technical analysis sail vs tata steel

SECURITIES AND PORTFOLIO MANAGEMENT

TECHNICAL ANALYSIS of TATA STEELS LTD & STEEL AUTHORITY OF INDIA

LTD.

Industry Profile- Background

• Privatization of Iron & Steel Sector under New Industrial policy

• Imports of foreign technology ,FDI were freely permitted up to certain limits under an automatic route.

• Dominating giants Tata Steel takeover of the UK-Dutch steel company Corus (country's biggest buyout).

• LN Mittal-owned Mittal Steel acquired French steel company Arcelor (the world's no. 1 steel co) Arcelor Mittal;

• Korean steel giant POSCO was pumping money into mines & steel plants in Orissa(now cancelled)

Current Scenario(India)

• Expected Demand (2013-14)= 7 percent.• Total Expected Demand=75 million tonnes• Present Demand= 5.5 percent• Total demand in 2011-12=71 mil tonnes• Steel prod.is expected to reach 200 million

tonnes by 2020 as compared to 71 million tonnes recorded last year

• India is expected to leave behind USA and Japan in a couple of years.

Industry Structure

Iron & Steel Industry

Integrated producers

Secondary producers

Production Scenario• India is the 4th largest crude steel producer of steel in the

world.• In 2011-12 (prov), production for sale of total finished steel

(alloy + non alloy) was 73.42 mt.

Consumption Scenario• Acc.to the Ministry of Steel, domestic real steel

consumption grew 6.8 % YoY to 70.92 million tonnes. • The growth in consumption of steel has been impacted by

lower demand from steel using industries from automobiles and infrastructure to white goods and capital goods.

Export-Import

EXPORT IMPORT

SWOT ANALYSIS OF TATA STEEL

AND SAIL

StrengthTATA STEEL

• Mineral Reserves• Brand Value• Operations in various

Countries• Excellent integration with

Corus• Raises over 14 million tons of

ores from its captive collieries, iron ore mines and quarries

SAIL• Strong employee workforce

with over 130,000 employees

• Largest producer of iron ore and country’s second largest mines network.

• Biggest in-house research and development centres in Asia. SAIL's RDCIS (Research & Development Centre for Iron & Steel)

• Annual production of 13.5 million metric tons

Weakness

TATA STEEL• High cost of capital• Low labor productivity• Operational efficiency are

not as good as international leaders

• Slightly lagging in technological front

SAIL• High cost of capital• Low labor productivity• Dependent on the market

purchase for a key input - coking coal

• Govt. and political intervention affects operational efficiency

Opportunity

TATA STEEL • Enormous scope for

increasing consumption of steel in almost all sectors in India.

• Latest Technology must be adopted

• Export market penetration

SAIL• Enormous scope for

increasing consumption of steel in almost all sectors in India.

• Latest Technology must be adopted

• Export market penetration• Globalization with tie-ups

with international players

Threat

TATA STEEL• Government & regulatory

norms• Domestic and International

competition• India is plagued with violent

agitation against land acquisition

• Global Economic Slowdown

SAIL• Intensification of

competition from domestic as well as foreign steel producers.

• Subdued domestic demand for steel could result in excess steel capacity in the country.

• Adverse movement in prices of imported coking coal.

• Global Economic Slowdown

PESTEL ANALYSIS

The PESTEL terms include the political, economic, socio-culture, environmental and legal aspects from by which the company influenced. These factors are important because these factors are bound with each and every aspect of the society internally as well as externally.

POLITICAL• Government is launching the various schemes for the development of the infrastructure of

roads and transport.• Steel industries in India spends a huge amount on the freight and transportation with the

launch of various schemes in infrastructure company could be able to save some amount which company spends on the freight and transportation.

• The various liberalization schemes launched by the government is responsible for the tremendous growth in the various sectors but the particularly in this sector.

• Apart from this the mining policies of the government and other policies helped the industry in reduction of import duty and export duty and other things that were responsible for the high growth of the steel industry globally.

ECONOMICALThe economic aspect of pestel analysis includes market trends, inflation rate, demand and supply of the particular commodity and globalization. If these factors are in unstable in nature the company may face the tremendous loss.

• In 2008, United States economy faces the subprime crisis which affected each and every strong economy in a very negative way. Many foreign investments and equities got dampened because of the reduction in the confidence in the liquidity and the returns on the investment.

• Steel industry may got affected because of the cyclical economic condition. Many industries like automobiles, appliances and construction depends on the steel industry and if industries faces any kind of downturn in the economy, the steel companies may face losses.

• Steel production process are completely dependent on the energy market which can affect the Tata steel in the economic manner.

• With the change in the economic conditions a company should change its policy accordingly and to sustain in the depression period a detail research and survey should be done by the particular country.

