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CHAPTERS PARTICULARS
EXECUTIVE SUMMARY
3 RESEARCH METHODOLOGY
3.2 Methodology
5. CONCLUSION
BIBLIOGRAPHY
Cement is a key infrastructure industry. Indian cement industry is 84 years old. It has 120
large cement plants besides some 300 mini plants with installed capacity of about 163
million tones and a production of 131.88 million Prices moved above rs.160-180
everywhere in last year. The demand is expected to remain strong
The Indian cement Industry not only ranks second in the production of cement in the
world but also produces quality cement which meets global standards. , the industry faces
a number of constraints in terms of high cost of power, high railway tariff; high incidence
of state and central levies and duties; lack of private and public investment in
infrastructure projects; poor quality coal and inadequate growth of related infrastructure
like sea and rail transport, ports and bulk terminals. In order to utilize excess capacity
available with the cement industry, the government has identified the following thrust
areas for increasing demand for cement:
Cement is a key infrastructure industry. It has been decontrolled from price and
distribution on 1st March, 1989 and delicensed on 25th July, 1991. However, the
performance of the industry and prices of cement are monitored regularly. The
constraints faced by the industry are reviewed in the Infrastructure Coordination
Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary
(Coordination). Its performance is also reviewed by the Cabinet Committee on
Infrastructure.
The Indian cement industry is one of the pillar sectors of our economy as it accounts for a
significant portion of total industrial output of our country. Further it plays a dominant
role in satisfying basic needs (house construction) of human kind. In view of LPG, while
India Cements Industry faces many challenges, it gets good opportunities to improve
sales. As a result of this, Cement Industry continues to adopt a series of readjusting and
restructuring measures including up gradation of technology.
India is largest market with a great potential, as the country possesses more than a billion
people, vast territory and abundant resources. The cement industry can enlarge global
market shares so long as the industry players firmly seize the business opportunities,
promptly solve outstanding problems and improve weak links in their existing production
chain.
The industry is expected to perform well in all the dimensions and achieve a healthy
growth in its operations. In order to manage stiff competition, drastic steps are to be taken
to reduce cost of production. In the changed environment, application of financial
management techniques would help the cement companies in increasing their
productivity and profitability. An attempt has been made in the present study to have an
insight into the examination of financial health of the cement companies in India.
The recent boom in the housing and construction industry in India has worked wonders
for cement manufacturing companies with capacity utilization crossing the 100 per cent
mark for the first time in January 2007. Cement consumption this fiscal is all set to
exceed the 150-million tonne mark for the first time. The industry is expected to end the
fiscal with a dispatch of about 155 million tonne. The overall capacity utilization during
the 10-month period is estimated to be in the range of 95 per cent or more.
Major cement companies witnessed a 32 per cent surge in their sales volume and, across
the board, companies reported higher production, higher sales and lower production
costs.
Cement industry at present is enjoying one of the best time in terms of demand and price.
What more one could ask for as the most of the cement companies have seen their top
line as well as bottom line surging back on the strong spending on the Infrastructure.
Today, Indian cement industry comprises of more than 400 large and mini plants ranking
second in the world only after China. The industry at present has an installed capacity of
165 million tones and most of the industry players are operating at the healthy capacity
utilization. For the year 2005-06, capacity utilization was at 81 per cent and for the
current year, we expect it to be higher. Many cement companies have undertaken
expansion plans to meet the growing demand but most of the new capacity will go on
stream only by 2008. Hence, we expect the prices of cement to remain firm in the months
to come.
The cement industry would play a crucial role in building up the infrastructure required
for aviation, transportation, ports, and fuel terminals (for energy requirements) amongst
others.
The Cement Industry in India has made major strides ever since inception of the first
cement plant in 1914 with a humble capacity of 1000 tons/annum. At 145 metric tones a
year the country is the second largest producer of cement producing around 5% of the
global produce.
GLOBAL SCENARIO
Cement demand throughout 2006 will remain strong with growth expected in most
countries. There are exceptions, notably the Philippines, Malaysia, the UK, Switzerland
and Germany. As expected, the emerging markets are on course to register high annual
growth rates. In the Middle East, India and Vietnam, rates of 8% are on the card, while in
other countries rates of 3% to 6% have already been reported.
The shift of focus
In the recent Building Materials Report from Exane BNP Paribas, there was much
mention of the shift in the centre of gravity of the cement industry to the East, and from
the mature markets to the emerging markets. Asia represents 70% of global cement
consumption, with China accounting for about 45% of the world total; by 2020 the
emerging markets are expected to represent 90% of world consumption. For the period
2005 – 2010 it is anticipated that there will be a net increase in capacity of 648 million
Middle East
With regard to the Middle East countries, there are two important factors that could be
influencing the decision makers: oil prices and the geopolitical situation in the Middle
East. Construction output in these countries has always been correlated to oil process. If
demand slows and does not match expectations of increased cement capacity there could
be intense domestic price competition and surplus capacity would have to be exported,
out of a region that is currently importing about 15% of global sea-borne cement.
The international cement groups as well as the domestic producers in the Middle East
will be carefully watching oil prices, as a fall from the high levels and revenues that have
been fuelling the construction industry in many parts of the region could severely affect
cement demand.
Expansion options There is also another interesting aspect of the latest developments in
the cement industry and that is an increase in vertical integration, in which companies are
looking to control downstream activities. The acquisition of aggregates companies or
ready mix concrete operations (such as that of Aggregate Industries by Holcim, or RMC
by Cemex) can offer a deterrent to imports. An oversupply of cement in some of the
rapidly expanding regions could set off a price war in the mature markets and the
established players will want to protect their domestic interests, by becoming both
producer and customer.
Energy Efficiency As for energy and pollution norms, the best performers in the country
perform almost at par with the best around the globe (thermal energy Kcal/kg of clinker –
India 665 against 690 of Japan and pollution norms SPM of 40 in India against 20 of
Japan) but the average performers lag far behind the global average.
Looking at the background of cement industry, the prices of cement industry are market
driven and are not in the control of the manufacturers. There is a mismatch between the
supply and demand, with the demand side being heavier. However, an increase in the
installed capacity can bridge the gap between demand and supply.
In budget`07, a dual policy was announced for the cement industry, which had a positive
as well as a negative impact. On the positive side, there was emphasis on infrastructure
development and nation-building projects, resulting in an increase in the derived demand
for cement. However, the simultaneous increase in the excise duty had wiped out the
benefits.
The price considered in the budget was the maximum retail price (MRP) at Rs 190 a 50-
kg bag. Due to additional costs like primary freight, secondary freight, handling and the
However, recently cement manufacturers have agreed to hold the current prices for one
year even after rise in input costs, with excise duty of Rs 600 a ton being left unchanged.
Cement manufacturers also agreed that if any concession is given to them on excise duty
and other statutory levies, they will pass on the benefit to consumers. This had a
`negative` impact on the cement companies.
As per a report by Networth Stock Broking, the above would mean cement companies
will not have any decline in realizations from current levels but reduction in Networth
price assumption by Rs 150 a ton for FY08/CY07 would lead to 14 to 20 % impact on net
earnings of frontline cement companies. Gujarat Ambuja would be affected 13% and
UltraTech 18%.
``Further the cap on prices would expose the cement manufacturers to negative surprises
on cost front. We upgrade the sector to neutral in light of sharp correction, the decision of
freezing the price for one year has washed away any kind of probability for bottom line
surprise for the next one year.
