Ratio Analysis

of
Ultratech Cements

Financial Accounting Project

Under the guidance of

Dr. Jayanta Kumar Seal

S.No Team Members Roll No.

1 Govind M Nair 77

2 Pratheep 93

3 Shivam Joshi 103

4 Vignesh M 110

5 Muthu Swamy G 114

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 Table of Contents
S.No Topic Page number
1. Profitability Ratio 3
2. Liquidity and Solvency Ratios 10
3. Debt Ratios 13
4. Management Efficiency Ratios 15
5. Turnover Ratios 17
6. Investment Valuation Ratios 19
7. Material Costing Ratios 20

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 PROFITABILITY RATIO
1) Gross Profitability Ratio
Gross Profitability Ratio = (Total Sales – Cost of Goods Sold)/ Total Sales

Gross Profitability Ratio 2017 2016 2015 2014 2013

UltraTech Cement 15.49 13.80 13.34 13.63 18.48
Ambuja Cement 8.98 9.57 14.22 12.67 19.60
Shree Cement 13.67 7.39 6.49 14.26 20.12
Ramco Cement 23.06 22.02 12.71 6.97 18.93
J.K Cement 12.62 10.18 9.51 8.61 14.82
Industry Average 14.76 12.59 11.25 11.22 18.39
GROSS PROFITABILITY RATIO
25

20

15

10

0
2017 2016 2015 2014 2013

UltraTech Cement Ambuja Cement Shree Cement Ramco Cement J.K Cement

Analysis
Gross Profit Margin is the revenue left after paying the cost of goods produced and before
paying for the general expenses, taxes and interests. It’s higher than the industry average for
Ultratech cement. This can be attributed to the efficiency of process and the advancement in
the plants. It has increased from 2016 because of the decrease in raw materials cost,
particularly limestone and fuels like coal. But, the evaluation of depreciation and amortization
is a drawback to cement industry. Since, its higher for Ultratech cement, the assets could
probably be less in terms of the industry standard and more outsourcing would have been
implemented.

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 2) EBIT Ratio

EBIT Ratio = EBIT /Net Sales

Gross Profitability Ratio 2017 2016 2015 2014 2013

UltraTech Cement 18.19 19.14 18.17 18.63 22.70
Ambuja Cement 15.33 16.26 19.28 17.87 25.25
Shree Cement 24.93 23.71 20.82 23.61 27.92
Ramco Cement 31.82 31.22 19.12 15.62 22.95
J.K Cement 17.93 13.14 13.17 15.12 20.91
Industry Average 21.64 20.70 18.12 18.17 23.94

EBIT RATIO
35

30

25

20

15

10

0
2017 2016 2015 2014 2013

UltraTech Cement Ambuja Cement Shree Cement Ramco Cement J.K Cement

Analysis
Since cement industry invests heavily in assets and copyrights over composition and use of raw
materials, depreciation and amortisation contributes significantly negatively to the final profit
when prepared through income statement. Ultratech cement has consistently maintained a low
EBIT ratio, which implies good efficiency and low cost spent in general, selling and
administrative expenses. The industry has been inconsistent in EBIT ratio owing to changing
Government policy on remuneration of workers and taxation.

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 3) Net Profitability Ratio
Net Profitability Ratio = Net Profit / Net Revenue

Net Profitability Ratio 2017 2016 2015 2014 2013

UltraTech Cement 10.99 9.02 8.78 10.57 13.15
Ambuja Cement 10.46 8.53 14.99 14.13 13.33
Shree Cement 15.88 8.17 6.60 13.37 17.95
Ramco Cement 16.43 15.52 6.64 3.73 10.53
J.K Cement 5.87 2.85 4.68 3.47 8.02
Industry Average 11.92 8.81 8.33 9.05 12.59

Net Profitability Ratio

20
18
16
14
12
10
8
6
4
2
0
2017 2016 2015 2014 2013

UltraTech Cement Ambuja Cement Shree Cement Ramco Cement J.K Cement

Analysis
Net profitability Ratio is the percentage of revenue left after all expenses have been
deducted from sales. The Net Profitability Ratio of Ultratech cement is below industry
average, implying heavy expenses. The industry average is also quite low owing to low
debt proportion in the capital. Expenditure towards constant machine upgradation
can also be put to the low NPR. Interest payment towards credit in terms of suppliers’
list and other purchases. Cost of high technology maintenance that Ultratech cement
specializes is also responsible for reduced profitability.