SOCIO-CULTURAL

Socio-culture aspect means the achievements or the willingness of the company to do the welfare of the people in society without the profit earning motive. It includes the initiatives taken by the company in the form of the skills, and attitudes towards work and other aspects which can be dealt under the development of the society.

TECHNOLOGICAL FACTOR

Technological aspect in the pestel analysis means that how company is able to use the present technologies in the productions process it can also state as how company is using the technology for the maximum utilization of the resources.• Technological aspect should be always in the nature of changing as per the new

circumstances.• Tata steel and the sail(steel authority of India ) started the E-PORTAL system in middle of

year 2000. This technology is also known as the METAL JUNCTION which is helpful for not only to Tata steel but also to entire industry.

• With the help of this technology e market is the biggest market for the purchasing and selling of the steel in the world.

ENVIRONMENTAL FACTOREnvironmental aspect means how the company is protecting the environment from the pollution and other factors which are harmful for the society and nature .it includes the pollution problem, waste disposal methods of the company, noise control and other factors which can be included under the environmental aspect.

• In the steel industry there is a major problem of the emersion of the co2 gas during the production process which is extremely harmful for the nature and human being itself. Reduction of CO2 is necessary.

LEGAL FACTOREvery company is bound with some internal and external rules and regulations which is helpful for the smooth flow of the company. It also includes the international laws and regulations that company is bound to follow it also include the safety and health regulations of the employees of the company.

KEY RATIOS AND CHARTS

EBITDA RATIO

• A type of measurement assessment used in analyzing the profitability of a company by taking that company's revenue figures and comparing them with the earnings of the company. This ratio helps in determining the percentage of revenue left over after the company pays its operating expenses.

• EBITDA= EARNINGS BEFORE INTEREST , TAX DEPRECIATION AND AMORTISATION/TOTAL SALES.

TATA SAIL

2009 2013 2009 2013

EBITDA 18,174.64 12,321.21 11,406.20

6,416.31

TOTAL REVENUE

142,030.39 126,381.89 42,168.39

49,120.70

RATIO(%) 12.79 9.74 27.04 13.06

Long term debt equity ratio

• It shows the relationship between long term borrowings of the company and the equity share capital employed.

• Long term debt equity= long term debt/equity employed

TATA SAIL

2009 2013 2009 2013

Long term debt

26,946.18 25,911.51 7,538.79 21,500.57

equity 730.79 971.41 4130.40 4,130.53

Ratio 36.87 26.67 1.82 5.20

Return on Capital Employed

• It explains how efficiently the company is utilising the capital in the organization. The more it is , the better it is .

EBIT / Capital employed

TATA SAIL

2009 2013 2009 2013

EBIT 14816.14 5410.48 13141.40 7758.89

Total Capital

Ratio

Inventory Turnover Ratio

• It explains how fast the organization is able to convert its inventory/stock into sales.

• It is one of the benchmark ratios for investors to test the solvency of any entity

• Higher it is , the better it is

Sales / InventoryTATA SAIL

2009 2013 2009 2013

Sales 43187.66 38199.43 24348.52 45598.26

Inventory 3480.47 5257.94 10320.31 16192.02

Ratio 12.40 7.26 2.35 2.81

Fixed Assets Turn over Ratio

• It explains how much investment in fixed assets have been made in order to generate revenues.

• Or at what extent the revenues got generated with investing into fixed assets

• Investors check this ratio to see hoe effective the investment in Fixed asset was

Sales / Total Fixed AssetsTATA SAIL

2009 2013 2009 2013

Sales 24348.52 38199.43 43187.66 44598.26

Total fixed Assets

1099.54 2487.05 12305.39 16777.40

2.21 15.35 3.50 2.71

APATM RATIO

Adjusted Profit After Tax Margin ratio is calculated by dividing net income after taxes by net sales. A company's after-tax profit margin is important because it tells investors the percentage of money a company actually earns per rupee of sales.

TATA STEEL

RATIO 2013 2009

APATM (%) 11.96 19.38

We see a decline in adjusted profit margin ratio in the company from 2009 to 2013. Which means that company was not able to generate revenue from its sales in the same proportion as 2009. The reason could be increase in company’s expenditure over the years.

COMPONENT 2013 2009

Sales (in Rs. Crore) 42317.24 26843.53

Net profit (in Rs. Crore) 5062.97 5201.74

Source: moneycontrol.com

SAIL

COMPONENT

RATIO 2013 2009

APATM (%) 4.34 12.66

COMPONENT 2013 2009Sales (in Rs. Crore) 44,598.26 49,331.47Net profit (in Rs. Crore) 2,170.35 6,174.81

Incase of SAIL we notice a major decline in net profit of the company. The main reason accountable for this decline was increase in miscellaneous expenditure, which increased from 878 crore in 2009 to 5197 crore in 2013.


CPM RATIO

Cash Profit Margin Ratio is used to measure operating performance. That is capability of company to generate cash from its sales.