Cement companies have lost opportunities for further price hikes which we have factored
in our earnings estimates for next year. This move will downgrade the net earnings of
frontline cement companies by 10-15%,
Looking at the lack of trigger in near future, inability to pass on the cost and overhang of
supply due to commercialization of new plants by FY09, Karvy has downgraded the
cement sector to `Neutral`.
The strong growth in the cement sector has been fuelled by various sectors which are
witnessing strong growth themselves. They are
Growth in housing sector (over 30%)-a key demand driver;
-Infrastructure projects like ports, airports, power projects, dam & irrigation projects
-National Highway Development Programme
-Bharat Nirman Yojana for rural infrastructure
-Rise in industrial projects
-Export potential is also a demand driver
Capacity Utilization The capacity utilization has improved over the years, the current
level of capacity utilization is pegged at 90% which in itself is a benchmark the world
over. Not being able to add capacity rapidly has been a blessing in disguise for the
industry as it has enabled it to attain such a high level of productivity.
THE CONSOLIDATION
In the past 3 years the Indian cement industry has undergone dramatic changes, the
takeover of L&T cement division (UltraTech) by Grasim (Aditya Birla Group) was only
the beginning of the consolidation that was to follow. The top five players control almost
50% of the capacity; the remaining 50% of the capacity remains pretty fragmented.
It would only be unfair to expect that the global bigwigs would sit back and watch
without being part of the action. Its no wonder that the top ones (Lafarge, Holcim and
Heidelberg) have increased their investments in India.
The government initiatives to extend a variety of incentives to the industry to spur growth
in the housing and other infrastructure sectors is only going to increase cement demand in
the medium term. Having mentioned earlier that the per capita cement consumption in
India is very low, the multinational majors see a huge potential for this pie to grow and
thus are eager to have a slice through acquisitions.
The acquirer and the acquired. The following acquisitions have happened in the recent
past
Grasim: UltraTech (L&T)
ACC: IDCOL
Lafarage : Tisco, Raymonds Gujarat Ambuja :DLF, ACC Cement FranCais : Zuari
Heidelberg : Mysore Cement
Holcim: Gujarat Ambuja
It’s interesting to note that ACC took over state-owned Industrial Development
Corporation of Orissa Ltd (IDCOL) in Dec 2003, only to be merged with by Gujarat
Ambuja which in turn has been taken over by Holcim recently. ACC and Gujarat Ambuja
are now the two arms of Swiss cement giant Holcim with a 24 per cent share of the
Indian market and nearly 35 million tons capacity.
The Indian Cement Industry is evolving and evolving for the good. The action that we
have seen is not the end, it is would continue for some time. Though the bigger players
have created bigger entities there have isolated smaller entities who would eventually
The industry has witnessed strong consolidations as several global majors like Lafarge,
Holcim and Heidelberg have strengthened their foothold here through M&A route. As a
result these foreign companies are controlling more than 25 per cent of the market. One
of the reasons for strong interest shown by the foreign players is due to lower per capita
consumption of cement in India Vis a Vis other Asian countries. For example, India has
per capita consumption of mere 125 kg as against China of 800 kg, 960 kg of South
Korea and 450 kg of Thailand. In other words, there is good scope for cement
consumption to increase over the years.
Cement production slowed in 2006-07, with a sharp decline recorded in March, data from
the index of six infrastructure industries showed today. The overall six core sector index,
which has a combined weight of 26.7 per cent in the index of industrial production, grew
by 10 per cent in the month, as against 7.1 per cent in March 2006. Cement production
growth, which has a weight of 1.99 per cent in the IIP, fell this March to 5.5 per cent, as
against 17 per cent in the same month last year. For the 12-month period (April-March
2006-07), production growth slowed to 9.1 per cent, as against 12.4 per cent in 2005-06.
Cement industry executives expect the slowdown to continue in the coming months.
THE surge in oil prices has brought cheer to at least one section of the Indian industry.
Cement majors including Gujarat Ambuja, UltraTech Cement and Saurashtra Cement are
among those cashing in on the huge export potential in West Asia, which is witnessing an
oil price-led construction boom.
During February, for instance, cement exports showed a healthy growth of 6.67 per cent
to 0.32 million tonnes from 0.3 million tonnes, according to data generated by the
Cement Manufacturers' Association.
Much of the increase in cement exports has been on account of exports to the United
Arab Emirates and other West Asian nations, industry players said.
According to them, the prices for both cement and clinker have shot up by 40-50 per cent
in the global market, even as domestic prices remain comparatively subdued. This has
opened up huge opportunities for cement majors, especially those on the west coast of the
country, to cater to the booming demand in the countries of the West Asian region, they
said.
"The export prices of cement have increased to nearly $40 (free-on-board) against $25 six
months ago, while clinker prices have risen to close to $30, as against $20 earlier.
"The spurt in export prices is largely on account of the West Asian construction boom
and provides tremendous export potential for Indian west coast-based manufacturers
since the average realization in the international markets is higher now," an industry
player said.
West Asia has traditionally been a high priced market for cement. In the mid-1990s,
cement prices in the West Asian countries were ruling close to the $47-mark and it is
only after 1998-99 that cement prices crashed to settle around the $20-mark.
Gujarat Ambuja Cements, with manufacturing facilities in Gujarat, is among the largest
exporter of cement and the company sells about 15 per cent of its production to the export
market.
UltraTech Cement, the erstwhile cement division of Larsen & Toubro that is now part of
the AV Birla group, is the other big exporter of clinker and cement to West Asia.
Saurashtra Cement is also among those planning to export to West Asian nations in a big
way.
Cement production in the country recorded a compounded annual growth rate (CAGR) of
8.2 per cent between 1994-2003, as compared with a 7.2 per cent growth clocked by the
Chinese cement industry and the world average of 3.5 per cent growth, according to data
sourced from the US Geological Survey. The increase in cement production is only
expected to pick up as the country continues growing at over 6-7 per cent annually.
Besides India and China, the other countries that have seen significant growth in
production include Brazil, Spain and the US. On the other hand, Germany and Japan are
among countries that have shown a downturn in production during the 10-year period, as
per the data.
According to analysts, the predominant reason for the fast growth in the Indian cement
industry is on account of a combination of the rapid economic growth and the fact that
the Government shackles on the sector was removed early.
The sector was decontrolled from price and distribution restrictions in 1989 and
delicensed in July 1991. , the Indian cement industry is projected to grow at a CAGR of
around 7 per cent over the next five years.
For the development of the cement industry, the Government had constituted a `Working
Group' in the Planning Commission during the formulation of Tenth Five Year Plan,
which forecast a growth rate of 10 per cent for the industry during the plan period and has
projected creation of additional capacity of 40-62 million tonnes mainly through
expansion of existing plants.
The thrust areas for improving demand for cement include the Government's efforts to
further push to housing development programmes, promotion of concrete highways and
roads and the use of ready-mix concrete in large infrastructure projects.
Technological change
Cement industry has made tremendous strides in technological up gradation and
assimilation of latest technology. At present ninety three per cent of the total capacity in
the industry is based on modern and environment-friendly dry process technology and
only seven per cent of the capacity is based on old wet and semi-dry process technology.
There is tremendous scope for waste heat recovery in cement plants and thereby
reduction in emission level. One project for co-generation of power utilizing waste heat
in an Indian cement plant is being implemented with Japanese assistance under Green
Aid Plan.