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 4) Return on Assets
ROA = Net Income after tax / Total assets (or Average Total assets)

Company Name 2017 2016 2015 2014 2013

Ultratech 6.68 5.74 5.72 7.2 9.68
Ambuja 4.17 5.7 10.76 9.98 10.43
Shree Cements 11.99 5.17 5.33 10.74 16.29
Ramco 9.26 7.94 3.42 2 6.23
JK Cements 4.44 1.78 2.93 1.9 5.98

Return on Assets
18
16
14
12
10
8
6
4
2
0
2017 2016 2015 2014 2013

Ultratech Ambuja Shree Cements Ramco JK Cements

Analysis
Since Cement industry is a Capital-Intensive industry, the RoA is low compared to other
sectors like IT,Pharma,etc.This ratio, which measures the the profit a company earns in
relation to its overall resources, has been declining for all cement majors from 2013 due to
the underutilization of the capacity of the plants.This can be explained due to the stalling of
the infrastructure projects because of the overcapacity in the housing segments in the
metros and the low credit growth the sector as a whole received.It increased from 2016
because of the increased outlay to infrastructure from government in the 2015-16 and 2016-
17 budgets.Ultratech is consistently in the 3rd position in this key financial all throughout the
period due to its relatively low asset utilization in the period compared to Ramco and Shree
Cements.This is due to the increased liability the company has gathered in the period due to
loans and the acquisitions it has made in the period.

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 5) Basic EPS

Earnings per share = (Net Profit after Taxes – Preference Dividends) / Number of Equity
Shares

Company Name 2017 2016 2015 2014 2013

Ultratech 95.74 79.25 73.44 78.21 96.87
Ambuja 4.89 5.21 9.67 8.39 8.43
Shree Cements 384.39 130.59 122.38 225.98 288.19
Ramco 27 23 10 6 17
JK Cements 37.12 14.52 22.44 13.88 33.4

Basic EPS
450
400
350
300
250
200
150
100
50
0
2017 2016 2015 2014 2013

Ultratech Ambuja Shree Cements Ramco JK Cements

Analysis
Profit transferred to shareholders is generally seen through EPS and hence it measures the
profitability of the company over the years and the company is said to perform well if it has
an increasing profitability.It declined in 2014 from 2013.Again this could be explained by the
twin balance sheet problem, but Ultratech started recovering from it in 2014 and the
profitability has been increasing steadily as a result of the increased spending by government
and the decrease in prices of limestone and coal,which decreased the operating costs.It is
only behind Shree Cements,which has a low base, in the list.

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6)Return on Equity
Return on Equity = Net income ÷ Equity

Company Name 2017 2016 2015 2014 2013

Ultratech 10.97 10.48 10.68 12.54 17.43

Ambuja 5.08 7.83 14.81 13.64 14.73

Shree Cements 17.39 7.36 8.07 16.71 26.12

Ramco 17.35 18.05 9.16 5.54 17.02

JK Cements 13.51 5.92 9.53 6.28 15.88

RoE
30

25

20 Ultratech
Ambuja
15
Shree Cements
Ramco
10
JK Cements

0
2017 2016 2015 2014 2013

Analysis
The return on equity has decreased from 2013 to 2015 when the profits were also
decreasing linearly.But, at the same time, debt to equity has also remained more or less the
same.This shows that they have not increased their debts much in the period mentioned
above.The reason for them not being able to avail debt is the decrease in lending awarded
to the cement sector because of loan piled up in the previous years.

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 7)Return on capital employed (%)
Return on capital employed = Earnings Before Interest and Tax (EBIT) / Capital Employed

Return on capital employed 2017 2016 2015 2014 2013

UltraTech Cement 13.93 13.53 14.08 20.48

14.95

Ambuja Cement 7.37 12.23 18.25 16.33 25.52

JK Cement 9.78 9.30 7.74 18.39

13.83

Shree Cement 7.71 9.45 17.70 27.24

18.46

Ramco Cement 11.20 7.24 17.62

19.54 18.20

Return on Capital Employed

30
25
20
15
10
5
0
2013 2014 2015 2016 2017

UltraTech Ambuja JK Shree Ramco

Analysis
The decline shows a lack of efficiency in the production and other supporting processes
involved.The decline from 2013 can also be attributed to lower infrastructure spending, hike
in fuel prices, freight and power costs. The prices of associated products like steel also
increased which led to slowdown in infrastructure activities. But now the demand is
increasing due to increased spending by government. Some large companies like UltraTech
recovered due to increased investments and sales. Smaller companies were affected.

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LIQUIDITY & SOLVENCY RATIOS
1) Current Ratio
Current ratio is the measure of a company’s ability to pay both short term and long term obligations.
It takes into account the current total assets of a company (cash, inventory, receivables etc.) relative
to that company’s total current liabilities (short term debt and payables). The higher the current ratio,
the more capable the company is of paying its obligations and is considered to be more stable.

