6 Factor Analysis of India’s STEEL Sector (Ratio based analysis of top 8 Steel companies)
6 Factor Analysis of India’s STEEL Sector (Ratio based analysis of top 8 Steel companies)
Let’s study some Steel companies, we have selected the following companies for study and analysis (the companies are selected on the basis of market cap, the top 8 companies of that sector according to market cap): –
- JSW Steel
- Tata Steel
- SAIL
- Jindal Steel & Power
- Ratnamni Metals & Tubes
- Welspun Corp
- Maharashtra Seamless
- APL Apollo
| Sr. No. | Company Name | Market Cap (Rs. Crore) |
| 1 | JSW Steel | 69,942 |
| 2 | Tata Steel | 57,169 |
| 3 | SAIL | 21,561 |
| 4 | Jindal Steel & Power | 14,398 |
| 5 | Ratnamni Metals & Tubes | 4,254 |
| 6 | Welspun Corp | 3,639 |
| 7 | Maharashtra Seamless | 3,276 |
| 8 | APL Apollo | 2,639 |
This analysis is done with the only purpose of screening out good companies. Analysis done is completely on quantitative basis. No suggestions are being made to directly go and invest in the top scoring companies of this analysis.
The top 100 companies according to the New Market Cap Classification are called as the large cap companies. Companies from 101 to 250 (based on market capitalization) are the mid-cap companies and the rest, that is above 250 are the small cap companies. The risk associated with small cap companies is more as compared to large cap and mid-cap companies.
JSW Steel and Tata Steel are the large cap companies. SAIL and Jindal Steel & Power are the mid-cap companies. And Ratnamni Metals & Tubes, Welspun Corp., Maharashtra Seamless and APL Apollo are the small cap companies.
The analysis of these companies is going to be based on the following parameters. cantilever racks manufacturer in INDORE
- What is PE Ratio
- What is ROCE (Return on Capital Employed)
- What is ROE (Return on Equity)
- Debt to Equity Ratio (DE Ratio)
- Interest Coverage Ratio
- Pledged Promoter Holding
In this analysis, we have used Interest Coverage Ratio and Pledged Promoter Holding instead of Net profit and Sales growth. The reason behind is that this is a very capital-intensive sector. As this sector is more of a cyclical business, the 5-year Net profit growth may look negative or sluggish. And as this is a cyclical business, interest coverage ratio and Pledged Promoter Holding have been taken for quantitative analysis. These parameters play an important role in the analysis of any company. This does not mean that one should be dependent only on these, but these parameters are crucial for initial screening.
First, we have given the companies their ranks and then accordingly we have assigned scores to those companies from 1 to 8, where 1 being the least and 8 being highest score. (total number of companies taken here are 8, that’s why the mentioned scoring card)
What is PE Ratio
| Sr. No. | Company Name | PE Ratio | Rank | Score |
| 1 | JSW Steel | 7.42 | 1 | 8 |
| 2 | Tata Steel | 8.51 | 2 | 7 |
| 3 | SAIL | 11.23 | 4 | 5 |
| 4 | Jindal Steel & Power | 163.99 | 8 | 1 |
| 5 | Ratnamni Metals & Tubes | 18.66 | 5 | 4 |
| 6 | Welspun Corp | 22.22 | 7 | 2 |
| 7 | Maharashtra Seamless | 10.37 | 3 | 6 |
| 8 | APL Apollo | 20.56 | 6 | 3 |
What is PE Ratio is nothing but what price an investor is paying for 1 rupee of earning.
The company which has the highest PE ratio has been given number 8 rank and the company which has the lowest PE ratio has been given number 1 rank. But the company which has the highest PE ratio has been given the lowest score. Jindal Steel & Power has the highest PE ratio and thus got number 8 rank and scored 1. JSW Steel has the lowest PE ratio and thus scored number 1 rank and a score of 8.
What is ROCE (Return on Capital Employed)
| Sr. No. | Company Name | ROCE | Rank | Score |
| 1 | JSW Steel | 17.51% | 3 | 6 |
| 2 | Tata Steel | 12.78% | 4 | 5 |
| 3 | SAIL | 2.66% | 8 | 1 |
| 4 | Jindal Steel & Power | 3.47% | 7 | 2 |
| 5 | Ratnamni Metals & Tubes | 18.46% | 2 | 7 |
| 6 | Welspun Corp | 7.46% | 6 | 3 |
| 7 | Maharashtra Seamless | 10.28% | 5 | 4 |
| 8 | APL Apollo | 22.41% | 1 | 8 |
The company which has the highest ROCE has the highest rank and has also been given the highest points. And the company which has the lowest ROCE has the lowest rank and has also been given the lowest score.
APL Apollo has the number 1 rank and scored 8 points. And SAIL has the lowest rank (8th) and scored 1 point.
What is ROE (Return on Equity)
| Sr. No. | Company Name | ROE | Rank | Score |
| 1 | JSW Steel | 25.64% | 1 | 8 |
| 2 | Tata Steel | 11.71% | 4 | 5 |
| 3 | SAIL | -1.21% | 7 | 2 |
| 4 | Jindal Steel & Power | -2.75% | 8 | 1 |
| 5 | Ratnamni Metals & Tubes | 12.16% | 3 | 6 |
| 6 | Welspun Corp | 5.36% | 6 | 3 |
| 7 | Maharashtra Seamless | 6.86% | 5 | 4 |
| 8 | APL Apollo | 20.56% | 2 | 7 |
ROE has been analyzed on the same basis as ROCE. The company which has the highest ROE has the highest rank and has also been given the highest points. And the company which has the lowest ROE has the lowest rank and has also been given the lowest score.
