2011, resulting in a hike in the country‟s share of world crude steel production

from 45.4% in 2011 to 46.3% in 2012. The EU meanwhile recorded a decrease of

4.7% compared to 2011, producing 169.4 million tonnes of crude steel in 2012.

Among specific countries, Germany produced 42.7 million tonnes of crude steel, a

decrease of 3.7% on 2011. Italy produced 27.2 million tonnes, a 5.2% decrease

over 2011. France‟s crude steel production in 2012 was 15.6 million tonnes, a

decrease of 1.1%. Spain produced 13.6 million tonnes of crude steel in 2012, a

12.1% decrease on 2011. In 2012, crude steel production in North America was

121.9 million tonnes, an increase of 2.5% on 2011 while that for South America

was 46.9 million tonnes, a decrease of 3.0% on 2011. The US produced 88.6

million tonnes of crude steel, 2.5% higher than 2011.

The past year proved to be a challenge for the steel industry with apparent steel

usage increasing at the slowest rate since 2009. The euro zone crisis persisted

throughout 2012 and macro-economic pressures in major economies contributed

significantly to the global slowdown. Lower industrial production and reduced

investment in large scale infrastructure projects resulted in a marked decrease in

the growth of steel demand from both the developed and emerging markets.

Apparent global steel usage in 2012 had grown by only 1.2%. A modest pick-up in

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global steel demand is expected in 2013. Global apparent steel usage is forecasted

to increase by 2.9% to 1.45 billion tonnes in 2013, following the slower-than-

expected growth in 2012. Demand is likely to improve faster in emerging markets.

Apparent steel use in China, the largest steel producer and consumer, is expected

to grow by 3.5% in 2013 to 668.8 million tonnes following a 1.9% increase in 2012.

There are trends of demand recovery in the property sector and the demand for

infrastructure has also been strong since June, 2012. However, underlying demand

in the EU is not expected to improve much in 2013 despite moderate restocking

seen in the beginning of the year. Overall, steel demand is expected to remain

weak due to the continuing economic crisis in the developed countries and the

structural shift in the Chinese economy.

MAJOR STEEL PRODUCER, 2012

Source: World Steel Association

China, 716.5

Japan, 107.2

United States, 88.6

India, 76.7

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2. Indian Steel Industry:

Evolution of Indian steel industry

Steel Industry structure

Indian steel Industry can be divided into two main sectors Public sector and

Private sector. Further on the basis of routes of production, the Indian steel industry can be divided into two types of producers.

Integrated producers

They are those that convert iron ore into steel. There are three major integrated steel players in India, namely Steel Authority of India

Limited (SAIL), Tata Steel and RashtriyaI spat Nigam Limited (RINL). Secondary producers

These are the mini steel plants (MSPs), which make steel by melting

scrap or sponge iron or a mixture of the two. Essar Steel, Ispat Industries, and Lloyds steel are the largest producers of steel.

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Steel Production and Growth

India maintained its ranking as the 4th

largest steel producer in the World(after China, Japan and

USA) with a production of 77.6 million tonnes (estimated figures)of crude steel in 2012,

registering a growth rate of 5.6% over 2011 (source: WSA). The country has also been the

largest sponge iron producer in the world since 2002.

Finished steel demand in India, as per JPC estimates, softened as reflected in a 3.3%growth in

real consumption of finished steel during the financial year 2012-13 to 73.3 million tonnes. The

moderation in demand was mainly due to deteriorating global and domestic growth conditions.

Finished steel production for the financial year 2012-13 at77.6 million tonnes (JPC provisional

figures), shows a growth of 2.5% over the previous year.

The future outlook for the Indian steel industry is optimistic. The World Steel Association has

forecast a steel demand growth of 5.9% and 7% for 2013 and 2014respectively, which is higher

than the growth projected for developed countries and China.