Formula for current ratio:

Current Ratio = Current Assets/Current Liabilities

2012-13 2013-14 2014-15 2015-16 2016-17

UltraTech Cement 0.73 0.82 0.7 0.71 0.76
Ambuja Cement 0.97 1.42 1.27 1.28 1.22
Shree Cements 1.01 0.9 1.27 1.28 1.22
Ramco Cements 0.48 0.46 0.52 0.49 0.53
JK Cement 0.88 0.89 0.83 0.87 0.86

Current Ratio
1.6
1.4
1.2
UltraTech Cement
1
Ambuja Cement
0.8
Shree Cements
0.6
Ramco Cements
0.4
JK Cement
0.2
0
Mar'13 Mar'14 Mar'15 Mar'16 Mar'17

Analysis
Cement industry is a capital intensive industry. Hence, the debt taken by the companies is usually
higher. Moreover, the cash flows to the company in terms or returns are also slow (comparatively
less liquid). Hence the industry current ratio is <1. Ultratech cement, in all of the years FY 2012-16 has
lower current ratio than the industrial average. A low current ratio may pose problem in meeting
current liabilities with current assets.

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 2) Quick Ratio
The quick ratio, also known as acid test ratio, is the measure of a company’s short term liquidity. It
measures a company’s ability to meet its short term obligations with its most liquid assets. It excludes
inventories, prepaid expenses and any other less liquid current assets from the calculations.

Formula for quick ratio:

Quick Ratio = (Current Assets – Inventories – Prepaid Expenses)/Current Liabilities

2012-13 2013-14 2014-15 2015-16 2016-17

UltraTech Cement 0.55 0.52 0.43 0.52 0.43
Ambuja Cement 0.95 1.01 1.04 1.18 0.75
Shree Cement 1.06 0.77 0.81 1.07 0.92
Ramco Cement 0.41 0.42 0.49 0.49 0.46
JK Cement 0.75 0.73 0.78 0.78. 0.71

Quick Ratio
4
3.5
3
JK Cement
2.5
Ramco Cement
2
Shree Cement
1.5
Ambuja Cement
1
UltraTech Cement
0.5
0
Mar'13 Mar'14 Mar'15 Mar'16 Mar'17

Analysis
The quick ratio is more conservative than the current ratio because it excludes inventory and other
current assets, which are more difficult to turn into cash. Ultra tech cement, in all of the years FY
2012-16 has lower Quick ratio than the industrial average. A low quick ratio may pose problem in
meeting current liabilities with current assets. Ambuja cement, Ramco Cement and Shree Cements
ratios are closer to the industry average.

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 3) Cash Ratio
The cash ratio is an indicator of a company's liquidity that further refines both the current ratio and
the quick ratio by measuring the amount of cash, cash equivalents or invested funds there are in
current assets to cover current liabilities.

Cash Ratio = Cash & Cash Equivalents/Current Liability

2013 2014 2015 2016 2017

10.97 10.48 10.68 12.54 17.43

Ultratech
5.08 7.83 14.81 13.64 14.73
Ambuja
17.39 7.36 8.07 16.71 26.12
Shree Cements
17.35 18.05 9.16 5.54 17.02
Ramco
13.51 5.92 9.53 6.28 15.88
JK Cements

Cash Ratio
2

1.5 JK Cement
Ramco Cement
1
Shree Cement
Ambuja Cement
0.5
UltraTech Cement

0
2012-13 2013-14 2014-15 2015-16 2016-17

Analysis
Since the short term debt or current liabilities are high, the Cash ratio is again below the industrial
average, especially because of capital intensive investments in capacity building and expansion uptill
2014-15. After this period the Cash Ratio improves. Conclusion: The liquidity ratios for UltaTech cement
are low. Despite being not healthy, it doesn’t show that the company has a critical problem. If the
anticipated future cash flows and long term prospects are good, then the company may be able to
borrow against those figures and meet the current obligations. The trends are slowly improving on
account of the investments in capacity building and expansion in the previous years.

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DEBT RATIOS
1)Debt Equity Ratio
The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total
shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and obligors
have committed to the company versus what the shareholders have committed.

