SAIL Valuation

CIMP

STEEL AUTHORITY OF INDIA LIMITED (SAIL) (Firm Analysis) Presented to Prof. Amit Parakh

By: Ankita Sarni- PGDBA-01/06 Anurag-PGDBA-01/08 (Chandragupt Institute of Management, Patna)

Steel authority of India

© Anurag and Ankita Sarni

CIMP

INDIAN STEEL INDUSTRY: Steel Industry in India is on an upswing because of the strong global and domestic demand in 2008, the total amount of domestic steel consumption was 43.925 million tones. With the increased demand in the national market, a huge part of the international market is also served by this industry. India is the seventh largest steel producer in the world and, India's rapid economic growth and soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put Indian steel industry on the global map. The outlook for Indian steel industry is very bright. India's lower wages and favorable energy prices will continue to promise substantial cost advantages compared to production facilities in (Western) Europe or the US.

OPPORTUNITIES FOR SAIL DUE TO MACROECONOMIC FACTORS:  

 



The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected that the domestic steel industry would grow by 10 to 12% The scope for raising the total consumption of steel is huge in India as the per capita steel consumption is only 35 kg (compared to 150 kg across the world and 250 kg in China) and is estimated at 44 kg in 2008-09 and projected to reach 54 kg by the end of 2011-12. The government has removed full exemption of customs duty on Iron and steel products like pig iron, spiegeleisen from 15% to 5%. In the Union Budget 2009-10, the government has made a 23 per cent hike in allocation for highway development and US$ 1.034 billion increase in budgetary support to Railways which will further promote the steel industry. The reduction in railway freight has also benefitted the domestic iron ore miners.

SAIL - FUTURE GROWTH PLANS:  

 

SAIL is going to own 65 warehouse and 2,500 strong dealership network to tap the rural market which has very high growth perspective. SAIL is putting huge capital expenditure of around Rs.50,000 crore to add 10 million tonnes of capacity and achieve operational effectiveness. The company plans to achieve entire production through BOF steel making (currently at 78% of production) and continuous casting route (currently at 64% of production). Sail is gradually implementing alternative fuel injection methods like coal dust/tar injection in all the blast furnaces SAIL has been pursuing cost saving methods like implementation of modern techniques of processing. and thus, in2008-09 they were able to save Rs 725 crore which helped in increasing the profit margin.

2 Steel Authority of India

© Anurag and Ankita Sarni



 





CIMP Projects worth around Rs 28,000 crore are in various stages of implementation. This includes ongoing 28 numbers of projects worth more than Rs 2,800 crore spread over six production units across the country. SAIL is ready to own the 2,028-hectare block in the Rowghat iron ore mine deposits in Chhattisgarh to feed its flagship unit, the Bhilai Steel Plant. They are developing two major mechanised iron ore mines – at Rowghat in the western region and Chiria in the east. Both the mines will be developed with latest technology to ensure assured supply of required quantity of quality iron ore to SAIL plants. They are also planning to set up a pellet plants (one at Bhilai and another near Manoharpur), which would enable utilisation of huge iron ore fines generated during the mining operations, apart from reducing cost of hot metal production which help in generation of revenue from the waste materials. SAIL is providing customized services to its clients.

TRENDS OF SALES AND GROSS PROFIT FOR PAST 5 YEARS:

Sales and gross profit Sales

32,569.53 10,492.30

Mar ' 05

33,220.78

6,913.04

Mar ' 06

Gross profit 46,261.05

40,291.75

10,634.10

Mar ' 07

12,390.96

Mar ' 08

49,739.74

10,672.55

Mar ' 09

3 Steel Authority of India

© Anurag and Ankita Sarni

CIMP

COMPARATIVE ANALYSIS OF SAIL WITH ITS COMPETITORS:

P/E P/BV ROE P/Sales Net Profit margin

SAIL 10.99 9.13 22.06 7.62

TATA 6.04 1.45 21.10 5.98

JSW 28.27 1.75 5.59 3.27

Ispat -4.07 1.53 5.13 2.06

Bhushan steel 11.58 2.94 26.07 4.25

Industry 10.56 3.36 15.99 4.64

13.40

21.09

3.23

0.41

10.09

9.64

COMPARISON OF SAIL’S STOCK GROWTH VIS -VIS SENSEX GROWTH:

4 Steel Authority of India

© Anurag and Ankita Sarni

CIMP

COMPARITIVE CHART SHOWING GROWTH TREND OF SAIL VS TATA STEEL:

