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TERM PAPER OF ACCONTING FOR MANAGER

On
Analyses of Financial Statement

OF

HINDALCO Ltd.
SUBMITTED TO:-
Mr. VIKAS NAIB
SUBMITTED BY :-
(Senior Prof.)
ARUN KUMAR GULERIA
Section R337

Roll No. B36

Program code 194

Reg. No. 10807166

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LOVELY PROFESSIONAL UNIVERSITY

LOVELY INSTITUTE OF MANAGEMENT (LIM)

ACKNOWLEDGEMENT

I take this opportunity to offer my deep gratitude to all those

who have extended their valued support and advice to
complete this term paper. I cannot in full measure, reciprocate
the kindness showed and contribution made by various persons
in this endeavor.

I acknowledge my sincere thanks to Mr. Vikas Naib (Faculty

Member) who stood by me as a pillar of strength throughout the
course of work and under whose mature guidance the term
paper arrives out successfully. I am grateful to his valuable
suggestions.

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INDEX
S Particular PAGE REMAR
.No NO. KS
.
1. Introduction. 2
2. About the company. 3
3. Profile of Company 5
4. Area Profile 6
5. Objective of study 6
1.1Profitability Position 8
1.2Assets Position 9
1.3 Liability Position 10
6. Methodology Of Study 12
7. Data collection 15
1.1Balance Sheet 15
1.2Income Statement 16
1.3Director Report 20
1.4Auditor Report 24
1.5Corporate Governess 26
1.6Notes to Accounts’ 27
8. Interpretation of Financial Tools 30
9. Data Analysis 31
1. Profitability Ratio 32
1.1Gross Profit Ratio 34
1.2Net Profit Ratio 36
2. Assets Position 37
2.1Fixed Ratio 37
2.2Current Ratio 39
3. Liability Position 40
3.1Debt – Equity Ratio 40
3.2Solvency Ratio 41
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INTRODUCTION of HINDALCO

Largest vertically Integrated Aluminium Company in India

Domestic market leader in Aluminium
Among the low cost producers globally
Sustainable strategic strengths
Financial strength to take on emerging global opportunities
Sustained delivery of superior shareholder value
Fully integrated operations
Company Certified under “OHSAS 18001 Certification” and “A unique WCM
model”

VISION OF HINDALCO
To be a premium Metals major, global in size and reach, with a passion for excellence. To
relentlessly pursue the creation of superior shareholder value by exceeding customer
expectations profitably, unleashing employee potential and being a responsible corporate
citizen adhering to our values.” To pursue the creation of value for our customers, share
holders, employees and society at large.
To actively contribute to the social and economic development of the communities in which
we operate. In so doing build a better, sustainable way of life for the weaker sections of
society and raise the country’s human development index. To strengthen our position as a
premium aluminum company, sustaining domestic leadership and global competitiveness
through innovation, quality and value added growth.

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ABOUT HINDALCO
HINDALCO Industries Ltd., one of the major producers of Primary Aluminium Metal and Semis in the
country, is the biggest industrial enterprise of Uttar Pradesh. It is a public limited company in the private
sector having about 39000 share holders. It is the largest integrated aluminium plant in India with all its
production facilities viz. alumina, aluminium and fabrication located at Renukoot near Rihand Dam in
Sonbhadra (U.P.). Hindalco Power Division is situated at Renusagar about 35 Kms. from Renukoot. In
September 1959, an Industrial License was granted by the Government for setting up an integrated
aluminium plant at Renukoot,

with an initial installed capacity of 20,000 M.T. The construction work was completed within 18 months, a
record for a major job of this kind. The dream of the great visionary Syt. G.D. Birla to locate an aluminium
plant near Rihand Power House came true. The Late Prime Minister Pt. Jawaharlal Nehru formally
inaugurated the plant in January 1963. Going round the extensive works, Panditji saw his dream of a

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brighter future of India take shape before his eyes. From the modest beginning in 1962, Hindalco has now
become an industrial giant with a capacity to produce 2, 42,000 tones of aluminium per annum. Renukoot, a
fast growing and thriving industrial township, which is one humming with activities, and providing all the
basics amenities of modern life to the inhabitants, was once a wild and desolate jungle infested by animals.
From being one of the most backward areas of U.P. It has carved a place for itself on the industrial map of
India and the world. Lying in the foothills of the Vindhya range, Renukoot is about 160 Kms. from Varanasi
and 154 Kms. from Mirzapur. There is a direct train between Amritsar to Tatanagar and Ranchi via
Renukoot. This part Renukoot is also connected with Calcutta by train, directly. Facing the giant man-made
biggest artificial lake Govind Ballabh Pant Sagar, Renukoot is a picturesque township unscarred by the
ravages of industrialization.

EXPANSION AND MODERNISATION

Hindalco is India's largest Aluminium producer with a Primary Aluminium Smelting capacity of 242,000
MTPA. The company's integrated operations include Power Generation Capacity of 612 M.W and 450,000
MTPA Alumina Refinery. Hindalco's semi fabrication facilities comprise of Rolled products 80,000 MTPA,
Redraw Rods 40,000 MTPA and Extrusions 13,700 MTPA.
The company has opted for induction of the most modern technology and has undertaken comprehensive
modernization over the past years. It includes commissioning of two Gas Suspension Claciners, three high
efficiency PF/Fluidised Bed Boilers with co-generation facility and Micro Processors based Pot Control
System. The Rodding Room facilities have also been modernised. In the semi-fabrication, a state-of-the-art
Vertical Billet Casting and Slab Casting facility have been installed. A new Rolling Mill has been
commissioned and the existing Mills have undergone a comprehensive modernisation. Hindalco has also
installed a Roll Former, a Cut to Length Line, a Rewind Line and Tension Leveler in Rolling Mills
Hindalco's products are well accepted in the domestic as well as international markets. The company's
metal is accepted for delivery under the High Grade Primary Aluminium Contract on the London Metal
Exchange. The Company's export efforts have led to recognition as a 'Star Trading House'. Hindalco is an
ISO 9002 Company and has also received ISO 14001 Certification for its entire operations including Power
Plant and Mines. As a part of its diversification programmers, a 5,000 MTPA Aluminium Foil Plant and an
Aluminium Alloy Wheel Plant of 300,000 w.p.a. capacity has been set up at Silvassa.

BROWNFIELD EXPANSION
To further augment its presence in the aluminum sector, Hindalco has initiated work on a brown field
expansion at Renukoot. The expansion will increase Smelting capacity by 100,000 MTPA to 342,000
MTPA. Aluminium refining capacity will be raised by 210,000 MTPA to 660,000 MTPA. Power Generation
capacity will augment by 150 MW to 769 MW.

ACQUISITION OF INDAL
Hindalco has also acquired aluminium major - INDAL. Hindalco's holding in INDAL now stands at
74.62%. India strength in Aluminium and downstream aluminium products admirably dovetails Hindalco's
unmatched presence in metal and collectively commands the highest meal capacity in the entire South East
region.

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MISCELLANEOUS INFORMATION

In 1962 when production started, the Company had on its roll about 900 staff and workmen and the present
strength of Renukoot and there are Zonal Sales Offices at Bangalore, Mumbai, Delhi, and Calcutta. The
Company is managed by a Board of Directors and other senior executives. Employees is about 14000. The
Principal Office and Works is located at

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PROFILE OF COMPANY

PRODUCT STABILITY: Hindalco Industries Limited is one of the county’s largest

aluminum and copper producers. Being a part of the Aditya Birla Group, this company has
made its mark in the world. It has been positioned as the sixth largest aluminum producer in
Asia and the eleventh largest in the world, based on volumes of calendar year 2007. On May
15, 2007, Hindalco acquired Novelis Inc, which is the world’s largest aluminum rolled
products producer. With this acquisition, Hindalco has achieved economies of scale, an
increased global reach and also gotten access to advanced technology. The company also
owns and operates one of the largest single location copper smelters in the world at Dahej.
They receive a portion of their copper from Australia where they own mines and also
purchase copper concentrate at the London Metal Exchange (LME). In 2007, Hindalco was
also among the top 10 copper producers in the world by capacity.

