Corporate Finance-II

Working Capital Management & Dividend Policy of Tata SteelSection F, Group3 Aquil Arif (11DM-025) Himank Kochhar (11DM-046) Neetha Nannapaneni (11DM-086) Niladri Majumdar (11DM-91) Pranav Bajaj (11DM-103) Rohit Chandak (11FN-081)

Prof. N L Ahuja

IMT Ghaziabad Corporate Finance-II

Contents1. Executive Summary.....2 2. Introduction....3 a. Steel industry.3 b. Indian perspective..3 c. Tata Steel...4 3. Conceptual Framework...5 a. Working capital management......5 b. Dividend Policy.9 4. Objectives.10 5. Methodology.....10 6. Data Collection.10 7. Analysis.....11 a. Working Capital Management..11 i. Net Working Capital Cycle..11 ii. Receivables Management13 iii. Creditors Management....14 iv. Inventory Management...15 b. Dividend Policy....16 8. Conclusions...18 9. References19

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Executive SummaryTata Steel has been an industry leader in India for decades. Tata Steels analysis of working capital management and dividend policy has been in tune with its image of being the leader in the Indian steel Industry. Tata Steel pursues an aggressive working capital management policy wherein its gross operating cycle is among one of the shortest in the industry and beats the industry average. Similarly its inventory and receivables management is better than the industry average. Tata Steel banks on economies of scale and its image as a Tata group company to negotiate better credit and debit terms with both its suppliers and distributors so as to minimize working capital. Tata Steels has ensured that the shareholders value has incremental growth in both the short and the long run. It has consistently paid dividends and has been revising it upwards as per its growth in earnings. Tata Steel has majorly used cash as a method of paying dividends ad has only once gone in for stock split in the last 15 years.

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IntroductionSteel IndustrySteel Industry is a booming industry in the whole world. The increasing demand for it was mainly generated by the development projects that have been going on along the world, especially the infrastructural works and real estate projects that has been on the boom around the developing countries. It has been observed that Steel Industry has grown tremendously in the last one and a half decade with a strong financial condition. The increasing needs of steel by the developing countries for its infrastructural projects have pushed the companies in this industry near their operative capacity. The main demand creators for Steel Industry are Automobile industry, Construction Industry, Infrastructure Industry, Oil and Gas Industry, and Container Industry. New innovations are also taking place in Steel Industry for cost minimization and at the same time production maximization. Some of the cutting edge technologies that are being implemented in this industry are thin-slab casting, making of steel through the use of electric furnace, vacuum degassing, etc. The Steel Industry has enough potential to grow at a much accelerated pace in the coming future due to the continuity of the developmental projects around the world. This industry is at present working near its productive capacity which needs to be increased with increasing demand. The global steel industry continued to face an unprecedented increase in the price of iron ore and coking coal, accentuated by short-term supply disruptions. These have created pressures on the viability of the steel industry and consequently the competitiveness of the user industries. China continued to be the largest national steel producer and largest domestic consumer of steel. The steel demand in Western Europe and the UK has remained more or less stagnant, with intense competition from steel producers in Eastern Europe utilising lower cost inputs. Asian countries, including India, on the other hand, continued to enjoy robust demand from several sectors resulting in increased volumes and a richer product mix.

Indian PerspectiveIndia's Steel Industry is more than a century old. Before the economic reforms of the early 1990s the Indian steel industry was a predominantly regulated one with the public sector dominating the industry. Tata Steel was the only major private sector company involved the production of steel in India. Sail and Tata Steel have traditionally been the major steel producers of India. In 1992, the liberalization of the India economy led to the opening up of various industries including the steel industry. This led to the increase in the number of producers, increased investments in the steel industry and increased production capacity. Since 1990, more than Rs 19,000 crores (US$ 4470.58 million) has been invested in the steel industry of India. India's steel industry went through a rough phase between 1997 and 2001 when the overall global steel was facing a downturn and recovered after 2002. The major factors that led to the revival of the steel industry in India after 2002 was the rise in global demand for steel and the domestic economic growth in India. India has now emerged as the eighth largest producer of steel in the world with a production capacity of 35MT. Almost all varieties of steel is now produced in India. India has also emerged as a net exporter of steel which shows that Indian steel is being increasingly accepted in the global market. The growth of the steel industry in India is also dependant, to a large extent, on the level of consumption of steel in the domestic market. Steel consumption is significant in housing and infrastructure. In recent years the surge in housing industry of India has led to increase in the domestic demand for steel. More than 3500 different varieties of steel are available in the steel industry of India.

