Financial Analysis of

Sidhee Cement

&

Ambuja Cement

Prepared By:-
Mihir Baliya(9)

Bhartendu Khatri (11)

Khilav Joshi(26)

Siddharth Manani(32)

Naveen Kumar Jain (40)

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Gujarat Ambuja Cements Ltd

Ambuja Cements was set up in 1986. In the last decade the company has grown tenfold. The
total cement capacity of the company is 18.5 million tonnes.

Its plants are some of the most efficient in the world. With environment protection measures that
are on par with the finest in the developed world.

Ambuja is the most profitable cement company in India, and one of the lowest cost producers
of cement in the world.

Annual Capacity of Cement Plants

Gujarat Sidhee Cement Ltd

Gujarat Sidhee Cement Limited (GSCL) was originally set up as a joint venture between the
Gujarat Industrial Investment Corporation and The Mehta Group. GSCL's plant is located at
Sidheegram in Sutrapada Taluka, District Junagadh, Gujrat State, India.

GSCL’s plant uses the latest Dry Process Pre-calcination technology comparable to international
standards. The state-of-the art plant makes use of machinery which is sourced from reputed
international companies. The plant, operating at over 100% capacities, is also one of India's cost
effective cement producers.

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GSCL's range of products (i.e. various grades of cements) are with long lasting strength and
suited for all applications that are requiring high compressive strengths. Following table
indicates compressive strength chart for GSCL 53 Grade cement.

Ratio Analysis:

Financial ratios are meaningful links between different entries of financial statements, as by
themselves the financial entries offer little to examine a company. In addition to providing
information about the financial health and prospects of a company, financial ratios also allow a
company to be viewed, in a relative sense, in comparison with its own historical performance,
others in its sector of the economy, or between any two companies in general. Major financial
ratios are discussed as below:

Measures of Profitability: RoA, RoE

Return on Assets (RoA) in its simplest form denotes the firm’s ability to generate profits given
its assets :
RoA = (Net Income + Interest Expenses)*(1- Tax Rate) / Average Total Assets
Return on Equity (RoE) is the return to the equity investor :
RoE = Net Income / Shareholder Funds
Sometimes this ratio is also calculated as RoAE, to account for recent capital raising by
the firm
Return on Average Equity = Net Income / Average Shareholder Funds
Return on Total Capital = Net Income + Gross Interest Expense / Average total capital

Measures of Liquidity
Short-term liquidity is imperative for a company to remain solvent. The ratios below get
increasingly conservative in terms of the demands on a firm to meet near-term payables.
Current ratio = Current Assets / Current Liabilities
Quick Ratio = (Cash + Marketable Securities + Receivables) / Current Liabilities
Acid test ratio = (Cash + Marketable Securities) / Current Liabilities
Cash Ratio = (Cash + Marketable Securities) / Current Liabilities

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Capital Structure and Solvency Ratios
Total debt to total capital = (Current Liabilities + Long-term Liabilities) /
(Equity + Total Liabilities)
Long-term Debt-Equity = Long-term Liabilities / Equity

Operating Performance
Gross Profit Margin = Gross Profit / Net Sales
Operating Profit Margin = Operating Income / Net Sales
Net Profit Margin = Net Income / Net Sales

Asset Utilization
These ratios look at the effectiveness of a firm to utilize its assets, especially its fixed assets. A
high turnover implies optimal use of assets. In addition to the two below there are others like
Sales to inventories and Sales to Working capital.
Total Asset Turnover = Net Sales / Average Total Assets
Fixed Asset Turnover = Net Sales / Average Net Fixed Assets

Ratio Analysis of Gujarat Ambuja Cement

Investment
Valuation Ratios Jun '05 Dec '06 Dec '07 Dec '08 Dec '09
Face Value 2 2 2 2 2
Dividend Per Share 1.8 3.3 3.5 2.2 2.4
Operating Profit
Per Share (Rs) 5.4 14.25 13.49 11.72 12.58

Earnings Per Share 3.46 9.91 11.62 9.21 8

Net Operating
Profit Per Share
(Rs) 19.21 41.05 37.25 40.6 46.49
Free Reserves Per
Share (Rs) 12.08 19.66 27.48 34.13 39.35
Bonus in Equity
Capital 71.98 64.15 63.92 63.91 63.86
Profitability Ratios
Operating Profit
Margin(%) 28.12 34.71 36.2 28.85 27.07
Profit Before 20.39 29.13 31.35 24.04 22.32
Interest And Tax