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Challenges for Indian steel Industry

Compared to the global average per capita consumption of 150 kgs, India‟s per capita consumption of steel is still a mere 39 kgs., perhaps. Even by Asian

standards India have a long way to go in the consumption of steel. Technologically, the main hurdles before Indian steel industry are the cost of power and non

availability of metallurgical coke. (A brief report on Iron and See;industry in India, March'2013)

Un-remunerative Prices Stagnating demand, domestic oversupply, and falling prices in the last four years

have hit Indian steelmakers. Barring the sporadic rise in demand in the recent months, it has suffered from unremunerative prices to the extent that companies have been finding it difficult to maintain capital costs.

Endemic Deficiencies

These are inherent in the quality and availability of some of the essential raw materials available in India, example, high ash content of indigenous coking coal adversely affecting the productive efficiency of iron-making and is generally

imported. Advantage of high Fee content of indigenous ore is often neutralized by high basic index. Besides, certain key ingredients of steel making, e.g., nickel,

Ferro-molybdenum is also unavailable indigenously. Systemic Deficiencies

However, most of the weaknesses of the Indian steel industry can be classified as systemic deficiencies. Some of these are described here.

High Cost of Capital

Steel is a capital intensive industry; steel companies in India are charged an interest rate of around 14% on capital as compared to 2.4% in Japan and 6.4% in USA.

Low Labour Productivity

In India, the advantages of cheap labor gets offset by low labor productivity; e.g., at comparable capacities labour productivity of SAIL and TISCO is 75 t/man year and 100 t/man year, for POSCO, Korea and NIPPON, Japan the values are 1345

t/man year and 980 t/man year.

High Cost of Basic Inputs and Services High administered price of essential inputs like electricity puts Indian steel industry at a disadvantage; about 45% of the input costs can be attributed to the

administered costs of coal, fuel and electricity, e.g., cost of electricity is 3 cents in the USA as compared to 10 cents in India; and freight cost from Jamshedpur to

Mumbai is $50/ton compared to only $34 from Rotterdam to Mumbai. Added to this are poor quality and ever increasing prices of coking and non-coking coal.

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Opportunities for Indian steel Industry

The biggest opportunity before Indian steel sector is that there is enormous scope

for increasing consumption of steel in almost all sectors in India.

Unexplored Rural Market The Indian rural sector remains fairly unexposed to their multi-faceted use of steel. The rural market was identified as a potential area of significant steel consumption

way back in the year 1976 itself. However, forceful steps were not taken to penetrate this segment. Enhancing applications in rural areas assumes a much

greater significance now for increasing per capital consumption of steel. The usage of steel in cost effective manner is possible in the area of housing, fencing, structures and other possible applications where steel can substitute other

materials which not only could bring about advantages to users but is also desirable for conservation of forest resources.

Other Sectors Excellent potential exist for enhancing steel consumption in other sectors such as

automobiles, packaging, engineering industries, irrigation, and water supply in India. New steel products developed to improve performance simplify

manufacturing/installation and reliability is needed to enhance steel consumption in these sectors. Main objective here have to be improvement of quality for value

addition in use, requirement of less material by reducing the weight and thickness and finally reduction in overall cost for the end user. Latest technology must be adopted by Indian steel manufacturers for production of superior quality of steel for

these applications. For example, pre-coated sheets can be used in manufacture of Appliances, furnishings, electric goods and public transport vehicles. Production and

supply of superior grades of steel in desired shapes and sizes will definitely increase the steel consumption as this will reduce fabrication need; thereby reduce cost of using steel.

Export Market Penetration

It is estimated that world steel consumption will double in next 25 years. Quality improvement of Indian steel combined with its low cost advantages will definitely help in substantial gain in export market.

Potential rise in per capita steel consumption As per the report of the Working Group on Steel for the 12th Plan, there exist many

factors which carry the potential of raising the per capita steel consumption in the country, currently estimated at 55 kg (provisional). These include among others, an estimated infrastructure investment of nearly a trillion dollars, a projected growth

of manufacturing from current 8% to 11-12%, increase in urban population to 600 million by 2030 from the current level of 400 million, emergence of the rural

market for steel currently consuming around 10 kg per annum buoyed by projects like Bharat Nirman, Pradhan Mantri Gram Sadak Yojana, Rajiv Gandhi Awaas Yojana among others.