Formula:

(Pat+Dep)/Gross Sales

TATA STEEL

We see a decline in the ratio from 2009 to 2013 indicating a decline in the company’s operating performance. This is again due to the decline in company’s ability to generate cash/profit from it’s sales.

RATIO 2013 2009

CPM (%) 15.84 23.00

COMPONENT 2013 2009Sales (in Rs. Crore) 42317.24 26843.53PAT plus Depreciation 6703.25 6175.14


SAIL

Here we see a sharp decline in company’s operative performance. The sharp decline in the ratio is primarily due to fall in profit, which can accountable to increase in company’s expenses.

RATIO 2013 2009

CPM (%) 7.15 15.31

COMPONENT 2013 2009Sales (in Rs. Crore) 44,598.26 49,331.47PAT plus Depreciation 3573.33 7456.93


INTEREST COVERAGE RATIO

Interest Coverage Ratio is used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period:

The lower the ratio, the more the company is burdened by debt expense.

TATA STEEL

Although there has been a slight decline in interest coverage ratio, it still very healthy and shows that company has enough liquidity to cover it’s interest obligations.

RATIO 2013 2009

Interest Coverage 5.18 5.91

COMPONENT 2013 2009EBIT (In Rs. Cr.) 11,126.24 9,176.44Interest Expense (In Rs. Cr.) 1,876.77 1,489.50


SAIL

Although company’s interest coverage ratio is still safe, but we notice a sharp decline in the ratio from 2009 to 2013. This is again due to fall in company’s profit generating ability.

RATIO 2013 2009

Interest Coverage 5.33 37.23

COMPONENT 2013 2009EBIT (In Rs. Cr.) 3,333.68 8,941.44Interest Expense (In Rs. Cr.) 747.66 253.24


Profit before depreciation, interest and tax margin (%)

• PBDITM (%) =operating income before depreciation,interest and tax/net sales

• Operating margin gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales.

• The higher the margin, the better.

TATA STEEL (cr)• 2013=11,353.75/38,199.43 =29.72%

• 2009=9,779.51/24,348.32 =40.16%

SAIL (cr)• 2013=3,333.68/44,598.26 =7.48%

• 2009=10,944.21/43,798.58 =24.99%

The ratios for both the Companies has dropped from 2013 to 2009The drop for SAIL has been more than for TATA STEEL.

Return on Net Worth (%)

• ROE= NET INCOME/NET WORTH • Net Worth=Share Capital + Reserves & Surplus• It reveals how much profit a company generates with

the money that the shareholders have invested

• ROE is useful for comparing the profitability of a company with that of other firms in the same industry.

• The higher the ratio, the better it is.

TATA STEEL• 2013=5062.97 /55,209.68 =9.17%

• 2009=5,201.74/29,704.60 =17.51%

SAIL• 2013=2,170.35/41,024.64 =5.29%

• 2009=6,174.81/27,984.10 =22.065%

The ratios for both the Companies has dropped from 2013 to 2009The reserves have increased considerably for TATA STEEL whereas for SAIL, reserves have not increased much.The drop for SAIL has been more than for TATA STEEL.

CURRENT RATIO

SAIL TATA STEEL0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

20092013

INTERPRETATION

• The current ratio of SAIL shows improvement, it has increased by 60% over the four year period which is a good sign as it shows that they are increasing their current assets.

• The current ratio of TATA Steel decreased marginally over the period which is not good as their current ratio is already quite low as compared to other competitors and industry benchmark.

DEBT EQUITY RATIO

SAIL TATA STEEL0

0.2

0.4

0.6

0.8

1

1.2

1.4

20092013

INTERPRETATION

• The DER of SAIL increases because they have increased the debt portion by many folds to arrange funds for the available opportunities.

• The TATA Steel has improved their debt equity position by decreasing the debt and at the same time by increasing the equity capital to make their firm less leveraged.

DEBTORS TURNOVER RATIO

SAIL TATA STEEL0

5

10

15

20

25

30

35

40

45

50

20092013

INTERPRETATION

• SAIL DTR is quite low in comparison to TATA Steel. It is favourable to have higher DTR because it shows that how many times company is collecting debts from its debtors.

• On the other hand TATA Steel’s DTR is good and also matching to industry benchmark.

Types of Charts

Line Chart

• Represents only the closing prices over a set period of time

Types of Charts

Bar Chart

• Vertical line represents the high and low for the trading period, along with the closing price

Types of Charts

Candlestick Chart

• Combination of a line-chart and a bar-chart; represents the range of price movement over a given time interval

Moving Averages

Simple Moving Average(SMA)

Moving Averages

Exponential Moving Average(EMA)

TATASteel – Open high low close chart (OHLC) bar chart

THANK YOU

technical analysis sail vs tata steel

Economy & Finance