Project on Fiancial Management

Ambuja Cements Ltd.

Introduction about the Company:-

Formerly known as Gujarat Ambuja Limited, Ambuja Cements Limited is a major Cement producing
company in India. The Group's principal activity is to manufacture and market cement and clinker for both domestic
and export markets. Gujarat Ambuja Cements was promoted as a joint venture, in 1981, between Gujarat Industrial
Investment Corporation & N.S.Sekhsaria. Beginning with a 0.7 million tonne cement plant, the company has grown
into a 19.3 million tonne entity through regular capacity additions and acquisitions. It is one of the major cement
manufacturers in the country with plants located across Indian territory, except Southern India. To reflect the
geographical presence of the company, its name was changed to Ambuja Cements w.e.f. 5th April, 2007. Cement
manufactured by the company is marketed under the tag of `Ambuja Cement', which enjoys a strong brand image.
In January 2006 Swiss based global cement giant, Holcim, entered Ambuja Cement by purchasing a 14.8
per cent stake in the company from its promoters. The deal amounted to Rs.2,100 crore, translating into a
consideration of Rs.105 per share. The Holcim group held 45.68 per cent stake in the company as of March 2008.

Influencing Macro-economic Policies during 2005-2009 :-

2005:
Budget Policies:
 Customs duty on pet coke reduced from 20% to 10%
 Customs duty on cement reduced from 20% to 15% in line with the reduction in peak customs duty rate.
 Deduction of upto Rs 1 lakh on the repayment of principal amount of housing loan.
Budget Impact:
 The Sales has increased drastically due to the above reform of Loan Reduction.(See in Exhibit:2)

2006:
Budget Policy:
 Customs duty on cement reduced from 15% to 12.5% in line with the reduction in peak customs duty
Budget Impact:
 The reduction in customs duty on cement would have no impact on the domestic cement sector as strong
international cement prices and lack of adequate port facilities would continue to protect domestic cement
players.

2007:
Budget Policies:
 Differential excise duties levied on cement.
 Freight rates on cement remained unchanged but a discount of 40% on incremental bag loading has been
recommended.
 A slew of incentives to be doled out for the housing sector
 The government has increased budgetary allocation for roads under NHDP.

2008:
Global Recession started in this period.
Budget Policies:
 A slew of incentives to be doled out for the housing sector particularly in the rural areas. The interest rate on
housing loan has been reduced.
 Coal regulator to be appointed.
 From a differential excise duty levied last year, the budget this year proposed a flat rate Rs 400 per MT bulk
cement or 14% ad valorem, whichever is higher and cement clinkers excise duty at Rs 450 per MT.
Budget Impact:
 Due to increase on tax, the Cost to company increased and hence could not make more Income even with
increase in Sales.(See in Exhibit:2).

2009:
Budget Policies:
 Customs duty exemption on concrete batching plants of capacity 50 cubic metres per hour or more has
been withdrawn. Such plants will now attract customs duty of 7.5%
 Fringe benefit tax (FBT) abolished.
  A slew of incentives have been doled out for end users of cement such as the housing sector and
development of infrastructure
 Rate of minimum alternate tax (MAT) on book profits has been increased from 10% to 15%, but with a
provision of carrying forward the tax credit on MAT to ten years from the current seven years
Budget Impacts:
 The government has increased budgetary allocation for roads under NHDP. Further, with more incentives
being spelled out for the infrastructure and housing sector, cement manufacturers continued to benefit.
 The increased focus on infrastructure development and housing sector has raised demand for cement,
hence raised the Sales.

Financial Statements:-
Let us look at the Current Assets and Current Liabilities of the company as shown in the Exhibit-1.

Exhibit-1: a)Current Assets:- (all units in Rs.Crore)

Particulars Jun Jun Dec Dec Dec Dec

2004(12 m) 2005(12 m) 2006(18 m) 2007(12 m) 2008(12 m) 2009(12 m)
C1 Inventories 254.28 316.91 408.16 580.53 938.72 683.24
Raw materials, packing
C2 material, & stores & spares 178.32 231.25 323.46 440.85 712.98 506.94
Finished & semi-finished
C3 goods 75.81 85.34 84.4 139.38 225.74 176.3
Stock of constructions
C4 (including work in progress) 0.15 0.32 0.3 0.3 0 0
C5              
C6 Receivables 118.76 148.65 250.71 362.93 549.62 413.86
Sundry debtors
(outstanding less than six
C7 months) 39.65 42.89 78.26 143.96 222.67 150.02
Sundry debtors
(outstanding over six
C8 months) 3.06 2.95 1.69 1 1.84 2.18
Sundry debtors
C9 (outstanding from group cos) 0 0 7.47 12.46 2.59 2.54
C10 More than six months 0 0 0 0 0 0
C11 Less than six months 0 0 7.47 12.46 2.59 2.54
C12 Bills receivable 0 0 0 0 0 0
Accrued income, lease rent
C13 & other receivables 47.5 72.67 131.74 152.9 255.86 185.94
C14 Deposits 28.55 30.14 24.05 40.11 62.83 68.82
Sale of investments & other
C15 receivables 0 0 0.03 0.04 1.24 1.82
C16              
C17 Expenses paid in advance 25.42 23.16 68.7 0 0 0
C18 Cash & bank balance 68.81 86.52 378.07 642.55 849.83 880.68
C19
C20 Total Current Assets 467.27 575.24 1105.64 1586.01 2338.17 1977.78

b) Current Liabilities:- (all units in Rs.Crore)

Particulars Jun Jun Dec Dec Dec Dec

2004(12 m) 2005(12 m) 2006(18 m) 2007(12 m) 2008(12 m) 2009(12 m)
C1 Sundry creditors 215.5 222.29 441.7 573.96 881.71 922.28
Deposits & advances from
C2 customers & employees 35.56 36.39 61.46 82.08 100.83 122.21
C3 Interest accrued 19.01 19.66 16.19 5.67 5.16 5.16
C4 Share application money 0 0 0.01 0.01 0.15 0.15
C5 Other current liabilities 5.88 10.64 13.55 13.82 15.39 17.25
C6 Provisions for Bad Debts/ 71.34 106.77 168.68 493.55 470.56 674.04
 Corporate Tax/Employees
C7 Total Current liabilities 347.29 395.75 701.59 1169.09 1475.28 1735.93

The Current Assets and Current Liabilities can be verified from the Balance Sheets of the Company given in
Exhibit:3.

