LSC - Nsu - Final

AN STUDY OF COMPANYS PERFORMANCE AND SHARE PRICE
Prepared by:
PROBIR BOSE ID: 031-025-030
Internship Organization: Lafarge Surma Cement Limited
Internship Faculty Supervisor: Dr. Abdul Hannan Chowdhury Director, BBA Program School of Business.
North South University

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Bachelor of Business Administration
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PART 1 ORGANIZATIONAL PART
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Name Lafarge Surma Cement Limited (LSC) was incorporated on 11 November, 1997 as a private limited company in Bangladesh under the Companies Act 1994 having its registered office in Dhaka. Location Factory location World leader in building materials Lafarge of France and renowned Spanish cement producer Cementos Molins have set up a state-of-the-art fully integrated dry process cement plant at Chhatak, Sunamganj in north east Bangladesh. This location is 10 km away from the border with the Indian State of Meghalaya. Quarry location The quarry is located at the border in East Khasi Hills in Meghalaya (India). The project has its uniqueness as the raw materialslimestone and shale are being brought from the quarry across the international border by a 17 kilometer long belt conveyor. Two subsidiaries of LSC, one holding the mining rights & land leases and the other for quarry operations are located there. Lum Mawshun Minerals Private Limited (LMMPL) is to hold the mining rights and land leases and Lafarge Umium Mining Private limited (LUMPL) to carry out the mining operation. Head office The head office of Lafarge Surma Cement Limited is located at Dhaka (House 35, Road 24, Gulshan 1, Dhaka 1212, Bangladesh). The intellectuals behind the scene work here. Strategies for future, financial forecasting and decision making, records, procurements, internal administration and all major parts are geared up from this place. Sales Office The commercial department is positioned also in Dhaka.
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1.1. Background 1.1.1. Lafarge France Lafarge was founded in France in 1833. Throughout these 174 years it has been growing steadily to take lead in the production of different kinds of construction materials and has established itself as the world leader in construction material business. The expertise of Lafarge in efficient industrial production, conservation of natural resources and respect for both the society and environment is being implemented all around the world. It firmly believes that industrialization must create value, protect the environment and respect people and their cultures. With a workforce of 71,000 people, the Lafarge Group is present in 70 countries. Its sales for 2006 amounted to 17 billion. Its growth is founded on sustainable development policy. Group know-how encompasses industrial efficiency, value creation, protection of the environment, respect for people and cultures, and preservation of natural resources and energy. To improve building materials, Lafarge places the customer at the heart of its preoccupations. It offers the construction industry and the general public innovative solutions bringing greater safety, comfort and quality to their everyday surroundings. Lafarge offers all construction industry sectors - from architect to tradesman, from distributor to end-user - a comprehensive range of products and solutions for each stage of the building process. Lafarge holds top-ranking positions in each of its four businesses: Cement, Concrete, Aggregates and Gypsum. The Lafarge Group is listed on New York stock exchange. In 1833, Lon Pavin, launched an industrial lime production operation in south-eastern France, an area known for generations for the quality of its limestone deposits. The company signed its first major international contract in 1864, delivering 110,000 tonnes of lime for the construction of the Suez Canal. International development began with the opening up of North African markets. Lafarge, which had operated in Algeria ever since, now became the leading Portland cement producer in Algeria, and set up operations in Morocco and Tunisia. Lafarge continued to acquire companies in mainland France. With a quarter of the domestic market, the company became established as France's number one cement producer. Lafarge focused on its main four Divisions, and divested its Specialty Products businesses. Lafarge was the first industrial group to conclude a partnership agreement with WWF (World Wildlife Fund for Nature). In 2001, following the acquisition of Blue Circle, Lafarge became the world's leading cement producer. Numerous acquisitions and joint ventures in all four Divisions, and on every continent, particularly Asia, have continued to consolidate its world leadership position. In July, 2001, Lafarge was introduced onto the New York Stock Exchange (NYSE).
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1.1.2. Cementos Molins Cementos Molins was founded in Spain in 1928. With over 75 years of experience in manufacturing cement, Cementos Molins has now become a renowned Concrete, Aggregates, Mortar and Pre-cast product producer in Spain. It has now 40 Ready Mix plants, 13 Aggregates quarry and 11 Pre-cast product manufacturing units in Spain. Besides Spain, it has industrial operations in Mexico, Argentina and Hungary. 75 years ago, on 9 February, 1928, Mr. Juan Molins Parera founded Cementos Molins, S.A. Now, after decades of constant evolution, we would like to look back over our history and pay tribute to its main figures. Cementos Molins was founded to afford continuity to quarries and limestone and natural cement facilities in different locations. Mr. Joaqun Molins Figueras, CEO since the Company was founded, and Chairman of the Board of Directors between 1934 and 1976, fostered the manufacture of cement and calcium aluminates, in accordance with a patent acquired from Lafarge. In 1943 a rotary kiln for the manufacture of Portland cement with a daily output of 50 tons was installed. The decade of the 50s led to an increase in demand. To satisfy this demand, production volume was increased with the installation of two new furnaces. In 1952 a second Portland cement rotary kiln with a capacity of 150 Tm/day was brought into operation. Three new calcium aluminate cement furnaces were installed to complement the existing two. Moreover, the sixth furnace was installed. Between 1965 and 1974 the Company took a major quantitative leap. In this period three Portland cement furnaces were added; two with a production capacity of 900 Tm/day and the third with a yield of 3,000 Tm/day, thus increasing production capacity from 200 to 4,800 Tm/day. The 70s were difficult for the Spanish cement sector, which was hit by a major crisis, and solutions had to be sought to palliate the effects of a complicated economic situation. Thus, Cementos Molins along with other companies that sought to sell production surpluses in other markets. During the 80s, Cementos Molins embarked upon a geographic expansion and product diversification which made the Company the leader of a large group of national and international companies. Since 1988, and together with Buzzi Unicem, SPA, Cementos Molins owns 66% of Corporacin Moctezuma, S.A. de C.V. It is a Mexican holding, a group consisting of several companies that focus their activity in the production and sale of cement, concrete and mortar. It has two cement plants, in Tepetzingo and Cerritos. Hormigones Moctezuma is the subsidiary responsible for producing and commercializing concrete. At present it has about 40 plants. Together with Lafarge, and with the minority interest of multilateral entities (IFC, ADB, and local shareholders) it has developed the project in Bangladesh. As has already been mentioned, Cementos Molins has not only diversified geographically. The range of products it offers has also been widened. Apart from cement, Cementos Molins has also been engaged in concrete, aggregates, concrete prefabricated products, special mortars and tile cement.
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1.1.3. Lafarge Surma Cement Limited World leader in building materials, Lafarge of France and renowned Spanish cement producer Cementos Molins have set up a state-of-the-art fully integrated dry process cement plant at Chhatak, Sunamganj in North East Bangladesh and the quarry across the border in Meghalaya. As told earlier, the raw materials-limestone and shale are brought from the quarry to the cement plant by a 17 kilometer over land long conveyor belt. The financiers to the project include Asian Development Bank (ADB), International Finance Corporation (IFC), German Development Bank (DEG), European Investment Bank (EIB), the Netherlands Development Company (FMO) and local Standard Chartered Bank and Arab-Bangladesh Bank. The fully integrated, dry process cement plant was situated in Chhatak, Sunamganj. There are two production lines for cement. The plant has a capacity to produce 1.5 metric ton cement per year. Another production line is there for producing clinker, which has a capacity of 3,600 t a day. Project Implementation Process of Lafarge Surma Cement limited: Bangladesh Part Date November 1997 January 1998 January 1998 July 2001 June 2002 July1999 - March 2001 December 1997 - May 2002 December 2001 July 2002 April 2001 May 2001 June 2001 June 2002
BANGLADESH Incorporation of Lafarge Surma Cement Limited BOI Registration Land Acquisition - Main Plant Site Land Acquisition- Long Belt Conveyor (10 km) Land Acquisition - Colony, Link road etc. Land filling - main plant site Environmental Site Clearance - Main Plant Environmental Site Clearance - Power plant, clay mining Environmental Site Clearance - Long Belt conveyor Jetty Construction Permit Approval of reduced import duty for cement plant, machinery, spares etc. BOI approval for foreign loans Mining Lease for 30 hectors clay deposit
Bangladesh-India Part Date November 2000
BANGLADESH-INDIA Exchange of Comfort Letters between the Governments India Part
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INDIA Approval of Foreign Collaboration in the Mining Project Incorporation of Lafarge Umiam Mining Private Limited (LUMPL) Land Lease - 100 hectares limestone Land purchase/Leases - 30 hectares long conveyor belt (7km) Land Lease - 8 hectares crusher service etc. Land purchases I lease agreements - 13 hectares shale Mining Lease for 100 hectares of limestone to LMMPL Transfer of 100 hectares limestone mining lease to LUMPL Approval for mortgages of mining lease to project Lenders Mining Leases for 4.9 hectares shale to LMMPL Environmental clearance to mining project Transfer of environmental clearance to LUMPL EOU approval for mining plan for 100 hectares limestone to LUMPL Transfer of the Mining lease for 4.9 hectares of shale to LUMPL PROJECT CONTRACTS Loan Agreement with multilateral lenders Long Belt Conveyor Contract Signing Mine development Contract Signing Gas supply contract Plant Turnkey contract signing Power Plant Contract Signing Issuance of Notice to Proceed (work order) Commissioning of the Clinker production Commissioning of the Cement production
Date August 1998 March 1999 September 1998 - May 2002 October 2001 - March 2002 October 2001- June 2002 October 2002 August 2001 - January 2002 February 2002 July 2002 August 2002 August 2001 October 2002 October 2002 January 2003
Date September 2001 September 2002 September 2002 January 2003 March 2003 July 2003 July 2003 June 2005 October 2005
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1.2. Founder Six founding shareholders were in Lafarge Surma Cement Limited in 1997 when it was founded as a private limited company. Worlds biggest manufacturer of building material took the main initiative to set up a fully integrated dry process cement plant. With Lafarge another cement manufacturer of Spain Cementos Molins assembled a Netherlands based holding company named as Surma Holdings BV. Lafarge Surma Cement Ltd. was incorporated on 11 November 1997 as a private limited company in Bangladesh under the Companies Act 1994 having its registered office in Dhaka. Lafarge and Cementos Molins currently own about 59 percent of Lafarge Surma Cement Limited. They first reduced their holdings when Lafarge Surma Cement Limited became a publicly traded company. The company's other sponsors are International Finance Corporation, Asian Development Bank, Sinha Fashions Limited., Islam Cement Limited. This was the first ever joint venture with a private company for a commercial project for Asian Development Bank. In the yea 2003 Lafarge Surma Cement became a public company by being listed in Dhaka Stock Exchange and Chittagong Stock Exchange.
The number/percentage of shares of the company is provided below: Name of the shareholders Surma Holdings BV International Finance Corporation Asian Development Bank Sinha Fashions Ltd. Islam Cement Limited Other shareholdersTotal Nationality or incorporated in The Netherlands USA Philippines Bangladesh Bangladesh Bangladeshi & NRB Number of shares 34,184,935 5,797,000 5,797,000 1,755,000 1,595,710 8,939,030 58,068,675 Holding % 59% 10% 10% 3% 3% 15% 100%
Lafarge did land acquisition of total 17 kilometer both in Bangladesh side and in Indian side to build up long belt conveyor. A group of specialist of cement industry hired both locally and globally to initiate the work of the manufacturing unit.
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The technology, known as Fully Integrated Dry Process cement plant, creates an exception of the cement industry in Bangladesh. The plant situated in Sunamganj district capable to produce 1.2 million metric ton cement a year. The project cost about 255 million US dollar is the unique project in the private sector. The main plan was that lime stone and shale, the basic raw materials, will be extracted from its own quarries in Meghalaya, India and crushed into small sizes at quarry site. These will be transported to the cement plant at Chhatak, Bangladesh through a 17 Lm long cross-border belt conveyor that will link the quarries with the cement plant. The financiers to the project include Asian Development Bank (ADB), International Finance Corporation (IFC), German Development Bank (DEG), European Investment Bank (EIB), the Netherlands Development Company (FMO) and local Standard Chartered Bank and Arab-Bangladesh Bank. These financial organizations supported with financial backup provided as debt for initial setup. The plant is located at Chhatak, Sunamganj, Sylhet which is in the far north-east corner of Bangladesh. This location is 10 km away from the border with the Indian State of Meghalaya. The plant has a capacity of clinker production line of 3,600 ton per day. The limestone comes from its quarry located in the State of Meghalaya, India. Lafarge was founded in France in 1833. Throughout these 174 years it has been growing steadily to take lead in the production of different kinds of construction materials and has established itself as the world leader in construction material business. Cementos Molins was founded in Spain in 1928. With over 75 years of experience in manufacturing cement, Cementos Molins has now become a renowned Concrete, Aggregates, Mortar and Pre-cast product producer in Spain. Both of these European giants of building materials built a Netherlands based financial holding company named Surma Holding BV. And this Surma Holding BV is the foremost initiator and financer of Lafarge Surma Cement Limited, at present holding the 59% of share of LSC. IFC, The International Finance Corporation, promotes sustainable private sector investment in developing countries as a way to reduce poverty and improve people's lives. IFC is a member of the World Bank Group and is headquartered in Washington, DC. It shares the primary objective of all World Bank Group institutions: to improve the quality of the lives of people in its developing member countries. As a token continuation of support to develop privet sector in developing country IFC invested ten percent of equity of Lafarge Surma Cement Limited. It also provides support LSC with Long term loan. The other major equity partner also a founder, The Asian Development Bank (ADB), is a regional development bank established in 1966 to promote economic and social development in Asian and Pacific countries through loans and technical assistance.It is a multilateral development financial institution owned by 67 members. Although by definition the bank is a lender to governments and government entities, it has also participated as a liquidity enhancer and best practice enabler in the private sectors of regional member countries. The primary human capital asset of the bank is its staff of professionals, encompassing academic and/or practical experts in the areas of agriculture, civil engineering, economics, public policy and finance. Lafarge Surma Cement Limited is Page 10 of 94
the first private profit oriented joint venture of ADB. Alike IFC, Asian Development Bank also owns ten percent of Lafarges total equity. Sinha Fashions Ltd. and Islam Cement Limited are only two Bangladeshi institutional sponsor of Lafarge Surma cement limited. Each of these two holds 3 percent of total shares. Although Islam cement was in the cement industry of the country from long time but Sinha fashion was not in the cement manufacturing industry. However Sinha Fashion is a renowned group of company in garments sector of Bangladesh. In order to carry out the mining operation LSC built Lafarge Umiam Mining Pvt Ltd. (LUMPL) an India based mining company which, 100 percent owned by Lafarge Surma Cement Limited. Financing Investment of 274m USD including financial charges, captive power plant and initial working capital made to build this company.
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2.1 Mission & Vision To be the undisputed leader in Building Materials in Bangladesh 2.2 Objective 1. To start full scale operation in a year. Although Lafarge came to Bangladesh in 1997 but it is yet to start its full scale operation. It was ready to go with complete production in 2006. In fact it started its clinker and cement production in that year. However, because of the interruption in limestone supply from Meghalaya State of India, it had to stop its limestone production. As it is fully integrated dry process cement manufacturing plant, the disruption of limestone supply made the whole operation more or less inactive. In the current situation the company imports clinker from other countries where as it used to made clinker itself from limestone. There are expectations from the dealers, customers, vendors and shareholders that Lafarge Surma Cement Limited starts its clinker production shortly. Therefore, the main apprehension of the company is to start full scale operation in a year. 2. To attain 20% of market share in three years Lafarge is the largest producer of building materials in all over the world yet to find a good market share in Bangladesh. Other cement producers like Shah, Holcim and Heidelberg enjoys major market shares of the cement industry. Market share of cement in Bangladesh depends on several attributes of the company such as brand image, dealers network, production capacity etc. Brand image, Dealers network and production capacity; these are the direct factors can be visualize. However, there are several macro economic and indirect factors like international trade which can significantly affect the direct factors and subsequently the market share. Consumers perception about a product or company is one of the most important factors for selling the product that in effect provides market share. The production capacity allows the company to provide more than twenty percent of the total countrys cement demand. The concern is to capture at least 20% of the cement market of Bangladesh in next three years. 3. To accomplish positive profit in two years It is more than ten years since it came to Bangladesh. In the year 2001 the annual net loss was BDT 133 million. The negative amount continued in following 4 years also. In the year 2006 the company started it production of clinker and cement and suffered a net loss of BDT 808 Million, almost seven times higher than 2001 (detail discussion in the financial analysis section). Companys main goal is to maximize the worth of its owners and its evaluation relies on the expected profit of the company. As a result, it has become very important to gain profit through its business as early as possible. Failure of attaining profit in any circumstances after ten years of establishment is not actable to its shareholders.
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Since lots of expectation is there from the stockholders the company is targeting to accomplish positive profit figures within next two years. 4. To carryout safer industrial practice Unlike other manufacturing units in Bangladesh, Lafarge Surma Cement Limited, has a strong principle in safe industrial practice especially for the workers in manufacturing units. Increasingly, the importance of a safety review is being recognized as an important risk management tool. Failure to identify risks to safety, and the according inability to address or control these risks, can result in massive costs, both human and economic. The multidisciplinary nature of safety engineering means that a very broad array of professionals is actively involved in accident prevention or safety engineering. The companys target is to bring the number of mishaps at zero. The main theme is an employee should not have to risk injury at work, nor should others associated with the work environment. 5. To make regular expansion of production unit To attain the Major Goal, it is necessary to ensure adequate production capacity of manufacturing unit and accurate supply of the raw material. Expected future demand conditions make it necessary to start an expansion of production by expanding first the size of the plants producing more cement. The company believes in continuous development. Therefore the company is thinking about building another line of production unit. However, if kept unchecked, that might lead to earlier expansion of production capacity than is necessary. 2.3 Strategies Disruption of limestone supply occurred because of some environmental and legal issues. To start full scale operation in a year LSC should settle things with the Indian government as soon as possible. It is better not to go for judicial proceeding, because it might be time consuming. As the conveyor belt was one of the major issues of environmental problem, so land ports can be used rather than conveyor belt. The mining problem can be resolved through new accusation of another mining company which is not involved in this kind of problem. Different countries can be rethought for bringing limestone, both from India or Others. Building the second line of the company in another location could be helpful to carry on a feasible operation by using clinker. Bangladesh is a growing economy. Lots of infrastructure development is occurring every where. Settle things with Indian government not to go for judicial procedure. Bringing limestone from other countries or make the location feasible to produce cement directly from clinker. Buildup rapport with big construction firms and real-estate developer.