Clearance to the stalled projects

33

The Cabinet Committee on Investments (CCI) has approved the speedy execution of 36 infrastructure projects entailing Investments of Rs 1,830 billion (US$ 29.28

billion) to boost investor confidence, according to Mr. P Chidambaram, Union Minister for Finance, Government of India.

.

34

COMPANY ANALYSIS(TATA STEEL)

INTRODUCTION

Tata Steel Limited (formerly Tata Iron and Steel Company Limited (TISCO) is an Indian multinational steel-making company headquartered in Mumbai, Maharashtra,

India, and a subsidiary of the Tata Group. It was the 12th largest steel producing company in the world in 2012, with an annual crude steel capacity of 23.8 million tones, and the second largest private sector steel company in India (measured by

domestic production) with an annual capacity of 9.7 million tonnes after SAIL and JSW Steel.

Tata Steel has manufacturing operations in 26 countries, including Australia,

China, India, the Netherlands, Singapore, Thailand and the United Kingdom, and employs around 80,500 people (Annual Report, 2012-13). Its largest plant is located in Jamshedpur, Jharkhand. In 2007 Tata Steel acquired the UK-based steel

maker Corus which was the largest international acquisition by an Indian company till that date (Vaswani). It was ranked 471st in the 2013 Fortune Global 500

ranking of the world's biggest corporations. It was the seventh most valuable Indian brand of 2013 as per Brand Finance (India's top 50 brands, 2013). On February 12, 2012 Tata Steel completed 100 years of steel making in India

India’s Operations

Tata Steel founded India‟s first industrial city, now Jamshedpur, where it

established India‟s first integrated steel plant in 1907. The Jamshedpur Works currently comprises of a 9.7 MT pa crude steel production facility and a variety of finishing mills. Two new Greenfield steel projects are planned in the states of

Jharkhand and Chhattisgarh. Kalinganagar project is underway; it is set to augment production capacity by 3 MT pa in the first phase. Mines and collieries in India give

the Company a distinct advantage in raw material sourcing. Iron Ore mines are located at Noamundi(Jharkhand) and Joda(Odisha) both located within a distance of 150 km from Jamshedpur. The Company‟s captive coal mines are located at Jharia

and West Bokaro (Jharkhand).

Expansion plans

Tata Steel has set a target of achieving an annual production capacity of 100 million

tons by 2015; it is planning for capacity expansion to be balanced roughly 50:50 between Greenfield developments and acquisitions. Overseas acquisitions have already added an additional 21.4 million tonnes of capacity, including Corus (18.2

million tonnes), NatSteel (2 million tonnes) and Millennium Steel (1.2 million tonnes). Tata plans to add another 29 million tonnes of capacity through

acquisitions.

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Major Greenfield steel plant expansion projects planned by Tata Steel

include: a 6 million tonne per annum capacity plant in Kalinganagar, Odisha,

India; an expansion of the capacity of its plant in Jharkhand, India from 6.8

to 10 million tonnes per annum; a 5 million tonne per annum capacity plant in Chhattisgarh, India (Tata

Steel signed a memorandum of understanding with the Chhattisgarh government in 2005; the plant is facing strong protest from tribal

people); a 3 million tonne per annum capacity plant in Iran;

a 2.4 million tonne per annum capacity plant in Bangladesh; a 10.5 million tonne per annum capacity plant in Vietnam (feasibility

studies are underway); and A 6 million tonne per annum capacity plant in Haveri, Karnataka.

36

FINANCIAL ANALYSIS

TREND ANALYSIS

FINANCIAL

YEAR

RATIOS

FY

02-

03

FY

03-

04

FY

04-

05

FY

05-

06

FY

06-

07

FY

07-

08

FY

08-

09

FY

09-

10

FY

10-

11

FY

11-

12

FY

12-

13

EBITDA/Turnover 24.3

%

31.8

%

41.9

%

40.4

%

41.3

%

41.9

%

38.8

%

39.2

%

41.6

%

34.1

%

30.6

%

PBT/Turnover 14.5

%

24.8

%

36.3

%

34.4

%

35.7

%

33.7

%

30.1

%

28.8

%

33.3

%

27.5

%

22.3

%

Return on Avg.

