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    Krakatau Steel A

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    Krakatau Steel A

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    INSTITUT TEKNOLOGI BANDUNG SCHOOL OF BUSINESS AND MANAGEMENT INDONESIA BUSINESS CASE CENTER (IBCC) (082-05-03-12 Krakatau Steel (A): Financial Performance Bambang Supriyatno has been diving in capital market for several years, He is an investor @ith Checking the background and the financial record of a company are several things that he always do before deciding to invest his money on certain stocks. Currently Bambang has been considering on investing a big amount of money on Krakatau Steel's stock. What he knows is that this company is the largest steel manufacturer in Southeast Asia. So he intends to do a background check on the company. Company Background PT Krakatau Steel Tbk is an extremely well-known steel company in Indonesia, In 2009 this company has become @ market leader with domestic market share of 57% in FIRC (Hot Rolled Coil), 32% in wire rod and 33% in CRC (Cold Rolled Coil), PT Krakatau Steel Tbk which was established in 1970 (officially opened by the Indonesia's President in 1977) has ten subsidiaries. Those subsidiaries which have been raised under PI Krakatau Steel ‘Tbk are PI KEI Pipe Industries, PY Krakatau Wajatama, PT Meratus Jaya lron & Steel, PI’ Krakatau Daya listrik, PY Krakatau Tirta Industri, PT Krakatau Bandar Samudera, PT Krakatau Industrial Fstate Cilegon, PT krakatau Enginering, PT Krakatau IT and PT Krakatau Media, PY Krakatau Sieel ‘Tbk has a long history of doing business in Indonesia, supported by the diversity and quality of steel products produced. During the operation, PT Krakatau Steel ‘Tbk fhas been building a loyal relationship with its customers for more than 20 years. For a big company who has added great value to the national’s economy, PI Krakatau Steel ‘Tbk is definitely an asset for Indonesia. This case was woitten ty Raharsi Dethirafuri under the supervision of Subiakto Soekarno jrom Schl of Business and Management ~ Institut of Teknologi Bandung. It was prepared solely to provide material for class discussion. The cuthor des not intend to illustrate either effectioe or inefective handling of a managerial situation, The author may hace disguised certain names ard other identifying information to protect confidentiality. IBC prohibits any forn of reproduction, storage or transmittal without its written permission. To order copies or request permission fo reproduce materials, contact IBCC at School of Business and Management ~ ITB Bulding. Jl Ganesha No, 10, Bandung. o, +0222-2551925 F+6222-2908289 oF e-mail to ibec@sbm-ithac.id Copyright ©2012, Indonesia Business Case Conter (IBC) ‘Tis eateiis nk to bo esi conjunction wah MBA eters INDONESIA BUSINESS CASE CENTER (IBCC) 02-05-0342 First Initial Public Offering (IPO) In November 2010 PT Krakatau Steel Tbk took a big step. PI krakatau Steel Tbk has been officially listed in BEI (Bursa Efek Indonesia) with a stock code “KRAS’. PT Krakatau Steel Tbk offers 3.155,000,000 shares to public which is 20% of the paid-up capital. This step is taken in order to expand its production capacity. PT Krakatau Steel Tbk is planning to use 35,8% of the IPO (Initial Public Offering) income to add more production machine for achieving the production target of 3,5 mullion-ton Hot Rolled Coil per year. Beside adding more production machine, PT Krakatau Steel Tbk is also planning to use 24,2% of the IPO income to buy the raw materials (iron ore pellet, scrap, billet and slab), 25% to finance maturation of 388 hectares land for integrated steel mills project with POSCO) and 15% to increase the capital investment in two PT Krakatau Steel Tbk subsidiary, PT Krakatau Bandar Samudera and PT Krakatau Daya listrik. But during the LPO there has been conflicts going on, the share price was claimed too low. At first offering (2-4 November 2010), 3.155.000.000jshares'were‘offerediatipriceiRPS50.