Debt Equity Ratio = Total Liability/Shareholder’s Equity

2012-13 2013-14 2014-15 2015-16 2016-17

UltraTech Cement 0.29 0.28 0.35 0.23 0.22

Shree Cement 0.25 0.23 0.12 0.12 0.17

Ramco Cement 0.84 0.9 0.86 0.57 0.3

JK Cement 0.78 1.42 1.47 1.46 1.29

Debt Equity Ratio

3

2.5

2
JK Cement

1.5 Ramco Cement

Shree Cement
1
UltraTech Cement
0.5

0
Mar'13 Mar'14 Mar'15 Mar'16 Mar'17

Analysis
Over the entire period that is evaluated the Debt Equity ratio of UltraTech Cement is below 0.5,
which means that it has less than half the debt on its balance sheet as compared to its equity
consistently over a five year period, which means it has a strong solvency position. It’s average is also
below the industry average which makes it more desirable for investors(especially in debt
instruments) who want to reduce their risk, but at the same time such a low Debt Equity ratio also
means that the company’s leverage capacity is underutilised.

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2)Interest Coverage Ratio:

Interest Coverage Ratio = (EBIT / Interest Expense)

PBT Margin 2017 2016 2015 2014
Ultratech cement 7.05 6.68 6.09 8.92
Ambuja cements 19.71 13.77 28.66 23.88
Shree cements 12.83 7.08 4.62 7.93
Ramco cement 9.17 4.86 2.84 1.70
JK cement 2.03 1.34 1.55 1.75
Average of top 5 players 10.16 6.75 8.75 8.84

Interest Coverage Ratio

35

30

25

20

15

10

0
2017 2016 2015 2014

Ultratech Ambuja Shree Ramco JK

Analysis:
The ability of the company to pay its interest has remained in the same level throughout the
period taken for analysis barring a drop in 2015.This can be explained by the fact that in
2015 the company has taken a loan to invest in other plants as a result of which the interest
has increased in the subsequent years.In the subsequent years, although the interest was
high, the increased earnings before Interest and Tax compensated for it.Ultratech ,when
compared to its peers, has a less interest coverage. But, it is not in the area where it can
cause danger.

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MANAGEMENT EFFICIENCY RATIOS
1)Inventory Days
Inventory Days = (Inventory ÷ Cost of goods sold) x 365 days
Company Name 2012 2013 2014 2015 2016
Ultratech 42 43 43 44 37
Ambuja 37 37 32 35 39
Shree Cements 32 35 50 52 53
Ramco 56 57 68 52 56
JK Cements 52 58 71 51 45

Inventory Days
80
70
60
50
40
30
20
10
0
2012 2013 2014 2015 2016

Ultratech Ambuja Shree Cements Ramco JK Cements

Analysis
Ultratech’s inventory days is lower compared to the majors and has remained more or less
the same throughout the five years.This has been achieved in a period of increasing
profits.So , this means that they have not given any discounts to clear the inventory or
maintain the inventory level.The inventory used here is the aggregate amount of inventory
on hand, and so will mask small clusters of inventory that may be selling quite slowly in
some states.

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 2)Debtor Days
Debtor Days=(Trade receivables ÷ Annual credit sales) x 365 days

Company Name 2012 2013 2014 2015 2016

Ultratech 21 24 28 25 28
Ambuja 8 9 8 11 14
Shree Cements 11 21 18 27 22
Ramco 24 29 30 38 47
JK Cements 12 14 15 17 18

Debtor Days
50

45

40

35
Ultratech
30
Ambuja
25
Shree Cements
20 Ramco
15 JK Cements
10

0
2012 2013 2014 2015 2016

Analysis
Ultratech has not been able to collect the receivables quickly compared to the other major
players in the industry.This is due to large dealership network which makes the collection
agents difficult to collect the cash.Also the lack of many agents on ground make it difficlut
for them to collect cash.

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TURNOVER RATIOS
1)Inventory Turnover Ratio:
Inventory turnover ratio = Cost of Goods sold / Average Inventory

Inventory turnover ratio 2017 2016 2015 2014 2013

Ultratech cement 12.21 11.27 9.45 9.71 9.73
Ambuja cements 9.89 10.57 11.23 9.81 9.89
Shree cements 6.41 6.83 7.02 7.27 10.54
Ramco cement 6.86 6.55 7.00 5.37 6.44
JK cement 8.88 7.51 6.57 5.16 6.31
Average of top 5 players 8.42 8.87 8.70 8.16 8.45

Inventory Turnover ratio

14

12

10

0
2017 2016 2015 2014 2013

Ultratech Shree Ambuja Ramco JK

Analysis:
From the graph and the table, we can observe that Ultratech cement has maintained a healthy
inventory turnover ratio indicating efficient operations. They have improved this YoY
indicating they have streamlined their operations and sales well. It is also greater that
inventory turnover ratio of the major players in the industry. A lower turnover may indicate
overstocking, obsolescence thereby increasing the warehousing and storage costs.

