STAKEHOLDERS EMPOWERMENT SERVICES STEEL AUTHORITY OF INDIA LTD. www.sail.co.in SECTOR: STEEL REPORTING DATE: 5TH DECEMBER, 2017 Steel Authority of India Ltd. NSE Code - SAIL TABLE 1 - MARKET DATA (STANDALONE) (AS ON 28th November, 2017) Sector - Steel NSE Market Price (₹) 80.80 NSE Market Cap. (₹ Cr.) 33,415.95 Face Value (₹) 10.00 Equity (₹ Cr.) 4,130.53 Business Group - PSU 52 Week High/Low (₹) 87.80/47.10 Net worth (₹ Cr.)* 34,673.78 Year of Incorporation - 1973 TTM P/E (TTM) N.A. Traded Volume (Shares) 88,33,776 TTM P/BV 0.96 Traded Volume (lacs) 7,137.69 Registered Office - Source - Capitaline, TTM - Trailing Twelve Months, N.A. - Not Applicable, * As on 30th September, 2017 Ispat Bhawan, Lodi Road, COMPANY BACKGROUND New Delhi – 110 003 Steel Authority of India Limited is a Public-Sector Undertaking. The Company is engaged in the manufacturing of flat products, such as hot rolled (HR) coils, HR plates, cold rolled Company Website: (CR) coils, pipes and electric sheets, and long products, such as thermo mechanically www.sail.co.in treated (TMT) bars and wire rods. The Company's segments include Bhilai Steel Plant (BSP), Durgapur Steel Plant (DSP), Rourkela Steel Plant (RSP), Bokaro Steel Plant (BSL), IISCO Steel Plant (ISP), Alloy Steels Plant (ASP), Salem Steel Plant (SSP), VISL, POWER COMPANIES and OTHERS. It also offers rails, structurals, merchant products, electric resistance welded pipes, spiral welded pipes and silicon steel sheets. It operates and owns over five integrated steel plants at Bhilai, Durgapur, Bokaro, Rourkela and Burnpur, and approximately three special steel plants at Salem, Durgapur and Bhadravati. Its unit, Chandrapur Ferro-Alloy Plant (CFP), produces ferro-alloys. It also has SAIL Refractory Unit (SRU) at Bokaro. Revenue and Profit Performance Quarterly revenue and Profit (₹ CRORE) The revenue of the Company increased from ₹11,225.60 crores to ₹13,617.42 crores from quarter ending Sep’16 to quarter 13,617.42 12,690.54 15,000 11,225.60 ending Sep’17. The Company made a loss of ₹539.06 crores in 10,000 quarter ending Sep’17 vis-a-vis making a loss of ₹731.58 crores in quarter ending Sep’16. 5,000 -539.06 -771.30 -731.58 0 -5,000 Sep'17 Mar'17 Sep'16 Revenue Profit Source: Moneycontrol Performance vis-à-vis Market 1.80 TABLE 2- Returns 1.60 1-m 3-m 6-m 12-m 1.40 Steel Authority of India 4.87% 23.47% 44.14% 60.39% 1.20 Nifty 0.62% 4.09% 8.15% 27.94% Nifty Metal -3.53% 5.27% 27.77% 35.56% 1.00 Source - Capitaline/NSE 0.80 Dec 16 Feb 17 Apr 17 Jun 17 Aug 17 Oct 17 Steel Authority of India Ltd NIFTY NIFTY METAL Stakeholders’ Education | Corporate Governance Research | Corporate Governance Score | Proxy Advisory 1 | P AGE STAKEHOLDERS EMPOWERMENT SERVICES STEEL AUTHORITY OF INDIA LTD. www.sail.co.in SECTOR: STEEL REPORTING DATE: 5TH DECEMBER, 2017 TABLE 3 - FINANCIALS % Change (₹ Cr.) Sep’17 Mar’17 Sep’16 Sep ’17 vs Mar’17 Mar’17 vs Sep’16 Net Worth 34,673.78 36,009.06 37,641.21 -3.71% -4.34% Current Assets 27,759.31 25,550.61 21,077.07 8.64% 21.22% Non-Current Assets 83,071.47 80,976.92 79,858.56 2.59% 1.40% Total Assets 110,830.78 106,539.47 100,935.63 4.03% 5.55% Investments 1,501.54 1,395.48 1,294.01 7.60% 7.84% Finance Cost 643.47 720.18 602.76 -10.65% 19.48% Long Term Liabilities 24,435.47 24,206.00 23,060.60 0.95% 4.97% Current Liabilities 51,721.53 46,324.41 40,233.82 11.65% 15.14% Turnover 13,617.42 12,690.54 11,079.29 7.30% 14.54% Profit After Tax (PAT) -539.06 -771.30 -731.58 N.A. N.A. EPS (₹) -1.31 -1.87 -1.77 N.A. N.A. Source – Moneycontrol/ Stock exchange filing AUDIT QUALIFICATIONS Auditor Qualification for last three years: The Statutory Auditors have raised audit qualifications for standalone and consolidated financial statements for the FY 2014-15, FY 2015-16 and FY 2016-17. Standalone Financial Statements for FY 2016-17: Basis for Qualified Opinion “The Company has not provided for: (i) Entry tax amounting to Rs. 1,796.03 crores (Current year Rs. 111.04 crore and up to last year Rs. 1,684.99 crore) (Refer Note No.39.2(a)(i) & (ii)); and (ii) amount paid to Damodar Valley Corporation (DVC) against bills raised for supply of power and retained as advance to DVC by Bokaro Steel Plant amounting to Rs. 587.72 crore (current year Rs. 96.45 crore and up to last year Rs. 491.27 crore). (Refer Note No. 39.2 (b)). The total impact of above para (i) & (ii) resulted in understatement of loss (net of tax) for the year ended 31st March, 2017 by Rs. 1,558.78 crores, overstatement of other equity as on 31st March, 2017 by Rs. 1,558.78 crores, understatement of current liabilities by Rs. 2,383.75 crore and understatement of assets by Rs. 824.97 crore.” Qualified Opinion “In our opinion and to the best of our information and according to the explanations given to us, and based on the consideration of reports of the branch auditors on separate Financial Statements of the branches referred to in the Other Matters paragraph below, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph above, the aforesaid Standalone Ind AS Financial Statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 2017, and its loss (including total comprehensive loss), its cash flows and the changes in equity for the year ended on that date.” Management Response: “In respect of item stated at (i), the Company's view is that the Nine Judges Bench of Hon'ble Supreme Court, vide its judgment dated 11th November, 2016, upheld the constitutional validity of levy of Entry Tax by the States and has laid down principles/tests on levy of Entry Tax Acts in various States. The respective regular benches of the Apex Court would hear the matters as per laid down principles. Pending decision by the regular benches of the Apex Court on levy of entry tax in the States of Chhattisgarh, Odisha, Uttar Pradesh and in respect of the case pertaining to Calcutta High Court, the Entry Tax demands under dispute have been treated as contingent liabilities. In respect of item stated at (ii), the Company's view is that the cases are sub-judice and pending for adjudication before the Stakeholders’ Education | Corporate Governance Research | Corporate Governance Score | Proxy Advisory 2 | P AGE STAKEHOLDERS EMPOWERMENT SERVICES STEEL AUTHORITY OF INDIA LTD. www.sail.co.in SECTOR: STEEL REPORTING DATE: 5TH DECEMBER, 2017 various judicial authorities for a long time. The above stated disputed demands, stated at (i) and (ii) above, contested on valid and bonafide grounds, have been treated as contingent liabilities as it is not probable that present obligations exist as on 31st March, 2017. Therefore, there is no adverse impact on loss for the year.” Similar audit qualification were made by Statutory Auditors on the standalone financial statements for the financial year 2014- 15 and 2015-16. Similar audit qualification relating to deferred tax were made by Statutory Auditors on the consolidated financial statements for last three financial years. Response Comment Three financial years (FY 2016- Frequency of Qualifications Yes 17, FY 2015-16 & FY 2014-15). Have the auditors made any adverse remark in last 3 years? No - Are the material accounts audited by the Principal Auditors? Yes - Do the financial statements include material unaudited financial statements? No - TABLE 4: BOARD PROFILE (AS PER ANNUAL REPORT - FY 2016-17) Regulatory Norms Company % of Independent Directors on the Board 50% 40% % of Promoter Directors on the Board - 13% Number of Women Directors on the Board At least 1 2 Classification of Chairman of the Board - Executive Director Is the post of Chairman and MD/CEO held by the same person? - Yes Average attendance of Directors in the Board meetings (%) - 92.86% Composition of Board: As per Regulation 17(1)(b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 "Listing Regulations, 2015", the Company should have at least 50% Independent Directors as the Chairman of the Board is an Executive Director. The Company has 40% of Independent Directors and hence, it does not meet the regulatory requirements. Board Diversity: The Company has 15 directors out of which 13 are male and 2 are females. Stakeholders’ Education | Corporate Governance Research | Corporate Governance Score | Proxy Advisory 3 | P AGE STAKEHOLDERS EMPOWERMENT SERVICES STEEL AUTHORITY OF INDIA LTD. www.sail.co.in SECTOR: STEEL REPORTING DATE: 5TH DECEMBER, 2017 TABLE 5 - FINANCIAL RATIOS % Change Ratios Sep’17 Mar’17 Sep’16 Sep ’17 vs Mar’17 vs Mar’17 Sep’16 Inventory Turnover 0.95 0.81 0.78 17.71% 3.07% Debtors Turnover 3.02 4.34 3.54 -30.46% 22.62% Fixed asset Turnover 0.16 0.16 0.14 4.60% 12.96% Ratios Turnover Current Asset Turnover 0.49 0.50 0.53 -1.23% -5.51% Operating Profit Margin 6.71% -2.08% 1.01% N.A.