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Tata SteelTata Steel is among the top ten steel manufacturers in the world. It operates in more than 20 countries and has a commercial presence in over 50. The company was established in Jamshedpur, India, in 1907. In the past few years, Tata Steel has invested in Corus (UK, renamed Tata Steel Europe), Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings (Singapore). With these, the company has created a manufacturing and marketing network in Europe, South East Asia and the Pacific-rim countries. It has the capacity to produce over 30 million tonnes of crude steel every year.

Financial OverviewThe Tata Steel Groups financial results for the financial year 2010-11 demonstrated an overall improvement compared to the previous year with an 83% increase in the Group EBITDA from `9,340 crores (US$ 2.09 billion) in 2009-10 to `17,103 crores (US $3.84 billion) in 2010-11. This was possible due to the continued robustness of the Indian business and significant turnaround of the operating performance of the European business even though the market conditions remain challenging in some sectors including construction. Continued steel usage growth in India ensured that Indian operations delivered more than their rated capacity of 6.8 million tonnes of crude steel. Tata Steels journey on continuous improvement and enrichment of its product mix continues to deliver results. Sales to the Indian auto segment touched 1 million tonnes during the year, including best-ever Skin Panel and Galvanised Annealed product sales. The Companys financial strategy is focused on managing the capital structure effectively and to undertake financing based on the Companys funding requirements for growth. In the past one year, the Companys financing strategy was focused on raising capital from portfolio divestments and external financing methods to rebalance the capital structure and finance the growth projects. Following the above approach, the Company undertook several initiatives to raise `10,822 crores (US $2.4 billion) of capital, through divestments of about `3,121 crores (US $700 million), equity of around `4,546 crores (US $1.02 billion), Indias first rupee hybrid securities of around `1,500 crores (US $336 million) and debt for the Jamshedpur expansion and working capital requirement of around `1,655 crores (US $371 million). All these financing initiatives coupled with substantially better internal generations enabled us to improve the financial metrics of Tata Steel Group significantly. The Net Debt/Equity improved from 1.77 times in 2009-10 to 1.55 times in 2010-11 and the Net Debt / EBITDA improved from 4.75 times in 2009-10 to 2.73 times in 2010-11. The improved cash flows from operations during the year enabled us to fund the Jamshedpur expansion programme through internal generations rather than drawing down the project debt that was tied up. This would significantly help in keeping the Groups capital structure within the desired levels. As part of its strategy to de-risk the capital structure and provide more flexibility to the business, the Company refinanced the entire long term debt in Tata Steel Europe (TSE), deferring repayments by four years and allowing deployment of earnings for growth and improvement initiatives.

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The Conceptual FrameworkWorking Capital ManagementIntroduction to Working CapitalIn a Cash flow cycle, cash flows into, around and out of a business. It is the business's lifeblood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. We should bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits.

What is Working Capital?Working Capital is the money used to make goods and attract sales. Working capital refers to the investment by the company in short terms assets such as cash, marketable securities. Net current assets or net working capital refers to the current assets less current liabilities. Symbolically, it means, Net Current Assets = Current Assets Current Liabilities.

