Beruflich Dokumente
Kultur Dokumente
Amalgamation. 1994 - The Company issued 10,00,000-16% Secured Redeemable NCD of Rs 100 each on private placement basis.A scheme of amalgamation of an existing leasing and finance Company with the Company was prepared for undertaking leasing activities and other financial services on largescale. M/s. Mannakrishna Investment, Ltd. is a subsidiary of the Company. 1995 - The Company undertook the implementation of new unit of 124 MT capacity per annum named Raj Cement. 43,95,000 No. of Equity shares on surrender of detachable optional share warrants attached with 16% unsubscribed non-Convertible Debentures of 100 each. 1996 - The Company commissioned its second cement plant - Raj Cement with a capacity of 12.4 lakh tonnes per annum in Beawar. 58,06,204 rights shares issued (prem. Rs 10 per share) in the prop. 1:5. 1998 - Shree Cement, the Calcutta-based PD-BG Bangur group company, has decided to issue preference shares aggregating Rs 15 crore to mobilise longterm funds. Shree Cement's expansion in capacity by 12.4 lakh tonnes at the new unit in Reawar, has made it a leading cement manufacturer in North India. - ICRA has downgraded the rating of the NCD programme of Shree Cement Ltd (SCL) from LAA to LA. The Rs 372-crore 1.25 million tonne cement plant near Ajmer was commissioned during the year after considerable delay due to an explosion in the electro-static precipitator. Shree Cements has an installed capacity to produce up to two million tonnes of cement per annum in Rajasthan and has an equity capital of about Rs. 34 crores. 1999 - The company has been awarded the first prize for energy conservation in 1998 in the cement sector. SCL, belonging to the house of Bangurs, is one of the largest cement manufacturers in North India, having the installed capacity of 2 million tonnes. Its plants are located in Rajasthan. The new plant was set up at Beawar with the capacity of 1.24 million tpa in Rajasthan.
-Unit I and Unit II of the company receives National Award for 'Best Electrical Energy Performance' and 'Best Thermal Energy Performance' in the Cement Industry for the year
Decides to change the Accounting year to April - March each year and accordingly the current year is only for nine months. Appoints Mr M K Singhi as the Executive Director of Shree Cements. In pursuance to the IDBI, company approve for early redemption of privately placed under noted cummulative redeemable preference shares.Change in Management Structure: Mr B G Bangur re-appointed as executive chairman and Shri H M Bangur reappointed as the Managing Director for a period of five years. Members approve for the delisting of its shares from 4 stock exchanges of Jaipur, Kolkota, Delhi and Chennai exchanges. Confers the Runner up National Safety Award by the Ministry of Labour,GOI, in recognition of outstanding performance in Industrial Safety achieving longest accident free period. Receives permission for delisting of shares from Delhi Stock Exchange. The company has been conferred National Award for Excellence in Energy Management instituted by the Confederation of Indian Industry (CII) and Sohrabji Godrej Green Business Centre Delisting of equity shares from Madras Stock Exchange Association Ltd Company conferred 'BEST PRODUCITY AWARD-2003' by the Rajasthan state Productivity Council in recognition of productivity measures and productivity improvements achieved Rajasthan Chamber of Commerce & Industries, Jaipur presents 'RCCI Excellence Award' to Shree Cement Ltd in recognition of Overall Best Corporate Governance Practices and Disclosures in Annual Report among all companies having registered office in Rajasthan. Delist from The Calcutta Stock Exchange Association Ltd (CSE). Shree Cement Ltd has appointed Shri. Amitabha Ghosh as Director of the Company
Types of Cement
Cements are of two basic types- gray cement and white cement. Grey cement is used only for construction purposes while white cement can be put to a variety of uses. It is used for mosaic and terrazzo flooring and certain cements paints. It is used as a primer for paints besides has a variety of architectural uses. The cost of white cement is approximately three times that of gray cement. White cement is more expensive because its production cost is more and excise duty on white cement is also higher. Shree cement does not manufacture white cement at present.
GREY
WHITE
Pozzolona
Pozzolona used in the manufacture of Portland cement is burnt clay of flyash generated at thermal power plants. PPC is hydraulic cement. PPC differs from OPC on a number of counts. Pozzolona during manufacturing consumes lot of hydration heat and forms cementious gel. Reduced heat of hydration leads to lesser shrinkage cracks. An additional gel formation leads to lesser pores in concrete or mortar. It also minimizes problem of leaching and efflorescence.
Plants : 140 Typical installed capacity Per plant : Above 1.5 mntpa Total installed capacity : 170 mntpa Production 07-08: 161 mntpa 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. Sales primarily through the dealer channel
Nearly 300 plants & Located in Gujarat, Rajasthan, MP mainly Typical capacity < 200 tpd Installed capacity around 9 mn. Tones Production around : 6.2 mn tones Mini plants were meant to tap scattered limestone reserves. However most set up in AP Most use vertical kiln technology
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Production cost / tonne - Rs. 1,000 to 1,400 Presence of these plants limited to the state Infrastructural facilities not the best
REGIONAL DIVISION
The Indian cement industry has to be reviewed in terms of five regions: North Punjab, Delhi, Haryana, Himachal Pradesh, Rajasthan, Chandigarh, J&K and
Uttaranchal
West Maharashtra and Gujarat South Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, Pondicherry, Andaman &
and
Central Uttar Pradesh and Madhya Pradesh
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and the Industry average per tonne of operating profits crossed Rs 1100. Driven by theses profitability levels, average RoCE level of the Industry crossed the 25% mark.