MARKET SHARE OF SAIL AND ITS COMPETITORS IN DOMESTIC MARKET:

Bhushan steel 6% Ispat JSW 19%

Market Share SAIL 42%

7%

TATA 26%

5 Steel Authority of India

© Anurag and Ankita Sarni

CIMP

Valuation of SAIL CALCULATION OF BETA FROM HISTORICAL DATA: We calculate the Beta by doing a regression of SAIL’s stock return with the market return. X= SAIL’s average return/ month for ten years Y=Sensex’s average return/ month for ten years SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted Square

0.586972953 0.344537248 R 0.339787518

Standard Error

15.7375221

Observations

140

ANOVA df

SS

MS

F

Significance F

Regression

1

17965.52674

17965.53

72.538279

2.504E-14

Residual

138

34178.40504

247.6696

Total

139

52143.93177

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

1.557380799

1.341696967

1.160755

0.2477458

-1.0955613

4.21032292

-1.0955613

4.2103229

X Variable 1

1.409028907

0.165438384

8.516941

2.504E-14

1.081907

1.7361508

1.08190701

1.7361508

6 Steel Authority of India

© Anurag and Ankita Sarni

CIMP

CALCULATION OF BOTTOM-UP BETA: The logic behind following this approach is as follows: 1) We wanted to use another method as well for calculation of Beta to compare the difference between the valuations done by using beta from different methods. 2) This method is helpful in a way because, it helps us figuring out the operational leverages, financial leverage and risk implicit in the business of the company. 3) The standard deviation of this method is very low compared to the one using Regression on Historical data. This is because the sample size used is more than 5.

Company Name Tata Steel Jindal Steel Kalyani Steel Uttam Galva National Steel Bhushan Steel Adhunik Metalik

Regression Beta 1.21 1.16 1.14 1.23 1.11 0.76 0.9

D/E Ratio 1.34 1.51 0.44 1.48 1.43 3.52 2.87

Effective Tax Fixed/Variable Rate % Cost 30 0.33 30 0.11 30 0.22 30 0.06 30 0.04 30 0.05 30 0.16

Average (Simple)

1.072857143

1.798571429

30

0.138571429

SAIL

1.41

0.26

30

0.42

7 Steel Authority of India

© Anurag and Ankita Sarni

CIMP

Step 1 Unlevered Industry beta Average regression beta Average debt-equity ratio Average effective tax-rate Un-leveraged beta Un-leveraged beta Business Beta Business Beta

Step 2

1.07 1.79 30.00% Regression beta/ {1+ (1-taxrate)*debt-equity ratio} (Financial Leverage is being 0.474922326 eliminated) Unlevered beta/ {1+ (fixed to variable-ratio)} (Operational Leverage is 0.41712124 being eliminated)

Unlevered beta of SAIL (adjusted for its operating leverage) Business beta Fixed/variable cost ratio

Step 3

0.41712124 0.42

Unlevered Beta of SAIL 0.59231216 (If SAIL has no debt) Relevered beta of SAIL (adjusted for its financial leverage) Unlevered Beta of SAIL 0.59231216 Debt-equity ratio 0.26 Effective Tax rate 30.00% Unlevered beta * {1+ (1 - effective tax rate) * Levered beta debt-equity ratio} Levered beta 0.700112974 β = 0.7

Note: The regression beta is of a larger sample base (7 companies in this case) which reduces the standard error in statistical estimation. Assuming the regression beta for SAIL has a standard error of .16. The average industry regression beta would have a much lower error. Statistically, the standard error for the sample would be - individual error / square root of number of samples i.e. 0.16/√7 = .06 8 Steel Authority of India © Anurag and Ankita Sarni

CIMP The Bottom Up beta by this method is 0.7 only which is less than the Regression beta by almost 0.7. The difference is primarily due to the greater financial leverage (D/E ratio) of the company.