The induction of advanced technology has helped the industry immensely to
conserve energy and fuel and to save materials substantially. India is also producing
different varieties of cement like Ordinary Portland Cement (OPC), Portland Pozzolana
Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid
Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc.
Production of these varieties of cement conform to the BIS Specifications. It is worth
mentioning that some cement plants have set up dedicated jetties for promoting bulk
transportation and export.
The price considered in the budget is the maximum retail price (MRP) at
Rs.190 per 50 kg bag. Due to additional costs like primary freight, secondary freight,
handling etc, the MRP tends to be higher than Rs.190 and the presence of intermediaries
further inflates the retail price of cement, as the intermediaries include their margins. If
the manufacturers are forced
to sell at lower price, then there won’t be any surplus left for further expansionary
Again, the increase in the cost (excise duty) will leave the manufacturers with no choice
but to pass on the burden to the consumers, which will hamper the demand side.
Overview
1. Indian cement industry dates back to 1914 - first unit was set-up at Porbandar with a
capacity of 1000 tonnes
2. Currently India is ranked second in the world with an installed capacity of 114.2
million tonnes.
Industry estimated at around Rs. 18,000 crores (US $ 4185 mn)
3. Current per capita consumption - 85 kgs. As against world standard of 256 kgs
4. Cement grade limestone in the country reported to be 89 billion tonne. A large
proportion however is unexploitable.
5. 55 - 60% of the cost of production are government controlled
6. Cement sales primarily through a distribution channel. Bulk sales account for < 1% of
the total cement produced.
7. Ready mix concrete a relatively nascent market in India
• Companies : 59
• Plants : 120
• Typical installed capacity
• per plant : Above 1.5 mntpa
• Production 05-06 :160mn ten
• All India reach through multiple plants
• Export to Bangladesh, Nepal, Sri Lanka, UAE and Mauritius
• Strong marketing network, tie-ups with customers, contractors.
• Wide spread distribution network.
• Transportation costs high - freight accounts for 17% of the production cost
• Road preferred mode for transportation for distances less than 250kms.
However, industry is heavily dependant on roads as the railway infrastructure is
not adequate - shortage of wagons.
Capacity additions
Industry inputs
Demand drivers
• Infrastructure & construction sector the major demand drivers. Some demand
determinants
Economic growth
Industrial activity
Real estate business
Construction activity
Investments in the core sector
• Signs of a revival
growth in the housing sector
central road fund established for national highways and
railway over bridges to provide the necessary impetus
expansion plans, Greenfield projects on the anvil
• Demand - supply balance expected in the next 12 - 15 months
• Higher capacity utilization likely in the future
• Encouraging trend in demand due to pick-up in rural housing demand and industrial
revival
• Industry likely to grow at 8-10% in the next few years
Expectations
Government in order to curb the inflation very recently reduced the import duty on
cement from 12.5 per cent to Zero. But we feel this will not have any impact. There are
two reasons for the same. First, cement being bulky in nature will not be an easy to
import and at the same time our Indian ports are not good enough to manage large
quantity of cement being imported. Second, prices of cement in the international market
are quite high as compared to domestic market. Hence, we don’t expect any threat from
exports numbers going forward.
The industry has been demanding the reduction on the excise front. In fact, last time
excise duty on cement increased was in 2003-04 when increased from Rs 350 per tonne
to Rs 400 per tonne. Now industry wants the same to rolled back to Rs 350 per tonne.
Besides, this it wants government to continue to have specific rate of excise duty as
against ad valorem (white cement has Ad valorem duty of 16 per cent). Our talk to
industry players suggest that instead of giving any direct benefits the government should
further increase the thrust on the infrastructure and that should help the cement industry
to report better growth. “To keep maintain high economic rate of return the national
The present scenario of cement industry is very good in terms of demand and with the
prices going above Rs 160 to Rs 180 everywhere. Most importantly, the gap between the
demand and supply does not exist any longer in any part of the country.
Domestic consumption with 11 per cent increase and exports keeping up with the last
year levels, the Indian cement industry is expected to cross 150 million tonnes in
dispatches, including domestic consumption, and exports during 2005-06 from all plants
put together, including mini cement plants. Mini cement plants everywhere are operating
at 100 per cent capacity utilization. The margins are improving in line with others.
The figures for the current year are for April-November period while the figures in
brackets represent full year for the year 2004-05. Also, there is an increase in the
consumption of PPC cement from 48 per cent to 50 per cent.
Today, cement from Andhra is going all over India, including Assam, Meghalaya,
Jharkhand, Orissa, West Bengal, Chattisgarh, Gujarat and Maharastra. More cement is
likely to flow into Tamil Nadu from the state in view of cut in sales tax.
Any further increase in demand in the South India will benefit the cement industry here.
Cement movement from Gujarat to Mumbai is also coming down due to exports while
cement movement from Orissa into Andhra has stopped and, in fact, cement is flowing
into Orissa as well.
With the capacity utilization crossing the 100% mark for the first time in January 2007
and two more peak months of February and March left in the current fiscal, cement
consumption this fiscal is all set to exceed the 150-million tonne mark for the first time.
The industry is expected to end the fiscal with a dispatch of about 155 million tonne.This
has been possible thanks to the overall economic growth in general and more particularly,
impressive growth of the realty sector.
Cement industry has already dispatched 130 million tonne in the first 10 months, thus
registering a growth of 10%. In the next two months additional 25-30 million tonne is
likely to be consumed.
The overall capacity utilization during the 10 month period is estimated to be in the range
of 95% or more, industry sources said.
Southern region, which witnessed a slowdown in dispatches in the last few months due to
monsoon, has regained the lost momentum with increased off take from Tamil Nadu and
Karnataka. Andhra Pradesh, which posted a negative growth in consumption in the
beginning of this fiscal, has seen dispatches picking up sharply.
Among the regions, south is expected to end the fiscal with 12% growth in consumption,
followed by north (11%) and west (10%), the industry sources added. Karnataka has
shown a remarkable growth in consumption with 20% growth over the same period last
year.
For the first time in the last few years, the capacity utilization has gone up over 100% to
touch 102% in January 2007 with dispatches touching 14.10 million tonne as against the
production of 14 million tonne, reflecting the demand for the commodity. The total
installed capacity of the industry has gone up to touch 165 million tonne in the current
fiscal as against 160 million tonne during the last fiscal.
Cement makers and the government have been at loggerheads over prices, which have
risen over 40% to a peak of Rs 255 per 50 kg bag in the last 12 months. Manufacturers
have so far not paid heed to the Center’s call to roll back prices, but have promised not to
raise them further for a year.
Industry players welcome the proposed move, but also point out loopholes in it. “Such
short-term incentives may leave a trail of winners and losers, It would lead to bunching of
capacity and the plants that commence production after these three years would lose
out,”. It, however, may not be easy for manufacturers to take advantage of the proposed
incentives. “Equipment supply is a major constraint and cement makers will have to work
very hard to finish projects in time,” Equipment suppliers’ order books are already full
The industry has announced the addition of 42 million tonnes in the next two years.
Given the past trend, not all of them are expected to materialize. In 2006-07,
manufacturers had announced the addition of 13 million tonnes, but only 5 million tonnes
came up. The fact that cement makers enjoy high margins due to supply-demand
mismatch is one reason cited by analysts for slow addition of new capacities.