While Hindalco itself has a very good stand and has proven its stability, post Novelis
acquisition, the company’s share price has seen some fluctuations. However, if one is to
look at the basics of Novelis, the value addition this purchase has given the company should
hold them in good stead. Novelis is the largest aluminum product producer in the Europe,
South America and Asia and are also the world leaders in recycling used aluminum beverage
cans. They have recycled approximately 36 billion used cans in the last financial year.
Having operations in 11 countries, they produce aluminum sheets and foil products for
customers in the automotive, transportation, packaging, construction and prinking
industries. Their key customers include, Anheuser-Busch Companies, affiliated to the Ball
Corporation, Crown Cork & Steel Company and Rexam Plc. This not only has given the
company a very good triple bottom line in recent years but also shows how beneficial this
strategic acquisition can prove to be.

BRIDGING THE GAP

The company intends to use the net proceeds of this issue to fund a part of the repayment of
bridge loan availed by AV Minerals (Netherlands) BV, an overseas subsidiary of the
company, for the acquisition of Novelis. The company is expected to raise Rs 5,048 crore,
out of which the issue expenses would be Rs 121.6 crore leaving net proceeds of Rs 4,926
crore or $1.12 billion. The overall cost of acquiring Novelis was $3.48 billion, which was
paid for by internal accruals of $0.45 billion and debt raised by their subsidiary companies
worth $3.03 billion. This is the loan that needs to be repaid by November 10, 2008 in full.
The company intends to do the same by taking a $1 billion loan incurred by AV Minerals

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from a syndicate of banks including ABN AMRO, Citi, Deutsche Bank and SBI. However,
which banks will provide how much money and from where will they be providing the same
is yet to be clarified. Reports indicate that the loan will be taken with an interest of 280 base
points. The company also has an unused amount of $0.40 billion from the January 2006
rights issue, and if the shareholders approve of it, they hope to change the objectives of that
issue to utilize the money for repayment of loan.

This gives the company a total of $2.62 billion leaving them short by approximately $0.41
billion that internal accruals should make up for.

While the plans look ambitious to say the least, with the promoters planning to subscribe to
their full extent being 31.43% of the issue, investors should feel secure seeing their
confidence and past records. In an event that the issue is not fully subscribed for, the
promoter and promoter group may apply for additional shares as long as their overall
subscription does not go beyond 50% of this issue.

The lead managers of the issue include five banks that will be underwriting the issue and
have agreed to subscribe to any of the shares which have not been subscribed for by the
shareholders, and which cannot be subscribed for by the promoters. The Aditya Birla Group
also might pick up some of the unsubscribed shares, leaving the bankers to effectively
underwrite approximately 16%. This was concluded since Life Insurance Corp of India Ltd,
which owns 11.13% and 200 foreign institutional investors holding 12% are expected to
subscribe to the maximum as well.

NUMBER TALK
Hindalco in this rights issue is offering 525,802,403 equity shares at a ratio of three equity
shares for every seven held, thus making it the biggest ever rights issue in India. The issue is
priced at Rs 96 per share, which will allow the company to raise approximately Rs 5,048
crore (approx $1.14 billion). It is rare for companies to de-leverage their finances while they
are financially stable, in this instance the sheer amount of loan already been taken and the
amount that needs to be repaid are so large that they have had little option but to come out
with a rights issue. While the current debt-equity ratio stands at 65:35, since this issue will
result in a 42.8% dilution in liquidity, the debt-equity ratio will move to 45:55. While,
having lower debt is always considered better, especially in present economic conditions,
the company may have to dilute their equity than taking more debt, due to uncertainty in
being able to repay. However, with Hindalco’s financial stability over the years that seems
hard to believe, this move will however for the short to medium run dent the companies
EPS. While the current market price is only a few rupees more than the issue price, this is
mainly due to falling prices amidst uncertain commodity price stability as well as the overall
economic condition. However if one were to take the companies average between their 52

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week high and low, one can safely estimate a fair value of the share to be Rs. 140/share.
Given this the company is offering the rights issue at a reasonable price, however many
people have doubts on the subscription of this issue due to weak market sentiments and
uncertain commodity prices. However most reports indicate that aluminum prices should
pick up once we ride out this storm hopefully by the financial years 2010 and 2011. Also,
with plans to invest almost Rs. 19,800 crore in the next three years to increase their
production in different locations, the long run still looks good. By this time Novelis’s fixed
income sale commitments would also be completed, giving Hindalco a fresh start.

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OBJECTIVE OF STUDY
PROFITABILITY POSITION
The profitability of the Hindalco in last five 5years is studding, to finding that the
Hindalco get the better profit according to their objective and goals. The profitability gives
the details of profit of company and gives the better data that the company is in good
condition. The better material gives the better profit and expands the business and makes the
business transaction smoother. By study this tool I get full detail about the company that the
company is in good condition and doing the business in smooth way. The sale of product
made by the company is good and the profit can be made by the company. The completion
is in the market and the can face the change come in way of earning the profit. The profit of
5 years are made is sufficient to keep the position of the companies.

ASSETS POSITION:-
Assets position means the position of assets in the business. The assets of business can
defines can defined the position of the business. The purpose on which the business to
calculating the assets position is to find that the business is running is in good condition on
which the type better position in the economy. The position of company is good and able to
pay the pay the liabilities

LIABILITIES POSITION
The liability position of company gives the detail of the company that what amount the
company is liable to pay to outsider. The position at which the is able to pay these credit to
outsider.

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AREA PROFILE

FIXED ASSETS
(a) Tangible Assets are stated at cost less accumulated depreciation and impairment loss, if
any. Cost comprises of purchase price and any attributable cost of bringing the assets to its
working condition for its intended use.

(b) Intangible Assets are stated at cost less accumulated amortization. Cost includes any
directly at attributable expenditure on making the asset ready for its intended use.

(c) Machinery spares which can be used only in connection with an item of Fixed Asset and
whose use is not of regular nature are written off over the estimated useful life of the
relevant asset.

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DEPRECIATION AND AMORTIZATION

(a) Depreciation
on Fixed Assets has been provided using Straight Line Method at the rates
and manner prescribed under Schedule VI of Companies Act, 1956 of India.

(b) Leasehold land (including mining rights) are amortized over the period of lease on
straight line basis.

(c) Intangible assets are amortized over their estimated useful lives on straight line basis.

(d) Depreciation on assets acquired under finance lease is spread over the lease term.

INVESTMENTS

(a) Long term Investments are carried at cost after deducting provision, if any, for
diminution in value considered to be other than temporary in nature.

(b) Current investments are stated at lower of cost and fair value.

INVENTORIES

(a) Inventories of stores and spare parts are valued at or below cost after providing for cost
of obsolescence and other anticipated losses, wherever considered necessary.

(b) Inventories of items other than those stated above are valued ‘At cost or Net Realizable
Value, whichever is lower’. Cost is generally determined on weighted average cost basis
and wherever required, appropriate overheads are taken into account. Net Realizable
Value is the estimated selling price in the ordinary course of business less the estimated
cost of completion and the estimated costs necessary to make the sale.

(c) Materials and other supplies held for use in the production of inventories are not written
down below cost if the finished products in which they will be incorporated are expected
to be sold at or above cost.

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REVENUE RECOGNITION

Sales revenue is recognized on transfer of significant risk and rewards of the ownership of
the goods to the buyer and stated at net of trade discount and rebates. Dividend income on
investments is accounted for when the right to receive the payment is established. Export
incentive, certain insurance, railway and other claims where quantum of accruals cannot be
ascertained with reasonable certainty, are accounted on acceptance basis.