WACC Calculation using Historical Beta: Return on Market, rM

15.67%

Return On Debt, rD

10%

Corporate Tax Rate, TC Beta of SAIL, β

30% 1.42

Risk Free Rate, rF

6.50%

Return on Equity, rE D/E Ratio of SAIL D/V Ratio of SAIL E/V Ratio of SAIL

19.52% 0.26 0.206349 0.793651

After Tax WACC

16.94%

WACC Calculation using Bottom - Up Beta: Return on Market, rM

15.67%

Return On Debt, rD

10%

Corporate Tax Rate, TC

30%

Beta of SAIL, β

0.70

Risk Free Rate, rF

6.50%

Return on Equity, rE

12.92%

D/E Ratio of SAIL

0.26

D/V Ratio of SAIL

0.206349

E/V Ratio of SAIL

0.793651

After Tax WACC

11.70%

9 Steel Authority of India

© Anurag and Ankita Sarni

CIMP

10 Steel Authority of India

© Anurag and Ankita Sarni

FORCASTED CASH FLOW ON THE BASIS OF HISTORICAL BETA (1.42) CIMP PV Free cash flow, years 1-10 PV Horizon value

46214.8 37179.1

PV of company

83393.8

(Horizon value in ye ar 10) 176658

Buy

Fair Price

201.9

Current Price

162.0 Year 0

Year 1

Year 2

Year 3

Year 4

Ye ar 5

Ye ar 6

Ye ar 7

Ye ar 8

Ye ar 9

Ye ar 10

Ye ar 11

1 2 3 4 5 6 7

Sales T urnover

2005 32569.53

2006 33221

2007 40292

2008 46261

2009 49740

2010 53719

2011 58016

2012 62658

2013 67670

2014 73084

2015 78931

2016 85245

2017 92065

2018 99430

2019 107384

2020 109532

Cost of goods sold EBITDA (1-2)

18224.93 14344.6

21646 11575

24684 15607

28692 17570

34857 14883

44062 9656.8

40612 17405

43860 18797

47369 20301

51159 21925

55252 23679

55409 29836

59842 32223

64629 34800

69799.8 37584.5

71195.8 38336.2

1126.95

1207.3

1211.5

1235.5

1285.1

1692.1

1827.5

1973.7

2131.6

2302.1

2486.3

2685.2

2900

3132

3382.61

3450.26

8 9 10

Depreciation Profit before tax (EBIT) (3 - 4)

13217.65

10368

14396

16334

13597

7964.6

15577

16824

18169

19623

21193

27151

29323

31668

34201.9

34886

2592.37

1694.4

3253.8

3934.7

3284.3

2389.4

4673.2

5047.1

5450.8

5886.9

6357.9

8145.2

8796.8

9500.5

10260.6

10465.8

Profit after tax (5 - 6)

10625.28

8673.4

11142

12399

10313

5575.2

10904

11777

12719

13736

14835

19005

20526

22168

23941.3

24420.2

Investment in fixed assets

12485.07

322.93

-564.43

-26.4

697.52

6532.8

1504.1

1624.5

1754.4

1894.8

2046.4

2210.1

2386.9

2577.8

2784.04

751.691

Investment in working capital

2323.25

1147.9

4545.9

3533.3

4506.9

1719

1856.5

2005

2165.5

2338.7

2525.8

2727.8

2946.1

3181.76

859.075

Free cash flow (7 + 4 - 8 - 9)

-3056.09

9055.8

8372.3

10128

6394

5430.4 4695.9

9508.6

10269

11091

11978

12936

16955

18311

19776

21358.2

26259.7

Tax

Assumptions: Sales growth (percent)

2.0

21.3

14.8

7.5

8.0

8.0

8.0

8.0

8.0

8.0

8.0

8.0

8.0

8.0

2.0

67.8

80.3

76.1

75.6

82.0

70.0

70.0

70.0

70.0

70.0

65.0

65.0

65.0

65.0

65.0

65.0

Working capital (percent of sales)

7.1

10.4

19.9

25.0

32.3

40.0

40.0

40.0

40.0

40.0

40.0

40.0

40.0

40.0

40.0

40.0

Net fixed assets (percent of sales) Depreciation (percent of net fixed assets)

38.3

36.6

28.8

25.0

24.7

35.0

35.0

35.0

35.0

35.0

35.0

35.0

35.0

35.0

35.0

35.0

9.0

9.9

10.4

10.7

10.5

9.0

9.0

9.0

9.0

9.0

9.0

9.0

9.0

9.0

9.0

9.0

Costs (percent of sales)

Base Year

Tax rate, percent

30.0%

Cost of debt, percent (rD)

10.0%

Cost of equity, percent (rE) Debt ratio (D/V)

19.4% 0.2

WACC, percent

16.9%

Long-term growth forecast, percent

2.0%

11 Steel Authority of India

© Anurag and Ankita Sarni

FORCASTED CASH FLOW ON THE BASIS OF BOTTOM UP BETA (0.7) CIMP PV Free cash flow, years 1-10 PV Horizon value PV of co mpany

