Tisco - The EVA Journey

            
 
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Case Details:

Case Code : FINC035
Case Length : 9 Pages
Period : 1996-2006
Pub. Date : 2004
Teaching Note :Not Available
Organization : TISCO
Industry : Iron and Steel
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Excerpts

The Aftermath

In the next year financial year 2001-02, TISCO reported dismal financial results. The company's revenues came down by 14% while the PAT decreased by 63%.

Ratan Tata, Chairman of TISCO, blamed the recessionary phase in the global steel industry due to the buildup overcapacity for the company's poor performance. However, the fact remained that TISCO was not improving shareholders' value. Media reports estimated that TISCO had destroyed shareholders' value to the extent of about 35% though TISCO's officials claimed that the value destruction was limited to 5%. This controversy cropped up even as Muthuraman insisted that making TISCO an EVA positive company by 2007 was top of his agenda. After a prolonged phase of poor financial performance, TISCO reported significantly improved financial results for the financial year 2002-03...

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

The Solutions

Analysts held the view that in order to sustain a positive EVA, TISCO would need to insulate itself from the ups and downs of the business cycles that affected the steel industry.

Muthuraman accepted this point of view, saying, "The price of steel should be irrelevant to us." In order to achieve a positive EVA, analysts suggested that TISCO needed to diversify extensively. They said that by widening the scope of its operations, TISCO would be somewhat insulated from business cycles.

In this context, the company evaluated a plan to invest Rs. 50 bn in the telecom business. However, industry experts argued that telecom was too unrelated a business and one with a long gestation period. They cited the fact that Essar Steel which had invested in an unrelated business, had landed in a major financial mess, even defaulting on an international debt obligation in 1999...

Exhibits

Exhibit I: Economic Value Added Framework
Exhibit II: Financial Performance of Major Indian Steel Companies
Exhibit III: The Steel Industry


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