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More promotional work to get more market share.
So there is a huge need for building materials. If we think about the local market condition, in Bangladesh per capita cement consumption is higher than many developing countries in the world. That means one person has consumed a good portion of cement in Bangladesh. So many people are in Bangladesh is involved in the developing economy. Many cement manufacturers are there in Bangladeshs cement manufacturing industry. But Lafarge has the only fully integrated plant. Like composite. Lafarge has a huge capacity to fulfill the 22% need of the overall demand. Growing better dealers network could be another way in grabbing more market share. As the big construction firms purchases a huge quantity of cement, a better understanding with big construction firms could be helpful for Lafarge. Same goes with the real state developers. More product information oriented promotion is needed to introduce the deference of the Lafarges product with others.
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3.1 Organizational Structure The organizational structure of LSC is more or less flat. The organizational structure of LSC can be best described as Divisional structure. Unlike bureaucratic structures, divisional structure is formed when an organization is split up into a number of self-managed units, each of which operates as a profit center. Such a division may occur on the basis of product or market or a combination of the two with each unit tending to operate along functional or product lines, but with certain key function (e.g., finance, personnel, corporate planning) provided centrally, usually at a company headquarters. In the same way, the organizational structure of LSC is divided into many business units. These business units can be illustrated in a ways that a component that add value for the organization. That business unit can be treasure, that business unit can be sales or that can also be internal audit. For instance, treasure manages the fund of the company in way that maximizes the financial benefits in the mean time that reduces the risk. Similarly, sales unit also work to sale the product to the cement dealers and other customers, which successively generate revenue. Same is true for the internal audit business unit. It creates control over excess cost and other things, which adds value to the organization. In this way each department is divided into different business units. Each of these units works as a profit center, meaning that each of these units contributes in maximizing the profitability of the business. Organizational structure of LSC can be compared to a matrix structure. Matrix structure overlays two organizational forms in order to leverage the benefits of both. Lafarge Surma Cement Ltd. and the Lafarge Umiam Private Limited are the tow different entities under this matrix structure. The matrix structure of LSC combines geographical with product divisions. The product-based structure allows the company to exploit global economies of scale, whereas the geographic structure keeps knowledge close to the needs of individual countries. Each has group specific responsibilities, but some issues are decided jointly across all of these groups. Although the organizational structure of the LSC is maintained in a way that every department has its own responsibility and work but the whole organization is linked with customized software named JDE to create more interaction among the users. Organ gram See the appendix
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3.2 Different departments and their function 3.2.1 Procurement The procurement department is responsible for all kind of procurement starting from stationeries to limestone. They do all the local purchase as well as imports. However, all these purchase has a systematic order to execute. Overall, the purchase department is responsible to i) receive the requisition, ii) purchase processing, iii) send the document to accounts for payment. Procurement procedure for LSC The need should come from the respective user department. The user department should issue a purchase requisition to the purchase department. Any department needs something; it will give requisition of that material. The head of the department will have to approve that. If it is in plant then the plant manager will have to approve it and if it is in head office head of the department will have to approve it. Purchase department will verify the purchase requisition if that is signature by the correct authorized person, the item, if the supplier is specified or not etc. If not then purchase department will send the PR back to the user department for correction. If it is a valid Purchase requisition or correction has made, the purchase department will contact with the suppliers of the particular product or service. If the supplier is specified by the user department then the purchase department will directly go for negotiation. If not, then the purchase department is responsible to contact with various suppliers and request for quotation. The bid should be made in a closed envelop and all the bid quotations of the suppliers will be opened in front of the purchase committee headed by the Head of Procurement. This procedure of course depends on the value of the product to be purchased. In case of low valued product or service the purchase committee is not called upon for all these works. The responsible officer of the purchase department does the work by himself. Then when all the quotations are gathered, these quotations are incorporated in a comparative statement based on the financial value, ordering from lower value to the higher value. Upon setting the comparative statement the purchase department will negotiate the price with suppliers and choose the best offer. At this point a purchase approval form is filled up. Purchase approval is subject to the value of the total ordered value. When the PO (Purchase Order) is approved, it is usually generated from a automated computer system, where all the data base is maintained. When PO is generated in the system, the printed version should be signed manually by the appropriate authority. Then the PO is given to the supplier and supplier supplies the goods. If the goods are imported through LC (Letter of Credit), the purchase will communicate with the supplier to setup delivery terms and condition and receive the PI (Proforma Invoice). After receiving the PI, the purchase department should take the approval of LC from Finance Director and Head of Procurement and give it with the PI to the treasury for further procedure.
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3.2.2 Commercial Mainly the commercial department deals with the sales process and the promotional process. The responsibilities of selling goods are summarized below 1. Creating the customer ID 2. Issuing the sales proposal with terms and condition 3. Granting the price approval form 4. Processing the current check with the finance department 5. Dealing with the credit sales e.g. PDC or LC 3.2.3 Finance Finance department deals with all financial matters of the company. The works are as follows: 1. Trade financing 2. Insurance of plant, materials in head office and vehicles. 3. Work under credit policy and procedure 4. Budgeting for the different departments and the company. 5. Receivable collection and payment processing Under trade financing the works of LC for import is the vital one. As it was one of my major responsibilities in doing my internship, I am going to describe the full process of this: LC opening procedure for import: When the company receives the Performa Invoice (PI), the procurement department issues an Approval of LC and sends it to AP. Then AP does the following things
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Stage: 1 Sends the PI to Insurance Company and requests the Insurance Company to issues a cover note to Advising bank. The insurance company sends a copy of cover note to 1) LSC 2) PSI Company and 3) The conforming bank (Bank of Lafarge).
Issuing Bank Insurance Cover note Sent to LSC Seller
In the same time, AP fills up the relevant forms to request the bank to open the LC. These are as followings: SL No 1. 2. 3. 4. Forms Bank application form Bangladesh Banks LC authorization form IMP LC form PSI form (In certain cases)
With these forms LSC sends the request letter to bank for opening a LC. Here, the bank takes the following charges: SL No 1. 2. 3. 4. 4.1 4.2 4.3 Charges Commission VAT Swift Charge Others - Processing Fees - Stamp - LC Form Cost
Then the bank opens the LC and sends a copy to LSC. Now the responsibility goes to the seller to ship the goods.
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Stage: 2 When the goods are sailed the seller sends the Non Negotiable Documents to LSC. These documents usually include the followings: SL No 1. 2. 3. 4. 5. Nonnegotiable Documents Certificate of origin Packing list Airway bill/ Shipping documents Inspection certificate [Clean report of findings] Commercial Invoice
At the moment, LSC sends these nonnegotiable documents to its bank so that the Bank can endorse it and issue the following certificates i) ii) Shipping Guarantee Certificate and No objection certificate.
When the bank endorses the documents, the bank takes the initial margin from the account of LSC. The significance of the endorsement of non negotiable documents is that by the time original documents come through banking channel; with these endorsed documents the company can release the goods from the port. Now, these endorsed documents are sent to CNF agent for discharging the goods from the port. Stage: 3 In the mean time the original documents reaches to issuing bank from advising bank After that the bank sends the original documents to LSC in exchange of the dollar amount taken from LSC account. Unit wise duties and responsibilities for payment: Reception Receiving the Invoice Note down in the register book Identifying the relevant user department Send the invoice to the user department.
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User Department Approve the invoiced amount manually and send it to AP accountant if there is no PO against that Purchase. Approve the invoiced amount both manually and in the system if there is a PO. Issuing the GRN if there is a PO against that Purchase. Send the signed approval form to the Purchase department if there is a PO.
Purchase Receiving the documents sent by the User Department. Matching the Challan against the Purchase Order. Attach the PO and purchase approval with the invoice. Authorize the invoice previously signed by the budget holder.
Account Manager Check the overall accounting report. Approve for General Account posting.
General Accountant Post the entries into general account module accordingly.
3.2.4 Human Resource Division Human resource department is one of the major concerned departments which help the organization run in a guideline as well as boosts up the employees to work. The function of LSC is as follows 1. Work under HR policy 2. Coordinate with employees 3. Recruiting, promotion, increment, posting and other works. 4. Ensuring the safety issue of the working environment.
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3.2.5 Administration Administration department is attached under the Managing Director. That is concerned with over all administrative process of the administration. The functions are mentioned below 1. Managing the overall administration. 2. Taking care of the organizations resources. 3. Managing the support stuffs. 4. Ensuring the safety issue of the working environment. 5. Keeping rapport with external parties
3.2.6 Manufacturing Manufacturing department is located in the plant office at Chattak, Sunamganj. Every single work related with the plant office or manufacturing goes under this department. The major functions are as follows 1. Maintenance of the plant. 2. Making of production schedule. 3. RnD and other works related with the production. 4. Coordinate with every business unit related with production 5. Reporting to MD 3.2.7 Legal Department Legal department is concerned about all the legal issues sustaining in the present time and all the issues that can be coming up in future. The responsibilities are as follows 1. 2. 3. Verifying all the third party agreements. Solve the existing legal issues Preventing the company from going towards any risky deal.
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3.2.8 IT Department As LSC has a very strong IT infrastructure, it department is very important one to keep its responsibility going. The major work is to do all the IT related works those are concerned with 1. 2. 3. 4. Networking Software Hardware Training those are related with IT.
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4. Competitive Profile Matrix:
Lafarge Critical Success Factors Acquiring raw material Customers and Dealer Network Brand name Technological Advantages Skilled Workforce Total Weight 0.3 0.25 0.1 0.15 0.2 1 Rating 2 3 5 5 4 Score 0.6 0.75 0.5 0.75 0.8 3.4
Holcim Rating 4 4 5 4 3 Score 1.2 1 0.5 0.6 0.6 3.9
Shah Rating 4 5 4 4 3 Score 1.2 1.25 0.4 0.6 0.6 4.05
In this competitive profile matrix, three major players have been compared. Five different critical success factors are taken into consideration and those are acquiring raw material, customers and dealer network, brand name, technological advantages and skilled workforce. The weights have been allocated according to the importance of the success factor. Here, the most important factor is accruing the raw material. As discussed in this report in several parts that LSC is uses lime stone as its raw material and all the other cement manufacturers uses clinker. LSC itself makes clinker from the limestone and then processes the clinker into cement. Therefore there is a major difference in between these companies. However, the effect is similar if the acquiring of the raw material is hampered because of some reason. In the result we found that Shah Cement is in the top position among all three. Holcim containing second and Lafarge stood third. The main reason behind Lafarges lacking behind is the failure in accruing raw material.
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5.0 Industry Analysis Bangladesh is a developing country with a population of about 140 million. Today many industries have been established, such as rice, cotton, sugar, tea, tobacco, fertilizer, garment, jute, cement, hides, skins and leather. Cement sector is the largest increase sector in Bangladesh. There are 70+ cement factories in Bangladesh and daily production capacity is 16.687 Million MT. It is growing daily. The first cement factory in the country was established during British regime named as Chattak Cement Factory. This nationalized factory was established in the early 1940. Historically the demand of cement outnumbers the actually production available in the country. Still, this was the only factory in that time because of the unavailability of raw material. The factory had an installed capacity of 270, 000 tones per annum (TPA) when it was first installed. Aynepur Cement Factory was the first private cement factory, established in 1992. However, it could not manage to run properly because of the internal problems. Till the first half of 90s, Bangladesh cement market was typically an import market. Until 1992 there were only two cement plants in the country. Except Lafarge Surma Cement Ltd., all other cement production facilities that are in operation today are clinker 4grinding units. These factories were establishments where imported clinkers are ground to produce cement. By 2002, there were as many as 56 cement grinding factories in the country with a total production capacity of 11.8 million tons. Today, cement is one of the most potential sectors to invest in and grow. Today there are more than 70 cement factories in Bangladesh. Many largest foreign investments in Bangladesh were in this sector. For instant, Lafarge (French Multinational), Holcim, Heidelberg, Cemex invested billions in this sector by setting up their own plants in different parts in Bangladesh. Hyundai was the first multinational company to start up a local factory primarily to fulfill the demand of Jamuna Bridge. In the later half of 90s, a number of companies sprang up, allured by the prospect of a large demand-supply gap. This included world leaders like Lafarge, Holcim, Heidelberg (Scancem) or Cemex each now having their own plants. However, today there are more companies than what the country needed. Cement is one of the more prosperous industries in Bangladesh in terms of its financial return. However, there are challenges and need of forecasting for keep this growth. The scarcity of raw materials, competitors and lack of modern technology might put the industry into tough time.
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5.1 Diamond Factor Endowment: Land
Most of the cement manufacturing plants are located at the river bank in all over the country. This is because the supply of raw materials and the distribution is vitally done through the waterway. This kind of land is certainly not unavailable but location strategy is important for the facilitation of the plant. Every processing plan needs a significant amount of land. Most of the cases these lands are acquired from the local in habitants or the government. Usually these lands are not that expensive. Workforce availability
Bangladesh has a cheap labor facility for all kind of labor incentive industry. However, with modern technology most of the cement manufacturing plants are equipped in a way that in production process very little touch of mens hand is required. In that regard, to operate those highly sensitive and complicated machineries, engineers are out sourced from abroad. So, it can be said there is a lack of workforce availability. In order to loading and unloading purpose the labors are required and that is cheap and feasible in our country. Capital required and Availability
Cement manufacturing and processing has different stages. Most of the factories in our country imports clinker from abroad and makes finished cement for local consumption. Only Lafarge Surma Cement Limited produces clinker in Bangladesh from limestone. In order to setup a fully integrated cement processing plant it requires a huge amount of capital. Most of the capital required to import machineries. However, as this is a kind of business that will surly generate money as there is a huge demand from both public and private sector that is why financial institutions, both foreign and local, like commercial banks, investment organizations, international financing is quite available for potential projects. As the economy of this country is growing, it is expected that demand will continue to increase in future also. Infrastructures.
As explained earlier, waterway is the imperative for the transport of the raw material and the distribution of the cement bags. In Bangladesh, rivers are there to serve the purpose. However the ricer way is not always up to the task. During rainy season silt comes with the water flow in the river and makes the rivers shallow. Therefore, dragging is required to make the path ready for transport. Moreover, jetty and other facilities needed to be built to utilize the infrastructure. Demand Conditions
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Local demand For Clinker
In Bangladesh except Lafarge Surma Cement Limited, all cement processing factories import clinker to made cement. Only Lafarge Surma Cement Limited imports lime stone to make clinker. Therefore each company requires clinker as the vital raw material of cement. 90% of the inside material of cement is clinker. So there is a great demand from the local companies to procure clinker from Lafarge Surma Cement Limited. For Cement
As a growing economy Bangladesh has a great demand for cement. More and more construction work is going on both in public and private sector. Every year, the demand exceeds the actual production. It can be concluded if the ongoing development of the overall economy continues the demand for cement will boost further. The following table shows the summary of demand condition and the production Production Capacity (in 000 tons) 1013 1997 1240 1998 2085 1999 3580 2000 5005 2001 7281 2002 7384 2003 2004 8420 2005 9058 World Cement, Vol 33, p 53-59. Year Demand (in 000 tons) 3335 3590 4450 5316 5526 5913 6327 6770 7243
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Production Capacity Vs Demand