61204.4 89561.5

(Horizon value in ye ar 10) 270763

Buy

150765.9

Fair Price

365.0

Current Price

162.0

1 2 3 4 5 6 7

Sales T urnover

2005 32569.53

2006 33221

2007 40292

2008 46261

Year 0 2009 49740

Cost of goods sold

8 9 10

Year 1 2010 53719

Year 2 2011 58016

Year 3 2012 62658

Year 4 2013 67670

Ye ar 5 2014 73084

Ye ar 6 2015 78931

Ye ar 7 2016 85245

Ye ar 8 2017 92065

Ye ar 9 2018 99430

Ye ar 10 2019 107384

Ye ar 11 2020 109532

18224.93

21646

24684

28692

34857

44062

40612

43860

47369

51159

55252

55409

59842

64629

69799.8

71195.8

EBITDA (1-2)

14344.6

11575

15607

17570

14883

9656.8

17405

18797

20301

21925

23679

29836

32223

34800

37584.5

38336.2

Depreciation

1126.95

1207.3

1211.5

1235.5

1285.1

1692.1

1827.5

1973.7

2131.6

2302.1

2486.3

2685.2

2900

3132

3382.61

3450.26

Profit before tax (EBIT) (3 - 4)

13217.65

10368

14396

16334

13597

7964.6

15577

16824

18169

19623

21193

27151

29323

31668

34201.9

34886

Tax Profit after tax (5 - 6)

2592.37 10625.28

1694.4 8673.4

3253.8 11142

3934.7 12399

3284.3 10313

2389.4 5575.2

4673.2 10904

5047.1 11777

5450.8 12719

5886.9 13736

6357.9 14835

8145.2 19005

8796.8 20526

9500.5 22168

10260.6 23941.3

10465.8 24420.2

Investment in fixed assets

12485.07

322.93

-564.43

-26.4

697.52

6532.8

1504.1

1624.5

1754.4

1894.8

2046.4

2210.1

2386.9

2577.8

2784.04

751.691

Investment in working capital

2323.25

1147.9

4545.9

3533.3

4506.9

1719

1856.5

2005

2165.5

2338.7

2525.8

2727.8

2946.1

3181.76

859.075

Free cash flow (7 + 4 - 8 - 9)

-3056.09

9055.8

8372.3

10128

6394

5430.4 4695.9

9508.6

10269

11091

11978

12936

16955

18311

19776

21358.2

26259.7

Assumptions: Sales growth (percent)

2.0

21.3

14.8

7.5

8.0

8.0

8.0

8.0

8.0

8.0

8.0

8.0

8.0

8.0

2.0

67.8

80.3

76.1

75.6

82.0

70.0

70.0

70.0

70.0

70.0

65.0

65.0

65.0

65.0

65.0

65.0

Working capital (percent of sales)

7.1

10.4

19.9

25.0

32.3

40.0

40.0

40.0

40.0

40.0

40.0

40.0

40.0

40.0

40.0

40.0

Net fixed assets (percent of sales) Depreciation (percent of net fixed assets)

38.3

36.6

28.8

25.0

24.7

35.0

35.0

35.0

35.0

35.0

35.0

35.0

35.0

35.0

35.0

35.0

9.0

9.9

10.4

10.7

10.5

9.0

9.0

9.0

9.0

9.0

9.0

9.0

9.0

9.0

9.0

9.0

Costs (percent of sales)

Base Year

Tax rate, percent

30.0%

Cost of debt, percent (rD)

10.0%

Cost of equity, percent (rE) Debt ratio (D/V)

12.9% 0.2

WACC, percent

11.7%

Long-term growth forecast, percent

2.0%

12 Steel Authority of India

© Anurag and Ankita Sarni

Consolidated Profit and Loss Account CIMP Mar ' 09

Mar ' 10

Mar ' 11

Mar ' 12

Mar ' 13

Mar ' 14

Mar ' 15

Mar ' 16

Mar ' 17

Mar ' 18

Mar ' 19

Mar ' 20

13597.48

7964.609

15577.41

16823.61

18169.49

19623.05

21192.9

27150.59

29322.63

31668.45

34201.92

34885.96

22,042.58

23805.99

25710.47

27767.3

29988.69

32387.78

34978.8

37777.11

40799.28

44063.22

47588.28

51395.34

3,762.77 8,401.73 935.68 1,644.78 -1,930.40 34,857.14 8,941.44 2,279.89 11,221.33 253.24 1,285.12 128.02 9,554.95 3,284.28 6,270.67 -277.12

