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A Research Report

On

“Analysis of Financial Performance of Cement Industry”

Submitted in partial fulfillment of requirement for the award of the degree of

Master of Business Administration

Of

Bangalore University

By

VISHAL CHOPRA

Reg. No: 05XQCM6116

Under the Guidance and Supervision Of

Prof.S.SANTHANAM

Under the Guidance and Supervision Of Prof.S.SANTHANAM M.P.BIRLA INSTITUTE OF MANAGEMENT Associate Bharathiya Vidya

M.P.BIRLA INSTITUTE OF MANAGEMENT

Associate Bharathiya Vidya Bhavan #43, Race Course Road, BANGALORE-560001

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Declaration

I hereby declare, that this project report titled “Analysis of Financial

Performance of Cement Industry, has been successfully completed

under the guidance of Prof.S.SANTHANAM, Project Guide, M P Birla Institute of Management in partial fulfillment of Masters in Business Administration degree at Bangalore University.

I further declare that this project report is the result of my own efforts and that it has not been submitted to any other university for the award of a degree or does not form the basis of any degree or diploma of other similar title of recognition in any other university.

Place: Bangalore Date:

M.P.BIRLA INSTITUTE OF MANAGEMENT

Vishal Chopra (Reg. No. 05XQCM6116)

Guide’s Certificate

This is to certify that the Project titled Analysis of Financial

Performance

Industry”, has been prepared by

Mr.Vishal Chopra bearing the registration number 05XQCM6116 under my guidance. This has not formed a basis for the award of any Degree/Diploma by any other University.

of

Cement

Place: Bangalore Date:

M.P.BIRLA INSTITUTE OF MANAGEMENT

Prof.S.SANTHANAM (Faculty, MPBIM)

Principal’s Certificate

This to certify that this report entitled Analysis of Financial

Cement Industry”, has been prepared by

Mr.Vishal Chopra bearing Reg. No. 05XQCM6116 of M P Birla Institute of Management in partial fulfillment of the award of the degree, Master of Business Administration at Bangalore University, under the guidance and supervision of Prof.S.Santhanam, MPBIM, Bangalore. This report or a similar report on this topic has not been submitted for any other examination and does not form a part of any other course undergone by Mr.Vinay.R

Performance

of

Place: Bangalore Date:

(Dr. N S Malavalli) Principal

M.P.BIRLA INSTITUTE OF MANAGEMENT

ACKNOWLEDGMENT

I sincerely thank Dr.Nagesh.S.Malavalli (Principal), M.P.Birla Institute of Management, Bangalore for granting me the permission to do this Research Project.

I extend my gratitude to Prof. T.V.N.Rao, and also Prof S.Santhanam, professor, MPBIM who kindly spared their valuable time giving information without which this report would have been incomplete.

I extend my deep sense of gratitude to my parents who have encouraged and helped me to complete this project successfully.

I would like to extend my thanks to all my friends & the unseen hands that have made this project possible.

Place: Bangalore Date:

VISHAL CHOPRA.V. (Reg. No. 05XQCM6116)

M.P.BIRLA INSTITUTE OF MANAGEMENT

TABLE OF CONTENTS

CHAPTERS

PARTICULARS

 

EXECUTIVE SUMMARY

1.

INTRODUCTION & THEORICAL BACKGROUND

2.

LITERATURE REVIEW

3

RESEARCH METHODOLOGY

3.1

Research problem statement

3.2

Methodology

4

DATA ANALYSIS AND

INTERPRETATION

4.1

Empirical Results

5.

CONCLUSION

 

BIBLIOGRAPHY

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Executive Summary:-

Cement is a key infrastructure industry. Indian cement industry is 84 years old. It has 120 large cement plants besides some 300 mini plants with installed capacity of about 163 million tones and a production of 131.88 million Prices moved above rs.160-180 everywhere in last year. The demand is expected to remain strong The Indian cement Industry not only ranks second in the production of cement in the world but also produces quality cement which meets global standards. , the industry faces a number of constraints in terms of high cost of power, high railway tariff; high incidence of state and central levies and duties; lack of private and public investment in infrastructure projects; poor quality coal and inadequate growth of related infrastructure like sea and rail transport, ports and bulk terminals. In order to utilize excess capacity available with the cement industry, the government has identified the following thrust areas for increasing demand for cement:

-Housing development programmes; -Promotion of concrete highways and roads; -Use of ready-mix concrete in large infrastructure projects;

-Construction of concrete roads in rural areas under Prime Ministers Gram Sadak Yojana. The financial analysis has been done on

1)

India Cements Ltd.

2)

Birla Corporation Ltd.

3)

Madras Cements

4)

K.C.P.Ltd

Chettinad cements ltd.

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Cement Industry

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CEMENT INDUSTRY

Introduction

Cement is a key infrastructure industry. It has been decontrolled from price and distribution on 1 st March, 1989 and delicensed on 25 th July, 1991. However, the performance of the industry and prices of cement are monitored regularly. The constraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary (Coordination). Its performance is also reviewed by the Cabinet Committee on Infrastructure. The Indian cement industry is one of the pillar sectors of our economy as it accounts for a significant portion of total industrial output of our country. Further it plays a dominant role in satisfying basic needs (house construction) of human kind. In view of LPG, while India Cements Industry faces many challenges, it gets good opportunities to improve sales. As a result of this, Cement Industry continues to adopt a series of readjusting and restructuring measures including up gradation of technology. India is largest market with a great potential, as the country possesses more than a billion people, vast territory and abundant resources. The cement industry can enlarge global market shares so long as the industry players firmly seize the business opportunities, promptly solve outstanding problems and improve weak links in their existing production chain. The industry is expected to perform well in all the dimensions and achieve a healthy growth in its operations. In order to manage stiff competition, drastic steps are to be taken to reduce cost of production. In the changed environment, application of financial management techniques would help the cement companies in increasing their productivity and profitability. An attempt has been made in the present study to have an insight into the examination of financial health of the cement companies in India.

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The Indian cement industry is on a roll. Driven by a booming housing sector, global demand and increased activity in infrastructure development such as state and national highways, the cement industry has outpaced itself, ramping up production capacity, attracting the top cement companies in the world, and sparking off a spate of mergers and acquisitions to spur growth.

The recent boom in the housing and construction industry in India has worked wonders for cement manufacturing companies with capacity utilization crossing the 100 per cent mark for the first time in January 2007. Cement consumption this fiscal is all set to exceed the 150-million tonne mark for the first time. The industry is expected to end the fiscal with a dispatch of about 155 million tonne. The overall capacity utilization during the 10-month period is estimated to be in the range of 95 per cent or more.

Major cement companies witnessed a 32 per cent surge in their sales volume and, across the board, companies reported higher production, higher sales and lower production costs.

Cement industry at present is enjoying one of the best time in terms of demand and price. What more one could ask for as the most of the cement companies have seen their top line as well as bottom line surging back on the strong spending on the Infrastructure. Today, Indian cement industry comprises of more than 400 large and mini plants ranking second in the world only after China. The industry at present has an installed capacity of 165 million tones and most of the industry players are operating at the healthy capacity utilization. For the year 2005-06, capacity utilization was at 81 per cent and for the current year, we expect it to be higher. Many cement companies have undertaken expansion plans to meet the growing demand but most of the new capacity will go on stream only by 2008. Hence, we expect the prices of cement to remain firm in the months to come.

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Growth and India can easily be taken for synonyms in recent times. It’s not just for the potential of IT and ITES sectors that India is considered a goldmine, but also in a lot of other sectors, the prerequisites, of course, is that investments are made in key areas which would be the drivers for future growth. The top slot for the key areas would easily be taken up by the infrastructure sector. Not only does the sector have enormous scope for growth in itself, it is an important component of the entire growth eco-system.

The cement industry would play a crucial role in building up the infrastructure required for aviation, transportation, ports, and fuel terminals (for energy requirements) amongst others.

The Cement Industry in India has made major strides ever since inception of the first cement plant in 1914 with a humble capacity of 1000 tons/annum. At 145 metric tones a year the country is the second largest producer of cement producing around 5% of the global produce.

GLOBAL SCENARIO

Cement demand throughout 2006 will remain strong with growth expected in most countries. There are exceptions, notably the Philippines, Malaysia, the UK, Switzerland and Germany. As expected, the emerging markets are on course to register high annual growth rates. In the Middle East, India and Vietnam, rates of 8% are on the card, while in other countries rates of 3% to 6% have already been reported. The shift of focus In the recent Building Materials Report from Exane BNP Paribas, there was much mention of the shift in the centre of gravity of the cement industry to the East, and from the mature markets to the emerging markets. Asia represents 70% of global cement consumption, with China accounting for about 45% of the world total; by 2020 the emerging markets are expected to represent 90% of world consumption. For the period 2005 – 2010 it is anticipated that there will be a net increase in capacity of 648 million

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ton stream, of which 63% will be in Asia and 15% in the Middle East, two regions in which the European players have a relatively limited presence.

Middle East

With regard to the Middle East countries, there are two important factors that could be influencing the decision makers: oil prices and the geopolitical situation in the Middle East. Construction output in these countries has always been correlated to oil process. If demand slows and does not match expectations of increased cement capacity there could be intense domestic price competition and surplus capacity would have to be exported, out of a region that is currently importing about 15% of global sea-borne cement.

The international cement groups as well as the domestic producers in the Middle East will be carefully watching oil prices, as a fall from the high levels and revenues that have been fuelling the construction industry in many parts of the region could severely affect cement demand.

Expansion options There is also another interesting aspect of the latest developments in the cement industry and that is an increase in vertical integration, in which companies are looking to control downstream activities. The acquisition of aggregates companies or ready mix concrete operations (such as that of Aggregate Industries by Holcim, or RMC by Cemex) can offer a deterrent to imports. An oversupply of cement in some of the rapidly expanding regions could set off a price war in the mature markets and the established players will want to protect their domestic interests, by becoming both producer and customer.

THE INDIAN SCENERIO

The Indian cement industry is fragmented across the length and the breadth of the country with a few clusters. Cement being a transportation intensive industry the fragmentation provides an opportunity. Road is the preferred mode for transportation upto 250 km but the industry is highly dependent on the roads as the railway infrastructure is not adequate, there is an acute shortage of wagons.

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Indian per capita consumption of cement is only about a third of the world average. Even though India stands fourth in the tally of cements consumers across the globe it easily has the capability of being the second largest consumer behind China, which, as per the estimates, would continue to be the largest consumer of cement. An additional 12 million tons per annum would need to be added to the current Indian capacity to keep up with the growing demand. There aren’t a lot of Greenfield projects in the pipeline to add to the capacity thus it would create a favorable demand-supply scenario. However, cement consumption per capita in our country at about 115-kg/ capita is one of the lowest amongst other countries. A simple comparison with the rest of the world would prove the point, the figure for China, for instance is 450 kg/capita. Similarly in Japan it is 631 kg/capita while in France it is 447 kg/capita, while the world average is about 250 kg/capita.

Energy Efficiency As for energy and pollution norms, the best performers in the country perform almost at par with the best around the globe (thermal energy Kcal/kg of clinker – India 665 against 690 of Japan and pollution norms SPM of 40 in India against 20 of Japan) but the average performers lag far behind the global average.

Looking at the background of cement industry, the prices of cement industry are market driven and are not in the control of the manufacturers. There is a mismatch between the supply and demand, with the demand side being heavier. However, an increase in the installed capacity can bridge the gap between demand and supply.