Capital Employed

16.3

%

28.0

%

49.4

%

40.8

%

32.4

%

20.5

%

16.1

%

14.3

%

15.5

%

13.1

%

11.9

%

Return on Avg. Net

Worth

35.9

%

46.3

%

62.0

%

42.9

%

36.1

%

22.8

%

18.3

%

15.1

%

16.0

%

13.0

%

9.0

%

Asset Turnover 78.0

%

100.

4%

110.

1%

108.

1%

76.5

%

105.

4%

99.2

%

94.8

%

79.9

%

76.3

%

77.8

%

Inventory Turnover

(in Days)

43 39 37 45 43 42 43 46 42 45 45

Debtors Turnover

(in Days)

43 27 16 13 12 11 9 8 5 7 8

Gross Block to Net

Block

1.6 1.7 1.7 1.7 1.7 1.7 1.6 1.6 1.6 1.4 1.4

Net Debt to Equity 1.2 0.4 0.2 0.0 0.2 0.8 0.8 0.6 0.5 0.4 0.4

Current Ratio 1.4 1.0 1.1 1.1 2.2 0.9 1.1 1.2 1.6 1.0 0.9

Interest Cover

Ratio

5.1 22.8 29.2 43.1 37.0 9.4 7.4 5.8 7.8 9.8 6.5

Net worth per share 86 79 124 172 215 376 360 449 534 567 592

Earnings per share

(Basic)

27.4

4

31.5

5

62.7

7

63.3

5

65.2

8

66.8

0

69.4

5

60.2

6

75.6

3

67.8

4

50.2

8

Dividend Payout 33.0 24.0 24.0 23.0 26.0 30.0 29.0 17.0 19.0 20.0 18.0

37

% % % % % % % % % % %

P/E Ratio 4.9 12.2 6.4 8.5 6.9 10.4 3.0 10.5 8.2 6.9 6.2

INTERPRETATION

The above chart shows that from the last 2 years the EBITDA/Turnover had little bit dwindled.

In the year 2012-13 the EBITDA was 30.60% of the revenue, this is because of the various

reason such as hike in the Employee benefits expense

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

FY 02-03FY 03-04FY 04-05FY 05-06FY 06-07FY 07-08FY 08-09FY 09-10FY 10-11FY 11-12FY 12-13

EBITDA/Turnover

EBITDA/Turnover

38

INTERPRETATION

The above chart shows the tremendous slump in PBT/Turnover, this is because of the decrease in

EBITDA, reduction in disinvestment of non-current assets, etc.

INTERPRETATION

In the past 10 year, ROCE was at the peak in the FY 2004-05, i.e. 62%, but with

time the ratio slumped tremendously and in the financial year 2012-13it was 11.9%

because of various reasons such as cost inflation.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

FY 02-03

FY 03-04

FY 04-05

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

FY 10-11

FY 11-12

FY 12-13

PBT/Turnover

PBT/Turnover

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

FY 02-03

FY 03-04

FY 04-05

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

FY 10-11

FY 11-12

FY 12-13

Return on Avg. Capital Employed

Return on Avg. Capital Employed

39

INTERPRETATION

From the diagram it is clear that the company have good asset turnover ratio,

overall. Albeit, the ratio had decrease but still it is good (in the FY 2012-13 the

revenue was 77.8% of the total assets of the company).

INTERPRETATION

The company has a very sturdy inventory management system.

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

FY 02-03

FY 03-04

FY 04-05

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

FY 10-11

FY 11-12

FY 12-13

Asset Turnover

Asset Turnover

0

10

20

30

40

50

FY 02-03

FY 03-04

FY 04-05

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

FY 10-11

FY 11-12

FY 12-13

Inventory Turnover (in Days)

Inventory Turnover (in Days)

40

INTERPRETATION

The company had shown a huge improvement in its debtor‟s turnover period, this

reveals the robust credit rating of the company in the market.

INTERPRETATION

Tata steel‟s debt-equity ratio had increased from FY 2011-12 to FY 2012-13, and

now it have the optimum level of tax benefits and risk.