- per share. This incident disappointed lots of people. People were outraged by the price that was deemed inappropriate. At the same time Ministry of State Owned Enterprises, Mustafa Abubakar and the underwriter denotes the price of its initial public offering of shares (initial public offering / PO) of PY Krakatau Stee! is already optimal. President Director of PL Mandiri Sekuritas, Harry M Supoyo, said, the stock pricing Krakatau Steel cannot only be scen from the absolute value. Stock prices of steel producers should also be compared with similar companies. This issue triggers Bambang to do a financial performance measurement of Krakatau Stee! compare to other local steel companies. Bambang decides to compare it to the financial performance of PT Gunawan Dianjaya Steel and PT Jaya Pari Steel as the steel companies which were already settled in BEI before PY Krakatau Steel. ‘To assess the financial performance, Bambang will use several methods. Trend Analysis Bambang believes that growth is important for any company. Aupositivelgrowttvrateishowsithe He believes that a company which has a continuous growth will potentially bring more profit to the investors in the future. To assess the growth rate each year, a calculation named CompoundiAmmualGrowth RALEKGAGR) is invented. CAGR is the year-over-year growth rate of an investment over a specified period of time (Investopedia: 2011). CAGR can be calculated through dividing the ending value to beginning value, raised to the power of 1/ (number of years) then subtract it by 1 whe , Vtn)\ 9 CAGR (to, ty) UD) 1 INDONESIA BUSINESS CASE CENTER (IBCC) 082-05-05-12 tirto = Number of years In analyzing the performance trend ofa company, Bambang will use several ratios which can be classified into four main aspects. Those aspects are revenue, return, market and debt performance. Revenue Formula = Gross Profit margin Gross Profit / Revenue - Operating Profit Margin | Operating, Profit / Revenue - Net Profit Margin Net Income / Revenue - COGS to Revenue COGS / Revenue = Operating Expenses to Operating expenses / Revenue Revenue Market = Farnings per share Net Income 7 Revenue = Book value per share Equity / Shares Outstandins Return - Return on Assets Net Income / Asset = __ Return on Equity Net Income / Equity Debt ~ Debt to Equity Debt / Equity = Debt to Capital Debt / Capital For the trend analysis Bambang is goint to use year 2007 ~ 2010 for the three steel compenies (PT Krakatou Steel, PT Gunawan Dianjaya Steel and PT Jayapari Steel). In this trend analysis Bambang will compare the CAGR of Krakatau Steel to other two local steel companies mentioned above. Note: For several ratios the CAGR will use years 2003-2010 dueqtoithelG@AGRenabilityite generate valid data when one value (either ending value or beginning value) has a acgative amount, BUMN Financial Scoring Beside Trend analysis Bambang will analyze the financial performance of the three steel companies through BUMNeFinancialyScoringeframework, This BUMN Financial Scoring framework is a new framework introduced by the government and based on Keputusan Menteri Badan Usaha Milik Negara, KEP-100/MBU/ 2002. Through BUMN Financial Scoring Framework, performance of company can be classified into three categories such as healthy, less healthy and unhealthy. In BUMN Scoring Framework, performance of company is based on three aspects, financial aspect which contributes 70% of the total score, Operational and administration aspect with contribution of 15% each. For the financial aspect, the ministry of state-owned company has approved several financial ratios that are considered to be important in assessing a financial INDONESIA BUSINESS CASE CENTER (IBCC) 082-05-05-12 performance of a company. There are 8 financial ratios where each of ratios has specific weight contributed to the overall score. Financial Indicators | Weight Formula Return on Fquity (ROE) 20 | Net Income / Equity Ebitda / (otal Asset - Net Fixed Return on Investment (ROI) | 15 ‘Asset) ‘Cash Ratio 5 __| Cash / Current Liability ‘Current Ratio 5__[ Current Asset / Current Liability Collection Period ‘Account Receivable x 365 / Revenue Inventory Turnover Inventory x365 / Revenue Total Asset Turnover Revenue 7 Asset Total Equity/Total Asset 10 | Equity / Asset Total Score 70_| (Total score is represented as TS) Note: For the EBITDA, it is gotten from EBIT + Depreciation Here, the EBIT can be derived from (Income before tax + Interest Expense - Interest Income) Since Bambang only wants to do a measurement on the financial aspect, Bambang readjusted the score for health classification as displayed below: Rating | Scoring Adjusted Classification AAA | 15595 _| _TS>65 AA_| 80 35 5 ROE>15 2 ROI> 18 1 | 125 5 4 300 o It > 300. oO 90s TEA <100 6.5 Total Asset Turnover TATO. TATO > 120, 5 105

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