In budget`07, a dual policy was announced for the cement industry, which had a positive as well as a negative impact. On the positive side, there was emphasis on infrastructure development and nation-building projects, resulting in an increase in the derived demand for cement. However, the simultaneous increase in the excise duty had wiped out the benefits.

The price considered in the budget was the maximum retail price (MRP) at Rs 190 a 50- kg bag. Due to additional costs like primary freight, secondary freight, handling and the

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presence of intermediaries further inflated the retail price of cement, which resulted in an increase in cement prices earlier last week.

However, recently cement manufacturers have agreed to hold the current prices for one year even after rise in input costs, with excise duty of Rs 600 a ton being left unchanged.

Cement manufacturers also agreed that if any concession is given to them on excise duty and other statutory levies, they will pass on the benefit to consumers. This had a `negative` impact on the cement companies.

As per a report by Networth Stock Broking, the above would mean cement companies will not have any decline in realizations from current levels but reduction in Networth price assumption by Rs 150 a ton for FY08/CY07 would lead to 14 to 20 % impact on net earnings of frontline cement companies. Gujarat Ambuja would be affected 13% and UltraTech 18%.

``Further the cap on prices would expose the cement manufacturers to negative surprises on cost front. We upgrade the sector to neutral in light of sharp correction, the decision of freezing the price for one year has washed away any kind of probability for bottom line surprise for the next one year.

Cement companies have lost opportunities for further price hikes which we have factored in our earnings estimates for next year. This move will downgrade the net earnings of frontline cement companies by 10-15%,

Looking at the lack of trigger in near future, inability to pass on the cost and overhang of supply due to commercialization of new plants by FY09, Karvy has downgraded the cement sector to `Neutral`.

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Demand Supply

Cement demand has posted a healthy growth rate of 11.16% in the current fiscal. This is in tandem with strong economic growth of the country. The GDP growth in the current fiscal is expected to be in excess of 8.1 per cent and during the half year Jan-June 2006, cement industry grew around 12.2 % as compared to 10.5 % for the corresponding previous year. The industry produced and supplied over 136 million tons of cement, including export of 9 million tons of cement and clinker. The industry capacity was 157 million tons. The industry achieved production of 141.81 million tons in fiscal 2005–06 compared to 127.57 million tons during corresponding previous year.

The strong growth in the cement sector has been fuelled by various sectors which are witnessing strong growth themselves. They are Growth in housing sector (over 30%)-a key demand driver; -Infrastructure projects like ports, airports, power projects, dam & irrigation projects -National Highway Development Programme -Bharat Nirman Yojana for rural infrastructure -Rise in industrial projects -Export potential is also a demand driver Capacity Utilization The capacity utilization has improved over the years, the current level of capacity utilization is pegged at 90% which in itself is a benchmark the world over. Not being able to add capacity rapidly has been a blessing in disguise for the industry as it has enabled it to attain such a high level of productivity.

THE CONSOLIDATION

In the past 3 years the Indian cement industry has undergone dramatic changes, the takeover of L&T cement division (UltraTech) by Grasim (Aditya Birla Group) was only the beginning of the consolidation that was to follow. The top five players control almost 50% of the capacity; the remaining 50% of the capacity remains pretty fragmented.

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Global participation

The consolidation so far has not been limited to the home grown players; a lot of foreign players are keen to get into the Indian market. The newfound interest of the global bigwigs in the Indian cement arena has a pretty simple reasoning behind it; huge potential for growth in the medium and the long run, and a strategic base for a possible injection of cement at competitive prices to China and other Asian Countries.

It would only be unfair to expect that the global bigwigs would sit back and watch without being part of the action. Its no wonder that the top ones (Lafarge, Holcim and Heidelberg) have increased their investments in India. The government initiatives to extend a variety of incentives to the industry to spur growth in the housing and other infrastructure sectors is only going to increase cement demand in the medium term. Having mentioned earlier that the per capita cement consumption in India is very low, the multinational majors see a huge potential for this pie to grow and thus are eager to have a slice through acquisitions. The acquirer and the acquired. The following acquisitions have happened in the recent past Grasim: UltraTech (L&T) ACC: IDCOL Lafarage : Tisco, Raymonds Gujarat Ambuja :DLF, ACC Cement FranCais : Zuari Heidelberg : Mysore Cement Holcim: Gujarat Ambuja

It’s interesting to note that ACC took over state-owned Industrial Development Corporation of Orissa Ltd (IDCOL) in Dec 2003, only to be merged with by Gujarat Ambuja which in turn has been taken over by Holcim recently. ACC and Gujarat Ambuja are now the two arms of Swiss cement giant Holcim with a 24 per cent share of the Indian market and nearly 35 million tons capacity. The Indian Cement Industry is evolving and evolving for the good. The action that we have seen is not the end, it is would continue for some time. Though the bigger players have created bigger entities there have isolated smaller entities who would eventually

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have to come together either to grow or be part of some bigger entity. The cement market is on a growth path(refer other article in this issue on Realty Boom) and as they say “make hay while the sun shines” we expect more global players to enter this growing market.

As global majors strengthen presence — Indian cement industry logs highest growth in output

The industry has witnessed strong consolidations as several global majors like Lafarge, Holcim and Heidelberg have strengthened their foothold here through M&A route. As a result these foreign companies are controlling more than 25 per cent of the market. One of the reasons for strong interest shown by the foreign players is due to lower per capita consumption of cement in India Vis a Vis other Asian countries. For example, India has per capita consumption of mere 125 kg as against China of 800 kg, 960 kg of South Korea and 450 kg of Thailand. In other words, there is good scope for cement consumption to increase over the years.

Cement production slowed in 2006-07, with a sharp decline recorded in March, data from the index of six infrastructure industries showed today. The overall six core sector index, which has a combined weight of 26.7 per cent in the index of industrial production, grew by 10 per cent in the month, as against 7.1 per cent in March 2006. Cement production growth, which has a weight of 1.99 per cent in the IIP, fell this March to 5.5 per cent, as against 17 per cent in the same month last year. For the 12-month period (April-March 2006-07), production growth slowed to 9.1 per cent, as against 12.4 per cent in 2005-06. Cement industry executives expect the slowdown to continue in the coming months.

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Cement majors cash in on West Asian construction boom

THE surge in oil prices has brought cheer to at least one section of the Indian industry. Cement majors including Gujarat Ambuja, UltraTech Cement and Saurashtra Cement are among those cashing in on the huge export potential in West Asia, which is witnessing an oil price-led construction boom.

During February, for instance, cement exports showed a healthy growth of 6.67 per cent to 0.32 million tonnes from 0.3 million tonnes, according to data generated by the Cement Manufacturers' Association.

Much of the increase in cement exports has been on account of exports to the United Arab Emirates and other West Asian nations, industry players said.

According to them, the prices for both cement and clinker have shot up by 40-50 per cent in the global market, even as domestic prices remain comparatively subdued. This has opened up huge opportunities for cement majors, especially those on the west coast of the country, to cater to the booming demand in the countries of the West Asian region, they said.

"The export prices of cement have increased to nearly $40 (free-on-board) against $25 six months ago, while clinker prices have risen to close to $30, as against $20 earlier.

"The spurt in export prices is largely on account of the West Asian construction boom and provides tremendous export potential for Indian west coast-based manufacturers since the average realization in the international markets is higher now," an industry player said.

West Asia has traditionally been a high priced market for cement. In the mid-1990s, cement prices in the West Asian countries were ruling close to the $47-mark and it is only after 1998-99 that cement prices crashed to settle around the $20-mark.

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Players such as Gujarat Ambuja, which are based in Gujarat, have a big logistical advantage in shipping products to West Asia, according to industry sources. Also, the company has its own captive port, giving it a tremendous cost advantage.

Gujarat Ambuja Cements, with manufacturing facilities in Gujarat, is among the largest exporter of cement and the company sells about 15 per cent of its production to the export market.

UltraTech Cement, the erstwhile cement division of Larsen & Toubro that is now part of the AV Birla group, is the other big exporter of clinker and cement to West Asia. Saurashtra Cement is also among those planning to export to West Asian nations in a big way.

Capacity and Production

The cement industry comprises of 125 large cement plants with an installed capacity of 163 million tonnes and more than 300 mini cement plants with an estimated capacity of 11.10 million tonnes per annum. The Cement Corporation of India, which is a Central Public Sector Undertaking, has 10 units. There are 10 large cement plants owned by various State Governments. The total installed capacity in the country as a whole is 159.38 million tonnes. GLOBAL cement majors such as Holcim forking out huge premiums to strengthen their presence in the Indian market should come as no surprise with the domestic cement industry registering the fastest growth in production globally over the last 10 years, beating China to second place.

Cement production in the country recorded a compounded annual growth rate (CAGR) of 8.2 per cent between 1994-2003, as compared with a 7.2 per cent growth clocked by the Chinese cement industry and the world average of 3.5 per cent growth, according to data sourced from the US Geological Survey. The increase in cement production is only expected to pick up as the country continues growing at over 6-7 per cent annually.

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Swiss-cement major Holcim paid the equivalent of more than $200 a tonne for picking up a 14.8 per cent stake in Gujarat Ambuja on January 30, which is among the highest valuations in cement industry deals during the last five years or so.

Besides India and China, the other countries that have seen significant growth in production include Brazil, Spain and the US. On the other hand, Germany and Japan are among countries that have shown a downturn in production during the 10-year period, as per the data.

According to analysts, the predominant reason for the fast growth in the Indian cement industry is on account of a combination of the rapid economic growth and the fact that the Government shackles on the sector was removed early.

The sector was decontrolled from price and distribution restrictions in 1989 and delicensed in July 1991. , the Indian cement industry is projected to grow at a CAGR of around 7 per cent over the next five years.

For the development of the cement industry, the Government had constituted a `Working Group' in the Planning Commission during the formulation of Tenth Five Year Plan, which forecast a growth rate of 10 per cent for the industry during the plan period and has projected creation of additional capacity of 40-62 million tonnes mainly through expansion of existing plants.

The thrust areas for improving demand for cement include the Government's efforts to further push to housing development programmes, promotion of concrete highways and roads and the use of ready-mix concrete in large infrastructure projects.

Recommendations on Cement Industry

For the development of the cement industry ‘Working Group on Cement Industry’ was constituted by the Planning Commission for the formulation of X Five Year Plan. The Working Group has projected a growth rate of 10% for the cement industry during the plan period and has projected creation of additional capacity of 40-62 million tonnes

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mainly through expansion of existing plants. The Working Group has identified following thrust areas for improving demand for cement;

(i)

Further push to housing development programmes;

(ii)

Promotion of concrete Highways and roads; and

(iii)

Use of ready-mix concrete in large infrastructure projects.

Further, in order to improve global competitiveness of the Indian Cement Industry, the Department of Industrial Policy & Promotion commissioned a study on the global competitiveness of the Indian Industry through an organization of international repute, viz. KPMG Consultancy Pvt. Ltd. The report submitted by the organization has made several recommendations for making the Indian Cement Industry more competitive in the international market. The recommendations are under consideration.