Working Capital = Current Assets – Current Liabilities

Following is a Table containing many important information to make out some important observations.

Exhibit:2:- Consolidated Data

Jun Jun Dec Dec Dec Dec
Particulars 2004(12 2005(12 2006(18 2007(12 2008(12 2009(12
m) m) m) m) m) m)
Sales 2819.03 3556.26 7141.54 6483.44 7117.03 7763.93
Total Income 3031.79 3624.84 7334.28 7521.18 7617.07 7986.1
PBDITA 797.75 919.86 2334.93 2826.96 2252.92 2130.08
Inventories 254.28 316.91 408.16 580.53 938.72 683.24
Receivables 118.76 148.65 250.71 362.93 549.62 413.86
Current Assets 467.27 575.24 1105.64 1586.01 2338.17 1977.78
Current Liabilities 347.29 395.75 701.59 1169.09 1475.28 1735.93
Net Working Capital 119.98 179.49 404.05 416.92 862.89 241.85
Total assets 4055.62 4089.34 5454.84 6566.92 7844.65 8892.96
Total liabilities 4055.62 4089.34 5454.84 6566.92 7844.65 8892.96
% of CA in Total Assets 11.52 14.07 20.27 24.15 29.81 22.24
% of LTA in Total Assets 88.48 85.93 79.73 75.85 70.19 77.76
% of CL in Total Liabilities 8.56 9.68 12.86 17.80 18.81 19.52
% of LTL in Total Liabilities 91.44 90.32 87.14 82.20 81.19 80.48
% of CA in Total Assets 11.52 14.07 20.27 24.15 29.81 22.24
% of Total Borrowings(from
Banks, cos) in Total
Liabilities 31.31 27.57 15.86 5.03 3.68 1.86

Figure:1 :- Working Captial Vs time(in yrs)

1000
900
800
700
600
500
400
300
200
100
0
1 2 3 4 5 6

Observations:-

1. From the above figure, Figure:1, we can see that Working Capital of the company increases with time
except at one year, 2009. Due to the Global Recession in 2008, the Current Liabilities (for Sundry Creditors)
increased, reducing the working capital.
 2. From Exhibit:2, it can be seen that, even if the total Liabilities were increasing, but % of total Borrowings
were decreasing. It may be due to following reasons:
i) When the Sundry Creditors were increasing, company thought of reducing the Borrowings to mitigate
the same.
ii) Company may be thinking of becoming Debt-free in a long run.

3. Inventories were increasing at a steady rate due to inflation, but at 2008, it rose to a high level due to the
high cost of Raw Materials. It may have happened due to the Recession.
4. There is a steep downfall in Working Capital during the year,2009.The reason for this may be due to the
following 2 reasons:
i) the decrease in cost of Inventory management from the previous year(which was the Recession year)
and,
ii) the decrease in EBDITA, for which the Sundry Creditors increased, hence Current Liabilities increased.

Reference Tables:

Exhibit-3 : Balance Sheet:-

a) Assets

Particulars Jun Jun Dec Dec Dec Dec

2004(12 m) 2005(12 m) 2006(18 m) 2007(12 m) 2008(12 m) 2009(12 m)
C1 Net fixed assets 2498.22 2363.34 3124.11 3656.65 5139.97 6154.47
C2 Investments 1010.98 1125.06 1133.12 1288.94 332.39 727.01
C3 Deferred tax assets 46.18 6.63 12.29 27.78 28.56 29.43
C4 Current assets 467.27 575.24 1105.64 1586.01 2338.17 1977.78
C5 Loans & advances 24.08 9.26 71.31 0.25 0.25 0.25
Deferred revenue
C6 expenditure 8.89 9.72 7.71 6.22 4.28 2.71
C7              
C8 Total assets 4055.62 4089.34 5454.84 6566.92 7844.65 8892.96

b) Liabilities

Particulars Jun Jun Dec Dec Dec Dec

2004(12 m) 2005(12 m) 2006(18 m) 2007(12 m) 2008(12 m) 2009(12 m)
C1 Net worth 2021.76 2178.42 3491.72 4661.25 5672.87 6470.9
C2              
C3 Total borrowings 1269.68 1127.45 865.38 330.42 288.67 165.7
C4 Bank borrowings 702.78 161.3 97.77 0 0 0
C5 ST bank borrowings 148.17 63.53 0 0 0 0
C6 LT bank borrowings 554.61 97.77 97.77 0 0 0
C7 Debentures / bonds 529.78 451.56 220 100 100 100
C8 Foreign borrowings 0 488.4 442.65 78.84 0 0
C9 Borrowings from cos 22.06 15.01 0 0 0 0
C10 Deferred credit 15.06 11.18 104.96 151.58 188.67 65.7
C11 Other borrowings 2.27E-13 0 0 0 5.68E-14 0
C12              
Current liabilities &
C13 provisions 347.29 395.75 701.59 1169.09 1475.28 1735.93
C14 Deferred tax liability 416.89 387.72 396.15 406.16 409.31 515.27