BORROWING COST

Borrowing costs directly attributable to the acquisition or construction of qualifying assets

are capitalized. Other borrowing costs are recognized as expenses in the period in which
they are incurred. In determining the amount of borrowing costs eligible for capitalization
during a period, any income earned on the temporary investment of those borrowings is
deducted from the borrowing costs incurred.

TAXATION

Provision for current income tax is made in accordance with the Income Tax Act, 1961.
Deferred tax liabilities and assets are recognized at substantively enacted tax rates, subject
to the consideration of prudence, on timing difference, being the difference between taxable
income and accounting income that originate in one period and are capable of reversal in
one or more subsequent periods. Fringe benefit tax (FBT) is accounted for on the estimated
value of fringe benefits for the period as per the related provisions of the Income-tax Act.

DERIVATIVE INSTRUMENTS
(a) Risks associated with fluctuations in the price of the Company’s products (copper,
alumina, aluminium and precious metals) are minimized by hedging on futures market.
The results of metal hedging contracts /transactions are recorded at their settlement as
part of raw material cost or sales as the case may be. Portion of the cash flow to the
extent of underlying physical transactions having not been completed is carried in Raw
Materials Inventory till the completion of the underlying physical transaction.

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(b) Transactions covered by cross currency swap and option contracts to be settled on future
dates are recognized at the yearend rates of the underlying foreign currency. Effects
arising out of swap contracts are being adjusted on the date of settlement.

METHODOLOGY OF STUDY

GROSS PROFIT RATIO = Gross Profit x

100
Sale

NET PROFIT RATIO = Net profit x 100

Net Sale

FIXED ASSETS RATIO = Fixed Assets (after

depreciation)
Shareholder’
s Funds

CURRENT RATIO = Current

Assets
Current
Liabilities

SOLVENCY RATIO = Total Liabilities to

Outsider
Total
Assets

DEBT – EQUITY RATIO = Outsider

Funds
Shareholders
’ Funds

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DATA ANALYSIS AND INTERPRETATION

Balance Sheet of HINDALCO Ltd. (Rs crore)

Mar ' 08 Mar ' 07 Mar '

06 Mar ' 05 Mar ' 04
Sources of funds
Owner's fund
Equity share capital 122.65 104.33 98.57
92.78 92.48
Share application money 139.50 - - -
-
Preference share capital - - - -
-
Reserves & surplus 17,173.67 12,313.71 9,507.69
7,573.80 6,765.42
Loan funds
Secured loans 6,205.42 6,410.20 2,848.05
2,952.34 1,725.94
Unsecured loans 2,123.16 958.40 2,055.39
847.66 838.66
Total 25,764.40 19,786.64 14,509.69
11,466.58 9,422.49
Uses of funds
Fixed assets
Gross block 12,608.46 11,252.66 10,418.25
8,772.79 6,658.49
Less : revaluation reserve - - - -
-
Less : accumulated
depreciation 4,799.12 4,245.95 3,635.45
3,169.26 1,918.28

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Net block 7,809.34 7,006.71 6,782.80

5,603.53 4,740.22
Capital work-in-progress 1,119.87 1,476.43 832.92
1,322.98 467.67
Investments 14,107.99 8,675.32 3,971.31
3,702.15 3,377.21
Net current assets
Current assets, loans &
advances 7,926.26 7,846.17 7,315.07
4,476.43 2,911.99
Less : current liabilities &
provisions 5,199.0 5,221.15 4,398.41
3,647.89 2,074.59
Total net current assets 2,727.21 2,625.02 2,916.66
828.53 837.40
Miscellaneous expenses
not written - 3.17 6.00
9.39 -
Total 25,764.40 19,786.6
14,509.6 11,466.58 9,422.49

Notes:
Book value of unquoted 12,940.29 7,537.62 940.03 811.86
692.23
Market value of investments 5,795.68 5,159.28 1,400.23 3,474.98
1,696.37
Contingent liabilities 17,660.42 1,362.42 2,479.24
2,524.86 1,599.40
Number of equity share 12271.91 11593.30 11593.30 927.81
924.81

PROFIT & LOSS ACCOUNT OF HINDALCO

LTD.
Mar ' 08 Mar ' 07 Mar ' 06 Mar '
05 Mar ' 04
Income:
Operating income 19,118.01 18,312.93 11,355.15
9,523.25 6,209.11
Expenses

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Material consumed 12,344.83 10,994.42 5,879.57

4,661.94 3,340.64
Manufacturing expenses 2,026.73 2,080.80 1,972.22
1,702.44 820.62
Personnel expenses 631.07 529.58 466.26
414.13 241.67
Selling expenses 310.60 293.82 249.62 238.85
169.15
Administrative expenses 535.38 403.55 260.83
233.33 156.79
Expenses capitalized - - -
- -
Cost of sales 15,848.60 14,302.178,828.49
7,250.69 4,728.87
Operating profit 3,269.41 4,010.772,526.65 2,272.56
1,480.24
Other recurring income 527.95 321.13 227.64
207.81 161.58
Adjusted PBDIT 3,797.36 4,331.89 2,754.29 2,480.38
1,641.82
Financial expenses 280.63 242.39 225.17
169.96 161.59
Depreciation 587.81 552.80 516.68
463.26 317.40
Other write offs 3.62 4.00 6.29 6.07
-
Adjusted PBT 2,925.30 3,532.70 2,006.15
1,841.09 1,162.82
Tax charges 705.34 940.30 450.15
646.39 406.74
Adjusted PAT 2,219.97 2,592.40 1,556.01
1,194.71 756.08
Nonrecurring items 43.23 -37.61 56.17
53.13 79.61
Other non cash adjustments 597.74 9.54 43.37
81.52 3.23
Reported net profit 2,860.94 2,564.33 1,655.55
1,329.36 838.93
Earnings before appropriation 2,959.38 2,619.33 1,710.55
1,384.36 893.93
Equity dividend 226.89 177.34 216.84 185.56
152.58
Preference dividend 0.02 - -
- -
Dividend tax 38.56 24.87 30.41
26.42 19.55

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Retained earnings 2,693.90 2,417.11 1,463.30

1,172.38 721.80

RATIOS of HINDALCO
Adjusted return on net worth (%) 12.83 20.88 16.20 15.60 11.02

Reported return on net worth (%) 16.54 20.65 17.24 17.36 12.23

Return on long term funds (%) 13.56 20.03 17.77 18.34 15.01

Leverage ratios

Long term debt / Equity 0.36 0.51 0.30 0.44 0.31

Total debt/equity 0.48 0.59 0.51 0.49 0.37

Owners fund as % of total source 67.49 62.75 66.20 66.86 72.78

Fixed assets turnover ratio 1.53 1.64 1.10 1.09 0.93

Liquidity ratios

Current ratio 1.52 1.50 1.66 1.23 1.40

Current ratio (inc. st loans) 1.08 1.22 1.12 1.03 1.06

Quick ratio 0.52 0.66 0.72 0.57 0.82

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Inventory turnover ratio 4.32 4.89 3.22 4.76 6.43

Payout ratios

Dividend payout ratio (net profit) 9.27 7.88 14.93 15.94 20.51

Dividend payout ratio (cash profit) 7.68 6.47 11.34 11.78 14.88

Earning retention ratio 88.05 92.20 84.11 82.26 77.24

Cash earnings retention ratio 90.56 93.58 88.11 87.27 83.97

Coverage ratios

Adjusted cash flow time total debt 2.96 2.34 2.36 2.28 2.39

Financial charges coverage ratio 13.53 17.87 12.23 14.59 10.16

Fin. charges cov.ratio (post tax) 13.30 13.88 10.68 11.58 8.16

Component ratios

Material cost component (% earnings) 65.31 62.46 60.88 51.63 55.69

Selling cost Component 1.62 1.60 2.19 2.50 2.72

Exports as percent of total sales 33.65 38.10 32.14 27.37 20.85

Import comp. in raw mat. consumed 90.35 89.50 84.66 79.84 75.56

Long term assets / total Assets 0.74 0.68 0.61 0.70 0.74

Bonus component in equity capital (%) 40.09 47.13 49.89 53.00 53.17

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DIRECTORS REPORT
The Directors are pleased to present the 48th Annual Report along with the audited annual
accounts for the year ended 31st March, 2008.