Cement Industry is set to add ~89 mn tonnes of capacity between FY09-FY11E, which accounts for ~48% of FY08 installed capacity. We expect ~21 mt of capacity addition in Q4FY09, followed by 41 mt of additional capacity in FY10 and 18.9 mt in FY11. Of the new capacities, ~ 41 mt (~50%) is expected to be commissioned in the South, followed by 13.3 mt (~16.4%) in the North and 13 mt (16.1%) in the East.
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It is believed that the capacity expansion program will only weaken the pricing power and profitability of the companies in the future. In a scenario where oversupply is inevitable, companies could try to increase their market share by decreasing their prices, leading to a possible price war.
Economic Analysis
-Key Economic Indicators
World GDP, also known as world gross domestic product or GWP - gross world product, calculated on a nominal basis, was estimated at $65.61 trillion in 2007 by the CIA World Fact book. While the US is the largest economy, growth in world GDP of 5.6% was led by China (11.9%) and India (7.2%)
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Inflation worldwide
The recessionary pressures felt across the globe resulted in a massive decline in the supply of money. This, in turn, affected commodity prices, resulted in low inflation rates
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Higher degrees of inflation, particularly in two digits, will defeat all business planning, lead to cost escalations and squeeze on profit margins. These will adversely affect the performance of industry and companies.
Unemployment Rates:
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Interest rates: the rate offered on overnight deposits by the Central Bank or other authorit
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If interest rates increase across the board, then investment decreases, causing a fall in national income.
Demand &Market
Demand in the cement industry is typically that of an activity which is mature, cyclical and with low price elasticity. It is also characterized by a high degree of horizontal differentiation in terms of location and a low degree of vertical differentiation in terms of quality.
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Cement is a homogeneous product. Most of its sales concern about half a dozen commercial varieties, of which Portland cement is by far the leader. No brand name exists, so that one suppliers products can easily be substituted for another. Cement is, however, an experience good; its quality is guaranteed by standards with which the supplier has to comply. These standards are often national but in most cases the products of one country can easily be approved in neighboring countries. Standards therefore do not constitute trade barriers as such, even if they may hinder trade. The demand for cement is geographically widely dispersed and corresponds roughly to population density. Although cement is an upstream industry, it differs from other basic industries such as aluminum, steel or glass, for which demand id concentrated both geographically and in terms of the number of customers. In the cement industry demand is by, by contrast, dispersed in multiple zones of consumption, each of which comprises numerous customers. Geographical factors thus determine the structure of the market.
Supply
Two economic considerations are important a priori in structuring supply in a market characterized by strong horizontal differentiation: 1.The trade-off between fixed costs and transport costs which, depending on the economic size of the factories, gives an initial idea of the density of the network of production units covering the territory, in relation to the density of demand. 2.The level of investment costs and the life-span of facilities which determine the rigidity and the duration of the network.
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Infrastructure & construction sector the major demand drivers. Some demand determinants Economic growth Industrial activity Real estate business Construction activity Investments in the core sector Growth in mortgage business in retail housing Higher surplus income of household
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Opportunities
growth in the housing sector central road fund established for national highways and railway over bridges to provide
expansion plans, Greenfield projects on the anvil Demand supply balance expected in the next 12 15 months 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 Newer capacities in future
GACL was set up in 1986 with 0.7 million tonnes. The capacity has grown 25 times since then to 18.5 million tonnes. GACL exports as much as 15 percent of its production. 35% of the company products transported are by sea which is the cheapest mode. It has earned the reputation of being the lowest cost producer in the cement industry. Ambuja cement is one of GACLs well established brands. The company plans to increase capacity by 3-4 million tonnes in the near future.
ACC LIMITED
Being formed in 1936, ACC has a capacity of 22.40 million (0.53 million tonnes of Damodar Cement and Slag and 0.96 million tonnes of Bargarh Cement). ACC Super is one of the companys well established brands. It is planning to expand the capacity of its wholly-owned subsidiary Damodar Cement and Slag at Purulia in West Bengal. This is aimed at increasing its presence in the eastern region.
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BINANI CEMENT
A fierce competition with a 2.2 MTPA plant is located at Binanigram, Pindwara, a village in Sirobi in the state of Rajasthan. Its a tough nut player which is outside CMA (Cement Manufacturers Association) and is prime reason for driving prices low in markets. Offers a good quality product at cheap rates and has very good brand image. Sales are focused in the North India, Gujarat and Rajasthan. It holds around 14% of the Rajasthan market.
JK
An entrenched competitor that has brands across the price spectrum with JK Nembahera leading the pack. Also operates in the white cement market with Birla as its only competitor. It lost significant market when Ambuja came to Rajasthan.