Technological change

Cement industry has made tremendous strides in technological up gradation and assimilation of latest technology. At present ninety three per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only seven per cent of the capacity is based on old wet and semi-dry process technology. There is tremendous scope for waste heat recovery in cement plants and thereby reduction in emission level. One project for co-generation of power utilizing waste heat in an Indian cement plant is being implemented with Japanese assistance under Green Aid Plan. The induction of advanced technology has helped the industry immensely to conserve energy and fuel and to save materials substantially. India is also producing different varieties of cement like Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc. Production of these varieties of cement conform to the BIS Specifications. It is worth mentioning that some cement plants have set up dedicated jetties for promoting bulk transportation and export.

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Capacity, Production and Exports

The cement industry comprises 128 large cement plants with an installed capacity of

151.69 million tonnes and more than 300 mini cement plants with an estimated capacity

of 11.10 million tonnes per annum resulting in total installed capacity of 163 million tonnes. Actual cement production in 2003-04 was 123.50 million tonnes as against a production of 116.35 million tonnes in 2002-03, which is an increase of 6.15% over 2002-03. Cement production during the year 2004-05 (April-January, 2004-05) was

108.06 million tonnes (provisional), registering a growth of 7.10%.

The Cement Corporation of India, which is a central public sector undertaking, has 10 units. Besides, there are 10 large cement plants owned by various state governments. Keeping in view the past trends, a production target of 133 million tonnes has been set for the year 2004-05. During the Tenth Plan, the industry is expected to grow at the rate of 10% per annum and is expected to add capacity of 40-52 million tonnes, mainly through expansion of existing plants and use of more fly ash in the production of cement. Apart from meeting the domestic demand, the cement industry also contributes towards exports.

Overview of the performance of the Cement Sector

The Indian cement Industry not only ranks second in the production of cement in the world but also produces quality cement, which meets global standards. However, the industry faces a number of constraints in terms of high cost of power, high railway tariff;

high incidence of state and central levies and duties; lack of private and public investment in infrastructure projects; poor quality coal and inadequate growth of related infrastructure like sea and rail transport, ports and bulk terminals. In order to utilize excess capacity available with the cement industry, the government has identified the following thrust areas for increasing demand for cement:

(I) Housing development programmes; (ii) Promotion of concrete highways and roads;

(iii)

Use of ready-mix concrete in large infrastructure projects; and

(iv)

Construction of concrete roads in rural areas under Prime Ministers Gram Sadak

Yojana.

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The differential excise duty on price was a major announcement for the cement sector

in the Union Budget 2006-07. However, government's initiatives on the infrastructure and

housing sector fronts would continue to remain the key demand drivers. We believe that the current good times will continue in the medium term. The demand for cement has increased at the rate of 10% annually on account of buoyancy in the end user industries. With capacity additions taking place at a slower pace, the demand supply equation is expected to continue to remain favorable and this will lend support to current high prices. Once new planned capacities become operational, the industry may face excess supply situation, which in turn might impact margins.

A dual policy was announced for the cement industry, which has a positive as well as

negative impact. On the positive side, with so much emphasis on infrastructure development and nation-building projects, there is bound to be an increase in the derived demand for cement. However, the simultaneous increase in the excise duty wipes out the benefits.

Looking at the background of cement industry, the prices of

cement industry are market driven and are not in the control of the manufacturers. There

is a miss-match between the supply and demand, with the demand side being heavier.

Since the suppliers are not able to cope up with the increasing demand, the gap is increasing which again implies a price rise, resulting in further deviation of demand and supply. Presently, cement is sold at around Rs. 200 per 50 kg/ bag and the returns generated are fair enough for undertaking expansion activities. The increase in the installed capacity can bridge the gap between demand and supply.

The price considered in the budget is the maximum retail price (MRP) at Rs.190 per 50 kg bag. Due to additional costs like primary freight, secondary freight, handling etc, the MRP tends to be higher than Rs.190 and the presence of intermediaries

further inflates the retail price of cement, as the intermediaries include their margins. If the manufacturers are forced

to sell at lower price, then there won’t be any surplus left for further expansionary

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measures. This will affect the supply of cement. As a result, the gap between demand and supply of cement would be further widened.

Again, the increase in the cost (excise duty) will leave the manufacturers with no choice but to pass on the burden to the consumers, which will hamper the demand side.

Even for the government, the dual policy doesn’t seem to be effective. On one hand, it will earn huge revenues by means of additional excise duty; while on the other hand, it will have to pay inflated bills for the infrastructure projects undertaken. This would nearly nullify the effect of increase in excise duty. Presently, the Government has a sizeable share in the demand for cement

Overview

1. Indian cement industry dates back to 1914 - first unit was set-up at Porbandar with a

capacity of 1000 tonnes

2. Currently India is ranked second in the world with an installed capacity of 114.2

million tonnes.

Industry estimated at around Rs. 18,000 crores (US $ 4185 mn)

3. Current per capita consumption - 85 kgs. As against world standard of 256 kgs

4. Cement grade limestone in the country reported to be 89 billion tonne. A large

proportion however is unexploitable.

5. 55 - 60% of the cost of production are government controlled

6. Cement sales primarily through a distribution channel. Bulk sales account for < 1% of

the total cement produced.

7. Ready mix concrete a relatively nascent market in India

Cement industry: Structure

Installed capacity 114.2 mn tonnes per annum (mntpa) Production around 87.8 mn tonnes

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Major cement plants

Companies : 59

Plants : 120

Typical installed capacity

per plant : Above 1.5 mntpa

Production 05-06 :160mn ten

All India reach through multiple plants

Export to Bangladesh, Nepal, Sri Lanka, UAE and Mauritius

Strong marketing network, tie-ups with customers, contractors.

Wide spread distribution network.

Sales primarily through the dealer channel

Mini cement plants

Nearly 300 plants

Located in Gujarat, Rajasthan, MP

Typical capacity < 200 tad

Installed capacity around 9 mn. Tonnes

Production around : 6.2 mn tonnes

Excise : Rs. 200/ tonne

Production cost / tonne - Rs. 1,000 to 1,400

Presence of these plants limited to the state

Infrastructural facilities not the best

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Transportation

Transportation costs high - freight accounts for 17% of the production cost

Road preferred mode for transportation for distances less than 250kms. However, industry is heavily dependant on roads as the railway infrastructure is not adequate - shortage of wagons.

Capacity additions

Acquisitions have been the mainstay of the business

Regional imbalance resulting in cross regional movement - limestone availability in pockets has led to uneven capacity additions

Capacity additions have slowed down

Industry inputs

Highly capital intensive industry

Nearly 55-60% of the inputs controlled by the government

Facing problems due to power shortage

Coal availability and quality affecting production

Mini plants realization of revenue lower than large plants, survival difficult

Demand drivers

Infrastructure & construction sector the major demand drivers. Some demand determinants

Economic growth

Industrial activity

Real estate business

Construction activity

Investments in the core sector

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Future

Signs of a revival growth in the housing sector central road fund established for national highways and railway over bridges to provide the necessary impetus expansion plans, Greenfield projects on the anvil

Demand - supply balance expected in the next 12 - 15 months

Higher capacity utilization likely in the future

Encouraging trend in demand due to pick-up in rural housing demand and industrial revival

Industry likely to grow at 8-10% in the next few years

Expectations

Government in order to curb the inflation very recently reduced the import duty on cement from 12.5 per cent to Zero. But we feel this will not have any impact. There are two reasons for the same. First, cement being bulky in nature will not be an easy to import and at the same time our Indian ports are not good enough to manage large quantity of cement being imported. Second, prices of cement in the international market are quite high as compared to domestic market. Hence, we don’t expect any threat from exports numbers going forward.

The industry has been demanding the reduction on the excise front. In fact, last time excise duty on cement increased was in 2003-04 when increased from Rs 350 per tonne to Rs 400 per tonne. Now industry wants the same to rolled back to Rs 350 per tonne. Besides, this it wants government to continue to have specific rate of excise duty as against ad valorem (white cement has Ad valorem duty of 16 per cent). Our talk to industry players suggest that instead of giving any direct benefits the government should further increase the thrust on the infrastructure and that should help the cement industry to report better growth. “To keep maintain high economic rate of return the national

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policy makers should continue with their emphasis on construction and infrastructure development.”

The present scenario of cement industry is very good in terms of demand and with the prices going above Rs 160 to Rs 180 everywhere. Most importantly, the gap between the demand and supply does not exist any longer in any part of the country.

Domestic consumption with 11 per cent increase and exports keeping up with the last year levels, the Indian cement industry is expected to cross 150 million tonnes in dispatches, including domestic consumption, and exports during 2005-06 from all plants put together, including mini cement plants. Mini cement plants everywhere are operating at 100 per cent capacity utilization. The margins are improving in line with others.

Cement consumptions are as follows:

South 30 per cent (26 per cent),

East 17 per cent (17 per cent),

North 20 per cent (21 per cent),

Central 16 per cent (17 per cent), and

West 18 per cent (20 per cent).

The figures for the current year are for April-November period while the figures in brackets represent full year for the year 2004-05. Also, there is an increase in the consumption of PPC cement from 48 per cent to 50 per cent.

Today, cement from Andhra is going all over India, including Assam, Meghalaya, Jharkhand, Orissa, West Bengal, Chattisgarh, Gujarat and Maharastra. More cement is likely to flow into Tamil Nadu from the state in view of cut in sales tax.

Any further increase in demand in the South India will benefit the cement industry here. Cement movement from Gujarat to Mumbai is also coming down due to exports while cement movement from Orissa into Andhra has stopped and, in fact, cement is flowing into Orissa as well.

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Cement consumption to cross 150 mt this fiscal

With the capacity utilization crossing the 100% mark for the first time in January 2007 and two more peak months of February and March left in the current fiscal, cement consumption this fiscal is all set to exceed the 150-million tonne mark for the first time.

The industry is expected to end the fiscal with a dispatch of about 155 million tonne.This has been possible thanks to the overall economic growth in general and more particularly, impressive growth of the realty sector.

Cement industry has already dispatched 130 million tonne in the first 10 months, thus registering a growth of 10%. In the next two months additional 25-30 million tonne is likely to be consumed.

The overall capacity utilization during the 10 month period is estimated to be in the range of 95% or more, industry sources said.

Southern region, which witnessed a slowdown in dispatches in the last few months due to monsoon, has regained the lost momentum with increased off take from Tamil Nadu and Karnataka. Andhra Pradesh, which posted a negative growth in consumption in the beginning of this fiscal, has seen dispatches picking up sharply.

Among the regions, south is expected to end the fiscal with 12% growth in consumption, followed by north (11%) and west (10%), the industry sources added. Karnataka has shown a remarkable growth in consumption with 20% growth over the same period last year.

For the first time in the last few years, the capacity utilization has gone up over 100% to touch 102% in January 2007 with dispatches touching 14.10 million tonne as against the production of 14 million tonne, reflecting the demand for the commodity. The total installed capacity of the industry has gone up to touch 165 million tonne in the current fiscal as against 160 million tonne during the last fiscal.

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5-year tax holiday to new cement units

Unable to put pressure on cement manufacturers to slash prices, the government is planning to offer them a five-year tax holiday to set up more capacity to end the current demand-supply mismatch and consequently soften prices.

According to a source in the Department of Industrial Policy and Promotion, the government may give a five-year tax holiday to cement units announced on or after April 1 with a caveat that they have to commence production within three years.

Cement makers and the government have been at loggerheads over prices, which have risen over 40% to a peak of Rs 255 per 50 kg bag in the last 12 months. Manufacturers have so far not paid heed to the Center’s call to roll back prices, but have promised not to raise them further for a year.