Cement worries
The Government should intervene to correct prices when the rise is due to a demand-
supply mismatch in construction boom.Worried by the "abnormal" increase in cement
prices — not commensurate with the rise in input costs — the Centre has asked
manufacturers to rein in prices within a week. The Centre is obviously under pressure
from a section of consumers, especially the powerful builders' lobby, to step in. In a
cyclical industry where price and distribution controls were removed in 1989 and the
industry de-licensed in 1991, it is a moot point whether the Government should persuade
itself to intervene only when prices are going up. There was no such stirring within the
Government when the cement industry was struggling for more than two years with low
prices. Some of the large regional players even had to get their debt restructured. The
industry can very well turn around and ask the Government why it did not intervene then.
An intervention will be justified only when the Government has evidence of cartelisation
or of a monopoly situation emerging.
The Indian cement industry is fragmented, with the top five players accounting for nearly
50 per cent of the installed capacity of about 160 million tonnes and with small, regional
players holding the balance. By all accounts, the current price increase is a result of the
demand-supply mismatch, a consequence of the construction boom in the major cities,
which has also caused runaway increases in the price of land, steel and other materials.
The industry may argue that cement accounts for hardly 5 per cent of the construction
cost in building projects, if the land price is also included. It is not that the Centre should
sit back and watch. Creating an enlargement in supplies is an obvious answer. The 2006-
The Centre would do well first to ensure that various bottlenecks such as inefficient
transportation infrastructure are looked into. The industry has evolved in recent years to
match global standards with some of the top international majors coming into the
country. Prices too match global trends. The industry is in the throes of consolidation,
and the existing players are looking to expand capacities. There has also been a demand
to curb exports of cement. At 6 million tonnes, these are just about 4 per cent of the total
production of 141 million tonnes in 2005-06. Curbing that may have but a marginal
impact on prices, but leave a deep scar on an industry that has just begun to adjust to
market forces. Would it not make better sense for the Government to go lighter on the tax
burden — excise and sales tax add up to almost Rs 50 a bag?
Concerned over the steep increase in cement prices, the Government on Tuesday came
down heavily on the manufacturing companies and asked them to work out ways within a
week's time to cut prices.
Cement prices have gone up from an average level of Rs 135-140 per bag of 50 kg to
around Rs 205-210 per bag during the past six months.
At a meeting called by the Department of Industrial Policy and Promotion (DIPP), the
Cement Manufacturers Association has been asked to call a meeting of its members
urgently and decide on steps for lowering of prices, instead of waiting for the rainy
season, when cement prices tend to fall. The meeting was convened following complaints
from builders against the sharp increase in prices of cement.
`We think that the nearly 50 per cent increase in cement prices since November 2005 is
abnormal. The prices have increased more than the increase in the input cost,’ The cost
has roughly increased by around 15 per cent, but increase in prices in certain cases has
been as high as 40-50 per cent; on an average it was about 30 per cent. Therefore, there is
a need to take corrective measures by the manufacturers to bring down the prices.
With a booming market the cement industry has also increased its capacity from 153.85
mt in March 2005 to 159.80 mt in March 2006.
Out of control
Abnormal rise from Rs 135-140 per bag of 50 kg to Rs 205-210 per bag during the past
six months.
Prices have increased more than the increase in the input cost.
Industry undergoing a boon period due to increased spending in infrastructure building.
Cement majors have reported a substantial year-on-year increase in volume sales for the
month of February. The Associated Cement Companies reported a 11.8 per cent increase
in sales at 15.34 lakh tonnes in February this year as against 13.72 lakh tonnes in
February last year. Gujarat Ambuja Cements Ltd reported a 16 per cent increase in
dispatches, which figured at 10.72 lakh tonnes (9.27 lakh tonnes). The Aditya Birla
group's (largely Grasim and UltraTech) cement dispatches for the month grew by 16.06
per cent, to 25.35 lakh tonnes. Production increased as well. ACC reported a 12.2 per
cent increase in production for the month, which stood at 15.43 lakh tonnes. At GACL,
production grew by 12 per cent to 10.51 lakh tonnes.
The Aditya Birla group reported a 13.34 per cent increase in production, which stood at
25.24 lakh tonnes.
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many investors. On the other hand, if you know how to analyze them, the financial statements are a gold
mine of information.
Financial statements are the medium by which a company discloses information concerning its financial
performance. Followers of fundamental analysis use the quantitative information gleaned from
financial statements to make investment decisions. Before we jump into the specifics of the three most
important financial statements - income statements, balance sheets and cash flow statements - we
will briefly introduce each financial statement's specific function, along with where they can be found.
Assets represent the resources that the business owns or controls at a given point in time. This includes
items such as cash, inventory, machinery and buildings. The other side of the equation represents the total
value of the financing the company has used to acquire those assets. Financing comes as a result of
liabilities or equity. Liabilities represent debt (which of course must be paid back), while equity
represents the total value of money that the owners have contributed to the business - including retained
earnings, which is the profit made in previous years.
The income statement presents information about revenues, expenses and profit that was generated as a
result of the business' operations for that period.
The cash flow statement is important because it's very difficult for a business to manipulate its cash
situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's tough to fake
The income statement is basically the first financial statement you will come across in an
annual report or quarterly Securities And Exchange Commission (SEC) filing.
It also contains the numbers most often discussed when a company announces its results -
numbers such as revenue, earnings and earnings per share. Basically, the income
statement shows how much money the company generated (revenue), how much it spent
(expenses) and the difference between the two (profit) over a certain time period.
When it comes to analyzing fundamentals, the income statement lets investors know how
well the company’s business is performing - or, basically, whether or not the company is
making money. Generally speaking, companies ought to be able to bring in more money
than they spend or they don’t stay in business for long. Those companies with low
expenses relative to revenue - or high profits relative to revenue - signal strong
fundamentals to investors.
The best way for a company to improve profitability is by increasing sales revenue. For
instance, Starbucks Coffee has aggressive long-term sales growth goals that include a
distribution system of 20,000 stores worldwide. Consistent sales growth has been a strong
The best revenue are those that continue year in and year out. Temporary increases, such
as those that might result from a short-term promotion, are less valuable and should
garner a lower price-to-earnings multiple for a company.
Next, costs involved in operating the business are SG&A. This category includes
marketing, salaries, utility bills, technology expenses and other general costs associated
with running a business. SG&A also includes depreciation and amortization. Companies
must include the cost of replacing worn out assets. Remember, some corporate expenses,
such as research and development (R&D) at technology companies, are crucial to future
growth and should not be cut, even though doing so may make for a better-looking
earnings report. Finally, there are financial costs, notably taxes and interest payments,
which need to be considered.
Companies with high gross margins will have a lot of money left over to spend on other
Operating profit is equal to revenues minus the cost of sales and SG&A. This number
represents the profit a company made from its actual operations, and excludes certain
expenses and revenues that may not be related to its central operations. High operating
margins can mean the company has effective control of costs, or that sales are increasing
faster than operating costs. Operating profit also gives investors an opportunity to do
profit-margin comparisons between companies that do not issue a separate disclosure of
their cost of goods sold figures (which are needed to do gross margin analysis). Operating
profit measures how much cash the business throws off, and some consider it a more
reliable measure of profitability since it is harder to manipulate with accounting tricks
than net earnings.
Net income generally represents the company's profit after all expenses, including
financial expenses, have been paid. This number is often called the "bottom line" and is
generally the figure people refer to when they use the word "profit" or "earnings".
