Tata Steel Vibhu
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Transcript of Tata Steel Vibhu
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A
CPP REPORT
TITLED
TATA STEEL
For Fulfilling the requirement of the award of degree of BBA
SUBJECT: CPP I!S"#$%&
UNDER THE SUPERVISION OF
!r'( Sangeeta
Submitted To :- Submitted by :-
The dire)tor *ame :" +i,hu -o.al
Cla'' :" !BA #rd'em(
/oll *o( :" 01
Registration No. :- 14UIM34
Intitute o! "#n#$ement Studie
%u&u'(et Uni)e&ity* %u&u'(et
Se2tem,er 0$34&
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AC%NO/LED,E"ENT
In thi' 2ro
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Introduction
Backed by 100 glorious years of experience in
steel making, Tata Steel is among the
top ten steel producers in the world with an
existing annual crude steel
production capacity of 30 Million Tonnes er !nnum "MT!#$ %stablished in
1&0', it is the (rst integrated steel plant in !sia and is now the world)s
second most geographically di*ersi(ed steel producer and a +ortune 00
-ompany$
Tata Steel has a balanced global presence in o*er 0 de*eloped %uropean
and fast growing !sian markets, with manufacturing units in ./ countries$
t was the *ision of the founder 2amseti
4usserwani Tata$, that on .'th +ebruary,
1&05, the (rst stake was dri*en into the soil
of Sakchi$ 6is *ision helped Tata Steel
o*ercome se*eral periods of ad*ersity and
stri*e to impro*e against all odds$
Tata Steel)s 2amshedpur "ndia# 7orks has a
crude steel production capacity of /$5 MT!
which is slated to increase to 10 MT! by
.010$
The -ompany also has proposed three
8reen(eld steel proects in the states of 2harkhand, 9rissa and -hhattisgarh
in ndia with additional capacity of .3 MT! and a 8reen(eld proect in
:ietnam$
Through in*estments in -orus, Millennium Steel "renamed Tata Steel
Thailand# and 4atSteel 6oldings, Singapore, Tata Steel has created a
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manufacturing and marketing network in %urope, South %ast !sia and the
paci(c;rim countries$ -orus, which manufactured o*er .0 MT! of steel in
.005, has operations in the
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Before we discuss at the length of the company, we would like to throw some
light on the Tata 8roup of companies in present day ndia$
Tata
Steel is one of the *entures of the Tat 8roup but it has many successful
companies under one umbrella$ Some of the other notable Tata concerns and
their lines of businesses are shown below$
VIIO! O" THE #O$PA!% &'
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(e ma)e t*e di+erence t*roug*&
OurPeople
By fostering teamwork, nurturing talent, enhancing leadership capability and
acting with pace, pride and passion$
Our O+er
By becoming the supplier of choice, deli*ering premium products and
ser*ices and creating *alue for our customers$
Our Inno,ati,e Approac*
By de*eloping leading edge solutions in technology, processes and products$
Our #onduct
By pro*iding a safe workplace, respecting the en*ironment, caring for our
communities and demonstrating high ethical standards$
$i--ion &'
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-onsistent with the *ision and *alues of the founder 2amseti Tata, Tata Steel
stri*es to strengthen ndiaCs industrial base through the eEecti*e utili?ation
of staE and materials$ The means en*isaged to achie*e this are high
technology and producti*ity, consistent with modern management practices$
Tata Steel recogni?es that while honesty and integrity are the essential
ingredients of a strong and stable enterprise, pro(tability pro*ides the main
spark for economic acti*ity$
9*erall, the -ompany seeks to scale the heights of excellence in all that it
does in an atmosphere free from fear, and thereby reaFrms its faith in
democratic *alues$
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Our strategy :-Tata Steel is stri*ing to become the global
benchmark in *alue creation and corporate
citi?enship in the steel industry$
n %urope we aim to de*elop long;term partnerships with customers in our
chosen markets by unlocking the potential of steel$ 7e seek to create
inno*ati*e products and ser*ices to help our customers o*ercome their
challenges and be more successful in their markets$
7e do this in a responsible way$ 4othing is more important than the safety of
the people who work on our sites$ But we also act responsibly towards the
en*ironment and the communities we operate among$
7e ha*e (*e strategic priorities in %uropeA -ustomer +ocus, nno*ation,