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Margin(%)
Gross Profit
Margin(%) 25.44 33.74 36.26 24.65 22.87
Cash Profit
Margin(%) 25.29 29.04 34.61 21.17 20.46
Adjusted Cash
Margin(%) 23.41 28.29 23.44 21.17 20.46
Net Profit
Margin(%) 17.85 23.86 30.53 22.11 16.78
Adjusted Net Profit
Margin(%) 15.93 23.09 19.35 22.11 16.78
Return On Capital
Employed(%) 16.94 43.76 38.84 28.19 27.04
Return On Net
Worth(%) 21.5 43.05 37.95 24.73 18.83
Adjusted Return on
Net Worth(%) 19.24 41.77 24.09 19.07 18.35
Return on Assets
Excluding
Revaluations 11.45 27.56 30.58 37.23 42.45
Return on Assets
Including
Revaluations 11.45 27.56 30.58 37.23 42.45
Return on Long
Term Funds (%) 16.94 43.77 38.84 28.19 27.04
Liquidity And Solvency
Ratios
Current Ratio 0.76 1.08 1.03 1.26 0.89
Quick Ratio 0.35 0.7 0.64 0.74 0.57
Debt Equity Ratio 0.52 0.25 0.07 0.05 0.03
Long Term Debt
Equity Ratio 0.52 0.25 0.07 0.05 0.03

Debt Coverage Ratios

Interest Cover 6.28 17.61 26.02 52.66 80.15
Total Debt to
Owners Fund 0.52 0.25 0.07 0.05 0.03
Financial Charges
Coverage Ratio 8.24 19.73 28.68 60.58 93.32
Financial Charges
Coverage Ratio
Post Tax 8.24 17.17 27.45 52.89 68.63

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Management Efficiency
Ratios
Inventory Turnover
Ratio 8.28 15.41 9.96 7.54 11.36
Debtors Turnover
Ratio 58.66 91.7 48.14 33.39 37.6
Investments
Turnover Ratio 9.55 17.19 11.13 7.54 11.36

Fixed Assets
Turnover Ratio 1.07 2.28 1.68 1.1 1.15
Total Assets
Turnover Ratio 0.79 1.43 1.14 1.05 1.08
Asset Turnover
Ratio 0.7 1.37 1.09 1.1 1.15

Cash Flow Indicator Ratios

Dividend Payout
Ratio Net Profit 46.06 34.98 35.22 27.94 35.1
Cash Earning
Retention Ratio 64.89 70.49 54.13 70.81 71.21

Book Value 16.11 23.01 30.62 37.26 42.47

Ratio Analysis of Gujarat Sidhee Cement:

Investment Mar Mar Sep Mar

Valuation ratios '05 '06 Mar '07 '08 '10
Face Value 10 10 10 10 10
Dividend Per
Share 0 0 0 0 0
Earnings Per
-1.39 0.89 3.62 3.37 3.96
Share
Operating Profit
Per Share (Rs) -0.28 2.73 5.23 4.61 6.6
Net Operating
Profit Per Share
(Rs) 12.72 20.12 27.52 39.71 44.73

Free Reserves Per

Share (Rs) -15.21 -14.06 -10.22 -6.85 -2.89
Bonus in Equity
Capital -- -- -- -- --

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Profitability
Ratios
Operating Profit
-2.18 13.57 18.98 11.59 14.75
Margin (%)
Profit Before
Interest And Tax -7.29 10.45 16.52 9.84 13.56
Margin (%)
Gross Profit
-6.13 10.6 16.6 9.92 13.62
Margin(%)
Cash Profit
-5.77 7.5 14.75 5.41 9.6
Margin(%)
Adjusted Cash
-5.73 6.4 14.75 5.41 9.6
Margin(%)
Net Profit
-10.88 4.41 13.08 8.42 8.81
Margin(%)
Adjusted Net Profit
-10.84 3.31 13.08 8.42 8.81
Margin(%)
Return On Capital
-7.39 18.19 34.3 52.14 75.44
Employed(%)
Return On Net -
24.56 -21.83 106.24 55.5
Worth(%) 1,825.0
Adjusted Return on
-- -- -- 47.35 53.37
Net Worth(%)
Return on Assets
Excluding -8.37 5.36 -0.2 3.18 7.14
Revaluations
Return on Assets
Including -8.37 5.36 -0.2 3.18 7.14
Revaluations
Return on Long
-7.57 18.88 34.76 52.14 75.45
Term Funds(%)
Liquidity And
Solvency Ratios
Current Ratio 2.6 2.07 2.59 1.52 1.51
Quick Ratio 0.62 0.44 0.93 0.46 0.79
Debt Equity Ratio -- -- -- 1.58 0.17
Long Term Debt
-- -- -- 1.58 0.17
Equity Ratio
Debt Coverage
Ratios
Interest Cover -1.65 3.37 5.81 35.74 40.35
Total Debt to
-- -- -- 1.58 0.17
Owners Fund