Official sources believe that cement manufacturers are currently in a commanding position as far as prices are concerned, due to a major demand-supply gap. Various infrastructure and real estate projects have seen construction activity growing at an unprecedented pace, and this has led to growing demand for cement. It is understood that the proposed policy move is also aimed at incentivising participation of new companies. The cement industry’s current capacity is 165 mntpa and capacity utilization has been 92% so far this year. Cement production—127 mt during April-January (‘06-07)—has seen a growth of almost 10%.

Industry players welcome the proposed move, but also point out loopholes in it. “Such short-term incentives may leave a trail of winners and losers, It would lead to bunching of capacity and the plants that commence production after these three years would lose out,”. It, however, may not be easy for manufacturers to take advantage of the proposed incentives. “Equipment supply is a major constraint and cement makers will have to work very hard to finish projects in time,” Equipment suppliers’ order books are already full

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and with increasing demand from India and the Middle East, equipment delivery time has almost doubled from the usual six months.

The industry has announced the addition of 42 million tonnes in the next two years. Given the past trend, not all of them are expected to materialize. In 2006-07, manufacturers had announced the addition of 13 million tonnes, but only 5 million tonnes came up. The fact that cement makers enjoy high margins due to supply-demand mismatch is one reason cited by analysts for slow addition of new capacities.

Cement worries

The Government should intervene to correct prices when the rise is due to a demand- supply mismatch in construction boom.Worried by the "abnormal" increase in cement prices — not commensurate with the rise in input costs — the Centre has asked manufacturers to rein in prices within a week. The Centre is obviously under pressure from a section of consumers, especially the powerful builders' lobby, to step in. In a cyclical industry where price and distribution controls were removed in 1989 and the industry de-licensed in 1991, it is a moot point whether the Government should persuade itself to intervene only when prices are going up. There was no such stirring within the Government when the cement industry was struggling for more than two years with low prices. Some of the large regional players even had to get their debt restructured. The industry can very well turn around and ask the Government why it did not intervene then. An intervention will be justified only when the Government has evidence of cartelisation or of a monopoly situation emerging.

The Indian cement industry is fragmented, with the top five players accounting for nearly 50 per cent of the installed capacity of about 160 million tonnes and with small, regional players holding the balance. By all accounts, the current price increase is a result of the demand-supply mismatch, a consequence of the construction boom in the major cities, which has also caused runaway increases in the price of land, steel and other materials. The industry may argue that cement accounts for hardly 5 per cent of the construction cost in building projects, if the land price is also included. It is not that the Centre should sit back and watch. Creating an enlargement in supplies is an obvious answer. The 2006-

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07 Budget reduced the Customs duty on cement to 12.5 per cent, but this is not likely to be good enough to cause a surge in imports, as the infrastructure at the ports is inadequate to handle large arrivals.

The Centre would do well first to ensure that various bottlenecks such as inefficient transportation infrastructure are looked into. The industry has evolved in recent years to match global standards with some of the top international majors coming into the country. Prices too match global trends. The industry is in the throes of consolidation, and the existing players are looking to expand capacities. There has also been a demand to curb exports of cement. At 6 million tonnes, these are just about 4 per cent of the total production of 141 million tonnes in 2005-06. Curbing that may have but a marginal impact on prices, but leave a deep scar on an industry that has just begun to adjust to market forces. Would it not make better sense for the Government to go lighter on the tax burden — excise and sales tax add up to almost Rs 50 a bag?

Concerned over the steep increase in cement prices, the Government on Tuesday came down heavily on the manufacturing companies and asked them to work out ways within a week's time to cut prices.

Cement prices have gone up from an average level of Rs 135-140 per bag of 50 kg to around Rs 205-210 per bag during the past six months.

At a meeting called by the Department of Industrial Policy and Promotion (DIPP), the Cement Manufacturers Association has been asked to call a meeting of its members urgently and decide on steps for lowering of prices, instead of waiting for the rainy season, when cement prices tend to fall. The meeting was convened following complaints from builders against the sharp increase in prices of cement.

`We think that the nearly 50 per cent increase in cement prices since November 2005 is abnormal. The prices have increased more than the increase in the input cost,’ The cost has roughly increased by around 15 per cent, but increase in prices in certain cases has been as high as 40-50 per cent; on an average it was about 30 per cent. Therefore, there is a need to take corrective measures by the manufacturers to bring down the prices.

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The cement industry has been witnessing a boom period following increased spending in construction and infrastructure sectors. Cement output increased by 11 per cent from 127.57 million tonnes (mt) in 2004-05 to 141.81 mt in 2005-06. Exports during 2005-06 went up by more than 47 per cent from 4.07 mt in 2004-05 to 6.01 mt during 2005-06. This surge in exports had led to builders' associations demanding ban on cement exports in the face of high domestic prices.

With a booming market the cement industry has also increased its capacity from 153.85 mt in March 2005 to 159.80 mt in March 2006.

Out of control

Abnormal rise from Rs 135-140 per bag of 50 kg to Rs 205-210 per bag during the past six months. Prices have increased more than the increase in the input cost. Industry undergoing a boon period due to increased spending in infrastructure building.

Cement majors post increase in sales

Cement majors have reported a substantial year-on-year increase in volume sales for the month of February. The Associated Cement Companies reported a 11.8 per cent increase in sales at 15.34 lakh tonnes in February this year as against 13.72 lakh tonnes in February last year. Gujarat Ambuja Cements Ltd reported a 16 per cent increase in dispatches, which figured at 10.72 lakh tonnes (9.27 lakh tonnes). The Aditya Birla group's (largely Grasim and UltraTech) cement dispatches for the month grew by 16.06 per cent, to 25.35 lakh tonnes. Production increased as well. ACC reported a 12.2 per cent increase in production for the month, which stood at 15.43 lakh tonnes. At GACL, production grew by 12 per cent to 10.51 lakh tonnes.

The Aditya Birla group reported a 13.34 per cent increase in production, which stood at 25.24 lakh tonnes.

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Outlook - Cement industry

Rise in prices of cement by Rs 5 per bag is due to rise in price of Coal. Interest rate on housing loan reduced by 25 basis points which might fuel the growth of construction. Better realization have led rise in profits of cement companies. Cement manufactures tops in terms of capacity utilization in cement industry –

100%.ss

Demand from gulf also fuels the prices. Retailing and BPO infrastructure to push up cement demand. Consumption of cement in southern region has been declining in the recent months due to rainy season. The high price of cement in the north is due to the high prices of power and fuel. International prices of non-coking coal have nearly doubled in the last 12 to18 months. The cement cartel, which took the price in the country to a five-year high

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LITERATURE REVIEW

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Fundamental analysis

Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets.

The analysis is performed on historical and present data, but with the goal to make financial projections. There are several possible objectives:

to calculate a company's credit risk,

to make projection on its business performance,

to evaluate its management and make internal business decisions,

to make the company's stock valuation and predict its probable price evolution.

Fundamental analysis. It's geared primarily at new investors who don't know a balance sheet from an

statement. While you may not be a "stock-picker extraordinaire" The biggest part of fundamental analysis involves delving into the financial statements. Also known as

quantitative analysis, this involves looking at revenue, expenses, assets, liabilities and all the other

financial aspects of a company. Fundamental analysts look at this information to gain insight on a company's future performance. A good part of this tutorial will be spent learning about the balance sheet, income

statement, cash flow statement and how they all fit together.

But there is more than just number crunching when it comes to analyzing a company. This is where qualitative analysis comes in - the breakdown of all the intangible, difficult-to-measure aspects of a company.

The Concept of Intrinsic Value Before we get any further, we have to address the subject of intrinsic value. One of the primary assumptions of fundamental analysis is that the price on the stock market does not fully reflect a stock’s “real” value. After all, why would you be doing price analysis if the stock market were always correct? In financial jargon, this true value is known as the intrinsic value.

For example, let’s say that a company’s stock was trading at $20. After doing extensive homework on the company, you determine that it really is worth $25. In other words, you determine the intrinsic value of the

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firm to be $25. This is clearly relevant because an investor wants to buy stocks that are trading at prices significantly below their estimated intrinsic value.

This leads us to one of the second major assumptions of fundamental analysis: in the long run, the stock market will reflect the fundamentals. There is no point in buying a stock based on intrinsic value if the price never reflected that value. Nobody knows how long “the long run” really is. It could be days or years.

This is what fundamental analysis is all about. By focusing on a particular business, an investor can estimate the intrinsic value of a firm and thus find opportunities where he or she can buy at a discount. If all goes well, the investment will pay off over time as the market catches up to the fundamentals.

The big unknowns are:

1) You don’t know if your estimate of intrinsic value is correct; and 2) You don’t know how long it will take for the intrinsic value to be reflected in the marketplace.

Criticisms of Fundamental Analysis

The biggest criticisms of fundamental analysis come primarily from two groups: proponents of technical

analysis and believers of the “efficient market hypothesis”.

Fundamental Analysis: Introduction to Financial Statements

The massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. On the other hand, if you know how to analyze them, the financial statements are a gold mine of information.

Financial statements are the medium by which a company discloses information concerning its financial

performance. Followers of fundamental analysis use the quantitative information gleaned from

financial statements to make investment decisions. Before we jump into the specifics of the three most

important financial statements - income statements, balance sheets and cash flow statements - we

will briefly introduce each financial statement's specific function, along with where they can be found.

The Major Statements The Balance Sheet The balance sheet represents a record of a company's assets, liabilities and equity at a particular point in

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time. The balance sheet is named by the fact that a business's financial structure balances in the following manner:

Assets = Liabilities + Shareholders' Equity

Assets represent the resources that the business owns or controls at a given point in time. This includes items such as cash, inventory, machinery and buildings. The other side of the equation represents the total value of the financing the company has used to acquire those assets. Financing comes as a result of

liabilities or equity. Liabilities represent debt (which of course must be paid back), while equity

represents the total value of money that the owners have contributed to the business - including retained earnings, which is the profit made in previous years.

The Income Statement While the balance sheet takes a snapshot approach in examining a business, the income statement measures a company's performance over a specific time frame. Technically, you could have a balance sheet for a month or even a day, but you'll only see public companies report quarterly and annually.

The income statement presents information about revenues, expenses and profit that was generated as a result of the business' operations for that period.

Statement of Cash Flows The statement of cash flows represents a record of a business' cash inflows and outflows over a period of time. Typically, a statement of cash flows focuses on the following cash-related activities:

Operating Cash Flow (OCF): Cash generated from day-to-day business operations

Cash from investing (CFI): Cash used for investing in assets, as well as the proceeds from the sale of other businesses, equipment or long-term assets

Cash from financing (CFF): Cash paid or received from the issuing and borrowing of funds

The cash flow statement is important because it's very difficult for a business to manipulate its cash situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's tough to fake

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cash in the bank. For this reason some investors use the cash flow statement as a more conservative measure of a company's performance

Fundamental analysis: The Income Statement

The income statement is basically the first financial statement you will come across in an annual report or quarterly Securities And Exchange Commission (SEC) filing.

It also contains the numbers most often discussed when a company announces its results - numbers such as revenue, earnings and earnings per share. Basically, the income statement shows how much money the company generated (revenue), how much it spent (expenses) and the difference between the two (profit) over a certain time period.

