Strategy Analysis of Heidelberg

Cement Bangladesh Ltd.

Presented By:
Mohaimen Khan Majlish (23031)
Muhammad Jahangir Alam (23024)
Manan Chowdhury (23020)
 Introduction

 Firstly, we have focused on the strategy analysis of a multinational company in the

Cement sector named Heidelberg Cement Bangladesh Limited.
 Then, we have tried to identify the major stakeholders of the company and the
treatment of the management regarding their core stakeholders.
 We have conducted the industry analysis based on Porter’s five forces model and
the SWOT analysis based on internal and external features of the company.
 Later, we have conducted the strategy analysis in three steps – business level,
corporate level and functional level strategy.
 Finally, we have attempted to determine the effect of the strategy implementation
by evaluating the financial statements of the company and by investigating its
impact on the share price of the company. In this regard, we have analyzed
previous three years (2011-2013) financial data of HeidelbergCement Bangladesh
Limited.

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 Company Profile

 HeidelbergCement Bangladesh Limited is a sister concern of Heidelberg Cement

Group, Germany.
 HeidelbergCement Bangladesh Limited meets 13% of the Bangladesh demand
for cement from two plants located at Dhaka & Chittagong.
 Heidelberg Cement Bangladesh Limited employs 260 people across the country.
The company with 1.5 million tones annual cement production has become a major
force in the Bangladesh Cement industry over the last eight years.
 The HeidelbergCement Group in Germany is the main sponsor and the majority
shareholder (61%) of HeidelbergCement Bangladesh Limited (Heidelberg).
 The company has an installed capacity of 2.0 Million Metric Tons (MMT) of cement
in two plants in Dhaka and Chittagong.
 The company produces cement under two brand names, Ruby and Scan cement.

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Page  4
 Cont.

Page  5

 External analysis:
HeidelbergCement Bangladesh Limited has carefully stated its values identifying its
major stakeholders with proper concern to their interests.
External Stakeholders
 Consumers
 Supplies
 Competitors
 Industry analysis:
 Rivalry among existing firms
 Threat of new entrants
 Threat of substitute products
 Bargaining power of buyers
 Bargaining power of suppliers
Page  6
Strategic Analysis
Competitive Force
New entrants
Rivalry
Bargaining power of suppliers
Bargaining power of buyers
Substitutes
Findings Overall threat

High sunk costs
 Special logistical handling required
Low
 High volume production industry
 R&D/knowledge intense industry
 Cyclical industry
 Low product diversification High
 Necessary proximity to markets
 Energy intense industry
 Special machinery needed High
 Special logistical handling required
 A lot of small buyers
 Low switching costs
Low-medium
 Cement/aggregates basic material
for Building Materials Industry
Low
 Legal regulations
 Substitutes to costly/no expertise
 Cont.
 Internal analysis:
 Share holders

Page  7
 Cont.
 Internal analysis:
 Employees:

 Respect each other as individuals

 encourage cross functional teamwork
 providing opportunities for career development

Employees are the core of an organization by whom actually the strategies are executed. For
implementation of a successful strategy the employees need to be recognized and motivated.

HCBL encourages the cross functional teamwork and motivates the employees by providing opportunities for
career development.

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 SWOT Analysis

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 Ratio Analysis
Internal Liquidity Ratios 2012 2013
Current Ratio 2.64 2.91
Quick Ratio 2.08 2.46
Cash Ratio 1.66 2.10
Inventory Turnover 9.16 9.09

Operating Efficiency Ratios

Fixed Asset Turnover 3.08 2.70
Current Asset Turnover 1.93 1.42
Total Asset Turnover 1.19 0.93

Operating Profitability Ratios

11.86% 14.80%
Net Profit Margin
(12,91,095/10885154) (1474077/99,56,635 )

14.06% 13.75%
Return on Total Assets (ROA)
(1291095/9181511) (1474077/10722048)

20.49% 19.68%
Return on Equity (ROE)
(1291095/6300025) 1474077/7491584

Financial Risk/Leverage Ratios

Debt to Total Asset Ratio 0.31 0.30

Debt-Equity Ratio 0.46 0.43
Other Performance Ratios
Earnings Per Share (EPS) 22.85 26.09
Price 264.70 248.80
Price/Earnings Ratio (P/E) 11.58 9.54

DuPont Analysis
Net Income/Sales 11.86% 14.80%
Sales/Total Assts 118.56% 92.86%
Total Asset/Common Equity 145.74% 143.12%