When a company has a high profit margin, it usually means that it also has one or more
advantages over its competition. Companies with high net profit margins have a bigger
cushion to protect themselves during the hard times. Companies with low profit margins
can get wiped out in a downturn. And companies with profit margins reflecting a
competitive advantage are able to improve their market share during the hard times -
leaving them even better positioned when things improve again.
Investors often overlook the balance sheet. Assets and liabilities aren't nearly as sexy as revenue and
earnings. While earnings are important, they don't tell the whole story.
The balance sheet highlights the financial condition of a company and is an integral part of the financial
statements. (To read more on financial statement basics
The Snapshot of Health
The balance sheet, also known as the statement of financial condition, offers a snapshot of a company's
health. It tells you how much a company owns (its assets), and how much it owes (its liabilities). The
difference between what it owns and what it owes is its equity, also commonly called "net assets" or
"shareholders equity".
The balance sheet tells investors a lot about a company's fundamentals: how much debt the company
has, how much it needs to collect from customers (and how fast it does so), how much cash and equivalents
it possesses and what kinds of funds the company has generated over time.
Assets
There are two main types of assets: current assets and non-current assets. Current assets are likely to be
used up or converted into cash within one business cycle - usually treated as twelve months. Three very
important current asset items found on the balance sheet are: cash, inventories and accounts
receivables.
offers protection against tough times, and it also gives companies more options for future growth. Growing
cash reserves often signal strong company performance. Indeed, it shows that cash is accumulating so
quickly that management doesn't have time to figure out how to make use of it. A dwindling cash pile could
be a sign of trouble. That said, if loads of cash are more or less a permanent feature of the company's
balance sheet, investors need to ask why the money is not being put to use. Cash could be there because
management has run out of investment opportunities or is too short-sighted to know what to do with the
money.
Inventories are finished products that haven't yet sold. As an investor, you want to know if a company has
too much money tied up in its inventory. Companies have limited funds available to invest in inventory. To
generate the cash to pay bills and return a profit, they must sell the merchandise they have purchased from
suppliers. Inventory turnover (cost of goods sold divided by average inventory) measures how
quickly the company is moving merchandise through the warehouse to customers. If inventory grows faster
than sales, it is almost always a sign of deteriorating fundamentals.
Receivables are outstanding (uncollected bills). Analyzing the speed at which a company collects what it's
owed can tell you a lot about its financial efficiency. If a company's collection period is growing longer, it
could mean problems ahead. The company may be letting customers stretch their credit in order to
recognize greater top-line sales and that can spell trouble later on, especially if customers face a cash
crunch. Getting money right away is preferable to waiting for it - since some of what is owed may never get
paid. The quicker a company gets its customers to make payments, the sooner it has cash to pay for
salaries, merchandise, equipment, loans, and best of all, dividends and growth opportunities.
Non-current assets are defined as anything not classified as a current asset. This includes items that are
fixed assets, such as property, plant and equipment (PP&E). Unless the company is in financial
distress and is liquidating assets, investors need not pay too much attention to fixed assets. Since
companies are often unable to sell their fixed assets within any reasonable amount of time they are carried
on the balance sheet at cost regardless of their actual value. As a result, it's is possible for companies to
grossly inflate this number, leaving investors with questionable and hard-to-compare asset figures.
Liabilities
There are current liabilities and non-current liabilities. Current liabilities are obligations the firm must pay
within a year, such as payments owing to suppliers. Non-current liabilities, meanwhile, represent what the
company owes in a year or more time. Typically, non-current liabilities represent bank and bondholder debt.
You usually want to see a manageable amount of debt. When debt levels are falling, that's a good sign.
Look at the quick ratio. Subtract inventory from current assets and then divide by current liabilities. If the
ratio is 1 or higher, it says that the company has enough cash and liquid assets to cover its short-term debt
obligations.
Equity
Equity represents what shareholders own, so it is often called shareholder's equity. As described above,
equity is equal to total assets minus total liabilities.
The two important equity items are paid-in capital and retained earnings. Paid-in capital is the amount
of money shareholders paid for their shares when the stock was first offered to the public. It basically
represents how much money the firm received when it sold its shares. In other words, retained earnings are
a tally of the money the company has chosen to reinvest in the business rather than pay to shareholders.
Investors should look closely at how a company puts retained capital to use and how a company generates
a return on it.
aspects of a company.
Fundamental analysis seeks to determine the intrinsic value of a company's stock. But since qualitative
factors, by definition, represent aspects of a company's business that are difficult or impossible to quantify,
In this section we are going to highlight some of the company-specific qualitative factors that you should be
aware of.
Business Model
Even before an investor looks at a company's financial statements or does any research, one of the most
important questions that should be asked is: What exactly does the company do? This is referred to as a
company's business model – it's how a company makes money. You can get a good overview of a
company's business model by checking out its website or reading the first part of its 10-K filing (Note:
We'll get into more detail about the 10-K in the financial statements chapter. For now, just bear with us).
Sometimes business models are easy to understand. Take McDonalds, for instance, which sells
hamburgers, fries, soft drinks, salads and whatever other new special they are promoting at the time. It's a
simple model, easy enough for anybody to understand.
Other times, you'd be surprised how complicated it can get. Boston Chicken Inc. is a prime example of this.
Back in the early '90s its stock was the darling of Wall Street. At one point the company's CEO bragged that
they were the "first new fast-food restaurant to reach $1 billion in sales since 1969". The problem is, they
didn't make money by selling chicken. Rather, they made their money from royalty fees and high-interest
loans to franchisees. Boston Chicken was really nothing more than a big franchisor. On top of this,
management was aggressive with how it recognized its revenue. As soon as it was revealed that all the
franchisees were losing money, the house of cards collapsed and the company went bankrupt.
At the very least, you should understand the business model of any company you invest in. The "Oracle of
Omaha", Warren Buffett, rarely invests in tech stocks because most of the time he doesn't understand
them. This is not to say the technology sector is bad, but it's not Buffett's area of expertise; he doesn't feel
comfortable investing in this area. Similarly, unless you understand a company's business model, you don't
know what the drivers are for future growth, and you leave yourself vulnerable to being blindsided like
shareholders of Boston Chicken were.
Competitive Advantage
Another business consideration for investors is competitive advantage. A company's long-term success is
driven largely by its ability to maintain a competitive advantage - and keep it. Powerful competitive
advantages, such as Coca Cola's brand name and Microsoft's domination of the personal computer
operating system, create a moat around a business allowing it to keep competitors at bay and enjoy growth
and profits. When a company can achieve competitive advantage, its shareholders can be well rewarded for
Management
Just as an army needs a general to lead it to victory, a company relies upon management to steer it towards
financial success. Some believe that management is the most important aspect for investing in a company.
It makes sense - even the best business model is doomed if the leaders of the company fail to properly
execute the plan.
This is one of the areas in which individuals are truly at a disadvantage compared to professional investors.
You can't set up a meeting with management if you want to invest a few thousand dollars. On the other
hand, if you are a fund manager interested in investing millions of dollars, there is a good chance you can
schedule a face-to-face meeting with the upper brass of the firm.
Every public company has a corporate information section on its website. Usually there will be a quick
biography on each executive with their employment history, educational background and any applicable
achievements. Don't expect to find anything useful here. Let's be honest: We're looking for dirt, and no
company is going to put negative information on its corporate website.