MAJOR STRATEGIC INITIATIVES

The Company has entered into a definitive agreement with Novelis Inc. on 10th February,
2007 for acquiring all outstanding common shares @ USD 44-93 per share in cash for a
total consideration of approx. USD 3.5 billion.

For this purpose, the Company has secured firm commitments of USD 3.1 billion bridge
loan of 18 months against the corporate guarantee of the Company and the balance of USD
450 million will be financed by the Company by way of infusing equity/preferred
stock/other securities in its wholly owned subsidiaries. The acquisition will be effected
through one or more of its wholly owned subsidiaries. The transactions were duly completed
and V1&A closure achieved as per plan.
The strategic rationale for this acquisition as well as the acquisition financing process is
more fully dealt with in the MD&A section of this Annual Report.
COST REDUCTION INITIATIVES
With the commissioning of the second 100MW power unit at Hirakud, Orissa in December,
2006 in line with schedule, there has been a substantial cost saving of operation. Growth
plans underway in Aluminium. The Company is aggressively pursuing various brown field
and green field growth opportunities in Aluminum as described below:

BROWNFIELD EXPANSIONS
The Company's brown field expansion projects are on track. The expansion of Muri
Alumina Refinery from 110 KTPA to 450 KTPA is expected to be commissioned in the
second quarter of the next fiscal. The commissioning of Phase 1 of Hirakud Smelting
capacity from 65 KTPA to 100 KTPA has been completed with all 150 pots energized. Phase
- II of the project, which will enhance smelting capacity to 143 KTPA, is on track. The
conversion of Pot Line-3 commenced in Nov'06 in a phased manner. The first lot of 64 Pots

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was completed ahead of schedule. The 2nd 100 MW power plant was commissioned in
Dec'06 in line with the schedule while the third 100 MW plant is slated to go on stream by
December 2007.

GREENFIELD PROJECTS
Utkal
Work on the 1,500 KTPA Alumina project is in progress. The pile foundation for the
precipitation area is progressing well and will be completed by May'07. The layout of the
non-plant buildings has been finalized. The Detailed engineering for Mines has started and
is expected to be over by March 2009. The second phase of rehabilitation and resettlement
process is on track. The joint venture partner i.e. Alcan Inc. has decided to exit the project
and Hindalco is yet to exercise its pre-emption right.

ADITYA ALUMINA & ALUMINUM

This Greenfield integrated project of 1,500 KTPA Alumina, 325 KTPA of Aluminum
smelting and a Captive Power Plant of 750 MW is on track. The proposed smelter has been
accorded an SEZ status. The Rehabilitation and Resettlement plan for both the smelters and
CPP sites have been submitted for statutory approval. The work on the Railway siding and
Energized Grid connectivity is underway.

MAHAN ALUMINUM
This project envisages setting up of a 325 KTPA Smelter and 750 MW Captive Power Plant
supported by Captive Coal Mine. The Coal block was allotted in April'06 in a JV with Essar.
The production of coal is likely to start from April 2009. The Govt. of Madhya Pradesh has
sanctioned an allocation of 1213 hectares of land and accorded an SEZ status.

LATHEHAR ALUMINUM
For this project entailing the setting up a 325 KTPA Aluminum Smelter with 750 MW
Captive Power Plant, supported by 5 million TPA Captive Coal Mine in Jharkhand, the
allotment of coal block has reached its final stages. Land acquisition is in progress. An
application has also been filed for environmental clearance, water, construction power and
other necessary infrastructure.
PERFORMANCE
The Company registered its best ever performance during the year under review. Higher
capacity utilization, increased realization, product mix enrichment and improved operational
efficiencies resulted in both revenues and profits surpassing their previous levels. Alumina

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and Aluminum plants continued to operate at utilization levels well above their rated
capacities. With the stabilization of the Hirakud Brownfield expansion, metal production
rose by 3.2% to 442,686 MT. The production of Value Added-Products i.e. Rolled and
Extrusions increased due to acquisitions completed in FY06 as well as higher utilization of
available assets. Of the total sales volume, the share of value added products was an
impressive 55%.

Despite falling aluminum prices in the international market, your Company was able to
maintain high realizations, largely because of its focus on Speciality business as well as a
prudent mix of forward contracts and spot sales.

The production of Copper cathodes went up by 38% to 290,529 MT in comparison to

previous year on the back of the expanded capacity commissioned last year. Production of
value added CC rods grew 23% to 109,029 MT. Sulphuric acid output was up by 40% to
892,597 MT. In view of the overall economics, Copper II operations remained suspended
for a part of year with copper concentrate in international markets becoming more expensive
due to supply constraints. The Company expects this situation to be transient.

The Chairman's letter to shareholders and the Management's Discussion & Analysis, which
form a part of this Annual Report, provide the strategic direction and a more detailed
analysis on the performance of individual businesses and their outlook.

Rs. in Million

Financial Results for the year ended 31.03.2007 31.03.2006

Net Sales & Operating Revenue 183,130 113,965

Profit before Extraordinary Items and Tax 35,046 21,027
Extraordinary Items - 30
Profit before Tax 35,046 21,057
Provision for Current Tax 9841 3241
Provision for Deferred Tax (551) 1160
Provision for Fringe Benefits Tax 113 100
Net Profit 25,643 16,556
Appropriations
Transfer to Debenture Redemption Reserve 187 751
Dividend 1,773 2,168
Tax on Dividend 249 304
Transfer to General Reserve 24,434 14,395

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DIVIDEND
The Directors have recommended interim dividend of Rs. 1.70 per share (Last Year Rs.
2.20 per share). The total outgo including tax on divided would be Rs. 2,022.2 million (Last
Year: Rs. 2,472.5 million).

FINANCING
An amount of Rs. 3,890 crores was drawn at an average rate of 8.62% p.a. against the 10
year Secured Rupee Term Loan facility syndicated in earlier years. The Company met its
entire obligation on payment of interest and repayment of principal.

As part of the bidding process under Canadian Law for undertaking the arrangement
transaction for the acquisition of Novell, your Company obtained commitment letter from
ABN AMRO, Bank of America and UBS of US.1 Billion with recourse to your Company
and secured by Hindalco's corporate guarantee for paying the shareholders of Novelis. It
also obtained back-stop facility of approximately US.4 Billion from UBS and ABN AMRO
for refinancing the existing loans of the Novelis Balance Sheet with recourse limited to the
cash flows and assets of Novelis.

The Company was adjudged the successful bidder and all steps are being taken to complete
the legal and other formalities required to draw the committed funds.

CORPORATE GOVERNANCE
Consolidated Financial Statements
In accordance with Accounting Standards 21, 23 and 27 issued by the Institute of Chartered
Accountants of India, your Company is presenting its consolidated financial statements.
These Consolidated Financial Statements form part of the Annual Report.
The Securities and Exchange Board of India (SEBI) has prescribed corporate governance
standards. Your Directors reaffirm their commitment to these standards and this annual
report carries a section on Corporate Governance.

Environmental Protection and Pollution Control

The Company is committed to sustainable development. Your company is a signatory to
the Global Compact and subscribes to the principle of triple-bottom line accountability.

A separate chapter in this report deals at length with your Company's initiatives and
commitment to environment conservation.