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 Financial Charges
-0.44 4.35 6.62 41.3 43.6
Coverage Ratio
Financial Charges
Coverage Ratio -0.36 3.37 6.27 34.77 29.62
Post Tax
Management
Efficiency Ratios
Inventory Turnover
7.14 11.82 29.64 73.51 44.26
Ratio
Debtors Turnover
8.98 20.51 23.34 29.43 22.22
Ratio
Investments
16.16 26.44 29.64 73.51 44.26
Turnover Ratio
Fixed Assets
3.14 4.34 1.84 2.52 2.75
Turnover Ratio
Total Assets
1.05 1.7 2.01 4.85 5.36
Turnover Ratio
Asset Turnover
0.96 1.52 1.84 2.52 2.75
Ratio
Cash Flow Mar Mar Sep Mar
Mar '07
Indicator Ratios '05 '06 '08 '10
Dividend Payout
0 0 0 0 0
Ratio Net Profit

Cash Earning
-- 100 100 100 100
Retention Ratio

AdjustedCash -- 12.31 3.41 2.32 0.28

Flow Times
Earnings Per
-1.39 0.89 3.62 3.37 3.96
Share
Book value per
-5.73 -4.25 -0.20 3.18 7.14
share

Altman’s model:
A predictive model created by Edward Altman in the 1960s. This model combines five different
financial ratios to determine the likelihood of bankruptcy amongst companies.

Generally speaking, the lower the score, the higher the odds of bankruptcy. Companies with Z-
Scores above 3 are considered to be healthy and, therefore, unlikely to enter bankruptcy. Scores
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in between 1.8 and 3 lie in a grey area.

This is a relatively accurate model -- real world application of the Z-Score successfully predicted
72% of corporate bankruptcies two years prior to these companies filing for Chapter 7.

The original Z-score formula was as follows: Z = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + 1.0T5

T1 = Working Capital / Total Assets. Measures liquid assets in relation to the size of the
company.

T2 = Retained Earnings / Total Assets. Measures profitability that reflects the company's age and
earning power.

T3 = Earnings Before Interest and Taxes / Total Assets. Measures operating efficiency apart from
tax and leveraging factors. It recognizes operating earnings as being important to long-term
viability.

T4 = Market Value of Equity / Book Value of Total Liabilities. Adds market dimension that can
show up security price fluctuation as a possible red flag.

T5 = Sales/ Total Assets. Standard measure for sales turnover (varies greatly from industry to
industry).

Altman’s model for Gujarat Ambuja Cement:

Jun '05 Dec '06 Dec '07 Dec '08 Dec '09
(0 (0 (0 (0 (0
T1 .07) .06) .05) .02) .09)

T2 0.08 0.24 0.25 0.18 0.13

T3 0.18 0.45 0.56 0.33 0.27

T4 0.12 0.02 0.02 0.01 0.02

T5 0.92 1.61 1.30 1.19 1.17

Z Score 1.63 3.36 3.44 2.53 2.14

Avg Z
Score 2.62

 The Z value of the company is has decreased in the year 08’ and 09’ which puts it in the
grey zone.
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Altman’s model for Sidhee cement:
Mar '05 Mar '06 Mar '07 Sep '08 Mar '10
(0 (0 (0
T1 .11) .13) 0.03 .22) 0.04
(0
T2 .11) 0.08 0.26 0.41 0.47
(0
T3 .07) 0.19 0.35 0.74 0.76

0.13

T4 0.07 0.10 0.09 0.12

T5 1.18 1.87 2.21 5.43 5.80

Z Score 0.69 2.51 3.82 8.25 9.10

Avg Z
Score 4.87

The Z value except for first two years has been above three which shows the healthy condition of
the company.

Calculation of Beta:

Ambuja Cement:
Return on Return on
Equity Market
43.0659088
Dec '06 2 48.11966833
Dec '07 37.9533387 34.87282237
24.7203628 -
Dec '08 7 16.05861458
18.8291457
Dec '09 1 6.470557135

Beta 0.336

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The beta of the Ambuja Cement is 0.336. This shows that the return of the Ambuja cement and
the return of market move in same direction. Also it is volatile. If the market return increases by
10%, the return on security decreases by 21.88%. The intercept is -49.80%. This is the expected
return of Ambuja Cement is -49.80% when the market return is zero.

