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Chapter I

INTRODUCTION

Objectives Scope Limitation

Global Economic Scenario

Its almost a decade since we entered into the 2000s. Economic growth in these

years wasnt so impressive for the western economies. It proves to be one ofthe worst economic periods for those economies. Indeed, the so-called fastest

growing economies (such as India, Brazil, China, Mexico, Russia, and

Indonesia) have seen a unprecedented economic expansion because, the

eastern economies were the producers and the western economies were the

consumer and the same trend would likely to continue as the companies,

nowadays, are more conscious about the cost. Rising input cost (or raw

material) are forcing the corporations in the industrialized economies to shifttheir focus on the cost-effective region to keep up the pricing competitiveness in

the specific industry, they are in. Change in consumer trend is also major

concern for the companies to invest more in the process of innovation, research

and development (R&D).

As the economic pace is picking up, global commodity prices have staged a

comeback from lows and global trade has also seen a decent growth over thelast two years. Unprecedented Government intervention and exceptionally large

interest rate cuts by the central bank in advanced and emerging economies

have contributed a lot to pull the global economy up from the deepest recession

since the World War II. Several Governments around the world launched the

stimulus packages to prop up the economic growth, generate employment

opportunities and the overall economic growth with the aim to reduce

uncertainty in the economy and increased confidence.


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Indian Steel Industry during Recession

The sharp fall in steel prices with the prevailing recessionary conditions in steel

has raised questions on the prospects of India's steel industry. Most of it is

reflected on the performance of the steel stocks in the market. Even if one

discounts for the negative speculation and undue and exaggerated fear that is

pulling all stocks down, the steel company stocks have been hit by specific and

genuine concerns. For example, Tata Steel, the least cost steel maker in India,

is faced with a significant challenge with Corus. The company has already

announced its plan to cut production in Europe by 20%. They have a larger

matter related to the pension funds and liabilities thereon.

Many steel producers have acquired steel making, processing or mining assets

in the past few years. All these assets have lost value today with the downswing

in the market. The current reality proves that these assets were bought

expensive. Their fate will depend on how long this recession will continue and

what will be the long-term growth path of the industry. It is well understood that

these assets were not gobbled up to take advantage of short-term conditions,

but, even on a longer term considerations, many of the acquisitions may prove

burdensome to Indian steel companies.

Present Economic Scenario of Indian Steel Industry

The domestic steel industry in India is worried about the growing imports of the

commodity, especially from China, and has sought intervention from the

government. According to the domestic industry, steel imports during the first-

quarter of the fiscal (April-June) shot up by a hefty 117 per cent.

Soaring demand for flat steel products from the automobile and white-goods

sector has triggered off the import of hot-rolled coils that are used to make flat

products. Imported finished steel is cheaper by at least 10 per cent as

compared to the domestic steel, even after considering the five per cent import

duty that is levied on all foreign-made steel.


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Domestic steel producers are demanding a hike in the import duty, or perhaps

even other curbs. The government, however, is wary, fearing this could fuel

inflation. The United Progressive Alliance (UPA) government has been facing

opposition heat for the past few weeks over the sustained price-rise. Despite

assurances by finance minister Pranab Mukherjee and other top leaders,

inflation continues to rule high in India. Good south-west monsoons this year

will hopefully cool down the prices especially of food items.

According to Beni Prasad Verma, Union Cabinet Minister for steel, thegovernment is carefully watching the trends in imports of steel into India and

may apply suitable policy measures to mitigate the adverse consequences of

any surge in steel imports, as and when required. The government is, however,

non-committal about enhancing the import tariff.

Last financial year (2009-10), Indias steel imports went up by 25 per cent to 7.3

million tonnes, as against imports of 5.8 million tonnes in the previous fiscal.

Despite these measures, steel imports continue to surge and the price of

domestic steel is also falling. During the April-July period, steel imports have

risen by over 65 per cent. Domestic consumption, however, grew by a little

more than 10 per cent to 20 million tonnes during the same period.

The Indian government, however, is confident that the countrys crude steel

production capacity will touch 120 million tonnes by 2012 (a slight fall in the

earlier projection of 124 million tonnes).

According to Verma, Union Cabinet Minister, state-owned steel companiesincluding Steel Authority of India Ltd (SAIL) and Rashtriya Ispat Nigam Ltd have

embarked on a massive expansion plan. The two companies will be investing

almost a trillion rupees over the next few years to expand their combined

capacity to 27.7 million tonnes from the existing 15.7 million tonnes.


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But Jamshed J. Irani, a steel industry veteran and director, Tata Sons Ltd

which owns Tata Steel, one of the largest private sector producers believes

Indias steel production will touch the 100 million tonnes-mark only by 2015.

1.1 Objectives

Primary Objective

To study the financial position of SAIL over the period of five years

Secondary Objective

To study the liquidity, solvency and profitability position of SAIL for the

period from 2006-07 to 2010-2011

To study the fixed asset position over the period of five years

To study the relationship between current assets and fixed assets

To estimate the profitability and sales for the future period

To have firsthand experience of functioning of large PSU Steel Plant

To have a practical experience of the functioning of a finance

Department of a steel producing company of India

To judge the success of the management in carrying on the daily

transaction of the company

To gain the in-depth knowledge of the tricks of managing the daily

financial activities of the RSP

1.2 Scope

During the post liberalization are the worlds assail as economic Indias

scenario has shown a great progress and is growing with increased phase this

has necessitated the complex and efficient ways of management. Thinking

practically the main concern is of the influence of external environment on

business providing a modern dimension to business to management. They find


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solution for many problems in the aspect of financial analysis. Financial

establishes inter relationship that exists among. The different items appeared in

the financial statements, which are effectively helpful to describe the company

should monitor key indication of operating performance and where possible

must compare, itself with the competitors in the industry.

A systematic financial analysis of accounting figure helps to analysis the

probable caused relationship among different items after analyzing scrutinizing

the past result which helps the management to prepare budgets, to formulate

company policy and to prepare future plan of action. It focuses on companys

relative performance in sales growth margins and assets management. It is a

simple tool where by a company can make its internal audit to evaluate internal

strengths and weakness of the part of the strategic planning.

The scope of the study is to find out financial performance of the SAIL for the

past five years. A sincere attempt has been made to include all the aspect

relating to the study. For this purpose analysis of financial performance of the

company has done from the last five years published financial statement and all

researchers should be included in the report.

1.3 Limitation

Every research has its own technical and managerial limitations.

Time was on of the main limitations of this study. Because of the lack of

time analysis is based on the secondary data collected from the balance

sheet, profit and loss accounts and other records of the organizations

from years 2006-2011. Ratio itself will not completely show the

companys good or bad financial position. Inter firm comparison was not

possible due to the non availability of competitors data. The study of

financial performance can be only a means to know about the financial

condition of the company and can not show a through picture of the

activities of the company.


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