Types of Working Capital1. Net Working Capital: The net working capital is the different between current assets and current liabilities. The concept of net working capital enables a firm to determine how much amount is left for operational requirements. 2. Gross Working Capital: Gross working capital is the amount of funds invested in the various components of current assets. 3. Permanent Working Capital: Permanent working capital is the minimum amount of current assets which is needed to conduct a business even during the dullest season of the year. The amount varies from year to year depending up on the growth of the company and stage of business cycle in which it operates. It is the amount of funds required to produce goods and services which are necessary to satisfy demand at a particular point. 4. Temporary Working Capital: It is represents the additional assets which are required at different times during the operating year additional inventory, extra cash etc., seasonal working capital is the additional amount of current assets particularly cash, receivables and inventory which is required during the more active business seasons of the year.

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Working Capital ManagementWorking Capital is the key difference between the long term financial management and short term financial management in terms of the timing of cash. Long term finance involves the cash flow over the extended period of time i.e. 5 to 15 years, while short term financial decisions involve cash flow within a year or within operating cycle. Working capital management is a short term financial management. Managing the working capital needs of the organization is important, because shortage of funds could disrupt the day to day operations whereas by holding excess funds the interest burden of the firm starts mounting & eating into its profits. Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities & the inter relationship that exists between them. The current assets refer to those assets which can be easily converted into cash in ordinary course of business, without disrupting the operations of the firm. Composition of working capital Major Current Assets: 1) Cash 2) Accounts Receivables 3) Inventory 4) Marketable Securities Major Current Liabilities: 1) Bank Overdraft 2) Outstanding Expenses 3) Accounts Payable 4) Bills Payable The Goal of Capital Management is to manage the firm s current assets & liabilities, so that the satisfactory level of working capital is maintained. If the firm cannot maintain the satisfactory level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To maintain the margin of safety current asset should be large enough to cover its current assets. The main theme of the theory of working capital management is interaction between the current assets & current liabilities.

If we .......Collect receivables (debtors) faster Collect receivables (debtors) slower Get better credit (in terms of duration or amount) from suppliers Shift inventory (stocks) faster Move inventory (stocks) slower

Then ......We release cash from the cycle The receivables soak up cash We increase your cash resources We free up cash We consume more cash

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Operating CycleThe duration of time required for completing the following sequences of events in case of manufacturing firms called the operating cycle. 1. 2. 3. 4. Conversion of raw material into work in progress. (RMCP) Conversion of work in progress into finished goods. (WIPCP) Conversion of finished goods into debtors & bills receivable through sale. (FGCP) Conversion of debtors & bills receivable into cash. (DCP)

Cash

Receivables

Raw Material

Finished Goods

Work in Progress

The duration of the operating cycle for the purpose of estimating working capital requirement is equivalent to the sum of duration of each of these tables less the credit period allowed by the suppliers of the firm.

Determinants of Working CapitalNumbers of rules are formulated to determine the working capital requirement of the firm. A large number of factors influence the working capital needs of the firm. All these factors have different importance, also the importance of the factor change for a firm over time. Therefore analysis of the relevant factor should be made in order to determine the total investment in working capital requirements of the firm. 1. 2. 3. 4. 5. 6. 7. 8. 9. Nature and size of business Seasonality of operation Production policy Marketing conditions Business cycle fluctuation Credit policy Conditions of supply Working capital policy Current assets in relation to sales 7|Page

Balanced Working Capital positionThe firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital positions are dangerous from the firms point of view. Excessive working capital not only impairs the firms profitability but also result in production interruptions and inefficiencies. The dangers of excessive working capital are as follows: It results in unnecessary accumulation of inventories. Thus, chances of inventory mishandling, waste, theft and losses increase. It is an indication of defective credit policy slack collections period. Consequently, higher incidence of bad debts results, which adversely affects profits. Excessive working capital makes management complacent which degenerates into managerial inefficiency. Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits.

Inadequate working capital is also bad and has the following dangers: It stagnates growth. It becomes difficult for the firm to undertake profitable projects for nonavailability of working capital funds. It becomes difficult to implement operating plans and achieve the firms profit target. Operating inefficiencies creep in when it becomes difficult even to meet day commitments. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the firms profitability would deteriorate. Paucity of working capital funds render the firm unable to avail attractive credit opportunities etc.