9perational %xcellence, Gesponsibility and eople$
Customer focus
Our sales and marketing approach focuses on some of the orld!s most
demanding markets" including automoti#e" construction" packaging" rail" lifting $
e%ca#ating" energ& $ poer" and aerospace
'e are in#esting in pro(ects to impro#e our product mi% and ser#ice offering and
e are transforming our internal suppl& chain to impro#e customer ser#ice le#els
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Our teams ork closel& ith customers to understand their needs hich dictate
our production" suppl& chains and deli#er& acti#ities
Innovation
'e are pursuing a strateg& of market differentiation" hich in#ol#es ma%imising
the proportion of differentiated products and ser#ices in our sales ) products and
ser#ices that fe or no others can offer
'e conduct research programmes aimed at de#eloping cutting-edge
manufacturing and product technolog& and at impro#ing the sustaina*ilit& of steel
products through their life c&cles
'e seek to ork as closel& as possi*le ith our customers to de#elop the ne
products and ser#ices the& need to succeed in their on markets" *elie#ing that e
succeed if our customers do
Operational excellence
'e are constantl& in#esting to upgrade our manufacturing and distri*ution
facilities in order to impro#e their performance and cost competiti#eness
'e aim to esta*lish *est practice in our production plants" suppl& chain
management and deli#er& acti#ities in order to optimise ser#ice to customers
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Responsible behaviour
'e act responsi*l& toards the en#ironment in all our acti#ities" focusing on
sustaina*le ra materials usage" ater and energ& conser#ation" aste utilisation"
emissions reduction and land reclamation
'e support the de#elopment of *reakthrough technologies to deal ith the
challenge of car*on emissions
'e support the communities e operate among *& promoting sport and
encouraging their economic" en#ironmental" educational and social de#elopment
through financial support" the pro#ision of materials and the time and enthusiasm of our
emplo&ees
People
+he safet& of our emplo&ees is our num*er one priorit&
'e are committed to the people ho are instrumental to our success" our
emplo&ees
'e engage our emplo&ees and de#elop their capa*ilit& through training
'e foster teamork" nurture talent" enhance leadership capa*ilit& and
encourage our emplo&ees to act pace" pride and passion
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#O$PETITIO!
Tata Steel is undoubtedly the best steelmaker in the wrold$ t produces the
cheapest and best @uality of steel in the world$ n the last se*en years the
position of Tata Steel has reduced drastically because of -orus ac@uisition$
The results of the ac@uistion will be pro(table after .010$
$A.OR /O#A/ TEE/ P/A%ER
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$A!AGE$E!T E""I#IE!#%
The structure of the Board was recently modi(ed in .00' post the ac@uisition
of -orus ac@uisition to suitable incorporate changes which will lead to the
ade@uate reali?ation of synergies from the deal within the gi*en stipulated
time frame to reap the bene(ts from the much talked about and critici?eddeal$
OARD O"
DIRE#TOR
1H Board of Iirectors
5 independent, / non independent
4o of independent directors is more than one third of total number of
directors$
/EGA/ E!VIRO!$E!T
8lobal operations re@uire compliance with multiple and complex laws and
regulations$ n countries where the political systems are still e*ol*ing,
fre@uent changes in economic policy are common, in*estment guarantees
and property rights are secured, any unforeseen changes can expose the
8roupCs businesses to uncertainties$ The 8roup operations are primarily in
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countries where in*estment Jows are freer and where there are established
political, business and legal frameworks in place$ There is an established due
process to independently e*aluate country risk exposures for in*estments in
emerging economies
TATA TEE/ 1 PRODU#T
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"inancing and /iuidit3 trateg3 o4 t*e Tata teel Group in
re-pon-e to t*e glo5al economic cri-i-6
They ha*e responded by increasing production post commissioning of the 1$5
mtpa programme and focusing on performance impro*ement to neutralisethe eEect of reduced realisations, whereas in South %ast !sia, the focus is on
working capital management and cost reduction$ n %urope we ha*e cut