Others
Other players like Shriram have insignificant share and are highly localized. Shriram has a small presence and that too largely in southern Rajasthan. There are various mini plants operating too which supply cheap cement which has no ISI certification and does not confirm BIS standards. Quite often they are supplied in other established brands cement bags. L&T is a strong player nationally and regarded as quality product. It has a footprint but not a foothold in Rajasthan market
Cement Manufacturing
Raw Material Preparation
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Limestone of differing chemical composition is available in the quarries. This limestone is blended before being crushed. Red mineral is the limestone at the crushing stage to provide chemical composition of the raw materials. Once materials have been crushed and subjected to chemical analysis they are blended in a homogenized stockpile. A bucket wheel is used to recover and further blend this raw mix before transfer to the raw material grinding mills.
Raw Mill
Transport belt conveyor transfers the blended materials to ball mills where it is ground. The analysis is again checked to ensure excellent control of the product. The resulting ground and meal is sent to a homogenizing and storage silo blending before being burnt in the kilns.
Fuels
The heat required to produce temperatures of the flame is supplied by ground and dried coke and/or fuel oil. The Petcock is imported via companies' internal wharf, stored and then dedicated mills. Careful control of the mills optimum fineness of the Petcock and excellent conditions within the kilns system.
Burning
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The raw meal is fed into the top of a pretower equipped with four cyclone stages. As it meal is heated up by the rising hot gases and 800C. At this temperature, the meal dehydrates and partially decarbonizes. The enters a sloping rotary kiln, which is heated by flame, which completes the burning process of The meal is heated to a temperature of at least At this temperature the chemical changes produce cement clinker are achieved. The dry kiln is shorter than the wet process kiln and is the most fuel-efficient method production available.
heater falls, the reaches meal then a 1,800C the meal. 1,450C. required to process of cement
Cooler Units
The clinker discharging from the kiln is cooled temperature of 70C above ambient and heat is recovered for the process to fuel efficiency. Some of the air from the de-dusted and supplied to the coal grinding remaining air is used as preheated secondary main combustion burner in the kiln. Clinker is ensure consistent product quality as it leaves Metal conveyors transport the clinker to closed storage areas.
by air to a temperature improve cooler is Plant. The air for the analyzed to the cooler.
Filters
Dedicated electrostatic precipitators dedust the air and gases used in the Clinker Production Line Process. In this way, 99.9% of the dust is collected before venting to the atmosphere. All dust collected is returned to the process.
Constituents
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Different types of cement are produced by mixing and weighing proportionally the following constituents:
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Geo-political Factors The companies may be affected by the impact that geo-political
factors have on the world economy or on financial markets and investments generally or specifically. These include the demand for cement from China, and other export destinations.
Currency Risk: The recent appreciation of the Indian rupee is going to be a major
hindrance to export to other countries especially china as well as other nations. Currency risk represents a major issue facing exports however the risk is currently less due to the robust demand for cement in the domestic economy. However with addition to plant capacity and increase in volume of production, such a risk would prove to be a major challenge.
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COMPANY COMPANY
PROFILE Shree Cement Ltd. 1979 Bangur Nagar, Beawar, Ajmer (Rajasthan) 21, Strand Road, Kolkata Cement Manufacturing B.G. Bangur H.M. Bangur M.K. Singhi
INCORPORATION YEAR REGISTERED OFFICE CORPORATE OFFICE INDUSTRY CHAIRMAN MANAGING DIRECTOR EXECUTIVE DIRECTOR
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Shree Cements Ltd. is a Rajasthan based company, located at Beawer. The company has installed capacity of 10.2 mtpa tones per annum in Rajasthan.. For the last 18 years, it has been consistently producing many notches above the nameplate capacity. The company retains its position as north Indias largest single-location manufacturer. Shrees principal cement consuming markets comprise Rajasthan, Delhi, Haryana, Punjab, Uttar Pradesh and Uttranchal. Shree manufactures Ordinary Portland Cement (OPC) and Portland Pozzolana Cement (PPC). Its output is marketed under the Shree Ultra Ordinary Portland Cement and Shree Ultra Red Oxide jung rodhak Cement brand names.
Guiding Principles
Enforce good corporate governance practices Encourage integrity of conduct Ensure clarity and un-ambiguity in communication Remain accountable to all stakeholders Encourage socially responsible behavior
Mission
To harness sustainability through low carbon philosophy To sustain its reputation as one of the most efficient manufacturers globally. To continually have most engaged team To drive down cost through innovative practices To continually add value to its products and operations meeting expectations of all its stakeholders
Marketing
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Shree caters to cement demand arising in Rajasthan, Delhi, Haryana, UP and Punjab. What is strategic for SCL is that it is located in central Rajasthan so it can cater to the entire Rajasthan market with the most economic logistics cost. Also, Shree Cement is the closest plant to Delhi and Haryana among all cement manufacturers in its state and proximity to these profitable cement markets renders the company an edge over other cement companies of the company in terms of lower freight costs. SCL has a 160 MW captive thermal power plant, which has achieved over 90 per cent load factor. In 2000-01, the company has succeeded in substituting conventional coke with 100 per cent pet coke, a waste from refineries, as primary fuel resulting in lower inventory and input costs. In the past two years the price of coal has gone up. Earlier dependent on good quality imported coal, the company's switch to pet coke could not have come at a better time. The company also replaced indigenous refractory bricks with imported substitutes, reducing its consumption per tonne of clinker. The company has one of the most energy efficient plants in the world. The captive plant generates power at a much lower cost of Rs 2.5 per unit (excluding interest and depreciation) as compared to over Rs 5 per unit from the grid. In appreciation of its achievements in Energy sector, the Company has been awarded the prestigious 'National Energy Conservation Award" various times. Shree is rated best by Whitehopleman, an international agency specializing in the rating of cement plants.