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Dividend PolicyDividend Policy refers to the explicit or implicit decision of the Board of Directors regarding the amount of residual earnings (past or present) that should be distributed to the shareholders of the corporation. This decision is considered a financing decision because the profits of the corporation are an important source of financing available to the firm. Dividends are a permanent distribution of residual earnings/property of the corporation to its owners. Dividends can be in the form of: Cash, Additional Shares of Stock (stock dividend) or Property. In the absence of dividends, corporate earnings accrue to the benefit of shareholders as retained earnings and are automatically reinvested in the firm. When a cash dividend is declared, those funds leave the firm permanently and irreversibly. Distribution of earnings as dividends may starve the company of funds required for growth and expansion, and this may cause the firm to seek additional external capital. The firm uses earnings plus the additional financing that the increased equity can support to finance any expected positive-NPV projects. Any unused earnings are paid out in the form of dividends. This describes a passive dividend policy also known as residual dividend policy. Another school of thought refers to Modigilani & Miller contends that the effect of dividend payments on shareholder wealth is exactly offset by other means of financing. The dividend plus the new stock price after dilution exactly equals the stock price prior to the dividend distribution. M&M and the totalvalue principle ensure that the sum of market value plus current dividends of two firms identical in all respects other than dividend-payout ratios will be the same. Investors can create any dividend policy they desire by selling shares when the dividend pay-out is too low or buying shares when the dividend pay-out is excessive. But since dividends are taxable the pay-out of dividends and some investors have a preference for dividends hence some more options are available with the management like bonus shares, stock splits etc.

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Objectives1. To analyse the working capital management of Tata Steel vis--vis the following: a. Operating cycle b. Cash flow c. Inventory Management d. Receivables Management 2. To analyse the dividend policy of Tata Steel by analysis of past dividend trends and the companys current financial status.

MethodologyThe study is based on secondary data collected from the audited Profit & Loss A/c and Balance Sheet associated with schedules, annexure available in the published annual reports of Tata Steel for the period of 10 years (i.e. from 2000 to 2010), along with various financial ratios available at various financial databases and websites have been used. For the purpose of the study, Journals, Conference proceedings and other relevant documents have also been consulted to supplement the data. In the present study the liquidity and profitability position have been taken into consideration by calculating different key liquidity and profitability ratios in order to judge their financial performance for the period under study. The dividend policy has been identified and analysed using trend analysis of the period under consideration along with a cross-sectional analysis of the industry in the current period. The Balance sheets, annual reports and Profit and Loss accounts have also been used to establish the financial and liquidity position of Tata Steel. The working capital analysis of Tata Steel has been accomplished by the use of its raw material and finished goods inventory positions as published in the annual reports along with data supplemented by secondary sources from the internet. The ratios, P&L, Balance sheet, creditors & debtors have also been used to arrive at the analysis.

Data CollectionAnnual ReportsThe annual reports of the company are available at the company website http://www.tatasteel.com/investors/performance/annual-report.asp

Secondary SourcesCMIE was used to provide data for trend analysis and financial ratios augmented by other sources like Economic Times, BSE India, Yahoo finance, MoneyControl.com etc.

Literature ReviewA host of books & online journals were reviewed by the group to arrive at certain analysis. The major contribution was from Financial Management by Prof. I M Pandey. 10 | P a g e

AnalysisWorking Capital ManagementNet Working Capital CycleTata Steel Ltd. Currency: Rs. Crore (Annualised) Working cycle (days) Raw material cycle WIP cycle Finished goods cycle Debtors Gross working capital cycle Creditors Net working capital cycle 123.6 1.4 47.7 13.5 186.1 88.6 97.5 93.4 1 44.3 12.1 150.9 95.4 55.5 104.9 1.9 44.1 10.8 161.7 90.7 70.9 87.7 1.9 37.3 8.8 135.7 109.5 26.3 99.9 3.1 37.5 7.9 148.4 124 24.5 99.2 2.8 34.3 5.3 141.6 116 25.6 Mar-06 12 mths Mar-07 12 mths Mar-08 12 mths Mar-09 12 mths Mar-10 12 mths Mar-11 12 mths