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2)Asset Turnover Ratio:
Asset turnover ratio (%) = (Net Sales / Average Total Assets) * 100

Asset turnover ratio 2017 2016 2015 2014 2013

Ultratech cement 60.82 63.68 65.13 68.15 73.62
Ambuja cements 39.85 66.80 71.78 70.65 78.31
Shree cements 75.48 63.34 80.69 80.33 90.74
Ramco cement 56.35 51.18 51.55 53.62 54.79
JK cement 75.74 62.69 62.61 54.79 74.62
Average of top 5 players 64.53 58.44 62.64 61.54 70.08

Asset Turnover Ratio

100
90
80
70
60
50
40
30
20
10
0
2017 2016 2015 2014 2013

Ultratech Shree India Ramco JK Column1

Analysis:
We use total asset turnover ratio instead of fixed asset turnover ratio because when we look
at the balance sheet fixed assets make up less than half the total assets and there are
significant current assets as cement industry involves significant amount of assets in
investments and inventories. From the graph and the table, we can observe that Ultratech
cement’s asset turnover ratio has been around the industry average of that year except in
2017. If we compare Ultratech’s with Shree’s, we see that they have a higher ratio which
indicates they have a better utilization of assets. Ultratech can further improve on this ratio
as this is a capital-intensive industry and if it puts its current investments to better use and
by employing efficient equipment and machinery can further improve the output thereby
increasing the sales.

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INVESTMENT VALUATION RATIO
1)P/E Ratio:
Price/Earnings Ratio = Stock Price per share / Earnings per share (EPS)
Industry ratio - 42.97
Ultratech cement – 39.42 (4103)
Ambuja cement – 46.38 (283)
Shree cements – 48.08 (17956)
Ramco cements – 25.30 (729)
JK cement – 25.02 (1022)

P/E Ratio
60

50

40

30

20

10

0
Industry Ratio Ultratech Ambuja Shree Ramco JK

Analysis:
This is one of the key valuation ratios used by investors to analyze the attractiveness on the
investment of a stock. Cement industry stocks have been very attractive because of
Government initiatives in housing and infrastructure. Ultratech’s P/E ratio is slightly lower
than the cement industry ratio. Ultratech cement’s income increased due to higher income
on increase in surplus funds deployed in secured debt instruments and increased the profits
in turn increasing the EPS from 79.25 to 95.74 which accounts for the reduced P/e ratio of
Ultratech cement with respect to the industry. We find that JK cement has a low P/e ratio
which means that investors have apprehensive to invest in the stock which is the reason they
are undervalued.

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MATERIAL COSTING RATIOS
1) Material cost composition
Material Cost Composition = Cost of Raw materials purchased/Total cost

Material Cost Composition 2017 2016 2015 2014 2013

UltraTech Cement 22.25 22.24 21.91 22.15 20.83

Ambuja Cement 14.89 15.35 15.68 14.86 13.74

JK Cement 21.71 25.66 23.80 24.13 21.52

Shree Cement 14.92 15.62 16.44 16.20 16.03

Ramco Cement 22.49 21.39 24.96 24.94 20.80

MATERIAL COST COMPOSITION

30
25
20
15
10
5
0
2017 2016 2015 2014 2013

UltraTech Ambuja JK Shree Ramco

Analysis
Bigger companies like UltraTech increased investments which can be understood from the
increase in Material cost composition. This is mainly due to expectation of higher demands in
the future. Another factor to be considered is the higher rates of raw materials driven by
higher demands from countries like China.

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2) Imported composition of raw materials consumed
Imported Composition of Raw Materials = Imported Raw materials consumed / Total Raw
materials consumed
Imported composition of Raw Materials 2017 2016 2015 2014 2013

UltraTech Cement 12.67 12.46 12.02 13.81 10.76

Ambuja Cement 3.11 8.84 12.98 13.88 14.46

JK Cement 28.23 28.93 30.31 25.54 26.43

Shree Cement 12.23 12.06 9.47 1.17 3.45

Ramco Cement 1.52 1.43 6.44 10.45 2.23

Imported composition of raw materials consumed

35
30
25
20
15
10
5
0
2013 2014 2015 2016 2017

UltraTech Ambuja JK Shree Ramco

Analysis
Imports of UltraTech increased slightly over the years to facilitate its increased investments
and emphasis on quality. The company is importing better quality raw materials which gives
it a competitive edge over rivals. Most of the other companies are importing lesser now to
cope up with overall increase in costs.

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