ROE 20.49% 19.68%

Book Value/Market Value
BV 162 142
MV 265 249
1.63 1.75
MV/BV
265/162 249/142

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 Less funds available for investment as quick ratio increased in 2013. Both sales and Inventory level fall
down that results lower inventory turnover but this ITO does not change too much that indicates normal
sales campaign.
 Lower gearing of EPS expected as debt to total asset ratio decreased in 2013 i.e., lower debt usage in
investment, thus lower gearing of EPS expected is justified.
 DSO is slightly higher then that of 2012. As Hidelberg cement is quality product that gives company
confident enough to sale on credit to selective customers. Hence higher DSO in 2013 is justified.
 Sales decreases as demand might be fall down but net income increases in current year, hence profit
margin increses is justified.
 Fixed asset as well as total asset is raised. But time to sale the product is not certain as it depends on
market demand. At present, the demand supply situation is tightly balances with the latter being marginally
higher. And, when demand will again increse sales will then incresed at relatively higher rate.
 EPS raised but share price falls: Π=TR-TC
Company is more concerned to earn in current year. So, net income becomes higher for this year and
EPS also get raised.
 Since rate of total asset rise higher then rate of rise in net income, ROA decrese is justified.
 Rate of equity rise is higher then that of net income. ROE fall down is justified.
 Regarding MV/BV, decrease in book value of share, investors does not like the strategy that might cause
of share price fall down.
 Though EPS increases, P/E becomes lower then previous years P/E as investors trust gone down.

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 Sustainable growth
2013 2014 2015 2016

Sales 9956635 11839789 14099968 16815067.9

COGS 76,48,771 9094300.7 12320073 13897533.8
NI 1474077 1752877.4 2087496.3 2489466.06
Dividend with constant D/P 282518 336664.71 401189.05 478079.961
Addition to RE 1191559 1416925.2 1191559 1416925.2
Total Asset 10722048 12749969 15183899 18107720.7
Total Debt 3230463 3841458.5 4574781.1 5455704.13
Common Stock 565036 565036 565036 565036
Share Premium 605657 605657 605657 605657
General Reserve 15000 15000 15000 15000
Dividend equalization fund 8600 8600 8600 8600
RE 6297291 7488850 8905775.2 10097334.2
Total Financing 10722047 12524601 14674849 16747331.3
External Funds needed (EFN) -1 -225367.26 -509049.31 -1360389.32
D/E 0.43 0.44 0.45 0.48
GS 0.19 0.19 0.19 0.20

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 External Funds Needed : Company is repaying loan as EFN is negative in
each year which is good sign for the company.
 D/E ratio : It is almost constant.
 GS : Sustainable growth is constant up to 2015.
 Inference: Company is trying to recover from bad position.

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 Distress Analysis
2010-2011 2011-2012 2012-2013
NWC 2421622 3506527 4619299
TA 8010817 9181511 10722048
X1 0.302294011 0.381911757 0.430822451

Cumulitive RE 4068904 5105732 6297291

TA 8010817 9181511 10722048
X2 0.50792622 0.556088426 0.587321657

EBIT 866910 1556574 1664803

TA 8010817 9181511 10722048
X3 0.108217427 0.169533533 0.155269124

Market Value of Equity 5263197 6300025 7491584

Total Liabilities 2747620 2881485 3230463
X4 1.915547638 2.186381328 2.319043431

Sales 8516206 10885154 9956635

TA 8010817 9181511 10722048
X5 1.063088322 1.185551485 0.928613172

Z Score 3.643383933 4.293658846 4.171664601

 Comment: The firm is safe. The score increased in 2013 against 2012 and
2011from hurdle value 3.0. The investors had taken that under
consideration with a grain of salt as the scores are well above the hurdle
of 3 and so stock price has rather gone down.

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 Conclusion

 From different analysis it is found that the company is following the low cost leadership strategy.
 Company is more concerned to earn in current year. Though EPS increasesin 2013, P/E becomes lower
then previous years P/E as investors trust gone down.
 As the Almans’ Z score increased in 2013 against 2012 and 2011from hurdle value 3.0, the firm is safe.
But, investors had taken that under consideration with a grain of salt as the scores are well above the
hurdle of 3 , so stock price has rather gone down.
 Sustainable Growth, EFN and Debt to Equity ratio indicate that company is bogged down with its weak
position and will try to recovery from bad position for the better growth.
 The Company’s DSO is consistent over years, which indicates they have good receivable management.
Their share price is decreasing. If they fail to gain the investors trust they will be in huge trouble.

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