production by idling blast furnaces at three sites in order to align production
with demand as a part of the K7eathering the StormL initiati*e which
resulted in cash sa*ings of '1. million "
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THE EI# APPROA#H
76 E#O!O$%
The steel industry has traditionally been *ery sensiti*e to the changing
economic conditions$ The recent economic meltdown has created se*eralchallenges P which when addressed appropriately, can be countered to
positi*e eE ect$ 6owe*er, unlike the pre*ious global recessions, this time
around, all the countries ha*e come together and taken action$ !dditionally,
there has been a tremendous amount of go*ernmental response to the
global depression which is helping to bring about a possible easing of the
situation$
The global downturn also had a maor eEect on *arious industries dependant
on steel$ Maor contraction in the construction proects, automobiles, white
goods demand from the third @uarter of .005;0& resulted in the globaldemand for steel dropping by .1 compared to the le*el consumed in the
same @uarter of the pre*ious year$
The demand for steel declined by ./ in the
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ndian steel
production has increased by million tones e*ery year$ The economicreforms initiated by the go*ernment since 1&&1 ha*e added new dimensions
to industrial growth in general and steel industry in particular$ Steel industry
has been remo*ed from the list of industries reser*ed for the public sector$
!utomatic appro*al of foreign e@uity in*estment up to 100 is now
a*ailable$ rice and distribution controls ha*e been remo*ed from 2anuary
1&&., with a *iew to make the steel industry eFcient and competiti*e$
#ompan3
The year .005;0& was a historical one epitomised by the acute global
(nancial imbalance which initially appeared to ha*e spared ndia only to
impact the markets ad*ersely as the year rolled on$ The global economic
slowdown has impacted the steel sector as well$ !midst the turmoil in the
global marketplace, 2amshedpur 7orks performed remarkably creating many
records on the way$
ndian operations witnessed a less pronounced drop in demand of 11 in the
third @uarter, reJecting the reduced acti*ity in infrastructure and commercial
*ehicles$ Steel is re@uired by *arious industries as an important raw materialconstituent$
Tata Steel has taken aggressi*e steps to meet the challenges of these
diFcult times through maor initiati*es in cost reduction, process
impro*ement and production rationalisation$ The highest priority is being
gi*en to expanding steel producing capacity in 2amshedpur, and ensuring
raw material security for the %uropean operations which do not ha*e capti*e
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iron ore and coal resources$The Tata Steel 8roup has de*eloped a pipeline of
high @uality proects, which will be executed, though we will re;phase the
se@uence$ roects like the 3 million tone expansion in 2amshedpur, the
proposed steel plant in 9rissa and raw material proects in Mo?ambi@ue,
South !frica and -anada are key dri*ers of our future *alue creation$
+inancial!na
lysis
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alance *eet Anal3-i-
!SS%T SI%
.00/;0' .00';05 .005; 0&0
0$.
0$H
0$/
0$5
1
Tata teel
#apital 5udgeting
The ratio re@uired to calculate capital budgeting is mainly Iebt;%@uity ratio$
Tata steel has increasing debts$ So the company has gone in for debt
(nancing and thus, the company is ha*ing a comparati*ely higher borrowing
from the market$ Basically the Iebt;%@uity ratio has to be as high as possible
so that the company has lower borrowings and has to pay less interest$
Tata steel has increasing debts$ So the company has gone in for debt
(nancing and thus, the company is ha*ing a comparati*ely higher borrowing
from the market$ Basically the Iebt;%@uity ratio has to be as low as possible
so that the company has lower borrowings and has to pay less interest$
I!VET$E!T
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.00;0/ .00/;0' .00';05 .005; 0&;10000
0
10000
.0000
30000
H0000
0000
Tata teel
t can be seen that
in*estments in the last year has increased drastically from negati*e cash
Jows to positi*e cash Jows in in*estment$ This was result of in*esting
subsidiary companies especially Tata Steel 6oldings T%$ t made an
in*estment of about Gs 3,/33 crores against Gs '. lakhs$ This has lead to
increase in in*estments$
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.00/;0' .00';05 .005; 0&0
0$0
0$1
0$1
0$.