10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0
19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05
Production Capacity (in 000 tons) Demand (in 000 tons)
Global Demand
The ASEAN member countries seem to be caught in a stalemate in terms of penetrating each others markets, Malaysian manufacturers are seeking new markets outside the region in a bid to deal with the excess supply. Malaysian manufacturers currently export cement to a wide array of countries such as Hong Kong, Australia, the Maldives. So, there is a chance for Bangladesh also to export in these countries. More than that Bangladesh has a location advantage to supply in east India. Global demand of cement in these developing countries will increase rapidly. Moreover, the demand by the developed countries will never fall because of their purchasing power. Related & Supported Industries: Related and supportive industries are as follows: Supplier of raw material and spare parts Oil and Gas Chemical suppliers Electricity Financial Institutions
Firm's Strategy, Structure and Rivalry:

The first cement manufacturing industry in was established 70 years ago. The following statistics reflect current levels of activity:
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Year 1997 1998 1999 2000 2001 2002 2003 2004 2005
No. of Plants 10 13 15 20 50 61 65 68 69
Production Capacity (in 000 tons) 1895 2210 2845 4625 9657 13557 13887 15837 17037
The rivalry is not massive. Only few big companies control the market. Six or Seven companies have the maximum share (70%) of the market.
No. of Plants 70 60 50 40 30 20 10 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 No. of Plants
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The Role of Chance & the Role of Government There was not enough development of the cement manufacturing industry compared to other countries until 1990 because of government price control on cement and unfavorable import duty on clinker to promote the development of the industry in the country. After the year 1990, Bangladesh government changed its rules as it withdrew the price control, and had a favorable tax control for the imported clinker. In that year the number of installed grinding mills more than doubled from 20 in 2000 to 50 in 2001, which in turn almost doubled the production capacity, and paved way for surplus. This allowed Bangladesh to become self sufficient in cement production. Many multinational companies and entrepreneurs also started setting up their plants in the country because of the favorable duty structure imposed by the government for local production. In a least develop countries like Bangladesh government play an important role. The subsequent roles are played by the government in the development of the cement industries Industry Ministry Evaluation the need of Industry Financial help from External resource division Registration of the companies Rules and regulation development Support through inter ministry meeting Proposing tax holiday and rebate to the finance ministry.
Ministry of Finance Incentives for entrepreneurship development Infrastructure development Loan Assistance Establishment of Economic Zone.
Other Government Agencies work for supplying gas, facilitate transportation. More than facilitation the government has a vital role to play that is regulating the businesses.
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5.2 Porters Five Forces
Risk of potential competitors. (Moderate)
Barging power of Suppliers (High)
Intensity of rivalry among the Cement manufacturers
(High)
Bargain power of the Customers. (Moderate)
Threat of substitutes. (Low)
Barging power of Customers At present there are about 70 cement processing plants in Bangladesh, So, there are so many brands from which customers can choose. However, in case of quality all the brands are not same. Even same brand has different qualities. Therefore, the customers have options to choose from these brands. However, as the actual production is always lower than the demand so the manufacturers can always charge a high price. Moreover, cement is such a material that has hardly any substitute. Consequently, customers can not decide the price that much but has freedom of choice. A moderate bargaining power is there for the customers. Threat of substitutes There is hardly any threat of substitute existing for cement manufacturing industry. Cement is such a necessary item especially for all kind of construction it can hardly be replaced. Therefore, threat of substitute is very low. However in this ever-growing era of since and technology many improvement and innovation is being put together. The cement as a
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material might need to improve its quality in a cost effective manner to sustain as a dominated part of constriction material. Barging power of Suppliers In recent years, supply of limestone from the neighboring countries has decreased significantly, in fact stopped. With the discontinuation of the limestone supply the availability of clinker has reduced also. As a result, the only fully integrated cement factory of Bangladesh, Lafarge Surma Cement Limited, is facing scarcity of raw materials of cement sector. All other cement manufacturing companies produces cement from the imported clinker, when Lafarge was able to produce clinker it was able to supply clinker to the other factories in Bangladesh. However, because of the unavailability of the limestone, for the time being clinker production of Lafarge is suspended in Bangladesh. In this current situation, Lafarge Surma Cement imports clinker from different countries. In the world market the price of clinker has increased significantly. Moreover, the cement itself is a low valued product. Therefore, the transportation cost to carry the clinker plays a significant role in deciding the country from which the clinker to be imported. Many times Lafarge Surma Cement Limited is bound to choose a country which is near to Bangladesh. As the spare parts and machineries required by the cement manufacturing plant is highly expensive and there is only a few number of suppliers in the world of those parts and machineries, the bargaining power of the suppliers are very high. In a purchasing deal where the customers usually have the power to bargain for product, its quality and its price; here in this type of case usually the suppliers dominate the buyers. Mainly European companies of heavy industrial product manufacturers are the major machinery suppliers for Lafarge Surma Cement Limited. Because of the nature of the product, cement certainly depends on different types of chemicals and raw materials to manufacture the cement. India has the competitive advantage in producing the chemicals by itself. They produce all of the chemicals by their own in a cheaper cost. In Bangladesh few extent of chemicals are produced locally. Sufficient chemicals including other raw materials in required time are very important to continue production of the cement factories. Risk of potential competitors Until now there is not visible threat of potential competitor in the industry especially for Lafarge Surma Cement Limited. There are more than 70 cement processing factories in Bangladesh and daily production capacity is 16.687 Million MT. among this only Lafarge has fully integrated dry process cement plan. If the supply of the limestone can come continuously then Lafarge will become the undisputed leader in coming future. There is a little chance that in short term new competitors will come and join in the business. Even, those who are already in the business many of them are staying inactive. Half of them are manufacturing cement and few are being able to compete in the market. However as the
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country has a growing economy, it is expected the demand for cement and other construction materials will mount in coming future and Bangladesh is a attractive place to invest because of the rate of return in this economy. Intensity of rivalry among the Cement manufacturing industry The rivalry is massive. Only few big companies control the market. Five or Six companies have the maximum share (50%) of the market. Maximum 20 companies have the (30%), rest of the companies carry out business in moderate way and controls rest of the business. Big companies like Holcim, Heidelberg (Scancem), Shah, Cemex are the leader of the Bangladeshs cement market. Not only in Bangladesh they are also in a search of new market out side of Bangladesh.
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5.3 Life cycle of cement manufacturing industry The cement manufacturing industry is in defiantly growth stage. Though the supply of limestone is in scarcity but it is expected that in the upcoming future the supply will increase gradually. As the construction process in developed countries has slowed down because of their already developed economy, many multinational cement manufacturers are building up their manufacturing unit in developing countries. As cement cannot be shipped through sail because of it low value and huge quantity. In this situation, least developed and developing countries like Bangladesh have an excellent opportunity to grab the share of foreign investment. Bangladesh has also opportunity to shift the main export in different countries which is feasible to transport because of location advantage. Because of the higher value addition in finished stage as mentioned earlier, many countries does not want to export limestone to other countries. Recent issue of limestone shipment embargo with Indian government and Lafarge is the best example of it. Bangladesh can attain higher return by exporting cement in different countries. Moreover cement is being so demandable that the consumers from developing countries are requiring quality cement products in cheaper price and the Bangladesh has the competitive advantage in case of quality cement and location. Mostly in underdeveloped areas of east India Bangladesh can take the advantage of location. Bangladesh has also the opportunity to be in the upper side. In 2007, when Lafarge came to Bangladesh, government facilitated a lot through it support for land acquisition to other things. The industry itself is in growth stage. The demand for cement is growing day by day. This growth is subject to development work by the government and the economic factors both micro and macro level. The need of the new setup of cement industry came both from the government, producers and demand condition. So can conclude that our cement industry is in definite growth stage and can move forward if the value addition can be made and we can produce more cement. Our country can earn huge foreign exchange from this if we can keep the trend going.
Growth Stage
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5.4 PEST Political Analysis
Political stability is required for all industries to develop. In last five years period was very unstable. That definitely hampers the export-import handling at sea port and other works of the industry. Previously, Bangladesh had very low risk of military intervention in government and that was a good point for the industry. However, because of the reform process the economy is scratched in a new dimension. The consequence of this is yet to be seen. The confidence among the individual level must grow further to ensure the growth of construction industry. If the construction process of the infrastructure cannot move smoothly, then the cement manufacturing industry cannot become effective. As Bangladesh is a developing country its laws, rules and regulations are designed in a way the fits best for its economic interest. Although there are environmental issues but those are not that effective or strong. By nature of the industry it does not produces lots of toxic and hazardous wastes that can be seriously harmful for environment. That is why the legal framework does not put any huge impact on them. As a least developed country the Intellectual property right is not that strong as well. However, because of the low value of the goods, none face problem regarding this issue. Trade regulations & tariffs are positive for the cement manufacturing industry. There are no pricing regulations for any of the industry players. Taxation is also in favorable condition. Many exporters get rebate for exporting cement materials. There are incentives from financial institution and subsidies from government to grow the industry. Wage legislation is almost absent and minimum wage rate is very low. More than that because of the capital intensive nature of the business the high labor cost does not also matters that much.
Economic Analysis
If we think about the local market condition, in Bangladesh per capita cement consumption is higher than many developing countries in the world. That means one person has consumed a good portion of cement in Bangladesh. So many people are in Bangladesh is involved in the developing economy. People have money in their hand. They are investing those in the fixed assets like house and other properties. So a massive construction work is occurring and still to be occurred in the up coming future. That signals well for the cement industry and the cement have a good inside and outside demand. Even the factories cannot supply to meet the demand. Bangladesh has mixed economic system and good support from the government to grow the industry. Government is also facilitation through investment in next 10 years. Exchange rate fluctuation is a big problem for export oriented industries. And in Bangladesh exchange rate is not stable at all. Sometimes that might create problem for the cement manufacturers if they go for export. However, there are financial instruments to hedge against the exchange rate fluctuation. Recently financial markets are becoming efficient and in this month
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three new companies are going public. Banking institutions are very effective and Share market is also efficient. However, the current infrastructure in is a major drawback for the industry. Mostly Unskilled workforces are available in the industry. the industry itself is in growth position along with the growing GDP about 6.5%. Social Analysis Health and safety issues By nature of the cement manufacturing industry it does not produce lots of toxic and hazardous wastes that could be seriously harmful for environment. However, Lafarge has a big environmental concern. The uncontrolled industrial structures in different area have created a shortage of land for agriculture. It also damaged the rural development especially in the protected area behind the embankment. Health and environmental conditions are poor in many slums. Companies in Bangladesh do not recycle their waste in Bangladesh. The problem has gotten worse over the last decade. The sewage lift stations either do not function properly or are out of operation. There is the drainage problem also. Moreover, cement manufacturing industry contains heavy machineries and there is a greater chance that the workers there can be insured or die in operating with those.
Technological factors analysis Bangladesh is not a technologically developed country. All the machineries and processing equipments are being imported from other countries to run our business. Up coming time will not be that easier if the industry does not acquire new techniques and invest in research and development. As the extra machineries necessary by the cement industrialized plant is highly expensive and there is only a few numbers of suppliers in the world of those parts and machineries. As described earlier, in a purchasing deal where the customers usually have the power to bargain for product, its quality and its price; here in this type of case usually the suppliers dominate the buyers. Mainly European companies of heavy industrial product manufacturers are the major machinery suppliers for Lafarge Surma Cement Limited. As importers are being more and more environment concern so latest technology that is less harmful should be introduced.
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There are definite opportunities in investment in cement manufacturing sector. However, the investment should be for full scale cement manufacturing that will work from the collection of main raw materials such as limestone to producing finished cement because that will adds more value to the product. The cement processed from clinker cant be said cement manufacturing rather it should be called like cement processing. It is better think about the clinker production also as clinker demand is booming worldwide. Many countries imports clinker and Bangladesh can the advantage if it can manage to import limestone. In Bangladesh Lafarge is the only player in clinker manufacturing. This market in Bangladesh is still controlled by few major players. If good supply chain is not available then the new entrance would not be able to conduct business.
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6. SWOT analysis 6.1 Strength : Financial capability of Lafarge Surma cement limited is a very big advantage for the company. It is one of the biggest investments in Bangladesh. Moreover, mane international financial institution is its major share holders. Lafarge Surma Cement Limited has a very efficient workforce. Like other multinational companies LSC got a very educated, trained and experienced workforce hired both locally and from abroad. Cheap production in terms of labor and raw materials can be taken as strength of Lafarge Surma Cement Limited. As LSC uses limestone as its raw material Short delivery time and distance in terms of importing raw material from Meghalaya. Low transportation cost really decrease the exporting cost of the company The company has its own fully integrated plan that locates in Chattak and that really helps them to meet whatever demand arises. As a big multinational company Lafarge Surma Cement Limited get more power to export in the foreign country.
6.2 Weakness : Feeble promotional work and market share Lack of strategic alliances with the other companies. It has to import the raw material for production of cement, and highly dependent on India. Lack of experience for exporting the product that really might creates the complexity of the company. The company has to use the distribution channel that has some drawback.
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6.3 Opportunities : Lafarge can cover long distance to reach in north eastern India because of the location of the India. Lafarge can gather new capital from the market. Advertising cost is also very low in Bangladesh so more promotional activity can be gone through. Can get a good market share. Price of the cement is increasing day by day in all over the world. Bangladesh doesnt allow using the country in terms of transit for India. India and Bangladesh has agreed to reduce their non-tariff and para-tariff barrier that really enhance the export of cement from Bangladesh to the northeastern part in India. In northeastern India the warehouse cost is also low.
6.4 Threats : Indian Government is not flexible in terms of exporting although there is a huge demand of the Bangladeshi product in India. Other companies are already in the local and foreign market, so it will be hard to penetrate these markets. Because of the devaluation in the US dollar against rupee exporting will become costly for us. Political instability really make problem for company. As LSC imports its main raw material, limestone, from India and there is already an interruption; so, there is a threat that LSC might face problem in continuing supply from India.
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6.5 Problems and Solution 1. Disruption of supply of raw material is the biggest problem for LSC in current situation. 2. Another problem of Lafarge Surma Cement Limited is the location of it that it is too far from the sea port.
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PART 2 STATISTICAL ANALYSIS
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7. Preface The share market, often called as capital market, is the market for securities, where companies and the government can raise long-term funds. The capital market includes the stock market and the bond market. Financial regulators, such as the Securities and Exchange Commission, oversee the capital markets in their designated countries to ensure that investors are protected against fraud. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded. Here in this research we are considering the secondary market situation. The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. Alternatively, secondary market can refer to the market for any kind of used goods. The market that exists in a new security just after the new issue is often referred to as the aftermarket. Once a newly issued stock is listed on a stock exchange, investors and speculators can easily trade on the exchange, as market makers provide bids and offers in the new stock. 7.1. How the market functions In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid and transparent. Before electronic means of communications, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly. This is how stock exchanges originated; see History of the Stock Exchange. Secondary marketing is vital to an efficient and modern capital market. Fundamentally, secondary markets mesh the investor's preference for liquidity (i.e., the investor's desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital user's preference to be able to use the capital for an extended period of time. For example, a traditional loan allows the borrower to pay back the loan, with interest, over a certain period. For the length of that period of time, the bulk of the lender's investment is inaccessible to the lender, even in cases of emergencies. Likewise, in an emergency, a partner in a traditional partnership is only able to access his or her original investment if he or she finds another investor willing to buy out his or her interest in the partnership. With a securitized loan or equity interest (such as bonds) or tradable stocks, the investor can sell, relatively easily, his or her interest in the investment, particularly if the loan or ownership equity has been broken into relatively small parts. This selling and buying of small parts of a larger loan or ownership interest in a venture is called secondary market trading. Under traditional lending and partnership arrangements, investors may be less likely to put their money into long-term investments, and more likely to charge a higher interest rate (or demand a greater share of the profits) if they do. With secondary markets, however,
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investors know that they can recoup some of their investment quickly, if their own circumstances change. 7.2. Variable Specification In my project I have taken eight independent variables - X1, X2, X3, X4, X5, X6, X7, X8 and my dependent variable is Y. Here I have chosen production as X1 because I think of a very high relationship with the share price. Therefore, I am going to test how share price of Lafarge Surma Cement Limited can be affected if there is a change in production. On the other hand, my other independent variables are sales, procurement, cement price, competitors share price, share price of mother-company both in New York and London stock exchange and DSE index. I think if the competitors share price and DSE index is high and positively increasing day by day, then investors motivation in buying shares of cement manufacturing industry may rise and that can create a high possibility for increasing the share price of Lafarge Surma Cement Limited. 7.3. Theory We can generally expect that there is a positive relationship between the share price and the growth rate of sales because when sales raise the total revenue will increase and be more beneficial to the company. When the company will be benefited, so will be its owners that are its stockholders. So when the sales of cement increase, that gives a positive indication to the share investors that the company is going to earn more profit and this will maximize the value of their investment. Same goes right with the production. Because, the company will produce additional materials, only if it can sell those spare production. So the production should also have a positive relation with Share price. On the other hand we have procurement of the raw materials. The major two raw materials that will be required to produce cement are shale and limestone. Therefore, more cement can only be produced if more raw materials can be imported. In effect, it can be concluded that increase in procurement will lead to more production to sale, which will increase the share price. Again the average price of cement should have a negative relation with the share price. The reason behind is that if the price of the cement goes up the consumers might reduce its consumption or go for substitution. That will lower the sale of the company and in effect decrease the Share price. Share price of the competitor and DSE index should positively react with the share price of the Lafarge Surma Cement Limited in most of the cases. Because, usually in the share market, when one companys share price increases, the share price of the other company of same industrial segment increase together. Therefore, the increase in Heidelbergs share price will lead to increase the share price of Lafarge Surma Cement Limited. The DSE index includes all the shares of the market. If all the share price of the stock market increases the DSE index also increases. If we opposite it, if the DSE index increase the share price of a particular company should more or less increase.
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8.1. Methodology of the statistical Research Research plan Companys main objective is to maximize the value of the shareholders. In other words, it will be achieved by increasing the market value of the company itself. The current market value of the company will be measured by the market price of the total share outstanding. So at the end I will get how much the company worth. In my research it will be found that on which things the share values of the company depend; ultimately on which things the worth of the company depends. Again, lenders might also look at the value of the company for the assessment of the guarantee. For companys credit rating share price is also important. The performance of the Bangladesh subsidiaries can be measured by the mother company also. If the company thinks about additional share issuance to gather money from the market if the companys share could be sold at premium depends on the share value of the market. So on which things, the share price mainly depends is important for the company. Data Collection My data collection procedure is mostly secondary. All the data will be time line data on daily basis. Some data were not published or gather before this research. So, many data will be organized for the first time for this research. However, there is no survey plan through interview until now. The experts interviews will be recorded and use as comments. Among the secondary data, I will be including share prices, index, and operational variables on daily basis. I will take the help of Finance Department and Sales Department of LSC. I will also collect share related data from DSE, NYSE, London Stock Exchange and average price of cement of the market. Data Analysis For analyzing the data I used Minitab and MS Excel Software for quantitative analysis. For any research related article or journal, I searched on the Internet, mostly at Jstores. For any other reference I took the help of my finance and statistic textbooks.
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8.2. Model In this model, we have taken 98 timeline information (From 3rd January 2007 to 28th May 2007) about the share price of LSC, Production, Sales, Procurement, Cement price, Compactors share price, Mother companys share price (New York Stock Exchange & London Stock Exchange) and DSE index. We are expecting that all the seven explanatory variables will have a positive relationship with the share price except average price of cement. Therefore, Y= Share Price LSC (BDT) X1= Production (Total Clink+Cem) X2 = Sales X3 = Total Raw Material Procured X4 = Average Price of Cement X5 = Share price of competitor X6 = Share price of Lafarge in NYSE X7, = Share price of Lafarge in LSE X8 = DSE index In this case, the model will look like----Y= 0 + 1 X1 + 2 X2 + 3 X3 4 X4 + 5 X5 +6 X6 + 7 X7 + 8 X8 8.3. Assumption For this model we are assuming that other variables such as sales, Production, Total Raw Material Procured, Average Price of Cement, Share price of competitor, Share price of Lafarge in NYSE, Share price of Lafarge in LSE, DSE index all are constant. We are going to use the Least Square method following the Gauss Markov Theorem that the least squares have the minimum variance among all other linear unbiased estimators given that the following classical assumptions hold: 1. Xi's are fixed or if Xis are independent of Ei's. 2. Ei's are random variables with mean = 0. 3. V (Ei)=E [Ei-E (Ei)]2 = E (Ei2) = 2E is constant. 4. Ei's are independent of each other.
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8.4. Descriptive Statistics Descriptive Statistics are used to describe the basic features of the data in a study. They provide simple summaries about the sample and the measures. Together with simple graphics analysis, they form the basis of virtually every quantitative analysis of data.
Variables Count 98 98 98 98 98 98 98 98 98 Standard Error 2.08 152.17 1191.38 222.73 0.73 5.95 0.22 0.54 12.89 Mean 433.54 2415.37 12714.87 3322.70 329.52 728.33 39.17 118.05 1587.88 Minimum 381.00 52.00 300.00 12.00 323.37 623.00 35.46 109.45 1370.36 Median 434.25 2146.50 10830.00 3538.50 326.85 729.38 38.68 117.32 1561.08 Maximum 495.25 6211.90 68940.00 9456.00 343.49 871.75 43.98 131.24 2016.84 Standard Deviation 20.55 1506.43 11794.04 2204.88 7.24 58.90 2.21 5.32 127.56
Share Price LSC Production Sales RM Procurement Price of cement Share price of Competitor Share price NYSE Share price LONSE DSE Index
Variables
Share Price LSC Production Sales RM Procurement Price of cement Share price of Competitor Share price NYSE Share price LONSE DSE Index
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8.5. Z test
One-Sample Z: Y
Test of mu = 434 vs not = 434 The assumed standard deviation = 20.55 Variable Y N 98 Mean 433.54 StDev 20.55 SE Mean 2.08 95% CI (429.47, 437.61) Z -0.22 P 0.826
Null Hypothesis, Ho: = 434 Alternative Hypothesis, Ha: 434 Let, significance level, = 0.05 Here, P-Value = 0.826 Decision: Reject H0, if p < .05. Null hypothesis is not rejected as p value is 0.826. Therefore, the population mean is around 434.
Share Price DSE

550
500
450 BDT 400 350 300 9-Dec-06
29-Dec-06
18-Jan-07
7-Feb-07
27-Feb-07
19-Mar-07
8-Apr-07
28-Apr-07
18-May-07
7-Jun-07
Time
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One-Sample Z: X1
Test of mu = 2415 vs not = 2415 The assumed standard deviation = 1506.43 Variable X1 N 98 Mean 2415 StDev 1506 SE Mean 152 95% CI (2117, 2714) Z 0.00 P 0.998
Null Hypothesis, Ho: = 2415 Alternative Hypothesis, Ha: 2415 Let, significance level, = 0.05 Here, P-Value = 0.998 Decision: Reject H0, if p < .05 Null hypothesis is not rejected as p value is 0.998. Therefore, the population mean is around 2415.
Sales
80000
70000
60000
50000
40000
30000
20000
10000
0 9-Dec-06 29-Dec-06 18-Jan-07 7-Feb-07 27-Feb-07 19-Mar-07 8-Apr-07 28-Apr-07 18-May-07 7-Jun-07 Tim e
Page 47 of 94
One-Sample Z: X2
R M P ro cu red
10000
8000
6000
MT
4000
2000
0 9-D ec-06
29-D ec-06 18-Jan-07
7-F eb-07
27-F eb-07 19-M ar-07
8-A pr-07
28-A pr-07 18-M ay-07 7-Jun-07
-2000 T im e
Page 48 of 94
One-Sample Z: X3
C e m e n t P rice
550
500
450 Price 400 350 300