PRODUCTS
Following are the various products of Shree Cements Ltd. 1 2 3 4 Shree Ultra Red Oxide Jung Rodhak Cement (ROC) Shree OPC Bangur Cement Rockstrong Cemento
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requirements to their total satisfaction. To continually improve performance and effectiveness of quality management system
Energy Policy:
To reduce to the maximum extent possible the consumption of energy without impairing
productivity which should help in: Increase in the profitability of the company Conservation of Energy Reduction in Environmental pollution at Energy producing areas.
Environment Policy:
To ensure: Clean, green and healthy environment Efficient use of natural resources, energy, plant and equipment Reduction in emissions, noise, waste and greenhouse gases Continual improvement in environment management Compliance of relevant environment legislation
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Water Policy:
To provide sufficient and safe water to people and plant as well as to conserve water,
we are committed to efficient water management practices viz. Develop means and methods for water harvesting Treatment of waste discharge water for reuse Educate people for effective utilization and conservation of water Water audit and regular monitoring of water consumption
To ensure good health and safe environment for all concerned by: Promoting awareness on sound health and safe working practices Continually improving health and safety performance by regularly setting and reviewing
Identifying and minimizing injury and health hazards by effective risk control measures Complying with all applicable legislations and regulations
Develop Competency Employees shall be given enough opportunity for betterment None of the person below the age of 18 shall be engaged to work Incidence of Sexual harassment shall be viewed seriously To follow Safety & Health, Quality, Environment, Energy policy
ADVERTISING
Need for Advertising: offer. People too did not pay much attention to this product unless there was a need felt. Cement has evolved into a highly commoditized product category. Due to competitive
pricing within the industry, there was not much differentiation among the various brands on
Hence people who were currently making their houses or were soon to embark on such a project became the target market.
Because of the product being commoditized, there was a need for differentiation for
Shree Cement Ltd was not advertising its products for the past few years but looking at the competitive market and opportunities ahead it introduced a new ad campaign
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which was targeted to differentiate its products from other cement brands. It introduced an ad campaign showing the anti rusting capability of the Red Oxide Cement of the company. But still the presence of the company has not been as intense as other brands have like Ambuja and Grasim etc.
4 star rating from Whitehopleman UK, an International Cement Consultants, since 2000 (No one in world has been rated 5 star!! Reckoned as 2nd fastest growing mid sized Company in 2006 by Business Today a national level magazine (6 May 07 edition Golden Peacock Award - 2007 for Excellence in Corporate Governance
Golden Peacock Award - 2007 in recognition of excellent Environment Management practices National Awards for Energy Conservation from Ministry of Power, Govt of India CII National Award for Excellence in Energy Management 2006 National Safety Award awarded by the Honorable President of India, Smt. Pratibha Patil Best Annual Report Award by Rajasthan Chamber of Commerce and Industry in 2007
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Amity Corporate Excellence Award by Amity International Business School, Noida. ICWAI National Award 2005 for excellence in cost management Green-Tech Environment Excellence Award Golden Peacock Award for Combating Climate Change
Corporate Excellence Award by Rajasthan Chamber of Commerce & Industry (RCCI) in all four categories namely Corporate Governance & Capital Market, Financial Performance & Analysis, Business & Qualitative Aspects and Annual Report Presentation as well as Management SILVER CIO Award by the CIOL Dataquest Enterprise Connect Awards 2008. Note: Recently their name is registered for Limca book of Records (National Records 2010), for the completion of 1 new mtpa plant in a record 12 months from march 23, 2008 to march 24, 2009.
RESEARCH METHODOLOGY
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Research Methodology
TITLE OF STUDY
The project that I had been working on in my training was titled
Exploratory research is a preliminary phase and is absolutely essential in order to obtain a proper definition of problems. The purpose of exploratory research is to determine the general nature of problems and veritable related to it. The major emphasis is on the discovery of ideas and insight.
Exploratory research is characterized by flexibility and informality. Exploratory research is generally carried out by three sources (a) (b) (c) Literature (secondary data) Experience survey (discussion with experts) Study of some specific cases
Descriptive research is used for some specific purposes. It is focus on the accurate description of variables present in the problems. The data is collected in such a manner that the ambiguous nature of causes and effect relationships in the phenomenon is reduced to maximum extent. A descriptive research require a clear specifications of what, who, when, where, why and how aspects of the research. Two types of research is (a) (b) Case method Statistical method
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RESEARCH DESIGN
A research design is the basic plan that guides the collection, measurements and analysis of data. Decision regarding what, when, where, how much and by what means concerning a research study constitute a research design. In other words research design is the framework that specifies the type of information to be collected the source of data and the procedure of data collection.