When it comes to analyzing fundamentals, the income statement lets investors know how well the company’s business is performing - or, basically, whether or not the company is making money. Generally speaking, companies ought to be able to bring in more money than they spend or they don’t stay in business for long. Those companies with low expenses relative to revenue - or high profits relative to revenue - signal strong fundamentals to investors.

Revenue as a investor signal Revenue, also commonly known as sales, is generally the most straightforward part of the income statement. Often, there is just a single number that represents all the money a company brought in during a specific time period, although big companies sometimes break down revenue by business segment or geography.

The best way for a company to improve profitability is by increasing sales revenue. For instance, Starbucks Coffee has aggressive long-term sales growth goals that include a distribution system of 20,000 stores worldwide. Consistent sales growth has been a strong

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driver of Starbucks’ profitability.

The best revenue are those that continue year in and year out. Temporary increases, such as those that might result from a short-term promotion, are less valuable and should garner a lower price-to-earnings multiple for a company.

What are the Expenses? There are many kinds of expenses, but the two most common are the cost of goods sold (COGS) and selling, general and administrative expenses (SG&A). Cost of goods sold is the expense most directly involved in creating revenue. It represents the costs of producing or purchasing the goods or services sold by the company. For example, if Wal- Mart pays a supplier $4 for a box of soap, which it sells to customers for $5. When it is sold, Wal-Mart’s cost of good sold for the box of soap would be $4.

Next, costs involved in operating the business are SG&A. This category includes marketing, salaries, utility bills, technology expenses and other general costs associated with running a business. SG&A also includes depreciation and amortization. Companies must include the cost of replacing worn out assets. Remember, some corporate expenses, such as research and development (R&D) at technology companies, are crucial to future growth and should not be cut, even though doing so may make for a better-looking earnings report. Finally, there are financial costs, notably taxes and interest payments, which need to be considered.

Profits = Revenue - Expenses Profit, most simply put, is equal to total revenue minus total expenses. However, there are several commonly used profit subcategories that tell investors how the company is performing. Gross profit is calculated as revenue minus cost of sales. Returning to Wal- Mart again, the gross profit from the sale of the soap would have been $1 ($5 sales price less $4 cost of goods sold = $1 gross profit).

Companies with high gross margins will have a lot of money left over to spend on other

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business operations, such as R&D or marketing. So be on the lookout for downward trends in the gross margin rate over time. This is a telltale sign of future problems facing the bottom line. When cost of goods sold rises rapidly, they are likely to lower gross profit margins - unless, of course, the company can pass these costs onto customers in the form of higher prices.

Operating profit is equal to revenues minus the cost of sales and SG&A. This number represents the profit a company made from its actual operations, and excludes certain expenses and revenues that may not be related to its central operations. High operating margins can mean the company has effective control of costs, or that sales are increasing faster than operating costs. Operating profit also gives investors an opportunity to do profit-margin comparisons between companies that do not issue a separate disclosure of their cost of goods sold figures (which are needed to do gross margin analysis). Operating profit measures how much cash the business throws off, and some consider it a more reliable measure of profitability since it is harder to manipulate with accounting tricks than net earnings.

Net income generally represents the company's profit after all expenses, including financial expenses, have been paid. This number is often called the "bottom line" and is generally the figure people refer to when they use the word "profit" or "earnings".

When a company has a high profit margin, it usually means that it also has one or more advantages over its competition. Companies with high net profit margins have a bigger cushion to protect themselves during the hard times. Companies with low profit margins can get wiped out in a downturn. And companies with profit margins reflecting a competitive advantage are able to improve their market share during the hard times - leaving them even better positioned when things improve again.

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during the hard times - leaving them even better positioned when things improve again. M.P.BIRLA INSTITUTE

Conclusion You can gain valuable insights about a company by examining its income statement. Increasing sales offers the first sign of strong fundamentals. Rising margins indicate increasing efficiency and profitability. It’s also a good idea to determine whether the company is performing in line with industry peers and competitors. Look for significant changes in revenues, costs of goods sold and SG&A to get a sense of the company’s profit fundamentals

Fundamental Analysis: The Balance Sheet

Investors often overlook the balance sheet. Assets and liabilities aren't nearly as sexy as revenue and

earnings. While earnings are important, they don't tell the whole story.

The balance sheet highlights the financial condition of a company and is an integral part of the financial statements. (To read more on financial statement basics The Snapshot of Health The balance sheet, also known as the statement of financial condition, offers a snapshot of a company's health. It tells you how much a company owns (its assets), and how much it owes (its liabilities). The

difference between what it owns and what it owes is its equity, also commonly called "net assets" or

"shareholders equity".

The balance sheet tells investors a lot about a company's fundamentals: how much debt the company

has, how much it needs to collect from customers (and how fast it does so), how much cash and equivalents it possesses and what kinds of funds the company has generated over time.

The Balance Sheet's Main Three Assets, liability and equity are the three main components of the balance sheet. Carefully analyzed, they can tell investors a lot about a company's fundamentals.

Assets

There are two main types of assets: current assets and non-current assets. Current assets are likely to be

used up or converted into cash within one business cycle - usually treated as twelve months. Three very

important current asset items found on the balance sheet are: cash, inventories and accounts

receivables.

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Investors normally are attracted to companies with plenty of cash on their balance sheets. After all, cash

offers protection against tough times, and it also gives companies more options for future growth. Growing

cash reserves often signal strong company performance. Indeed, it shows that cash is accumulating so quickly that management doesn't have time to figure out how to make use of it. A dwindling cash pile could be a sign of trouble. That said, if loads of cash are more or less a permanent feature of the company's balance sheet, investors need to ask why the money is not being put to use. Cash could be there because management has run out of investment opportunities or is too short-sighted to know what to do with the money.

Inventories are finished products that haven't yet sold. As an investor, you want to know if a company has too much money tied up in its inventory. Companies have limited funds available to invest in inventory. To generate the cash to pay bills and return a profit, they must sell the merchandise they have purchased from

suppliers. Inventory turnover (cost of goods sold divided by average inventory) measures how

quickly the company is moving merchandise through the warehouse to customers. If inventory grows faster than sales, it is almost always a sign of deteriorating fundamentals.

Receivables are outstanding (uncollected bills). Analyzing the speed at which a company collects what it's

owed can tell you a lot about its financial efficiency. If a company's collection period is growing longer, it could mean problems ahead. The company may be letting customers stretch their credit in order to recognize greater top-line sales and that can spell trouble later on, especially if customers face a cash crunch. Getting money right away is preferable to waiting for it - since some of what is owed may never get paid. The quicker a company gets its customers to make payments, the sooner it has cash to pay for salaries, merchandise, equipment, loans, and best of all, dividends and growth opportunities.

Non-current assets are defined as anything not classified as a current asset. This includes items that are

fixed assets, such as property, plant and equipment (PP&E). Unless the company is in financial

distress and is liquidating assets, investors need not pay too much attention to fixed assets. Since

companies are often unable to sell their fixed assets within any reasonable amount of time they are carried on the balance sheet at cost regardless of their actual value. As a result, it's is possible for companies to grossly inflate this number, leaving investors with questionable and hard-to-compare asset figures.

Liabilities

There are current liabilities and non-current liabilities. Current liabilities are obligations the firm must pay

within a year, such as payments owing to suppliers. Non-current liabilities, meanwhile, represent what the company owes in a year or more time. Typically, non-current liabilities represent bank and bondholder debt.

You usually want to see a manageable amount of debt. When debt levels are falling, that's a good sign.

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Generally speaking, if a company has more assets than liabilities, then it is in decent condition. By contrast,

a company with a large amount of liabilities relative to assets ought to be examined with more diligence.

Having too much debt relative to cash flows required to pay for interest and debt repayments is one way a

company can go bankrupt.

Look at the quick ratio. Subtract inventory from current assets and then divide by current liabilities. If the

ratio is 1 or higher, it says that the company has enough cash and liquid assets to cover its short-term debt obligations.

Current Assets - Inventories

Quick Ratio =

Current Liabilities

Equity

Equity represents what shareholders own, so it is often called shareholder's equity. As described above,

equity is equal to total assets minus total liabilities.

Equity = Total Assets – Total Liabilities

The two important equity items are paid-in capital and retained earnings. Paid-in capital is the amount

of money shareholders paid for their shares when the stock was first offered to the public. It basically

represents how much money the firm received when it sold its shares. In other words, retained earnings are

a tally of the money the company has chosen to reinvest in the business rather than pay to shareholders.

Investors should look closely at how a company puts retained capital to use and how a company generates

a return on it.

Fundamental Analysis: The Qualitative factors – The Company

Before diving into a company's financial statements, we're going to take a look at some of the qualitative

aspects of a company.

Fundamental analysis seeks to determine the intrinsic value of a company's stock. But since qualitative factors, by definition, represent aspects of a company's business that are difficult or impossible to quantify,

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incorporating that kind of information into a pricing evaluation can be quite difficult. On the flip side, as we've demonstrated, you can't ignore the less tangible characteristics of a company.

In this section we are going to highlight some of the company-specific qualitative factors that you should be aware of.

Business Model

Even before an investor looks at a company's financial statements or does any research, one of the most important questions that should be asked is: What exactly does the company do? This is referred to as a company's business model – it's how a company makes money. You can get a good overview of a

company's business model by checking out its website or reading the first part of its 10-K filing (Note:

We'll get into more detail about the 10-K in the financial statements chapter. For now, just bear with us).

Sometimes business models are easy to understand. Take McDonalds, for instance, which sells hamburgers, fries, soft drinks, salads and whatever other new special they are promoting at the time. It's a simple model, easy enough for anybody to understand.

Other times, you'd be surprised how complicated it can get. Boston Chicken Inc. is a prime example of this. Back in the early '90s its stock was the darling of Wall Street. At one point the company's CEO bragged that they were the "first new fast-food restaurant to reach $1 billion in sales since 1969". The problem is, they didn't make money by selling chicken. Rather, they made their money from royalty fees and high-interest loans to franchisees. Boston Chicken was really nothing more than a big franchisor. On top of this, management was aggressive with how it recognized its revenue. As soon as it was revealed that all the

franchisees were losing money, the house of cards collapsed and the company went bankrupt.

At the very least, you should understand the business model of any company you invest in. The "Oracle of

Omaha", Warren Buffett, rarely invests in tech stocks because most of the time he doesn't understand

them. This is not to say the technology sector is bad, but it's not Buffett's area of expertise; he doesn't feel comfortable investing in this area. Similarly, unless you understand a company's business model, you don't know what the drivers are for future growth, and you leave yourself vulnerable to being blindsided like shareholders of Boston Chicken were.

Competitive Advantage Another business consideration for investors is competitive advantage. A company's long-term success is driven largely by its ability to maintain a competitive advantage - and keep it. Powerful competitive advantages, such as Coca Cola's brand name and Microsoft's domination of the personal computer

operating system, create a moat around a business allowing it to keep competitors at bay and enjoy growth

and profits. When a company can achieve competitive advantage, its shareholders can be well rewarded for

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decades.

Management Just as an army needs a general to lead it to victory, a company relies upon management to steer it towards financial success. Some believe that management is the most important aspect for investing in a company. It makes sense - even the best business model is doomed if the leaders of the company fail to properly execute the plan.

So how does an average investor go about evaluating the management of a company?

