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Tata Steel: Acquisition was the theme

Jul 7, 2008

In the last article, we saw the balance sheet analysis of Tata steel between the period 1999 and 2003. Now let us see the period between 2003 and 2007, where among other things, Tata steel became 6th largest steel producer in the world by acquiring Corus. This period was a remarkable period for Tata steel as it celebrated its 100th year of existence and acquired lot of companies internationally as well as domestically. Now let us see how has the balance sheet changed between 2003 and 2007.

Considering the assets side first, the net fixed assets grew at a CAGR of 10% mainly on account of capital expenditure incurred towards enhancement of capacities. It should be borne in mind that the company's saleable steel capacity grew nearly 50% during this period. The investments grew at a CAGR of 50.4%, which can be attributed to increased investments in subsidiaries. The working capital grew at CAGR of 71%. However, if we exclude cash, then it has decreased by 1% CAGR, turning the company into a huge cash generating machine. On the liabilities side, the debt grew at a CAGR of 22.9%, which was mainly due to foreign currency syndicate loans of US $1.65 bn drawn for Corus acquisition. The net worth of the company grew at a CAGR of 44.5% from Rs 31 bn in 2003 to Rs 138 bn in 2007.The debt equity ratio reduced from 1.3 in 2003 to 0.7 in 2007. All of this can be owed to higher profits realized during this period.

To conclude, when all the other peers in the domestic market where strengthening their balance sheet, Tata Steel with its already strong balance sheet went a step ahead of them and started acquiring companies in domestic as well as international markets. By putting the gargantuan cash it generated during the four year period under consideration and leveraging its balance sheet, it entered the record books of not only the Indian steel industry but also the world steel industry and became a truly transnational company in this era of globalization.

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