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The Central Government has granted an exemption to your Company under Section 212(8)
of the Companies Act, 1956, from attaching a copy of the Balance Sheet, Profit and Loss
Account, Report of the Board of Directors and the Report of the Auditors to all the
Subsidiary Company except AV Metals Inc. and AV Aluminum Inc. Subsidiary Companies,
which will not be attached with the financial statements of your company. The Company has
also applied to the Central Government for exemption from attaching copy of Balance
Sheet, P&.L A/c report of the Board of Directors and report of the auditors for the remaining
two subsidiaries i.e. AV Metals Inc. and AV Aluminum Inc. These documents can be
requested by any member, investor of the company/subsidiary company. Further, in line
with the Listing Agreement and in accordance with the Accounting Standard 21 (AS-21),
Consolidated Financial Statements prepared by the Company include financial information
of its subsidiaries.

THE DIRECTORS FURTHER CONFIRM THAT:

(i) In the presentation of the Annual Accounts, applicable Accounting Standards have been
followed.
(ii) That the accounting policies are consistently applied and reasonable, prudent judgment
and estimates are made so as to give a true and fair view of the state of affairs of the
Company at the end of the Financial Year.

(iii) The Directors have taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Act for safeguarding the assets
of the Company and for preventing and detecting fraud and other irregularities.

(iv) The Directors have prepared the Annual Accounts on a going concern basis.

The Company's internal Auditors have conducted periodic audits to provide reasonable
assurance that established policies and procedures have been followed.

Details of technology imported in the past 5 years

Technology imported Year of Has technology If not fully absorbed, for Import been fully
areas where this has absorbed not taken place, reason thereof and future plan of action.

ALUMINIUM
Anode moulding 2003-04 Yes N.A.

Separations of red mud from pregnant liquor 2004-05 Yes N.A.

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Sheet surface treatment and flatness 2004-05 Yes N.A.

Clad sheet manufacturing 2005-06 Yes N.A.

COPPER
Ausmelt technology for Copper-II 2002-03 Yes N.A.

Cryogenic air separation for Oxygen-III 2002-03 Yes N.A.

Mitsubishi Technology for Copper-III 2003-04 Yes N.A.

Cryogenic air separation for Oxygen-IV 2005-06 Yes N.A.

Cryogenic air separation for Oxygen-V 2006-07 Yes N.A.

FOREIGN EXCHANGE EARNINGS & OUTGO

a) Activities related to Exports
The Company has taken successful initiatives to increase exports during the year to
Rs. 69,732.05 million.
b) Total Foreign Exchange used and earned
Foreign exchange used Rs. 100,831.85 million
Foreign exchange earned Rs. 69,775.37 millio

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AUDITOR'S REPORT
We have audited the attached Balance Sheet of HINDALCO INDUSTRIES LIMTIED as at
31st March, 2008 and also the Profit and Loss Account and the Cash Flow Statement for the
year ended on that date. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based
on our Audit.

We conducted our audit in accordance with auditing standards generally accepted in India.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.

As required by the Companies (Auditor’s report) Order, 2003, as amended by the

Companies (Auditor’s Report)(Amendment) Order, 2004 issued by the Central Government
of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose
as Annexure, a statement on the matters specified in the paragraphs 4 and 5 of the said
order. Further to our comments in the Annexure referred above, we report that:

1) We have obtained all the information and explanations, which to the best of our
knowledge and belief were necessary for the purpose of our audit;

2) In our opinion, proper books of account as required by law have been kept by the
Company so far as appears from our examination of those books;

3) The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this
report are in agreement with the books of account;

4) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement
dealt with by this report comply with the accounting standards referred to in sub-section
(3C) of Section 211 of the Companies Act, 1956. Attention is invited to Note No 29(d)
regarding non provision for mark to market losses (net) of Rs 220 million on outstanding

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derivatives as on 31st March, 08 which is not in accordance with Accounting Standard-1

and announcement made by the ICAI on 29th March, 08.

5) On the basis of the written representations received from the directors and taken on
record by the Board of Directors, we report that none of the Directors is disqualified as on
31st March, 2008 from being appointed as a Director in terms of clause (g) of sub-section
(1) of section 274 of the Companies Act, 1956;

6) In our opinion and to the best of our information and according to the explanations given
to us, they said accounts read with the notes in Schedule 20 give the information required by
the Companies Act, 1956 (as amended) in the manner so required and give a true and fair
view in conformity with the accounting principles generally accepted in India;
(a) In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March,
2008;

(b) In the case of the Profit & Loss Account, of the Profit for the year ended on that date;
and

(c) In the case of Cash Flow Statement, of the Cash Flows for the year ended on that date.

(d) According to the information and explanations given to us and on the basis of our
examination of the books of accounts, the Company is generally regular in depositing
undisputed statutory dues including Provident Fund, Investor Education and Protection
Fund, Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom
Duty, Excise Duty, Cess and other statutory dues with the appropriate authorities. According
to the information and explanations given to us no undisputed statutory dues as above were
outstanding as at 31st March, 2008 for a period of more than 6 months from the date they
became payable.
(e) According to the information and explanations given to us, the dues of Sales Tax,
Income Tax, Customs Duty, Wealth Tax, Excise Duty, Service Tax and Cess which have not
been deposited on account of any dispute and the forum where the dispute is pending as on
31st March, 2008 are as under:

• The Company does not have any accumulated losses and has not incurred cash losses
in the current financial year and in the immediately preceding financial year.

• The Company has not defaulted in repayment of dues to Financial Institutions or

Banks or Debenture holders.

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• According to the information and explanations given to us, the Company has not
granted any loans or advances on the basis of security by way of pledge of Shares,
Debentures and other Securities.

• The Company is not in the business of dealing or trading in shares. The Company has
maintained proper records of transactions and contracts in respect of Shares,
Securities, Debentures and other Investments and timely entries have been made
therein. The Shares, Securities, Debentures and other Investments have been held by
the Company, in its own name except to the extent of exemption, granted under
section 49 of the Companies Act, 1956.

• In our opinion and according to the information and explanations given to us, the
terms and conditions on which the Company has given corporate guarantees for loans
taken by its Subsidiaries and Joint Ventures from Banks and Financial Institutions
(including foreign banks) are not prima facie prejudicial to the interest of the
Company.

• Based on information and explanations given to us by the management, term loans

were applied for the purpose for which the loans were obtained though unutilized
funds which were not required for immediate use for capital expenditure have been
temporarily invested in securities/bank deposit.

• According to the information and explanations given to us and on the basis of our
overall examination of the Balance Sheet and Cash Flow Statement, we report that no
funds raised on short term basis have been used for long term investment of the
Company.

• During the year under Audit, the Company has made preferential allotment of equity
shares and has also made preferential allotments of warrants to a Company covered in
the register maintained under section 301 of the Companies Act, 1956. The price at
which the shares/warrants have been issued has been determined as per the Securities
And Exchange Board of India (Disclosure and Investor Protection) Guideline, 2000,
which in our opinion, is not prejudicial to the interest of the Company.

• On the basis of records made available to us, the Company has created Securities in
respect of Debenture issued/ outstanding during the year.

