COMPANY ANALYSIS

Analysis of Financial Statements

CONTENT
Company Brief up Horizontal and Vertical Common Size Statements Cash Flow Analysis Fund Flow Analysis Ratio Analysis SWOT Analysis

COMPANY INFORMATION

Sector: Public Industry: Aluminum

Companies: Hindalco & NALCO

COMPANY INFORMATION

Hindalco

An industry leader in aluminum and copper

NALCO

National Aluminum Company Limited-export of alumina and aluminum

HORIZONTAL & VERTICAL COMMON SIZE STATEMENTS

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HINDALCO
The company has consistently increased its Equity share capital which signifies capital raising for more investments Even though the secured loans have reduced for both years, there has been tremendous increase in the amount of unsecured loan for funding business activities There is stable increase in the reserves of the company (near 40 % yoy), this shows good financial stability of the company

HINDALCO
There is not much movement in the amount of fixed assets of the company General Investments have seen a declining growth rate As a tool to fight the recession, inventory levels were brought down in the yr 2009-10 The management has tried to reduce the current asset levels in the yr 09-10 as compared to 08-09 More allocation in fixed deposit However slight increase in net current assets dues to further reduction in CL and its provisions

NALCO
The co. is not over aggressive in terms of expansion as seen by constant equity for three years The company is fully owned by its shareholders visa-vis secured or unsecured loans Money from business seems to be transferred to other avenues of investments during recessionary period For the year 2009, the company had highest liquidity levels.

NALCO
Consistent reduction in net current assets show that the sector was not driving profits for the companies Both companies saw a growth, but the slope was on the negative side

CASH FLOW ANALYSIS

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CASH FLOW ANALYSIS

Companys working capital requirement increased on account of higher copper prices due to higher LME in the first half of the year Softening interest rates resulted in lower average cost of borrowing which declined from 7.5% in FY 09 to 7.3% this year Interest charges in consolidated accounts declined sharply from Rs. 1,849 cr. to Rs.1,232 cr. due to sharp decline in debt after the takeout of the bridge loan for Novelis Interest & Finance charges paid for the year was almost same as in last year. Interest charged to profit and loss account is only Rs. 337 cr. net of interest capitalized. Dividend paid including tax on dividend is Rs. 266 cr. They have put in place a permanent capital structure to support our strategic 11 business plan.

FUND FLOW ANALYSIS

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FUND FLOW ANALYSIS - HINDALCO

Hindalco is raising long term capital for expansion Increase in Investments is in the form of increased holding in other subsidiary companies Increase in Capital WIP and FA implies the company is investing in capacity expansion STS are diverted to LTU which is not a good practice Raising Equity has pushed down Debt to Equity Ratio further down

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FUND FLOW ANALYSIS NALCO

Increase in FA and WIP is sign of capacity expansion STS are used to fund LTU which may cause liquidity problems for the company Decrease in Cash indicates better cash management Decrease in Debtors with increase in Current liabilities can indicate the companies product is able to leverage in market in terms of collection Increase in Inventory is due to Nalco's expectation of strong sales

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RATIO ANALYSIS
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RATIO ANALYSIS - HINDALCO

Decrease

in total asset turnover ratio as well as fixed asset turnover ratio shows inefficient utilization of assets Decrease in dividend payout ratio and increase in earning retention ratio indicates company is plowing back more of its earnings into business & also paying back its creditors to reduce debt & increase current ratio Increase in P/E ratio is making the stock expensive over the years

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RATIO ANALYSIS - NALCO

Decrease in asset turnover ratio as well as fixed asset turnover ratio shows inefficient utilization of assets Increase in dividend Payout ratio and decrease in retention ratio indicates company is cash rich company & also paying back its investors P/E ratio is constantly increasing over the years from 3.8 to 7.68 which is making the stock expensive over the years

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CROSS-SECTIONAL ANALYSIS OF HINDALCO & NALCO

It is possible to achieve higher profit margin for Nalco as it has better utilization of assets as compared to the Hindalco which results in higher Return on capital employed Inventory in hand for Hindalco is obsolete & it unnecessarily ties up more capital into inventory in sales which results in inefficient utilization of capital & hence it would result in higher financial leverage & higher interest serving costs than the desired value which would in turn decrease the profitability Hindalco receives money after long time as compared to the Nalco so it will ties up more capital into inventory in sales which results in inefficient utilization of capital which would in turn decrease the profitability

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CROSS-SECTIONAL ANALYSIS OF HINDALCO & NALCO

Revenue generated by assets of both Nalco & Hindalco is almost same so both firms have same operational efficiency but credit policy & process management by Nalco is better as compared to the Hindalco Short term debt coverage capacity & liquidity for Nalco is better as compared to Hindalco long term debt coverage capacity & solvency for Nalco is better as compared to Hindalco so it will have better terms when borrowing from lenders

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CROSS-SECTIONAL ANALYSIS OF HINDALCO & NALCO

It is possible to achieve higher profit margin for Nalco as it has better utilization of assets as compared to the Hindalco which results in higher Return on capital employed Hindalco gives less returns as compared to the Nalco, Hindalco is expensive than Nalco Though Hindalco is 40% more leveraged as compared to Nalco, its returns are less as compared to the Nalco due to higher profitability of Nalco as the result of better asset utilization & ROCE

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SWOT ANALYSIS
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SWOT ANALYSIS-NALCO

Strength:

Availability of huge Bauxite deposits State of the art technology Huge power production, low energy consumption Maintenance of production and quality Presently the market leader, higher profitability

Weakness:
High interest burden Scattered plant sites Dependency on LME quotes

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SWOT ANALYSIS-NALCO

Opportunities

Growth of the potential domestic market Widespread uses of Alumina for various purpose

Threats

Instability of the LME prices. High task rate imposed on the metal Dumping of the metal at low cost Depressed LME prices resulting in more import of metal thereby decreasing demand of product from NALCO. Rejection of LP and CG metal continuously by the parties

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SWOT ANALYSIS-HINDALCO

Strengths

Post acquisition of Novelis, Hindalco has become the world leader in flat-rolled aluminium products and recycling of aluminium cans It is also the leading producer in primary aluminium and alumina in Asia It has a strong geographical presence- North and South America, Asia and Europe The R&D expenditure is very low compared to industry standards
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Weakness

SWOT ANALYSIS-HINDALCO

Opportunities

Foreseeable strong growth in demand for aluminium

Threats
Prices of primary metals are highly volatile Disruption in production due to external factors

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THANK YOU
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