1/3 /2 0 1/1 07 0/2 0 1/1 07 7/2 0 1/2 07 4/2 0 1/3 07 1/2 00 2/7 7 /20 2/1 07 4/2 0 2/2 07 1/2 0 2/2 07 8/ 20 0 3/7 7 /2 0 3/1 07 4/ 20 3/2 07 1/ 20 3/2 07 8/ 20 0 4/4 7 /20 4/1 07 1/ 20 4/1 07 8/2 0 4/2 07 5/2 00 5/2 7 /2 00 5/9 7 /2 0 5/1 07 6/2 0 5/2 07 3/ 20 07
T im e
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One-Sample Z: X4
Test of mu = 330 vs not = 330 The assumed standard deviation = 7.24 Variable X4 N 98 Mean 329.525 StDev 7.244 SE Mean 0.731 95% CI (328.091, 330.958) Z -0.65 P 0.516
Production
7000
6000
5000
4000 MT 3000 2000 1000
0
1/ 1/ 19 00 1/ 8/ 19 00 90 0 3/ 4/ 19 00 19 00 19 00 3/ 25 /1 90 0 1/ 15 /1 90 0 1/ 22 /1 90 0 2/ 12 /1 90 0 2/ 19 /1 90 0 19 00 3/ 11 /1 90 0 2/ 5/ 1 4/ 1/ 1 90 0
1/ 29 /
Time
3/ 18 /
2/ 26 /
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One-Sample Z: X5
Test of mu = 700 vs not = 700 The assumed standard deviation = 58.9 Variable X5 N 98 Mean 728.33 StDev 58.90 SE Mean 5.95 95% CI (716.67, 739.99) Z 4.76 P 0.000
Null Hypothesis, Ho: = 700 Alternative Hypothesis, Ha: 700 Let, significance level, = 0.05 Here, P-Value = 0.000 Decision: Reject H0, if p < .05. Null hypothesis is not rejected as p value is 0.000. Therefore, the population mean is not 700.
Competetor's Share Price

900
850
800
750
BDT
700
650
600
550
500 9-Dec-06
29-Dec-06
18-Jan-07
7-Feb-07
27-Feb-07
19-Mar-07
8-Apr-07
28-Apr-07
18-May-07
7-Jun-07
Time
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One-Sample Z: X6
Test of mu = 40 vs not = 40 The assumed standard deviation = 2.21 Variable X6 N 98 Mean 39.173 StDev 2.212 SE Mean 0.223 95% CI (38.735, 39.610) Z -3.71 P 0.000
Share Price of Lafarge SA (NY SE)

46
44
42
40
USD
38
36
34
32
30
07 20 07 07 8/ 20 0 3/7 7 /2 00 7 3/ 14 /2 00 7 3/ 21 /2 00 7 3/ 28 /2 00 4/4 7 /2 00 7 4/ 11 /2 00 7 4/ 18 /2 00 7 4/ 25 /2 00 5/ 7 2/ 20 07 5/ 9/ 20 07 5/ 16 /2 00 7 5/ 23 /2 00 7 20 07 20 07 20 07 20 07 /2 0 /2 0 20 07
0/
7/
1/
4/
4/
1/ 3
1/ 1
1/ 1
1/ 2
1/ 3
2/ 7
2/ 1
2/ 2
1/
2/ 2
T im e
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One-Sample Z: X7
Lafarge Share Price LONSE
135
130
125
120 GBL
115
Series1
110
105
100
95
00 1/ 10 7 /2 00 1/ 17 7 /2 00 1/ 24 7 /2 00 1/ 31 7 /2 00 7 2/ 7/ 20 0 2/ 14 7 /2 00 2/ 21 7 /2 00 2/ 28 7 /2 00 7 3/ 7/ 20 07 3/ 14 /2 00 3/ 21 7 /2 00 3/ 28 7 /2 00 7 4/ 4/ 20 07 4/ 11 /2 00 4/ 18 7 /2 00 4/ 25 7 /2 00 7 5/ 2/ 20 07 5/ 9/ 20 0 5/ 16 7 /2 00 5/ 23 7 /2 00 7 1/ 3/ 2
Time
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One-Sample Z: X8
DSE Index
2500
2000
1500 Index 1000 500
0 1/3/2007 1/17/2007 1/31/2007 2/14/2007 2/28/2007 3/14/2007 3/28/2007
4/11/2007
4/25/2007
5/9/2007
Time
5/23/2007
Page 54 of 94
9. Correlations analysis Here is the Correlation Matrix that indicates the relationship between the variables. P-value is shown to verify their validity. P-value below 0.05 shows the strong relation between two variables.
Correlations: Y, X1, X2, X3, X4, X5, X6, X7, X8

X1 X2 X3 X4 X5 X6 X7 X8 Y 0.168 0.099 0.173 0.088 -0.082 0.421 -0.160 0.115 0.632 0.000 0.085 0.408 0.143 0.160 0.274 0.006 X1 X2 X3 X4 X5 X6 X7
-0.125 0.221 0.312 0.002 -0.436 0.000 0.052 0.615 -0.273 0.006 -0.208 0.040 -0.267 0.008 -0.027 0.790 -0.143 0.161 -0.180 0.077 0.107 0.296 -0.019 0.851 -0.037 0.720 -0.400 0.000 -0.234 0.020 -0.416 0.000 -0.384 0.000 -0.502 0.000 0.244 0.015 0.774 0.000 0.820 0.000 0.730 0.000 0.341 0.001 0.468 0.000 0.622 0.000 0.958 0.000 0.842 0.000 0.876 0.000
Cell Contents: Pearson correlation P-Value
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Matr i x P l ot of Y , X1 , X2 , X3 , X4 , X5 , X6 , X7 , X8
0
500 450 400
00 25
50
00
0 50
0 10
00
60
70
80
0 11
0 12
0 13
Y
5000
X1
50000 25000 0
2500 0
X2
10000
X3
344 336 328
5000 0
X4
800
X5
45 40 35
700 600
X6
130
X7
2000 1750 1500
120 110
X8
40 0 45 0 50 0 0 0 0 0 0 0 00 25 5 32 8 33 6 34 4 35 40 45 00 15 50 00
17
20
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10. Multiple Regression Analysis