The research methodology was subdivided and performed in the following method
Analyzing relevant figures and date for the last financial years. Analyzing the future outlook of the companies and its expansion plan. Study of the complete process of the uses of Cost of Capital using literature and discussing with the organizational guide. Connection of the data regarding the use of Cost of Capital and financial policies for Shree Cement. On the basis of the data collected, necessary suggestions regarding the financial structure are given.
TYPES OF RESEARCH: Research Methods: Observation and Interviews. Observation method will be used to calculate the market share of Slice in the Mango Drink Category and to gather inputs from the behavior of customer in the departmental stores and hyper markets to help in proper execution of consumer promotion schemes in the retail chains.
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Interviews of the retailers will help in collecting qualitative information that will reflect the problems in the market and the ideas and suggestions for better execution in the market. Interviews of the consumers may also be conducted (if required). Thus, interviews will help in the collection of qualitative data especially subjective suggestions.
Data Types: The project seeks to generate both Qualitative and Quantitative data. The Quantitative data will help to analyze the share, the impact of POP displays and the stock availability. The Qualitative data will help in making some subjective generalizations and bringing out ideas that can be experimented to see if they can be used for improvement of the execution standards Sources of Data: Primary sources: Observations Interviews
My study is totally based on secondary data. During my study I collected secondary data. Secondary Data:Major source of data for the project were the pass years financial statement
It included information provided by the company workers. I adopted a holistic approach and toiled to collect the information about the company other than Shree Cement through secondary sources such as internet, newspaper, magazines, papers , online data basis ect..
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The project is structured for the purpose of getting good insight of, Capital Structure and Cost of Capital, theory and its implication. The Projects Focus On Cost Of Different Component Of Capital And Optimal Capital Structure For Minimizing The Cost And Risk. It also discusses the different sources of funds, different approaches of cost of capital.
The project is being made as a part of summer training and gives good insight of the topic covered under it. The basic need behind the study to cost of capital is to understand the finance as an important asset for the organization , their knowledge skills & attiudes should be used for the overall growth on organization as well as for the individuals, this can be done through retaining the telent & knowledge people for the long time .
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To know the Business Level Functions & Process of the Organization To know the Company Profile To do SWOT Analysis, etc. of the Company To learn about the Organizational Culture, Values, Benefits in a Practical way To get an exposure to the different functions of the Organization and understand
Environment
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Organizational Functioning is an important factor for any Organization to achieve the desired goals and Objectives. This requires Co-ordination at all levels to smooth functioning. This
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Study is to know the overall efficiency and performance cement Industries and a general study on Shree Cement Ltd at Beawar, Rajasthan.
As a part of two year MBA program at the end of 1st year, we had to carry on a project in an organization in order to understand the organization structure and their functions. This was a great opportunity to get the first hand information and understand the functioning of the various departments
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COST OF CAPITAL
The main objective of a business firm is to maximize the wealth of its shareholders in the longrun, the Management Should only invest in those projects which give a return in excess of cost of fund invested in the project of the business. The difficulty will arise in determination of cost of funds, if is raised from different sources and different quantum. The various sources of funds to the company are in the form of equity and debt. The cost of capital is the rate of return the company has to pay to various suppliers of fund in the company. There are main two sources of capital for a company shareholder and lender. The cost of equity and cost of debt are the
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rate of return that need to be offered to those two groups of suppliers of the capital in order to attract funds from them. The primary function of every financial manager is to arrange adequate capital for the firm. A business firm can raise capital from various sources such as equity and or preference shares, debentures, retain earning etc. This capital is invested in different projects of the firm for generating revenue. On the other hand, it is necessary for the firm to pay a minimum return to each source of capital. Therefore, each project must earn so much of the income that a minimum return can be paid to these sources or supplier of capital. What should be this minimum return? The concept used to determine this minimum return is called Cost of Capital. On the basis of it the management evaluates alternative sources of finance and select the optimal one. In this chapter, concepts and implications of firms cast of capital, determination of cast of difference sources of capital and overall cost of capital are being discussed.
also the opportunity cost of the funds to the firm i.e. what the firm would earn by investing these funds elsewhere. In practice the borrowing rates used indicate the cost of capital in preference to landing rates. Technically and Operationally, the cost of capital define as the minimum rate of return a firm must earn on its investment in order to satisfy investors and to maintain its market value. I.e. it is the investors required rate of return. Cost of capital also refers to the discount rate which is used while determining the present value of estimated future cash flows. In the other word of John J. Hampton, The cost of capital is the rate of return in the firm requires from investment in order to increase the value of firm in the market place. For example if a firm borrows Rs. 5 crore at an interest of 11% P.A., then the cost of capital is 11%. Hear its the essential for the firm to invest these Rs. 5 Crore in such a way that it earn at least Rs. 55 lacks i.e. rate of return at 11%. If the return less then this, then the rate of dividend which the share holder are receiving till now will go down resulting in a decline in its market value thus the cost of capital is the reward for the use capital. Solomon Ezra, has called It the minimum required rate of return or the cut of rate for capital expenditure.