Net working capital cycle (Days)120 100 80 60 40 20 0 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 Net working capital cycle (Days)

Industry Comparision50 40 30 20 10 0 Mar-11 TATA Mar-11 INDUSTRY

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Interpretation: As can be seen from the graph, the net working capital cycle days have been decreasing year on year and has been consistent for the last three years. This shows that the company has been improving its efficiency of working capital utilisation. Also the number of NWC cycle days is significantly lower compared to the steel industry which again proves that the efficiency of utilising NWC is better at Tata Steels compared to the rest of the industry. As stated above, the NWC depends on several factors and the same is seen from the data of Inventory cycle (Raw material cycle, WIP cycle, FG cycle), Debtors cycle and Creditors cycle. All these factors combined seem to be helping reduce the NWC cycle time. Each of the factors will be studied individually in the below sections.Company Vs Industry Group AggregatesCurrency: Rs. Crore (Annualised) Quick ratio (times) Current ratio (times)

TATAMar-11 0.2 0.7

INDUSTRYMar-11 0.5 1.1

Liquidity RatiosQuick Ratio Current Ratio 1.1 0.7 0.2 Mar-11 TATA Mar-11 INDUSTRY 0.5

Everything at Tata Steels seems to be helping the profitability of the company only until we look at the liquidity ratios of the company in comparison with the industry average. Both the quick ratio and the current ratio portray a poor picture of the company. It shows that the company is well behind the industry average when it comes to the percentage of current assets. The ratios clearly indicate that if the company is required to pay all its liabilities in a short period it might have to file for bankruptcy as well in the worst scenarios. Though that is unlikely to happen as Tata Steels enjoys an image of one of the most trusted companies in the country . Also it can be said that the company has been following a very Aggressive Current Assets Policy from the fact that though the sales of the company have been increasing consistently, the current assets havent been able to match the same. Tata Steels also seems to be using short-term financing for its current assets which again is an indicator of an aggressive approach for financing its current assets.

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Receivables ManagementTata Steel Ltd.Debtors Mar '06 13.5 Mar '07 12.1 Mar '08 10.8 Mar '09 8.8 Mar '10 7.9 Mar '11 5.3

Debtors16 14 12 10 8 6 4 2 0 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 Debtors

Industry Comparision40 20 0

Mar-11TATA

Mar-11INDUSTRY

Interpretation: As can be seen from the graph, the cycle time for the collection from Debtors has been decreasing every year which is also contributing to the overall decrease in NWC cycle days. Also it is significantly less compared to the industry average of 41.5 days. Though this is a very tempting option but if it exercised excessively it may also lead to losses due to missing out on customers looking for better opportunities since the industry has very liberal policies.

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Creditors ManagementTata Steel Ltd.Creditors Mar '06 88.6 Mar '07 95.4 Mar '08 90.7 Mar '09 109.5 Mar '10 124 Mar '11 116

Creditors140 120 100 80 60 Creditors

4020 0 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

Industry Comparision120 115 110 105 100 Mar-11 TATA Mar-11 INDUSTRY

Interpretation: From the graph it can be seen that the number of days taken to pay the Creditors has been increasing every year. This again helps reduce the overall NWC cycle period since it allows the company to use the resources from the creditors for a longer period of time. Also the number of days is higher than the average number of days for the industry. This probably is due to the trustworthy image of the Tatas group which helps them avail more liberal credit policies from the suppliers than are offered to other industry competitors.

