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A Study of Performance of Indian Steel Companies During 1999 - 2003

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  • Kolluri Srinivas

Abstract

The Indian steel industry has been showing tremendous improvements in terms of growth in capacity, production and exports and has become a major competitor in the global arena, thanks to the forces of deregulation and globalization. Keeping in view the current performance, the future looks bright for the domestic steel industry. India will be among the top 5 consumers of steel by 2010. The primary objective of this study is to measure an overall index of performance across the Indian steel companies based on eleven financial ratios including the profit ratio for each company by using the globally popular method - the Taxonomic Method. This method is preferred over the parametric methods using flexible functional forms and the Data Envelope Analysis (DEA). The empirical results show that, overall composite index would serve as a better performance indicator than the conventional stand-alone operating profit margin. Statistically speaking, the performance of eleven companies appeared to be converging during 1999-2003. The regression results reveal that the size factor - log (assets) - has been dominant. Contrary to conventional expectations the sign of market share shows positive and significant relation with overall performance. This is, perhaps, attributable to the price controls the steel industry has been subjected to for a long time before liberalization. Also, the larger companies are in the public sector excepting the TISCO. As a consequence, the expected U-shaped relationship between OPM/CPI turned to be counter-intuitively umbrella shaped.

Suggested Citation

  • Kolluri Srinivas, 2005. "A Study of Performance of Indian Steel Companies During 1999 - 2003," The IUP Journal of Applied Economics, IUP Publications, vol. 0(4), pages 51-61, July.
  • Handle: RePEc:icf:icfjae:v:04:y:2005:i:4:p:51-61
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