Corporate Finance

Project Synopsis

Submitted By:
Group-1
Amal Dev V (191066)
Amit Gandhi (191068)
Anirban Samaddar (191070)
Dhananjay Kumar (191083)
Hardeep Singh (191086)
Hiralal Senapati (191087)

Submitted To:

Dr. Himanshu Joshi

 Corporate Finance Project Synopsis

ABSTRACT:
This study sets about to understand the capital structure of major Steel Producing Companies
of India and also their determinants. This study also attempts to test the relevance of
empirical evidences found in matured economies to the Indian scenario. Steel Industry has
been taken as the subject of study because of its oligopoly nature and also because of the
robust growth of this sector and strong performance by Indian companies as compared to
their global counterparts.

It has been observed that some of the results are consistent to findings in case of matured
economies while others vary considerably from the empirical evidences of matured
economies reflecting a different pattern altogether.

INTRODUCTION:
The steel industry in India has been moving from strength to strength and according to the
Annual Report 2009-10 by the Ministry of Steel, India has emerged as the fifth largest
producer of steel in the world and is likely to become the second largest producer of crude
steel by 2015-16.

Led by strong demand for autos and engineering services, the domestic steel demand in India
remains robust, as per Moody's sectoral analysis on Asia's steel sector. According to the
analysis, the outlook for the domestic operating environment is positive, driven by robust
growth in infrastructure, autos and construction and constrains on additional supply by 2011.

Indian steel industry was reserved for the Public Sector (Government controlled Companies)
till the year 1991except for Tata Iron & Steel Company Ltd the only private sector integrated
steel plant. After the economic reforms of 1991, this sector was opened up to the private
sector and India has seen an impressive growth in the production of steel. Consequently, the
capital structure of the steel companies have undergone notable changes in the post
liberalization era. The Contribution of the steel industry is near to 2% of its GDP.

SAIL is India's largest steel producing company. With a turnover of Rs. 43,935 crore, the
company is among the four Maharatnas of the country's Central Public Sector Enterprises.
Tata Steel is India's second-largest and second-most profitable company in private sector
with annual production of around 6.5 million tonne. Jindal Steel and Power Limited,
Rashtriya Ispat Nigam Limited, Bhushan Steel are the other major players in the Indian steel
industry.

Indian Steel Industry is gradually trying to trying to offset the effects of recession by
concentrating on transportation and construction projects that are usually funded by the
Government. The National Steel Policy has forecasted the domestic demand to reach 110
million tonne by 2019-20 and annual steel consumption to grow by 16% annually. This
indicates robust growth opportunities in the steel sector and subsequently this is going to
reflect on the capital structure of the steel companies.

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 Corporate Finance Project Synopsis

OBJECTIVES:
 To understand and analyse the capital structure of Indian steel producing companies.
 To identify patterns, if any, in the capital structure of the firms of the Steel Industry.
 To analyse the ownership patterns of these companies.
 To understand & establish links between the capital structure & financial performance
of these companies.

HYPOTHESES:

The following hypotheses have been formulated for empirical testing:

Hypothesis I: Firms in the same Industry tend to choose similar capital structure.

Null Hypothesis H0: There is no significant difference in capital structure within Indian steel
industry firms.

Alternative Hypothesis H1: There is significant difference in capital structure within Indian
steel industry firms.

Hypothesis II: Firms in different industries would choose different capital structures.

Null Hypothesis H0: There is no significant difference in capital structure for Nifty 50 firms
and Indian steel firms.

Alternative Hypothesis H1: There is significant difference in capital structure for Nifty 50
firms and Indian steel firms.

Hypothesis III: There is no difference in the efficiency of working capital to generate

sales turnover for public and private sector enterprises.

Null hypothesis H0: That efficiency of working capital to generate sales turnover is same for
public sector and private sector enterprises.

Alternative hypothesis being H1: Efficiency of working capital to generate sales differs
between public sector and private sector enterprises.

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 Corporate Finance Project Synopsis

Hypothesis IV: There is a negative correlation between profitability and capital

structure.

Null Hypothesis H0: There is no correlation between profitability and capital structure for
Indian steel firms.

Alternative Hypothesis H1: There is a negative correlation between profitability and capital
structure for Indian steel firms.

Hypothesis V: Working capital leverages of both the sectors do not affect in the same
way.
Null hypothesis Ho: There is no significant difference between the effects of working capital
leverages of private and public sector enterprises.

Alternative hypothesis H1: The effects of working capital leverages of private and Public
sector enterprises are different.

Hypothesis VI: There is a negative correlation between P/E ratio and capital structure.

Null Hypothesis H0: There is no correlation between Interest cover and capital structure for
Indian steel firms.

Alternative Hypothesis H1: There is a negative correlation between Interest cover and capital
structure for Indian steel firms.

METHODOLOGY:
Five companies i.e. SAIL, Tata Steel, RINL, JSPL and Bhushan Steel have been chosen
for comparison in the steel industry and data for last 5 years have been gathered from
Capitaline Software. Out of these SAIL and RINL represent the public sector and Tata Steel,
Bhushan, JSPL represent the private sector. Capital structure data for NIFTY fifty companies
is collected from national stock exchange website. Hypotheses were formulated and
statistically tested using various statistical tools. The tools used in this study are ANOVA
single factor, t-test and correlation.

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