Regression Analysis: Y versus X1, X2, X3, X4, X5, X6, X7, X8
The regression equation is Y = 622 - 0.00008 X1 + 0.000448 X2 - 0.000272 X3 - 1.46 X4 + 0.213 X5 - 3.08 X6 + 1.91 X7 + 0.0176 X8 Predictor Constant X1 X2 X3 X4 X5 X6 X7 X8 Coef 621.8 -0.000081 0.0004482 -0.0002720 -1.4583 0.21349 -3.080 1.906 0.01757 SE Coef 104.5 0.001189 0.0001375 0.0007683 0.4476 0.03977 2.928 1.429 0.03026 T 5.95 -0.07 3.26 -0.35 -3.26 5.37 -1.05 1.33 0.58 P 0.000 0.946 0.002 0.724 0.002 0.000 0.296 0.186 0.563
S = 13.7797 Analysis of Variance Source Regression Residual Error Total DF 8 89 97 SS 24066.0 16899.4 40965.4
R-Sq = 58.7%
R-Sq(adj) = 55.0%
MS 3008.2 189.9
F 15.84
P 0.000
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10.1. Explanation of the Initial Coefficient Estimator 0 = 621.8 This is the intercept of the regression line. The intercept i.e. the share price; when production, Sales, Total Raw Material Procured, Average Price of Cement, Share price of competitor, Share price of Lafarge in NYSE, Share price of Lafarge in LSE, DSE index are fixed at 0. In this situation, holding other thins constant, the minimum level of share price will be 621.8. 1 = -0.000081 This value designates the slope of production. If production increases by 1 unit the share price of LSC will decrease by -0.000081 unit, when Sales, Total Raw Material Procured, Average Price of Cement, Share price of competitor, Share price of Lafarge in NYSE, Share price of Lafarge in LSE, DSE index are constant. 2 = 0.0004482 This value point out that if sales increases by 1 unit the share price of LSC increases by 0.0004482 unit; when Production, Total Raw Material Procured, Average Price of Cement, Share price of competitor, Share price of Lafarge in NYSE, Share price of Lafarge in LSE, DSE index are constant. 3 = -0.0002720 The value point out that if Raw Material Procurement increases by 1 unit the share price of LSC decreases by -0.0002720 unit; when production, Sales, Average Price of Cement, Share price of competitor, Share price of Lafarge in NYSE, Share price of Lafarge in LSE, DSE index are constant. 4 = -1.4583 This value indicates that if Average Price of Cement increases by 1 unit the share price of LSC decreases by -1.4583 unit; when production, Sales, Total Raw Material Procured, Share price of competitor, Share price of Lafarge in NYSE, Share price of Lafarge in LSE, DSE index are constant. 5 = 0.21349 This value indicates that if Share price of competitor increases by 1 unit the share price of LSC increases by 0.21349 unit; when production, Sales, Total Raw Material Procured, Average Price of Cement, Share price of Lafarge in NYSE, Share price of Lafarge in LSE, DSE index are constant. 6 = -3.080 This value indicates that if Share price of Lafarge in NYSE increases by 1 unit the share price of LSC decreases by 3.080 units; when production, Sales, Total Raw Material Page 58 of 94
Procured, Average Price of Cement, Share price of competitor, Share price of Lafarge in LSE, DSE index are constant. 7 = 1.906 This value indicates that if Share price of Lafarge in LSE increases by 1 unit the share price of LSC increases by 1.906 units; when production, Sales, Total Raw Material Procured, Average Price of Cement, Share price of competitor, Lafarge in NYSE, DSE index are constant. 8 = 0.01757 This value indicates that if DSE index increases by 1 unit the share price of LSC increases by 0.01757; when production, Sales, Total Raw Material Procured, Average Price of Cement, Share price of competitor, Lafarge in NYSE, Share price of Lafarge in LSE are constant.
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10.2. Test of Significance for the whole Regression Here, R2= 0.587, which indicates that 58.7% of the total variation in Share price is explained by sales, Production, Total Raw Material Procured, Average Price of Cement, Share price of competitor, Share price of Lafarge in NYSE, Share price of Lafarge in LSE, DSE index. The regression has ability to moderately explain all the factors. But as this is multiple regressions we will lose degrees of freedom by using simple R2. We know that value of R2 is sensitive to the number of independent variables. By adding more independent variables we can increase the value of R2 . For this reason in multiple regressions we use the adjusted coefficient of determination. Here we found that the adjusted R2 is 0.55. Therefore, this regression explains 55% of the total variation in Share price of sales, Production, Total Raw Material Procured, Average Price of Cement, Share price of competitor, Share price of Lafarge in NYSE, Share price of Lafarge in LSE, DSE index. S is the standard error which refers to the difference between the observed and the predicted value. Here. S = 13.7797.
From the ANOVA table we find that: SST= 40965.4 SSE= 16899.4 SSR= 24066.0 Now with the help of this we conduct the P-test and try to see whether null hypothesis can be rejected or not.
10.3. Hypothesis testing
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TEST FOR o:
Null Hypothesis, Ho: 0 = 0 Alternative Hypothesis, Ha: 0 0 Let, significance level, = 0.05 Here, P-Value = 0.000 < Significance level = 5% or 0.05 So, Null hypothesis is rejected at 5% significance level. Therefore the intercept, 0 = 621.8 is significant. TEST FOR 1:
Null Hypothesis, Ho: 1 = 0 Alternative Hypothesis, Ha: 1 0 Let, significance level, = 0.05 Here, P-Value = 0.946 > Significance level = 5% or 0.05 So, Null hypothesis is not rejected at 5% significance level. Therefore the intercept, 0 = -0.000081 is not significant. TEST FOR 2:
Null Hypothesis, Ho: 2 = 0 Alternative Hypothesis, Ha: 2 0 Let, significance level, = 0.05 Here, P-Value = 0.002 < Significance level = 5% or 0.05 So, Null hypothesis is rejected at 5% significance level. Therefore the intercept, 0 = 0.0004482 is significant. TEST FOR 3
Null Hypothesis, Ho: 3 = 0 Alternative Hypothesis, Ha: 3 0 Let, significance level, = 0.05 Here, P-Value = 0.724 > Significance level = 5% or 0.05 So, Null hypothesis is not rejected at 5% significance level. Therefore the intercept, 0 = -0.0002720 is not significant.
TEST FOR 4 Page 61 of 94
Null Hypothesis, Ho: 4 = 0 Alternative Hypothesis, Ha: 4 0 Let, significance level, = 0.05 Here, P-Value = 0.002 < Significance level = 5% or 0.05 So, Null hypothesis is rejected at 5% significance level. Therefore the intercept, 0 = -1.4583 is significant. TEST FOR 5
Null Hypothesis, Ho: 5 = 0 Alternative Hypothesis, Ha: 5 0 Let, significance level, = 0.05 Here, P-Value = 0.000 < Significance level = 5% or 0.05 So, Null hypothesis is rejected at 5% significance level. Therefore the intercept, 0 = 0.21349 is significant. TEST FOR 6
Null Hypothesis, Ho: 6 = 0 Alternative Hypothesis, Ha: 6 0 Let, significance level, = 0.05 Here, P-Value = 0.296 > Significance level = 5% or 0.05 So, Null hypothesis is not rejected at 5% significance level. Therefore the intercept, 0 = -3.080 is not significant. TEST FOR 7
Null Hypothesis, Ho: 7 = 0 Alternative Hypothesis, Ha: 7 0 Let, significance level, = 0.05 Here, P-Value = 0.186 > Significance level = 5% or 0.05 So, Null hypothesis is not rejected at 5% significance level. Therefore the intercept, 0 = 1.906 is not significant. TEST FOR 8
Null Hypothesis, Ho: 8 = 0 Alternative Hypothesis, Ha: 8 0 Let, significance level, = 0.05 Here, P-Value = 0.563 > Significance level = 5% or 0.05 So, Null hypothesis is not rejected at 5% significance level. Therefore the intercept, 0 = 0.01757 is not significant.
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10.5. Finding the confidence intervals Now find confidence intervals for 0, 1, 2, 3, 4, 5, 6, 7, 8 the expected increase of the Share price of LSC when production, Sales, Total Raw Material Procured, Average Price of Cement, Share price of competitor, Lafarge in NYSE, Share price of Lafarge in LSE, DSE index are 0, For the Y-intercept, the range lies between 412.8 to 830.8. Therefore, all the eight variables remaining constant the production lies between -0.00246 to 0.002297 and sales would be 0.000173<b2<0.000723 and total raw material procured would be 0.00181<b3<0.001265. Then the average price of cement would be -2.3535<b4<-0.5631 and the share price of the competitor would be 0.13395<b5<0.29303, share price of newyork stock exchange would be -8.936<b6<2.776 and LSE would be -0.952<b7<4.764, then DSE index would be -0.0425<b8<0.07809. The confidence interval for production would be. -0.00246 <b1< 0.002297. This indicates that the 95% confidence interval for b1 include 0 thus we could not reject the two tail null hypothesis. So we conclude that X1 is not a statistically significant predictor variable in the multiple regression model. The confidence interval for sales would be. 0.000173<b2<0.000723. This indicates that the 95% confidence interval for b2 does not include 0 thus we can reject the two tail null hypothesis. So we conclude that X2 is a statistically significant predictor variable in the multiple regression model. The confidence interval for total raw material procured would be. 0.00181<b3<0.001265. This indicates that the 95% confidence interval for b3 includes 0 thus we could not reject the two tail null hypothesis. So we conclude that X3 is not a statistically significant predictor variable in the multiple regression model. The confidence interval for average price of cement would be. -2.3535<b4<-0.5631. This indicates that the 95% confidence interval for b4 does not include 0 thus we can reject the two tail null hypothesis. So we conclude that X4 is a statistically significant predictor variable in the multiple regression model. The confidence interval for share price of the competitor would be. 0.13395<b5<0.29303. This indicates that the 95% confidence interval for b5 does not include 0 thus we can reject the two tail null hypothesis. So we conclude that X5 is a statistically significant predictor variable in the multiple regression model. The confidence interval for NYSE would be. -8.936<b6<2.776. This indicates that the 95% confidence interval for b6 includes 0 thus we could not reject the two tail null hypothesis. So we conclude that X6 is not a statistically significant predictor variable in the multiple regression model.
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The confidence interval for LSE would be. -0.952<b7<4.764. This indicates that the 95% confidence interval for b7 includes 0 thus we could not reject the two tail null hypothesis. So we conclude that X7 is not a statistically significant predictor variable in the multiple regression model. The confidence interval for DSE would be. -0.0425<b8<0.07809. This indicates that the 95% confidence interval for b8 includes 0 thus we could not reject the two tail null hypothesis. So we conclude that X8 is not a statistically significant predictor variable in the multiple regression model.
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11.1. Dropping the Insignificant Variables Dropping the 1st insignificant independent variable: Here, we can see that the highest P-value is 0.946 which is for Production (X1). So, dropping the Production variableRegression Analysis: Y versus X2, X3, X4, X5, X6, X7, X8
The regression equation is Y = 619 + 0.000450 X2 - 0.000277 X3 - 1.44 X4 + 0.214 X5 - 3.04 X6 + 1.87 X7 + 0.0178 X8 Predictor Constant X2 X3 X4 X5 X6 X7 X8 S = 13.7033 Coef 618.69 0.0004497 -0.0002768 -1.4435 0.21357 -3.037 1.871 0.01779 SE Coef 93.59 0.0001348 0.0007608 0.3885 0.03953 2.843 1.327 0.02992 T 6.61 3.34 -0.36 -3.72 5.40 -1.07 1.41 0.59 P` 0.000 0.001 0.717 0.000 0.000 0.288 0.162 0.554
R-Sq = 58.7%
R-Sq(adj) = 55.5%
Now, we can see that the S is reduced to 13.7033 and R-sq (adj) has increased to 55.5% So, dropping the insignificant variable Production is correct and precise.
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Dropping the 2nd insignificant independent variable: Here, we can see that the 2nd highest P-value is 0.717, which is for Procurement of raw material (X3). So, dropping the Procurement variableRegression Analysis: Y versus X2, X4, X5, X6, X7, X8
The regression equation is Y = 612 + 0.000450 X2 - 1.42 X4 + 0.214 X5 - 2.87 X6 + 1.75 X7 + 0.0210 X8 Predictor Constant X2 X4 X5 X6 X7 X8 S = 13.6378 Coef 612.26 0.0004503 -1.4209 0.21377 -2.871 1.755 0.02102 SE Coef 91.47 0.0001342 0.3817 0.03934 2.793 1.282 0.02844 T 6.69 3.36 -3.72 5.43 -1.03 1.37 0.74 P 0.000 0.001 0.000 0.000 0.307 0.174 0.462
R-Sq = 58.7%
R-Sq(adj) = 56.0%