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factor in such decisions, but equally important are the considerations of retaining control and of avoiding risks.
1 Evaluations of financial performance of top management: cost of capital can be used to 1 evaluate the financial performance of the top executives. Such as evaluations can be done by comparing actual profitability of the project undertaken with the actual cost of capital of funds raise o finance the project. If the actual profitability of the project is more than the actual cost of capital, the performance can be evaluated as satisfactory.
1 Knowledge of firms expected income and inherent risks: investors can know the firms 1 expected income and risks inherent there in by cost of capital. If a firms cost of capital is high, it means the firms present rate of earnings is less, risk is more and capital structure is imbalanced, in such situations, investors expect higher rate of return.
1 Financing and Dividend Decisions: the concept of capital can be conveniently employed 1
as a tool in making other important financial decisions. On the basis, decisions can be taken regarding dividend policy, capitalization of profits and selections of sources of working capital.
evaluation of the past performance when compared with standard costs. In financial decisions future costs are more relevant than historical costs.
defined the implicit cost as the rate of return with the best investment opportunity for the firm and its shareholders that will be forgone if the project presently under consideration by the firm were accepted. Thus implicit cost arises only when funds are invested somewhere, otherwise not. For example, the implicit cost of retained earnings is the rate of return which the shareholder could have earn by investing these funds, if the company would have distributed these earning to them as dividends. Therefore, explicit cost will arise only when funds are raised whereas implicit cost arises when they are used.
Much theoretical work characterizes the choice between debt and equity, in a trade-off context: Firms choose their optimal debt ratio by balancing the benefits and costs. Traditionally, tax savings that occur because interest is deductible while equity payout is not have been modelled as a primary benefit of debt. Large firms with tangible assets and few growth options tend to use a relatively large amount of debt. Firms with high corporate tax rates also tend to have higher debt ratios and use more debt incrementally. A company will use various bonds, loans and other forms of debt, so this measure is useful for giving an idea as to the overall rate being paid by the company to use debt financing. The measure can also give investors an idea as to the riskiness of the company compared to others, because riskier companies generally have a higher cost of debt.
Example-: If a company issues 12% debentures worth Rs. 5 lacs of Rs. 100 each at par, then it must be earn at least Rs.60000(12% of Rs. 5 lacs) per year on this investment to maintain the income available to the shareholders unchanged. If the company earns less than this interest rate (12%) than the income available to the shareholders will be reduced and the market value of the share will go down. Therefore, the cost of debt capital is the contractual interest rate adjusted further for the tax liability of the firm. But, to know the real cost of debt, the relation of the interest rate is to be established with the actual amount realised or net proceeds from the issue of debentures.
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To get the after-tax rate, you simply multiply the before-tax rate by one minus the marginal tax rate. Cost of Debt = (before-tax rate x (1-marginal tax)) The before tax rate of interest can be calculated as below:
Net Proceeds: 1. At par 2. At premium 3. At Discount = Par value Floatation cost = Par value + Premium Floatation cost = Par value Discount Floatation cost
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Shree Cement has not paid any dividend to the Preference Shareholders. Thus the Cost of Preference Capital is 0 (Zero).
While computing cost of capital under dividend yield(d\p ratio)method, it had been assumed that present rate of dividend will remain the same in future also. But, if the management estimates that companies present dividend will increased continuously for the year to come, then adjustment for this increase is essential to compute the cost of capital. The growth rate in dividend is assumed to be equal to the growth rate in earning per share. For example if the EPS increase at the rate of 10% per year, the DPS and market price per share would show an increase at the rate of 10%. Therefore, under this method, cost of equity capital is computed by adjusting the present rate of dividend on the basis of expected future increase in companys earning. Ke= DPS\MP*100+G G= Growth rate in dividend.
In case where future dividend and market price are uncertain, it is very difficult to estimate the rate of return on investment. In order to overcome this difficulty, the average rate of return actually realise in the past few year by the investors is used to determine the cost of capital. Under this method, the realised yield is discounted at the present value factor, and then compare with value of investment this method is based on these assumptions. The companys risk does not change i.e. dividend and growth rate are stable. The alternative investment opportunities, elsewhere for the investor, yield the return which is equal to realised yields in the company, and
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The market of equity share of the company does not fluctuate widely.
the company would have distributed the earnings by way of dividend instead of retaining in the business. Therefore , every share holders expects from the company that much of income on retained earnings for which he is deprived of the income arising o its alternative investment. Thus, income forgone or sacrificed is the cost of retain earnings which the share holders expects from the company.
various sources of capital to the total capital structure of a firm. The book value weight can be easily calculated by taking the relevant information from the capital structure as given in the balance sheet of the firm. Market value weights may be calculated on the basic on the market value of different sources of capital i.e. the proportion of each source at its market value. In order to calculate the market value weights, the firm has to find out the current market price of each security in each category. Theoretically, the use of market value weights for calculating the weighted average cost of capital is more appealing due to the following reasons: The market values of securities are closely approximate to the actual amount to be received from the proceeds of such securities. The cost of each specific source of finance is calculated according to the prevailing market price. But, the assignment of the weight on the basic of market value is operationally inconvenient as the market value of securities may frequently fluctuate. Moreover, sometimes, no market value is available for the particular type of security, specially in case of retained earnings can indirectly be estimated by Gitmans method. According to him, retained earnings are treated as equity capital for calculating cost of specific sources of funds. The market value of equity share may be considered as the combined market value of both equity shares and retained earnings or individual market value (equity shares and retained earnings) may also be determined by allocating each of percentage share of the total market value to their respective percentage share of the total values.