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Inventory ManagementTata Steel Ltd.Raw material cycle WIP cycle Finished goods cycle Inventory Cycle Mar '06 123.6 1.4 47.7 172.7 Mar '07 93.4 1 44.3 138.7 Mar '08 104.9 1.9 44.1 150.9 Mar '09 87.7 1.9 37.3 126.9 Mar '10 99.9 3.1 37.5 140.5 Mar '11 99.2 2.8 34.3 136.3

Inventory Cycle200 180 160 140 120 100 80 60 40 20 0Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

Inventory Cycle

Industry Comparision140 135 130 125 120 115 110 105 Mar-11 TATA Mar-11 INDUSTRY

Interpretation: The more the number of days inventory remains idle, the more is the opportunity lost to utilise it for making profits. The Inventory cycle time seems to be decreasing slowly though not consistently which proves that the company is improving in terms of efficiency of its resources. But when we look at the comparison with the industry average it tells a different story. The inventory cycle period of Tata Steels is much higher than the industry average. There seems to be lot of scope in terms of improving the efficiency of utilisation of inventory, especially raw materials at Tata Steels. This increased efficiency will lead to better utilisation of inventories and thus increase the overall profitability. 15 | P a g e

Dividend PolicyTata Steel has been continuously providing dividend to its shareholders to maximize the shareholder wealth. In the last financial year 2010-11 the company paid a dividend of ` 1151.06 crores. The Board recommended dividend of `12 per Ordinary Share on 95,92,14,450 Ordinary Shares (2009-10: ` 8 per Ordinary Share on 88,72,14,196 Ordinary Shares of ` 10/- each) for the year ended 31st March, 2011. The total dividend pay-out works out to 19% (2009-10: 17%) for the standalone company. Tata Steel is giving a significant higher rate of dividend year after year in comparison to its nearest competitors. The dividends have been largely following the earnings of the company and show an upward trend from 2000 onwards.

EPS & DPS100.0090.00 80.00 70.00 60.00

50.0040.00 30.00 20.00 10.00 -

EPSDPS

The dividends paid and the earnings during the last 10 year are summarised as follows: Fiscal Year Mar'00 Mar'01 Mar'02 Mar'03 Mar'04 Mar'05 Mar'06 Mar'07 Mar'08 Mar'09 Mar'10 Mar'11 DPS 4.00 5.00 4.00 8.00 10.00 13.00 13.00 15.50 16.00 16.00 8.00 12.00 EPS Dividend/ Profit Equity Dividend (%) 11.49 34.81 40 15.05 33.22 50 5.09 78.59 40 27.53 29.06 80 47.48 21.06 100 62.77 20.71 130 63.35 20.52 130 72.74 21.31 155 63.85 25.06 160 69.70 22.96 160 56.37 14.19 80 71.58 16.76 120

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Dividend paid out as a percentage of earnings can be graphically depicted as follows:

Dividend / Profit100.00 80.00 60.00 40.00 20.00 0.00

The dividend pay-out as a ratio from the year 2004 to present has been hovering around 20% of the net earnings. This is indicative of constant pay-out ratio strategy wherein Tata Steel gives a constant pay-out of 20% of its net earnings. Another trend that is visible is that the divided paid out to the investors has been constantly rising with an exception of FY2009 where it had a major loss of around 2000 crores in a quarter due to a slump in global demand and recessionary economic pressures.

Equity Dividend (%)180 160 140 120 100 80 60 40 20 0 Mar'00 Mar'01 Mar'02 Mar'03 Mar'04 Mar'05 Mar'06 Mar'07 Mar'08 Mar'09 Mar'10 Mar'11

Dividend pay-outs depend upon the profitability and the capex needs of the company in the future, estimation of future dividends need to take into account these two important variables in mind. A peep into Tata Steels past may provide some guidelines on how the future dividends may be like. Since the company may have undertaken capex plans and steel prices would have fluctuated in the past as well, did this force the company to cut its dividends significantly? Since FY91, there have been only two instances where the company has been forced to cut its dividends. The cut had been of the magnitude of 30% on one occasion and 20% on the other occasion. Barring these two instances, the company has never cut its dividend per share since 1991. However, it should be added that on quite a few occasions, it has kept its DPS constant. Tata Steel has large reserves of 47,307.02 which are sufficient for its planned capital expenditure of 2500 crores or USD $ 500 million. Hence the company has enough funds to pay-out dividends. Tata Steel also has a debt of 28,301.14 crores for which the company must maintain a reserve pool in order to payback the interest and the principal amount as and when they become due. Tata Steel is a part of Tata group of companies wherein the investor has grown to expect stability in earnings and even though there may be a slight drop in the growth rate of the company but Tata Steels 17 | P a g e