0

5

10

15

20

25

30

35

40

45

50

FY 02-03

FY 03-04

FY 04-05

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

FY 10-11

FY 11-12

FY 12-13

Debtors Turnover (in Days)

Debtors Turnover (in Days)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

FY 02-03 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10 FY 10-11 FY 11-12 FY 12-13

Net Debt to Equity

Net Debt to Equity

41

INTERPRETATION

The chart reveals the short-term solvency problem of the company. In the financial

year 2012-13 the company current assets were 90% of the current liabilities.

0.0

0.5

1.0

1.5

2.0

2.5

FY 02-03 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10 FY 10-11 FY 11-12 FY 12-13

Current Ratio

Current Ratio

0.0

10.0

20.0

30.0

40.0

50.0

FY 02-03

FY 03-04

FY 04-05

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

FY 10-11

FY 11-12

FY 12-13

Interest Cover Ratio

Interest Cover Ratio

42

INTERPRETATION

The debt servicing ability of the firm had eroded right from the global financial

crises, but still the ratio is quite favorable, as in the last financial year the EBIT was

around 6.5 times of the interest.

INTERPRETATION

The company‟s dividend payout ratio show the decreasing trend, thus now the

company is retaining more amount of profit which belongs to equity shareholder.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

FY 02-03

FY 03-04

FY 04-05

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

FY 10-11

FY 11-12

FY 12-13

Dividend Payout

Dividend Payout

43

INTERPRETATION:

The company profit-earnings ratio of the company had also decreased, thus the

investors are now getting more returns.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

FY 02-03

FY 03-04

FY 04-05

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

FY 10-11

FY 11-12

FY 12-13

P/E Ratio

P/E Ratio

44

CHAPTER 3.b

TECHNICAL ANALYSIS

45

Technical Analysis

Technical Analysis is a security analysis methodology for forecasting the direction of

prices through the study of past market data, primarily price and volume.

This is a process of identifying trend reversals at an early stage to formulate the

buying and selling strategies. Using several indicators, investors analyses the

relationship between price-volume and supply-demand for the overall market, as

well as for the individual stock. During an upswing, the number of shares traded is

greater than before, and in a downswing, the number of shares traded dwindles.

The rationale behind technical analysis is that share price behavior repeats itself

over time and analysts attempts to derive methods to predict this repetition. A

technical analyst looks at the past data so that to patterns. He then looks at

currents price data to see if any of the established patterns are applicable and, if

so, extrapolations1 can be made to predict the future price movements.

The basic premise of technical analysis is that prices move in trends or waves which

may be upward or downward. It is believed that the present trend are influenced by

the past trend and the projection of future trends is possible by an analysis of past

price trends. A technical analyst, therefore, analyses the price and volume

movements of individual‟s securities as well as the market index. Thus, Technical

analysis is really a study of past or historical price and volume movements so as to

predict the future stock price behavior.

ASSUMPTIONS:-

1. The market always moves in a trend. Expect for minor deviations, the stock

prices move in a trends. The price may create definite patterns too. The

trend may be increasing or decreasing.

2. Interactions of supply and demand determine the market value of scrip. The

market discounts everything. The price of the security quoted represents the

hopes, fear and inside information of the market players.

3. Technical analysis believes that past prices predict the future.

BASIC PRINCIPLES OF TECHNICAL ANALYSIS:-

The basic principles on which technical analysis is based are as follows:

1 Calculation of the value of a function outside the range of known value.

46

1. The market value of a security is related to demand and supply factors of a

security.

2. There are both rational and irrational factors which surrounds the supply and

demand factors of a security.

3. Security prices behave in a manner that their movement is continuous in a

particular direction for some length of time.

4. The shifts in demand and supply can be detected through charts prepared

specially to show market action.

5. Patterns which are projected by charts records price movements and these

recorded patterns are used by analysts to make forecasts about the

movement of prices in future.

OBJECTIVE OF THE TECHNICAL ANALYSIS:-

To understand and identify the Overbought and Oversold price levels as derived

from using all the historical data available.

To identify reversal patterns that might occur in overbought or oversold regions, so

as to profit from contra trend trades.

To maximize the gains from all sorts of trading activities, and minimize risk and

losses arising from such activities.