For example:- the capital structure of a company consists of 40,000 equity shares of Rs. 10 each ad retained earnings of Rs. 1,00,000. if the market price of companys equity share is Rs. 18, than total market value of equity shares and retained earnings would be Rs. 7,20,000 (40,000* 18) which can be allocated between equity capital and retained earnings as followsMarket Value of Equity Capital = 7,20,000*4,00,000/5,00,000 =Rs. 5,76,000.
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Example : Following information is available with regard to the capital structure of ABC Limited : Sources of Funds E.S. Capital Retained Earning P.S. Capital Debentures Amount(Rs.) 3,50,000 2,00,000 1,50,000 3,00,000
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You are required to calculate the weighted average cost of capital. Computation of Weighted Average Cost of Capital Source Amount Rs. (1) E.S. Capital Retained Earning P.S. Capital Debentures Total (2) 3,50,000 2,00,000 1,50,000 3,00,000 10,00,000 (3) .35 .20 .10 .09 1.00 Weights After tax Cost (4) .12 .10 .13 .09 Weighted Cost (5)= (3) * (4) .0420 .0200 .0195 .0270 .1085 .10850 or 10.85%
Kd (before tax)
8.08 %
= =
Total Debt Capital = Term loan from Banks + Debts = 105716.94+000 = 105716.94 lacs Total Interest Paid = 9355.94 Tax Rate = 30% Interest Expense of the company
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Kd (before tax)
100
Kd (before tax)
---------------------105716.94
100
8.85 %
Kd (after tax)
Kd (after tax)
8.85% * .70%
= 6.20 %
Total Debt Capital = Term loan from Banks + Debts = 112573.18+800 = 113373.18 lacs Total Interest Paid = 9636.72 lacs Tax Rate = 30% 9636.72
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Kd (before tax)
---------------------113373.18
100
8.50%
Kd (after tax)
8.50% * .70%
= 5.95%
Total Debt Capital = Term loan from Banks + Debts = 83427.02+1400= 84827.02lacs Total Interest Paid = 6573.02lacs Tax Rate = 30%
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Kd (after tax)
7.25% *.70%
= 5.42%
Particular
2009-10
Total Debts (Term loan from 131570.37 Bank+ Debts) + 30000 =161570.3 7
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13065.36 8.08%
DPS Given
13
10 710.50
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8 1079.40
6 921.85
share of rs. 10(in Rs.) Final dividend on equity 4528.84 share (in lacs) Market Capitalisation (in 801268.41 Lacs) 247516.88 376033.01 321146.96 3483.72 2786.98 Not given
Ke = DPS\mP*100 + G
Dps = Current cash dividend per share Mp = Current market price per share G = Growth rate Ke =
= 10%
10.56%
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1.Earning yield method:Ke= EPS\mp*100 Eps = earning per share = 194.07 Rs. Mp = Market prise Ke = = 2300.05 Rs. (194.5 / 2300.5) X 100
8.43%
Ke = Proposed final dividend on Equity Share / No. of Equity Share Final dividend on Equity Share = 4528.84 Lacs No. of Equity Share = 348.37 Lacs Ke = 4528.84/348.37=13
2008-09 13
8.43 10.56
Where...
We = Weight of equity
Source
Amount Rs.
Weights
9.74%
problem. It depicts the overall cost of capital as the some of the cost of the individual components of the capital structure. It employs a direct and reasonable methodology and is easily calculated and understood.
2. Responsiveness to Changing Condition : Since, it is based upon individual debt and
equity components, the weighted average cost of capital reflects each element in the capital structure. Small changes in the capital structure of the firm will be noted by small changes in overall cost of capital of the firm.
3. Accurate when Profits are Normal : During the period of normal profits, the weighted
average cost of capital is more accurate as a cut-off rate in selecting the capital budgeting proposals. It is because the weighted average cost recognises the relatively low debt cost and the need to continue to achieve the higher return on the equity financed assets.
4. Ideal Creation for Capital Expenditure Proposals : With the help of weighted average
cost of capital, the finance manager decides the cut-off rate for taking decisions relating to capital expenditure proposals. This cut-off rate determines the miimum limit for accepting an investment proposal. If an investment proposal is accepted below this limit, the firm incur a loss. Therefore, this cut-off rate is always decided above the weighted average cost of capital.
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The weighted Average cost approach also has some weaknesses, important among them are as follows :
1. Unsuitable in case of Excessive Low-cost Debts : Short term loan can represent an
important sources of fund for firm experiencing financial difficulties. When a firm relies on Zero cost (in the form of payables) or low cost short term debt, the inclusion of such debts in the calculation of cost of capital will result in a low WACC. If the firm accepts low-return projects on the basic of this low WACC, the firm will be in a high financing risk.
2.