0$.
0$3
Tata teel
#a-* management
This re@uires cash ratio, which includes cash and cash e@ui*alent Q current
liabilities$ 9*er years this company has managed to keep up their cash
management at par with other companies$ n recent times this company has
raised their cash ratio as compared to pre*ious years$De5tor- $anagement
.00/;0' .00';05 .005; 0&0
10
.0
30
H0
Tata teel
This re@uires IebtorCs turno*er ratio
which is calculated by, IebtorsQSales$ This ratio has to be as low as possible
so as to gain maximum li@uidity for the company$ This means that the
debtors will return money in these many days$
Tata steel took o*er -orus in recent past and had taken a loan for that
purpose and due to this loan their IebtorCs turno*er ratio ust shot up from.&$51 to 33$H$
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.00/;0' .00';05 .005; 0&0
.
H
/
5
10
1.
Tata teel
In,entor3 $anagement
7e get in*entory turno*er ratio by, -ost of 8oods SoldQ!*erage or -urrent
eriod n*entory$ 6igh turno*er ratio is usually bene(cial for any company as
products tend to deteriorate as they are kept in a warehouse$
Tata steel has managed to keep their in*entory management *ery eFcient
during these years as we can see below that it keeps on increasing and that
is what e*ery company needs, a *ery eFcient in*entory management
system$
>!B>T%S
76HARE #APITA/
EUIT% #APITA/
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REERVE A!D URP/U
There was a steep increase in reser*es in .005;0& due to increase
in foreign currency translation reser*e, but in .005;0&, the company
gained Gs H0 crores in foreign exchange Juctuation reser*e$ 9n the
other side the company faced losses of Gs H&/ crores as actual loss$
.00H .00 .00/ .00' .0050
000
10000
1000
.0000
.000
Re-er,e- 9 urplu-
9*er the years the company has been increasing its income in share
premium account, through con*ersion of warrants and preference
shares$
E#URED /OA!
De5enture-
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Tata Steel placed 4on;-on*ertible Iebentures totaling upto Gs$ .,000crore in May .005 comprising of 3 series ha*ing phased maturities$ The-ompany further raised a .;year term loan of Gs$ .,000 crore in May.005$ n 4o*ember .005, the -ompany raised Gs$ 1,.0 crore through4on;-on*ertible Iebentures pri*ately placed with the >ife nsurance
-orporation of ndia, repayable in e@ual installments at the end of the/th, 'th and 5thyears$
n !pril .00&, the -ompany further raised Gs$ .,000 crore from a termloan and in May .00&, it pri*ately placed Gs$ .,10 crore of 4on;-on*ertible Iebentures repayable after 10 years$ Thus the -ompanyraised Gs$ &,H00 crore in a year marked by tight li@uidity$One important t*ing to note i- t*at t*e intere-t on de5enture-
i- increa-ing e,er3 3ear e,en t*oug* t*e amount o4
de5enture- *a- reduced con-idera5l36
/OA! and ADVA!#E
.003 .00H .00 .00/ .00' .0050
.000
H000
/0005000
10000
1.000
1H000
1/000
15000
.0000
ORRO(I!G
The
debt in the -ompanyCs consolidated balance sheet has increased
considerably after the -orus ac@uisition$ The gross debt in the Tata Steel
8roup was
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The increase was primarily on account of raising of new loans to the tune of
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f the performance of pre*ious years is compared it can be seen that the
loans and ad*ances reduced substantially as the ad*ance against e@uity was
con*erted into in*estments during the (nancial year and accordingly there
was an increase in the in*estments$
The
-ompany entered into a loan agreement with the State Bank of ndia and
other banks for Gs$ &,00 crores$ n 2anuary .005 Gs$ &,000 crores was repaid
with proceeds from the -ompanyCs Gights ssue and Gs$ 00 crores was
repaid on .5th +ebruary, .005$R n 4o*ember .00', the -ompany made a
rights issue oEering to shareholders in ndia, "i# 1 ordinary share for e*ery
(*e ordinary shares at a price of Gs$ 300 per share and "ii# & cumulati*e
compulsorily con*ertible preference shares "K--SL# for e*ery 10 ordinary
shares at a price of Gs$ 100 each$
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-!B>T%S
.005 .00' .00/ .00 .00H
0
1000
.000
3000
H000
000
/000
'000
#URRE!T /IAI/ITIE
In crore-
The current liabilities increased by Gs$ '' crores from a le*el of Gs$ 3,.3
crores as on 31st March, .00' to Gs, 5 crores as on 31st March, .005$ The
increase was mainly due to increase in the *alue of purchasesQser*ices on
account of expansion proects$
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$ G9+T !4I >9SS !Q-
Increa-e in Pro:t ; 4rom 200< to 20086
2003 2004 2005 2006 2007 20080
=
707=
20
2=
=
=0
0
H.$03
H&$'H
0$&1
1/$&&$&.