Instead, here are a few ways for you to get a feel for management:
1. Conference Calls
The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) host quarterly conference
calls. (Sometimes you'll get other executives as well.) The first portion of the call is management basically
reading off the financial results. What is really interesting is the question-and-answer portion of the call. This
is when the line is open for analysts to call in and ask management direct questions. Answers here can be
revealing about the company, but more importantly, listen for candor. Do they avoid questions, like
politicians, or do they provide forthright answers?
The Management Discussion and Analysis is found at the beginning of the annual report (discussed
in more detail later in this tutorial). In theory, the MD&A is supposed to be frank commentary on the
management's outlook. Sometimes the content is worthwhile, other times it's boilerplate. One tip is to
compare what management said in past years with what they are saying now. Is it the same material
rehashed? Have strategies actually been implemented? If possible, sit down and read the last five years of
MD&As; it can be illuminating.
options. While there are problems with stock options (See Putting Management Under the
Microscope), it is a positive sign that members of management are also shareholders. The ideal situation
is when the founder of the company is still in charge. Examples include Bill Gates (in the '80s and '90s),
Michael Dell and Warren Buffett. When you know that a majority of management's wealth is in the stock, you
can have confidence that they will do the right thing. As well, it's worth checking out if management has
been selling its stock. This has to be filed with the Securities and Exchange Commission (SEC), so
it's publicly available information. Talk is cheap - think twice if you see management unloading all of its
shares while saying something else in the media.
4. Past Performance
Another good way to get a feel for management capability is to check and see how executives have done at
other companies in the past. You can normally find biographies of top executives on company web sites.
Identify the companies they worked at in the past and do a search on those companies and their
performance.
Corporate Governance
Corporate governance describes the policies in place within an organization denoting the relationships and
responsibilities between management, directors and stakeholders. These policies are defined and
determined in the company charter and its bylaws, along with corporate laws and regulations. The
purpose of corporate governance policies is to ensure that proper checks and balances are in place, making
it more difficult for anyone to conduct unethical and illegal activities.
Good corporate governance is a situation in which a company complies with all of its governance policies
and applicable government regulations (such as the Sarbanes-Oxley Act of 2002) in order to look out
for the interests of the company's investors and other stakeholders.
Although, there are companies and organizations (such as Standard & Poor's) that attempt to
quantitatively assess companies on how well their corporate governance policies serve stakeholders,
most of these reports are quite expensive for the average investor to purchase.
Fortunately, corporate governance policies typically cover a few general areas: structure of the board of
directors, stakeholder rights and financial and information transparency. With a little research and the right
questions in mind, investors can get a good idea about a company's corporate governance.
Stakeholder Rights
This aspect of corporate governance examines the extent that a company's policies are benefiting
stakeholder interests, notably shareholder interests. Ultimately, as owners of the company, shareholders
should have some access to the board of directors if they have concerns or want something addressed.
Therefore companies with good governance give shareholders a certain amount of ownership voting rights
to call meetings to discuss pressing issues with the board.
Another relevant area for good governance, in terms of ownership rights, is whether or not a company
possesses large amounts of takeover defenses (such as the Macaroni Defense or the Poison Pill) or
other measures that make it difficult for changes in management, directors and ownership to occur. (To read
The key word when looking at the board of directors is independence. The board of directors is responsible
for protecting shareholder interests and ensuring that the upper management of the company is doing the
same. The board possesses the right to hire and fire members of the board on behalf of the shareholders. A
board filled with insiders will often not serve as objective critics of management and will defend their
For simplicity's sake, if we know that a company will generate $1 per share in cash flow for shareholders
every year into the future; we can calculate what this type of cash flow is worth today. This value is then
compared to the current value of the company to determine whether the company is a good investment,
based on it being undervalued or overvalued.
There are several different techniques within the discounted cash flow realm of valuation, essentially
differing on what type of cash flow is used in the analysis. The dividend discount model focuses on the
dividends the company pays to shareholders, while the cash flow model looks at the cash that can be paid
to shareholders after all expenses, reinvestments and debt repayments have been made. But conceptually
they are the same, as it is the present value of these streams that are taken into consideration.
As we mentioned before, the difficulty lies in the implementation of the model as there are a considerable
amount of estimates and assumptions that go into the model. As you can imagine, forecasting the revenue
and expenses for a firm five or 10 years into the future can be considerably difficult. Nevertheless, DCF is a
valuable tool used by both analysts and everyday investors to estimate a company's value.
For more information and in-depth instructions, see the Discounted Cash Flow Analysis tutorial.
Ratio Valuation
Financial ratios are mathematical calculations using figures mainly from the financial statements, and they
are used to gain an idea of a company's valuation and financial performance. Some of the most well-known
valuation ratios are price-to-earnings and price-to-book. Each valuation ratio uses different measures
in its calculations. For example, price-to-book compares the price per share to the company's book value.
The calculations produced by the valuation ratios are used to gain some understanding of the company's
value. The ratios are compared on an absolute basis, in which there are threshold values. For example, in
price-to-book, companies trading below '1' are considered undervalued. Valuation ratios are also compared
to the historical values of the ratio for the company, along with comparisons to competitors and the overall
market itself.
One of the most important areas for any investor to look at when researching a company is the financial
statements. It is essential to understand the purpose of each part of these statements and how to interpret
them.
• Financial reports are required by law and are published both quarterly and
annually.
• Management discussion and analysis (MD&A) gives investors a better
understanding of what the company does and usually points out some key areas
where it performed well.
• Audited financial reports have much more credibility than unaudited ones.
• The balance sheet lists the assets, liabilities and shareholders' equity.
• For all balance sheets: Assets = Liabilities + Shareholders’ Equity. The two sides
must always equal each other (or balance each other).
• The income statement includes figures such as revenue, expenses, earnings and
earnings per share.
• For a company, the top line is revenue while the bottom line is net income.
• The income statement takes into account some non-cash items, such as
depreciation.
RESEARCH OBJECTIVES:-
¾ To examine overall financial performance of the cement Sector
The company's cement capacity of 4.78 million tpa were spread in its four cement units
located in Madhya Pradesh, Uttar Pradesh, Rajasthan and West Bengal. But the jute,
carbide, gases, synthetic viscose/cotton yarn and PVC flooring & wall covering divisions
are in West Bengal. It also has a steel casting unit in Madhya Pradesh. The Auto Trim
division of the company has three plants, each in West Bengal, Maharashtra and
Haryana.
The subsidiaries of the company are Assam Jute Supply Company Ltd, Talavadi
Cements Ltd and Lok Cements Ltd.
In 1994-95, two units of the company Durgapur Cement Works and Birla Synthetics
were awarded the ISO 9002 certification. Satna Cement Works and the jute division have
also obtained the same certification. In 1996-97, the company installed 2 DG sets of 6
MW capacity each at Satna and one DG set of similar capacity at Chittor.
The company come out with a rights issue of 2,20,01,528 ordinary shares of Rs 10 each
for cash at a premium of Rs 9 per share aggregating to Rs 41.8 cr to the existing ordinary
shareholders of the company in the ratio of 2:5. An expansion project was also taken up
at Raebareli which was completed and as a result the capacity of Cement Grinding was
During April 2004 the company has decided to close its Birla Synthetics at Birlapur and
in February 2005 the Birla Carbide & Gases unit at Birlapur, since there has been no
production in these units.
The company has commenced commercial production in its new unit Durga Hitech
Cement at Durgapur, which has a capacity to manufacture 1 Million tonnes Cement
during December 2005.