Unsuitable in Case of Low Profits : If a firm is experiencing a period of low profits, not earning profit as compared to other firms in the industry, WACC will be inaccurate and of limited value.
assign weight to different components of capital structure. Normally, there are two type of weights- (i) book value weights and (ii) market value weight. These two type of weights give different results. Hence, the problem is which type of weight should be assigned. Though, market value is more appropriate than book value, but the market value of each component of capital of a company is not readily available. When the securities of the company are unlisted, the problem becomes more intricate.
4. Selection of Capital Structure : The selection of capital structure to be used for
determining the WACC is also not easy job. Three types of capital structure are there i.e. current capital structure, marginal capital structure and optimal capital structure. Which of these capital structure be selected. Generally, current capital structure is regarded as the optimal structure, but it is not always correct.
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swot analysis
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A)
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Govt. Non-trade
Private Non-trade
for govt infrastructure building Govt. Housing Projects Railways Airports Cement Roads Bridges Dams Canals These are all bulk requirements
for Group housing / retail housing Contractors projects on behalf of govt. Any industrial projects taken up by the private sector like bridges, roads etc.
B) Trade Network
Company Handling Agent Stockiest Retailers
Consumers
SWOT ANALYSIS
Strength and weaknesses are essentially internal to the organization and relate to the matter Concerning resources, programmes and organization in key areas such as Sales Marketing Capacity Manufacturing cost etc Opportunity and Threat are external to the organization and can exist or develop in the following areas Size & Segmentation Growth pattern and maturity International dimensions Relative attractive of segments New Technologies etc
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STRENGTH
Company is established in Beawar where most of the land is rocky and material is suitable for the production of cement, thus it is closely bound to the resources. Specific chemical composition which makes it co erosion free and also have very Good chemical recovery efficiency. Company has its own electricity production unit thus need not to depend on the Availability of power n dependency on electricity department. Well transport facility; it has its own railway track. Leading brand in north India. Thus people give preference to the brand. Maintain a very good customer loyalty and relationship. A very superior production quality thus customer is always satisfied. Upper level of management is too skillful.
Weakness
Poor access of distribution. Very less advertising thus in other part of country its not as popular. Technical knowledge is less at lower level of employee, which is draw back for Achieving maximum profit. Its difficult for them to change to an alternate line o production with existing Machinery.
Opportunities
Changing customer taste, thus they may get the market from the switchers. Liberalization of geographic works, thus they can enter into different market. Huge land available for expansion of business in future. Govt. is planning for betterment on infra structure thus there will be huge demand for cement. Booming real estate sector. Good relation with bankers thus for expansion of business they need not to look too far.
Threats
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Changing customer taste, any time they may switch to other. Advancement in technology. Entry of new player. Few major players are situated near the main plant thus market share is difficult to Increase. Change in Govt. policy as they may increase the tax. Non availability on raw material. Labor and higher technical personnel may switch to another plants.
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Learning is a never ending process which continues from birth of human being to his/her death. It can also be done by reading book and through training and work. Spending 45 days in SHRRE CEMENT LTD. was good learning experience for me.
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After completing the organization study I come to know that academic learning is different and working in organization and learning is different. After spending such precious time in an organization my major finding in that particular organization are as follows:
Firstly, organization culture of Shree Cement is formal, where every person cannot directly meet to High authority with out any systematic way which I considered was good because it encourages employees at work.
Secondly, organization structure of Shree Cement is well formatted in which each and every department plays important role
Thirdly, in the organisation structure is divided into to 4 part one is in Finance, Marketing, Operation & Quality, Human and Resources.
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1. The company may increase the performance by reducing the borrowed capital, so that the interest an finance charges will be less.
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2. The company may increase the sales if it attempts to move into export market. 3. The company may reduce the operating inefficiencies through effective utilization of all the resources. 4. The company may strike a balance between the current assets and current liabilities to maintain the solvency position. 5. Optimum utilization of Working Capital can be planned so as to result in sound financial position. 6. There is an urgent need to upgrade and modernize the plants for improving the profitability of SCL.
LEARNING EXPERIENCE:
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How to apply the management learning and soft skills while working at the coalface.
How to approach companies with a proposal. Interacting with various institutes from IT retailers to B-schools to companies. Various details on deal negotiation and closures. Exposure to the fierce competition and the struggle, where only the fittest survive.
How to remain patient and composed in the face of anxiety and pressure. Accepting negative feedback and listening to NO but still finding a way out
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Bibliography
Bibliography
BOOKS:1. Financial management
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Author:- Agarwal M. R. 2. Financial management Author:- Pandey M. 3. Project Planning, analysis Financing implementation and review fifth edition, Tata McGraw-Hill, New Delhi Author :- Chandra prasanna 4. RESEARCH METHODOLOGY New age international Ltd, fifth edition pp.1-2, 31, and 95 Author :- Kothari C. R. OTHERS:Journals of Shree cement Ltd. Shree Cements annual reports 2006-07, 07-08,08-09,09-2010
WEBLIOGRAPHY
http://www.shreecementltd.com http://www.google.com http://excite.com http://investopedia.com http://www.investopedia.com http://www.moneypore.com http://www.moneycontrol.com
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