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Financial Statements Analysis

Tata Steel & SAIL

Burde Sahil Rajendra - 19AG30006

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BRIEF COMPANY BACKGROUND

01

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Founded in 1907, 114 years back

Founded in 1954, 67 years back

Private Company, owned by TATA group

Public Sector Undertaking, owned by Indian government

Mumbai, Maharashtra

New Delhi, India

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Revenue: US $24 Billion (2021)

1.81 Lakh Crore INR

Revenue: US $8.8 Billion (2021)

62569 crores INR

Employee Number: 32,364

(2021)

Employee Number: 63,433

(1 Nov 2021)

Products: Long Steel products, Wire products, Steel casting pipes, household goods

Products: Flat Steel products, Long Steel Products, wheel and axle for Indian Railways

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INDUSTRY OUTLOOK

02

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Market Size

India is the world’s second-largest steel producer
India's crude steel and finished steel production increased to 108.5 MT and 101.03 MT in FY20, respectively. Between April 2020 and January 2021, India's cumulative production of finished steel at 76.04 Million Tonnes

Government Policies and Road Ahead

Steel Research & Technology Mission of India. (SRTMI)
Steel Development Fund
National Steel Policy 2017.
After declining 13.7% in 2020, India's steel demand is expected to rebound by 19.8% in 2021, the highest rate among the top-10 consuming nations

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Balance Sheet, P&L and Cash Flows (for last three years)

03

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Balance Sheet

(In Crores)

Total assets saw a 7.2% increase between F19 to F20 and a decrease of 1.97% between F20 and F21
Total liabilities saw a 7.37% increase between F19 to F20 and a decrease of 3.6% between F20 and F21
This is because the non-current liabilities have gone down by 13.7% between F20 and F21
Gross debt fell 24 per cent year-on-year (YoY) to Rs 88,500 crore at the end of March in 2021.

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Balance Sheet

(In Crores)

Total assets saw a 7.6% increase between F19 to F20 and a decrease of 6.05% between F20 and F21
Total liabilities saw a 9.08% increase between F19 to F20 and a decrease of 13.55% between F20 and F21
SAIL had decreased its net debt by Rs 16,131 crore to Rs 35,350 crore during the 2020-21 financial year.

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Cash Flow

(In Crores)

The net profit before tax grew at a CAGR of 2 % between between FY19 and FY21, which is totally attributed to COVID, as the drop between FY19-20 is 90 % while the PBT increased by 90% from FY20-21
The CFF is large and negative in the year 2021 indicating that the company has reduced its debt by a significant amount.

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Cash Flow

(In Crores)

The net profit before tax grew at a CAGR of 30% between between FY19 and FY21, which is totally attributed to COVID, as the drop between FY19-20 is 6 % while the PBT increased by 54% from FY20-21.
Although CFO fell in the year 2020, it recovered in the year 2021.

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P&L

(In Crores)

Total revenue saw a decrease of 11.3% between FY19 to FY20 and but an increase of 11.9% between FY20 and FY21
Similarly, EBITDA decreased by 48.6% in F19-20 and increased by 91.6% in F20-21.

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P&L

(In Crores)

Total revenue saw a decrease of 7.9% between F19 to F20 and but an increase of 12.08% between F20 and F21
EBITDA increased by 4% in F19-20 and increased by 34.3% in F20-21. This is due to the decrease in the cost of goods sold over time.

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GENERIC RATIO ANALYSIS

04

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TATA Steel Limited

Steel Authority of India Limited

Turnover Ratios	March 2021	March 2020	March 2019	March 2018
Asset Turnover Ratio (%)	63.66	59.48	67.50	63.00
Inventory Turnover Ratio (X)	4.70	4.79	4.98	4.66
Return on Equity (%)	87.14	-180.10	168.43	0.00
Return on Assets (%)	8.24	4.48	7.66	3.33

Turnover Ratios	March 2021	March 2020	March 2019	March 2018
Asset Turnover Ratio (%)	57.95	48.58	56.78	49.86
Inventory Turnover Ratio (X)	3.53	2.59	3.43	3.38
Return on Equity (%)	8.85	5.08	5.71	-1.34
Return on Assets (%)	3.28	1.61	1.87	-0.42

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TATA Steel Limited

Steel Authority of India Limited

Margin Ratios	March 2021	March 2020	March 2019	March 2018
Gross Profit Margin (%)	27.40	18.10	23.73	20.21
Operating Margin (%)	33.55	24.59	29.12	24.74
Net Profit Margin (%)	5.03	0.66	5.62	13.30

Margin Ratios	March 2021	March 2020	March 2019	March 2018
Gross Profit Margin (%)	12.48	10.45	9.48	2.69
Operating Margin (%)	18.41	16.54	14.53	8.02
Net Profit Margin (%)	5.32	3.12	3.17	-0.98

The gross profit margin has increased consistently through the years in case of SAIL which on the cost side indicates the efficiency in controlling the manufacturing cost. But despite SAIL having a better increase, Tata had a better gross profit from the start but sees a dip in FY 19- FY 20 as a response to covid.
Gross Profit Margin (%): The gross margin ratio compares the gross profit of a company to its net sales to show how much profit a company makes after paying its cost of goods sold:

Gross margin ratio = Gross profit / Net sales

Operating Margin (%): The operating margin ratio compares the operating income of a company to its net sales to determine operating efficiency:

Operating margin ratio = Operating income / Net sales

The net profit margin, or simply net margin, measures how much net income or profit is generated as a percentage of revenue. It is the ratio of net profits to revenues for a company or business segment. Net profit margin is typically expressed as a percentage but can also be represented in decimal form. The net profit margin illustrates how much of each dollar in revenue collected by a company translates into profit.

