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Report on
Working Capital Management at
Tata Steel Ltd.
Submitted To : Submitted By :
Prof. C.V. Kumar Ankit Agrawal
IBS-Hyderabad
Table of Contents
4. Analysis
(i)Effectiveness of Working Capital Management ………………………4
(ii)Inventory and Receivables Management ………………………………4
(iii)Impact of changes in Working Capital on Sales ........................ 5
5. References ……………………………………………………………………………..6
Tata Steel Ltd. : Brief Profile
The Tata Steel Group has always believed that mutual benefit of countries, corporations and
communities is the most effective route to growth. Tata Steel has not limited its operations and
businesses within India but has built an imposing presence around the globe as well. With the
acquisition of Corus in 2007 leading to commencement of Tata Steel's European operations, the
Company today, is among the top ten steel producers in the world with an existing annual crude
steel production capacity of around 30 million tonnes per annum and employee strength of above
80,000 across five continents. The Group recorded a turnover of Rs.147,329 crore (US$ 28,962
million) in 2008 - 2009. The Company has always had significant impact on the economic
development in India and now seeks to strengthen its position of pre-eminence in international
domain by continuing to lead by example of responsibility and trust.
Raw Material Sourcing : Tata Steel’s Indian operations are self-sufficient in iron ore through its
captive mines. The mines and collieries in India give the Company a distinct advantage in raw
material sourcing. It is 60% self sufficient for coking coal and the rest is procured mostly
through imports. However, for Corus operations, the Company needs to source raw materials
through contracts with mining companies in UK and the Netherlands. Tata Steel is also striving
towards raw materials security through joint ventures in Thailand, Australia, Mozambique, Ivory
Coast (West Africa) and Oman. Tata Steel has signed an agreement with Steel Authority of India
Limited to establish a 50:50 joint venture company for coal mining in India. Also, it has bought
19.9% stake in New Millennium Capital Corporation, Canada for iron ore mining. Exploration of
opportunities for titanium dioxide in Tamil Nadu, commissioning a Ferro-chrome plant in South
Africa and setting up of a deep-sea port in coastal Orissa are on for meeting the Company's
objectives of growth and globalization
Export Duty on steel items (except melting scrap) withdrawn with effect from 31.10.2008
Duty Entitled Pass Book (DEPB) on steel items restored with effect from 14.11.2008
Import Duty on iron and non-alloy steel items re-imposed at 5% with effect from
18.11.2008
Central Value Added Tax (CENVAT) on steel items reduced to 8% with effect from
24.02.2009 ; and
Countervailing duty (CVD) on Thermo Mechanically Treated (TMT) bars and structural
were reintroduced with effect from 02.01.2009.
Table-2
Analysis
(i)Effectiveness of Working Capital Management
The study of working capital management at Tata Steel Ltd. should be done in two phases, the
first phase begins with 2005 (when Indian Government published National Steel Policy and
signaled producers to increase production to meet national and international demand) and ending
in 2008.The period 2008-09 constitutes the second phase when recession hit the world demand
and steel production also decreased drastically.
From Table-1, we can see that company’s working capital has increased significantly(from Rs
383 crores in 2005 to 30193 crores in 2008) .This increase is mainly on account of increase in
national and international demand ,company decided to move aggressively in acquiring current
assets to increase their production capacity .Tata Steel management showed extremely
aggressive and effective working capital management as their strategy was to put Tata Steel on
global footprint in terms of total steel output .Specially in second half of 2007 company’s cash
and bank balance has gone down by 93%(approx) to back their current investments in increasing
capacity [Note : The Corus deal also played huge role in this erosion of cash and bank balance of
the company)
The company’s working capital decreased by approximately 95% in FY 2008-09 over previous
year due to slowdown in global economy, shrinking demand and increased liquidity concerns
forced company to be more cautious in acquiring current assets and management went for wait
and watch approach during this period.
From Table-2, we can see that Tata Steel’s management has been able to decrease the Net
operating cycle from 72 days(approx.) to 10 days(approx.) which speaks volume about the
effectiveness of working capital management at Tata Steel Ltd. Also, company’s creditor
turnover has also increased consistently over the years suggesting that creditors are ready to back
company’s expansionary plans on operations front.
Also , company’s Debtor turnover has almost doubled during this period which means that
despite global slowdown company’s has been able to collect cash from its trade receivable
partners .This is evident of Tata Steel’s excellent receivables management.
(iii)Impact of changes in Working Capital on Sales
Tata Steel Ltd. FY FY FY FY FY
(Rs. Crore) 2004-05 2005-06 2006-07 2007-08 2008-09
A Sales 14498.95 15139.39 17552.02 19691.03 24315.77
Table-3
From above table we can see that Tata Steel’s sales has consistently increased.This growth can
be attributed to increased international consumption of steel and Indian Government’s National
Steel Policy,2005 to increase consumption and production of Steel in India.To cater to this
increase in demand company has to increase its production and that required accumulation of
Working Capital ,which is exhibited in Table-1.Thus, Tata Steel’s management’s strategy to
accumulate the working capital in order to increase its output to cater growing consumption of
Steel worldwide is reflected in its enthusiastic Sales figures.
References
1. www.money.rediff.com
2. www.tatasteel.com/investors
3. CMIE’s Prowess database
4. Financial Management by I.M. Pandey