Now, we can see that the S is reduced to 13.6378 and R-sq (adj) has increased to 56.0%. So, dropping the insignificant variable Procurement is correct and precise. Dropping the 3rd insignificant independent variable: Here, we can see that the 3rd highest P-value is 0.462, which is for DSE Index (X8). So, dropping the DSE index variableRegression Analysis: Y versus X2, X4, X5, X6, X7
The regression equation is Y = 581 + 0.000451 X2 - 1.34 X4 + 0.231 X5 - 2.20 X6 + 1.74 X7 Predictor Constant X2 X4 X5 X6 X7 S = 13.6042 Coef 580.58 0.0004513 -1.3393 0.23142 -2.195 1.745 SE Coef 80.61 0.0001338 0.3645 0.03118 2.632 1.279 T 7.20 3.37 -3.67 7.42 -0.83 1.36 P 0.000 0.001 0.000 0.000 0.406 0.176
R-Sq = 58.4%
R-Sq(adj) = 56.2%
Now, we can see that the S is reduced to 13.6042 and R-sq (adj) has increased to 56.2%. So, dropping the insignificant variable DSE Index is correct and precise.
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Dropping the 4th insignificant independent variable: Here, we can see that the 4th highest P-value is 0.406, which is for Share Price of Lafarge NYSE (X6). So, dropping the Share Price of Lafarge NYSE variableRegression Analysis: Y versus X2, X4, X5, X7
The regression equation is Y = 591 + 0.000411 X2 - 1.31 X4 + 0.242 X5 + 0.779 X7 Predictor Constant X2 X4 X5 X7 S = 13.5819 Coef 590.95 0.0004110 -1.3066 0.24164 0.7786 SE Coef 79.51 0.0001246 0.3618 0.02863 0.5395 T 7.43 3.30 -3.61 8.44 1.44 P 0.000 0.001 0.000 0.000 0.152
R-Sq = 58.1%
R-Sq(adj) = 56.3%
Now, we can see that the S is reduced to 13.5819 and R-sq (adj) has increased to 56.3%. So, dropping the insignificant variable Share Price of Lafarge NYSE is correct and precise.
Dropping the 5th insignificant independent variable: Here, we can see that the 4th highest P-value is 0.152, which is for Share Price of Lafarge LSE (X7). So, dropping the Share Price of Lafarge LSE variableRegression Analysis: Y versus X2, X4, X5
The regression equation is Y = 522 + 0.000462 X2 - 0.869 X4 + 0.263 X5 Predictor Constant X2 X4 X5 S = 13.6599 Coef 522.30 0.0004619 -0.8689 0.26321 SE Coef 64.09 0.0001202 0.1985 0.02456 T 8.15 3.84 -4.38 10.72 P 0.000 0.000 0.000 0.000
R-Sq = 57.2%
R-Sq(adj) = 55.8%
Now, we can see that the S is became 13.6599 and R-sq (adj) has increased to 55.8%. So, dropping the insignificant variable Share Price of Lafarge LSE is correct and precise. 11.2 Explanation of the Revised Models Coefficient Estimators Page 67 of 94
Revised 0 = 522.30 That means, if there is no Sales, Cement Price and Share price of competitor the minimum level of Share price of LSC would be 522.30. Revised 2 = 0.0004619 This value indicates that if every other variable heal constant and the Sales increases by 0.0004619 units, the Share price of LSC increases by 1 unit on an average. Revised 4 = -0.8689 This value indicates that if every other variable heal constant and the Average price of the cement increases by 0.8689 units, the Share price of LSC decreases by 1 unit on an average. Revised 5 = 0.26321 This value indicates that if every other variable heal constant and the Share price of competitor increases by 0.26321 units, the Share price of LSC increases by 1 unit on an average.
S catter pl ot of Y vs X2
500 480 460 440 420 400 380 0 10000 20000 30000 X2 40000 50000 60000 70000
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500 480 460 440 420 400 380 325 330 X4 335 340 345
500 480 460 440 420 400 380 600 650 700 750 X5 800 850 900
12. Concluding Remark on Regression Analysis
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Finally, after running the revised regression, we can see the final model becomes Y = 522.30 + 0.0004619 X2 - 0.8689 X4 + 0.26321 X5 So, it can be concluded that the significant factors, which put effect on the share price of LSC are sales, price of cement and competitors share price.
S catter pl ot of Y v s X2 , X4 , X5
500 480 460 440 420 400 380 0 10000 20000 30000 40000 X - Dat a 50000 60000 70000
Variable X2 X4 X5
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PART 3 FINANCIAL ANALYSIS
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13. Financial Analysis of Lafarge Surma Cement Limited
From the year 2002 to 2006 the financial statements of Lafarge Surma Cement Limited has been observed. Analyzing the Financial statement we found out some very interesting & exciting facts & figures. 13.1 Growth analysis 13.1.1. Fixed Asset First lets take a look at the fixed asset part on the asset side, which consists of tangible and intangible assets.
Fixed Assets
Tangible fixed assets (PPE) Intangible Assets Tangible fixed assets (PPE) Intangible Assets
2002
1535888835 4366956
2003
3199009210 69258379
2004
7879429578 69748239
2005
13032400000 16961000
2006
15377956000 17862000
Growth Rate From Year to Year

108% 1486% 146% 1% 65% -76% 18% 5%
In business and accounting, asset is meant as probable future economic benefits controlled by an entity as a result of past transactions or events, and from which future economic benefits may be obtained. Among all assets fixed assets are most important. Fixed assets referred to as PPE (property, plant, and equipment), or tangible assets, these are purchased for continued and long-term use in earning profit in a business. This group includes land, buildings, machinery, furniture, tools, and certain wasting resources e.g., timberland and minerals. They are written off against profits over their anticipated life by charging depreciation expenses (with exception of land). year to Year Growth Rate of FA
16 14 12 10 8 6 4 2 0 -2 1 2 108% 3 146% 1% 4 65% -76% 18% 5% 5 Tangible fixed assets (PPE) Intangible Assets 1486%
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In fixed assets also include intangible assets. Intangible assets lack physical substance and usually are very hard to evaluate. They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc. If we follow the year to year growth rate we can see that the assets in both Tangible and intangible has a growing trend in last five years from 2002 to 2006. From the year 2002 to 2003 there was a very sharp increase in tangible assets section about 108% raise and in the following year of 2004 it grown more sharply by 146%. Although the growth started to drop but still there was a growth of 65% of PPE. In 2006 the tangible asset was increased by 18% from the previous year. On the other hand the intangible asset section the spiky raise was in the yea 2003 because of its transformation of public limited company from a private limited company. The intangible assets summed about 69 million from 4.3 million, almost a 1486% raise of intangible assets. With the only exception in the financial year 2005 with a negative growth of 76% in a whole the intangible assets increased all through these years.
Fixed Assets
Fixed Assets 2006 20%
13.1.2. Loan term loan Then in the Long term Loans section we can observe a very significant fluctuation of growth rate & figure.
Fixed Assets Long Term Loan Long Term Loan 2002 0 2003 2004 51000000 51000000 Growth Rate From Year to Year 51000000% 0% 2005 51000000 0% 2006 0 -51000000%
Often referred to simply as "investments", Long-term investments are to be held for many years and are not intended to be disposed in the near future such as investments in securities, such as bonds, common stock, or long-term notes. It also can be loan in subsidiaries or affiliated companies. In the case of Lafarge it is clearly visible that there was a long term loan given to some entity and gained some financial revenue. In the year Page 73 of 94
2003 LSC granted 51000000 taka loan and it continued until 2005. In the year 2006 LSC got back it given loan all together and it dropped down to 0. There is different expression about giving loan to others. Some say the stock holders have invested money in the business to conduct its particular business rather than giving loan to others. However in case of new company the situation might be different. In the year 2003 the Lafarge Surma Cement Limited went to public through issuing IPO in Dhaka Stock Exchange and Chittagong Stock Exchange. In that particular year Lafarge got so much cash as investment from the public share holders and it might not have the ready place to invest. Rather than keep cash in hand it is wise to invest those money somewhere and Long term loan is the best option when you cannot utilize your money in your own business. 13.1.3. Current Liability If we look at the current liability section we can see,
Current liabilities
Bank overdrafts ST Loans & Payables Total Current liabilities Bank overdrafts ST Loans & Payables Total Current liabilities
2002
6834578 53941929 60776507
2003
16489113 260564077 277053190 141% 383% 356%
2004
22066317 1001075914 1023142231 34% 284% 269%
2005
482344000 364020000 846364000 2086% -64% -17%
2006
907806000 2325312000 3233118000 88% 539% 282%
Current liabilities are reasonably expected to be liquidated within a year. They usually include payables such as wages, accounts, taxes, and accounts payables, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations (e.g. from purchase of equipment), and others. The current liabilities of LSC mostly consist of Bank overdrafts and ST Loans & Payables. In the growth analysis of current liabilities shows a huge growth of 356% from year 2002-03. This indicates that Lafarge Surma Cement Limited has a very strong working capital base and the company is trying to work with the cheapest financing available. In the next year of 2004 the total current liability grown by further 269%. Although there was a decreasing tendency in 2005 where it reduced by 17% but again in 2006 the total current liability increased by 282% and tat amount of total current liability stood all time high at TK. 3233118000. The bigger part of current liabilities is Short Term Loan and Short term payables. The smaller one is Bank over drafts. ST Loans are usually working capital loans taken from financial institutions to carryon its daily operational work. On the other hand the payables are those where the materials or services procured on credit to run business subject to payment with in a year or a fiscal, whichever is longer. In the year 2002 to 2003 the short term loan and the payable growth was 383%. This amount was 1001075914, for the very first time touched the ten digit figure in the year 2004 as consequences of growth of over 284% from the year 2003. The figure continued to grow as more and more operational work carried on in the following years with an exception of negative 64% growth in the year 2005. the negative growth of ST loan and payables is the vital reason of negative growth of total current liability in the year 2005. However, the short term loan increased by 539% in the following year of 2006. An overdraft occurs when withdrawals from a bank account exceed the Page 74 of 94
available balance which gives the account a negative balance - a company can be said to have gone "overdrawn". Bank overdraft is the smaller part in total liability section of Lafarge Surma Cement Limited. Year to Year Growth Rate
25 20 15 10 5 0 -5 Bank overdrafts ST Loans & Payables Total Current liabilities Series1 Series2 Series3 Series4 Series5
Long-term liabilities are liabilities with a future benefit over one year, such as notes payable that mature greater than one year. The long term liability side of the balance sheet shows that, the growth of total long term debt from year 2004-04 has been stunning 104%. The amount of long term loan almost doubled from 2005-06. Again interest paid on these liabilities would increase because of high amount of principle. In the year 2002 and 2003 there was no long term loan or any long term liability. In the year 2004 the Lafarge Surma Cement Limited started it long term debt financing probably with an IFC loan. Total amount of long term debt was 4439539096 among which 4422079838 was from long term loan. Other than that there was lease obligation of taka 17459258. In the year 2006 there was no lease obligation but there was a new account in non current liabilities called deferred tax. In the year 2006 Lafarge Surma Cement Limited started its production. Before that there was no production, consequently no tax. In the year 2006 the deferred tax amount was TK. 121733000.
Non-Current Liabilities
2002
Total Long term Debt Long term loan Lease obligation Deferred Tax
Total Long term Debt
2004 443953909 0 0 6 442207983 0 0 8 0 0 17459258 0 0 0 Growth Rate From Year to Year
2003
2005 907004600 0 905118400 0 18862000 0