This is one of the areas in which individuals are truly at a disadvantage compared to professional investors. You can't set up a meeting with management if you want to invest a few thousand dollars. On the other hand, if you are a fund manager interested in investing millions of dollars, there is a good chance you can schedule a face-to-face meeting with the upper brass of the firm.

Every public company has a corporate information section on its website. Usually there will be a quick

biography on each executive with their employment history, educational background and any applicable achievements. Don't expect to find anything useful here. Let's be honest: We're looking for dirt, and no company is going to put negative information on its corporate website.

Instead, here are a few ways for you to get a feel for management:

1. Conference Calls

The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) host quarterly conference

calls. (Sometimes you'll get other executives as well.) The first portion of the call is management basically reading off the financial results. What is really interesting is the question-and-answer portion of the call. This is when the line is open for analysts to call in and ask management direct questions. Answers here can be revealing about the company, but more importantly, listen for candor. Do they avoid questions, like politicians, or do they provide forthright answers?

2. Management Discussion and Analysis (MD&A)

The Management Discussion and Analysis is found at the beginning of the annual report (discussed

in more detail later in this tutorial). In theory, the MD&A is supposed to be frank commentary on the

management's outlook. Sometimes the content is worthwhile, other times it's boilerplate. One tip is to

compare what management said in past years with what they are saying now. Is it the same material rehashed? Have strategies actually been implemented? If possible, sit down and read the last five years of MD&As; it can be illuminating.

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3.

Ownership and Insider Sales

Just about any large company will compensate executives with a combination of cash, restricted stock and

options. While there are problems with stock options (See Putting Management Under the

Microscope), it is a positive sign that members of management are also shareholders. The ideal situation

is when the founder of the company is still in charge. Examples include Bill Gates (in the '80s and '90s), Michael Dell and Warren Buffett. When you know that a majority of management's wealth is in the stock, you can have confidence that they will do the right thing. As well, it's worth checking out if management has

been selling its stock. This has to be filed with the Securities and Exchange Commission (SEC), so

it's publicly available information. Talk is cheap - think twice if you see management unloading all of its shares while saying something else in the media.

4. Past Performance

Another good way to get a feel for management capability is to check and see how executives have done at other companies in the past. You can normally find biographies of top executives on company web sites. Identify the companies they worked at in the past and do a search on those companies and their performance.

Corporate Governance Corporate governance describes the policies in place within an organization denoting the relationships and

responsibilities between management, directors and stakeholders. These policies are defined and

determined in the company charter and its bylaws, along with corporate laws and regulations. The

purpose of corporate governance policies is to ensure that proper checks and balances are in place, making it more difficult for anyone to conduct unethical and illegal activities.

Good corporate governance is a situation in which a company complies with all of its governance policies

and applicable government regulations (such as the Sarbanes-Oxley Act of 2002) in order to look out

for the interests of the company's investors and other stakeholders.

Although, there are companies and organizations (such as Standard & Poor's) that attempt to

quantitatively assess companies on how well their corporate governance policies serve stakeholders,

most of these reports are quite expensive for the average investor to purchase.

Fortunately, corporate governance policies typically cover a few general areas: structure of the board of directors, stakeholder rights and financial and information transparency. With a little research and the right questions in mind, investors can get a good idea about a company's corporate governance.

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Financial and Information Transparency

This aspect of governance relates to the quality and timeliness of a company's financial disclosures and operational happenings. Sufficient transparency implies that a company's financial releases are written in a manner that stakeholders can follow what management is doing and therefore have a clear understanding of the company's current financial situation.

Stakeholder Rights This aspect of corporate governance examines the extent that a company's policies are benefiting stakeholder interests, notably shareholder interests. Ultimately, as owners of the company, shareholders should have some access to the board of directors if they have concerns or want something addressed. Therefore companies with good governance give shareholders a certain amount of ownership voting rights to call meetings to discuss pressing issues with the board.

Another relevant area for good governance, in terms of ownership rights, is whether or not a company

possesses large amounts of takeover defenses (such as the Macaroni Defense or the Poison Pill) or

other measures that make it difficult for changes in management, directors and ownership to occur. (To read

more on takeover strategies, see The Wacky World of M&As.)

Structure of the Board of Directors The board of directors is composed of representatives from the company and representatives from outside of the company. The combination of inside and outside directors attempts to provide an independent assessment of management's performance, making sure that the interests of shareholders are represented.

The key word when looking at the board of directors is independence. The board of directors is responsible for protecting shareholder interests and ensuring that the upper management of the company is doing the same. The board possesses the right to hire and fire members of the board on behalf of the shareholders. A

board filled with insiders will often not serve as objective critics of management and will defend their

actions as good and beneficial, regardless of the circumstances.

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Valuations

While the concept behind discounted cash flow analysis is simple, its practical application can be a

different matter. The premise of the discounted cash flow method is that the current value of a company is simply the present value of its future cash flows that are attributable to shareholders. Its calculation is as follows:

For simplicity's sake, if we know that a company will generate $1 per share in cash flow for shareholders every year into the future; we can calculate what this type of cash flow is worth today. This value is then compared to the current value of the company to determine whether the company is a good investment, based on it being undervalued or overvalued.

There are several different techniques within the discounted cash flow realm of valuation, essentially

differing on what type of cash flow is used in the analysis. The dividend discount model focuses on the

dividends the company pays to shareholders, while the cash flow model looks at the cash that can be paid to shareholders after all expenses, reinvestments and debt repayments have been made. But conceptually they are the same, as it is the present value of these streams that are taken into consideration.

As we mentioned before, the difficulty lies in the implementation of the model as there are a considerable amount of estimates and assumptions that go into the model. As you can imagine, forecasting the revenue and expenses for a firm five or 10 years into the future can be considerably difficult. Nevertheless, DCF is a valuable tool used by both analysts and everyday investors to estimate a company's value.

For more information and in-depth instructions, see the Discounted Cash Flow Analysis tutorial.

Ratio Valuation Financial ratios are mathematical calculations using figures mainly from the financial statements, and they are used to gain an idea of a company's valuation and financial performance. Some of the most well-known

valuation ratios are price-to-earnings and price-to-book. Each valuation ratio uses different measures

in its calculations. For example, price-to-book compares the price per share to the company's book value.

The calculations produced by the valuation ratios are used to gain some understanding of the company's value. The ratios are compared on an absolute basis, in which there are threshold values. For example, in price-to-book, companies trading below '1' are considered undervalued. Valuation ratios are also compared to the historical values of the ratio for the company, along with comparisons to competitors and the overall market itself.

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Conclusion

Whenever you’re thinking of investing in a company it is vital that you understand what it does, its market

and

the

industry

in

which it operates. You should never blindly invest in a company.

One of the most important areas for any investor to look at when researching a company is the financial

statements. It is essential to understand the purpose of each part of these statements and how to interpret

them.

Let's recap what we've learned:

Financial reports are required by law and are published both quarterly and annually.

Management discussion and analysis (MD&A) gives investors a better understanding of what the company does and usually points out some key areas where it performed well.

Audited financial reports have much more credibility than unaudited ones.

The balance sheet lists the assets, liabilities and shareholders' equity.

For all balance sheets: Assets = Liabilities + Shareholders’ Equity. The two sides must always equal each other (or balance each other).

The income statement includes figures such as revenue, expenses, earnings and earnings per share.

For a company, the top line is revenue while the bottom line is net income.

The income statement takes into account some non-cash items, such as depreciation.

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The cash flow statement strips away all non-cash items and tells you how much actual money the company generated.

The cash flow statement is divided into three parts: cash from operations, financing and investing.

Always read the notes to the financial statements. They provide more in-depth information on a wide range of figures reported in the three financial statements.

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RESEARCH METHODOLOGY

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PROBLEM STATEMENT:-

Recent Performance of cement sector

RESEARCH OBJECTIVES:-

To examine overall financial performance of the cement Sector

Research Methodology and analysis

The methods used are fundamental basic analysis from “STRATEGIC FINANCIAL MANAGEMENT”. The companies financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex, change in working capital, has been calculated on net block taking Fy 06 as a base year, and then it was calculated with different growth rates such as 5%, 8%, 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100. it has been calculated from 1997-2006. it has been compared along with other 4 companies it ROCE has been taken among the 5 companies.

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DATA ANALYSIS AND INTERPRETATION

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Birla Corporation Ltd.

Birla Corporation Ltd.(formerly Birla Jute & Industries), a part of M P Birla Group was established in 1919. The company is into manufacture of cement, jute products, auto- ancillaries, PVC floor coverings, wallpapers, coated cotton fabrics, etc. Its also has its presence in steel industry.

The company's cement capacity of 4.78 million tpa were spread in its four cement units located in Madhya Pradesh, Uttar Pradesh, Rajasthan and West Bengal. But the jute, carbide, gases, synthetic viscose/cotton yarn and PVC flooring & wall covering divisions are in West Bengal. It also has a steel casting unit in Madhya Pradesh. The Auto Trim division of the company has three plants, each in West Bengal, Maharashtra and Haryana.

The subsidiaries of the company are Assam Jute Supply Company Ltd, Talavadi Cements Ltd and Lok Cements Ltd.

In 1994-95, two units of the company Durgapur Cement Works and Birla Synthetics were awarded the ISO 9002 certification. Satna Cement Works and the jute division have also obtained the same certification. In 1996-97, the company installed 2 DG sets of 6 MW capacity each at Satna and one DG set of similar capacity at Chittor.

The company modernized/upgraded one of its plants at Cittor Cement Works at Chittorgarh during 2001-02. The installed capacity at Chittorgarh and the Company as a whole increased to 20.00 lac tonnes. And debottlenecking carried out in Chittorgarh plant and installed capacity was also increased to 45.10 lac tonnes.

The company come out with a rights issue of 2,20,01,528 ordinary shares of Rs 10 each for cash at a premium of Rs 9 per share aggregating to Rs 41.8 cr to the existing ordinary shareholders of the company in the ratio of 2:5. An expansion project was also taken up at Raebareli which was completed and as a result the capacity of Cement Grinding was

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enhanced to 6.30 lac tonnes from 3.60 lac tonnes. With this expansion the total installed capacity of the cement has increased to 47.80 lac tonnes p.a. The company has expanded its installed capacity of Auto Trim Parts by 36000 Pcs. during 2004-05 and with this expansion the total installed capacity of Auto Trim Parts has increased to 603000 Pcs.

During April 2004 the company has decided to close its Birla Synthetics at Birlapur and in February 2005 the Birla Carbide & Gases unit at Birlapur, since there has been no production in these units.

The company has commenced commercial production in its new unit Durga Hitech Cement at Durgapur, which has a capacity to manufacture 1 Million tonnes Cement during December 2005.

Chettinad Cement Corporation Ltd

Incorporated in the year 1962, Chettinad Cement Corporation (CCCL) has been awarded the ISO 9002 certificate by the Bureau of Indian Standards, in 1994. It is the first company in Tamilnadu to be honored with the certificate, in the field of mining. CCCL has diversified into shipping. Its shipping fleet consisits of two bulk carriers viz m.v. Chettinand Tradition and m.v. Chettinad Prince. The Second Cement plant at Karikkali,Tamil Nadu faced some teething problem in 2002 and in 2003 the plant was successful in making it fully operational with optimum efficiency. During 2002-03 the comapny completed the Rights Issue of 84,31,700 equity shares in the ratio of 2:5 at a premium of Rs.26/- per share.