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NOTE TO ACCOUNTS OF HINDALCO

(Rs. in Millions)
As at 31 As at 31
March, 2008 March, 2007

1. Capital Commitments outstanding

(Advance/Deposit paid Rs 6,814.17
Million, previous year Rs. 1,734.37
Millions) 9,512.31 8,143.37

2. Uncalled Liability on shares partly paid up 2,379.58 -

2. (I) Contingent Liabilities not provided

for in respect of:
(a) Claims/Disputed liabilities not
acknowledged as debt:

Following demands are disputed by the Company and are not provided for:

(i) Demand notice by Asset. Collector Central

Excise Mirzapur for excise duty on
Power generated by company’s captive power plant,
Renusagar Power Co. Ltd 91.21 91.21

ii) Demand of interest on past dues of

the Aluminium Regulation account
upto 31.12. 1987. 63.29 63.29

iii) Retrospective Revision of Water Rates

by UP Jal Vidyut Nigam Limited
(April 1989 to June 1993 & Jan 2000
To Jan 2001). 40.80 40.80

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iv) Transit fees levied by Divisional

Forest officer, Renukoot on coal and
bauxite. 444.98 348.56

v) M.P Transit Fee on Coal demanded by

Northern Coal Fields Limited. 160.53 160.53

vi) Imposition of Cess on Coal by

Shaktinagar Special Area Development
Authority. 39.68 36.42

Company, the state has no power to tax the mineral since this field is covered under Mines
and Minerals Development and Regulation Act.

vii) Demand of Royalty on Vanadium by

District Mining officer, Lohardaga. 84.44 84.44

viii) The demand of Excise Duty on gold. 1553.06 1,553.06

ix) Demand for disallowances of depreciation

claim and other claim 180.20 180.20
on the leased assets by Lessor.

x) Tax under MPGATSVA, 2005 @ 5% on

basic price of coal w.e.f. 30-9-2005
by M.P. State Government. 268.59 167.10

xi) Demand raised on provisional assessment

for Entry Tax. 1,545.35 258.54

xii) Demand raised on assessment under

CST Act & UP Sales Tax Act. 404.56 94.59

xiii) Revision of surface rent on land

by Government of Jharkhand w.e.f. 16-6-2005. 66.98 42.29

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xiv) Demand made by Nayab Tehsildar Kusmi /

Collector under Chattisgarh (Adhosanrachna
Vikas evam Parayavaran Upkar Adhiniyam, 2005). 17.39 12.12

xv) Service tax paid on GTA and BAS. 20.50 -

xvi) Demand for duty on loading and

transportation charges on scrap. - 13.87

xvii) Demand for reversal of difference

between duty paid and credit - 16.45
taken on returned material.

xviii) CST demand on reopening of

assessments for earlier years. 88.10 65.11

xix) Recovery of differential duty on

account of Final Assessment of - 758.14
different B/Es. for import under
Advance Licenses.

xx) Disallowances of Sales Tax Forms for

Sales Tax Assessment year 1997-98. 12.05 16.50

xxi) Demand for Sales Tax u/s 15B for

A.Y. 2001-02 & 2002-03. 81.70 81.70

xxii) Demand for Stamp Duty on

Imported Cargo. 104.93 95.40

xxiii) Classification dispute of

Aluminium Casserole. 52.38 -

xxiv) Service tax on insurance policy

attributable to Renusagar. 12.90 -

xxv) Demand of Interest on differential

duty on account of final assessment of
Bill of Entries. 517.27 -

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xxvi) Disallowance of CENVAT credit. 52.89 -

xxvii) Demand for interest on claim. 53.16 -

xxviii) Demand raised on assessment under

CST Act and APGST Act for various years. 26.13 -

xxix) Other Contingent Liabilities in

respect of Excise, customs, Sales Tax etc.
each being for less than Rs.10 millions. 100.85 101.33

(b) i) Bills discounted with Banks 765.88 1,004.16

ii) Corporate Guarantees outstanding

(Rs.159,925 million (previous year
Rs. 45 million) given on behalf of
subsidiary companies). 160,242.10 195.00

(c) The Company has received

supplementary bills on account of
revision in rate of power for Main
Supply from the UPSEB for the
period 15th May 1976 to 30th June
1980 and the same remains
unprovided for as disputed by
the Company. 50.10 50.10

(d) Customs duty on Capital Goods

and Raw Materials imported under
Advance Licence / EPCG Scheme,
against which export obligation
is to be fulfilled. 1,920.27 1,833.40

During April 2007, the Company received a notice dated 24th March, 2007 from collector
(Stamp) Kanpur, Uttar Pradesh alleging that stamp duty of Rs. 2,529.59 million is payable
in view of order dated 18thNovember, 2002 of Hon’able High Court of Allahabad approving
scheme of arrangement for merger of Copper business of Indo Gulf Corporation Limited
with the Company. The Company feels that it has a strong case as there is no
substantive/computation provision for levy/calculation of stamp duty on court order

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approving scheme of arrangement under Companies Act, 1956 within the provisions of
Uttar Pradesh Stamp Act. The Company has filed a writ petition before the Hon’able High
Court of Allahabad, inter alia, on the above said ground and also that the properties in
question are located in the state of Gujarat and thus the collector has no territorial
jurisdiction.

Sales include own manufactured items capitalized / used Rs. 318.19 million (previous year
Rs. 590.20 million) at cost (inclusive of excise duty).

Sale of Di-Ammonium Phosphate (DAP) and other complex fertilizers are covered under
the concessional schemes for decontrolled fertilizers of the Government of India. In
previous year pending claim for concession were accounted for based on current practice
adopted by department of fertilizer for neutralizing the cost of input. In view of uncertainty,
accounting of pending claim for concession, for which final rate has not been declared, has
been done on base rate declared by the Government.

Export and Other Incentives under Operating Revenues in Schedule 15:-

i) Includes Rs. 1,165.93 million (Previous year Rs. 1,748.55 million) being Sales Tax
collected during the year and retained as sales tax incentive allowed by the Government of
Gujarat to the units enjoying Sales Tax exemption on domestic sales.

ii) Includes Rs. 224.62 million being benefit under Duty Free Import Entitlement Scheme
received during the year in relation to export made during 2003 – 04.

(a) Purchase of copper concentrate is accounted for provisionally pending finalization of

content in the concentrate, price and custom duty. Variations are accounted for in the year of
settlement.

(b) Sale of Continuous Cast Copper Rod and Copper Cathode is accounted for
provisionally pending finalization of price variations in the year of settlement.

(c) Final price payable on purchase of copper concentrate for which Quotation period, price
and quantity was not finalized in the previous year, were realigned at year end rate based on
monthly average rate for Copper and Precious Metal quoted at LME & LMBA respectively
and accordingly an additional provision for Rs.546.82 million was made. During the year
final price payable was settled at Rs. 1,962.66 million and additional liabilities of Rs.
1,415.84 million has been charged to raw material consumption. Further, an additional
provision for Rs. 2,520.04 million was made on realignment of such class of liabilities as

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on 31st March 2008. Actual outflow is expected on finalization of quotation period price in
the next financial year.

(d) Final price receivable from sale of Copper for which quotation price was not finalized in
previous year were realigned at year end rate based on LME rate and provisional sales for
Rs. 430.87 million were accounted for. During the year final price was settled at Rs. 490.22
million and credit for further sales of Rs. 59.35 million were taken into account. As on 31st
March 2008 sales of Rs. 1,975.76 million pending for price finalization were realigned at
year end rate of LME and an additional sale of Rs. 161.55 million was accounted for. Actual
inflow is expected on finalization of price in next financial year.

9. A part of electricity supplied by the Company, which has been treated by Uttar Pradesh
Power Corporation Limited (UPPCL) as sale, has been accounted for on the basis of
provisional rates. The effect of variation in the rate will be accounted for in the year in
which rates are finalized by UPPCL.

Insurance claims under various policies / other claims are not accounted for, as the amounts
are still unascertained pending the completion of assessment/ settlement of the claims.

Income amounting to Rs. 1,499.66 million of dividend, Rs. 175.71 million of interest and
Rs. 1,325.45 million of profit on sale of investments derived from temporary deployment of
surplus fund out of specific borrowing for various projects have been deducted from
borrowing costs incurred.

Tax adjustment for earlier years (net) includes write back of provision for tax resulting
from change in estimation of tax liability on progress in tax assessments.

(a) The Company has acquired the shareholding of Alcan Inc. consisting of 78,564,384
equity shares of Rs 10/ - each in Utkal Alumina International Limited (Utkal).
Consequently, Utkal is now a wholly owned subsidiary of the Company. During the year
Utkal has issued 378,654,820 numbers of shares, Thus the Company has invested a total
amount of Rs. 6,635.12 million till 31st March 2008.The project activities in Utkal are
progressing well.