Increase in Profts
Tata steel showed steady rate in pro(t$
ts pro(t increased by 101.$31 to H/5'$03 from .003 to .005 i$e$ by
Gs 3/'H$'. crores$
+rom the abo*e table T!T! ST%%> has gi*en good pro(ts in the year
.00H and .00$
Iue to deal with -9G companyCs pro(ts declined
sharply but after .00/ the pro(t rate increased gradually$
Iecline in pro(ts in year .00' to .005 is because of Gecession hit
the market$
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The 8 Margin for .00/;0' was '$5 followed by 3&$'& in .00';05 and
3/$H3 in .005;0&$
.005;0& .005;0' .00';0/
/H00
//00
/500
'000
'.00
'H00
'/00
'500
5000
5.00
5H005.5&$01
'&00$&'
'050$&H!mount "Gs in -rs#
Depreciation&
-apital !ssets whose ownership does not west in the company is depreciated
o*er the estimated useful life or (*e years whiche*er is less$
n respect of other assets depreciation is pro*ided on a straight line basis
applying the rate speci(ed in Schedule 1H to the -ompanies !ct 1&/ or
based on estimated useful life whiche*er is higher$ 6owe*er, asset *alue up
to Gs .000 is fully depreciated in the year of ac@uisition$ The details of
estimated life of each category of assets are as underA Building 30 P /0 years$
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lant Machinery / P .1 years$
Gailway Sidings .1 years$
:ehicles and !ircrafts P 15 years$
+urniture, +ixture 9Fce %@uipments years$
ntangibles "computer software# P 10 years$
Ie*elopment of property for de*elopment of mines and collieries
are depreciated o*er the useful life of the mine or lease period
whiche*er is less, subect to a maximum of 10 years$ Blast furnace relining is depreciated o*er a period of 10 years
"a*erage expected >ife#$
Total depreciation for the +inancial ear .00/;0' accounted to Gs$ 51&$.& crs
followed by Gs$ 53H$/1 crs in .00';05 and Gs$ &'3$H0 crs in .005;0&$
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$ +4!4-!> GS=
TA A!D I!TERET RATE A!%A/I
+rom the abo*e balance sheet nterest charged in .005 is H1,H&3 "Gs
mn# and in .00& it decrease to 35,.53 "Gs mn# i$e$ -hange of ;5$H$
Tax charged in .005 was H0,H&3 "Gs mn# and in .00& it decrease to
3&,'1 "Gs mn# due to decrease in gross pro(t$
+inance for the -orus ac@uisition was raised through bridge loans and
later re(nanced by Tata Steel which has led to a dramatic increase in
the interest outJow in the !pril;2une @uarter the interest outJow was
Gs.H1$' crore compared to GsH1$/ crore for the same @uarter last year$
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Ii*idend olicy
Tata Steel has been continuously pro*iding di*idend to its shareholders to
maximi?e its wealth$ n the year .005;0& the company paid a di*idend of Gs
11/5$& crores$ The payment of di*idend is always (xed by the company
irrespecti*e of pro(ts or losses$
Tata Steel is gi*ing a signi(cant higher rate of di*idend year after year in
comparison to its nearest competitorCs$
n .00/;0' the year the company completed 100 years a di*idend of .