The company has commissioned a 15 MW Captive Thermal Plant at its plant at Karikal
during October 2004.The Karur unit of Chettinad Cements has been functioning with the
highest operating ratio for any cement unit in the southern region. In Sep. 94, the
company commissioned 16 wind power generators near Poolavadi, Coimbatore. In
addition, 26 wind power generators have been installed in Mar.'95, in the same place.
While 12 No of 225 KW each of Wind Power Generator commissioned in 1995-96.
The company has commissioned a 15 MW Captive Thermal Plant at its plant at Karikal
during October 2004.
The subsidiaries of the company are ICL Securities Ltd, ICL International Ltd, Industrial
Chemicals & Monomers Ltd and ICL Financial Services Ltd.
The cement division of Raasi Cement (RCL) was vested with the company from Apr.'98
under a scheme of arrangement. Also during the same year the company hived off its
shipping division to ICL Shipping (ICLS). It also acquired Cement Corporation of India's
Yerraguntla Cement Plant at Andhra Pradesh with an Installed capacity 4,00,000 Tonnes.
In Oct.'99, ICL Securities, the company wholly owned subsidiary acquired 49.05% of
the equity share capital in Sri Vishnu Cement (SVCL), simultaneously, Raasi Cement
also acquired 39.5% of the equity capital of SVCL. At present the company along with its
subsidiary holds 94.16% of the share capital of SVCL and is now a subsidiary of the
company.
The upgradation of the Chilamakur cement plant to 3800 TPD has been completed. The
upgradation in another group company -- Sri Vishnu Cement -- from 2750 TPD of clinker
to 3400 TPD was complete in the fiscal 2001.
During 2004-05, the unique Waste Heat Recovery System for generation of power from
waste gas at Vishnupuram plant was commissioned with generating power of 7.7MW.
Currently, the plant locations of the company are at Sankarnagar, Sankari and Dalavoi in
Tamilnadu, Chilamakur, Yerraguntla and Vishnupuram in Andhra Pradesh.
Between 1980 and 1985, it undertook a modernization programme and replaced its four
cement mills in R N Nagar, Tamilnadu, with a single new combined cement mill which
ensured substantial reduction in energy and operation costs. In 1986, MCL implemented
one more cement plant in Jayanthipuram, Andhra Pradesh.
In 1990-91, the company expanded the capacity of its factory by 100000 tpa at an
estimated cost of Rs 21.5 cr. In 1992-93, it diversified into power generation by setting
up a 4-MW windmill at Muppandal in Kanyakumari, Tamilnadu, which was upgraded by
adding eight wind turbines of 250 kW, thereby taking the generation capacity to 6 MW.
In 1994-95, 70 additional wind mills were installed in Poolavadi, TN. The total Installed
capacity of these plants, consisting 123 Wind Energy Generators is 34.44 MW. During
2004-05, The company commissioned a 36 MW Thermal Power Plant at Alathiyur.
The company, for the first time in India, commissioned a surface mine to modernize the
mine operations at Ramasamyraja Nagar factory. The company received ISO 9002
certification for its units in Ramasamyraja Nagar, Alathiyur and ready mix concrete unit
in Vengaivasal.
During 1999-00, the company's slag grinding project at Jayanthipuram for manufacture
of blended cement was commissioned and also the capacity of the Alathiyur unit was
expanded by 0.2 million TPA. The company's second unit at Alathiyur with a capacity of
15 lac tonnes at an estimated cost of Rs 300 crore was commissioned up to the
clinkerisation in Jan.'01. The cement mill was commissioned in May '01. The klin fitted
with cross bar cooler, the first of its kind outside US and the Vertical mill for cement
The company took over the assets of Karnataka Minerals & Manufacturing Co, a mini
cement plant situated at Mathodu, Hosadurga Taluk, Chitradurga Dist. The second klin at
R Nagar was upgraded in May'01 with the installation of fixed inlet segment to the
cooler, new calciner and modifying preheater cyclone, thereby increasing the capacity of
the unit to 11 lac TPA of blended cement.
The company's new project Dry Motor Plant for manufacture of high technology
construction products such as render, skimcoat and dryconcrete started production from
January 2003 in Sriperumbudur, with the help of M.Tech, Germany who conducted the
training assistance to the architects, consultants, builders and contractors to know about
the advantages of new product.
The company subdivided its value of Equity shares from Rs 100/- to Rs.10/- in the ratio
1:10 with effective from Nov. 06, 2003
Between 1980 and 1985, it undertook a modernization programme and replaced its four
cement mills in R N Nagar, Tamilnadu, with a single new combined cement mill which
ensured substantial reduction in energy and operation costs. In 1986, MCL implemented
one more cement plant in Jayanthipuram, Andhra Pradesh.
In 1990-91, the company expanded the capacity of its factory by 100000 tpa at an
estimated cost of Rs 21.5 cr. In 1992-93, it diversified into power generation by setting
up a 4-MW windmill at Muppandal in Kanyakumari, Tamilnadu, which was upgraded by
The company, for the first time in India, commissioned a surface mine to modernize the
mine operations at Ramasamyraja Nagar factory. The company received ISO 9002
certification for its units in Ramasamyraja Nagar, Alathiyur and ready mix concrete unit
in Vengaivasal.
During 1999-00, the company's slag grinding project at Jayanthipuram for manufacture
of blended cement was commissioned and also the capacity of the Alathiyur unit was
expanded by 0.2 million TPA. The company's second unit at Alathiyur with a capacity of
15 lac tonnes at an estimated cost of Rs 300 crore was commissioned up to the
clinkerisation in Jan.'01. The cement mill was commissioned in May '01. The klin fitted
with cross bar cooler, the first of its kind outside US and the Vertical mill for cement
grinding, the highest of its kind in Asia set up in Alathiyur Unit.
The company took over the assets of Karnataka Minerals & Manufacturing Co, a mini
cement plant situated at Mathodu, Hosadurga Taluk, Chitradurga Dist. The second klin at
R Nagar was upgraded in May'01 with the installation of fixed inlet segment to the
cooler, new calciner and modifying preheater cyclone, thereby increasing the capacity of
the unit to 11 lac TPA of blended cement.
The company's new project Dry Motor Plant for manufacture of high technology
construction products such as render, skimcoat and dryconcrete started production from
January 2003 in Sriperumbudur, with the help of M.Tech, Germany who conducted the
training assistance to the architects, consultants, builders and contractors to know about
the advantages of new product.
The cement factory, set up in 1958, was the first dry process plant in India. The
engineering division was set up in 1955 as an in-house venture to manufacture sugar
machinery required by the company. Manufacture of machinery required for cement,
chemicals, steel castings, etc, were later added to this division. Both the cement and
engineering divisions have been accredited with the ISO 9002 and ISO 9001 certification
respectively in 1994.
KCP hived off its sugar and industrial alcohol business, which was transferred to a new
company, KCP Sugar Industries Corporation. The Company also undertook a joint
venture with Vantech Industries for the manufacture of specialized insecticides. KCP
promoted FCB-KCP, a joint venture with FCB, France, in a 40:40 equity participation.
The new company is to manufacture and supply state-of-the-art machinery and
technology to clients in the sugar industry both in India and abroad.
The cement unit of the company continues to retain the ISO 9001 certification while the
engineering unit was accredited to use the symbol 'S' and 'U' of the American Society of
Mechanical Engineers (ASME) for the manufacture and assembly of power boilers and
pressure vessels, respectively on 15 May'96. KCP has also received the Certificate of
Merit for outstanding export performance during 1994-95 among Non-SSI exporters in
industrial machinery panel for manufacture of sugar, paper, chemical, cement and
pharmaceuticals.