(b) The Company has entered into a joint venture agreement with Essar Power M.P.
Limited by virtue of which it holds 50% stake in Mahan Coal Limited, a new company
formed for mining of coal, a part of which being the entitlement of the Company as per the
agreement will be used for generating power to be captively consumed in proposed green
field aluminium smelter in Madhya Pradesh. The Company has invested a total amount of
Rs. 23.75 million till 31st March 2008.

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(c) The Company has entered into a joint venture partnership with Almex USA Inc.
(Almex), for the manufacture of high strength aluminium alloys for applications in the
aerospace, sporting goods and surface transport industries. The joint venture has been
named Hindalco-Almex Aerospace Limited. The Company has 70 per cent equity
participation, with Almex holding the balance 30 per cent in the JV. The Company has made
an equity contribution of Rs.210.00 million till 31st March 2008. It is expected that the
project will go on stream during the second quarter of next year.

(d) The Company has formed a joint venture company namely Tubed Coal Mines Ltd with
The Tata Power Company Ltd as per the condition of allotment letter of Ministry of Coal for
the purpose of exploration of the Coal block allotted by the Government in the State of
Jharkhand. Hindalco holds 60% stake in the Joint venture and balance 40% is held by The
Tata Power Company Ltd. The Company has invested a total amount of Rs. 12.30 million
(including Rs. 0.60 Million towards advance against equity.) till 31st March 2008.

(e) The Company has formed a joint venture company namely East Coast Bauxite Mining
Company Private Limited with Orissa Mining Corporation Limited to mine bauxite in the
State of Orissa. Hindalco holds 74% stake in the Joint venture by virtue of acquiring 7,400
numbers of equity share of Rs. 10/- each, and balance 26% is held by Orissa Mining
Corporation Limited.

The amount transferable to Investor Education and Protection Fund does not include any
amount due and outstanding to be transferred to said fund except Rs. 0.73 million (Previous
year Rs. 0.73 million) which is held in abeyance due to legal case pending

The Company has not received any memorandum (as required to be filed by the suppliers
with the notified authority under Micro, Small and Medium enterprises development Act,
2006) claiming their status as micro, small or medium enterprises. Consequently the amount
paid / payable to the parties during the year is nil.

Figures of the previous year have been regrouped / rearranged wherever necessary.

Consequent upon amalgamation of Indian Aluminium Company Limited during the year,
the figures of current year are not comparable with those of previous year.

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INTERPRETATION OF FINANCIAL TOOLS

CURRENT RATIO
Current ratio is the relationship between current assets and current liabilities. This
ratio, also known as working capital ratio, is a measure of general liquidity and is most
widely used to make the analysis of a short – term financial position or liquidity of a firm. It
is calculated by dividing the total of current assets by total of the current liabilities.

INTERPRETATION OF CURRENT RATIO

A relatively high current ratio is an indication that the firm is liquid and has the ability to
pay its current obligations in time as and when they become due. A relatively low current
ratio represents that the liquidity position of the firm is not good and the firm shall not be
able to pay its current liability in time without facing difficulties. A ratio equal or near to the
rule of thumb 2:1 I.e., current assets. Double the current liabilities are considered to be
satisfactory. The idea of having doubled the current assets as compared to currents liabilities
is to provide for delays and losses in the realization of current assets. The rule of 2:1 should
not be blindly followed while making interpretation of the ratio.

DEBT – EQUITY RATIO

Debt – equity ratio, also known as external ratio is calculated to measure the relative
claims of outsiders and the owner (i.e. shareholder) against the firm’s assets. This ratio
indicates the relationship between the external equities or the outsider’s funds and the
internal equities or the shareholders’ relationship between the external equities or the
outsiders funds and the internal equities or the shareholders funds.

INTERPRETATION OF DEBT - EQUITY RATIO

The debt equity ratio is calculated to measure the extent to which debt financing has
been used in a business. The ratio indicates the proportionate claims of owners and the
outsiders against the firm’s assets. The purpose is to get an idea of the cushion available to
outsiders on the liquidation of the firm’s assets. A ratio of 1:1 may be usually considered to
be a satisfactory ratio although there cannot be any ‘rule of thumb’ or standard norm for all
types of businesses. In some business a high ratio 2:1 or even more may even be considered
satisfactory. A high debt – equity ratio which indicates that the claims of outsiders are
greater than those of owners, may not be considered by the creditors because it given a

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lesser margin of safety for then at the time of liquidation of the firm also because the firm
may not conditions of the creditors.

SOLVENCY RATIO
This ratio is a small variant of equity ratio and can be simply calculated as 100 – equity
i.e., continuing the example taken for the equity ratio, solvency ratio = 100 -66.67 or
33.33%. The ratio indicates the relationship between the total liabilities to outsider to total
assets of a firm.

FIXED ASSETS
The ratio establishes the relationship between fixed assets and shareholder’s funds i.e.,
share capital plus reserves, surpluses and retained earnings. the ratio of fixed assets to net
worth indicates the extent to which shareholders equity including reserves, surpluses and
retained earnings. If the ratio is less than 100%, it implies that owner’s funds are more than
total fixed assets and a part of the working capital is provided by the shareholders. There is
no rule of thumb to interpret this ratio but 60 to 65 percent is considered to be satisfactory
ratio in case of industrial undertakings.

GROSS PROFIT RATIO

Gross profit ratio measures the relationship of gross profit to net sale and is usually
represented as a percentage. It is calculated by dividing the gross profit by sales. The two
basic components of the gross profit ratio are sales and cost of goods sold since gross profit
is the excess of net sales over cost of goods sold. Net sales can be found by deducting sales
returns or returns inwards, out of sales.

NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit and sale, and indicates the
efficiency of the management in manufacturing, selling, administrative and other activities
of the firm. This ratio is the overall measure of firm’s profitability. The two basic elements
of the ratio are net profit and sales. The net profits are obtained after deducting income – tax
and generally, non – operating incomes and expenses are excluded from the net profit for
calculating this ratio. Incomes such as interest on investment outside the business, profit on
sale of fixed assets, etc. are excluded. The ratio is very useful as if the profit is not
sufficient; the firm shall not be achieving a satisfactory return on its investment. This ratio

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also indicates the firm’s capacity to face adverse economic conditions such as price
competition, low demand, etc.

DATA ANALYSIS
1. PROFITABILITY POSITION
Gross Profit Ratio

Objective of Gross Profit: - Gross profit ratio measures the relationship of

gross profit to net sale and is usually represented as a percentage. It is calculated by
dividing the gross profit by sales. The two basic components of the gross profit ratio
are sales and cost of goods sold since gross profit is the excess of net sales over cost
of goods sold. Net sales can be found by deducting sales returns or returns inwards,
out of sales.

Gross Profit Ratio = Gross Profit x 100

Sale

Gross Profit = Sale –

Production Cost
In 2004 4728.87 – (3340.64 +
820.62) = 567.61
In 2005 7250.69 – (4661.94 +
1702.44) = 886.31
In 2006 8828.49 – (5879.57 +
1972.22) = 976.70
In 2007 14302.17 – (10994.42 +
2080.80) = 1226.95
In 2008 15848.60 – (12344.83 +
2026.73) = 1477.04

GROSS PROFIT RATIO:-

In 2004 = 567.61 x 100 = 12.00%

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4728.87

In 2005 = 886.31 x 100 = 12.22%

7250.69

In 2006 = 976.70 x 100 = 11.06%

8828.49

In 2007 = 1226.95 x 100 = 8.57%

14302.17

In 2008 = 1477.04 x 100 = 9.31%

15848.60

Gross Profit ratio indicates the extent to which selling price of goods per unit may
decline without resulting in losses on operations of a firm. In 2004 gross profit was Rs.
567.61 and gross profit ratio was 12% Sale was Rs.4728. In this year the profit is good
because 12% return on sale. In 2005 the gross profit ratio is good i.e 12.33% but as
comparison to sale the profit is not good. In 2006 gross profit ratio is 11.06% which is less
than of 2005’s profit. In 2007 and 2008 gross profit ratio were 8.57% and 9.31%
respectively which was decreasing year by year. The sale of Hindalco is increasing year by
year but the gross profit ratio is decreasing which is not good symbol for company’s
business.