was issued to the shareholders$
.003 .00H .00 .00/ .00' .0050
.0
H0
/0
50
100
1.0
1H0
1/0150
Tata teel
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Tata Steel was initially gi*ing higher amount of di*idend initially on its !T$
But o*er a period of time, it decided to change its strategy and putting back
all its earnings on de*elopment of the company$
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"und "loF 9 #a-* "loF tatement-
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!nalysis of +unds +low and -ash +low Statements
S9
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n*entory "with reduction in (nished and semi;(nished in*entory and
increase in raw materials in*entory# and Iebtors$
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+4!4-!> G!T9S
Gatio !nalysis
9perating expenses are expected to increase marginally resulting in increaseof %BTI! margin of 35$'$But compared to pre*ious year the
%BTI!QTurno*er has reduced because the pro(ts were higher than last
years$
G9-% o*er the years has reduced because of slowdown as well as huge
in*entories of stock and new plants introduced in 2amshedpur$
!sset Turno*er is *ery good n last four years the assets were utili?ed to the
fullest but in the last year due to less demand, it reduced by 1, but in
o*erall terms it is optimally used all resources$
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.00H .00 .00/ .00' .0050
10
.0
30
H0
0
#urrent Ratio
Tata teel
The current ratio is a (nancial ratio that measures whether or not the
(rm has enough resources to pay its debts o*er the next 1. months$ tcompares a (rmCs current assets to its current liabilities$ Tata Steel has
a high amount of unutili?ed current assets$ The company has high le*el
of in*entory or 7$ Since the demand for steel has reduced drastically
the company is ha*ing huge in*entory and because of this the li@uid
ratio is low$
Iebtors Turno*er Gatio
Sear .003 .00H .00, .00/ .00' .0050
.0
H0
/0
50
100
1.0
DE0TORG#REDITOR TUR!OVER Ratio
The stakeholders of the company like distributors and suppliers ha*e a
lot of con(dence in the company$ This shows the creditworthiness and
brand *alue of the company$ Since debtors are paying back in
comparati*ely less number of days shows faster mo*ement of goods in
the market$
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"uture Pro-pect-
The -ompany has embarked upon setting up three green (eld steel plants in
eastern ndiaA
1. MT!U plant in 2harkhand
/ MT! plant in 9rissa
MT! plant in -hhattisgarh
2amshedpur Steel 7orks will become a 10 MT! unit by .010$
UMT! V million tonnes per annum
Solution for Sales "S+S# oEers based on the Theory of -onstraints "T9-#concept saw stabilisation in the steel di*ision$ The replenishment module
was extended to co*er 100 of the retail channel of T!T! TS-94, achie*ed
&0 co*erage in T!T! S6!=T%% and /0 in T!T! Steelium$ This resulted in a
reduction of stock outs in retail shops and more signi(cantly, a reduction in
channel stocks$ Geliability solutions were extended to direct customers in
the Steelium distribution$ +or the -onstruction roects segment, an S;IBG
"Simpli(ed Irum BuE er Gope# mechanism was implemented under the
Theory of strains supply chain impro*ement initiati*e which impro*ed the
a*ailability of rebars at the warehouses, thereby reducing instances of
delays and loss of orders$
The term focus is on the implementation of the K+it for +utureL restructuringin %urope, to continue with the 3 mtpa expansion proect in 2amshedpur ando*erseas raw material proects, to increase production *olume in ndia andoptimise working capital management across the 8roup to preser*e li@uidity
>ooking towards the future, the steel industryCs main contribution to thereduction of -9. emissions should be to further de*elop the use of by;products and to work with its customers to help design well, long lasting,more energy and material eFcient products$ !dditionally, impro*ements in
areas other than primary steel production may oEer further opportunities for-9. reduction