ANALYSIS.
Financial Analysis of Birla Corporation Ltd.
The companies financial was calculated on the basis of FUTURE CASH FLOW OF
THE FIRM is calculated on the basis of different growth rates such as 5%, 8%, 125 and
15%.Change in Capex , change in working capital, has been calculated on net block
taking Fy 06 as a base year. 500.23 cr was taken as a base as Net Block and then it was
calculated with different growth rates such as 5%, 8% , 12% and 15%.Rate of Capital
expenses is calculated as (PBIT/Capital employed)*100. it has been calculated from
1997-2006. it has been compared along with other 4 companies it ROCE stands at 4th
place among the 5 companies. the average expenses percentage of other 4 companies is
82.63 where its expenses percentage is 94.28 .the average 5 of expenses is taken as 82%.
Ebit has also been calculated on various growth rates.
BIRLA
Value of equity per share varied 1475.75 at growth rate of 5% to 728.43 at 8% to -314.3 at 12%
and -354.98 at 15%. Value of firm is at 3625.04 at 5% growth rate to 16421.52 at 8% to -6557.47
at 12% and -7453.97 at 15%.value of debt is 368.94cr. Value of equity varied from 3256.1 at 5%
to 16052.58 at 8% to -6926.41 at 12% and -7822.91 at 15%.
terminal
GROWTH AT 5% value
PARTICULARS BASE(06) 1 2 3 4 5 6 7 8 9 10
SALES 1,216.50 1277.33 1341.19 1408.25 1478.66 1552.60 1630.23 1711.74 1797.32 1887.19 1981.55
COGS 1,026.30 1077.62 1131.50 1188.07 1247.47 1309.85 1375.34 1444.11 1516.31 1592.13 1671.73
EBIT 190.2 199.71 209.6955 220.18028 231.1893 242.7488 254.8862 267.6305 281.012 295.0626 309.8158
TAX 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%
EBIT(1-T) 133.14 139.80 146.79 154.13 161.83 169.92 178.42 187.34 196.71 206.54 216.87 216.87
LESS:-NET CAPEX 500.23 525.24 551.50 579.08 608.03 638.43 670.36 703.87 739.07 0.00
LESS:-CHANGE IN WC 0.486 0.5103 0.535815 0.562606 0.590736 0.620273 0.651286 0.683851 0.718043 0
FCFF 133.14 -360.92 -378.96 -397.91 -417.81 -438.70 -460.63 -483.67 -507.85 -533.24 216.87 17776.31
value of firm 6350.54
value of debt 271.78
value of equity 6078.76
value of equity per
share=6078.76*10000000)/77005347 789.39453
terminal
GROWTH AT 5% value
PARTICULARS BASE(2006) 1 2 3 4 5 6 7 8 9 10
SALES 485.49 509.76 535.25 562.02 590.12 619.62 650.60 683.13 717.29 753.15 790.81
COGS 423.4 444.57 466.80 490.14 514.65 540.38 567.40 595.77 625.55 656.83 689.67
EBIT 62.09 65.1945 68.45423 71.87694 75.47078 79.24432 83.20654 87.36687 91.73521 96.32197 101.1381
TAX 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%
EBIT(1-T) 43.46 45.64 47.92 50.31 52.83 55.47 58.24 61.16 64.21 67.43 70.80
LESS:-NET CAPEX 479.48 503.45 528.63 555.06 582.81 611.95 642.55 674.68 708.41 0.00
LESS:-CHANGE IN WC 3.609 3.78945 3.978923 4.177869 4.386762 4.6061 4.836405 5.078225 5.332137 0
FCFF 43.46 -437.45 -459.33 -482.29 -506.41 -531.73 -558.31 -586.23 -615.54 -646.32 70.80 2178.36
value of firm -2286.66
value of debt 304.91
value of equity -2591.57
value of equity per share=(- -
2558.44*10000000)/29503350 86.71693214
terminal
GROWTH AT 5% value
PARTICULARS BASE(2006) 1 2 3 4 5 6 7 8 9 10
SALES 1,541.75 1618.84 1699.78 1784.77 1874.01 1967.71 2066.09 2169.40 2277.87 2391.76 2511.35
COGS 1,258.55 1321.48 1387.55 1456.93 1529.78 1606.26 1686.58 1770.91 1859.45 1952.42 2050.05
EBIT 283.2 297.36 312.228 327.8394 344.2314 361.4429 379.5151 398.4908 418.4154 439.3362 461.303
TAX 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%
EBIT(1-T) 198.24 208.15 218.56 229.49 240.96 253.01 265.66 278.94 292.89 307.54 322.91 322.61
LESS:-NET CAPEX 104.20 109.41 114.88 120.62 126.66 132.99 139.64 146.62 153.95 0.00
LESS:-CHANGE IN WC 56.2685 59.08193 62.03602 65.13782 68.39471 71.81445 75.40517 79.17543 83.1342 0
FCFF 198.24 47.68 50.07 52.57 55.20 57.96 60.86 63.90 67.10 70.45 322.61 8105.78
terminal
GROWTH AT 5% value
PARTICULARS BASE(2006) 1 2 3 4 5 6 7 8 9 10
SALES 1,009.10 1059.56 1112.53 1168.16 1226.57 1287.90 1352.29 1419.91 1490.90 1565.45 1643.72
COGS 795.72 868.84 912.28 957.89 1005.79 1056.07 1108.88 1164.32 1222.54 1283.67 1347.85
EBIT 213.38 190.7199 200.2559 210.2687 220.7821 231.8212 243.4123 255.5829 268.3621 281.7802 295.8692
TAX 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%
EBIT(1-T) 149.37 133.50 140.18 147.19 154.55 162.27 170.39 178.91 187.85 197.25 207.11
LESS:-NET CAPEX 989.89 1039.38 1091.35 1145.92 1203.22 1263.38 1326.55 1392.87 1462.52 0.00
LESS:-CHANGE IN WC 4.9185 5.164425 5.422646 5.693779 5.978467 6.277391 6.59126 6.920823 7.266865 0
FCFF 149.37 -861.30 -904.37 -949.59 -997.07 -1046.92 -1099.27 -1154.23 -1211.94 -1272.54 207.11 6680.92
value of firm -3469.72
value of debt 602.44
value of equity -4072.16
value of equity per share=(-
4072.16*10000000)/12077850 -3371.59
The companies financial was calculated on the basis of FUTURE CASH FLOW OF THE
FIRM is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change
in Capex , change in working capital, has been calculated on net block taking Fy 06 as a base
year. 500.23 cr was taken as a base as Net Block and then it was calculated with different growth
K C P Ltd.
The companies financial was calculated on the basis of FUTURE CASH FLOW OF THE
FIRM is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change
in Capex , change in working capital, has been calculated on net block taking Fy 06 as a base
year. 500.23 cr was taken as a base as Net Block and then it was calculated with different growth
rates such as 5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital
employed)*100. it has been calculated from 1997-2006. it has been compared along with other 4
companies it ROCE stands at 2nd place among the 5 companies. the average expenses percentage
of other 4 companies is 82.63 where its expenses percentage is 90.8 .the average 5 of expenses is
taken as 82%. Ebit has also been calculated on various growth rates.