Net Profit Ratio: -

OBJECTIVE: - Net profit ratio establishes a relationship between net profit and
sale, and indicates the efficiency of the management in manufacturing, selling,
administrative and other activities of the firm. This ratio is the overall measure of
firm’s profitability. The two basic elements of the ratio are net profit and sales. The
net profits are obtained after deducting income – tax and generally, non – operating
incomes and expenses are excluded from the net profit for calculating this ratio.
Incomes such as interest on investment outside the business, profit on sale of fixed
assets, etc. are excluded. The ratio is very useful as if the profit is not sufficient; the
firm shall not be achieving a satisfactory return on its investment. This ratio also
indicates the firm’s capacity to face adverse economic conditions such as price
competition, low demand, etc.

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Net Profit = Gross Profit – Selling Expenses

In 2004 567.61 – (169.15 + 156.76.79)
= 241.67
In 2005 886.31 – (169.15 + 156.76.79)
= 414.39
In 2006 976.70 – (169.15 + 156.76.79)
= 466.25
In 2007 1226.95 – (169.15 + 156.76.79)
= 529.58
In 2008 1477.04 – (169.15 + 156.76.79)
= 631.06

Net Profit Ratio = Net Profit x 100

Sale
In 2004 = 241.67 x 100 = 5.11 %
4728.87

In 2004 = 414.39 x 100 = 5.71 %

7250.69

In 2004 = 466.25 x 100 = 5.28 %

8828.49

In 2004 = 529.58 x 100 = 3.70 %

14302.17

In 2004 = 631.06 x 100 = 3.98 %

15848.60

In 2004 the net profit ratio was 5.11% and in 2005 net profit is
increasing to Rs. 414.39 and also increase in net profit ratio 5.71%. In 2.6
the net profit is increase but the net profit ratio is decrease to 5.28%.
2007 the net profit ratio is 3.70% and in 2008 net profit ratio is 3.98%.
Net profit is increasing but the net profit ratio is decreasing means that

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Hindalco increasing their sale but the profit on sale is less. Hindalco
return on sale is not good.

ASSETS POSITION
Fixed Assets Ratio: - The ratio establishes the relationship between fixed
assets and
shareholder’s funds i.e., share capital plus reserves, surpluses and retained
earnings. the ratio of fixed assets to net worth indicates the extent to which
shareholders equity including reserves, surpluses and retained earnings. If the
ratio is less than 100%, it implies that owner’s funds are more than total fixed
assets and a part of the working capital is provided by the shareholders. There
is no rule of thumb to interpret this ratio but 60 to 65 percent is considered to
be satisfactory ratio in case of industrial undertakings.

Fixed Assets Ratio = Fixed

Assets (after depreciation)
Sha
reholder’s Funds

In 2004 = 4740.21 x 100 = 69.12 %

6857.90

In 2005 = 5703.53 x 100 = 74.39 %

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7666.58

In 2006 = 6782.80 x 100 = 70.61 %

9606.24

In 2007 = 7006.71 x 100 = 56.42 %

12418.04

In 2008 = 47809.34 x 100 = 45.15 %

17296.32

Fixed positions indicate the extent to which shareholders funds are sunk into
the fixed assets. In 2004 fixed assets ratio is 69.12% it implies that owner’s funds are more
than total fixed assets and a part of the working capital is provided by the shareholders. In
2005 it’s also less than 100% i.e.74.39%, the owner’s share in fixed assets increasing. In
2006 owner share in fixed assets increases to 70.61%. In 2007 56.42% is the share of
outsider and rest of it owner which more than from last year. In 2008 the fixed assets ratio is
45.15% which is good as comparison to other years

Current Ratio: - Current ratio is the relationship between current assets and current
liabilities. This ratio, also known as working capital ratio, is a measure of general
liquidity and is most widely Used to make the analysis of a short – term financial
position or liquidity of a firm. It is calculated by dividing the total of current assets
by total of the current liabilities.

Current Ratio = Current Assets

Current Liabilities

In 2004 = 2911.99 = 1.40: 1

2074.59

In 2005 = 4476.43 = 1.22: 1

3647.89

In 2006 = 7315.07 = 1.66: 1

4398.41

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In 2007 = 7846.17 = 1.5: 1

5221.15

In 2008 = 7926.26 = 1.52: 1

5199.00

LIABILITY POSITION
SOLVENCY RATIO Debt – equity ratio, also known as external ratio is calculated to
measure the relative claims of outsiders and the owner (i.e. shareholder) against the firm’s
assets. This ratio indicates the relationship between the external equities or the outsider’s
funds and the internal equities or the shareholders’ relationship between the external equities
or the outsider’s funds and the internal equities or the shareholders funds.

Solvency Ratio = Total Liabilities to Outsider

Total Assets

In 2004 = 4639.19 x 100 = 40 %

11497.09

In 2005 = 7447.83 x 100 = 49 %

15105.09

In 2006 = 9301.85 x 100 = 49%

18902.10

In 2007 = 11767.01 x 100 = 48 %

24473.53

In 2008 = 13549.73 x 100 = 43 %

30963.46

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Solvency ratio in 2004 is 40% which satisfactory because the ratio is less and total
assets is more than the liabilities. In 2005 solvency ratio is increased to 49% which mean
that the outsider funds are increased over the assets of organization. In 2006 solvency ratio
is 49% which same 2007 and in 2008 solvency ratio is 48% and 43% respectively. In 2008
solvency ratio is decrease and in 2007 is increasing as comparison to 2008 most decrease in
ratio is 2008. Hindalco is on growing stage so outsiders are less than their total assets.

DEBT – EQUITY RATIO This ratio is a small variant of equity ratio and can be
simply calculated as 100 – equity i.e., continuing the example taken for the equity ratio,
solvency ratio = 100 – 66.67 or 33.33%. The ratio indicates the relationship between the
total liabilities to outsider to total assets of a firm.

Debt – Equity Ratio = Outsider Funds

Shareholders’ Funds
In 2004 = 4639.19 = 0.67: 1
6857.90

In 2005 = 7447.83 = 0.97: 1

7666.58

In 2006 = 9301.85 = 0.96: 1

9606.24

In 2007 = 11767.01 = 0.94: 1

12418.04

In 2008 = 13549.73 = 1.09: 1

12418.04

The dept- equity ratio is calculated to measure the extent to which debt financing has
been used in the business. The ratio indicates the proportionate claims of owners and the
outsiders against the firm’s assets. Hindalco’s dept – equity in 2004 is 0.67:1 which is not
considered to be a satisfactory. A ratio of 1:1 may be usually considered to be a satisfactory

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ratio. In 2005 debt equity is 0.96: 1 which less than the satisfactory ratio is also. In 2005
0.97:1 and in 2006 0.96: 1 that are more than 2004 and 2005 but it is also less than
satisfactory ratio. In 2008 the debt- equity ratio is increase and ratio is also satisfactory i.e.
1.09: 1 Hindalco now maximizing the outsider funds.

BIBLIOGRAPHY
1. www.hindalco.com

2. www.google.com

3. www.moneycontrol.com

4. www.rediffmoney.com

5. www.wikipidia.com

6. www.yahoofinance.com

7. www.aol.com
8. Business World

9. Economic Times

10. Business Standard

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11. NDTV

12. ZEE Business

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