JSW Steel ranked 1st as it had the highest ROE and thus scored 8. And Jindal Steel & Power ranked 8th as it had the lowest ROE and thus scored 1.
Debt to Equity Ratio (DE Ratio)
| Sr. No. | Company Name | DE Ratio | Rank | Score |
| 1 | JSW Steel | 1.41 | 6 | 2 |
| 2 | Tata Steel | 1.58 | 8 | 1 |
| 3 | SAIL | 1.27 | 5 | 4 |
| 4 | Jindal Steel & Power | 1.41 | 6 | 2 |
| 5 | Ratnamni Metals & Tubes | 0.06 | 2 | 7 |
| 6 | Welspun Corp | 0.49 | 3 | 6 |
| 7 | Maharashtra Seamless | 0.01 | 1 | 8 |
| 8 | APL Apollo | 0.93 | 4 | 5 |
A lower DE ratio means that the company doesn’t require debt for its growth or for its working capital. That is the debt component of that company is very low and it can run its operations smoothly using the existing equity or reserves & surplus. The company which has the highest DE ratio has the least score and the company with lowest DE ratio has the highest score.
Maharashtra Seamless has the lowest DE ratio and has thus scored 8. Tata Steel has the highest DE ratio and has thus scored 1.
Interest Coverage Ratio
| Sr. No. | Company Name | Interest Coverage Ratio | Rank | Score |
| 1 | JSW Steel | 4.31 | 3 | 6 |
| 2 | Tata Steel | 3.38 | 4 | 5 |
| 3 | SAIL | 1.94 | 6 | 3 |
| 4 | Jindal Steel & Power | 1.03 | 8 | 1 |
| 5 | Ratnamni Metals & Tubes | 22.04 | 2 | 7 |
| 6 | Welspun Corp | 1.74 | 7 | 2 |
| 7 | Maharashtra Seamless | 60.9 | 1 | 8 |
| 8 | APL Apollo | 3.35 | 5 | 4 |
Interest Coverage Ratio plays an important role where the working capital requirements are high. Steel Sector obviously has that. They have to set-up huge plants, have to make huge investments in inventories and labor. Thus, a lot of capital is required and many times the promoters are not able to match that capital with its equity, which is why they have to take debts. If they take up debt, then interest coverage ratio is important for the interest payment of that debt.
The more the interact coverage ratio, the better it is for the company. Normally, it is alarming if the interest coverage ratio falls below 2.5. If it falls to between 1 to 1.5, then the company needs to take very strong actions. And if the interest ratio of a company is below 1, then the company is not even able to service their interests. The company which has the highest Interest Coverage Ratio will have the highest rank and also the highest score. And the company with the lowest Interest Coverage Ratio will get the lowest rank and lowest score.
Maharashtra Seamless has the highest Interest Coverage Ratio and thus scored 8 by ranking 1st. And Jindal Steel & Power has scored 1 as it has lowest Interest Coverage Ratio and ranked 8th.
Pledged Promoter Holding
| Sr. No. | Company Name | Pledged Promoter Holding | Rank | Score |
| 1 | JSW Steel | 43.60% | 2 | 2 |
| 2 | Tata Steel | 3.51% | 3 | 3 |
| 3 | SAIL | 0.00% | 4 | 8 |
| 4 | Jindal Steel & Power | 50.20% | 1 | 1 |
| 5 | Ratnamni Metals & Tubes | 0.00% | 4 | 8 |
| 6 | Welspun Corp | 0.00% | 4 | 8 |
| 7 | Maharashtra Seamless | 0.00% | 4 | 8 |
| 8 | APL Apollo | 0.00% | 4 | 8 |
If the promoter has to pledge its holding, then there might be problems for them if there are not able to service their debt properly. If not serviced properly, the share might even get sold in the market, as the debtors might take aggressive calls. Thus, if the promoter of a company has to pledge its shareholding, then it is a negative sign. The company which has the highest pledged promoter holding scores the least. And the company which has the lowest pledged promoter holding will get the highest score.
Jindal Steel & Power has around 58% promoter holding, 50.20% of which is pledged, that is around 29% of Jindal Steel & Power of promoter holding is pledged. In JSW too, there is high pledging of promoter holding. Tata steel’s pledged promoter holding is very low comparatively, even after being a large cap company. All the other companies haven’t pledged part of their promoter holding.
Thus, Jindal Steel & Power has scored 1 as it has the highest pledged promoter holding. And as SAIL, Ratnamni Metals & Tubes, Welspun Corp., Maharashtra Seamless and APL Apollo haven’t pledged anything, all of them have scored 8.
Final Standings
| Rank | Company Name | Final Score |
| 1 | Ratnamni Metals & Tubes | 39 |
| 2 | Maharashtra Seamless | 38 |
| 3 | APL Apollo | 35 |
| 4 | JSW Steel | 32 |
| 5 | Tata Steel | 26 |
| 6 | Welspun Corp | 24 |
| 7 | SAIL | 23 |
| 8 | Jindal Steel & Power | 8 |
Ratnamni Metals & Tubes is on the 1st position with 39 points, Maharashtra Seamless on 2nd with 38 points, APL Apollo on 3rd with 35 points and Jindal Steel & Power is on the last position, that is 8th with just 8 points.
The first three companies are small cap companies. They have managed their capital efficiently and thus kept their fundamental strong. The stock price of these companies are also in the growing trend from the last 10-12 years. The large cap companies, JSW Steel and Tata Steel, also have not scored that badly.
The point here is to focus on the fundamentals of the company. Here, we have analyzed the company based on their current fundamentals. Also, the qualitative analysis of these companies will provide with a better outlook towards them
And quantitative analysis along with qualitative analysis will give a better understanding of which company is worth investing from here on.
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