policy of paying constant DPS acts as a signal to its investors about the long term profitability of the company. A constant dividend policy also helps in attracting institutional investors. It improves the credit rating of the company. Tata Steel has been paying dividends in cash over the past decade with the only exception being in the year 2004 where it went in for bonus shares issue. Tata Steel had decided to issue bonus shares in the ratio of 1:2 i.e. one bonus share for every two existing ordinary shares held by the members of the company in 2004.

ConclusionWorking Capital Management Tata Steels is pursuing an Aggressive Policy when it comes to its Working Capital Management. It has done its best to improve its collections from its debtors and is much better than the industry average with respect to the same. Though this policy might lead to reduced costs and help increase the profitability of the company, excessive exercising of this option might lead to losses due to loss of customers who might be tempted to move to the other steel companies in the industry who are offering liberal policies. Unlike its Receivables collection policy, Tata Steels seems to be making complete use of its trustworthy image to gain maximum benefits from its suppliers and delaying the payments for as long as possible. The company has done well in managing its suppliers and also improving the Creditors cycle days which again is much better than the industry average. Though Tata Steels has done a good job with its Creditors and Debtors, it has only marginally improved in efficient utilisation of its Inventories. The Inventories of Tata Steel make up a larger percentage of the companies Current Assets than the industry average. It proves that there is still lots of scope for improvement on this front at Tata Steels which can definitely help improve its profitability. Tata Steels seems to have employed an Aggressive approach to finance its Current Assets. Most of its current assets financing is done by short-term financing such as improving receivables collection time and increasing creditors payable time. Overall, Tata Steels management of Working Capital has led to an increased profitability for the company. Tata Steel definitely seems to be more efficient than the other steel companies in the industry. But there seems to be scope for improvement in utilising its inventory to maximise its profits since inventory forms the major part of its current assets. Also it needs to improve its liquidity position to avoid the risk of being short on funds if at all there is a situation where it requires to pay back its liabilities in a short time.

Dividend Policy Tata Steel has a dividend policy of constant dividends based upon the EPS which has an upward trend with the dividend payout ratio constant at about 20%. Tata Steel has enough reserves and liquidity to payout dividends and to fund its capex as well hence the company is justified in paying out dividends Tata Steel can also issue bonus shares, stock splits or share buyback to pass on shareholder value so as to forgo the dividend tax payable and to ensure more returns in the long run.

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References 103rd Annual Report Tata Steel 2009-2010 104th Annual Report Tata Steel 2010-2011 CMIE Database (Updated till 23rd March, 2012) Analysis of financial performance of Tata Steel A Case Study : Suvarun Goswami, Anirudh Sarkar; published in International Journal of Multidisciplinary Research Vol.1 Issue 5, September 2011, ISSN 2231 5780 Fundamentals of Financial Management, 12/e Created by: Gregory A. Kuhlemeyer, Ph.D. Carroll College, Waukesha, WI Introduction to corporate Finance by Laurence Booth & W. Sean Cleary, John Wiley Publications Financial Managemet by I M Pandey , Vikas Publications www.worldsteeldynamics.com en.wikipedia.org/wiki/Working_capital#Working_capital_management en.wikipedia.org/wiki/Dividend_policy www.investopedia.com www.moneycontrol.com www.moneycontrol.com/india/stockpricequote/steellarge/tatasteel/TIS economictimes.indiatimes.com/tata-steel-ltd/stocks/companyid-12902.cms www.economywatch.com www.tatasteel.com www.tatasteelindia.com www.bseindia.com

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