To identify the price levels where chances of a profitable trade are less, and

recognize 'price-patterns' in and at such levels if and when they occur to avoid such

trades.

PURPOSE OF TECHNICAL ANALYSIS

It identifies a pattern of fluctuations

It enables trader to make sense of the short term fluctuation

Short term experiences and it help in predicting the future

Movements of stock prices.

It enables effective decision making. Since most traders buy and sells stocks on the same day, they need to

decide quickly on the purchase and sale price, so technical analysis

help them in deciding.

47

Charts Used in Technical Analysis

Charts are a valuable and easiest of tools used in technical analysis. The graphical

presentation of data helps the investor to find out the trend of prices without any

difficulty. Charts also have a following uses:

Help to spot current trends for buying and selling

Indicate the probable future action of the market by projection

Show historical movements

Indicate the key areas of support and resistance

A chart represents of the demand and supply of a stock or commodity. The

horizontal axis represents time, with the price drawn as a line connecting

consecutive closing values. More sophisticated charts will show more detail; bar

charts also include the range from high to low, candlestick charts include the open

price along with a color and fill which reflects change relative to the previous close.

The basic data on which the chart is drawn are

1. Date

2. Price Band (Open, High, Low & Close)

3. Volume

The different charts used in technical analysis are:

Line Chart

Bar chart

Candlestick Chart

Line chart

The most basic of the three charts is the line chart because it represents only the

closing prices over a set period of time. The line is formed by connecting the closing

prices over the time frame. Line charts do not provide visual information of the

trading range for the individual points such as the high, low and opening prices.

However, the closing price is often considered to be the most important price in

stock data compared to the high and low for the day and this is why it is the only

value used in line charts.

Bar Chart

The bar chart expands on the line chart by adding several more key pieces of

information to each data point. The chart is made up of a series of vertical lines

48

that represent each data point. This vertical line represents the high and low for the

trading period, along with the closing price. The close and open are represented on

the vertical line by a horizontal dash. The opening price on a bar chart is illustrated

by the dash that is located on the left side of the vertical bar. Conversely, the close

is represented by the dash on the right. Generally, if the left dash (open) is lower

than the right dash (close) then the bar will be shaded black, representing an up

period for the stock, which means it has gained value. A bar that is colored red

signals that the stock has gone down in value over that period. When this is the

case, the dash on the right (close) is lower than the dash on the left (open).

Structure of a Bar Chart

49

Candlestick Chart

Another type of chart used in technical analysis is the candlestick chart, so called

because the main component of the chart representing prices looks like a

candlestick, with a thick „body‟ and usually a line extending above and below it,

called the upper shadow and lower shadow, respectively. The top of the upper

shadow represents the high price, while

The bottom of the lower shadow represents the low price. Patterns are formed both

by the body and the shadows. Candlestick patterns are most useful over short

periods of time, and mostly have significance at the top of an uptrend or the

bottom of a downtrend, when the patterns most often signify a reversal of the

trend.

While the candlestick chart shows basically the same information as the bar chart,

certain patterns are more apparent in the candlestick chart. The candlestick chart

emphasizes opening and closing prices. The top and bottom of the real body

represents the opening and closing prices. Whether the top represents the opening

or closing price depends on the color of the real body—if it is white/ blue/green,

then the top represents the close; black / red or some other dark color, indicates

that the top was the opening price. The length of the real body shows the difference

between the opening and closing prices. Obviously, white/green/blue real bodies

indicate bullishness, while black/red real bodies indicate bearishness, and their

pattern is easily observable in a candlestick chart.