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TATA Steel Limited

Tata Steel's Cash Conversion Cycle (CCC) for the three months ended in June 2021 was 56.96

As of September 2021, TATA Steels Days Sales Outstanding is 17.90

As of November 2021, TATA Steels Days Payable Outstanding is 141.45

Steel Authority of India Limited

Liquidity Ratios	March 2021	March 2020	March 2019	March 2018
Current Ratio (X)	0.85	0.95	0.95	0.97
Quick Ratio (X)	0.38	0.45	0.45	0.71

Liquidity Ratios	March 2021	March 2020	March 2019	March 2018
Current Ratio (X)	0.78	0.91	0.78	0.69
Quick Ratio (X)	0.36	0.38	0.31	0.29

Steel Authority Of India Cash Conversion Cycle as of today (September 25, 2021) is 167.44

As of November 2021, SAIL Days Sales Outstanding is 27.61

As of September 2021, TATA Steels Days Payable Outstanding is 120.69

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TATA Steel Limited

Steel Authority of India Limited

Leverage Ratios	March 2021	March 2020	March 2019	March 2018
Debt to Equity (X)	1.11	1.59	1.37	1.51
Interest Coverage Ratios (%)	2.91	1.44	3.06	3.06

Leverage Ratios	March 2021	March 2020	March 2019	March 2018
Debt to Equity (X)	0.78	1.23	1.05	1.14
Interest Coverage Ratios (%)	3.37	2.11	2.18	0.70

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TATA Steel Limited

Steel Authority of India Limited

Valuation Ratios	March 2021	March 2020	March 2019	March 2018
Price/BV (x)	1.32	0.43	0.89	1.12
Earnings Yield	0.08	0.05	0.17	0.21
EV/EBITDA (x)	5.63	7.06	4.86	6.45
Price/Net Operating Revenue	0.08	0.05	0.17	0.21

Valuation Ratios	March 2021	March 2020	March 2019	March 2018
Price/BV (x)	0.72	0.23	0.56	0.78
Earnings Yield	0.13	0.22	0.11	-0.01
EV/EBITDA (x)	4.95	5.42	6.17	13.99
Price/Net Operating Revenue	0.47	0.15	0.33	0.5

Price/BV (x): Companies use the price-to-book ratio (P/B ratio) to compare a firm's market capitalization to its book value. It's calculated by dividing the company's stock price per share by its book value per share (BVPS). P/B ratio is used by value investors to identify potential investments. Traditionally, any value under 1.0 is considered a good P/B value, indicating a potentially undervalued stock. However, value investors often consider stocks with a P/B value under 3.0. Here we see that both companies have encouraging P/B values.

For tata steel, the earnings yield decreased significantly in the year 2020 but picked back up 2021. On the other hand, the Earnings yield decreased in the year 2021 in the case of SAIL

Earnings yield is also an indication of value; a low ratio may indicate an overvalued stock, or a high value may indicate an undervalued stock.

EV/EBITDA (x): Enterprise multiple, also known as the EV-to-EBITDA multiple, is a ratio used to determine the value of a company. As we can see, Tata steel has been consistently valued higher than investors.

From the Price/Net Operating Revenue we can see that investors are willing to pay more per rupee of sales for a stock in the case of SAIL.

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PERFORMANCE OF THE

COMPANIES

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A. Efficiency vs Profitability

Asset Turnover Ratio vs. Profitability

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B. Liquidity vs Profitability

Current Ratio vs Profitability

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C. Sales Growth vs Profitability

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D. Sales Growth vs Market Valuation

Sales Growth vs Price to Book Value Ratio

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Conclusion

In the three previous financial years, Tata Steel has performed better than SAIL in terms of efficiency ratios and market valuation. On the other hand, SAIL has outperformed Tata Steel in terms of net profit margin in the last two years (although the net profit margins are roughly the same in 2021)�
Both companies have seen a decline in performance in the year 2020 owing to Covid-19. However, they still show promise as their performance has recovered in the year 2021.�
The operating efficiency of Tata Steel is consistently higher than that of SAIL. High operating efficiency indicates that the management is effective in controlling costs.�
The liquidity ratios (current ratio and quick ratio) of TATA Steel are consistently higher than that of SAIL. Higher liquidity indicates that the company has a greater amount of cash and easily convertible-to-cash assets which can be used to finance short-term debt obligations.�
Considering the above factors, for stability of returns, one may consider investing in TATA Steel.�
A person who is looking for a higher percentage gain and is willing to undertake risk may consider investing in SAIL.

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Thank

You!