104%
2006 9804130000 9682397000 0 121733000

8%
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Total Debt Vs. Total Asset Growth Rate (year to year)
5 4 3 2 1 0 5 10 15 20 Total Debt Total Asset
Thus increasing fixed long term loan amount, which has higher interest expense and fixed interest rate, altogether liability increased for LSC. On the other hand, in the upcoming year, with increased inflation rate, interest rate would increase further, which would lead to comparative increase in interest rate of the loans and consequently lead to higher interest expense.
DATA Total Debt Total Asset Total Debt Total Asset 2002 60776507 2003 277053190 2004 5462681327 2005 9916410000 14788312000 82% 37% 2006 13037248000 17117546000 31% 16%
2032310256 5712787169 10780308850 Growth Rate from Year to Year 356% 181% 1872% 89%
If we look at the asset-liability management trend of LSC, we can see they are doing it marvelously. The Lafarge Surma Cement Limited is focusing on more and more debt financing as debt financing is the cheapest financing of all kind. From the year 2002 to 2003 the total debt increase by 356% where the total assets increased by 181%. In the year 2004 the sensation occurred. The debt was grown by a record 1872% whereas the asset increased by 89% only. In the year 2005 and 2006 the figure may seem like a steady growth in debt because of the rapid growth in last year, however, the actual figure almost doubled in 2005 and a 31% increase in 2006.
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Rev Vs. COGS Vs. GP
160000000 140000000 120000000 100000000 80000000 60000000 40000000 20000000 0
Series1 Series2 Series3 Series4 Series5
Revenue
COGS
Gross Profit
This would initiate Lafarge Surma Cement Limited to finance more in risky projects that will eventually increase the interest expense. Also as a result ultimately decrease the Net Income. But by doing this LSC can compete in the market better & capture the market share because of it is taking the opportunity to grab the scare fund available in the financial market. So low Net Income would not actually affect them because the penetrating policy they used would pay back in the following year.
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14. Ratio Analysis
In the following the different financial ratio analysis with explanation is given.
14.1. Debt Ratios
Year 2002 2003 2004 2005 2006
Debt Equity Ratio
0.03082702
0.05096886
1.02727792
2.03542887
3.195170549
Debt-Equity Ratio:
DATA 2002 2003 2004 2005 2006
Total Debt Total Equity Total Debt Total Equity
60776507 277053190 5462681327 1971533749 5435733979 5317627523 Growth Rate From Year to Year 356% 1872% 176% -2%
9916410000 4871902000 82% -8%
13037248000 4080298000 31% -16%
Debt-Equity Ratio = (Total Liability)/ (Shareholders Equity) This ratio indicates what proportion of equity and debt that the company is using to finance its assets. It is equal to total debt divided by shareholders' equity. The two components are often taken from the firm's balance sheet or statement of financial position, but the ratio may also be calculated using market values for both, if the company's debt and equity are publicly traded, or using a combination of book value for debt and market value for equity. A ratio greater than one means assets are mainly financed with debt, less than one means equity provides a majority of the financing. If the ratio is high (financed more with debt) then the company is in a risky position - especially if interest rates are on the rise. Year to Year Growth rate of Total Debt & Total Equity
20 15 10 5 0 -5 1 2 3 4 5 Total Debt Total Equity
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For Lafarge Surma Cement Limited (LSC) the Debt to Equity Ratio is on a growing trend. In the year 2002 the total debt was of BDT 60 million where as the total equity was of BDT 1971 million. The debt to equity ratio was 0.03082702. That is almost 3% of debt was there for each 100% of equity. We can interpret like for 100 taka financed by the companys share holders, only 3 taka was financed by debt/loan. It is very small amount of portion for a company like Lafarge Surma Cement Limited, which has a capability to take loan from any financial institution. In the year 2003 to grown to 0.05096, as there was a 356% raise in total debt compared to 176% raise in total equity. The reason behind such an equity increment is new IPO from LSC for the general investors of Bangladesh. In the year because of huge the long term loans was taken the ratio went up to 1.027 almost twenty times as the total debt increased to 5462 million from 277 million. Again in the following year the debt to equity ratio approximately doubled up to 2.03. Finally, in 2006 the ratio stands at 3.19. Debt Ratio:
Year 2002 2003 2004 2005 2006
Debt Ratio
33.4390763
20.6198209
1.973446409
1.491296951
1.312972339
DATA
2002
2003
2004
2005
2006
Total Assets Total debt Total Debt Total Asset
2032310256 60776507
5712787169 277053190
181% 356%
10780308850 5462681327
89% 1872%
14788312000 9916410000
37% 82%
17117546000 13037248000
16% 31%
Debt ratio = Total Debt/ Total Asset Debt capital divided by total assets. This will tell how much the company relies on debt to finance assets. When calculating this ratio, it is conventional to consider both current and non-current debt and assets. In general, the lower the company's reliance on debt for asset formation, the less risky the company is since excessive debt can lead to a very heavy interest and principal repayment burden. However, when a company chooses to forgo debt and rely largely on equity, they are also giving up the tax reduction effect of interest payments. In the meantime, debt financing is the cheapest financing than equity financing. Thus, a company will have to consider both risk and tax issues when deciding on an optimal debt ratio. For Lafarge Surma Cement Limited (LSC) the Debt to Equity Ratio is on a growing trend. In the year 2002 the total debt was of BDT 60 million where as the total equity was of BDT 1971 million. The debt to equity ratio was 0.03082702. That is almost 3% of debt was there for each 100% of equity. We can interpret like for 100 taka financed by the companys share holders, only 3 taka was financed by debt/loan. It is very small amount of portion for a company like Lafarge Surma Cement Limited, which has a capability to take loan from
Page 79 of 94
any financial institution. In the year 2003 to grown to 0.05096, as there was a 356% raise in total debt compared to 176% raise in total equity. The reason behind such an equity increment is new IPO from LSC for the general investors of Bangladesh. In the year because of huge the long term loans was taken the ratio went up to 1.027 almost twenty times as the total debt increased to 5462 million from 277 million. Again in the following year the debt to equity ratio approximately doubled up to 2.03. Finally, in 2006 the ratio stands at 3.19.
TA & TD Growth Rate

5 4 3 2 1 0 5 10 15 20 Total Asset Total Debt
Page 80 of 94
Time Interest Earned (TIE) Ratio:

Year 2002 2003 2004 2005 2006
TIE Ratio
DATA: EBIT Total Interest Exp EBIT Total Interest Exp 2002 2003 2004
-199.690071
2005
-3.18751222
2006
-133999954 -81974534 -145293514 0 0 0 Growth Rate from Year to Year

39% -77%
-480654000 2407000
-231%
-521732000 163680000
-9% 6700%
Time Interest Earned = (EBIT)/ Interest Charges A metric used to measure the ability of a company to meet its debt obligations. It is calculated by taking a company's earnings before interest and taxes (EBIT) and dividing by the total interest payable on bonds and other contractual debt. It is usually quoted as a ratio and indicates how many times a company can cover its interest charges on a pretax basis since failure to meet these obligations could force a company into bankruptcy. The purpose of this ratio is how many times a company can cover its interest charges on a pretax basis. Failing to meet these obligations could force a company into bankruptcy. The TIE ratio for Lafarge Surma Cement Limited is fluctuating over the past few years. If we look at the data we can see that The EBIT of LSC has decreased from year 2002 2003 and decreased year 2003-04. in the year 2005 the EBIT decreased by 231%. In the year 2006 the EBIT further decreased by 9%. The expenditure of its interest through its earnings before interest abd tax is always negative in 2005 and 2006. The reason for that is the increase in operating expenditure and interest expenditure than its earnings. Cash Coverage Ratio:
Year 2002 2003 2004 2005 2006
Cash Coverage Ratio
-194.172414
-2.33255132
DATA: EBIT Total Interest Exp Depreciation EBIT Total Interest Exp Depreciation
2002 -133999954
2003 -81974534
2004 -145293514
2005 -480654000
2006 -521732000
2407000
13281000 231% -9%
163680000
139940000 9% 6700% 954%
25392531 9201684 14620750 Growth Rate from Year to Year -39% -64% 77% 59%
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Cash Coverage Ratio = (EBIT+ Depreciation)/ Total Interest Expenses This ratio indicates a companys ability to repay its interest (liability) from cash generated from operating activities without having to liquidate the assets used in operations. The Cash Coverage Ratio is in decreasing trend for Lafarge Surma Cement Limited. This generally doesnt imply a good. But there were reasons behind that decreasing trend. Before 2005 there was no interest expense for LSC as there was no long term debt financing. More than that, as there was no big expenditure so there was much idle cash than the year 2005 and 2006. Therefore, the cash coverage ratio was 194.172414 and 2.33255132 in 2005 and 2006 consecutively. In the other words for each taka of interest there was 194 taka less cash in hand in 2005. IN the following year of 2006 the cash coverage ratio increased. For each taka of interest expenditure at the end of the year there was -2.33 taka in hand. Therefore it was always a negative number and risky position. Every time the LSC needed to pay the interest in its debt it had pay from again borrowing money or selling its assets. Long Term Debt:
Year 2002 2003 2004 2005 2006
Long Term Debt Ratio DATA: Long Term Debt Total Asset Long Term Debt Total Asset 2002 0 2003 0
0.411819286
2004
0.613325307
2005
0.572753244
2006
4439539096
9070046000
14788312000 104% 37%
9804130000
17117546000 8% 16%
2032310256 5712787169 10780308850 Growth Rate from Year to Year 181% 89%
Long Term Debt Ratio = Long Term Debt/ Total Asset In the first 2 years of these five years period there was no long term loan for LSC. Therefore, there was no long term debt ratio. Later from the year 2004 LSC started taking long term debt. In 2004 the company took almost 4439 million of long term debt and the long term debt ratio stood at 0.4119 approximately. The long term debt ratio has increased periodically. This shows that the company is accumulating more long term debt. If we look at the LT debt it has grown a huge amount from year 2005-06. Asset has also increased due to huge investment both in public & others. This is a positive side for the company because investment in this sector minimizes the risk & also provides the cushion to invest in risky projects.
14.2. Profitability Ratio
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Profit Margin:
2002
-979%
Profitability Ratio Profit Margin
2003
0.00%
2004
0.00%
2005
0.00%
2006
-527%
Average 21%
STDEV 0.04
Gr. Rate (1.01)
DATA: Total Sales Revenue Net Income Total Interest Income Net Income
2002
2003
2004
2005
2006
13686109
0
-483061000
153190000
-808396000 1019% 67%
-133999954 -81974534 -145293514 Growth Rate from Year to Year -39% 77%
232%
Profit Margin = Net Income/ Net Sales Revenue As we can see the profit margin has fluctuated a lot. Net income growth rate from year 2003-04 & 2005-06 has been negative. This is because the company started the business recently. We can see the result on the year 2003-04 & 2005-06 as the NI growth rate is 63% & 85% respectively. The interest expense on borrowing has been subsequently increased over the years. During year 2005-06 it has been -527%. The liquidity of the company thus is very high. Fluctuating & low profit margin doesnt necessarily mean that the company financially is in bad condition. The total interest expense has also increased. The growth rate of year 2005-06 has been astonishing 67%. We have to keep in mind the cement industry is doing business on a limited resources. The fund available is limited. The companies are trying to achieve more share of the market. So for competition purpose LSC is having less profit on some year but ultimately they are capturing the market share. Basic Earning Power (BEP):
2002 -6.59% 2003 -1.43% 2004 -1.35% 2005 -3.25% 2005 -480654000 14788312000 231% 37% 2006 -3.05% 2006 -521732000 17117546000 9% 16%
Profitability Ratio Basic Earning Power DATA: EBIT Total Asset EBIT Total Asset
2002 2003 2004 -133999954 -81974534 -145293514 2032310256 5712787169 10780308850 Growth Rate from Year to Year -39% 181% 77% 89%
BEP = EBIT/ Total Asset
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Basic earning power is calculated by dividing earnings before interest and taxes (EBIT) by total assets. This ratio shows the raw earning power of the firms assets, before the influence of tax and leverage. This ratio indicates the raw earning power of the companys asset, before influences of taxes & leverage. The BEP ratio isnt that good but considering a new company this is acceptable. The EBIT of the company has fluctuated. The total operating cost has increased over the years & the total operating income has increased. Due to huge increase in investment, the provision for losses has increased. This causes low EBIT in some years. The total asset increased more than the growth rate of EBIT & this is a good sign for the company.
Total Asset
EBIT
-0.5
0.5
1.5
2.5
Return on Total Assets (ROA):