4063.792 8821.817 982.464 1694.123 -2,026.92 37645.71 9,656.76 2000 11,656.76 258.3048 1,285.12 100 10,013.33 3003.999 7,009.33 50

4388.895 9262.907 1031.587 1744.947 -2,128.27 40657.37 10,429.30 2000 12,429.30 263.4709 1,285.12 100 10,780.70 3234.211 7,546.49 50

4740.007 9726.053 1083.167 1797.296 -2,234.68 43909.96 11,263.64 2000 13,263.64 268.7403 1,285.12 100 11,609.78 3482.934 8,126.85 50

5119.207 10212.36 1137.325 1851.214 -2,346.41 47422.75 12,164.73 2000 14,164.73 274.1151 1,285.12 100 12,505.50 3751.649 8,753.85 50

5528.744 10722.97 1194.191 1906.751 -2,463.73 51216.57 13,137.91 2000 15,137.91 279.5974 1,285.12 100 13,473.19 4041.957 9,431.23 50

5971.043 11259.12 1253.901 1963.953 -2,586.92 55313.9 14,188.94 2000 16,188.94 285.1894 1,285.12 100 14,518.63 4355.59 10,163.04 50

6448.727 11822.08 1316.596 2022.872 -2,716.27 59739.01 15,324.06 2000 17,324.06 290.8932 1,285.12 100 15,648.04 4694.413 10,953.63 50

6964.625 12413.18 1382.426 2083.558 -2,852.08 64518.13 16,549.98 2000 18,549.98 296.711 1,285.12 100 16,868.15 5060.445 11,807.71 50

7521.795 13033.84 1451.547 2146.065 -2,994.68 69679.58 17,873.98 2000 19,873.98 302.6452 1,285.12 100 18,186.21 5455.864 12,730.35 50

8123.538 13685.53 1524.124 2210.447 -3,144.42 75253.95 19,303.90 2000 21,303.90 308.6981 1,285.12 100 19,610.08 5883.024 13,727.06 50

8773.421 14369.81 1600.33 2276.76 -3,301.64 81274.27 20,848.21 2000 22,848.21 314.8721 1,285.12 100 21,148.22 6344.465 14,803.75 50

181.26 6,174.81 1,073.90 181.26

200 6,759.33 1175.558

200 7,296.49 1268.979

200 7,876.85 1369.912

200 8,503.85 1478.957

200 9,181.23 1596.766

200 9,913.04 1724.04

200 10,703.63 1861.536

200 11,557.71 2010.073

200 12,480.35 2170.536

200 13,477.06 2343.879

200 14,553.75 2531.135

198.4185

214.1867

231.2228

249.6283

269.5128

290.9949

314.2024

339.2735

366.3576

395.6156

427.2218

41,304.01 14.95

41,304.01 16.36

41,304.01 17.67

41,304.01 19.07

41,304.01 20.59

41,304.01 22.23

41,304.01 24.00

41,304.01 25.91

41,304.01 27.98

41,304.01 30.22

41,304.01 32.63

41,304.01 35.24

Income Operating income Expenses Material consumed Manufacturing expenses Personnel expenses Selling expenses Adminstrative expenses Expenses capitalised Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Non recurring items Other non cash adjustments Reported net profit Equity dividend Preference dividend Dividend tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs)

13 Steel Authority of India

© Anurag and Ankita Sarni

Consolidated Balance Sheet CIMP

Mar ' 09 Sources of funds Owner's fund Equity share capital Share application money Preference share capital Reserves & surplus