The company has commissioned a 15 MW Captive Thermal Plant at its plant at Karikal during October 2004.The Karur unit of Chettinad Cements has been functioning with the highest operating ratio for any cement unit in the southern region. In Sep. 94, the company commissioned 16 wind power generators near Poolavadi, Coimbatore. In addition, 26 wind power generators have been installed in Mar.'95, in the same place. While 12 No of 225 KW each of Wind Power Generator commissioned in 1995-96.

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Totally 66 wind power generators for a capacity of 17.35 MW have been installed in four

phases and they are functioning well. The project was financed by the Industrial Finance

Corporation of India (IFCI) and internal accruals.

CCCL has diversified into shipping. Its shipping fleet consisits of two bulk carriers viz

m.v. Chettinad Tradition and m.v. Chettinad Prince. The Second Cement plant at Karikkali,Tamil Nadu faced some teething problem in 2002 and in 2003 the plant was successful in making it fully operational with optimum efficiency. During 2002-03 the company completed the Rights Issue of 84,31,700 equity shares in the ratio of 2:5 at a premium of Rs.26/- per share.

The company has commissioned a 15 MW Captive Thermal Plant at its plant at Karikal

during October 2004.

India Cements Ltd(ICL)

India Cements Ltd(ICL) was established in Feb.'46, it is a diversified company with interests in cement, shipping and real estate development. The first cement unit was commissioned in 1949 at Sankarnagar, Tamilnadu. By 1970, the capacity was raised to 9.1 lac tpa. The second cement plant at Sankari, Tamilnadu, was commissioned in 1963,

with a capacity of 2 lac tpa, which was increased to 4 lac tpa in 1966 and to 6 lac tpa in

1971.

The subsidiaries of the company are ICL Securities Ltd, ICL International Ltd, Industrial Chemicals & Monomers Ltd and ICL Financial Services Ltd.

In 1990 with ICL's acquisition of Coromandel Cement plant at Cuddapah, installed Capacity rose to 2.6 million tonnes per annum. During 1991-92, the company started shipping activities by time-chartering dry bulk-cargo carriers. In 1994 ICL successfully floated a US$ 50 million GDR issue. In 1995 it announced a 1:1 Bonus. It acquired its fifth bulk carrier in 1995. The company is also engaged in real estate and property development and it also has a wind farm in Coimbatore.

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In 1996 ICL's green field cement plant at Dalavoi commenced commercial production with an Installed capacity 90,000 TPA. In 1997 India cements acquired Aruna Sugars Finance Ltd which was later renamed as India Cements Capital & Finance Ltd. It also acquired Cement Plant of Visaka Cement Industry, at Tandur, Ranga Reddy district of Andhra Pradesh with Installed capacity 9,00,000 Tonnes.

The cement division of Raasi Cement (RCL) was vested with the company from Apr.'98 under a scheme of arrangement. Also during the same year the company hived off its shipping division to ICL Shipping (ICLS). It also acquired Cement Corporation of India's Yerraguntla Cement Plant at Andhra Pradesh with an Installed capacity 4,00,000 Tonnes.

In Oct.'99, ICL Securities, the company wholly owned subsidiary acquired 49.05% of the equity share capital in Sri Vishnu Cement (SVCL), simultaneously, Raasi Cement also acquired 39.5% of the equity capital of SVCL. At present the company along with its subsidiary holds 94.16% of the share capital of SVCL and is now a subsidiary of the company.

The upgradation of the Chilamakur cement plant to 3800 TPD has been completed. The upgradation in another group company -- Sri Vishnu Cement -- from 2750 TPD of clinker to 3400 TPD was complete in the fiscal 2001.

During 2001-02, the company has launched a portal 'homztoday.com' containing A to Z on home making. This is a comprehensive web site focusing on a variety of home needs and providing various categories of users information ranging from property purchase to locating any type of service provider to homes.

During 2004-05, the unique Waste Heat Recovery System for generation of power from waste gas at Vishnupuram plant was commissioned with generating power of 7.7MW. Currently, the plant locations of the company are at Sankarnagar, Sankari and Dalavoi in Tamilnadu, Chilamakur, Yerraguntla and Vishnupuram in Andhra Pradesh.

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Madras Cements Ltd(MCL)

Madras Cements Ltd(MCL), a flagship of the Ramco group, is a major player in the blended cement category in South India and is very popular for its Ramco brands of cements like `Ramco super steel cement' and `Ramco super grade cement'. It also operates a ready mix concrete plant (RMC) near Chennai.

Between 1980 and 1985, it undertook a modernization programme and replaced its four cement mills in R N Nagar, Tamilnadu, with a single new combined cement mill which ensured substantial reduction in energy and operation costs. In 1986, MCL implemented one more cement plant in Jayanthipuram, Andhra Pradesh.

In 1990-91, the company expanded the capacity of its factory by 100000 tpa at an estimated cost of Rs 21.5 cr. In 1992-93, it diversified into power generation by setting up a 4-MW windmill at Muppandal in Kanyakumari, Tamilnadu, which was upgraded by adding eight wind turbines of 250 kW, thereby taking the generation capacity to 6 MW. In 1994-95, 70 additional wind mills were installed in Poolavadi, TN. The total Installed capacity of these plants, consisting 123 Wind Energy Generators is 34.44 MW. During 2004-05, The company commissioned a 36 MW Thermal Power Plant at Alathiyur.

The company, for the first time in India, commissioned a surface mine to modernize the mine operations at Ramasamyraja Nagar factory. The company received ISO 9002 certification for its units in Ramasamyraja Nagar, Alathiyur and ready mix concrete unit in Vengaivasal.

During 1999-00, the company's slag grinding project at Jayanthipuram for manufacture of blended cement was commissioned and also the capacity of the Alathiyur unit was expanded by 0.2 million TPA. The company's second unit at Alathiyur with a capacity of 15 lac tonnes at an estimated cost of Rs 300 crore was commissioned up to the clinkerisation in Jan.'01. The cement mill was commissioned in May '01. The klin fitted with cross bar cooler, the first of its kind outside US and the Vertical mill for cement

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grinding, the highest of its kind in Asia set up in Alathiyur Unit.

The company took over the assets of Karnataka Minerals & Manufacturing Co, a mini cement plant situated at Mathodu, Hosadurga Taluk, Chitradurga Dist. The second klin at R Nagar was upgraded in May'01 with the installation of fixed inlet segment to the cooler, new calciner and modifying preheater cyclone, thereby increasing the capacity of the unit to 11 lac TPA of blended cement.

The company's new project Dry Motor Plant for manufacture of high technology construction products such as render, skimcoat and dryconcrete started production from January 2003 in Sriperumbudur, with the help of M.Tech, Germany who conducted the training assistance to the architects, consultants, builders and contractors to know about the advantages of new product.

The company subdivided its value of Equity shares from Rs 100/- to Rs.10/- in the ratio 1:10 with effective from Nov. 06, 2003

Madras Cements Ltd(MCL)

Madras Cements Ltd(MCL), a flagship of the Ramco group, is a major player in the blended cement category in South India and is very popular for its Ramco brands of cements like `Ramco super steel cement' and `Ramco super grade cement'. It also operates a ready mix concrete plant (RMC) near Chennai.

Between 1980 and 1985, it undertook a modernization programme and replaced its four cement mills in R N Nagar, Tamilnadu, with a single new combined cement mill which ensured substantial reduction in energy and operation costs. In 1986, MCL implemented one more cement plant in Jayanthipuram, Andhra Pradesh.

In 1990-91, the company expanded the capacity of its factory by 100000 tpa at an estimated cost of Rs 21.5 cr. In 1992-93, it diversified into power generation by setting up a 4-MW windmill at Muppandal in Kanyakumari, Tamilnadu, which was upgraded by

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adding eight wind turbines of 250 kW, thereby taking the generation capacity to 6 MW. In 1994-95, 70 additional wind mills were installed in Poolavadi, TN. The total Installed capacity of these plants, consisting 123 Wind Energy Generators is 34.44 MW. During 2004-05, The company commissioned a 36 MW Thermal Power Plant at Alathiyur.

The company, for the first time in India, commissioned a surface mine to modernize the mine operations at Ramasamyraja Nagar factory. The company received ISO 9002

certification for its units in Ramasamyraja Nagar, Alathiyur and ready mix concrete unit

in Vengaivasal.

During 1999-00, the company's slag grinding project at Jayanthipuram for manufacture

of blended cement was commissioned and also the capacity of the Alathiyur unit was

expanded by 0.2 million TPA. The company's second unit at Alathiyur with a capacity of 15 lac tonnes at an estimated cost of Rs 300 crore was commissioned up to the clinkerisation in Jan.'01. The cement mill was commissioned in May '01. The klin fitted with cross bar cooler, the first of its kind outside US and the Vertical mill for cement grinding, the highest of its kind in Asia set up in Alathiyur Unit.

The company took over the assets of Karnataka Minerals & Manufacturing Co, a mini

cement plant situated at Mathodu, Hosadurga Taluk, Chitradurga Dist. The second klin at

R Nagar was upgraded in May'01 with the installation of fixed inlet segment to the

cooler, new calciner and modifying preheater cyclone, thereby increasing the capacity of the unit to 11 lac TPA of blended cement.

The company's new project Dry Motor Plant for manufacture of high technology construction products such as render, skimcoat and dryconcrete started production from January 2003 in Sriperumbudur, with the help of M.Tech, Germany who conducted the training assistance to the architects, consultants, builders and contractors to know about the advantages of new product.

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The company subdivided its value of Equity shares from Rs 100/- to Rs.10/- in the ratio 1:10 with effective from Nov. 06, 2003

K C P Ltd

A multi-product company with two sugar mills, a downstream distillery, a cement plant and an engineering division, KCP was initially a sick sugar unit (cap. : 600 tpd). It was taken over by the late Velagapudi Ramakrishna in 1941. The merger of Challapalli Sugars - a BIFR company - with it in 1988 and expansions have increased its sugar capacity tenfold to 6300 tpd over the last five decades.

The cement factory, set up in 1958, was the first dry process plant in India. The engineering division was set up in 1955 as an in-house venture to manufacture sugar machinery required by the company. Manufacture of machinery required for cement, chemicals, steel castings, etc, were later added to this division. Both the cement and engineering divisions have been accredited with the ISO 9002 and ISO 9001 certification respectively in 1994.

KCP hived off its sugar and industrial alcohol business, which was transferred to a new company, KCP Sugar Industries Corporation. The Company also undertook a joint venture with Vantech Industries for the manufacture of specialized insecticides. KCP promoted FCB-KCP, a joint venture with FCB, France, in a 40:40 equity participation. The new company is to manufacture and supply state-of-the-art machinery and technology to clients in the sugar industry both in India and abroad.

The cement unit of the company continues to retain the ISO 9001 certification while the engineering unit was accredited to use the symbol 'S' and 'U' of the American Society of Mechanical Engineers (ASME) for the manufacture and assembly of power boilers and pressure vessels, respectively on 15 May'96. KCP has also received the Certificate of Merit for outstanding export performance during 1994-95 among Non-SSI exporters in industrial machinery panel for manufacture of sugar, paper, chemical, cement and pharmaceuticals.