Sidhee Cement:

Return on
Equity Return on Market
3.73371839
Mar '06 5 44.622857
17.9186201
Mar '07 7 46.72602
20.0435461
Sep '08 3 31.61177
30.7795626
Mar '10 7 -15.98784

Beta -0.308

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The beta of the Sidhee Cement is -0.308. This shows that the return of the Sidhee cement and the
return of market move in opposite direction. Also it is volatile. If the market return increases by
10%, the return on security decreases by 17.42%. The intercept is 50.009. This is the expected
return of Sidhee Cement is 50% when the market return is zero.

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Capital Asset Pricing Model (CAPM):

A model that describes the relationship between risk and expected return and that is used in the
pricing of securities.

The general idea behind CAPM is that investors need to be compensated in two ways: time value
of money and risk. The time value of money is represented by the risk-free (rf) rate in the
formula and compensates the investors for placing money in any investment over a period of
time. The other half of the formula represents risk and calculates the amount of compensation the
investor needs for taking on additional risk. This is calculated by taking a risk measure
(beta) that compares the returns of the asset to the market over a period of time and to the market
premium (Rm-rf).

The CAPM says that the expected return of a security or a portfolio equals the rate on a risk-free
security plus a risk premium. If this expected return does not meet or beat the required return,
then the investment should not be undertaken. The security market line plots the results of the
CAPM for all different risks (betas).

Using the CAPM model and the following assumptions, we can compute the expected return of a
stock in this CAPM example: if the risk-free rate is 3%, the beta (risk measure) of the stock is 2
and the expected market return over the period is 10%, the stock is expected to return 17% (3%
+2(10%-3%)).

Ambuja Sidhee
Cement Cement
Rm 18.35 18.35
Rf 8 8
Beta 0.336 -0.308

Ri 11.4776 4.8122

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Free cash flow & free cash flow to equity:
A measure of financial performance calculated as operating cash flow minus capital
expenditures. Free cash flow (FCF) represents the cash that a company is able to generate
after laying out the money required to maintain or expand its asset base. Free cash flow is
important because it allows a company to pursue opportunities that enhance shareholder value.
Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce
debt.
It is important to note that negative free cash flow is not bad in itself. If free cash flow is
negative, it could be a sign that a company is making large investments. If these investments earn
a high return, the strategy has the potential to pay off in the long run.

Free cash flow to equity is a measure of how much cash can be paid to the equity shareholders
of the company after all expenses, reinvestment and debt repayment.

Calculated as: FCFE = Net Income - Net Capital Expenditure - Change in Net Working
Capital + New Debt - Debt Repayment

FCFE is often used by analysts in an attempt to determine the value of a company.

Ambuja Cement
Jun '05 Dec '06 Dec '07 Dec '08 Dec '09
12 mths 18 mths 12 mths 12 mths 12 mths
Net Profit Before Tax 518.54 1841.6 2712.35 1969.84 1803.3
Net Cash From
Operating Activities 548.15 1796.18 1558.67 966.22 2129.15
(177.5 (795.3 (800.2 (1,661.44 (1,347.54
capital expenditure 5) 9) 5) ) )
889.1 2,842.3 3,470.7 1,274.6 2,584.9
Free Cash Flow 4 9 7 2 1

FCF Equity

Jun '05 889.14 59.725

2842.3
Dec '06 9 142.9
3470.7
Dec '07 7 149
1274.6
Dec '08 2 70.825

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 2584.9 102.52
Dec '09 1 5

Sidhee Cement
Mar '05 Mar '06 Mar '07 Sep '08 Mar '10
12 mths 12 mths 12 mths 18 mths 18 mths
PROFIT BEFORE TAX 24.72 59.18
NET CASHFLOW FROM OPT.
ACTIVITIES 44.85 62.29
CAPITAL EXPENDITURES -33.01 -4.63
FREE CASH FLOW 36.56 116.84

FCF Equity

Mar '05

Mar '06 36.56 16.6

116.8
Mar '07 4 16.95

Sep '08
Mar '10

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Market value to book value ratio of Ambuja Cements Ltd:

A ratio used to find the value of a company by comparing the book value of a firm to its market
value. Book value is calculated by looking at the firm's historical cost, or accounting value.
Market value is determined in the stock market through its market capitalization.

The market to book ratio attempts to identify undervalued or overvalued securities by taking the
book value and dividing it by market value.

Dec '06 Dec '07 Dec '08 Dec '09

Book
Value/shares 16.11 23.02 30.62 37.26 42.47
Market Value 59.73 142.90 149.00 70.83 102.53

Market value to book value ratio of Sidhee cements Ltd:

March March March Sep March

05' 06' 07' 08' 10'
Book - 3.1753 7.13688
Value -5.65662 -4.07456 0.19846 28 21
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Market
Value 12.1 16.6 16.95 14.75 16.15

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