2002 -6.59% 2002 2003 -1.43% 2003 2004 -1.35% 2005 -3.27% 2004 2006 -4.72% Avg. -3.47% 2005 STDEV 0.02236734 2006
Profitability Ratio ROA DATA: Total Asset Net Income Total Asset Net Income
203231025 6
571278716 9
1078030885 0
1478831200 0
-483061000 37% 232%
1711754600 0
-808396000 16% 67%
-133999954 -81974534 -145293514 Growth Rate from Year to Year 181% -39% 89% 77%
ROA = Net Income/ Total Assets Return on total Assets evaluates management performance of a company. When calculating ROA, we have to remember that company is highly leveraged, so a 1% ROA indicates huge profits. The ROA of LSC has fluctuated over the years but the growth rate over the years of Total Assets & Net Income is not proportional. This is because aggressive business policy
Page 84 of 94
LSC has used over the past few years. An interest rate fluctuation does not play a huge role in the profitability of LSC. Return on Total Equity (ROE):
2002 -6.80% 2002 2003 -1.51% 2004 -2.73% 2003 2005 -9.92% 2004 2006 -19.81% Avg. -8.15% 2005 STDEV 0.07321553 2006
Profitability Ratio ROE DATA: Total Equity Net Income Total Equity Net Income
1971533749
5435733979
5317627523
4871902000
-483061000 -8% 232%
4080298000
-808396000 -16% 67%
-133999954 -81974534 -145293514 Growth Rate from Year to Year 176% -39% -2% 77%
ROE = Net Income/ Total Equity Amount, expressed as a percentage, earned on a company's common stock investment for a given period. Return on equity tells common shareholders how effectually their money is being employed. Comparing percentages for current and prior periods reveals trends, and comparison with industry composites reveals how well a company is holding its own against its competitors. For LSC the ROE is always negative as there was no positive earning till today. It fluctuated in some years but considering the fact that in some years LSC has used aggressive strategy to go for production thus lower net income has created this scenario. But later on as a result of this aggressive strategy, the ROE goes back bit high. NI also decreased & the shareholders equity must be used carefully by LSC managements. Increase in ROE indicates that NI is increasing as well as financial leverage. Average Liability Cost:
2002 2003 2004 0.00% 2005 0.03% 2006 1.67% Average 0.09
Profitability Ratio Avg. Liability Cost
DATA: 2002 Long Term Debt Total Interest Exp Growth Rate from Year to Year
Long Term Debt Total Interest Exp
2003 0 0 0 0
2004 4439539096 0
2005 9070046000 2407000

104%
2006 9804130000 163680000

8% 6700%
Average Liability Cost = Total Interest Expense/ Long Term Debt
Page 85 of 94
The Average Liability Cost for LSC has increased over the years then increased again. This is shows the companys operation policy during various year. The LSC has increased significantly from the year 2003-04 & 2005-06. The total Interest Expense has also increased but if we look carefully we can see that interest on borrowings has increased. It is -1.67% during 2006.The debt amount has increased as a result the interest expense has increased but the leverage of long term financing with those fixed deposits will help the company earn more return. The company can now invest really aggressively.
14.3. Liquidity Ratio
Current Ratio:
2002 809.61% 2002 2003 863.92% 2003 2004 271.72% 2004 2005 199.44% 2006 53.25% 2005 Average 439.59% 2006
Liquidity Ratio Current ratio DATA: Current Asset Current Liability Current Asset Current Liability
492054465 60776507
2393519580 277053190
386% 356%
2780131033 1023142231
16% 269%
1687951000 846364000
-39% -17%
1721728000 3233118000
2% 282%
Growth Rate from Year to Year
Current Ratio = Current Asset/ Current Liability The current ratio is fluctuated much for Lafarge Surma Cement Limited. Current ratio during the 2006 FY has been the lowest. This doesnt provide enough threat for the company as we can see that, the interest on borrowings from financial institutions & banks grows from year 2005-06. This indicates that the company does require money as working capital for repayment of borrowing.
Page 86 of 94
Cash Ratio:
2002 765.72% 2002 2003 382.86% 2003 2004 200.67% 2004 2005 127.84% 2006 0.55% 2005 Average 295.53% 2006
Liquidity Ratio Cash Ratio DATA: Cash Current Liability Cash Current Liability
465380806 60776507
1060732174 277053190
128% 356%
2053179572 1023142231
94% 269%
1082004000 846364000
-47% -17%
17855000 3233118000
-98% 282%
Growth Rate from Year to Year
Cash Ratio = Cash in hand/ Current Liability The cash ratio is pretty low for LSC. The cash ratio represents the ability to pay the current debts. The reserve requirement is a SEC regulation that sets the minimum reserves each company must hold to deposits and notes. That is mostly explained through cash ratio. These reserves are designed to satisfy payment demands, and would normally be in the form of fiat currency kept in a bank or with other financial institution. Average Liability Cost:
Liquidity Ratio Average Liability Cost
2002
2003
2004 0.00% 2004
2005 0.03% 2005
2006 1.67%
Average 0.85% 2006
DATA: 2002 Total Int. bearing liabilities Total Int. Expense Growth Rate from Year to Year Total Int. bearing liabilities Total Int. Expense
2003
0 0
0 0
4439539096 0
9070046000 2407000
104%
9804130000 163680000
8% 6700%
Average Liability Cost = Total Interest Expense/ Total Interest Bearing Liability The Average Liability cost has decreased periodically for Lafarge Surma Cement Limited. This is because the Interest expense has increased a lot but also the fact that interest bearing liability is also increasing. The growth rate from year 2005-06 has been 8%. Interest expense from borrowing from financial institutions has decreased on the other hand. But due to more deposits the interest expense has increased overall. Since LSC had increased fixed deposit, which usually has higher interest expense and fixed interest rate, the margin decreased. However, in the coming year, with increased inflation Page 87 of 94
rate, interest rate would increase further, which would lead to comparative decline in interest rate of the deposits and therefore lead to higher margin as well.
14.4. Efficiency Ratio
Equity Multiplier:
2002 103.08% 2002 2003 105.10% 2004 202.73% 2005 303.54% 2004 2006 419.52% 2005 4871902000 14788312000 -8% 37% Avg. 226.79% STDEV 1.3576305 2006 4080298000 17117546000 -16% 16%
Efficiency Ratio Equity Multiplier DATA: Total Equity Total Asset Total Equity Total Asset
2003
1971533749 5435733979 5317627523 2032310256 5712787169 10780308850 Growth Rate from Year to Year 176% 181% -2% 89%
Equity Multiplier = Total Asset/ Total Equity As company is a public company that got equity interment from the surplus amount from individuals & invest it on much higher rate then the deposit interest rate it will pay to the individuals. So, in a certain position the equity is fixed for the company unless it offered a write issue or bonus share to the shareholders. Again more debt means less equity. So it is natural for the some companies to have large equity multiplier. For LSC this is high & the growth shows increasing trend, the financial leverage is high for the company. Operating Margin:
Profitability Ratio Operating Margin DATA:
Total Revenue Total operating income Net Income
2002 -976%
2003 0% 2002
13686109
2004 0% 2003
0
2005 0%
2006 -104% 2004

0
Average -539.83% 2005

0 -227861000
STDEV 6.16210983 2006

153190000 -159480000 1019%
-133516197 -104122816 -164373168 Growth Rate from Year to Year
Total operating income
-22%
58%
39%
-30%
Operating Margin = Net Income/ Total Operating Income A ratio used to measure a company's pricing strategy and operating efficiency. Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production, such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt.
Page 88 of 94
Profit Margin:
2002 -9.790945988 2003 2004 2005 2006 -5.277080749 Average -7.53401337 STDEV 3.19178472
Profitability Ratio Profit Margin
DATA:
Net Income Total Revenue Net Income Total Revenue
2002
-133999954
2003
-81974534
2004
-145293514
2005
-483061000
2006
-808396000
13686109 0 0 Growth Rate from Year to Year

-0.388249536 0.772422567 2.324725149
153190000
0.673486371 10.19310098
Profit Margin = Net Income/ Total Revenue Profit margin is an indicator of a company's pricing policies and its ability to control costs. Differences in competitive strategy and product mix cause profit margin to vary among different companies. As there was no revenue before 2006 there was no calculation of profit margin before that time.
Page 89 of 94
15. Conclusion After all these analysis we have came to several conclusions. First of all the organization itself is a very huge one with Mother Company, which is the producer of world biggest building materials. It is also one of the largest foreign investments in Bangladesh. Through being public limited company, the fate of Bangladeshi investors also depends on the success of this company. The success of the company depends on its ability to procurement of the raw materials from India. The statistical result show if the company can sale more then the value of the company will increase. The share price represents the value of the whole company. If the price of cement does not increase further then the company has a better chance for achieving good performance. In the mean time for the secondary investor if the market goes well their investment will not go wrong.
Page 90 of 94
APPENDIX
Page 91 of 94
BALANCE SHEET
2002 Assets Tangible fixed assets (PPE) Intangible Assets Long Term Loan Current asset: Inventory Accounts receivable Advances, Deposits and Prepayments Cash and Bank balances Total Assets Liabilities & Shareholders' Equity Current liabilities: Bank overdrafts Short term loan Income Tax Payable Trade Payables Other Payables Non-Current Liabilities Long term loan Lease obligation Differed Tax Shareholders' Equity Share capital Monitory interests Share money deposits Foreign currency transaction Accumulated loss Total Liabilities & Shareholders' Equity 1535888835 4366956 0 1540255791 1481981 58436 25133242 465380806 2032310256 2003 3199009210 69258379 51000000 3319267589 789943 0 1331997463 1060732174 5712787169 2004 7879429578 69748239 51000000 8000177817 28969 0 726922492 2053179572 10780308850 2005 13032400000 16961000 51000000 13100361000 87915000 0 518032000 1082004000 14788312000 2006 15377956000 17862000 0 15395818000 989962000 44559000 669352000 17855000 17117546000
6834578 0
16489113 10000000
22066317 0
53941929 0 0 0 0 60776507 1640779500 44964 774818761 2186125 -446295601
250564077 0 0 0 0 277053190 5806867500 22010 458491 13274650 -384888672
1001075914 4439539096 4422079838 17459258 0 9902220423 5806867500 -25865 488095 40426587 -530128794
482344000 0 0 102924000 261096000 9070046000 9051184000 18862000 0 18986456000 5806868000 -70000 523000 77720000 -1013139000
907806000 1439936000 1251000 579360000 304765000 9804130000 9682397000 0 121733000 22841378000 5806868000 39000 439000 112938000 -1839986000
2032310256
5712787169
10780308850
14788312000
17117546000
Page 92 of 94
INCOME STATEMENT
Revenue COGS Gross Profit General and Administrative Expense Selling and distribution Expense Operating Profit Exchange loss/profit on foreign currency translation Financial Expense Gain on sales of tangible assets Interest on bank deposit Provision adjustment on Doubtable Receivable Loss on Damage of property Net profit before tax Income tax Net profit after tax Pre operating loss adjustment Replenishment of loss Accumulated loss EBIT 2002 13686109 -13295118 390991 -132598475 -1308713 -133516197 2003 0 0 0 -104122816 0 -104122816 2004 0 0 0 -164373168 0 -164373168 2005 0 0 0 -227861000 0 -227861000 2006 153190000 -111278000 41912000 -164745000 -36647000 -159480000
3675131 0 353771 0 -4512659 0 -133999954 0 -133999954
5229362 0 2821556 17519957 16431 -3439024 -81974534 0 -81974534
0 0 1927734 17150645 1275 0 -145293514 0 -145293514
-274991000 -2407000 1014000 21184000
-363105000 -163680000 315000 538000
-483061000 0 -483061000
-685412000 122984000 -808396000
-133999954
-81974534
-145293514
-480654000
-521732000
Page 93 of 94
Bibliography
Reports and Manuals Consulted Annual Report of LSC 2002 - 2006 Group Business Principal Manual Group Policy Manual Press Release of Lafarge Annual Report of Lafarge 2002-2004 Bangladesh Economic Review 2006 Bangladesh Economic Review 2007
Laws / Acts / Rules of Bangladesh Government The Public Company Act The Margin Rule 99 ( Dhaka Stock Exchange) Listing Regulations 1999
Websites Visited www.lafarge.com www.lafarge-bd.com www.jstores.org www.dsebd.org
Page 94 of 94

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AN STUDY OF COMPANYS PERFORMANCE AND SHARE PRICE

Internship Organization: Lafarge Surma Cement Limited

North South University

Bachelor of Business Administration

PART 1 ORGANIZATIONAL PART

Bangladesh-India Part Date November 2000

BANGLADESH-INDIA Exchange of Comfort Letters between the Governments India Part

More promotional work to get more market share.

Issuing Bank Insurance Cover note Sent to LSC Seller

4. Competitive Profile Matrix:

Holcim Rating 4 4 5 4 3 Score 1.2 1 0.5 0.6 0.6 3.9

Shah Rating 4 5 4 4 3 Score 1.2 1.25 0.4 0.6 0.6 4.05

5.1 Diamond Factor Endowment: Land

Local demand For Clinker

Production Capacity Vs Demand

Production Capacity (in 000 tons) Demand (in 000 tons)

Firm's Strategy, Structure and Rivalry:

5.2 Porters Five Forces

Risk of potential competitors. (Moderate)

Barging power of Suppliers (High)

Intensity of rivalry among the Cement manufacturers

Bargain power of the Customers. (Moderate)

Threat of substitutes. (Low)

5.4 PEST Political Analysis

PART 2 STATISTICAL ANALYSIS

Share Price DSE

450 BDT 400 350 300 9-Dec-06

29-D ec-06 18-Jan-07

27-F eb-07 19-M ar-07

28-A pr-07 18-M ay-07 7-Jun-07

450 Price 400 350 300

4000 MT 3000 2000 1000

Competetor's Share Price

Share Price of Lafarge SA (NY SE)

1500 Index 1000 500

0 1/3/2007 1/17/2007 1/31/2007 2/14/2007 2/28/2007 3/14/2007 3/28/2007

Correlations: Y, X1, X2, X3, X4, X5, X6, X7, X8

Cell Contents: Pearson correlation P-Value

10. Multiple Regression Analysis

10.3. Hypothesis testing

TEST FOR 4 Page 61 of 94

12. Concluding Remark on Regression Analysis

PART 3 FINANCIAL ANALYSIS

13. Financial Analysis of Lafarge Surma Cement Limited

Growth Rate From Year to Year

Fixed Assets 2006 20%

Fixed Assets 2002 20%

Fixed Assets 2005 20%

Fixed Assets 2004 20%

Fixed Assets 2003 20%

Growth Rate From Year to Year

2004 443953909 0 0 6 442207983 0 0 8 0 0 17459258 0 0 0 Growth Rate From Year to Year

2005 907004600 0 905118400 0 18862000 0

2006 9804130000 9682397000 0 121733000

Total Debt Vs. Total Asset Growth Rate (year to year)

5 4 3 2 1 0 5 10 15 20 Total Debt Total Asset

Rev Vs. COGS Vs. GP

160000000 140000000 120000000 100000000 80000000 60000000 40000000 20000000 0

Series1 Series2 Series3 Series4 Series5

14. Ratio Analysis

Debt Equity Ratio

Total Debt Total Equity Total Debt Total Equity