Structure of a Candlestick Chart

50

DATA ANALYSIS

The BSE share price data of Tata Steel for last month (on daily basis)

Date Open

Price

High Price Low Price Close

Price

Total

volume

No of

Trades

Turnover in(Rs.in

Lakh)

07-Mar-14 369 372.9 365 370.25 961,478 19,416 3,555.46

10-Mar-14 369.25 370.85 362.85 364.25 743,445 15,174 2,724.48

11-Mar-14 365 365 343.15 344.15 1,801,219 38,188 6,307.85

12-Mar-14 341.3 348.6 337.4 339.6 1,752,105 32,768 6,003.68

13-Mar-14 342 347.8 334.4 336.8 979,606 20,575 3,354.07

14-Mar-14 333.25 342.8 332.2 341.75 1,022,618 23,242 3,464.78

18-Mar-14 345.1 347.9 339.45 340.7 693,985 14,648 2,387.86

19-Mar-14 342.5 359.2 340.65 356.3 1,687,537 34,975 5,958.85

20-Mar-14 357.35 359.9 347.65 350 923,958 18,292 3,265.63

21-Mar-14 352 365 352 362.5 1,278,658 28,175 4,613.91

22-Mar-14 363 363.6 360.3 361.85 81,280 2,254 294.05

24-Mar-14 365 367 356.35 362.95 1,150,634 20,184 4,160.32

25-Mar-14 363 371.3 361.9 366.7 1,005,797 19,747 3,701.79

26-Mar-14 370.4 375.9 370.1 374.3 906,479 18,424 3,384.91

27-Mar-14 374 379.1 372.6 374.85 670,745 12,098 2,523.65

28-Mar-14 378.4 382 376.25 380.9 638,779 11,463 2,425.95

31-Mar-14 384 396 383.5 393.85 1,247,521 24,124 4,867.42

01-Apr-14 394.5 403.3 386.25 401.3 1,552,805 26,687 6,160.83

02-Apr-14 403 404.9 399.05 403.45 821,639 14,113 3,306.20

03-Apr-14 403.1 411.9 394.65 398.55 938,915 17,282 3,783.91

04-Apr-14 400.35 404.5 395.55 401.9 604,087 11,354 2,423.69

51

REPRESENTATION OF CLOSING PRICE AND MOVING AVERAGE LINE GRAPH

OF CLOSING PRICE:

INTERPRETATION

The closing Price set through Moving average indicates upward trend line fitted on closing price

of the share during the study period, so from this It conclude that it will lucrative to invest in

Tata Steel and also it evolves very less risk.

300

320

340

360

380

400

420

Close Price

moving average

52

REPRESENTATION OF OPENING AND CLOSING PRICE ON LINE GRAPH:

INTERPRETATION

The movement of opening and closing price indicates a slight increase during the study period

and the situation is good from the investor‟s point of view, as the overall market capitalization of

Tata steel is increasing during the study period.

0

50

100

150

200

250

300

350

400

450

opening Price

Closing Price

53

CANDLESTICK CHART

:

INTERPRETATION

Its shows stock has higher opening price at maximum numbers of days compare to

closing price on the same day of the study period. It represents not a clear picture

of stock price at which the investors will decide to invest (since neither the black

body nor the white bodies show any trend), however the overall analysis of stock

price tells that it is favorable for the investors to invest at closing price of the stock,

i.e. on the end of the day

0

50

100

150

200

250

300

350

400

450

Open Price

High Price

Low Price

Close Price

54

REPRESENTATION OF LINE CHART-TOTAL VOLUME W.R.T. DAYS

INTERPRETATION

The above chart shows the huge volatility in demand /volume sales of the share as

a result of which the price the price is also little bit volatile, as it is visible from the

line chart of opening & closing price w.r.t. days

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

Total volume

Total volume

55

CHAPTER 4

FINDING AND CONCLUSION

56

FINDINGS & CONCLUSION

Future of the India‟s economic growth seems to be more optimistic/ sanguine.

With the inflation tightening policies, it seems that soon India will be able to leash the stubborn inflation.

India‟s BOP is also improving, thus providing favourable environment to the

company.

The industry also seems to grow as recently the Cabinet Committee on Investments (CCI) has approved the speedy execution of 36 infrastructure projects entailing Investments of Rs 1,830 billion.

The ratio analysis also indicates the management and overall efficacy, financial strengths also indicates that the company will be in better position

in the looming future.

From the technical analysis, I find that it will be lucrative to invest in Tata

Steel and also it evolves very less risk.

Also the overall analysis of the stock price by the candlestick chart reveals that for the sake of more profits the investors should invest at the closing price .

57

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