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The company had set up 5 mini-hydol units aggregating 8.25 MW capacity in the Guntur branch canal of the Nagarjuna Sagar Dam. Electricity generated in this unit is wheeled to the cement unit for use. During 2001-02 the company entered into an agreement with Andhra Pradesh Transmission Corporation Limited(APTRANSCO) for wheeling the generated energy at Hydel stations to the cement plant with a wheeling charge of 2% fixed for a period of 20 years.

ANALYSIS.

Financial Analysis of Birla Corporation Ltd. The companies financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex , change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23 cr was taken as a base as Net Block and then it was calculated with different growth rates such as 5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100. it has been calculated from 1997-2006. it has been compared along with other 4 companies it ROCE stands at 4 th place among the 5 companies. the average expenses percentage of other 4 companies is 82.63 where its expenses percentage is 94.28 .the average 5 of expenses is taken as 82%. Ebit has also been calculated on various growth rates.

BIRLA

DEBT

271.78

D/E

0.76

EQUITY

65.2272

 

INTEREST

13.62

WACOC=

KeWe*KdWd

Kd=

5.011406

 

Ke=

15

%

TAX

30%

WACOC=

6.27

TOTAL CAPITAL

337.01

The terminal value is calculated as 10 th year FCFF (wacoc-growth rate)*100 Value of equity per share varied from 789.39 at growth rate of 5% to -1515.11 at 8% to - 967.92 at 12% and -945.36 at 15%. Value of firm is at 6350.54 at 5% growth rate to - 11395.39 at 8% to -7181.73 at 12% and -7007.98 at 15%.value of debt is 271.78 cr.

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Value of equity varied from 6078.76 at 5% to -11667.17 at 8% to -7453.51 at 12% and - 7279.76 at 15%.

Financial Analysis of Chettinad cements Ltd. The companies financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex , change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23 cr was taken as a base as Net Block and then it was calculated with different growth rates such as 5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100. it has been calculated from 1997-2006. it has been compared along with other 4 companies it ROCE stands at 3rd place among the 5 companies. the average expenses percentage of other 4 companies is 82.63 where its expenses percentage is 76.29.it has been below average ,the average 5 of expenses is taken as 82%. Ebit has also been calculated on various growth rates.

chettinad cement

DEBT

304.91

D/E

1.96

EQUITY

597.6236

 

INTEREST

19.41

WACOC=

KeWe*KdWd

Kd=

6.365813

 

Ke=

15

%

TAX

30%

WACOC=

8.25

TOTAL CAPITAL

902.53

The terminal value is calculated as 10 th year FCFF( wacoc-growth rate)*100 Value of equity per share varied from -86.72 at growth rate of 5% to 400.63 at 8% to 4.88 at 12% and 287.76 at 15%. Value of firm is at -2286.66 at 5% growth rate to 12124.93 at 8% to 306.35 at 12% and 1153.89 at 15%.value of debt is 304.91 cr. Value of equity varied from -2591.57 at 5% to 11820.02 at 8% to 1.44 at 12% and 848.98 at 15%.

M.P.BIRLA INSTITUTE OF MANAGEMENT

Financial Analysis of India Cements Ltd. The companies financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex , change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23 cr was taken as a base as Net Block and then it was calculated with different growth rates such as 5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100. it has been calculated from 1997-2006. it has been compared along with other 4 companies it ROCE stands at last place among the 5 companies. the average expenses percentage of other 4 companies is 82.63 where its expenses percentage is 83.22 .the average 5 of expenses is taken as 82%. Ebit has also been calculated on various growth rates. India Cement

DEBT

1,525.24

D/E

2.81

EQUITY

4285.9244

 

INTEREST

148.93

WACOC=

KeWe*KdWd

Kd=

9.764365

 

Ke=

15

%

TAX

30%

WACOC=

8.98

TOTAL CAPITAL

5,811.16

The terminal value is calculated as 10 th year FCFF( wacoc-growth rate)*100

Value of equity per share varied 1475.75 at growth rate of 5% to 728.43 at 8% to -314.3 at 12% and -354.98 at 15%. Value of firm is at 3625.04 at 5% growth rate to 16421.52 at 8% to -6557.47 at 12% and -7453.97 at 15%.value of debt is 368.94cr. Value of equity varied from 3256.1 at 5% to 16052.58 at 8% to -6926.41 at 12% and -7822.91 at 15%.

M.P.BIRLA INSTITUTE OF MANAGEMENT

Financial Analysis of K C P Ltd. The companies financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex , change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23 cr was taken as a base as Net Block and then it was calculated with different growth rates such as 5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100. it has been calculated from 1997-2006. it has been compared along with other 4 companies it ROCE stands at 2 nd place among the 5 companies. the average expenses percentage of other 4 companies is 82.63 where its expenses percentage is 90.8 .the average 5 of expenses is taken as 82%. Ebit has also been calculated on various growth rates. K.C.P.LTD

DEBT

60.71

D/E

0.52

EQUITY

31.5692

 

INTEREST

4.44

WACOC=

KeWe*KdWd

Kd=

7.313457

 

Ke=

15

%

TAX

30%

WACOC=

9.86

TOTAL CAPITAL

 

92.28

The terminal value is calculated as 10 th year FCFF( wacoc-growth rate)*100 Value of equity per share varied from -145.5 at growth rate of 5% to -2209.19 at 8% to 785 at 12% and 1096.28 at 15%. Value of firm is at -126.87 at 5% growth rate to -11395.39 at 8% to - 7181.73 at 12% and -7007.98 at 15%.value of debt is 60.71 cr. Value of equity varied from - 187.58 at 5% to -2269.9 at 8% to 724.29 at 12% and 1035.57 at 15%.

M.P.BIRLA INSTITUTE OF MANAGEMENT

Financial Analysis of Madras cements Ltd. The companies financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex , change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23 cr was taken as a base as Net Block and then it was calculated with different growth rates such as 5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100. it has been calculated from 1997-2006. it has been compared along with other 4 companies it ROCE stands at 1 st place among the 5 companies. the average expenses percentage of other 4 companies is 82.63 where its expenses percentage is 73.88 .the average 5 of expenses is taken as 82%. Ebit has also been calculated on various growth rates.

madras cement

DEBT

602.44

D/E

1.78

EQUITY

1072.3432

 

INTEREST

36.3

WACOC=

KeWe*KdWd

Kd=

6.025496

 

Ke=

15

%

TAX

30%

WACOC=

8.10

TOTAL CAPITAL

1,674.78

The terminal value is calculated as 10 th year FCFF( wacoc-growth rate)*100 Value of equity per share varied from -371.59 at growth rate of 5% to 901.83at 8% to -107.62 at 12% and -106 at 15%. Value of firm is at -3469.72 at 5% growth rate to 109524.6at 8% to – 12395.81 at 12% and -12199.99 at 15%.value of debt is 602.44 cr. Value of equity varied from - 4072.16 at 5% to -108922.16 at 8% to -12998.25 at 12% and -12802.43 at 15%.

M.P.BIRLA INSTITUTE OF MANAGEMENT

Financial Analysis

M.P.BIRLA INSTITUTE OF MANAGEMENT

CHANGE IN CAPEX

M.P.BIRLA INSTITUTE OF MANAGEMENT

M.P.BIRLA INSTITUTE OF MANAGEMENT

Birla corporation Ltd.

 

STATEMENT SHOWING CHANGE IN CAPEX AT 5% GROWTH

 

5%

BASE

1

2

3

4

5

6

7

8

9

10

NET BLOCK

500.23

525.24

551.50

579.08

608.03

638.43

670.36

703.87

739.07

776.02

814.82

CHANGE IN CAPEX

 

25.01

26.26

27.58

28.95

30.40

31.92

33.52

35.19

36.95

38.80

 

STATEMENT SHOWING CHANGE IN CAPEX AT 8% GROWTH

 

8%

BASE

1

2

3

4

5

6

7

8

9

10

NET BLOCK

500.23

540.25

583.47

630.15

680.56

735.00

793.80

857.31

925.89

999.96

1079.96

CHANGE IN CAPEX

 

40.02

43.22

46.68

50.41

54.44

58.80

63.50

68.58

74.07

80.00

 

STATEMENT SHOWING CHANGE IN CAPEX AT 12% GROWTH

 

12%

BASE

1

2

3

4

5

6

7

8

9

10

NET BLOCK

500.23

560.26

627.49

702.79

787.12

881.58

987.37

1105.85

1238.55

1387.18

1553.64

CHANGE IN CAPEX

 

60.03

67.23

75.30

84.33

94.45

105.79

118.48

132.70

148.63

166.46

 

STATEMENT SHOWING CHANGE IN CAPEX AT 15% GROWTH

 

15%

BASE

1

2

3

4

5

6

7

8

9

10

NET BLOCK

500.23

575.26

661.55

760.79

874.91

1006.14

1157.06

1330.62

1530.22

1759.75

2023.71

CHANGE IN CAPEX

 

75.03

86.29

99.23

114.12

131.24

150.92

173.56

199.59

229.53

263.96

Chettinad cements ltd.

 

STATEMENT SHOWING CHANGE IN CAPEX AT 5% GROWTH

 

5%

BASE

1

2

3

4

5

6

7

8

9

10

NET BLOCK

479.48

503.45

528.63

555.06

582.81

611.95

642.55

674.68

708.41

743.83

781.02

CHANGE IN CAPEX

 

23.97

25.17

26.43

27.75

29.14

30.60

32.13

33.73

35.42

37.19

 

STATEMENT SHOWING CHANGE IN CAPEX AT 8% GROWTH

 

8%

BASE

1

2

3

4

5

6

7

8

9

10

NET BLOCK

479.48

517.84

559.27

604.01

652.33

704.51

760.87

821.74

887.48

958.48

1035.16

CHANGE IN CAPEX

 

38.36

41.43

44.74

48.32

52.19

56.36

60.87

65.74

71.00

76.68

 

STATEMENT SHOWING CHANGE IN CAPEX AT 12% GROWTH

 

12%

BASE

1

2

3

4

5

6

7

8

9

10

NET BLOCK

479.48

537.02

601.46

673.63

754.47

845.01

946.41

1059.98

1187.17

1329.64

1489.19

CHANGE IN CAPEX

 

57.54

64.44

72.18

80.84

90.54

101.40

113.57

127.20

142.46

159.56

M.P.BIRLA INSTITUTE OF MANAGEMENT

 

STATEMENT SHOWING CHANGE IN CAPEX AT 15% GROWTH

   
 

15%

BASE

1

 

2

 

3

 

4

 

5

 

6

 

7

 

8

 

9

 

10

NET BLOCK

479.48

551.40

 

634.11

729.23

838.61

964.41

1109.07

1275.43

1466.74

1686.75

 

1939.76

CHANGE IN CAPEX

 

71.92

 

82.71

 

95.12

109.38

125.79

144.66

166.36

 

191.31

 

220.01

 

253.01

 

India Cements Ltd.

 
 

STATEMENT SHOWING CHANGE IN CAPEX AT 5% GROWTH

 

5%

BASE

1

 

2

 

3

 

4

 

5

 

6

 

7

 

8

 

9

10

NET BLOCK

2083.99

2188.19

2297.60

2412.48

2533.10

2659.76

2792.75

2932.38

3079.00

3232.95

3491.59

CHANGE IN CAPEX

 

104.20

109.41

114.88

120.62

126.66

132.99

139.64

146.62

153.95

258.64

 

STATEMENT SHOWING CHANGE IN CAPEX AT 8% GROWTH