Net current assets Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total

Mar ' 11

Mar ' 12

Mar ' 13

Mar ' 14

Mar ' 15

Mar ' 16

Mar ' 17

Mar ' 18

Mar ' 19

Mar ' 20

4,130.40

4,130.40

4,130.40

4,130.40

4,130.40

4,130.40

4,130.40

4,130.40

4,130.40

4,130.40

4,130.40

4,130.40

23,853.70

28,954.61

34,538.38

40,565.90

47,072.83

54,097.72

61,682.19

69,871.19

78,713.29

88,260.92

98,570.73

109,703.91

1,473.60 6,065.19 35,522.89

1742.2061 8,183.30 43,010.51

2036.2391 9,564.40 50,269.42

2353.6388 11,055.25 58,105.19

2696.284 12,664.69 66,564.20

3066.204 14,402.23 75,696.56

3465.5905 16,278.19 85,556.37

3896.8109 18,303.67 96,202.07

4362.4221 20,490.68 107,696.79

4865.1858 22,852.21 120,108.71

5408.0849 25,402.25 133,511.47

5994.341 28,155.95 147,984.60

32,728.69

40,561.48

43,365.61

46,290.07

49,344.49

52,539.26

55,885.61

59,395.67

63,082.54

66,960.35

71,044.39

73,096.08

20,459.86 12,268.83 6,544.24 652.7

21,759.86 18,801.62 4,056.15 808.90739

23,059.86 20,305.75 4,336.56 864.82944

24,359.86 21,930.21 4,629.01 923.15121

25,659.86 23,684.63 4,934.45 984.06467

26,959.86 25,579.40 5,253.93 1047.7772

28,259.86 27,625.75 5,588.56 1114.5126

29,559.86 29,835.81 5,939.57 1184.5129

30,859.86 32,222.68 6,308.25 1258.0391

32,159.86 34,800.49 6,696.03 1335.3733

33,459.86 37,584.53 7,104.44 1416.8203

34,759.86 38,336.22 7,309.61 1457.7367

35,666.84

41,097.29

42,816.29

44,672.82

46,677.87

48,843.32

51,182.01

53,707.79

56,435.63

59,381.71

62,563.47

63,422.54

19,609.72 16,057.12

20,786.30 21,487.57

22,033.48 23,206.57

23,355.49 25,063.10

24,756.82 27,068.15

26,242.23 29,233.60

27,816.76 31,572.29

29,485.77 34,098.07

31,254.91 36,825.91

33,130.21 39,771.99

35,118.02 42,953.75

37,225.10 43,812.82

35,522.89

43,010.51

50,269.42

58,105.19

66,564.20

75,696.56

85,556.37

96,202.07

107,696.79

120,108.71

133,511.47

147,984.60

-

Loan funds Secured loans Unsecured loans Total Uses of funds Fixed assets Gross block Less : revaluation reserve Less : accumulated depreciation Net block Capital work-in-progress Investments

Mar ' 10

-

-

14 Steel Authority of India

© Anurag and Ankita Sarni

CIMP

Forecasted Current ratio and ROI: Mar' 09

Mar' 10

Mar ' 11

Mar ' 12

Mar ' 13

Mar ' 14

Mar ' 15

Mar ' 16

Mar ' 17

Mar ' 18

Mar ' 19

Mar ' 20

Mar'05

Mar'06

Mar'07

Mar'08

Current ratio

1.18

1.23

1.59

1.73

1.82

1.98

1.94

1.91

1.89

1.86

1.84

1.82

1.81

1.79

1.78

1.70

ROI

3.98

1.61

1.16

0.97

0.60

0.47

0.46

0.46

0.46

0.46

0.46

0.46

0.46

0.46

0.46

0.48

Some Facts & Assumptions: 1) While calculating the Bottom - Up Beta, we have assumed that a group of 7 steel companies is a good sample for the reflection of Steel Industry in India. 2) Effective Corporate Tax rate has been taken as 30% for SAIL as it is an old company. 3) Return on Debt has been taken as 10%. 4) Risk Free rate has been taken as the return on G-Sec in the past Ten years which is 6.5%. 5) Stable Sales Growth rate for SAIL has been assumed as 8% because of the fact that there will be high demand of Steel both in India and Overseas in the next 10 years. 6) Terminal growth of SAIL has been taken as 2%. 7) Working Capital has been taken as 40% of Sales because of the high capital requirements of the industry. 8) Depreciation has been taken as 9%. 9) In the forecasted P & L account of the company, we have assumed the Variable Cost Growth Rate of 8% because the Sales Turnover is growing 8% year on. 10) Fixed Cost Growth Rate has been assumed to be 5% and Admin Expenses to be 3% because of the further scalability of operations.

15 Steel Authority of India

© Anurag and Ankita Sarni

CIMP

References: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

“Principles of Corporate Finance” by Brealy, Myers, Allen, Mohanty “Security analysis for Investment and Corporate Finance” by Damodran www.wikipedia.com www.bseindia.com www.nseindia.com www.worldsteel.org http://indiabudget.nic.in/ http://finmin.nic.in/ http://www.worldsteel.org/ http://www.worldsteeldynamics.com/ www.yahoofinance.com www.rediffmail.com www.moneycontrol.com www.economictimes.com www.buisnessstandard.com

16 Steel Authority of India

© Anurag and Ankita Sarni